S.B. & T DESIGNS LTD, MUMBAI V. ASST CIT 8(1)(2), MUMBAI

ITA 5189/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0908 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 03-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 04-11-2015
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: P DANIEL
• Keywords: Related party transaction; Transfer pricing; Search and seizure; International transaction
• Section: 143(3)

Judgement Text

, , K , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K , MUMBAI BEFORE SHRI G.S. PANNU , ACCOUNTANT MEMBER, AND SHRI RAVISHSOOD , JUDICIAL MEMBER ITA NO. 5189 /MUM/201 5 ASSESSMENT YEAR: 2011 - 12 S.B. & T DESIGNS LTD. 9 , YUSUF BLDG, R.NO. 15, 1ST FLOOR, A.R. STREET, PY DHONIE MUMBAI - 400 003 / VS. ASSTT. COMMISSIONER OF INCOME TAX, 8(1)(2) AAYAKARBHAVAN, MAHARISHI KARVE ROAD, MUMBAI 400 020. ( APPELLANT ) (RESPONDENT ) PAN AA IC S6223L APPELLANT BY MR. P. DANI E L RESPONDENT BY MR. N.K. CHAND / DATE OF HEARING: 03 /0 2 /2017 /DATE OF ORDER: 03 /05/2017 / O R D E R P ER R AVISH SOOD , J .M: THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE AO U/S. 143(3) R.W.S 144C(1 3 ) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT) . THE ASSESSEE ASSAILING THE ORDER OF THE AO HAD THEREIN RAISED THE FOLLOWING GROUND S OF APPEAL BEFORE US : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER U/S. 143(3) R.W.S. 144C (13) OF THE ACT IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER HAS ERRED, BOTH ON LAW AND ON FACTS IN ASSESSING THE LOSS AT RS. 1,09,38,700/ - AS AGAINST THE LOSS DECLARED BY THE APPELLANT OF RS. 2,51,24,840/ - . 3. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED A.O. HAS ERRED BOTH ON FAC TS AND IN LAW IN MAKING AN ADDITION OF RS. 1,27,40,219/ - AS DIFFERENCE IN ARMS LENGTH PRICE DETERMINED BY THE TRANSFER PRICING OFFICER (TPO) AND IN PURSUANCE OF DRPS ORDER IN R/O SALE OF GOODS TO ASSOCIATED ENTERPRISE. (II) THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A.O/TPO ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE FOR DETERMINATION OF THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE.( AES ) (III) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A.O/TPO ERRED IN REJECTING THE SEGMENTAL PROFIT AND LOSS FOR AE AND NON AE SEGMENT, RELYING ON THE TAX AUDIT REPORT TO CONCLUDE THAT THE APPELLANT I S NOT MAINTAINING SEPARATE AUDITED FI N ANCIALS FOR THESE SEG MENTAL INFORMATION AS DISCLOSED IN THE TRANSFER PRICING REPORT HAD BEEN CREATED TO ARTIFICIALLY ALLOCATE COSTS AND THEREBY REDUCING LOSSES. (IV) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A.O./TPO, ERRED IN NOT TAKING INTO CONSIDERATION THAT THE ASSESSEE HAS REPORTED THE SEGMENT INFORMATION AS PER AS - 17 AND IDENTIFIED THE GEOGRAPHICAL SEGMENT. (V) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A.O./TPO, ERRED IN REJECTING THE INTERNAL TNMM AS THE MOST APPROPRIATE METHOD AND BENCHMARKED THE INTERNATIONAL 3 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. TRANSACTION OF THE APPELLANT WITH ITS AES AT ENTITY LEVEL BY USIN G EXTERNAL COMPARABLES. (VI) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A.O./TPO, ERRED IN ITS CHOICE OF COMPARABLES BASED ON SUCH SEARCH, WHICH WERE NOT FUNCTIONALLY COMPARABLE WITH THE APPELLANT, HAVING REGARD TO TH EIR RISK AND FUNCTIONAL PROFILE. IT IS PRAYED THAT THE ADDITIONS MADE MAY PLEASE BE DELETED OR IN THE ALTERNATIVE, THE ASSESSMENT BE SET ASIDE. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF STUDDED JEWELLERY HAD E - FILE D ITS RETURN OF INCOME ON 14/10/2010 DECLARING TOTAL LOSS OF RS. 2,51,24,840/ - , WHICH WAS PROCESSED AS SUCH U/S. 143(1) OF THE ACT . 3. THE CASE OF THE ASSESSEE COMPANY WAS TAKEN UP FOR SCRUTINY ASSESSMENT U/S. 143(2) . THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDING S THE AO TAKING COGNIZANCE OF THE INTERNATIONAL TRANSACTION S ENTERED INTO BY THE ASSESSEE COMPANY WITH ITS ASSOCIATE ENTERPRISES (AES) DURING THE YEAR , AS UNDER: - (I). EXPORT OF STUDDED JEWELLERY TO AES :RS. 11 ,55,92,714/ - (II). IMPORT OF RAW MATERIAL FROM AES :RS. 5,74,74,683/ - , THEREIN REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER, MUMBAI (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) IN RE SPECT OF THE SAID TRANSACTIONS . THE TPO DURING THE COURSE OF THE PROCEEDING S BEFORE HIM THEREIN OBSERVE D THAT THE ASSESSEE HAD USED INTERNAL TNMM AS THE MOST APPROPRIATE METHOD (MAM) TO DETERMINE THE ALP OF THE EXPORT OF GOODS TO THE AE S AND HAD CONSIDERED ITSELF AS THE TESTED PARTY. THE 4 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. TPO OBSERVED THAT THE ASSESSEE HAD COMPUT ED THE PLI AS OPERATING PROFIT /TOTAL COST. IT WAS FURTHER OBSERVED BY THE TPO THAT THE ASSESSEE HA D COMPUTED THE PLI AS THE ARITHMETIC MEAN OF THE COMPARABLES (I. E. N ON - AE TRANSACTION S BY THE ASSESSEE ) AT ( 7.70%), AND HAD COMPUTED ITS OWN PLI ( I.E AE TRANSACTION S ONLY) AT (2.78%) , AND IN THE BACKDROP OF THE SAME HAD THEREIN CONCLUDED THAT PLI AS OPERATING PROFIT / T OTAL COST EARNED BY THE ASSESSEE WAS BETTER THAN THAT OF THE ARITHMETIC MEAN OF THE PLI OF THE COMPARABLES , AND AS SUCH THE INTERNATIONAL TRANSACTION S SO CARRIED OUT BY IT WERE FOUND TO BE AT ARMS LENGTH. 4. THE TPO ON A PERUSAL OF THE AFORESAID FACTS THEREIN CONCLUDED THAT THE ALLOCATION OF VARIOUS COSTS DONE BY THE ASSESSEE TO ITS AE AND N ON - AE TRANSACTION S WAS NOT PROPER, AS WELL AS THE BASE TAKEN BY IT WAS INCORRECT. THE TPO THUS BEING OF THE VIEW THAT THE PROFIT FIGURE ARRIVED BY THE ASSESSEE WAS NOT RELIABLE , THUS IN LIGHT OF HIS AF ORESAID CONVICTION REJECTED THE SELF - SERVI NG ALLOCATION EXERCISE DONE BY THE ASSESSEE. THE TPO FURTHER ON THE BASIS OF SEARCH DONE IN CAPITA L LINE DATABASE AND USING VARIOUS FILTERS IDENTIFIED 25 COMPARABLE COMPANIES , WHICH AS PER HIM WERE DO ING THE SAME BUSINESS AS THAT OF THE ASSESSEE. THAT DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO, THE LIST OF COMPANIES ALONGWITH THE WORKING OF OPERATING MARGIN (OP/OC) WAS GIVEN TO THE ASSESSEE, AND THE LATTER WAS CALLED UPON TO SHOW CAUSE AS TO WHY THE INTERN AL TNMM SHOULD NOT BE REJECTED AND THE EXTERNAL TNMM MAY NOT BE ADOPTED AS THE MOST APPROPRIATE METHOD (MAM) FOR DETERMINING THE ALP OF THE TRANSACTIONS OF THE ASSESSEE WITH ITS AES. THE TPO FURTHER OBSERVING THAT THE SALE TRANSACTIONS WERE MORE THAN THE PURCHASE TRANSACTION S, THEREFORE TOOK THE PLI AS OP/OC, AS AGAINST OP/OI . THE TPO FURTHER CONSIDERING THE OBJECTION S OF THE ASSESSEE , 5 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. WHEREIN THE LATTER AFTER ACCEPTING THE SELECTION OF 17 COMPARABLE COMPANIES HAD THEREIN RESTRICTED HIS O BJECTIONS IN RESPECT OF THE REMAINING 8 COMPARABLE COMPANIES ONLY, THEREIN CAME UP WITH THE FINAL SET OF COMPARABLE S, AS UNDER: - SR. NO. NAME OF THE COMPARABLE COMPANY OP/OC 1. WINSOME DIAMONDS (SEG.) 3.41 2. TITAN COMPANY (SEG.) 9.63 3. GOENKA DIAMOND & JEWELS LTD. (SEG.) 10.10 4. GOLDIAM INTL. (SEG.) 6.19 5. SJ CORPORATION LTD., 4.97 6. SWARNSARITA GEMS LTD., 6.83 7. SHANTIVIJAY JEWELS LTD. 2.19 8. RAJESH EXPORTS LTD. 1.73 9. DEEP DIAMOND INDIA LTD. 11.9 10. SHREE GANESH JEWELLERY HOUSE (I) LTD. 6.61 11. THANGAMAYIL JEWELLERY LTD. 9.67 12. KANANI INDUSTRIES LTD. 12.22 13. TRIBHOVANDASBHIMJIZAVERI LTD. 8 14. PC JEWELLER LTD 11.17 15. INTERJEWELPVT. LTD. 3.79 16. GILI INDIA LTD. 6.54 17. BRIGHTEST CIRCLE JEWELLERY PVT. LTD. 7.48 18. KAYS JEWELS PVT. LTD. 4.93 19. KALYAN JEWELLERS INDIA PVT. LTD. 1.96 20. A B JEWELS PVT. LTD. 0.71 21. GITANJALI EXPORT CORP (SEG.) 6.26 22. CLASSIC DIAMOND (SEG.) 4.59 AVERAGE 6.40 , A ND C OMPUTED THE AVERAGE MEAN OF THE PLI OF THE AFORESAID COMPARABLE S AT 6.40% , AS AGAINST THE PLI (OP/OC) OF THE ASSESSEE WHICH WAS WORKED OUT BY HIM AT (4.37%). THE TPO THUS OBSERVING THAT THE PLI OF THE ASSESSEE WAS (4.37%) WAS LOWER THAN THE ARITHMETIC MEAN OF THE PLI OF THE COMPARABLES , THEREIN COMPUTED THE ALP OF THE TRANSACTION S CARRIED OUT BY THE ASSESSEE WITH ITS AE S , A S UNDER: - 6 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. ALP OF THE TRANSACTION EXPORT SALE TO AE 11,55,92,714 OPERATING PROFIT /COST RATIO OF THE ASSESSEE - 4.37% OPERATING COST OF THE ASSESSEE ON AE EXPORT 12,08,74,949 OPERATING PROFIT/COST RATIO OF THE COMPARABLE 6.40 ALP OF THE EXPORT SALE TO AE 12,86,10,946 DIFFERENCE ALP & EXPORT SALE TO AE 1,30,18,232 (+5%) OF EXPORT SALE TO AE 57,79,609 5. THE TPO OBSERVING THAT SINCE THE EXPORTS CARRIED OUT BY THE ASSESSEE TO ITS AES (I.ERS. 11.56 CRORES) WERE MORE THAN THE IMPORTS MADE FROM THE AES (I.E RS.5.74 CRORES), HE THUS FOR THE PURPOSE OF BENCHMARKING OF BOTH THE PURCHASE AND SALE TRANSACTIONS WITH THE AES, THEREIN TOOK THE EXPORT TRANSACTIONS AS THE BASE. THE TPO THUS IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS BEING OF THE VIEW THAT SINCE THE PLI OF THE ASSESSEE WAS LOWER THAN THE PLI OF COMPARABLES, THEREFORE DID NOT ACCEPT THE ALP COMPUTED BY THE ASSESSEE AS REGARDS THE SALES AND PURCHASES TO AND FROM THE AES, AND THUS PROPOSED AN U PWARD ADJUSTMENT OF RS. 1,30,18,232/ - TO THE TOTAL INCO ME OF THE ASSESSE E . 6. THE AO ON RECEIVING THE ORDER OF THE TPO THEREIN PASSED THE DRAFT ASSESSMENT ORDER U/S. 143(3) R.W.S. 144C(1) ON 03/03/2015. THE ASSESSEE AGGRIEVED WITH THE ADJUSTMENTS PROPOSED BY THE AO IN THE ASSESSMENT ORDER , THEREIN FILED OBJECTION S BEFORE THE DRP IN RESPECT OF THE UPWARD ADJUSTMENT OF RS. 1,30,18,232/ - PROPOSED BY THE TPO IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES. THE DRP BEING OF THE VIEW THAT THE SEGMENTAL ACCOUNT S FURNISHED BY THE ASSESSEE WERE NOT AUTHENTIC DUE TO THE REASON THAT THE EXPENSES HAVE BEEN ARTIFICIAL LY ALLOCATED TO AE AND N ON - AE SEGMENT AND WERE NOT SHOWN ON ACTUAL BASIS, AS WELL AS THAT THE EXPENSES PERTAINING TO 7 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. MARKETING EFFORTS AND VARIOUS RISKS ASSOCIATED WITH THE SALE TO N ON - AE TRANSACTION S HA VE BEEN BIFURCATED TO AE SEGMENT AND WERE NOT SHOWN ON ACTUAL BASIS , THEREFORE, CONCLUDED THAT THE PROPORTIONAL ALLOTMENT OF OTHER COST S ON THE BASIS OF SALES TO AE AND N ON - AE BEI NG NOT CORRECT, THUS COULD NOT BE ACCEPTED AS SUCH. IT WAS FURTHER OBSERVED BY THE DRP THAT AS THE N ON - AE SEGMENT PERTAINING TO LOCAL SALE S IN INDIA HAD DIFFERENT FAR AS COMPARED TO AE SEGMENT, THEREFORE THE SAID RESPECTIVE SEGMENTS WERE NOT COMPARABLE DU E TO DIFFERENT FAR. THE DRP THUS BEING OF THE VIEW THAT AS ADOPTING OF INTERNAL TNMM REQUIRED A VERY HIGH DEGREE OF ACCURACY OF FINANCIAL RESULTS AS THERE IS ONLY ONE COMPARABLE TO WHICH AE TRANSACTIONS ARE TO BE TESTED, THUS HOLDING A CONVICTION THAT THE ASSESSEE HAD WRONGLY RESORTED TO TESTING THE TRANSACTIONS OF AE SEGMENT AS AGAINST THE NON - AE SEGMENT PERTAINING TO LOCAL SALES IN INDIA, AS THE RESPECTIVE SEGMENTS HAD DIFFERENT FAR, THUS CONCLUDED THAT THE AO/TPO HAD CORRECTLY REJECTED INTERNAL TNMM AND APPLIED EXTERNAL TNMM IN THE CASE . 7. THAT AS REGARDS THE CHALLENGE BY THE ASSESSEE IN RESPECT OF THE COMPARABLES SELECTED BY THE TPO , THE DRP FOU ND FAVOR WITH THE CONTENTION OF THE ASSESSEE THAT IN THE CASE OF 3 COMPARABLES, VIZ. M/S. BRIGHTEST CIRCLE JEWELLERY PRIVATE LIMITED, M/S. GI LI INTERNATIONAL LIMITED AND M/S. GOLDIAM INTERNATIONAL LIMITED, THE RELATED PARTY TRANSACTION S (RPT) WERE MORE THAN 25 %, THUS IN THE BACKDROP OF THE SAID FACTUAL POSITION DIRECTED THE AO/ TPO TO EXCLUDE THE SAID 3 COMPANIES FRO M THE FINAL LIST OF COMPARABLES.THE DRP FURTHER OBSERVED THAT M/S. THANGAMAYILJEWELLERY LTD. WHICH WAS A COMPARABLE SELECTED BY THE TPO WAS FUNCTIONALLY DIFFERENT AS AGAINST THE ASSESSEE COMPANY, THEREFORE, ON THE SAID COUNT DIRECTED THE AO/TPO TO EXCLUDE THE SAID CONCERN FROM THE FINAL LIST OF COMPARABLES . THE DRP IN THE BACKDROP OF 8 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. THE FACT THAT THE ASSESSEE HAD NOT OBJECTED TO THE INCLUSION OF M/S GOENKA DIAMONDS AND JEWELS LIMITED AS A COMPARABLE, DESPITE THE FACT THAT OBJECTION I N RESPECT OF SELECTION OF THE SAME AS A COMPARABLE WAS RAISED BY THE ASSESSEE DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO, THEREFORE, IN THE BACKDROP OF THE AFORESAID OBSERVATION S DIRECTED THE AO/TPO TO EXCLUDE ONLY THE AFORESAID 4 COMPARABLES FROM THE FINAL SET OF COMPARABLE COMPANIES . 8. THE AO GIVING EFFECT TO THE DIRECTION S TO THE DRP , THEREIN PASSED THE IMPUGNED ORDER U/S. 143(3) R.W.S. 144C(13) AND COMPUTING THE AVERAGE MEAN PLI OF THE 22 COMPARABLE COMPANIES AT 6.17% , COMPUTED THE PLI (OP/OC) OF THE ASSESSEE AS UNDER: - PARTICULARS ADJUSTMENT AS PER DRP DIRECTIONS EXPORT SALE TO AE 11,55,92,714 OP/OC OF ASSESSEE - 4.37% OPERATING COST OF THE ASSESSEE ON AE EXPORT 12,08,74,949 OP/OC OF COMPARABLE 6.17 ALP OF THE EXPORT SALE TO AE 12,83,32,933 DIFFERENCE ALP & EXPORT SALE TO AE 1,27,40,219 (+5%) OF EXPORT SALE TO AE 57,79,609 THE A.O THUS OBSERVING THAT THE DIFFERENCE IN ALP OF THE EXPORT SALE TO THE AES AND THE EXPORT SALE S MADE BY THE ASSESSEE TO ITS AES AMOUNTED TO RS. 1,27,40,219/ - , WHICH WAS MORE THAN 5% OF THE EXPORT SALE SMADE TO THE AE S , THEREFORE, GOING BY THE DIRECTION OF THE DRP CARRIED OUT AN UPWARD ADJUSTMENT OF RS. 1,27,40,219/ - IN RESPECT OF THE INTERNATIONAL TRANSACTION S UNDERTAKEN BY THE AS SESSEE COMPANY WITH ITS AE S DURING THE YEAR UNDER CONSIDERATION . 9 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. 9. THE AO FURTHER OBSERVING THAT THE ASSESSEE HAD DEFAULTED TO CREDIT THE PAYMENT S RELATING TO EMPLOY EE S CONTRIBUTION TO PF, ESIC AND LABOUR WELFARE FUND ON OR BEFORE THE PRESCRIBED DUE DAT E, THEREIN MADE AN ADDITION OF RS. 14,45,925/ - U/S. 36(1)(V)(A) R.W.S. 2(24) (X) OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY. THE AO THUS DELIBERATING ON THE AFORESAID ISSUES ASSESSED THE TOTAL LOSS OF THE ASSESSEE AT ( - ) RS.1,09,38,700/ - , AS AGAINS T THE RETURNED LOSS OF ( - )RS. 2,51,24,840/ - . 10. THE ASSESSEE COMPANY BEING AGGRIEVED WITH THE ORDER OF THE AO PASSED U/S. 143(3) R.W.S. 144C(13) HAD THEREIN CARRIED THE MATTER IN APPEAL BEFORE US. DURING THE COURSE OF HEARING OF THE APPEAL IT WAS SUBMITTED BY THE LD. AR THAT IT WAS THE FIRST YEAR WHEN THE CASE OF THE ASSESSEE HAD BEEN REFERRED TO THE TPO , AS THE EARLIER YEARS WERE ACCEPTED WITHOUT MAKI NG ANY SUCH REFERENCE TO THE TPO. IT WAS FURTHER SUBMITTED BY THE LD. AR THAT IN THE SUBSEQUENT YEARS ALSO THE ASSESSEE COMPANY HAD SUFFERED LOSSES AND ADDITION S HAD BEEN MADE IN ITS HANDS BY REJECTING THE INTERNAL TNMM METHOD ADOPTED BY THE ASSESSEE TO C OMPUTE THE ALP IN RESPECT OF INTERNATIONAL TRANSACTION S CARRIED WITH ITS AE S . IT WAS FURTHER AVERRED BY THE LD. AR THAT THE TPO WITHOUT ASSIGNING ANY REASONING HAD THEREIN MOST ARBITRARILY REJECTED SEGMENTAL ALLOCATION OF COST DONE BY THE ASSESSEE IN RESP ECT OF ITS AE AND N ON - AE TRANSACTION S . THE LD. AR FURTHER SUBMITTED THAT THE OBSERVATION OF THE DRP THAT THE EXPENSES PERTAINING TO MARKETING EFFORTS AND VARIOUS RISK ASSO CI ATED WITH THE SALE AS REGARDSN ON - AE TRANSACTION S HAD BEEN BIFURCATED BY THE ASSESSE E TO AE SEGMENT ANDNO T SHOWN ON ACTUAL BASIS , WAS ABSOLUTELY MISCONCEIVED AND NO MATERIAL HAD BEEN PLACED ON RECORD TO DISPROVE AND DISLODGE THE ALLOCATION OF THE EXPENSES BY THE ASSESSEE TO ITS AE AND N ON - AE SE GMENT . THE LD. AR IN ORDER TO FORTIFY HIS AFORESAID CONTENTION HAD THEREIN SUBMITTED THAT THOUGH THE 10 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. LOCAL/DOMESTIC SALE S ARE INCLUDED IN ITS TOTAL SALE S , BUT HOWEVER FOR THE PURPOSE OF BENCHMARKING THE TRANSACTION THE LOCAL/DOMESTIC SALE S HAD SPECIFICALLY BEEN TREATED AS I NCOMPARAB LE , AND AS SUCH HA D BEEN BIFURCATED AND SHOWN SEPARATELY . THE LD. A.R THEREIN DREW OUR ATTENTION TO PAGE 52 OF ITS PAPER BOOK( APB ), WHEREIN IN COL. NO. 3 , THE ASSESSEE HAD CATEGORICALLY EARMARKED THE EXPENSES IN THREE SEGMENTS, VIZ. AE SEGMENT, NON - AE ( COMPARABLE) SEGMENT AND NON - AE (UNCOMPARABLE) SEGMENT. THE LD. A.R IN THE BACKDROP OF THE AFORESAID SUBMISSION S THEREIN SUBMITTED THAT THE DRP HAD MISCONCEIVED THE FACTS AND THEREIN WRONGLY OBSERVED AT P A G E 5 - PARA 5.2.2 OF ITS ORDER THAT THE N ON - AE SEGMENT PERTAINED TO LOCAL SALES IN INDIA AND AS SUCH HAVE DIFFEREN T FAR AS COMPARED TO AE SEGMENT , THEREFORE THE ASSESSEE AND ERRED IN FAILING TO APPRECIATE THAT THE SAID RESPECTIVE SEGMENTS WERE NOT COMPARABLE . THE LD. A.R REFERRING TO PAGE 52 AND PAGE 13 OF ITS APB THEREIN SUBMITTED THAT THE SAME WERE THE PART OF ITS A NNUAL REPORT WHEREIN THE SEGMENTAL REPORTING CONTAINING THE AFORESAID FACTORS STOOD MENTIONED. PER CONTRA, THE LD. DR HEAVILY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES . 11. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL PRODUCED BEFORE US . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE OF THE CONSIDERED VIEW THAT THE ADVERSE IN FERENCE S DRAWN BY THE DRP IN THE HANDS OF THE ASSESSEE COMPANY ARE PRIMARILY BACK ED BY THE FOLLOWING FACTORS: I) THAT AS PER THE DRP THE SEGMENTAL ACCOUNT S FURNISHED BY THE ASSESSEE ARE NOT AUTHENTICDUE TO THE REASON THAT THE EXPENSES 11 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. HA VE BEEN ARTIFICI ALLY ALLOCATED TO AE AND N ON - AE SEGMENT AND ARE NOT ACTUAL. II) THAT AS PER THE DRP THE EXPENSES PERTAINING TO MARKETING EFFORTS AND VARIOUS RISKS ASSOCIATE D WITH THE SALE TO N ON - AE TRANSACTION S HAVE BEEN BIFURCATED TO AE SEGMENT AND NOT SHOWN ON ACTUAL B ASIS. III) THAT AS PER THE DRP THE N ON - AE SEGMENT PERTAIN S TO LOCAL SALES IN INDIA AND AS SUCH HAVE DIFFEREN T FAR AS COMPARE D TO AE SEGMENT, AND IN VIEW OF THE SAME THIS SEGMENT IS NOT COMPARABLE DUE TO DIFFERENT FAR. 12. WE HAVE GIVEN A THOUGHTFUL CONS IDERATION TO THE AFORESAID OBSERVATION S OF THE DRP IN THE BACKDROP OF THE CONTENTION S RAISED BY THE ASSESSEE BEFORE US. WE ARE OF THE CONSIDERED VIEW THAT THE LOWER AUTHORITIES EX CEP T FOR ALLEGING THAT THE SEGMENTAL ACCOUNT S OF THE ASSESSEE ARE NOT AUTHEN TIC DUE TO THE REASON THAT EXPENSES HAVE BEEN ARTIFICIALLY ALLOCATED TO AE AND N ON - AE SEGMENT AND ARE NOT ACTUAL , HAD HOWEVER FAILED TO SUBSTANTIATE THE SAID OBSERVATION BY PLACING ON RECORD ANY CONCRETE MATERIAL OR AN IRREBUTABLE REASONING IN SUPPORT OF ITS AFORESAID OBSERVATION. WE RATHER AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE ARE OF THE CONSIDERED VIEW THAT NO REASONING HAS BEEN GIVEN BY THE LOWER AUTHORITIES FOR REJECTING THE SEGMENTAL ACCOUNT S OF THE ASSESSEE A ND FORTIFYING ITS OBSERVATIONS AS STOOD RECORDED TO THE CONTRARY . WE HAVE FURTHER PERUSED THE OBSERVATION S OF THE DRP , WHEREIN AS PER HIM THE EXPENSES PERTAINING TO MARKETING EFFORTS AND VARIOUS RISKS ASSOCIATED WITH THE SALES AS REGARDS THE N ON - AE TRANSAC TION S HAVE BEEN BIFURCATED TO AE SEGMENT AND AS SUCH NOT SHOWN BY THE ASSESSEE ON ACTUAL BASIS, AS A RESULT WHERE OF THE SAID 12 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. PROPORTIONAL ALLOTMENT OF OTHER COST S ON THE BASIS OF SALE TO AE AND N ON - A E, A S PER HIM WAS FOUND TO BE INCORRECT. WE ARE UNABLE T O PER SUADE OURSELVES TO BE IN AGREEMENT WITH THE AFORESAID OBSERVATION S OF THE DRP , AND AS MATTER OF FACT FIND THAT EX CEPT FOR ARRIVING AT THE AFORESAID H O LLOW AND UNSUBSTANTIATED OBSERVATION S IN RESPECT OF BIFURCATION OF THE EXPENSES PERTAINING TO MARKETIN G EFFORTS, NOTHING HAS BEEN PLACED ON RECORD WHICH COULD GO TO DISLODGE THE AFORESAID CLAIM OF THE ASSESSEE AND THEREIN PROVE TO THE CONTRARY THAT THE ASSESSEE HAD ALLOCATED THE EXPENSES PERTAINING TO MARKETING EFFORTS AND VARIOUS RISKS ASSOCIATED WITH THE SALES CARRIED OUT IN RESPECT OF N ON - AE TRANSACTION S TO ITS AFORESAID AE SEGMENT ,ON A PERUSAL OF WHICH WE COULD PERSUADE OURSELVES TO CONCLUDE THAT THE OBSERVATIONS OF THE LOWER AUTHORITIES DID MERIT A CCEPTANCE. THAT STILL FURTHER WE FIND THAT THE ADVERSE INFERENCES DRAWN BY THE DRP IN THE HANDS OF THE ASSESSEE BY OBSERVING THAT THE N ON - AE SEGMENT OF THE ASSESSEE PERTAINING TO LOCAL SALES IN INDIA IS NOT COMPARABLE TO ITS AE SEGMENT DUE TO DIFFEREN T FA R, CAN SAFELY BE CONCLUDED TO BE MISPLACED IN CONTEXT OF T H E ADVERSE IN F ERE N CES SO DRAWN BY THE DRP IN THE HANDS OF THE ASSESSEE ON THE BASIS OF MISCONCEIVED FACTS , BECAUSE THE FACT AS IT SO REMAINS IS THAT NO SUCH COMPARISON BETWEEN THE N ON - A E SEGMENT PERTAINING TO THE LOCAL SALES IN INDIA HAD EVER BEEN PUT ACROSS AS AGAINST THE AE SEGMENT OF THE ASSESSEE. WE AFTER A PERUSAL OF PAGE 52 OF THE APB TO WHICH OUR ATTENTION WAS DRAWN ARE PERSUADED TO BE IN AGREEMENT WITH THE CONTENTION OF THE LD. A.R THAT THE DRP HAD PROCEEDED WITH ON THE BASIS OF INCORRECT FACTS THAT THE ASSESSEE HAD EMBARKED ON AN INFEASIBLE COMPARISON BETWEEN N ON - AE SEGMENT PERTAINING TO LOCAL SALES IN INDIA , AS AGAINST ITS INTERNATIONAL TRANSACTIONS WITH ITS AES, AS THE FACTS AS THEY SO EMERGE FROM THE RECORD THEREIN REVEALS BEYOND ANY SCOPE OF DOUB T 13 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. THAT THE ASSESSEE HAD SPECIFICALLY CATEGORIZED AND EARMARKED SUCH N ON - AE SEGMENT PERTAINING TO LOCAL SALES IN INDIA AS UN COMPARABLE , AS A FALL OUT OF WHICH IT CAN SAFELY AND INESC APABLY BE CONCLUDED THAT THE AFORESAID OBSERVATION ARRIVED AT BY THE DRP ARE DEVOID OF ANY FORCE AND THUS DO NOT MERIT ACCEPTANCE AND CANNOT BE SUSTAINED. 13. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE, FINDINGS OF THE REVENUE AUTHORITIES AND THE CONTENTION S RAISED BY THE REPRESENTATIVES OF BOTH THE PARTIES BEFORE US. WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE VIEW ARRIVED AT BY THE DRP IN RESPECT OF THE AUTHEN TI CITY OF THE SEGMENTAL REPORTI NG , VERACITY OF THE BIFURCATION OF THE EXPENSES PERTAINING TO MARKETING EFFORTS AND VARIOUS RISKS ASSOCIATED WITH THE SALE S PERTAINING TO THEN ON - AE TRANSACTION S , WHICH AS ALLEGED BY THE DRP HAD BEEN BIFURCATED TO THE AE SEGMENT AND NOT SHOWN ON ACTUAL BASI S, AS WELL AS THE MISCONCEIVED OBSERVATION THAT THE ASSESSEE HAD RESORTED TO A COMPARISON BETWEEN THE N ON - AE SEGMENT LOCAL SALES OF INDIA , AS AGAINST THE AE SEGMENT, WHICH WE FIND IS ABSOLUTELY INCORRECT. WE ARE ABSOLUTELY NOT AT ALL IMPRESSED BY THE OBSER VATIONS OF THE LOWER AUTHORIZES, AS WE FIND THAT THE LATTER EXCEPT FOR RAISING HOLLOW AND UNSUBSTANTIATED ALLEGATIONS IN THEIR ATTEMPT TO DISLODGE THE CLAIM OF THE ASSESSEE, HAD HOWEVER MISERABLY FAILED TO PROVE ON T H E BASIS OF ANY CONCRETE MATERIAL AS TO HOW THE SAID CLAIM OF THE ASSESSEE IS NOT FOUND TO BE IN ORDER AND IS LIABLE TO BE REJECTED , NOR POINTED OUT AS TO WHAT AS PER THE LOWER AUTHORITIES WOULD HAVE BEEN THE CORRECT ALLOCATION OF EXPENSES AND OTHER SUCH FACTORS ON THE BASIS OF WHICH FAIR RESULTS COULD BE ARRIVED AT IN THE HANDS OF THE ASSESSEE. WE ARE AFRAID THAT A CLAIM OF AN ASSESSEE CANNOT BE DISLODGED MERELY ON THE BASIS OF ALLEGATIONS AND SURMISES, B UT CAN ONLY BE SO DONE ON THE BASIS OF SUBSTANTIAL MATERIAL WHICH COULD GO TO IRREBUTABLY DISPROVE AND 14 ITA NO. 5189/M/2015 S.B & T DESIGNS LTD. CONSEQUENTLY DISLODGE THE CLAIM OF THE ASSESSEE, WITH A CLEAR OBSERVATION AS TO WHAT FAIRLY COULD BE HELD TO BE THE CORRECT STATE OF AFFAIRS. WE THUS NOT BEING PERSUADED TO SUBSCRIBE TO THE OBSERVATIONS OF THE LOWER AUTHORITIES, THEREIN SET ASIDE THE ORDER OF THE AO PASSED U/S 143(3) R.W.S 144C(13), TO THE EXTENT THE LATTER HAD GIVEN EFFECT TO THE ORDER OF THE DRP AND THEREIN SET ASIDE THE REJECTION OF THE INTERNAL TNMM AS THE MOST APPROPRIATE METHOD ADOPTED BY THE ASSESSEE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES , AND RESTORE THE MATTER TO THE FILE OF THE AO TO GIVE CONSEQUENTIAL EFFECT TO THE SAME. 14. THE APPEAL OF THE ASSESSEE IS THUS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 03 /05/2017. SD/ - ( G.S. PANNU ) SD/ - ( R AVISH SOOD ) / ACCOUNTANT MEMBER / JUDICIALMEMBER MUMBAI; DATED : 03 /0 5 /2017 RAHUL DHOKE, P.S . / . . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A) - , MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI