GE Healthcare Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 5712/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65413 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: N VENKATARAMAN R SATISH K UMAR; SUVENI BANERJEE ARS
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Corroborative evidences; Arm length price
• Section: 92D; 92E; 234B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI I.C. SUDHIR , JM & SHRI A.N. PAHUJA, AM ITA NO.5712/DEL/2011 ASSESSMENT YEAR : 2007-08 GE HEALTHCARE PVT. LTD., VIPUL TECH SQUARE, BLOCK-C, FIRST FLOOR, GOLF COURSE ROAD, SECTOR 43,GURGAON V/S . ASSISTANT CIT, CIRCLE 12(1), NEW DELHI [PAN :AAECA 4311 P] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI N. VENKATARAMAN, R. SATISH K UMAR & MS. SUVENI BANERJEE, ARS. REVENUE BY SHRI PIYUSH JAIN, DR DATE OF HEARING 24-07-2012 DATE OF PRONOUNCEMENT 31-08-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 21-12-2011 BY THE ASSESSEE AGA INST AN ORDER DATED 25-10-2011 OF THE LD. ACIT, CIRCLE 12(1), NEW DELHI READ WITH ORDER DATED 8 TH AUGUST, 2011 OF THE DRP-I (DRP IN SHORT), RAISES T HE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. ASSESSING OFFICER ('AO') IS BAD IN LAW AND VOID AB-INITIO. 2. THE LD. AO/LD. TRANSFER PRICING OFFICER ('TPO') ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARM'S LENGTH ADJUSTMENT TO THE APPELLANT'S INTERNATIONAL TRANSACTION FROM ASSO CIATED ENTERPRISES ('AES'), THEREBY RESULTING IN THE ENHANCEMENT OF RE TURNED INCOME OF THE APPELLANT BY ` .35,499,029/-. 3. THAT THE REFERENCE MADE BY THE LD. AO SUFFERS FR OM JURISDICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED ANY REASONS IN THE DRAF T ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WA S 'EXPEDIENT AND NECESSARY' TO REFER THE MATTER TO THE LD. TPO FOR C OMPUTATION OF THE ARM'S ITA NO.5712/DEL./2011 2 LENGTH PRICE, AS IS REQUIRED UNDER SECTION 92CA(1) OF THE INCOME TAX ACT, 1961 ('ACT'). 4. THE LD. AO/LD.TPO ERRED ON FACTS AND IN LAW IN T HE ASSESSMENT OF THE ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS FROM ASSOCIATED ENTERPRISES IN THE DISTRIBUTION SEGMENT AND IN DOING SO GROSSLY ERRED IN THE FOLLOWING MANNER- 4.1 THE LD. AO/TPO/DRP ERRED ON FACTS AND IN LAW I N ONLY MAKING GENERAL STATEMENTS AND SPECIOUS REASONING, WITHOUT PROVIDIN G ANY SUPPORTING EVIDENCE, REGARDING INAPPLICABILITY OF RESALE PRICE METHOD ('RPM') FOR THE DISTRIBUTION SEGMENT AND NOT APPRECIATING THAT THES E STATED OBSERVATIONS DO NOT IMPAIR THE APPLICABILITY OF RPM IN LIGHT OF THE FACTS AND METHODOLOGY IN CASE OF THE APPELLANT. 4.1.1 THE LD. AO/TPO/LD. DISPUTE RESOLUTION PANEL ('DRP') ERRED ON FACTS AND IN LAW IN REJECTING THE ARM'S LENGTH PRICE DETERMIN ED BY THE APPELLANT FOR THE DISTRIBUTION SEGMENT UNDER THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT UNDER SECTION 92D OF THE ACT READ WITH RU LE 10D OF THE INCOME TAX RULES, 1962 AND SUBSTITUTING THE SAME WITH HIS OWN METHODOLOGY WITHOUT PROVIDING ANY COGENT EVIDENCE OR BACK UP DO CUMENTATION IN SUPPORT OF HIS STATEMENTS USED TO REJECT THE TP MET HODOLOGY ADOPTED BY THE APPELLANT. 4.2 THE LD. AO/TPO/DRP ERRED ON FACTS AND IN LAW B Y STATING, WITHOUT ANY COGENT EVIDENCE, THAT THE SEARCH PROCESS ADOPTED BY THE APPELLANT, FOR THE DISTRIBUTION SEGMENT, IN THE TP DOCUMENTATION FOR F Y 2006-07, IS DEFECTIVE. 4.2.1 THE LD. AO/TPO/DRP ERRED ON FACTS AND IN LAW BY NOT PROVIDING OR FOLLOWING A DETAILED SEARCH METHODOLOGY FOR THE ARM 'S LENGTH ANALYSIS, DEMONSTRATING CHERRY PICKING OF COMPANIES IN THE TP ORDER, THUS ALSO REFLECTING A SINGLE MINDED INTENTION OF MAKING AN A DDITION TO THE RETURNED INCOME OF THE APPELLANT. 4.2.2 THE LD. AO/TPO/DRP ERRED ON FACTS AND IN LAW BY REJECTING THE COMPARABLE COMPANIES ADOPTED BY THE APPELLANT IN TH E TP DOCUMENTATION FOR FY 2006-07 BASED ON ARBITRARY AND INCONSISTENT REASONS EVEN THOUGH THEY ARE FUNCTIONALLY COMPARABLE TO THE APPELLANT. 4.2.3 THE LD. AO/TPO/DRP GROSSLY ERRED ON FACTS AN D IN LAW BY SELECTING COMPANIES FOR THE ARM'S LENGTH ANALYSIS WHICH WERE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS E MPLOYED AND RISKS ASSUMED. ITA NO.5712/DEL./2011 3 4.2.4 THE LD. AO/DRP ERRED ON FACTS AND IN LAW BY NOT CONSIDERING B A & BROTHERS (EASTERN) LTD. AS A COMPARABLE FOR THE ARM 'S LENGTH ANALYSIS. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/DRP ERRED ON FACTS AND IN LAW IN DISREGARDIN G MULTIPLE YEAR/PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCU MENTATION AND HOLDING THAT CURRENT YEAR (I.E. FY 2006-07) DATA FOR THE CO MPARABLE COMPANIES SHOULD HAVE BEEN USED DESPITE THE FACT THAT THE SAM E WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARATION OF ITS TP DOCUMENTATION. 6. THAT THE LD. AO/TPO/DRP WAS PREJUDICED IN REJECT ING THE METHODOLOGY IN THE DISTRIBUTION SEGMENT FOR THIS FINANCIAL YEAR WH EN THE SAME WAS ACCEPTED IN THE PRIOR YEARS AND THERE WAS NO CHANGE IN FACTS AND CIRCUMSTANCES OVER THE TWO YEARS (I.E. FINANCIAL YE AR 2004-05 AND 2005- 06). 7. THAT THE LD. AO/TPO/DRP ERRED ON FACTS AND IN LA W IN APPLYING THE AMENDED PROVISION AS PER THE FINANCE ACT 2009 INSTE AD OF THE PROVISION REGARDING THE ARM'S LENGTH RANGE APPLICABLE TO THE FINANCIAL YEAR 2006-07. THE LD. AO/ TPO/ DRP ERRED IN FAILING TO APPRECIATE THAT EVEN A PRICE WHICH VARIES 5% IN EITHER DIRECTION OF THE ARITHMET IC MEAN MARGINS OF THE COMPARABLES MAY BE CONSIDERED AS AN ARM'S LENGTH PR ICE AS PER THE PROVISO 2 SECTION 92 C (2) OF THE ACT. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271 (1){C) OF THE ACT MECHANICALLY FOR FURNISHING INACCURATE PARTICULARS WITHOUT RECORDING ANY ADEQUATE SATISFACTION FOR SUCH INITIATION. 9. THAT THE LD. AO ERRED IN FACTS AND IN LAW IN CHA RGING AND COMPUTING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY ANY OF THE ABOVE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING AS WE MAY BE ADVISED. THE ARGUMENTS TAKEN HEREINABOVE ARE WITHOUT PREJUDI CE TO EACH OTHER. 2. AT THE OUTSET, GROUND NOS.1 & 2 IN THE APPEAL, BEING GENERAL IN NATURE NOR ANY SEPARATE SUBMISSIONS HAVING BEEN MAD E BEFORE US ON THESE GROUNDS, DO NOT REQUIRE ANY SEPARATE ADJUDICATION A ND ARE, THEREFORE, DISMISSED. 3. ADVERTING NOW TO GROUND NO. 3 IN THE APPEAL, F ACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN FILED ON 31.10.2007 AND SUBS EQUENTLY REVISED ON ITA NO.5712/DEL./2011 4 13.05.2008,DECLARING INCOME OF ` ` 1,60,43,430/-, WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TA X ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), ISSUED ON 16 TH SEPTEMBER, 2008. ON PERUSAL OF RETURN, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED, INTE R ALIA, THAT THE ASSESSEE ENTERED IN TO INTERNATIONAL TRANSACTIONS OF MORE THAN ` ` 15 CRORE WITH ITS A.E. ACCORDINGLY, A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICE R (T.P.O.) U/S 92 CA OF THE ACT FOR DETERMINING ARMS LENGTH PRICE[ALP] OF THE FOLLOWING INTERNATIONAL TRANSACTIONS:- NATURE OF TRANSACTION METHOD SELECTED BY THE A TOTAL VALUE OF TRANS- ACTION (IN ` `) IMPORT OF FINISHED GOODS RPM 288,269,643 PAYMENT OF ROYALTY TNMM 5,307,240 PROVISION OF SUPPORT SERVICES TNMM 3,735,371 COST REIMBURSEMENT - 605,714 3.1 THE ASSESSEE IN GROUND NO.3 QUESTIONED THE V ALIDITY OF REFERENCE TO TPO ON THE GROUND THAT THE AO DID NOT RECORD ANY REASONS IN THE DRAFT ORDER AS TO WHY IT WAS EXPEDIENT AND NECESSARY TO REFER THE MATTER TO TPO.A SIMILAR OBJECTION WAS RAISED BEFORE THE DRP AND THE FINDING S OF THE DRP READ AS UNDER: THE MATTER HAS BEEN CONSIDERED BY US. THE LAW IS CLEAR AND UNAMBIGUOUS, THAT ONCE THERE IS A TRANSACTION AS DEFINED U/S 92( 1),ARM LENGTH PRICE HAS TO BE DETERMINED. S/ 92C(3) PROVIDES THAT SUCH A PRICE CA N BE DETERMINED BY THE AO HIMSELF IN VIEW OF THE CIRCUMSTANCES SO DESCRIBED, OR HE CAN MAKE A REFERENCE TO TPO U/S 92CA(1).CBDT INSTRUCTION NO. 3/2003 I.E . ANY INTERNATIONAL TRANSACTION OVER AND ABOVE THE SPECIFIED LIMIT MUS T BE REFERRED TO TPO, A SPECIALIST ,IS BINDING ON THE AO. THE ISSUE HAS ALR EADY BEEN CONSIDERED BY DELHI HIGH COURT IN CASE OF SONY INDIA PVT. LTD. VS. CBDT ,2006-TIOL-01-HC-DEL-TP WHEREIN IT HAS BEEN HELD THAT IT IS NOT NECESSARY & EXPEDIENT TO COME TO A CONSIDERED VIEW, PRIMA FACIE OPINION THE AO IS ENOU GH TO MAKE A REFERENCE.PUNJAB & HARYANA HIGH COURT IN CASE OF CO CA COLA HAVE ALSO UPHELD ITA NO.5712/DEL./2011 5 THIS VIEW.IN THIS CASE THE AO HAS ACTED WITHIN THE PROVISIONS OF LAW AND ADMINISTRATIVE INSTRUCTIONS AND IN ACCORDANCE WITH JUDICIAL DECISION, HENCE DRP DOES NOT FIND ANY INFIRMITY IN THE ACTION AO AND RE JECTS THE OBJECTION. 4. THE LD. ARS APPEARING ON BEHALF OF THE ASSESS EE DID NOT MAKE ANY SUBMISSIONS BEFORE US ON THIS GROUND. WE FIND THAT HONBLE DELHI HIGH COURT IN SONY INDIA PVT. LTD.(SUPRA) WHILE ADJUDICATING AN IDENTICAL ISSUE HELD THAT THE INSTRUCTION ISSUED BY THE CBDT, PRESCRIBING MONETA RY LIMITS OF THE INTERNATIONAL TRANSACTION FOR MAKING REFERENCE TO TPO DOES NOT TA KE AWAY THE DISCRETION OF THE AO. IT WAS OBSERVED THAT A READING OF THE IMPUGNED INSTRUCTION INDICATES TH AT IT ACTS AS A GUIDELINE TO THE AO IN THE EXERCISE OF THE DISCRETION CONFERR ED UNDER SECTION 92CA(1). THIS INSTRUCTION IS IN FA CT HELPFUL IN ENSURING THAT THE DISCRETION OF THE AO WILL NOT BE ABUSED. IT CORRECTLY INTERPRETS THE LAW AS REQUI RING ONLY A FORMATION OF A PRIMA FACIE OPINION BY THE ASSESSING OFFICER AT THE STAGE OF THE REFERENCE. THEREFORE, THE QUESTION OF THE CBDT SUPPLANTING THE JUDICIAL DISCR ETION OF THE ASSESSING OFFICER DOES NOT ARISE. IT I S PERFECTLY POSSIBLE THAT, INDEPENDENT OF THE CIRCULA R, THE ASSESSING OFFICER MIGHT STILL 'CONSIDER IT N ECESSARY OR EXPEDIENT' TO REFER AN INTERNATIONAL TRANSACTION OF SUCH VALUE TO THE TPO FOR DETERMINATION OF THE ALP . AT THE SAME TIME, IT IS NOT AS IF THE TRANSACTIONS OF THE VALUE OF LESS THAN RS. 5 CRORES CANNOT BE REFERRED TO THE TPO BY THE ASSESSING OFFICER. ULTIMATELY, ANY EXERCISE OF DISCRETION BY THE ASSESSING OFFICER IS BOUND TO BE JUDICIALLY REVIEWED BY THE STATUTORY APPELLATE AUTH ORITIES AS WELL AS BY COURTS. THEREFORE, IT IS NOT AS IF THERE IS NO CHECK ON THE EXERCISE OF DISCRETION BY THE ASSES SING OFFICER . HONBLE PUNJAB & HARYANA HIGH COURT IN COCA COLA INDIA INC. VS. ACIT,177 TAXMAN 1 03(P&H)OBSERVED THAT ..THE VERY NATURE OF TRANSACTION BETWEEN ASSOCIAT ES COULD BE A JUST AND VALID GROUND TO SCRUTINIZE T HE TRANSACTION WITH A VIEW TO ENSURE THAT TRUE VALUE I S DECLARED IN THE TRANSACTION AND THERE IS NO MANIP ULATION OF THE PROFIT DERIVED BY A NON-RESIDENT, PARTICULAR LY WHEN NON-RESIDENT IS A MULTINATIONAL COMPANY WHI CH HAS CAPACITY TO MANIPULATE FINANCIAL TRANSACTIONS IN IT S DEALING WITH ITS OWN ASSOCIATES. IT WAS ONLY ON R EALIZATION THAT THERE MAY BE POSSIBILITY OF TRUE INCOME NOT BE ING DISCLOSED IN SUCH A TRANSACTION THAT THE ARMS LENGTH PRICE CONCEPT AND TRANSFER PRICING PROVISIONS WERE INCORPORATED IN THE LIGHT OF GLOBAL EXPERIENCE AND SUCH PROVISIONS ARE FOUND NOT ONLY IN INDIA BUT ALSO ELS EWHERE. THE ASSESSEE SUFFERS NO INJUSTICE IN ARMS LENGTH PRICE BEING DETERMINED, OBJECT OF WHICH IS ONLY TO DETERMINE FAIR PRICE OF THE TRANSACTION, WHICH ON A CCOUNT OF CLOSE RELATIONSHIP BETWEEN THE PARTIES MAY NOT BE O THERWISE DISCLOSED . IN THE LIGHT OF VIEW TAKEN IN THESE DECISIONS, ESPECIALLY WHEN THE LD. ARS HAVE N OT PLACED BEFORE US ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF T HE DRP NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISION, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.3 IN THE APPEAL IS DISMISSED. 5. ADVERTING NOW TO GROUND NOS.4 TO 7 IN THE APPE AL, ADMITTEDLY ,THE ASSESSEE IS A DISTRIBUTOR OF MEDICAL DIAGNOSTIC PRODUCTS I.E IM AGING PRODUCTS AND FOLLOWED ITA NO.5712/DEL./2011 6 RPM TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS IN IMPORT OF GOODS IN THEIR TRANSFER PRICING DOCUMENTATION. IN THE LIGHT OF AGR EEMENT WITH THEIR AES, PROVIDING INTER ALIA ,ROYALTY PAYMENT @1% OF THE NET SELLING PRICES OF PRODUCTS AND SERVICES AES, WITHOUT COMPENSATING THE ASSESSEE FOR MOST OF THE TANGIBLE EFFORTS MADE BY THE ASSESSEE TO PROMOTE AND SELL GOODS OF THE AES I N INDIA WHILE THE ASSESSEE IN THEIR TRANSFER PRICING STUDY USED MULTIPLE YEAR S DATA AND CONSIDERED COMPANIES DEALING IN PHOTOGRAPHIC OR CINEMATOGRAPH IC GOODS; CONTROL INSTRUMENTATION & INDUSTRIAL ELECTRONICS ETC.AND F UNCTIONAL PROFILE OF THESE COMPANIES REVEALED THAT M/S ANKURAN CHEMICAL ENTERP RISES LTD.;KPL INTERNATIONAL LTD.;PARRY CHEMICALS; PH TRADING LTD. WERE TRADING IN CHEMICALS AND THUS, THESE COMPANIES, WERE APPARENTLY NOT FUNC TIONALLY COMPARABLE ,THE TPO, IN THE LIGHT OF SEARCH CONDUCTED ON THE PROWE SS DATA BASE USING DRUGS AND FORMULATIONS CATEGORY ,IDENTIFYING FIVE COMPA NIES AS MENTIONED ON PAGE 5 OF HIS ORDER, SHOWCAUSED THE ASSESSEE AS TO WHY RPM BE NOT REJECTED AND TNMM BE FOLLOWED ,USING OP/SALES AS PLI IN ORDER TO DETERMINE ALP OF THE AFORESAID INTERNATIONAL TRANSACTIONS. AFTER CONSID ERING THE REPLY OF THE ASSESSEE, THE TPO SUMMED UP THE CONTENTIONS OF THE ASSESSEE ON USE OF MULTIPLE YEAR DATA AS UNDER:- I) THE TAXPAYER HAS USED MULTIPLE YEAR DATA ON THE PRETEXT THAT USING SINGLE YEAR DATA OF COMPARABLE COMPANIES MAY NOT AD EQUATELY CAPTURE THE ECONOMIC CONDITIONS AND BUSINESS CYCLES REFLECT ED IN THE INDUSTRY. II) AS PER THE TAX PAYER, RULE 10B(4) PERMITS USE O F EARLIER YEAR DATA. III) THE TAX PAYER HAS QUOTED OECD GUIDELINES AND S TATED THAT THESE GUIDELINES SUPPORT THE VIEW OF THE TAXPAYER IN USIN G THE MULTIPLE YEAR DATA WHICH IS AN INTERNATIONALLY ACCEPTED PRACTICE. IV) THE TRANSFER PRICE POLICIES ARE DETERMINED BASE D ON THE HISTORICAL DATA, THE SAME HAS AN INFLUENCE ON THE TRANSFER PRICES OF THE TRANSACTIONS BEING COMPARED. V) IT IS ARGUED THAT CURRENT YEAR DATA WAS NOT AVAI LABLE WHILE PREPARING THE TP DOCUMENTATION. ITA NO.5712/DEL./2011 7 VI) THE TAXPAYER HAS REFERRED TO RULE 10D(4) WHICH SAYS THAT CONTEMPORANEOUS DATA SHOULD BE USED. 5.1. HOWEVER, THE TPO DID NOT ACCEPT THE AFORESAID SUBMISSIONS WHILE OBSERVING THAT THE ASSESSEE HAVING SELECTED TNMM M ETHOD ALSO, THE OPERATING MARGIN OF THE ASSESSEE HAS TO BE COMPARED WITH THE OPERATING MARGINS OF COMPARABLE COMPANIES. WHILE REFERRING TO RULE 10B( 4) OF RULE 1962 AND THE ASSESSEE HAVING NOT FURNISHED ANY DETAILS AS TO HO W EARLIER YEAR DATA HAD AN IMPACT OF THE PROFITS OF THE CURRENT FINANCIAL YEAR OR THAT OF THE COMPARABLES, THE TPO CONCLUDED THAT IT WAS MANDATORY TO USE CURRENT YEAR DATA AND THE TPO IS EMPOWERED TO DETERMINE THE ALP BY USING THE CURRENT YEAR DATA AVAILABLE AT THE TIME OF TRANSFER PRICING PROCEEDINGS AND TO CONDUCT THE COMPARABILITY ANALYSIS BY USING SUCH DATA. INTER ALIA, THE TPO RELIED UPON D ECISIONS IN MENTOR GRAPHICS AND HONEYWELL AUTOMATION INDIA LTD. VS. DCIT, CUSTO MER SERVICES (INDIA) P. LTD. VS. ACIT (2009-TIOL-424-ITAT-DEL); CIT VS. DENSO HA RYANA PVT. LTD.,2009- TIOL-696-HC-DEL-IT; SCHEFENACKER MOTHERSON LTD. VS. INCOME-TAX OFFICER,2009-TIOL-376-ITAT-DEL; GLOBAL VANTEDGE PVT . LTD. VS. DCIT,2010- TIOL-24-ITAT-DEL) AND ALSO REFERRED TO THE OECD GUI DELINES WHILE REJECTING THE CLAIM OF THE ASSESSEE FOR USE OF DATA OF THE FYS 20 04-05 & 2005-06,. 6. THE ASSESSEE IN GROUND NO. 5 HAS RAISED THE ISSUE OF MULTIPLE YEAR DATA ON THE GROUND THAT THE DATA FOR CURRENT YEAR WAS NO T AVAILABLE AT THE TIME OF PREPARATION OF TRANSFER PRICING DOCUMENTATION. A SI MILAR OBJECTION WAS RAISED BEFORE THE DRP. THE OBJECTION OF THE ASSESSEE HAS B EEN DEALT WITH BY THE DRP IN THE FOLLOWING TERMS: IN ACCORDANCE WITH RULES UPDATED CURRENT YEAR MARG INS WERE USED BY TPO, HENCE THERE IS NO INFIRMITY IN HIS ACTION. 7. THE LD. ARS APPEARING ON BEHALF OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS BEFORE US ON THIS GROUND. WE FIND THAT TPO REFERRED TO A NUMBER OF DECISIONS IN HIS SUPPORT WHILE CONCLUDING THAT IT WAS MANDATORY TO USE CURRENT ITA NO.5712/DEL./2011 8 YEAR DATA WHILE DETERMINING ALP OF THE AFORESAID I NTERNATIONAL TRANSACTIONS. IN THIS CONNECTION, HONBLE JURISDICTIONAL HIGH COURT IN DENSO HARYANA PVT. LTD.(SUPRA) HELD THAT THE APPROACH OF CIT (APPEALS) IS PERFECTLY JUSTIFIE D AS THE ASSESSING OFFICER HAD COME TO THE CONCLUSION THAT THE PRICE AT WHICH THE GOODS WERE IMPORTED WERE HIGHER BY COMPARING TH E PRICE WITH THE PRICE IN THE LOCAL MARKET WHICH PREV AILED IN THE SUBSEQUENT YEARS. THE ASSESSING OFFICE R WAS REQUIRED TO COMPARE THE SAID PRICE WHICH PREVAILED IN THE LOCAL MARKET IN THE SAME YEAR. THE ISSUE RELATING TO USE OF CURRENT YEAR DATA IS WELL SETTLE D NOW IN VIEW OF A NUMBER OF DECISIONS REFERRED TO BY THE TPO IN HIS ORDER, INCL UDING THE DECISION OF BANGALORE BENCH IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SE RVICES LTD. AND APPROVED BY THE HONBLE KARNATAKA HIGH COURT IN 23 TAXMANN.C OM413(KAR). IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS, ESPECIALLY W HEN THE LD. ARS HAVE NOT PLACED BEFORE US ANY MATERIAL, ESTABLISHING AS TO H OW EARLIER YEARS DATA WOULD HAVE IMPACT ON THE PROFITABILITY OF THE ASSESSEE FO R THE CURRENT FINANCIAL YEAR OR THAT OF THE COMPARABLES NOR EVEN ATTEMPTED TO CONTR OVERT THE AFORESAID FINDINGS OF THE DRP AND NOR BROUGHT TO OUR NOTICE ANY CONTR ARY DECISION, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.5 IN TH E APPEAL IS DISMISSED. 8. AS REGARDS RPM FOLLOWED BY THE ASSESSEE, THE TP O OBSERVED THAT THE ASSESSEE DID NOT GIVE THEIR SPECIFIC COMMENTS IN RESPONSE TO A SHOWCAUSE NOTICE ISSUED BY HIM, PROPOSING TO REJECT RPM AND A PPLY TNMM. SINCE THE EXPENSES ON ACCOUNT OF GSA INCLUDED SELLING, MARKE TING, ADVERTISEMENT, PROMOTION AND PRODUCT LAUNCH COST, WERE NOT CAPTUR ED AT THE GROSS LEVEL, THE TPO WAS OF THE OPINION THAT TNMM AND NOT RPM WAS TH E MOST APPROPRIATE METHOD. WHILE EXPLAINING THE RPM PRESCRIBED IN RULE 10B(1)(B) OF THE IT RULES 1962, THE TPO OBSERVED THAT FOR APPLICABILITY OF TH IS METHOD ,ONE HAS TO ASCERTAIN THE FUNCTIONS PERFORMED BY THE TESTED PARTY BEFORE IT RESOLD THE PROPERTY AND ALSO THE COST INCURRED FOR PERFORMING THESE FUNCTIONS. I N THE LIGHT OF VARIOUS FACTORS MENTIONED ON PAGE 18 TO 20 OF HIS REPORT, TPO DISC ARDED THE RPM AND ADOPTED THE TNMM AS THE MOST APPROPRIATE METHOD TO DETERMIN E ALP OF THE INTERNATIONAL TRANSACTION ENTERED INTO WITH ITS A.ES. BY THE ASSE SSEE. CONSEQUENTLY, FOLLOWING TNMM,. THE TPO SUGGESTED ADJUSTMENT U/S 92CA OF THE ACT ,WHICH FORMED THE BASIS FOR ADDITION IN THE DRAFT ORDER. ITA NO.5712/DEL./2011 9 9. THE ASSESSEE IN GROUND NOS. 4.1 & 4.1.1 QUE STIONED THE REJECTION OF RPM METHOD. A SIMILAR OBJECTION WAS ALSO TAKEN BEFORE T HE DRP. THE FINDINGS OF THE DRP READ AS UNDER: 4.1.1 THE LD AO/TPO ERRED ON FACTS AND IN LAW IN ONLY MAKING GENERAL STATEMENTS, WITHOUT PROVIDING ANY SUPPORTIN G EVIDENCES, REGARDING INAPPLICABILITY OF RESALE PRICE METHOD (R PM) FOR THE DISTRIBUTION SEGMENT AND NOT APPRECIATING THAT THES E STATED OBSERVATIONS DO NOT IMPAIR THE APPLICABILITY OF RPM IN LIGHT OF THE FACTS AND METHODOLOGY IN CASE OF THE ASSESSEE. DRP'S OBSERVATION WE FIND THAT ASSESSEE HAD MADE FOLLOWING ARGUMENTS. THE TPO, TO REJECT RPM, HAS ALSO CONTENDED THAT THERE IS NO UNI FORMITY IN REGARD TO ACCOUNTING METHODS OF COMPUTING GROSS MARGINS. I N THIS REGARD, IT IS SUBMITTED THAT IT IS TRUE THAT THERE EXISTS A DIFFICULTY IN COMPUTING GROSS MARGIN. HOWEVER, THAT IS ONLY IN CASE OF MANU FACTURING ENTITIES, BECAUSE THEREIN IT BECOMES DIFFICULT TO E XTRACT INFORMATION ACCURATELY ON DIRECT VS. INDIRECT COSTS OF PRODUCTI ON OF COMPARABLE COMPANIES, FOR EXAMPLE WAGES AND SALARIES ARE NOT S EGREGATED AS THOSE FOR EMPLOYEES ENGAGED IN PRODUCTION AND OTHER EMPLOYEES. THE DIFFICULTY ARISES BECAUSE SUCH INFORMATION IS N OT PUBLICLY AVAILABLE AS IT IS NOT DISCLOSED IN THE FINANCIAL S TATEMENTS OF COMPANIES. IT IS EMPHATICALLY SUBMITTED THAT THIS DIFFICULTY D OES NOT EXIST IN CASE OF DISTRIBUTION/TRADING ENTITIES WHEREIN THERE IS N O VALUE ADDITION, AND THERE IS ONLY PURCHASE OF FINISHED GOODS AND RE SALE THEREOF. IT MAY BE RECALLED THAT THE ASSESSEE IS ALSO A RESELLE R THAT DOES NOT MAKE ANY VALUE ADDITION TO THE PRODUCTS PURCHASED A ND RESOLD. TPO STATED THAT TNMM AND NOT RPM SHOULD HAVE BEEN A DOPTED FOR ESTABLISHING THE ARM'S LENGTH PRICE ADOPTED BY GE H EALTHCARE INDIA FOR THE DISTRIBUTION DIVISION. TPO IN HIS ORDER CON TENDED THAT: A) THE EXPENSES THAT THE ASSESSEE HAS INCURRED ON A CCOUNT OF GENERAL SELLING AND ADMINISTRATIVE EXPENSES WILL NO T BE CAPTURED AT THE GROSS LEVEL. B) WHILE LESS COMPARABILITY MAY BE REQUIRED IN USI NG RPM, IT REMAINS THE CASE THAT CLOSER COMPARABILITY OF PRODUCTS WILL PRODUCE A BETTER RESULT. ITA NO.5712/DEL./2011 10 C) IN APPLICATION OF RPM, LEVELS OF INVENTORIES AN D COSTS INVOLVED NEED TO BE ADJUSTED WHICH MAY NOT BE POSSIBLE BASED ON INFORMATION AVAILABLE IN THE PUBLIC DOMAIN. D) IN APPLICATION OF RPM, LEVEL OF ACTIVITIES AND FUNCTION INCLUDING MARKETING, ADVERTISING, DISTRIBUTION, DIFFERENCES O N ACCOUNT OF MANAGEMENT EFFICIENCY NEED TO BE ADJUSTED FOR E) THE RESALE PRICE MARGIN SHOULD ALSO BE EXPECTED TO VARY BASED ON WHETHER THE RESELLER HAS THE EXCLUSIVE RIGHT TO RES ELL THE GOODS F) IF THE TESTED PARTY IS DEALING IN BRANDED GOODS , THE COMPARABLE SHOULD ALSO BE DEALING IN BRANDED GOODS G) ACCOUNTING TREATMENT OF THE TAXPAYER AND COMPAR ABLE COMPANIES IN RESPECT OF CERTAIN DIRECT EXPENSES LIKE DISCOUNT S MAY DISTORT THE GROSS MARGIN H) ACCOUNTING CONSISTENCY IS TO BE ENSURED WHILE C OMPUTING THE GROSS MARGINS. DRP CONCURS WITH TPO'S ANALYSIS AND ARGUMENTS. 10. THE LD. ARS APPEARING ON BEHALF OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS BEFORE US ON THIS GROUND NOR REFERRED B EFORE US ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF THE DRP/TPO . IN THE ABSENCE OF ANY BASIS, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUNDS RELATING TO REJECTION OF RPM INCLUDING GROUND NOS. 4.1 & 4.1.1 ARE DISMISSE D 11. NOW ADVERTING TO REMAINING GROUNDS RELATING TO APPLICABILITY OF TNMM AND IDENTIFICATION OF COMPARABLES, WE FIND THAT AFTER REJECTION OF METHOD FOLLOWED BY THE ASSESSEE, THE TPO IDENTIFIED THE COMPARABLES IN THE PROVOST DATA BASE, APPLIED RPT[RELATED PARTY TRANSACTION] FILTER OF 25 % AND EXCLUDED GENTECH LABORATORIES LTD. FROM THE LIST OF IDENTIFIED COMPA NIES WHILE REFERRING TO DECISION IN M/S AZTECH SOFTWARE SOFTWARE & TECHNOLOGY SERVIC ES LTD V. ASSTT. CIT [2007] 107 ITD 141 (BANG.) &SONY INDIA (P) LTD. VS. DCIT,1 14 ITD 448(DEL.) AND OBSERVED THAT THE ASSESSEE ITSELF ADOPTED TNMM WITH ENTERPRISE LEVEL PROFITS TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS . THE TPO FURTHER POINTED OUT THAT THE ASSESSEE OBJECTED TO THE INCLUSION OF FOUR COMPANIES VIZ. MANKIND PHARMA LTD., NOVARTIS INDIA LTD., TTK HEALTHCARE LT D. AND COSME FARMA LABORATORIES LTD. DUE TO PRESENCE OF BRAND AND DIV ERSIFIED PRODUCT RANGE. FINALLY, THE TPO DEALT WITH THE ISSUE AS UNDER:- ITA NO.5712/DEL./2011 11 3.5 PRESENCE OF BRAND/ADVERTISEMENT EXPENSES/R&D E XPENSES THE ASSESSEE HAS RAISED THE ISSUE OF PRESENCE OF BR AND IN THE FOLLOWING CASES (I) NOVARTIS INDIA LTD. (II) MANKIND PHARMA LTD. (III) TTK HEALTHCARE LTD. (IV) COSME FARMA LABORATORIES LTD. THE ASSESSEE HAS OBJECTED TO THE USE OF THESE COMPA RABLES ON THESE GROUNDS. THE ASSESSEE SEEMS TO BE UNMINDFUL O F THE FACT THAT TNMM WAS CHOSEN AS THE METHOD OVER RPM BECAUSE IT WAS FOUND FROM THE DOCUMENTS SUBMITTED BY IT THAT THE A SSESSEE WAS ALSO INVOLVED IN MARKETING, SELLING AND BRAND BUILD ING. THE ASSESSEE IS PAYING ROYALTY OF RS.53 LAKHS TO ITS AE FOR USE OF THE GE MONOGRAMS AND TRADEMARKS. THEREFORE IT IS NOT FO R THE ASSESSEE TO OBJECT TO THE USE OF COMPARABLES ON THI S GROUND. THE ASSESSEE MUST APPRECIATE THAT ALL THESE COMPARABLES HAVE PASSED THE RPT FILTER DISCUSSED EARLIER IN THIS ORDER. THE REFORE, THE GROUNDS RAISED BY THE ASSESSEE DO NOT HAVE THE FORCE TO COM PEL ONE TO ABANDON THE USE OF THESE COMPANIES AS COMPARABLES. THE ASSESSEE IS ALSO ENJOYING THE BENEFIT OF THE GE BRA ND. IN FACT, DESPITE THE PRESENCE OF BRAND STRENGTH THAT THE ASS ESSEE CLAIMS FOR WHICH IT WOULD JUSTIFY THE PAYMENT OF ROYALTY, THE ASSESSEE'S NET MARGIN IS BELOW THAT OF THE COMPARABLES CHOSEN BY I T ALSO. THEREFORE, THIS LEADS TO THE CONCLUSION THAT THE PA YMENT OF ROYALTY IS NOT PROVIDING ANY BENEFIT TO THE ASSESSEE. IF IT IS THE ASSESSEE'S CLAIM THAT THE COMPARABLES USED BY THIS OFFICE ARE ABLE TO COMMAND A HIGHER MARKET PRICE BECAUSE OF THE BRAND, MARKETI NG EXPENSE INCURRED OR THE R&D EXPENSES INCURRED, THE ASSESSEE SHOULD HAVE BEEN ABLE TO MIMIC THEIR BEHAVIOUR GIVEN THE BRAND STRENGTH THAT IT CLAIMS TO HAVE AND THE MARKETING EXPENSES THAT IT I NCURS. HENCE, THE WAY THE ASSESSEE HAS STRUCTURED ITS TRANSACTION S WITH ITS AE IS DEFINITELY NOT AT ARM'S LENGTH. NEVERTHELESS AN EXERCISE WAS CARRIED OUT TO STUDY T HE R&D, MARKETING AND ADVERTISEMENT EXPENSES MADE BY THESE COMPARABLES. THE FIGURES HAVE BEEN TAKEN FROM THE D ETAILS PROVIDED IN THE ANNEXURE TO THE REPLY MADE BY THE A SSESSEE TO THE SHOW CAUSE NOTICE. THE RESULTS ARE TABULATED BELOW. (AMOUNTS IN INR) ITA NO.5712/DEL./2011 12 {EXCEPT NOVARTIS INDIA WHERE AMOUNT IS IN '000} NAME R&D/ADVERTISING/MARKETI NG EXPENSES TOTAL SALES MKTG/SALES (%) OP/SAL ES(%) R& D ADVERTISING MARKET ING MANKIND PHARMA LTD. 0 309172757 0 309,172757 4913810971 6.29 14.25 NOVARTIS INDIA LTD. 0 485745 0 485,745 5,422,370 8.95 16.07 TTK HEALTHCAR E 0 190734265 0 190734265 2111389028 9.03 1.62 (ENTITY LEVEL) COSME FARMA LABORATORI ES LTD. 0 6110539 0 6110539 1252472171 0.48 3.32 IT CAN BE SEEN THAT THERE IS NO CORRELATION BETWEEN THE MARKETING EXPENSE, THE SALES MADE AND THE FINAL MARGIN EARNED BY THE COMPANY. HENCE, THE ARGUMENT PUT FORWARD BY THE ASS ESSEE CANNOT BE MADE A GROUND FOR REJECTING ANY COMPARABL E. 11.1 AS REGARDS OBJECTIONS RAISED ON BEHALF OF THE ASSESSEE IN RESPECT OF DIVERSIFIED PRODUCT RANGE OF COSME FARMA LABORAT ORIES LTD., NAVARTIS INDIA LTD., AND TTK HEALTHCARE LTD., THE TPO CONCLUDED AS UNDER:- 3.6 DIVERSIFIED PRODUCT RANGE THE ASSESSEE HAS RAISED THIS GROUND IN RESPECT OF T HE FOLLOWING COMPARABLES. (I) COSME FARMA LABORATORIES LTD. (II) NOVARTIS INDIA LTD. (III) TTK HEALTHCARE LTD IN THE CASE OF TTK HEALTHCARE LTD THE ASSESSEE HAS CLAIMED THAT THE COMPANY HAS A DIVERSIFIED PRODUCT RANGE INCLUDI NG MEDICAL DEVICES AND CONSUMER PRODUCTS. AFTER GOING THROUGH THE ANNUAL REPORT OF THE COMPANY, THE OBJECTION OF THE ASSESS EE IS ATTENDED TO ITA NO.5712/DEL./2011 13 BY ADOPTING THE PHARMACEUTICAL DIVISION OF THIS COM PANY AS COMPARABLE. THE OP/SALES MARGIN OF THIS SEGMENT IS WORKED OUT BELOW. SEGMENT REVENUE : RS.8608.15 LAKHS SEGMENT COST : RS.7471.44 LAKHS ADD: UNAL1OCATED EXP. : (IN PROPORTION OF TURNOVER-40%) : RS.16 2.88 LAKHS TOTAL SEGMENT COST : RS.7634.32 LAKHS SEGMENT RESULT : RS.973.83 LAKHS OP/SALES (%) : 11.31% IN THE CASE OF COSME FARMA LABORATORIES LTD THE ASS ESSEE HAS STATED THAT THE COMPANY HAS DIFFERENT PHARMA PRODUC TS. THE ASSESSEE MUST UNDERSTAND THAT THESE OBJECTIONS DO N OT TAKE THIS COMPANY OUT OF THE SET OF PHARMA COMPANIES. IN THE CASE OF NOVARTIS INDIA LTD, THE ASSESSEE HAS STATED THAT THE ASSESSEE HAS SOME EXPENSES IN THE NATURE OF MANUFAC TURING ACTIVITIES. HOWEVER, THE ANNUAL REPORT SHOWS THAT T HE COMPANY IS TRADING IN GOODS. THERE IS NO SEPARATE MANUFACTURIN G SEGMENT REPORTED. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO BR ING THIS OUT. THEREFORE, THE COMPANY DOES NOT GET DISQUALIFIED ON THIS GROUND. 4. THE OBJECTIONS THAT THE ASSESSEE HAS RAISED AGAI NST THE COMPARABLES SOUGHT TO BE FINALLY USED ARE TABULATED BELOW. THIS IS AS PER THE SUMMARY AT PAGE 9 OF THE ASSESSE E'S REPLY. S.NO. NAME OF COMPARABLES OBJECTIONS RAISED BY ASSESSEE 1 COSME FARMA LABORATORIES LTD. 1) DIVERSIFIED PRODUCT RANGE 2) ADVERTISEMENT EXPENSE 3) R&D EXPENSE 2 MANKIND PHARMA LTD. 1) PRESENCE OF BRAND 2) DIVERSIFIED PRODUCT RANGE 3) TPT 3 NOVARTIS INDIA LTD. 1) PRESENCE OF BRAND 2) RPT 4 TTK 1) PRESENCE OF BRAND ITA NO.5712/DEL./2011 14 HEALTHCARE LTD. 2) DIVERSIFIED PRODUCT RANGE 3) RPT FILTER IN THE PRECEDING PARAS OF THIS ORDER ALL THESE POIN TS HAVE BEEN MET. ACCORDINGLY THESE FOUR COMPANIES SHALL BE USED AS C OMPARABLES. IN THE CASE OF TTK HEALTHCARE LTD SEGMENTAL DATA SHALL BE USED AS DISCUSSED EARLIER. 11.2. ACCORDINGLY, REJECTING THE CONTENTIONS OF TH E ASSESSEE REGARDING +/- 5% SAFE HARBOR AND ASSESEES RESULTS HAVING BEEN ACCEP TED IN EARLIER YEARS, THE TPO SUGGESTED ADJUSTMENT OF ` ` 35,499,029/- AS UNDER:- 7. FOLLOWING THE DISCUSSIONS IN THE PRECEDING PAR AS THE COMPARABLES THAT SHALL BE USED ARE AS BELOW:- S.NO. COMPANY NAME OP/SALES(%) 1 COSME FARMA LABORATORIES LTD. 3.32 3 MANKIND PHARMA LTD. 14.25 4 NOVARTIS INDIA LTD. 16.07 5. T.T.K. HEALTHCARE LTD. (SEG.) 11.31 AVERAGE 11.23 CALCULATION OF ARMS LENGTH PRICE OPERATING PROFIT @11.23% : `47,660,547 OPERATING PROFIT SHOWN : `12,161,518 ARMS LENGTH COST : `304,598,691 COST OF GOODS SHOWN : `340,097,720 ADJUSTMENT U/S 92CA : `35,499,029 THE ARMS LENGTH PRICE OF COST OF GOODS IS DETERMINE D AT `304,598,691/- AS AGAINST `340,097,720/- DETERMINED BY THE ASSESSEE. THE COST OF GOODS MUST BE REDUCED BY `35 ,499,029/- BRING IT TO ARMS LENGTH. THE ASSESSING OFFICER SHA LL ACCORDINGLY ENHANCE THE INCOME OF THE ASSESSEE BY `35,499,029. THE ITA NO.5712/DEL./2011 15 ASSESSEE SHALL NOT GET THE BENEFIT OF THE PROVISO O F SECTION 92C(2) AS THE DIFFERENCE DETERMINED IS MORE THAN 5% OF THE VALUE OF INTERNATIONAL TRANSACTION. 11.3 ON THE BASIS OF AFORESAID ADJUSTMENTS SUGGEST ED BY TPO, THE AO FORMULATED A DRAFT ASSESSMENT ORDER DATED 24 TH DECEMBER, 2010.HOWEVER, THE ASSESSEE DID NOT ACCEPT THE FINDINGS OF THE AO IN T HE DRAFT ASSESSMENT ORDER AND RAISED A NUMBER OF OBJECTIONS BEFORE THE DRP. 12. AS REGARDS SELECTION OF MOST APPROPRIATE METHO D AND METHODOLOGY ADOPTED BY THE ASSESSEE AND THE TPO, THE DRP DEALT WITH THESE ISSUES AS UNDER:- 4.1 THE AO/TPO ERRED ON FACTS AN IN LAW IN REJECTI NG THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR THE DISTRIB UTION SEGMENT AND SUBSTITUTING THE SAME WITH HIS OWN METHODOLOGY WITHOUT PROVIDING ANY EVIDENCE OR BACK UP DOCUMENTATION IN SUPPORT OF HIS STATEMENTS USED TO REJECT THE TP METHODOLOGY ADOPTE D BY THE ASSESSEE. DRP'S OBSERVATION THE ASSESSEE HAS ARGUED THAT THE TPO HAS NOT PROVID ED ANY COGENT REASONS FOR NOT ACCEPTING THE SEARCH STRATEG Y ADOPTED BY THE ASSESSEE IN THE FY 2006-07 TP DOCUMENTATION. IN FACT, EVEN FOR THE COMPARABLE SET ADOPTED BY THE TPO, NO SEARCH ST RATEGY DETAILING THE QUANTITATIVE FILTERS APPLIED OR SCREE NING PROCESS ADOPTED HAS BEEN PROVIDE IN THE TP ORDER. TPO HAS R EJECTED COMPANIES THAT WERE ENGAGED IN TRADING OF CHEMICAL AS HE HAS CONTENDED THAT THEY ARE NOT ENGAGED IN THE EXACT SA ME BUSINESS OF PHARMACEUTICALS. HOWEVER, FOR HIS ANALYSIS HE HAS C ONSIDERED COMPANIES ENGAGED IN DIVERSIFIED BUSINESS LINES LIK E COSME PHARMA LTD THAT DEALS IN NUTRITIONAL PRODUCTS, CREA MS, GELS, ETC. THIS ISSUE HAS BEEN CONSIDERED WITH REFERENCE TO OB JECTION NO. 4.2. IN OUR VIEW, THE ASSESSEE HAS ALREADY ACCEPTED THA T IT SEARCHED FOR BROAD COMPARABLES DUE TO THE NATURE OF INDUSTRY YET SOME PRODUCT ITA NO.5712/DEL./2011 16 COMPARABILITY HAS TO BE THERE. THE TPO HAS GIVEN VE RY COGENT REASONS AFTER ANALYZING THE TP DOCUMENTATION. AFTER EXAMINING SUBMISSIONS MADE AND CONSIDERING TH E REASONS GIVEN BY THE TPO, THE PANEL HAS COME TO A CONCLUSIO N THAT THOUGH SOME DEFECTS MAY BE CURABLE BUT KEEPING THE TOTALIT Y OF COMPARABILITY ISSUE IN MIND THERE WERE FLAWS IN THE SEARCH PROCESS CARRIED OUT BY THE ASSESSEE AND THE TPO HAS CORRECT LY CARRIED OUT RE-RUN OF THE SEARCH PROCESS. BASED ON ABOVE DISCUS SIONS DRP UPHOLDS THE ACTION OF TPO. 4.2.1 THE AO/TPO ERRED ON FACTS AND IN LAW BY NOT P ROVIDING THE DETAILED SEARCH METHODOLOGY ADOPTED FOR THE ARM'S L ENGTH ANALYSIS. 4.2.2 THE AO/TPO ERRED ON FACT AND IN LAW BY REJECT ING THE COMPARABLE COMPANIES ADOPTED BY THE ASSESSEE IN THE TP DOCUMENTATION FOR FY 2006-07. 4.2.3 THE AO/TPO ERRED ON .FACT AND IN LAW BY CONSI DERING COMPANIES FOR THE ARM'S LENGTH ANALYSIS WHICH WERE NOT COMPARABLE TO THE ASSESSEE. DRP'S OBSERVATION OBJECTION NO. 4.2.1, 4.2.2 AND 4.2.3 ARE BEING CONS IDERED TOGETHER. ASSESSEE HAS GIVEN DETAILED REASONS OBJECTING TO CH OICE OF COMPARABLES OF TPO AS BROADLY SUMMARIZED IN TABLE: S.NO. COMPANY NAME ASSESSEES CONTENTIONS 1 NOVARTIS INDIA LTD. A) FAILS TPOS FILTER OF DIVERSIFIED PRODUCT RANGE B) RPT FILTER 2 MANKIND PHARMA LTD. C) FUNCTIONAL GROUNDS PRESENCE OF BRAND D) FAILS TPOS FILTER OF DIVERSIFIED PRODUCT RANGE E) RPT FILTER 3 T.T.K. HEALTHCARE LTD. A) FUNCTIONAL GROUNDS PRESENCE OF BRAND B) FAILS TPOS FILTER OF DIVERSIFIED PRODUCT RANGE C) RPT FILTER ITA NO.5712/DEL./2011 17 4 COSME FARMA LABORATORIES LTD. A) FAILS TPOS FILTER OF DIVERSIFIED PRODUCT RAGNE B) ADVERTISEMENT AND MARKETING EXPENSES TO SALES C) R&D EXPENSES ACCORDING TO THE ASSESSEE, IN THE TP ORDER, THE TPO HAS FINALLY ACCEPTED COMPANIES ENGAGED IN TRADING OF INJECTION. MOREOVER, AS MENTIONED IN THE FY 2006-07 TP DOCUMENTATION AS WEL L AS SUBMISSION ABOVE, THE COMPANY IS NOT ENGAGED IN TRA DING OF INJECTION. IT IS ENGAGED IN TRADING OF IMAGING AGEN TS THAT ARE OFTEN INJECTED IN THE BODY. THUS, THE COMPARABLES ANALYSI S FOR AN ARM'S LENGTH ANALYSIS SHOULD FOCUS ON TRADING OF IMAGING AGENTS AND NOT INJECTIONS. FURTHER, DUE TO UNAVAILABILITY OF COMPA NIES ENGAGED IN TRADING OF IMAGING AGENTS IN THE PUBLIC DOMAIN, IF A BROAD SET FOR COMPARABILITY ANALYSIS IS TO BE CONSIDERED, COMPANI ES ENGAGED IN TRADING OF ANY CHEMICALS SHOULD BE ACCEPTED AS WELL . DRP FINDS THAT THE TPO HAS ACCEPTED FUNCTIONAL PROF ILE OF THE ASSESSEE AS A DISTRIBUTOR OF IMAGING PRODUCTS AND I SSUED A DETAILED SHOW CAUSE ON 18.10.2010. AT THE COST OF REPETITION IT MUST BE STATED THAT IN PARA 4, THE TPO HAS POINTED OUT THE DEFECTS IN THE SEARCH PROCESS SAYING THAT ASSESSEE HAS USED KEY WO RDS LIKE PHOTOGRAPHIC AND CINEMATOGRAPHIC GOODS, CONTROL INS TRUMENTATION AND INDUSTRIAL ELECTRONICS ETC. EVEN DRP AGREES WIT H TPO THAT SUCH A SEARCH WILL NOT YIELD CORRECT FUNCTIONAL COMPARAB LES. TPO HAS CONCLUDED IN THE SHOW-CAUSE AS FOLLOWS 'FROM THE DESCRIPTION OF YOUR ACTIVITIES, UNDER NO CIRCUMSTANCES CAN YOU BE COMPARED TO COMPANIES WHO DEAL IN INDUSTRIAL CHEMICALS, PHENOL, PLASTICS AND PETROPRODUCTS. AS PER YOUR OWN ADMISSION YOU DEAL IN PRODUCTS THAT ARE CLASSIFIED AS DRUGS. AS P ER THE DISCUSSION SO FAR, THE FOLLOWING POINTS EMERGE (A) YOU HAVE USED MULTIPLE YEAR DATA IN YOUR TP REP ORT WHILE THE RULE L0B(4) PRIMARILY CALLS FOR THE USE OF CURRENT YEAR DATA. YOU HAVE NOT PROVIDED ANY DATA THAT WOULD ALOE USE OF M ULTIPLE YEAR DATA. (B) YOUR USE OF RPM AS THE MOST APPROPRIATE METHOD IS INAPPROPRIATE. (C) THE COMPARABLES USED BY YOU ARE NOT FUNCTIONALL Y COMPARABLE. ITA NO.5712/DEL./2011 18 UNDER THESE CIRCUMSTANCES, I AM LEFT WITH NO ALTERN ATIVE BUT TO REJECT YOUR TP STUDY AND MAKE A FRESH SEARCH FOR CO MPARABLES IN YOUR CASE. THE METHOD SHALL BE TNMM AND OP/SALES SH ALL BE THE PLI.' ALL THIS IS MENTIONED IN TP ORDER HENCE THE CLAIM O F ASSESSEE THAT IT WAS NOT PROVIDED DETAILS OF SEARCH METHODOLOGY (REF ER PARA 5 OF SHOW CAUSE) ETC IS NOT CORRECT. EVEN BEFORE DRP THE ASSESSEE HAS NOT POINTED OUT COGENTLY WHY THE TPO WAS INCORRECT IN HIS ASSESSMENT, REBUTTING ARGUMENTS AS PROVIDE IN TP OR DER. MOST OF THE CONTENTIONS OF THE ASSESSEE ARE GENERAL AND THE ORETICAL IN NATURE. WE HAVE PERUSED ASSESSEE'S REPLY TO SHOW CA USE WHICH STATES IN ABSENCE OF ADEQUATE DATA IN PUBLIC DOMAIN , COMPANIES ENGAGED IN CHEMICALS WERE TAKEN, BUT WE FIND EVEN P HOTOGRAPHIC FILM COMPANY WERE TAKEN. IF THE BASIC PROCESS IS FL AWED AND APPARENTLY DIFFICULT TO CURE THEN A NEW PROCESS WIL L HAVE TO BE FOLLOWED AND BEFORE DRP NO NEW ARGUMENT HAS BEEN PU T FORTH. SO WE DO NOT FIND MERIT IN THE ARGUMENTS OF THE ASSESS EE. THE ARGUMENT OF ASSESSEE ABOUT BRAND HAS BEEN CONSI DERED IN PARA 3.5 OF THE ORDER AS FOLLOWS: 'THE ASSESSEE HAS OBJECTED TO THE USE OF THESE COMP ARABLES ON THESE GROUNDS. THE ASSESSEE SEEMS TO BE UNMINDFUL OF THE FACT THAT TNMM WAS CHOSEN AS THE METHOD OVER RPM BECAUSE IT AS FOUND F ROM THE DOCUMENTS SUBMITTED BY IT THAT THE ASSESSEE WAS ALSO INVOLVED IN MARKETING, SELLING AND BRAND BUILDING. THE ASSESSEE IS PAYING ROYALTY OF RS.53 LAKHS TO ITS AE FOR USE OF THE GE MONOGRAMS AND TRADEMARKS. THEREFO RE IT IS NOT FOR THE ASSESSEE TO OBJECT TO THE USE OF COMPARABLES ON THI S GROUND. THE ASSESSEE MUST APPRECIATE THAT ALL THESE COMPARABLES HAVE PAS SED THE RPT FILTER DISCUSSED EARLIER IN THIS ORDER. ' THE DRP CONCURS WITH THE TPO. THE ASSESSEE IS SEEKI NG TO USE LAST YEAR'S COMPARABLES WITH UPDATED MARGINS. WE AG REE WITH THE TPO THAT EACH YEAR IS DIFFERENT AND FIND HE HAS COR RECTLY RELIED ON DELHI ITAT DECISION IN THE CASE OF M/S CARRARO INDI A LTD. WE SEE NO REASON, BASED ON FACTS AND CIRCUMSTANCES, TO INTERF ERE WITH THE ORDER OF THE TPO. 4.3 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO ERRED ON FACTS AND IN LAW IN SELECTING CURRE NT YEAR (I.E. FY 2006-07) DATA FOR COMPARABILITY IN THE DISTRIBUTION SEGMENT DESPITE ITA NO.5712/DEL./2011 19 THE FACT THAT AT THE TIME OF COMPARISON DONE BY THE ASSESSEE, THE COMPLETE DATA FOR FY 2006-07 WAS NOT AVAILABLE WITH IN THE PUBLIC DOMAIN. DRP'S OBSERVATION IN ACCORDANCE WITH RULES UPDATED CURRENT YEAR MARGI NS WERE USED BY THE TPO HENCE THERE IS NOT INFIRMITY IN HIS ACTI ON. 4.4 THAT THE AO/TPO WAS PREJUDICED IN REJECTING THE METHODOLOGY IN THE DISTRIBUTION SEGMENT FOR THIS FINANCIAL YEAR WHEN THE SAME WAS ACCEPTED IN THE PRIOR YEAR AND THERE WAS NO CHA NGE IN FACTS AND CIRCUMSTANCES OVER THE TWO YEARS. (I.E. FY 2004 -05 AND 2005- 06). DRP'S OBSERVATIONS EVERY YEAR IS TO BE CONSIDERED SEPARATELY BASED ON FACTS AND CIRCUMSTANCES AND AVAILABILITY A DATA FOR TRANSFER PRICING AUDIT. SO THERE IS NO INFIRMITY IN THE ACTION OF THE TPO. 5. THAT THE AO/TPO ERRED ON FACTS AND IN LAW IN APP LYING THE AMENDED PROVISION AS PER THE FINANCE ACT, 2009 INST EAD OF THE PROVISION REGARDING THE ARM'S LENGTH RANGE APPLICAB LE TO THE FINANCIAL YEAR 2006-07. THE TPO OUGHT TO APPRECIATE THAT EVEN A PRICE WHICH VARIES 5% IN EITHER DIRECTION OF THE AR ITHMETIC MEAN MARGINS OF THE COMPARABLES MAY BE CONSIDERED AS AN ARM'S LENGTH PRICE AS PER THE PROVISO TO SECTION 92C(2). DRP'S OBSERVATIONS WE HAVE EXAMINED THE ISSUE'. THE MEMORANDUM EXPLAIN ING THE FINANCE BILL, 2009 HAS CLEARLY STATED THAT THE AFOR ESAID AMENDMENT SHALL APPLY ON ALL THE CASES PENDING WITH THE TPO O N OR AFTER 01.10.2009. AS PARA 37.5 OF CIRCULAR NUMBER 5/2010, INADVERTENTLY STATED THAT THE AFORESAID AMENDMENT SHALL APPLY FRO M A Y 2009-10 ONWARDS THE CBDT ISSUED A CORRIGENDUM VIDE F.NO.142 /13/2010- S0(TPL) DATED 30.09.2010 REITERATING THE POSITION A S EXPLAINED IN MEMORANDUM TO THE FINANCE BILL, 2009 I.E. THE AMEND ED PROVISO SHALL APPLY TO ALL THE CASES PENDING ON OR AFTER 01 .10.2009 WITH THE ITA NO.5712/DEL./2011 20 TPO. SINCE IN THIS CASE THE TPO HAS PASSED THE ORDE R AFTER 01.10.2009, THE AMENDED PROVISO SHALL APPLY. IT MAY ALSO BE MENTIONED THAT IN THE FOLLOWING DECI SION THE ITAT HAVE HELD THAT EVEN UNDER PRE AMENDED PROVISO BENEF IT OF 5% IS NOT AVAILABLE IF THE PRICE IS BEYOND THAT RANGE AS SUCH BENEFIT IS NOT A STANDARD DEDUCTION: A) GLOBAL VANTEDGE PVT. LTD (201 0-TIOL-24-LT AT-DE L) B) WS MARUHENI INDIA PVT. LTD (2011-TLL-36-LT AT-DE L-TP) C) M/S ST MICRO ELECTRONICS (2011-TLI-63-IT AT-DEL- TP) IT MAY ALSO BE MENTIONED THAT THE AMENDED PROVISO I S ONLY CLARIFICATORY IN NATURE AS THE MEMORANDUM EXPLAININ G THE FINANCE BILL HAS CLARIFIED THAT THE SAME WAS BROUGHT AS THE RE WERE DISPUTES ABOUT ITS INTERPRETATION/APPLICABILITY. IT IS A SET TLED POSITION OF LAW THAT AN AMENDMENT WHICH CLARIFIES A PROVISION HAS R ETROSPECTIVE OPERATION. THUS, THIS GROUND OF OBJECTION IS ALSO OVERRULED. W E DECLINE TO INTERFERE WITH THE ORDER OF THE TPO ON THIS GROUND. 12.1. IN TERMS OF THE AFORESAID DIRECTIONS OF THE DRP, THE AO COMPLETED THE ASSESSMENT ACCORDINGLY AND ADDED THE AMOUNT OF ` 3,54,99,029/-. 13 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE AO/DRP. AT THE OUTSET, THE LD. AR O N BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED TH AT THE TPO/DRP DID NOT CONSIDER TURNOVER FILTER. ON THE OTHER HAND, THE LD . DR POINTED OUT THAT THE ASSESSEE ITSELF DID NOT CONSIDER THE TURNOVER FILTE R IN ITS TRANSFER PRICING DOCUMENTATION NOR RAISED SUCH AN ISSUE BEFORE THE TPO /DRP AND THEREFORE, IS NOT ENTITLED TO RAISE THE ISSUE AT THIS STAGE. IN R ESPONSE ,THE LD. AR RELIED UPON DECISION IN SONY INDIA (P) LTD. VS. DCIT,315 ITR(AT )150(DEL.) WHEREIN TURNOVER OF VIDEOCON INTERNATIONAL, A COMPARABLE WAS FOUND S IX TIMES THE TURNOVER OF THE ASSESSEE AND ACCORDINGLY, THE BENCH WHILE NOTICING SEVERAL OTHER DISTINCTIVE FEATURES OR DIFFERENCES WHICH MATERIALLY AFFECTED P ERFORMANCE/PRICE OF THE PRODUCTS APART FROM HAVING ADVANTAGE OF R&D UNIT O R VALUABLE INTANGIBLES, ITA NO.5712/DEL./2011 21 DIFFERENCES IN THE TURNOVER, DIFFERENCES IN THE ASS ETS, DIFFERENCES IN THE FUNCTIONS PERFORMED AND RISK UNDERTAKEN BY THE SAID TAXPAYER AND THE VIL, EXCLUDED VIDEOCON INTERNATIONAL FROM THE LIST OF COMPARISON. LIKEWISE IN EGAIN COMMUNICATION PVT. LTD. VS. INCOME-TAX OFFICER IN I .T.A. NO.1685/PN/2007 DATED10.6.2008,OVERSIZED COMPANIES WERE EXCLUDED. S IMILAR WAS THE SITUATION IN AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. INCOME-TAX OFFICER IN I.T.A. NO.386/D/2010 DATED 4.11.2010;; DCIT VS. DELOITTE C ONSULTING INDIA PVT. LTD. IN I.T.A. NO.1082/HYD/2010) DATED 22.7.11. IN DECISION DATED 5.8.2011 IN GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD. VS. DCIT IN I TA NO.1231(BANG.)/2010 CONCLUDED THAT TURNOVER FILTER IS IMPORTANT. THIS D ECISION WAS FOLLOWED IN KODIAK NETWORKS (INDIA) PVT. LTD. VS. ACIT IN I.T.A. NO.97 0/BANG/2011 DATED 27.1.2012; M/S TOPSPIN COMMUNICATION TECHNOLOGIES INDIA PVT. L TD. VS. INCOME-TAX OFFICER IN I.T.A. NO.1280/BANG/2010 DATED 10.2.2012 AND TIM KEN ENGINEERING & RESEARCH INDIA PVT. LTD. VS. DCIT IN I.T.A. NO.974/ BANG/2008 DATED 24.2.2012; . A SIMILAR VIEW WAS TAKEN IN ACIT VS. FROST & SULLIV AN I PVT. LTD. IN I.T.A. NO.2073/MUM/2010 DATED 24.2.2012 AND CENTILLIUM IND IA PVT. LTD. VS. DCIT IN I.T.A. NO.1354/BANG/2010 DATED 29.2.2012. WHILE REF ERRING TO OECD GUIDELINES, GUIDANCE NOTE ON REPORT ON INTERNATIONAL TRANSACTIO NS U/S 92E ISSUED BY ICAI, THE LD. AR ADDED THAT TURNOVER OF THE ASSESSEE COMP ANY BEING ONLY ` 42 CRORES AND THE ASSESSEE HAVING NO R&D FACILITIES, COMPARAB LES HAVING LARGE TURNOVER NEED TO BE EXCLUDED. 14. ON THE OTHER HAND, THE LD. DR WHILE REFERR ING TO DECISION DATED 31.5.2011 IN M/S SYMANTEC SOFTWARE SOLUTIONS PRIVATE LTD. VS. ACIT IN ITA NO. 7894/MUM/2010 & DATED 3.6.2011 IN M/S ST MICROELECT RONICS PRIVATE LTD. VS. DCIT,IN ITA NOS.1806& 1807,1598 & 1599/DEL./2008 CO NTENDED THAT TURNOVER FILTER CAN NOT BE APPLIED AS A GENERAL RULE, ESPECI ALLY WHEN THE ASSESSEE ITSELF DID NOT FOLLOW THE SAME. UNLESS FUNCTIONAL COMPARABILIT Y IS ESTABLISHED, TURN OVER FILTER CAN NOT BE APPLIED IN ISOLATION. TURNOVER FILTER HA S TO BE SEEN IN THE CONTEXT OF OTHER FACTORS AFFECTING COMPARABILITY; LOW TURNOVER DOES NOT NECESSARILY MEAN HIGH MARGIN IN COMPETITIVE MARKET. UNLESS AND UNTIL HIGH TURNOVER HAS UNDUE ITA NO.5712/DEL./2011 22 INFLUENCE ON MARGINS, SUCH COMPANIES COULD NOT BE E XCLUDED. WHILE REFERRING TO THE PAPER BOOK, THE LD. DR ARGUED THAT THE A.E. OF THE ASSESSEE HAD BRAND EQUITY AS MENTIONED THEREIN AND EXTRACTED HEREUNDER:- THE A.E. HAS IMMENSE BRAND EQUITY IN THE DIAGNOSTIC DRUGS BUSINESS, WHICH GIVES THE GE HEALTHCARE PRIVATE LTD . A GREAT REFERENCE LIST THAT INSPIRES CONFIDENCE IN POTENTIAL CUSTOMERS. ACCORD INGLY, THE A.E.S BRAND EQUITY SUPPORTS GE HEALTHCARE PRIVATE LTD.S MARKETING EFF ORTS TO A GREAT EXTENT. GE HEALTHCARE PVT. LTD. USES THE GE HEALTHCARE BRAND A ND THE ASSOCIATED INTELLECTUAL PROPERTY. AS REGARDS JUDGMENTS RELIED UPON BY THE LD. AR, THE LD. DR VEHEMENTLY ARGUED THAT MOST OF THESE JUDGMENTS BEING RENDERED IN THE CASE OF SOFTWARES/ITES, COMPANIES AND WERE NOT RELEVANT IN THE INSTANT CASE . OECD GUIDELINES ISSUED IN 2010 OR ICAI GUIDELINES ARE NOT BINDING, NOR SUC H OECD GUIDELINES ISSUED IN 2010 COULD BE APPLIED IN THE AY 2007-08. AS REGARDS R&D AND MARKETING EXPENSES INCURRED BY THE COMPARABLES, IDENTIFIED BY THE TPO, THE LD. DR PLEADED THAT EXPENSES HAVING ALREADY BEEN DEBITED, THEIR PR OFITABILITY TO THE EXTENT HAD GONE DOWN, THE LD. DR ADDED.. 15. IN HIS REJOINDER, THE LD. AR ARGUED THAT THE DE CISIONS RELIED UPON BY THE LD. DR WERE NOT APPLICABLE TO THE FACTS OF THE CASE. AS R EGARDS OECD GUIDELINES , THE LD. AR PLEADED THAT THESE HAVE PERSUASIVE VALUE. TH E TPO HAVING NOT CONFRONTED THE ASSESSEE ANY FAR ANALYSIS ,WAS NOT CORRECT IN I DENTIFYING THE COMPARABLES. 16. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO DECISIONS RELIED UPON BY BOTH THE SIDE S. AS IS APPARENT FROM THE AFORESAID FACTS, THE DRP NOTICED THAT THE ASSESSEE IS ENGAGED IN TRADING OF IMAGING AGENTS THAT ARE OFTEN INJECTED IN THE BODY AND DUE TO UNAVAILABILITY OF COMPANIES, ENGAGED IN TRADING OF IMAGING AGENTS IN THE PUBLIC DOMAIN, COMPANIES ENGAGED IN TRADING OF ANY CHEMICALS WERE ACCEPTED FOR COMPARABILITY. WHILE REFERRING TO DEFECTS NOTICED B Y THE TPO IN THE SEARCH PROCESS ADOPTED BY THE ASSESSEE VIZ USE OF KEY WOR DS LIKE PHOTOGRAPHIC AND ITA NO.5712/DEL./2011 23 CINEMATOGRAPHIC GOODS, CONTROL INSTRUMENTATION AND INDUSTRIAL ELECTRONICS, INDUSTRIAL CHEMICALS, PHENOL, PLASTICS AND PETROPRO DUCTS ETC.. DRP AGREED WITH THE FINDINGS OF THE TPO THAT SUCH A SEARCH WILL NOT YIELD CORRECT FUNCTIONAL COMPARABLES. THE LD. ARS DID NOT PLACE ANY MATERIAL BEFORE US, CONTROVERTING THESE FINDINGS OF THE DRP/TPO NOR ANY SUCH MATERIAL SEEMS TO HAVE BEEN PLACED BEFORE THE DRP. MOREOVER, THE FACTS AND CIR CUMSTANCES AS ALSO THE COMPARABLES IN EACH YEAR VARY. THERE IS NO PRESUMPT ION THAT IF IN ONE YEAR, BUSINESS WITH THE ASSOCIATED CONCERN IS CARRIED AT ARMS LENGTH, THEN IT IS CARRIED AT ARMS LENGTH IN ALL OTHER ASSESSMENT YEARS. THE FACTS AND CIRCUMSTANCES OF EACH YEAR ARE TO BE EXAMINED, AS HELD IN DCIT VS. C ARRARO INDIA LTD.,28 SOT 53(DEL.),FOLLOWED BY THE DRP. EVEN OTHERWISE THE L D. AR DID NOT DISPUTE THESE FINDINGS OF THE DRP NOR BROUGHT TO OUR NOTICE ANY C ONTRARY DECISION IN THIS REGARD. IN THESE CIRCUMSTANCES, WE HAVE NO ALTERNATIVE BUT TO REJECT GROUND NOS.4.2 TO 4.2.2 & 6 IN THE APPEAL. 17. THE ONLY SUBSTANTIVE ISSUE IN THIS APPEAL R AISED BY THE LD. AR BEFORE US IS THAT TURNOVER FILTER SHOULD BE APPLIED IN IDENT IFYING THE COMPARABLES WHILE APPLYING THE TNMM METHOD. INDISPUTABLY, THE ISSUE OF TURNOVER FILER WAS NEVER RAISED BEFORE THE TPO/AO OR THE LD. DRP. EVEN THOU GH THE LD. AR DID NOT MAKE ANY SUBMISSIONS BEFORE US AS TO WHY BA & BROTHERS(E ASTER) LTD SHOULD BE CONSIDERED AS COMPARABLE AND NOR EXPLAINED AS TO W HETHER OR NOT THIS ISSUE WAS RAISED BEFORE DRP, IT WAS ARGUED THAT A NEW PLEA C AN ALWAYS BE RAISED BEFORE THE TRIBUNAL WHEN THE FACTS ARE UNDISPUTED. IN THIS CONNECTION, HON'BLE APEX COURT IN HUKUMCHAND MILLS LTD. VS. CIT (1967) 63 IT R 232(SC) HELD THAT THIS TRIBUNAL HAS THE JURISDICTION AND POWER TO ENTERTAI N A FRESH PLEA AND DIRECT THE LOWER AUTHORITIES FOR RECONSIDERATION OF THE MATTER IN VIEW OF THE NEW PLEA TAKEN BY THE DEPARTMENT. THE ONLY RESTRICTION IS THAT THE PLEA ENTERTAINED AND THE DIRECTIONS GIVEN BY THE TRIBUNAL SHALL BE IN RESPEC T TO THE SUBJECT-MATTER OF THE APPEAL. IN THE CASE OF J.S. PARKAR V. VS. PALEKAR [ 1974] 94 ITR 616 (BOM.), IT WAS HELD BY THE HON'BLE BOMBAY HIGH COURT THAT THE TRIB UNAL WAS UNDER STATUTORY ITA NO.5712/DEL./2011 24 OBLIGATION TO ENTERTAIN A PLEA INVOLVING A PURE QUE STION OF LAW AND DECIDE THE SAME, NO MATTER AT WHAT STAGE IT WAS TAKEN. IN THE CASE OF CIT V. ICE SUPPLIERS CORPN. [1967] 64 ITR 195 (PUNJ.) THE ORDER OF THE T RIBUNAL ACCEPTING AN ALTERNATIVE CASE OF THE DEPARTMENT AFTER GIVING LEA VE TO THE ASSESSEE IN THAT REGARD WAS UPHELD BY HON'BLE HIGH COURT. A SIMILAR VIEW WAS TAKEN IN N.P. SARASWATHI AMMAL & ORS. VS. CIT (1982) 138 ITR 19 ( MAD), CIT VS. INDIAN EXPRESS (MADURAI) (P) LTD. (1983) 33 CTR (MAD) 314 , CIT VS. A.C. PAUL (1983), 142 ITR 811 (MAD), CIT VS. ICE SUPPLIERS CORPORATIO N (1967) 64 ITR 195 (PUNE) AND ACIT VS. AMARNATH REDDY (CHENNAI) (TM) (2010) 1 32 TTJ (CHENNAI) (TM) 377. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. DRP AND THE TPO DID NOT HAVE ANY OCCASION TO EXAMINE THE TURNOVER FILTER, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. DRP/A O AND RESTORE THE MATTER TO THE FILE OF THE DRP/AO TO RECOMPUTE THE ALP OF INTERN ATIONAL TRANSACTIONS IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AFTER EXAMINING THE COMPARABLES BY APPLYING THE TURNOVER FILTER, IN ACCORDANCE WITH LAW AND OF COURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. NEEDLESS TO SAY THAT W HILE REDECIDING THE APPEAL, THE LEARNED DRP/TPO SHALL PASS A SPEAKING ORDER. W ITH THESE OBSERVATIONS, ISSUES RAISED IN GROUND NOS. 4.2.3 ,4.2.4 & 7 IN T HE APPEAL ARE DISPOSED OF . 18. GROUND NO.8 IN THE APPEAL RELATES TO INITIATI ON OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. SINCE MERE INITIATION OF PENA LTY PROCEEDINGS IS NOT APPEALABLE, ACCORDINGLY, THIS GROUND IS DISMISSED 19. GROUND NO. 9 IN THE APPEAL OF THE ASSESSEE RE LATES TO LEVY OF INTEREST U/S 234 B & 234D OF THE ACT.. SINCE THE LD. AR ON BEHAL F OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS BEFORE US ON THIS GRO UND WHILE THE LEVY OF INTEREST U/S 234B & 234D OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX. VS ANJUM M. H. GHASWAL A AND OTHERS,252 ITR 1(SC), AFFIRMED BY HON'BLE APEX COUR T IN THE CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449(S C) AND IN THE ITA NO.5712/DEL./2011 25 CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564(SC)], THIS GROUND IS DISMISSED. 20. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND IN THE APPEAL, ACCORDINGLY, THIS GROUND IS D ISMISSED. 21.NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 22. IN THE RESULT, APPEAL IS PARTLY ALLOWED BUT FO R STATISTICAL PURPOSES. SD/- SD/- (I.C. SUDHIR) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) COPY OF THE ORDER FORWARDED TO :- 1 ASSESSEE 2. ASSISTANT CIT,CIRCLE 12(1),NEW DELHI 3. CIT-III,NEW DELHI. 4. DRP-I, NEW DELHI 5. DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT