SEMINIS VEGETABLE SEEDS (I) P.LTD ( NOW MERGED WITH MONSANTO HOLDINGS P. LTD), MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 365/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101089 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 20-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR CHAND
• Assessee Lawyers: R R VORA
• Keywords: Depreciation; Transfer pricing; International transaction; Revenue expenditure; Capital expenditure
• Section: 32; 144

Judgement Text

1 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K , MUMBAI , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JU DICIAL MEMBERITA ITA NO. : 365 /MUM/20 1 2 (ASSESSMENT YEAR: 200 7 - 0 8 ) SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) , CAVES ROAD, ANDHERI (EAST), MUMBAI - 400 0 93 .: PAN: AAA C N 9 499 F VS D C IT RG 8(2) , AAYAKAR BHAVA N, M K ROAD, MUMBAI - 400 02 0 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R R VORA RESPONDENT BY : SHRI NARENDRA KUMAR CHAND /DATE OF HEARING : 17 - 0 6 - 2015 / DATE OF PRONOUNCEMENT : 16 - 09 - 201 5 ORDER , : PER AMIT SHUKLA , JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 17.10.2011 , PASSED BY DY. COMMISSIONER OF INCO ME - TAX - 8(2), MUMBAI IN PURSUANCE OF DIRECTIONS DATED 30.09.2011 GIVEN BY THE DISPUTE RESOLUTION PANEL II(DRP) U/S 144C(5). IN VARIOUS GROUNDS OF APPEALS, THE ASSESSEE HAS CHALLENGED THE FOLLOWING ISSUES : - ( I ) THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND O N FACTS IN REJECTING THE BOOKS OF ACCO UNT, TRAD ING RESULTS AND THEREBY MAKING THE BEST JUDGMENT ASSESSMENT U/S 144 ; ( II ) THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN DISALLOWING R&D EXPENSES IN RESPECT OF PRODUCT 2 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 ADAPTABILITY AND DEMONSTRATION EX PENSES FOR SUMS AGGREGATING TO RS. 74,40,373/ - ; ( III ) THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN NOT GRANTING DEPRECIATION U/S 32 IN RESPECT OF COMPENSATION RECEIVED WHICH HAS BEEN TREATED AS CAPITAL EXPENDITURE ; ( IV ) THE LD ASSESSING OFFICER/TPO HAS ERRED IN LAW AND ON FACTS IN MAKING THE TRANSFER PRICING ADJUSTMENT OF RS. 15,40,31,031/ - ON ACCOUNT OF INTERNATIONAL TRANSACTION OF IMPORT OF SEEDS MADE BY THE ASSESSEE FROM ITS AE ; ( V ) THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN MAKING AN ADD ITION ON ACCOUNT OF FALL IN GROSS PROFIT MARGIN. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING AND MARKETING OF VEGETABLE SEEDS. IT IS AN INDIRECT SUBSIDIARY OF M/S SEMINIS INC. USA , WHICH IS A WORLDS LARGEST VEGETABLE SEEDS COMPANY AND OFFERS SEVERAL DISTINCT HYBRID SEEDS. AS AGAINST THE RETURN OF LOSS OF RS. 22,67,56,028/ - , THE ASSESSMENT IN THE CASE OF THE ASSESSEE WAS COMPLETED AT A LOSS OF RS. 29,76,983/ - AFTER MAKING THE VARIOUS ADDITION S /DISALLOWANCE S, INCLUDING TRANSFER PRICING ADJUSTME NT OF RS. 15,40,31,031/ - . 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, SHRI RAJAN VO RA SUBMITTED THAT , SO FAR AS THE ISSUE RELATING TO DISALLOWANCE OF PRODUCT ADAPTABILITY AND DEMONSTRATION EXPENSES (R&D EXPENSES) OF RS. 24,40,373/ - AS RAISED VIDE GROUND NO. 1, HE SUBMITTED THAT SAME IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07, WHEREIN, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. EVEN THE DRP HAS FOLLOW ED THE ORDER OF THE T RIBUNAL AND DIRECTED THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE IN LIGHT OF THE TRIBUNAL ORDER . HOWEVER, THE ASSESSING OFFICER HAS DISALLOWED 3 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 THE EXPENDITURE ON R&D ON THE GROUND THAT NO DETAILS WERE FURNISHED. HE FURTHER SUBMITTED THAT TH E DETAILS OF PRODUCT ADAPTABILITY AND DEMONSTRATION EXPENSES ARE APPEARING AT PAGE 148 OF THE PAPER BOOK , WHICH WERE THERE BEFORE THE ASSESSING OFFICER AS WELL AS DRP, ARE AS UNDER: SR. NO. DEPRECIATION AMOUNT OF RS. 1 PRODUCTION DEPARTMENT 35,15,768 2 QUALITY DEPARTMENT 1,94,184 3 RESEARCH & DEVELOPMENT DEPARTMENT 21,42,066 4 RESEARCH & DEVELOPMENT FOUNDATION SEEDS 6,08,301 5 RESEARCH & DEVELOPMENT PATHOLOGY 6,44,063 6 PROCESSING DEVELOPMENT 2,93,659 7 MISCELLANEOUS 42,333 MR. VORA SUBMITTED THAT IN ASSESSEES LINE OF BUSINESS, BEFORE COMMERCIALIZATION OF THE PRODUCTS IN THE MARKET VARIETIES OF SEEDS ARE TESTED / EVALUATED IN DIFFERENT GEOGRAPHIC REGIONS FOR RESPONSE TO DIFFERENT CLIMATIC CONDITIONS. THE MAJOR FOCUS OF THE RESEARCH C ARRIED OUT BY THE ASSESSEE IS TO DEVELOP PEST RESISTANT ; DERIVING/EXTRACTING HIGH YIELDING VEGETABLE HYBRID SEEDS WITH VALUE ADDED TRAITS , WHICH ARE SUITABLE TO ALL CLIMATIC ZONES OF INDIA. FOR THESE PURPOSE CONTINUED R & D EXPENSES ARE INCURRED ON YEARLY BASIS AND ARE RECURRING IN NATURE. SIMILAR ISSUE HAS COME FOR CONSIDERATION BEFORE THE TRIBUNAL IN AY 2003 - 04 AND IN AY 2006 - 07 WHICH WAS DECIDED I N FAVOUR OF THE ASSESSEE. IN THE ASSESSMENT YEAR 2006 - 07, THE TRIBUNAL HAD SET ASIDE THIS ISSUE FOLLOWING THE DIRECTIONS OF THE DRP. IN PURSUANCE THEREOF, THE ASSESSING OFFICER HAS ALLOWED THESE EXPENDITURES IN ALL THE EARLIER YEARS THIS ISSUE STANDS DECIDED IN FAVOUR . ACCORDINGLY, IN THIS YEAR ALSO THE SAID EXPENDITURE SHOULD BE ALLOWED. 4 . LD. DR, ON THE OTHE R HAND, RELIED UPON THE ORDER OF THE DRP AND SUBMITTED THAT PAST DIRECTION OF THE DRP, THE ASSESSING OFFICER HAS ASKED FOR THE DETAILS, WHICH THE ASSESSEE DID NOT FURNISH , HENCE ADVERSE VIEW HAS BEEN TAKEN BY THE ASSESSING OFFICER. 4 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 5 . AFTER CONSIDERING TH E RIVAL SUBMISSIONS AND ALSO PERUSAL OF THE IMPUGNED ORDER AND THE MATERIAL PLACED ON RECORD, WE FIND THAT THE ISSUE OF R&D EXPENSES ARE RECURRING IN NATURE AND ARE INCURRED ON YEARLY BASIS. S IMILAR NATURE OF EXPENDITURE HAVE BEEN ALLOWED FROM THE STAGE OF THE TRIBUNAL AND ALSO BY THE ASSESSING OFFICER IN PURSUANT OF THE FINDING GIVEN IN EARLIER YEARS. AS STATED BY LD. COUNSEL, IN ASSESSEES LINE OF BUSINESS R & D EXPENSES ARE CONTINUOUS PROCESS WITHOUT WHICH ASSESSEE CANNOT CARRY OUT ITS BUSINESS. HENCE SU CH A R & D EXPENSES NEED TO BE ALLOWED UNDER SECTION 35D. AS REGARD DETAILS OF EXPENSES, THESE ARE ALREADY AVAILABLE ON RECORDED AND A CCORDINGLY, W E DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENSES U/S 35 AFTER VERIFICATION AND IN ACCORDANCE WITH THE PRE CE DENCE OF THE EARLIER YEARS . THUS , GROUND S RAISED BY THE ASSESSEE ON THIS ISSUE IS TREATED AS ALLOWED. 6 . AS REGARDS, THE ISSUE RELATING TO NON - GRANTING OF DEPRECIATION IN RESPECT OF COMPENSATION TREATED AS CAPITAL EXPENDITURE RAISED VIDE GROUND NO. 2, THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAS PAID RS. 74,85,711/ - AS COMPENSATION TO CE E K A Y SEEDS FOR TERMINATION OF AGREEMENT DATED 13.10.2006. THE ASSESSING OFFICER HAS TREATED THE ENTIRE EXPENDITURE AS CAPITAL IN NATURE AN D DID NOT ALLOW THE ASSES SEES CLAIM FOR REVENUE EXPENDITURE. THE DRP HAS UPHELD THE ACTION OF THE ASSESSING OFFICER AND TREATED THE COMPENSATION PAID AS CAPITAL IN NATURE. HOWEVER, THE DRP DIRECTED THE ASSESSING OFFICER TO GRANT DEPRECIATION ON THE AMOUNT OF RS.55,00,004/ - ON WHI CH TAX WAS DEDUCTED AT SOURCE. IN RESPECT OF THE BALANCE PA YMENT AMOUNTING TO RS. 19,85,707 / - , THE DRP DIRECTED THE ASSESSING OFFICER TO DISALLOW THE SAME U/S 40(A)(IA). IN THIS REGARD, MR. VORA SUBMITTED THAT , ONCE THE DRP HA S HELD THAT THE BALANCE EXPEND ITURE OF RS. 19,85,707/ - IS A CAPITAL EXPENDITURE , THEN HOW THE PROVISION OF SECTION 40(A)(IA) CAN BE INVOKED ON SUCH AN EXPENDITURE BECAUSE, S ECTION 40(A)(IA) IS APPLICABLE ONLY ON THE REVENUE EXPENDITURE S AND NOT CAPITAL EXPENDITURE. THUS, EVEN IF THE SA ID EXPENDITURE IS NOT ALLOWED AS 5 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 REVENUE EXPENDITURE , THEN ALSO DEPRECIATION SHOULD BE ALLOWED ON SUCH A CAPITAL EXPENDITURE. THE LD. DR ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE DRP. 7 . AFTER CONSIDERING THE RELEVANT OBSERVATION AND THE F INDING OF THE DRP AND ALSO THE SUBMISSIONS MADE BY THE PARTIES, WE FIND THAT , IF OUT OF THE TOTAL CLAIM OF EXPENDITURE OF RS. 74,85,711/ - , WHICH WAS CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE, S U M OF RS. 55 LAKHS HAS BEEN HELD TO BE CAPITAL EXPENDITUR E ON WHICH DEPRECIATION HAS BEEN ALLOWED , THEN F OR THE BALANCE AMOUNT OF RS. 19,85,707/ - ALSO ON THE SAME REASONING IT HAS TO BE HELD AS CAPITAL EXPENDITURE , ON WHICH THE ASSESSEE SH OULD BE LIABLE FOR DEPRECIATION U/S 32. SUCH A CLAIM CANNOT BE DISALLO WED MERELY ON THE GROUND THAT ASSESSEE HAD NOT DEDUCTED TDS AND THEREFORE IS TO BE DISALLOWED U/S 40(A)(IA) . S UCH A DIRECTION OF THE DRP CANNOT BE SUSTAINED IN LAW, FIRSTLY, THE DISALLOWANCE UNDER THE PROVISION S OF SECTION 40(A)(IA) CAN BE INVOKED ONLY IN THE CASES WHERE THE ASSE S SEE IS CLAIMING REVENUE EXPENDITURE AND NOT WHERE IT HAS BEEN HELD TO BE DISALLOWABLE AS CAPITAL EXPENDITURE AND SECONDLY, IF PROVISION OF 40(A)(IA) IS TO BE INVOKED THEN THE ENTIRE EXPENDITURE HAS TO BE FIRST TREATED AS REVENU E EXPENDITURE AND THEN IT HAS TO BE EXAMINED, WHETHER I T ATTRACTS TDS PROVISIONS. THUS, THERE IS INHERENT INCONSISTENCY IN THE FINDING OF THE DRP . ACCORDINGLY, ON THESE FACTS WE HOLD THAT DEPRECIATION SHOULD BE ALLOWED ON THE BALANCE AMOUNT OF RS. 19,85,70 7/ - ALSO AS HAS BEEN DONE/ALLOWED FOR THE SUM OF RS. 55 LAKHS. THUS, GROUND NO. 3 AS RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 8 . SO FAR AS THE ISSUE RELATING TO TRANSFER PRICING ADJUSTMENT, LD. COUNSEL SHRI RAJAN VORA, SUBMITTED THAT THE SAME HAS BEE N MADE ON ACCOUNT OF TRANSACTION OF IMPORT OF SEEDS BY THE ASSESSEE FROM ITS AE FOR RESALE. THE ASSESSEE FOR THE PURPOSE OF BENCH MARKING ITS ARMS LENGTH MARGIN HAS APPLIED R ESALE P RICE M ETHOD (RPM) BY ADOPTING GROSS PROFIT TO NET SALES (GP/SALES) AS THE P ROFIT 6 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 LEVEL INDICATOR (PLI) AND IDENTIF IED EIGHT COMPARABLES FOR BENCHMARKING THE ARMS LENGTH PRICE OF THE ASSESSEE. THE ASSESSEES GROSS MARGIN WAS ( - ) 44.57% WHEREAS, THE ARITHMETIC MEAN OF GROSS MARGINS OF THE COMPARABLES BASED ON SINGLE YEAR DATA WAS ( - ) 29.93%. THE TRANSFER PRICING OFFICER HOWEVER HAS DISREGARDED THE ASSESSEES TRANSFER PRICING ANALYSIS BY REJECTING THE RPM METHOD AND INSTEAD ADOPTED TNMM ON ENTITY LEVEL AS THE MOST APPROPRIATE METHOD (MAM). THEREAFTER, THE TPO, TOOK THREE COMPARABLES , WHOSE ARITHMETIC AVERAGE MARGIN WAS ARRIVED AT 20.14% AS AGAINST THE ASSESSEES NET MARGIN OF ( - ) 12.44%. ACCORDINGLY, ADJUSTMENT OF RS. 15,20,31,031/ - WAS MADE. THE RELEVANT WORKING OF THE TPO WERE AS UNDER : - THUS, FROM THE ABOVE, IT IS APPARENT THAT THE CALCULATION OF THE PLI OF COMPARABLES USING TNMM IS WARRANTED. THE ASSESSEE VIDE ITS SUBMISSION DATED 13.9.2010. APPENDIX 3 HAS PROVIDED WORKING OF THE OPERATING PROFIT MARGIN FROM THE ACTIVITY OF TRADING OF SEEDS WHEREIN THE PLI (OP/OI) IS AT - 12.44% . THE COMPARABLE COMPANIES ALONG WITH THEIR PLI ARE AS UNDER : - SR. NO. NAME OF COMPARABLE PLI FOR FY 2006 - 07 (OP/OI) 1 GUJARAT STATE SEEDS CORPN. LTD. 8.77% 2 KAVERI SEED CO. LTD.* 23.86% 3 SYNGENTA INDIA LTD. 27.80% 4 MAHYCO VEGETABLE SEE DS LTD. NA ARITHMETIC MEAN 20.14% ASSESSEE - 12.44% THUS, FROM THE ABOVE TABLE, IT CAN BE SEEN THAT THE PLI OF THE ASSESSEE IS SIGNIFICANTLY LESS COMPARED TO PLI OF THE 3 COMPARABLES. THEREFORE, THIS TRANSACTION IS BENCHMARKED BY TAKING PLI OF 20.14% OF THE COMPARABLES. ACCORDINGLY, THE ALP OF THE TRANSACTION IS DETERMINED AS UNDER: 7 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 S.NO PARTICULARS AS PER ASSESSEE (FROM 3CEB) ALP DETERMINED BY DEPARTMENT 1 SALES 472,770,617 472,770,617 2 OP/OI - 12.44% 20.14% 3 OPERATING PR OFIT ( OP) - 58,815,029 95,216,002 4 OPERATING COSTS (OC) 531,585,646 377,554,615 NONE - AE COSTS 312,160,467 312,160,467 AE COSTS (PURCHASES) 219,425,179 65,394,148 5 DIFFERENCE BETWEEN ALP OF OPERATING COST AND VALUE OF INTERN ATIONAL TRANSACTION 154,031,031 9 . SHRI RAJAN VORA, SUBMITTED THAT, SO FAR AS THE TP ADJUSTMENTS ARE CONCERNED, SIMILAR ISSUE WAS ALSO INVOLVED IN THE EARLIER YEARS , WHEREIN SIMILAR TP ADJUSTMENT HAS BEEN DELETED FROM THE STAGE OF THE TRIBUNAL. T HE TRIBUNAL VIDE ORDER DATED 13 TH MAY, 2011 FOR THE ASSESSMENT YEAR 2006 - 07 HAS DIRECTED THE TPO TO CONSIDER RPM AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF IMPORT OF SEEDS AND THEN CARRY OUT TP AND COMPARABILITY ANALYS IS . IN PURSUANCE THEREOF, THE LD. TPO HAS PASSED THE ORDER FOLLOWING THE RPM AS MAM AND FOUND THAT NO ADJUSTMENT WA S REQUIRED TO BE MADE. THE COPY OF THE TPOS ORDER FOR AY 2006 - 07 AFTER GIVING EFFECT TO THE ITAT ORDER HAS BEEN PLACED AT PAPER BOOK AT PA GES 362 TO 364. THUS, IN THIS YEAR ALSO FOLLOWING THE EARLIER YEARS PRECEDENCE, RPM SHOULD BE HELD TO BE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION OF IMPORTING OF ITS SEEDS FROM ITS AE. 1 0 . HOWEVER, THE SHRI RAJAN VORA , SUBMITTED THAT HERE IN THIS YEAR IN THE CASE OF THE ASSESSEE, A HUGE ADDITION ON ACCOUNT OF GROSS PROFIT WAS MADE BY THE ASSESSING OFFICER AFTER REJECTING THE BOOKS OF ACCOUNT, IN THE DRAFT ASSESSMENT ORDER . T HE ASSESSEE BEFORE THE DRP HAD WRITTEN A LETTER DATED 27.09.2011 ST ATING THAT IF G.P. ADDITIONS ARE TO BE SUSTAINED THEN TRANSFER PRICING ADJUSTMENT SHOULD BE TELESCOPED IN SUCH GP ADDITION S . ACCORDINGLY, THE DRP HAS GIVEN DIRECTION TO THE ASSESSING OFFICER , THAT NO SEPARATE TP ADDITION OF RS. 15,40,31,031/ - SHOULD BE MAD E IN THE COMPUTATION . R ELEVANT EXTRACT OF THE ASSESSEES LETTER HAS BEEN 8 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 REPRODUCED BY THE DRP FROM PAGES 13 TO 15 OF THE DRPS ORDER. HE SUBMITTED THAT EVEN THOUGH THE SAID LETTER HAS BEEN FILED, HOWEVER, SO FAR AS TP ADJUSTMENTS ARE CONCERNED, SAME ARE U NSUSTAINABLE IN VIEW OF THE EARLIER YEARS PRECEDENCE IN THE FORM OF THE ORDER OF THE TRIBUNAL , THAT ARMS LENGTH PRICE IN THE CASE OF THE ASSESSEE HAS TO BE DETERMINED AFTER COMPLYING RPM AS THE MAM AND ONCE RPM IS APPLIED , THEN NO ADJUSTMENT WOULD BE REQU IRED TO BE MADE . O N THE ISSUE OF GP ADDITION ALSO , MR. VORA MADE HIS DETAIL SUBMISSIONS AS TO WHY ON THE FACTS OF THE ASSESSEES CASE NO ADDITION IS CALLED FOR . 1 1 . ON THE OTHER HAND, THE LD. DR SUBMITTED THAT, ONCE THE ASSESSEE ITSELF HAS GIVEN A LETTER TO THE DRP AGREEING FOR TP ADJUSTMENT , TO BE TELESCOPED FROM THE ADDITION OF GROSS PROFIT WHICH THE DRP HAS AGREED , THEN ASSESSEE CANNOT BACKTRACK FROM SUCH AN OFFER AND PLEAD THAT SUCH AN ADJUSTMENT SHOULD BE DELETED. IN ANY CASE, HE SUBMITTED THAT IF SU CH AN ADDITION IS TO BE DELETED FOLLOWING THE EARLIER YEARS ORDER, THEN THE ENTIRE GP ADDITION SHOULD BE SUSTAINED. IN EITHER WAY ADDITION NEEDS TO BE CONFIRMED. 1 2 . WE HAVE HEARD THE RIVAL CONTENTION S OF THE PARTIES AND ALSO MATERIAL ON RECORD. THE ENT IRE TRANSFER PRICING ADJUSTMENT HAS BEEN MADE AFTER REJECTING THE ASSESSEES METHOD OF BENCHMARKING THE TRANSACTION ; THAT IS RESALE PRICE METHOD AND INSTEAD BY ADOPTING TNMM AS MAM BY THE TPO. THIS SELECTION OF MOST APPROPRIATE METHOD OF TNMM BY THE DEPART MENT HAS BEEN FOUND TO BE INAPPROPRIATE BY THE TRIBUNAL IN THE EARLIER YEARS AND ASSESSEES RPM HAS BEEN ACCEPTED. AS A RESULT OF ADOPTING RPM AS MAM, SIMILAR ADJUSTMENTS MADE IN THE EARLIER ASSESSMENT YEARS STANDS DELETED. THUS, AS A MATTER OF JUDICIAL PR ECEDENCE AND WITHOUT THERE BEING ANY CHANGE OF MATERIAL FACTS AND CIRCUMSTANCES, WE ALSO DIRECT THE TPO/ASSESSING OFFICER TO ADOPT RPM AS MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION OF IMPORT OF SEEDS TO ITS AE AND CARR Y OUT COMPARABILITY ANAL YSIS FOR BENCHMARKING THE ASSESSEES GROSS MARGIN AND DETERMINED THE APPROPRIATE ALP. 9 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 13. NOW HERE IN THIS CASE, A HUGE ADDITION ON ACCOUNT OF GP ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER, FOR WHICH THE ASSES S EE BEFORE THE DRP HAS WRITTEN A LETTER THAT THE ADDITION ON ACCOUNT OF TP ADJUSTMENT SHOULD BE TELESCOPED WITH THE GP ADDITION AND FINALLY THE ADDITION OF RS. 5,55,01,614/ - HAS BEEN SUSTAINED. IF ADJUSTMENT ON ACCOUNT OF TP IS REMOVED THEN SUCH A N ADDITION WILL GET ENHANCED. ON THE MERITS OF TH E ADDITION MADE ON ACCOUNT OF GROSS PROFIT MARGIN, IT IS SEEN FROM THE RECORDS THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT MAINLY ON THE GROUND THAT ASSESSEES GP MARGIN IS VERY LOW IN THIS YEAR AS COMPARED TO PREVIOUS YEAR G.P. RATE OF 46 .47% AND SECONDLY, THE ASSESSEE COULD NOT PRODUCE THE RELEVANT RECORDS ON THE GROUND THAT THE RECORD MAINTAINED AT THE ASSE S SEES OFFICE AT AURANGABAD WERE WASHED AWAY DUE TO VERY HEAVY RAIN AND FLOOD. THERE WAS ALSO CHANGE IN MANAGEMENT. TH US ASSESSING OF FICER AFTER REJECTING THE BOOKS OF ACCOUNT HAS MADE THE ADDITION OF RS. 20,95,32,645/ - , BEING DIFFERENCE BETWEEN THE GROSS PROFIT RATE OF PREVIOUS YEAR, WHICH WAS AT 46.74% AND CURRENT YEAR G.P. MARGIN WHICH WAS 2.40% AND ACCORDINGLY , GP DIFFERENCE OF 44.3 4% WAS MADE THE BASIS FOR ADDITION. THE ASSESSEES CASE BEFORE THE ASSESSING OFFICER WAS THAT THE FALL IN THE GP MARGIN WAS MAINLY FIRSTLY, ON ACCOUNT OF INVENTORY WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT AT RS. 16,34,68,410/ - AND SECONDLY ON ACCOUNT OF INCREASE IN EXPENSES INCURRED IN RELATION TO SALES , LIKE SCHEME DISCOUNT, TRADE DISCOUNT AND COMPENSATION PAID TO DEALERS AGGREGATING TO RS. 6,12,55,579/ - . SUCH AN EXTRA ORDINARY ITEMS WERE NOT THERE IN THE EARLIER YEAR S. IT WAS BECAUSE OF THESE FACTORS TH AT THE ASSESSEES GP COME DOWN. IF THESE EXTRA ITEMS ARE REMOVED THEN GP WILL COME TO 42.70% AS COMPARED TO 46.74% IN THE EARLIER YEAR. ALL THESE DETAILS AND FACTS WE RE SUBMITTED BEFORE THE ASSESSING OFFICER , AFTER WHICH THE ASSESSING OFFICER DID NOT ASK F OR FURTHER DETAILS. FROM THE PERUSAL OF THE SUBMISSIONS AND THE MATERIAL PLACED ON RECORD AND ALSO 10 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 SUBMISSION MADE BY THE LD. COUNSEL, WE FIND THAT THERE ARE EXCEPTIONAL ITEMS IN THIS YEAR LIKE INVENTORY WRITTEN OFF AGGREGATING TO RS. 16,3 6,68,410/ - AND EXTRA ORDINARY INCREASE IN SALE S EXPENSES AT RS. 6,12,55,579/ - . IF THE SE TWO FACTORS ARE TAKEN INTO ACCOUNT , THEN THE DIFFERENCE/ G AP BETWEEN THE GP OF THE PRECEDING YEAR AND THE CURRENT YEAR WOULD BE VERY LOW. IN SUCH A SITUATION, THE ADDITI ON MADE BY THE ASSESSING OFFICER WILL ALSO SCALE DOWN SUBSTANTIALLY. HOWEVER, IN WAKE OF LETTER GIVEN BY THE ASSESSEE BEFORE THE DRP AGREEING FOR THE GP ADDITION , WE ARE RESTRAINING OURSELVES TO GIVE ANY FINDING ON MERITS AND SUSTAIN WHOLE OF THE GP ADDITI ON AS ACCEPTED BY THE ASSESSEE BEFORE THE DRP. TO THIS EXTENT, WE AGREE WITH THE CONTENTION OF THE LD. DR THAT IF THE TP ADJUSTMENT S ARE DELETED , THEN THERE WOULD BE NO TELESCOPING AND THE ENTIRE ADDITION MADE ON ACCOUNT OF FALL IN GROSS MARGIN WILL GET SU STAINED. ACCORDINGLY, W E DIRECT THE ASSESSING OFFICER THAT IN CASE THE TP ADJUSTMENTS ARE DELETED AFTER ADOPTING THE RPM AS MAM , THEN THE ENTIRE GP ADDITION SHOULD BE SUSTAINED. WITH THIS OBSERVATION GROUND NO. 4 & 5 ARE TREATED AS PARTLY ALLOWED. 1 3 . I N THE RESULT, APPEAL OF THE ASSES S EE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER , 2015. SD/ - SD/ - ( ) ( ) (G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIA L MEMBER MUMBAI, DATE: 16 TH SEPTEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE DRP/CIT (A) CONCERNED ___ , MUMBAI. 4 ) THE CIT 8 / CONCERNED ______ , MUMBAI. 11 SEMINIS VEGETABLE SEEDS (I) PVT LTD (NOW MERGED WITH MONSANTO HOLDINGS P LTD) ITA 365 /MUM/201 2 5 ) , , / THE D.R. K BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS