M/s. Bobst India Pvt.Ltd., Pune V. ACIT, Cir-1(1), Pune, Pune

ITA 512/PUN/2012

• Counselvise Citation: 51224514 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-10-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 13-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: N P LOHIA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Difference of opinion
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.512/PN/2012 (ASSESSMENT YEAR : 2005-06) M/S BOBST INDIA PRIVATE LIMITED, PLOT NO.82, 126-132, VILLAGE KASAR AMBOLI, POST- AMBADVET, GHOTAVADE ROAD, TAL. MULSHI, DIST. PUNE 412 108. PAN : AAACB7295F . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . RESPONDENT ITA NO.557/PN/2012 (ASSESSMENT YEAR : 2005-06) DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE. . APPELLANT VS. M/S BOBST INDIA PRIVATE LIMITED, PLOT NO.82, 126-132, VILLAGE KASAR AMBOLI, POST- AMBADVET, GHOTAVADE ROAD, TAL. MULSHI, DIST. PUNE 412 108. PAN : AAACB7295F . RESPONDENT ASSESSEE BY : MR. N. P. LOHIA DEPARTMENT BY : MR. P. L. PATHADE DATE OF HEARING : 07-01-2014 DATE OF PRONOUNCEMENT : 28-02-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED CROSS-APPEALS, EACH BY THE ASSESSEE A ND THE REVENUE, PERTAINING TO THE ASSESSMENT YEAR 2005-06, WERE HEA RD TOGETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE AND BREVITY. THE CAPTIONED APPEALS ARE DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - I, PUNE DATE D 08.09.2011 WHICH, IN ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 TURN, HAS ARISEN FROM AN ASSESSMENT ORDER DATED 23. 12.2008 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), FOR THE ASSESSMENT YEAR 2005- 06. 2. THE CAPTIONED ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS A WHOL LY OWNED SUBSIDIARY OF M/S BOBST GROUP S.A., WHICH IS HAVING ITS HEADQUART ERS AT SWITZERLAND. FOR THE ASSESSMENT YEAR 2005-06, ASSESSEE FILED ITS RET URN OF INCOME DECLARING A NET LOSS OF RS.2,62,26,226/- WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT. AS ASSESSEE HAD ENTERED INTO CERTAIN INTERNATIONAL TRA NSACTION WITH ITS ASSOCIATED ENTERPRISES (AES), THE ASSESSING OFFICER REFERRED T O THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA(1) OF THE ACT FOR DE TERMINATION OF ARMS LENGTH PRICE OF SUCH INTERNATIONAL TRANSACTIONS. THE TPO AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE AND CONSIDERING THE SUBMISSIONS PUT-FO RTH HAS MADE AN UPWARD ADJUSTMENT OF RS.2,73,98,848/- TO THE STATED VALUES OF THE INTERNATIONAL TRANSACTIONS IN ORDER TO DETERMINE ITS ARMS LENGTH PRICE. THE ASSESSING OFFICER CONSIDERED SUCH ADJUSTMENT AND ADDED THE SA ME TO THE RETURNED INCOME THEREBY DETERMINING THE TOTAL INCOME OF RS.1 1,72,672/- FOR THE YEAR UNDER CONSIDERATION AND AFTER SETTING-OFF THE BROUG HT FORWARD LOSSES THE TOTAL TAXABLE INCOME WAS DETERMINED AT NIL IN THE ASSES SMENT FINALIZED U/S 143(3) OF THE ACT DATED 23.12.2008. THE ASSESSEE CARRIED THE AFORESAID ADJUSTMENT IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), AS SESSEE ASSAILED THE ACTION OF THE ASSESSING OFFICER/TPO ON FACTS AND ALSO IN L AW. THE CIT(A) HAS ALLOWED PART RELIEF AND NOT BEING SATISFIED ASSESSE E IS IN FURTHER APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL :- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, BOBST INDIA PRIVATE LIMITED ('APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX APPE ALS -1 [CIT(A)] UNDER SECTION 250 OF INCOME-TAX ACT, 1961 ('THE ACT') DAT ED 8 SEPTEMBER 2011 RECEIVED BY BOBST INDIA ON 23 JANUARY 2012 ON THE F OLLOWING GROUNDS: ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE HON'BLE CIT(A): ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 1. GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT OF RS.2,73,98,848/- ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT MADE BY THE LEARNED ASSESSING OFFICER ('AO') AND THE LEARNED TRANSFER P RICING OFFICER ('TPO') TO THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT. 2. NON ACCEPTANCE OF DATA PROVIDED IN THE TRANSFER PRICING STUDY REPORT ERRED BY NOT ACCEPTING THE DATA PROVIDED IN THE TRA NSFER PRICING STUDY REPORT OF THE APPELLANT AND BY NOT AGREEING TO THE TRANSFER PRICING STUDY CONDUCTED BY THE APPELLANT FOR BENCHMARKING ITS INT ERNATIONAL TRANSACTIONS USING COMBINED TRANSACTION APPROACH UN DER TRANSACTIONAL NET MARGIN METHOD ('TNMM'). 3. NON-APPLICABILITY OF TRANSFER PRICING PROVISIONS TO EXPORT ORIENTED UNIT ('EOU') OPERATIONS OF THE APPELLANT SINCE THE SAME ARE ENTITLED TO TAX HOLIDAY UNDER SECTION 10B OF THE AC T ERRED IN HOLDING THAT TRANSFER PRICING PROVISIONS A RE APPLICABLE TO THE APPELLANT INSPITE OF THE FACT THAT IT CLAIMS TAX HO LIDAY UNDER SECTION 10B OF THE ACT. 4. USE OF GROSS MARGINS FOR COMPARABILITY ERRED IN CONFIRMING THAT GROSS MARGINS OF THE APPEL LANT AND COMPARABLE COMPANIES SHOULD NOT BE USED TO BENCHMAR K THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT WITH IT S ASSOCIATED ENTERPRISES. 5. REJECTION OF CERTAIN COMPARABLE COMPANIES BY THE LEARNED TPO, IDENTIFIED BY APPELLANT AS COMPARABLE FOR FINANCIAL YEAR ('FY') 2004-05 ERRED IN CONFIRMING THAT CERTAIN COMPANIES SHOULD N OT BE CONSIDERED AS COMPARABLE TO THE APPELLANT FOR FY 2004-05. 6. NON VERIFICATION OF THE COMPUTATION OF OPERATING MA RGINS OF APPELLANT FOR THE PURPOSE OF TNMM ANALYSIS ERRED IN NOT VERIFYING THE COMPUTATION OF NET OPERA TING MARGINS OF THE APPELLANT AVAILABLE ON RECORDS FOR THE PURPOSE OF T NMM ANALYSIS THOUGH THE SAME WAS SUBMITTED BY THE APPELLANT 7. EXCLUDING EXTRAORDINARY EXPENSES FOR THE PURPOSE OF ARRIVING AT THE NET OPERATING MARGINS OF THE APPELLANT FOR TNMM ANALYSIS ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE BY NOT ACCEPTING THE NET OPERATING MARGINS OF THE APPELLANT FOR FY 2 004-05 COMPUTED AFTER EXCLUDING EXTRAORDINARY/ NON RECURRING EXPENS ES FOR THE PURPOSE OF MAKING A COMPARISON WITH THE COMPARABLE COMPANIE S' NET OPERATING MARGINS. 8. LOSSES NOT ON ACCOUNT OF THE TRANSFER PRICE ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN CONCLUDING THAT LOSSES OF THE APPELLANT ARE ON ACCOUNT OF TRANSFER PRICE AND NOT ANY OTHER REASON LIKE UNDER UTILIZATION OF CAPACITY. 9. ADJUSTMENT TO THE MARGINS OF COMPARABLE COMPANIE S TO FACTOR DIFFERENCES ON ACCOUNT OF WORKING CAPITAL STRUCTURE ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING ANY ADJUSTMENT TO FACTOR DIFFERENCES IN LEVELS OF W ORKING CAPITAL EMPLOYED BY THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES. ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 10. ADJUSTMENT TO THE MARGINS OF COMPARABLE COMPANI ES TO FACTOR DIFFERENCES ON ACCOUNT OF RISK PROFILES ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING ANY ADJUSTMENT TO FACTOR DIFFERENCES IN LEVELS OF R ISKS ASSUMED BY THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES. 11. ADJUSTMENT TO THE MARGINS OF COMPARABLE COMPANI ES TO FACTOR DIFFERENCES ON ACCOUNT OF CAPACITY UTILISATION ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING ANY ADJUSTMENT TO FACTOR DIFFERENCES IN LEVELS OF C APACITY UTILISED BY THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES. 12. COMPUTATION OF BENEFIT OF VARIATION OF +/- 5 PE RCENT AVAILABLE UNDER PROVISO TO SECTION 92C(2)OF THE ACT ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE BY COMPUTING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S OF THE APPELLANT AS THE MEAN ARM'S LENGTH PRICE DETERMINED, WITHOUT TAK ING INTO ACCOUNT THE LOWER 5 PERCENT VARIATION FROM THE MEAN ARM'S L ENGTH PRICE DETERMINED, WHICH IS PERMITTED TO AND WHICH HAS BEE N OPTED FOR BY THE APPELLANT UNDER THE PROVISIONS OF PROVISO TO SECTIO N 92C(2) OF THE ACT. 13. PENALTY PROCEEDINGS INITIATED UNDER SECTION 271 (L)(C) OF THE ACT BASED ON THE TRANSFER PRICING ADJUSTMENT TO THE INC OME OF APPELLANT ARISING FROM DIFFERENCE OF OPINION NOT DR OPPED ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE BY NOT DROPPING THE PENALTY PROCEEDINGS INITIATED BY THE LEARNED AO UNDER SECTION 271(L)(C) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT, ADJUSTMENT TO TRANSFER PRICE IS JUST ON ACCOUNT OF DIFFERENCE OF OPINION AS TO THE METHODOLOGY OF COMPUTATION OF ARM'S LENGTH PRICE DE TERMINED BY THE LEARNED TPO VIS-A-VIS ARM'S LENGTH PRICE DETERMINED BY THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFO RE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. IN ITS CROSS APPEAL THE REVENUE HAS RAISED THE F OLLOWING GROUNDS :- 01. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO CONSIDER CERTAIN ITEM OF INCOME AND EXPE NSES NOT DIRECTLY LINKED TO THE BUSINESS TO WHICH THE INTERNATIONAL TRANSACTION RELATE AND EXCLUDE THEM FOR THE DETERMINATION OF PLI WITHOUT CONSIDERING THAT S UCH DOCUMENTS AND EVIDENCES HAVE NOT BEEN PRESENTED BEFORE THE TRANSF ER PRICING OFFICER / ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING. 02. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN ADMITTING THE FRESH WORKING GIVEN BY THE ASSESSEE TO HIM WHICH ARE NEW DOCUMENTS/FACT WITHOUT CONFRONTING THOSE TO THE ASSESSING OFFICER/TPO WHIC H IS IN VIOLATION OF RULE 46A OF THE INCOME -TAX RULE, 1962. 03. FOR THIS AND SUCH OTHER REASONS AS MAY BE URGE D AT THE TIME OF HEARING, THE ORDER OF THE LEARNED COMMISSIONER OF I NCOME-TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RES TORED. ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 04. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTE R OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL. 4. IN THE ABOVE BACKGROUND, THE RIVAL PARTIES HAVE BEEN HEARD. ON BEHALF OF THE ASSESSEE A PAPER BOOK HAS ALSO BEEN FILED. THE RIVAL COUNSELS HAVE BEEN HEARD AND THE RELEVANT MATERIAL PERUSED. 5. IN SO FAR AS GROUNDS OF APPEAL NOS. 1 AND 2 IN A SSESSEES APPEAL ARE CONCERNED; THEY ARE GENERAL IN NATURE AND DO NOT RE QUIRE ANY SPECIFIC ADJUDICATION. ACCORDINGLY, THE SAME ARE DISMISSED. 6. GROUNDS OF APPEAL NOS. 3, 4, 5, 7, 8, 11 AND 12 HAVE NOT BEEN PRESSED ON BEHALF OF ASSESSEE AT THE TIME OF HEARING AND AC CORDINGLY THE SAME ARE DISMISSED AS NOT PRESSED. 7. GROUND OF APPEAL NO.13 RELATES TO THE INITIATION OF PROCEEDINGS U/S 271(1)(C) OF THE ACT AND THE SAME IS ALSO DISMISSED AS BEING PREMATURE. 8. NOW, WE MAY TAKE-UP ASSESSEES GROUND OF APPEAL NO.6 WITH RESPECT TO THE COMPUTATION OF NET OPERATING MARGINS FOR THE PURPOSE OF COMPARABILITY OF ITS INTERNATIONAL TRANSACTIONS. IN THIS CONTEXT, I T WAS A COMMON POINT BETWEEN THE PARTIES THAT THE SOLITARY ISSUE INVOLVED IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS SIMILAR THEREFORE THE CROSS-GROUNDS ARE BEING TAKEN-UP TOGETHER FOR ADJUDICATION. 9. IN BRIEF, THE BACKGROUND OF THE DISPUTE CAN BE S UMMARIZED AS FOLLOWS. THE ASSESSEE WAS FOUND TO HAVE UNDERTAKEN INTERNATI ONAL TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION AMOUNTING TO RS.25,83, 44,893/- WITH ITS ASSOCIATED ENTERPRISES ON ACCOUNT OF IMPORT OF COMP ONENTS, MACHINES AND SPARES, EXPORT OF MACHINES, SALE AND SERVICES, REPA IR AND INSTALLATION OF MACHINES, COMMISSION, ETC. . FOR THE PURPOSES OF BENCHMARKING SUCH ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 INTERNATIONAL TRANSACTIONS ASSESSEE USED TRANSACTIO NAL NET MARGIN METHOD (TNM METHOD) BY CONSIDERING THE GROSS PROFIT/SALES AS THE PROFIT LEVEL INDICATOR (I.E. PLI). THE TPO, HOWEVER, WAS OF THE VIEW THAT NET OPERATING MARGIN/OPERATING REVENUES SHOULD BE TAKEN AS THE PL I FOR THE PURPOSES OF CARRYING OUT THE COMPARABILITY ANALYSIS UNDER THE T NM METHOD. ASSESSEE CARRIED THE AFORESAID MATTER IN APPEAL BEFORE THE C IT(A) WHO HAS IN-PRINCIPLE UPHELD THE STAND OF THE TPO. 10. ON THIS ASPECT, THE LEARNED COUNSEL FOR THE ASS ESSEE SUBMITTED THAT ASSESSEE HAS NO GRIEVANCE IN-PRINCIPLE WITH REGARD TO THE STAND OF THE TPO ON THE AFORESAID ISSUE. HOWEVER, THE GRIEVANCE OF THE ASSESSEE IS THAT WHILE COMPUTING THE NET MARGIN/PROFIT, CERTAIN ITEMS OF I NCOME/EXPENSES WERE LIABLE TO BE EXCLUDED, WHICH HAVE NO BEARING ON THE INTERN ATIONAL TRANSACTIONS IN QUESTION. IN THIS REGARD, THE LEARNED COUNSEL POIN TED OUT THAT WHILE COMPUTING THE NET MARGIN PROFIT CERTAIN ELEMENT OF INCOME WHI CH ARE NON-PERFORMING PROFITS HAVE ALSO BEEN INCLUDED AND IN THIS CONTEXT A REFERENCE WAS MADE TO THE FINANCIAL STATEMENTS OF THE ASSESSEE PLACED IN THE PAPER BOOK AT PAGE 01 TO 20. A REFERENCE WAS INVITED TO SCHEDULE 14 OF T HE PROFITS & LOSS ACCOUNT CONTAINING DETAILS OF OTHER INCOME. IT IS POINTE D OUT THAT NON-OPERATING PROFITS, BEING INTEREST ON BANK DEPOSITS, DIVIDEND INCOME, G AIN ON SALE OF ASSETS, INTEREST ON INCOME-TAX REFUND, ETC. ARE LIABLE TO B E EXCLUDED FOR COMPUTING NET OPERATING PROFIT. SIMILARLY, REFERENCE WAS ALSO IN VITED TO SCHEDULE 17 TO THE PROFIT & LOSS ACCOUNT CONTAINING DETAILS OF OTHER EXPENSES WHEREIN IT IS POINTED OUT THAT EXPENSES ON ACCOUNT OF EXCHANGE DI FFERENCE (NET) WAS DEBITED, WHICH WAS NOT AN OPERATING EXPENSE, WHICH WAS LIABLE TO BE EXCLUDED TO COMPUTE THE OPERATING PROFITS. LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT THOUGH THE CIT(A) HAS AGREED IN-PRIN CIPLE WITH THE PLEA OF THE ASSESSEE HOWEVER HE HAS DEEMED IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO CONSIDER SUCH ITEMS AND EXCLUDE THEM FOR THE PURPOSES OF ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 DETERMINATION OF PLI. IN THIS CONTEXT, OUR ATTENTI ON WAS INVITED TO PARA 5.5.2 OF THE ORDER OF THE CIT(A), WHICH READS AS UNDER :- 5.5.2. ON THE CAREFUL CONSIDERATION OF THE FACTS A S CAN BE SEEN FROM THE MATERIALS AVAILABLE ON RECORD THAT THE TPO HAS COMPUTED THE NET MARGINS AS A PLI FOR FINANCIAL ANALYSIS AND BENCHMARKING UN DER THE TNMM METHOD. THE APPELLANT IN THE ABOVE SUBMISSION HAS CLAIMED T HAT THE COMPUTATION MADE BY THE TPO SUFFERS FROM SOME INHERENT DEFECTS AND CONTRADICTIONS. MANY CASES HAVE BEEN RELIED UPON. THOUGH THE FACTS OF THE CASES RELIED UPON BY THE APPELLANT ARE MUCH DIFFERENT TO THE FACTS OF THIS CASE AND THEREFORE, MUCH STRENGTH CANNOT BE DRAWN FROM THE SAME, HOWEVE R, THE ONLY STRENGTH AVAILABLE SHOWS THAT THE COURTS HAVE HELD IN THE FA CTS OF THE RELEVANT CASES THAT THE ADJUSTMENTS CAN BE MADE IN DETERMINING THE PLI TO MAKE IT REASONABLE WITHIN THE FLEXIBILITY OF THE SYSTEM. IN THE PRESENT CASE, IT HAS BEEN CLAIMED BY THE APPELLANT THAT CERTAIN INCOME AND EX PENSES WHICH ARE NOT DIRECTLY LINKED TO THE BUSINESS TO WHICH THE INTERN ATIONAL TRANSACTIONS RELATE, SHOULD BE EXCLUDED TO ARRIVE AT A PROPER BENCHMARK. I FIND THAT THE RELEVANT MATERIALS ARE NOT AVAILABLE IN THE ASSESSMENT ORDER , BASED ON WHICH THE CLAIM OF THE APPELLANT CAN BE VERIFIED. HOWEVER, CONSIDER ING THE FACT THAT THESE ARGUMENTS HAVE SOME MERIT, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER SUCH ITEMS AND EXCLUDE IT FROM THE DETERMINATION OF THE PLI. SIMILARLY, IF THE TPO/ AO HAS ERRED IN COMPUTING THE PLI AS PER PROPO SED METHOD I.E. NET OPERATING MARGIN OVER OPERATING INCOME, AS CLAIMED BY THE AUTHORISED REPRESENTATIVE, THE SAME CAN BE CORRECTED WHILE GIV ING THE APPEAL EFFECT. THE METHOD ADOPTED IS UPHELD, ONLY COMPUTABLE IS TO BE CHECKED. THIS CLAIM CAN BE TREATED TO BE PARTLY ALLOWED, SUBJECT TO ABOVE R EMARKS. 11. ACCORDING TO THE LEARNED COUNSEL, THE OBSERVATI ON OF THE CIT(A) TO THE EFFECT THAT THE RELEVANT MATERIALS ARE NOT AVAILABLE IN THE AS SESSMENT ORDER, BASED ON WHICH THE CLAIM OF THE APPELLANT CAN BE VE RIFIED IS NOT JUSTIFIED BECAUSE THE ENTIRE MATERIAL AND ALSO THE SPECIFIC P LEA OF THE ASSESSEE WAS AVAILABLE BEFORE THE TPO. IT WAS THEREFORE CONTEND ED THAT AN APPROPRIATE RELIEF BE ALLOWED TO THE ASSESSEE. 12. THE GRIEVANCE OF THE REVENUE IN ITS CROSS-APPEA L ALSO ARISES FROM THE OBSERVATIONS OF THE CIT(A) CONTAINED IN THE ABOVE E XTRACTED PARA 5.5.2. AS PER THE REVENUE, THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER CERTAIN ITEMS OF INCOME AND EXPENSES NOT D IRECTLY LINKED TO THE INTERNATIONAL TRANSACTION AND TO EXCLUDE THEM FOR D ETERMINATION OF THE PLI. AS PER THE REVENUE, THE CIT(A) ERRED BECAUSE SUCH DOCU MENTS AND EVIDENCE WERE NOT BEFORE THE TPO AND THE CIT(A) ERRED IN ADM ITTING SUCH FRESH ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 WORKINGS GIVEN BY THE ASSESSEE IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE SHORT POINT INVOLVED BEFORE US IS THE DETERMINATION OF NET OPER ATING PROFITS AND OPERATING REVENUES FOR THE PURPOSES OF COMPUTING PLI OF THE A SSESSEE COMPANY. IN- PRINCIPLE, WE FIND NO DIFFERENCE IN APPROACH BETWEE N THE ASSESSEE AND THE REVENUE ON THE ASPECT OF EXCLUDING ANY ITEM OF INCO ME OR EXPENDITURE FOR THE PURPOSES OF CALCULATING PLI SO LONG AS SUCH ITEM OF INCOME/EXPENDITURE IS NOT LINKED TO THE INTERNATIONAL TRANSACTIONS UNDER REVI EW. WE SAY SO FOR THE REASON THAT EVEN THE TPO IN PARA 8(V)(D) HAS CONCLUDED AS UNDER :- THUS, THE NET PROFIT MARGIN NORMALLY MEANS PROFIT BEFORE TAX, COMPUTED IN ACCORDANCE WITH THE ACCOUNTING PRINCIPL ES. HOWEVER, ANY ITEM OF INCOME OR EXPENDITURE WHICH HAS NO BEARING ON THE A MOUNT OF TRANSACTIONS UNDER EXAMINATION HAVE TO BE EXCLUDED OR INCLUDED A S THE CASE MAY BE. SOME OF THESE ITEMS MAY BE AS DIVIDEND INCOME AND I NTEREST INCOME, WHICH ARE NOT DIRECTLY RELATED TO THE TRANSACTIONS. 14. THE STAND OF THE CIT(A) ON THIS ASPECT AS MAN IFESTED IN PARA 5.5.2 OF HIS ORDER, WHICH WE HAVE EXTRACTED ABOVE, IS ALSO O N SIMILAR LINES. THE GRIEVANCE OF THE REVENUE, AS MANIFESTED IN THE CAPT IONED GROUNDS OF APPEAL IS ALSO NOT AGAINST THE AFORESAID PROPOSITION IN-PR INCIPLE. 15. THE CLAIM OF THE ASSESSEE IS THAT THE ENTIRE MA TERIAL WAS AVAILABLE ON RECORD AND THE CIT(A) OUGHT TO HAVE ALLOWED THE CLA IMED INSTEAD OF REMANDING THE MATTER TO THE FILE OF THE TPO/ASSESSING OFFICER . THE GRIEVANCE OF THE REVENUE, ON THE OTHER HAND, IS THAT THE CIT(A) ERRE D IN CONSIDERING A FRESH WORKING ON THIS ASPECT IN VIOLATION OF RULE 46A OF THE RULES. IN OUR CONSIDERED OPINION, THE OBJECTION OF THE REVENUE IS QUITE MISP LACED INASMUCH AS THE ASSESSEE HAD RAISED THIS PLEA BEFORE THE TPO EVIDEN TLY INASMUCH AS THE ORDER OF THE TPO EXTRACTED ABOVE, IS IN RESPONSE TO SUCH PLEA OF THE ASSESSEE. WE ARE ALSO SATISFIED THAT THE NO ADDITIONAL EVIDENCE WITHIN THE MEANING OF RULE 46A OF THE RULES HAS BEEN ACCEPTED BY THE CIT(A) ON THIS ASPECT INASMUCH AS ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 THE EXCLUSION OF INCOME/EXPENDITURE CANVASSED BY TH E ASSESSEE, ARE BASED ON ITS FINANCIAL STATEMENTS, WHICH ARE A PART OF RE CORD. THEREFORE, WE FIND NO JUSTIFICATION FOR THE REVENUE TO ASSAIL THE DIRECTI ONS OF THE CIT(A). OSTENSIBLY, THE ASPECT INVOLVES A FACTUAL APPRECIATION OF THE M ATERIAL ON RECORD, AND THEREFORE, WE HEREBY UPHOLD THE DIRECTION OF THE CI T(A) TO THE ASSESSING OFFICER TO RE-DETERMINE THE PLI BY EXCLUDING ITEMS OF INCOME/EXPENDITURE WHICH ARE NOT LINKED TO THE INTERNATIONAL TRANSACTI ONS IN ORDER TO COMPUTE THE PLI OF THE ASSESSEE. THE ASSESSING OFFICER SHALL A LLOW THE ASSESSEE A REASONABLE OPPORTUNITY TO MAKE SUBMISSIONS TO SUPPO RT ITS STAND AND THEREAFTER THE ASSESSING OFFICER SHALL PASS AN ORDE R ON THIS ASPECT IN ACCORDANCE WITH LAW. THUS, ON THIS ASPECT, ASSESSE E SUCCEEDS FOR STATISTICAL PURPOSES AND THE REVENUE FAILS IN ITS GROUNDS OF AP PEAL. 16. THE ONLY OTHER GROUNDS REMAINING FOR DETERMINAT ION IS BY WAY OF GROUNDS OF APPEAL NOS. 9 AND 10. IN TERMS OF GROUN D OF APPEAL NO.9, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN NOT CONSIDERING THE ASSESSEES PLEA TO ALLOW ADJUSTMENT TO TAKE INTO CO NSIDERATION THE DIFFERENCE IN LEVELS OF WORKING CAPITAL EMPLOYED BY THE ASSESSEE VIS--VIS THE COMPARABLE COMPANIES. BY WAY OF GROUND OF APPEAL NO.10, THE G RIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN NOT CONSIDERIN G THE ASSESSEES PLEA FOR ALLOWING ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN LEV ELS OF RISK ASSUMED BY THE ASSESSEE VIS--VIS COMPARABLE COMPANIES. 17. ON BOTH THESE ASPECTS, THE SUBSTANTIVE GRIEVANC E OF THE ASSESSEE IS THAT THE AFORESAID SPECIFIC PLEAS RAISED BY THE ASS ESSEE, HAVE NOT BEEN ADJUDICATED BY THE CIT(A). IN THIS CONNECTION, A R EFERENCE HAS BEEN INVITED TO THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A), A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 124 TO 170. IN P ARTICULAR, OUR ATTENTION WAS INVITED TO PARA 2.9.2 OF THE WRITTEN SUBMISSIONS WH EREIN ASSESSEE HAD RAISED THE ISSUE OF WORKING CAPITAL ADJUSTMENT AND ALSO TO PARA 2.9.3 WHEREIN THE ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 ISSUE OF ALLOWING RISK ADJUSTMENT WAS RAISED. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT AFORESAID TWO ASPECTS HAV E NOT BEEN ADJUDICATED BY THE CIT(A) AND THAT THEY HAVE A BEARING ON THE DETE RMINATION ON THE FINAL TAX LIABILITY. THE LEARNED COUNSEL ALSO FURNISHED A CO PY OF THE ORDER OF THE TPO U/S 92CA(3) OF THE ACT FOR THE SUBSEQUENT ASSESSMENT YE AR OF 2006-07 WHEREIN THE PLEA OF THE ASSESSEE FOR ALLOWING OF ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL DIFFERENCES HAS BEEN ACCEPTED. IT WAS THER EFORE CONTENDED THAT OMISSION TO DEAL WITH SUCH GROUNDS OF APPEAL BY THE CIT(A) IS UNJUSTIFIED. 18. FACTUALLY SPEAKING, THE POINTS RAISED BY THE LE ARNED COUNSEL FOR THE ASSESSEE HAVE NOT BEEN CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE APPEARING FOR THE REVENUE. 19. IN BACKGROUND OF THE AFORESAID FACTUAL MATRIX, IT IS EVIDENT THAT THE GRIEVANCE RAISED BY THE ASSESSEE IN TERMS OF THE GR OUNDS OF APPEAL NOS. 9 AND 10 HAVE NOT BEEN ADJUDICATED BY THE CIT(A) AND, THEREFORE WE DEEM IT FIT AND PROPER TO RESTORE THE SAME BACK TO THE FILE OF THE CIT(A) FOR ADJUDICATION AFRESH. NEEDLESS TO SAY, THE CIT(A) SHALL ALLOW TH E ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND THEREAFTER HE SHALL ADJUDICATE THE PLEAS RAISED BY THE ASSESSEE ON MERITS IN ACCORDANCE WITH LAW. THUS, ON GROUNDS OF APPEAL NOS. 9 AND 10, ASSESSEE SUCCEEDS FOR STATIST ICAL PURPOSES. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 28 TH FEBRUARY, 2014. SUJEET ITA NO.512/PN/2012 ITA NO.557/PN/2012 A.Y. 2005-06 COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE