ACIT, New Delhi V. M/s. Canon India Pvt. Ltd, Gurgaon

ITA 4358/DEL/2009

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2841 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 20-02-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 13-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKIT SAHNI ADVS
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Additional evidence; Working capital adjustments; Bad and doubtful debts
• Section: 37(1); 37; 92

Judgement Text

1 ITA NOS. 4358/4409/4856/DEL/2009 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A .NO. 4358/DEL/2009 (ASSESSMENT YEAR-2003-04) I.T.A .NO . 4409/DEL/2009 (ASSESSMENT YEAR-2003-04) & I.T.A .NO. 4856/DEL/2009 (ASSESSMENT YEAR-2004-05) APPELLANT BY SH. S. K. AGARWAL, CA, SH VISNU KOLRA, SH. GAURAV GUPTA, & SH. ANKIT SAHNI, ADVS RESPONDENT BY SH. NEERAJ KUMAR, SR. DR ORDER PER SUCHITRA KAMBLE, JM THESE APPEALS ARE FILED BY THE REVENUE AND THE ASSE SSEE AGAINST THE ORDER DATED 23/9/2009 & 27/10/2009 FOR THE ASSESSME NT YEAR 2003-04 & 2004-05 PASSED BY CIT(A)-XX, NEW DELHI. ACIT CIRCLE-3(1) NEW DELHI (APPELLANT) VS CANON INDIA PVT. LTD. 2 ND FLOOR, TOWER A & B, CYBER GREEN DLF PHASE-III GURGAON AAACC4175D (RESPONDENT) CANON INDIA PVT. LTD. 2 ND FLOOR, TOWER A & B, CYBER GREEN DLF PHASE-III GURGAON AAACC4175D (APPELLANT) VS ACIT CIRCLE-3(1) NEW DELHI (RESPONDENT) DATE OF HEARING 26.05.2017 DATE OF PRONOUNCEMENT 15.06.2017 2 ITA NOS. 4358/4409/4856/DEL/2009 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: ITA NO. 4358/DEL/2009 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) WAS RIGHT IN REJECTING ADDITION OF RS.40096037/- TO RS.30569734/- BY REJECTING THE COMPARABLES ON THE GROUND OF RELAT ED PARTY TRANSACTIONS? 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.134277/- O N ACCOUNT OF ADVANCES WRITTEN OFF ESPECIALLY WHEN NO DOCUMENTARY EVIDENCE WAS FILED BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM? 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) WAS RIGHT IN ALLOWING RELIEF OF RS.366000/- ON ACCO UNT OF BAD DEBTS WRITTEN OFF ESPECIALLY WHEN THE ASSESSEE FAILED TO SATISFY BASIC CONDITION LAID DOWN IN SECTION 36(1) (VII) OF THE A CT R/W SECTION 36(2) WHICH STIPULATES THAT THE DEBT SHOULD HAVE BEEN TAK EN INTO ACCOUNT WHILE COMPUTING INCOME OF THE ASSESSEE IN THE PREVI OUS YEAR(S)? 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) WAS RIGHT IN ALLOWING RELIEF OF RS.5315240/- ON ACC OUNT OF SUBSIDY BROUGHT FORWARD AS THE ASSESSEE HAS NOT CONSIDERED THE C/F OF SUBSIDY IN THE INCOME OF CURRENT YEAR WHICH BECAME PROPERTY OF THE ASSESSEE AT THE TIME OF RECEIPT? 5. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) WAS RIGHT BY THE IT RULES ALLOWS 60% DEPRECIATION O NLY ON COMPUTER AND COMPUTER SOFTWARE? ITA NO. 4409/DEL/2009 1. BASED ON FACTS OF THE CASE, THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW IN RESPECT OF THE ADJUSTMENT PERTAINI NG TO THE COMPUTATION OF THE ARMS LENGTH PRICE OF THE INTERN ATIONAL TRANSACTIONS OF THE APPELLANT WITH ITS ASSOCIATED E NTERPRISES. 2. THE LEARNED CIT (A) HAS ERRED, IN LAW AND IN FA CTS, BY UPHOLDING THE REFERENCE MADE BY THE LEARNED ASSESSING OFFICER (A O) TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA OF THE ACT TO BE CORRECT. 3. THE LEARNED CIT (A) HAS ERRED, IN LAW AND IN FAC TS, IN DETERMINATION OF THE ARMS LENGTH PRICE. 3 ITA NOS. 4358/4409/4856/DEL/2009 4. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FAC TS, BY NOT ACCEPTING THE PRICE PAID BY THE APPELLANT FOR PURCHASE OF GOODS F ROM ITS ASSOCIATED ENTERPRISES AS AN ARMS LENGTH PRICE, AS DEFINED UN DER SECTION 92F(II) OF THE ACT. 5. THE LEARNED CIT (A) HASERRED, IN LAW AND ON FAC TS, BY MAKING (ENHANCING ) THE ADJUSTMENT OF RS 3,05,69,734/- TO THE INCOME OF THE APPELLANT CONSEQUENT TO INCORRECTLY COMPUTING THE A RMS LENGTH PRICE IN RESPECT OF IMPORT OF PHOTOCOPIER AND FAX MACHINE S BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISES. 6. THAT, SUCH AN ADJUSTMENT IS COMPUTATIONALLY INCO RRECT SINCE IT FACTORS IN THE CUSTOM DUTY PAID TO INDIAN REVENUE AND SUCH ENHANCEMENT OF INCOME IS IN BREACH OF PRINCIPLES OF NATURAL JUSTIC E, EQUITY AND FAIR PLAY. 7. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY UPHOLDING ARTIFICIAL SEGREGATION THE DISTRIBUTION B USINESS OF THE APPELLANT INTO PHOTOCOPIER, FAX MACHINE SEGMENT AND PRINTER, SCANNERS AND CARTRIDGES SEGMENT. 8. THE LD.CIT(A) HAS ERRED, IN LAW AND IN FACTS, B Y UPHOLDING THE A.O/TPOS POSITION OF REJECTING THE ECONOMIC ANALYS IS PERFORMED BY THE APPELLANT AND SELECTING ONE COMPARABLE COMPANY TO B ENCH MARK THE PHOTOCOPIERS AND FAX MACHINE SEGMENT OF THE APPELLA NT. 9. THE LD.CIT(A) HAS ERRED, IN LAW AND ON FACTS WH ILE COMPUTING THE GROSS MARGINS OF THE APPELLANT IN RELATION TO PHOTOCOPIER AND FAX MACHINE SEGMENT. 10. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY NOT AGREEING TO COMPUTATION OF THE WORKING CAPITAL ADJUSTMENT CARRI ED OUT BY THE APPELLANT TO REFLECT THE DIFFERING LEVELS OF TRADE RECEIVABLES, TRADE PAYABLES AND INVENTORIES (WORKING CAPITAL ADJUSTMEN TS) BETWEEN THE APPELLANT AND THE POTENTIAL COMPARABLES. 11. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY NOT APPRECIATING THE FACT THAT WHILE COMPARING THE GROSS MARGINS OF APPELLANT WITH ONLY ONE COMPARABLE COMPANY, IT BECOMES NECESSARY TO FAC TOR IN THE SIGNIFICANT DIFFERENCES ON ACCOUNT OF WORKING CAPIT AL EMPLOYED AND MAKE AN APPROPRIATE ADJUSTMENT. 12. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY NOT PLACING RELIANCE ON THE RECENT JUDICIAL PRONOUNCEMENTS AND PROVIDING REASONABLE ADJUSTMENTS. 13. THELEARNED CIT (A) HAS ERRED, IN LAW AND ON FA CTS, BY NOT 4 ITA NOS. 4358/4409/4856/DEL/2009 PLACING RELIANCE ON THE TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS ISSUED BY THE O RGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, JULY 1995. 14. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY NOT PROVIDING THE APPELLANT THE BENEFIT OF 5 PERCENT RANGE AS PROVIDED BY THE PROVISO OF SECTION 92C(2) OF THE ACT. 15. THE LEARNED CIT (A)HAS ERRED, IN LAW AND ON F ACTS, BY IGNORING THE PROVISIONS OF RULE 10B(4) OF THE INCOME TAX RUL ES, 1962 WHICH ENVISAGE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ARMS LENGTH PR ICE. 16. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN LEVYING INTEREST OF UNDER SECTION 234B, 234C AND 234D OF THE ACT. ITA NO. 4856/DEL/2009 1. BASED ON FACTS OF THE CASE, THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW IN RESPECT OF THE ADJUSTMENT PERTAINI NG TO THE COMPUTATION OF THE ARMS LENGTH PRICE OF THE INTERN ATIONAL TRANSACTIONS OF THE APPELLANT WITH ITS ASSOCIATED E NTERPRISES. 2. THE LEARNED CIT (A) HAS ERRED, IN LAW AND IN FA CTS, BY UPHOLDING THE REFERENCE MADE BY THE LEARNED ASSESSING OFFICER (A O) TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA OF THE ACT TO BE CORRECT. 3. THE LEARNED CIT (A) HAS ERRED, IN LAW AND IN FAC TS, IN DETERMINATION OF THE ARMS LENGTH PRICE. 4. THELEARNED CIT(A) HAS ERRED, IN LAW AND IN FACT S, BY NOT ACCEPTING THE PRICE PAID BY THE APPELLANT FOR PURCHASE OF GOODS F ROM ITS ASSOCIATED ENTERPRISES AS AN ARMS LENGTH PRICE, AS DEFINED UN DER SECTION 92F(II) OF THE ACT. 5. THE LEARNED CIT (A) HASERRED, IN LAW AND ON FAC TS, BY MAKING (ENHANCING ) THE ADJUSTMENT OF RS 10,41,38,214/- TO THE INCOME OF THE APPELLANT CONSEQUENT TO INCORRECTLY COMPUTING THE A RMS LENGTH PRICE IN RESPECT OF IMPORT OF PHOTOCOPIER AND FAX MACHINE S BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISES. 6. THAT, SUCH AN ADJUSTMENT IS COMPUTATIONALLY INCO RRECT SINCE IT FACTORS IN THE CUSTOM DUTY PAID TO INDIAN REVENUE AND SUCH ENHANCEMENT OF 5 ITA NOS. 4358/4409/4856/DEL/2009 INCOME IS IN BREACH OF PRINCIPLES OF NATURAL JUSTIC E, EQUITY AND FAIR PLAY. 7. THE LEARNED CIT(A) (A) HAS ERRED, IN LAW AND ON FACTS, BY UPHOLDING ARTIFICIAL SEGREGATION THE DISTRIBUTION BUSINESS OF THE APPELLANT INTO PHOTOCOPIER, FAX MACHINE SEGMENT AND PRINTER, SCANN ERS AND CARTRIDGES SEGMENT. 8. THE LD.CIT(A) HAS ERRED, IN LAW AND IN FACTS, B Y UPHOLDING THE A.O/TPOS POSITION OF REJECTING THE ECONOMIC ANALYS IS PERFORMED BY THE APPELLANT AND SELECTING ONE COMPARABLE COMPANY TO B ENCH MARK THE PHOTOCOPIERS AND FAX MACHINE SEGMENT OF THE APPELLA NT. 9. THE LD. CIT(A) HAS ERRED, IN LAW AND ON FACTS W HILE COMPUTING THE GROSS MARGINS OF THE APPELLANT IN RELATION TO PHOTOCOPIER AND FAX MACHINE SEGMENT. 10. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON FACTS, BY NOT AGREEING TO COMPUTATION OF THE WORKING CAPITAL ADJUSTMENT CARRI ED OUT BY THE APPELLANT TO REFLECT THE DIFFERING LEVELS OF TRADE RECEIVABLES, TRADE PAYABLES AND INVENTORIES (WORKING CAPITAL ADJUSTMEN TS) BETWEEN THE APPELLANT AND THE POTENTIAL COMPARABLES. 11. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY NOT APPRECIATING THE FACT THAT WHILE COMPARING THE GROSS MARGINS OF APPELLANT WITH ONLY ONE COMPARABLE COMPANY, IT BECOMES NECESSARY TO FAC TOR IN THE SIGNIFICANT DIFFERENCES ON ACCOUNT OF WORKING CAPIT AL EMPLOYED AND MAKE AN APPROPRIATE ADJUSTMENT. 12. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY NOT PLACING RELIANCE ON THE RECENT JUDICIAL PRONOUNCEMENTS AND PROVIDING REASONABLE ADJUSTMENTS. 13. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON F ACTS, BY NOT PLACING RELIANCE ON THE TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS ISSUED BY THE O RGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, JULY 1995. 14. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON FA CTS, BY NOT PROVIDING THE APPELLANT THE BENEFIT OF 5 PERCENT RA NGE AS PROVIDED BY THE PROVISO OF SECTION 92C(2) OF THE ACT. 15. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON FACTS, BY IGNORING THE PROVISIONS OF RULE 10B(4) OF THE INCOME TAX RUL ES, 1962 WHICH ENVISAGE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ARMS LENGTH PRICE. 6 ITA NOS. 4358/4409/4856/DEL/2009 16. THE LEARNED CIT (A) HAS ERRED, IN LAW AND ON FACTS UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN LEVYING INTEREST OF UNDER SECTION 234B, 234C AND 234D OF THE ACT. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE COMPANY WAS INCORPORATED ON 11/12/1996 AS A SUBSIDIARY COMPANY OF CANON SINGAPORE PVT. LTD AND DURING THE YEAR UNDER CONSIDERATION THE ASS ESSEE COMPANY CONTINUED TO BE ENGAGED IN THE MANUFACTURING AND TRADING OF P HOTOCOPIERS, TRADING OF TAX MACHINES, PRINTERS, SCANNER AND CALCULATORS. RENTA L AND SERVICE CONTRACTS OF ITS PRODUCTS, SOFTWARE DEVELOPMENT AND EXPORTS (DEV ELOPED THROUGH THE STP UNDERTAKING OF THE ASSESSEE AS WELL AS BY SUBCONTR ACTING IT THROUGH THE THIRD PARTIES) ETC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS SHOWN TOTAL RECEIPT OF RS.2,157,031,245/- WHICH INC LUDES RS.132,081,616/- ON ACCOUNT OF THE PRODUCTION AND EXPORT OF THE COMPUTE R SOFTWARE BY THE STP UNDERTAKING OF THE ASSESSEE COMPANY. THE MAJOR INT ERNATIONAL TRANSACTION DURING THE F.Y. 2002-03 IS IMPORT OF BUSINESS MACHI NES AND COMPUTER PERIPHERALS AND SPARE PARTS FROM ASSOCIATED ENTERPR ISES(AE). THE ASSESSEE HAS RELIED UPON RESALE PRICE METHOD (RPM) AS MOST APPRO PRIATE METHOD TO ESTABLISH THAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT ARE AT ARMS LENGTH PRICE. THE ASSESSEE APPLIED FILTERS SUCH AS FUNCTIONAL DIF FERENCES, INSUFFICIENT FINANCIAL INFORMATION, PERSISTENT OPERATING LOSSES, ETC. FOR SELECTING THE COMPARABLES. THE GROSS MARGIN EARNED BY THE ASSESSEE FROM ITS DISTRI BUTION SEGMENT DURING THE FY 2002-03 IS 21.84% AND HENCE THE ASSESSEE CONTEND ED THAT IT WAS AT ARMS LENGTH WITH RESPECT TO ITS TRADING FUNCTION. THE AS SESSEE SUBMITTED BEFORE THE TPO THAT INCLUSION OF RICOH INDIA LIMITED AND GESTE TNER INDIA HAVING SUBSTANTIAL RELATED PARTY TRANSACTION APPEARS TO BE ACCEPTABLE SINCE THE EXTENT OF RELATED PARTY TRANSACTIONS IS MORE THAN 50%. HEN CE THESE TWO COMPARABLES ARE EXCLUDED FOR THE PRESENT STUDY. HOWEVER, IN CAS E OF XEROX INDIA LTD. THE EXTENT OF RELATED PARTY TRANSACTIONS IS MUCH LOWER THAN 50% AND IS THEREFORE INCLUDED AS A COMPARABLE. ACCORDINGLY, THE TPO HAS GIVEN FINAL LIST OF 7 ITA NOS. 4358/4409/4856/DEL/2009 COMPARABLES FOR THE TRADE OF PHOTOCOPIERS AND FAX M ACHINES AND THEIR RESALE PRICE MARGIN IS KILBURN OFFICE AUTOMATION LTD. (27. 76) AND XEROX INDIA LTD. (30.16) THUS, AVERAGE RESALE PRICE MARGIN WAS DETER MINED AT 28.96. THUS, THE ARMS LENGTH PRICE OF GOODS PURCHASED FROM THE AE A ND WHICH WERE SOLD BY THE ASSESSEE DURING THE FY 2002-03 IS DETERMINED AT RS. 56,34,95,314 INSTEAD OF RS. 60,35,91,351 I.E. AN AMOUNT LOWER BY RS. 4,00,9 6,037/-. THE ASSESSING OFFICER MADE ADDITION IN RESPECT OF THE ADVANCES WR ITTEN OFF TO THE EXTENT OF RS. 8,02,598. THE ASSESSING OFFICER ALSO MADE ADDITION IN RESPECT OF BAD DEBTS WRITTEN OFF TO THE EXTENT OF RS. 3,66,000/-. THE AS SESSING OFFICER MADE ADDITION IN RESPECT OF SUBSIDY RECEIVED IN ADVANCE IN THE PR EVIOUS YEAR 2002-03 FROM CANON SINGAPORE PVT. LTD. BUT NOT UTILIZED WITHIN T HE PREVIOUS YEAR TO THE EXTENT OF RS. 2,06,39,500/- AS WELL AS THE SUBSIDY RECEIVED IN CURRENT YEAR TO THE EXTENT OF RS. 53,15,240/-. IN RESPECT OF DEPREC IATION ON COMPUTER ACCESSORIES, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 83,681/-. 4. THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) UPHELD THE ADDITION MADE BY THE TPO TO THE EXTENT OF RS. 3,05, 69,734/- IN RESPECT OF ARMS LENGTH PRICE OF IMPORT OF BUSINESS MACHINES AND COM PUTER PERIPHERALS AND SPARE PARTS BY THE ASSESSEE FROM ITS AE WHICH WERE SOLD. THE CIT(A) HELD THAT SINCE THE ARMS LENGTH PRICE DETERMINED BY THE ASSE SSEE IS OUTSIDE THE RANGE OF 5%. THEREFORE, THE BENEFIT OF PROVISO TO SECTION 92C(2) CANNOT BE GIVEN TO THE ASSESSEE. AS RELATED TO DISALLOWANCE OF ADVANCES A ND DEPOSITS WRITTEN OFF, THE CIT(A) PARTLY ALLOWED THE SAME IN FAVOUR OF THE ASS ESSEE BY GIVING RS.1,34,277/- RELIEF. AS RELATES TO DISALLOWANCE O F BAD DEBTS WRITTEN OFF, AMOUNTING TO RS.3,66,000/- AND CLAIMED AS DEDUCTION U/S 28(I) READ WITH SECTION 37(1) OF THE ACT. THE CIT(A) ALLOWED THE S AID DISALLOWANCE. AS RELATED TO TAXATION OF UNUTILIZED SUBSIDY THE CIT(A) DISMIS S THE GROUND OF THE ASSESSEE. AS RELATED TO TAXATION OF UNUTILIZED SUBSIDY AMOUNT ING TO RS. 53,15,240/- RECEIVED IN PRECEDING YEARS THE CIT(A) ALLOWED THE SAME IN FAVOUR OF THE ASSESSEE. IN RESPECT OF CLAIM OF DEPRECIATION ON C ERTAIN COMPUTER ACCESSORIES AND PERIPHERALS THE CIT(A) ALLOWED THE SAME IN LIGH T OF ITAT DECISIONS IN CASE OF 8 ITA NOS. 4358/4409/4856/DEL/2009 ITO VS. SAMIRAN MAJUMDAR 280 ITR 74 & CONTAINER CO RPORATION OF INDIA LTD VS. ACIT 2009 (30 SOT 284)(DEL). INTEREST CHARGED U/S 234A, 234B, 234C & 234D WAS UPHELD BY THE CIT(A). AGGRIEVED BY THE SA ID ORDER OF THE CIT(A) THE ASSESSEE AND THE REVENUE BOTH ARE IN APPEAL. 5. THE LD. DR SUBMITTED THAT AS RELATES TO GROUND N O. 1 REGARDING RELIEF OF RS. 95,25,303/- ON ACCOUNT OF TP ADJUSTMENT AND ADD ITIONAL GROUNDS NO. 1 AND 2 WHEREIN RELIEF WAS GIVEN DESPITE NOT RAISED I N THE GROUNDS OF APPEAL BY THE ASSESSEE IN VIOLATION OF RULE 46 A, THE CIT(A) HAS ALLOWED RELIEF OF RS. 95,25,303/-, OUT OF TP ADJUSTMENT OF RS.4,00,96,037 /- BY EXCLUDING ONE COMPARABLE I.E. XEROX INDIA LTD., OUT OF TWO COMPAR ABLES FINALLY SELECTED BY THE TPO, ON ACCOUNT OF HIGH RPT (40.53%). THE ASSESSEE NEVER RAISED THIS ISSUE BEFORE THE TPO THUS IT WAS NOT EXAMINED BY THE TPO. THE CIT(A) ALLOWED RELIEF DESPITE THE FACT THAT THE ABOVE GROUND, I.E. EXCLUS ION OF XEROX INDIA LT. ON ACCOUNT OF HIGH RPT, WAS NOT RAISED BY THE ASSESSEE BEFORE THE CIT(A). THE CIT(A) ADMITTED THE ADDITIONAL EVIDENCE AND ALLOWED RELIEF WITHOUT ALLOWING THE TPO AN OPPORTUNITY OF REBUTTAL/EXAMINATION AS PER T HE PROVISION OF RULE 46A. THE ITAT HAS RESTORED THE MATTER TO THE TPO FOR THE AY 2002-03 (ITA NO. 3957/DEL/2009) WHEREIN IDENTICAL ISSUE WAS INVOLVED . WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, THE LD. AR SUBMITTED THAT EVEN ON FACTS ALSO THE ABOVE RELIEF IS ERRONEOUS AS RPT HAS NOT BEEN CORRECTLY COMPUTED . THE ITAT DELHI IN CASE OF AITHENT TECHNOLOGIES (2016) 74 TAXMANN.COM 214 (DEL HI TRIB.) HAS HELD THAT RPT SHOULD BE COMPUTED SEPARATELY FOR PURCHASES AND SALES RESPECTIVELY, I.E. WITH RELATED PARTY PURCHASES (NUMERATOR) AND TOTAL PURCHASES (DENOMINATOR) AND WITH RELATED PARTY REVENUE AND TOTAL SALES (DEN OMINATOR), AND THEN ONLY THE RPT FILTER SHOULD BE APPLIED. THE LD. AR FURNISHED THE FIGURES OF CORRECT RPT COMPUTATION AS UNDER:- TOTAL PURCHASES (EXPENSES) FROM RELATED PARTIES = R S. 8,065.90 LAKHS TOTAL EXPENSES = RS. 61,082.16 LAKHS 9 ITA NOS. 4358/4409/4856/DEL/2009 RPT = 13.20% ALTERNATIVELY, TOTAL REVENUE FROM RELATED PARTIES = 3,326.79 LAKHS TOTAL SALES = RS. 47,084.80 RPT = 7% IT WAS SUBMITTED THAT BY EITHER OF THE ABOVE COMPUT ATION, THE RPT PERCENTAGE IS MUCH LESS THAN 25% (WHICH THE ACCEPTED NORM NOW) AND EVEN LESS THAN 15% 6. THE LD. DR SUBMITTED THAT AS RELATES TO GROUND N O. 2 REGARDING WRITTEN OFF, THE CIT(A) ALLOWED RELIEF OF RS. 1,34,277/-, O UT OF ADVANCES AND DEPOSITS WRITTEN OFF AMOUNTING TO RS.8,02,598/-, ON THE GROU ND THAT RS.73,500/- IS TRAVEL ADVANCE GIVEN TO FORMER EMPLOYEE, WITHOUT AP PRECIATING THAT NO EVIDENCE IN THIS REGARD HAS BEEN SUBMITTED BY THE ASSESSEE, AND RS.60,777/- IS EXCESS TDS DEPOSITED, WITHOUT APPRECIATING THAT EXCESS TDS DEPOSITED IS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NO DEDUCTION CAN BE ALLOWED U/S 37(1) OF THE ACT. 7. THE LD. DR SUBMITTED THAT GROUND NO. 3 REGARDING CLAIM OF BAD DEBTS OF RS. 3,66,000 WRITTEN OFF, THE CIT(A) FAILED TO APPR ECIATE THAT THE ABOVE PAYMENTS HAVE BEEN MADE, ON ACCOUNT OF OUT OF COURT SETTLEMENT MADE WITH TWO PARTIES, BY THE ASSESSEE AS A RESULT OF INFRING EMENT OF THE CONSUMER PROTECTION ACT. COMPLAINTS WERE FILED BY THE ABOVE TWO PARTIES AGAINST THE ASSESSEE COMPANY AND ITS MD FOR THE VIOLATION OF TH E PROVISIONS OF THE ABOVE ACT. THUS, THE ABOVE PAYMENTS WHICH HAVE EVIDENTLY BEEN MADE TO AVOID CRIMINAL LIABILITIES ARE NOT ALLOWABLE DEDUCTION U/ S 37(1) OF THE ACT AS PER THE EXPLANATION TO SECTION 37(1) OF THE ACT. THE CIT(A) ALLOWED RELIEF BY HOLDING THAT THE ABOVE AMOUNT IS DEDUCTIBLE U/S 37 (1) WITHOUT A PPRECIATING THE FACT THAT THE ORIGINAL CLAIM OF DEDUCTION WAS MADE BY THE ASS ESSEE AS BAD DEBTS WRITTEN OFF WHICH WAS REJECTED BY THE AO ON THE GROUND THAT THE DEBTS WERE NOT TAKEN 10 ITA NOS. 4358/4409/4856/DEL/2009 INTO ACCOUNT WHILE COMPUTING THE INCOME OF EARLIER ASSESSMENT YEARS. NO CLAIM OF DEDUCTION U/S 37(1) WAS MADE BEFORE THE AO AND T HUS THE ABOVE CLAIM WAS NOT EXAMINED BY THE AO FROM THE POINT OF VIEW OF DE DUCTIBILITY U/S 37(1). THE CIT(A) WITHOUT PROVIDING ANY OPPORTUNITY TO THE AO ALLOWED RELIEF TO THE ASSESSEE. THUS, THIS ISSUE IS REQUIRED TO BE RESTOR ED BACK TO THE AO FOR EXAMINATION OF ITS CLAIM OF DEDUCTION U/S 37(1) OF THE ACT. 8. THE LD. DR FURTHER SUBMITTED THAT GROUND NO. 4 R ELATING TO RELIEF OF RS. 53,15,240/-, THE CIT(A) ALLOWED RELIEF OF RS. 53,15 ,240/-ON ACCOUNT OF UNUTILIZED SUBSIDY RECEIVED IN THE A.Y. 2002-03 ON THE GROUND THAT THE ABOVE SUBSIDY AMOUNT HAS BEEN INCLUDED IN THE SUBSIDY AMO UNT OF RS.9,09,88,168/- WHICH HAS BEEN UTILIZED DURING THE YEAR. THE CIT(A) ALLOWED RELIEF ON THE GROUND THAT THE ABOVE AMOUNT HAS BEEN DOUBLY TAXED BY THE AO. IT IS PERTINENT TO MENTION THAT THE ADDITION OF THE ABOVE AMOUNT BY THE AO FOR THE A.Y. 2002- 03 HAS BEEN DELETED BY THE ITAT (ITA NO. 4040/DEL/2 010, DATED 19.10.2016). THUS, NOW IT IS NOT A CASE OF DOUBLE TAXATION BY TH E AO. BESIDES THE ABOVE, THE RECONCILIATION CHART SUBMITTED BY THE ASSESSEE BEFO RE AO, AS GIVEN AT PG. NO. 7 OF THE ASSESSMENT ORDER, AND THE RECONCILIATION CHA RT SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A), AS GIVEN AT PG. NO. 30 OF THE APPELLATE ORDER, ARE DIFFERENT RAISING SERIOUS CONCERNS ABOUT THE AUTHEN TICITY OF THE ABOVE RECONCILIATION. IN THE CHART SUBMITTED BEFORE THE A O THE ASSESSEE HAS DISCLOSED SUBSIDY OF RS. 9,09,88,168/- RECEIVED DURING THE A .Y. 2003-04 EXCLUDING THE ABOVE SUBSIDY AMOUNT, WHEREAS IN THE CHART SUBMITTE D BEFORE THE CIT(A) THE ASSESSEE DISCLOSED SUBSIDY OF RS. 9,09,88,168/-, IN CLUDING THE ABOVE SUBSIDY. THE CIT(A) ACCEPTED THE IMPROVED VERSION OF THE REC ONCILIATION CHART SUBMITTED DURING THE APPELLATE STAGE WITHOUT RAISING ANY QUER Y AND WITHOUT PROVIDING AO ANY OPPORTUNITY OF REBUTTAL UNDER RULE 46A. 9. THE LD. DR SUBMITS THAT GROUND NO. 5, THE ITEMS LIKE SWITCH BOARD FOR COMPUTERS, CD WRITER, SERVER RACKS AND SWITCHES ARE NOT INTEGRAL PART OF 11 ITA NOS. 4358/4409/4856/DEL/2009 COMPUTER SYSTEMS AND CANNOT BE CLASSIFIED AS COMPUT ER PERIPHERALS. THUS DEPRECIATION @ 60% CANNOT BE ALLOWED TO THE ASSESSE E. 10. THE LD. AR SUBMITTED THAT CONSISTENCY HAS TO BE MAINTAINED. THE CIT(A) REJECTED M/S XEROX INDIA LTD. AS A COMPARABLE FOR H AVING HIGH RPT IN AY 2004- 05, AND THE SAID DECISION OF CIT(A) HAS NOT BEEN CH ALLENGED BY THE DEPARTMENT BEFORE THE ITAT, MEANING THEREBY, THE SAID ORDER HA S BEEN ACCEPTED BY THE DEPARTMENT. CONSIDERING THE PRINCIPLE OF CONSISTENC Y, DEPARTMENT SHOULD NOT BE ALLOWED TO CONTEST EXCLUSION OF M/S XEROX INDIA LTD. FROM THE LIST OF COMPARABLES IN THIS ASSESSMENT YEAR. 11. THE LD. AR FURTHER SUBMITTED THAT THE ADDITIONA L GROUND RAISED BY THE REVENUE IS NOT JUST AND PROPER AS THE TPO/AO HAS ER RED IN CLAIMING THAT THE ADJUDICATION BY THE CIT(A) ON THE REMOVAL OF M/S XE ROX INDIA LTD. FROM THE FINAL SET OF COMPANIES IS INCORRECT AND IN VIOLATIO N OF RULE 46A OF THE I. T. RULES. THE LD. AR FURTHER SUBMITTED THAT THE ASSESS EE HAS NOT VIOLATED THE RULE 46A OF THE RULES IN ANY MANNER AS SUBMISSION O N RPT WERE BASED ON FINANCIALS WHICH ARE AVAILABLE IN PUBLIC DOMAIN AND DO NOT AMOUNT TO ADDITIONAL EVIDENCE WITHIN THE SCOPE OF RULE 46A OF THE RULES. FURTHER, THE CIT(A) HAD DIRECTED TO FILE THE SAID INFORMATION. T HUS THE INFORMATION PROVIDED TO THE CIT(A) WAS NOT IN THE NATURE OF ADDITIONAL EVIDENCE. THE LD. AR RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE C ASE OF CIT VS K.K.S.K LEATHER PROCESSOR (P.) LTD. (2007) 292 ITR 669 (MAD ), WHEREIN THE HONBLE COURT HELD THAT VERIFICATION OF REGULAR ACCOUNTS CO ULD NOT BE CONSIDERED AS ADDITIONAL EVIDENCE TO BE CALLED AS VIOLATION OF RU LE 46A. FURTHER, THE DETAILS OF RPT OF COMPARABLE M/S XEROX INDIA LTD. WAS AVAILAB LE WITH THE TPO, WHICH IS EVIDENT FROM ORDER OF TPO WHEREIN HE HAS RECORDED H IS FINDING IN RELATION TO RPT OF M/S. XEROX INDIA LTD. AND AFTER ADOPTING TH E THRESHOLD OF 50% RPT, HAS ACCEPTED M/S XEROX INDIA LTD. TO BE INCLUDED AS A COMPARABLE. THEREFORE, THE TPO/AO ERRED IN CLAIMING THAT REMOVAL OF M/S XEROX INDIA LTD. AS COMPARABLE ON RPT BY CIT(A), IS IN VIOLATION OF RULE 46A OF TH E RULES. THE TPO IS REQUIRED UNDER THE LAW TO DETERMINE THE ALP OF THE INTERNATI ONAL TRANSACTION AS PER THE 12 ITA NOS. 4358/4409/4856/DEL/2009 RELEVANT PROVISIONS OF THE ACT. THE ONUS TO IDENTIF Y COMPARABLE UNCONTROLLED TRANSACTIONS REST ON THE TPO, WHICH MEANS THAT THE COMPANIES WHICH DO NOT SATISFY THE RPT THRESHOLD CANNOT BE TREATED AS COMP ARABLE COMPANIES. RELIANCE WAS PLACED ON RULE 10B(1)(B) OF THE RULES, WHICH PR OVIDES THE MANNER IN WHICH RPM IS TO BE APPLIED; IT CLEARLY PROVIDES THAT THE TESTED TRANSACTION MUST BE COMPARED WITH THE COMPARABLE UNCONTROLLED TRANSACTI ON FOR THE PURPOSE OF DETERMINATION OF ALP. THE LD. AR FURTHER SUBMITS TH AT ALTHOUGH THE REJECTION OF COMPARABLES BASED ON RPT WAS NOT SPECIFICALLY PLEAD ED IN THE GROUNDS ALONG WITH FORM 35 BEFORE THE CIT(A) THE SAME WERE DISCUS SED IN GREAT DETAILS AND SUBMITTED SUBSEQUENTLY DURING THE COURSE OF HEARING . THE SAME HAS ALSO BEEN RECORDED IN THE ORDER OF THE CIT(A). IN THIS REGARD , THE LD. AR PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN CASE OF COMMISSIONER OF INCOME TAX VS JINDAL SAW PIPES (2010) 328 ITR 338 ( DEL) WHERE IN IT IS HELD THAT THE AUTHORITY OF THE COMMISSIONER IS CO-EXTENS IVE WITH THAT OF THE ASSESSING OFFICER. MOREOVER, SECTION 250(5) OF THE ACT, 1961 ALLOWS THE ASSESSEE TO RAISE AN ISSUE NOT EVEN FORMING PART OF THE GROUNDS OF APPEAL AND EVEN IF A QUESTION HAS NOT BEEN SPECIFICALLY PLEADE D IN THE GROUNDS, THE SAME IF PLEADED DURING THE COURSE OF HEARING CAN BE ADJUDIC ATED UPON BY THE COURT. THIS AUTHORITY OF THE CIT(A) TO ADJUDICATE ON GROUN DS WHICH HAS INITIALLY NOT BEEN PLEADED BEFORE HIM BUT EVIDENT FROM THE FACTS BEFORE HIM ARISES FROM THE FACT THAT THE POWERS OF THE CIT(A) IS CO-EXTENSIVE WITH THAT OF THE AO. THE SAME HAS BEEN HELD IN A PLETHORA OF CASES, SOME OF WHICH ARE MENTIONED BELOW: I. JUTE CORPORATION OF INDIA VS. CIT (1990) 88 CTR 66 (SC) II. CIT VS. PIONEER PRESS PVT. LTD. (2001) 170 CTR (MAD .) 12. THE LD. AR FURTHER SUBMITTED THAT RPT COMPUTATI ON PROVIDED TO THE CIT(A) BASED ON FINANCIAL STATEMENTS, WHICH WERE AV AILABLE IN THE PUBLIC DOMAIN AND ALSO RELIED UPON ON THE TP DOCUMENTATION CANNOT PER SE BE TERMED AS ADDITIONAL EVIDENCE. NOTWITHSTANDING AND WITHOUT PREJUDICE, EVEN IF IT IS ASSUMED FOR THE SAKE OF ARGUMENT THAT THE SAME CAN BE CLASSIFIED AS ADDITIONAL EVIDENCE, THE POWERS OF THE CIT (A) BEING CO-TERMIN US TO THAT OF THE TPO/AO, 13 ITA NOS. 4358/4409/4856/DEL/2009 THE CIT(A) WAS WELL WITHIN HIS RIGHTS TO EXAMINE TH E SAME. THUS, THE ADDITION MADE HAS BEEN RIGHTLY DELETED BY THE CIT(A). 13. AS RELATES TO ASSESSEES APPEAL BEING ITA NO. 4 409/DEL/2009, THE LD. AR SUBMITS THAT GROUND NO. 1, 3 AND 4 ARE GENERAL I N NATURE AND GROUND NO. 2 IS NOT PRESSED. AS REGARDS TO GROUND NO. 6 RELATI NG TO SEGREGATION OF DISTRIBUTION BUSINESS, THE LD. AR SUBMITTED THAT TH E TPOS OBSERVATION THAT THE TWO SEGMENTS HAVE ENTIRELY DIFFERENT TARGET CUSTOM ERS ARE FACTUALLY INCORRECT. THE LD. AR SUBMITS THAT NOT ONLY THAT THERE IS OVER LAPPING OF CUSTOMERS BUT ALSO THE FUNCTIONAL ASSET AND RISK PROFILE (FAR) IS SAME IN RELATION TO DISTRIBUTION ACTIVITY UNDERTAKEN FOR EACH OF THE PR ODUCTS SOLD BY THE ASSESSEE. THE ASSESSEE ADOPTS THE SAME DISTRIBUTION CHANNELS FOR SALE OF ALL PRODUCTS AND UTILIZES THE SAME ASSETS / INFRASTRUCTURE IN RE LATION TO THE SAID ACTIVITY. THE SAME EMPLOYEES ARE EMPLOYED FOR UNDERTAKING MARKETI NG AND OPERATIONAL ACTIVITIES FOR ALL PRODUCTS AND COMMON ADVERTISING AND PROMOTIONAL INITIATIVES ARE UNDERTAKEN BY THE ASSESSEE FOR THE SALE OF PROD UCTS IN INDIA. THUS, BASED ON THE DETAILED FAR OF THE ASSESSEE AS PROVIDED IN THE TP REPORT, NO DISTINCTION CAN BE MADE BETWEEN THE VARIOUS PRODUCTS DISTRIBUTE D BY THE ASSESSEE IN INDIA. ALSO, IT IS PERTINENT TO NOTE THAT CREDIT PE RIOD AND INVENTORY HOLDING PERIOD FOR ALL PRODUCTS PURCHASED BY THE ASSESSEE F ROM ITS AE IS SAME. FURTHER, SIMILAR CREDIT PERIOD IS PROVIDED BY THE ASSESSEE T O ITS CUSTOMERS IN INDIA FOR ALL PRODUCTS. IN SUPPORT OF THE ABOVE SUBMISSIONS, THE ASSESSEE SUBMITTED DOCUMENTS AS UNDER: INVOICES SHOWING BILLING OF PHOTOCOPIER AND PRINTE RS TO SAME CUSTOMERS COMPREHENSIVE ADVERTISEMENT FOR ALL THE BUSINESS S EGMENTS I.E. PHOTOCOPIER, PRINTERS, ETC. PAYMENTS AND PURCHASE INVOICES FOR ALL THE PRODUCT CATEGORIES 14. THE LD. AR FURTHER SUBMITTED THAT IT IS COMMON FOR RESELLERS AND DISTRIBUTORS TO BENCHMARK THEIR INTERNATIONAL TRANS ACTIONS USING PORTFOLIO 14 ITA NOS. 4358/4409/4856/DEL/2009 APPROACH WHERE GOODS FOR EXAMPLE SPLIT AIR CONDITIO NERS, WINDOW AIR CONDITIONERS AND INDUSTRIAL AIR CONDITIONERS WOULD BE ALL AGGREGATED AND BENCHMARKED TOGETHER, GIVEN THE SIMILARITY OF FUN CTIONS. RELIANCE IS PLACED ON RULE 10A(D) OF THE INCOME TAX RULES, 1962 WHICH PRO VIDES THAT TRANSACTION INCLUDES A NUMBER OF CLOSELY LINKED TRANSACTIONS . THE AFORESAID RULE CLARIFIES THAT WHILE SECTION 92 OF THE ACT USES THE PHRASE I NTERNATIONAL TRANSACTION THE TERM TRANSACTION INCLUDES A NUMBER OF CLOSELY LINKE D TRANSACTIONS. THUS, THE CURRENT SCHEME OF THE ACT PROVIDES FOR AN AGGREGATI ON APPROACH. IF THE WORD TRANSACTION IS TO BE READ AS SINGULAR, AS THE C IT(A) HAD PROPOSED, IT WOULD LEAD TO AN ABSURD INTERPRETATION THAT EVERY TIME TH E ASSESSEE IMPORTED A CANON PRODUCT FROM ITS AE, THE SAME WOULD HAVE TO B E BENCHMARKED AND DOCUMENTED SEPARATELY. THUS A REASONABLE INTERPRETA TION OF THE TERM TRANSACTION ALLOWS THE ASSESSEE TO BENCHMARK ALL ITS INTERNATIONAL TRANSACTIONS WITH RESPECT TO IMPORT OF FINISHED GOO DS FOR RESALE TO BE BENCHMARKED TOGETHER. THIS VIEW IS ALSO ECHOED IN T HE OECD TP GUIDELINES 2010 IN PARA 3.9 AND 3.10, WHICH ACKNOWLEDGES THAT THERE MAY BE SITUATIONS WHERE SEPARATE TRANSACTIONS ARE SO CLOSELY LINKED T HAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. PARA 2.24 OF THE GUIDELINES ALSO CLEARLY STATE THAT WHILE ADOPTING RPM, FUNCTIONAL S IMILARITY IS MORE IMPORTANT THAN PRODUCT SIMILARITY. THIS VIEW IS ALSO REITERAT ED IN PARA 2.28 OF THE GUIDELINES. 15. THE LD. AR FURTHER SUBMITTED THAT IN VIEW OF TH E CRITERIA PRESCRIBED BY THE RULES, NATURE, CLASS OF THE TRANSACTIONS AND TH E AVAILABILITY, COVERAGE, RELIABILITY OF DATA, AND GUIDELINES ISSUED BY THE O ECD GUIDELINES, RPM WAS CONSIDERED AS BEING THE MOST APPROPRIATE METHOD T O ESTABLISH THE ARMS LENGTH NATURE OF THE DISTRIBUTION FUNCTION OF THE A SSESSEE. IT MAY BE APPRECIATED THAT RPM ENTAILS A COMPARISON OF THE GROSS MARGINS OF FUNCTIONALLY SIMILAR INTERNATIONAL TRANSACTIONS. THE USE OF GROSS MARGINS IS UNDERTAKEN ON ACCOUNT OF SIMILARITY OF FUNCTIONS (IN THIS CASE, DISTRIBUTION OF PRODUCTS) RATHER THAN SIMILARITY OF PRODUCT LINES. WHEN UNDERTAKING A GROSS PROFIT ANALYSIS, THE 15 ITA NOS. 4358/4409/4856/DEL/2009 EMPHASIS SHOULD BE MORE ON THE COMPARABILITY OF THE FUNCTIONS PERFORMED, THE ASSETS UTILIZED AND THE RISKS ASSUMED IN RELATION T O THE PRODUCTS RATHER THAN THE PRODUCTS THEMSELVES . THE LD. AR RELIED UPON US TP REGULATIONS WHICH CATEGORICALLY STATE THAT GROUPING IS ALSO THE NORM WITH THE RESALE PRICE METHOD OR THE COST PLUS METHOD. THE LD. AR RELIED UPON TH E FOLLOWING DECISIONS OF THE TRIBUNAL WHERE IT HAS BEEN HELD THAT SIMILAR TRANSA CTIONS WHICH ARE INTERLINKED SHOULD BE AGGREGATED FOR THE PURPOSES OF BENCHMARKI NG; M/S PANASONIC INDIA PRIVATE LIMITED VS ITO [2011] 43 SOT 68 (DEL) M/S TOYOTA KIRLOSKAR MOTOR (P) LTD. VS ACIT [2014] 166 TTJ (BANG) 189 GODREJ SARA LEE LTD. VS ADDL. CIT ITA NO. 598/MUM/2013 GODREJ SARA LEE LTD VS ADD. CIT ITA NO. 1251 & 1356/MUM/2014 BOSKALIS INTERNATIONAL DREDGING INTERNATIONAL CV VS DDIT (ITA 4862/MUM/2008) CUMMINS INDIA LTD. VS ACIT BEARING ITA NO. 1616/PN/2011 DEMAG CRANES & COMPONENTS (INDIA) PVT. LTD. VS. DC IT [2013] 56 SOT 187 (PUNE). 16. THUS, THE LD. AR SUBMITTED THAT THE CIT(A) / TPO HA VE ERRED IN REJECTING THE AGGREGATION APPROACH TO BENCHMARK THE DISTRIBU TION SEGMENT. FURTHER, THE LD. AR ALSO SUBMITTED THAT THE TPO HAS EMPHASIZ ED ON THE FACT THAT SCANNERS FALLS UNDER THE CATEGORY OF HOUSEHOLD PROD UCTS AND CIT(A) FURTHER UPHELD THE SAME VIEW. IN THIS REGARD, IT IS DEBATAB LE TO SAY IF PRODUCTS LIKE SCANNERS ARE HOUSEHOLD PRODUCTS BE IT THE YEAR UNDE R CONSIDERATION OR EVEN TODAY. THUS, THE TPOS PREMISE TO ARTIFICIALLY SEGR EGATE THE DISTRIBUTION SEGMENT IS VERY SUBJECTIVE AND DEVOID OF ANY COMMER CIAL RATIONALE. BENCHMARKING DISTRIBUTION FUNCTION DE HORS ARTIFICI AL SEGMENT ACCEPTED IN SUBSEQUENT YEARS. THE LD. AR SUBMITTED THAT IN THE SUBSEQUENT YEARS (FROM AY 2005-06 ONWARDS) THE AO / TPO HAS ACCEPTED THE AGGR EGATION APPROACH UNDERTAKEN BY THE ASSESSEE RELATING TO THE SALE OF IMPORTED GOODS AND HAS NOT ARTIFICIALLY BIFURCATED THE TRADED GOODS IN SEGMENT S FOR THE PURPOSES OF BENCHMARKING. RELIANCE IN THIS REGARD IS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CIT VS RADHASOAMI SATSANG SAOMI BA GH VS CIT [1992] 193 16 ITA NOS. 4358/4409/4856/DEL/2009 ITR 321 (SC), WHEREIN, PRINCIPLE OF CONSISTENCY HAS BEEN UPHELD. RELIANCE IS FURTHER PLACED ON THE FOLLOWING DECISIONS: CIT VS EXCEL INDUSTRIES: [2013] 358 ITR 295 (SC) BRINTONS CARPETS ASIA P. LTD. VS DCIT (2011) 46 SOT 289 (PUNE) CLARIANT CHEMICALS (INDIA) LTD. VS JCIT: ITA NO. 2 328 & 2393 MUM/2011 VIHI, LLC VS ADDL. DIT: ITA NO. 17/MDS/2012 KTC FERRO ALLOYS (P.) LTD VS ADDL. CIT: [2014] 161 TTJ 228 (VISAKHAPATNAM - TRIB.) HOSLEY INDIA (P.) LTD. VS DCIT (ITA. NO. 5904/DEL/2 010 (IF AGGREGATION PRINCIPLE IS ACCEPTED, THEN THE ORI GINAL COMPARABLE SET OF 11 COMPANIES LESS COMPANIES REJECTED BY CIT(A) AND TPO FOR HAVING HIG H RPT SHOULD BE RESTORED) 17. THE LD. AR SUBMITTED IN RESPECT OF GROUND NO. 7 THA T THE CIT(A) ERRED IN UPHOLDING AO/TPOS POSITION OF REJECTING ECONOMIC A NALYSIS PERFORMED BY THE ASSESSEE AND SELECTING ONE COMPARABLE. THE LD. AR F URTHER SUBMITTED THAT ASSESSEE IN ITS TP STUDY FOR THE PURPOSES OF BENCHM ARKING THE INTERNATIONAL TRANSACTION OF IMPORT OF GOODS, HAD TAKEN COMPARABL E COMPANIES ENGAGED IN DISTRIBUTION OF PHOTOCOPIERS, FAX MACHINES, SCANNER S, PRINTERS AND OTHER SIMILAR PRODUCTS. HOWEVER, THE TPO ARTIFICIALLY BIF URCATED THE DISTRIBUTION SEGMENT OF THE ASSESSEE INTO SUB SEGMENTS BASED ON PRODUCTS, WHICH WAS NOT BASED ON SOUND PREMISES AND DEVOID OF COMMERCIAL RA TIONAL. FURTHER, WITHOUT PREJUDICE TO THE ABOVE THAT SEGREGATION WAS ERRONEO US, THE TPO WHILE PROPOSING AN ADJUSTMENT IN RELATION TO PRODUCT SEGM ENT PERTAINING TO PHOTOCOPIERS AND FAX MACHINE AND OTHERS, ERRED IN C HERRY PICKING COMPARABLE COMPANIES AND DISREGARDED CERTAIN COMPARABLE COMPAN IES SELECTED BY THE ASSESSEE IN THE TP REPORT, WHICH WERE ENGAGED IN DI STRIBUTION OF SIMILAR PRODUCTS. IT IS THE SUBMISSION OF THE ASSESSEE, THA T EVEN IF SEGREGATION APPROACH IS TO BE ADOPTED, THE CIT(A) / TPO HAVE ER RED IN REJECTING THE OTHER COMPARABLE COMPANIES IN THE TP REPORT, WITHOUT PASS ING A SPEAKING ORDER IN THIS REGARD OR ADJUDICATING ON REJECTION OF SUCH CO MPARABLE COMPANIES. 17 ITA NOS. 4358/4409/4856/DEL/2009 18. AS REGARDS TO GROUND NO. 8, 9, 10 RELATING TO T HE WORKING CAPITAL ADJUSTMENT, THE LD. AR SUBMITTED THAT THE DETAILED WORKING CAPITAL ADJUSTMENTS WERE SUBMITTED BY THE ASSESSEE WITH THE CIT(A). A REVISED WORKING CAPITAL ADJUSTMENT IS ALSO BEING SUBMITTED BEFORE T HE TRIBUNAL DURING THE PRESENT HEARING. THE LD. AR FURTHER SUBMITTED THAT THE TP REGULATIONS MANDATE PROVIDING FOR, INTER ALIA, WORKING CAPITAL ADJUSTME NTS. RULE 10B(1)(B)(IV) OF THE RULES PROVIDES FOR MAKING APPROPRIATE ADJUSTMENTS ON ACCO UNT OF FUNCTIONAL AND OTHER DIFFERENCES BETWEEN THE TESTED PARTY AND THE COMPARABLE COMPANIES, WHILE APPLYING RPM. SIMILARLY, RULE 10B(3) OF THE RULES, IN ORDER TO ESTABLISH COMPARABILITY BETWEEN THE INTERNATIONAL TRANSACTION AND AN UNCONTROLLED TRANSACTION, ALSO ADVOCATE FOR ELIMINATING DIFFEREN CES BETWEEN THE ENTERPRISES/TRANSACTIONS, WHICH MATERIALLY AFFECT T HE PRICE/PROFIT OF THE TRANSACTION IN AN OPEN MARKET, BY WAY OF PROVIDING REASONABLY ACCURATE ADJUSTMENTS. AS A SEQUITUR, IF REASONABLE ACCURATE ADJUSTMENTS CANNOT BE PROVIDED TO ELIMINATE DIFFERENCES, THE COMPANY MUST BE REJECTED AS A COMPARABLE COMPANY. THE LD. AR SUBMITTED THAT THE A SSESSEE SELECTED A BIGGER SET OF COMPARABLES (TO ACCOUNT FOR DIFFERENC ES) BUT DUE TO BIFURCATION OF DISTRIBUTION SEGMENT AND SELECTION OF ONLY ONE COMP ARABLE (FOR PHOTOCOPIERS & FAX MACHINES SEGMENT ) BY TPO & CIT(A), BEING M/S KILBURN, IT BECAME NECESSARY FOR THE ASSESSEE TO CARRY OUT WORKING CAP ITAL ADJUSTMENTS. WORKING CAPITAL ADJUSTMENT ARE AN IMPORTANT ADJUSTMENT TO B E CARRIED OUT AT GROSS LEVEL COMPARISON. IN CASE THE WORKING CAPITAL ADJUSTMENT IS NOT CARRIED OUT THEN M/S KILBURN SHOULD BE DROPPED AS A COMPARABLE. EVEN GENERAL PRUDENCE FAILS TO JUSTIFY THE ACTIONS OF THE TPO / CIT(A) BECAUSE IN EFFECT THE AMOUNT OF TP ADJUSTMENT IS NOT SO MUCH LINKED TO THE IMPORT PRIC E OF THE ASSESSEE BUT MORE TO HOW WELL KILBURN AS A COMPANY PERFORMS ON A GROS S PROFIT LEVEL. THE GROSS PROFIT MARGIN FOR THE M/S KILBURN AND THE ASSESSEE IS SUBMITTED IN THE PAPER BOOK. IT WAS SUBMITTED THAT PARA 3.49 OF THE OECD GUIDELI NES AT PAGE 122 ALSO STATES THAT WORKING CAPITAL ADJUSTMENT SHOULD BE PR OVIDED TO ELIMINATE THE DIFFERENCES IN PAYABLES AND RECEIVABLES WHILE ARRIV ING AT THE ALP. THE LD. AR ALSO SUBMITTED THAT THE CIT(A) HAS OBSERVED IN HIS ORDER IN PARA 11.15 THAT 18 ITA NOS. 4358/4409/4856/DEL/2009 WHILE DETERMINING THE WORKING CAPITAL ADJUSTMENT OF M/S KILBURN THE ASSESSEE HAS CONSIDERED ONLY THE SALES OF PLANE PAPER COPIER AND FAX MACHINES WHERE AS THE INVENTORY, DEBTORS AND CREDITORS HAS BEEN TAKEN ON AN ENTITY LEVEL, THE SAME SHOULD ALSO BE LIMITED TO THE SEGMENTAL SALES AS MENTIONED ABOVE. IN THIS REGARD, IT IS SUBMITTED THAT THE WORKING CAPITAL AD JUSTMENT HAS BEEN COMPUTED BASED ON THE PROPORTIONATE CREDITORS, DEBTORS, AND INVENTORY WITH RESPECT TO THE SALES, AND THE SAME IS IN LINE WITH THE METHODO LOGY AS PROVIDED BY OECD. IT IS ALSO SUBMITTED THAT IN THE CASE OF THE ASSESS EE, THE ADJUSTMENTS ARE MADE, BASED ON PUBLISHED ANNUAL REPORTS OF THE COMPARABLE S, WHICH WERE AUDITED AND AVAILABLE IN THE PUBLIC DOMAIN. FURTHER IT MAY BE APPRECIATED THAT EXACT SEGMENTAL CREDITORS AND DEBTORS FOR M/S KILBURN ARE NOT AVAILABLE IN THE PUBLIC DOMAIN. THE LD. AR FURTHER SUBMITTED THAT THE INTER NATIONAL TRANSACTIONS WERE CONCLUDED TO BE AT ARMS LENGTH IN THE TP DOCUMENTA TION AND HENCE IT WOULD NOT MAKE A SIGNIFICANT DIFFERENCE, EVEN IF THE ASSE SSEE DID NOT SPECIFICALLY MAKE A CLAIM FOR ANY ADJUSTMENT . ACCORDINGLY, THE WORKING CAPITAL ADJUSTMENTS CANNOT BE DENIED IN THE CASE OF THE ASSESSEE FOR TH E MERE REASON THAT IT WAS NOT SPECIFICALLY CLAIMED IN THE DOCUMENTATION. THE LD. AR SUBMITTED THAT THE TERM REASONABLY ACCURATE ADJUSTMENTS DO NOT MEAN THAT THE ADJUSTMENTS IS PERMISSIBLE ONLY IF THEY ARE PRECISE AND ACCURATE. 19. THE LD. AR EXPLAINED THE INTERPRETATION OF THE TERM REASONABLE CERTAINTY IN THE LEGAL DICTIONARIES AS UNDER:- BLACKS LAW DICTIONARY, SIXTH EDITION TO ESTABLISH DAMAGES FOR LOST PROFITS DUE TO BREAC H OF CONTRACT WITH REASONABLE CERTAINTY DOES NOT MEAN THAT SUCH DAMAGES MUST BE ESTABLISHE D IN EXACT PECUNIARY AMOUNT; EVIDENCE MUST HOWEVER LA Y SOME FOUNDATION ENABLING FACT FINDER TO MAKE FAIR AND REASONABLE ES TIMATE OF AMOUNT OF DAMAGE. REASONABLE MEANS FAIR, PROPER, MODERATE, SUITABLE UNDER THE 19 ITA NOS. 4358/4409/4856/DEL/2009 CIRCUMSTANCES. FIT AND APPROPRIATE TO THE END IN VI EW. HAVING THE FACULTY OF REASON; RATIONAL; GOVERNED BY REASON; UNDER THE INF LUENCE OF REASON. THINKING, SPEAKING OR ACTING ACCORDING TO THE DICTA TES OF REASON. NOT IMMODERATE OR EXCESSIVE, BEING SYNONYMOUS WITH RATI ONAL, HONEST, EQUITABLE, FAIR, SUITABLE MODERATE, TOLERABLE. WORDS AND PHRASES FOR PURPOSE OF REQUIREMENT THAT DAMAGES BE PROVEN TO REASONABLE CERTAINTY, REASONABLE CERTAINTY SIGNIFIES NOTHING MORE THAN PROBABILITY AND IS FOUND TO REFER TO KIND OF EVIDENCE REQUIRED RATH ER THAN QUANTUM OF PROOF. (GPL TREATMENT LTD VS LOUISIANA- PACIFIC CORP., 894 P.2D 470, 133 OR. APP. 633, REVIEW ALLOWED 898 P.2D 770, 321 OR. 396.) REASONABLE CERTAINTY DOES NOT REQUIRE MATHEMATICA L EXACTITUDE, BUT ONLY THAT DAMAGES BE TAKEN OUT OF REALM OF SPECULATION. (BUMGARNER V. BUMARGNER, 862 P. 2D 321, 124 IDAHO 629.) IN LIGHT OF THE ABOVE, THE LD. AR SUBMITTED THAT AD JUSTMENTS COULD BE PROPERLY MADE, TO THE EXTENT APPROPRIATE UNDER THE CIRCUMSTA NCES AND ARE BASED ON REASON, THUS IT WOULD BE REASONABLY ACCURATE AND SHOULD BE GRANTED TO THE ASSESSEE. AS PER THE REQUIREMENT OF LAW, ADJUSTMENT ARE CARRIED OUT WITH A REASONABLE ACCURACY ON THE BASIS OF RELIABLE INFORM ATION AVAILABLE IN THE PUBLIC DOMAIN - ASSESSEE CANNOT BE EXPECTED TO OBTAIN SEGM ENT WISE FINANCIALS OF THE COMPARABLES, WHICH ARE NOT IN THE PUBLIC DOMAIN. IT IS SUBMITTED THAT THE REJECTION OF THE ASSESSEES APPROACH BY THE CIT(A) IS MERELY BASED ON ASSUMPTIONS AND SURMISES THAT THE WORKING CAPITAL POSITION WOULD BE VERY DIFFERENT FROM THE INDIVIDUAL BUSINESS SEGMENTS, FR OM THE ENTITY WIDE POSITION. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS, WHE REIN ADJUSTMENTS WITH REGARD TO DIFFERENCES IN WORKING CAPITAL, HAS BEEN UPHELD: FEDERAL MOGUL AUTOMOTIVE PRODUCTS VS DCIT BEARING ITA NO. 5881/DEL/2012 20 ITA NOS. 4358/4409/4856/DEL/2009 UNITED HEALTH GROUP INFORMATION SERVICES PVT. LTD. VS ACIT [2014] 151 ITD 556 ( DELHI) TATA MCGRAW HILL EDUCATION VS ACIT: [2016] 69 TAXMANN.COM 418 (TRIB.) WESTFALIA SEPERATOR INDIA PVT. LTD. VS ACIT [2014] 165 TTJ (DELHI) 56 MERCER CONSULTING (INDIA) PVT. LTD. VS DCIT [2014] 150 ITD 1 (DELHI-TRIB) MENTOR GRAPHICS (NOIDA) PVT LTD VS DCIT [2007] 112 TTJ 408 (DEL) SKODA AUTO INDIA (P) LTD VS ACIT [2009] 122 TTJ 699 (PUNE) 20. AS REGARDS TO GROUND NO. 5 RELATING TO INCORREC T COMPUTATION OF ARMS LENGTH PRICE ADJUSTMENT IN RESPECT OF IMPORT OF PHO TOCOPIER AND FAX MACHINES, THE LD. AR SUBMITTED THAT THE ABSENCE BEFORE THE CI T(A) VIDE SUBMISSIONS DATED SEPTEMBER 10, 2009 (REFER PAGE 47 OF PAPER BO OK-I) SUBMITTED THAT THE COST OF GOODS SOLD (COGS) SHOULD BE ADOPTED AS IN R 60,32,21,498/- WHEREAS THE CIT(A) WHILE COMPUTING THE TP ADJUSTMENT HAS ER RONEOUSLY TAKEN THE COGS AS INR 60,35,91,351/- (I.E., WITHOUT REDUCING THE VALUE OF GOODS CAPITALIZED AMOUNTING TO RS.,3,69,853). THE LD. AR FURTHER SUBMITTED THAT THE GOODS CAPITALIZED AMOUNTING TO RS.,3,69,853 SHOULD HAVE BEEN REDUCED BY THE CIT(A) BEFORE COMPUTING THE GROSS MARGINS / ADJUSTM ENT. FURTHER, FOR THE PRESENT ASSESSMENT YEAR, THE ASSESSEE HAD IMPORTED FINISHED GOODS FROM ITS AES FOR RESALE IN INDIA. ON IMPORT OF SUCH FINISHED GOODS INTO INDIA, THE ASSESSEE HAD PAID HIGH CUSTOMS DUTY AND HENCE ADJUS TMENT SHOULD BE COMPUTED AFTER EXCLUDING THE EFFECT OF CUSTOM DUTY FROM THE COST OF GOODS SOLD. THE RATE OF CUSTOMS DUTY ON THE VARIOUS GOODS IMPOR TED BY THE ASSESSEE ARE ANNOUNCED AND DETERMINED BY THE DEPARTMENT OF REVEN UE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA. FOR THE SAKE OF CONVE NIENCE, THE CUSTOMS DUTY RATES HAVE BEEN PROVIDED BELOW: ASSESSEE IMPORTED FINISHED GOODS FROM ITS AES FOR R ESALE IN INDIA. ON IMPORT OF SUCH FINISHED GOODS INTO INDIA, ASSESSEE PAID HIGH CUSTOMS DUTY, WHEREAS, IN PRODUCTS BASIC CUSTOM DUTY COUNTERVAILING DUTY SPECIAL ADDITIONAL EFFECTIVE DUTY 21 ITA NOS. 4358/4409/4856/DEL/2009 THE CASE OF M/S KILBURN, THE PURCHASES ARE BOTH SOU RCED LOCALLY AND FROM OUTSIDE INDIA. WHILE, ENTIRE PURCHASE BY THE ASSESS EE REPRESENTED IMPORTS AND ON WHICH CUSTOM DUTY WAS PAID; IN CONTRAST, ONLY 50 % (APPROX) OF THE PURCHASES OF M/S KILBURN REPRESENT IMPORTS. THERE I S A SIGNIFICANT DIFFERENCE ON ACCOUNT OF CUSTOM DUTY AND IT IS SUBMITTED THAT APPROPRIATE ADJUSTMENTS BE MADE TO THE GROSS MARGINS AFTER ELIMINATING THE IMP ACT OF CUSTOM DUTY FROM THE ASSESSEE AS WELL AS M/S KILBURN. THE MARGIN OF M/S KILBURN AFTER EXCLUDING THE CUSTOMS DUTY IS 41.7% PERCENT WHEREAS THE MARGIN OF THE ASSESSEE AFTER REMOVAL OF CUSTOMS DUTY FROM THE PRI CE IS 53.28%, WHICH IS HIGHER THAN THAT OF THE M/S KILBURN AND THUS THE IN TERNATIONAL TRANSACTION OF IMPORT BY THE ASSESSEE IS AT ARMS LENGTH. 21. THE LD. AR FURTHER SUBMITTED THAT GROUND NO. 11 IS GENERAL IN NATURE, GROUND NO. 12 AND 13 ARE NOT PRESSED AND GROUND NO. 14 IS CONSEQUENTIAL IN NATURE. 22. WE HAVE HEARD BOTH THE SIDES AND PERUSED ALL TH E MATERIAL AVAILABLE ON THE RECORDS. FIRST, WE TAKE UP THE REVENUES APPEA L. 22.1 IN RESPECT OF REVENUES APPEAL, GROUND NO. 1 I S RELATED TO TRANSFER PRICING AND IS OF REJECTION OF COMPARABLES ON THE GROUND OF RELATED PARTY TRANSACTIONS AND ADDITIONAL GROUND NO. 1 AND 2 WHEREIN RELIEF WA S GIVEN DESPITE NOT RAISED IN THE GROUNDS OF APPEAL BY THE ASSESSEE IN VIOLATI ON OF RULE 46A OF THE INCOME TAX RULES, 1962 BY THE CIT(A). AS RELATES TO GROUND NO. 1 REGARDING RELIEF OF RS. 95,25,303/- ON ACCOUNT OF TP ADJUSTMENT AND ADD ITIONAL GROUNDS NO. 1 AND 2 WHEREIN RELIEF WAS GIVEN DESPITE NOT RAISED I N THE GROUNDS OF APPEAL BY THE ASSESSEE IN VIOLATION OF RULE 46 A, THE CIT(A) HAS ALLOWED RELIEF OF RS. 95,25,303/-, OUT OF TP ADJUSTMENT OF RS.4,00,96,037 /- BY EXCLUDING ONE COMPARABLE I.E. XEROX INDIA LTD. OUT OF TWO COMPARA BLES FINALLY SELECTED BY THE TPO, ON ACCOUNT OF HIGH RPT (40.53%). THE ASSESSEE NEVER RAISED THIS ISSUE BEFORE THE TPO THUS IT WAS NOT EXAMINED BY THE TPO. THE CIT(A) ALLOWED RELIEF 22 ITA NOS. 4358/4409/4856/DEL/2009 DESPITE THE FACT THAT THE ABOVE GROUND, I.E. EXCLUS ION OF XEROX INDIA LTD. ON ACCOUNT OF HIGH RPT, WAS NOT RAISED BY THE ASSESSEE BEFORE THE CIT(A). THE CIT(A) ADMITTED THE ABOVE ADDITIONAL EVIDENCE AND A LLOWED RELIEF WITHOUT ALLOWING THE TPO AN OPPORTUNITY OF REBUTTAL/EXAMINA TION AS PER THE PROVISION OF RULE 46A. THE ITAT HAS RESTORED THE MATTER TO TH E TPO FOR THE AY 2002-03 (ITA NO. 3957/DEL/2009) WHEREIN IDENTICAL ISSUE WAS INVOLVED. THE RELEVANT EXTRACT OF THE SAID ITAT ORDER IS AS UNDER: 12. WE, HOWEVER, FIND THAT WHILE ACCEPTING THE SUB MISSIONS DATED 28/7/2009 OF THE ASSESSEE ON THE ISSUE OF USING THE COMPARABLE COMPANIES HAVING RELATED PARTY TRANSACTIONS BY THE TPO, THE LD. CIT(A) (APPEALS) HAS NOT GOT VERIFIED FROM THE LEARNED TPO THE DETAILS OF COMPUTATION OF RELATED PARTY TRANSACTION OF COMPARA BLE COMPANIES AS WELL AS THE DETAILS OF PURCHASE OF FINISHED GOODS BY COM PARABLES FROM ITS RELATED PARTIES AS A PERCENTAGE OF TOTAL PURCHASES SUMMARIZED BEFORE HIM FOR THE FIRST TIME. TO THIS EXTENT, WE AGREE WITH THE LD. CIT(DR) THAT THERE IS SUBSTANCE IN THE ISSUE RAISED IN THE ADDITIONAL GRO UND NO. 2 REGARDING VIOLATION OF RULE 46A OF THE I.T RULES AND HENCE, A LLOW THIS GROUND. 13. IN RESULT, WE SET ASIDE THE MATTER TO THE FILE OF THE LEARNED TPO TO VERIFY THE CORRECTNESS OF THE ABOVE SUBMISSIONS DAT ED 28/7/2009 OF THE ASSESSEE, REPRODUCE AT PAGE NOS. 35 & 36 OF THE FIR ST APPELLATE ORDER VIDE PARA NO. 10.3.5 AND IF HE FINDS THAT THE ABOVE SUBM ISSIONS OF THE ASSESSEE ARE NOT CORRECT THEN DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SINCE GROUNDS ARE INT ER-CONNECTED, IN RESULT THESE ARE ALLOWED FOR STATISTICAL PURPOSES. 14. IN RESULT, THE APPEAL IS ALLOWED FOR STATISTIC AL PURPOSES. THE ISSUE WAS NEVER RAISED BEFORE THE CIT(A) AND RU LE 46A DO NOT PERMIT TO TAKE UP ANY ISSUE WHICH WAS NOT BEFORE THE CIT(A) W ITHOUT ALLOWING THE OPPORTUNITY OF BEING HEARD. THEREFORE, THE RULE 46 A WAS NOT PROPERLY INVOKED BY THE CIT(A). YET, THE ISSUE OF COMPARABLE HAS TO BE DECIDED BY THE TPO, 23 ITA NOS. 4358/4409/4856/DEL/2009 THEREFORE, THE SAME IS RESTORED BACK TO THE FILE OF THE TPO TO BE DECIDED AS HELD IN THE EARLIER ASSESSMENT YEAR BY THIS TRIBUNAL. NE EDLESS TO SAY THAT, THE ASSESSEE BE GIVEN AN OPPORTUNITY OF BEING HEARD. 22.2 IN RESULT, GROUND NO. 1 AND ADDITIONAL GROUND NOS. 1 AND 2 OF THE REVENUES APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 22.3 THE SECOND GROUND OF REVENUES APPEAL IS THAT OF DELETING THE ADDITION ON ACCOUNT OF ADVANCE WRITTEN OFF. THE CIT(A) HAS CALL ED FOR THE DETAILS OF ADVANCES AND DEPOSITS WRITTEN OFF DURING THE APPELLATE PROCE EDINGS AND VERIFIED THE SAME. IT WAS OBSERVED BY THE CIT(A) THAT RS. 73,500 /- WAS ON ACCOUNT OF TRAVEL ADVANCES GIVEN TO FORMER EMPLOYEES WHO WERE NO LONG ER EMPLOYED WITH THE ASSESSEE COMPANY AND WERE NOT TRACEABLE AND RS. 60 ,777/- RELATES TO EXCESS TDS DEPOSITED. THESE EXPENSES WERE INCURRED DURING THE COURSE OF REGULAR BUSINESS AND THEREFORE, THE CIT(A) RIGHTLY ALLOWED AS DEDUCTION UNDER SECTION 28(I) READ WITH SECTION 37(1) OF THE ACT. FOR RS. 6 ,68,321, THE ASSESSEE HAS MERELY STATED THAT THEY PERTAIN TO IRRECOVERABLE TR ADE ADVANCES GIVEN TO VARIOUS VENDORS, DEFALCATION MADE TO EMPLOYEE ETC. WITHOUT FURNISHING ANY DOCUMENTARY EVIDENCE REGARDING THE NATURE OF THESE EXPENSES. THEREFORE, THE CIT(A) RIGHTLY DISALLOWED THE SAME. THERE IS NO NEE D TO INTERFERE WITH THE FINDINGS OF THE CIT(A) WHO HAS TAKEN COGNIZANCE OF ALL THE RELEVANT EVIDENCE PUT BEFORE THE APPELLATE AUTHORITY. 22.4 IN RESULT, GROUND NO. 2 OF THE REVENUES APPEA L IS DISMISSED. 22.5. GROUND NO. 3 IS RELATED TO BAD DEBTS WRITTEN OFF, THE IMPUGNED PAYMENTS HAVE BEEN MADE, ON ACCOUNT OF OUT OF COURT SETTLEME NT MADE WITH TWO PARTIES BY THE ASSESSEE, AS A RESULT OF INFRINGEMENT OF THE CONSUMER PROTECTION ACT. COMPLAINTS WERE FILED BY THE TWO PARTIES AGAINST TH E ASSESSEE COMPANY AND ITS MD FOR THE VIOLATION OF THE PROVISIONS OF THE ABOVE ACT. THUS, THE ABOVE PAYMENTS WHICH HAVE EVIDENTLY BEEN MADE TO AVOID CR IMINAL LIABILITIES ARE NOT 24 ITA NOS. 4358/4409/4856/DEL/2009 ALLOWABLE DEDUCTION U/S 37(1) OF THE ACT AS PER THE EXPLANATION TO SECTION 37(1) OF THE ACT. THE CIT(A) ALLOWED RELIEF BY HOLDING TH AT THE ABOVE AMOUNT IS DEDUCTIBLE U/S 37 (1) WITHOUT APPRECIATING THE FACT THAT THE ORIGINAL CLAIM OF DEDUCTION WAS MADE BY THE ASSESSEE AS BAD DEBTS WRI TTEN OFF WHICH WAS REJECTED BY THE AO ON THE GROUND THAT THE DEBTS WER E NOT TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME OF EARLIER ASSESSMENT YE ARS. NO CLAIM OF DEDUCTION U/S 37(1) WAS MADE BEFORE THE AO AND THUS THE ABOVE CLAIM WAS NOT EXAMINED BY THE AO FROM THE POINT OF VIEW OF DEDUCTIBILITY U /S 37(1). THE CIT(A) WITHOUT PROVIDING ANY OPPORTUNITY TO THE AO ALLOWED RELIEF TO THE ASSESSEE. THUS, THE REVENUES CONTENTIONS THAT THIS ISSUE IS REQUIRED T O BE RESTORED BACK TO THE AO FOR EXAMINATION OF ITS CLAIM OF DEDUCTION U/S 37(1) OF THE ACT IS ACCEPTED. THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFI CER. NEEDLESS TO SAY THAT THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING. 22.6 IN RESULT, GROUND NO. 3 OF THE REVENUES APPEA L IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 22.7 GROUND NO. 4 IS ON ACCOUNT OF SUBSIDY BROUGHT FORWARD. THE CIT(A) ALLOWED RELIEF ON THE GROUND THAT THE ABOVE AMOUNT HAS BEEN DOUBLY TAXED BY THE AO. IT IS PERTINENT TO MENTION THAT THE ADDITIO N OF THE ABOVE AMOUNT BY THE AO FOR THE A.Y. 2002-03 HAS BEEN DELETED BY THE ITA T (ITA NO. 4040/DEL/2010, ORDER DATED 19.10.2016). THUS, NOW IT IS NOT A CASE OF DOUBLE TAXATION BY THE AO. BESIDES THE ABOVE, THE RECONCILIATION CHART SUB MITTED BY THE ASSESSEE BEFORE AO, AS GIVEN AT PG. NO. 7 OF THE ASSESSMENT ORDER, AND THE RECONCILIATION CHART SUBMITTED BY THE ASSESSEE BEFO RE THE CIT(A), AS GIVEN AT PG. NO. 30 OF THE APPELLATE ORDER, ARE DIFFERENT RAISIN G SERIOUS CONCERNS ABOUT THE AUTHENTICITY OF THE ABOVE RECONCILIATION. IN THE CH ART SUBMITTED BEFORE THE AO THE ASSESSEE HAS DISCLOSED SUBSIDY OF RS. 9,09,88,1 68/- RECEIVED DURING THE A.Y. 2003-04 EXCLUDING THE ABOVE SUBSIDY AMOUNT, WH EREAS IN THE CHART SUBMITTED BEFORE THE CIT(A) THE ASSESSEE DISCLOSED SUBSIDY OF RS. 9,09,88,168/-, INCLUDING THE ABOVE SUBSIDY. THE CIT (A) ACCEPTED THE IMPROVED 25 ITA NOS. 4358/4409/4856/DEL/2009 VERSION OF THE RECONCILIATION CHART SUBMITTED DURIN G THE APPELLATE STAGE WAS ACCEPTED BY THE A.O WITHOUT RAISING ANY QUERY AND W ITHOUT PROVIDING AO ANY OPPORTUNITY OF REBUTTAL UNDER RULE 46A. THUS, THE L D. DRS SUBMISSION IS ACCEPTED AND THIS ISSUE IS REMANDED BACK TO THE FIL E OF THE AO FOR THE VERIFICATION. NEEDLESS TO SAY, THE ASSESSEE BE GIVE N HEARING. 22.8 IN RESULT, GROUND NO. 4 OF THE REVENUES APPEA L IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 22.9 GROUND NO. 5 IS RELATED TO DEPRECIATION. THE ITEMS LIKE SWITCH BOARD FOR COMPUTERS, CD WRITER, SERVER RACKS AND SWITCHES ARE NECESSARY FOR COMPUTER SYSTEMS AND ARE CLASSIFIED AS COMPUTER PERIPHERALS. THUS, THE CIT(A) HAS RIGHTLY ALLOWED THE SAID DEPRECIATION ON THE COMPUT ER ACCESSORIES AND PERIPHERALS. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). 22.10 IN RESULT, GROUND NO. 5 OF THE REVENUES AP PEAL IS DISMISSED. 23. IN RESULT, REVENUES APPEAL IS PARTLY ALLOWED F OR STATISTICAL PURPOSE. 24. NOW, WE COME TO THE APPEAL OF THE ASSESSEE. 24.1 GROUND NO. 1 IS GENERAL AND 2 IS NOT PRESSED B Y THE ASSESSEE. GROUND NOS. 3 & 4, 11 ARE AGAIN GENERAL IN NATURE. GROUND NO. 12 & 13 ARE NOT PRESSED. GROUND NO. 14 IS CONSEQUENTIAL IN NATURE. THEREFORE, THESE GROUNDS OF THE ASSESSEES APPEAL DO NOT REQUIRE ANY ADJUDIC ATION ON OUR PART. 24.2 GROUND NO. 5 IS RELATED TO INCORRECT COMPUTATI ON OF ARMS LENGTH PRICE PAID BY THE ASSESSEE IN RESPECT OF IMPORT OF PHOTOC OPIERS AND FAX MACHINES. BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(A), ALL THE RELEVANT RECORDS WERE PRODUCED BUT THE SAME WERE NOT PROPERLY VERIFIED. AS IN THE REVENUES APPEAL THE TRANSFER PRICING ISSUE IS ALREADY REMANDED BACK TO THE FILE OF THE TPO/A.O. 26 ITA NOS. 4358/4409/4856/DEL/2009 THEREFORE, THIS ISSUE IS ALSO REMANDED BACK TO THE FILE OF TPO/A.O. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF BEING HEA RD. 24.3 IN RESULT, GROUND NO. 5 OF THE ASSESSEES APPE AL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 24.4 GROUND NO. 6 IS RELATED TO SEGREGATION OF DIST RIBUTION BUSINESS. THE TPOS PREMISE TO ARTIFICIALLY SEGREGATE THE DISTRIB UTION SEGMENT NEEDS TO BE LOOKED INTO AS THE COMPARABLES HAS TO BE EXAMINED B Y THE TPO/A.O. TRANSFER PRICING ISSUE IS ALREADY REMANDED BACK TO THE FILE OF THE TPO/A.O. THEREFORE, THIS ISSUE IS ALSO REMANDED BACK TO THE FILE OF TPO /A.O. NEEDLES TO SAY, THE ASSESSEE BE GIVEN HEARING. 24.5 IN RESULT, GROUND NO. 6 OF THE ASSESSEES APPE AL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 24.6 GROUND NO. 7 OF THE ASSESSEE IS RELATING TO RE JECTING THE ECONOMIC ANALYSIS PERFORM BY THE ASSESSEE AND SELECTING ONE COMPARABLE. THIS ISSUE IS ALSO COVERED IN REVENUES APPEAL. THEREFORE, THIS I SSUE IS ALSO REMANDED BACK TO THE FILE OF TPO/AO. NEEDLESS TO SAY, THE ASSESS EE BE GIVEN HEARING. 24.7 HENCE, IN RESULT, GROUND NO. 7 OF THE ASSESSEE S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 24.8 GROUND NO. 8, 9 & 10 OF THE ASSESSEES APPEAL RELATING TO WORKING CAPITAL ADJUSTMENT, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE TPO/A.O AS WAS DONE IN THE REVENUES APPEAL, THE SAME NEEDS NOT TO BE ANSWERED AT THIS STAGE. 24.9 IN RESULT, GROUND NO. 8, 9 &10 OF THE ASSESSEE S APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 27 ITA NOS. 4358/4409/4856/DEL/2009 25. IN THE APPEAL IN ITA NO. 4856/DEL/2009 FOR A.Y. 2004-05 FILED BY THE ASSESSEE IDENTICAL ISSUES ARE INVOLVED AS WERE IN I TA NO.4409/DEL/2009 (SUPRA) THEREFORE, THE SAME ARE ALSO REMANDED BACK TO THE FILE OF THE TPO/AO AS WAS DONE IN ASSESSMENT YEAR 2003-04. 26. IN RESULT, THE APPEAL OF THE REVENUE AS WELL AS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15TH OF JUNE, 2017. SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/06/2017 *R.NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 28 ITA NOS. 4358/4409/4856/DEL/2009 DATE 1. DRAFT DICTATED ON 26/05/2017 & 14/6/2017 SR. PS 2. DRAFT PLACED BEFORE AUTHOR 26/05/2017 SR. PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 15.06.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 15.06.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.