M/s. Swarovski India Private Limited, New Delhi V. ACIT, New Delhi

ITA 5621/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6732 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 08-02-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 17-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Cost of acquisition; Bad and doubtful debts
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5621/DEL/2014 ASSESSMENT YEAR : 2004-05 SWAROVSKI INDIA PRIVATE LIMITED, 1A-1D, VANDHANA BUILDING, 11, TOLSTOY MARG, NEW DELHI. PAN: AABCS4767J VS. ACIT, CIRCLE-7(1), NEW DELHI. ITA NO.5496/DEL/2014 ASSESSMENT YEAR : 2004-05 DCIT, CIRCLE-7(1), NEW DELHI. VS. SWAROVSKI INDIA PRIVATE LIMITED, 1A-1D, VANDHANA BUILDING, 11, TOLSTOY MARG, NEW DELHI. PAN: AABCS4767J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANOJ PARDASANI, SHRI S.K. AGARWAL, CA DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR SHRI NEERAJ KUMAR, SR. DR ITA NOS.5621 &5496/DEL/2014 2 DATE OF HEARING : 08.02.2017 DATE OF PRONOUNCEMENT : 10.02.2017 ORDER PER R.S. SYAL, AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT( A) ON 26.07.2014 IN RELATION TO THE ASSESSMENT YEAR 2004-05. THERE ARE TWO TRANSFER PRICING ADDITIONS WHICH HAVE BEEN CHALLENGED BY THE ASSESSE E IN ITS APPEAL APART FROM THE CONFIRMATION OF CERTAIN NON-TRANSFER PRICI NG ADDITIONS. THE REVENUE IS ALSO AGGRIEVED AGAINST THE DELETION OF O NE NON-TRANSFER PRICING ADDITION. I. TRANSFER PRICING ADDITIONS A. TP ADDITION ON IMPORT OF CRYSTAL AND CRYSTAL COM PONENTS 2. THE FIRST CHALLENGE IN THE ASSESSEES APPEAL IS TO THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT O F IMPORT OF CRYSTAL AND CRYSTAL COMPONENTS. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, WITH ITS ORIGINAL NAME OF SWAROPE ARL, WAS INCORPORATED IN INDIA IN 1996. IT IS A PART OF SWA ROVSKI GROUP, A GLOBALLY ITA NOS.5621 &5496/DEL/2014 3 FAMOUS BRAND FOR CRYSTAL AND CRYSTAL RELATED PRODUC TS. IT IS A WORLD-WIDE MARKET LEADER IN CRYSTAL JEWELLERY AND ACCESSORIES, GRINDING AND DRESSING TOOLS, PRECISION OPTICAL EQUIPMENT AND SYNTHETIC GE MSTONES. THE GROUP HAS PRODUCTION LOCATIONS IN TWELVE COUNTRIES AND HA S SALE COMPANIES IN SEVERAL COUNTRIES IN ASIA, EUROPE, SOUTH AMERICA, U SA AND CANADA. THE ASSESSEE COMPANY WAS INITIALLY REGISTERED AS A 100% EXPORT ORIENTED UNIT FOR UNDERTAKING ACTIVITIES OF COATING OF RAW B EADS, POLISHING AND KNOTTING OF CRYSTALS ETC. LATER ON, THE ASSESSEE AL SO STARTED IMPORTS AND SALE OF CRYSTAL GOODS AND CRYSTAL COMPONENTS. APAR T FROM 100% EOU DIVISION IN PUNE, THE ASSESSEE CARRIES OUT ITS TRAD ING ACTIVITIES FROM A DOMESTIC UNIT IN NEW DELHI WHICH HAS FURTHER TWO SU B-DIVISIONS, NAMELY, CONSUMER GOODS DIVISION (CGD) AND A CRYSTAL COMPONENTS DIVISION (CCD). MAJOR CUSTOMERS OF CGD AND CCD ARE DESIGNERS AND GARMENT MANUFACTURERS ETC. THE ASSESSEE REPORTED C ERTAIN INTERNATIONAL TRANSACTIONS IN FORM NO. 3CEB. THE ASSESSING OFFIC ER (AO) REFERRED THE MATTER OF DETERMINATION OF THEIR ARMS LENGTH P RICE (ALP) TO THE TRANSFER PRICING OFFICER (TPO). REPORTED INTERNATI ONAL TRANSACTIONS INCLUDE A TRANSACTION OF IMPORT OF CRYSTAL AND CRY STAL COMPONENTS WITH ITA NOS.5621 &5496/DEL/2014 4 TRANSACTED VALUE OF RS.6,64,22,297/-. ONLY THIS IN TERNATIONAL TRANSACTION IS UNDER DISPUTE. THE ASSESSEE APPLIED COMPARABLE UNCONTROLLED PRICE (CUP) METHOD TO DEMONSTRATE THAT THE INTERNATIONAL TRANSACTION WAS AT ALP. IN ORDER TO FORTIFY THE ADOPTION OF CUP AS TH E MOST APPROPRIATE METHOD, THE ASSESSEE ARGUED THAT THE IMPORTS WERE M ADE AS PER THE PRICE LIST PROVIDED BY ITS AE WHICH WAS AVAILABLE FOR ALL ITS SALES TO GROUP COMPANIES (INTERNAL COMPARABLE). IT WAS ALSO SUBMIT TED THAT ITS AE ALSO MADE DIRECT SALES OF CRYSTAL COMPONENTS TO INDIAN C USTOMERS AND THE AMOUNT CHARGED FROM SUCH INDEPENDENT CUSTOMERS WAS HIGHER THAN THAT CHARGED FROM THE ASSESSEE (EXTERNAL COMPARABLE). T HE ASSESSEE SUBMITTED THAT IT WAS ALSO TAKING ORDERS ON BEHALF OF ITS AE FROM CUSTOMERS IN INDIA AND FORWARDING THE SAME FOR EXEC UTION TO ITS AE, ON WHICH COMMISSION @15% OF INVOICE VALUE WAS BEING AL LOWED TO IT. THE SUM AND SUBSTANCE OF THE ASSESSEES SUBMISSIONS BEF ORE THE TPO WAS THAT THE PRICE CHARGED BY ITS AE FROM ANY OTHER COU NTRY THROUGH ITS GROUP COMPANY/BRANCH OFFICE WAS THE SAME AS THAT CH ARGED FROM CUSTOMERS IN INDIA. THE TPO OBSERVED THAT THE ASSE SSEE MADE IMPORTS FROM ITS AE AND RESOLD THE SAME TO INDIAN CUSTOMERS . HE FURTHER NOTICED ITA NOS.5621 &5496/DEL/2014 5 THAT AS AGAINST THE TURNOVER OF RS.14.86 CRORE UNDE R THIS SEGMENT, THE ASSESSEE HAD SHOWN TO HAVE INCURRED A NET LOSS OF R S.5.11 CRORE. THE TPO REFUSED TO ACCEPT THE CUP AS THE MOST APPROPRIA TE METHOD ON THE GROUND THAT THE ITEMS IMPORTED BY THE ASSESSEE WERE NOT IMPORTED BY THE THIRD PARTIES AND THAT WAS THE REASON FOR WHICH THE COMPARABLES CHOSEN BY THE ASSESSEE DID NOT CORRECTLY REFLECT ALP OF TH E IMPORT TRANSACTION UNDERTAKEN BY IT. HE, THUS, REFUSED TO ACCEPT THE CUP AS A RELIABLE METHOD FOR BENCHMARKING OF THIS INTERNATIONAL TRANS ACTION. IT WAS FURTHER NOTICED THAT CUSTOMS DUTY RATE FOR THE ASSESSEE WAS IN THE RANGE OF 50% AND IT WAS 0% IN THE CASE OF THIRD PARTY TRANSACTIO NS UNDERTAKEN BY THE AE WITH CUSTOMERS IN INDIA AS SUCH PARTIES WERE USI NG IMPORTS FOR FURTHER EXPORTS. THAT WAS ALSO CONSIDERED AS A REAS ON FOR THE ASSESSEE PRESSING HARD TO IMPORT AT LOWER PRICES FROM ITS AE VIS--VIS THE PRICE CHARGED FROM UNRELATED PARTIES IN INDIA. AFTER REJE CTING THE CUP AS THE MOST APPROPRIATE METHOD, THE TPO TOOK RECOURSE TO T HE TRANSACTIONAL NET MARGIN METHOD (TNMM), WHICH WE WILL DISCUSS INFRA IN DETAIL . THAT IS HOW, HE PROPOSED A TRANSFER PRICING ADJUST MENT OF RS.4.72 CRORE. THE AO MADE SUCH AN ADDITION. IN THE FIRST APPEAL, THE LD. CIT(A) ITA NOS.5621 &5496/DEL/2014 6 ACCEPTED THE APPLICATION OF THE TNMM AS THE MOST AP PROPRIATE METHOD AS AGAINST THE MAIN CONTENTION OF THE ASSESSEE FOR THE APPLICATION OF THE CUP METHOD OR THE RESALE PRICE METHOD (RPM) IN ALT ERNATIVE. HE, HOWEVER, ACCEPTED THE CONTENTION OF THE ASSESSEE TH AT THE TPO SHOULD NOT HAVE TAKEN DATA OF COMPARABLES FOR SEVERAL YEAR S FOR CALCULATING THE ALP. ACCORDINGLY, IT WAS DIRECTED THAT ONLY THE CUR RENT YEARS DATA SHOULD BE USED. IN THIS MANNER, THE ISSUE OF TRANSF ER PRICING ADJUSTMENT WAS RESTORED. AGGRIEVED THEREBY, THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ADVERSE FINDINGS RETURNED BY THE LD. CI T(A). 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. ONLY THE INTERNATIONAL TRANSAC TION OF `IMPORT OF CRYSTAL AND CRYSTAL COMPONENTS OUT OF THE REPORTED TRANSACTIONS IS IN DISPUTE INASMUCH AS ALL OTHER INTERNATIONAL TRANSAC TIONS REPORTED BY THE ASSESSEE HAVE BEEN ACCEPTED AT ALP. THE FIRST QUARR EL IS ON THE SELECTION OF METHOD AS THE MOST APPROPRIATE METHOD. WHEREAS, THE ASSESSEE APPLIED CUP AS THE MOST APPROPRIATE METHOD TO SHOW THAT THE TRANSACTION WAS AT ALP, THE TPO DISCARDED THE SAME AND OPTED FO R THE TNMM. ITA NOS.5621 &5496/DEL/2014 7 WHETHER CUP IS THE MOST APPROPRIATE METHOD ? 4.1. BEFORE CONSIDERING THE QUESTION OF CUP BEING A MOST APPROPRIATE METHOD, LET US UNDERSTAND THE PRECISE NATURE OF THE INTERNATIONAL TRANSACTION. THIS IMPORT TRANSACTION COMPRISES OF T WO THINGS, NAMELY, CRYSTAL GOODS AND CRYSTAL COMPONENTS FOR WHICH THER E ARE SEPARATE DIVISIONS, NAMELY, CGD AND CCD. IMPORT OF BOTH THE CRYSTAL GOODS AND CRYSTAL COMPONENTS HAS BEEN SHOWN AS ONE INTERNATIO NAL TRANSACTION AND THERE IS NO FURTHER SEGREGATION. THE ASSESSEES TR ANSFER PRICING STUDY REPORT HAS BEEN PLACED AT PAGES B-375 ONWARDS OF TH E PAPER BOOK. PAGE B-395 CLARIFIES THAT THE DOMESTIC UNIT OF THE ASSES SEE TRADES IN TWO TYPES OF GOODS, ONE IS CRYSTAL COMPONENTS AND THE OTHER I S CRYSTAL GOODS. CRYSTAL GOODS INCLUDE SILVER CRYSTAL, JEWELLERY, CR YSTAL DECOR PRODUCTS. ON THE OTHER HAND, CRYSTAL COMPONENTS ARE CRYSTAL L OOSE STONES WHICH ARE SOLD BY THE ASSESSEE TO VARIOUS MANUFACTURERS A ND DEALERS ETC. FOR USING AS AN ADORNMENT IN THEIR FINAL PRODUCTS. FOR EXAMPLE, GARMENT MANUFACTURERS USE CRYSTAL STONES AS BUTTONS, TRIMMI NGS ETC. CRYSTAL STONES ARE CLASSIFIED AND PRICED ACCORDING TO THEIR SIZE, COLOUR AND ITA NOS.5621 &5496/DEL/2014 8 METHOD OF APPLICATION ON TO THE GARMENTS. TO CITE AN EXAMPLE, 2012SS16 CRYSTAL MHF MEANS THAT ARTICLE NO.2012 IS OF SIZE SS16 WHICH CORRESPONDS TO A DIAMETER OF 3.80-4.00 MM. T HE ASSESSEE SELLS CRYSTAL GOODS THROUGH DEALERS AND CRYSTAL COMPONENT S ARE SOLD EITHER DIRECTLY TO MANUFACTURERS OR DEALERS OR TO WHOLESAL ERS. IN ORDER TO APPRECIATE THE APPLICABILITY OF THE CUP METHOD, IT IS APT TO NOTE THAT RULE 10B (1)(A), WHICH CONTAINS THE MODUS OPERANDI FOR ITS APPLICATION, AS UNDER :- `(I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFE RRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED ; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPA RABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING IN TO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET ; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUS E (II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN THE INTERNATIONAL TRANSACTION ; 4.2. SUB-CLAUSE (I) OF RULE 10B(1)(A) PROVIDES FOR, INTER ALIA, IDENTIFYING THE PRICE PAID FOR PROPERTY PURCHASED. SUB-CLAUSE (II) TALKS OF MAKING ADJUSTMENTS TO SUCH PRICE ON ACCOUNT OF D IFFERENCES, IF ANY, BETWEEN INTERNATIONAL TRANSACTION AND COMPARABLE UN CONTROLLED ITA NOS.5621 &5496/DEL/2014 9 TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRI CE IN THE OPEN MARKET. SUB-CLAUSE (III) PROVIDES THAT THE ADJUSTED PRICE A RRIVED AT UNDER SUB- CLAUSE (II) IS CONSIDERED AS ALP IN RESPECT OF THE PROPERTY PURCHASED. USUALLY THE CUP IS THE METHOD OF FIRST CHOICE BECAU SE IT SEEKS TO DIRECTLY COMPARE THE PRICE PAID FOR GOODS WITH THE PRICE PAI D IN A COMPARABLE UNCONTROLLED TRANSACTION. COMPARISON OF PRICE PAID FOR GOODS PURCHASED IN CONTRADISTINCTION TO THE PROFIT RATE IN OTHER ME THODS - GROSS OR OPERATING - OFFERS BEST COMPARISON AS SOMETIMES PR OFIT MAY BE INFLUENCED BY CERTAIN OTHER EXTRANEOUS FACTORS THER EBY REDUCING THE RELIABILITY OF COMPARABILITY. HOWEVER, IN ORDER TO SUCCESSFULLY APPLY THIS METHOD, IT IS SINE QUA NON THAT THE GOODS PURCHASED OR SOLD MUST BE COMPARED WITH SIMILAR GOODS. THUS, THE FUNDAMENTAL THING IS THAT THE GOODS IN AN INTERNATIONAL TRANSACTION MUST BE SIMIL AR TO THOSE IN COMPARABLE UNCONTROLLED TRANSACTION IF A VALID COMP ARISON IS TO BE MADE. OF COURSE, SOME ADJUSTMENTS CAN BE MADE FOR BRINGIN G A SIMILAR PRODUCT TO THE RANK OF AN IDENTICAL PRODUCT, WHICH IS SUBJE CT MATTER OF THE CONSIDERATION. IF GOODS IN THE INTERNATIONAL TRANSA CTION DO NOT EXACTLY MATCH WITH THE GOODS IN COMPARABLE UNCONTROLLED TRA NSACTIONS, THEN THIS ITA NOS.5621 &5496/DEL/2014 10 METHOD LOSES ITS CHARM AND BECOMES INAPPLICABLE AS IT CANNOT PROPERLY REFLECT THE ALP OF THE GOODS PURCHASED BY THE ASSES SEE FROM ITS AE. IT IS VIVID THAT AN APPLE CAN BE COMPARED WITH AN APPLE A LONE AND NOT AN ORANGE. SOME DIFFERENCE IN THE QUALITY OF APPLES IN THE INTERNATIONAL TRANSACTION AND COMPARABLE UNCONTROLLED TRANSACTION CAN BE ADJUSTED UNDER SUB-CLAUSE (II), BUT IN NO CASE AN APPLE IN A N INTERNATIONAL TRANSACTION CAN BE COMPARED WITH AN ORANGE, BOTH OF WHICH ARE MATERIALLY DIFFERENT FROM EACH OTHER. 4.3. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE ASSESSEE IMPORTED CRYSTAL GOODS AS WELL AS CRYSTAL COMPONENT S FROM ITS AE. APART FROM MENTIONING THAT CUP WAS THE MOST APPROPR IATE METHOD, THE ASSESSEE DID NOT IDENTIFY ANY COMPARABLE IN ITS TRA NSFER PRICING STUDY REPORT. HOWEVER, DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSEE, VIDE ITS LETTER DATED 24.11.2006, A COPY PLACED AT PAGE B-320 OF THE PAPER BOOK, SUBMITTED A COMPANY ANGEL OVERS EAS AS COMPARABLE BY PRODUCING A COPY OF INVOICE WITH DATE . ADMITTEDLY, THE SO-CALLED COMPARABLE UNCONTROLLED TRANSACTION IS ON LY OF CRYSTAL ITA NOS.5621 &5496/DEL/2014 11 COMPONENTS. THEN, ON PAGE NO. B-324 OF THE PAPER BO OK, THE ASSESSEE ALSO SET OUT CERTAIN COMPARABLES WHICH, AGAIN, REFE R ONLY TO CRYSTAL COMPONENTS AND NOT TO CRYSTAL GOODS. THE LD. AR CAN DIDLY ADMITTED THAT ALL THE COMPARABLES GIVEN BY THE ASSESSEE DURING TH E COURSE OF TP PROCEEDINGS WERE ONLY OF CRYSTAL COMPONENTS AND NON E RELATED TO CRYSTAL GOODS. AS A MATTER OF FACT, IT IS AN ADMIT TED POSITION THAT THE AE DID NOT SELL ANY CRYSTAL GOODS TO ITS CUSTOMERS IN INDIA DIRECTLY AND ONLY CRYSTAL COMPONENTS WERE SOLD IN INDIA BY THE AE, WH ICH ARE FURTHER NOT MEANT FOR DOMESTIC CONSUMPTION, BUT, TO BE UTILIZED FOR EXPORT BY SUCH PARTIES. THE INTERNATIONAL TRANSACTION REPORTED BY THE ASSESSEE IS A COMMON POOL OF BOTH THE CRYSTAL GOODS AND CRYSTAL C OMPONENTS, WITHOUT THERE BEING ANY SEPARATE IDENTIFICATION FOR EACH OF THEM. WE HAVE NOTICED ABOVE THAT CRYSTAL GOODS AND CRYSTAL C OMPONENTS ARE DIFFERENT IN TERMS OF UTILITY AND VALUE ETC. AND IT IS EVIDENT THAT THE RANGE OF COMPARABLES IS RESTRICTED TO CRYSTAL COMPONENTS ALONE. IN VIEW OF THE FACT THAT THE ASSESSEE DID NOT REPORT ANY COMPARABL E UNCONTROLLED TRANSACTION OF CRYSTAL GOODS, WE FAIL TO APPRECIATE AS TO HOW SUCH RATES CHARGED IN TRANSACTIONS OF CRYSTAL COMPONENTS CAN B E CONSIDERED AS A ITA NOS.5621 &5496/DEL/2014 12 BENCHMARK FOR CRYSTAL GOODS AS WELL. IN SUCH CIRCUM STANCES, APPLICABILITY OF CUP TO A SINGLE COMBINED INTERNATI ONAL TRANSACTION OF IMPORT OF CRYSTAL GOODS AND CRYSTAL COMPONENTS, CAN NOT BE CONSIDERED AS THE MOST APPROPRIATE METHOD. 4.4. HOWEVER, THE OTHER VIEW POINT OF THE TPO, AS ACCENTUATED BY THE LD. DR, THAT THE UNRELATED PARTIES MADE PURCHASES O F CRYSTAL COMPONENTS FOR EXPORT AND HENCE NO CUSTOMS DUTY WAS PAYABLE WE NT ON TO PROVE THAT THE ASSESSEES PURCHASES WERE NOT AT ALP BECAUSE IT BARGAINED MORE, DOES NOT PROVE THE CASE. IN OUR CONSIDERED OPINION, THE RELEVANT FACTOR IS THE PRICE CHARGED BY THE AE FROM THE ASSESSEE AND U NRELATED PARTIES. SUCH PRICE IS CHARGED W.R.T THE COSTS INCURRED AND THE PROFIT THAT IT INTENDS TO EARN. HOW THE BUYER IS GOING TO USE THE PRODUCTS PURCHASED FROM THE AE IS NOT DETERMINATIVE OF THE PRICE WHICH THE AE IS GOING TO CHARGE FROM THE SALES MADE BY IT. BE THAT AS IT MAY , THE CONTENTION OF THE REVENUE, IF ACCEPTED, WOULD RATHER SUPPORT THE CASE OF THE ASSESSEE. IF THE ASSESSEE IS BARGAINING HARD AND MAKING CHEAP PU RCHASES FROM ITS AE IN COMPARISON WITH THE PRICE PAID BY THE NON-AES, THAT WILL LEAD TO THE ITA NOS.5621 &5496/DEL/2014 13 RESULTANT HIGHER PROFIT TO THE ASSESSEE, IF OTHER T HINGS ARE EQUAL. TRANSFER PRICING ADJUSTMENT UNDER CUP METHOD IS CALLED FOR W HEN THE COMPARABLE PRICE IN THE UNCONTROLLED TRANSACTIONS IS LESS THAN THAT PAID BY THE ASSESSEE AND NOT VICE VERSA . IN OUR CONSIDERED OPINION, THIS FACTOR RAKED UP BY THE TPO HAS NO BEARING INSOFAR AS THE DETERMI NATION OF THE ALP OF THE PURCHASE PRICE IS CONCERNED. 4.5. WE, THEREFORE, COUNTENANCE THE VIEW TAKEN BY THE TPO IN REJECTING THE CUP AS THE MOST APPROPRIATE METHOD. TNMM VS. RPM 5.1. HAVING HELD THAT CUP IS NOT A RELIABLE METHO D IN THE GIVEN CIRCUMSTANCES, LET US SEE, WHICH OF THE OTHER TWO M ETHODS FOCUSED BY BOTH THE SIDES, NAMELY, TNMM OR RPM, CAN BE CONSID ERED AS MOST SUITABLE. 5.2. THE TPO, AFTER REJECTING THE CUP METHOD RESO RTED TO THE TNMM FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSA CTION. IN DOING SO, HE OBSERVED THAT THE ASSESSEE IS DEALING IN THE PRODUC TS WHICH ARE UNIQUE IN NATURE AND THERE ARE NO RELIABLE COMPARABLES AVAILA BLE IN THE DATABASES ITA NOS.5621 &5496/DEL/2014 14 USED IN INDIA, NAMELY, PROWESS AND CAPITA LINE. HE , THEREFORE, EXPANDED THE SEARCH PROCESS BEYOND THE TERRITORY OF INDIA. USING ORBIS DATABASE, FIRSTLY, HE CONSIDERED DATA OF TWO COMPANIES OF THE ASSESSEE GROUP, NAMELY, SWAROVSKI, SOUTH KOREA AND SWAROVSKI, SINGAPORE. THE TPO HAS TABULATED SNAPSHOT OF SWARO VSKI KOREA LTD. IN PARA 7.2 OF HIS ORDER. HE TOOK FIGURES OF FOUR CAL ENDAR YEARS ENDING ON 2002, 2003, 2004 AND 2005 OF THIS COMPANY, AS UNDER :- FINANCIAL PROFILE UNCONSOLIDATED DATA SWAROVSKI KOREA LTD. 12/31/2005 12/31/2004 12/31/2003 12/31/2002 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS TH KRW TH KRW TH KRW TH KRW OPERATING REVENUE/TURNOVER 34,678,855 30,775,490 25,709,840 16,524,606 P/L BEFORE TAX 1,654,056 1,478,171 -470,298 1,381,492 P/L FOR PERIOD [=NET INCOME] 1,233,984 1,047,810 -485,282 954,396 CASH FLOW 2,264,028 1,977,898 299,564 1,589,348 TOTAL ASSETS 12,627,944 12,053,465 9,523,353 7,896,459 SHAREHOLDERS FUNDS 3,375,307 2,141,323 1,093,512 1,578,794 CURRENT RATIO (X) 1.65 2.19 1.47 1.85 PROFIT MARGIN (%) 4.77 4.8 -1.83 8.36 RETURN ON SHAREHOLDERS FUNDS (%) 49.01 69.03 -43.01 87.5 RETURN ON CAPITAL EMPLOYED (%) 30.58 23.11 -4 33.29 SOLVENCY RATIO (%) 26.73 17.76 11.48 19.99 5.3. THE TPO MENTIONED BELOW THE TABLE THAT SWAROVS KI, KOREA MADE A GROSS PROFIT MARGIN IN THE REGION OF 48% TO 58% DUR ING THE PERIOD ITA NOS.5621 &5496/DEL/2014 15 31.12.2002 TO 31.12.2005 AND NET PROFIT MARGIN IN T HE RANGE OF 1.9% TO 7.7%. 5.4. THEN, HE TABULATED FIGURES OF SWAROVSKI, SIN GAPORE IN RELATION TO FIVE CALENDAR YEARS FROM 1999 TO 2003 IN PARA 7.3 O F HIS ORDER, AS UNDER:- SWAROVSKI SINGAPORE TRADING PTE LTD. FINANCIAL PROFILE UNCONSOLIDATED DATA 12/31/2003 12/31/20042 12/31/2001 12/31/2000 12/31 /1999 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS TH SGD TH SGD TH SGD TH SGD TH SGD OPERATING REVENUE/TURNOVER 48,036 38,247 33,149 31,576 25,356 P/L BEFORE TAX 2,707 2,479 2,401 3,325 1,752 P/L FOR PERIOD [=NET INCOME] 2,041 1,868 1,832 2,502 1,245 CASH FLOW 2,823 N.A 2,443 N.A 1,726 TOTAL ASSETS 17,546 16,404 15,867 16,014 14,516 SHAREHOLDERS FUNDS 11,485 11,444 11,576 11,528 9,025 CURRENT RATIO (X) 2.04 2.36 2.78 2.76 2.05 PROFIT MARGIN (%) 5.64 6.48 7.24 10.53 6.91 RETURN ON SHAREHOLDERS FUNDS (%) 23.57 21.66 20.74 28.84 19.41 5.5. AFTER MENTIONING PROFIT MARGIN BELOW THE TABLE AT NET LEVEL OF 5.64% ON 31.12.2013, THE TPO AGGREGATED THE RESULTS OF SWAROVSKI, SOUTH KOREA AND SWAROVSKI, SINGAPORE AND FOUND THAT THESE TWO ITA NOS.5621 &5496/DEL/2014 16 COMPANIES DEALING IN CRYSTAL GOODS AND CRYSTAL COMP ONENTS WERE EARNING PROFIT MARGINS AT NET LEVEL OF 5% AND GROSS LEVEL AT 54%. 5.6. AFTER ASCERTAINING THE ABOVE PROFIT RATES OF TWO ASSOCIATED ENTERPRISES, THE TPO EXTENDED HIS SEARCH PROCESS US ING ORBIS DATABASE TO A SET OF 20 INDEPENDENT COMPANIES AS UNDER:- COMPANY NAME CTRY TYPE OF ACCOUNT TEMPLATE YEAR CURRENT RATIO (X) PROFIT MARGIN (%) MEDIAN LY 1.06 0.61 SEJE AND PARTNERS FR U1 IND 2004 2.18 27.42 VIMPEX INTERNATIONAL BV NL U1 IND 2004 1.89 22.77 NUTRI-ACTIVE PTE LTD. SG U1 IND 2004 1.92 10.85 ADS-ANKER DATA SYSTEM B.V. NL C2 IND 2004 0.9 6.51 SWAROVSKI SINGAPORE TRADING PTE LTD. SG U1 IND 2003 2.04 5.64 K DIS DISTRIBUTION SA FR U1 IND 2004 1.99 4.25 NEW FOOD S.R.L. IT U1 IND 2005 1.12 2.83 CHOPARD (ASIA) PTE LTD. SG U1 IND 2003 1.18 2.81 CONSORZIO MANTOVANO ARTIGI ANI EDILI ED AFFINI SOCIETA CCOP IT U1 IND 2005 1.05 2.19 DANNERT RU U1 IND 2005 1.04 0.84 TORGOVO PROMYSHLENNAYA KOMPANIYA GEK RU U1 IND 2001 0.96 0.39 SCAR SUD OUEST FR U1 IND 2005 1.34 0.31 DEKORSTROIINVEST RU U1 IND 2005 1.01 0.14 TORGOVYI DOM KONTAKTOR RU U1 IND 2005 0.99 0.06 ITA NOS.5621 &5496/DEL/2014 17 DIEMME DISTRIBUZIONE MODERN A SOCIETA CONSORTILE A RESP IT U1 IND 2005 1.02 0.03 TORGOVYI DOM VKT RU U1 IND 2001 1 0.02 CONSORZIO APUANIA ENERGIA IT U1 IND 2005 1.05 0.01 CONSORZIO PRODUTTORI VINI DI VELLETRI SOCIETACOOPERATIV A AGRICOLA IT U1 IND 2005 1.06 -0.2 FANITON RU U1 IND 2004 1 -0.27 ELOPAK LIMITED GB C1 IND 2000 1.35 -9.42 RIBOSEPHARM GMBH DELF IND 2005 N.A. N.A. AVERAGE 3.704286 5.7. IT CAN BE SEEN THAT ALL THE COMPANIES IN THE A BOVE TABLE ARE FOREIGN UNRELATED ENTITIES, EXCEPT ONE AT SL. NO.6, NAMELY, SWAROVSKI SINGAPORE TRADING PTE LTD. PROFIT MARGIN OF THESE 20 COMPANI ES WAS WORKED OUT AT 4.185%, WHICH THE TPO FOUND TO BE IN THE SAME RANGE AS EARNED BY SWAROVSKI, SOUTH KOREA AND SWAROVSKI, SINGAPORE. H E, THUS, HELD THAT 4.185% WAS ARMS LENGTH MARGIN FOR THE ASSESSEE COM PANY. A FURTHER ADJUSTMENT OF 5% ON SUCH ARMS LENGTH MARGIN WAS GI VEN ON ACCOUNT OF GEOGRAPHICAL REGION AND MARKET SIZE, ETC., THUS, WO RKING OUT ARMS LENGTH MARGIN AT NET LEVEL OF 3.976%. BY APPLYING SUCH AR MS LENGTH MARGIN, HE WORKED OUT TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.5,70,90,836. THEREAFTER, HE VENTURED TO MAKE A SECONDARY ANALYS IS USING GROSS PROFIT ITA NOS.5621 &5496/DEL/2014 18 MARGINS. IN THE DISCUSSION CONTAINED IN PARA 8.2 ON WARDS OF HIS ORDER, THE TPO NOTICED THE MARGIN OF SWAROVSKI, SOUTH KORE A AT GROSS LEVEL OF 53.75% WAS COMPARABLE WITH THE GROSS PROFIT MARGIN OF 20 COMPARABLE COMPANIES FROM THE ORBIS DATABASE. BY APPLYING GRO SS MARGIN OF 53.75%, HE COMPUTED TRANSFER PRICING ADJUSTMENT OF RS.3.74 CRORE. IN PARA 8.5, HE DISCUSSED THAT THE AMOUNT OF ADJUSTMEN T IS DIFFERENT IN THE PRIMARY AND SECONDARY ANALYSIS, NAMELY, BY APPLYING NET AND GROSS LEVEL MARGINS. EVENTUALLY, HE AVERAGED THE AMOUNT OF ADJUSTMENT COMPUTED UNDER BOTH THE METHODS FOR PROPOSING A FI NAL TRANSFER PRICING ADJUSTMENT OF RS.4,72,74,425/-. THIS IS THE AMOUNT OF ADDITION MADE BY THE AO. 5.8. THE LD. AR CONTENDED THAT THE TPO WAS WHOLLY UNJUSTIFIED IN, FIRSTLY, CHOOSING THE TNMM AS THE MOST APPROPRIATE METHOD AND THEN, APPLYING THE SAME IN A WRONGFUL MANNER. 5.9. WE WILL FIRST TAKE UP THE CALCULATION OF PRO FIT RATES AS HAS BEEN CHALLENGED BEFORE US. THE TPO CONSIDERED FOUR CALEN DAR YEARS OF SWAROVSKI, KOREA FOR WORKING OUT THE PROFITABILITY AT GROSS MARGIN IN ITA NOS.5621 &5496/DEL/2014 19 THE RANGE OF 48% TO 58% AND THEN AT NET LEVEL OF 1. 9% TO 7.7.%. IT IS OBVIOUS FROM THE TABLE ITSELF AS REPRODUCED ABOVE, THAT THE MANNER OF DETERMINATION OF PERCENTAGES OF 48 TO 58% AND 1.92 TO 7.77% IS NOT DEDUCIBLE. EVEN THE LD. DR COULD NOT POINT OUT HOW THESE PERCENTAGES WERE COMPUTED. SIMILAR IS THE POSITION QUA THE WORKING OF MARGIN OF SWAROVSKI, SINGAPORE. THE TPO REFERRED TO PROFIT MA RGIN AT NET LEVEL OF 5.64% AS ON 31.12.2003. IT CAN BE SEEN FROM THE TA BLE DRAWN BY THE TPO AS REPRODUCED ABOVE THAT THE RATE OF 5.64% IS N OT EMERGING. POSITION REGARDING THE MARGINS OF THIS COMPANY REFE RRED BY THE TPO AT GROSS LEVEL OF 54% AND NET OF 5%, IS ALSO NO DIFFER ENT. IT IS NOT KNOWN HOW THESE FIGURES WERE CALCULATED. EVEN THE LD. DR COULD NOT HELP IN FINDING OUT HOW THESE FIGURES WERE ARRIVED AT. THIS SHOWS THAT THE CALCULATIONS MADE BY THE TPO FOR DETERMINING THE AL P OF THE INTERNATIONAL TRANSACTION, ARE UNFOUNDED. 5.10. IN ORDER TO APPRECIATE THE CONTENTIONS OF THE LD. AR ON THE APPLICATION OF TNMM, IT WILL BE APPOSITE TO SET OUT RULE 10B(1)(E) WHICH CONTAINS THE MECHANISM FOR APPLICATION OF THE TNMM, AS UNDER :- ITA NOS.5621 &5496/DEL/2014 20 (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPR ISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN A SSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY TH E ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE ; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE ; (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAU SE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING I NTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMO UNT OF NET PROFIT MARGIN IN THE OPEN MARKET ; (IV) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE AND REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III) ; (V) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELAT ION TO THE INTERNATIONAL TRANSACTION. 5.11. SUB-CLAUSE (I) OF THE ABOVE RULE, BEING THE FIRST STEP, PROVIDES THAT THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FR OM AN INTERNATIONAL TRANSACTION SHOULD BE COMPUTED IN RELATION TO A BAS E, SUCH AS, COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED, ETC. SUB-CLAUSE (II) PROVIDES THAT THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM THE ITA NOS.5621 &5496/DEL/2014 21 COMPARABLE UNCONTROLLED TRANSACTION IS COMPUTED HAV ING REGARD TO THE SAME BASE. SUB-CLAUSE (III) PROVIDES THAT THE NET P ROFIT MARGIN REALIZED BY A COMPARABLE COMPANY, DETERMINED AS PER SUB-CLAU SE (II) ABOVE IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF A NY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PRO FIT MARGIN. IT IS THIS ADJUSTED NET PROFIT MARGIN OF THE UNRELATED TRANSAC TIONS OR OF THE COMPARABLE COMPANIES, AS DETERMINED UNDER SUB-CLAUS E (III), WHICH IS USED AS BENCHMARK FOR THE PURPOSE OF MAKING COMPARI SON WITH THE NET PROFIT MARGIN REALIZED BY THE ASSESSEE FROM ITS INT ERNATIONAL TRANSACTION AS PER SUB-CLAUSE (I). SUB-CLAUSE (IV) STATES THAT THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE, AS REFERRED IN SUB CLAU SE (I), IS ESTABLISHED TO BE THE SAME AS A NET PROFIT MARGIN REFERRED IN SUB- CLAUSE (III) OF THE COMPARABLES. SUB-CLAUSE (V) STATES THAT THE NET PRO FIT MARGIN THUS ESTABLISHED IS TAKEN INTO ACCOUNT TO ARRIVE AT AN A RMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION. TO SUMMARIZE THE POSITION UNDER THIS METHOD, THE NET OPERATING PROFIT MARGIN REALIZ ED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ITA NOS.5621 &5496/DEL/2014 22 ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE, WHICH IS THEN COMPARED WIT H THE NET OPERATING PROFIT MARGIN REALIZED BY THE ENTERPRISE OR BY AN U NRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION WITH A S IMILAR BASE. 5.12. WE FIND THAT THERE ARE CERTAIN INCONSISTENC IES IN SO FAR AS THE APPLICATION OF THE ABOVE RULE BY THE TPO IS CONCERN ED. HE WORKED OUT TRANSFER PRICING ADJUSTMENT, BY AVERAGING THE AMOUN T OF ADJUSTMENT COMPUTED BY TAKING GROSS MARGINS AND NET MARGINS OF COMPARABLES. ALL THE SUB-CLAUSES OF RULE 10B(1)(E) REFER TO THE CALC ULATION OF `NET PROFIT MARGIN, WHICH FOR ALL PRACTICAL PURPOSES IS `OPERA TING NET PROFIT MARGIN IN THE DENOMINATOR OF THE FORMULA. AS AGAINST THIS, THE TPO HAS NOT ONLY TAKEN COGNIZANCE OF THE `NET PROFIT IN HIS CALCULA TION, BUT ALSO WENT ON TO APPLY GROSS PROFIT MARGIN, WHICH IS ALIEN TO THE TNMM. HIS FURTHER ACTION OF AVERAGING THE GROSS AND NET MARGINS OF CO MPARABLES, IS NOT ENVISAGED ANYWHERE IN THE PRESCRIPTION OF THE RULE. FURTHER, SUB-CLAUSE (III) OF RULE 10B(1)(E) TALKS OF COMPUTING NET PROF IT MARGINS ARISING IN ITA NOS.5621 &5496/DEL/2014 23 COMPARABLE UNCONTROLLED TRANSACTIONS. THUS, IT IS ESSENTIAL THAT THE PROFIT MARGIN TO BE CONSIDERED MUST BE FROM A COMPA RABLE UNCONTROLLED TRANSACTION. THE TERM UNCONTROLLED TRANSACTION HAS BEEN DEFINED IN RULE 10A(A) TO MEAN: A TRANSACTION BETWEEN ENTERPRISES OTHER THAN ASSOCIATED ENTERPRISES WHETHER RESIDENT OR NON-RESIDENT. IT IS SIMPLE AND PLAIN THAT AN UNCONTROLLED TRANSACTION IS ALWAY S BETWEEN TWO NON- ASSOCIATED ENTERPRISES. A TRANSACTION BETWEEN TWO ASSOCIATED ENTERPRISES IS CONSIDERED AS A CONTROLLED TRANSACTION AND HENCE GOES OUT OF THE AMBIT OF RULE 10B(1)(E)(II). BOTH SWAROVSKI, SOUTH KOREA AND SWAROVSKI, SINGAPORE ARE ASSOCIATED ENTERPRISES OF THE ASSESSE E AND THEIR TRANSACTIONS ARE WITH THEIR RESPECTIVE AES, THUS MA KING THEM CONTROLLED TRANSACTIONS. HENCE, THESE CANNOT BE CONSIDERED AS COMPARABLE UNCONTROLLED TRANSACTIONS. IN SO FAR AS THE CALCULA TION OF MARGIN OF 20 INDEPENDENT COMPANIES IS CONCERNED, WE FIND THAT ON E OF THEM IS SWAROVSKI SINGAPORE TRADING PTE LTD., WHOSE BUSINES S MODEL IS AGAIN SIMILAR, THEREBY MAKING IT A CONTROLLED TRANSACTION . ALL THE REMAINING 19 ARE FOREIGN COMPANIES. THE ASSESSEE DISTINCTLY PLAC ED A CHART BEFORE THE LD. CIT(A) WHICH HAS BEEN REPRODUCED ON PAGE 12 ONW ARDS OF THE ITA NOS.5621 &5496/DEL/2014 24 IMPUGNED ORDER SHOWING THAT ALL THE 19 FOREIGN COMP ANIES WERE ENGAGED IN ALTOGETHER DIFFERENT LINES OF BUSINESS, SUCH AS, SPORTS GOODS, BICYCLE SHOPS, MANUFACTURE AND TRADER OF SHOES, DRUG PROPRI ETORS AND SUNDRIES, DEALER OF RAW MATERIAL FOR CONSTRUCTION PRODUCTS, G ROCERY AND RELATED PRODUCTS, PURCHASE AND SALE OF ELECTRICAL ENERGY AN D ENGAGED IN PRODUCING WINE AND OLIVE OIL PRODUCTS, ETC., ETC. NOTWITHSTANDING THE FACT THAT THE TPO SELECTED FOREIGN COMPANIES AS COM PARABLE, EVEN SUCH COMPANIES OPERATE IN ALTOGETHER DIFFERENT LINES OF BUSINESS, WHICH CONTENTION HAS REMAINED UNCONTROVERTED ON BEHALF OF THE REVENUE. THIS ALSO DISTORTS THE CALCULATION OF ALP BY THE TPO. I N VIEW OF THE FOREGOING DISCUSSION, WE ARE NOT INCLINED TO APPROV E THE WORKING OF ALP DONE BY THE TPO UNDER THE TNMM. 6.1. NOW, WE TAKE UP THE ISSUE ABOUT THE SELECTI ON OF THE MOST APPROPRIATE METHOD BETWEEN RPM AND TNMM IN THE GIVE N FACTS AND CIRCUMSTANCES. THE LD. AR VEHEMENTLY ARGUED THAT I F THE CUP METHOD IS NOT TO BE APPLIED, THEN, THE NEXT MOST APPROPRIATE METHOD IS RESALE PRICE METHOD (RPM). THIS WAS OPPOSED BY THE LD. DR WHO C ONTENDED THAT THE ITA NOS.5621 &5496/DEL/2014 25 ASSESSEE CHARACTERIZED RPM AS NOT THE MOST APPROPRI ATE METHOD IN ITS TRANSFER PRICING STUDY REPORT AND, HENCE, NOW IT SH OULD NOT BE ALLOWED TO ARGUE CONTRARY. 6.2. WE ARE NOT INCLINED TO JETTISON THE CONTENTI ON MADE ON BEHALF OF THE ASSESSEE FOR CONSIDERATION OF RPM AS THE MOST APPRO PRIATE METHOD. THE MERE FACT THAT IN TRANSFER PRICING STUDY REPORT, TH E ASSESSEE ITSELF TREATED THIS METHOD AS NOT THE MOST APPROPRIATE METHOD, CAN NOT BE DECISIVE IN CONSIDERATION OF THE MOST APPROPRIATE METHOD. IN T HE SAME BREATH, THE ASSESSEE ALSO CHARACTERIZED THE TNMM AS NOT THE MOS T APPROPRIATE METHOD, WHICH THE TPO HAS SELECTED. WE HAVE NOTICED ABOVE THAT THE CUP TREATED BY THE ASSESSEE AS MOST RELIABLE METHOD , IS NOT REALLY RELIABLE IN THE FACTS AND CIRCUMSTANCES OF THE INST ANT CASE FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. SINCE BOT H THE TNMM AND RPM WERE TREATED BY THE ASSESSEE AS NOT RELIABLE, W E NEED TO FOCUS ON MERITS AS TO WHICH OUT OF THESE TWO IS THE MOST SUI TABLE. 6.3. WE HAVE NOTED ABOVE THE MANDATE OF THE TNMM AS PROVIDED UNDER RULE 10B(1)(E). AT THIS JUNCTURE, IT WILL BE BEFITTING TO NOTE THE ITA NOS.5621 &5496/DEL/2014 26 PRESCRIPTION OF RULE 10B(1)(B), DEALING WITH THE ME CHANISM FOR DETERMINATION OF THE ALP UNDER THE RPM, AS UNDER :- (B) RESALE PRICE METHOD, BY WHICH, (I) THE PRICE AT WHICH PROPERTY PURCHASED OR SERVICES OBTAINED BY THE ENTERPRISE FROM AN ASSOCIATED ENTERPRISE IS RESOLD OR ARE PROVIDED TO AN UNRELATED ENTERPRISE, IS IDENTIFIED ; (II) SUCH RESALE PRICE IS REDUCED BY THE AMOUNT OF A NORMAL GROSS PROFIT MARGIN ACCRUING TO THE ENTERPRISE OR TO AN UNRELATED ENTER PRISE FROM THE PURCHASE AND RESALE OF THE SAME OR SIMILAR PROPERTY OR FROM OBTAINING AND PROVIDING THE SAME OR SIMILAR SE RVICES, IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS ; (III) THE PRICE SO ARRIVED AT IS FURTHER REDUCED BY THE EXPENSES INCURRED BY THE ENTERPRISE IN CONNECTION WITH THE P URCHASE OF PROPERTY OR OBTAINING OF SERVICES ; (IV) THE PRICE SO ARRIVED AT IS ADJUSTED TO TAKE IN TO ACCOUNT THE FUNCTIONAL AND OTHER DIFFERENCES, INCLUDING DIFFERE NCES IN ACCOUNTING PRACTICES, IF ANY, BETWEEN THE INTERNATIONAL TRANSA CTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN TH E ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERI ALLY AFFECT THE AMOUNT OF GROSS PROFIT MARGIN IN THE OPEN MARKET ; (V) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUSE (IV) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PURCHASE OF THE PROPERTY OR OBTAINING OF THE SERVICES BY THE ENTERPRISE FROM TH E ASSOCIATED ENTERPRISE ; 6.4. A PERUSAL OF THE ABOVE MANDATE TRANSPIRES THAT SUB-CLAUSE (I) OF RULE 10B(1)(B) PROVIDES THAT THE PRICE AT WHICH THE GOODS PURCHASED BY ITA NOS.5621 &5496/DEL/2014 27 THE ENTERPRISE FROM ITS AE ARE RESOLD, IS IDENTIFIE D. SUCH RESALE PRICE UNDER SUB-CLAUSE (II) IS REDUCED BY THE AMOUNT OF N ORMAL GROSS PROFIT MARGIN FROM THE PURCHASE AND RESALE OF THE SAME GOO DS IN A COMPARABLE UNCONTROLLED TRANSACTION. THE PRICE SO ARRIVED AT IS REDUCED UNDER SUB- CLAUSE (III) BY THE AMOUNT OF EXPENSES INCURRED BY THE ASSESSEE AND THE PRICE SO ARRIVED AT IS ADJUSTED TO TAKE INTO ACCOUN T THE FUNCTIONAL AND OTHER DIFFERENCES BETWEEN THE INTERNATIONAL TRANSAC TION AND THE COMPARABLE UNCONTROLLED TRANSACTION, IF ANY. THE A DJUSTED PRICE SO ARRIVED UNDER SUB-CLAUSE (IV) IS TAKEN AS THE ALP I N RESPECT OF PURCHASE OF GOODS FROM THE AE. IT IS CLEAR FROM THE COMMAN D OF SUB-CLAUSE (I) ITSELF THAT THE RPM IS APPLIED WHEN THE PROPERTY PURCHASED BY THE ASSESSEE IS RESOLD AS SUCH. SUB-CLAUSE (II) FURTHER PROVIDES FOR CHOOS ING COMPARABLE CASES IN WHICH SIMILAR PROPERTY IS PURCHASED AND RESOLD . THUS IT IS APPARENT THAT THIS METHOD, BY ITS VERY L ANGUAGE, IS APPLICABLE WHERE A PROPERTY PURCHASED FROM AN AE IS RESOLD AS SUCH. WHERE, HOWEVER, SOME VALUE ADDITION IS MADE TO THE GOODS B EFORE RESALE, THE RPM CEASES TO BE AN UNFAILING METHOD. ITA NOS.5621 &5496/DEL/2014 28 6.5. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE ASSESSEE PURCHASED CRYSTAL GOODS AND CRYSTAL COMPONENTS FROM ITS AE. NO VALUE ADDITION WAS MADE TO SUCH IMPORTS. THE GOODS WERE S OLD AS SUCH. IN THE GIVEN CIRCUMSTANCES, THE RPM IS THE MOST APPROPRIAT E METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N OF `IMPORT OF CRYSTAL GOODS AND CRYSTAL COMPONENTS. 6.6. HOWEVER, IT IS SIGNIFICANT TO NOTE THAT THE FACT ABOUT A PARTICULAR METHOD APPEARING PRIMA FACIE AS THE MOST APPROPRIATE METHOD CANNOT BLOCK THE ROAD FOR DETERMINATION OF ALP OF THE INTE RNATIONAL TRANSACTION UNDER SOME OTHER METHOD, IF RELEVANT DATA FOR ITS W ORKING UNDER SUCH SEEMINGLY BEST METHOD, IS NOT PROPERLY AVAILABLE. T HE RPM TALKS OF APPLYING NORMAL `GROSS PROFIT MARGIN ARISING IN CO MPARABLE UNCONTROLLED TRANSACTIONS FROM THE PURCHASE AND RES ALE TO THE INTERNATIONAL TRANSACTION. THUS, THERE IS AN UNDERL YING PRESUMPTION THAT ALL THE RELEVANT FIGURES, INCLUDING THE AMOUNT OF ` GROSS PROFIT ON PURCHASE AND RESALE OF THE COMPARABLES, ARE EX FACIE AVAILABLE FROM THE ACCOUNTS OF SUCH COMPARABLES. IF COMPARABLES SO CH OSEN DO NOT REFLECT ITA NOS.5621 &5496/DEL/2014 29 THE GROSS PROFIT MARGIN FROM PURCHASE AND RESALE OF SIMILAR GOODS, WITHOUT ANY ALLOCATION OR TRUNCATION, THEN, THIS ME THOD LOSES ITS SIGNIFICANCE. IF SOME OF THE OTHERWISE FUNCTIONALL Y COMPARABLES MAKE AVAILABLE THE RELEVANT FIGURES WITHOUT ANY NEED TO MAKE ALLOCATION OR TRUNCATION, THEN THE NUMBER OF COMPARABLES SHOULD B E RESTRICTED TO SUCH COMPANIES. IF THERE REMAINS NO SUCH COMPARABLE HAV ING REQUISITE FIGURES FOR DETERMINATION OF GROSS PROFIT RATE FROM PURCHASE AND RESALE OF SIMILAR GOODS, OR IF THE RELEVANT FIGURES OF THE EN TERPRISE ITSELF FROM PURCHASE AND RESALE OF GOODS UNDER CONSIDERATION AR E NOT AVAILABLE, THEN, THE RPM CANNOT BE APPLIED AND IT SHOULD BE DISPENSE D WITH. IN SUCH AN EVENTUALITY, THE NEXT BEST METHOD SHOULD BE APPLIED . 7. IN VIEW OF THE FOREGOING DISCUSSION, WE SET A SIDE THE IMPUGNED ORDER ON THIS SCORE AND DIRECT THE AO/TPO TO DETERM INE THE ALP OF THE TRANSACTION OF IMPORT OF CRYSTAL GOODS AND CRYSTAL COMPONENTS, FIRSTLY, BY APPLYING THE RPM. IT IS HEREBY CLARIFIED THAT T HE MANNER OF APPLICATION OF RPM IS OPEN AT LARGE BEFORE THE TPO WHO WILL DECIDE IT IN THE WAY HE THINKS EXPEDIENT. CONTENTION OF THE LD. AR THAT THE ITA NOS.5621 &5496/DEL/2014 30 COMPARABLES SHOULD BE RESTRICTED TO THE TEN COMPANI ES WHICH IT CITED BEFORE THE LD. CIT(A) OR TWENTY COMPANIES WHICH THE LD. CIT(A) SUO MOTU CHOSE FOR MAKING TP ADJUSTMENT ON ACCOUNT OF AMP EX PENSES, CANNOT BE ACCEPTED. WE DO NOT INTEND TO ECLIPSE TH E POWER OF THE TPO BY RESTRICTING THE EXERCISE, WHICH HE HAS YET TO UN DERTAKE FOR THE FIRST TIME. IT IS FURTHER CLARIFIED THAT IF DUE TO ONE R EASON OR THE OTHER AS DISCUSSED ABOVE, SUCH A METHOD CANNOT BE APPLIED, T HEN, RESORT SHOULD BE MADE TO THE TNMM IN THE WAY ENSHRINED IN RULE 10B(1 )(E) OF IT RULES, 1962, TAKING CARE OF THE INFIRMITIES DISCUSSED ABOV E IN THE EARLIER CALCULATION MADE BY THE TPO. B. TP ADDITION OF AMP EXPENSES 8.1. DURING THE COURSE OF FIRST APPELLATE PROCEED INGS, THE LD. CIT(A) OBSERVED THAT NO TRANSFER PRICING ANALYSIS WAS DONE IN RESPECT OF THE INTERNATIONAL TRANSACTION OF ADVERTISEMENT, MARKETI NG AND PROMOTION (AMP) EXPENSES. THE ASSESSEE WAS CALLED UPON TO BE NCHMARK THIS TRANSACTION. TAKING NOTE OF BRIGHT LINE TEST AND O THER RELEVANT FACTUAL DETAILS, THE LD. CIT(A) MADE AN ADDITION OF RS.1,91 ,94,998/- TOWARDS ITA NOS.5621 &5496/DEL/2014 31 TRANSFER PRICING ADJUSTMENT ON AMP EXPENSES. THE A SSESSEE IS AGGRIEVED AGAINST SUCH ADJUSTMENT. 8.2. THE LD. AR, WITHOUT MAKING ANY ELABORATE AR GUMENTS ON THE ISSUE, CANDIDLY SUBMITTED THAT TRANSFER PRICING ADJUSTMEN T OF AMP EXPENSES IS A RECURRING ISSUE BEFORE THE TRIBUNAL AND THE VIEW CONSISTENTLY TAKEN BE ADOPTED HERE ALSO. THE LD. DR SUBMITTED THAT THE TR IBUNAL HAS BEEN RESTORING THIS MATTER TO THE FILE OF TPO FOR A FRES H ADJUDICATION IN THE LIGHT OF THE JURISPRUDENCE FROM THE HONBLE DELHI H IGH COURT ON THIS ISSUE AND SIMILAR ORDER MAY BE PASSED FOR THIS ASSE SSEE AS WELL. 8.3. ON PERUSAL OF THE ORDER OF THE LD. CIT(A), I T EMERGES THAT WHILE HOLDING AMP EXPENSES AS AN INTERNATIONAL TRANSACTIO N, HE DID NOT HAVE THE BENEFIT OF THE JUDICIAL PRECEDENTS NOW AVAILABL E FOR CONSIDERATION, IN SOME OF WHICH THE TRANSACTION OF AMP EXPENSES HAS B EEN HELD AS AN INTERNATIONAL TRANSACTION, IN OTHERS AS NOT AN INTE RNATIONAL TRANSACTIONS, WHILE STILL IN SOME OTHERS, THE MATTER HAS BEEN RES TORED FOR FRESH CONSIDERATION IN THE LIGHT OF THE JUDGMENT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) , IN ITA NOS.5621 &5496/DEL/2014 32 WHICH THE AMP EXPENSES AS AN INTERNATIONAL TRANSACT ION HAS BEEN ACCEPTED. IN ANOTHER JUDGMENT DATED 28.1.2016 OF TH E HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . (FOR THE AY 2010-11), THE QUESTION AS TO WHETHER AM P EXPENSES IS AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. THERE ARE THREE RECENT JUDGMENTS OF THE HONBLE DEL HI HIGH COURT, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . RESPECTFULLY FOLLOWING THE PREDOMINANT VIEW OF T HE HONBLE HIGH COURT, WE ARE OF THE CONSIDERED OPINION THAT I T WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ORDER IS SET ASID E AND THE MATTER IS RESTORED TO THE FILE OF TPO/AO FOR A FRESH DETERMIN ATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONAL TRANSAC TION OF AMP EXPENSES. IF THE EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTI ON IS NOT PROVED, THE MATTER WOULD END THERE AND THEN, CALLING FOR NO TRA NSFER PRICING ADDITION. ITA NOS.5621 &5496/DEL/2014 33 IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTIO N IS FOUND TO BE EXISTING, THEN THE TPO WILL DETERMINE THE ALP OF SUCH AN INTE RNATIONAL TRANSACTION IN THE LIGHT OF THE RELEVANT JUDGMENTS OF THE HONBLE HIGH COURT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. 9. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON THE ISSUE OF TRANSFER PRICING ADDITIONS TOWARDS `IMPORT OF CRYSTAL GOODS AND CRYSTAL COMPONENTS AND `AMP EXPENSES AND REMIT THE MATTE R TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF THEIR ALP IN CO NSONANCE WITH OUR ABOVE OBSERVATIONS AND DIRECTIONS. NEEDLESS TO SAY , THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. II. NON-TRANSFER PRICING ADDITIONS 10.1. NOW WE TAKE UP NON-TRANSFER PRICING GROUNDS IN THESE CROSS APPEALS. GROUND NOS. 24-27 OF THE ASSESSEES APPEA L AND ONE ADDITIONAL GROUND TAKEN BY THE ASSESSEE ASSAIL THE SUSTENANCE OF ADDITION ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS AND PROVISI ON FOR DOUBTFUL ITA NOS.5621 &5496/DEL/2014 34 ADVANCES. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE MADE PROVISION FOR DOUB TFUL DEBTS AT RS.19,08,162/- AND PROVISION FOR DOUBTFUL ADVANCES AT RS.3,43,870/-. ADDITION WAS MADE FOR A TOTAL SUM OF RS.22,52,032/- AS THESE TWO AMOUNTS , IN THE OPINION OF THE AO, WERE NOT DEDUC TIBLE. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 10.2. AT THE OUTSET, THE LD. AR CONTENDED THAT SI MILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, NAMELY, A.Y. 2003-04, IN WHICH SIMILAR ADDITIONS WERE DELETED. A COPY OF SUCH ORDER DATED 26.8.2016 IN ITA NO. 100/DEL/2011, WAS PLACED ON RECORD. ON A SPECI FIC QUERY, THE LD. AR ADMITTED THAT SIMILAR ISSUE WAS THERE IN ASSESSE ES APPEAL FOR THE A.Y. 2002-03 AS WELL, IN WHICH IT WAS DECIDED AGAIN ST THE ASSESSEE. A COPY OF SUCH ORDER DATED 21.4.2016 IN ITA NO. 3472/ DEL/2010 WAS ALSO PLACED BEFORE THE BENCH. THE LD. DR REQUESTED THAT THE VIEW TAKEN IN THE ORDER FOR THE A.Y. 2002-03 BE FOLLOWED. ITA NOS.5621 &5496/DEL/2014 35 10.3. IT IS NOTICED THAT THE ORDER FOR THE A.Y. 2002-03 DECIDING THE ISSUE AGAINST THE ASSESSEE WAS PASSED PRIOR TO THE ORDER FOR THE A.Y. 2003-04 DECIDING THE ISSUE IN FAVOUR OF THE ASSESSE E. A PERUSAL OF THE LATER ORDER DIVULGES THAT THERE IS NO WHISPER, MUCH LESS ANY REFERENCE WHATSOEVER TO THE ORDER OF THE TRIBUNAL FOR THE IMM EDIATELY PRECEDING YEAR. THE ISSUE WAS ARGUED BEFORE THE TRIBUNAL AS A NEW ISSUE IN THE PROCEEDINGS FOR THE A.Y. 2003-04 AND THE BENCH CONC URRED WITH THE VIEW CANVASSED BY THE ASSESSEE. IN THE EXTANT PROCEEDIN GS ALSO, THE ASSESSEE INITIALLY RELIED ON AND PLACED ON RECORD A COPY OF THE ORDER FOR THE A.Y. 2003-04. IT WAS ONLY ON A PERTINENT QUERY FROM THE BENCH THAT THE TRIBUNAL ORDER FOR THE A.Y. 2002-03, DECIDING SIMIL AR ISSUE AGAINST THE ASSESSEE, WAS BROUGHT TO THE KNOWLEDGE OF THE BENCH . IN ALL FAIRNESS, IT WAS THE DUTY OF THE PARTIES TO SUO MOTU PLACE A COPY OF THE EARLIER ORDER ON THE SAME ISSUE BEFORE THE TRIBUNAL DURING THE CO URSE OF THE PROCEEDINGS FOR THE A.Y. 2003-04. SIMILARLY BOTH TH E ORDERS OUGHT TO HAVE BEEN PLACED BEFORE US AS WELL WITHOUT ASKING. ITA NOS.5621 &5496/DEL/2014 36 10.4. NOTWITHSTANDING THE DIAGONALLY OPPOSITE VI EWS TAKEN IN THE ORDERS FOR THE EARLIER YEARS ON THE SAME ISSUE, WE PROCEED TO EXAMINE THE ISSUE AFRESH. PROVISIONS FOR DOUBTFUL ADVANCES DISA LLOWED BY THE AO AMOUNTS TO RS.19,08,162/-. THE LD. AR CLAIMED THAT THE AMOUNT IS DEDUCTIBLE U/S 36(1)(VII) OF THE ACT. SECTION 36(1) (VII) PROVIDES THAT: SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) THE A MOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERAB LE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR IS DEDUCTIBLE. THI S SHOWS THAT TWO CONDITIONS MUST BE SIMULTANEOUSLY SATISFIED FOR BEC OMING ELIGIBLE FOR DEDUCTION U/S 36(1)(VII). THE FIRST IS THAT THE AM OUNT SHOULD BE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSE E FOR THE PREVIOUS YEAR AND THE SECOND IS THAT THE PROVISIONS OF SUB-SECTIO N (2) OF SECTION 36 SHOULD BE COMPLIED WITH. 10.5. COMPUTATION OF THE AMOUNT OF PROVISION FOR DOUBTFUL DEBTS HAS BEEN PLACED ON PAGE C-5 OF THE PAPER BOOK. THIS IS A DETAILED PARTY-WISE AND YEAR-WISE CHART SHOWING OPENING BALANCE OF THE PROVISION FOR DOUBTFUL DEBTS, ADDITIONS DURING THE PERIOD, WRITE BACK DURING THE PERIOD, ITA NOS.5621 &5496/DEL/2014 37 OTHER INCOMES WRITTEN OFF AND CLOSING BALANCE OF TH E PROVISION. ON ENQUIRY, IT WAS STATED THAT THE ASSESSEE IS CREATIN G PROVISION FOR DOUBTFUL DEBTS AND REDUCING IT FROM THE AMOUNT OF DEBTORS FO R THE PURPOSE OF REFLECTION IN THE BALANCE SHEET. HOWEVER, THERE IS NO ACTUAL WRITE OFF OF THE AMOUNT OF THE DEBTOR IN THE BOOKS OF ACCOUNT AT THE TIME OF CREATING PROVISION. IT IS ONLY ON BECOMING THE DEBT BAD IN A LATER YEAR THAT THE PROVISION IS DEBITED AND THE ACCOUNT OF THE RESPECT IVE DEBTOR IS CREDITED. IF A PARTICULAR SUM IS RECOVERED BEFORE THE FINAL W RITE OFF, SUCH AMOUNT IS REDUCED FROM THE PROVISION. TO PUT IT SIMPLY, THE ASSESSEE HAS OPENED AN ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS WHICH IS A RUNNING ACCOUNT. EVERY YEAR FRESH PROVISION, WHEN CREATED, IS CREDIT ED TO SUCH ACCOUNT. ON MAKING RECOVERIES OR AT THE TIME OF FINAL WRITE OFF, THE PROVISION ACCOUNT IS DEBITED AND NET CLOSING BALANCE IS CARRI ED FORWARD TO NEXT YEAR. ACCOUNT OF THE DEBTOR IN RESPECT OF WHICH A P ROVISION IS CREATED STANDS AT GROSS LEVEL AND THE PROVISION SO CREATED OR ADJUSTED IS SEPARATELY KEPT UNTIL THE AMOUNT OF PROVISION IS FI NALLY WRITTEN OFF OR BACK. THIS CLARIFIES THAT THE ASSESSEE IS NOT WRITI NG OFF THE AMOUNT OF DEBT IN ITS BOOKS OF ACCOUNT AT THE TIME OF CREATION OF PROVISION. ONLY WHEN IT ITA NOS.5621 &5496/DEL/2014 38 FINDS IN A LATER YEAR THAT SOME AMOUNT IS NOT RECOV ERABLE, THE RELEVANT PORTION IS WRITTEN OFF. ERGO, IT IS PATENT THAT THE FIRST CONDITION OF WRITING OFF OF THE AMOUNT OF DEBT IN THE BOOKS OF ACCOUNT F OR THE PREVIOUS YEAR AT THE TIME OF CREATION OF PROVISION AND THE CONSEQUEN TIAL CLAIM OF DEDUCTION, IS LACKING. AS SUCH, THE ELIGIBILITY FOR DEDUCTION U/S 36(1)(VII) IS LOST. THE ASSESSEE CAN CLAIM DEDUCTION ONLY AT T HE TIME AND TO THE EXTENT OF THE AMOUNT, WHICH IS ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE DEBTOR. 10.6. THE LD. AR RELIED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT (2010) 323 ITR 166 TO BOLSTER FOR THE CLAIM OF DEDUCTION. THIS DECISION, IN OUR CONSIDERE D OPINION, IS NOT RELEVANT NOW. THE HONBLE SUPREME COURT WAS DEALING WITH A.YS. 1993-94 & 1994-95 AND IT SPECIFICALLY NOTICED THAT : ` WE MAY REITERATE THAT IT IS NOT IN DISPUTE THAT S. 36(1)(VII) OF 196 1 ACT APPLIES BOTH TO BANKING AND NON-BANKING BUSINESSES . THE STATUTORY POSITION HAS UNDERGONE CHANGE. NOW CLAUSE (VIIA) OF SECTION 36( 1) SPECIFICALLY DEALS WITH DEDUCTION : IN RESPECT OF ANY PROVISION FOR B AD AND DOUBTFUL DEBTS ITA NOS.5621 &5496/DEL/2014 39 MADE BY (A) A SCHEDULED BANK... IT PROVIDES DEDUC TION IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY BANKS SUBJECT TO CERTAIN CONDITIONS. FOR OTHER ASSESSEES, THE PROVISIONS OF CLAUSE (VII) OF SECTION 36(1) APPLY. THE ASSESSEE IS ADMITTEDLY NOT A SCHED ULED BANK AND THE LD. AR WAS FAIR ENOUGH TO CANDIDLY ACCEPT THAT THE CASE IS COVERED UNDER CLAUSE (VII) AND NOT CLAUSE (VIIA). GOING BY THE L ANGUAGE OF CLAUSE (VII) OF SECTION 36(1), AS IT STANDS FOR THE RELEVANT ASS ESSMENT YEAR, THERE CAN BE NO DEDUCTION AT THE TIME OF CREATING A PROVISION FOR DOUBTFUL DEBTS. THE LEGISLATURE HAS CLARIFIED THIS POSITION BEYOND ANY SHADOW OF DOUBT BY RETROSPECTIVELY INSERTING EXPLANATION 1 TO CLAUS E (VII) W.E.F. 1.4.1989 THAT : `FOR THE PURPOSES OF THIS CLAUSE, ANY BAD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MA DE IN THE ACCOUNTS OF THE ASSESSEE . THIS CLINCHES THE ISSUE AND CLARIFIES THE POSIT ION BEYOND AN IOTA OF DOUBT THAT A MERE PROVISION FOR DOUBTFUL DEBTS IS NOT DEDUCTIBLE IN THE CASE OF A NON-BANKING ASSESSEES. WE ARE, THEREFORE, PERSUADED TO UPHOLD THE IMPUGNED ORDER IN SO FAR AS THE DISALLOWANCE OF PROVISION FOR DOUBTFUL DEBTS IS CONCERNED. HOWEVER , IT IS CLARIFIED THAT ITA NOS.5621 &5496/DEL/2014 40 THE AMOUNT OF ACTUAL WRITE OFF DURING THE YEAR SHOU LD BE ALLOWED AS DEDUCTION. THE CHART AT PAGE C-5 OF THE PAPER BOOK SHOWS SUCH AMOUNT WRITTEN OFF AT RS.98,078/-. THE AO IS DIRECTED TO VERIFY IF SUCH AMOUNT HAS BEEN ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOU NT. IF IT IS SO, THEN, DEDUCTION SHOULD BE ALLOWED TO THAT EXTENT. AS PROV ISION FOR DOUBTFUL DEBTS IS NOT DEDUCTIBLE, CORRESPONDINGLY ITS WRITE BACK ALSO CANNOT BE BROUGHT TO TAX. THE AO IS DIRECTED TO DETERMINE ACC ORDINGLY. IT IS FURTHER CLARIFIED THAT WHILE ALLOWING DEDUCTION IN RESPECT OF BAD DEBTS ACTUALLY WRITTEN OFF AND NOT TAXING THE AMOUNT OF WRITE BACK OF THE PROVISION, THE AO SHOULD ENSURE THAT NO DOUBLE DEDUCTION GETS ALLO WED. IT HAS BEEN NOTICED ABOVE THAT THE ASSESSEE WAS ALLOWED DEDUCTI ON FOR SUCH PROVISION IN THE PROCEEDINGS FOR THE A.Y.2003-04. IN THAT VIEW OF THE MATTER, THE ACTUAL WRITE OFF OF BAD DEBTS OR WRITE BACK OF THE PROVISION, TO THE EXTENT ALREADY ALLOWED AT THE TIME OF WRITE OFF, SHOULD NOT BE DEDUCTED OR NOT TAXED ONCE AGAIN. 11.1. AS REGARDS THE PROVISION FOR DOUBTFUL ADVAN CES AMOUNTING TO RS.3,43,870/-, THE LD. AR CONTENDED THAT THIS AMOUN T REPRESENTS WRITE OFF ITA NOS.5621 &5496/DEL/2014 41 OF AMOUNT DUE FROM CUSTOMS DEPARTMENT. IT IS OBVIOU S, AS ALSO ACCEPTED BY THE LD. AR THAT IT IS THE AMOUNT OF ADVANCES WRI TTEN OFF AND NOT ANY BAD DEBTS WRITTEN OFF. UNLIKE SECTION 36(1)(VII) W HICH PROVIDES FOR DEDUCTION ON ACCOUNT OF SIMPLE WRITE OFF OF BAD DEB T SUBJECT TO THE FULFILLMENT OF CONDITIONS LAID DOWN IN SECTION 36(2 ), A WRITE OFF OF ADVANCES, FALLS IN A SEPARATE COMPARTMENT. IN ORDE R TO BE ELIGIBLE FOR SUCH A DEDUCTION, THE ASSESSEE IS PARTICULARLY REQU IRED TO PROVE THE EVENT OF OCCURRENCE OF LOSS. UNLESS THE LOSS IS PROVED T O HAVE BEEN OCCURRED, THERE CAN BE NO QUESTION OF ANY DEDUCTION. HERE IS A CASE IN WHICH THE ASSESSEE IS CLAIMING WRITE OFF OF AN AMOUNT DUE FRO M CUSTOMS DEPARTMENT. IT GOES WITHOUT SAYING THAT NO AMOUNT FROM A GOVERNMENT DEPARTMENT CAN BE CONSIDERED AS IRRECOVERABLE UNDER ANY CIRCUMSTANCE SO AS TO CHARACTERIZE IT AS A LOSS. WE, THEREFORE, FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL IN ITS ORDER FOR THE A.Y. 2002-03, UPHOLD THE DISALLOWANCE. IT IS ALSO CLARIFIED THAT A REVERSAL OF SUCH A PROVISION SHOULD NOT ATTRACT ANY TAX AS HAS BEEN DISCUSSED QUA THE PROVISION FOR DOUBTFUL DEBTS. IN THE LIKE MANNER, IT SHOULD ALSO BE ENSURED THAT THERE IS ITA NOS.5621 &5496/DEL/2014 42 NO DOUBLE DEDUCTION IN VIEW OF THE DECISION ALLOWIN G DEDUCTION AT THE TIME OF CREATION OF A SIMILAR PROVISION IN RELATION TO THE A.Y. 2003-04. 12.1. GROUND NO. 28 OF THE ASSESSEES APPEAL IS A GAINST THE CONFIRMATION OF DISALLOWANCE OF A SUM OF RS.47,47,698/- ON ACCOU NT OF MEDICLAIM PERSONAL ACCIDENTAL INSURANCE POLICY TAKEN FOR THE BENEFIT OF STAFF MEMBERS. THE AO DISALLOWED THIS AMOUNT BY TREATING IT AS A PERSONAL EXPENSE. THE LD. CIT(A) UPHELD THE DISALLOWANCE BY NOTICING THAT THE ASSESSEE PAID PREMIUM TO NATIONAL INSURANCE COMPANY LTD. AND HENCE, THE CASE FALLS U/S 36(1)(IB) OF THE ACT. SINCE THE ASSESSEE COULD NOT PROVE THAT THE INSURANCE SCHEME OF NATIONAL INSURANCE COM PANY WAS APPROVED BY IRDA, HE SUSTAINED THE DISALLOWANCE. 12.2. WE ARE UNABLE TO CONCUR WITH THE VIEW ADOPT ED BY THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE. ADMITTEDLY, INSURA NCE POLICY WAS TAKEN BY PAYING PREMIUM TO NATIONAL INSURANCE COMPANY LTD . WE FAIL TO APPRECIATE AS TO HOW THE ASSESSEE CAN BRING MATERIA L ON RECORD TO DEMONSTRATE THAT THE INSURANCE POLICY TAKEN FROM NA TIONAL INSURANCE COMPANY LTD. WAS APPROVED BY IRDA. THERE IS AN UNDE RLYING ITA NOS.5621 &5496/DEL/2014 43 PRESUMPTION THAT ALL THE NATIONALIZED INSURANCE COM PANIES FOLLOW GUIDELINES OF IRDA. IT IS TOO MUCH TO CAST SUCH A BURDEN ON THE ASSESSEE TO PROVE THAT A PARTICULAR INSURANCE POLICY TAKEN B Y IT FOR ITS EMPLOYEES FROM NATIONAL INSURANCE COMPANY LTD. WAS APPROVED B Y IRDA. SINCE THE ASSESSEE PAID PREMIUM IN RESPECT OF INSURANCE P OLICY TAKEN FOR THE BENEFIT OF ITS EMPLOYEES, THE DEDUCTION HAS TO BE A LLOWED. WE, THEREFORE, ALLOW THIS GROUND OF APPEAL. 13.1. THE ONLY OTHER GROUND WHICH SURVIVES IN THE ASSESSEES APPEAL IS AGAINST NOT ALLOWING DEPRECIATION ON FOREIGN EXCHAN GE LOSS OF RS.8,50,330/- CAPITALIZED IN THE BLOCK OF BUILDING S. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE AND SCHEDULE OF FIXED ASSETS, IT WAS OBSERVED BY THE AO THAT THERE WAS AN ADDITION IN TH E BLOCK OF `BUILDING AMOUNTING TO RS.1,45,31,376/-. THE ASSESSEE COULD PRODUCE BILLS ONLY FOR A SUM OF RS.1.10 CRORE, LEAVING A DIFFERENCE O F RS.34.47 LAC. IN THE FIRST APPEAL, THE ASSESSEE FURNISHED CERTAIN MORE B ILLS LEAVING A SUM OF RS.8,50,330/-, WHICH WAS CLAIMED AS A FOREIGN EXCHA NGE LOSS BOOKED ON ACCOUNT OF REINSTATEMENT AS ON 31.3.2004. THE LD. CIT(A) DID NOT ALLOW ITA NOS.5621 &5496/DEL/2014 44 CAPITALIZATION IN RESPECT OF FOREX LOSS AND THE CON SEQUENTIAL CLAIM FOR DEPRECIATION WAS ALSO DISALLOWED. THE ASSSESSEE IS AGGRIEVED AGAINST IT. 13.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. THE SHORT POINT IS WHETHER DEPR ECIATION CAN BE ALLOWED ON FOREX LOSS ON RETRANSLATION OF LOAN TAKE N IN FOREIGN CURRENCY FOR BUILDING. THIS DEPENDS ON ANSWER TO THE QUESTIO N AS TO WHETHER SUCH FOREX LOSS CAN BE LAWFULLY ADDED TO THE BLOCK OF `B UILDING. IT IS UNDISPUTED THAT LOAN IN FOREIGN CURRENCY WAS SPECIF ICALLY TAKEN FOR BUILDING IN INDIA, WHICH IS NOW BEING USED FOR THE BUSINESS PURPOSE. 13.3. SECTION 32(1)(I) OF THE ACT DEALS WITH ALLO WING OF DEPRECIATION. IT PROVIDES THAT DEPRECIATION IN THE CASE OF ANY BLOC K OF ASSETS, INCLUDING `BUILDINGS, SHALL BE ALLOWED AT SUCH PERCENTAGE ON THE `WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. THE TERM `WRIT TEN DOWN VALUE HAS BEEN DEFINED IN SECTION 43(6) OF THE ACT IN THE CA SE OF ANY BLOCK OF ASSETS, TO MEAN (I) IN RESPECT OF ANY PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, THE AGGREGATE OF THE WRITTEN DOWN VALUES OF ALL THE ASS ETS FALLING WITHIN THAT ITA NOS.5621 &5496/DEL/2014 45 BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YE AR AND ADJUSTED, (A) BY THE INCREASE BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEAR ; (B) BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FALLING WITHIN THAT BLOCK, WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PR EVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE, IF ANY, SO, HOW EVER, THAT THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED THE WRITTEN DOWN VALUE AS SO INCREASED. THIS PROVISION INDICATES THAT INCREASE I N THE BLOCK OF ASSETS IS ENVISAGED ONLY BY ACTUAL COST WHEN AN ASSET IS ACQUIRED DURING THE PREVIOUS YEAR. THIS BRINGS US TO CONSIDERATION OF THE CONNOTATION OF THE EXPRESSION `ACTUAL COST, WHICH, IN TURN, HAS BEEN DEFINED IN SECTION 43(1) TO MEAN `THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE , REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BE EN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. THER E ARE CERTAIN EXPLANATIONS TO THIS PROVISION AND NONE OF THEM DEA L WITH THE FOREX LOSS OR GAIN IN THE CIRCUMSTANCES AS ARE PREVAILING BEFO RE US. THEN, THERE IS SECTION 43A, WHICH CONTAINS SPECIAL PROVISIONS CONS EQUENTIAL TO CHANGES IN RATE OF EXCHANGE OF CURRENCY. THIS SECTION PROV IDES THAT : ITA NOS.5621 &5496/DEL/2014 46 `NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, WHERE AN ASSESSEE HAS ACQUIRED ANY ASSET IN ANY PREVIOUS YEAR FROM A COUNTRY OUTSIDE INDIA FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND, IN CONSEQUENCE OF A CHANGE IN THE RATE OF EXCHANGE DURING ANY PREVIOUS YEAR AFTER THE ACQUISITION OF SUCH ASSET, THERE IS AN INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE AS EXPRESSED IN IN DIAN CURRENCY (AS COMPARED TO THE LIABILITY EXISTING AT THE TIME OF A CQUISITION OF THE ASSET) AT THE TIME OF MAKING PAYMENT, (A) TOWARDS THE WHOLE OR A PART OF THE COST OF THE ASSET; OR (B) TOWARDS REPAYMENT OF THE WHOLE OR A PART OF THE MONEYS BORROWED BY HIM FROM ANY PERSON, DIRECTLY OR INDIRECTLY, IN ANY FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF AC QUIRING THE ASSET ALONG WITH INTEREST, IF ANY, THE AMOUNT BY WHICH THE LIAB ILITY AS AFORESAID IS SO INCREASED OR REDUCED DURING SUCH PREVIOUS YEAR AND WHICH IS TAKEN INTO ACCOUNT AT THE TIME OF MAKING THE PAYMENT , IRRESPECTIVE OF THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE, SHALL BE ADDED TO, OR, AS THE CASE MAY BE, DEDUCTED FROM THE ACTUAL COST OF THE ASSET AS DEFINED IN CLAUSE (1) OF SECTION 43. A CONJOINT READING OF THE ABOV E PROVISIONS DISCERNS THAT ORDINARILY IN A BLOCK OF ASSETS, THE ACTUAL CO ST OF AN ASSET FIXED ITA NOS.5621 &5496/DEL/2014 47 BEFORE PUTTING IT TO USE DOES NOT CHANGE LATER ON. BLOCK OF ASSETS INCREASES WITH THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEAR. FOREX GAIN OR L OSS EFFECTS THE COST OF AN ASSET ONLY U/S 43A AND THAT TOO W.R.T. THE TRANS LATION OF FOREIGN CURRENCY AT THE TIME OF MAKING PAYMENT. THIS SECTION APPLIES ONLY WHEN THE ASSESSEE ACQUIRES ANY ASSET IN ANY PREVIOUS YEA R FROM A COUNTRY OUTSIDE INDIA. SECTION 43A IS NOT APPLICABLE WHEN A N ASSET IS ACQUIRED FROM INDIA, ALBEIT WITH A LOAN OBTAINED IN FOREIGN CURRENCY. THUS IT IS OVERT THAT FOREX LOSS IN RESPECT OF ASSETS ACQUIRED IN INDIA CANNOT BE TREATED AS COST OF ACQUISITION SO AS TO INCREASE TH E VALUE OF BLOCK OF ASSETS FOR ENTITLING THE ASSESSEE TO DEPRECIATION. IF THE CONTENTION OF THE LD. AR IS ACCEPTED THAT SUCH INCREASE DUE TO FOREX LOSS IS CONTEMPLATED U/S 43(1) ITSELF AND THERE IS NO NEED TO APPROACH S ECTION 43A, THEN THE VERY EXISTENCE OF SECTION 43A BECOMES MEANINGLESS. PLACEMENT OF A SEPARATE SECTION 43A SHOWS THAT INCREASE IN THE ACT UAL COST DUE TO FOREX LOSS, AND THAT TOO AT THE TIME OF MAKING PAYMENT, I S NOT PERMISSIBLE BUT FOR THIS PROVISION, WHICH APPLIES ONLY TO AN ASSET ACQUIRED FROM A COUNTRY OUTSIDE INDIA ONLY. AS THE ASSESSEE ACQUIRED BUILDI NG IN INDIA, NEITHER ITA NOS.5621 &5496/DEL/2014 48 SECTION 43 NOR SECTION 43A CAN APPLY AND CONSEQUENT LY NO CAPITALIZATION OF SUCH FOREX LOSS CAN BE ALLOWED. OUR VIEW IS FORT IFIED BY THE JUDGMENT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. (2009) 31 2 ITR 254 (SC) IN WHICH THE HONBLE SUPREME COURT, NOTING THE PROVISIONS OF SECTION 43A HELD THAT : `SEC. 43(1) D EFINES ACTUAL COST FOR THE PURPOSE OF GRANT OF DEPRECIATION ETC. TO MEAN ' THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE'. TILL THE INSERTION OF THE UNAMENDED S. 43A THERE WAS NO PROVISION IN THE IT ACT FOR ADJUSTMENT OF TH E ACTUAL COST WHICH WAS FIXED ONCE AND FOR ALL, AT THE TIME OF ACQUISIT ION OF THE ASSET. ACCORDINGLY, NO ADJUSTMENT COULD BE MADE IN THE ACTUAL COST OF T HE ASSETS FOR PURPOSES OF GRANT OF DEPRECIATION FOR AN Y INCREASE/DECREASE OF LIABILITY SUBSEQUENTLY ARISING DUE TO EXCHANGE FLUC TUATION . RELIANCE OF THE LD. AR ON INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 (SC) IS MISPLACED. IN THAT CASE, IT WAS HELD THAT INTEREST ON LOAN TAKEN FOR BUSINESS IS DEDUCTIBLE, IRRESPECTIVE OF THE FACT TH AT SUCH A LOAN HAS BEEN USED FOR REVENUE OR CAPITAL PURPOSE. IT IS OBVIOUS THAT IN THAT CASE THE QUESTION WAS OF ALLOWING DEDUCTION OF INTEREST ON C APITAL BORROWED FOR BUSINESS PURPOSE AND NOT OF DEPRECIATION ON THE INC REASED VALUE OF ASSET ITA NOS.5621 &5496/DEL/2014 49 DUE TO CHANGE IN FOREIGN CURRENCY RATE AFTER ITS A CQUISITION. OBVIOUSLY, THE ASSESSEE HAS BEEN GRANTED DEDUCTION OF INTEREST ON SUCH LOAN TAKEN FOR ACQUIRING `BUILDING AND DISPUTE IS ONLY FOR DE PRECIATION ON THE AMOUNT OF FOREX LOSS CAPITALIZED BY THE ASSESSEE, W HICH ISSUE IS GOVERNED BY WOODWARD GOVERNOR (SUPRA) AND NOT INDIA CEMENTS (SUPRA) . WE, THEREFORE, HOLD THAT THE AUTHORITIES BELOW WERE JUS TIFIED IN DENYING DEPRECIATION ON INCREASE IN THE COST OF `BUILDINGS EFFECTED BY THE ASSESSEE DUE TO TRANSLATION OF FOREIGN CURRENCY LOA N AT THE END OF THE YEAR. THIS GROUND FAILS. 14.1. THE ONLY GROUND TAKEN BY THE REVENUE IN ITS APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.46,20,099/- ON ACCOUNT O F DISALLOWANCE OF ADVERTISEMENT AND PUBLICITY EXPENSES. THE ASSESSEE CLAIMED ADVERTISEMENT AND PUBLICITY EXPENSES AMOUNTING TO R S.1.93 CRORE. THE AO ALLOWED DEDUCTION FOR 1/3 RD OF THE AMOUNT BY AMORTISING IT OVER A PERIOD OF THREE YEARS. THAT IS HOW THE REMAINING AM OUNT WAS DISALLOWED. THE LD. CIT(A) DELETED THIS DISALLOWANCE. ITA NOS.5621 &5496/DEL/2014 50 14.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS A ND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSU E IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTION AL HIGH COURT IN CIT VS. CITI FINANCIAL CONSUMER FIN. LTD. (2011) 335 IT R 29 (DEL) IN WHICH IT HAS BEEN HELD THAT THE ENTIRE EXPENDITURE ON PUB LICITY AND ADVERTISEMENT IS ALLOWABLE FULLY IN THE YEAR IN WHI CH IT IS INCURRED. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR THE A.Y. 2002- 03. IT IS HOWEVER, MADE CLEAR THAT NO FURTHER DEDU CTION FOR THE REMAINING 2/3 RD OF THE TOTAL EXPENDITURE, DIRECTED TO BE ALLOWED B Y THE AO IN SUBSEQUENT TWO YEARS, BE GRANTED AS THE SAME WILL LEAD TO DOUBLE DEDUCTION. IF SUCH A DEDUCTION HAS BEEN ALLOWED, TH EN THE SAME BE ACCORDINGLY REVERSED PRO TANTO . THIS GROUND OF THE REVENUE IS NOT ALLOWED. ITA NOS.5621 &5496/DEL/2014 51 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 10.02.201 7. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 10 TH FEBRUARY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.