UTTAM GALVA STEEL LTD, MUMBAI V. ITO 7(3)(2), MUMBAI

ITA 3438/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71976 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 23-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 15-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: K SIVARAM
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Advance ruling; Cost of acquisition; Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 115JB; 92

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./I.T.A. NO.3438/M/2012 (AY: 2007 - 2008) M/S. UTTAM GALVA STEEL LTD., UTTAM HOUSE, 69, P.DMELLO ROAD, CARNAC BUNDER, MUMBAI 400 009. / VS. INCOME TAX OFFICER, CIRCLE - 7(3)(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. ./ PAN : AAACU 1710 C ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI K. SIVARAM / REVENUE BY : SHRI AJEET KUMAR JAIN / DATE OF HEARING : 23.10.2013 / DATE OF PRONOUNCEMENT : 18 .12.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 15.5.2012 IS AGAINST THE ORDER OF THE CIT (A) - 15, MUMBAI DATED 7.3.2012 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE LD CIT (A) ERRED IN CONFIRMING THE ADJUSTMENT MADE BY THE LD AO / TRANSFER PRICING OFFICER (TPO) IN ARRIVING AT THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TR ANSACTION RELATING TO REIMBURSEMENT OF INTEREST AND OTHER FINANCE COST AT NIL AS AGAINST RS. 17,81,06,522 / - PURSUANT TO THE TRANSFER PRICING ADJUSTMENT AS PER THE ORDER PASSED UNDER SECTION 92CA (3) OF ACT. 2. THE LD CIT (A) ERRED IN OBSERVING THAT THE ESS ENCE OF THE TRANSACTION OF IMPORTS BETWEEN THE APPELLANT AND ITS AE WAS PRIMARILY OF PURCHASE OF GOODS AND NOT ONE OF FINANCING / FUNDING ARRANGEMENT. 3. THE LD CIT (A) FAILED TO UNDERSTAND THAT THE AE WAS SET UP FOR THE PURPOSE OF IMPORTING RAW MATERIALS FROM THE INTERNATIONAL MARKET BY PROCURING FINANCE FROM OVERSEAS BANKS AT LOWER COST AND LOW RATES OF INTEREST, AS THE APPELLANT HAD EXHAUSTED THE CREDIT FACILITIES AVAILABLE FOR ITS WORKING CAPITAL REQUIREMENT FROM DOMESTIC BANKS. 4. THE LD CIT (A) ERRED IN NOT APPRECIATING THAT HE REIMBURSEMENT OF EXPENSES WERE INHERENTLY AT ARMS LENGTH AS PROVIDED UNDER SECTION 92 OF THE ACT. 5. THE LD CIT (A) FURTHER ERRED IN NOT APPRECIATING THAT THE AE HAS ACTED AS A FACILITATOR AND FUNCTIONED AS A PROCUREMENT AGENCY AS WELL AS A FINANCER TO THE IMPORT TRANSACTION OF THE APPELLANT. THEREFORE, THE EXPENSES LIKE INTEREST AND 2 FINANCE COST INCURRED BY THE AE TO FACILITATE THE IMPORT OF RAW MATERIAL BY THE APPELLANT, HAD TO BE CHARGED BACK TO THE APPEL LANT ; BESIDES THE SMALL MARK - UP CHARGED BY THE AE ON IMPORTS MADE BY THE APPELLANT, FOR RECOVERING THE PROCURE MENT COSTS INCURRED BY THE AE. CONSIDERING THE RISK ASSUMED AND THE FUNCTIONS CARRIED OUT BY THE AE, THE REIMBURSEMENT OF INTEREST AND FINANCE COS T OUGHT TO HAVE BEEN ACCEPTED AT COST BY THE LD CIT (A). 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COLD ROLLED COILS / SHEETS AND GALVANIZED COILS / SHEETS. EARLIER, THE ASSESSEE US ED TO IMPORT RAW MATERIALS FOR HIS BUSINESS DIRECTLY. BUT D URING THE YEAR, THE ASSESSEE INCORPORATED AN AE (MKR) AND MKR DOES THE JOB OF SUPPL Y ING THE SAID RAW MATERIALS BY ARRANGING THE FINANCE ABROAD USING THE FOREIGN BANKS. ASSESSEE , BEING A PARENT COMPANY , STOOD AS A CORPORATE GUARANTEE TO THE S A ID FINANCING ARRANGEMENT FROM THE BANK . ASSESSEE FILED THE RETURN OF INCOME DEC LARING THE TOTAL INCOME AT NIL. THERE WERE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTERPRISE (AE) REPOR TED BY THE ASSESSEE. THEY ARE: (I) PAYMENT FOR THE PURCHASE OF SAID RAW MATERIALS; AND (II) REIMBURSEMENT OF FINANCE/FUNDING COST. AO REFERRED THE TRANSACTIONS TO THE TPO FOR DETERMINATION OF THE ALP. THE TPO PASSED AN ORDER U/S 92CA3 OF THE ACT DATED 11.8.2010 AND RECOMMENDED ADJUSTMENTS TO THE TUNE OF RS. 17.81 CRS (ROUNDED OFF TO THE NEAREST LAKHS) ON ACCOUNT OF THE SAID REIMBURSEMENTS AND DID NOT DISTURB THE INTERNATIONAL TRANSACTION OF PAYMENT FOR THE PURCHASE OF RAW MATERIALS . AO CONSIDERED THE S AME AND GRANTED AN OPPORTUNITY TO THE ASSESSEE BEFORE MAKING ADDITIONS, WHILE PASSING ASSESSMENT U/S 144C R.W.S. 143(3) OF THE ACT. ASSESSED INCOME WAS DETERMINED AT RS. 42,67,08,943/ - UNDER NORMAL PROVISIONS AND THE BOOK PROFITS U/S 115JB IS AT RS. 1,13, 48,08,943/ - . 4. BEFORE THE TPO: DURING THE PROCEEDINGS BEFORE THE TPO, ASSESSEE SUBMITTED THAT THE RAW MATERIALS WERE PURCHASED FROM MKR INTERNAT IONAL, BRITISH VIRIGINIA ISLAND ( BVI ) AND THE ASSESSEE MADE THE PAYMENTS . THIS TRANSACTION IS UNDISPUTED . HOWE VER, TPO QUESTIONED THE PAYMENT OF RS. 17,81,06,522/ - ON ACCOUNT OF REIMBURSEMENT OF INTEREST AND OTHER FINANCE COST. THIS IS THE SUBJECT MATTER OF TRANSFER PRICING AND IT IS THE STAND OF THE REVENUE THAT THIS AMOUNT SHOULD NOT HAVE BEEN INCURRED BY THE ASESSEE AS THE SAID EXPENDITURE IS TO BE BORNE BY THE MKR INTERNATIONAL (MKR). REFERRING TO THE DOCUMENT RELATING TO THIS ISSUE, ASSESSEE SUBMITTED THAT RAW MATERIAL WAS IMPORTED DIRECTED BY THE ASSESSEE IN EARLIER YEARS 3 AND MADE THE PURCHASE COST, FINAN CE COST, ADMINISTRATIVE COST ETC RELATING TO THE IMPORT OF THE RAW MATERIAL . HOWEVER, IN VIEW OF THE BENEFITS ATTACHED TO THE OFF SHORE FUNDING IE LOW FINANCE, A SSESSEE INCORPORATED AN AE (MKR), 100% SUBSIDIARY OF THE ASSESSEE IN BRITISH VIRIGINIA ISLAND (BVI ) FOR THE PURPOSE OF SUPPLYING RAW MATERIALS FORM THE EUROPA INTERNATIONAL LIMITED (EIL) TO THE ASSESSEE AT CHEAPER COST . AS PART OF THE SCHEME OF INEXPENSIVE FUNDING, T HE DEUTSCHE BANK AGREED TO PROVIDE INVOICED FUNDING FACILITY TO MKR FOR USD 4 0 MIL LION (EQUIVALENT TO RS. 17,81,06,522/ - ) AND THE ASSE S SEE HAS FURNISHED CORPORATE GUARANTEE FREE OF CHARGE FOR THE ABOVE ARRANGEMENTS. IT IS MENTIONED THAT ASSESSEE IMPORTED HR COILS, CR COILS, GP COILS FROM MRK TO THE TUNE OF RS. 363.05 CRS, WHICH AMOUNTS T O 39.46% OF THE TOTAL IMPORTS OF THE YEAR. THE BREAKUP FOR THE SAID AMOUNT OF USD 40 MILLION IS AS UNDER: CREDIT INSURANCE PREMIUM US$ 9,44,700 FRONT END FEE US$ 1,33,333 TRUST FEES US$ 33,603 PROCESS FEE US$ 28,76,689 M ISCELLANEOUS EXPENSES US$ 10 ,700 US$ 40,00,000 5. THUS, RS. 17,81,06,522/ - IS THE FUNDING COST RAISED BY THE BANK ON MRK INTERNATIONAL WHICH IN TURN WAS CLAIMED FROM THE ASSESSEE. ASSESSEE PAID THE SAME TO THE AE AND CLAIMED THE SAME AS EXPENDITURE OF THE ASSESSEE . IN THIS REGARD, TPO CLAIMS THAT THE S AID EXPENDITURE OF RS. 17.81 CRS DOES NOT PERTAIN TO THE ASSESSEE AND, IN FACT, RELATES TO MRK INTERNATIONAL. MRK INTERNATIONAL SOLD THE RAW MATERIAL TO THE ASSESS EE WITH A MARK - UP TO 2 TO 3% TO MEET OUT ITS OPERATIONAL EXPENSES. IN RESPONSE TO THE TPOS ENQUIRIES, ASSESSEE SUBMITTED THAT THE MRK INTERNATIONAL WAS INCORPORATED ABROAD ONLY TO SERVE THE ASSESSEE IE TO SOURCE THE CHEAPER LOANS WITH THE CORPORATE GUARA NTEE OF ASSESSEE. THEREFORE, THE EXPENSES INCURRED BY THE MRK INTERNATIONAL BY WAY OF FINANCE COST AND INTEREST ARE TO BE BORNE BY THE ASSESSEE ONLY AS IT RELATES TO THE RAW MATERIALS SUPPLIED TO THE ASSESSEE ENTIRELY . IT IS THE ARGUMENT OF THE ASSESSEE TH AT I N ANY CASE, IF MRK FAILS TO COMPLY WITH THE TERMS AND CONDITIONS OF THE D E UTSCHE BANK, IT IS THE ASSESSEE, BEING A GUARANTEE, WHO HAS TO BORNE THE LOSSES, IF ANY, IN ACCORDANCE WITH THE GUARANTEE CONDITIONS GIVEN TO THE D E UTSCHE BANK. THUS, THE AS SESS EE SUMMED UP ITS ARGUMENTS WHICH READ AS UNDER: 4 (I) THE TRANSACTION WAS ESSENTIALLY A OFFSHORE MODEL OF FUNDING RESORTED BY THE ASSESSEE (II) THE FUNDING COST WAS ESSENTIALLY TOWARDS THE INTEREST COST FOR AVAILING CREDIT OF 180 DAYS. (III) IF THE FUNDING COST WAS NOT BO RNE BY THE INDIAN COMPANY, MRK WOULD HAVE INCURRED LOSS, AND THENCE THE GUARANTEE WOULD HAVE BEEN INVOKED BY THE BANK AND AS A RESULT, THE LIABILITY TO BEAR THE COST WOULD BE ON THE INDIAN COMPANY. 5.1. THE TPO CONSIDERED THE ABO VE SUBMISSIONS OF THE ASSESSEE AND CONCLUDED THAT T HE AE IS PRIMARILY FOR PURCHASE OF GOODS AND NOT THE FINANCING OR FUNDING ARRANGEMENT FOR THE ASSESSEE AND THEREFORE, IT IS A TRADING TRANSACTION AND THE FINANCE COST OR INTEREST COST, IF ANY, IS THE BURDE N OF THE MRK INTERNATIONAL. IT IS THE SUMMARY OF THE TPO THAT THE FUNDING COST HAS BEEN REIMBURSED TO THE AE, IN A TRANSACTION OF PURCHASE OF GOODS, WHICH IS CONTRARY TO THE ARMS LENGTH PRICING PRINCIPLES, IN SUCH A TRANSACTION OF IMPORT OF GOODS. THE V ERY FACT THAT SUCH EXPENSES WERE REIMBURSED AND IN EFFECT BORNE BY THE ASSESSEE, HAS REDUCED ITS PROFITS IN INDIA TO THAT EXTENT AND HAS SHIFTED ITS PROFITS TO A TAX HAVEN ABROAD. FURTHER, THE TPO ANALYZED THE TRIPARTITE AGREEMENT (INVOICE FINANCING FACILITY AGREEMENT, DATED 17.10.2005) AMONG THE ASSESSEE, MRK AND DEUTSCHE BANK AND CONCLUDED THAT THE FUNDING COST RELATES TO THE INTEREST COST FOR AVAILING THE CREDIT OF 180 DAYS AND T HE EXPENSES BY THE MRK INTERNATIONAL ARE COLLECTED FROM THE ASSESSEE BY VIRTUE OF THE FACT THAT IT HAS CHARGED OVER THE IMPORT COST OF THE RAW MATERIALS. THEREFORE, THE TRANSACTION OF ASSESSEE OF RS. 17.81 CRS TO THE MRK INTERNATIONAL IS NOT AT ARMS LENGT H. ON THE RISK RELATING TO THE CORPORATE GUARANTEE, IT IS THE CONCLUSION OF THE TPO THAT AT ANY TIME MRK INTERNATIONAL HAS THE FIRST AND PRIMARY LIABILITY AS A BORROWER AND THE GUARANTORS ROLE COMES ONLY IF THE PRIMARY MRK INTERNATIONAL FAILS TO HONOUR T HE COMMITMENT . IT IS THE OBJECTION OF THE TPO THAT THE ASSESSEE HAS NOT CHARGED ANY CORPORATE GUARANTEE COMMISSION FOR PROVIDING GUARANTEE TO THE ABOVE TRANSACTIONS. THUS, THE TPO CONCLUDED BY STATING THAT I AM OF THE VIEW THAT THERE IS NO JUSTIFICATION FOR THE ASSESSEE TO REIMBURSE THE COSTS, 5 WHICH IS THE LIABILITY OF THE AE, MRK INTERNATIONAL. HENCE, AN ADJUSTMENT IS TO BE MADE TO THE TOTAL INCOME OF THE ASSES S EE TO THE TUNE OF RS. 17,81,06,522/ - (I.E., US$ 40,00,000) BY WAY OF DETERMINATION OF ALP. AO CONSIDERED THE SAME AND MAKE ADDITIONS U/S 92CA3 OF THE ACT. AGGRIEVED WITH THE ABOVE ADDITION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 6. BEFORE THE CIT(A): DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUT HORITY, ASSESSEE MADE VARIOUS SUBMISSIONS AND JUSTIFIED THE PAYMENT OF RS. 17.81 CRS, EQUIVALENT OF 40 MILLION USD TO THE AE. APART FROM REITERATING THE SUBMISSIONS MADE BEFORE THE AO / TPO, WHICH ARE ALREADY DISCUSSED ABOVE, THE ASSESSEE SUBMITTED THAT W HILE ADMINISTRATIVE COST WAS RECOVERED BY CHARGING MARK - UP OF 2 TO 3% ON THE PURCHASES, ASSESSEE IS UNDER OBLIGATION TO MAKE REIMBURSEMENTS OF ALL THE FINANCE COST TO THE AES. EXPLAINING THE JUSTIFICATION FOR REIMBURSEMENTS OF THE FINANCE COST, ASSESSEE S UBMITTED THAT FINANCE COST WAS NOT CHARGED TO THE SUPPLIERS AT THE END OF THE MRK (AE) AND INSTEAD, ASSESSEE WAS TO PAY THE SAME TO THE AE. MENTIONING THAT THE FINANCE COST IS RELATED TO THE LETTER OF CREDIT (LC) FACILITIES, ASSESSEE PRAYED TO THE INCOR PORATION OF MRK AND ASSESSEE WAS INCURRING THE COST OF THE LCS LEVIED BY THE LOCAL BANKS. AFTER MRK WAS INCORPORATED, THE MKR HAD A D E UT S CH E BANK FACILITY TO WITHDRAW THE CASH AND MAKE THE CASH PAYMENTS FOR PURCHASES , WHICH ARE SUPPLIED TO THE ASSESSEE IN INDIA. THIS FACILITY OF FINANCING THE CASH PURCHASES COMING TO RS. 17.81 CRS AND THE BREAK - UP OF WHICH IS ALREADY PROVIDED IN THE ABOVE PARAS. AS PER THE ASSESSEE, THE ROLE OF THE MRK IS TO PROCURE THE FINANCE FOR THE PURPOSE OF IMPOR TING THE RAW MATERIALS FROM THE INTERNATIONAL SOURCES AT LOWER COST. ASSESSEES OTHER ARGUMENTS INCLUDE THAT ASSESSEE HAS A PRIMARY RESPONSIBILITY AS IT IS A CORPORATE GUARANTOR TO THE DEUTSCHE BANK AND THE M RK (AE) IS ONLY A FACILITATOR. THE PRINCIPLES OF COMMERCIAL EXPEDIENCY DEMANDS THAT ASSESSEE MUST MAKE THE REIMBURSEMENT OF THE SAID FINANCE COST. IN THIS REGARD, ASSESSEE RELIED ON VARIOUS DECISIONS WHICH ARE DETAILED AT LENGTH BY THE CIT (A) IN HIS ORDER. IT IS ALSO MENTIONED THAT AFTER THE INCOR PORATION OF MRK ABROAD, ASSESSEE REGISTERED A PHENOMENAL INCREASE IN THE BUSINESS, THE DETAILS OF WHICH ARE GIVEN IN PAGE 12 OF 6 THE CIT (A) ORDER. AS PER THE ASSESSEE, MRK ACTED AS A FACILITATOR AND FUNCTIONED AS AN INTERMEDIARY FOR FINANCING IMPORT TRANS ACTIONS OF THE ASSESSEE. THEREFORE, THE EXPENSES LIKE INTEREST AND FINANCE COST INCURRED BY THE AE SHOULD BE BORNE BY THE ASSESSEE, BESIDES SMALL MARK - UP CHARGED BY THE AE TOWARDS ADMINISTRATIVE EXPENSES. FURTHER, HE SUBMITTED THAT THE TRANSACTION OF THI S KIND THAT REIMBURSEMENT OF FINANCE COST AND INTEREST HAS NOT RESULTED IN ANY INCOME IN THE HANDS OF THE AE. THEREFORE, THE PROVISIONS OF SECTION 92(1) OF THE INCOME TAX ACT, 1961 SHOULD NOT PERMIT THE TPO TO TREAT THE SAME AS INTERNATIONAL TRANSACTION F OR THE PURPOSE OF TP ADJUSTMENTS. THEREFORE, THE REIMBURSEMENTS OF THIS KIND ARE OUTSIDE THE SCOPE OF SECTION 92(1) OF THE ACT. ON CONSIDERING THE SAID SUBMISSIONS OF THE ASSESSEE, CIT (A) STATED THAT IN VIEW OF THE PROVISIONS OF THE NEWLY INSERTED EXPLA NATION TO SECTION 92(1), WHICH REFERS TO ANY EXPENSE OR INTEREST ARISING FROM THE INTERNATIONAL TRANSACTION, THE EXPENSES OF RS. 17.81 CRS STANDS COVERED WITHIN THE MEANING OF SECTION 92(1) OF THE ACT. ON THE ISSUE OF COMMERCIAL EXPEDIENCY, CIT (A) IS O F THE OPINION THAT THE PRINCIPLES RELATING TO COMMERCIAL EXPEDIENCY ARE NOT RELEVANT IN MATTER OF TRANSFER PRICING. FOR THIS, HE RELIED ON THE DECISIONS OF M/S. VVF LTD (MUM) AND M/S. PEROT SYSTEMS TSE (INDIA) LTD (DEL.). FURTHER, CIT (A) DISCUSSED THE T RANSACTIONS BETWEEN THE BANK AND THE MRK AND CONCLUDED THAT THE FINANCE COST AND INTEREST FACILITIES GRANTED BY THE BANK ARE TO BE BORNE BY THE MRK, AE OF THE ASSESSEE - COMPANY. ASSESSEE IS MERELY A CORPORATE GUARANTOR AND WHO WILL COME INTO PICTURE ONLY I F THERE IS A DEFAULT BY THE AE. HE ALSO MENTIONED THAT THE CORPORATE GUARANTEE GIVEN BY THE ASSESSEE IS FREE OF CHARGE AND THE ASSESSEE COMPANY HAS NOT GIVEN ANY CORPORATE GUARANTEE TO THE AE WHO IS REAL BENEFICIARY OF UTILIZING THE FUNDING FACILITY OF 40 MILLION US$ GIVEN BY THE DEUTSCHE BANK. HE FURTHER REASONED THAT THE MRK SHOULD HAVE RAISED THE BILL AFTER CONSIDERING THE FINANCE COST ON THE ASSESSEE AFTER INCLUDING THE ACTUAL DIRECT OR INDIRECT COST RELATED TO THE PURCHASES. THE MARK - UP CHARGED BY T HE MRK SHOULD HAVE DEEMED TO HAVE INCLUDED THE FINANCE COST AS WELL IN ADDITION TO THE ADMINISTRATIVE COST AND THERE IS NO NEED FOR REIM BURSEMENT OF FINANCE COST AND THE INTEREST SEPARATELY BY THE ASSESSEE TO THE MRK. AT THE END OF THE ORDER, CIT (A) SUMM ED UP HIS CONCLUSIONS IN ITEM NO. XI AND XII OF PARA 5 OF HIS ORDER WHICH READS AS UNDER: 7 XI. QUOTING THE SECTION 92(1) OF THE ACT, IT HAS BEEN CONTENDED THAT THE PROVISION OF SECTION 92(1) IS A MACHINERY PROVISION AND AS PER THE SAME, ANY INTERNATIONAL TRANSACTION WHICH GIVEN RISE TO INCOME SHALL BE GOVERNED BY THE TRANSFER PRICING REGULATIONS AND IF NAY INTERNATIONAL TRANSACTION WHICH DOES NOT GIVEN RISE TO ANY INCOME, THEN SUCH TRANSACTION SHALL NOT BE GOVERNED BY THE TPO. THE APPELLANT IN THE SUPPORT OF THE SAME HAS RELIED UPON THE ADVANCE RULING RENDERED IN THE CASE OF DANA CORPORATION (321 IT R 178) AND IN THE CASE OF VANENBURG GROUP B.V. IN RE (289 ITR 464). IT HAS BEEN FURTHER CONTENDED THAT AS EPR THE EXPLANATION TO SECTION 92(1), THE REIMBURSEMENT OF EXPENSES TO AE DID NOT RESULT IN ANY EXPENSE PER SE, WHICH ARE DEBITED IN THE BOOKS OF A CCOUNT AS THE LIABILITY AND SUCH EXPENSES ARE ARISING OU T OF THE TRANSACTION BETWEEN THE APPELLANT AND THE THIRD PARTY. IN THIS REGARD, IT IS STATED THAT IN SUCH SUBMISSION, THE APPELLANT HAS WHOLLY DISREGARDED THE FACTS OF THE CASE. IN THE FACTS OF THE CASE SO CALLED REIMBURSED EXPENSES OF NET FINANCE COST HAS BEEN MADE TO THE AW WHICH THE APPELLANT HAS ITSELF REPORTED AS INTERNATIONAL TRANSACTION THOUGH NOT BENCH MARKED. FURTHER, IN THE FACTS OF THE CASE THERE IS NO LIABILITY OF THE APPELLANT TO REIMBU RSE SUCH INTEREST COST TO THE AE AS IT IS THE AE WHO HAS INCURRED INTEREST COST ON THE FINANCE TAKEN BY IT FROM THE BANK AND ACCORDINGLY IT IS THE AE, WHO IS LIABLE EITHER LEGALLY OR OTHERWISE TO MAKE PAYMENT OF SUCH INTEREST COST TO THE BANK. ACCORDINGLY , IT CANNOT BE CONSIDERED THAT THE TRANSACTIONS OF SO CALLED REIMBURSEMENT OF EXPENSE ARE BETWEEN THE APPELLANT AND THE THIRD PARTY. IT IS FURTHER STATED THAT THE RULINGS RELIED UPON BY THE APPELLANT ARE IN RESPECT OF THE SPECIFIC CASE AND ARE BINDING IN RESPECT OF SUCH CASE ONLY AND FURTHER EVEN THE RATIOS OF SUCH RULINGS ARE NOT FOUND TO BE RELEVANT WHERE THE APPELLANT HAS MADE PAYMENT TO THE AE WITHOUT HAVING ANY LEGAL OR ECONOMIC OBLIGATION FOR THE SAME. XII. IN VIEW OF THE FACTS OF THE CASE, DISCUSSI ON HEREINABOVE, IT IS ARRIVED AT THE SO CALLED REIMBURSEMENT OF THE NET FINANCED COST MADE BY THE APPELLANT TO THE AE IS WITHOUT ANY LEGAL OR ECONOMIC JUSTIFICATION / OBLIGATION. IN THE COMPARABLE THIRD PARTY SITUATION, NO CUSTOMER SHALL REIMBURSE SUCH NE T FINANCING COST TO THE SUPPLIER WHO HAS CHARGED MARK UP ON THE PURCHASE COST TO COVER UP THE FINANCE, INTEREST AND OTHER INCIDENTAL CHARGES. ACCORDINGLY, IN THE SIMILAR SITUATION THE ALP OF SUCH INTERNATIONAL TRANSACTION WOULD BE NIL BY THE APPLICATION O F CUP AS THE MOST APPROPRIATE METHOD AS IN A COMPARABLE SITUATION THERE CANNOT BE ANY SUCH PAYMENT BY THE THIRD PARTY. ACCORDINGLY, THE ACTION OF THE TPO IN ARRIVING AT THE ALP OF THIS INTERNATIONAL TRANSACTION TO BE NIL AND CONSEQUENT PASSING OF THE ORDE R BY THE AO IN CONFORMITY WITH THE ALP SO DETERMINED BY THE TPO, IS FOUND TO BE JUSTIFIABLE AND IS ACCORDINGLY UPHELD. 7. AGGRIEVED WITH THE ABOVE ORDER OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND S. 8. BEFORE THE TRIBUNAL: DURING THE PROCEEDINGS BEFORE US, SHRI K. SIVARAM, LD COUNSEL FOR THE ASSESSEE FILED BRIEF FACTS SHEET AND MENTIONED THAT REVENUE AUTHORITIES HAVE NOT UNDERSTOOD THE OFFSHORE MODEL OF THE FINANCING AND THEY ARE IMPRACTICAL IN DENYING THE DEDUCTION OF PAYMENTS OF THE REIMBURSEMENT MADE BY THE ASSESSEE TO ITS AE ABROAD TOWARDS THE REIMBURSEMENT OF FINANCE/FUNDING COST TO THE MKR . DR SHIVRAM, LD COUNSEL MENTIONED THAT THE MRK IS A PROCUREMENT AGENCY, FACILITATOR AND FINANCIER AND CERTAINLY NOT MERELY A RAW MATERIAL SUPPLIER . THE AE - MRK PLAYED A VITAL ROLE FOR THE PHENOMENAL GROWTH OF THE ASSESSEE - COMPANY OVER THE YEARS AND IN THAT SENSE ASSESSEE COULD NOT BE ACCUSED OF 8 SHIFTING PROFITS ABROAD. THE DECISION OF INCORPORATING MR K ABROAD FOR MANAGING THE RAW MATERIALS IMPORT AT CHEAPER COST IS A COMMERCIAL DECISION AND IT IS A PART OF THE COMMERCIAL EXPEDIENCY AND THE SAID AMOUNT OF RS 17. 81 CRS WAS REIMBURSED. FURTHER, LD COUNSEL MENTIONED THAT THE SAID REIMBURSEMENT DO ES NOT CO NTAIN THE ELEMENT OF PROFIT/ ANY INCOME TO THE AE - MRK AND THEREFORE, IN PRINCIPLE, THE PROVISIONS OF SECTION 92(1) SHOULD NOT BE INVOKED , WHEN THERE IS NO INCOME ANGLE IN THE INTERNATIONAL TRANSACTION . THEREFORE, IMPUGNED TRANSACTION DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF THE SAID PROV ISIONS FOR ATTRACTING THE TPO STUDY . HE ALSO OBJECTED TO T HE FINDING OF THE CIT / TPO / A O THAT THE MRK IS MERELY A PURCHASER OF THE RAW MATERIALS FOR SUPPLYING TO THE ASSESSEE, IN FACT , IT IS A FINANCIER , PROCUREMENT AGENCY AND FACILITATOR ( FPF ) . FURTHER, LD COUNSEL MENTIONED THAT ASSESSEE INCURRED HUGE EXPENDITURE FOR HAVING LETTER OF CREDIT (LC) FACILITY WITH THE BANKS (ASSESSEE UTILIZED 180 DAYS LC FACILI TY THROUGH THE BANK). THE I NCORP ORATION OF MRK ABROAD IS TO WITHDRAW THE CASH OF 40 MILLION US$ FROM DEUTSCHE BANK AND MAKE THE CASH PURCHASES FOR THE PURPOSE OF SUPPLYING TO THE ASSESSEE IN INDIA AS WELL THE ASSESSEE SUFFERED HUGE FINANCE COST DURING THE YEAR. THIS FACT WAS COMPLETELY IGNORED BY THE REVENUE AND PROCEEDED TO MAKE HUGE ADDITIONS. LD COUNSEL STRONGLY OPPOSED THE MANNER OF DISALLOWANCE WITHOUT APPLYING THE PROVISIONS OF TP, GRANTING REQUISITE ADJUSTMENTS TO WHICH ASSESSEE IS ENTITLED. THIS KIND OF COMPLETE DENIAL OF DEDUC TION IS STRONGLY NOT IN ACCORDANCE WITH THE TP PROVISIONS. AS PER THE LD COUNSEL, THE REIMBURSEMENT COST IS AT ARMS LENGTH. THUS, DR S H IVRAM, VEHEMENTLY MENTIONED THAT THE MKR IS NOT MERELY A RAW MATERIAL SUPPLIER BUT HE IS FPF (FINANCIER CUM PROCUREMENT AGENCY CUM FACILITATOR) AND PROCEEDED TO JUSTIF Y THE ARGUMENTATIVE GROUND S RAISED IN TH IS APPEAL AS WELL AS PROPOSITIONS STATED BY HIM IN THE FACT - SHEET USUALLY FILED BY HIM . IT IS THE ARGUMENT OF THE ASSESSEES C OUNSEL THAT THE PURCHASE PRICE OF THE RAW MATERIAL PER UNIT IS COMPETITIVE IN THE OPEN MARKET. HOWEVER, HE FAIRLY SUBMITTED THAT NO BODY STUDIED THESE ASPECTS OF THE PURCHASE PRICE BEING COMPETITIVE AS THE REVENUE OFFICERS HAVE RESTRICTED THEIR STUDY TO THE REIMBURSEMENTS RELATED TRANSACTIONS ONLY. 9 9. ON THE OTHER HAND, LD DR SUBMITTED THAT THE TRANSACTIONS INVOLVING ANY EXPENDITURE OR ALLOWANCE ALSO FALLS WITHIN THE SCOPE OF PROVISIONS OF SECTION 92(1) OF THE ACT. IN THIS REGARD, LD DR RELIED ON VARIOUS DECISIONS AND THE EXPLANATION TO SAID SECTION . ON THE MERITS OF DENIAL OF CLAIM OF REIMBURSEMENT OF EXPENSES OF FINANCE COST AND INTEREST, LD DR REASONED BY STATING THAT IT IS THE MRK, WHO IS UNDER CONTRACTUAL OBLIGATION TO MAKE PAYMENTS TO THE BANK AS IT IS THE F IRST BENEFICIARY OF THE FINANCE FACILITIES. IT IS MRK, WHO HAD THE BANK FACILITIES TO MEET THE PURCHASES FROM EUROPA INTERNATIONAL LIMITED (EIL) AND WHEN THE SAID PURCHASES SUPPLIED TO THE ASSESSEE IN INDIA , THE MRK HAS RECOVERED THE SAID COST. HE MENTION ED THAT THE MKR CHARGED THE MARK - UP OF 2 % TO 3% ON THE PURCHASE COST OF RAW MATERIALS WHEN THE PURCHASE INVOICES ARE RAISED ON THE ASSESSEE . UNDER THESE CIRCUMSTANCES, WHERE THE CORPORATE GUARANTEE WAS NOT INVOKED BY THE DEUTSCHE BANK, THE REIMBURSEMENT M ADE BY THE ASSESSEE IS OUTSIDE THE BUSINESS PRINCIPLES AS WELL AS THE COMMERCIAL EXPEDIENCY . IT IS ONLY TO ENRICH THE M K R ABROAD AND THE SAME IS RIGHTLY CONSIDERED AS SHIFTING OF THE PROFITS OF THE ASSESSEE TO THE CREDIT OF MRK ABROAD. HE FURTHER POINT ED OUT THAT THE ASSESSEE HAS NOT FURNISHED REQUISITE DETAILS TO SATISFY THE TPO THAT THE FINANCE COST PAID BY THE ASSESSEE IS AT ARMS LENGTH. DURING THE TIME OF REBUTTAL, LD COUNSEL BROUGHT OUR ATTENTION TO THE DETAILS OF THE RATES OF THE RAW MATERIALS P ER TON AND MENTIONED THAT THE PRICE PAID BY THE ASSESSEE FOR RAW MATERIAL AS WELL AS FOR THE FINANCE COST IS AT ARMS LENGTH. 10. DECISION OF THE TRIBUNAL: WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE DECISIONS PLACED BEFORE US. WE HAVE CONSULTED, WHEREVER REQUIRED, THE PAPER BOOK , THE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE REVENUE AT VARIOUS STAGES OF THE PROCEEDINGS AS WELL AS THE FACTS SHEET WITH PROPOSITIONS MENTIONED BY LD COUNSEL . ON PERUS AL, WE FIND THAT THE CASE OF THE ASSESSEE IS THAT THE PAYMENT OF RS. 17.81 CRS, EQUIVALENT TO 40 MILLION US$ IS THE FINANCE COST AND THE INTEREST CHARGED B Y THE DEUTSCHE BANK TO THE MRK - AE OF THE ASSESSEE. IT IS THE CASE OF THE ASSESSEE AE - MRK HAS NOT CO LLECTED S A I D S U M O F R S . 1 7 . 8 1 C R S EITHER FROM EUROPA INTERNATIONAL LTD OR FROM THE ASSESSEE WHILE RAISING THE INVOICES ON THE ASSESSEE WHILE 10 SUPPLYING THE RAW MATERIALS TO THE ASSESSEE. THE MARK UP CHARGED @ 2 TO 3% IS ONLY TO MEET THE ADMINISTRATIVE EXPENSES, THEREFORE, THE IMPUGNED REIMBURSEMENTS ARE SEPARAT ELY RECOVERED FROM THE ASSESSEE AND THE SAME IS FULLY JUSTIFIED. IN OTHER WORDS, WHATEVER IS REIMBURSED BY THE ASSESSEE TO MRK GOES TO THE DEUTSCHE BANK ACCOUNT AND THE MRK IS NOT THE BENEFICIARY OF ANY INCOME IN ANY FORM . THEREFORE, THE PROVISIONS OF SECTION 92(1) SHOULD NOT APPLY TO SUCH R EIMBURSEMENTS OF FINANCE COST. ADDITION MADE BY THE AO / TPO BY COMPLETELY DISALLOWING THE CLAIM OF THE ASSESSEE IS NO WAY OF DETERMINING THE ARMS LENGTH PRICE APPLYING THE PRINCIPLES OF TRANSFER PRICING. THE REVENUE HAS NOT PICKED UP ANY METHOD OR ANY COMPARABLES FOR COMING TO THE CONCLUSION THAT THE SAID PAYMENT IS AT ARMS LENGTH. AS PER THE ASSESSEE, I F THE FINANCE COST OF RS 17.81 C R, ADMINISTRATIVE COST @ 2 TO 3% MARK UP OVER TH E PURCHASE VALUE OF RAW MATERIALS IS ADDED TO THE COST OF THE RAW MATERIAL PURCHASE COST FROM THE EUROPA INTERNATIONAL (FROM WHOM THE MKR MADE PURCHASES), THE PRICE IN THE HANDS OF THE ASSESSEE IS COMPETITIVE IN OPEN MARKET. THEREFORE, THERE IS NO SHIFTING OF THE PROFITS ABROAD AND HENCE THE PRICE CONSTITUTES ALP. 11. PER CONTRA, THE CASE OF THE REVENUE IS THAT THE MRK IS MERELY A RAW MATERIAL SUPPLIER TO THE ASSESSEE . EXPENDITURE OF RS 17.81 C RORES IS THE EXPENDITURE OF THE MKR AND NOT OF THE ASSESSEE. TH EREFORE, WHATEVER IS REIMBURSED BY THE ASSESSEE CONSTITUTES SHIFTING OF THE PROFITS TO ITS AE ABROAD, WHICH SHOULD NOT BE PERMITTED UNDER THE PRINCIPLES OF TRANSFER PRICING. AS PER THE REVENUE, PRINCIP LES OF COMMERCIAL EXPEDIENCY HAVE NO RELEVANCE TO THE TP PROVISIONS WHICH ARE AIMED AT MERELY TO PLUG THE TRANSFER OF PROFITS FROM THE COUNTRY TO ABROAD. IN THE ABSENCE OF TP STUDIES ON THE COMPARABLES, THE AO HAS NO CHOICE BUT TO DECIDE THE ALP OF THE INTERNATIONAL TRANSACTIONS IN THE MANNER DECIDED BY THE AO / TPO. IN THIS CASE, NOTHING IS REIMBURSED TO MRK AND THEREFORE, THE NIL VALUE IS TAKEN AS ALP WHICH SHOULD BE SUSTAINED. 11 12. WE HAVE CONSIDERED THE ABOVE DIVERGENT POSITIONS OF THE PARTIES IN THE DISPUTE. UNDISPUTEDLY, THE A SSESSEE IMPORTED LARGE PERCENTAGE OF THE REQUISITE RAW MATERIAL FROM ABROAD USING THE MKR - AE . IN TURN, MKR - AE PURCHASED THE SAID MATERIAL FROM M/S EUROPA INTERNATIONAL ABROAD AND IN THE PROCESS, MKR USED THE BANK FINANCING FACILITIES FROM THE D EU T S CHE BANK. WHILE RAISING T HE INVOICE ON THE ASSESSEE , THE MKR ADDED IN THE INVOICE THE MARK UP OF 2 TO 3% PRESUMABLY TOWARDS ADMINISTRATIVE COST ONLY AND NOT TOWARDS THE IMPUGNED FINANCE /INTEREST COST. MKR - AE RECOVERED T HE FINANCE COST SEPARATELY AND THEREFORE, THE PRESENT LITIGAT ION. FOR ASSESSEE, IT IS THE CASE OF REIMBURSEMENT. BUT AO/TPO REJECTED THE SAME AND HELD THAT ASSESSEE IS NOT REQUIRED TO MAKE ANY PAYMENT ON THIS ACCOUNT AS LIABILITY TO MAKE THE IMPUGNED REIMBURSEMENT IS ON THE MKR - AE AND NOT ON THE ASSESSEE. FOR RESOLV ING THE ISSUE, WE HAVE EXAMINED THE ROLE OF THE MKR QUA THE ASSESSEE. 13 . COMPOSITE FUNCTIONS OF MKR : G R O U N D N O . 5 R E F E R S T O T H E C L A I M T H A T MKR PERFORMED CERTAIN COMPOSITE FUNCTIONS OF RAW MATERIAL SUPPLIER AND FINANCE FACILITATOR WITH THE PURPOSE OF SERVING THE ASSESSEE. AS PART OF THE ASSESSEES PREFERENCE FOR OFF SHORE FINANCING MODEL , ASSESSEE PROCEEDED TO ENTER INTO THE INTERNATIONAL TRANSACTIONS BY SPLITTING THE SAID FUNCTIONS AND MADE MKR TO RAISE INVOICES TO SUIT THE ASSESSEE. THIS IS EVIDENT FROM THE FACT THE MKR RAISED INVOICES (I) WHEN HE SUPPLIED RAW MATERIAL TO THE ASSESSEE WITH MARK UP OF 2% TO 3% AND (II) WHEN MKR HAD TO RECOVER THE IMPUGNED 17.81 C R. FURTHER, IT IS A FACT THAT THE ASSESSEE HAS NOT RAISED ANY INVOICE TOWARDS CORPORATE GUARANTEE COMMISSION O N MKR WHEN HE GAVE CORPORATE GUARANTEE TO THE D E UT S CH E BANK WHO GRANTED FINANCING FACILITY TO MKR. IN PRINCIPLE, WE CANNOT APPRECIATE THAT THE WHOLE GAMUT OF TRANSACTIONS ARE DONE AS PER THE SET PRINCIPLES OF ALP. WHEN THE ASSESSEE SUBMITS THAT MKR SERVI CES ARE REQUIRED TO BE CONSIDERED AS COMPOSITE IN NATURE FOR ALP STUDY PURPOSES, BUT THE INVOICES ARE FUNCTION SPECIFIC, THIS APPROACH DOES NOT PROVIDE PROPER TP STUDIES OF THE RAW MATERIAL PURCHASES PRICE IN THE HANDS OF THE ASSESSEE. A SSESSEE SHOULD BE SPLIT THE SERVICES AS DISCUSSED ABOVE. WHEN THE SERVICES RENDERED BY THE MKR IS INSEPARABLE AND COMPOSITE IE FPF, THE TP STUDIES SHOULD ALSO BE DONE AFTER CONSIDERING ALL THE 12 PRICE COMPONENTS OF THE SAID SERVICES. IN ALP STUDIES, THE ASSESSEE NEEDS TO T RAVEL EXTRA MAIL TO DEMONSTRATE THAT THE RAW MATERIAL PURCHASE PRICE OF THE ASSESSEE IS AT ARMS LENGTH AFTER CONSIDERING THE ENTIRE COST ATTRIBUTABLE TO THE SAID PURCHASES BY THE ASSESSEE. AO/TPO NEEDS TO GRANT APPROPRIATE ADJUSTMENTS TOO. SINCE THE ASS ESSEE ARGUED BEFORE US THAT THE SAID PURCHASE PRICE IS AT ARMS LENGTH, THE SAME MUST BE DEMONSTRATED USING THE TP STUDIES USING THE SUSTAINABLE COMPARABLES AND APPROPRIATE METHODS. FOR THIS, CONSIDERING THE ASSESSEES ARGUMENT OF COMPOSITE FUNCTIONS (IE A S A FINANCIER, FACILITATOR, PROCUREMENT AGENCY, RAW MATERIAL SUPPLIER ETC) BY THE MKR, THE ASSESSEE MUST MERGE ALL THE RELEVANT COST SPENT BY THE ASSESSEE AND THE MKR TILL THE RAW MATERIAL REACHED THE PREMISES OF THE ASSESSEE. ASSESSEE IS UNDER OBLIGATION TO DEMONSTRATE WITH THE SUSTAINABLE COMPARABLES UNDER THE APPROPRIATE METHOD USING TP STUDIES THAT THE PURCHASE PRICE OF RAW MATERIAL AFTER INCLUDING THE ADMINISTRATIVE AND FINANCE COST/INTEREST, IS AT ARMS LENGTH. UNDER THE SAID PECULIAR KIND OF SUBMISSI ONS OF THE ASSESSEE, TPO CANNOT RESTRICT HIS TP STUDIES TO ONLY TO THE INTERNATIONAL TRANSACTION OF REIMBURSEMENTS. IN THE FRESH TP STUDIES, THE ASSESSEE, IF HE PERSISTS ON THE ABOVE SUBMISSIONS, NEEDS TO CONSIDER THE COMPOSITE TRANSACTIONS IE PURCHASE COS T INCURRED BY THE MKR, FINANCE COST INCURRED BY THE MKR, ADMINISTRATIVE COST INCURRED BY MKR, CORPORATE GUARANTEE COMMISSION ETC. 14 . THE FOLLOWING QUESTIONS ARE RELEVANT IN THE PROCESS AND THEY ARE: 1. WHETHER THE MKR IS CAPTIVE SUPPLIER OF THE RAW MATERIAL TO THE ASSESSEE AND IT DOES NOT SUPPLY TO ANY OTHER PERSONAL? 2. WHETHER THE MKR INCURRED THE SAID SUM OF RS 17.81 CRORES EXCLUSIVELY FOR THE RAW MATERIAL SUPPLIED TO THE ASSESSEE? 3. WHETHER THE MARK UP OF 2 - 3% CHARGED ON THE ASSESSEE INCLUDES AN ELEME NT OF FINANCE/FUNDING COST OF US$40 MILLIONS? 4. WHETHER THE FINAL P RICE OF RAW MATERIAL PER UNIT ( RAW MATERIAL PURCHASED FROM THE MKR AND AFTER INCLUDING THE REIMBURSED SUM OF RS 17.81 CR)) IS COMPETITIVE IN THE OPEN MARKET AND NECESSITATES NO ADJUSTMENTS? 13 5. W HETHER THE MKRS IS INCORPORATED SOLELY FOR THE PURPOSE OF THE ASSESSEE AND HAS RENDERED SERVICES TO THE OTHER PARTIES? THE ABOVE QUESTIONS NEEDS SPECIFIC ANSWERS IF THE ISSUES RAISED ARE TO BE ADJUDICATED MEANINGFULLY. 15 . TPO FAILED TO ADDRESS TO THESE ISSUES: THE PERUSAL OF THE ORDERS OF THE REVENUE AS WELL AS THE DOCUMENTS SUPPLIED TO US REVEALED THAT THERE IS NO CLARITY ON THE ABOVE ISSUES. AO/ TPO HAS NOT EXAMINED IF THE MKR RENDERED SERVICES DIRECTLY OR INDIRECTLY TO ANY OTHER PARTY ALSO USING THE SAID FINANCING FACILITY WITH THE D EU T S CH E BANK, TO WHICH THE ASSESSEE GAVE THE GUARANTEE FREE OF CHARGE . I F THERE IS LIKELY FLUCTUATION IN PURCHASE PRICE PER TON OF THE RAW MATERIAL IF THE SAID IS SAID RS 17.81 CR IS CONSIDERED QUA THE RATES IN THE OPEN MARKET , IF THERE IS REALLY ANY C OST SAVINGS IN THE PRESENT OFF SHORE MODEL FINANCING AS CLAIMED BY THE ASSSESSEE . T HE ASSESSEES CLAIM OF EXHAUSTING OF TH E DOMESTIC FINANCING FACILITIES IS BONAFIDE OR OTHERWISE ETC , NEEDS THOROUGH PROBE TOO . TPO SHOULD HAVE DETERMINED I F THE INTERNATIONAL TRANSACTION IS AT ARMS LENGTH ONLY AFTER EXAMINING THE ABOVE ISSUES QUA THE PURCHASE PRICE OF THE RAW MATERIAL AFTER CONSIDERING ALL THE FACTORS SUCH AS THE COST OF THE RAW MATERIAL, ADMINISTRATIVE COST AND THE RELEVANT AND RELATABLE FINANCE/INTEREST COST IN THE HANDS OF THE MKR PROVIDED THE MKR IS THE DEDICATED SUPPLIER OF THE RAW MATERIAL TO THE ASSESSEE. IN THE TP STUDIES, THE DUTY OF THE TPO IS DETERMINE THE ALP AND NOT TO DETERMINE THE JUSTIFICATION OF T HE SAID PAYMENTS CLAIMED BY THE ASSESSEE. IN THE INSTANT CASE, THE TPO IS GONE INTO THE JUSTIFICATION ISSUES IE IF THE SAID REIMBURSEMENT IS RIGHTLY PAID OR NOT BY THE ASSESSEE. MORE SO WHEN THERE IS NO FINDING OF FACT BY THE AO THAT THE SAID AMOUNT OF RS 17.81 CR IS INCURRED ALSO ON THE RAW MATERIALS SUPPLIED TO PARTIES OTHER THAN THE ASSESSEE. THEREFORE, THERE IS DEFINITE NEED FOR EXAMINING THE ALP BASED ON THE FACTS AND FIGURES. WE LOOK FOR THE FACT IF THE PER UNIT PURCHASE PRICE OF THE RAW MATERIAL IS AT ARMS LENG T H AFTER CONSIDERING THE COST OF THE RAW MATERIAL, ADMINISTRATIVE COST AND THE IMPUGNED FINANCE/INTEREST COST OF RS 17.81 CR. IT IS THE CLAIM OF THE ASSESSEE THAT THE SAID PER UNIT PRICE IS AT ALP QUA THE DOMESTIC COMPARABLES. 14 16 . MKR AS THE FPF (FACILITATOR CUM PROCUREMENT AGENCY CUM FINANCIER) : IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE SHIFTED TO OFF - SHORE FUNDING MODEL AS HE EXHAUSTED THE SAME LOCALLY. AS PER THE ASSESSEE, MKR IS INCORPORATED WITH THE SOLE PURPOSE OF PROCURING THE RAW MATERIAL WITH CHEAPER PRICE USING THE CHEAPER FUNDING CH ANNELS ABROAD. ADMITTEDLY, THE ASSOCIATE E NTERPRISE - MKR IS SUBSIDIARY OF THE ASSESSEE AND SAID TO BE RENDERING CAPTIVE SERVICES TO THE ASSESSEE. IF THAT IS THE FACT, FOR THE PURPOSE OF THE TP STUDIES, TPO MUST TRAVEL BEYOND WHAT IS ACCOUNTED IN THE BOOKS OF THE ASSESSEE AND THE MKR AND DETERMINE THE ALP. CONSIDERING THE SPECIAL FACTS OF THE PRESENT CASE, WHERE THE MKR, THE ASSESSEE - AE, IS CAPTIVE SUPPLIER WITH D EDICATED IMPORTER IE ASSESSEE, THE TPO IS NOT JUSTIFIED IN SEGREGATING ALL THE THREE SEGMENTS OF THE PRICE IE RAW MATERIAL PRICE + ADMINISTRATIVE COST + FINANCE COST. WE DO NOT APPROVE THE OBSERVATION OF THE TPO THAT THE MKR IS MERE RAW MATERIAL SUPPLIER TO THE ASSESSEE . PRIMA FACIE , WE ARE OF THE OPINION , MKR SEEMS TO BE THE BODY AND SOUL OF THE ASSESSEE ABROAD FUNCTIONALLY AND FINANCIALLY . TPO MUST CONSIDER THE SAME IN HIS TP STUDIES. THEREFORE, IN TP STUDIES OF THIS CASE, TPO MUST DETERMINE THE ALP AFTER MERGING ALL THE RELE VANT COST SEGMENTS. HIS AIM SHOULD BE TO DETERMINE AFTER MAKING REQUISITE AND APPROPRIATE ADJUSTMENTS, IF THE IMPORT PRICE OF THE RAW MATERIAL IN THE HANDS ASSESSEE IS COMPETITIVE IN THE OPEN MARKET AND PROVIDE ALL THE ALLOWABLE ADJUSTMENTS IN ACCORDANCE WITH THE PROVISIONS OF THE LAW AND RULES. AS SU CH, THE MKR SUPPLIES CONSTITUTE ONLY 36% OF THE TOTAL RAW MATERIAL OF THE ASSESSEE. THIS INDICATES THAT THE ASSESSEE HAD PURCHASES FROM OTHER SOURCES AS WELL. THIS FACT SHOULD ALSO HELP TPO IN HIS COMPARATIVE STUDIES OF THE RAW MATERIAL PRICE. SUBJECTED TO THE FACTS OF THE CASE, IN THE ALP STUDIES, TPO MAY ALSO CONSIDER THE FACT THAT THE ASSESSEE IS ENTITLED TO COMMISSION FOR GRANTING THE CORPORATE GUARAN TEE. ASSESSEE MUST PROVIDE ALL RELEVANT DATA INVOLVING ALL THE ABOVE ISSUES TO THE TPO. OTHERWISE, TPO MAY GARNER HIS OWN COMPARABLES IN ACCORDANCE WITH THE LAW. 17 . THEREFORE, TO SUM UP, WE FIND MERIT IN THE ASSESSEES CONTENTION THAT THE MKR IS NOT JUST A MATERIAL SELLER TO THE ASSESSEE. THEREFORE, IN PRINCIPLE, WE CANNOT APPRECIATE THE APPROACH OF THE TPO IN ACCEPTING (I) THE INTERNATIONAL 15 TRANSACTIONS INVOLVING THE PAYMENT OF COST FOR IMPORT OF THE RAW MATERIAL S AND (II) REJECTING THE REIMBURSEMENT O F THE FINANCE COST, INTEREST COST ETC AMOUNTING TO RS 17.81 CR AND (III) NOT CHARGING OF THE CORPORATE GUARANTEE COMMISSION ON THE MKR . THE TPO MUST DETERMINE ALP OF THE PURCHASE PRICE OF THE RAW MATERIAL AS A WHOLE AFTER CONSIDERING ALL THE RELEVANT SEG MENTS OF THE PRICE IE PURCHASE COST, ADMINISTRATIVE COST AND THE FINANCE COST AND INTEREST COST, GUARANTEE COMMISSION ETC. IN THE REMAND PROCEEDINGS, AFTER CONSIDERING ALL THESE SEGMENTS OF THE PRICING, IF TPO FINDS THAT THE UNIT PRICE OF THE RAW MATERIAL IS AT ALP, IN THAT CASE, THERE IS NO NEED FOR ANY TP ADDITIONS. 18 . CONSEQUENTLY, THE LEGAL DISPUTE ON IF THE IMPUGNED REIMBURSEMENT FALLS WITHIN THE AMBIT OF SECTION 92(1) OF THE ACT BECOMES AN ACADEMIC EXERCISE. OTHERWISE ALSO, WE DO NOT APPRECIATE THE ARGUMENTS OF LD COUNSEL ON THIS ISSUE AND FOR THIS , WE RELY ON THE AMENDED PROVISO TO THE SAID SECTION AND THE DECISIONS CITED BY THE LD DR. 19 . REGARDING OTHER ARGUMENTS RELATING TO THE PRINCIPLE OF COMMERCIAL EXPEDIENCY, IT IS THE REVENUES STAND THAT THE SAME ARE NOT RELEVANT FOR THE TP STUDIES. ON THE CONTRARY, THE ASSESSEE RELIES HEAVILY ON THE SCS JUDGMENT IN THE CASE OF THE SA BUILDERS ( SUPRA ) . IN THE REMAND MATTERS, AO/TPO IS DIRECTED TO CONSIDER THE SAME AND PASS A SPEAKING ORDER ON THIS IS SUE TOO. 20 . THUS, WE SET ASIDE THE ORDER OF THE CIT (A) AS ABOVE AND REMAND ALL THE GROUNDS TO THE FILE OF THE AO /TPO FOR WANT OF FRESH ASSESSMENT AFTER CONSIDERING THE DIRECTIONS INDICATED ABOVE. ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE PRINCIPLES OF THE NATURAL JUSTICE. ACCORDINGLY, THE GROUNDS RAISED IN THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 21 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONO UNCED IN THE OPEN COURT ON 1 8 T H DECEMBER, 2013. S D / - S D / - (VIVEK VARMA) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 1 8 .12.2013 . . ./ OKK , SR. PS 16 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI