Dana India Pvt.Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 1(2), Pune

ITA 473/PUN/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3802 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-02-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 14-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Set aside
• Section: 92C; 43B; 10B; 139(1); 13; 22; 92CA; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.473/PUN/2018 / ASSESSMENT YEAR : 2013-14 DANA INDIA PRIVATE LIMITED, S.NO.278, RAISONI INDUSTRIAL PARK, VILLAGE MANN, HINJEWADI PHASE-II, TALUKA MULSHI, PUNE 411 057 PAN : AABCD1873A VS. DCIT, CIRCLE-1(2), PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 27-11-2017 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TA X ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSES SMENT YEAR 2013-14. 2. THIS APPEAL IS TIME BARRED BY 38 DAYS. THE ASSESSEE HAS FILED A CONDONATION PETITION GIVING REASONS FOR THE DELAY. THE SAID REASONS HAVE BEEN PERUSED AND FOUND TO BE SATISFACTORY. THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR HEARING. ASSESSEE BY SHRI R.D. ONKAR REVENUE BY SHRI AMOL KAMAT DATE OF HEARING 23-02-2021 DATE OF PRONOUNCEMENT 25-02-2021 ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 2 A. TRANSFER PRICING ADDITION IN `MANUFACTURING ACTIVITIES 3. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE TRANS FER PRICING ADDITION OF RS.22,60,76,000/- MADE BY THE AO IN THE MANUFACTURING ACTIVITIES. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS EE IS A FULLY OWNED SUBSIDIARY OF DANA CORPORATION, USA AND IS ENG AGED IN DESIGN, MANUFACTURE, ASSEMBLING, SALE AND DEALING IN AXLES AND COMPONENTS THEREOF FOR OFF-HIGHWAY APPLICATIONS IN FINISHED OR SEMI-FINISHED FORMS. THE ASSESSEE FILED A RETURN DECLARIN G LOSS OF RS.5.18 CRORE. CERTAIN INTERNATIONAL TRANSACTIONS AND DOMESTIC TRANSACTIONS WERE REPORTED. THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LEN GTH PRICE (ALP) OF THE TRANSACTIONS. THE TPO OBSERVED THAT THE ASSESSEE AGGREGATED SOME OF THE INTERNATIONAL TRANSACTIONS AN D APPLIED THE TRANSACTIONAL NET MARGINAL METHOD (TNMM) AS THE MOST APPROPRIATE METHOD. THE ASSESSEE DETERMINED ITS PROF IT LEVEL INDICATOR (PLI) OF OPERATING PROFIT (OP)/TOTAL COST (TC) AT 5.32%. SEVEN COMPARABLES WERE CHOSEN WITH THEIR AVERAGE OP/OC AT 7.20% CALLING FOR NO TRANSFER PRICING ADJUSTMENT. T HE TPO DID NOT DISPUTE THE SELECTION OF THE TNMM AS THE MOST ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 3 APPROPRIATE METHOD AND ALSO THE TALLY OF COMPARABLES. HE M ADE CERTAIN ALTERATIONS IN THE ASSESSEES OPERATING PROFIT BY APPLY ING RULE 10TA OF THE INCOME-TAX RULES, 1962 (HEREINAFTER ALSO CALLED `THE RULES). AFTER CARRYING OUT SUCH MODIFICATIONS, HE WOR KED OUT THE ASSESSEES PLI AT (-) 0.32%. THE PLI OF SEVEN COMPARABLES CHOSEN BY THE ASSESSEE WAS RE-WORKED AT 6 .70% IN ALIGNMENT WITH RULE 10TA. IN THIS WAY, HE PROPOSED THE TRANS FER PRICING ADJUSTMENT OF RS.23,44,28,000/- IN THE INTERNATIONAL TRANSACTIONS GROUPED UNDER THE MANUFACTURING ACTIVITY. THE DISPUTE RESOLUTION PANEL (DRP) PROVIDED MARGINAL RELIEF. GIVING EFFECT TO THE DIRECTIONS OF THE DRP, THE AO RECOMPUTED THE TRANSFER PRICING ADJUSTMENT AT RS.22,60,76,000/-, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 5. THE ASSESSEE HAS AGITATED THE WORKING OF ITS PLI ALONG WITH TWO COMPARABLES. FIRSTLY, WE ESPOUSE THE ISSUES CONCERNING W ITH THE ASSESSEES OWN PLI. CERTAIN ITEMS OF OPERATING REVENUE AS WELL AS OPERATING COSTS HAVE BEEN DISPUTED HEREIN. BEFORE W E VENTURE TO EXAMINE SUCH CLAIMS AD SERIATIM, IT IS NECESSARY TO TAKE NOTE OF THE FACT THAT THE TPO HAS DECIDED THE INCLUSION OR EXCLUSION OF CERTAIN ITEMS OF THE ASSESSEES COSTS AND REVE NUE IN DISPUTE, BY RESORTING TO THE DEFINITIONS OF `OPERATING REVENUE AND ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 4 `OPERATING EXPENSE AS GIVEN IN RULE 10TA OF THE RULES, WH ICH FALL UNDER THE SAFE HARBOUR RULES AS PRESCRIBED UNDER THE CHA PTER SAFE HARBOUR RULES FOR INTERNATIONAL TRANSACTIONS. 6. SECTION 92CB(1) OF THE ACT, AT THE MATERIAL TIME, PROVIDED THAT THE DETERMINATION OF THE ALP U/SS 92C OR 92CA SHALL BE SUBJECT TO SAFE HARBOUR RULES. SUB-SECTION (2) STATES THAT: THE BOARD MAY, FOR THE PURPOSE OF SUB-SECTION (4), MAKE RU LES FOR SAFE HARBOUR. THE RELEVANT RULES FROM 10TA TO 10TG CAME TO BE INSERTED BY THE INCOME-TAX (SIXTEENTH AMENDMENT) RULES, 2013 W.E.F. 18-09-2013. RULE 10TD(1) PROVIDES THAT THE TRANS FER PRICE DECLARED BY THE ASSESSEE IN RESPECT OF ELIGIBLE TRANSACTION S HALL BE ACCEPTED BY THE INCOME-TAX AUTHORITIES AT ALP, IF IT IS IN ACCORDANCE WITH THE CIRCUMSTANCES AS SPECIFIED IN SUB-RULES (2) OR (2A). A CHART HAS BEEN GIVEN IN THESE SUB-RULES IN WHICH THE SAFE HARBOUR HAS BEEN PROVIDED FOR THE ELIGIBLE INTERNATIONAL TRANSACTIONS. FOR EXAMPLE, THE FIRST ENTRY IN RULE 10TD(2) IS THE ELIGIBLE INTERNATIONAL TRANSACTION OF `PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND THE SAFE HARBOUR, REQUIRING ACC EPTANCE OF THE DECLARED TRANSACTION VALUE, HAS BEEN PRESCRIBED A S THE OPERATING PROFIT MARGIN OF NOT LESS THAN 20% OF OPERATING EXPENSES. EXPLANATION TO SECTION 92CB OF THE ACT ITSELF PROVIDE S ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 5 THE MEANING OF 'SAFE HARBOUR' AS THE `CIRCUMSTANCES IN W HICH THE INCOME-TAX AUTHORITIES SHALL ACCEPT THE TRANSFER PRICE . DECLA RED BY THE ASSESSEE. IT IS FOR THE PURPOSE OF CALCULATING VALU E OF VARIOUS COMPONENTS UNDER THE SAFE HARBOUR RULES, SUCH A S, OPERATING PROFIT OR OPERATING EXPENSE ETC. THAT ONE NEEDS TO KNOCK AT THE DOOR OF RULE 10TA FOR FINDING OUT THEIR RESPECTIVE CONNOTATION. CLAUSE (L) OF RULE 10TA DEFINES OPERATING PROF IT MARGIN IN RELATION TO OPERATING EXPENSES TO MEAN THE RATIO OF OPERATING PROFIT, BEING OPERATING REVENUE IN EXCESS OF OPER ATING EXPENSES, TO OPERATING EXPENSE. SO, FOR DETERMINING THE OPE RATING PROFIT MARGIN UNDER THE SAFE HARBOUR RULES, ONE REQUIRES FIGURES OF OPERATING EXPENSES [DEFINED IN RULE 10TA(J)] AND OPERATING REVENUE [DEFINED IN RULE 10TA(K)]. IT IS THE DEFINITIONS OF OPERATING REVENUE AND OPERATING EXPENSE, WHICH HAVE BEEN INVOKED BY THE TPO FOR CONSTRUING THE ITEMS OF CERTAIN EXPE NSES AND REVENUE AS NON-OPERATING. 7. AT THIS JUNCTURE, IT IS APPOSITE TO TAKE NOTE OF RULE 10T D(1), WHICH UNDERSCORES THAT THE EXERCISE OF OPTION FOR SAFE HA RBOUR RULES BY AN ELIGIBLE ASSESSEE [AS DEFINED UNDER RULE 10TB] IN RESPECT OF AN ELIGIBLE INTERNATIONAL TRANSACTION [AS GIVEN IN RULE 10TC] IS OPTIONAL. THUS, IT IS AXIOMATIC THAT THE SAFE HARBOUR RULES ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 6 ARE SIMPLY OPTIONAL FOR AN ELIGIBLE ASSESSEE. ONE ASSESSEE MAY OPT FOR THEM, ANOTHER MAY NOT. THE ENTIRE MECHANISM UNDE R THE SAFE HARBOUR RULES, INCLUDING THE CALCULATION OF `OPERATING REVENUE, GETS TRIGGERED ONLY WHEN THE OPTION OF THE SAFE HARBOUR RULES IS EXERCISED BY AN ASSESSEE UNDER DUE PROCESS MA NDATED UNDER RULE 10TE. A FORTIORI , WHERE AN ASSESSEE HAS NOT EXERCISED OPTION FOR THE SAFE HARBOUR, THE ENTIRE SET OF RULES FROM 1 0TA TO 10TG GETS FREEZED AND CANNOT BE OPERATIONALISED. THIS CONCLUSION IS FURTHER CORROBORATED BY THE OPENING LANGUAGE OF RULE 10TA GIVING MEANING TO VARIOUS EXPRESSIONS THROUGH CLAUSES (A) TO (M). IT UNAMBIGUOUSLY MANDATES THAT THE DEFINITIONS GIVEN HEREUNDER APPLY ONLY FOR THE PURPOSES OF THIS RULE AND R ULE 10TB TO 10TG. THUS THE DEFINITION CLAUSE IN RULE 10TA HAS ITS FORCE ONLY WITHIN THE AMBIT OF THE SAFE HARBOUR RULES AND NOT BEYON D THAT. 8. AS AGAINST THAT, DETERMINATION OF ALP AS PER THE TNMM, UNDER CONSIDERATION, IS GOVERNED BY RULE 10B(1)(E). THIS RULE HAS NO REFERENCE WHATSOEVER TO RULE 10TA. NEITHER RULE 10TA ANYWHERE PROVIDES FOR ITS EXTENSION TO RULE 10B. THUS, IT IS MANIFEST THAT IN DETERMINATION OF THE ALP UNDER THE TNMM, OR FOR THAT MATTER ANY OTHER METHOD UNDER RULE 10B, THE RULE 10 TA IS ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 7 NOT RELEVANT. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2 013- 14. NEITHER THE SAFE HARBOUR RULES APPLY AS SUCH TO THE YEAR UNDER CONSIDERATION NOR HAS THE ASSESSEE GIVEN ANY OPTION TO BE GOVERNED BY THEM. AS SUCH, THE TPO WAS NOT JUSTIFIED IN APPLYING THE DEFINITION OF `OPERATING PROFIT AND `OPERATING EXPENSE GIVEN UNDER RULE 10TA FOR THE PURPOSE OF DETER MINING THE ALP OF THE INTERNATIONAL TRANSACTIONS IN THE MANUFACTURING ACTIVITY UNDER THE TNMM AS ENSHRINED IN RULE 10B(1)(E). 9. WE HAVE NOTED ABOVE THAT THE TPO MADE MODIFICATIONS TO THE ASSESSEES OPERATING PROFIT BY MAKING ALTERNATIONS IN SOME OF THE ITEMS OF OPERATING EXPENSES/REVENUE. I. DEPRECIATION ADJUSTMENT 10.1. THE FIRST DISPUTED ITEM OF OPERATING COSTS IS A CLAIM FOR ADJUSTMENT ON ACCOUNT OF DEPRECIATION AT RS.9.42 CRORE. TH E ASSESSEE, IN THE DETERMINATION OF ITS PLI, REDUCED SUCH AN A MOUNT FROM THE TOTAL AMOUNT OF DEPRECIATION BY CLAIMING BEFORE THE T PO THAT DEPRECIATION WAS CHARGED IN ACCOUNTS AT MUCH MORE HIGH ER RATES THAN THOSE PRESCRIBED UNDER SCHEDULE XIV OF THE COMP ANIES ACT, 1956, WHICH WAS IN LINE WITH THE GLOBAL POLICY ADOPTED BY THE DANA GROUP. IT WAS, THEREFORE, PLEADED BEFORE THE TPO THAT SUCH REDUCTION SHOULD BE ALLOWED. THE TPO DID NOT CONCUR W ITH ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 8 THE ASSESSEES CONTENTION BY NOTICING THAT THE FINANCIAL STATEMEN TS OF THE ASSESSEE CLEARLY INDICATED THAT DEPRECIATION WAS CALCULA TED AS PER THE RATES PRESCRIBED IN SCHEDULE XIV OF THE COMPANIE S ACT. THE DRP OBSERVED FROM PARAS B AND C OF SIGNIFICANT ACCOUNTING POLICIES OF THE ANNUAL REPORT OF THE ASSESSEE- COMPANY THAT IT CALCULATED DEPRECIATION AT THE RATES HIGHER THAN THOSE PRESCRIBED UNDER THE COMPANIES ACT. THE ASSESSEES CONTENTION WAS THAT THE COMPARABLES HAD CHARGED DEPRECIATION AS PER THE RATES GIVEN IN THE COMPANIES ACT. THE DRP RULED IN TH IS REGARD DIRECTING THE AO/TPO THAT: `DEPRECIATION ADJUSTMENT SHOULD BE WORKED OUT IN THE HANDS OF THE COMPARABLES AND NOT FOR THE ASSESSEE. GIVING EFFECT TO SUCH A DIRECTION, THE TPO COMPUTED THE MEAN PLI OF COMPARABLES AT 6.74% AS AGAINS T ORIGINALLY COMPUTED AT 6.70% IN THE CONSEQUENTIAL ORDER. 10.2. THE LD. AR HAS RAISED CERTAIN ISSUES ON THE ADJUS TMENT TOWARDS DEPRECIATION. BEFORE DELVING INTO SUCH ASPECTS, WE WANT TO CLARIFY THAT THE DISPUTE ON THIS ISSUE IS ABOUT ADJUSTMENT IN TH E PROFIT MARGIN DUE TO HIGHER RATES OF DEPRECIATION CHARGED BY THE ASSESSEE VIS--VIS THOSE COMPARABLES. IT IS NOT ABOUT THE ADJUSTMENT ON ACCOUNT OF PER SE HIGHER QUANTUM OF DEPRECIATION OR HIGHER PERCENTAGE OF DEPRECIATION IN TERMS OF THE VALUE O F ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 9 ASSETS OR TURNOVER ETC. ANY ADJUSTMENT TOWARDS DEPRECIATION IN THE COMPUTATION OF THE PLI CAN BE GRANTED ONLY WHEN IT IS CHA RGED BY THE ASSESSEE AT HIGHER RATES VIS--VIS THOSE OF COMPARABLES AND NOT OTHERWISE AS HAS BEEN CONSISTENTLY HELD BY THE TRIBUNAL IN SEVERAL DECISIONS. 10.3.1. THE FIRST RELIEF WHICH THE ASSESSEE SEEKS IS THE MODIFICATION IN THE DIRECTION OF THE DRP THAT DEPRECIATION ADJUSTMENT SHOULD BE WORKED OUT IN THE HANDS OF THE COMPAR ABLES AND NOT THE ASSESSEE. IN ORDER TO APPRECIATE THIS CONTENTION, IT WOULD BE APPOSITE TO CONSIDER THE MANDATE OF THE TNMM AS GIV EN IN RULE 10B(1)(E), READING AS UNDER:- (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION OR A SPECIFIED DOMESTIC TRANSACTION ENTERED INTO W ITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB- CLAUSE (II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION AND THE COMPARABLE UNCONT ROLLED ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 10 TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION 10.3.2. IT CAN BE SEEN THAT SUB-CLAUSE (I) OF RULE 10B( 1)(E) DEALS WITH THE DETERMINATION OF THE ASSESSEES NET PROFIT MARGIN REALIZED FROM INTERNATIONAL TRANSACTION WITH REFERENCE TO A CER TAIN BASE. SUB-CLAUSE (II) REQUIRES DETERMINING THE NET PROFIT MARGIN REALIZED BY THE COMPARABLES WITH SIMILAR BASE. IT IS WITH THE H ELP OF THE ADJUSTED MARGIN OF THE COMPARABLES AS PER SUB-CLAU SE (III), THAT THE ALP OF THE INTERNATIONAL TRANSACTION IS DETERMINED. SUB- CLAUSE (III) UNEQUIVOCALLY PROVIDES THAT THE NET PROFIT MARGIN REFERRED TO IN CLAUSE (II), PERTAINING TO THE COMPARABLES, IS TO BE ADJUSTED TO TAKE INTO ACCOUNT DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. IN VIEW OF THE CLEAR MANDATE OF SUB-CLAUSE (III) OF RULE 10B (1)(E), THERE REMAINS NO DOUBT WHATSOEVER THAT TH E ADJUSTMENT ON ACCOUNT OF DIFFERENCES BETWEEN THE INTERNATION AL ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 11 TRANSACTIONS AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, INCLUDING THE ONE ON ACCOUNT OF DEPRECIATION, IS POSSIBLE ONLY IN THE NET PROFIT MARGIN OF THE COMPARABLES AND NOT THAT OF THE ASSESSEE. WE, THEREFORE, APPROVE THE DIRECTION OF THE DR P AND REJECT THE ASSESSEES CONTENTION THAT ADJUSTMENT ON ACCOUNT OF HIGHER RATES OF DEPRECIATION SHOULD BE GRANTED IN THE HANDS OF THE ASSESSEE AND NOT THE COMPARABLES. 10.4.1. THE LD. AR CONTENDED THAT IN THE SCHEDULE OF THE FIXED ASSETS OF THE ASSESSEE, THERE ARE CERTAIN ITEMS OF AS SETS, WHICH DO NOT FIGURE IN THE ASSETS LIST OF THE COMPARABLES. IT WAS ERGO, URGED THAT DEPRECIATION ON SUCH ASSETS OF THE ASSESS EE BE EXCLUDED FROM ITS OVERALL DEPRECIATION AMOUNT. 10.4.2. IT CAN BE SEEN FROM THE AFORE EXTRACTED SUB-C LAUSES OF RULE 10B(1)(E) THAT THERE IS A FIXED NUMERATOR, BEING, THE NET PROFIT MARGIN IN THE CALCULATION OF THE ASSESSEE AS WELL AS OF THE COMPARABLES. DENOMINATOR MAY UNDERGO CHANGE DEPENDING U PON THE FACTS AND CIRCUMSTANCES OF EACH CASE. IN SOME CASES , IT MAY BE COSTS INCURRED, WHILE IN OTHERS, IT MAY BE SALES EFFECTED OR ASSETS EMPLOYED OR ANY OTHER RELEVANT BASE. RAISON DETRE FOR THE DELEGATED LEGISLATURE TO ALWAYS HAVE THE OPERATING PROFIT AS NUMERATOR IS TO DEDUCE A COMPREHENSIVE AND ALL-IMPACTING FIGURE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 12 CATERING TO ALL THE SITUATIONS AND DIFFERENT BUSINESS MODELS THAT MAY HAVE BEEN ADOPTED BY THE ASSESSEE AND COMPARABLES. THIS CAN BE UNDERSTOOD WITH THE HELP OF AN EXAMPLE. AN ASSESSE E MAY BE CARRYING ON BUSINESS FROM ITS OWN PREMISES. IN THAT CA SE, THERE WILL BE DEPRECIATION ON BUILDING COST BUT NO BUILDING RENT COST . ANOTHER COMPANY, SELECTED AS A COMPARABLE, MAY BE RUNNIN G ITS BUSINESS FROM THE RENTED PREMISES. IN THAT CASE, THERE WI LL BE ONLY RENT COST BUT NO DEPRECIATION ON BUILDING COST. WHEN WE COM PUTE THE OPERATING PROFITS UNDER THE TNMM OF SUCH AN ASSESSE E AND THE COMPARABLE, THE IMPACT OF SUCH DIFFERENCES IS CREASED OU T. DEPRECIATION COST IN THE CASE OF THE ASSESSEE FORMING PART O F ITS OPERATING COSTS BASE GETS NEUTRALIZED WITH THE RENT COST IN THE C OST BASE OF THE COMPARABLES. HAVING TAKEN THE FIGURE OF OPER ATING PROFIT AS NUMERATOR, BOTH IN THE CASE OF THE ASSESSEE AN D THE COMPARABLES, ONE CANNOT AGAIN GO BACK TO THE INDIVIDUAL ITEMS OF OPERATING EXPENSES/INCOMES CULMINATING INTO THE OVERALL OPERATING PROFIT FOR CLAIMING THAT ADJUSTMENT ON ACCOUNT OF INDIVIDUAL PARTICULAR HIGHER OR LOWER EXPENSE/INCOME SHOULD B E GRANTED. THE SAME RATIONALE OF DIFFERENT ITEMS OF EXPENSES, SUCH AS DEPRECIATION AND RENT IN THE ABOVE ILLUSTRATION, NOT IMPACTING THE OVERALL OPERATING PROFITS FOR COMPARISON, APPLIES TO THE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 13 COMPOSITION OF INDIVIDUAL ITEMS OF EXPENSES ALSO, SUCH AS DEPRECIATION IN OUR CASE. THUS THE CONTENTION OF THE LD. AR SEEKING DEPRECIATION ADJUSTMENT ON THE GROUND THAT SOME OF TH E ITEMS OF ASSETS POSSESSED BY THE ASSESSEE DID NOT APPEAR IN THE SCHEDULE OF ASSETS OF THE COMPARABLES, IS SANS MERIT. 10.5.1. THE NEXT LEG OF THE SUBMISSIONS OF THE LD. AR ON THIS ISSUE WAS THAT ITS DEPRECIATION CLAIM INCLUDES DEPRECIATION ON CERTAIN INTANGIBLE ASSETS. IT WAS PUT FORTH THAT SINCE SUCH INTANGIBLE ASSETS HAVE NOT IMPACTED THE INTERNATIONAL TRANSACTION, THE SAME MAY BE EXCLUDED UNDER SUB-CLAUSE (I) OF RULE 10 B(1)(E). 10.5.2. WE HAVE NOTED SUB-CLAUSE (III) OF THE RULE 10B( 1)(E) SUPRA, WHICH SEEKS FIRST CONSIDERING THE OPERATING PROFIT MARGIN OF THE ASSESSEE AND COMPARABLES AND THEN ADJUSTING THE PROFIT M ARGIN OF THE COMPARABLES TOWARDS DIFFERENCES, IF ANY, BETWEEN TH E INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. THE FOCUS UNDER THIS SUB-CLAUSE IS TO FINE-TUN E THE OPERATING PROFIT MARGIN OF THE COMPARABLES ON THE BASIS OF TH E OPERATING MARGIN OF THE ASSESSEE AS DEDUCED UNDER SUB-C LAUSE (I). THUS SUB-CLAUSE (III) PROCEEDS WITH THE BASE FIGURE PROVIDED BY SUB-CLAUSE (I) OF RULE 10B(1)(E) OF THE RULES. SUB-CLAUSE (I) CALLS FOR DETERMINING THE OPERATING PROFIT MARGIN OF THE ASSESSEE F ROM ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 14 AN INTERNATIONAL TRANSACTION. ON A CONJOINT READING OF THE TWO SUB-CLAUSES, IT BECOME PALPABLE THAT, THE EARLIER STEP UNDER SUB- CLAUSE (I) CALLS FOR DETERMINING THE OPERATING PROFIT MARGIN OF THE ASSESSEE FROM THE INTERNATIONAL TRANSACTION AND THE LATER STEP UNDER SUB-CLAUSE (III) REQUIRES ADJUSTING THE OPERATING PROFIT OF COMPARABLES IN THE BACKDROP OF THE OPERATING PROFIT MARGIN O F THE ASSESSEE FROM THE INTERNATIONAL TRANSACTION . IN OTHER WORDS, ALL THE OPERATING COSTS AND OPERATING REVENUES QUA THE INTERNATIONAL TRANSACTION ARE TO BE CONSIDERED IN THE EARLIER STEP. OPERATING COSTS QUALIFYING FOR INCLUSION IN THE COST BASE ARE ALL THE COS TS DIRECT OR INDIRECT; CLOSE OR REMOTE WHICH ARE INCURRED IN R ELATION TO THE INTERNATIONAL TRANSACTION. THUS, SO LONG AS THERE REMAINS SOME LINK OR CONNECT BETWEEN AN OPERATING COST AND THE INTERNATIONAL TRANSACTION, HOWSOEVER FAR-FETCHED IT MAY BE, TH E SAME IS LIABLE TO BE CONSIDERED FOR THE PURPOSE. AS A NATUR AL COROLLARY, THE COSTS INCURRED BY AN ASSESSEE, WHICH ARE N OT IN RELATION TO THE INTERNATIONAL TRANSACTION UNDER CONSIDERATION, GO OUT OF RECKONING AND HENCE CANNOT BE CONSIDERED IN THE DETERMINATION OF OPERATING PROFIT OF THE ENTERPRISE UNDER THE S UB- CLAUSE (I). THIS CAN BE UNDERSTOOD WITH THE HELP OF AN EXA MPLE. SUPPOSE AN ASSESSEE IS ENGAGED IN TRADING ACTIVITY ONLY AN D HAS ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 15 APPLIED THE TNMM ON AN AGGREGATE BASIS. ALL THE COSTS (OTHER THAN NON-OPERATING) DEBITED TO THE TRADING AND PROFIT & LOSS ACCOUNT, INCLUDING THE DIRECT COSTS OF PURCHASE OF GOODS E TC. AND INDIRECT COSTS OF ADMINISTRATIVE, LEGAL AND SELLING COSTS ETC. A RE LIABLE TO BE CONSIDERED FOR CALCULATING ITS OPERATING PROFIT MARGIN . IN THE LIKE MANNER, IN THE CASE OF AN ASSESSEE ENGAGED E XCLUSIVELY IN MANUFACTURING AND APPLYING THE TNMM ON AGGREGATE BASIS, ALL THE COSTS (OTHER THAN NON-OPERATING) DEBITED TO THE TRADING AND PROFIT & LOSS ACCOUNT QUALIFY FOR INCLUSION NOTWITHSTANDING THE FACT THAT SOME OF THEM MAY NOT HAVE ANY DIRECT CONNECTION WITH THE INTERNATIONAL TRANSACTION. THERE MAY BE A THIRD SITUATION, WHERE AN ASSESSEE CARRIES ON BOTH THE MANUFACTURING AND TRADING ACTIVITIES. FURTHER SUPPOSE THAT THE ASSESSEE USES SOME TRAD EMARKS BY PAYING ROYALTY IN THE MANUFACTURING ACTIVITIES, WHEREAS THE TRADED PRODUCTS DO NOT CARRY SUCH TRADEMARK. WHILE DETER MINING THE ALP OF INTERNATIONAL TRANSACTIONS UNDER THE TRADING SEGMENT AS PER THE TNMM ON AGGREGATE BASIS, ROYALTY PAID FOR THE USE OF TRADEMARKS WILL NOT FIND PLACE IN THE OPERATING COSTS INASMUCH AS IT HAS BEEN INCURRED EXCLUSIVELY IN RELATION TO THE MANUFACTURING ACTIVITY. APART FROM THE COSTS INCURRED SOLELY IN RELATION TO THE TRADING ACTIVITY, ALL OTHER COMMON COSTS INCURRED FOR BOTH THE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 16 TRADING AND MANUFACTURING ACTIVITY WILL ALSO WARRANT INCLUSION NOTWITHSTANDING THE FACT THAT SUCH COSTS MAY BE INDIRECTLY OR REMOTELY CONNECTED WITH THE TRADING ACTIVITY. 10.5.3. REVERTING TO THE FACTUAL PANORAMA OBTAINING IN TH E EXTANT CASE, THE CLAIM OF THE ASSESSEE IS THAT DEPRECIATION O N THE INTANGIBLE ASSETS, LISTED ON PAGE 372 OF THE PAPER BOOK, SH OULD BE IGNORED, AS IT IS ALIEN TO THE MANUFACTURING ACTIVITY AND HENCE DO NOT QUALIFY UNDER SUB-CLAUSE (I) OF RULE 10B(1)(E). A LIST O F SIX INTANGIBLE ASSETS HAS BEEN GIVEN, OUT OF WHICH THE DISPUTE IS ONLY W.R.T. FIVE ITEMS, VIZ., GOODWILL, COMPUTER SOFTWARE, NON- COMPETE FEES, TECHNICAL KNOWHOW AND CUSTOMER RELATIONSH IPS. IT IS EVIDENT AND ALSO ADMITTED ON BEHALF OF THE ASSESSEE TH AT THE FIRST THREE INTANGIBLE ASSETS, NAMELY, GOODWILL COMPUTER SOFTWARE AN D NON-COMPETE FEES ARE COMMON TO BOTH THE MANUFACTURING AN D TRADING ACTIVITIES OF THE ASSESSEE. AS SUCH, DEPRECIATION ON THESE THREE ITEMS OF INTANGIBLE ASSETS IS LIABLE TO BE CONSIDERED UND ER SUB-CLAUSE (I) OF RULE 10B(1)(E). THE FOURTH ITEM OF INTAN GIBLE ASSETS IS TECHNICAL KNOWHOW. THERE CANNOT BE ANY DISPUTE THAT TECHNICAL KNOW-HOW CAN BE USED ONLY FOR MANUFACTURING AN D NOT TRADING ACTIVITY. WHEN WE ARE DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE `MANUFACTURING ACTIVITY, THE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 17 SAME IS ALSO LIABLE TO BE CONSIDERED EVEN IF SOME OF THE GO ODS MANUFACTURED ARE SOLD IN DOMESTIC MARKET TO UNRELATED ENTERPRISES. IT IS ANOTHER MATTER THAT THE TRANSFER PRICING ADD ITION WILL HAVE TO BE RESTRICTED ONLY TO THE INTERNATIONAL TRANSACTIONS. THE LAST ITEM OF INTANGIBLE ASSET IS `CUSTOMER RELATIONSHIPS. T HE LD. AR COULD NOT PRECISELY PROVIDE US THE NATURE OF THIS INTAN GIBLE ASSET OR ITS MANNER OF USER. IF IT WAS UTILIZED ONLY FOR TRAD ING SEGMENT, THEN DEPRECIATION ON THE SAME WILL REQUIRE EXCLUSION UNDER RULE 10B(1)(E)(I). IN CASE, IT WAS USED EITHER EXCL USIVELY OR JOINTLY FOR THE MANUFACTURING ACTIVITY, WHICH INTERNATIONAL TRANSACTION HAS BEEN BENCHMARKED BY THE TPO, THEN DEPRECIA TION ON THE SAME WILL WARRANT INCLUSION IN THE OPERATING COSTS. THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE. THE AO/TPO IS D IRECTED TO VERIFY THIS ASPECT AND THEN DECIDE ACCORDINGLY. II. PRIOR PERIOD EXPENSES 11.1. THE NEXT OPERATING COST DISPUTED BY THE ASSESSEE IS `PRIOR PERIOD EXPENSES. THE LD. AR STATED THAT THE ASSESSEE INCU RRED ADMINISTRATIVE EXPENSES OF EARLIER YEARS AMOUNTING TO RS.4.18 CRORE WHICH WERE BOOKED IN THE YEAR UNDER CONSIDERATION A ND HENCE, THE SAME SHOULD BE EXCLUDED FROM THE DETERMINATION OF THE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 18 OPERATING COST BASE OF THE INTERNATIONAL TRANSACTION UNDER THE MANUFACTURING ACTIVITY. 11.2. RELEVANT DISCUSSION HAS BEEN MADE ON PAGE 12 OF THE TPOS ORDER WHEREIN THE ASSESSEES CLAIM HAS BEEN RECOR DED. THE TPO REQUIRED THE ASSESSEE TO SUBMIT ANY DOCUMENTARY EVIDENC E TO PROVE THAT THE EXPENDITURE WAS OF PRIOR PERIOD. THE ASSES SEE FAILED TO ADDUCE ANY SUCH EVIDENCE, AS A RESULT OF WHICH TH E TPO CONSIDERED THE ENTIRE ADMINISTRATIVE EXPENSES OF RS.13.67 CR ORE DEBITED TO THE PROFIT AND LOSS ACCOUNT AS A PART OF THE OPERATIN G COSTS. SIMILAR POSITION CONTINUED BEFORE THE DRP THAT THE ASSES SEE COULD NOT PLACE ON RECORD ANY DETAILS TO SHOW THAT SUCH AN A MOUNT OF ADMINISTRATIVE EXPENSES DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. 11.3. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. OUT OF TOTAL ADMINISTRATIVE OPERATING COST S INCURRED, THE ASSESSEE SOUGHT EXCLUSION OF RS.4.18 CRORE URGING THAT IT DID NOT RELATE TO THE INTERNATIONAL TRANSACTION UNDER CONSIDERATION. THE ASSESSEE HAS TRIED TO MAKE OUT A CASE FOR EXCLUSION UNDER SUB-CLAUSE (I) OF RULE 10B(1)(E). ORDINA RILY, PRIOR PERIOD EXPENSES CANNOT BE CONSTRUED AS OPERATING COSTS RE LATING TO THE INTERNATIONAL TRANSACTION FOR THE YEAR UNDER CONSIDERATION ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 19 UNLESS THERE IS ANY DIRECT OR INDIRECT RELATION WITH THE SAME. IT GOES WITHOUT SAYING THAT WHEN A PARTICULAR EXPENDITURE IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE ASSESSEE SEEKS ITS EXCLUSION , THE PRIMARY ONUS IS ON HIM TO LEAD EVIDENCE TO THE EFFECT THAT IT IS UNRELATED WITH THE INTERNATIONAL TRANSACTION UNDER CONSIDERATION. WE ARE CONFRONTED WITH A SITUATION IN WHICH THE TPO AS WELL AS THE DRP CATEGORICALLY REQUIRED THE ASSESSEE TO PROVE THAT RS. 4.18 CRORE RELATED TO PRIOR YEARS. HOWEVER, NO SUCH EVIDENC E COULD BE FILED. UNFORTUNATELY, THE SITUATION CONTINUES TO REMAIN THE SAM E BEFORE THE TRIBUNAL AS WELL. IN SUCH A SCENARIO, IT IS DIFFIC ULT TO ACCEPT THE ASSESSEES CONTENTION FOR THE EXCLUSION OF RS.4. 18 CRORE FROM THE OPERATING COST BASE SINCE THE VERY FOUNDATION FOR SUCH A CLAIM, BEING, THE EXPENDITURE PERTAINING TO EARLIER YEARS, COU LD NOT BE PROVED. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER O N THIS SCORE. III. TOOLING PROVISION REVERSAL, TESTING PROVISION REVERSAL A ND SALES TAX REFUND 12.1. THE ASSESSEE COMPUTED ITS PLI BY INCLUDING TOOLING PROVISION REVERSAL, TESTING PROVISION REVERSAL AND SALES TAX REFUND AS PART OF OPERATING REVENUE. THE TPO HELD THAT THESE THREE ITEMS WERE NOT LIABLE TO BE CONSIDERED AS OPERATING INCOME BY RELY ING ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 20 ON RULE 10TA, GIVING MECHANISM FOR THE DETERMINATION OF THE OPERATING PROFIT UNDER CLAUSE (K). 12.2. WE HAVE NOTED SUPRA THAT RULE 10TA IS NOT RELEVANT IN DETERMINING THE ALP UNDER RULE 10B(1)(E). ERGO, DECISION A S TO A PARTICULAR ITEM OF REVENUE, BEING OPERATING OR NON-OPERATING, NEEDS TO BE TAKEN IN THE HUE OF COMMERCIAL PRINCIPLES DE HORS DEFINITION GIVEN IN RULE 10TA. IN THE CONTEXT OF THE THREE ITEMS UNDER CONSIDERATION, NAMELY, TOOLING EXPENSES PROVISION REVERSAL, TESTING PROVISION REVERSAL AND SALES TAX REFUND, W E FIND THAT WHAT IS RELEVANT IN THIS CONTEXT IS TO FIND OUT THE TREATMENT GIVEN TO THEM AT THE TIME OF THE CREATION OF PROVISION FOR TOOLING EXPENSES OR TESTING EXPENSES ON ONE HAND OR THE PAYMEN T OF SALES TAX ON THE OTHER. IN CASE THESE THREE ITEMS, AT THE TI ME OF THEIR CREATION/PAYMENT - WHETHER IN THIS YEAR OR IN ANY PRECE DING YEAR - WERE TAKEN AS PART OF OPERATING COSTS, THEN THE S EQUITUR IS THAT THEIR REVERSAL IN THE YEAR UNDER CONSIDERATION WOULD ALSO DRAW THE SAME COLOUR, NAMELY, THAT OF OPERATING NATURE AND WOULD CONSTITUTE OPERATING INCOME AND VICE VERSA. THE LD. AR DID NOT READILY HAVE THE RELEVANT DATA TO DEMONSTRATE THEIR NATURE AT THE TIME OF THEIR CREATION/PAYMENT. UNDER THESE CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 21 AO/TPO FOR SEEING IF THE PROVISIONS OF TOOLING AND TESTING, AT THE TIME OF THEIR CREATION, WERE TAKEN AS PART OF THE OPERATIN G COST. IN CASE, THE ANSWER IS FOUND TO BE IN AFFIRMATIVE, THEN NA TURALLY, THEIR REVERSAL IN THE YEAR UNDER CONSIDERATION WOULD ALSO LEA D TO OPERATING REVENUE. SIMILARLY, IF THE AMOUNT OF SALES TAX WAS TAKEN AS OPERATING COST AT THE TIME OF PAYMENT, THEN RECEIPT OF ITS REFUND IN THE YEAR IN QUESTION WOULD ALSO GIVE RISE OF THE OPERATING REVENUE AND VICE-VERSA. IV. FOREIGN EXCHANGE FLUCTUATION GAIN 13. THE NEXT ITEM IS FOREIGN EXCHANGE FLUCTUATION GAIN. TH E ASSESSEE TREATED THIS AMOUNT AS OPERATING REVENUE. THE TP O, AGAIN RELYING ON THE DEFINITION OF OPERATING REVENUE UNDER R ULE 10TA, DID NOT ACCEPT THE ASSESSEES CONTENTION. WE HAVE H ELD ABOVE THAT RULE 10TA IS NOT APPLICABLE AND AS SUCH THE DETERMINATION OF THE CHARACTER OF FOREIGN EXCHANGE GAIN WILL HAVE TO BE GUIDED BY THE NORMAL BUSINESS UNDERSTANDING AND COMMERCIAL PRINCIPLES. IT IS FAIRLY SETTLED THAT FOREIGN EXCHA NGE GAIN/LOSS ARISING FROM BUSINESS TRANSACTIONS IS OPERATING REVENUE/COST. SEVERAL BENCHES OF THE TRIBUNAL INCLUDING A R ECENT DECISION OF THE PUNE BENCHES IN DELVAL FLOW CONTROLS PVT. LTD. VS. DCIT (ITA NO.640/PUN/2017) DATED 20-01-2021 HAVE LAID ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 22 DOWN TO THIS EXTENT. WE, THEREFORE, DIRECT TO TAKE FOREIGN EXCHANGE GAIN AS PART OF OPERATING REVENUE. 14.1. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT THE TRANSFER PRICING ADJUSTMENT SHOULD HAVE BEEN CONFINED ONLY TO THE INTERNATIONAL TRANSACTIONS AND NOT THE ENTITY LEVEL TRANSACTION. 14.2. THE CASE OF THE ASSESSEE, TO WHICH WE ACCO RD OUR IMPRIMATUR, IS THAT THE TRANSFER PRICING ADJUSTMENT OUGHT TO HA VE BEEN RESTRICTED TO THE INTERNATIONAL TRANSACTIONS RATHER THAN THE ENTITY LEVEL TRANSACTIONS. SECTION 92 IS THE FIRST SECTION OF THE CHAPTER-X CONTAINING SPECIAL PROVISIONS RELATING TO AVOIDANCE O F TAX. SUB-SECTION (1) OF SECTION 92 PROVIDES THAT: `ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HA VING REGARD TO THE ARMS LENGTH PRICE. THUS IT IS GRAPHICALLY CLEA R THAT THE ALP AND THE CONSEQUENTIAL TRANSFER PRICING ADJUSTMENT IS CONTEMPLATED ONLY IN RESPECT OF THE INTERNATIONAL TRANSACTIONS A ND NOT THE ENTITY LEVEL TRANSACTIONS. IT IS SEEN FROM THE TPOS ORD ER THAT HE COMPUTED THE TRANSFER PRICING ADJUSTMENT UNDER THE `MANUFACTURING ACTIVITY IN RESPECT OF ENTITY LEVEL TRANSACTIONS. IT IS, THEREFORE, DIRECTED THAT THE TRANSFER PRICING ADJUSTMENT SH OULD BE RESTRICTED TO THE INTERNATIONAL TRANSACTION ALONE. THE IMPUGN ED ORDER IS SET-ASIDE PRO TANTO FOR GIVING EFFECT TO THIS DIRECTION. ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 23 15. THE NEXT ARGUMENT OF THE ASSESSEE IS THAT THE WORKIN G CAPITAL ADJUSTMENT SHOULD NOT HAVE BEEN REFUSED. IT HAS BEEN FAIR LY SUBMITTED THAT NO SUCH ISSUE WAS TAKEN UP BEFORE THE TPO. I T WAS ONLY BEFORE THE DRP FOR THE FIRST TIME THAT THE ASSESSEE S OUGHT SUCH AN ADJUSTMENT. RELEVANT DISCUSSION HAS BEEN MADE IN PARA 5.2 OF THE DIRECTION IN WHICH THE CLAIM OF THE ASSESSEE HAS BEEN REJECTED ONLY ON THE GROUND THAT THE DATA OF COMPARABLES FOR THIS PURPOSE WAS NOT AVAILABLE. THIS WAS COUNTERED BY THE LD. AR, WHO SUBMITTED THAT THE RELEVANT DATA WAS PRODUCED. IN SUCH CIRCUMSTANCES, WE SET-ASIDE THE IMPUGNED ORDER TO THIS EXTE NT AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR ALLOWING THE WORKING CAPITAL ADJUSTMENT AFRESH AS PER LAW AFTER GIVING REASONAB LE OPPORTUNITY OF HEARING TO THE ASSESSEE. 16.1. HAVING DEALT WITH THE PLI DETERMINATION OF THE ASSESSE E, NOW WE ESPOUSE THE GROUNDS TAKEN BY THE ASSESSEE AGAINS T NON- INCLUSION OF TWO COMPANIES, NAMELY, G.K.N. DRIVELINE (INDIA ) PRIVATE LIMITED AND EXEDY INDIA LIMITED. THE LD. AR FAIRLY SUBMITTED THAT THESE TWO COMPANIES WERE NEITHER PART OF THE ASSESSEES TRANSFER PRICING STUDY REPORT NOR ANY SUCH CLA IM WAS MADE FOR THEIR INCLUSION BEFORE THE TPO. IT WAS FOR THE FIRS T TIME ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 24 THAT THE ASSESSEE RAISED THIS ISSUE BEFORE THE DRP WHO DID NO T ACCEPT THE SAME. 16.2. HAVING GONE THROUGH THE RELEVANT PARTS OF THE DRP DIRECTIONS, AS CONTAINED IN PARA 10.2, IT IS SEEN THAT THESE TW O COMPANIES WERE DIRECTED TO BE NOT CONSIDERED AS THESE WE RE NOT PART OF THE ASSESSEES TP STUDY REPORT. BY NOW, IT IS FAIRLY SETTLED THROUGH SEVERAL PRECEDENTS THAT AN ASSESSEE CAN MAKE OUT A FRESH CASE BEFORE THE HIGHER AUTHORITIES FOR INCLUSION OR OTHERWISE OF A COMPANY IN THE LIST OF COMPARABLES, EVEN THOUGH IT WAS NOT BE FORE THE AUTHORITIES BELOW. IN VIEW OF THE FACT THAT THE DRP HAS BRUSHED ASIDE THE ASSESSEES CLAIM FOR INCLUSION OF THE AB OVE REFERRED TWO COMPANIES ONLY ON THE GROUND THAT THESE WERE NOT PART OF THE ASSESSEES TP STUDY REPORT, WE CANNOT COUNTE NANCE THE SAME. THE IMPUGNED ORDER IS SET-ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO/TPO FOR EXAMINING THE ASSESSEES CONTENTION AND THEN DECIDE THEIR INCLUSION OR OTHERWISE AS PER LAW AFTER ALLOWING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. B. TRANSFER PRICING ADDITION IN INTRA-GROUP COSTS 17.1. THE NEXT ISSUE RAISED IN THIS APPEAL IS AGAINST THE TRA NSFER PRICING ADDITION OF RS.11,71,80,583/- MADE BY THE AO IN THE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 25 INTERNATIONAL TRANSACTION OF `INTRA GROUP SALES, GENERAL AND ADMINISTRATION SERVICES. 17.2. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESS EE PAID RS.11.71 CRORE TOWARDS INTRA-GROUP SERVICES PURSUANT TO AN AGREEMENT WITH DANA CORPORATION, USA. THE ASSESSEE APPLIED THE COMPARABLE UNCONTROLLED METHOD (CUP) AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION. THE ASSESSEE WAS CALLED UPON TO FILE DETAILS FOR PROVING THE REC EIPT OF SERVICES AND THE BENEFITS DERIVED THEREFROM. IN THE ABSEN CE OF ANY SATISFACTORY EXPLANATION TENDERED BY THE ASSESSEE, THE TPO DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTION AND PROPOSED TRANSFER PRICING ADJUSTMENT OF THE EQUAL AMOUNT. NO SUCCOR WAS ALLOWED BY THE DRP WHICH LED TO THE MAKING OF TRANSFER PRICING ADDITION BY THE AO IN THE IMPUGNED ORDER. 17.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE TH ROUGH THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE C LAIMED TO HAVE INCURRED RS.11.71 CRORE TO DANA CORPORATION, USA F OR RECEIPT OF SALES, GENERAL AND ADMINISTRATION SERVICES. THE TPO DETERMINED NIL ALP PRIMARILY ON THE GROUND THAT THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE FOR RECEIPT OF SERVICES AN D ALSO THAT NO BENEFIT WAS DERIVED FROM SUCH SERVICES. IN OUR CONSID ERED ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 26 OPINION, THERE IS NO RATIONALE IN APPLYING THE `BENEFIT TEST W HILE DETERMINING THE ALP OF INTRA-GROUP SERVICES. ONCE A PARTICULA R EXPENDITURE IS INCURRED FOR WHICH SERVICES ARE RECEIVED, I T DOES NOT MATTER WHETHER OR NOT SUCH SERVICES RESULTED INTO ANY BENEF IT TO THE ASSESSEE. THIS REASONING OF THE AUTHORITIES BELOW IS JETTISON ED. 17.4. THE SECOND REASON OF THE TPO IS THAT THE ASSESSEE COULD NOT LEAD ANY EVIDENCE TO SUPPORT THE RECEIPT OF SERVICES. AS AGAINST THAT, THE LD. AR HAS PLACED BEFORE US TWO PAPER BOO KS, ONE FROM PAGES 1 TO 160 AND SECOND FROM 161 TO 269 CONTAIN ING THE EVIDENCE OF RECEIPT OF SERVICES FROM DANA CORPORATION, USA ALONG WITH COPIES OF RELEVANT AGREEMENTS. IT CAN BE SEEN F ROM VARIOUS E-MAILS THAT THE AE DID RENDER SALES AND ADMINISTRATION SERVICES TO THE ASSESSEE. AS SUCH, IT IS DIFFICULT TO HOLD THA T THE ASSESSEE DID NOT LEAD ANY EVIDENCE TOWARDS RECEIPT OF SERV ICES. 17.5. THE LD. AR SUBMITTED THAT THE TPO SHOULD NOT HAVE QUESTIONED THE ALP OF THE OF THE INTRA-GROUP SERVICES AS IT WAS ACCEPTED AT ARMS LENGTH IN THE EARLIER YEARS, THAT IS, 2008-0 9 AND 2012-13. SIMILAR CONTENTION WAS ALSO ADVANCED BEFORE THE D RP AS HAS BEEN RECORDED AT PAGE 32 OF ITS DIRECTION. IN OU R VIEW, THE FACTUM OF ACCEPTANCE OF PAYMENT FOR THE INTRA-GROUP SERVIC ES AT ALP FOR THE PRECEDING YEARS IS SIMPLY RELEVANT BUT NOT DECISIV E. ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 27 THE INTERNATIONAL TRANSACTIONS NEED TO BE INDEPENDENTLY PROVE D AT ALP EVERY YEAR. 17.6. ON A SPECIFIC QUERY AS TO THE AMOUNT OF INTRA-GRO UP EXPENSE INCURRED BY THE ASSESSEE IN THE YEAR UNDER CONS IDERATION AND IN THE EARLIER YEARS, THE LD. AR COULD GIVE THE AMOUNT OF INTRA- GROUP SERVICES EXPENSE ONLY FOR THE IMMEDIATELY PRECEDING YEAR AT RS.2.74 CRORE AS AGAINST COST FOR THE YEAR UNDER CONSIDE RATION AT RS.11.71 CRORE. CONSIDERING THE DIFFERENCE IN THE FIGURES OF REVENUE ON ONE HAND AND INTER-GROUP SERVICES ON THE OTHE R FOR THE CURRENT YEAR VIS-A-VIS THE PRECEDING YEAR, EX FACIE , THE TRANSACTION CANNOT BE DECLARED AT ALP, UNLESS A DETAILED EXAMINATION IS CARRIED OUT. AS THE TPO HAS DETERMINED NIL ALP ON THE PRELIMINARY PREMISE THAT THERE WAS NO EVIDENCE OF RECEIPT O F SERVICES AND WE HAVE NOTICED ABOVE THE FACT OF RECEIPT O F SERVICES, WE SET-ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT TH E MATTER TO THE FILE OF AO/TPO FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF INTRA-GROUP SALES, GENERAL AND ADMINISTRATIVE SERVICES AFRESH AS PER LAW AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 18.1. NOW WE TAKE UP THE CORPORATE GROUNDS. THE FIRS T ISSUE IS DISALLOWANCE OF RS.2,81,104/- ON ACCOUNT OF LATE DEPOSIT OF THE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 28 EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. THE AO INVOKED TH E PROVISIONS OF SECTION 36(1)(VA) OF THE ACT AND MADE THE DISALLOWANCE U/S.43B. THE CASE OF THE ASSESSEE IS THAT NO DISALLOWANCE WAS CALLED FOR SINCE THE PAYMENT WAS MADE BEFO RE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT. T HE DRP, DID NOT PROVIDE ANY REPRIEVE TO THE ASSESSEE. 18.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE IS NO MORE RES INTEGRA . THE HONBLE APEX COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LIMITED (2009) 319 ITR 306 (SC) HAS HELD THAT THE AMENDMENT TO FIRST PROVISO AND OMISSION OF THE SECOND PROVISO TO SECTION 43B BY THE FINANCE ACT, 2003, IS RETROSPECTIVE. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. AIMIL LIMITED (2010) 321 ITR 508 (DELHI) HAS ALLOWED DEDUCTION IN RESPECT OF EMPLOYEES SHARE WHEN THE AMOUNT WAS PAID BEFORE THE DUE DATE. WHEN WE CO NSIDER THESE TWO JUDGMENTS, IT IS MANIFESTED THAT BOTH THE EMPLOYERS A ND EMPLOYEES CONTRIBUTION ARE ALLOWABLE AS DEDUCTION IF THESE A RE DEPOSITED ALBEIT BELATEDLY UNDER THE RESPECTIVE ACTS, BUT BEFOR E THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. GHATGE PATIL TRANSPORTS LTD. (2014) 368 ITR 749 (BOM). IT IS ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 29 SEEN AS AN ADMITTED POSITION THAT THE ASSESSEE DEPOSITED THE EMPLOYEES CONTRIBUTION TOWARDS EPF AND ESIC BEFORE THE DUE DATE U/S 139(1) OF THE ACT. RESPECTFULLY FOLLOWING THE AFOREN OTED PRECEDENTS, WE ORDER FOR THE DELETION OF THE ADDITION. 19.1. THE ONLY OTHER GROUND THAT SURVIVES FOR ADJUDICATIO N IS THE DISALLOWANCE OF RS.27,98,305/- TOWARDS CONTRIBUTION TO THE EMPLOYEES GRATUITY FUND AND RS.42,44,970/- TOWARDS CONTR IBUTION TO SUPERANNUATION FUND. THE AO INVOKED THE PROVISIONS OF SECTION 40A(7) FOR DISALLOWING THE CLAIM MADE BY THE ASSESSE E ON THE PREMISE OF NON-APPROVAL OF THE FUNDS FROM THE COMMIS SIONER OF INCOME-TAX. 19.2. THE LD. AR CONTENDED THAT THE ASSESSEE APPLIED FO R THE APPROVAL OF THESE FUNDS BEFORE THE COMMISSIONER OF INC OME-TAX SEVERAL YEARS AGO, BUT NO DECISION HAS BEEN RENDERED SO FAR DESPITE REPEATED REMINDERS. CONSIDERING THE PROVISIONS OF SECTION 40 A(7) OF THE ACT, IT IS APPARENT THAT THE DEDUCTION CAN BE ALLOWED ON LY IF THE GRATUITY AND SUPERANNUATION FUNDS ARE DULY APPROVED BY THE COMMISSIONER OF INCOME-TAX. AS THE REQUISITE FUNDS ARE S TILL PENDING APPROVAL FROM THE LD. COMMISSIONER OF INCOME-TAX , WE ARE CONSTRAINED TO DIRECTLY GRANT ANY DEDUCTION IN THIS REGARD. IT IS EXPECTED THAT THE LD. CIT WILL SHORTLY PASS AN ORDER ON THE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 30 ASSESSEES APPLICATIONS. THE MATTER IS SENT BACK TO THE A O, WHO WILL DECIDE THE MATTER IN CONFORMITY WITH SUCH ORDER OF THE LD. CIT. 20. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY, 2021. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 25 TH FEBRUARY, 2021 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.473/PUN/2018 DANA INDIA PRIVATE LIMITED 31 DATE 1. DRAFT DICTATED ON 23-02-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 25-02-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *