Indigra Exports Pvt. Limited, Bangalore V. DCIT, Bangalore

ITA 488/BANG/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4578 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C J BRITO
• Keywords: Depreciation; Transfer pricing
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 488 / BANG/201 6 ASSESSMENT YEAR : 2011 - 12 M/S. INDIGRA EXPORTS PVT. LTD., 46, 2 ND FLOOR, CCVILLA, EJIPURA MAIN ROAD, VIVEKNAGAR POST, BANGALORE 560 095. PAN: AAACI3513M VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3 (1) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI C.J. BRITO, CA RESPONDENT BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 1 3 .0 6 .2018 DATE OF PRONOUNCEMENT : 22 .0 6 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ASSESSMENT ORDER DATED 28.01.2016 FOR ASSESSMENT YEAR 2011-12 PASSED BY THE AO U/S. 143(3) R.W.S. 144C OF IT ACT AS PER THE DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE ORDER OF THE LEARNED TRANSFER PRICING OFFICE R, ASSESSING OFFICER AND THE HONORABLE DISPUTE RESOLUTION PANEL ERRED IN LAW AND ON FACTS BY NOT CONSIDERING AN ADJUSTMENT CONSIDERE D BY THE APPELLANT FOR UNDERUTILIZATION OF RATED CAPACITY TO ELIMINATE DIFFERENCES IN FUNCTION PERFORMED, ASSETS EMPLOYED AND RISKS ASSUM ED (FAR ANALYSIS) BY CONSIDERING APPROPRIATE ADJUSTMENTS TO THE FIXED COSTS LIKE DEPRECIATION AND POWER TO ENABLE MORE MEANING ANALYSIS OF THE ARMS LENGTH PRICE. 2. THE ORDER OF THE LEARNED TRANSFER PRICING OFFICE R, ASSESSING OFFICER AND HONORABLE DISPUTE RESOLUTION PANEL VIOL ATES THE CONCEPT, SPIRIT AND ETHOS OF THE PROVISIONS OF RULE 10(B)(E) OF INCOME TAX ACT AS WELL AS DECISIONS OF VARIOUS COURTS WHICH UPHELD THE ADJUSTMENT FOR IT(TP)A NO. 488/BANG/2016 PAGE 2 OF 10 UNDER UTILIZATION. 3. THE LD. TPO, AO AS WELL AS DRP ERRED IN REJECTIN G NEELKANTH ROCK, MINERALS LIMITED AS A COMPARABLE COMPANY BY STATING FUNCTIONALLY NOT COMPARABLE TO ASSESSEE COMPANY WIT HOUT APPRECIATING THE FACT THAT IN THE PREVIOUS YEAR THE HONBLE DRP INSTRUCTED THE TPO TO CONSIDER THIS COMPANY AS A CO MPARABLE TO ASSESSE COMPANY. 4. THE LD. TPO, AO AS WELL AS DRP ERRED IN REJECTIN G SRI VAJRA GRANITES LIMITED AND P G INDUSTRY A COMPARABLE COMPANY BY WRONGLY STATING THAT IT IS NOT ENGAGED IN THE SIMIL AR BUSINESS OF ASSESSE COMPANY. BOTH THESE COMPANIES ARE ENGAGED I N THE MANUFACTURE OF CUT AND POLISHED GRANITE SLABS. 5. THE LD. TPO, AO AS WELL AS DRP ERRED IN REJECTIN G CEETA INDUSTRIES LIMITED BY STATING THAT GRANITE SALES IS LESS THAN 75% OF THE TOTAL REVENUE, WITHOUT APPRECIATING THAT FACT T HAT SEGMENT INFORMATION IS AVAILABLE IN THE ANNUAL REPORT, WHIC H PROVIDES THE SEGMENTAL PROFITS. 6. THE LD. TPO, AO AS WELL AS DRP ERRED IN REJECTIN G MILESTONE GLOBAL LIMITED AS A COMPARABLE COMPANY BY STATING THAT ANNUAL REPORT FOR THE RELEVANT YEAR IS NOT AVAILABLE AND T HE ANNUAL REPORT OF THE SUBSEQUENT YEAR CANNOT BE CONSIDERED WITH PREVI OUS YEAR FIGURES. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DISPUTE RESOLUTION PANEL, THE LEARNED ASSESSING OFFICER AS WELL AS LEARNED TRANSFER PRICING OFFICER HAVE ERRED IN NOT MAKING P ROPER ADJUSTMENT FOR ENTERPRISE LEVEL AND TRANSACTION LEVEL DIFFEREN CES BETWEEN THE APPELLANT AND COMPARABLE COMPANIES BY NOT ALLOWING THE RISK ADJUSTMENT TO THE ASSESSE COMPANY. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING BEFORE THE HONORABLE TRIBUNAL, IT IS PRAYED THAT THE TP ADDITION OF RS. 4,15,92,339/- MAY PLEASE BE DELETED . 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT GROU ND NOS. 1 AND 2 OF THE APPEAL ARE REGARDING THE ASSESSEES REQUEST FOR ADJUSTMENT ON ACCOUNT OF UNDERUTILIZATION OF INSTALLED CAPACITY TO ELIMINATE DIFFERENCES IN FUNCTION PERFORMED AND AS PER GROUND NO. 3, THE ASSESSEE IS REQUESTING FOR INCLUSION OF ONE COMPARABLE I.E. NEELKANTH ROCK MINERALS LTD. AN D AS PER GROUND NO. 4, THE ASSESSEE IS REQUESTING FOR INCLUSION OF TWO COMPARA BLES I.E. SRI VAJRA GRANITES LTD. AND P G INDUSTRY BUT NOW, THE ASSESSEE WANTS TO PRESS ONLY FOR INCLUSION OF SRI VAJRA GRANITES LTD. AND IN THIS MANNER, HALF OF THE GROUND NO. 4 IS NOT IT(TP)A NO. 488/BANG/2016 PAGE 3 OF 10 PRESSED. HE ALSO SUBMITTED THAT THE REMAINING GROU NDS 5, 6 AND 7 ARE ALSO NOT PRESSED. GROUND NO. 8 IS GENERAL. 4. REGARDING GROUND NOS. 1 AND 2, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ON PAGE NOS. 173 TO 187 OF PAPER BOOK IS THE COPY OF D RP DIRECTIONS IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 DATED 30.09.20 16 AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE NO. 181 OF PAPER BOOK A ND IT WAS POINTED OUT THAT IN THAT YEAR, THE DRP DIRECTED THE AO TO CONSIDER T HE MARGIN IN THE CASE OF THE ASSESSEE AS WELL AS COMPARABLES AFTER EXCLUDING DEP RECIATION. HE SUBMITTED THAT IN THE PRESENT YEAR ALSO, SIMILAR DIRECTIONS S HOULD BE GIVEN TO THE AO/TPO. AS AGAINST THIS, IT WAS SUBMITTED BY LD. DR OF REVE NUE THAT ON THIS ASPECT, THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE TRIBUN AL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 AS REPORTED IN 176 TTJ 384 (BANGALORE - TRIB.) AND IN PARTICULAR, OUR ATTENTION WAS DRAWN T O PARA 19 OF THIS TRIBUNAL ORDER AND IT WAS POINTED OUT THAT AS PER THIS PARA OF TRI BUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11, IT WAS HELD BY TH E TRIBUNAL THAT THE ASSESSEES CLAIM FOR A LESSER CHARGE OF DEPRECIATIO N WHILE WORKING OUT ITS PLI IN THE GUISE OF UNDERUTILIZATION OF CAPACITY IS NOT CO RRECT AND THE SAME WAS NOT ALLOWED IN THAT YEAR. SHE ALSO SUBMITTED A COPY OF TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. EDAG ENGINEERS & DESIGN INDIA PVT. LTD. IN ITA NO. 549/DEL/2011 DATED 13.10.2014 AND SUBMITTED THAT AS PER PARA 5 OF THIS TRIBUNAL ORDER, IT WAS HELD THAT AS PER RULE 10B (1 )(E)(III), ADJUSTMENTS FOR VARIATIONS, WHICH COULD MATERIALLY AFFECT THE AMOUN T OF NET PROFIT MARGIN IN THE OPEN MARKET IN COMPARABLE UNCONTROLLED TRANSACTIONS , ARE TO BE MADE IN RESPECT OF NET PROFITS REALIZED BY THE COMPARABLE T RANSACTIONS OR ENTERPRISES AND THEREFORE, THE CIT(A) WAS CLEARLY IN ERROR IN P ROCEEDING TO MAKE CAPACITY UNDERUTILIZATION ADJUSTMENTS IN THE PROFITS EARNED BY THE ASSESSEE. SHE SUBMITTED THAT AS PER THIS PARA OF TRIBUNAL ORDER, THE CLAIM OF THE ASSESSEE SHOULD BE REJECTED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN ASSESSMENT YEAR 2010-11, WHERE THE TRIBUNAL REJECTED THE CLAIM OF T HE ASSESSEE FOR ADJUSTMENT ON ACCOUNT OF UNDERUTILIZATION OF CAPACITY, THE TRI BUNAL ORDER IS ON THIS BASIS THAT IT(TP)A NO. 488/BANG/2016 PAGE 4 OF 10 THIS IS THE CONTENTION OF THE ASSESSEE THAT ITS FIX ED ASSET WERE UNDERUTILIZED AND THEREFORE, THERE SHOULD BE ADJUSTMENT IN DEPRECIATI ON BUT IN THE PRESENT YEAR, THE ASSESSEES CLAIM IS NOT THIS THAT DEPRECIATION CHARGE SHOULD BE REDUCED BECAUSE OF UNDER UTILIZATION OF ASSETS. IN THE PRES ENT YEAR, THE CLAIM OF THE ASSESSEE IS THIS THAT PLI SHOULD BE ADOPTED BY TAKI NG PROFIT BEFORE DEPRECIATION FOR ASSESSEES PROFIT AS WELL AS FOR COMPARABLES AN D ON THIS ASPECT, THE DRP HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN ASSESSMEN T YEAR 2012-13 AND IN DOING SO, THE DRP HAS FOLLOWED THE TRIBUNAL ORDER R ENDERED IN THE CASE OF PENTAIR WATER (I) PVT. LTD. IN ITA NO. 03/PNJ/2013 AND 06/PNJ/2013 DATED 20.03.2014. THE DRP REPRODUCED RELEVANT PARA OF TH IS TRIBUNAL ORDER ON PAGE 8 OF ITS DIRECTIONS AND AS PER THAT PARA OF TRIBUNA L ORDER, THE TRIBUNAL IN THAT CASE HAS FOLLOWED ANOTHER TRIBUNAL ORDER RENDERED I N THE CASE OF DCIT VS. REUTERS INDIA AS REPORTED IN 24 ITR (TRIB) 231 (MUM ). THE DRP HAS ALSO NOTED THAT AS PER THE JUDGEMENT OF HONBLE AP AND TELENGA NA HIGH COURT RENDERED IN THE CASE OF BA CONTINUUM INDIA PVT. LTD. IN ITTA 44 0 OF 2014 DATED 16.07.2014 ALSO, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESS EE. IN OUR CONSIDERED OPINION, WHEN IN THE ASSESSEES OWN CASE, THE DRP HAS DIRECT ED THE AO TO CONSIDER THE MARGIN IN THE CASE OF ASSESSEE AS WELL AS COMPARABL ES AFTER EXCLUDING DEPRECIATION AND THIS DIRECTION OF DRP IN ASSESSMEN T YEAR 2012-13 HAS BEEN ACCEPTED BY THE DEPARTMENT, THE ISSUE STANDS COVERE D IN FAVOUR OF THE ASSESSEE BECAUSE IN HOLDING SO, THE DRP HAS FOLLOWE D VARIOUS TRIBUNAL ORDERS AND ALSO A JUDGMENT OF HONBLE AP AND TELENGANA HIG H COURT RENDERED IN THE CASE OF BA CONTINUUM INDIA PVT. LTD. (SUPRA). RESP ECTFULLY FOLLOWING THESE TWO TRIBUNAL ORDERS RENDERED IN THE CASE OF PENTAIR WAT ER (I) PVT. LTD. (SUPRA) AND DCIT VS. REUTERS INDIA (SUPRA) AND ALSO THE JUDGEME NT OF HONBLE AP AND TELENGANA HIGH COURT RENDERED IN THE CASE OF BA CON TINUUM INDIA PVT. LTD. (SUPRA), WE DIRECT THE AO/TPO TO CONSIDER THE MARGI N IN THE CASE OF THE ASSESSEE AS WELL AS COMPARABLES AFTER EXCLUDING DEP RECIATION. 6. NOW WE DEAL WITH THE TWO TRIBUNAL ORDERS CITED B Y LD. DR OF REVENUE. FIRST TRIBUNAL ORDER CITED BY LD. DR OF REVENUE IS THE TR IBUNAL ORDER RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11. I N THAT YEAR, REQUEST BEFORE THE TRIBUNAL WAS NOT FOR ADOPTING PLI PROFIT BEFORE DEPRECIATION OF THE IT(TP)A NO. 488/BANG/2016 PAGE 5 OF 10 ASSESSEE AS WELL AS OF THE COMPARABLES. IN THAT YE AR, THE REQUEST WAS THIS THAT THE FIXED ASSETS WERE UNDERUTILIZED AND THEREFORE, THERE SHOULD BE ADJUSTMENT IN DEPRECIATION. FOR THE SAKE OF READY REFERENCE, PAR A 19 OF THIS TRIBUNAL ORDER IS REPRODUCED HEREINBELOW. 19. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CASE OF THE ASSESSEE IS THAT IT HAD A CAPACITY FOR PRODUCTION OF 1,22,233 SQ.MTS OF GRANITE BUT IT HAD ONLY PRODUCED 28,336 SQ.MT DURING THE YEAR. AS PER THE ASSESSCE, BECAUSE OF TH IS ITS SALES WENT DOWN BY MORE THAN 60%. THIS DOES INDICATE UNDERUTIL ISATION OF CAPACITY AND ASSETS. FIXED COST REMAINING THE SAME, IRRESPECTIVE OF THE ACTUAL UTILISATION, SUCH COST HAD TO BE CHARGED TO THE PRODUCTION AND THIS IS A COSTING PRINCIPLE THAT APPLY TO ALL BUSIN ESS AND NOT ASSESSEE ALONE. AMONG THE COMPARABLES SELECTED, WE FIND THAT TWO COMPANIES NAMELY, NEELKANTH ROCK MINERALS LTD AND CEETA INDUS TRIES LTD ALSO HAD A TREND OF DECREASING SALES. REASONS SHOWN BY T HE ASSESSEE FOR UNDER UTILISATION ARE THAT THERE WERE DIFFICULTIES IN PROCURING RAW MATERIAL, NOT OWNING ANY CAPTIVE MINES, AND SEVERE SHORTAGE OF POWER. THESE VAGARIES OF BUSINESS ARE NOTHING BUT A DVERSE ENVIRONMENT FACED BY ALL COMPETITORS WHO ARE SELECT ED AS COMPARABLES. ASSESSEE'S CONTENTION IS THAT ITS FIXE D ASSETS WERE UNDER UTILISED AND THEREFORE THERE SHOULD BE AN ADJUSTMEN T IN DEPRECIATION. IN OUR OPINION IT WOULD ONLY MEAN THAT WEAR AND TEA R OF THE FIXED ASSETS WERE CONSIDERED AT A LOWER LEVEL THAN WHAT I T WOULD HAVE BEEN IF SUCH ASSETS WERE USED WITHOUT RESPITE. DEPRECIAT ION ON FIXED ASSETS NEED NOT BE DIRECTLY PROPORTIONAL TO UTILISATION OF MACHINERY. ASSETS CAN GET DEPRECIATED BY NON USAGE AS WELL. HENCE ATT EMPT OF THE ASSESSEE TO HAVE A LESSER CHARGE OF DEPRECIATION WH ILE WORKING OUT ITS PLI IN THE GUISE OF UNDER UTILISATION OF CAPACITY, IN OUR OPINION, WAS NOT CORRECT. NO DOUBT, AS MENTIONED BY THE LD. AR, RULE 10B(1)(E) REQUIRES ADJUSTMENT OF DIFFERENCES BETWEEN INTERNAT IONAL TRANSACTIONS AND THE COMPARABLE UNCONTROLLED TRANSACTIONS WHICH WOULD MATERIALLY AFFECT THE NET MATERIAL MARGIN. HOWEVER, ASSESSEE H ERE WAS UNABLE TO ESTABLISH THAT THE COMPARABLES HAD CLAIMED DEPRECIA TION AFTER CONSIDERING THEIR CAPACITY UTILISATION. FURTHER ASS ESSEE ALSO COULD NOT ESTABLISH THE EXISTENCE OF A LINEAR RELATIONSHIP BE TWEEN ITS DEPRECIATION COST AND MACHINE UTILISATION. WE ARE T HEREFORE OF THE OPINION THAT GROUND 1 AND 2 OF THE ASSESSEE DOES NO T MERIT ACCEPTANCE. SUCH GROUNDS ARE DISMISSED. 7. FROM THE ABOVE PARA REPRODUCED FROM THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11, IT IS SEEN THAT I N THAT YEAR, THIS WAS NOT THE REQUEST OF THE ASSESSEE BEFORE THE TRIBUNAL THAT PR OFIT BEFORE DEPRECIATION SHOULD BE CONSIDERED AS PLI FOR THE ASSESSEE AS WEL L AS FOR THE COMPARABLES AS IN THE PRESENT YEAR AND THEREFORE, ON THIS ASPEC T, THE TRIBUNAL ORDER IN EARLIER YEAR IS NOT RELEVANT. IT(TP)A NO. 488/BANG/2016 PAGE 6 OF 10 8. NOW WE CONSIDER THE APPLICABILITY OF SECOND TRIB UNAL ORDER ON WHICH RELIANCE IS PLACED BY LD. DR OF REVENUE I.E. THE TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. EDAG ENGINEERS & DESIGN INDIA PVT. LTD. (SUPRA) . IN THIS CASE, THE DECISION OF LD. CIT(A) AS PER PARAS 25 TO 27 IS REP RODUCED BY TRIBUNAL ON PAGE NO. 3 OF THAT TRIBUNAL ORDER AND HENCE, FOR THE SAK E OF READY REFERENCE, THESE PARAS OF THE ORDER OF CIT(A) OF THAT CASE ARE REPRO DUCED HEREINBELOW AND THE SAME ARE AS UNDER. 25. CONSIDERING THE SUBMISSIONS FILED BY THE APPELL ANT FROM TIME TO TIME REGARDING THE CAPACITY UNDERUTILIZATION AND ED AG GERMANY'S ANNUAL ACCOUNTS WHICH SHOW HUGE LOSSES, AND VARIOUS CASE LAWS CITED BY THE APPELLANT, I HOLD THAT AN APPROPRIATE ADJUST MENT SHOULD BE ALLOWED TO THE ASSESSEE ON CAPACITY UNDERUTILIZATIO N. THE MARGIN OF THE APPELLANT COMPANY, AFTER SUCH ADJUSTMENT, IS 9. 69% WHICH IS MUCH HIGHER AS COMPARED TO THE INDUSTRY MARGIN DETERMINE D BY THE TPO AT 5.59% CONSIDERING THE SEVEN COMPARABLES TAKEN BY TH E TPO IN HIS ORDER. 26. THEREFORE, GROUND NOS. 1 AND 2 OF THE APPELLANT ARE ALLOWED. 27. IN VIEW OF THE ABOVE, THE APPEAL IS ALLOWED. 9. HENCE IT IS SEEN THAT IN THAT CASE, THE CIT(A) D IRECTED THE AO TO ADOPT HIGHER PROFIT MARGINS OF THE ASSESSEE ON ACCOUNT OF CAPACI TY UNDERUTILIZATION. THIS WAS NOT THE ISSUE IN THAT CASE THAT PROFIT BEFORE D EPRECIATION WILL BE CONSIDERED OF THE TESTED PARTY I.E. ASSESSEE AND THE COMPARABL ES. HENCE THIS TRIBUNAL ORDER IS ALSO NOT RELEVANT IN THE PRESENT CASE. 10. WE HAVE ALREADY SEEN THAT IN ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 2012- 13 I.E. NEXT YEAR, THE DRP HAS ACCEPTED THE CLAIM O F THE ASSESSEE AND DIRECTED THE AO TO CONSIDER THE MARGIN IN THE CASE OF THE AS SESSEE AS WELL AS COMPARABLES AFTER EXCLUDING DEPRECIATION AND IN HOL DING SO, THE DRP HAS NOTED THAT THE ISSUE IS COVERED BY TWO TRIBUNAL ORDERS AN D ALSO BY THE JUDGEMENT OF HONBLE AP AND TELENGANA HIGH COURT RENDERED IN THE CASE OF BA CONTINUUM INDIA PVT. LTD. (SUPRA). HENCE FOR THE SAKE OF CO NSISTENCY AND IN VIEW OF THIS FACT THAT ON THIS ASPECT, THE ISSUE IS COVERED IN F AVOUR OF THE ASSESSEE BY TWO TRIBUNAL ORDERS AND BY THE JUDGEMENT OF HONBLE AP AND TELENGANA HIGH COURT, WE DIRECT THE AO/TPO TO CONSIDER MARGIN IN T HE CASE OF THE ASSESSEE AS IT(TP)A NO. 488/BANG/2016 PAGE 7 OF 10 WELL AS COMPARABLES AFTER EXCLUDING DEPRECIATION. THESE TWO GROUNDS ARE ALLOWED IN THE TERMS INDICATED ABOVE. 11. NOW WE CONSIDER THE ASSESSEES REQUEST FOR INCL USION OF NEELKANTH ROCK MINERALS LTD. AS PER GROUND NO. 3 RAISED BEFORE US. 12. THE LD. AR OF ASSESSEE DRAWN OUR ATTENTION TO C OPY OF DRP ORDER IN THE PRESENT CASE AVAILABLE ON PAGES 160 TO 166 OF PAPER BOOK AN D IN PARTICULAR OUR ATTENTION WAS DRAWN TO PAGE NO. 162 OF PAPER BOOK A ND IT WAS POINTED OUT THAT AS PER THE DRP REGARDING NEELKANTH ROCK MINERALS LT D., IT IS THE OBJECTION OF THE DRP THAT FROM THE ANNUAL REPORT IT IS SEEN THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE AND THEREFORE, THE DRP UPHE LD THE REJECTION OF THIS COMPARABLE BY TPO. THEREAFTER IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ANNUAL REPORT OF THIS COMPARABLE COMPANY IS AVAILAB LE ON PAGES 188 TO 215 OF PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRA WN TO PAGES 209 AND 210 OF PAPER BOOK AND IT WAS POINTED OUT THAT ON PAGE NO. 209 OF PAPER BOOK BEING PAGE 20 OF THE ANNUAL REPORT, IT IS NOTED THAT DURI NG THE YEAR UNDER REPORT, THE COMPANY OPERATED ONLY ONE SEGMENT I.E. GRANITE SLAB / TILES AND OTHER STONES. HE ALSO POINTED OUT THAT ON PAGE NO. 210 OF THE PAP ER BOOK, IT IS STATED THAT THE RAW MATERIAL CONSUMED IS ONLY ROUGH GRANITE BLOCKS AND THE SALES IS ONLY GRANITE SLABS AND TILES AND THEREFORE, IT IS NOT CL EAR AS TO ON WHAT BASIS, THE DRP HAS STATED THAT THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE WITH THE ASSESSEE COMPANY. IT IS ALSO SUBMITTED BY LD. AR O F ASSESSEE THAT AS PER PAGE NO. 15 OF WRITTEN SUBMISSIONS FILED BY ASSESSEE BEF ORE THE TRIBUNAL, THE ASSESSEE HAS REPRODUCED THE SCREENSHOT OF THE OFFIC IAL WEBSITE OF THAT COMPANY IN WHICH THE PROFILE OF THAT COMPANY IS STATED AND AS PER THE SAME, IT IS STATED THAT THIS COMPANY IS MANUFACTURER OF GRANITE STONES FROM INDIA AND IT IS ALSO STATED THAT THEIR PRODUCT RANGE INCLUDES POLISHED, FLAMED AND CUT TO SIZE AND RANDOM GRANITE SLABS OF GANG SAW AND VERTICAL SIZES OF DIFFERENT THICKNESS LEVELS. HE SUBMITTED THAT THEREFORE, IT SHOULD BE ACCEPTED THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE WITH THE ASSESSEE COMPANY A ND HENCE, THIS SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. IN REPLY, IT WAS SUBMITTED BY LD. DR OF REVENUE THAT FROM THE SAME SCREENSHOT OF OFFICIAL W EBSITE OF THAT COMPANY IT(TP)A NO. 488/BANG/2016 PAGE 8 OF 10 WHICH IS AVAILABLE ON PAGE NO. 15 OF WRITTEN SUBMIS SIONS, IT CAN BE SEEN THAT IT IS STATED THAT THAT COMPANY IS INTEGRATED GRANITE Q UARRYING AND PROCESSING UNIT. SHE SUBMITTED THAT THEREFORE, IT IS CLEAR THAT THAT COMPANY IS HAVING MINING ACTIVITY ALSO AND HENCE, IT IS RIGHTLY HELD BY DRP THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE. SHE ALSO DRAWN OUR ATTENT ION TO PAGE NO. 246 OF PAPER BOOK AND POINTED OUT THAT IT IS OBSERVED BY THE REA DING OF SIGNIFICANT ACCOUNTING POLICIES THAT ON THE FIXED ASSETS, OTHER THAN QUARR IES PUT TO USE, DEPRECIATION HAS BEEN PROVIDED ON QUARTERLY BASIS ON STRAIGHT LI NE METHOD AS PER THE AMENDED SCHEDULE XIV OF THE COMPANIES ACT, 1956 AND DEPRECIATION ON QUARRIES, OWING TO DEPLETION, IS CHARGED TAKING THE LIFE OF EACH QUARRY ESTIMATED AT 30 YEARS. THEREAFTER, SHE POINTED OUT THAT FIXE D ASSETS SCHEDULE -5 IS AVAILABLE ON PAGE NO. 241 OF PAPER BOOK AND FROM TH E SAME, IT CAN BE SEEN THAT QUARRY LAND IS ONE OF THE FIXED ASSETS AND ON THE S AME, DEPRECIATION FOR THE PRESENT YEAR HAS BEEN CHARGED AT RS. 1,11,641/-. S HE SUBMITTED THAT UNDER THESE FACTS, THIS COMPANY CANNOT BE CONSIDERED AS C OMPARABLE BECAUSE THIS COMPANY IS ENGAGED IN MINING AS WELL AS PROCESSING WHEREAS THE PRESENT ASSESSEE IS ENGAGED IN PROCESSING ONLY AND NOT MINI NG. IN THE REJOINDER, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT PAGES 216 TO 2 53 ARE IN RESPECT OF SRI VAJRA GRANITES LTD. AND THEREFORE, IT MAY BE A FACT THAT THIS COMPANY IS HAVING MINING ACTIVITY ALSO BUT THE ANNUAL REPORT OF NEELK ANTH ROCK MINERALS LTD. IS AVAILABLE ON PAGES 188 TO 215 OF PAPER BOOK AND THE FIXED ASSET SCHEDULE OF THAT COMPANY IS AVAILABLE ON PAGE NO. 203 OF PAPER BOOK AND FROM THE SAME, IT CAN BE SEEN THAT THERE IS NO FIXED ASSET SUCH AS QU ARRY LAND AND THEREFORE, FOR THIS COMPANY, IT CANNOT BE SAID THAT THIS COMPANY I S ALSO ENGAGED IN MINING ACTIVITY. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT AS PER THE ORDER OF DRP, BOTH THESE COMPANIES I.E. NEELKANTH ROCK MINER ALS LTD. AND SRI VAJRA GRANITES LTD. ARE FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE COMPANY. ON THIS ASPECT, WE HAVE EXAMINED THE ANNUAL REPORT OF BOTH THESE COMPANIES. REGARDING NEELKANTH ROCK MINERALS LTD., WE FIND THA T AS PER THE SCREENSHOT COPY OF THE OFFICIAL WEBSITE OF THAT COMPANY REPROD UCED BY ASSESSEE ON PAGE NO. 15 OF WRITTEN SUBMISSIONS, THIS COMPANY IS HAVI NG QUARRYING AND PROCESSING IT(TP)A NO. 488/BANG/2016 PAGE 9 OF 10 UNIT AND THE PRESENT ASSESSEE IS NOT INTO MINING. THIS WAS SUBMITTED BY LD. AR OF ASSESSEE THAT AS PER THE P&L ACCOUNT OF THAT COM PANY AVAILABLE ON PAGE NO. 201 OF PAPER BOOK, THERE IS NO EXPENSES DEBITED ON ACCOUNT OF MINING ACTIVITY AND IN THE FIXED ASSET SCHEDULE OF THAT COMPANY, NO QUARRY LAND ON WHICH ANY DEPRECIATION HAS BEEN CLAIMED BY THAT COMPANY IS AV AILABLE. BUT WE FIND THAT AS PER THE OFFICIAL WEBSITE OF THAT COMPANY WHICH H AS BEEN REPRODUCED BY THE ASSESSEE ON PAGE NO. 15 OF WRITTEN SUBMISSIONS, IT IS CLEARLY STATED THAT COMPANY IS HAVING INTEGRATED GRANITE QUARRYING AND PROCESSING UNIT. IT IS ALSO STATED IN THE SAID OFFICIAL WEBSITE THAT THIS COMPA NY IS HAVING SUBSTANTIAL INVENTORY OF GRANITE BLOCKS AND IN-HOUSE PRODUCTION CAPACITIES WHICH ALLOWS THEM TO EXECUTE QUANTUM ORDERS AT ANY GIVEN TIME. THIS STATEMENT WHICH IS IN THE OFFICIAL WEBSITE OF THAT COMPANY ALSO SUPPORTS THE CASE OF THE REVENUE THAT THIS COMPANY IS HAVING IN-HOUSE PRODUCTION OF GRANI TE ROUGH BLOCKS AND BECAUSE OF THAT, THIS COMPANY IS IN A POSITION TO E XECUTE QUANTUM ORDERS AT ANY GIVEN TIME. IN THE PRESENT CASE, THIS IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE IS NOT ABLE TO UTILIZE ITS CAPACITY FOR TH IS REASON THAT THEY ARE NOT GETTING PROPER SUPPLY OF RAW MATERIALS AND THEREFOR E, THIS IS ADMITTED POSITION THAT THE PRESENT CASE, THE ASSESSEE IS NOT HAVING M INING ACTIVITY OF GRANITE ROUGH BLOCKS. MERELY BECAUSE IN THE BALANCE SHEET OF THAT COMPANY, THERE IS NO ASSET AS QUARRY LAND, IT CANNOT BE CONCLUDED THA T THIS COMPANY IS NOT INTO MINING ACTIVITY BECAUSE MINING ACTIVITY CAN BE UNDE RTAKEN IN THE QUARRY LAND OF OTHERS WHICH MAY BILL THE ASSESSEE AS SALE OF RAW M ATERIALS. AFTER CONSIDERING ALL THESE FACTS, WE ARE OF THE CONSIDERED OPINION T HAT THIS COMPANY CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE BECAUSE THIS COMPANY IS ENGAGED IN MINING ACTIVITY ALSO WHEREAS THE PRESENT ASSESSEE I S NOT HAVING ANY MINING ACTIVITY. ACCORDINGLY GROUND NO. 3 IS REJECTED. 14. REGARDING GROUND NO. 4 I.E. REGARDING ASSESSEE S CLAIM FOR INCLUSION OF SRI VAJRA GRANITES LTD., WE FIND THAT THIS COMPANY IS D EFINITELY ENGAGED IN MINING ACTIVITY ALSO AS PER ABOVE DISCUSSION AS PER WHICH WE HAVE SEEN THAT THIS COMPANY IS HAVING QUARRY LAND ON WHICH THAT ASSESSE E HAS CLAIMED DEPRECIATION ALSO ON THE BASIS OF DEPLETION OF THE MINERAL RESOURCES AND IT(TP)A NO. 488/BANG/2016 PAGE 10 OF 10 THEREFORE, WE HELD THAT THIS COMPANY IS ALSO NOT FU NCTIONALLY COMPARABLE OF THE PRESENT ASSESSEE. ACCORDINGLY, GROUND NO. 4 IS ALS O REJECTED. 15. THE REMAINING GROUND NOS. 5 TO 7 ARE REJECTED A S NOT PRESSED AND GROUND NO. 8 IS GENERAL AND HENCE, NO SEPARATE ADJUDICATION IS C ALLED FOR. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE, DATED, THE 22 ND JUNE, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.