Nokia India Pvt. Ltd., Gurgaon V. Addl. CIT, New Delhi

ITA 6283/DEL/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69254 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: MANONEET DALAL; G C SRIVASTAVA
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment; Additional evidence; Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 92B; 234B; 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER A ND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A .NO. - 6283 /DEL/20 12 ( A SSESSMENT Y EAR - 200 8 - 09) NOKIA INDIA PVT. LTD., VS ACIT, 1 ST FLOOR, TOWE R A, SP INFOCITY, RANGE - 13, INDUSTRIAL PLOT NO - 243, UDYOG VIHAR, NEW DELHI. PHASE - 1, DUNDAHERA, GURGAON. PAN - AAACN2170R (APPELLANT) (RESPONDENT) APPELLANT BY: SH.G.C.SRIVASTAVA & SH. MANONEET DALAL, ADV. RESPONDENT BY: SH. PEEYUSH JAIN, CI T DR ORDER PER DIVA SINGH, JM TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE AO U/S 143(3) READ WITH SECTION 144C DATED 31.11.2012 OF ACIT, RANGE - 13, NEW DELHI PERTAINING TO 2008 - 09 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS : - 1. THAT, THE IMPUGNED ORDER OF ASSESSMENT FRAMED BY THE LEARNED ADDITIONAL COMMISSIONER OF INCOME - TAX, RANGE 13, NEW DELHI (HEREINAFTER REFERRED TO AS 'THE LEARNED AO') IN PURSUANCE TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL - II (HEREINAFTER REFERRE D TO AS 'THE HON'BLE DRP') UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME - TAX ACT, 1961 ('ACT'), IS BAD IN LAW AND CONTRARY TO THE SETTLED POSITION OF LAW. 2. WITHOUT PREJUDICE, THE HON'BLE DRP/ LEARNED AO HAVE GROSSLY ERRED IN COMPUTING THE INCOM E OF THE APPELLANT AT INR 15,204,416,770/ - AS AGAINST THE RETURNED INCOME OF INR 9,099,853,004/ - . 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP 1 LEARNED AO HAVE ERRED IN DISALLOWING NET MARKETING EXPENDITURE OF INR 774,839,4 72 (TOTAL EXPENDITURE OF INR 911,575,849 NET OF TAX DEPRECIATION @ 15 PERCENT) INCURRED ON ACCOUNT OF MOBILE HANDSETS ISSUED FREE OF COST TO AFTER MARKETING SERVICE CENTRES ('AMSCS') , DEALERS AND EMPLOYEES. 3.1 THE HON BLE DRP/ LEARNED AO HAVE ERRED IN CO NCLUDING THAT EXPENDITURE INCURRED ANNUALLY ON MOBILE HANDSETS ISSUED FREE OF COST TO AMSCS, DEALERS AND EMPLOYEES RESULTS IN BENEFIT OF ENDURING NATURE. 3.2 WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE I.T.A .NO. - 6283/DEL/2012 2 LEARNED AO HAS ER RED IN NOT GRANTING DEPRECIATION IN RESPECT OF WRITTEN DOWN VALUE OF MOBILE HANDSETS TREATED AS CAPITAL EXPENDITURE IN THE EARLIER ASSESSMENT YEARS, DESPITE SPECIFIC DIRECTION IN THIS REGARD BY THE HON'BLE DRP AND THE FACT THAT NO REVENUE EXPENDITURE HAS B EEN GRANTED TO THE APPELLANT IN RESPECT OF THE SAID EXPENDITURE IN THE PAST. 4. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP / LEARNED AO HAVE ERRED IN DISALLOWING AN AMOUNT OF INR 1,221,995,888, BEING PRICE PROTECTION CHARGES ACTUALLY PAID BY THE APPELLANT TO ITS DISTRIBUTORS AS COMPENSATION FOR REDUCTION IN PRICES OF THE HANDSETS, WHICH IS IN LINE WITH THE INDUSTRY PRACTICE. 4.1 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISA LLOWING THE AMOUNT OF INR 1,221,995,888, BY REJECTING THE DOCUMENTARY EVIDENCE! CONFIRMATIONS OBTAINED FROM THE DISTRIBUTORS ON THE BASIS THAT THE SAME DO NOT DEMONSTRATE THE GENUINENESS OF THE PRICE PROTECTION CHARGES PAID BY THE APPELLANT. 5. THAT ON THE F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING 25 PERCENT OF THE PROVISION FOR OBSOLESCENCE OF INVENTORY (AMOUNTING TO INR 24,960,000) ON AD - HOC BASIS, WITHOUT APPRECIATING THE TRENDS OF THE MOBILE PHONE INDUSTRY AND THE GLOBAL POLICY OF THE APPELLANT AS REGARDS THE SAME, WHICH IS CONSISTENTLY FOLLOWED BY THE APPELLANT. 6. THAT, IN FRAMING THE IMPUGNED ASSESSMENT, THE REFERENCE MADE BY THE LEARNED AO U/S 92CA(1) OF THE ACT SUFFERS FROM JURISDICTIONAL ERROR, AS THE AO HAD NOT RECORDED ANY REASONS NOR HE HAD ANY MATERIAL WHATSOEVER ON THE BASIS OF WHICH HE REACHED TO EVEN A PRIMA - FACIE OPINION, THAT IT WAS 'NECESSARY OR EXPEDIENT' TO REFER THE MATTER TO THE LEARNED TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARM'S LEN GTH PRICE (ALP). 6.1 THAT THE TPO ERRED IN ASSUMING JURISDICTION IN RESPECT OF THE ADVERTISING, MARKETING AND PROMOTION ('AMP') EXPENDITURE WHEN SUCH EXPENDITURE DID NOT SATISFY THE REQUISITES OF BEING AN INTERNATIONAL TRANSACTION UNDER SECTION 928 OF THE ACT. 6.2 THAT THE TPO ALSO ERRED IN NOT APPRECIATING THAT EVEN POST THE AMENDMENTS BY FINANCE ACT 2012, HE WAS NOT EMPOWERED TO DEEM A TRANSACTION TO BE AN INTERNATIONAL TRANSACTION. 6.3 THAT THE HON'BLE DRP/ LEARNED AO ERRED IN MAKING AN ADJUSTME NT AGGREGATING TO INR 4,082,768,410 OUT OF THE PROPOSED ADJUSTMENTS MADE BY THE TPO U/S 92CA AGGREGATING TO INR 4,310,815,993 AND ONLY GRANTING A PARTIAL RELIEF OF INR 228,047,583. 6.4 THAT THE LEARNED DRP HAS COMPLETELY MISCONCEIVED THE FACTS AND HAS GR OSSLY ERRED IN ENDORSING THE FINDINGS OF THE TPO THAT THE APPELLANT WAS 'PROMOTING' NOKIA BRAND INSTEAD OF APPRECIATING THAT THE ASSESSEE COMPANY WAS ONLY CARRYING OUT ITS BUSINESS BY USING THE WELL ESTABLISHED BRAND NAME OF NOKIA. 6.5 THAT THE LEARNED D RP HAS FURTHER FAILED TO COMPREHEND THAT, THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE TO 'PROMOTE' THE BRAND NAME OF 'NOKIA' AND THAT THE ENTIRE EXPENDITURE AS HAD BEEN INCURRED BY IT ON ADVERTISEMENT AND MARKETING, HAD BEEN INCURRED BY IT, SOLELY FOR T HE PURPOSE OF ITS OWN BUSINESS IN INDIA AND ANY INCIDENTAL BENEFIT ARISING TO ITS PARENT COULD NOT RESULT IN AN ADJUSTMENT IN THE HANDS OF THE APPELLANT. 6.6 THAT THE LEARNED DRP HAS ERRED IN CONCLUDING THAT IN LIGHT OF THE EXPLANATION ADDED TO SECTION 92B(2 ) BY FINANCE ACT, 2012, ADVERTISEMENT EXPENDITURE INCURRED BY THE APPELLANT QUALIFIES AS INTERNATIONAL TRANSACTION UNDER SECTION 92B OF I.T.A .NO. - 6283/DEL/2012 3 THE ACT. THE LEARNED DRP HAS FAILED TO TAKE COGNIZANCE OF THE FACT THAT SECTION 92B READ WITH SECTION 92F(V), WHI CH TOGETHER DEFINE AN 'INTERNATIONAL TRANSACTION', DO NOT APPLY IN THE ABSENCE OF ANY ARRANGEMENT/ UNDERSTANDING/ ACTION IN CONCERT BETWEEN THE APPELLANT AND ITS OVERSEAS ASSOCIATED ENTERPRISES 6.7 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO/ HON'BLE DRP HAS ERRED IN IGNORING THAT THE ADVERTISEMENT AND MARKETING EXPENSES INCURRED BY THE APPELLANT REPRESENTS ONLY DOMESTIC TRANSACTION(S) UNDERTAKEN WITH THIRD PARTIES, WHICH UNDER THE AMENDED LAW (FINANCE ACT 2012) WERE ALSO OUTSIDE THE PURVIEW OF SECTION 92BA OF THE ACT AND HENCE NO ADJUSTMENT COULD BE MADE IN RESPECT OF THE SAME. 6.8 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DRP/TPO HAS ERRED IN IGNORING THAT 'BRIGHT LINE LIMIT' IS NOT A PRESCRIBED METHOD UNDER THE PURVIEW OF SECTION 92C OF THE ACT FOR DETERMINING ALP NOR IS THE SAME NOTIFIED BY THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 92C(1)(F) OF THE ACT . 6.9 THAT, WITHOUT PREJUDICE, THE LEARNED TPO HAS INCORRECTLY HEL D BOTH ON FACTS AND IN LAW THAT, THE AMP EXPENSES INCURRED BY THE APPELLANT TO BE 'EXCESSIVE' ON THE BASIS OF A 'BRIGHT LINE LIMIT' ARRIVED AT BY CONSIDERING INAPPROPRIATE COMPARABLES NOT HAVING SIMILAR PRODUCT! BRAND PROFILE AS THE APPELLANT. 6.10 THA T THE LEARNED DRP HAS FAILED TO APPRECIATE THAT ONCE THE TPO HAD ACCEPTED THE INTERNATIONAL TRANSACTION ENTERED BY THE APPELLANT WERE AT ARM'S LENGTH ON THE BASIS OF TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD, HE COULD NOT HAVE U NDERTAKEN AN ANALYSIS OF INDIVIDUAL ELEMENTS OF COST AND SAME IS INCONSISTENT WITH THE APPLICATION OF TNMM. 6.11 THAT WITHOUT PREJUDICE, THE LEARNED AO / TPO / HON'BLE DRP HAVE FAILED TO COMPREHEND THAT TO THE EXTENT OF EXPENDITURE OF INR 911,575,849/ - I NCURRED ON CELL PHONES AND ACCESSORIES GIVEN FREE OF COST TO SERVICE CENTERS, DEALERS, ETC., THERE HAS BEEN DOUBLE DISALLOWANCE/ADDITION AS THIS EXPENDITURE HAS BEEN TREATED AS 'CAPITAL' BY THE LEARNED AO WITH BENEFIT OF DEPRECIATION AT THE RATE OF 15 PERC ENT ONLY, ALLOWED IN COMPUTING THE TAXABLE INCOME WHEREAS THE TOTAL GROSS AMOUNT HAS BEEN INCLUDED BY THE LEARNED TPO WHILE COMPUTING THE ALLEGED EXCESSIVE AMP EXPENDITURE. 6.12 THAT, THE LEARNED TPO HAS ERRONEOUSLY HELD THAT THE APPELLANT HAS RENDERED A SERVICE TO THE AES BY INCURRING THE AMP EXPENSE AND BY HOLDING THAT A MARKUP HAS TO BE EARNED BY THE APPELLANT IN RESPECT OF THE 'ALLEGED EXCESSIVE' AMP EXPENSES. 6.13 THAT, WITHOUT PREJUDICE AND IN THE ALTERNATIVE, THE LEARNED TPO HAS ARBITRARILY APPL IED A MARKUP OF 12.5 PERCENT IN RESPECT OF APPELLANT'S ALLEGED EXCESSIVE EXPENSES BY CONSIDERING STATE BANK OF INDIA PRIME LENDING RATE ('SBI PLR') AS A BENCHMARK. THE SAID FINDINGS AND OBSERVATIONS RESULTING INTO ENHANCEMENT OF INCOME IS HIGHLY ARBITRARY AND WHOLLY UNJUSTIFIED BEING WITHOUT ANY BASIS. 6.14 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, WITHOUT PREJUDICE, IF AT ALL A MARKUP OF 12.5 PERCENT WAS TO BE APPLIED, THE SAME SHOULD HAVE BEEN APPLIED ON THE VALUE ADDED EXPENSES INCURRED BY THE APPELLANT FOR PROVIDING THE ALLEGED SERVICE IN THE NATURE OF BRAND PROMOTION AS CONTENDED BY THE LEARNED TPO. 6.15 THAT, THE LEARNED AO/TPO HAVE ERRED IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 354,167,266 IN RELATION TO PROVI SION OF SOFTWARE DEVELOPMENT SERVICES BY THE APPELLANT TO ITS AES. 7.1 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO/ HON'BLE DRP IGNORED THE FACT THAT THE APPELLANT (VIS - A - VIS ITS RESEARCH & I.T.A .NO. - 6283/DEL/2012 4 DEVELOPMENT ['R&D'] SEGMENTS ) IS ENTITLED TO A TAX HOLIDAY UNDER SECTION 10A OF THE ACT ON ITS PROFITS AND THEREFORE DOES NOT HAVE AN ULTERIOR MOTIVE OF SHIFTING PROFITS OUTSIDE INDIA. 7.2 THAT THE LEARNED TPO ERRED IN REJECTING THE COMPARABLES SELECTED BY THE APPELLANT TO BENC HMARK ITS INTERNATIONAL TRANSACTION RELATING TO SOFTWARE DEVELOPMENT SERVICES WITHOUT ASSIGNING ANY COGENT REASONS FOR REJECTION OF THE SAME 7.3 THAT THE LEARNED TPO GROSSLY ERRED IN NOT APPRECIATING THAT A TRANSFER PRICING ASSESSMENT IS NOT MERELY FOR S UBSTITUTION OF THE PROCESS OF SELECTION FOLLOWED BY THE ASSESSEE UNLESS FUNDAMENTAL ERRORS ARE NOTICED IN SUCH PROCESS OF SELECTION. 7.4 THAT ON THE FACT AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / HON'BLE DRP HAS ERRED BY NOT ACCEP TING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ALP OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS AND HOLDING THA T THE INTERNATIONAL TRANSACTIONS ARE NOT AT ARM'S LENGTH. 7.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / HON'BLE DRP HAS ERRED IN REJECTING THE APPELLANT'S CLAIM TO USE MULTIPLE YEAR DATA FOR COMPUTING THE ARM'S LENGT H PRICE AND, INSTEAD, HAS ADHERED TO THE USE OF SINGLE YEAR UPDATED DATA TO CONCLUDE THE ALP OF THE INTERNATIONAL TRANSACTION. 7.6 EVEN AS OTHERWISE AND ON THE ASSUMPTION ADOPTED BY THE LEARNED TPO, WITHOUT PREJUDICE TO THE FACT THAT SINGLE YEAR UPDATE D DATA SHOULD NOT HAVE BEEN USED BY THE LEARNED TPO, EVEN IF THE CURRENT YEAR UPDATED DATA OF THE COMPARABLES SELECTED BY THE APPELLANT IS CONSIDERED, THEN ALSO AN ADJUSTMENT AMOUNTING TO INR 354,167,266 COULD NOT HAVE BEEN MADE. 7.7 THAT ON THE FACTS AND THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LEARNED TPO / HON'BLE DRP HAS RESORTED TO ARBITRARY REJECTION OF COMPARABLE COMPANIES BASED ON ERRONEOUS / INCONSISTENT REASONS AND APPLICATION OF QUANTITATIVE FILTERS, THUS DERIVING A INCORRECT / UNREPRESEN TATIVE INDUSTRY SET FOR BENCHMARKING THE OPERATING PROFIT MARGIN EARNED BY THE APPELLANT. 7.8 THAT ON THE FACT AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / HON'BLE DRP HAVE ERRED IN DENYING THE WORKING CAPITAL ADJUSTMENT TO THE OPERATI NG PROFIT MARGINS OF THE COM PARABLES. 7.9 THAT ON THE FACT AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO / HON'BLE DRP HAVE ERRED IN NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THE FACT THAT AS THE APPELLANT (VIS - A - VIS ITS R&D SEGMENTS) IS REMUNERATED ON AN ARM'S LENGTH COST PLUS BASIS, I.E. IT IS COMPENSATED FOR ALL ITS COST PLUS A PRE - AGREED MARK - UP, THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAKING ENTREP RENEURS. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO / TPO / HON'BLE ORP HAVE ERRED IN LAW IN NOT APPLYING THE PROVISO TO SECTION 92C OF THE ACT AND FAILING TO ALLOW THE BENEFIT OF DOWNWARD VARIATION OF 5 PERCENT IN DETERMIN ING THE ALP. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN LEVYING CONSEQUENTIAL INTEREST UNDER SECTION 234B AND SECTION 234D OF THE ACT. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE YEAR UNDER I.T.A .NO. - 6283/DEL/2012 5 CONSIDERATION DECLARED AN INCOME OF RS.909,98,53,004/ - BY WAY OF E - FILING ITS RETURN ON 30.09.2008 . AFTER BEING PROCESSED U/S 143(1), IT WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE INCOME TAX A C T , 1961 ( HEREINAFTER REFERRED TO AS THE ACT OR INCOME TAX ACT ) WAS ISSUED IN 18.08.2009. IT WAS FOLLOWED BY NOTICE U/S 143(2)/142(1) OF THE INC OME TAX ACT ALONG WITH DETAILED QUESTIONNAIRE S WHICH AS PER RECORD WERE COMPLIED WITH ON BEHALF OF THE ASSESSEE. THE A SSESSING O FFICER (HEREINAFTER REFERRED TO AS AO ) AFTER ISSUANCE OF DRAFT ASSESSMENT ORDER INCORPORATED THE PROPOSALS OF THE TRANSFER P RICING OFFICER (HEREINAFTER REFERRED TO AS TPO ) WHICH WERE CONFIRMED BY THE DISPUTE RESOLUTION PROCEEDINGS (HEREINAFTER REFERRED TO AS DRP ) AND ASSESSED THE INCOME OF THE ASSESSEE AT RS.1520,44,16,770/ - . AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL. 2. 1. A PERUSAL OF THE RECORD SHOWS THAT AS PER THE DRAFT ASSESSMENT ORDER AT PAGE 2 PARA - 2 NOKIA CORPORATION (NOKIA FINLAND/NOKIA CORPORATION) WAS INCORPORATED IN FINLAND AND WAS THE ULTIMATE PARENT ENTITY OF THE NOKIA GROUP. THE NOKIA GROUP AS PER THE ASSE SSMENT ORDER WAS A MAJOR PLAYER IN THE TELECOM INDUSTRY AND A LEADING SUPPLIER OF MOBILE, FIXED AND IP NETWORKS, RELATED SERVICES AS WELL AS MULTI - MEDIA. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES IN THE INDUSTR Y OF INSTALLATION, COMMISSIONING AND ERECTION OF TELE - COMMUNICATION EQUIPMENTS, SELLING (TRADING) OF MOBILE PHONES, NETWORKS AND ACCESSORIES, RESEARCH AND DEVELOPMENT AND SERVICES TO THE NOKIA GROUP OF COMPANIES. ITS RESEARCH AND DEVELOPMENT CENTRES WERE STATED TO BE SITUATED AT HYDERABAD, MUMBAI AND BANGLORE AND WAS ALSO STATED TO HAVE SET UP A MANUFACTURING FACILITY AT CHENNAI. 2.2. IN THE ABOVE BACKGROUND, ADDRESSING THE GROUNDS RAISED, LD. AR SUBMITTED THAT GROUNDS 1& 2 ARE GENERAL IN NATURE. IT WAS S UMM E D UP THAT VIDE GROUND NO.S - 3 TO 3.2 THE ASSESSEE HAS AGITATED MARKETING EXPENDITURE CLAIMS; AND GROUND NOS. 4 TO 4.11 AGITATE THE ISSUE OF PRICE PROTECTION CHARGES CLAIMED; AND GROUND NO. - 5 AGITATES THE ISSUE OF OBSOLESCENCE OF INVENTORY; GROUND NOS. - 6 TO 6.10 ARE THE LEGAL ARGUMENTS ON TRANSFER PRICING ISSUE WHICH HAVE BEEN DECIDED AGAINST THE TAXPAYER IN I.T.A .NO. - 6283/DEL/2012 6 L.G. ELECTRONICS S CASE. VIDE GROUND NO. - 6.11, THE ISSUE OF DOUBLE DISALLOWANCE BY HOLDING THE EXPENDITURE AS CAPITAL EXPENDITURE HAS BEEN AGITATE D AND VIDE 6.12 TO 6.14 THE MARK - UP THEREON HAS BEEN AGITATED. VIDE GROUND NO. - 6.15 TO 7.9, TP ISSUES ON SOFTWARE DEVELOPMENT AND COMPARABLES CONSIDERED HAVE BEEN AGITATED. VIDE GROUND NO. - 8 OF THE DENIAL OF BENEFIT OF DOWNWARD VARIATION OF 5% IN ALP HAS BEEN AGITATED. GROUND NO. - 9, IT WAS SUBMITTED IS CONSEQUENTIAL AND GROUND NO. - 10 WAS STATED TO BE PREMATURE. MARKETING EXPENDITURE CLAIMS 3. ADDRESSING GROUND NOS. - 3 TO 3.2, IT WAS HIS SUBMISSION THAT BY THE SAID GROUND THE ASSESSEE IS AGITATING ITS GRIE VANCE POSED IN THE IMPUGNED ORDER WHEREIN A DISALLOWANCE OF MARKETING EXPENSES TO THE TUNE OF RS.77,48,39,472/ - HAS BEEN MADE. IT WAS HIS SUBMISSION THAT THE SAID ISSUE IN THE EARLIER YEARS HAS BEEN SET ASIDE TO THE FILE OF THE AO BY THE TRIBUNAL IN ASSES SEE S OWN CASE. ATTENTION WAS INVITED TO THE COPIES OF THE ORDERS ATTACHED IN THE PAPER BOOK. 3.1. THE FACTS QUA THE SAID ISSUE ARE FOUND DISCUSSED AT PAGE 3 OF THE IMPUGNED ORDER, IT IS SEEN THAT THE ASSESSEE CLAIMED MARKETING EXPENSES AMOUNTING TO RS.49 1,32,60,014/ - . THE AO OBSERVED THAT SIMILAR CLAIMS HAVE BEEN MADE IN THE EARLIER YEARS. THE MARKETING EXPENDITURE INCLUDING COST OF MOBILE HANDSETS FREE OF COST ARE ISSUED TO AMSC (AFTER MARKETING SERVICE CENTRES); DEALERS AND EMPLOYEES, THE SAME WAS STA TED TO BE PROVIDED FREE OF COST AS THEY ARE TO BE PUT TO USE FOR PROMOTING THE BUSINESS OF THE ASSESSEE. IT WAS STATED THAT THESE HANDSETS ARE NOT FORMING PART OF THE TRADING ACTIVITIES OF THE ASSESSEE COMPANY AND WAS NOT PART OF THE PURCHASES IN THE P&L ACCOUNT BUT WAS INSTEAD SHOWN AS A SEPARATE EXPENSE UNDER THE HEAD OF MARKETING EXPENSES . IT WAS CLAIMED THAT THE CELL PHONES AND ACCESSORIES GIVEN TO SERVICE CENTRES, DEALERS AND EMPLOYEES FREE OF COST COULD BE PUT TO USE IN THE BUSINESS USE OF THE ASS ESSEE ONLY. THE OWNERSHIP RESTS WITH THE COMPANY ONLY. THE SAID EXPENDITURE IT WAS CLAIMED WAS A NECESSARY INCIDENCE OF SERVICE IN ASSESSEE S I.T.A .NO. - 6283/DEL/2012 7 BUSINESS AND THE CELL PHONES WERE ISSUED WITHOUT THE INTENTION OF RE - POSSESING AND WERE REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 3.2. TAKING INTO CONSIDERATION, THE POSITION ON THE IDENTICAL ISSUE IN 2007 - 08 ASSESSMENT YEARS AND THE DIRECTIONS OF THE DRP - II, NEW DELHI DATED 28.09.2012. THE AO PROPOSED TO MAKE THE ADDITION OF RS. 77,48,39,472/ - IN THE FOL LOWING MANNER : - 2.5. AS THE FACTS OF THE CASE IN THIS YEAR ARE EXACTLY THE SAME, AS SUCH THE VALUE OF MOBILE PHONES INCLUDING THE SCRAPPED MOBILES TO THE EXTENT OF RS.91,15,75,849/ - IS DISALLOWED AS CAPITAL IN NATURE AND DEPRECIATION @ 15% AMOUNTING TO R S.13,67,36,377/ - IS ONLY ALLOWED. AS SUCH A NET VALUE OF RS.77,48,39,472/ - IS DISALLOWED OUT OF HE MARKETING EXPENSES CLAIMED AND PROPOSED TO BE ADDED TO THE TOTAL TAXABLE INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMENT ORDER. 3.3. THE SAID ACTION WAS UPHELD BY THE DRP - II, NEW DELHI. THE RELEVANT PORTION EXTRACTED IN THE IMPUGNED ORDER READS AS UNDER : - 2.6. HOWEVER THE ASSESSEE CHALLENGED THIS ADDITION BEFORE DRP - II, NEW DELHI. THE DRP - II NEW DELHI VIDE ORDER DATED 28.09.2012 UPHELD THE DISALLOWANCE ON THIS ISSUE & FURTHER DIRECTED THE AO TO ALLOW DEPRECIATION. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER : - KEEPING IN VIEW OF THE PAST HISTORY OF THE CASE AND THE ORDER OF THE DRP DATED 09.08.2011 FOR THE ASSTT. YEAR 2007 - 08 AND ALSO T HE FACT THAT THE SUBJECT MATTER OF THE ADJUSTMENT IS STILL UNDER LITIGATION, WE UPHOLD THE PROPOSED ADDITION OF RS.91,15,75,849/ - MADE BY THE AO. WITH REGARD TO THE ALTERNATIVE PLEA WE ARE IN AGREEMENT WITH THE SAME AND DIRECT THE AO TO ALLOW DEPRECIATION ON THE WDV OF FOC HANDSETS OF EARLIER YEARS PROVIDED NO RELIEF HAS BEEN GRANTED BY THE APPELLATE AUTHORITY TREATING IT AS REVENUE EXPENDITURE. 3.4. CONSIDERING THE SAME, THE AO DECIDED THE ISSUE VIDE PARA 2.7 AND 2.8 IN THE FOLLOWING MANNER : - 2.7. IN T HIS CONTEXT, IT IS STATED THAT THE ASSESSEE HAS ALREADY BEEN ALLOWED DEPRECIATION TO THE TUNE OF RS.13,67,36,377/ - FOR THE YEAR UNDER CONSIDERATION. HOWEVER, WITH REGARD TO DEPRECIATION OF MARKETING EXPENSES OF EARLIER YEARS, THE ISSUE IS PENDING BEFORE V ARIOUS APPELLATE AUTHORITIES AS TO WHETHER THE SAID MARKETING EXPENSES WERE CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. 2.8. FURTHERMORE, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE OF WITHDRAWAL OF APPEAL ON THIS ISSUE. HENCE, THE DEPRECIATION ON WDV OF P REVIOUS YEAR FOC PERTAINING TO THE EARLIER YEARS CAN ONLY BE CONSIDERED AFTER FINALIZATION OF APPEALS OF EARLIER YEARS BEFORE ITAT. EVEN THE DIRECTIONS OF DRP - II ON THIS ISSUE ARE CONDITIONAL, INASMUCH AS, NO RELIEF SHOULD HAVE BEEN PROVIDED BY ANY APPELL ATE AUTHORITIES IN RESPECT OF THE SAME. HENCE, RESPECTFULLY FOLLOWING THE DIRECTIONS OF I.T.A .NO. - 6283/DEL/2012 8 DRP - II, SUPRA, NO FURTHER DEPRECIATION IS GRANTED TO THE ASSESSEE AS THE REQUEST OF THE ASSESSEE IS NOT ACCOMPANIED BY WITHDRAWAL OF PENDING APPEAL ON THIS ISSUE MORE SO, SINCE THE ISSUE IS YET TO ATTAIN FINALITY. 3.5. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. WHEREAS THE LD. AR RELYING UPON THE PAST HISTORY OF THE ISSUE STATED THAT THE ISSUE MAY BE RESTORED TO THE AO. THE LD. CIT DR PLACED RE LIANCE ON THE IMPUGNED ORDER. HOWEVER THE LD. CIT DR DID NOT CONTROVERT THE FACT THAT THE ISSUE IN THE EARLIER YEARS HAS BEEN RESTORED TO THE FILE OF THE AO BY THE ORDERS OF THE TRIBUNAL IN ASSESSEE S OWN CASE. 3.6. HAVING HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THE ORDERS OF THE TRIBUNAL IN ASSESSEE S OWN CASE, (COPIES PLACED IN THE PAPER BOOK), WE ON CONSIDERATION DEEM IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE AO. WE HAVE TAKEN INTO CONSIDERATION THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEE S CA SE FOR 2000 - 01 & 2001 - 02 ASSESSMENT YEARS IN ITA NO. - 2781 & 551/DEL/2004 DATED 22.09.2011 PASSED IN PURSUANCE TO THE ISSUE BEING RESTORED BACK TO THE TRIBUNAL BY THE HON BLE HIGH COURT WHICH ORDER HAS BEEN FOLLOWED IN 2006 - 07 & 2007 - 08 ASSESSMENT YEARS IN ITA NO. - 551/DEL/2011 AND ITA NO. - 4559/DEL/2011 OF THE TRIBUNAL IN ITS ORDERS DATED 24.11.2011 AND 18.05.2012 RESPECTIVELY. A PERUSAL OF THESE ORDERS SHOWS THAT CONSTANTLY THE CO - ORDINATE BENCHES HAVE BEEN RESTORING THE ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO CONSIDER THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDERS OF TRIBUNAL ON THE SAID ISSUE, GROUND NO - 3 IS RESTORED TO THE FILE OF THE AO WITH AN IDENTICAL DIRECTION. T HE AO SHALL PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY GROUND NO - 3 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRICE PROTECTION POLICY 4. THE FACTS PERTAINING TO THE NEXT ISSUE AGITATED BY ASSESSEE ARE FOUND DISCUSSED AT PAGES 10 - 13 IN PARAS 5.2 TO 5.6 OF THE IMPUGNED ORDER. A PERUSAL OF THE RECORD SHOWS THAT THE ASSESSEE CLAIMED THAT IT WAS ALLOWING PRICE PROTECTION TO ITS DEALERS , I.T.A .NO. - 6283/DEL/2012 9 APART FROM OTHER DISCOUNTS INCENT IVES AND PROMOTIONAL SCHEMES. THE AO REQUIRED ASSESSEE TO EXPLAIN THE NATURE OF THE SAME ALONGWITH BASIS OF COMPUTATION AND TREATMENT IN ACCOUNTS. IN RESPONSE TO THIS IT WAS CLAIMED ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE IS OPERATING IN A HIGHLY CO MPETITIVE AND PRICE SENSITIVE MARKET. THAT THE SALES OF THE HANDSETS OF THE ASSESSEE AND ITS MARKET SHARE TO A LARGE EXTENT DEPEND S ON THE PRICES OF THE HANDSETS LAUNCHED AND VARIETY OFFERED BY IT VIS - - VIS THE PRICES AND VARIETY OFFERED BY ITS COMPETITOR S. IT WAS EXPLAINED THAT DUE TO VARIOUS FACTORS SUCH AS CHANGE IN HANDSET PRICES BY THE COMPETITORS, LIFE OF THE MODEL, MARKET DEMAND OF THE MODEL, PRICES OF THE HANDSET ARE REQUIRED TO BE VARIED/REDUCED. IT WAS SUBMITTED THAT I N CASE OF SUCH PRICE CHAN GE S , THE DISTRIBUTORS OF THE ASSESSEE MAY SUFFER LOSS IN RESPECT OF STOCK LYING WITH THEM (AS THEY WOULD BE REQUIRED TO SELL THE HANDSETS AT A PRICE LOWER THAN THE ONE AT WHICH THE SAME WERE PURCHASED FROM THE ASSESSEE). ACCORDINGLY IN THE YEAR UNDER CONS IDERATION, THE ASSESSEE INCURRED AN AMOUNT OF RS.359,96,66,863/ - AS PRICE PROTECTION PROVIDED TO VARIOUS DISTRIBUTORS. THE ASSESSEE ALSO PLACED ON RECORD AND RELIED UPON CONFIRMATIONS FROM FEW DISTRIBUTORS CONFIRMING THE AMOUNT OF PRICE PROTECTION PROVIDE D TO THEM BY NOKIA INDIA NAMELY HCL INFO SYSTEMS AMOUNTING TO RS.237,76,70,795/ - . 4.1. IN THE SAID BACKGROUND, THE AO CONSIDERING THE REPLY OF THE ASSESSEE WAS OF THE VIEW THAT AS PER THE CLAIM OF THE ASSESSEE, PRICE PROTECTION IS PROVIDED AGAINST PROBAB LE LOSS THAT THE DISTRIBUTOR MAY SUFFER DUE TO FALL IN THE PRICES OF HANDSETS. THE FACT THAT THE ASSESSEE ALSO AT THE SAME TIME PROVIDES DISCOUNTS AND INCENTIVES TO ITS DEALERS TO ENHANCE ITS SALES AS SUCH THE NEED FOR PRICE PROTECTION WAS QUESTIONED . IN SUPPORT OF THE CLAIM DESPITE SPECIFIC OPPORTUNITY, THE AO OBSERVED THAT THE ASSESSEE FAILED TO FURNISH PRICE PROTECTION POLICY OF THE COMPANY NOR ANY BASIS OF COMPUTATION OF THE PRICE PROTECTION WAS FURNISHED. IT WAS FURTHER OBSERVED THAT NO DETAILS WERE ALSO PROVIDED TO JUSTIFY THE CLAIM TO SHOW WHETHER THE COMPANY CONDUCTS ANY STOCK AUDIT IN RESPECT OF NUMBER AND TYPES OF HANDSET LYING WITH THE DISTRIBUTORS ON WHICH THE PRICE PROTECTION WAS ALLOWED. NEITHER THE ASSESSEE CARED TO I.T.A .NO. - 6283/DEL/2012 10 MENTION THE RATES O N WHICH THE ALLEGED PRICE PROTECTION HAD BEEN BOOKED. IT WAS FURTHER OBSERVED THAT THE PRICE PROTECTION ALLOWED WAS NOT DEBITED AS AN EXPENDITURE ITEM IN THE P&L ACCOUNT BUT WAS DIRECTLY ADJUSTED FROM THE TOTAL SALES EFFECTED. 4.2. IN THE CIRCUMSTANCES IT WAS CONCLUDED THAT IT WAS NOT POSSIBLE TO VERIFY THE QUANTUM OF PRICE PROTECTION ALLOWED AS NO DETAILS WERE AVAILABLE AS TO HOW A COMPANY VERIFIES THE QUANTITY, NUMBER OF HANDSETS WITH THE DISTRIBUTORS AT VARIOUS LEVELS (NATIONAL AND REGIONAL LEVEL ETC.) ON WHICH THE PRICE PROTECTION IS TO BE ALLOWED AND FOR WHICH MONTH. REFERRING TO THE DOCUMENTATION FURNISHED IN REGARD TO M/S HCL INFO SYSTEM LTD, THE AO OBSERVED THAT THE LETTER FROM M/S HCL INFOSYSTEMS LTD. MERELY ACKNOWLEDGES THE RECEIPT OF RS.23,77,67 ,975/ - ALONGWITH COPIES OF SOME E - MAILS PURPORTEDLY SENT TO DEALERS WHICH WERE NOT SUPPORTED EITHER BY A COPY OF THE CREDIT NOTE NOR ANY COMPUTATION HAS BEEN FURNISHED. THE AO WAS OF THE VIEW THAT NO AUTHENTIC DOCUMENTS HAD BEEN FILED TO SHOW THAT THE ASS ESSEE COMPANY ACTUALLY INCURRED THE EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS NECESSITY AS NO DETAILS OF ANY DATES/PERIOD/BASIS OF COMPUTATION OF THE SAID PRICE PROTECTION WERE PROVIDED. ACCORDINGLY HOLDING THAT SPECIFIC AGREEMENTS HAD NOT BEEN FILED WITH ANY OF ITS DISTRIBUTORS OR RETAILERS OR ANY OF ITS FRONTLINE BUSINESS ASSOCIATES TO SHOW THAT THE EXPENSES HAVE ACTUALLY BEEN INCURRED BY THE ASSESSEE COMPANY WHICH WOULD CONSTITUTE AN ALLOWABLE EXPENDITURE AS EVEN THE LETTER FROM HCL INFOSYSTEMS LTD. WAS MERELY AN ACKNOWLEDGEMENT OF CREDIT NOTES RECEIVED AND DID NOT CONTAIN ANY DETAILS OF ANY AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE SAID COMPANY. THE SAID FACTS IN THE BACKGROUND WHERE SALES COMMISSION AND DISCOUNTS WERE ALR EADY BEING OFFERED TO ITS DISTRIBUTORS AND RETAILERS, THE OCCASION TO FURTHER OFFER PRICE PROTECTION ALSO WAS REQUIRED TO BE JUSTIFIED, ESPECIALLY IN THE ABSENCE OF ANY DOCUMENT SHOWING THAT THE DISTRIBUTORS WERE ENTITLED TO ANY SUCH COMPENSATION AS THE AS SESSEE IS OPERATING ITS OWN OUTLETS IN MANY PLACES. THE AO ALSO OBSERVED THAT THERE WAS NO EVIDENCE TO SHOW THAT PRICE PROTECTION HAS BEEN PASSED EQUALLY TO THE CUSTOMERS AND IT WAS MERELY A BOOK ENTRY WITHOUT ANY BASIS AND WITHOUT I.T.A .NO. - 6283/DEL/2012 11 SUPPORTING DOCUMENTARY EVIDENCES. AS SUCH IT WAS HELD THAT THE ASSESSEE HAD FAILED TO ADDUCE ANY COGENT EVIDENCE TO SHOW THAT THE PRICE PROTECTION OFFERED TO ITS DISTRIBUTORS ACTUALLY RELATED TO THE BUSINESS NEEDS OF THE ASSESSEE COMPANY. 4.3. HOWEVER TAKING NOTE OF THE FACT THAT THE IN 2007 - 08 ASSESSMENT YEAR, THE DRP - II HAD DIRECTED THAT PRICE PROTECTION EXPENSES IN RESPECT OF HCL INFO SYSTEM CLAIMED BY THE ASSESSEE BE ALLOWED, THE SAME WAS ALLOWED IN THE YEAR UNDER CONSIDERATION ALSO AND THE BALANCE WAS ADDED TO THE INCOME OF THE ASSESSEE. 4.4. THE SAID ACTION WAS CHALLENGED BY THE ASSESSEE BEFORE THE DRP - II WHO CONFIRMED THE ACTION OF THE AO OBSERVING AS UNDER : - 2.4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND HAVE PERUSED THE MATERIAL ON RECORD. IN THE ASSE SSEE S OWN CASE FOR THE ASSTT. YEAR 2007 - 08, THE DRP - II VIDE ITS DIRECTIONS DATED 09.08.2011 U/S 144C(5) OF THE INCOME TAX ACT, 1961 HAS DIRECTED TO ALLOW THE PRICE PROTECTION EXPENSES RELATING TO HCL INFOSYSTEMS LTD. WHILE CONFIRMING THE ADDITION ON THE BALANCE PRICE PROTECTION EXPENSES. THIS YEAR THE AO HAS NOT MADE ANY ADDITION IN RESPECT OF PRICE PROTECTION EXPENSES RELATING TO M/S HCL INFOSYSTEMS LTD. AS REGARDS THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE IN RESPECT OF THE REMAINING PARTIES, SINCE THE SAME GOES TO THE ROOT OF THE MATTER, WE ARE SATISFIED THAT THE ADDITIONAL EVIDENCE IS NECESSARY TO DECIDE THE ISSUE BEFORE US AND, THEREFORE, THE ADDITIONAL EVIDENCE IS ADMITTED. HOWEVER, THE AO HAS NOT BEEN ABLE TO MAKE ANY FURTHER ENQUIRIES ABOUT TH E GENUINENESS OF THESE CONFIRMATIONS AS THE SAME WERE SUBMITTED AS ADDITIONAL EVIDENCE BY THE ASSESSEE ALMOST AT THE LAST STAGE OF PROCEEDINGS BEFORE THE DRP. FURTHER, A PERUSAL OF THESE CONFIRMATIONS SHOWS THAT THESE ARE STEREOTYPED CONFIRMATIONS RECEIVE D FROM THE VARIOUS PARTIES AND THE LANGUAGE OF THESE CONFIRMATIONS IS ALMOST THE SAME. IN SOME OF THE CONFIRMATIONS EVEN THE TELEPHONE NUMBERS OF THE DISTRIBUTORS HAVE NOT BEEN GIVEN. FURTHER, APART FROM THESE CONFIRMATIONS NO OTHER CORROBORATIVE HAS BEE N SUBMITTED BY THE ASSESSEE. IN THESE CONFIRMATIONS NO OTHER CORROBORATIVE HAS BEEN SUBMITTED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, THE BENEFIT OF PRICE PROTECTION CHARGES CLAIMED TO HAVE BEEN PAID TO THESE PARTIES CANNOT BE GIVEN. AS REGARDS THE 57 DISTRIBUTORS IN RESPECT OF WHICH NO CONFIRMATIONS HAVE BEEN FILED AND ONLY COPIES OF LEDGER ACCOUNTS HAVE BEEN FILED, THE EVIDENCE FILED BY THE DOES NOT PROVE THE GENUINENESS OF THE PRICE PROTECTION CHARGES PAID TO THESE DISTRIBUTORS. IN VIEW OF THESE FAC TS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PRICE PROTECTION CHARGES REMAINING TO THE DISTRIBUTORS OTHER THAN M/S HCL INFOSYSTEMS LTD. ARE NOT PROVED AND HENCE THE PROPOSED ADDITION OF RS.122,19,95,888/ - OUT OF PRICE PROTECTION CHARGES IS UPHELD. 4 .5. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. LD. AR IN THE CONTEXT OF THE ABOVE FACTS REQUESTED FOR ADMISSION OF ADDITIONAL EVIDENCE FOR WHICH PURPOSE PETITION UNDER RULE 29 HAD BEEN MOVED BY THE ASSESSEE INVITING I.T.A .NO. - 6283/DEL/2012 12 ATTENTION TO T HE DRP S OBSERVATIONS AT PARA 2.4 AT PAGE 35 & 37 OF THE SAID ORDER (REPRODUCED ABOVE). IT WAS HIS SUBMISSION THAT A PERUSAL OF THE SAME WOULD SHOW THAT AFTER ADMITTING ADDITIONAL EVIDENCE, THE DRP TAKES NOTE OF THE FACT THAT THE AO HAS NOT BEEN ABLE TO M AKE ANY FURTHER ENQUIRIES ABOUT THE GENUINENESS OF THESE CONFIRMATIONS. IN THE ABOVE CIRCUMSTANCES, THE DRP PROCEEDED TO CONSIDER THE CONFIRMATIONS AND FAULTED THE SAME ON THE GROUND THAT THESE WERE STEREO TYPE CONFIRMATIONS FROM DIFFERENT PARTIES WHEREI N THE LANGUAGE OF CONFIRMATIONS IS ALMOST THE SAME AND IN SOME OF THE CONFIRMATIONS EVEN THE TELEPHONE NUMBERS OF THE DISTRIBUTORS WERE NOT GIVEN AS SUCH IT WAS HELD THAT THE BENEFIT OF PRICE PROTECTION CHARGES AS PER ASSESSEE S CLAIM COULD NOT BE MADE AVA ILABLE. CONSIDERING THE EVIDENCE OF THE REMAINING 57 DISTRIBUTORS, IT WAS HELD THAT THE ASSESSEE COULD NOT FILE ANY CONFIRMATIONS AND HAD ONLY FILED COPIES OF LEDGER ACCOUNTS WHICH WERE HELD TO BE LACKING CORROBORATIVE VALUE. IN THE ABOVE BACKGROUND, IT WAS STATED THAT THE ASSESSEE HAS NOW BEEN ABLE TO OBTAIN CONFIRMATIONS FROM 56 OUT OF THE 57 PARTIES WHEREIN COMPLETE NAME, AMOUNT, ADDRESS ALONG WITH VAT REGISTRATION NO, PAN HAS BEEN PROVIDED AND IN THESE CIRCUMSTANCES IT WAS SUBMITTED THAT THE CONFIRMA TIONS ARE CRUCIAL FOR DECIDING THE ISSUE AND THE SAID EVIDENCE BE ADMITTED. RELIANCE WAS PLACED UPON RULE 29 OF THE ITAT RULES 1963 AND ORDER OF THE TRIBUNAL IN THE CASE OF UO P LL C 108 ITD 186. IT WAS ARGUED THAT SUSPICION HAS GUIDED THE REASONING FOR IGN ORING THE EVIDENCE ON THE GROUND THAT THE LANGUAGE WAS STEREO - TYPED IN THE CONFIRMATIONS. IT WAS SUBMITTED THAT WHEN THE ASSESSEE WAS REQUIRED TO SUPPORT ITS CLAIM IT NECESSARILY COMMUNICATED TO ITS DEALERS AND DISTRIBUTORS TO PROVIDE THE CONFIRMATIONS WH O THEN SOUGHT THE ASSESSEE S GUIDANCE AS TO HOW THE CONFIRMATIONS WERE TO BE GIVEN. IN THESE CIRCUMSTANCES, A FORMAT WAS PROVIDED BY THE ASSESSEE TO THE DISTRIBUTORS AND DEALERS SO THAT THEY COULD FILE CONFIRMATIONS. THUS MERELY BECAUSE THE DEALERS AND D ISTRIBUTORS HAVE UTILIZED THE FORMAT PROVIDED BY THE ASSESSEE, IT WAS SUBMITTED IT CANNOT LEAD TO THE CONCLUSION THAT THE INFORMATION GIVEN IS NOT RELIABLE. IT WAS ARGUED THAT THE REASONING FOR STEREO TYPE CONFIRMATIONS STAND S I.T.A .NO. - 6283/DEL/2012 13 ADDRESSED BY THIS FACT AND TH ERE IS NO OTHER REASONING GIVEN IN THE DRP S ORDER FOR REJECTING THE CLAIM OF THE ASSESSEE APART FROM STATING THAT THE AO DOES NOT HAVE TIME TO MAKE FURTHER INQUIRIES. IN THESE CIRCUMSTANCES IT WAS HIS SUBMISSION THAT THE EVIDENCE RELIED UPON BY THE ASSES SEE BEFORE THE DRP MAY BE RESTORED TO THE AO TO CARRY OUT FURTHER INQUIRIES AND SINCE THE ISSUE IS BEING RESTORED IT WAS HIS HUMBLE PRAYER THE FRESH EVIDENCE WHICH THE ASSESSEE COULD NOT FILE BEFORE THE DRP MAY ALSO KINDLY BE ADMITTED AND RESTORED TO THE A O FOR HIS CONSIDERATION IN THE INTERESTS OF JUSTICE. 4.6. LD. CIT DR PLACED HEAVY RELIANCE UPON THE IMPUGNED ORDER. IT WAS HIS SUBMISSION THAT THE ASSESSEE HAD AMPLE OPPORTUNITY BEFORE THE AO AND HAS ALSO BEEN PROVIDED AN OPPORTUNITY BY THE DRP TO FILE FR ESH EVIDENCES IN SUPPORT OF ITS CLAIM. ADDRESSING THE EVIDENCES ADMITTED, IT WAS SUBMITTED THAT ONCE THE EVIDENCES WERE ADMITTED, IT WAS SEEN THAT THE SAME ARE IN A STEREO TYPE MANNER USING THE SAME LANGUAGE AND FORMAT. ACCORDINGLY THE DRP WAS JUSTIFIED IN NOT TAKING THE SAME INTO CONSIDERATION. IT WAS HIS SUBMISSIONS THAT NO DOUBT THE DRP ALSO GIVES THE REASONING THAT TIME WAS NOT SUFFICIENT FOR MAKING FURTHER INQUIRIES BY THE AO BUT THE FACT REMAINS THAT THE DRP ALSO HOLDS THAT THE EVIDENCE SUBMITTED IS NOT RELIABLE EVIDENCE AS SUCH FAILING TO INSPIRE ANY CONFIDENCE WAS RIGHTLY REJECTED . IN REGARD TO THE ADMISSION OF FRESH EVIDENCE, IT WAS HIS SUBMISSION THAT THE SAME SHOULD HAVE BEEN PLACED BEFORE THE DRP AND NO PURPOSE WOULD BE SERVED BY ADMITTING THE SAME AS EVIDENCE ADMITTED ITSELF LACKS CREDENCE. 4.7. IT WAS ALSO EMPHASIZED THAT NO DOCUMENT SHOWING THAT THE DISTRIBUTOR WAS ENTITLED TO THE SAID PRICE PROTECTION OR THAT THE ASSESSEE WAS LIABLE TO MAKE SUCH A PAYMENT HAD BEEN FILED WHICH WOULD HAVE BEE N THE RELEVANT EVIDENCES AS SOME AGREEMENTS WOULD HAVE BEEN ENTERED INTO. NO ARGUMENT THAT ANY REGULAR STOCK AUDIT WAS DONE BY THE COMPANY TO IDENTIFY THE TYPE OF HANDSETS LYING WITH THE DISTRIBUTORS HAS BEEN FILED WHICH REQUIRES TO BE PROTECT ED BY THE AL LEGED PRICE PROTECTION POLICY OF THE ASSESSEE. APART FROM THAT, IT WAS ALSO SUBMITTED THAT NO PRICE PROTECTION I.T.A .NO. - 6283/DEL/2012 14 POLICY H AS BEEN FILED NOR ANY BASIS OF CALCULATION INSPIRING ANY CONFIDENCE IN THE BOOK ENTRY PASSED WAS EVER MADE AVAILABLE TO THE DEPARTMENT A ND EVEN NOW RELEVANT AND NECESSARY EVIDENCE IS NOT SOUGHT TO BE FILED AND ONLY STEREO - TYPED CONFIRMATIONS ARE BEING RELIED UPON. IT WAS HIS ARGUMENTS BASED ON THE ASSESSMENT ORDER THAT THE AO HAS SPECIFICALLY FAULTED THE ASSESSEE ON THE GROUND THAT NO DET AILS OF ANY DATES/PERIOD ON WHICH THE PRICE PROTECTION WAS GIVEN FOR WHICH MODEL HAS NEVER BEEN PROVIDED AND IN THE ABSENCE OF RELEVANT MATERIAL IRRELEVANT MATERIAL IS BEING ARGUED TO BE A JUSTIFICATION FOR THE BOOK ENTRY MADE. 4.8. WE HAVE HEARD THE RIVA L SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CONSIDERATION OF THE ISSUES, WE ARE OF THE VIEW THAT THE EVIDENCE FILED BEFORE THE DRP SHOULD BE SENT BACK TO THE AO FOR CONSIDERING THE SAME. THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSE E THAT THE CONFIRMATIONS FILED IN SIMILAR FORMAT ARE THE RESULT OF GUID ANCE GIVEN TO THE DISTRIBUTORS/DEALERS BY THE ASSESSEE TO SHOW HOW T HE CONFIRMATION SHOULD BE FILED. THIS FACT DOES NOT NECESSARILY LEAD TO THE CONCLUSION THAT THE STATEMENTS IN THE CO NFIRMATIONS ARE NOT TRUE. HOWEVER THE CORRECTNESS/GENUINENESS OF THE SAME NEEDS TO BE ENQUIRED INTO . W E ALSO HOLD THAT THE FRESH EVIDENCES WHICH THE ASSESSEE IS NOW SEEKING TO FILE SHOULD BE ADMITTED AS THE ARGUMENTS THAT THEY COULD NOT BE FILED BEFORE T HE DRP IN THE ABSENCE OF ANY FACT ON RECORD CANNOT BE DISBELIEVED ESPECIALLY SINCE THE EVIDENCES FILED BEFORE THE DRP ITSELF WERE FILED DURING THE FAG END OF THE PROCEEDINGS . HOWEVER WHILE DOING SO, WE ARE INCLINED TO AGREE WITH THE ARGUMENTS ADVANCED ON BEHALF OF THE LD. CIT DR THAT THE EVIDENCES SOUGHT TO BE PLACED ON RECORD ARE NOT SUFFICIENT AND COMPLETE TO JUSTIFY THE CLAIM OF EXPENDITURE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AS JUSTIFICATION FOR THE BOOK ENTRY BY WAY OF PRICE PROTECTION POLICY OF THE ASSESSEE BY WAY OF A GREEMENTS WITH THE DISTRIBUTORS/DEALERS ACCEPTING LIABILITY FOR THE SAID PURPOSES BY THE ASSESSEE NEEDS TO BE FILED. THE AMOUNTS CLAIMED QUA THE DISTRIBUTORS/DEALERS NEED TO BE SUPPORTED BY DETAILS OF DATE S /PERIOD AND MODELS FO R WHICH PRICE PROTECTION IS CALCULATED WHICH NEEDS TO DEMONSTRATE D BY SOME INTERNAL I.T.A .NO. - 6283/DEL/2012 15 AUDIT OF STOCKS LYING UNSOLD WHOSE PRICES HAVE DROPPED DUE TO COMPETITION. THE NECESSARY EVIDENCES NEED TO BE MADE AVAILABLE TO JUSTIFY THE CLAIM ESPECIALLY SINCE DISCOU NTS AND COMMISSIONS ARE ANYWAY STATED TO BE MADE AVAILABLE AND PAID TO THE DISTRIBUTORS/DEALERS. ACCORDINGLY WHILE ADMITTING FRESH EVIDENCES FILED BEFORE US THE AO IS DIRECTED TO CONSIDER THEM ALONGWITH THE EVIDENCE WHICH HAD BEEN FILED BEFORE THE D RP. W E FURTHER DIRECT THE ASSESSEE TO PLACE NECESSARY AND RELEVANT EVIDENCES AS BROUGHT OUT ABOVE AND ALSO FIND MENTIONED IN THE ASSESSMENT ORDER TO JUSTIFY ITS CLAIM . L IBERTY TO FILE FRESH EVIDENCES BEFORE THE AO IS GRANTED AND THE AO SHALL BE DUTY - BOUND TO CONSIDER THE SAME BEFORE THE PASSING OF HIS ORDER. NEEDLESS TO SAY THAT A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE PASSED BY THE AO . OBSOLESCENCE OF INVENTORY 5. THE FACTS PERTAINING TO THE NEXT ISSUE AGITATED BY THE ASSESSEE ARE FOUND DISCUSSED AT PAGES 13 - 16 OF THE IMPUGNED ORDER IN PARAS 6 TO 6.7. A PERUSAL OF THE SAME SHOWS THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAD DEBITED A SUM OF RS.9,98,40,000/ - UNDER THE HEAD PROVIS ION/(RELEASE) FOR OBSOLESCENCE. REFERRING TO THE POSITION IN ASSESSMENT YEARS 2003 - 04, 2004 - 05 & 2006 - 07 WHEREIN THE AO HAD MADE A DISALLOWANCE ON THIS COUNT TO THE EXTENT OF 25% FOLLOWING THE UPHOLDING OF THE SAID DISALLOWANCE BY THE CIT(A) AND THE ITAT. SINCE THE FACTS WERE SIMILAR IN THE YEAR UNDER CONSIDERATION, THE AO REQUIRED THE ASSESSEE TO EXPLAIN WHY A SIMILAR DISALLOWANCE FOR THE PROVISION MADE FOR OBSOLESCENCE OF INVENTORY AMOUNTING TO RS.2,49,60,000/ - NOT TO BE MADE (25% OF RS.9,98,40,000/ - ). 5.1. THE ASSESSEE EXPLAINED IN RESPONSE THERETO THAT IT CONSISTED OF NON - MOVING INVENTORY OF NOKIA MOBILE PHONE, HANDSETS, MODELS AND SPARE PARTS, ACCESSORIES WHICH HAD BEEN PHASED OUT FROM THE MARKET; WHICH WAS STATED TO BE ONE OF THE MAJOR CASES FOR F ALL IN THE PROFITABILITY OF MOBILE COMPANIES; THAT THESE SETS ARE A SOURCE OF REAL LOSS AND AS PER THE COMPANY S GLOBAL POLICY OBSOLETE INVENTORY IS INVENTORY WHICH IS TECHNICALLY CORRECT BUT THERE HAS BEEN NO CONSUMPTION FOR THE LAST 90 DAYS. I.T.A .NO. - 6283/DEL/2012 16 IT WAS SUBM ITTED THAT AS PER THE COMPANY S POLICY, THE PROVISION ON ACCOUNT OF OBSOLETE INVENTORY MUST COVER 100% OF SUCH INVENTORY. THE SAID POLICY, IT WAS STATED WAS BEING CONSISTENTLY AND REGULARLY FOLLOWED OVER THE YEARS. THE ACTUAL OBSOLESCENCE DURING THE YEAR IT WAS STATED IS CHARGED TO SUCH PROVISION FOR OBSOLESCENCE ACCOUNT. 5.2. THESE ARGUMENTS WERE NOT ACCEPTED BY THE AO RELYING ON THE ORDER OF THE TRIBUNAL IN ASSESSEE S CASE FOR 2000 - 01 ASSESSMENT YEAR WHEREIN SIMILAR DISALLOWANCE MADE BY THE AO HAD BEEN U PH ELD BY THE CIT(A) AND ALSO BY THE TRIBUNAL. COGNIZANCE WAS TAKEN OF THE FACT THAT WHAT THE ASSESSEE HAD PROVIDED WAS MERELY A LIST OF ITEMS SAID TO BE TREATED AS OBSOLETE AND NAMES OF THE MODELS WHICH HAD GONE OUT OF THE MARKET. THE QUERIES OF THE AO COULD NOT BE REPLIED TO BY THE ASSESSEE EITHER FROM MARKET SURVEY OR REPORTS FROM THE QUALITY CONTROL AND MARKETING DEPARTMENTS PREPARED IN THE REGULAR COURSE OF BUSINESS SUGGESTING THE PHASING OUT OF THE MODEL S FROM TIME TO TIME. HE FURTHER TOOK COGNIZAN CE OF THE FACT THAT THE DRP IN 2006 - 07 ASSESSMENT YEAR CONFIRMED THE ACTION OF THE AO WHICH WAS CONFIRMED BY THE HON BLE HIGH COURT IN 2000 - 01 ASSESSMENT YEAR. 5.3. THE DRP IN THE PRESENT PROCEEDINGS ALSO TAKES COGNIZANCE OF THIS FACT. THE RELEVANT PORTI ON IS EXTRACTED HEREUNDER : - THE MATTER HAS BEEN CONSIDERED. WE FIND FROM THE RECORDS THAT FOR THE ASSTT. YEAR 2006 - 07, THE DRP - II VIDE ITS ORDER DATED 09.08.2010 AND THE HON BLE ITAT IN EARLIER YEARS HAS UPHELD THE DISALLOWANCE MADE BY THE AO ON THIS IS SUE. SINCE THE FACTS ARE IDENTICAL WE FIND NO REASON TO DEVIATE FROM THE ORDERS OF THE EARLIER YEARS AND, ACCORDINGLY, UPHOLD THE DISALLOWANCE OF RS.2,49,60,000/ - ON ACCOUNT OF PROVISION FOR OBSOLESCENCE. 5.4. ACCORDINGLY, A DISALLOWANCE OF THE SAID AMO UNT MADE BY THE AO WAS CONFIRMED. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. AR INVITING ATTENTION TO THE POSITION IN 2006 - 07 AND 2007 - 08 ASSESSMENT YEARS (COPIES PLACED AT PAGES 1005 TO 1026 AND 1027 TO 1045) REFERRING TO S PECIFIC PAGE 1024 REQUESTED THAT THE ISSUE MAY BE RESTORED TO THE AO. IT WAS FURTHER ELABORATED THAT THE HON BLE HIGH COURT IN 2000 - 01 & 2001 - 02 WHILE UPHOLDING THE ACTION OF THE I.T.A .NO. - 6283/DEL/2012 17 AO FOR WANT OF EVIDENCE IN THE SAID YEAR S HAD CATEGORICALLY STATED THAT IT WA S OPEN TO THE TAXPAYER TO LEAD NECESSARY EVIDENCE AND GET NECESSARY RELIEF IN OTHER YEARS. 5.5. THE CIT DR PLACED RELIANCE UPON THE IMPUGNED ORDER HOWEVER HE DID NOT DISPUTE THE FACTUAL POSITION THAT IN 2006 - 07 & 2007 - 08 ASSESSMENT YEARS, THE ISSUE FOR CONSIDERING THE EVIDENCE WAS RESTORED BY THE TRIBUNAL TO THE AO. 5.6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THE ORDER OF THE CO - ORDINATE BENCHES IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS AND THE JUDGEMENT OF THE HON BLE HIGH COURT WHERE F OR WANT OF NECESSARY EVIDENCES THE ACTION OF THE AO WAS CONFIRMED. IT IS SEEN THAT THE HON BLE HIGH COURT WHILE D ECIDING AGAINST THE ASSESSEE ALSO OBSERVED THAT THE ASSESSEE WAS NOT PRECLUDED FROM PLACING NECESSARY EVIDENCES IN SUBSEQUENT YEARS IN SUPPORT OF ITS CLAIM. ACCORDINGLY, FOLLOWING THE ORDERS OF THE CO - ORDINATE BENCHES WHICH ARE SUPPORTED BY THE JUDGEMENT AND ORDER OF THE JURISDICTIONAL HIGH COURT, THE ISSUE IS RESTORED TO THE AO. WHILE DOING SO, IT IS DIRECTED THAT THE ASSESSEE SHALL PLACE NEC ESSARY SUPPORTIVE EVIDENCES JUSTIFYING ITS CLAIM BY WAY OF IT GLOBAL OBSOLESCENCE POLICY, ESTABLISHING THAT SPECIFIC MODELS/ACCESSORIES ETC. HAD GONE OUT OF THE MARKET BASED ON THEIR SURVEYS AND MARKETING REPORTS BASED ON THE SALES DATA OF THE RELEVANT PER IOD ETC AND ANY OTHER INFORMATION/MATERIAL FACT THE AO MAY SO DESIRE. THE ASSESSEE NECESSARILY SHALL BE AT LIBERTY TO FILE FRESH EVIDENCES IN SUPPORT OF ITS CLAIM AND THE AO SHALL BE DUTY - BOUND TO CONSIDER THE SAME BEFORE THE PASSING OF HIS ORDER. THE G ROUND RAISED AS SUCH IS ALLOWED FOR STATISTICAL PURPOSES. TRANSFER PRICING ISSUES 6. THE ASSESSEE IN ITS TRANSFER PRICING DOCUMENTATION DISCLOSED THE FOLLOWING INTERNATIONAL TRANSACTIONS: - NATURE OF TRANSACTION METHOD APPLIED AMOUNT (IN INR) PURCHASE OF M OBILE PHONES, SPARE PARTS AND ACCESSORIES 69,469,497 SERVICES RENDERED 80,071 PURCHASE OF RAW MATERIAL 35,430,995 SALE OF MOBILE PHONES AND 64,785,435 I.T.A .NO. - 6283/DEL/2012 18 ACCESSORIES TNMM SALE OF CAPITAL GOODS 9,957 SERVICES RENDERED (CONTRACT SOFTWARE DEVELOPMEN T) 2,853,992 PURCHASE OF CAPITAL GOODS 38,682 COST TRANSFER PAID 65,141 COST RECHARGE RECEIVED CUP 2,063,745 6.1. THE TPO TAKES NOTE OF THE FACT THAT NOKIA INDIA PVT. LTD. ( NOKIA INDIA/THE ASSESSEE ) IS A WHOLLY OWNED SUBSIDIARY OF NOKIA CORPORAT ION, FINLAND ( NOKIA CORPORATION/ NOKIA FINLAND ), WAS INCORPORATED IN MAY 23, 1995. THE COMPANY IS PRIMARILY ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURING OF MOBILE HANDSETS, SPARE PARTS AND ACCESSORIES. IN ADDITION TO THIS ACTIVITY, THE COMPANY ALSO UNDERTAKES CONTRACT SOFTWARE DEVELOPMENT FOR ITS AES. 6.2. CONSIDERING THE TP DOCUMENTATION, THE TPO OBSERVED THAT THE ASSESSEE HAS INCURRED ADVERTISEMENT, MARKETING AND PROMOTION (HEREINAFTER REFERRED TO AS THE AMP ) EXPENSES ON BEHALF OF ITS AE. APART FROM THAT HE ALSO QUESTIONED THE ADEQUATENESS OF THE MARGIN EARNED IN THE INTERNATIONAL TRANSACTION RELATED TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES. THE TP ADJUSTMENTS MADE BY THE AO QUA THE AMP WERE CONFIRMED IN TOTO AND QUA THE SOFTWARE DEVE LOPMENT SERVICES PARTIAL RELIEF WAS GIVEN BY THE DRP. A GGRIEVED BY THESE ACTION THE ASSESSEE IS IN APPEAL. 6.3. THE FACTS QUA THE SAME ARE FOUND DISCUSSED AT PAGES 6 TO 9 OF THE ASSESSMENT ORDER VIDE PARAS 3 - 3.9. A PERUSAL OF THE SAME SHOWS THAT THE AS SESSEE S CASE IN THE YEAR UNDER CONSIDERATION WAS REFERRED TO THE TPO TO DETERMINE THE ARMS LENGTH PRICE (REFERRED TO HEREINAFTER AS THE ALP ) U/S 93CA(3) OF THE INCOME TAX ACT IN RESPECT OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE DURIN G THE FINANCIAL YEAR 2007 - 08. THE TPO VIDE HIS ORDER DATED 24.10.2011 U/S 92CA(3) OF THE INCOME TAX ACT, 1961 DETERMINED THE ALP MARGIN ON AMP AMOUNTING TO RS.372,86,01,144/ - AND CONTRACT SOFTWARE DEVELOPMENT SEGMENT (REFERRED TO I.T.A .NO. - 6283/DEL/2012 19 HEREINAFTER AS THE C SD ) AMOUNTING TO RS.58,22,14,849/ - . THE AO WAS DIRECTED TO ENHANCE THE TOTAL INCOME OF THE ASSESSEE BY RS.431,08,15,993/ - . ADVERTISING, MARKETING, PROMOTIONAL EXPENSES (AMP) 6.4 . ON THE AMP ISSUE, THE APPEAL OF THE ASSESSEE WAS NOT ALLOWED BY THE DRP. THE FINDING S OF THE TPO WERE CONFIRMED HOLDING THAT SIGNIFICANT PROPORTION OF AMP ACTIVITIES WERE AIMED AT CREATING/ENHANCING VALUE OF THE NOKIA BRAND IN INDIA. THE DRP ALSO UPHELD THE APPLICATION OF THE BRIGHT - LINE TEST (AVERAGE MARKETING AND DISTRIBUTION EXP ENDITURE INCURRED BY COMPANIES ENGAGED IN DISTRIBUTION OF SIMILAR GOODS WHOSE BRANDS ARE NOT OWNED BY THEM) CONSIDERING THE FACT THAT THE TOTAL SALES WERE RS.210,38,78,78,000 AND THE AMP EXPENSES WERE RS.491,32,60,000/ - WHICH GAVE THE AMP/SALES RATIO WAS 2 .33% AS COMPARED TO THE BRIGHT - LINE OF 0.76% . THE MARK - UP OF 12.5% APPLIED BY THE TPO WAS ALSO UPH E LD. ACCORDINGLY THE ALP WAS CALCULATED IN THE FOLLOWING MANNER : - TOTAL SALES : RS.210,387,878,000 ARM S LENGTH LEVEL OF AMP EXPENSES : RS.1,59 8,947,872 (0.76% OF SALES) AMP EXPENSE ACTUALLY INCURRED : RS.4,913,260,000 AMOUNT SPENT ON CREATION OF MARKETING INTANGIBLE : RS.3,314,312,128 ADD: MARK - UP @ 12.5% : RS.414.289,016 ARM S LENGTH PRICE OF INTERNATIONAL TRANSACTION : RS.3,728,6 01,144 LESS : PRICE DETERMINED BY ASSESSEE : NIL ADJUSTMENT U/S 92CA : RS.3,728,601,144 6. 5 . AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE COMMON STAND OF THE PARTIES BEFORE THE BENCH WAS THAT THE GROUND NO - 6 IN ASSESS EE S APPEAL IS COVERED BY THE ORDER OF THE SPECIAL BENCH IN THE CASE OF LG ELECTRONICS VS ACIT IN ITA NO. - 5140/DEL/2011 ORDER DATED 23.01.2011. ACCORDINGLY THE LD. AR SUBMITTED THAT IN ORDER TO KEEP THE ISSUE ALIVE THE ASSESSEE HAS FILED QUA THE AMP EXPEN SES GROUND NO - 6 - 6.14. HOWEVER, KEEPING IN MIND THE PRECEDENT VALUE OF THE ORDER OF THE SPECIAL BENCH AND BEING BOUND BY THE SAID JUDGEMENT, GROUND NO - 6, 6.1, 6.2, 6, 6.7, 6.8, 6.9 & 6.10 TECHNICALLY CAN BE SAID TO BE COVERED AGAINST THE ASSESSEE BY THE OR DER OF THE SPECIAL BENCH. IT WAS SUBMITTED THAT IT MAY BE RECORDED THAT THE I.T.A .NO. - 6283/DEL/2012 20 GROUNDS ARE AGITATED BY THE ASSESSEE BUT JUDICIAL PROPRIETY DEMANDS THAT THE PRESENT FORUM HAS TO DISMISS THEM. ACCORDINGLY THOUGH SPECIFIC GROUNDS HAVE BEEN RAISED THE SUBMISS ION ON BEHALF OF THE ASSESSEE WAS THAT ITS PRAYER TO RESTORE THE TO THE TPO FOR DETERMINATION OF THE COST/VALUE OF THE INTERNATIONAL TRANSACTION OF BRAND/LOGO PROMOTION ON ACCOUNT OF ALLEGED HIGH AMP EXPENSES MAY BE ALLOWED BY DIRECTING THE TPO TO CONSIDER NECESSARY RELIEF CONSIDERING THE 14 QUESTIONS WHICH ARE REQUIRED TO BE CONSIDERED AS MANDATED BY THE SPECIAL BENCH . IT WAS HIS SUBMISSION THAT THE STAND OF THE ASSESSEE IS THAT BEING A DISTRIBUTOR FOR MAJOR PORTION OF THE ACTIVITY OF THE ASSESSEE, THE RI SK BORNE IS VERY LIMITED AND THIS FACT WAS AGITATED BEFORE THE DRP AND WOULD BE EVIDENT FROM INTERNAL PAGE - 3 OF THE ORDER OF THE DRP - II DATED 28.09.2012 IN THE PRESENT PROCEEDING S . REFERRING TO THE SAME IT WAS SUBMITTED THAT BEFORE THE DRP - II, IT HAD BEEN ARGUED THAT THE ASSESSEE IS SOLELY RESPONSIBLE FOR IMPROVING IT S BUSINESS MARKET AND WAS REQUIRED TO INCUR THE AMP EXPENDITURE WHICH HAS A DIRECT NEXUS WITH ITS EARNING OF INCOME . THE AMOUNTS HAVE BEEN SPENT IT WAS SUBMITTED WITH THE SOLE OBJECTIVE OF E ARNING PROFIT FOR ITS OWN BENEFIT. THE PRINCIPLE FOCUS OF THE ASSESSEE IT WAS SUBMITTED WAS TO PROMOTE NOKIA PRODUCTS AND THEIR SALES AND THAT THE ASSESSEE IS LIMITED RISK DISTRIBUTOR WHO RECEIVES SUPPORT FROM AE. INVITING ATTENTION TO PAGE 687 AND 688 OF THE PAPER BOOK WHICH IS A COPY OF THE WRITTEN SUBMISSIONS DATED 31.07.2012 ADDRESSED TO THE DRP (659 TO 697), AND INTERNAL PAGE 8 OF THE DRP, IT WAS SUBMITTED THAT THE ASSESSEE S REMUNERATION MODEL AS A LIMITED RISK DISTRIBUTOR HAS BEEN EXPLAINED THAT I T RECEIVES SUPPORT FROM ITS AE IF ITS REMUNERATION IS LESS THAN 5%. IN THE YEAR UNDER CONSIDERATION, IT WAS SUBMITTED THE ASSESSEE HAS RECEIVED CREDIT NOTES OF RS.186 C RORES FOR ENSURING ITS MARGIN. REFERRING TO PAGE 687 OF THE PAPER BOOK, IT WAS STATED THAT IT IS AN ANNEXURE ATTACHED WITH THE COPY OF SUBMISSION PLACED BY THE DRP DATED 31.07.2012 AT PAGES 659 - 697 OF THE PAPER BOOK. THE SAID PAGE IT WAS STATED IS THE GLOBAL POLICY ON TRANSFER PRICING. INVITING ATTENTION TO PARA 3.2 AT PAGE 688, IT WAS SU BMITTED THAT THE ASSESSEE I.T.A .NO. - 6283/DEL/2012 21 IS A DISTRIBUTOR WHICH DISCUSSES THE ROLE, FUNCTIONS AND RISKS TO WHICH THE ASSESSEE IS EXPOSED QUA THE GLOBAL POLICY IN THE FOLLOWING MANNER : - 3.2 DISTRIBUTION IN RESPECT OF SALES OF THE PRODUCTS, NOKIA SUBSIDIARIES HAVE A RISK FREE DISTRIBUTOR STATUS, I.E. THEY BEAR PRACTICALLY NO RISK IN TERMS OF R&D, MANUFACTURING, MARKET, INVENTORY, CURRENCY, OR CREDIT EXPOSURES. TRANSFER PRICES CHARGED TO SUBSIDIARIES ARE CALCULATED SO THAT THEY GIVE THE SALES COMPANY AN ARM S LENGTH COMPEN SATION FOR THE FUNCTION PERFORMED, VALUE ADDED, RISKS CARRIED, AND ASSETS EMPLOYED BY THE SALES SUBSIDIARY. THE SALES SUBSIDIARIES PURCHASE THE PRODUCTS AT RESALE MINUS TRANSFER PRICE. THE PRICE IS ADJUSTED ACCORDING TO THE RICE LEVEL DEVELOPMENT IN THE MARKET, AND OPERATING COST CHANGES IN THE SALES SUBSIDIARY. THUS, THE PRICE RISK IS BORNE BY NOKIA CORPORATION WHO SELLS THE PRODUCTS TO THE SALES SUBSIDIARY. FOR TAX PURPOSES, THE OUTCOME OF THE TRANSFER PRICES IS BENCHMARKED AT OPERATING PROFIT LEVEL O F EACH BUSINESS GROUP. NOKIA CORPORATION (OR NOKIA INC FOR SECURITY AND CONNECTIVITY RELATED PRODUCTS) SELLS THE PRODUCTS EITHER TO SALE SUBSIDIARIES OR DIRECTLY TO CUSTOMERS. THE SALES SUBSIDIARIES ARE NOT ALLOWED TO FURTHER SELL THE PURCHASED PRODUCTS B ETWEEN THEMSELVES. (BOLD TEXTED FOR EMPHASIS) 6. 5 . 1 . THE LD. AR SUBMITTED THAT IN THE DECISION OF THE SPECIAL BENCH IN L.G.ELECTRONIC S CASE, THE ARGUMENTS ON BEHALF OF THE REVENUE HAD BEEN LEAD BY HIM AS SUCH BEING CONSCIOUS OF THE FACT THAT SOM E OF THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE QUA THE SAID CLAIM HAD NOT BEEN ACCEPTED BY THE SPECIAL BENCH IN THE CASE OF LG ELECTRONICS, IT WAS HIS SUBMISSION THAT IT MAYBE RECORDED THAT THE ASSESSEE CONTINUES TO REITERATE THE SAME IN SUPPORT OF ITS CLAIM IN ORDER TO KEEP THE ISSUE ALIVE . H OWEVER GROUND NO - 6.4 IT WAS SUBMITTED CAN BE CONSIDERED IN THE PRESENT CASE WHEREBY FOLLOWING THE SPECIAL BENCH, THE ISSUE MAY BE RESTORED TO THE TPO/AO WITH THE DIRECTION TO CONSIDER THE 14 PARAMETERS SET OUT IN THE ORDER OF THE SPECIAL BENCH. THE OTHER GROUNDS THOUGH AGITATED IN VIEW OF THE ORDER OF THE SPECIAL BENCH MAY HAVE TO BE DISMISSED AS BEING COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE SPECIAL BENCH. 6. 5 . 2. THE LD. CIT DR THOUGH PLACED RELIANCE ON THE ASSESSMENT ORDER AND THE ORDER OF THE SPECIAL BENCH STATED THAT THE LEGAL ISSUES HAVE ALL BEEN DECIDED AGAINST THE ASSESSEE AS SUCH DID NOT AGREE TO RESTORING THE ISSUE. HOWEVER NO ARGUMENTS COULD BE GIVEN AS TO WHY THE PARAMETERS SET OUT BY THE SP ECIAL BENCH IN L.G.ELECTRONIC S I.T.A .NO. - 6283/DEL/2012 22 CASE SHOULD NOT BE CONSIDERED IN THE FACTS OF THE PRESENT CASE. HIS ONLY CARE AND CONCERN EXPRESSED WAS THAT THE ASSESSEE WITH HINDSIGHT SHOULD NOT BE ALLOWED TO GET AN ADVANTAGE OF THE SPECIAL BENCH WHICH HAS HELD THAT IT MAY BE AN AREA OF CONSIDERATION TO DETERMINE WHETHER SUBSIDY ETC HAS BEEN RECEIVED. IT WAS HIS STAND THAT THE PURPOSE OF THE CREDIT NOTE RECEIVED CANNOT NOW BE ALLOWED TO BE CHANGED OR IMPROVED AND IF THE ASSESSEE WANTS TO ARGUE THAT IT WAS FOR HIGH AMP SP END THEN IT MUST BE BORNE IN MIND THAT THE ASSESSEE NEVER ACKNOWLEDGED IT AS AN INTERNATIONAL TRANSACTION. 6.6 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND ALSO THE DECISION RELIED UPON BY THE PARTIES BEFORE THE BEN CH. IT IS SEEN THAT IN THE FACTS OF THE PRESENT CASE THE ASSESSEE BEFORE THE TAX AUTHORITIES HAS ARGUED THAT IT IS THE SOLE RESPONSIBILITY OF THE ASSESSEE TO IMPROVE ITS BUSINESS MARKET AND THE AMP EXPENDITURE INCURRED IS IN PURSUANCE OF THE GOAL OF EARNIN G INCOME AND HAS A DIRECT NEXUS WITH IT. THE PRINCIPLE FOCUS FOR INCURRING THE EXPENDITURE BEING PROMOTION OF NOKIA PRODUCTS AND THEIR SALES. THE BENEFIT OF BRAND PROMOTION OF NOKIA IF ANY AS A RESULT OF THIS PROMOTION WAS STATED TO BE INCIDENTAL BENEFIT TO THE AE FOR WHICH NO COMPENSATION ACCORDING TO THE ASSESSEE W AS REQUIRED TO BE MADE . IT IS ALSO ASSERTED THAT THE ASSESSEE AS A LIMITED RISK DISTRIBUTOR RECEIVES SUPPORT FROM ITS AE AND IF THE REMUNERATION IS LESS THAN 5% THEN AE SUPPORTS THE SUBSIDIAR Y. IN THE YEAR UNDER CONSIDERATION, IT IS A FACT THAT THE ASSESSEE HAS RECEIVED CREDIT NOTES OF RS.186 C RORE STATED TO BE FOR ENSURING ITS MARGINS. IT HAS ALSO BEEN ARGUED THAT THE RETURN EARNED BY THE ASSESSEE ARE HIGHER THAN THOSE OF THE COMPARABLES AS SUCH NO FURTHER AMOUNT ATTRIBUTABLE TO BRAND BUILDING ACTIVITY NEEDS TO BE COMPENSATED. RELIANCE PLACED UPON THE OECD GUIDANCE, US TP REGULATION AND AUSTRALIAN TAX OFFICE (ATO) GUIDELINES BY THE TPO WAS STATED TO BE INCORRECTLY APPLIED. MARK - UP OF 12.5 % HAS ALSO BEEN ASSAILED. THE RECORD SHOWS THAT THE TPO HAS CALCULATED THE AMP/SALES RATIO OF THE ASSESSEE AS 2.33% AND THE MEAN OF THE AMP/SALES RATIO OF THE 4 COMPARABLES ACCEPTED IS 0.76% WHICH WAS TAKEN AS THE BRIGHT LINE AND APPLY THE I.T.A .NO. - 6283/DEL/2012 23 SAME THE DIFFER ENCE OF RS.331,43,12,128/ - WAS TAKEN AS THE AMOUNT REPRESENTING SPENT TO CREATE A MARKETING INTANGIBLE FOR THE BENEFIT OF THE AE WHICH SHOULD HAVE BEEN RE - IMBURSED BY THE AE ALONGWITH A MARK - UP. JUSTIFICATION FOR APPLYING THE MARK - UP GIVEN BY THE TPO IT I S SEEN WAS THAT THE ASSESSEE HAD BLOCKED ITS FUNDS AND HAD PROVIDED A SERVICE TO THE AE. THE TPO HELD THAT NO INDEPENDENT PARTY WOULD HAVE BLOCKED ITS FUNDS AND PROVIDED A SERVICE WITHOUT EXPECTING A RETURN OVER AND ABOVE THE RE - IMBURSEMENT OF THE BLOCKED FUNDS. THE FACT THAT LEGAL OWNERSHIP OF THE BRAND VESTED WITH THE AE WAS ALSO A FACTOR TAKEN INTO CONSIDERATION. FOR APPLYING THE RATE OF MARK - UP, THE PRIME LENDING RATE OF STATE BANK OF INDIA WAS TAKEN AS SUFFICIENT TO COVER THE BLOCKED FUNDS AND REMUN ERATION FOR SERVICES RENDERED AS A RESULT ADJUSTMENT PURPOSED MADE WAS RS.372,86,01,144/ - . THIS WAS CONFIRMED BY THE DRP AND RESULTED IN THE PASSING OF THE IMPUGNED ASSESSMENT ORDER. IN THE LIGHT OF THE ABOVE FACTS THE REQUEST OF THE LD. AR IS THAT QUA T HE CREDIT NOTES THE ISSUE MAY BE RESTORED TO THE TPO/AO TO CONSIDER THE 14 PARAMETERS SUMMED BY THE SPECIAL BENCH WHICH NEED TO BE CONSIDERED FOR DETERMINING THE ALP. A PERUSAL OF THE ORDER OF THE SPECIAL BENCH, IT IS SEEN DOES LAY DOWN THE SAID PROPOSITI ON AND FOLLOWING THE SAME, THE ISSUES FOR VERIFICATION HAVE BEEN RESTORED TO THE TPO/AO BY VARIOUS CO - ORDINATE BENCHES. WE REPRODUCE THE SAID PARA OF THE SPECIAL BENCH HERE UNDER : - 17.4. IN OUR CONSIDERED OPINION, FOLLOWING ARE SOME OF THE RELEVANT QUE STIONS, WHOSE ANSWERS HAVE CONSIDERABLE BEARING ON THE QUESTION OF DETERMINATION OF THE COST/VALUE OF THE INTERNATIONAL TRANSACTION OF BRAND/LOGO PROMOTION THROUGH AMP EXPENSES INCURRED BY THE INDIAN AE FOR ITS FOREIGN ENTITY : - 1. WHETHER THE INDIAN AE IS SI MPLY A DISTRIBUTOR OR IS A HOLDING A MANUFACTURING LICENCE FROM ITS FOREIGN AE . 2. WHERE THE INDIAN AE IS NOT A FULL FLEDGED MANUFACTURER, IS IT SELLING THE GOODS PURCHASED FROM THE FOREIGN AE AS SUCH OR IS IT MAKING SOME VALUE ADDITION TO THE GOODS PURCHASED FROM ITS FOREIGN AE BEFORE SELLING IT TO CUSTOMERS? 3. WHETHER THE GOODS SOLD BY THE INDIAN AE BEAR THE SAME BRAND NAME OR LOGO WHICH IS THAT OF ITS FOREIGN AE? 4. WHETHER THE GOODS SOLD BEAR LOGO ONLY OF FOREIGN AE OR A LOGO WHICH IS ONLY OF THE INDIAN AE OR I S IT A JOINT LOGO OF BOTH THE INDIAN ENTITY AND ITS FOREIGN COUNTERPART? I.T.A .NO. - 6283/DEL/2012 24 5. WHETHER INDIAN AE, A MANUFACTURER, IS PAYING ANY ROYALTY OR ANY SIMILAR AMOUNT BY WHATEVER NAME CALLED TO ITS FOREIGN AE AS A CONSIDERATION FOR THE USE OF THE BRAND/LOGO OF ITS FOREIG N AE? 6. WHETHER THE PAYMENT MADE AS ROYALTY TO THE FOREIGN AE IS COMPARABLE WITH WHAT OTHER DOMESTIC ENTITIES PAY TO INDEPENDENT FOREIGN PARTIES IN A SIMILAR SITUATION. 7. WHERE THE INDIAN AE HAS GOT A MANUFACTURING LICENCE FROM THE FOREIGN AE, IS IT ALSO USING ANY TECHNOLOGY OR TECHNICAL INPUT OR TECHNICAL KNOWHOW ACQUIRED FROM ITS FOREIGN AE FOR THE PURPOSES OF MANUFACTURING SUCH GOODS? 8. WHERE THE INDIAN AE IS USING TECHNICAL KNOW - HOW RECEIVED FROM THE FOREIGN AE AND IS PAYING ANY AMOUNT TO THE FOREIGN AE, WHET HER THE PAYMENT IS ONLY TOWARDS FEES FOR TECHNICAL SERVICES OR INCLUDES ROYALTY PART OF THE USE OF BRAND NAME OR BRAND LOGO ALSO? 9. WHETHER THE FOREIGN AE IS COMPENSATING THE INDIAN ENTITY FOR THE PROMOTION OF ITS BRAND IN ANY FORM, SUCH AS SUBSIDY ON THE GO ODS SOLD TO THE INDIAN AE? 10. WHERE SUCH SUBSIDY IS ALLOWED BY THE FOREIGN AE, WHETHER THE AMOUNT OF SUBSIDY IS COMMENSURATE WITH THE EXPENSES INCURRED BY THE INDIAN ENTITY ON THE PROMOTION OF BRAND FOR THE FOREIGN AE? 11. WHETHER THE FOREIGN AE HAS ITS PRESENCE IN INDIA ONLY IN ONE FIELD OR DIFFERENT FIELDS? WHERE IT IS INVOLVED IN DIFFERENT FIELDS, THEN IS THERE ONLY ONE INDIAN ENTITY LOOKING AFTER ALL THE FIELDS OR THERE ARE DIFFERENT INDIAN AES FOR DIFFERENT FIELDS? IF THERE ARE DIFFERENT ENTITIES IN INDIA, THEN WHAT IS THE PATTERN OF AMP EXPENSES IN THE OTHER INDIAN ENTITIES? 12. WHETHER THE YEAR UNDER CONSIDERATION IS THE ENTRY LEVEL OF THE FOREIGN AE IN INDIA OR IS IT A CASE OF ESTABLISHED BRAND IN INDA? 13. WHETHER ANY NEW PRODUCTS ARE LAUNCHED IN INDIA DURING T HE RELEVANT PERIOD OR IS IT CONTINUATION OF THE BUSINESS WITH THE EXISTING RANGE OF PRODUCTS? 14. HOW THE BRAND WILL BE DEALT WITH AFTER THE TERMINATION OF AGREEMENT BETWEEN AES? (BOLD TEXTED FOR EMPHASIS) 6.6 . 1. ACCORDING LY TO RE - CAPULATE , IT IS SEEN THAT I N THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS A D ISTRIBUTOR AS OPPOSED TO THE FACTS OF L.G. ELECTRONIC S CASE WHERE THE ASSESSEE BEING THE PRINCIPLE APPELLANT BEFORE THE SPECIAL BENCH WAS A LICENSED MANUFACTURER. A PERUSAL OF THE ABOVE REPRODUCTION OF THE ORDER OF THE SPECIAL BENCH QUESTION NO - 1 WOULD SHOW THAT IT HAS BEEN SO HELD BY THE SPECIAL BENCH THAT THE ANSWER TO THE SAID QUESTION AMONGST OTHERS WOULD HAVE CONSIDERABLE BEARING ON THE QUESTION OF DETERMINATION OF THE COST/VALUE OF THE INTERNATIONA L TRANSACTION. AS SUCH IT IS NECESSARY TO FIRST CHARACTERIZE THE ASSESSEE AND THEN DO THE FAR ANALYSIS IN ORDER TO DETERMINE THE FUNCTIONS TAKEN ON BY THE ASSESSEE ON THE BASIS OF THE I.T.A .NO. - 6283/DEL/2012 25 DOCUMENTS AND THE CONDUCT OF THE ASSESSEE. CONSIDERING THE ASSETS DEP LOYED AND THE RISKS ASSUMED, CHARACTERIZATION AND FAR ANALYSIS IS MANDATED BY LAW AND IT IS THE BEDROCK ON WHICH THE FOUNDATION OF TRANSFER PRICING FACTS ARE STRUCTURED AND THESE ARE THE FACTS TO WHICH THE LEGAL PRINCIPLES HAVING PRECEDENTAL VALUE SHALL A PPLY. THE SPECIFIC FACTS OF A CASE I.E CHARACTERIZATION AND FAR ANALYSIS SHOULD BE THE BEACON IN WHOSE LIGHT THE SETTLED LEGAL PRINCIPLES APPLICABLE CAN BE DISCERNED. ANY SHORTCUT METHOD AVOIDING THIS ENQUIRY WOULD BE AGAINST RULE 10B(2) FRAMED U/S 92C O F THE INCOME TAX ACT AND AGAINST THE SPIRIT AND INTENTION OF THE LEGISLATURE. THE ISSUE NECESSARILY FOR CORRECT APPRECIATION OF FACTS HAS TO BE RESTORED. 6.6.2. SIMILARLY, IN THE FACTS OF THE PRESENT CASE, CREDIT NOTES TO THE TUNE OF RS.186 CRORE HAVE BE EN RECEIVED BY THE ASSESSEE. REFERRING TO THE GLOBAL TRANSFER PRICING POLICY, IT IS STATED ON BEHALF OF THE ASSESSEE BEFORE THE TAX AUTHORITIES THAT IN CASE THE MARGINS OF THE ASSESSEE FALL BELOW 5% THAN THE AE SUPPORTS THE ASSESSEE TO ENSURE THAT THE MA RGINS ARE MAINTAINED. IN THE SAID BACKGROUND, IT IS STATED THAT CREDIT NOTES OF RS.186 CRORE HAVE BEEN RECEIVED. QUESTION NOS. - 9 & 10 OF THE SPECIAL BENCH MANDATE THAT IT IS NECESSARY TO DETERMINE THE ANSWER TO THE QUESTION WHETHER THE FOREIGN AE HAS COM PENSATED THE INDIAN ENTITY. PARA 19 OF THE SPECIAL BENCH ALSO HOLDS THAT AN ENQUIRY QUA THE COMPARABLES ON SIMILAR LINES MAY BE REQUIRED TO BE MADE. AS SUCH, WE ARE INCLINED TO AGREE WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE ON FACTS TO THE EXTENT DISCUSSED ABOVE. 6.6.3. BEING ALIVE TO THE CONCERNS EXPRESSED BY LD. CIT DR, SH. PEEYUSH JAIN ON BEHALF OF THE DEPARTMENT WHO HAS VEHEMENTLY ARGUED THAT THE BENEFIT WITH HINDSIGHT SHOULD NOT BE MADE AVAILABLE TO THE ASSESSEE DUE TO THE ORDER OF T HE SPECIAL BENCH AS THE ASSESSEE HAS NOT ACKNOWLEDGED THAT AMP IS AN INTERNATIONAL TRANSACTION AND THE NARRATIONS GIVEN IN THE CREDIT NOTES SHOULD NOT NOW BE ALLOWED TO BE IMPROVED. WE HOLD THAT THE ASSESSEE SHALL NOT BE ALLOWED TO RE - WRITE THE NARRATION AND THE NARRATION SHOULD BE TREATED AS FROZEN IN TIME. I.T.A .NO. - 6283/DEL/2012 26 6.6.4. WE ALSO CONCUR WITH THE DEPARTMENTAL STAND AND HOLD THAT THE APPLICATION OF BRIGHT LINE TEST APPLYING THE PRECEDENT SETTLED BY THE SPECIAL BENCH AND SO HOLD THAT THE SAME HAS BEEN CORRECTLY AP PLIED IN PRINCIPLE IN ORDER TO DETERMINE THE NON - ROUTINE FUNCTIONS WHICH HAVE BEEN PERFORMED BY THE ASSESSEE APPLYING THE MEAN AMP SALES RATIO OF THE COMPARABLES. IT IS ALSO UPH E LD THAT THE ASSESSEE HAS CONTRIBUTED TO BUILDING THE BRAND OF THE AE WHO HOLD S THE LEGAL RIGHTS OF THE BRAND AS SUCH THE GROUNDS ASSAILING THE ACTION OF THE TPO AND THE DRP IN UPHOLDING THE BRIGHT - LINE TEST ARE DISMISSED; THE GROUND THAT IT IS NOT AN INTERNATIONAL TRANSACTION IS ALSO DISMISSED, RELYING UPON THE PRECEDENT SETTLED BY THE SPECIAL B ENCH. 6.6.5. THE GROUNDS ASSAILING THE APPLICATION OF THE MARK - UP ARE ALSO DISMISSED AS NOTHING HAS BEEN ARGUED TO SHOW AS TO WHY THE MARK - UP OF 12.5% BEING THE SBI PLR FOR THE SAID YEAR IS EXCESSIVE. IN PRINCIPLE THE APPLICATION OF MARK - U P TO BE CALCULATED ON THE AMP SPEND ON CREATING THE MARKETING INTANGIBLES IS ALSO UPHELD AS NO UN - RELATED PARTY WOULD HAVE BLOCKED ITS FUNDS AND PROVIDED SERVICE TO THE AE FOR BUILDING THE BRAND BELONGING TO THE AE WITHOUT ANY EXPECTATION OF REMUNERATION O VER AND ABOVE THE COST INCURRED. 6. 6.6 . WHILE SO HOLDING IT IS SEEN THAT THE ASSESSEE HAS ASSAILED AS PER INTERNAL PAGE - 9 OF THE DRP S ORDER IN PARA (VIII) THAT THE TPO HAS INCORRECTLY RELIED UPON INTERNATIONAL GUIDANCE FROM OECD, US - TP REGULATION AND A USTRALIAN TAX OFFICE (ATO). THE SAID ARGUMENT DOES NOT HAVE ANY MERIT AS THE TPO IS VERY MUCH WITHIN HIS RIGHTS TO BE GUIDED BY INTERNATIONAL TAX JURISPRUDENCE IN THE ABSENCE OF ANY DOMESTIC PROVISION RULE AND REGULATION IN ORDER TO DETERMINE THE EVOLVING ISSUES. THE FACT THAT TRANSFER PRICING AS A SUBJECT ALONGWITH ISSUES PERTAINING TO MARKETING INTANGIBLES IS A CONSTANTLY EVOLVING AND GROWING AREA OF CONCERN NOT ONLY FOR INDIA BUT ALSO THE DEVELOPED AND DEVELOPING TAX JURISDICTION S OF DIFFERENT COUNTR IES IS A GLARING PHENOMENA OF THE PRESENT TIMES . THERE IS NO REASON WHY THE BENEFIT OF WORK AND EXPERIENCE OF INTERNATIONAL TAX JURISDICTION S OF DIFFERENT COUNTRIES , THE GUIDANCE AVAILABLE IN UNTP MODEL OR OECD OR AUSTRALIAN TAX OFFICE WHO HAVE HA D AN I.T.A .NO. - 6283/DEL/2012 27 OCC ASION TO CONSIDER THE CONCERNS OF VARIOUS PROFESSIONAL, EXPERTS AND GOVERNMENTS AND HAVE SIGNIFICANT EXPERIENCE IN CONSIDERING THESE EVOLVING ISSUES. THERE IS NO JUSTIFICATION TO DENY ONESELF THE BENEFIT OF JURISPRUDENCE AVAILABLE IN THE PUBLIC DOMAIN . AS LONG AS THESE DO NOT RUN CONTRARY TO THE INDIAN TRANSFER PRICING LAWS IGNORING THE SAME WOULD BE AN ACT OF CUTTING THE NOSE TO SPITE THE FACE. WITH THE PASSAGE OF TIME WHERE INDIA IS BECOMING A GLOBAL COMMERCIAL HUB WITH THE ADVENT OF MULTINATIONAL COM PANIES NEW TRANSFER PRICING ISSUE S ARE THROWN UP AND KEEPING THE AIM OF TRANSFER PRICING IN ENSURING THAT THE TAX BASE OF THE COUNTRY IS NOT ERODED THE ACTION OF THE TPO IN REFERRING TO THE INTERNATIONAL GUIDANCE IN ORDER TO DETERMINE THE ALP OF THE INTERN ATIONAL TRANSACTION CANNOT BE FAULTED WITH UNLESS WE REPEAT THE SAID ACTION IS CONTRARY TO THE INDIAN TRANSFER PRICING LEGISLATION WHICH IS NOT SO IN THE FACTS OF THE PRESENT CASE . 6. 6.7 . IN TERMS OF THE ABOVE OBSERVATIONS AND DIRECTIONS, THE LEGAL ISSUES ARE DECIDED IN REVENUE S FAVOUR AND ON FACTS THE ISSUE IS RESTORED TO THE TPO TO CALCULATE ALP OF THE AMP IN LINE WITH THE DIRECTIONS OF THE SPECIAL BENCH. DOUBLE DISALLOWANCE 7. FOR THE NEXT ISSUE ADDRESSED BY THE ASSESSEE VIDE GROUND NO - 6.11, THE LIMIT ED PRAYER OF THE LD. AR WAS THAT THE AO MAY BE DIRECTED TO LOOK INTO THE ASPECT THAT THERE SHOULD BE NO DOUBLE DISALLOWANCE. THE LD. CIT DR THOUGH RELIED UPON THE IMPUGNED ORDER HOWEVER DID NOT OPPOSE THE REQUEST ADDRESSING THE LEGITIMATE CONCERNS OF THE ASSESSEE. ACCORDINGLY IN THE LIGHT OF THE SUBMISSIONS ADVANCED BY THE PARTIES, WE DIRECT THE AO TO CONSIDER THE SUBMISSIONS OF THE ASSESSEE THAT THERE MAY BE NO DOUBLE DISALLOWANCE QUA THE EXPENDITURE ON CELL PHONES AND ACCESSORIES GIVEN FREE OF COST TO S ERVICE CENTRES ETC. AND THE AMP EXPENDITURE. CONTRACT SOFTWARE DEVELOPMENT 8. A PERUSAL OF THE TPO S ORDER SHOWS THAT THE TPO SHOW CAUSED THE ASSESSEE TO EXPLAIN WHY THE FILTE R S APPLIED BY THE ASSESSEE FOR SELECTING THE COMPARABLES BE NOT REJECTED AND SUB STITUTED BY THE FILTERS OF THE TPO AS THE ASSESSEE HAS USED MULTIPLE I.T.A .NO. - 6283/DEL/2012 28 YEARS DATA AND SELECTED INAPPROPRIATE 12 COMPARABLES WITH AN AVERAGE MARGIN OF 8.42%. THE SERVICES PROVIDED AS PER THE ASSESSEE S LETTER DATED 09.03.2011 WERE STATED TO BE AS UNDER : - N ES R&D DIVISION NES (NOKIA ENTERPRISE SOLUTIONS) R&D CENTRE IN HYDERABAD FOCUSES ON DEVELOPING THE LOW - END INTERNET SECURITY APPLIANCES AS WELL AS SUPPORT REMOTE SITES IN DEVELOPING AND TESTING OF NES S PLATFORMS ALONG WITH ITS NETWORK MANAGEMENT AND SSL/ VPN SOLUTIONS. IN THE YEAR ENDED 31 MARCH 2008, THE SCOPE OF R&D ACTIVITY FOR THE NES R&D UNIT WAS TO DEVELOP SOFTWARE, DEVELOP DOCUMENTATION AND CONDUCT TESTING FOR SOME PRODUCTS BELONGING TO THE PORTFOLIO OF NES US. NPM R&D DVISION THE NMP R&D DIVISIO N IN BANGLORE PROVIDES SOFTWARE DEVELOPMENT AND TESTING SERVICES FOR THE NOKIA RANGE OF PRODUCTS THAT INCLUDE TECHNOLOGY PLATFORMS FOR MOBILE PHONES. NMP (NOKIA MOBILE PHONES) R&D DIVISION IN MUMBAI FOCUSES ON R&D WORK ON CDMA MOBILE PHONE, IN PERFORMANCE , PROTOCOL AND APPLICATION LEVEL. THEY TEST IT IN SIMULATED ENVIRONMENT AND ALSO ON LIVE CUSTOMER ENVIRONMENT IN INDIA AND ABROAD. THUS, NOKIA INDIA ONLY PERFORMS THE ROUTINE SERVICE FUNCTION IN THE PRODUCT DEVELOPMENT LIFE CYCLE, WHICH SHOWS THAT ALL HI GH VALUE FUNCTIONS ARE PERFORMED BY THE AES. NOKIA INDIA MAINTAINS THE REQUITE INFRASTRUCTURE FOR UNDERTAKING ITS ACTIVITIES COMPLIES WITH LOCAL LEGAL REQUIREMENTS AND PERFORMS ROUTINE FUNCTIONS LIKE FINANCE AND ACCOUNTING, BUDGETING, SYSTEMS MAINTENANCE AND CONFIGURATION, PERSONNEL MANAGEMENT, ETC. NOKIA INDIA ALSO UNDERTAKES HUMAN RESOURCE (HR) MANAGEMENT AS WELL AS TRAINING OF ITS EMPLOYEES. 8.1. THE COMPARABLES BASED ON MULTIPLE YEAR DATA WERE NOT ACCEPTED RELYING ON RULE 10D(4) AND THE FILTERS USED BY THE ASSESSEE WERE REJECTED FOR THE FOLLOWING REASONS: - SL. NO. DESCRIPTION OF FILTER REMARKS OF THIS OFFICE 1. SELECT COMPANIES WITH SALES GREATER THAN ZERO OVER THE TIME PERIOD UNDER CONSIDERATION THIS IS AN INAPPROPRIATE FILTER. THE CORRECT SCREEN S HOULD BE TO SELECT COMPANIES THAT HAVE SALES GREATER THAN RS.1 CRORE IN THE FINANCIAL YEAR UNDER CONSIDERATION. COMPANIES THAT HAVE A TURNOVER OF LESS THAN RS.1 CRORE HAVE A VERY SMALL COST BASE AND THEREFORE ARE LIABLE TO PRODUCE ERRATIC RESULTS. 2. SEL ECT COMPANIES THAT HAVE SALES GREATER THAN ZERO AND RATIO OF OTHER INCOME TO SALES GREATER THAN 50% OVER THE TIME THIS IS AN INAPPROPRIATE FILTER. THE CORRECT FILTER WOULD BE TO SELECT COMPANIES THAT HAVE RATIO OF SERVICE INCOM E TO TOTAL INCOME EQUAL TO OR GREATER THAN 75%. THIS WILL ENSURE THAT ONLY THOSE COMPANIES THAT HAVE SERVICE INCOME ARE SELECTED AND COMPANIES THAT HAVE I.T.A .NO. - 6283/DEL/2012 29 PERIOD UNDER CONSIDERATION SIGNIFICANT INCOME FROM MANUFACTURING OR TRADING ACTIVITIES ARE REJECTED. THUS THE DATA FOR COMPARABI LITY WOULD BE MORE ROBUST AND FUNCTIONALLY SIMILAR TO THE ASSESSEE. 3. COMPANIES WITH RATIO OF R&D EXPENSES TO SALES LESS THAN 3% WERE SELECTED. THIS IS NOT AN APPROPRIATE FILTER AS IN THE R&D THAT A COMPANY MAY CARRY OUT WILL NOT AFFECT THE MARGINS IN TH E ITES SEGMENT. IF ANYTHING, IT WILL ONLY DEPRESS THE MARGINS. BESIDES THIS, A FILTER OF R&D EXPENSE IS NOT RELEVANT WHEN WE ARE LOOKING FOR COMPANIES IN THE ITES SECTOR. IF THE FILTER OF REJECTING COMPANIES WITH RATIO OF SERVICE INCOME TO TOTAL INCOME OF LESS THAN 75% IS PROPERLY APPLIED, THERE IS NO NEED FOR THIS FILTER. IN FACT THE FILTERS USED BY THE ASSESSEE OF SELECTING COMPARABLES WITH SERVICE INCOME EXCEEDING 50% OF TOTAL INCOME AND REJECTING COMPANIES WITH R&D AND MARKETING EXPENSE EXCEEDING 3% OF SALES HAVE BEEN COMBINED BY THE TPO IN A SINGLE QUANTITATIVE FILTER OF ACCEPTING COMPANIES WHOSE SERVICE INCOME EXCEEDS 75% OF TOTAL INCOME. 4. COMPANIES WITH RATIO OF NET FIXED ASSETS TO SALES OF LESS THAN 200% WERE SELECTED. THIS FILTER IS NOT APPRO PRIATE. AS STATED WHILE DISCUSSING THE R&D FILTER, IF THE FILTER OF SERVICE INCOME WERE APPLIED CORRECTLY, THIS FILTER HAS NO RELEVANCE. THE SAME ARGUMENTS MADE ABOVE WILL APPLY HERE. 5. COMPANIES HAVING AVERAGE SALES OF LESS THAN RS.1 CRORE DURING THE TIME PERIOD WERE REJECTED THIS IS NOT AN APPROPRIATE FILTER SINCE IT PRESUPPOSES THE USE OF MULTIPLE YEAR DATA. IT HAS ALREADY BEEN POINTED OUT THAT THE USE OF MULTIPLE YEAR DATA WITHOUT ANY SUPPORTING REASONS, VIOLATES THE MANDATE OF RULE 10D(4). THE C ORRECT APPROACH WOULD BE TO USE CURRENT YEAR DATA AND REJECT COMPANIES THAT HAVE A TURNOVER OF LESS THAN RS.1 CRORE. 6. COMPANIES WITH NEGATIVE NET WORTH WERE REJECTED. THIS IS NOT AN APPROPRIATE FILTER AS THE REASONS FOR A COMPANY HAVING NET WORTH MAY LI E IN ANOTHER FINANCIAL YEAR. THIS WILL HAVE TO BE SEEN ON A CASE BY CASE BASIS. 7. COMPANIES WITH RATIO OF ADVERTISING, MARKETING AND DISTRIBUTION EXPENSES TO SALES OF LESS THAN 3% WERE SELECTED. THIS IS NOT AN APPROPRIATE FILTER. THE REASONS THAT HAVE BEEN PUT FORWARD FOR THE REJECTION OF THE R&D FILTER WILL APPLY IN THIS CASE ALSO. 8.1.1. THE TPO INSTEAD SELECTED THE APPLICATION OF THE FOLLOWING FILTERS FOR THE REASONING GIVEN FOR EACH OF THESE : - I.T.A .NO. - 6283/DEL/2012 30 (I) USE OF CURRENT YEAR DATA : - IT HAS ALREADY BEEN A RGUED EARLIER THAT THE TRANSFER PRICING PROVISIONS LAY DOWN THAT PRIMARILY CURRENT YEAR DATA SHOULD BE USE. YOU HAVE OBJECTED TO THE USE OF THIS FILTER. HOWEVER, YOU HAVE IGNORED THE FACT THAT THE PROVISO TO RULE 10D(4) ALLOWS THE USE OF MULTIPLE YEAR DA TA ONLY IF THE ASSESSEE IS ABLE TO DEMONSTRATE THROUGH RELEVANT DATA THAT CERTAIN FACTORS OF EARLIER YEARS HAS AFFECTED THE TRANSFER PRICES FOR THE CURRENT YEAR. YOU HAVE NOT BEEN ABLE TO DO SO IN ANY OF YOUR SUBMISSIONS. THERE ARE SUFFICIENT JUDICIAL PR ONOUNCEMENTS THAT SUPPORT THE USE OF CURRENT YEAR DATA. (II) REJECT COMPANIES WHERE TURNOVER IS LESS THAN RS.1 CRORE: - THIS FILTER IS APPLIED BECAUSE WHERE THE TURNOVER AND COST BASE IS VERY SMALL, IT IS MORE THAN LIKELY THAT THE MARGINS WILL BE ERRATIC. THAT APART, A COMPANY THAT IS VERY SMALL IN SIZE DOES NOT HAVE SUFFICIENT ECONOMIC SIGNIFICANT THAT IT BE USED AS A BENCHMARK. (III) SELECT COMPANIES WHERE THE RATIO OF SERVICE INCOME TO TOTAL INCOME IS ATLEAST 75%: - THE USE OF THIS FILTER IS TO ENSURE THAT WE CHOOSE COMPANIES THAT ARE PRIMARILY IN THE SERVICE SECTOR. THE APPLICATION OF THIS FILTER WILL ENSURE THAT COMPANIES WITH SIGNIFICANT INCOME FROM MANUFACTURING AND TRADING ARE NOT SELECTED. YOU HAVE ARGUED FOR PLACING THIS THRESHOLD AT 50%. THIS WILL BE AN IN APPROPRIATE LIMIT AS THIS WILL ALLOW COMPANIES THAT HAVE SIGNIFICANT INCOMES FROM MANUFACTURING AND TRADING ACTIVITIES TO BE USED AS COMPARABLES. IN YOUR CASE YOUR ENTIRE INCOME IS FROM PROVISION OF SERVICES. IT WOULD NOT BE RIGHT TO ALLOW YOU TO BE BENC HMARKED AGAINST A COMPANY THAT HAS 50% OF ITS INCOME FROM MANUFACTURING OR TRADING ACTIVITIES. THIS WILL ENSURE INTEGRITY OF ALL COMPARABLE DATA. (IV) SELECT COMPANIES WHERE INCOME FROM EXPORTS IS ATLEAST 25% OF TOTAL INCOME: THIS FILTER IS REQUIRED TO BE APPL IED SINCE YOU ARE PRIMARILY EARNING INCOME FROM EXPORTS. EVEN IN CASES WHERE AN ASSESSEE IS HAVING INCOME FROM DOMESTIC OPERATIONS, THE TRANSFER PRICING AUDIT WILL BENCHMARK TRANSACTIONS WITH THE AE< WHICH WILL BE AN EXPORT TRANSACTIONS. THERE ARE JUDICI AL PRONOUNCEMENTS THAT SUPPORT THE CASE THAT EXPORTERS SHOULD NOT BE COMPARED WITH DOMESTIC COMPANIES. HENCE, THIS FILTER IS REQUIRED TO BE APPLIED. (V) REJECT COMPANIES WHERE RELATED PARTY TRANSACTIONS EXCEED 25% OF SALES: THERE IS NO DOUBT THAT COMPANIES WI TH SIGNIFICANT RELATED PARTY TRANSACTIONS NEED TO BE EXCLUDED FORM THE BENCHMARKING PROCESS. ON THE ISSUE OF THRESHOLD OF RELATED PARTY TRANSACTIONS, IT CAN BE STATED THAT WHEN THE RPT EXCEEDS 25% OF SALES, IT CAN BE SAID TO BE THE STAGE WHEN IT WILL STAR T AFFECTING THE PRICE PAID/RECEIVED. THE RATIONALE GIVEN FOR THE USE OF THE LIMIT OF 25% IS SOUND AND THIS THRESHOLD LIMIT HAS BEEN APPROVED EXPLICITLY AN IMPLICITLY IN QUITE A FEW JUDICIAL PRONOUNCEMENTS. (VI) COMPANIES THAT HAVE EMPLOYEE COST THAT IS LESS TH AN 25% OF TOTAL COST: - THE RATIONALE FOR THIS FILTER IS THAT COMPANIES THAT ARE ENGAGED IN SOFTWARE DEVELOPMENT WILL REQUIRE A MINIMUM LEVEL OF EXPENDITURE ON PERSONNEL EXPENSES. THERE ARE JUDICIAL PRONOUNCEMENTS THAT SUPPORT THE CONTENTION THAT EXPENSE O N PERSONNEL THAT IS EXTREMELY LOW MAY LEAD TO THE CONCLUSION THAT THE COMPANY IS NOT ENGAGED IN SOFTWARE DEVELOPMENT. (VII) COMPANIES THAT ARE AFFECTED BY SOME PECULIAR ECONOMIC CIRCUMSTANCES : - COMPANIES THAT ARE AFFECTED BY FACTORS LIKE PERSISTENT LOSSES, DECLI NING SALES, EXTRAORDINARY INCOME OR EXPENSE, MERGERS AND ACQUISITIONS OR OTHER SUCH I.T.A .NO. - 6283/DEL/2012 31 FACTORS SHOULD NOT BE USED AS COMPARABLES AS THEY WILL NOT PROVE TO BE GOOD BENCHMARK. 8.1. 2 APPLYING THESE FILTERS TO THE COMPARABLES FILED BY THE ASSESSEE IN THE SEARCH SUBMITTED ON 01.06.2011, THE TPO ACCEPT ED 3 OUT OF THE 17 COMPARABLES PROVIDED BY THE ASSESSEE AND THEN APPLYING THE FILTERS AGAIN TO THE ORIGINAL COMPARABLES OF THE ASSESSEE WHICH THE ASSESSEE HAD REJECTED THE TPO ACCEPT ED 12 OF THEM. THE REASON S FOR RE JECTI ON OF THE SAME BY THE ASSESSEE AND ACCEPT ANCE OF THE SAME BY THE TPO ARE SET OUT IN THE INTERNAL PAGES 22 TO 24 OF THE TPO S ORDER. ACCORDINGLY OF THESE 15 COMPARABLES TAKING THEIR MEAN OP/TC PERCENTAGE AS 30.84% THE ASSESSEE WAS SHOW CAUSED WHY SOF TWARE DEVELOPMENT SERVICES BE NOT RECALCULATED AS UNDER: - ACCORDINGLY, THE ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATED TO THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES IS PROPOSED TO BE RECALCULATED AS BELOW: - TOTAL COST : RS.2,718,0 88,000 ALP AT A MARGIN OF 30.8% : RS.3,556,346,339 PRICE RECEIVED : RS.2,853,992,000 DIFFERENCE : RS.702,354,339 8.1. 3 . THE RECORD SHOWS THAT THE REPLY OF THE ASSESSEE WAS CONSIDERED AND THE MEAN OP/TC P ERCENTAGE OF THE 15 COMPARABLES WAS TAK EN AS 26.42% AND FINALLY ALP OF RS.58,22,14,849/ - WAS PROPOSED AS UNDER : - 9. BASED ON THE ANALYSIS THAT HAS BEEN CARRIED OUT IN THE PRECEDING PARA S THE COMPARABLES THAT SHALL BE USED TO BENCHMARK THE ASSESSEE S TRANSACTION RELATED TO PROVISION OF SOFTWA RE DEVELOPMENT SERVICES ARE AS BELOW: S.NO. NAME OF COMPARABLE OP/TC(%) 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 8.84 2. MINDTREE LTD. 15.34 3. BODHTREE CONSULTING LTD. 19.14 4. 3K TECHNOLOGIES LTD. 28.9 5. ARICENT TECHNOLOGIES (HOLDINGS) LTD. 7.57 6. C YBERMATEINFOTEK LTD. 141.71 7. INFOSYS TECHNOLOGIES LTD. 39.62 8. KALS INFORMATION SYSTEMS LTD. 41.94 9. PERSISTENT SYSTEMS LTD. 27.7 10. QUINTEGRA SOLUTIONS LTD. 9.75 11. R S SOFTWARE (INDIA) LTD 7.79 12. R SYSTEMS INTERNATIONAL LTD. 15.3 13. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 12.83 14. TATA TLXSI LTD. (SEG) 18.69 I.T.A .NO. - 6283/DEL/2012 32 15. VMF SOFTECH LTD. 1.26 AVERAGE 26.42 ACCORDINGLY, THE ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATED TO THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES IS RECALCULATED AS BELOW: - TOTAL COST : RS.2,718,088,000 ALP AT A MARGIN OF 26.4% : RS.3,436,206,849 PRICE RECEIVED : RS.2,853,992,000 DIFFERENCE : RS.582,214,849 . 8.2. A PERUSAL OF THE DRP S ORDER SHOWS THAT THE ARGUMENT ADVANCED THAT TH E ASSESSEE WAS ELIGIBLE FOR TAX HOLIDAY U/S 10A ON ITS PROFITS AND THEREFORE DID NOT HAVE ANY MOTIVE OF DERIVING A TAX ADVANTAGE BY MANIPULATING TRANSFER PRICES OF ITS INTERNATIONAL TRANSACTIONS WAS REJECTED RELYING ON THE FIRST PROVISO TO SUB - SECTION ( 4 ) OF SECTION 92C. THE SAME READS AS UNDER : - ( 4) WHERE AN ARM S LENGTH PRICE IS DETERMINED BY THE ASSESSING OFFICER UNDER SUB - SECTION (3), THE ASSESSING OFFICER MAY COMPUTE THE TOTAL INCOME OF THE ASSESSEE HAVING REGARD TO THE ARM S LENGTH PRICE SO DETERMI NED: PROVIDED THAT NO DEDUCTION UNDER SECTION 10A [OR SECTION 10AA] OR SECTION 10B OR UNDER CHAPTER VI - A SHALL BE ALLOWED IN RESPECT OF THE AMOUNT OF INCOME BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER THIS SUB - S E CTION. 8. 2 . 1. THE DRP CONSIDERING THE SUBMISSIONS ON BEHALF OF THE ASSESSEE REMOVED ARICENT TECHNOLOGIES (HOLDINGS) LTD. AND CYBERMATE INFOTEK LTD. FROM THE LIST OF COMPARABLES. THE MARGINS CALCULATED BY THE ASSESSEE FOR RS SOFTWARE (I) LTD. AND SASKEN COMMUNICATION LTD. (SEG.) AS ALLEGED BY THE ASSESSEE WERE CORRECTED . C ONSEQUENTLY THE COMPARABLES CONSIDERED BY THE TPO AS 15 WERE REDUCED TO 13 RESULTING IN AVERAGE OP/TC PERCENTAGE AFTER CORRECTIONS IN THE CALCULATIONS WORKED OUT TO 18.3 PERCENTAGE AND THE ALP ADJUSTMENT IN SOFTWARE SERVICES SEGMENT WAS REDUCED TO RS.35,41,67,266/ - . 8.3 . AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL. THE LD. AR MADE A PRAYER THAT THE ISSUE MAY BE RESTORED AS THE ACTION OF THE DEPARTMENT AMOUNTS TO CHERRY PICKING I.E SE LECTING THOSE COMPARABLES WHICH SUIT THE DEPARTMENT. IT WAS HIS SUBMISSION THAT THE TP STUDY OF THE ASSESSEE WAS NOT ACCEPTED BY THE TPO ON THE GROUND THAT MULTIPLE YEAR DATA HAD BEEN USED AND THE FILTERS OF THE ASSESSEE WERE ALSO I.T.A .NO. - 6283/DEL/2012 33 NOT ACCEPTED AND FRESH F ILTERS WERE INTRODUCED BY THE TPO AS A RESULT OF WHICH THE COMPARABLES SELECTED DETRIMENTAL TO THE ASSESSEE HAVE BEEN THROWN UP./ IT WAS HIS SUBMISSION THAT QUANTITATIVE FILTERS CANNOT BE APPLIED SUBSEQUENTLY AND THE WHOLE EXERCISE NEEDS TO BE DONE AGAIN AS THE FILTERS OF THE TPO WERE APPLIED TO THE DATA OF THE ASSESSEE WHICH HAD BEEN SELECTED APPLYING DIFFERENT FILTERS. 8.4. THE LD. CIT DR OPPOSED THE SAID REQUEST OF THE ASSESSEE STATING THAT THE TPO WAS VERY WELL WITHIN HIS RIGHTS TO REJECT THE TP STUD Y TO THE EXTENT THAT MULTIPLE YEAR DATA HAD BEEN USED AS THE LAW MANDATES THAT THE DATA FOR THAT SPECIFIC YEAR NEEDS TO BE CONSIDERED. IT WAS ALSO HIS SUBMISSION THAT FILTERS APPLIED BY THE TPO HAVE BEEN UPHELD BY THE DRP. 8.5. THE APPEAL WAS LISTED FOR C LARIFICATION AND THE PARTIES WERE HEARD AT LENGTH QUA THE REQUEST OF THE LD. AR WHO SUBMITTED THAT THE TRIBUNAL IN THE EARLIER YEAR IN THE CASE OF THE ASSESSEE ITSELF VIDE ITS ORDER DATED 18.05.2012 HA S RESTORED THE ISSUE TO THE TPO TO CONFRONT THE INFORMA TION OBTAINED BY THE TPO U/S 133(6) USED BY HIM WHISH WAS NOT CONFRONTED TO THE ASSESSEE. COPY OF ITA - 4559/DEL/2011 PLACED AT PAGES 1027 TO 1045 AT PAGE 1035 WAS RELIED UPON. I T WAS REITERATED THAT THE FILTER OF THE ASSESSEE WERE REJECTED AND THE TPO HAD INTRODUCED FRESH FILTERS AS SUCH THE ASSESSEE ONLY REQUESTS THAT KEEPING THE 7 FILTERS OF THE TPO A FRESH SEARCH ON THE ENTIRE DATA MAY BE ALLOWED. 8.6 . THE LD. CIT DR ARGUED THAT IF THE ASSESSEE ESTABLISHES THAT THE SEARCH STRATEGY WAS NOT CONFRONTED TO THE ASSESSEE BY THE TPO THEN HE MAY HAVE A CASE. HOWEVER REFERRING TO THE FACTS, I T WAS HIS ARGUMENT THAT ALL ALONG THE ASSESSEE HAS BEEN CONFRONTED AT EVERY STAGE AND HAS BEEN HEARD IT WAS EMPHASIZED THAT AT ALL STAGES ITS ARGUMENTS HAVE BEEN CONSIDERED BY SPEAKING ORDERS AND AT NO STAGE DESPITE AMPLE OPPORTUNITY THE ASSESSEE MADE ANY SUCH SUBMISSION REQUEST ING THAT LET THE FILTERS BE APPLIED TO THE COMPLETE DATA BASE. INSTEAD THE ASSESSEE HAS CHOSEN TO CONTE S T THE FILTERS AND THE COMPARABLES WHICH ARGU MENTS HAVE BEEN CONSIDERED BY THE TPO WITH A SPEAKING ORDER . SIMILARLY, T HE ARGUMENTS OF THE ASSESSEE BEFORE THE DRP HAVE ALSO I.T.A .NO. - 6283/DEL/2012 34 BEEN CONSIDERED RESULTING IN REDUCING THE A VERAGE OP/TC MARGIN FROM 26.42% TO 18.03%. IT WAS SUBMITTED THAT THE ARGUMENTS AGAIN ST THE FILTERS APPLIED BY THE TPO HAVE BEEN REJECTED BY THE DRP AND THE TPO S ACTION HAS BEEN UPHELD. IT WAS ALSO SUBMITTED THAT NO ARGUMENTS WERE EVER ADVANCED BEFORE THE DRP THAT CHERRY PICKING HAS BEEN DONE AND TO NOW ARGUED THAT CHERRY PICKING HAS BEEN DONE WITHOUT ANY FACTS IT WAS SUBMITTED SHOULD NOT BE ACCEPTED. I T WAS HIS VEHEMENT STAND THAT IF THE ISSUE HAS TO GO BACK THEN THE ASSESSEE NEEDS TO FIRST PROVIDE A JUSTIFICATION FOR THE REQUEST. IT WAS HIS STAND THAT REMAND MERELY FOR THE ASKING SHOULD NOT BE PERMITTED. IT WAS HIS SUBMISSION THAT SUCH AN ACT WOULD SET A WRONG PRECEDENT. IT WAS SUBMITTED THAT THE ASSESSEE AT THIS BELATED STAGE IS COMING WITH THE REQUEST AND HAS NOT CARED TO SUPPORT THE SAME WITH ANY ADDITIONAL EVIDENCES OR MATERI AL SO AS TO DEMONSTRATE THAT THE RESULTS WOULD VARY AFTER THE FRESH SEARCH IS DONE. MERELY TO SATISFY THE REQUEST OF THE ASSESSEE, IT WAS SUBMITTED MATTER SHOULD NOT BE REMANDED. 8.7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDER OF THE C O - ORDINATE BENCH IN ASSESSEE S CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. IN THE FACTS OF THE PRESENT CASE, IT IS SEEN THAT THE TPO AT PAGE 19 PARA 5.2 CONSIDERS THE FACT THAT FOR BENCHMARKING THE TRANSACTION S IN SOFTWARE DEVELOPMENT SERVICES THE ASSESSEE ARRIVED AT12 COMPARABLES WITH AN AVERAGE OF 8.42%. THE SAID MARGIN HAD BEEN ARRIVED AT USING MULTIPLE YEAR DATA. THE TPO WAS CORRECT IN HIS APPROACH I N THE LIGHT OF RULE 10D(4) WHICH MANDATES THAT PRIMARILY CURRENT YEAR DATA SHOULD BE USED. CONSIDERING THE 7 FILTERS APPLIED BY THE ASSESSEE, THE TPO PASSED A SPEAKING ORDER GIVING SPECIFIC REASONS FOR NOT FINDING THE FILTERS APPLIED BY THE ASSESSEE APPROPRIATE IN THE FACTS OF THE CASE . THESE FACTS ARE FOUND DISCUSSED AT PAGES 19, 20 & 21 OF THE TPO S ORDER. THEREAFTER THE TPO HAS GIVEN SPECIFIC REASONS FOR JUSTIFYING THE APPLICATION OF 7 FILTERS SELECTED BY HIM WHICH ARE FOUND DISCUSSED AT PAGES 21 & 22 OF THE TPO S ORDER. THE TPO AT PAGE 22 EXAMINES THE C OMPARABLES GIVEN IN THE TP REPORT OF THE ASSESSEE AND IN THE I.T.A .NO. - 6283/DEL/2012 35 FRESH SEARCH SUBMITTED BY THE ASSESSEE VIDE ITS LETTER DATED 01.06.2011 . APPLYING THE FILTERS SELECTED BY HIM TO THOSE COMPARABLES, HE GAVE REASONS FOR REJECTING 14 AND ACCEPTING 3 COMPARABLES A T PAGE 22. IN PARA 6 OF THE SAME PAGE THE TPO ADDRESSES THE ACCEPT/REJECT MA TRIX FOR THE SEARCH PROCESS BROUGHT TO THE NOTICE OF THE TPO BY THE ASSESSEE VIDE SUBMISSIONS DATED 29.08.2011 AND DEALS WITH THE OBJECTIONS OF THE ASSESSEE QUA THE 12 COMPARABLES SELECTED BY THE TPO, THESE ELABORATE FACTS ARE FOUND DISCUSSED AT PAGES 23 & 24 OF THE TPO. PARA 6 OF PAGE 22 IS BEING REPRODUCED HEREUNDER : - 6. THE FRESH SEARCH FOR COMPARABLES THAT YOU HAVE CARRIED HAS ALSO BEEN BASED ON THE FILTERS THAT YOU HAVE USE D AT THE STAGE OF PREPARATION OF YOUR TP REPORT. YOU HAVE PROVIDED THE ACCEPT/REJECT MATRIX FOR THIS SEARCH PROCESS BY YOUR SUBMISSION DATED 29.08.2011. THIS HAS BEEN CRITICALLY RE - VISITED IN THE LIGHT OF THE DISCUSSION ON THE APPROPRIATENESS OF THE FILT ERS USED BY YOU AND THE FILTERS THAT SHOULD BE ACTUALLY APPLIED. THE COMMENTS ON SOME OF THE COMPARABLES ARE TABULATED BELOW: - SL.NO. NAME OF COMPARABLE REASONS FOR REJECTION BY THE ASSESSEE REMARKS OF THIS OFFICE 1. 3K TECHNOLOGIES LTD. THE COMPANY IS INTO DIVERSIFIED ACTIVITIES - SERVICES INCLUDE STRATEGY STUDIES. PACKAGE IMPLEMENTATION, CUSTOM DEVELOPMENT, TESTING SERVICES, BPO/IT ENABLED SERVICES. THE ANNUAL REPORT OF THE COMPANY HAS BEEN PERUSED. THE ENTIRE INCOME OF THE COMPANY IS FROM SOFTWARE EXP ORTS. IT ALSO PASSES ALL THE APPROPRIATE FILTERS. THIS CAN BE USED AS A COMPARABLE. 2. ARICENT TECHNOLOGIES (HOLDINGS) LTD. FAILS ON QUANTITATIVE SCREENS THIS COMPARABLE HAS BEEN REJECTED ON ACCOUNT OF THE NFA/SALES FILTER. IT HAS ALREADY BEEN DISCUSSE D THAT THIS FILTER IS NOT AN APPROPRIATE ONE. THIS COMPANY IS A SOFTWARE DEVELOPER AND PASSES ALL APPROPRIATE FILTERS. THIS SHALL BE USED AS A COMPARABLE. 3. CYBERMATEINFOTEK LTD. THE COMPANY IS INTO DIVERSIFIED ACTIVITIES - INVOLVED IN THE PROVISION OF B USINESS AND TECHNOLOGY CONSULTING, CUSTOM SOFTWARE DEVELOPMENT, MAINTENANCE, APPLICATION THE ANNUAL REPORT OF THIS COMPANY HAS BEEN PERUSED. THE ENTIRE INCOME OF THE COMPANY IS FROM A SINGLE SEGMENT OF CO MPUTER SOFTWARE. IT ALSO PASSES ALL RELEVANT FILTERS. THIS SHALL BE USED AS A I.T.A .NO. - 6283/DEL/2012 36 SERVICES, PRODUCT ENGINEERING, RE - ENGINEERING ETC. COMPARABLE. 4. INFOSYS INFORMATION SYSTEMS LTD. .THE COMPANY IS FUNCTIONALLY NOT COMPARABLE. THE COMPANY IS INVOLVED IN THE PROVISION OF IT AND CONSULTING SERVICES. THE COM PANY DEVELOPS ITS OWN BRANDED PRODUCTS. THE COMPANY IS VERY MUCH A SOFTWARE DEVELOPER. SINCE IT PASSES ALL RELEVANT FILTERS, THIS SHALL BE USED AS A COMPARABLE. 5 KALS INFORMATION SYSTEMS LTD. THE COMPANY CONSISTS OF STPI UNIT ENGAGED IN DEVELOPMENT OF S OFTWARE AND SOFTWARE PRODUCTS AND A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTWARE PROFESSIONALS ON ONLINE PRODUCTS. THE COMPANY ALSO DEVELOPS ITS OWN SOFTWARE PRODUCTS THE ANNUAL REPORT OF THE COMPANY SHOWS THAT ALMOST THE ENTIRE INCOME IS FROM EXPORT O F SOFTWARE DEVELOPMENT SERVICES. THE COMPANY PASSES ALL FILTERS. THIS SHALL BE USED AS A COMPARABLE. 6. PERSISTENT SYSTEMS LTD. THE COMPANY IS FUNCTIONALLY NOT COMPARABLE - ENGAGED IN SOFTWARE DEVELOPMENT ACTIVITIES. ALSO, THE COMPANY OWN SOFTWARE PRODUCT S. THE ANNUAL REPORT OF THE COMPANY SHOWS THAT ALMOST ENTIRE INCOME IS FROM SALE OF SOFTWARE SERVICES. THE COMPANY PASSES ALL RELEVANT FILTERS. THIS COMPANY SHALL BE USED AS A COMPARABLE. 7. QUINTEGRA SOLUTIONS LTD. FAILS ON QUANTITATIVE SCREENS THE R&D /SALES FILTER ON WHICH THE COMPANY HAS BEEN REJECTED IS NOT APPROPRIATE. THIS MATTER HAS BEEN DISCUSSED EARLIER. THE COMPANY IS A SOFTWARE DEVELOPER. IT PASSES ALL RELEVANT FILTERS. THIS SHALL BE USED AS A COMPARABLE. 8. R S SOFTWARE (INDIA) LTD. FAIL S ON QUANTITATIVE SCREENS THE FILTER ON WHICH THE COMPANY HAS BEEN REJECTED IS NOT APPROPRIATE. THIS MATTER HAS BEEN DISCUSSED EARLIER. THIS COMPANY PASSES ALL FILTERS AND SHALL BE USED AS A COMPARABLE. 9. R SYSTEMS INTERNATIONAL DIVERSIFIED AS ENG AGED IN BOTH IT AND ITES. ACCEPTED AT SEGMENTAL THE SOFTWARE SEGMENT SHALL BE USED AS A COMPARABLE. I.T.A .NO. - 6283/DEL/2012 37 LTD. LEVEL. 10. SASKEN COMMUNICATION TECHNOLOGIES LTD. FAILS ON QUANTITATIVE SCREENS THE FILTER FOR WHICH THIS COMPANY HAS BEEN REJECTED IS NOT APPROPRIATE. T HIS COMPANY PASSES ALL FILTERS AND THE SOFTWARE SEGMENT SHALL BE USED AS A COMPARABLE. 11. TATA ELXSI LTD. FAILS ON QUANTITATIVE SCREENS THE FILTER ON WHICH THIS COMPANY HAS BEEN REJECTED. THE COMPANY PASSES ALL FILTERS. THIS SHALL BE USED AS A COMPARAB LE. 12. ZENITH INFOTECH LTD. FAILS ON QUANTITATIVE SCREENS THE NFA/SALES FILTER ON WHICH THE COMPANY HAS BEEN REJECTED IS NOT APPROPRIATE. THE COMPANY PASSES ALL RELEVANT FILTERS. THIS SHALL BE USED AS A COMPARABLE. 8.7.1 . IT IS SEEN THAT A S A RESULT OF THIS, THE TPO SELECTED THESE 15 COMPARABLES (12+3) AND SHOW - CAUSED THE ASSESSEE WHY ON THE BASIS OF THE AVERAGE OP/TC PERCENTAGE OF 30.84% ALP ADJUSTMENT OF RS.70,23,54,339/ - BE NOT MADE. 8.7 .2. IT IS SEEN THAT THE REPLY TO THE SAME WAS MADE BY THE ASSE SSEE VIDE LETTER DATED 19.10.2011 WHICH HAS BEEN CONSIDERED AND FOUND DISCUSSED IN DETAIL IN PARA 6.2, 6.3 TO 6.3.5, 6.4 TO 6.4.4, 6.5 TO 6.5.13, 7 TO 7.1.5 AT PAGES 25 TO 45 BY THE TPO . THIS HAS RESULTED IN REDUCING THE AVERAGE OP/TC PERCENTAGE FROM 30.8 4% WHICH WAS INITIALLY COMMUNICATED TO 26.42% RESULTING IN PROPOSING THE ALP ADJUSTMENT OF RS.58,22,14,849 INSTEAD OF RS.70,23,54,339/ - AS INITIALLY COMMUNICATED . AS SUCH WE FIND THAT THE ASSERTIONS MADE ON BEHALF OF THE ASSESSEE THAT THE TPO HAS DECIDED THE ISSUE WITHOUT CONFRONTING THE ASSESSEE WITH THE BASIS AND REASONING FOR REJECTING THE ASSESSEE S FILTERS AND COMPARABLES IS FOUND TO BE INCORRECT ON FACTS. IT IS SEEN THAT AT EACH STAGE, THE TPO HAS GIVEN DETAILED REASONS FOR REJECTING THE ASSESSEE S VERSION AND GIVEN JUSTIFICATION FOR ITS FILTERS AND COMPARABLES WHICH HAS BEEN CONFRONTED TO BY THE ASSESSEE TO WHICH THE ASSESSEE HAS REPLIED AND ONLY THEREAFTER THE ORDER WAS PASSED . I.T.A .NO. - 6283/DEL/2012 38 8.7.3. SIMILARLY, T HE ARGUMENTS AGAINST THE CONCLUSIONS, METHODOLOGY , SELECTION OF COMPARABLES AND POINTING DEFECTS IN CALCULATIONS HAVE BEEN CONSIDERED IN DETAIL BY THE DRP AT PAGES 14 TO 31 AS A RESULT OF WHICH 2 COMPARABLES WERE EXCLUDED, CORRECTION IN MARGINS AS COMMUNICATED BY THE ASSESSEE FOR RS SOFTWARE(1) LTD. AND SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) WERE MADE AND THE OP/TC OF THE 13 COMPARABLES WORKED OUT TO 18.03% AS COMPARED TO 30.84% ORIGINALLY COMMUNICATED BY THE TPO WHICH CONSIDERING THE REPLY OF THE ASSESSEE STOOD REDUCED TO 26.42% AND AS SEEN STOOD FURTHER REDUCED TO 18.03% BY THE DRP RESULTING IN THE ALP ADJUSTMENT OF RS.35,41,67,266/ - . THE FACT THAT FROM RS.70,23,54,339/ - AS SHOW CAUSED TO THE ASSESSEE, IT RESULTED IN PROPOSING ALP ADJUSTMENT IN THE DRAFT ASSESSMENT ORDER TO RS.58,22,14,849/ - LEAD ING TO FINAL ASSESSMENT CONCLUDED U/S 143(3)/144C TO RS.35,41,67,266/ - CLEARLY SHOWS THAT THE ASSESSEE S ARGUMENTS HAVE BEEN CONSIDERED AND REASONING HAS BEEN GIVEN AS WE HAVE SEEN AT EVERY STAGE FOR AGREEING OR DISAGREEING WITH THE ARGUMENTS ADVANCED. AS SUCH WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE ASSESSEE SUBMITTING THAT THE TPO HAS NOT CONFRONTED THE ASSESSEE WITH THE BASIS OF HIS METHODOLOGY, IT IS SEEN THAT THE TPO AT EACH AND EVERY STAGE HAS FULLY KEPT THE ASSESSEE INFORMED WITH THE REASONS FOR HIS CONCLUSION DISCUSSING THE MERITS OF THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE . ACCORDINGLY WE DO NOT FIND ANY JUSTIFICATION FOR GRANTING A REMAND AS THE ARGUMENTS AND SUBMISSIONS IN SUPPORT OF THE SAID REQUEST ARE NOT SUPPORTED BY THE FACT S ON RECORD. 8.7.4. IT IS ALSO SEEN THAT MERELY BECAUSE THERE WAS A LEGAL JUSTIFICATION IN THE EARLIER YEAR FOR REMANDING THE ISSUE AS EVIDENTLY THE MATERIAL RELIED UPON BY THE TPO WAS NOT CONFRONTED TO THE ASSESSEE CANNOT FORM THE BASIS THAT F OLLOWING Y EARS ALSO WARRANT A REMAND. IT IS ALSO SEEN THAT NO EFFORT HAS BEEN MADE ON BEHALF OF THE ASSESSEE TO DEMONSTRATE THAT THE RESULTS WOULD VARY IF A FRESH SEARCH IS DONE AS NO EFFORT TO MOVE FRESH EVIDENCE HAS BEEN MADE ON BEHALF OF THE ASSESSEE DESPITE THE FACT THAT THE HEARINGS TOOK PLACE ON 20.02.2013, 14.03.2013 AND CONCLUDED ON I.T.A .NO. - 6283/DEL/2012 39 19.03.2013. THEREAFTER, IT IS SEEN THAT ON 26.03.2013, THE APPEAL WAS FIXED FOR CLARIFICATION AND THE LD. AR WAS REQUIRED TO GIVE JUSTIFICATION IN SUPPORT OF THE CLAIM AS IN PAR A 4.2, IT HAD BEEN ALLEGED THAT THE TPO HAS RESORTED TO CHERRY PICKING . THE PARTIES WERE HEARD ON 04.04.2013 AND 11.04.2013 AND FINALLY THE HEARING WAS CONCLUDED ON 03.05.2013. DESPITE MORE THAN ADEQUATE TIME BEING REPEATEDLY GRANTED TO THE ASSESSEE DE SPITE THAT NOTHING HAS BEEN PLACED ON RECORD TO SHOW THAT THE RESULTS WOULD VARY AND REMAND IN THE INTERESTS OF JUSTICE IS WARRANTED ON FACTS . IN THE ABSENCE OF ANY SUCH SUBMISSION AND EVIDENCE TO SHOW THAT THE ASSESSEE HAS BEEN PREJUDICED AS THE ONLY ARG UMENTS MADE ARE THAT THE TPO HAS NOT CONFRONTED THE ASSESSEE WITH HIS SEARCH METHODOLOGY/REASONING THE REQUEST OF REMAND IS REJECTED. 8.7.5. THE ARGUMENTS THAT THE TPO HAS RESORTED TO CHERRY PICKING HAS NOT BEEN DEMONSTRATED AND SINCE THIS IS THE APPEAL AGAINST THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DRP S ORDER, IT IS SEEN ON FACTS THAT THE REVENUE HAS NOT BEEN GUIDED BY HIGH OP/TC PERCENTAGES AS THE RECORD WOULD SHOW THAT ARICENT TECHNOLOGIES (HOLDING) LTD. AND CYBERMATE INFOTEK LTD. WITH OP/TC MARGIN OF 7.57% AND 141.71% RESPECTIVELY HAVE BEEN DIRECTED TO BE EXCLUDED BY THE DRP . 8.7.6. TH US THE ALLEGATION THAT THE TPO/REVENUE HAS RESORTED TO CHERRY PICKING IS FOUND TO BE NOT SUPPORTED BY RECORD. S INCE NO ARGUMENTS HAVE BEEN ADVANCED TO ASSA IL THE APPROPRIATENESS OF THE REASONING OF THE DRP TO UPHOLD THE FILTERS SELECTED BY THE TPO AND NO ARGUMENTS HAVE ALSO BEEN ADVANCED ON FACTS ASSAILING THE REASONING OF THE DRP TO RETAIN THE 13 COMPARABLES WITH ARITHMETICAL CORRECTION IN OP/TC PERCENTAGE, THE CORRECTNESS OF THE SAME IS NOT BEING GONE INTO . O N THE APPROPRIATENESS OF THE FILTERS AND THE COMPARABLES NO FINDING IS BEING GIVEN AS THE ASSESSEE HAS CONFINED ITSELF ONLY TO MAKING A REQUEST FOR REMAND ON THE GROUND THAT THE TPO HAS NOT CONFRONTED THE ASSESSEE WITH THE BASIS OF THE SEARCH PROCESS WHICH ON FACTS IS FOUND TO BE INCORRECT . IT IS SEEN THAT AT NO STAGE EITHER BEFORE THE TPO OR THE DRP, THE ASSESSEE HAS SOUGHT TO DEMONSTRATE APPLYING THE 7 FILTERS OF THE TPO THAT THE RESULTS WOULD VARY . IT IS ALSO SEEN THAT NO SUCH REQUEST WAS MADE EITHER I.T.A .NO. - 6283/DEL/2012 40 BEFORE THE TPO OR THE DRP DESPITE SUFFICIENT OPPORTUNITY AND BEFORE US THE REQUEST MADE IS FOUND TO BE INCORRECT ON FACTS . IT IS FURTHER SEEN NOTHING HAS BEEN PLACED BEFORE US TO DEMONSTRATE THAT BY CARRYING OUT A FRESH SEARCH APPLYING THE 7 FILTERS OF THE TPO THE RESULTS WOULD VARY. IN THE ABSENCE OF ANY COGENT FACT OR ARGUMENTS, THE REQUEST FOR REMAND CANNOT BE ACCEDED TO IN VACUUM . NO DOUBT THE TRIBUNAL HAS THE POWER TO REMAND HOWEVER THE SAID RE QUEST IS TO BE EXERCISED JUDICIOUSLY AND MATTERS CANNOT AND SHOULD NOT BE REMANDED FOR THE MERE ASKING AND THAT TOO WHEN THE ARGUMENTS ON FACTS ARE FOUND TO BE NOT BORNE OUT BY RECORD. THERE MUST BE SOME EVIDENCE OR FACT AVAILABLE ON RECORD TO JUSTIFY T HE REMAND IN ORDER TO SET THE MACHINERY OF THE GOVERNMENT WORKING AND MERELY ON CASUAL REQUESTS AND WHIM THE PROCESS CANNOT BE CAUSED TO BE STA R TED. IT IS ALSO A FACT TO BE KEPT IN MIND WHILE REMANDING THAT THE ENTIRE DEMAND QUA THE ISSUE GETS WIPED OUT A ND SUCH A DRASTIC ACTION SHOULD BE RESORTED TO ONLY IF JUSTICE DEMANDS THAT FACTS SUPPORTING THE SAID REQUEST ARE AVAILABLE ON RECORD. SINCE NO OTHER ARGUMENTS WAS ADVANCED ON BEHALF OF THE ASSESSEE, GROUND NO. - 7 IS REJECTED. 9 . 1. GROUND NO - 8 RAISED BY THE ASSESSEE ASKING FOR THE BENEFIT OF DEDUCTION OF 5% UNDER PROVISO TO SECTION 92C(2) FOR THE PURPOSES OF BENCH - MARKING HAS TO BE REJECTED. THE AMENDMENT MADE WITH RETROSPECTIVE EFFECT BY THE FINANCE ACT, 2002 MAKES IT CLEAR THAT BENEFIT OF DEDUCTION OF 5% UNDER THE PROVISO TO SECTION 92C(2) SHALL NOT BE ALLOWED FOR THE PURPOSES OF COMP U T A TION OF ARMS S LENGTH PRICE. 9.2 . GROUND NO. - 9 IS CONSEQUENTIAL AND GROUND NO. - 10 IS PREMATURE REQUIRING NO ADJUDICATION . 1 0 . IN THE RESULT, THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH OF AUGUST 201 3 . SD/ - SD/ - (B.C.MEENA) ( DIVA SINGH ) ACCOUNTANT MEMBER JUDICIA L MEMBER DATED: 30 /0 8 /201 3 *AMIT KUMAR* I.T.A .NO. - 6283/DEL/2012 41 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI