Schneider Electric India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 6281/DEL/2012

• Counselvise Citation: 628120114 RSA 2012
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 10-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: AMITAVA SEN
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Wholly owned subsidiary; Unabsorbed depreciation
• Section: 92C; 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I : NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.6281/DEL./2012 (ASSESSMENT YEAR : 2008-09) SCHNEIDER ELECTRIC INDIA PVT. LTD., VS. DCIT, CIRC LE 7 (1), 9 TH FLOOR, TOWER C, BUILDING 10, NEW DELHI. DLF CYBER CITY, PHASE II, GURGAON 122 002 (HARYANA). (PAN : AABCS1624G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMITAVA SEN, CA REVENUE BY : SHRI PEEYUSH JAIN, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM TH E ORDER OF THE ASSESSING OFFICER U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (THE ACT) DATED 26.10.2012. 2. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF LOW VOLTAGE AND MEDIUM VOLTAGE EQUIPMENTS AND SWITCHGEARS, I.E. AIR CIRCUIT BREAKE RS AND ALSO ENGAGED IN DISTRIBUTION OF IMPORTED ELECTRIC EQUIPMENTS MAINLY FOR INDUSTRIAL USE. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF SCHNEI DER ELECTRIC INDUSTRIES SAS, FRANCE. ITA NO.6281/DEL/2012 2 3. THE GROUNDS OF APPEAL READ AS UNDER :- TRANSFER PRICING ('TP') MATTERS ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW: 1. THE LD ASSESSING OFFICER ('AO') PURSUANT TO THE DIRECTIONS OF THE LD DISPUTE RESOLUTION PANEL ('DRP ') ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS.35,17,37,000 TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTION PERTAINI NG TO ITS MANUFACTURING SEGMENT, AND CONTRACT RESEARCH AN D DEVELOPMENT (R&D) SUPPORT SERVICES SEGMENT OF THE APPELLANT DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME-TAX ACT, 1961 ('THE ACT' ). 2. THE LD. DRP / AO ERRED IN DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTA INING TO MANUFACTURING SEGMENT BY: 2.1 AGGREGATING THE APPELLANT'S MANUFACTURING SUB- SEGMENTS NAMELY MANUFACTURING LOCAL AND MANUFACTURING TP, WHICH WAS FURTHER SEGREGATED INTO IMPORT OF COMPONENTS FOR MANUFACTURING AND SALE TO NON ASSOCIATED ENTERPRISES ('AES') AND MANUFACTURING AND EXPORT TO AES. THEREBY, FAILING TO APPRECIATE THE NUANCES OF THE APPELLANT'S SEGMENTED BUSINESS OPERATIONS AND ITS DIFFERING IMPACT ON THE FUNCTIONAL, ASSET AND RISK PROFILE OF THE APPELLANT; 2.2 FAILING TO APPRECIATE THE TP POLICY FOLLOWED BY THE APPELLANT IN RESPECT OF ITS INTERNATIONAL TRANSACTIONS AND ITS EFFECT ON THE PRICING OF THE INTERNATIONAL TRANSACTIONS AND ALSO FAILING TO TAKE COGNIZANCE OF THE ADDITIONAL EVIDENCE SUBMITTED BEFORE THE LD DRP TO SUPPORT ITS TP POLICY; 2.3 FAILING TO APPRECIATE THAT THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT RELATING TO ITS MANUFACTURING SEGMENT WOULD MEET THE ARM'S ITA NO.6281/DEL/2012 3 LENGTH PRINCIPLE EVEN ON A TRANSACTION- BY-TRANSACTION BASIS; 2.4 FAILING TO CONSIDER THAT IN ANY EVENT, ONLY PROPORTIONATE TP ADJUSTMENT SHOULD HAVE BEEN MADE IN THE APPELLANT'S CASE UNDER THE TRANSACTIONAL NET MARGIN METHOD ('TNMM'), BY APPLYING THE PRINCIPLES ENUNCIATED BY THE HON'BLE DELHI BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL ('ITAT') IN THE MATTER OF IL JIN ELECTRONICS INDIA (P) LTD. US. ACIT, CIRCLE- 11 (1) [2010 36 SOT 227]; AND 2.5 FAILING TO CONSIDER THE PROPORTION OF IMPORTED COMPONENTS CONSUMED BY THE APPELLANT VIS A VIS THE COMPARABLES AND ITS INCREMENTAL IMPACT ON THE COST BASE OF THE APPELLANT ON ACCOUNT OF CUSTOMS DUTY. 3. THE LD. DRP / AO ERRED IN DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTA INING TO CONTRACT R&D SUPPORT SERVICES SEGMENT BY: 3.1. IGNORING THE FACT THAT THE APPELLANT IS ENTIT LED TO TAX HOLIDAY UNDER SECTION 10A OF THE ACT ON ITS PROFITS AND THEREFORE WOULD NOT HAVE ANY UNTOWARD MOTIVE OF DERIVING A TAX ADVANTAGE BY MANIPULATING TRANSFER PRICES OF ITS INTERNATIONAL TRANSACTIONS; AND 3.2. THE LD. AO/TPO HAVE GROSSLY ERRED IN NOT ALLOWING THE BENEFIT OF THE +/-5% RANGE MENTIONED IN THE PROVISO TO SECTION 92C(2) OF THE ACT WHILE COMPUTING THE ARM'S LENGTH PRICE FOR THE APPELLANT'S SAID INTERNATIONAL TRANSACTIONS. CORPORATE TAX MATTERS 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: ITA NO.6281/DEL/2012 4 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP / AO HAS ERRED IN NOT ADJUSTING THE UNABSORBED DEPRECIATION OF RS.1,38,51,671 OF ASSESSMENT YEAR 2007-08 AGAINST THE CURRENT YEAR INCOME ALLEGEDLY ON THE GROUND THAT THERE WAS NO UNABSORBED DEPRECIATION AS THE INCOME OF THE APPELLANT WAS ASSESSED ON A POSITIVE INCOME IN ASSESSMENT YEAR 2007-08. 5. THE LD. AO ALSO ERRED IN PROPOSING TO INITIATE P ENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. 4. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE H AVE ALSO PERUSED THE DOCUMENT SUBMITTED. PRIMARILY, THE PLEADINGS WE RE WITH REGARD TO REMANDING THE CASE BACK TO THE OFFICE OF TRANSFER P RICING OFFICER/AO TO ANALYZE THE ADDITIONAL EVIDENCE SUBMITTED BEFORE TH E DRP RELYING ON THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08. IT WAS SUBMITTED BY THE LD. AR THAT ASSESSEE SUBMITTED SIMILAR ADDITION AL EVIDENCES IN ASSESSMENT YEAR 2007-08 WHEREIN THE ITAT HAS REMAND ED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ITAT HAS TAK EN THE COGNIZANCE OF ADDITIONAL EVIDENCES AND REMANDED THE MATTER TO THE OFFICE OF TPO/AO FOR HIS ANALYSES. THE LD. DR PRINCIPALLY CONCURRED WITH THE APPELLANT FOR SUBMISSION OF ADDITIONAL EVIDENCES WHICH WERE FILED BEFORE THE DISPUTE RESOLUTION PANEL, HOWEVER, LD. DR CONTENDED THAT TH E SAME SHOULD NOT RESULT IN A CHANGE IN TRANSFER PRICING APPROACH VIZ . ECONOMIC ANALYSIS AS UNDERTAKEN IN THE TRANSFER PRICING DOCUMENTATION. L D. DR ALSO SUBMITTED ITA NO.6281/DEL/2012 5 THAT AT THAT STAGE, THE APPELLANT MAY PLEAD THAT NE W APPROACH, FOR EXAMPLE, TRANSACTION BY TRANSACTION ANALYSIS THAT W OULD RESULT IN CHANGE IN TESTED PARTY. ON THIS LD. AR SUBMITTED THAT THE ASSESSEE HAS PREPARED THE TPO DOCUMENT FOR 2008-09 THEREBY COMPLYING WITH THE CONTEMPORANEOUS DOCUMENTATION REQUIREMENTS AS PRESC RIBED BY RULE 10D(4) OF THE INCOME-TAX RULES, 1962. THE ASSESSEE HAS ALSO CONDUCTED THE ECONOMIC ANALYSIS BY SEGMENTING ITS BUSINESS OP ERATIONS INTO MANUFACTURING, DISTRIBUTION AND SERVICES SEGMENTS T O ANALYZE AND DEMONSTRATE THE ARMS LENGTH NATURE OF ITS TRANSFER PRICES WITH ITS ASSOCIATED ENTERPRISES (AES). FOR THIS, LD. AR REFE RRED TO PAGE 108 TO 110 OF THE PAPER BOOK TO FORM 36B. THE LD. AR FURTHER M ADE A WRITTEN SUBMISSIONS WHICH READ AS UNDER :- TRANSACTION BY TRANSACTION ANALYSIS IT HAS BEEN ENSHRINED IN THE ORGANISATION FOR ECONO MIC COOPERATION AND DEVELOPMENT ('OECD') GUIDELINES1, I NDIAN TP REGULATIONS AND JUDGMENTS OF VARIOUS BENCHES THA T THE INTERNATIONAL TRANSACTIONS OUGHT TO BE ANALYZED ON A TRANSACTION BY TRANSACTION BASIS TO DETERMINE THEIR ARM'S LENGTH NATURE. THIS HAS BEEN SQUARELY COVERED IN TH E RECENT RULING OF THE SPECIAL BENCH OF DELHI ITAT IN CASE O F LG ELECTRONICS INDIA PVT. LTD. [(2013) 29 TAXMANN.COM (DELHI) SB] WHEREIN THE HON'BLE BENCH HAS STATED THAT ALL INTERNATIONAL TRANSACTIONS SHOULD BE BENCHMARKED ON A TRANSACTION BY TRANSACTION BASIS. THUS, THE APPELLANT CARRIED OUT ECONOMIC ANALYSIS O N A TRANSACTION BY TRANSACTION BASIS, AND SUBMITTED THE SAME AS ADDITIONAL EVIDENCES BEFORE THE DRP, FOR THE FOLLOW ING TRANSACTIONS (REFER PAGES 101 TO 197,203 TO 238 OF THE PAPERBOOK) : ITA NO.6281/DEL/2012 6 I. IMPORT OF COMPONENTS FOR MANUFACTURE OF ELECTRICAL EQUIPMENT (WITH OVERSEAS AES AS THE TESTED PARTY), II. EXPORT OF MANUFACTURING GOODS III. MANAGEMENT SUPPORT SERVICES IV. PAYMENT OF BRAND ROYALTY AND TECHNOLOGY ROYALTY IN THIS REGARD, THE APPELLANT WOULD SUBMIT THAT THE DRP PRINCIPALLY AGREED TO THE TRANSACTION BY TRANSACTIO N ANALYSIS UNDERTAKEN BY THE APPELLANT. THE RELEVANT EXTRACT O F THE DIRECTION OF THE DRP IS PROVIDED BELOW: 8. THE ASSESSEE HAS ALSO PLEADED THAT, IN CASE ITS MANUFACTURING SEGMENT IS BENCHMARKED ON AGGREGATE BASIS, ONLY PROPORTIONATE TRANSFER PRICING ADJUSTME NT SHOULD BE MADE UNDER THE TNMM BY FOLLOWING THE JUDGMENT OF ITAT, DELHI IN THE MATTER OR IL JIN ELECTRONICS PVT. LTD VS. ACIT. 8.1 THE PANEL HAS CONSIDERED THE CONTENTIONS OF THE ASSESSEE. IDEALLY SPEAKING, TRANSACTION BY TRANSACT ION APPROACH SHOULD BE FOLLOWED TO DETERMINE THE ARMS LENGTH PRICE OF EACH TRANSACTION. HOWEVER, IN THIS CASE, FOR THE REASONS STATED BY THE TPO, IT IS NOT POSSIBLE TO DO SO. THE TPO HAS CALCULATED THAT THE ASSESSEE'S PROFIT ARE LOWER BY AN AMOUNT OF RS.3229.84 CRORE AS COMPARED TO ARM'S LENGTH PROFIT , I.E. HAD ALL THE TRANSACTIONS BEEN AT ARM'S LENGTH, THE ASSESSEE'S PROFIT WOULD HAVE BEEN HIGHER BY THE AMOUNT OF RS.3229.84 CRORE. THE DIFFERENCE CONSTITUTES APPROXIMATELY 13.5.% OF TOTAL AMOUNT OF INTERNATIONAL TRANSACTIONS. THE TRANSACTIONS WITH UNRELATED PARTIES ARE OBVIOUSLY AT ARM'S LENGTH. THEREFORE, IT CAN BE CONCLUDED THAT ENTIRE DIFFEREN CE BETWEEN THE ARM'S LENGTH PROFIT AND ACTUAL PROFIT I S ATTRIBUTABLE TO TRANSACTIONS WITH THE AE ONLY. WE, THEREFORE, REJECT THIS CONTENTION OF THE ASSESSEE A LSO. ITA NO.6281/DEL/2012 7 FURTHER, THE APPELLANT WOULD PLACE RELIANCE ON VARI OUS OECD GUIDELINES, INDIAN TP REGULATIONS AND VARIOUS JUDICIAL PRECEDENTS ON THIS ISSUE. PARA 3.9 OF THE OECD GUIDELINES STATES : IDEALLY, IN ORDER TO ARRIVE AT THE MOST PRECISE APP ROXIMATION OF ARM'S LENGTH CONDITIONS, THE ARM'S LENGTH PRINCIPLE SHOULD BE APPLIED ON A TRANSACTION-BY-TRANSACTION B ASIS ... ' (EMPHASIS SUPPLIED) IN ACCORDANCE WITH THE OECD GUIDELINES ABOVE, THE INTERNATIONAL TRANSACTION OF THE APPELLANT SHOULD B E ANALYZED ON A TRANSACTION-BY-TRANSACTION BASIS. THIS VIEW IS ALSO REFLECTED IN THE INDIAN TP REGULATIONS AS GIVEN BEL OW: 92. (1) OF THE ACT STATES : ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTIO N SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE . EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y CLARIFIED THAT THE ALLOWANCE FOR ANY EXPENSE OR INTEREST ARIS ING FROM AN INTERNATIONAL TRANSACTION SHALL ALSO BE DETERMIN ED HAVING REGARD TO THE ARM'S LENGTH PRICE. (2) WHERE IN AN INTERNATIONAL TRANSACTION, TWO OR M ORE ASSOCIATED ENTERPRISES ENTER INTO A MUTUAL AGREEMEN T OR ARRANGEMENT FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUC H ENTERPRISES, THE COST OR EXPENSE ALLOCATED OR APPOR TIONED TO, OR, AS THE CASE MAY BE, CONTRIBUTED BY, ANY SUC H ENTERPRISE SHALL BE DETERMINED HAVING REGARD TO THE ARM'S LENGTH PRICE OF SUCH BENEFIT, SERVICE OR FACILITY, AS THE CASE MAY BE. (EMPHASIS SUPPLIED) ITA NO.6281/DEL/2012 8 THE INTENTION OF THE INDIAN TP REGULATIONS IS TO EN SURE THAT THE PRICE OF AN INTERNATIONAL TRANSACTION IS SIMILA R/EQUAL TO THE PRICE FOR A SIMILAR SERVICE/PRODUCT BETWEEN COM PARABLE INDEPENDENT ENTITIES. FURTHER, THERE ARE UMPTEEN NUMBERS OF JUDGMENTS BY VARIOUS BENCHES OF THE ITAT WHEREIN THE TRANSACTION BY TRAN SACTION APPROACH WAS UPHELD : UCB INDIA PVT. LTD. VS. ACIT [2009-TIOL-184- ITAT-MUM] STAR INDIA PRIVATE LTD. VS. ACIT [2008-TII-07- ITAT-MUM-TP] ABHISHEK AUTO INDUSTRIES LTD. [2010-TII-54- ITAT-DEL-TP] GLOBAL VANTEDGE PVT. LTD. [2010-TII-TIOL-24- ITAT-DEL] GOLAWLA DIAMONDS [2010-TII-53-ITAT-MUM-TP] STAR DIAMOND GROUP [2011-TII-20-ITAT-MUM- TP] SYMANTEC SOFTWARE SOLUTIONS PVT. LTD. [2011-TII- 60-ITAT-MUM-TP] TWINKLE DIAMOND [2009-TII-02-ITAT-MUM-TP] WOCKHARDT LTD. [2010-TII-46-ITAT-MUM-TP]; AND BAYER MATERIAL SCIENCE P LTD. [2012] 134 ITD 582 (MUM.)] THUS, THE APPELLANT WOULD PRAY THAT THE ADDITIONAL EVIDENCES SUBMITTED TO CORROBORATE THE INTERNATIONAL TRANSACT IONS ON A TRANSACTION BY TRANSACTION ANALYSIS SHOULD BE ACCEP TED AND THEREAFTER REMANDED BACK TO THE OFFICE OF TPO FOR F URTHER ADJUDICATION. AT THIS STAGE THE APPELLANT WOULD SUBMIT THAT, THE LD. DR, ALTHOUGH AGREEABLE TO THE APPROACH OF THE APPELLANT IN UNDERTAKING TRANSACTION BY TRANSACTION ANALYSIS, HA VE CONTENDED THAT THE SAME SHOULD NOT RESULT IN CHANGE IN APPROACH FOLLOWED BY IT IN ITS TP DOCUMENTATION. SELECTION OF TESTED PARTY ITA NO.6281/DEL/2012 9 AT THIS STAGE, THE APPELLANT WOULD LIKE TO SUBMIT T HAT THE ECONOMIC ANALYSIS CONDUCTED WAS IN LINE WITH THE GU IDELINES ISSUED BY THE OECD WHICH EXPLAIN A NINE STEP PROCES S FOR TRANSFER PRICING ANALYSIS. THE SALIENT REQUISITES O F A COGENT TRANSFER PRICING ANALYSIS FORTIFIED UNDER THE NINE STEP COMPARABILITY ANALYSIS PROVIDED IN PARA 3.4 OF THE OECD GUIDELINES, BROADLY INCLUDE THE FOLLOWING STEPS: FURTHER, THE APPELLANT WOULD REFER TO RULE 10B OF T HE RULES WHICH DEALS WITH DETERMINATION OF ARM'S LENGTH PRIC E ('ALP') UNDER SECTION 92C OF THE ACT. RULE 10B (2) AND RULE 10B (3) ARE REPRODUCED BELOW FOR YOUR HONOUR'S READY REFERE NCE: 10B(2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFER ENCE TO THE FOLLOWING, NAMELY:- (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACT ION; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTI ONS; (C) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVI DED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; (D) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL STEP 3- FUNCTION ASSET AND RISK(FAR) ANALYSIS STEP 5 COMPARA- BILITY ANALYSIS STEP 4 SELECTION OF TESTED PARTY STEP 2 PRICING POLICY STEP 1 ANALYSIS OF BUSINESS MODEL ITA NO.6281/DEL/2012 10 ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. 10B(3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF- I. NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET; OR II. REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES.' ON PERUSAL OF THE ABOVE, IT MAY KINDLY BE NOTED THA T SUB- RULES (2) AND (3) OF RULE 10B OF THE RULES DO NOT R ESTRICT TAKING AN OVERSEAS ENTITY/AE OF AN ENTERPRISE AS TH E TESTED PARTY. THE ABOVE TWO SUB-RULES PROVIDE THE YARDSTIC KS FOR COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION. YOUR HONOUR'S KIND ATTENTION IS FURTHER INVITED TO RULE 10B(1)(E) OF THE RULES WHICH PROVIDE GUIDELINES FOR DETERMINATION OF ALP UNDER TRANSACTIONAL NET MARGIN METHOD ('TNMM'). THE RELEVANT ABSTRACT OF SUB-RULE 10B(L)(E) IS GIVEN BELOW: '(E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH,- (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FR OM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO CO STS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROL LED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COM PUTED HAVING REGARD TO THE SAME BASE; ' ITA NO.6281/DEL/2012 11 (EMPHASIS SUPPLIED) FROM THE PROVISIONS MENTIONED ABOVE, IT MAY KINDLY BE NOTED THAT THE APPLICATION OF TNMM REQUIRES COMPUTA TION OF NET PROFIT MARGIN REALIZED BY AN ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN AE. THE METHOD DOES NOT LAY DOWN ANY GUIDELINES AS TO WHICH ENTERPRISE SHOULD BE THE TESTED PARTY. THE ENTERPRI SE IN RESPECT OF WHICH THE NET PROFIT MARGIN IS TO BE COM PUTED AND COMPARED CAN BE ANY OF THE TRANSACTING AE AND NEED NOT NECESSARILY BE THE AE OF THE TAX JURISDICTION IN WH ICH IT OPERATES (IN THIS CASE, INDIA). FURTHER, IT MAY KINDLY BE NOTED THAT IN ORDER TO ES TABLISH THE ALP, DETERMINATION OF THE 'TESTED PARTY' PLAYS A VE RY IMPORTANT AND KEY ROLE SINCE ONE NEEDS TO IDENTIFY COMPARABLES AND COMPARE THE SAME WITH TESTED PARTY. IN THIS REGARD, YOUR HONOUR'S KIND ATTENTION IS INV ITED TO THE TP GUIDELINES ISSUED BY THE OECD THAT ALSO HIGHLIGH T THE ABOVE POINT. PARA 3.18 OF THE OECD GUIDELINES STATES THAT: WHEN APPLYING A COST PLUS, RESALE PRICE OR TRANSACT IONAL NET MARGIN METHOD AS DESCRIBED IN CHAPTER II, IT IS NEC ESSARY TO CHOOSE THE PARTY TO THE TRANSACTION FOR WHICH A FIN ANCIAL INDICATOR (MARK-UP ON COSTS, GROSS MARGIN, OR NET P ROFIT INDICATOR) IS TESTED. THE CHOICE OF THE TESTED PART Y SHOULD BE CONSISTENT WITH THE FUNCTIONAL ANALYSIS OF THE TRAN SACTION. AS A GENERAL RULE, THE TESTED PARTY IS THE ONE TO WHIC H A TRANSFER PRICING METHOD CAN BE APPLIED IN THE MOST RELIABLE MANNER AND FOR WHICH THE MOST RELIABLE COMPARABLES CAN BE FOUND, I.E. IT WILL MOST OFTEN B E THE ONE THAT HAS THE LESS COMPLEX FUNCTIONAL ANALYSIS (EMPHASIS SUPPLIED) PARA 3.19 OF THE OECD GUIDELINES STATES THAT: THIS CAN BE ILLUSTRATED AS FOLLOWS. ASSUME THAT COM PANY A MANUFACTURES TWO TYPES OF PRODUCTS. P1 AND P2, THAT IT SELLS ITA NO.6281/DEL/2012 12 TO COMPANY B, AN ASSOCIATED ENTERPRISE IN ANOTHER C OUNTRY. ASSUME THAT A IS FOUND TO MANUFACTURE PL PRODUCTS U SING VALUABLE, UNIQUE INTANGIBLES THAT BELONG TO B AND F OLLOWING TECHNICAL SPECIFICATIONS SET BY B. ASSUME THAT IN T HIS PL TRANSACTION, A ONLY PERFORMS SIMPLE FUNCTIONS AND D OES NOT MAKE ANY VALUABLE, UNIQUE CONTRIBUTION IN RELATION TO THE TRANSACTION. THE TESTED PARTY FOR THIS PL TRANSACTI ON WOULD MOST OFTEN BE A. ASSUME NOW THAT A IS ALSO MANUFACT URING P2 PRODUCTS FOR WHICH IT OWNS AND USES VALUABLE UNI QUE INTANGIBLES SUCH AS VALUABLE PATENTS AND TRADEMARKS , AND FOR WHICH B ACTS AS A DISTRIBUTOR. ASSUME THAT IN THIS P2 TRANSACTION, B ONLY PERFORMS SIMPLE FUNCTIONS AND D OES NOT MAKE ANY VALUABLE, UNIQUE CONTRIBUTION IN RELATION TO THE TRANSACTION. THE TESTED PARTY FOR THE P2 TRANSACTIO N WOULD MOST OFTEN BE B.' FURTHER, THE EXTRACT FROM US TP REGULATIONS WHERE THE CONCEPT OF TESTED PARTY HAS BEEN DISCUSSED AT 1.4 82-5(B) IS PRODUCED BELOW: ' THE TESTED PARTY WILL BE THE PARTICIPANT IN THE CONTROLLED TRANSACTION WHOSE OPERATING PROFIT ATTRIBUTABLE TO THE CONTROLLED TRANSACTIONS CAN BE VERIFIED USIN G THE MOST RELIABLE DATA AND REQUIRING THE FEWEST AND MOS T RELIABLE ADJUSTMENTS, AND FOR WHICH RELIABLE DATA REGARDING UNCONTROLLED COMPARABLES CAN BE LOCATED. CONSEQUENT LY, IN MOST CASES THE TESTED PARTY WILL BE THE LEAST COMPLEX OF THE CONTROLLED TAXPAYERS AND WILL NOT OWN VALUABLE INTANGIBLE PROPERTY OR UNIQUE ASSETS THAT DISTINGUISH IT FROM POTENTIAL UNCONTROLLED COMPARABLES.' (EMPHASIS SUPPLIED) BY VIRTUE OF THE ABOVE GUIDANCE, IT CAN BE REASONAB LY CONCLUDED THAT THE TESTED PARTY FOR INTERNATIONAL T RANSACTIONS SHOULD BE THE ONE, WHICH HAS THE FOLLOWING CHARACTE RISTICS: PERFORMS SIMPLER FUNCTIONS; ASSUMES MINIMAL RISKS; DOES NOT OWN VALUABLE INTANGIBLES / UNIQUE ASSET S; AND IN RESPECT OF WHICH, RELIABLE DATA REGARDING UNCONTROLLED COMPARABLE COMPANIES IS AVAILABLE. ITA NO.6281/DEL/2012 13 THE APPELLANT WOULD ALSO PLACE STRONG RELIANCE ON T HE UNITED NATIONS PRACTICAL MANUAL ON TRANSFER PRICING FOR DEVELOPING COUNTRIES ISSUED ON OCTOBER 2, 2012 WHER EIN IT WAS STATED THAT: '10.3.1.3. THE REGULATION PRESCRIBES MANDATORY ANNU AL FILING REQUIREMENTS AS WELL AS MAINTENANCE OF CONTEMPORANE OUS DOCUMENTATION BY THE TAXPAYER IN CASE INTERNATIONAL TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES CROSS A THRESHOLD AND CONTAINS STRINGENT PENALTY IMPLICATIONS IN CASE OF NONCOMPLIANCE. THE PRIMARY ONUS OF PROVING ARM'S LE NGTH PRICE OF THE TRANSACTION LIES WITH THE TAXPAYER. INDIAN TRANSFER PRICING ADMINISTRATION PREFER INDIAN COM PARABLES IN MOST OF THE CASES AND ALSO ACCEPT FOREI GN COMPARABLES IN CASES WHERE FOREIGN ASSOCIATED ENTERPRISES IS LESS OR LEAST COMPLEX ENTITY AND REQ UISITE INFORMATION ARE AVAILABLE ABOUT TESTED PARTY AND COMPARABLES.' (EMPHASIS SUPPLIED) THE CONCEPT OF TESTED PARTY WAS ALSO DEALT IN DETAI L IN A RECENT JUDGMENT OF THE AHMEDABAD TRIBUNAL IN THE CA SE OF GENERAL MOTORS INDIA PRIVATE LIMITED [TS-21S-ITAT- 2013 (AHD)-TP) WHEREIN THE TRIBUNAL HAS CONCLUDED THAT THE FOREIGN AE SHOULD BE CONSIDERED AS THE TESTED PARTY BEING THE LEAST COMPLEX OF THE TRANSACTING ENTITIES AND H AS RELIED ON THE UN TP MANUAL AND VARIOUS JUDICIAL PRECEDENTS ON THIS ISSUE. THE RELEVANT EXTRACT OF THE ORDER HAS BEEN P ROVIDED BELOW FOR YOUR HONOURS' REFERENCE: 'TAKING ALL THE ABOVE FACTS AND CIRCUMSTANCES OF TH E ISSUE AS DISCUSSED IN THE FOREGOING PARAGRAPHS, IN CONSONANC E WITH THE CASE LAWS QUOTED (SUPRA) AND ALSO THE UNITED NA TION'S PRACTICAL MANUAL ON TRANSFER PRICING, WE DIRECT THE TPO TO ADOPT GMDAT AS THE 'TESTED PARTY' FOR ANALYZING THE INTER-COMPANY TRANSACTIONS OF THE ASSESSEE FOR BOTH THE AYS UNDER CONSIDERATION. TO FACILITATE THE TPO TO ANALYZE THE INTER-COMPANY TRANSACTIONS IN THE CASE OF THE A SSESSEE BY SELECTING GMDAT AS 'TESTED PARTY' AS DIRECTED ABOVE , THIS ISSUE IS RESTORED ON THE FILES OF THE TPO . IT IS ORDERED ACCORDINGLY.' ITA NO.6281/DEL/2012 14 (EMPHASIS SUPPLIED) FURTHER, THE HON'BLE KOLKATA TRIBUNAL IN THE CASE O F DEVELOPMENT CONSULTANTS PRIVATE LIMITED [2008-TII-0 3- ITAT-KOL- TP] AFFIRMED THAT IN ORDER TO SELECT THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE, IT IS FIRST NECESSARY TO SELECT THE TESTED PARTY, WHIC H WILL BE LEAST COMPLEX OF THE CONTROLLED TAX PAYERS ENGAGED IN THE TRANSACTION AND WILL NOT OWN VALUABLE INTANGIBLE PR OPERTY OR UNIQUE ASSETS THAT DISTINGUISH IT FROM POTENTIAL UN CONTROLLED COM PARABLES. THE RELEVANT EXTRACT HAS BEEN PROVIDE D BELOW: '5. BEFORE PROCEEDING TO DISCUSS THE DETERMINATION OF ALP ON TRANSACTION BY TRANSACTION BASIS, SHRI MITRA SUB MITTED THAT AS PER SECTION- 92C (1) OF THE IT ACT. THE ARM'S LE NGTH PRICE OF AN INTERNATIONAL TRANSACTION IS REQUIRED TO BE D ETERMINED USING ANY OF THE PRESCRIBED METHODS, BEING THE MOST APPROPRIATE METHOD-HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION. HOWEVER, IN ORDER TO DETERMINE THE MOST APPROPRIATE METHOD FOR DETERMINI NG THE ARM'S LENGTH PRICE, IT IS FIRST NECESSARY TO SE LECT THE TESTED PARTY'. THE TRANSFER PRICING LEGISLATION IN INDIA DOES NOT PROVIDE ANY DISCUSSION OR MENTION OF THE CONCEP T OF 'TESTED PARTY'. IN ORDER TO UNDERSTAND THE CONCEPT OF TESTED PARTY WE NEED TO REFER TO THE TRANSFER PRICING LEGI SLATIONS OF DEVELOPED COUNTRIES WHERE THE PRINCIPLES OF TRANSFE R PRICING HAVE BEEN IN USE FOR A LONG TIME AND ACT AS A GUIDI NG FORCE FOR ALL THE DEVELOPING ECONOMIES. THE TRANSFER PRIC ING GUIDELINES ISSUED BY THE US INTERNAL REVENUE SERVIC ES UNDER SECTION 482 PROVIDE AND DISCUSS THE CONCEPT OF TRAN SFER PRICING. SECTION 1.482-5 OF THE US TRANSFER PRICING REGULATIONS STATE THAT 'THE TESTED PARTY WILL BE TH E PARTICIPANT IN THE CONTROLLED TRANSACTION WHOSE OPERATING PROFI T ATTRIBUTABLE TO THE CONTROLLED TRANSACTIONS CAN BE VERIFIED USING THE MOST RELIABLE DATA AND REQUIRING THE FEWE ST AND MOST RELIABLE DATA AND REQUIRING (THE FEWEST AND MO ST RELIABLE ADJUSTMENTS, AND FOR WHICH RELIABLE DATA R EGARDING UNCONTROLLED COMPARABLES CAN BE LOCATED. CONSEQUENTLY, IN MOST CASES THE TESTED PARTY WILL BE THE LEAST COMPL EX OF THE CONTROLLED TAXPAYERS AND WILL NOT OWN VALUABLE INTANGIBLE PROPERTY OR UNIQUE ASSETS THAT DISTINGUI SH IF FROM POTENTIAL UNCONTROLLED COMPARABLES. 'THUS, IN A ITA NO.6281/DEL/2012 15 SENSE, THE TESTED PARTY WOULD HAVE LESSER RISK AS COMPARED TO THE OTHER TRANSACTING PARTY OR THE REAL ENTREPRENEUR. THE ABOVE CONCEPT OF 'TESTED PARTY' H AS ALSO BEEN CONFIRMED BY THE HON'BLE DELHI TRIBUNAL I N THE EASE OF RANBAXY LABORATORIES LTD. V. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-15. NEW DELHI [11 0 ITD 428] = (2008-TII-01-ITAT-DEL-TP) WHEREIN THE LD . TRIBUNAL HELD THAT, 'THAT LD. CIT FAILED TO APPRECI ATE THAT UNDER THE TRANSFER PRICING MECHANISM 'TESTED PARTY' OUT OF TWO PARTIES OF A MULTINATIONAL INVOLV ED IN THE TRANSACTION, THAT LEAST COMPLEX PARTY NOT OWNIN G INTANGIBLE ASSETS IS TO BE TAKEN AS A TESTED PARTY. THE TAXPAYER HAD PLACED SUFFICIENT MATERIAL ON RECORD T O SHOW THAT TAXPAYER WAS A COMPLEX PARTY WHEREAS OTHE R ASSOCIATED ENTERPRISES WERE LESS COMPLEX ..... ' 6. WE AGREE WITH THE VIEW THAT IN ORDER TO DETERMIN E THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARM 'S LENGTH PRICE, IT IS FIRST NECESSARY TO SELECT THE ' TESTED PARTY' AND THE TESTED PARTY WILL BE THE LEAST COMPL EX OF THE CONTROLLED TAXPAYER AND WILL NOT OWN VALUABLE INTANGIBLE PROPERTY OR UNIQUE ASSETS THAT DISTINGUI SH IT FROM POTENTIAL UNCONTROLLED COMPARABLES. (EMPHASIS SUPPLIED) THE APPELLANT WOULD ALSO MAKE A PASSING REFERENCE T O THE HON'BLE AHMEDABAD TRIBUNAL RULING IN THE CASE OF M/S MASTEK LTD. [TS-127-ITAT-2012(AHD)] AND WHEREIN THE SELECTION OF OVERSEAS AE AS TESTED PARTY WAS NOT DI SPUTED BY THE HON'BLE BENCH. THUS, THE APPELLANT PLEADS BEFORE YOUR HONOURS' THA T THE APPROACH OF UNDERTAKING ECONOMIC ANALYSIS FOR EACH TRANSACTION WOULD DIFFER FROM CASE TO CASE DEPENDIN G ON THE FUNCTIONS PERFORMED, ASSETS OWNED/UTILIZED AND RISK S ASSUMED ('FAR') OF THE TRANSACTING ENTITIES. THUS, IT WOULD BE A GROSS CONTRAVENTION TO THE TENETS OF TRANSFER PRICING IF THE ECONOMIC ANALYSIS WHILE RESULTING IN CHANGE IN SELECTION OF TESTED PARTY, THE SAME IS NOT ACCEPTED ON THE BA SIS THAT SIMILAR APPROACH WAS NOT UNDERTAKEN IN THE TP STUDY . ITA NO.6281/DEL/2012 16 ACCEPTANCE OF ECONOMIC ANALYSIS FOR DISTRIBUTION AN D SERVICES SEGMENT BY THE TPO/DRP DURING THE COURSE OF THE HEARING, THE LD. DR HAD CO NTENDED THAT THE SEGMENTATION IN THE TRANSFER PRICING DOCUM ENTATION IS NOT SUPPORTED BY ACCOUNTING STANDARD ('AS') - 17 . THE APPELLANT WOULD LIKE TO TAKE THE OPPORTUNITY TO HIG HLIGHT THE FACT THAT THERE IS A FUNDAMENTAL DISTINCTION IN THE OBJECTIVE OF SEGMENTATION OF ACCOUNTS UNDER AS - 17 AND OF TRANS FER PRICING PURPOSES. THE SAME HAVE BEEN ELABORATELY DI SCUSSED IN THE SUBMISSION MADE BEFORE THE DRP IN FORM 35A. THE APPELLANT WOULD FURTHER LIKE TO HIGHLIGHT THAT THE INTERNATIONAL TRANSACTIONS PERTAINING TO DISTRIBUTI ON SEGMENT, BUSINESS SUPPORT SERVICES SEGMENT AND E-CONTENT/E-C ATALOGUE SERVICES SEGMENT OF THE APPELLANT WAS DETERMINED TO BE AT ARM'S LENGTH BY THE LD TPO. FURTHER, NO ADVERSE INF ERENCE WAS DRAWN BY THE DRP IN THIS REGARD. THE APPELLANT WOULD LIKE TO DRAW YOUR HONOURS' ATTE NTION TOWARDS THE FACT THAT THE AFORESAID SEGMENTS AND TH E ECONOMIC ANALYSIS THEREIN IS BASED ON THE FUNCTIONS PERFORMED, ASSETS OWNED/UTILIZED AND RISKS ASSUMED ('FAR') OF THE TRANSACTING ENTITIES. THE APPELLANT HAS FOLL OWED THE SAME APPROACH OF SEGMENTATION FOR ITS MANUFACTURING SEGMENT AS WELL BUT THE SAME WAS REJECTED BY THE LD . TPO AND THE DRP. MANUFACTURING SEGMENT - ECONOMIC ANALYSIS FROM SUPPLIER'S PERSPECTIVE FURTHER, THE APPELLANT WOULD TAKE THE OPPORTUNITY T O DRAW YOUR HONOURS' ATTENTION TO THE FINDINGS OF THE HON' BLE DELHI TRIBUNAL IN CASE OF KYUNGSHIN INDUSTRIAL MOTHERSON LTD. [2010-TII-61-ITAT-DEL-TP] WHEREIN THE PRIMARY CONTENTIONS OF THE APPELLANT INVOLVED ANALYSIS OF S UPPLIER PROFITABILITY FOR IMPORTS AND LIMITING THE VARIATION ON ACCOUNT OF TRANSFER PRICING ONLY TO THE PROPORTION OF RELATED PARTY TRANSACTIONS. INCIDENTALLY, BOTH THESE ISSUES WERE NOT ADDRESSED BY LOWER AUTHORITIES FOR THE WANT OF DATA . IN THE SAID RULING, THE HON'BLE BENCH ACCEDED TO THE APPEL LANT'S PLEAD FOR ACCEPTING THESE ADDITIONAL EVIDENCES AND ITA NO.6281/DEL/2012 17 REMANDING THE MATTER TO LOWER AUTHORITIES FOR FRESH ADJUDICATION WITHOUT ANY OTHER SPECIFIC DIRECTION. IN THE INSTANT CASE, THE APPELLANT HAD ALSO SUBMITT ED SUPPLEMENTARY EVIDENCE BEFORE THE DRP TO CORROBORAT E THE ARM'S LENGTH NATURE OF ITS INTERNATIONAL TRANSACTIO NS IN ADHERENCE TO THE PRINCIPLES AND CONTENTIONS MADE BE FORE LOWER AUTHORITIES. THUS, AKIN TO THE FACTS AND CIRC UMSTANCES OF KYUNGSHIN INDUSTRIAL MOTHERSON LTD., THE APPELLA NT WOULD CRAVE THAT ITS PRICING POLICY MAY BE FURTHER ANALYS ED IN LIGHT OF THE NEW EVIDENCE WHICH WAS NOT IN ITS POSSESSION EARLIER. THUS, BASED ON THE ABOVE, THE APPELLANT PLEADS THAT SUPPLEMENTARY EVIDENCES SUBMITTED TO CORROBORATE TRANSACTION BY TRANSACTION ANALYSIS SHOULD BE ACCEP TED AND THEREAFTER REMANDED BACK TO THE LD TPO WITHOUT ANY SPECIFIC DIRECTIONS FROM YOUR HONOURS' WITH RELATIO N TO THE APPROACH TO BE FOLLOWED BY THE TPO. 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HA VE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS MADE. THE ITAT IN A SSESSEES OWN CASE ASSESSMENT YEAR 2007-08 IN ITA NO.5728/DEL/2011 DAT ED 22.11.2012 HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE RELEVANT PORTION OF THE ORDER OF ITAT IS AS UNDER :- 5. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT IN THE CASE KYUNGSHIN INDUSTRIAL MOTHERSON LTD. (SUPRA) TH E PRIMARY CONTENTIONS OF THE ASSESSEE INVOLVED WAS RE GARDING ANALYSIS OF SUPPLIERS' PROFITABILITY FOR IMPORTS AN D LIMITING THE VARIATION ON ACCOUNT OF TRANSFER PRICING ONLY T O THE PROPORTION OF RELATED PARTY TRANSACTIONS. THE AUTHO RITIES BELOW DID NOT ADDRESS THE ISSUES FOR WANT OF DATA. THE TRIBUNAL ACCEDED TO THE ASSESSEE'S PLEA FOR ACCEPTI NG THESE ADDITIONAL EVIDENCES AND REMANDING THE MATTER TO TH E AUTHORITIES BELOW FOR FRESH ADJUDICATION. AGAIN IN THE CASE OF QUARK SYSTEMS INDIA PVT. LTD. (SUPRA) THE SPECIAL B ENCH OF THE TRIBUNAL HAS HELD THAT THE APPELLANT CAN NOT BE ESTOPPED FROM HIGHLIGHTING MISTAKES IN THE ASSESSMENT EVEN T HOUGH SUCH MISTAKE IS THE RESULT OF EVIDENCE ADDUCED BY T HE TAX ITA NO.6281/DEL/2012 18 PAYER. WE FIND THAT IN THE PRESENT CASE THE ASSESSE E HAS ALSO COLLATED SUPPLEMENTARY EVIDENCE TO CORROBORATE THE ARM'S LENGTH NATURE OF ITS INTERNATIONAL TRANSACTIONS IN ADHERENCE TO THE PRINCIPLES AND CONTENTIONS MADE BEFORE THE AUTH ORITIES BELOW. WE THUS IN THE INTEREST OF JUSTICE SET ASIDE THE MATTER TO THE FILE OF THE A.O. TO FIRST ASCERTAIN TO HIS S ATISFACTION THAT THE INSTANCES FURNISHED BY THE ASSESSEE BY WAY OF SUPPLEMENTARY EVIDENCE ARE INDEED COMPARABLE TO THE CASE OF THE ASSESSEE TO CORROBORATE THE ARM'S LENGTH NAT URE OF ITS INTERNATIONAL TRANSACTION IN ADHERENCE TO THE PRINC IPLES OF ARM'S LENGTH AND THEN ANALYSE PRICING POLICY OF THE ASSESSEE IN THE LIGHT OF THE SAID EVIDENCE WHICH WAS NOT IN THE POSSESSION OF THE ASSESSEE EARLIER. IT IS NEEDLESS TO MENTION OVER HERE THAT WHILE DECIDING THE ISSUE AFRESH THE A.O. WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN VIEW OF THE DECISION OF ITAT IN ASSESSEES OWN C ASE AND ALSO IN VIEW OF THE DECISION OF ITAT RELIED UPON BY THE ASSESSEE , CITED SUPRA, IN THE CASE OF KYUNGSHIN INDUSTRIAL MOTHERSON LTD. IN ITA NO.1396 (DEL.)/2009 AND IN VIEW OF THE DECISION OF SPECIAL BENCH IN THE CASE OF QUARK SYSTEMS INDIA PVT. LTD. REPORTED IN 38 SOT 307 (B), WE FIND IT APPROPRIATE TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO FIRST ASCERTAIN TO HIS SATISFACTION THAT THE INSTAN CES FURNISHED BY THE ASSESSEE BY WAY OF SUPPLEMENTARY EVIDENCES ARE INDE ED COMPARABLE TO THE CASE OF THE ASSESSEE TO CORROBORATE THE ARMS LE NGTH NATURE OF ITS INTERNATIONAL TRANSACTION IN ADHERENCE TO THE PRINC IPLES OF ARMS LENGTH AND THEN ANALYSE PRICING POLICY OF THE ASSESSEE IN THE LIGHT OF THOSE EVIDENCES. THUS, THE GROUNDS NO.1 TO 3 ARE RESTORED BACK TO TH E FILE OF THE ASSESSING OFFICER. ITA NO.6281/DEL/2012 19 6. THE ISSUE RAISED IN GROUND NO.4 IS AGAINST NOT A DJUSTING THE UNABSORBED DEPRECIATION OF RS.1,38,51,671/- OF ASSE SSMENT YEAR 2007-08 AGAINST THE CURRENT YEAR INCOME. 7. SINCE THE ORDER OF ASSESSMENT YEAR 2007-08 IS AL READY SET ASIDE TO THE FILE OF THE ASSESSING OFFICER, THEREFORE, IT WI LL BE PREMATURE TO ANY DIRECTION IN RESPECT OF THE SETTING OF THE UNABSORB ED DEPRECIATION FOR ASSESSMENT YEAR 2007-08. THEREFORE, THIS ISSUE IS A LSO RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. 8. IN THE GROUND NO.5, THE ASSESSEE HAS RAISED THE ISSUE OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT, 19 61 FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME. AS WE REMANDED BACK THE ISSUE RAISED REGARDING THE TRANSFER PRICIN G ADJUSTMENT FOR DETERMINING THE ARMS LENGTH PRICE FOR INTERNATIONAL TRANSACTION AND TO DECIDE THE ENTITLEMENT OF THE ASSESSEE CLAIMED U/S 10A OF THE INCOME-TAX ACT, 1961 TO THE FILE OF THE ASSESSING OFFICER, THE REFORE, THIS GROUND IS PREMATURE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 9 TH DAY OF OCTOBER, 2013. SD/- SD/- (DIVA SINGH) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 9 TH DAY OF OCTOBER, 2013/TS ITA NO.6281/DEL/2012 20 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR/ITAT NEW DELHI