ADDL CIT 10(2), MUMBAI V. DOW CHEMICALS INTERNAITONAL P. LTD, MUMBAI

ITA 5880/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2392 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 13-04-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 23-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Transfer pricing; International transaction; Additional evidence; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K B ENCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 5880/MUM/2010 ( / ASSESSMENT YEAR:2004-05 THE ACIT - 10(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. DOW CHEMICALS INTERNATIONAL INTERNATIONAL PVT. LTD., 1 ST FLOOR, BLOCK B, 02, GODREJ I.T. PARK, GODREJ BUSINESS DISTRICT, PIROJSHANAGAR, LBS MARG, VIKHROLI (W), MUMBAI- 400 079 / I .TA NO. 6686/MUM/2010 ( / ASSESSMENT YEAR:2005-06 M/S. DOW CHEMICALS INTERNATIONAL INTERNATIONAL PVT. LTD., 1 ST FLOOR, BLOCK B, 02, GODREJ I.T. PARK, GODREJ BUSINESS DISTRICT, PIROJSHANAGAR, LBS MARG, VIKHROLI (W), MUMBAI- 400 079 / VS. THE ACIT - 10(2), AAYAKAR BHAVAN, MUMBAI-400 020 / I .TA NO. 6535/MUM/2010 ( / ASSESSMENT YEAR:2005-06 THE ACIT - 10(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. DOW CHEMICALS INTERNATIONAL INTERNATIONAL PVT. LTD., 1 ST FLOOR, BLOCK B, 02, GODREJ I.T. PARK, PIROJSHANAGAR, LBS MARG, MUMBAI- 400 079 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 2 ./ ./ PAN/GIR NO. AAACD 467B ( / APPELLANT ) .. ( / RESPONDENT ) / DEPARTMENT BY: SHRI N.K. CHAND / ASSESSEE BY: SHRI M.P. LOHIA / DATE OF HEARING :25.04.2016 ! / DATE OF PRONOUNCEMENT :22.07.2016 / O R D E R PER C.N. PRASAD, JM: THESE APPEALS ARE FILED BY THE REVENUE AND THE ASSE SSEE AGAINST THE ORDER OF THE LD. CIT(A)-15, MUMBAI PERT AINING TO ASSESSMENT YEARS 2004-05 & 2005-06. ITA NO. 5880/M/2010 A.Y. 2004-05 2. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER IN RESPECT OF BILLS PERTAINING TO EARLIER PERIOD. 3. BRIEF FACTS ARE THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT REQUIRED THE ASSESSEE TO EXPLAIN AS TO W HY REPAIRS AND MAINTENANCE EXPENSES AMOUNTING TO RS. 3,08,100/- SH OULD NOT BE DISALLOWED AS THESE EXPENSES WERE INCURRED IN EARLI ER YEARS NOT RELEVANT TO THIS ASSESSMENT YEAR. THE ASSESSEE SUB MITTED THAT FOLLOWING MERCANTILE SYSTEM, THE BILLS PERTAINING T O A YEAR NOT RECEIVED BEFORE FINALIZATION OF ACCOUNTS FOR THAT Y EAR, AN ACCRUAL IS MADE BASED ON SERVICES RENDERED AND ESTIMATE OF HOW MUCH IS PAYABLE FOR THAT SERVICE. THE PROVISIONS FOR EXP ENSES AT THE END OF M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 3 THE YEAR ARE CHECKED AND AUDITED BY THE STATUTORY A UDITORS AND THEY SIGNED OFF ONLY BECAUSE THESE APPEAR TO BE REASONA BLE AT THE END OF THE YEAR. IT WAS CONTENDED THAT ALL MAJOR SIGNIFIC ANT EXPENSES ARE ACCRUED, THERE IS A POSSIBILITY THAT A FEW INSIGNIF ICANT EXPENSES CONSIDERING THE SIZE OF THE COMPANY MAY NOT HAVE BE EN ACCRUED. THESE EXPENSES CANNOT BE CONSIDERED TO BE PRIOR PER IOD EXPENSES AS IT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THER E IS ALWAYS A POSSIBILITY OF AN EXTRA/SHORT PROVISION OF EXPENSES . WITHOUT APPRECIATING THE SUBMISSIONS, THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE. 4. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER. 5. THE LD. DEPARTMENTAL REPRESENTATIVE PLACES RELI ANCE ON THE ORDERS OF THE ASSESSING OFFICER DISALLOWING THE PR IOR PERIOD EXPENSES. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT BO OKS OF ACCOUNTS OF THE COMPANY HAVE BEEN AUDITED BY THE AU DITORS AND THEY HAVE NOT MADE ANY COMMENTS ON THESE PRIOR PERIOD EX PENSES. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LIABI LITY GOT CRYSTALLIZED LATER ON AS CERTAIN BILLS WERE RECEIVED AT THE END OF ACCOUNTING YEAR. 7. WE HAVE HEARD THE SUBMISSIONS AND PERUSED THE OR DERS OF THE AUTHORITIES BELOW. THE LD. CIT(A) DELETED THE DISA LLOWANCE OBSERVING THAT ASSESSEE IS A COMPANY HAVING HUGE TURNOVER AND CLAIMING EXPENSES OF CRORES OF RUPEES AND THEREFORE IT IS NO T JUSTIFIED TO DOUBT A SUM OF ONLY RS. 3,08,100/- AS PRIOR PERIOD EXPENS ES. THE ASSESSEE HAS POINTED OUT THAT BILLS IN RESPECT OF THE SAME W ERE RECEIVED M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 4 AFTERWARDS AND THE LIABILITY GOT CRYSTALLIZED IN TH IS ASSESSMENT YEAR. HE ALSO OBSERVED THAT THERE IS NO DIFFERENCE IN RAT E OF TAXES IT MAKES NO DIFFERENCE AS EXPENSES ARE BOOKED IN SUBSEQUENT YEAR ON RECEIVING BILLS. IN VIEW OF SMALLNESS OF THE EXPEN DITURE, WE ARE NOT INCLINED TO DISTURB THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. THUS WE SUSTAIN THE ORDER OF THE LD. CIT(A). 8. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION RELATING TO C OMPUTER EXPENSES PAID TO GROUP COMPANIES OF THE ASSESSEE. 8.1. BRIEF FACTS ARE THAT THE ASSESSING OFFICER WHI LE COMPLETING THE ASSESSMENT REQUIRED THE ASSESSEE TO FURNISH THE DE TAILS OF TDS DEDUCTED ON THE PAYMENTS MADE BY THE ASSESSEE TOWAR DS COMPUTER RELATED EXPENSES. THE ASSESSEE VIDE ITS SUBMISSION DATED 20.11.2006 STATED TO HAVE SUBMITTED THE DETAILS OF VARIOUS SER VICES RENDERED AND ALLOCATION OF COSTS AND THE WITHHOLDING TAX DEDUCTE D. HOWEVER, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER OBSERVED THAT DETAILS FURNISHED BY THE ASSESSEE FOUND THAT NEITHER THE BR EAK-UP OF SUCH EXPENSES FILED NOR THE BILLS FOR THE AFORESAID EXPE NSES WERE FILED. HE ALSO STATED THAT EVEN THE CALCULATION FOR ARRIVING OF THE AMOUNTS WERE NOT SUBMITTED DESPITE SPECIFICALLY CALLED FOR. SINCE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN THE FORMAT PROVIDED B Y THE ASSESSING OFFICER IN THE NOTICE DATED 4.8.2006 AND THE COPIES OF BILLS WERE NOT FURNISHED AND SINCE ASSESSEE DID NOT ESTABLISH INCU RRING OF EXPENDITURE, THE ASSESSING OFFICER DISALLOWED THE C OMPUTER RELATED EXPENSES OF RS. 82,46,109/- AND ADDED BACK TO THE I NCOME RETURN. THE LD. CIT(A) DELETED THE DISALLOWANCE OBSERVING T HAT THESE PAYMENTS MADE BY THE ASSESSEE TO THE AE TOWARDS COM PUTER RELATED M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 5 EXPENSES HAVE ALREADY BEEN HELD BY THE TPO TO BE AT ARMS LENGTH AND THEREFORE THERE CANNOT BE ANY QUESTION OF DISAL LOWANCE OF SUCH EXPENSES BY THE ASSESSING OFFICER. 8.2. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITS TH AT THE ROLE OF THE TPO IS ONLY TO DETERMINE ALP OF THE TRANSACTION S AND THE ROLE OF THE ASSESSING OFFICER IS TO SEE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE. HE SUBMITS THAT FROM THE TPOS ORDER, GENUINENESS DOES NOT FLOW. THEREFORE HE SUBMITS TH AT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE TPO/AO FOR FRESH CONSIDERATION. 8.3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IT IS THE BUSINESS DECISION OF THE ASSESSEE TO AVAIL SERVICES FROM THE ASSOCIATED ENTERPRISES. THE TPO HAS EXAMINED THESE EXPENSES I NCURRED BY THE ASSESSEE AND ACCEPTED THAT THEY ARE AT ARMS LENGTH . THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT IT IS THE CON TENTION OF THE ASSESSING OFFICER THAT WHY THE SERVICES WERE AVAILE D ONLY FROM ASSOCIATED ENTERPRISES WHICH IS TOTALLY AGAINST THE PRINCIPLES OF BUSINESS DECISIONS TAKEN BY THE MANAGEMENT. THE AS SESSING OFFICER CANNOT QUESTION ITS BUSINESS DECISION OF THE ASSESS EE FROM WHOM THE SERVICES TO BE RENDERED RATHER IT AMOUNTS TO SUGGES TING FROM WHOM THE ASSESSEE HAS TO CONDUCT THE BUSINESS. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUPPORTS THE ORDERS OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE. 8.4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER CONTE NTS THAT THE ASSESSEE HAS NOT FURNISHED DETAILS IN RESPECT OF TH E EXPENSES INCURRED M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 6 TOWARDS COMPUTER RELATED EXPENSES, BILLS WERE ALSO NOT PRODUCED. HOWEVER, THE CONTENTION OF THE ASSESSEE WAS THAT TH ESE TRANSACTIONS HAVE BEEN EXAMINED BY THE TPO AND HELD THAT THEY AR E AT ARMS LENGTH, THEREFORE, THERE IS NO NECESSITY FOR THE AS SESSING OFFICER TO GO INTO THE TRANSACTIONS AGAIN. THE LD. CIT(A) CONSID ERING THE SUBMISSIONS OF THE ASSESSEE AND THE AVERMENTS OF TH E ASSESSING OFFICER DELETED THE DISALLOWANCE OBSERVING AS UNDER : I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMI SSIONS OF THE ASSESSING OFFICER AND THE APPELLANT COMPANY. A PPELLANTS ARGUMENT IS CORRECT THAT PAYMENTS MADE TO GROUP COM PANIES FOR COMPUTER RELATED SERVICES, REPRESENT THE SHARE OF T HE APPELLANT FOR USE OF INTEGRATED SYSTEM AND DO NOT REPRESENT T HE COST OF COMPUTERS. SINCE THE PAYMENTS MADE TO AES FOR THIS HAS ALREADY BEEN HELD BY THE TPO TO BE AT ARMS LENGTH, THERE C ANNOT BE ANY QUESTION OF DISALLOWANCE OF SUCH EXPENSES BY THE AS SESSING OFFICER AND THAT TO ON A GROUND LIKE THAT THE ASSESSEE SHOU LD HAVE AVAILED THESE SERVICES LOCALLY AND NOT THROUGH AES STATIONED ABROAD. IT IS NOT APPROPRIATE FOR THE ASSESSING OF FICER TO STEP INTO THE SHOES OF THE TAXPAYER AND DECIDE WHAT HE SHOULD DO OR NOT DO IN HIS BUSINESS. THE ROLE OF THE ASSESSING OFFICER IS CONFIRMED TO ADMINISTERING THE PROVISIONS OF THE ACT. IN ANY CA SE THERE WAS NO GROUND TO REVISE THIS ISSUE WHERE THE TPO HAD HELD THAT THE TRANSACTION WAS AT ARMS LENGTH. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER IS HEREBY DELETED. 8.5. ON GOING THROUGH THE ORDER OF THE LD. CIT(A) , WE DO NOT FIND ANY VALID REASON FOR INTERFERING IN THE FINDINGS OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE. THUS, WE SUSTAIN THE OR DER OF THE LD. CIT(A) ON THIS ISSUE. 9. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION/DISALLOWANCE MADE IN RESPECT OF RENT AND SERVICE CHARGES. M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 7 9.1. BRIEF FACTS ARE THAT THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT ASSESSEE DEBITE D RS. 1,60,33,533/- IN THE PROFIT AND LOSS ACCOUNT TOWAR DS RENT AND SERVICE CHARGES. THE ASSESSEE FILED DETAILS STATING THAT A S PER THE SERVICE AGREEMENT, ASSESSEE INCURRED RS. 54,92,400/- AND AS PER LEAVE/LICENCE AGREEMENT IT HAD INCURRED RS. 12,27, 480/- FOR RENTING THE PREMISES AND UTILIZING VARIOUS OTHER SERVICES F ROM THE LANDLORD VIZ., GODREJ SOAPS LTD. THE ASSESSING OFFICER TOOK NOTE OF THE FACT THAT SERVICE CHARGES PAID BY THE ASSESSEE ARE MUCH MORE THAN THE RENT, THE SERVICE CHARGES WERE RESTRICTED TO THE RENT PAY ABLE BY THE ASSESSEE AND DISALLOWED THE BALANCE SERVICE CHARGES OF RS. 42,64,920/- OBSERVING THAT THESE SERVICE CHARGES PA ID BY THE ASSESSEE ARE EXORBITANT AND UNREALISTIC. ON APPEAL , THE LD. CIT(A) DELETED THE DISALLOWANCE. 9.2. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF THE ASSESSING OFFICER IN RESTRICTING SERV ICE CHARGES TO THE RENTAL INCOME PAID BY THE ASSESSEE. 9.3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IT IS THE CONSCIOUS BUSINESS DECISION OF THE ASSESSEE TO PAY SERVICE CH ARGES AND RENTAL INCOME AND ENTERED INTO TWO SEPARATE AGREEMENTS WIT H THE LANDLORD. REFERRING TO PAGE-251 OF THE PAPER BOOK CONTAINING THE SERVICE AGREEMENT SUBMITS THAT THIS AMOUNT OF SERVICE CHARG ES WAS PAID FOR VARIOUS SERVICES RENDERED BY THE LANDLORD VIZ., SECURITY ARRANGEMENT AROUND THE LICENCED PREMISES . GENERAL MAINTENANCE, CLEANLINESS AND UPKEEP OF T HE COMMON AREASE IN AND AROUND THE LICENCED PREMISES . REPAIR COMMON AREAS AROUND THE LICENCED PREMISES. M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 8 PROVISION OF WATER, SEWAGE AND ELECTRICITY SUPPLY CONNECTION UPTO THE LICENCED PREMISES. PROVIDE THE LICENCEE FOR USE BY IT AND/OR ITS DIR ECTORS, OFFICERS, INVITEES, VISITORS AND CUSTOMERS, 6 NOS. (SIX NOS.) CAR PARKING SPACES FOR PARKING LIGHT MOTOR VEHICLES IN THE PLACES EARMARKED NEAR THE LICENCED PREMISES. MAINTAIN THE SAID PARKING SPACES LIGHTED AT ALL R EASONABLE TIMES. ALLOW ENTRY OF LORRIES AND OTHER VEHICLES FOR TR ANSPORT OF MATERIAL TO AND FROM THE LICENCED PREMISES AS PER T HE BUSINESS REQUIREMENT OF THE LICENCEE. THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMI TS THAT SINCE THE ASSESSEE HAS TAKEN A CONSCIOUS BUSINESS DECISI ON TO PAY SERVICE CHARGES AND ALSO THE RENT, SIMPLY BECAUSE THE SERVI CE CHARGES PAID ARE MORE THAN THE RENT, IT CANNOT BE PRESUMED THAT THE PAYMENT IS EXORBITANT AND UNREALISTIC, THEREFORE THERE IS NO J USTIFICATION IN DISALLOWING THE SERVICE CHARGES OVER AND ABOVE THE RENTAL INCOME. 9.4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER WAS O F THE VIEW THAT THE EXPENSES PAID TOWARDS SERVICE CHARGES ARE MUCH MORE THAN THE RENTAL INCOME AND THEREFORE UNREALISTIC HENCE RESTR ICTED THE SERVICE CHARGES TO THE EXTENT OF RENTAL INCOME RECEIVED BY THE ASSESSEE. THE LD. CIT(A) DELETED THE DISALLOWANCE OF RENTAL CHARG ES OBSERVING THAT IT IS ONLY THE RECIPIENT HAD MERELY BIFURCATED THE PAYMENT AND IF AT ALL ANY ISSUE ARISES IN RESPECT OF HEAD OF INCOME IS TO BE ASSESSED, IT WOULD BE AT THE END OF THE RECIPIENT I.E. GODREJ SO APS LTD., BUT THE ASSESSEE HAD INCURRED LEGITIMATE BUSINESS EXPENDIT URE WHILE TAKING THE PREMISES ON RENT FOR ITS BUSINESS FROM AND INDE PENDENT PARTY M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 9 (GODREJ SOAPS). THEREFORE, THESE EXPENSES DOES NOT WARRANT ANY DISALLOWANCE. THUS, HE DELETED THE DISALLOWANCE. WE AGREE WITH THE VIEW TAKEN BY THE LD. CIT(A). IT IS NOT THE CASE O F THE ASSESSING OFFICER THAT ASSESSEE HAD NOT INCURRED ANY EXPENDIT URE AT ALL AND THESE SERVICE CHARGES ARE PAID FOR NO SERVICES AT A LL. THE MAIN REASON FOR DISALLOWING THE SAID CHARGES FOR THE ASSESSING OFFICER IS THAT SINCE SERVICE CHARGES PAID ARE MORE THAN THE RENTAL INCOM E THE ASSESSEE SHOULD NOT HAVE INCURRED SO MUCH OF EXPENDITURE TOW ARDS SERVICE CHARGES. HERE WE FIND THAT THE ASSESSEE HAS TAKEN A CONSCIOUS DECISION TO TAKE ON RENT FROM GODREJ SOAPS LTD., WH ICH IS A THIRD PARTY BY PAYING RENT AS WELL AS SERVICE CHARGES BY ENTERI NG INTO SEPARATE AGREEMENTS AND THE LESSOR PROVIDED VARIOUS SERVICES AS ENUMERATED IN THE AGREEMENT FOR WHICH SERVICE CHARGES WERE PAI D. THEREFORE, FOR THE SIMPLE REASON THAT THE SERVICE CHARGES ARE MORE THAN THE RENTAL INCOME, THE EXPENDITURE CANNOT BE RESTRICTED TO THE RENTAL INCOME. THUS, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE TOWARDS RENT AND SERVICE CHARGES. 10. THE NEXT ISSUE IS REGARDING TRANSFER PRICING AD JUSTMENT AND ASSESSING OFFICER IS CHALLENGING THE ORDER OF THE L D. CIT(A) IN DECIDING THAT THERE WOULD NOT BE ANY ADJUSTMENTS MA DE TO THE TOTAL INCOME IN RESPECT OF THE INTERNATIONAL TRANSACTIONS . 10.1. THE ASSESSEES BUSINESS PRIMARILY CONSISTS OF IMPORTING FINISHED GOODS FROM ITS ASSOCIATED ENTERPRISES (AES ) FOR RESALE TO CUSTOMERS IN INDIA. APART FROM THE BUSINESS OF TRA DING IN CHEMICALS, ASSESSEE ASSISTS ITS AES IN MAKING DIRECT SALES IN INDIA. IN OTHER WORDS, THE ASSESSEE ACTS AS A SALES PROMOTER ON BEH ALF OF ITS AE FOR SALE OF CHEMICALS, PLASTICS AND OTHER PRODUCTS AND IT RECEIVES M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 10 INDENTING COMMISSION ON SUCH SALES MADE BY THE AES. DURING THE ASSESSMENT YEAR, THE ASSESSEE ENTERED INTO FOLLOWIN G INTERNATIONAL TRANSACTIONS WITH ITS AE. I) IMPORT OF CHEMICALS II) EXPORT OF CHEMICALS III) PROVISION OF INDENTING SERVICES IV) PROVISION OF SOFTWARE SERVICES AND V) RECEIPT OF ADMINISTRATIVE/TECHNICAL SERVICES. 10.2. THE TPO MADE AN ADJUSTMENT OF RS. 9,03,19,798 /- TO THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PR OVISION OF INDENTING SERVICES OF THE ASSESSEE HOLDING THAT THE GROSS RAT E OF COMMISSION RECEIVED UNDER INDENTING ACTIVITY SHOULD BE SAME AS THE NET MARGINS EARNED IN TRADING ACTIVITY. THE TPO DISREGARDED TH E CONTENTION OF THE ASSESSEE THAT THE INDENTING ACTIVITY IS A SEPARATE BUSINESS ACTIVITY AS COMPARED TO TRADING BUSINESS. THE TPO REJECTED THE ANALYSIS OF THE ASSESSEE AND CONCLUDED THAT THE GROSS RATE OF COMMI SSION RECEIVED ON INDENTING SERVICES SHOULD BE EQUIVALENT TO NET M ARGINS EARNED FROM TRADING ACTIVITY. THUS, THE ASSESSING OFFICER MADE TRANSFER PRICING ADJUSTMENT OF RS. 9,03,19,798/- AS PROPOSED BY THE TPO IN THE ASSESSMENT ORDER. 10.3. ON APPEAL, THE LD. CIT(A) DELETED THE ADJUSTM ENT MADE BY THE TPO OBSERVING THAT IT IS INAPPROPRIATE TO COMPARE T HESE TWO ACTIVITIES OF PURCHASE AND SALES I.E. TRADING AND INDENTING AC TIVITIES. THE LD. CIT(A) ALSO OBSERVED THAT THE GROSS RATE AT WHICH THE ASSESSEE EARNS COMMISSION FOR INDENTING ACTIVITIES CANNOT BE COMPA RED TO THE NET PROFIT, THE ASSESSEE MAKES IN THE TRADING BUSINESS. HE ALSO TAKEN NOTE OF THE SUBMISSIONS OF THE ASSESSEE THAT THE PRODUCT S TRADED BY THE M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 11 ASSESSEE ARE DIFFERENT TO THE PRODUCTS ON WHICH THE COMMISSION EARNED FROM ITS AES ARE ALSO DIFFERENT. 10.4. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTL Y SUPPORTS THE ORDER OF THE TPO AND ASSESSING OFFICER FOR MAKING T P ADJUSTMENTS. 10.5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). THE LD. COUNSEL FOR TH E ASSESSEE FURTHER SUBMITTED AS UNDER: 1) THE LEARNED TRANSFER PRICING OFFICER (TPO'), WIT HOUT QUESTIONING THE ECONOMIC ANALYSIS UNDERTAKEN BY AN EXTERNAL INDEPENDENT CONSULTANT FOR THE RESPONDENT, CONCLUDE D THAT THE INDENTING ACTIVITY AND TRADING ACTIVITY IN CASE OF THE RESPONDENT ARE SAME AND SHOULD EARN SAME MARGINS. 2) THE LEARNED TPO HAS DETERMINED THE ARM'S LENGTH RATE OF COMMISSION FROM PROVISION OF INDENTING SERVICES BY COMPARING THE GROSS INDENTING COMMISSION (IE 8%) TO NET MARGI N EARNED BY THE RESPONDENT FROM TRADING ACTIVITY (IE 11.36%) WH ICH IN ITSELF WAS ALSO A CONTROLLED TRANSACTION. RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECED ENTS WHEREIN IT HAS BEEN HELD THAT CONTROLLED TRANSACTIONS CANNOT B E USED FOR COMPARISON TO BENCHMARK INTERNATIONAL TRANSACTIONS: - TECNIMONT ICB PRIVATE LIMITED (ITA NO. 4608/MUM/2 010 DATED 17 JULY 2012)(MUM) (THIRD MEMBER BENCH) - SABIC INNOVATIVE PLASTIC INDIA (P) LTD. (ITA NO. 142/AHD/2013 DATED 28 JUNE 2013) (AHD) - HOGANAS INDIA PRIVATE LIMITED (ITA NO. 1463/PN/20 10 DATED 11 JANUARY 2013) (PUNE) 3) THE LEARNED TPO HAS NOT APPRECIATED THE DIFFEREN CES IN FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS UN DERTAKEN BY THE RESPONDENT WITH RESPECT TO INDENTING AND TRADIN G ACTIVITY. (REFER PARA 8.10/ PAGES 15-17 OF CIT(A) ORDER) RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECED ENTS WHEREIN IT HAS BEEN HELD THAT DIFFERENCES IN FUNCTIONS PERF ORMED, RISKS M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 12 ASSUMED AND ASSETS UTILIZED TO BE CONSIDERED WHILE UNDERTAKING COMPARABILITY ANALYSIS: - MASTEK LIMITED (ITA NO. 3120/AHD/2010 DATED 29 FE BRUARY 2012) (AHD) - HOGANAS INDIA PRIVATE LIMITED (ITA NO. 1463/PN/20 10 DATED 11 JANUARY 2013) (PUNE) 4) THE RESPONDENT ALSO BENCH MARKED ITS TRANSACTION OF RECEIPT OF INDENTING COMMISSION BY COMPARING BERRY RATIO (IE RATIO OF GROSS PROFIT TO OPERATING EXPENSES) WHICH WAS 290.4 7% IN CASE OF THE RESPONDENT AS AGAINST 51.67% IN THE CASE OF THE COMPARABLE COMPANIES. RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECED ENTS WHEREIN IT HAS BEEN HELD THAT BERRY RATIO IS ONE OF THE ACCEPT ED TOOL UNDER TNMM METHOD FOR BENCH MARKING OF INTERNATIONAL TRAN SACTION: - MITSUBISHI CORPORATION INDIA PVT LTD (ITA NO 5042 /DEL/11 DATED 21.10.14) (DEL) - AGILENT TECHNOLOGIES INDIA PVT LTD (ITA NO 4324/D EL/11 DATED 08.02.2016) (DEL) 10.6. WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON PERUSAL OF THE TPOS ORDER WE FIND THAT THE TPO TRIED TO COMPARE THE MARGINS OF THE ASSESSE E FROM TRADING ACTIVITY AND THE ACTIVITY OF INDENTING COMMISSION O F THE ASSESSEE BY ALLOWING CERTAIN ADJUSTMENTS AND FINALLY WAS OF THE VIEW THAT THE MARGIN FROM INDENTING COMMISSION SHOULD HAVE BEEN M ORE AND SHOULD HAVE BEEN EQUAL TO THE ACTIVITY OF TRADING A ND SINCE THE MARGIN AT WHICH THE INDENTING COMMISSION EARNED WAS LESS AS COMPARED TO THE TRADING ACTIVITY, AN AMOUNT OF RS. 9,03,19,798/ - WAS MADE AS ADJUSTMENT PRESUMING THAT THE ASSESSEE SHOULD HAVE EARNED INDENTING COMMISSION @ 9.21% AS AGAINST 8% EARNED B Y THE ASSESSEE. THE LD. CIT(A) CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE AS WELL AS THE AVERMENTS OF THE TPO/ASSESSING OFFIC ER CONCLUDED THAT M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 13 THERE CANNOT BE A COMPARISON AT ALL WITH THESE TWO ACTIVITIES I.E TRADING AND INDENTING ACTIVITIES OF THE ASSESSEE, D ELETED THE ADJUSTMENT OBSERVING AS UNDER: 8.16 I HAVE CONSIDERED THE SUBMISSIONS AND THE EX PLANATIONS MADE BY THE APPELLANT. I HAVE ALSO OBSERVED THAT T HE APPELLANT PROPOSED ADJUSTMENTS FOR THE FOLLOWING AND THE LEAR NED TPO HAS ALLOWED CERTAIN ADJUSTMENT BEFORE COMPARISON CAN BE UNDERTAKEN BETWEEN TRADING AND INDENTING: A) INTEREST ON WORKING CAPITAL - NOT ALLOWED B) BAD DEBTS - ALLOWED C) ENTREPRENEURIAL RISK - NOT ALLOWED D) INVENTORY OBSOLESCENCE - ALLOWED E) WAREHOUSING - NOT ALLOWED F) SHORT TERM STRESS ON FINANCE - ALLOWED G) DISTRIBUTION NETWORK - ALLOWED 8.17. BASED ON THE SUBMISSIONS AND EXPLANATION MADE BY THE APPELLANT, THE FUNCTIONAL AND THE RISK PROFILE AND THE FACT THAT ADJUSTMENTS HAVE BEEN ALLOWED BY THE LEARNED TPO, I T IS EVIDENT THAT THE FUNCTIONAL AND RISK PROFILE OF THE TRADIN G AND INDENTING ACTIVITIES CARRIED OUT BY THE APPELLANT ARE DIFFERE NT. FURTHER, WHILE THE LEARNED TPO HAS MADE CERTAIN ADJUSTMENTS TO BRIDGE THE GAP BETWEEN THE SAME, I AM OF THE VIEW THAT AT IT WOULD BE INAPPROPRIATE TO COMPARE THESE ACTIVITIES TO BEGIN WITH, MORE SPECIFICALLY, THE GROSS RATE AT WHICH THE APPELLANT EARNS COMMISSION FOR INDENTING ACTIVITIES CANNOT BE COMPA RED TO THE NET PROFIT IT MAKES IN THE TRADING BUSINESS. FURTH ER, IT HAS BEEN EXPLAINED THAT THE PRODUCTS TRADED BY THE APPELLANT ARE DIFFERENT TO THE PRODUCTS ON WHICH IT EARNS COMMISSION INCOME FROM ITS AES. 8.18, SEPARATELY, THE APPELLANT EXPLAINED DURING TH E COURSE OF THE APPELLATE PROCEEDINGS THAT THE LEARNED TPO HAS COMP ARED TWO CONTROLLED TRANSACTIONS WHICH DEFEATS THE VERY PURP OSE OF UNDERTAKING TRANSFER PRICING ANALYSIS. I AM IN AGRE EMENT WITH THE APPELLANT AND IN LIGHT OF DECISION IN THE CASE OF SONY INDIA ' M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 14 PVT LTD, PHILIPS SOFTWARE CENTRE PVT. LTD., SKODA A UTO INDIA PVT. LTD., I AM INCLINED TO HOLD THAT THESE TRANSACTIONS CANNOT BE COMPARED ON TWO ACCOUNTS, NAMELY DIFFERENCE IN THEI R FUNCTIONAL PROFILE AS WELL AS THE FACT THAT THEY CONSTITUTE CO MPARISON OF A CONTROLLED TRANSACTIONS WITH ANOTHER CONTROLLED TRA NSACTION. 8.19. THUS TAKING AN OVERALL VIEW OF THE MATTER AND FOR THE REASONS RECORDED I AM OF THE CONSIDERED VIEW THAT T HERE WOULD BE NO TRANSFER PRICING ADJUSTMENT IN ADJUSTMENT IN APP ELLANTS CASE. ON GOING THROUGH THE ORDER OF THE LD. CIT(A), WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DEL ETING THE TP ADJUSTMENTS MADE BY THE TPO. GROUND RAISED BY THE REVENUE IS DISMISSED ON THIS ISSUE. ITA NO. 6686/MUM/2010 2005-06 11. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. CIT(A)-15 DATED 14.6.2010 PERTAINING TO ASSESSMENT YEAR 2005-06. 11.1. THE ASSESSEE IS CHALLENGING THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER CO NSIDERING THE COMPUTER LEASE PAYMENTS OF RS. 26,79,730/- MADE TO IBM AS CAPITAL EXPENDITURE. 11.2. THE ASSESSEE BY LETTER DATED 22.8.2014 FILED AN ADDITIONAL EVIDENCE IN THE FORM OF LETTER FROM IBM INDIA PVT. LTD., TO THE EFFECT THAT UNDER THE TERM LEASE MASTER AGREEMENT BETWEEN THE ASSESSEE AND THE IBM INDIA PVT. LTD., COMPUTERS WERE PROVIDE D ON LEASE TO THE ASSESSEE BY IBM. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE EXPENDITURE WAS HELD TO BE CAPITAL EXPENDITURE BY T HE LOWER AUTHORITIES. HOWEVER, SINCE THE COMPUTERS WERE TAK EN ON LEASE, THE LEASE RENT CHARGES PAID BY THE ASSESSEE ARE TO BE A LLOWED AS REVENUE EXPENDITURE. HE FURTHER SUBMITS THAT SINCE THE ADD ITIONAL EVIDENCE M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 15 PRODUCED IS GOING TO THE ROOT OF THE MATTER, THE SA ME MAY BE ADMITTED AND RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND ADJUDICATION. THE LD. COUNSEL FO R THE ASSESSEE FURTHER SUBMITS THAT THE CO-ORDINATE BENCH OF THE T RIBUNAL WHILE DEALING WITH THE APPEAL FOR ASSESSMENT YEAR 2006-07 IN ITA NO. 7460/M/2010 DATED 10.3.2015 THE VERY SAME ISSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIO N TO DECIDE THE ISSUE AFRESH AFTER CONSIDERING THE LEASE AGREEMENT AND CE RTIFICATE GIVEN BY IBM AND ANY OTHER MATERIAL INFORMATION. 11.3. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO SE RIOUS OBJECTION IN REMITTING THE MATTER BACK TO THE FILE OF THE ASS ESSING OFFICER FOR FRESH EXAMINATION. 11.4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CO-ORDINATE BENCH DECISIO N FOR THE ASSESSMENT YEAR 2006-07. THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE ARE ADMITTED. WE FIND THAT SIMILAR ISSUE HAD BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER BY THE CO-ORD INATE BENCH WITH THE FOLLOWING OBSERVATIONS: AT THE TIME OF HEARING, THE LD A.R PLACED STRONG R ELIANCE ON THE LEASE AGREEMENT AND SUBMITTED THAT THE TERMS OF THE LEASE AGREEMENT CLEARLY SHOW THAT THE SAME WAS AN OPERATING LEASE ONLY. HOWEVE R, WE NOTICE FROM THE ORDERS OF TAX AUTHORITIES THAT THEY HAVE NOT EXAMIN ED THE LEASE AGREEMENT IN ORDER TO FIND OUT THE ACTUAL NATURE OF THE LEASE I. E. WHETHER IT WAS A FINANCIAL LEASE OR AN OPERATING LEASE. THE LD. COUNSEL 3 ITA. NO.7460/MUM/2010 SUBMITTED THAT THE DRP HAS CONFIRMED THE ORDER OF T HE AO ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO EXPLAIN AS TO WHAT WOU LD BE THE TREATMENT TO THE COMPUTER AFTER THE EXPIRY OF LEASE PERIOD. THE LD. COUNSEL SUBMITTED THAT THE LEASE AGREEMENT SPECIFICALLY PROVIDES THAT THE COMP UTER WOULD BE RETURNED BACK TO M/S IBM. HE FURTHER SUBMITTED THAT THE ASSE SSEE HAS ALSO OBTAINED A CERTIFICATE TO THAT EFFECT FROM M/S IBM. THUS, IN O UR VIEW, THE PRESENT DISPUTE COULD BE RESOLVED ONLY IF A DEFINITE FINDING ABOUT THE NATURE OF LEASE IS GIVEN. WE HAVE ALREADY NOTICED THAT BOTH THE AUTHORITIES H AVE FAILED TO EXAMINE THE LEASE AGREEMENT WHICH, IN OUR VIEW, IS ESSENTIAL. A CCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE AO. M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 16 ACCORDINGLY, WE SET ASIDE THE ORDER OF THE AO AND R ESTORE THIS ISSUE TO THE FILE OF THE AO/DRP WITH A DIRECTION TO DECIDE THE SAME A FRESH BY DULY CONSIDERING THE LEASE AGREEMENT, CERTIFICATE GIVEN BY THE M/S I BM AND ANY OTHER INFORMATION/EXPLANATIONS THAT MAY BE FURNISHED BY T HE ASSESSEE. FOLLOWING THE SAID ORDER, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE IS SUE AFRESH BY CONSIDERING THE LEASE AGREEMENT, CERTIFICATE GIVEN BY M/S. IBM AND ANY OTHER INFORMATION THAT MAY BE FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER SHALL GIVE ADEQUATE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 11.5. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 6535/M/2010 A.Y. 2005-06 12. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION RELATED TO CO MPUTER EXPENSES. 12.1. BOTH THE PARTIES AGREED THAT THE SAME ISSUE H AS ARISEN IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2004- 05 AND THE ARGUMENTS THEREIN APPLIES TO THIS YEAR ALSO. 12.2. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE DECIDED THIS ISSUE WHILE DEALING WITH THE APPE AL FOR ASSESSMENT YEAR 2004-05 AT PARA 8 TO 8.5. SINCE THE ISSUE IN THIS ASSESSMENT YEAR 2005-06 IS IDENTICAL, FOR SIMILAR REASONS, THE DECI SION TAKEN FOR THE ASSESSMENT YEAR 2004-05 APPLIES MUTATIS MUTANDIS T O THIS ISSUE FOR THIS ASSESSMENT YEAR ALSO. THUS THE GROUND RAISED BY THE REVENUE IS DISMISSED. M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 17 13. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE U/S. 40( A)(IA) OF THE ACT. 13.1. THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SEC. 40(A)(IA) DISALLOWED PAYMENTS MADE BY THE ASSESSEE TO CONTRAC TORS, COMMISSION EXPENSES AND PROFESSIONAL FEES SINCE TH E ASSESSEE DID NOT PAY THE TDS WITHIN TIME. 13.2. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLO WANCE OBSERVING THAT ASSESSEE HAS DEPOSITED THE TDS WITHIN THE END OF THE FINANCIAL YEAR, THUS IT IS ENTITLED TO CLAIM DEDUCTION OF TH E EXPENSES. 13.3. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTL Y SUPPORTS THE ORDER OF THE ASSESSING OFFICER. 13.4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT CLAUSE (B) OF SEC. 40(A)(IA) ENTITLES THE ASSESSEE TO CLAIM DEDUCTION IN RESPECT OF PAYMENTS, ON WHICH TAX HAS BEEN DEPOSITED AFTER THE DUE DATE BUT BEFORE THE END OF THE FINANCIAL YEAR. THE LD. COUN SEL FOR THE ASSESSEE SUBMITS THAT FROM ANNEXURE 8 TO FORM 3CD REPORT, IT CAN BE SEEN THAT THE ASSESSEE HAS DEPOSITED THE TAXES DEDUCTED WITH THE GOVERNMENT TREASURY BEFORE 31 ST MARCH, 2005 I.E. WITHIN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2005-06. THEREFORE, HE SUBMITS THAT NO DISALLOWANCE IS WARRANTED U/S. 40(A)(IA) OF THE ACT . 13.5. WE HAVE HEARD BOTH PARTIES AND PERUSED THE OR DERS OF THE AUTHORITIES BELOW. THE ISSUE HAS BEEN CONSIDERED B Y THE LD. CIT(A) WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE A ND AVERMENTS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND A FTER PERUSING THE TAX AUDIT REPORT, THE LD. CIT(A) DELETED THE DISALL OWANCE OBSERVING AS UNDER: M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 18 8. THE SEVENTH GROUND OF THE APPEAL IS THAT THE ASSESSING OFFICER ERRED IN DISALLOWING FOLLOWING PA YMENTS U/S. 40(A)(IA) OF THE ACT. I) PAYMENT MADE TO CONTRACTORS OF RS. 13,52,650/- II) COMMISSION EXPENSES OF RS. 5,80,960 AND III) PROFESSIONAL FEES OF RS. 61,40,720/- 8.1. IN PARAP 8.6 OF THE ASSESSMENT ORDER PASSED U /S. 143(3) OF THE ACT, THE ASSESSING OFFICER DISALLOWED PAYMENTS ON THE GROUND THAT PAYMENT OF TDS HAS BEEN MADE AFTER THE DUE DATE PRESCRIBED U/S. 200(1) OF T HE ACT. 8.2. IN THE APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THAT: I) CLAUSE (B) OF SEC. 40(A)(IA) ENTITLES THE APPELLANT TO CLAIM DEDUCTION IN RESPECT OF PAYMENTS, ON WHICH TA X HAS BEEN DEPOSITED AFTER THE DUE DATE BUT BEFORE TH E END OF THE FINANCIAL YEAR. II) FROM ANNEXURE 8 OF FORM 3CD, IT CAN BE SEEN THAT THE APPELLANT HAS DEPOSITED THE TAXES DEDUCTED WITH THE GOVERNMENT TREASURY BEFORE 31 ST MARCH, 2005 I.E. WITHIN THE FINANCIAL YEAR RELEVANT TO ASSESSME NT YEAR 2005-06. 8.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSING OFFICER AND THE APPELL ANT COMPANY. THE APPELLANT HAS DEPOSITED THE TDS WITHI N THE END OF THE FINANCIAL YEAR AND THUS, IT IS ENTITLED TO CLAIM DEDUCTION OF THE EXPENSES. TAKING INTO CONSIDERATI ON THE ENTIRETY OF THE FACTS OF THE CASE I AM OF THE OPINI ON THAT THE ASSESSING OFFICER ERRED IN DISALLOWING THE EXPENDIT URE U/S. 40(A)(IA). ACCORDINGLY, THE ADDITION MADE BY THE A SSESSING OFFICER IS HEREBY DELETED. M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 19 13.6. ON GOING THROUGH THE ORDER OF THE LD. CIT(A), WE DO NOT FIND ANY INFIRMITY IN DELETING THE DISALLOWANCE MADE U/ S. 40(A)(IA) OF THE ACT, THEREFORE WE SUSTAIN THE ORDER OF THE LD. CIT( A) ON THIS ISSUE. 14. THE NEXT ISSUE IS REGARDING TRANSFER PRICING AD JUSTMENT. BOTH THE PARTIES AGREED THAT THE SAME ISSUE HAS ARISEN IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2004-05 AND THE ARG UMENTS THEREIN APPLIES TO THIS YEAR ALSO. 14.1. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE DECIDED THIS ISSUE WHILE DEALING WITH THE APPE AL FOR ASSESSMENT YEAR 2004-05 AT PARA 10 TO 10.6 IN FAVOUR OF THE AS SESSEE BY DELETING THE ADJUSTMENT MADE. SINCE THE ISSUE IN THIS ASSES SMENT YEAR 2005- 06 IS IDENTICAL, FOR SIMILAR REASONS, THE DECISION N FOR THE ASSESSMENT YEAR 2004-05 APPLIES MUTATIS MUTANDIS TO THIS ASSE SSMENT YEAR ALSO. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED . 15. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 22 ND JULY, 2016 . % . ./ RJ , SR. PS M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD. 20 !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI