DCIT RG 8(3), MUMBAI V. T TWO INTERNATIONAL P. LTD, MUMBAI

ITA 5644/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7593 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L1
• Next Hearing Date: 21-01-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 08-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K BALODIA
• Assessee Lawyers: B V JHAVERI
• Keywords: Business income; Transfer pricing; International transaction; Cost of acquisition; Set aside
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L1,MUMBAI BEFORE SHRI T.R.SOOD (A.M) AND SMT. P.MADHAVI DE VI(J.M) ITA NO.5644/MUM/2008(A.Y. 2004-05) THE ACIT, RANGE 8(3), MUMBAI. (APPELLANT) VS. M/S. T.TWO INTERNATIONAL PVT. LTD. UNIT NO.GJ-7,SDF VII, SEEPZ, ANDHERI (EAST), MUMBAI 96 PAN: AABCT 1038K (RESPONDENT) ITA NO.5645/MUM/2008(.Y.2004-05) THE ACIT, RANGE 8(3), MUMBAI. (APPELLANT ) VS. M/S. TARA JEWELS EXPORTS P. LTD. G-44, GEMS & JEWELLERY COMPLEX, SEEPZ, ANDHERI (EAST) MUMBAI 400 096. PAN:AABCT 1161H (RESPONDENT) ITA NO.5646/MUM/2008(A.Y.2004-05) THE ACIT, RANGE 8(3), MUMBAI. (APPELLANT) VS. M/S. TARA ULTIMO PVT. LTD. PLOT NO.29(P)& 30(P) SUB PLOT A,SEEPZ, ANDHERI (EAST), MUMBAI 96 PAN:AABCT 3846M REVENUE BY : SHRI N.K.BALODIA RESPONDENT BY : SHRI. B.V. JHAVERI ORDER PER T.R.SOOD, A.M, THESE APPEALS FILED BY THE REVENUE ARE DIRECTED A GAINST SEPARATE ORDERS PASSED BY THE LD. CIT(A) XXXII, MUMBAI, OF EVEN DATED 11/ 03/2008, IN RESPECT OF THREE DIFFERENT ASSESSEES FOR THE ASSESSMENT YEAR 2004-05. ITA NO.5644,5645&5646/M/208 2 2. AT THE OUTSET BOTH THE PARTIES AGREED THAT IDEN TICAL ISSUE IS INVOLVED IN ALL THESE APPEALS, ONLY DIFFERENCE BEING AMOUNTS INVOLVED, T HEREFORE, ONLY ONE APPEAL MAY BE TAKEN UP TO UNDERSTAND THE FACTS AND THE CONCLUSION REACHED MAY BE APPLIED TO ALL THE THREE APPEALS. WITH THE CONSENT OF THE PARTIES WE FIRST TAKE UP ITA NO.5644/MUM/2008. IN THIS APPEAL THE REVENUE HAS R AISED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,57,26,138/- MADE BY THE T.P.O TO THE VALUE OF INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSE SSEE, WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT THE REFERENCE FOR COMPUTATION OF ARMS LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTI ON WHICH WERE LISTED IN THE DETAILED AUDIT REPORT WAS MADE BY JCIT (OSD) RANGE 8(3) MUMB AI TO ACIT TRANSFER PRICING- III,MUMBAI. A NOTICE UNDER SECTION 92CA(2) ALONG W ITH A QUESTIONNAIRE WAS ISSUED BY TRANSFER PRICING OFFICER. IT WAS FOUND THAT ASSESS EE WAS LOCATED AT SEEPZ, SEZ AND, HENCE, ENJOYED 100% TAX HOLIDAY UNDER SECTION 10A O F THE ACT. IT WAS FURTHER FOUND THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF SALE OF FI NISHED JEWELLERY TO ITS ASSOCIATE ENTERPRISES AND NON-ASSOCIATE ENTERPRISES. THE ASS ESSEE HAD CONSIDERED THE COST PLUS METHOD AS MOST APPROPRIATE METHOD. AS PER THE WORKINGS GIVEN BY THE ASSESSEE IT WAS EARNING G.P MARGIN OF 16.95% IN THE TRANSACTION S WITH UNRELATED PARTIES AS AGAINST 19.37% FROM THE RELATED PARTIES. IN VIEW OF THIS I T WAS CLAIMED THAT THE TRANSACTIONS WITH RELATED PARTIES WERE MADE AT ARMS LENGTH PRICE. 4. IT WAS OBSERVED BY TPO THAT AS PER DATA PROVIDED BY THE ASSESSEE GP/SALES HAD BEEN USED AS THE PLI. SINCE THE ASSESSEE COULD NOT PROVIDE DETAILED CALCULATION OF THE MARGIN AND, THEREFORE, STRICT COMPARABILITY WAS NOT POSSIBLE. THE TPO FURTHER OBSERVED THAT INTERNAL THIRD PARTY TRANSACTION IS FUNCTIONAL LY DIFFERENT DUE TO VARIOUS TERMS AND ITA NO.5644,5645&5646/M/208 3 CONDITIONS AND RISKS BEING DIFFERENT TO THE RELATED PARTIES TRANSACTIONS. IN VIEW OF THIS THE COST PLUS METHOD WAS REJECTED AND CONSEQUENTLY THE ARMS LENGTH PRICE AS CALCULATED BY THE ASSESSEE WAS ALSO REJECTED. ACCO RDINGLY A SHOW CAUSE NOTICE WAS ISSUED AS TO WHY TRANSACTIONAL NET MARGIN METHOD (T NMM) METHOD SHOULD NOT BE CONSIDERED AS MOST APPROPRIATE METHOD USING THE FOL LOWING COMPARABLE COMPANIES: NAME OF THE COMPANY OP/TC% C I JEWELS LTD. 1.44% DEEP DIAMOND INDIA LTD. 7.14% DIASTAR JEWELLERY LTD. 0.69% FINE JEWELLERY (INDIA) LTD. 10.92% FINE PLATINUM (INDIA) LTD. 16.34% GITANJALI JEWELS LTD. 5.88% GOLD STAR JEWELLERY LTD. 4.19% GOLDIAM INTERNATION LTD. 10.86% INTERNATIONAL GOLD CO. LTD. 1.71% MOON DIAMONDS LTD. 2.21% SHANTIVIJAY JEWELS LTD. 4.62% SHREEJI JEWELLERY LTD. 12.81% SOVEREIGN DIAMONDS LTD. 1.39% CLASSIC DIAMONDS (INDIA) LTD. 24.10% GEMPLUS JEWELLERY INDIA LTD. 2.73% SHRENJU & CO. LTD. 6.63% SU-RAJ DIAMONDS & JEWELLERY LTD. 6.14% VAIBHAV GEMS LTD. 10.66% AVERAGE 7.25% 5. IN RESPONSE TO THE ABOVE NOTICE ASSESSEE AGAIN PROVIDED THE GP CALCULATION AND CONTENDED THAT COST PLUS METHOD IS THE MOST APPROPR IATE METHOD. IT WAS ALSO ARGUED THAT THE ASSESSEE WAS MAINTAINING DETAILED COST DAT A AND THE SAME WAS RECORDED ON THE ERP SYSTEM AND THUS G.P MARGIN PROVIDED BY THE ASSESSEE WAS ACCURATE. THE TPO EXAMINED THE DATA AND REJECTED THE SAME BECAUSE DETAILED CALCULATIONS WERE NOT FURNISHED. IN THIS BACKGROUND THE ADJUSTMENT TO BE MADE IN RESPECT OF ARMS LENGTH PRICE IN CASE OF TRANSACTION WITH THE ASSOCIATED EN TERPRISES AND WAS WORKED OUT AS UNDER: ITA NO.5644,5645&5646/M/208 4 PARTICULARS ASSESSEE ARMS LENGTH MARGIN @ 7.25% SALES CONTROLLED 25,02,43,313 UNCONTROLLED 64,49,57,996 89,52,01,309 92,09,27,446 PURCHASE COST 81,32,15,805 DIRECT COST 1,76,66,6605 INDIRECT COST 2,77,71,200 TOTAL COST 85,86,73,610 85,96,73,610 NET PROFIT 3,65,27,699 6,22,53,836 6. THE ARMS LENGTH SALES AS PER THE ABOVE CALCULA TION IS DETERMINED AS RS. 27,59,69,451/- (92,01,27,446 64,49,57,996) AND TH E -5% OF THE SAME IS DETERMINED AT RS. 26,21,70,978/-. AS AGAINST THIS THE ASSESSEES ARMS LENGTH PRICE IS RS.25,02,43,313/-. 7. THE ASSESSEES TRANSACTION VALUE IS BELOW THE AR MS LENGTH PRICE AN ADJUSTMENT OF RS. 2,57,26,138/- (RS.27,59,69,451 RS. 25,02,43,313) IS BEING MADE TO ALL THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. 6. IN RESPONSE TO THE ABOVE ORDER ASSESSEE ACCEPTED THE APPLICATION OF TNMM METHOD, HOWEVER, ASSESSEE MADE AN APPLICATION FOR R ECTIFICATION UNDER SECTION 154OF THE ACT. IN THAT APPLICATION IT WAS MAINLY STATED THAT ADJUSTMENT HAS BEEN MADE ON TOTAL SALES INCLUSIVE OF CONTROLLED SALES. IT WAS POINT ED OUT THAT AS PER THE PROVISIONS OF THE ACT THE ADJUSTMENT COULD BE MADE ONLY IN RESPECT OF CONTROLLED SALES. ACCORDINGLY THE ASSESSEE SUGGESTED THE CALCULATION WHICH IS AS UNDE R:- PARTICULARS AE NON-AE TOTAL SALES 250,243,313 433,598,227 683,841,540 RATIO OF SALES 36.59% 63.41% 100% TOTAL COST 239,031,865 414,239,152 653,271,017 OPERATING PROFIT(PBIT) 11,211,448 19,359,075 30,570 ,523 OP/TC 4.69% EST.PROFIT IF OP/TC IS 7.25% 17,329,810 TP ADJ. AS PER THE ASSESSEE 61,18,362 7. THIS APPLICATION WAS REJECTED BY MAKING REFERENC E TO THE ORIGINAL ORDER AND OBSERVING THAT TPO HAS CORRECTLY FOLLOWED THE PROCE DURE FOR MAKING THE SAID ADJUSTMENT. ITA NO.5644,5645&5646/M/208 5 8. THEREAFTER AN APPEAL WAS FILED AGAINST THE REJEC TION OF APPLICATION UNDER SECTION 154. BEFORE LD. CIT(A) IT WAS MAINLY CONTENDED THA T TPO HAS APPLIED 7.25% MARGIN ON TOTAL COST OF RS. 85,86,73,610/- AND ARRIVED AT ARM S LENGTH PRICE AT RS. 92,09,27,446/-. THIS MEANS 7.25% MARGIN HAS BEEN CALCULATED ON THE TOTAL COST WHICH IS NOT PERMISSIBLE UNDER THE ACT. IT WAS FURTHER SUBMITTED THAT AT BE ST THE ADJUSTMENT COULD BE MADE AT RS.61,18,362/- AND THE CALCULATION FOR THE SAME WAS AGAIN FURNISHED. ALTERNATIVELY IT WAS ARGUED THAT IF BREAK-UP OF COST BETWEEN CONTRO LLED SALES AND UNCONTROLLED SALES WAS NOT AVAILABLE WITH THE TPO AT THE TIME OF ASSES SMENT AND HE WISHED TO APPLY 7.25% MARGIN ON CONTROLLED SALES AND ASSUMING THE C OST IS EQUAL TO SALE AND THE ASSESSEE HAS NOT MADE ANY PROFIT EVEN THEN THE ADDI TION ON ACCOUNT OF TRANSFER PRICING COULD HAVE BEEN MADE AT RS.1,81,42,640/- AND, THERE FORE, IN ANY CASE ADJUSTMENT HAS BEEN MADE EXCESSIVELY BY RS. 75,83,498/-. AGAIN VI DE LETTER DATED 10/3/2008 THE ASSESSEE SUBMITTED THAT FOLLOWING CORRECT METHOD SH OULD HAVE BEEN ADOPTED: PARTICULARS - ASSESSEE ARMS LENGTH MARGIN @ 7.25% OF CONTROLLED TRANSACTIONS. SALES CONTROLLED UNCONTROLLED PURCHASE COST DIRECT COST INDIRECT COST TOTAL COST (DISTRIBUTED IN SALES RATIO) CONTROLLED (29.50%) UNCONTROLLED (70.50%) 250,243,312 644,957,996 813,215,805 17,666,605 27,791,200 858,673,610 239,999,274 618,674,336 895,201,309 858,673,610 876,073,557 (75,86,73,610+7.25%- 23,99,99,274) NET PROFIT 36,527,699 62,253,836 ITA NO.5644,5645&5646/M/208 6 IT CAN BE OBSERVED FROM THE STATEMENT THAT THE ARMS LENGTH SALES AS PER THE ABOVE CALCULATION IS DETERMINED AT RS. 87,60,73,557/- WHI CH WAS ARRIVED AT BY APPLYING 7.25% MARGIN ON THE CONTROLLED COST OF RS. 23,99,99,274/- AND ADDING THE BALANCE UNCONTROLLED COST. THEREAFTER FROM THE TOTAL SALES CALCULATED A T RS. 87,60,73,557/- THE UNCONTROLLED SALES (I.E. SALES TO NON AES) OF RS.64,49,57,996/- HAS BEEN REDUCED THEREBY ARRIVING AT THE ARMS LENGTH SALE PRICE OF CONTROLLED TRANSACTIO NS AT RS. 23,11,15,561/- (87,60,73,557/- - 64,49,57,996/-). AS THE ASSESSEE COMPANYS VALUE OF CONTROLLED SALES IS ABOVE THE ARMS LENGTH PRICE CALCULATED ABOVE NO ADJUSTMENTS IS NECESSARY TO THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OBSERVED THAT TPO HAS DEFINITELY MADE EXCESSIVE ADJUSTMENT BECAUSE 7.25% PROFIT WAS APPLIED TO THE TOTAL COST IN RESPECT OF RELATED AND UNRELATED PARTIES. THE L D. CIT(A) ACCEPTED THE CALCULATION GIVEN BY THE ASSESSEE AND ALLOWED THE APPEAL AND OB SERVED VIDE PARA 2.7 , 2.8 AND 2.9 AS UNDER:- 2.7 FROM THE ABOVE CHART AND DISCUSSION IT IS SEEN THAT THE T.P.O HAS APPLIED 7.25% PROFIT MARGIN TO TOTAL COST AND THEN FROM THE TOTAL SALES SO DETERMINED, THE SALES TO THIRD PARTIES HAVE BEEN EXCLUDED TO ARRIVE AT THE ARMS LENGTH SALES TO AES. HOWEVER, AS PER SECTION 92C(3), THE A.O/T.P.O ARE SUPPOSED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIO NAL TRANSACTIONS (WITH THE AES) ONLY AND NOT WITH THE THIRD PARTIES ALSO. BY APPLY ING THE PROFIT MARGIN TO TOTAL COST, THE T.P.O., IN EFFECT HAS APPLIED THE PROVISIONS OF TRANSFER PRICING TO ALL THE TRANSACTIONS INCLUDING THOSE WITH THE THIRD PARTIES . HOWEVER, THE EXCESS SALE PRICE SO DETERMINED HAS BEEN ALLOCATED ONLY TO THE TRANSACTIONS WITH AES. THIS METHODOLOGY IS NOT CORRECT. 2.8 THE T.P.O WAS FIRST REQUIRED TO OBTAIN FIGURES OF SALES AND COSTS IN RESPECT OF APPELLANTS INTERNATIONAL TRANSACTIONS WITH THE AES . THEN AS PER TNMM, THE ARMS LENGTH PROFIT MARGIN OF 7.25% SHOULD HAVE BEE N APPLIED TO SUCH COST TO DETERMINE ARMS LENGTH VALUE OF SALES AND ACCORDING LY, THE ADJUSTMENT WAS REQUIRED TO BE MADE. IT IS THUS EVIDENT THAT THERE IS A MISTAKE WHICH IS APPARENT FROM THE RECORD. THE T.P.O WAS, THEREFORE, NOT JUS TIFIED IN REJECTING THE RECTIFICATION APPLICATION OF THE APPELLANT. THE CO RRECT COMPUTATION OF ARMS LENGTH PRICE TO BE CARRIED OUT IS AS UNDER:- ITA NO.5644,5645&5646/M/208 7 PARTICULARS AMOUNT EXPORT SALES TO AE 25,02,43,313 DIRECT AND INDIRECT COST INCURRED (IN SALES RATIO) 24,00,32,410 ARMSS LENGTH PROFIT MARGIN 7.25% ARMS LENGTH VALUE OF SALES TO AE 25,74,34,760 ADJUSTMENT 71,91,447 95% OF ARMS LENGTH VALUE OF SALES TO AE 24,45,63,022 2.9 FROM THE ABOVE IT IS SEEN THAT 95% OF ARMS LEN GTH VALUE OF SALES TO AE IS LESS THAN THE FIGURE OF ACTUAL SALES SHOWN IN THE B OOKS OF ACCOUNT. HENCE, IN VIEW OF THE PROVISO TO SECTION 92C(2), NO ADJUSTMEN T IS REQUIRED TO BE MADE. THE A.O IS DIRECTED ACCORDINGLY. 10. BEFORE US LD. D.R REFERRED TO PARA 4 OF THE REC TIFICATION ORDER AND POINTED OUT THAT FIGURES OF SALES GIVEN IN THE RECTIFICATION APPLICA TION ARE TOTALLY DIFFERENT FROM THE ORIGINAL FIGURES. FOR EXAMPLE THE TOTAL SALES SHOWN IN RECT IFICATION APPLICATION IS RS.68,38,41,540/-, WHEREAS ORIGINALLY SALES HAVE BE EN RECORDED BY THE TPO AT RS. 89,52,01,309/-. HE THEN REFERRED TO THE ORIGINAL T POS ORDER AND SUBMITTED THAT SINCE ASSESSEE FAILED TO GIVE THE SEPARATE FIGURES FOR GR OSS PROFIT MARGIN ON THE SALES TO RELATED AND UNRELATED PARTIES AND, THEREFORE, TPO H AD CORRECTLY CONSIDERED THE TNMM AS THE CORRECT METHOD AND, THEREFORE, THE SAME COUL D NOT BE REVIEWED IN THE GARB OF RECTIFICATION APPLICATION UNDER SECTION 154. HE AL SO REFERRED TO THE APPELLATE ORDER AND SUBMITTED THAT NO BASIS HAS BEEN GIVEN FOR DISTRIBU TION OF PURCHASE COST AND DIRECT COST BY THE ASSESSEE AND, THEREFORE, LD. CIT(A) SHOULD N OT HAVE FOLLOWED THOSE FIGURES. 11. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE ADMITTED THAT ASSESSEE HAD NOT CHALLENGED THE ORIGINAL ASSESSMENT ORDER BY WAY OF APPEAL BECAUSE THE ASSESSEE HAD ACCEPTED THE ADOPTION OF TNMM. THE ASSESSEE HAD A LSO ADMITTED THE 7.25% RATE OF MARGIN. HOWEVER, WHILE DISPUTING THE COST ETC. SO ME MINOR DIFFERENCES HAVE ARISEN AND ITA NO.5644,5645&5646/M/208 8 THEY ARE BECAUSE INVOLVEMENT OF INTEREST BECAUSE O NLY OPERATING PROFITS WERE CALCULATED BY THE TPO. IN THIS REGARD HE REFERRED TO PAGE 2 OF THE ORIGINAL ORDER PASSED UNDER SECTION 92CA(3) AND POINTED OUT THAT AT THE HEADING OF THE CHART THE TPO HAS MENTIONED OP/TC%. THIS CLEARLY SHOWS THAT TPO HA S ONLY CONSIDERED OPERATING MARGIN. HE ALSO REITERATED THE SUBMISSIONS MADE BE FORE LOWER AUTHORITIES THAT ADJUSTMENT HAS BEEN MADE ON THE TOTAL SALES WHICH I S NOT POSSIBLE. HE ARGUED THAT, THEREFORE, THERE WAS DEFINITELY AN ERROR IN THE ORD ER OF TPO AND SAME HAS BEEN CORRECTLY HELD TO BE RECTIFIABLE BY LD. CIT(A) AND ACCORDINGL Y HE STRONGLY SUPPORTED THE ORDER OF THE FIRST APPELLATE AUTHORITY. 12. IN THE REJOINDER LD. D.R INVITED OUR ATTENTION TO RULE 10B OF THE INCOME-TAX RULES, 1962, WHEREIN PROCEDURE REGARDING DETERMINATION OF ARMS LENGTH PRICE HAS BEEN DETAILED. HE PARTICULARLY REFERRED TO SUB-CLAUSE ( E), WHICH DEALS WITH TRANSACTIONAL NET MARGIN METHOD (TNMM) AND ALL CLAUSES MAKE REFERENC E TO THE NET PROFIT. HE ARGUED THAT TNMM WOULD ALWAYS INVOLVE CALCULATION OF NET PROFIT AND THERE WAS NO SCOPE FOR MAKING ANY FURTHER ADJUSTMENT. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE PARTIALLY AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THA T ORIGINAL TPOS ORDER IS DEFINITELY ERRONEOUS BECAUSE HE HAS APPLIED THE NET PROFIT MAR GIN OF 7.25% ON THE GROSS SALES AND FOLLOWED A COMPLICATED PROCEDURE TO ARRIVE AT T HE AMOUNT OF ADJUSTMENT. IN SIMPLE TERMS IF THE SALES TO ASSOCIATED ENTERPRISES IS TAK EN AT RS. 25 CRORES AND STRAIGHT WAY 7.25% MARGIN IS APPLIED THEN APPROXIMATELY TOTAL MARGIN WOULD BE RS. 1.81 CRORES, WHEREAS ADJUSTMENT HAS BEEN MADE AT RS. 2,57,26,138 /-. AT THE SAME TIME WE ARE UNABLE TO AGREE WITH THE ORDER OF LD. CIT(A) THAT N O ADJUSTMENT COULD HAVE BEEN MADE. BEFORE US LD. COUNSEL FOR THE ASSESSEE ADMITTED THA T ASSESSEE HAS NO OBJECTION THAT IF ITA NO.5644,5645&5646/M/208 9 TNMM WAS FOLLOWED AND EVEN NO OBJECTION WAS RAISE D TO THE AVERAGE PROFIT RATE OF 7.25%. HOWEVER, HE ARGUED THAT THIS RATE SHOULD BE TAKEN AS ONLY OPERATING PROFITING WHICH IS NOT CORRECT BECAUSE TRANSACTIONAL NET MA RGIN METHOD IN RULE 10B OF INCOME- TAX RULES REFERS TO ONLY NET PROFIT AND, THEREFORE, THERE IS NO SCOPE FOR REDUCING INTEREST OR ANY OTHER OVERHEADS. HERE ALSO TPO HAS AT TOP O F THE CHART WHERE AVERAGE RATE WAS CALCULATED AT PAGE 2 OF HIS ORDER REFERS TO OP/TC%. THEREFORE, IT IS NOT CLEAR WHETHER THIS MARGIN IS NET PROFIT OR NOT. SIMILARLY HOW TH E COST ETC. WAS DISTRIBUTED BY LD. CIT(A) IS NOT CLEAR BECAUSE DETAILED FIGURES ARE NOT AVAIL ABLE. THEREFORE, IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF LD. CIT(A) AND RE MIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO FOLLOW TNMM BY WORKING OUT THE AVERAGE NET PROFIT. FURTHER, THE ADJUSTMENT SHOULD BE WORKED OUT ON A VERY SIMPLE BA SIS BY REDUCING THE NET PROFIT DECLARED BY THE ASSESSEE FROM THE GROSS SALES AND T HEN DIVIDE THE SAME IN THE CONTROLLED AND UNCONTROLLED SALE AND APPLY THE NET PROFIT RATE. NEEDLESS TO SAY THAT ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF H EARING. 14. IN THE RESULT, ALL THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 23 RD DAY OF FEB.2010. SD/- SD/- (P.MADHAVI DEVI) (T.R.SOOD) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DT. 23 RD FEB.2010 ITA NO.5644,5645&5646/M/208 10 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT(A)CONCERNED 4. THE CIT,CONCERNED. 5. THE D.RL1 BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.5644,5645&5646/M/208 11 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER ITA NO.5644,5645&5646/M/208 12