VIJAYDIMON DIAMOND (I) P. LTDP.LTD, MUMBAI V. ACIT 5(3), MUMBAI

ITA 5182/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100661 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 23-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 18-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Business income; Transfer pricing; International transaction; Rule of consistency
• Section: 56; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRI BU NAL MUMBAI BENCH K , MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.R.BASKARAN , ACCOUNTANT MEMBER ITA NO. 5182 ( MUM. ) 20 1 3 (A S SESSMENT YEAR : 20 08 - 09 ) M/S VIJAYDIMON DIAMOND (INDIA) P VT.LTD . 1401, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI - 400 004 APPELLANT P AN NO.AA B CV7678P VS THE ASST. COMMISSIONER OF INCOME - TAX, CIRCLE - 5 ( 3 ), ROOM NO.573,5 TH FLOOR, AAYAKAR BHAVAN, M. K.ROAD, MUMBAI - 400 020 RESPONDENT ASSESSEE BY : DR. K.SHIVARAM , SR. A DVO C ATE REVENUE BY : SHRI N.K.CHAND, CIT DATE OF HEARING : 27 - 05 - 2015 DATE OF PRON OUNCEMENT : 05 - 08 - 2015 O R D E R PER SHRI VIJAYPAL RAO, J M: TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 2 0 - 05 - 201 3 OF CIT(A) - 15, MUMBAI FOR TH E ASSESSMENT YEAR: 200 8 - 09 . THE ASSE S SEE HAS RAISED THE FOLLOWING REVISED GROUNDS; 1. THE CIT(A) FAILED TO APPRECIATE THAT THE TPO/AO WAS NOT JUSTIFIED IN REJECTING CUP METHOD AND IN A D OPTING TNMM WITHOUT ASSIGNING ANY REASON AND IN MAKING TRANSFER PRICING ADJUSTMENT OF RS.3,25,79,939/ - . HENCE, THE ADDITION CONFIRMED BY THE CIT(A) MAY BE DELET ED ITA NO. 5182(MUM. ) 1 3 2 2.THE CIT(A) HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT THE APPELLANTS CASE FALLS UNDER CLAUSE (A),(B ) AND (C) OF SECTION 92C(3) OF THE IT ACT, 1961 NECESSIT ATING THE REDETERMINATION OF THE ARMS LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANSA CTION. 3. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) FAILED TO APPRECIATE THAT THE APPELLANTS PROFITS ARE ELIGIBLE FOR DEDUCTION U/S 10A AND HENCE, THERE IS NO REASON TO SHIFT PROFITS OUTSIDE INDIA, ESPECIALLY TO A JURISD ICTION WITH HIGHER TAX RATES. THE REFORE, THE TRANSFER PRICING ADJUSTMENT IS, IN LI M IN E, MISCONCEIVED AND ERRONEOUS. HENCE, THE ADDITION CONFIRMED BY THE CIT(A) MAY BE DELETED. SELECTION OF COMP A RABLES ORIGINAL GROUND NOS.3,5,6 & 4 .THE CIT( A ) ERRED IGNORING THE COMMERCIAL REALITIES BEH IND THE APPELLANTS OPERATIONS AND FAILED TO APPRECIATE THAT THE COMPARABLES SELECTED BY THE TPO/AO ARE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT. THEREFORE, THE ADDITION MADE ON THE BASIS OF COMPARABLES SELECTED BY THE TPO/AO MAY BE DELETED. 5. WITHO UT PREJUDICE TO THE ABOVE, ASSUMING TNMM IS ADOPTED, THE CIT(A) FAILED TO APPRECIATE THAT INTERNAL COMPARABLES ARE MORE RELIABLE THAN EXTERNAL COMPARABLES, CONSIDERING WHICH THE APPELLAN T S TRANSACTION ARE AT ARMS LENGTH. THE APPELLANT CRAVES LEAVE TO A DD, AMEND, ALTER OR DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL. ITA NO. 5182(MUM. ) 1 3 3 2. GROUND NO.1 & 2 REGARDING REJECTION OF CUP MET HOD AND ADOPTING TNMM METHOD. THE ASSESSEE IS ENGAGED IN MANUFACTURING OF STUDDED AND PLAIN GOLD JEWELLERY AND EXPORT BUSINESS. THE ASSES SEE HAS TWO DIVISIONS/UNITS NAMELY A) DIAMOND TRADING UNIT AND B) J EWELLERY MANUFACTURING UNIT. THE ASSES S EE HAS REPORTED THE FOLLOWING INTERNATIONAL TRANSACTION IN ITS FORM 3CEB . SL.NO TRANSACTION AMOUNT(RS.) METHOD 1 PURCHASE OF ROUGH DIAMOND 28,16,3 3,561/ - CUP 2 EXPORT SALE OF JEWELLERY 45,50,10,041/ - CUP 3 IMPORT OF GOLD 1,92,06,510/ - CUP TOTAL 75,58,54,492/ - THE ABOVE INTERNATIONAL TRANSACTION HAVE BEEN CA RRIED OUT WITH TWO OF ITS AES . I.E A) VIJAY GOLD DESIGNS AND B) B.V.INTERNATION AL BOTH IN USA. THE ASSESSEE PURCHASED GOLD & DIAMONDS FROM ITS AES AND MANUFACTURED THE JEWELLERY AND SOLD TO THE AES. THE ASSESSEE CLAIMED THAT TH E ASSESSEES LOW END JEWELLERY WAS SOLD TO THE AE AS WELL AS TO NON - A SSOCIATED E NTERPRISESE S. THE ASSE S S EE ADOPTED CUP AS A MOST APPROPRIATE METHOD FOR BENCH MARKING ITS INTERNATIONAL TRAN S ACTIONS. THE ASSESSEE CLAIMED THAT THE ASSE S SEES VALUE ADDITION ON TRANSACTIONS WITH AES IS 2.5% IN COMPARISON TO THE VALUE ADDITION ON TRANSACTION WITH NON - AE AT 4.98% . THEREFORE, THE ASSE S SEE CLAIMED THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH. THE T RANSFER P RICING O FFICER HAS R EJECTED THE CUP ITA NO. 5182(MUM. ) 1 3 4 METHOD ADOPTED BY THE ASSES S EE AND APPLIED TNMM METHOD FOR DETERMINATION OF THE ARMS LENGTH PRICE OF T H E INTER NATIONAL TRANSACTION UNDER TAKEN BY THE ASSES S EE. THE TPO FINALLY, SELECTED 13 COMPARABLES AND ADOPTED AVERAGE PROFIT AT 5.63% AS UNDER; SL.NO NAME OF THE COMPANY OP/TC 1 DIAGOLD 4.89 2 FINE PLATINUM 8.34 3 GOLDIAM INTERNATIONAL - 2.55 4 GOLDIAM JE WELLERY 14.04 5 GOLDIAM JEWELS 0.14 6 NEOEM INDIA LTD 3.89 7 SHANKAR GEMS LTD 4.71 8 SHANTI VIJAY 2.96 9 SHREEJI JEWELLERY 2.77 10 SHYAM STAR GEMS 22.15 11 SOVERIGN DIAM 1.75 12 FINE JEWELLERY 6.27 13 SURAJ DIAMOND 3.78 AVERAGE 5.63 THE TPO FOUND THAT THE ASSE S SEES OPERATING MARGIN AS PER THE PROFIT LEVEL INDICATOR (PLI) OF TC IS 0.44% WHICH WORKED OUT BY THE TPO IN PARA - 6.11 AS UNDER; ITA NO. 5182(MUM. ) 1 3 5 SALE 53,454,55,667 OE XP 53,69,07,701 OP.PROFIT 23,52,034 OP/REVENUE 0.44% OP/TC 0.44% ACCO RDINGLY, THE TPO MADE AN UPWARD ADJUSTMENT OF RS.3,25,79,939/ - . THE A S SESSEE CHALLENGED THE ACTION OF THE TPO BEFORE THE CIT(A) AND CONTENDED THAT THE CUP METHOD IS THE BETTER SUITED IN COMPARISON TO TNM M ETHOD FOR DETERMINATI ON OF ARMS LENGTH PRICE ( ALP ) . THE ASSESSEE ALSO CONTENDED THAT IN THE EARLIER YEAR THAT THE TPO HAS ACCEPTED THE CUP METHOD AS THE MOST APPROPRIATE METHOD THEREFORE, FOR THE YEAR UNDER CONSIDERATION, THE TPO IS NOT JUSTIFIED TO REJECT THE CUP METHOD AND TO ADOPT THE TNM METHOD FOR DETERMI NATION OF ALP. THE ASSE S SEE RELIED UPON THE ORDERS OF THIS TRIBUNAL IN SUPPORT OF HIS CONTENTION THAT ONCE A METHOD ADOPTED BY THE ASSES S EE IS ACCEPTED BY THE TPO , AS THE MOST APP ROPRIATE METHOD THE SAME CAN N OT BE REJECTED IN THE SUBSEQUENT YEAR. THE CI T(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND UPHELD THE ACTION OF THE TPO IN REJECTING THE METHOD FOR DETERMINATION OF ALP. 3. BEFORE US THE LEARNED AR OF THE ASSE S SEE HAS SUBMITTED THAT WHEN THE TPO HAD ACCEPTED TH E CUP METHOD FOR DETERMINATIO N OF ALP IN THE EARLIER YEAR, THAN AS PER THE RULE OF CONSISTENCY, THE TPO CANNOT TAKE A DIFFERENT VIEW ON THE ISSUE OF MOST APPROPRIATE METHOD FOR DETERMINING THE ITA NO. 5182(MUM. ) 1 3 6 ALP. HE HAS FURTHER CONTENDED THAT THE TPO HAS REJECTED THE CUP METHOD ADOPTED BY THE ASS ESSEE WITHOUT GIVING ANY REASON AND THEREFORE, THE ACTION OF THE TPO IS NOT JUSTIFIED. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE ORDER OF THIS TRIBUNAL IN CASE OF M/S BIRLA SOFT(I NDIA ) LTD VS DCIT AS WELL AS IN CASE OF DES TINATION OF THE WORLD PVT.LTD. VS ACIT N ITA N O .5534(DEL.)/2010 AND SUBMITTED THAT THE INTERNAL CUP IS MORE SUITABLE FOR DETERMINATION OF ALP. 4. ON THE OTHER HAND, EARNED DR SUBMITTED THAT THE ASSESSEE HAS TAKEN THE MARGIN BY APPLYING THE SALES WHICH IS IN CONSISTENT WITH TH E TP RULES AS THE PROPER PROFIT LEVEL INDICATOR IS OP ERATING TOTAL COST. FURTHER, THE SALES IS AN INFLUENCED TRANSACTION BEING CONTROLLED BETWEEN THE ASSESSEE AND THE AE. THEREFORE, ADOPTING THE SALES AS DENOMINATOR IS AGAINST THE PRINCIPAL OF ALP DETER MINATION. LEARNED DR HAS FURTHER CONTENDED THAT CUP METHOD REQUIRES A HIGH DEGREE OF SIMILARITY BETWEEN COMPARED TRANSACTION, WHEREAS IN THE CASE OF JEWELLERY MANUFACTURE FOR AE AND NON - AE THERE IS NO LIKELY HO OD OF VARIOUS VARIATION WITH RESPECT TO DESIG N, MARKET, QUALITY ETC., AND THUS, THE TRANSACTION OF SALE WITH NON - AE CANNOT BE COMPARED WITH THE TRA N SACTION WITH THE AE PARTICULARLY WHEN THE SALE IS OF THE JEWELLERY MANUFACTURED , AS P ER THE SPECIFICATION OF THE CLIENTS. THE LEARNED D R HAS FURTHER PO INTED OUT THAT EVEN OTHERWISE, THE TRANSACTION OF SALE WITH NON - AE CANNOT BE COMPARED WITH THE TRANSACTION ITA NO. 5182(MUM. ) 1 3 7 OF SALES WITH THE AE , BECAUSE THE VOLUME OF TRANSACTION WITH NON - A E IS VERY N EGLIGIBLE IN COMPARISON TO THE S A L E TO AE. HE HAS REFERRED THE DETAILS OF SALES TO THE AE AND NON - AE AND CONTENDED THAT THE SALES TO NON - AE IS LESS THAN 1%, THEREFORE, THE SAME CANNO T BE ADOPTED AS A COMPARABLE TRA N S ACTION. AS REGARDS TH E RULE OF CONSISTENCY, LEARNED D R SUBMITTED THAT THE TPO IN THE EARLIER YEAR HAS NEVER A CCEPTED CUP METHOD FOR THE PURPOSE OF ALP DE TERMINATION , AS THE TPO HAS NOT D ISCUSSED OR EXAMINED THIS ISSUE IN THE EARLIER ASSESSMENT YEAR. HE HAS FURTHER CONTENDED THAT THE SELECTION OF MOST APPROPRIATE METHOD INVOLVES VARIOUS FACTORS AND CIRCUMSTANCES , INCLUDING TH E DATA AVAILABILITY AND COMPARABILITY IN TERMS OF VALUE AS WELL AS S IMILARITY OF TH E TRANSACTIONS. IN SUPPORT OF HIS CONTENTION HE H AS RELIED UPON THE DECISION OF THE MUMBAI BENCH ES OF THIS TRIBUNAL IN THE C A SE OF ONWARD TECHNOLOGIES LTD V S DCIT 147 ITD 534(MUM.) HE HAS ALSO RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION AS WELL AS THE M ATERIAL AVAILABLE ON RECORD. AT THE OUTSET, W E NOTE THAT THE ASSESS EE IS HAVING PURCHASE AND SALES TRANSACT IONS WITH AES AS WELL AS WITH NON - AES. THE SALES TRANSACTION WITH THE AE CONSIST 99.41% OF THE TOTAL SALES WHEREAS THE SALE S TO NON - AE ONLY 0.59%. THUS, IT IS CLEAR THAT THE SALE TRANSACTION WITH NON - AE IS VERY NEGLIGIBLE IN COMPARISON TO THE SALE TRA NSACTION WITH THE AE. FURTHER, THE MARGIN ON THE SALE TRANSACTION S WITH THE NON - AE IS ALSO NOT FREE FROM THE INFLUENCE OF PURCHASE TRANSACTION F R OM THE AE. APART FROM ITA NO. 5182(MUM. ) 1 3 8 THE VERY NEGLIGIBLE SALE WITH THE NON - AE, IT IS WORTH NOTING THAT IN THE TRANSACTION OF MANUFACTURE OF JEWELLERY COMP RISING OF GOLD & DIAMOND AS PER THE SPE CIFIC REQUIREMENT OF THE CLIENT REQUIRES A HIGH DEGREE OF COMPARAB I L ITY BETWEEN THE TWO TRANSACTION BECAUSE OF VARIATION IN THE Q UANTITY, SPECIFICATION, DESIGN AND THE PURITY OF THE PR ECIOUS STONES AND METAL USED IN THE JEWELLERY . WE FURTHER, NOTE THAT EVEN THE RATIO OF SALES AND PURCHASE TO THE AE AND NON - AE IS ALSO NOT SIMILAR . I N THE PECULIAR FACTS OF THE CASE OF THE A S SESSEE AS WELL AS THE TRANSACTION S INVOLVING THE SALE AND PURCH ASE OF D IAMOND AND GOLD JEWELLERY, T HE TRANSACTION CARRIED OUT WITH THE NON - AE WHICH IS JU S T ABOUT % OF THE TOTAL SALES CANNOT BE COMPARED WITH THE TRANSACTION OF THE SALE WITH THE AE WHICH CONSISTS OF 99.41%. SINCE THESE FACTS WERE NOT THE SUBJECT MATT ER OF EXAMINATION IN THE EARLIER ASSESSMENT YEAR THEREFORE, EVEN IF THE TPO HAS ACCEPTED THE CUP METHOD AS THE MOST APPROPRIATE METHOD, THE SAME WILL NOT PRECLUDE THE TPO TO UNDERTAKE THE EXERCISE OF VERIFICATION AND EXAMINATION OF THE RELEVANT FACT FOR DE TERMINATION OF THE ALP AND ADOPT TNMM AS THE MOST APPROPRIATE METHOD. IN THE C ASE OF ONWARD TECHNOLOGIES LTD,( SUPRA ) THE TRIBUNAL WHILE DEALING WITH AN IDENTICAL ISSUE HAS HELD INPARA - 15.1 TO 16.3 AS UNDER; 15 . 1 . B E FOR E P A RTIN G W IT H TH I S ISSU E , W E W OUL D L I K E T O RE C O R D TH A T TH E LD . A R V E HE M E N T L Y A RG U E D A BOU T TH E D E T E R M I N A TIO N O F TH E A L P F O R TH E C UR R E N T Y EA R B Y T H E ITA NO. 5182(MUM. ) 1 3 9 A S S E S S E E I N TH E S A M E W A Y A S W A S DON E I N E A R LI E R YE A RS . I T W A S S T A T E D TH A T S I N C E S U C H ME THO D W A S A C C E P T E D B Y TH E T P O FO R TH E E A R LI E R YE A RS , T H E SA M E O U GH T NO T T O H A V E B EE N R E J EC T E D FO R THI S Y EA R . I N TH E OPPUG N A TION , T H E LD . D R ST A T E D T H A T R E S JUDI C AT A DO E S NO T A PPL Y T O I N C O M E T A X P ROC EE DING S A N D H E N C E T H E F AC T U M O F TH E T P O H A VIN G A C C E P T E D SU C H W R O N G M E THO D O F D E T E R M I N I N G T H E A L P I N T H E PRE C ED I N G YE A RS , W A S NO T R E L E V A N T I N S O F A R A S T H E C U R R E N T Y EA R W A S C O N C E R N E D . 16 . 2 . T H E H ONBL E SU P RE M E C OU R T H A S H E L D I N S E V E R A L C A S E S IN C LUDIN G M . M . IP O H & O RS . V S . C I T ( 196 8 ) 6 7 IT R 10 6 ( S C ) T H A T : ` T H E DO C TRIN E O F R E S JUDI C A T A DO E S NO T A PPL Y S O A S T O MA K E A DE C ISIO N O N A Q U E S T IO N O F F A C T O R L A W I N A PROCE E DIN G F O R A SS E SS ME N T I N O N E YE A R BINDIN G I N A N OTH E R YE A R . A T T H E S A M E T I ME , I T I S E Q U A L L Y TRU E T H A T TH E PRIN C IP L E O F C ONSIS T E NC Y H A S ALS O B EE N A DVOC A T E D B Y S E V E R A L H ONBL E C O URT S IN C LUDIN G TH E H ONBL E SUP R EM E C OU R T I N R ADH A SOA M I SATSA N G V S . C I T ( 199 2 ) 19 3 IT R 32 1 ( S C ) A N D TH E H ON B L E JURISDI C TION A L H IG H C OU R T I N C I T V S . A RTHU R A N D E RS E N & C O . ( 20 09 ) 31 8 I T R 22 9 ( B O M ) B Y HOLDIN G TH A T TH E D EC ISIO N M A D E I N E A RL I E R Y EA R S I S BIND IN G I N S U B S E Q U E N T YE A R S A N D SHOUL D B E F O L LO W E D . FR O M T H E A BOV E DE C ISIONS , I T F OL L O W S TH A T A D E L I C A T E ITA NO. 5182(MUM. ) 1 3 10 B A L A N C E N EE D S T O B E M AINT A I N E D B E T W E E N TH E P RIN C IP L E O F C ONSIS T E NC Y A N D T H E R UL E O F R E S JUDI C AT A D E P E NDIN G UPO N TH E FA C T S AN D T H E GOV E RNIN G L E G A L POSITIO N P R E V A IL I N G I N E A C H C A S E . A T T H E S AM E T I M E , W E W A N T T O HIGHLIGH T T H A T TH E DO C TRIN E O F E STOPP E L TOG E T H E R W IT H I T S E X CE PTION S C A NNO T B E IGN O R E D . I T I S TRI T E T H A T T H E R E C A N B E N O E STOPP E L A G A INS T TH E PROVISION S O F TH E A C T O R TH E BINDI N G INT E R PR E T A T IO N GIV E N T O SU C H P R O VISION S B Y TH E JU D I C I A L FO R U M S . T HI S RUL E H A S B E E N C I T E D W IT H A PP R O V A L B Y S E V E R A L C OURT S IN C L U DIN G T H E H ONBL E S UP R E M E C OUR T I N C I T V S . V . M R . P . F IR M ( 196 5 ) 5 6 IT R 6 7 ( S C ) . W H E R E T H E F AC T S O F A C A S E PR I M A FA C I E S H O W TH A T TH E A UTHORITI E S TOO K A C L E A R L Y INCO R R EC T VIE W O N TH E PROVISI O N S O F TH E A C T I N A N E A R L I E R YE A R , W H E T H E R F A VORIN G TH E A S S E S S E E O R T H E R E V E N U E , I T CA NNO T B E A RGU E D I N T H E SUBS E Q U E N T YE A R TH A T TH E S A M E IN C OR R EC T A PP R O A C H SH O UL D B E R E PE A T E D . T H E H ON B L E D ELH I H IG H C OU R T I N C W T V S . M E ATT L E S ( P ) L TD . ( 198 4 ) 15 6 IT R 5 6 9 ( D E L ) H A S H E L D TH A T T H E RE V E N U E A UTHORITI E S CA NNO T B E STOPP E D F R O M T A KIN G A C OR R EC T V I E W O F STA T UTO R Y PROVIS I ON S I N A L A T E R Y EA R . 16 . 3 . WE H A V E E L A B O R A T E L Y D I S C U SS E D A BOV E T H A T HO W T H E M ETHO D E M PLOY E D B Y T H E A S S E S S E E FO R D E T E R M ININ G TH E A L P I N R E S P E C T O F INT E RN A T IO N A L T R A N S A C T ION S FO R TH E Y E A R U ND E R C O N S ID E R A T I O N I S C ONTR A R Y T O TH E ST A TUTOR Y ITA NO. 5182(MUM. ) 1 3 11 PR O VI SI O N S H A VIN G N O A PP R O V A L FRO M A N Y JUDI C I A L F O RU M . I F SU C H A W RON G ME THO D H A S B EE N I N A D V E R T E NT L Y A C C E P T E D B Y TH E T P O I N A N E A R L I E R YE A R , W E CA NN O T G R A N T A LIC E N S E T O TH E A SS E S S E E T O C ONTINU E C A L C UL A TIN G TH E A L P I N SU C H A GROSSL Y E R RON E OU S MA NN E R I N P E RP E TUI T Y . I T NE E D S T O B E DI S C ONTINU E D FOR T H W ITH . W E , T H E R E FOR E , R E J EC T THI S C ON T E N T IO N A DV A N C E D O N B E H A L F O F TH E A S S ESS E E T H A T T H E A PPL I CA T I O N O F S U C H A W R ON G M E THO D B E G R A NT E D A S E A L O F A PPROV A L O N TH E B A SI S O F I T S ACC E P T A N C E B Y T H E T P O I N A P R E C E D I N G Y EA R . 6. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE ABO V E DISCUSSION, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE AUTHORITIES BELOW IN REJECTING THE CUP METHOD ADOPTED BY THE ASSES S EE AND APPLYING THE TNM METHOD AS THE MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP. 7. GROUND NOS.3 & 4 REGARDING THE COMPARAB LES SELECTED BY THE TPO FOR DETERMINATION OF ALP. AS WE HAVE ALREADY NARRATED THE FACTS THAT THE TPO SELECTED 13 COMPANIES AS COMPARABLE FOR DETERMINATION OF ALP. THE LEARNED AR OF THE ASSE S SEE HAS CONTENDED THAT OUT OF THESE 13 COMPARABLES, THE ASSE S SE E IS RESTRICTED ITS OBJECTION WITH RESPECT TO 2 COMPANIES NAMELY ; A) GOLDIAM JEWELLERY AND B) SHYAM STAR GEMS WHICH ARE AT SL.NOS.4 & 10 RESPECTI V ELY IN THE LIST OF COMPARABLES SELECTED BY THE ITA NO. 5182(MUM. ) 1 3 12 TPO. THE LEARNED AR OF THE ASSE SS EE HAS SUBMITTED THAT THE ASSE SSEE IS CARRYING LOW END JEWEL LERY MANUFACTURING JOB WORK, I N COMPARISON TO THESE TWO COMPANIES NAMELY; SHYAM STAR GEMS AND GOLDIAM JEWELLERY WHICH ARE ENGAGED IN HIGH END FULL FLEDGED JEWELLERY MANUFACTURING ACTIVITY. THEREFORE, THERE IS VAST DIFFE RENCE IN THE FUNCTIONAL PROFILE OF THE ASSESSEE IN COMPARISON TO THE BUSINESS ACTIVITY OF THESE TWO COMPANIES. THE ASSES S EE IS DOING ONLY A JOB WORK AND THAT TOO IN LOW END JEWELLERY MANUFACTURING. THE JEWELLERY IS A VERY PRICE SENSITIVE PRODUCT AND THER EFORE, THE LOW END JEWELLERY MANUFACTURING ON JOB WORK BASIS CANNOT BE COMPARED WITH A FULL FLEDGED JEWELLERY MANUFACTURING ACTIVITY OF THESE COMPANIES WHICH ARE DOING BUSINESS IN THE HIGH END JEWELLERY OF DIAMOND AND GOLD. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPO N THE DECISION OF THE CO - ORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF M/S TWILIGHT JEWELLERY (P)LTD VS DCIT (2014) 147 ITD 89(MUM.) AS WELL AS IN THE CASE OF M/S TEVA INDIA (P)LTD VS DCIT(2012) 149 TTJ 57(MUM.) . THE LEARNED AR HAS FURT HER CONTENDED THAT THE ASSESSEE HAS SHUT DOWN ITS BUSINESS IN THE FINANCIAL YEAR 2008 - 09 IMMEDIATELY IN THE SUCCEEDING YEAR WHICH SHOWS THAT THE FINANCIAL HE ALTH OF THE ASSESSEE WAS NOT IN GOOD SHAPE AND THEREFORE, THE ASSESEE CANNOT BE COMPARED WITH THE HIGH END JEWELLERY MANUFACTURER. THE LEARNED AR HAS FURTHER SUBMITTED THAT AS PER THE OECD COMMENTARY AND UNITED NATIONS TRANSFER PRICING MANUAL , COMMERCIAL CONSIDERATION AND BUSINESS ENVIRONMENT ARE IMPORTANT FOR COMPARABILITY ANALYSIS. THE LEARNED A R H AS ITA NO. 5182(MUM. ) 1 3 13 MADE A REFERENCE TO THE OECD T RANSFER PRICING GUIDELINES IN SUPPORT OF HIS CONTENTION. HE HAS ALSO REFERRED THE INFORMATION OBTAINED FROM THE WEBSITE OF GOLD IAM JEWELLERY LTD AND SUBMITTED THAT THE SAID COMPANY IS ONE OF THE WORLDS MOST EX QUISITE GLOB AL EXPORTER OF LUXURIOUS DIAMOND JEWELLERY. THEREFORE, THE ACTIVITY OF THE SAID COMPANY IN THE LUXURIOUS DIAMOND J EWELLERY SALE CANNOT BE COMPARED WITH THE JOB WORK JEWELLERY MANUFACTURING OF THE ASSE S SEE. 8. FURTHER, THE LEARNED AR HAS SUBMITTED THAT THE AFORESAID TWO COMPANIES ARE FUNCTIONALLY NOT COMPARABLE WITH THE ASSE S SEE AND IF THESE TWO COMPANIES ARE EXCLUDED FROM THE SET OF COMPARABLES SELECTED BY THE TPO , THAN THE MEAN MARGIN FROM THE REST OF 11 COMPARABLES WOULD BE WITHIN THE + = 5% LIMIT AN D CONSEQUENTLY, NO TP ADJUSTMENT CAN BE MA D E. 9. ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THAT THE TPO AS WELL AS THE CIT(A) HAVE EXAMINED A FUNCTIONAL COMPARABILITY OF ALL COMPARABLES SELECTED BY THE TPO AND FOUND THAT THE OBJECTIONS OF THE ASSES SE E ARE DE VOID OF ANY SUBSTANCE. HE HAS RELIED U PON THE ORDERS OF THE AUTHORIT I ES BELOW. 10. W E HAVE CONSIDERED THE RIVAL SUBMISSIONS A S WELL AS THE RELEVANT MAT E RIAL AVAILABLE ON RECORD. THE ASSE S SEE HAS RAISED THE OBJECTION AGAINST THE INCLUSION OF TWO COMPANIES NAMELY; A) GOLDIAM JEWELLERY AND B) SHYAM ITA NO. 5182(MUM. ) 1 3 14 STAR GEMS ( NAME CHANGED AS SWARNSARITA). PRIMA FACIE WE NOTE THAT TH E SE TWO COMPANIES ARE ENGAGED IN THE MANUFACTURING AND SALE/EXPORT OF HIGH END AND LUXURIOUS DIAMOND J EWELLERY , WHEREAS THE ASSESSEE CL AIMED TO HAVE CARRIED OUT JEWELLERY MANUFACTURING ON JOB WORK BASIS. THIS WORK OF THE ASSESSEE INCLUDES CUTTING AND POLISHING OF THE DIAMOND PURCHASED FROM THE AE AND ALSO MANUFACTURING THE JEWELLERY USING THESE DIAMONDS AS WELL AS THE GOLD PURCHASED F ROM THE AE. THEREFORE, IT APPEARS THAT THE ASSE S SEE IS DOING THE VALUE ADDITION SERVICE BY CUTTING AND POLISHING THE DIAMONDS PURCHASED FROM THE AE APART FROM THE MANUFACTURING THE JEWELLERY FOR ITS AE. THIS ACTIVITY OF THE ASSE S SEE CANNOT BE CO M PARED WITH THE ACTIVITY OF EXCLUSIVE MANUFACTURING OF DIAMOND JEWELLERY AND THAT TOO OF AN HIGH END LUXURIOUS DIAMOND JEWELLERY. SINCE THIS A SPECT OF FUNCTIONAL COMPARABILIT Y OF THESE COMPANIES HAVE NOT BEEN EXAMINED BY THE AUTHORITIES BELOW, THEREFORE, IT RE QUIRES A PROPER VERIFICATION AND EXAMINATION OF THE FACT OF ACTUAL NATURE OF BUSINESS TRANSACTIONS OF THESE TWO COMPANIES NAMELY., A) GOLDIAM JEWELLERY LTD AND B) SHYAM STAR GEMS RENAMED AS SWARNASARIT GEMS LTD., FOR THE PURPOSE OF ANALYZING THE FUNCTIONAL COMPARABILITY OF THE ASSESSEE. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE TPO FOR PROPER EXAMINATION AND VERIFICATION OF THE FUNCTIONAL ANALYSIS AND SIMILARITY OF TH ESE TWO COMPANIES WITH THE BUSINESS AC T I VITY OF THE ASSESSEE FOR THE PURPOSE OF COMPARABILITY ANALYSIS. ITA NO. 5182(MUM. ) 1 3 15 NEEDLESS TO SAY THE ASSESS E E BE GIVEN A PROPER OPPORTUNITY OF HEARING BEFORE ADJUDICATING THE ISSUE OF FUNCTIONAL COMPARABILITY . 11. IN THE RESULT, THE APPEAL FILED BY THE ASSES S EE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE 5 TH AUGUST, 2015. SD/ - (B.R.BASKARAN) SD/ - ( VIJAY PAL RAO) ACC OUNTANT MEMBER JUDICIAL MEMBER MUMBAI: D A T E D : 05/08/2015 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) MUMBAI 4 CIT 5 DR, ITAT, MUMBAI 6 GUARD FILE BY ORDER AR, ITAT, MUMBAI