GODREJ SARA LEE LTD ( NOW AMALGAMATED INTO GODREJ CONSUMER PRODUCTS LTD), MUMBAI V. ADDL CIT RG 10(2), MUMBAI

ITA 598/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9286 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 14-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-01-2013
• Court: TRIBUNAL
• Assessee Lawyers: AS RECEIVES AN AMOUNT AFTER
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A; 115JB; 80IB; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI VK;DJ VIHYH; VF/KDJ.K] DS U;K;IHB EQACBZ BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER JH FOT; IKY JKO] U;KF;D LNL; ,OA JH MH D:.KKDJK JKO ] YS[KK LNL; DS LE{K ITA NO. 598 /MUM/201 3 ASSESSMENT YEAR: - 2008 - 09 GODREJ SARA LEE LTD. (NOW AMALGAMATED INTO GODREJ CONSUMER PRODUCTS LTD.) KALYANIWALLA & MISTRY 3 RD FLOOR, ARMY & NAVY BUILDING, 148, M.G. ROAD, MUMBAI 400 001. VS.` THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 10(2), AAYAKAR BHAVAN, ROOM NO. 433, 4 TH FLOOR, M.K. MARG, MUMBAI 400 020. APPELLANT / VIHYKFKHZ RESPONDENT / IZR;FKHZ ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 30.11.2012 PASSED U/S 143(3) R.W.S 144C(13) OF THE INCOME TAX ACT IN PURSUANT TO THE DIRECTION OF DRP DATED 7.9.2012 PASSED U/S 144C(5) OF THE INCOME TAX ACT FOR THE A.Y. 2008 - 09. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL: - 1) THE LEARNED DRP ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 14A OF THE ACT WERE APPLICABLE IN THE CASE OF THE APPELLANT, SINCE THE DIVIDEND FROM SHARES/UNITS OF MUTUAL FUNDS IS SUBJECTED TO TAX IN THE HANDS OF THE PAYER UNDER SECTION 115 - 0/ 115 - R OF THE ACT AND AS THE APPELLANT RECEIVES AN AMOUNT AFTER REVENUE BY / JKTLP DH VKSJ LS SHRI F.V. IRANI ASSESSEE BY / FU/KKZFJRH FD VKSJ LS SHRI S.D. SRIVASTAVA DATE OF HEARING 10.02.2015 DATE OF PRONOUNCEMENT 11 .03.2015 ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 2 | P A G E THE TAX HAS BEEN PAID, IT CANNOT BE SAID THAT SUCH DIVIDEND INCOME IS NOT CHARGEABLE TO TAX UNDER THE ACT AND, HENCE, THE PROVISIONS OF SECTION 14A ARE NOT ATTRACTED IN THE CASE OF THE APPELLANT. 2) WITHOUT PREJUDICE TO GROUND NO.1, THE LEARNED DRP ERRED IN CONFIRM ING THAT INTEREST EXPENDITURE ON BORROWINGS UTILIZED FOR THE PURPOSE OF BUSINESS ACTIVITIES OF THE APPELLANT WAS NOT ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT AND IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE AGGREGATING TO RS.2,48,648/ - TOWAR DS THE EARNING OF EXEMPT DIVIDEND INCOME UNDER SUB - CLAUSE (II) OF CLAUSE 2 OF RULE 8D. 3) WITHOUT PREJUDICE TO THE APPELLANT'S CONTENTION THAT NO INTEREST IS ALLOCABLE TO THE EARNING OF EXEMPT DIVIDEND INCOME AND IN ANY EVENT, THE APPELLANT SUBMITS THAT THE DISALLOWANCE COMPUTED AT RS.2,48,648/ - IS ARBITRARY AND GROSSLY EXCESSIVE AND THE SAM E REQUIRES TO BE REDUCED SUBSTANTIALLY. 4) THE LEARNED DRP ERRED IN CONFIRMING THE DISALLOWANCE OF ADMINISTRATIVE AND OTHER EXPENDITURE AGGREGATING TO RS.8,28,725/ - TOWARDS THE EARNING OF EXEMPT DIVIDEND INCOME UNDER SUB - CLAUSE (III) OF CLAUSE 2 OF RULE 8D. 5) WITHOUT PREJUDICE TO ABOVE GROUND AND IN ANY EVENT, THE APPELLANT SUBMITS THAT THE DISALLOWANCE COMPUTED AT RS.8,28,725/ - IS ARBITRARY AND GROSSLY EXCESSIVE AND THE SAME REQUIRES TO BE REDUCED SUBSTANTIALLY. 6) THE LEARNED DRP ERRED IN CONFIRMIN G THE ALLOCATION OF INTEREST AND ADMINISTRATIVE EXPENDITURE AGGREGATING TO RS.10,77,373/ - TOWARDS THE EARNING OF EXEMPT DIVIDEND INCOME AND THEREAFTER REDUCING ONLY THE NET DIVIDEND INCOME WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 7) T HE LEARNED DRP ERRED IN DIRECTING THE ASSESSING OFFICER TO RELY ON THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE RULES - WHILE COMPUTING THE AMOUNT LIABLE TO BE ADDED BACK TO THE BOOK PROFITS TO BE COMPUTED UNDER SECTION 115JB' OF THE ACT. 8) THE LEARNED DRP AND THE ASSESSING OFFICER ERRED IN DISREGARDING THE METHOD OF ALLOCATION CONSISTENTLY ADOPTED BY THE APPELLANT AND IN RE - ALLOCATING 50% OF THE FOLLOWING OVERHEADS OF THE NON - ELIGIBLE UNDERTAKINGS OF THE APPELLANT, WHILE COMPUTING THE DEDUC TION U/S 80RB 1 80LC OF THE ACT: - MISCELLANEOUS EXPENSES CONVEYANCE AND TRAVELLING EXPENSES RENT, RATES AND TAXES ADVERTISEMENT AND PUBLICITY SCHEMES AND PROMOTIONS. 9) THE ASSESSING OFFICER ERRED IN NOT CONSIDERING THE DIRECTIONS OF THE LEARNED DRP AS RE GARDS THE ERRONEOUS RE - COMPUTATION OF PROFITS OF TWO UNITS OF THE ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 3 | P A G E APPELLANT ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80IC OF THE ACT AND IN FAILING TO DELETE THE ADDITION MADE ON THIS ACCOUNT. 10) THE LEARNED DRP ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE CLAIM FOR DEPRECIATION UNDER SECTION 32 OF THE ACT ON UPS AND PRINTERS @15% AS AGAINST THE RATE OF 60% CLAIMED BY THE APPELLANT. 11) THE LEARNED DRP ERRED IN CONFIRMING THE ACTION OF THE TRANSFER PRICING OFFICER / ASSESSING OFFICER THAT T HE ACTUAL SALES PRICE AND ARMS LENGTH PRICE OF EACH RELATED PARTY TRANSACTION ARE TO BE COMPARED INDEPENDENTLY AND NOT ON AN AGGREGATE COUNTRY - WISE BASIS FOR EXPORTS MADE TO THE AES. 2. GROUND NO S. 1 TO 5 ARE REGARDING DISALLOWANCE U/S 14A. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 22,73,821/ - U/S 14A OF THE INCOME TAX ACT BY APPLYING THE PROVISIONS OF RULE 8D OF INCOME TAX RULES. THIS AMOUNT OF DISALLOWANCE COMPRISI NG THE DISALLOWANCE U/S 14A ON ACCOUNT OF INTEREST EXPENDITURE AS PER RULE 8D(2)(II) AMOUNTING TO RS. 7,78,133/ - AS WELL AS DISALLOWANCE OF ADMINISTRATION EXPENSES AMOUNTING TO RS. 14,95,688/ - AS PER RULE 8D(2)(III). THE ASSESSEE OBJECTED BEFORE THE DRP AG AINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A AND SUBMITTED THAT OUT OF THE TOTAL INVESTMENT A SUM OF RS. 21.36 CRORE HAS BEEN IN THE SHARES OF FOREIGN SUBSIDIARIES OF THE ASSESSEE AND THE DIVIDEND INCOME FROM THE FOREIGN SUBSIDIARIES IS TAX ABLE, THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 14A IN RESPECT OF THE INVESTMENT MADE IN THE FOREIGN SUBSIDIARIES. THE ASSESSEE HAS ALSO CONTENDED THAT THE INVESTMENT HAS BEEN MADE FROM THE ASSESSEES OWN FUND, THEREFORE, NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A. THE DRP HAS DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE INVESTMENT MADE IN THE FOREIGN COMPANIES FOR THE PURPOSE OF DISALLOWANCE U/S 14A. AS REGARDS THE REMAINING INVESTMENT, THE DRP HAS CONFIRMED THE PROPOSED DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST EXPENDITURE AS WELL AS ADMINISTRATIVE EXPENDITURE. ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 4 | P A G E BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ENTIRE INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN IT S WHOLLY OWNED SUBSIDIARIES/ COMPANIES. HE HAS POINTED OUT THAT DURING THE YEAR UNDER CONSIDERATION, TWO FRESH INVESTMENT WERE MADE BY THE ASSESSEE AND BOTH WERE IN THE FOREIGN SUBSIDIARIES OF THE ASSESSEE, THEREFORE, NO DISALLOWANCE IS CALLED FOR ON ACCOUN T OF INTEREST EXPENDITURE. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ACQUIRED THE SHARES OF TWO COMPANIES FOR AN AGGREGATING AMOUNT OF RS. 54.51 CRORES. THE SAID INVESTMENTS HAVE BEEN FUNDE D OUT OF THE CASH FLOW GENERATED FROM THE OPERATING ACTIVITIES OF THE ASSESSEES COMPANY. THE LD. AUTHORIZED REPRESENTATIVE HAS THUS SUBMITTED THAT WHEN THE ASSESSEES OWN FUND WAS SUFFICIENT FOR MAKING THE INVESTMENT THEN NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE. THE AUTHORITIES BELOW HAVE MADE A DISALLOWANCE WITHOUT DISPUTING THE FACTS BROUGHT ON RECORD BY THE ASSESSEE BY FILING THE ABOVE CASH FLOW STATEMENT. EVEN, OTHERWISE, THE INVESTMENT WAS MADE IN THE 100% SUBSIDIARIES OF THE ASSESSEE, THEREFORE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED WHEN THE INVESTMENT WAS STRATEGIC INVESTMENT AND NOT FOR EARNING THE DIVIDEND INCOME. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS OF THIS TRIBUNAL: - (I) GAR WARE WALL ROPES LIMITED VS. ADDL. CIT (ITA NO. 5408 & 4957/MUM/2012) (II) M/S JM FINANCIAL LIMITED VS. ADDL CIT (ITA NO. 4521/MUM/2012 (III) ACIT VS. M/S ORIENTAL STRUCTURAL ENGINEERS (P) LTD. (ITA NO. 4245/DEL/2011) ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 5 | P A G E 3. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ISSUE I S COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (328 ITR 81). HE HAS FURTHER CONTENDED THAT T HERE CANNOT BE ANY DISTINCTION BETWEEN THE INVESTMENT MADE IN THE SUBSIDIARIES OR NON SUBSIDIARIES COMPANIES WHENT THE DIVIDEND INCOME IS EXEMPT IN THE HANDS OF THE ASSESSEE. THUS THE LD/ DR HAS SUBMITTED THAT THE DISALLOWANCE U/S 14A IS MANDATORY WHEN THE ASSESSEE HAS EARNED THE TAX FREE INCOME FROM THE INVESTMENT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. T HE INVESTMENT AS ON 31 ST MARCH 2007 WAS RS. 6.74 CRORES WHEREAS THE INVESTMENT AS ON 31.03.2008 IS RS. 61.2 5 CRORES , THEREFORE, THERE IS AN INCREASE IN THE INVESTMENT DURING THE YEAR TO THE EXTENT OF RS. 54.51 CRORES. WE NOTE THAT THIS FRESH INVESTMENT OF RS. 54.51 CRORE IS CLEARLY IN THE TWO FOREIGN SUBSIDIARIES OF THE ASSESSEE AND DIVIDEND FROM THE FOREIGN CO MPANY IS TAXABLE, THEREFORE, TO THAT EXTENT THE DRP HAS ALREADY DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE DISALLOWANCE. THE ISSUE BEFORE US IS LIMITED TO THE EXTENT OF DISALLOWANCE IN RESPECT OF THE INVESTMENT IN THE WHOLLY OWNED INDIAN SUBSIDIARIE S. THE ASSESSEE HAS RAISED TWO CONTENTIONS IN THIS RESPECT THAT THE INVESTMENT IN QUESTION IS OUT OF THE ASSESSEES OWN FUND AND THAT TOO IN SUBSIDIARIES . IT IS PERTINENT TO NOTE THAT THE FUND FLOW STATEMENT FILED BY THE ASSESSEE IS ONLY REGARDING THE FRES H INVESTMENT MADE BY THE ASSESSEE DURING THE YEAR WHICH IS OTHERWISE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE U/S 14A BEING THE INVESTMENT IN FOREIGN COMPANIES. IT IS NOT CLEAR FROM THE RECORD WHETHER ANY DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST EXPEN DITURE IN THE EARLIER ASSESSMENT YEARS. SINCE THE INVESTMENT WAS MADE IN THE EARLIER ASSESSMENT ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 6 | P A G E YEARS, THEREFORE, THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE HAS TO BE AS PER THE FUNDS AVAILABLE WITH THE ASSESSEE AND THE FINDING ON THE ISSUE OF DIS ALLOWANCE U/S 14A FOR THE EARLIER YEARS IS RELEVANT FOR THE PURPOSE OF DECIDING THIS ISSUE FOR THE YEAR UNDER CONSIDERATION. SIMILARLY, THE ISSUE OF DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES HAS TO BE DECIDED KEEPING IN VIEW THE FINDING OF THE EA RLIER ASSESSMENT YEARS ON THIS ACCOUNT. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THIS ISSUE TO THE RECORD OF ASSESSING OFFICER TO DECIDE THIS ISSUE AFRESH BY CONSIDERING THE FINDING OF THE EARLIER A.Y S ON THIS ISSUE AND FURTHE R IN VIEW OF THE DECISIONS RELIED UPON BY THE LD. AUTHORIZED REPRESENTATIVE IN CASE OF JM FINANCIAL LTD. VS. ADDL. CIT (SUPRA) AS WELL AS GARWARE WALL ROPES LTD. VS. ADDL. CIT (SUPRA) . 5. GROUND NO. 6 &7 IS REGARDING DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB. 6. THIS GROUND IS CONSEQUENTIAL TO THE ISSUE RAISED IN GROUND NOS. 1 TO 5. SINCE THE GROUND NOS. 1 TO 5 H AVE BEEN SET ASIDE TO THE RECORD OF ASSESSING OFFICER, CONSEQUE NTLY, THE GROUND NOS. 6 AND 7 ARE ALSO SET ASIDE TO THE RECORD OF ASSESSING OFFICER BEING CONSEQUENTIAL IN NATURE. 7. GROUND NO. 8 IS REGARDING DISALLOWANCE U/S 80IB/80IC. 8. THE ASSESSING OFFICER HAS RECOMPUTED THE DEDUCTION U/S 80IB/80IC BY ALLOCATING 50% OF THE OVERHEADS TO THE ELIGIBLE UNDERTAKING. THE ASSESSEE HAS CHALLENGED THE ACTION OF ASSESSING OFFICER BEFORE THE DRP BUT COULD NOT SUCCEED. ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 7 | P A G E 9. BEFORE US, THE LD. AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS BEEN ALLOCATING THE OVERHEADS IN THE RATIO OF SALES WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE PAST YEARS UP TO THE A.Y. 2004 - 05. FOR THE A.Y. 2005 - 06 ONWARDS, THE ASSESSING OFF ICER HAS MADE THE DISALLOWANCE BY ALLOCATING THE 50% OF THE OVERHEADS TO THE ELIGIBLE UNDERTAKING THEREBY REDUCING THE CLAIM U/S 80IB. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT THE ISSUE IS NOW COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSES SEES OWN CASE FOR A.Y. 2005 - 06 AND 2006 - 07. 10. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS MADE REALLOCATION OF THE FOLLOWING EXPENSES: - MISCELLANEOUS EXPENSES CONVEYANCE AND TRAVELLING EXPENSES RENT, RATES AND TAXES ADVERTISEMENT AND PUB LICITY SCHEMES AND PROMOTIONS. 12. WE FIND THAT THESE EXPENSES ARE IDENTICAL AS IN THE A.Y. 2006 - 07 AND 2005 - 06 REALLOCATED BY THE ASSESSING OFFICER FOR THE PURPOSE OF DEDUCTION U/S 80IB AND 80IC OF THE ACT. WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 8 | P A G E CONSID ERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR 2006 - 07 VIDE ORDER DATED 22.11.2013 IN ITA NO. 7369 IN PARA 8 AND 9 AS UNDER: - 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSE RVED THAT OUT OF THE TOTAL OVERHEADS OF RS.154.63 CRORES INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, OVERHEADS TO THE EXTENT OF RS. 141.91 CRORES WERE DIRECTLY ALLOCATED BY THE ASSESSEE TO THE ELIGIBLE UNITS BEING DIRECTLY ATTRIBUTABLE TO THE SAID SEGMENT. THE BALANCE AMOUNT OF OVERHEADS TO THE EXTENT OF RS. 12.72 CRORES REPRESENTING THE INDIRECT EXPENSES WERE ALLOCATED BY THE ASSESSEE BETWEEN THE ELIGIBLE BUSINESS AND NON - ELIGIBLE BUSINESS IN THE RATIO OF TURNOVER AND THIS BASIS ADOPTED B Y THE ASSESSEE WAS ACCEPTED BY THE A.O. EXCEPT IN THE CASE OF ADVERTISEMENT & PUBLICITY EXPENSES AMOUNTING TO RS. 4.23 CRORES, SCHEMES AND PROMOTIONS EXPENSES AMOUNTING TO RS. 0.83 CRORES, MISCELLANEOUS EXPENSES AMOUNTING TO RS. 0.72 CRORES, CONVEYANCE AND TRAVELING EXPENSES AMOUNTING TO RS. 0.47 CRORES AND RENT, RATE & TAXES AMOUNTING TO RS. 0.48 CRORES. AS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US, THE EXPENDITURE ON ADVERTISEMENT & PUBLICITY AND SCHEMES AND PROMOTIONS WAS INCURRED MAINLY TO CREATE AND PROMOTE THE BRAND IMAGE FOR THE COMPANYS PRODUCT AND THIS POSITION WAS ACCEPTED EVEN BY THE A.O. IN HIS ORDER. THE, A.O., HOWEVER, HELD THAT THE TRADER NORMALLY WOULD NEVER INCUR EXPENDITURE ON ADVERTISEMENT AND BRANDS OF THE MANUFACTURER OUT OF THE TRADING PROFIT. HE, HOWEVER, APPEARS TO HAVE OVERLOOKED THE FACT THAT GOODS PROCURED FROM THE THIRD PARTY WERE SOLD BY THE ASSESSEE COMPANY AS A PART OF TRADING ACTIVITY UNDER THE SAME BRAND NAME AND THE BENEFIT OF THE SAID EXPENDITURE THUS WAS AVAI LABLE EQUALLY TO THE TRADING SEGMENT. INCIDENTALLY, THE A.O. ALSO IMPLIEDLY ACCEPTED THIS POSITION WHILE OBSERVING IN HIS ORDER THAT SUCH EXPENSES ON ADVERTISEMENT & PUBLICITY AND SCHEMES HAVE TO BE ALLOCATED TO SOME EXTENT TO THE NON - ELIGIBLE SEGMENT. HE, HOWEVER, HELD THAT SUCH ALLOCATION COULD NOT BE VERY LARGE AMOUNT AND ACCORDINGLY RE - ALLOCATED 50% OF THE SAID EXPENSES TO ELIGIBLE UNIT ON ADHOC BASIS. IN OUR OPINION, SUCH REALLOCATION MADE BY THE A.O. ON ADHOC BASIS CANNOT BE SUSTAINED HAVING REGARD TO ALL THE FACTS OF THE CASE INCLUDING ESPECIALLY THE FACT THAT THE EXPENDITURE ON ADVERTISEMENT & PUBLICITY AND SCHEMES WAS IN THE NATURE OF SELLING EXPENSES AND THE ALLOCATION MADE BY THE ASSESSEE OF THE SAID EXPENSES ON THE BASIS OF TURNOVER WAS QUITE REA SONABLE. THE ALLOCATION SO MADE BY THE ASSESSEE ALSO CANNOT BE SAID TO HAVE RESULTED IN ALLOCATION OF LARGE AMOUNT OF EXPENSES TO THE NON - ELIGIBLE BUSINESS AS ALLEGED BY THE A.O. SINCE THE GROSS PROFIT RATIO AS SHOWN BY THE ASSESSEE IN THE TRADING SEGMENT WAS 12.92% AND EVEN AFTER ALLOCATING ADVERTISEMENT, SCHEMES AND PROMOTIONS EXPENSES ON THE BASIS OF TURNOVER, THE PROFIT OF TRADING SEGMENT WAS 6.59%. 9. SIMILARLY, THE OTHER INDIRECT EXPENSES ON CONVEYANCE AND TRAVELING, RATE AND TAXES AND MISCELLANEOUS WERE INCURRED BY THE ASSESSEE DURING THE NORMAL COURSE OF ITS BUSINESS OF SELLING THE FINISHED GOODS, WHETHER MANUFACTURED OR PROCURED FROM THIRD PARTY AND SINCE THE SAID EXPENSES WERE INCURRED EQUALLY FOR THE BENEFIT OF ELIGIBLE BUSINESS AS WELL AS NON - ELIGIBLE BUSINESS OF TRADING, WE ARE OF THE VIEW THAT THE BASIS OF TURNOVER ADOPTED BY THE ASSESSEE TO ALLOCATE THE SAID ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 9 | P A G E EXPENSES WAS MORE SCIENTIFIC AND REASONABLE. ON THE OTHER HAND, THE REALLOCATION OF THE SAID EXPENSES MADE BY THE A.O. ON ADHOC BASIS WAS NOT SUPPORTED OR SUBSTANTIATED BY HIM AND THE SAME, IN OUR OPINION, CANNOT BE ACCEPTED AS A REASONABLE BASIS. IN THE CASE OF CONSOLIDATED COFFEE LTD. V . STATE OF KARNATAKA (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, IT WAS HELD BY THE HONBLE SUPREME COURT THAT WHEN A BIFURCATION OF EXPENSES IS NOT POSSIBLE, SOME REASONABLE TEST WILL HAVE TO BE ADOPTED AND THAT ADOPTION OF THE METHOD OF APPORTIONI NG ON THE BASIS OF GROSS RECEIPTS COULD NOT BE SAID TO BE A PERVERSE METHOD TO APPLY. KEEPING IN VIEW THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CONSOLIDATED COFFEE LTD. V. STATE OF KARNATAKA (SUPRA) AND HAVING REGARD TO THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ALLOCATION OF EXPENSES MADE BY THE ASSESSEE BETWEEN ELIGIBLE BUSINESS AND NON - ELIGIBLE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB/80IC OF THE ACT WAS REASONABLE AND THERE WAS NO JUSTIFIABLE REASON FOR THE A.O. TO DIS TURB THE SAME AND MAKE RE - ALLOCATION ON ADHOC BASIS. WE, THEREFORE, DELETE THE ADDITION MADE BY THE A.O. BY RESTRICTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB/80IC OF THE ACT BY REALLOCATING THE COMMON INDIRECT EXPENSES AND ALLOW GROUND NO. 1 & 2 OF THE ASSESSEES APPEAL. 13. WE FURTHER NOTE THAT FOR THE A.Y. 2005 - 06, THE TRIBUNAL HAS AGAIN DECIDED THIS ISSUE BY FOLLOWING THE DECISION FOR A.Y. 2006 - 07 . THUS THIS ISSUE IS A RECURRING ISSUE AND THE TRIBUNAL FOR THE A.Y. 2005 - 06 AND 2006 - 07 HAS DE CIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. TO MAINTAIN THE RULE OF CONSISTENCY, WE FOLLOW THE EARLIER ORDER OF THIS TRIBUNAL AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND CONSEQUENTLY THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS DE LETED. 14. GROUND NO. 9 IS REGARDING ERRONEOUS RE - COMPUTATION OF PROFITS OF TWO UNITS ELIGIBLE FOR DEDUCTION U /S 80IC . 15. AT THE TIME OF HEARING, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS STATED THAT THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD. DR RAISED NO OBJECTION IF THE GROUND NO. 9 OF THE ASSESSEES APP EAL IS DISMISSED AS NOT ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 10 | P A G E PRESSED. ACCORDINGLY, THE GROUND NO. 9 OF THE ASSESSEES APPEAL IS DISMISSED BEING NOT PRESSED. 16. GROUND NO. 10 IS REGARDING DEPRECIATION ON UPS GRANTED AT THE RATE OF 15% AS AGAINST THE CLAIM OF 60%. 17. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS RELIED UPON THE FOLLOWING DECISIONS: - (I) CIT VS. B SES YAMUNA POWERS LTD. 358 ITR 47 (DELHI ) (II) HUGHES SYSTIQUE INDIA P. LTD. VS. ACIT [2013] 25 ITR (TRIB) 556 (DELHI) (III) RAYBAN SUN OPTICS INDIA LTD. VS. DCIT [2013] 27 ITR (TRIB) 440 (DELHI) 18. AT THE OUTSET, WE NOTE THAT THIS ISSUE IS NOW SETTLED BY THE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. B SES YAMUNA POWERS LTD (SUPRA), WHEREIN, THE COMPUTER ACCESSORIES AND PERIPHERIES SUCH AS PRINTERS, SCANNERS, SERVERS ETC., WAS HELD TO BE ENTITLED FOR DEPRECIATION AT THE RATE OF 60% IN PARA 5 AND 6 AS UNDER: - 5. HOWEVER, UPON A PERUSAL OF THE FILE, WE F IND THAT THE HIGHER RATE OF DEPRECIATION WAS ALLOWED BOTH BY THE COMMISSIONER OF INCOME - TAX (APPEALS) ('THE CIT(A)') AND THE TRIBUNAL. IN FACT, THE TRIBUNAL IN ITS IMPUGNED ORDER HAS OBSERVED AS UNDER : 'THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL AS DISCUSSED BELOW : IN THE CASE OF ITO V. SAMIRAN MAJUMDAR [2006] 98 ITD 119 (KOL.) , INCOME - TAX APPELLATE TRIBUNAL KOLKATA BENCH 'B', HAS TAKEN A VIEW THAT THE PRINTER AND SCANNER ARE INTEGRAL PART OF THE COMPUTER SYSTEM AND ARE TO BE TREATED AS COMPUTER FOR THE PURPOSE OF ALLOWING HIGHER RATE OF DEPRECIATION, I.E., 60 PER CENT. ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 11 | P A G E 3.2 THE INCOME - TAX APPELLATE TRIBUNAL, DELHI 'F' BENCH IN THE CASE OF EXPEDITORS INTERNATIONAL (INDIA) (P.) LTD. V. CIT [2008] 118 TTJ 652 (DELHI) HAS HELD THAT PERIPHERALS SUCH AS PRINTER, SCANNERS, NT SERVER, ETC., FO RM INTEGRAL PART OF THE COMPUTER AND THE SAME, THEREFORE, ARE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60 PER CENT. AS APPLICABLE TO A COMPUTER. 4. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE CO - ORDINATE BENCH, WE UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN ALLOWING THE DEPRECIATION AT 60 PER CENT. ON COMPUTER PERIPHERALS AND ACCESSORIES, AND, THUS, THE GROUND RAISED BY THE REVENUE IS REJECTED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED.' 6. WE ARE I N AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINTERS, SCANNERS AND SERVER, ETC., FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM. IN FACT, THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COM PUTER. CONSEQUENTLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60 PER CENT. 19. WE FURTHER NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE DELHI BENCHES OF THIS TRIBUNAL IN TH E CASE OF RAYBAN SUN OPTICAL INDIA LTD. VS. DCIT (SUPRA) AS WELL AS IN THE CASE OF HUGHES SYSTIQUE INDIA P. LTD. VS. ACIT (SUPRA). IN THE CASE OF HUGHES SYSTIQUE INDIA P. LTD. VS. ACIT (SUPRA), THE TRIBUNAL BY FOLLOWING THE JUDGMENT OF HON'BLE HIGH COURT O F DELHI HAS HELD IN PARA 75 TO 77 AS UNDER: - 75 IT IS A SETTLED PROPOSITION THAT A 'COMPUTER SYSTEM' COMPRISES OF NOT ONLY THE CENTRAL PROCESSING UNIT (CPU) BUT ALSO ALL INPUT / OUTPUT DEVICES INCLUDING PRINTER, MONITOR AND OTHER DEVICES, ETC. REFERENCE IS MADE TO CIT V. IBM WORLD TRADE CORPN. [1981] 130 ITR 739 (MUM.) . 76 FURTHER, THE ISSUE STANDS COVERED BY THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DY. CIT V. DATACRAFT INDIA LTD . [2010] 40 SOT 295/6 TAXMANN.COM 85 AND DELHI HIGH COURT IN THE CASE OF CIT V. BSES RAJDHANI POWERS LTD . [IT APPEAL NO. 1266 OF 2010], WHEREIN, DEPRECIATION AT A HIGHER RATE OF 60% ON COMPUTER ACCESSORIES AND PERIPHERALS WERE ALLOWED. 77 THEREFORE, UPS AND OTHER COMPUTER ACCESSORIES SHOULD NOT BE TERMED AS PLANT AND MACHINERY AND SHOULD BE ALLOWED DEPRECIATION @60% I.E. AT THE CO MPUTER EQUIPMENT RATES. ACCORDINGLY, THE DISALLOWANCE OF RS. 14,95,560 CALLS FOR BEING DELETED. ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 12 | P A G E 20. IN VIEW OF THE ABOVE DECISIONS, WE ALLOW THE CLAIM OF DEPRECIATION AT THE RATE OF 60%. 21. GROUND NO. 11 IS REGARDING TRANSFER PRICING ADJUSTMENT IN RES PECT OF SALE OF INSECTICIDE PRODUCTS TO VARIOUS AES. 22. THE ASSESSEE COMPANY HAS ENTERED INTO SALE TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES LOCATED IN VARIOUS COUNTRIES. THE SALES CONSIST OF INSECTICIDE PRODUCTS MANUFACTURED BY THE ASSESSEE. THE A SSESSEE BENCH MARKED ITS INTERNATIONAL TRANSACTION BY AGGREGATING THE COUNTRY WISE ALL PRODUCTS EXPORTED. THE TPO HAS NOT ACCEPTED THIS BASIS OF COUNTRY WISE AGGREGATION OF ALL PRODUCTS AND HAS COMPARED THE ARMS LENGTH NET SALES PRICE TO BE CHARGED WITH T HE NET SALES VALUE ACTUALLY CHARGED FOR EACH PARTICULAR PRODUCT AND ACCORDINGLY MADE ADDITION ON THIS ACCOUNT. 23. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF HOUSE HOLD INSECTICIDE PRODUCTS WHICH INTER ALIA INCLUDE INSECT R EPELL ANT MATS AND THE HEATERS ASSOCIATED THEREWITH, INSECT REPELLANT LIQUIDS AND THE VAPORIZERS ASSOCIATED THEREWITH, INSECT REPELLENT COILS AND INSECT REPELLENT HIT - LINE CHALKS. ALL THESE PRODUCTS ARE BASICALLY HOUSEHOLD INSECTICIDES AND ARE USED AS INSECT REP ELLENTS AND ARE COVERED UNDER THE GENERAL CATEGORY OF INSECTICIDES. ALL THESE PRODUCTS ARE EXPORTED BY THE ASSESSEE COMPANY TO ITS ASSOCIATED ENTERPRISES GLOBALLY DEPENDING ON THE MARKET PREFERENCES AND REQUIREMENTS OF EACH COUNTRY. THE TRANSFER PRICING A DJUSTMENTS AS EXPLAINED ABOVE, HAVE BEEN MADE IN RESPECT OF SALES TO FOUR COUNTRIES NAMELY SRI LANKA, BANGLADESH, MALAYSIA AND KENYA. IN CASES OF THE VAPORIZERS AND INSECT LIQUID REPELLANTS, THE ASSESSEE COMPANY HAS SUFFERED ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 13 | P A G E A LOSS ON THE VAPORIZER AND THE LIQUID REPELLANT COMBINATION PACK WHICH IS SOLD BY WAY OF THE INITIAL PRODUCT OFFERING TO THE CUSTOMER AND THE REFILLS WHICH ARE REPETITIVE TRANSACTIONS, ARE THEN SOLD AT A MUCH HIGHER PRICE HEREBY THE ASSESSEE COMPANY MAKES A PROFIT IF THE TRANSACTIONS A RE VIEWED TOGETHER, THEREBY BENEFITTING THE COMPANY ON AN OVERALL BASIS. THIS MARKETING STRATEGY OF AGGREGATING SIMILAR PRODUCTS HAS BEEN ADOPTED BY THE ASSESSEE COMPANY IN SRI LANKA AND BANGLADESH. SIMILARLY, WHEN DETERMINING THE SALE PRICE OF THE HEATERS AND MATS, WHICH IS THE INITIAL PRODUCT OFFERING BY THE ASSESSEE COMPANY IN THIS RANGE, THE PRICING STRATEGY IS TO SELL THE PRODUCT AT A LOWER COST. IN THIS MANNER, THE CUSTOMER IS ENTICED TO BUY THE PRODUCT. THEREAFTER, THE ASSESSEE COMPANY PRICES THE MAT REFILLS AT A HIGHER PRICE THAN THE ARMS LENGTH PRICE AND RECOVERS THE LOSSES IT HAS SUFFERED. SIMILARLY, IN CERTAIN COUNTRIES THE PROFITS ARE REALIZED UP FRONT IN THE SALE OF THE COMBINATION PACK WHEREAS THERE ARE MINOR LOSSES SUFFERED IN THE SUBSEQUENT S ALE OF THE MATS TO ENSURE THAT CUSTOMERS REMAIN WITH THE BRAND RATHER THAN MOVE TO ANOTHER BRAND. HENCE, THE INDIVIDUAL PRODUCT LOSSES ARE MORE THAN COMPENSATED BY THE INDIVIDUAL PRODUCT PROFITS AND THE OVERALL PRODUCT RANGE YIELDS A PROFIT FOR THE COUNTRY AS A WHOLE. THIS MARKETING STRATEGY OF AGGREGATING SIMILAR PRODUCTS HAS BEEN ADOPTED BY THE ASSESSEE COMPANY IN SRI LANKA AND BANGLADESH. THE LD. AUTHORIZED REPRESENTATIVE HAS THUS SUBMITTED THAT SOME OF THE INSECTICIDES PRODUCTS ARE THE CHEAPEST VERSIONS OF THE INSECTICIDES SOLD BY THE ASSESSEE FOR ENTICING THE CUSTOMERS INTO PURCHASING THEIR PRODUCTS, THEREFORE, AT TIMES THESE PRODUCTS ARE SOLD AT A LOWER PRICE MAINLY FOR MARKET PENETRATION TO ENTICE BUYERS TO MOVE UP THE PRODUCT CHAIN OF THE ASSESSEE. T HEREFORE, THE INDIVIDUAL ITEM WHICH IS PART OF A BASKET OF PRODUCTS OF INSECTICIDE CANNOT BE BENCH MARKED SEPARATELY BUT ALL THE PRODUCTS IN THE SAME BASKET SHOULD BE CLUBBED TOGETHER FOR THE PURPOSE OF ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 14 | P A G E DETERMINING THE ARMS LENGTH PRICE. HE HAS REFERRED T HE OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS AND SUBMITTED THAT THE GUIDELINES PROVIDE THAT IN ORDER TO ARRIVE AT THE MOST PRECISE OR PROXIMATE ARMS LENGTH CONDITIONS, THE ARMS LENGTH PRINCIPLE SHOULD BE APPLI ED ON A TRANSACTION - BY - TRANSACTION BASIS. HOWEVER, THERE ARE SITUATIONS WERE SEPARATE TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE CASE OF THE ASSESSEE IS COVERED BY THE OECD GUIDELINES IN THIS RESPECT FOR CLUBBING THE TRANSACTION FOR THE PURPOSE OF EVALUATION AND DETERMINATION OF ALP. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL DATED 18 - 7 - 2014 IN TH E CASE OF BOSKALIS INTERNATIONAL VS. DY. DIRECTOR OF INCOME TAX ITA NO. 4862/MUM/2008. HE HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF TAJ SATS AIR CATERING LTD. VS. ADDITIONAL CIT DATED 20.08.2013 IN ITA NO. 8790/MUM/2011. 24. ON TH E OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT EACH PRODUCT SOLD BY THE ASSESSEE TO THE AE IS A SEPARATE PRODUCT AND, THEREFORE, AS PER THE PROVISIONS OF TRANSFER PRICING, EACH TRANSACTION HAS TO BE COMPARED WITH THE UNCONTROLLED TRANSACTIONS WITHOUT CLUBBING TOGETHER. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE BENCH MARKED ITS SELLING PRICE USING COMPARABLE UNCONTROLLED PRICE (CUP ) METHOD. THE TPO FOUND TH AT THE ASSESSEE HAS AGGREGATED ALL THE EXPORTS MADE TO A PARTICULAR COUNTRY FOR THE PURPOSE OF BENCH MARKING AGAINST THE COMPARABLE TRANSACTIONS WITH UNRELATED PARTIES IN THOSE COUNTRIES. THE TPO HELD THAT SUCH BENCH MARKING ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 15 | P A G E IS REQUIRED TO BE DONE FOR EACH TRANSACTION AND FOR EACH PARTICULAR PRODUCT. ACCORDINGLY, THE TPO HAS MADE THE ADDITION OF RS. 14,61,781/ - ON THIS ACCOUNT. THERE IS NO DISPUTE REGARDING THE MOST APPROPRIATE METHOD APPLIED BY THE ASSESSEE AS INTERNAL CUP . THE ONLY CONTROVERSY BEFORE US IS WHETHER THE VARIOUS INSECTICIDES PRODUCTS SOLD BY THE ASSESSEE TO ITS AES IN VARIOUS COUNTRIES SHOULD BE CLUBBED TOGETHER FOR THE PURPOSE OF BENCH MARKING ALL THE TRANSACTIONS BEING AT ARMS LENGTH AND COMPARED WITH THE UNCONTROLLED PRICE. IT IS PERTINE NT TO NOTE THAT THE PRODUCT SOLD BY THE ASSESSEE ARE INSECTICIDE PRODUCTS IN THE V ARIOUS FORMS I.E. COIL, LIQUID - VAPORIZING PRODUCTS, LIQUID REPELLANTS ETC. THERE IS NO DISPUTE THAT SOME OF THE PRODUCTS ARE SOLD AS A PACKAGE ALONG WITH THE ACCESSORIES WHI CH ARE NECESSARY FOR USING THESE INSECTICIDE PRODUCTS. FOR INSTANCE A HEATER IS REQUIRED ALONG WITH GOOD KNIGHT VAPORIZER AS WELL AS MAT AND, THEREFORE, THE PRODUCT SOLD IN A SINGLE PACKAGE COMPRISING HEATER ALONG WITH THE LIQUID VAPORIZER IS SOLD AT A DIFFERENT PRICE THEN A PRICE OF A REFILLING BOTTLE. THEREFORE, THE VAPORIZER SOLD WITH HEATER CANNOT BE COMPARED WITH A REFILLING VAPORIZER /REFILLING BOTTLE. WE NOTE THAT ALL THE PRODUCTS ARE FALLING IN THE CATEGORY OF INSECTICIDES AND USED AS COMPLIMENTARY TO EACH OTHERS. SOME OF THE PRODUCTS ARE CHEAPEST VERSIONS OF INSECTICIDE AND MAY BE SOLD BY THE ASSESSEE ONLY FOR THE PURPOSE OF MARKETING STRATEGY TO PROMOTE OTHER PRODUCTS OF THE ASSESSEE IN A PART ICULAR MARKET. THEREFORE, ALL THE PRODUCTS ARE FALLING IN THE CATEGORY OF INSECTICIDES AND USED AS SUPPLEMENTARY TO EACH OTHER THEN THESE PRODUCTS MAY BE PRICED BY TAKING A PORTFOLIO APPROACH BY THE ASSESSEE AND NOT CONSIDERING THE PROFIT MOTIVE FROM EACH AND EVERY SINGLE PRODUCT WITHIN THE PORTFOLIO. WE NOTE THAT IN THE CASE OF BOSKALIS INTERNATIONAL VS. DY. DIRECTOR OF INCOME TAX (SUPRA), THE TRIBUNAL WHILE CONSIDERING A SIMILAR ISSUE HAS HELD IN PARA 11 AND 12 AS UNDER ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 16 | P A G E 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE LIMITED ISSUE BEFORE US IS WHETHER THE LEASE RENTAL PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES IN RESPECT OF VARIOUS DREDGING EQUIPMENTS TAKEN ON LEASE CAN BE RECORDED AS CLOSELY LINKED OR CONTINUOUS TRANSACTIONS WHICH CANNOT BE EVALUATED SEPARATELY ON INDIVIDUAL BASIS. IF A NUMBER OF TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS IN NATURE AND ARISING FROM A CONTINUOUS TRANSACTIONS OF SUPPLY OF AMENITY OR SERVICES THE TRANSACTIONS CAN BE PERMITTED AS CLOSELY LINKED TRANSACTIONS FOR THE PURPOSE OF TRANSFER PRICING AND IN TERMS OF RULE 10A(D). AGGREGATION AND CLUBBING OF THE CLOSELY LINKED TRANSACTION ARE PERMITTED UNDER THE RULES AND IT IS ALSO SUPPORTED BY OECD TRANSFER PRICING GUIDELINES. IN ORDER TO EXAMINE WHETHER THE NUMBER OF TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS SO AS TO AGGREGATE FOR THE PURPOSE OF EVALUATION IT IS TO BE CONSIDERED THAT ONE TRANSACTION IS FOLLOW - ON OF THE EARLIER TRANSACTION AND THEN THE SUBSEQUENT TRANSACTIO N IS CARRIED OUT AND DEPENDENT WHOLLY OR SUBSTANTIALLY ON THE EARLIER TRANSACTION. IT CAN BE VICE - VERSA WHEN THE EARLIER TRANSACTION HAS BEEN ENTERED INTO BETWEEN PARTIES BY KEEPING IN MIND THAT A CONTINUOUS TRANSACTION OF SIMILAR NATURE WILL BE ENTERED IN TO BETWEEN THE PARTIES THEREAFTER. THEREFORE, WHEN THE TRANSACTIONS ARE INFLUENCED BY EACH OTHER AND PARTICULARLY IN DETERMINING THE PRICE AND PROFIT INVOLVED IN THE TRANSACTIONS THEN THOSE TRANSACTIONS CAN SAFELY BE REGARDED AS CLOSELY LINKED TRANSACTIONS . THE OECD GUIDELINES HAS REFERRED A PORTFOLIO APPROACH AS BUSINESS STRATEGY CONSISTING OF TAX PAYERS BUNDLING CERTAIN TRANSACTION FOR THE PURPOSE OF EARNING AN APPROPRIATE RETURN ACROSS PORTFOLIO RATHER THAN SINGLE PRODUCT. FOR INSTANCE SOME PRODUCTS MAY BE MARKETED BY THE TAX PAYER WITH A LOW PROFIT OR EVEN AT LOSS BECAUSE THEY CREATE A DEMAND FOR OTHER PRODUCTS OR RELATED SERVICES OF THE SAME TAX PAYER THAT ARE THEN SOLD OR PROVIDE HIGH PROFIT. SOME OF THE EXAMPLES GIVEN IN THE OECD GUIDELINES FOR TRANSF ER PRICING ARE THE EQUIPMENT AND CAPTIVE AFTER MARKET CONSUMABLES SUCH AS VENDING COFFEE MACHINES AND COFFEE CAPSULES, OR PRINTERS AND CARTRIDGES. THUS PORTFOLIO APPROACH IS BUSINESS STRATEGY THAT MAY NEED TO BE TAKEN INTO ACCOUNT IN COMPARABILITY ANALYSIS . THEREFORE, IF TWO OR MORE TRANSACTIONS BETWEEN THE SAME PARTIES I.E., THE ASSESSEE AND ITS ASSOCIATE ENTERPRISE CAN BE SAID TO BE CLOSELY LINKED IF THE TRANSACTIONS ARE INTERLINKED AND TERMS AND CONDITION AS WELL AS PRICES BETWEEN THE PARTIES ARE DETERMI NED BASED ON THE TOTALITY OF THE TRANSACTIONS AND NOT ON INDIVIDUAL AND SEPARATE TRANSACTIONS. 12. IN THE CASE IN HAND THE ASSESSEE HAS TAKEN A NUMBER OF DREDGING EQUIPMENTS FROM MORE THAN ONE ASSOCIATE ENTERPRISES. IN THE BUSINESS DECISIONS WHEN NUMBER O F TRANSACTIONS ARE ENTERED INTO BETWEEN TWO PARTIES THEN IT IS A VERY IMPORTANT AND MATERIAL FACTOR TO CONSIDER A PORTFOLIO APPROACH RATHER THAN THE INDIVIDUAL TRANSACTION APPROACH FOR DETERMINATION OF PRICE OF THE TRANSACTIONS BETWEEN THE PARTIES. EVEN OT HERWISE THE SCHEME OF TRANSFER PRICING PROVISIONS IS TO AVOID BASE EROSION AND PROFIT SHIFTING FROM ONE TAX JURISDICTION TO ANOTHER TAX JURISDICTION. THEREFORE, THE HIRING OF VARIOUS EQUIPMENTS TO BE USED FOR EXECUTION OF A PROJECT CAN BE AGGREGATED FOR TH E PURPOSE OF DETERMINATION OF ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 17 | P A G E ALP ONLY TO THE EXTENT OF THE TRANSACTIONS OR TO THE EXTENT OF NUMBER OF TRANSACTIONS WITH EACH ASSOCIATED ENTERPRISE. IN OTHER WORDS THE TRANSACTIONS CARRIED OUT WITH DIFFERENT ASSOCIATE ENTERPRISES CANNOT BE CLUBBED OR AGGRE GATED BECAUSE THEY CANNOT BE TERMED AS CLOSELY LINKED OR CONTINUOUS SO AS TO INFLUENCE THE PRICE IN AGGREGATE OR THE PROFIT OF THE PARTIES ARISING FROM THESE TRANSACTIONS. HENCE, IN PRINCIPLE WE ACCEPT ARGUMENT OF THE LD.AR THAT THE VARIOUS DREDGING EQUIPM ENTS HIRED FROM THE ASSOCIATE ENTERPRISES CAN BE AGGREGATED FOR THE PURPOSE OF DETERMINATION OF ALP IN TERMS OF RULE 10A(D). HOWEVER, THE AGGREGATION OF THE VARIOUS TRANSACTIONS IS POSSIBLE ONLY WITH RESPECT TO THE TRANSACTIONS WHICH ARE CARRIED OUT BETWEE N THE ASSESSEE AND EACH ASSOCIATE ENTERPRISE. SINCE THE ASSESSEE HAS HIRED THESE EQUIPMENTS AND DREDGERS FROM MORE THAN ONE ASSOCIATE ENTERPRISE, THEREFORE, THE AGGREGATION OF THE TRANSACTION IS PERMITTED ONLY IN RESPECT OF THOSE WHICH ARE BETWEEN THE ASSE SSEE AND ONE ENTERPRISE SEPARATELY. ACCORDINGLY AO/TPO IS DIRECTED TO DETERMINE THE ALP BY AGGREGATING THE VARIOUS TRANSACTIONS BETWEEN THE ASSESSEE AND EACH ASSOCIATE ENTERPRISE SEPARATELY AND NOT BY CLUBBING THE TRANSACTIONS WITH ALL ASSOCIATE ENTERPRISE S. 26. THERE IS NO DISPUTE THAT IF THE NUMBER OF TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS IN NATURE AND ARISING FROM A CONTINUOUS TRANSACTIONS OF SUPPLY OR SERVICES THE TRANSACTIONS CAN BE CLASSIFIED AS CLOSELY LINKED TRANSACTIONS FOR THE PURPOSE OF TRANSFER PRICING AND IN TERMS OF RULE 10A(D) OF THE INCOME TAX RULES. THE AGGREGATION AND CLUBBING OF THE CLOSELY LINKED TRANSACTION ARE PERMITTED UNDER THE RULES AND IT IS ALSO SUPPORTED BY OECD TRANSFER PRICING GUIDELINES. THUS THE CONCEPT OF CLUBBING AN D AGGREGATING THE TRANSACTION IS BASED ON THE PREMISE THAT SUCH TRANSACTIONS INFLUENCED BY EACH OTHER AND PARTICULARLY IN DETERMINING THE PRICE AND PROFIT INVOLVED IN THE TRANSACTIONS THEN SUCH TRANSACTIONS CAN SAFELY BE REGARDED AS CLOSELY LINKED TRANSACT IONS. THE OECD GUIDELINES HAS REFERRED A PORTFOLIO APPROACH AS BUSINESS STRATEGY CONSISTING OF TAX PAYERS BUNDLING CERTAIN TRANSACTION FOR THE PURPOSE OF EARNING AN APPROPRIATE RETURN ACROSS PORTFOLIO RATHER THAN SINGLE PRODUCT. THE ASSESSEE IS SELLING VAR IOUS INSECTICIDE PRODUCTS USED IN THE HOUSEHOLD AT VARIOUS STRATA OF THE SOCIETY AND, THEREFORE, THE PRODUCTS OF THE ASSESSEE ARE CLEARLY FALLING UNDER THE ONE PORTFOLIO OF SAME CATEGORY OF PRODUCT AND, THEREFORE, THE ASSESSEE CAN HAVE A PORTFOLIO ITA NO.598/MUM/2013 ASSESSMENT YEAR: - 2008 - 09 18 | P A G E APPROACH AS A BUSINESS STRATEGY. A SIMILAR VIEW HAS BEEN TAKEN BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TAJ SATS AIR CATERING LTD. VS. ADDITIONAL CIT (SUPRA) . IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS FROM THE ABOVE DISCU SSION, WE ARE OF THE VIEW CONSIDERED OPINION THAT ALL THE INSECTICIDE PRODUCTS SOLD BY THE ASSESSEE TO ITS AE IN EACH COUNTRY SHALL BE CLUBBED TOGETHER FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF TH E ASSESSEE. CONSEQUENTLY, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 27. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUCNED IN THE OPEN COURT ON THIS 11 TH DAY OF MARCH 2015 VKNS'K DH ?KKS'K.KK [KQYS U;K;KY; ES FNUKAD 11 EKPZ 2015 DKS DH XBZA SD/ - SD/ - ( D. KARUNAKARA RAO ) (VIJAY PAL RAO) ( ACCOUNTANT MEMBER / YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; ) MUMBAI DATED 11 .03.2015 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI