OMNI ACTIVE HEALTH ITECHNOLOGIES LTD, MUMBAI V. DCIT 7(3)(1), MUMBAI

ITA 638/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0119 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 27-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR; V JENARDHANAN
• Assessee Lawyers: ARVIND V SONDE
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Earning of tax free income; Period of limitation; Retrospective amendment; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 92D; 92B; 92E; 133A; 14A; 10B; 147; 131; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI PAWAN SINGH, JM ./ I.T.A. NO S . 638 & 4643 /MUM/2017 ( / ASSESSMENT YEAR: 2012 - 13 & 2013 - 14 ) OMNI ACTIVE HEALTH TECHNOLOGIES LIMITED T - 8B, 5 TH FLOOR, PHOENIX HOUSE, A WING, PHOENIX MILLS COMPOUND, 462, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI - 400 013 / VS. THE DEPUTY LD. COMMISSIONER OF INCOME TAX 7(3)(1), ROOM NO. 12, AAYAKAR BHAVAN, MAH ARSHI KARVE ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AADCP 2914 Q ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ARVIND V. SONDE & SHRI KETAN VED / RESPONDENT BY : SHRI JAYANT KUMAR & SHRI V. JENARDHANAN / DATE OF HEARING : 19.12.2017 / DATE OF PRONOUNCEMENT : 06.03 .2018 / O R D E R PER S HAMIM YAHYA , A. M.: THE S E ARE A PPEAL S BY THE ASSESSEE AGAINST THE RESPECTIVE ORD ERS OF THE ASSESSING OFFICER PASSED U/S. 143(3) R/W S. 144C(13) FOR ASSESSMENT YEARS 2012 - 13 AND 2013 - 14 RESPECTIVELY. SINCE THE GROUNDS RAISED ARE COMMON AND THE APPEALS WERE HEARD TOGETHER, THESE HAVE BEEN DISPOSED OF BY THIS COMMON ORDER. 2 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED 2. THE GROUND S OF APPEAL FOR ASSESSMENT YEAR 2012 - 13 READS AS UNDER: 1 : 0 RE.: ADJUSTMENT OF RS. 13,55,73,433 / - TO THE INTERNATIONAL TRANSACTION RELATING TO EXPORT OF GOODS: 1 : I THE ASSESSING OFFICER / DISPUTE RESOLUTION PANEL HAS ERRED IN MAKING AN UPWARD ADJUSTMEN T OF RS. 13,55,73,433 / - TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTION RELATING TO THE EXPORT OF GOODS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE WAS NOT AT ARM'S LENGTH. 1 : 2 THE ASSESSING OFFICER / D ISPUTE RESOLUTION PANEL ERRED IN REJECTING THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WHICH WAS DETERMINED BY THE APPELLANT AS THE MOST APPROPRIATE METHOD AS PER THE PROVISIONS OF SECTION 92C(1) OF THE INCOME - TAX ACT, 1961. 1 : 3 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE INTERNATIONAL TRANSACTION RELATING TO THE EXPORT OF GOODS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE WAS AT ARM'S LENGTH AND HENCE NO ADJUSTMEN T IN RESPECT THEREOF WAS CALLED FOR AND THE STAND TAKEN BY THE ASSESSING OFFICER / DISPUTE RESOLUTION PANEL IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORRECT. 1: 4 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE UPWARD ADJU STMENT OF RS. 13,55,73,433 / - MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. 2 : 0 RE.: ADJUSTMENT OF RS. 1.19,960 / - TO THE INTERNATIONAL TRANSACTION RELATING TO CORPORATE GUARANTEE: 2 : 1 THE A SSESSING OFFICER 7 THE DISPUTE RESOLUTION PANEL HAS ERRED IN MAKING AN UPWARD ADJUSTMENT OF RS. 1,19,960 / - TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTION RELATING TO CORPORATE GUARANTEE ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE WAS NOT AT ARM'S LENGTH. 2 : 2 THE ASSESSING OFFICER HAS ERRED IN NOT CONSIDERING THE RELIEF GRANTED BY THE LD. DRP PANEL. THE LD. DRP PANEL HAS REDUCED THE CORPORATE GUARANTEE RATE FROM 2.25% TO 1.5% THE EFFECT OF WH ICH WAS NOT GIVEN BY THE LD. AO IN THE FINAL ASSESSMENT ORDER. 2 : 3 THE APPELLANT SUBMITS THAT CONSIDERING (HE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE INTERNATIONAL TRANSACTION RELATING TO CORPORATE GUARANTEE ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE WAS AT ARM'S LENGTH AND HENCE NO ADJUSTMENT IN RESPECT THEREOF WAS CALLED FOR AND THE STAND TAKEN BY THE ASSESSING OFFICER / DISPUTE RESOLUTION PANEL IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORRECT. 2 : 4 T HE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELE TE THE UPWARD ADJUSTMENT OF RS. 1,19,960 / - MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. 3 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED 3 : 0 RE.: ADDITION OF RS. 7,41,654 / - BEING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME - TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME - TAX RULES, 1 962 : 3 : 1 THE ASSESSING OFFICER/ THE DISPUTE RESOLUTION PANEL HAS ER RED IN DISALLOWING A SUM OF RS. 7,41,654 / - U7S. 14A OF THE INCOME - TAX AC T, 1961 R.W.R. 8D OF THE INCOME - TAX RULES, 1962, OVER AND ABOVE THE SUM OF RS. 4,86,3227 - DISALLOWED BY THE APPELLANT SNO - MOTO WHILE RETURNING ITS TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION. 3 : 2 THE ASSESSING OFFICER 7 DISPUTE RESOLUTION PANEL ERRED I N INCLUDING INVESTMENT IN FOREIGN SUBSIDIARIES WHILE CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSE U/S. 14A OF THE INCOME - TAX ACT, 1961 BY APPLYING RULE 8D OF THE INCOME - TAX RULES, 1962 WITHOUT APPRECIATING THE FACT THAT INCOME FROM SUCH INVESTMENT IS TA XABLE UNDER SECTION 115BBD OF THE INCOME - T AX ACT, 1961. 3 : 3 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT NO DISALLOWANCE U7S. 14A OF THE INCOME - TAX ACT, 1961 WAS CALLED FOR AND HENCE THE STAND TAKEN BY THE ASSESSING OFFICER/ DISPUTE RESOLUTION PANEL IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORRECT. 3 :4 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE ADDITIONAL DISALLOWANCE U / S. 14A SO MADE BY HIM AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 3. THE GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2013 - 14 READS AS UNDER: 1 : 0 RE.: ADJUSTMENT OF RS. 13, 16 , 87 , 917/ - TO THE INTERNATIONAL TRANSACTION RELATING TO EXPORT OF GOODS: 1 : I THE ASSESSING OFFICER / DISPUTE RESOLUTION PANEL HAS ERRED IN MAKING AN UPWARD ADJUSTMENT OF RS. 13,16,87,917/ - TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTION RELATING TO THE EXPORT OF GOODS ENTERED INTO BY THE APPELLANT WITH ITS ASSOC IATED ENTERPRISE WAS NOT AT ARM'S LENGTH. 1 : 2 THE ASSESSING OFFICER / DISPUTE RESOLUTION PANEL ERRED IN REJECTING THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WHICH WAS DETERMINED BY THE APPELLANT AS THE MOST APPROPRIATE METHOD AS PER THE PROVISIONS OF SEC TION 92C(1) OF THE INCOME - TAX ACT, 1961. 1 : 3 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE INTERNATIONAL TRANSACTION RELATING TO THE EXPORT OF GOODS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE WAS AT ARM'S LENGTH AND HENCE NO ADJUSTMENT IN RESPECT THEREOF WAS CALLED FOR AND THE STAND TAKEN BY THE ASSESSING OFFICER / DISPUTE RESOLUTION PANEL IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORRECT. 4 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED 1: 4 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE UPWARD ADJUSTMENT OF RS. 13,16,87,917/ - MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. 2 : 0 RE.: ADJUSTMENT OF RS. 5,44,243/ - TO TH E INTERNATIONAL TRANSACTION RELATING TO CORPORATE GUARANTEE: 2 : 1 THE ASSESSING OFFICER 7 THE DISPUTE RESOLUTION PANEL HAS ERRED IN MAKING AN UPWARD ADJUSTMENT OF RS. 5,44,243/ - TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSAC TION RELATING TO CORPORATE GUARANTEE ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE WAS NOT AT ARM'S LENGTH. 2 : 2 THE APPELLANT SUBMITS THAT CONSIDERING T HE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE INTER NATIONAL TRANSACTION RELATING TO CORPORATE GUARANTEE ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE WAS AT ARM'S LENGTH AND HENCE NO ADJUSTMENT IN RESPECT THEREOF WAS CALLED FOR AND THE STAND TAKEN BY THE ASSESSING OFFICER / DISPUTE RESOLUTIO N PANEL IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORRECT. 2 : 4 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELE TE THE UPWARD ADJUSTMENT OF RS. 5,44,243/ - MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE - COMPUTE ITS TOTAL INC OME AND TAX LIABILITY ACCORDINGLY. 3 : 0 RE.: ADDITION OF RS. 6,66,30,953/ - BEING THE DISALLOWANCE U/S. 35(2AB) OF THE ACT : 3 : 1 THE ASSESSING OFFICER/ THE DISPUTE RESOLUTION PANEL HAS ER RED IN DISALLOWING A SUM OF RS. 5,31,21,608/ - (BEING 100% OF REVENU E EXPENDITURE) AND RS.1,35,09,345/ - (BEING 200% OF CAPITAL EXPENDITURE) INCURRED TOWARDS RESEARCH AND DEVELOPMENT EXPENDITURE CLAIMED U/S. 35(2AB) OF THE ACT. 3 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE SUBJECT NO DISALLOWANCE U7S. 14A OF THE INCOME - TAX ACT, 1961 WAS CALLED FOR AND HENCE THE STAND TAKEN BY THE ASSESSING OFFICER/ DISPUTE RESOLUTION PANEL IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORRECT. 3 :4 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE ADDITIONAL DISALLOWANCE U / S. 14A SO MADE BY HIM AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 4. THE ASSESSEE HAS ALSO FILED COMMON ADDITIONAL GROUNDS FOR BOTH THE ASSESSMENT YEARS. T HE C OMMON ADDITIONAL GROUND READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE ASSESSING OFFICER (AO') OF MAKING REFERENCE TO THE LEARNED TRANSFER PRICING 5 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED OFFICER (TPO') WITHOUT GIVING ANY OPPORTUNITY OF BEING HEARD, IS IN VIOLATION OF THE PROVISIONS OF SECTION 92CA OF THE INCOME - TAX ACT, 1961 AND NEEDS TO BE QUASHED. THE APPELLANT SUBMITS THAT THE REFERENCE MADE TO THE TPO IS NOT IN ACCORDANCE WITH LAW AND HENCE THE ORDER PASSED PURSUANT TO THE ILLEGAL REFERE NCE IS BAD IN LAW. 5. REGARDING THE ADMISSION OF ADDITIONAL GROUND, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IT IS AN IMPORTANT LEGAL ISSUE AFFECTING THE JURISDICTION ASSUMED BY THE ASSESSING OFFICER. HENCE, HE SUBMITTED THAT THE SAME SHOULD BE ADM ITTED. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS N OT RAISED THIS GROUND BEFORE ANY OF THE AUTHORITIES BELOW. HENCE, HE PLEADED THAT THIS ADDITIONAL GROUND SHOULD NOT BE ADMITTED. 7. UPON CAREFUL CONSIDERATION, W E FIND THAT IT IS AN IMPORTANT LEGAL ISSUE AND, ACCORDINGLY, WE ADMIT THE SAME. 8. IN THE ABOVE ADDITIONAL GROUND, THE ASSESSEE HAS URGED THAT THE ASSESSING OFFICER HAS MADE A REFERENCE TO THE TRANSFER PRICING OFFICER WITHOUT GIV ING AN OPPORTUNITY OF BEIN G HEARD. THIS HAS BEEN CLAIMED TO BE A V IOL ATION OF THE PROVISION OF SECTION 9 2CA OF THE I. T. ACT. THUS, IT HAS BEEN CLAIMED THAT THIS NEEDS TO BE QUASHED. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE REFERRED TO THE DECISION OF THIS TRIBUNAL IN THE CA SE OF VIDEOCON OIL VENTURES LTD. VS. DY. CIT (IN ITA NO. 6630/MUM/2016 DATED 20.09.2017) . T HE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT 6 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED THIS DECISION PROVIDES THAT BEFORE REFERRING TO THE TRANSFER PRICING OFFICER , THE ASSESSING OFFICER SHOULD HAV E GIVEN A N OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SINCE THE SAME HA S NOT BEEN DONE, THERE IS VALUATION OF SECTION 92CA OF THE I. T. ACT. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THE SAID DECISION, THE ITAT HAS REFERRED TO THE HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF VODAFONE INDIA SERVICES P. LTD. (SUPRA) AND ALSO THE CBDT INSTRUCTION NO. 15 OF 2 015 D ATED 15.10.201 5 . THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ABOVE CASE LAW MANDATES THAT OPPORTUNITY TO THE ASSESSEE SHOULD HAVE BEEN GIV EN BEFORE REFERENCE OF THE MATTER TO THE TRANSFER PRICING OFFICER BY THE ASSESSING OFFICER. SINCE THE SAME HAS NOT BEEN DONE, THERE IS A VIOLATION OF PROVISION OF SECTION 92CA AND THE ASSESSMENT ORDER NEEDS TO BE QUASHED. 9. PER CONTRA, THE LD. DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT SECTION 92CA NOWHERE PROVIDES THAT BEFORE REFERRING THE MATTER TO THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER NEEDS TO GIVE AN OPPORTUNITY TO THE ASSESSEE. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESS EE IS DULY GIVEN OPPORTUNITY BEFORE THE TRANSFER PRICING OFFICER AS WELL AS THE DISPUTE RESOLUTION PANEL. HENCE, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE IS NO VALUATION OF ANY OF THE PROVISION OR THAT OF NATURAL JUSTICE. HOWEVER, THE LD. DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISIONS REFERRED BY THE LD. COUNSEL OF THE ASSESSEE RELATE TO A SITUATION WHERE THE ASSESSEE HAS OBJECTED BEFORE THE ASSESSING OFFICER THAT A PARTICULAR TRANSACTION IS NOT AN 7 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED INTERNATIONAL TRANSACTION. HOWEVER, T HE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN THE PRESENT CASE, THERE IS NO OBJECTION WHATSOEVER BY THE ASSESSEE THAT ANY OF THE TRANSACTIONS CONSIDERED AS INTERNATIONAL TRANSACTION HAVE BEEN WRONGLY DONE BY THE ASSESSING OFFICER. HENCE, THE LD. DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT THERE IS NO MERIT WHATSOEVER IN THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. IN THIS REGARD, WE MAY GAINFULLY REFER TO THE PROVISION OF S ECTION 92CA WHICH READS AS UNDER: REFERENCE TO TRANSFER PRICING OFFICER. 92CA. (1) WHERE ANY PERSON, BEING THE ASSESSEE, HAS ENTERED INTO AN INTERNA - TIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION IN ANY PREVIOUS YEAR, AND THE ASSESSING OFFICER CONSI DERS IT NECESSARY OR EXPEDIENT SO TO DO, HE MAY, WITH THE PREVIOUS APPROVAL OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, REFER THE COMPUTATION OF THE ARM'S LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION U NDER SECTION 92C TO THE TRANSFER PRICING OFFICER. (2) WHERE A REFERENCE IS MADE UNDER SUB - SECTION (1), THE TRANSFER PRICING OFFICER SHALL SERVE A NOTICE ON THE ASSESSEE REQUIRING HIM TO PRODUCE OR CAUSE TO BE PRODUCED ON A DATE TO BE SPECIFIED THEREIN, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE COMPUTATION MADE BY HIM OF THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION OR SP ECIFIED DOMESTIC TRANSACTION REFERRED TO IN SUB - SECTION (1). (2A) WHERE ANY OTHER INTERNATIONAL TRANSACTION OTHER THAN AN INTERNATIONAL TRANSACTION REFERRED UNDER SUB - SECTION (1), COMES TO THE NOTICE OF THE TRANSFER PRICING OFFICER DURING THE COURSE OF THE PROCEEDINGS BEFORE HIM, THE PROVISIONS OF THIS CHAPTER SHALL APPLY AS IF SUCH OTHER INTERNATIONAL TRANSACTION IS AN INTERNATIONAL TRANSACTION REFERRED TO HIM UNDER SUB - SECTION (1). (2B) WHERE IN RESPECT OF AN INTERNATIONAL TRANSACTION, THE ASSESSEE HAS N OT FURNISHED THE REPORT UNDER SECTION 92E AND SUCH TRANSACTION COMES TO THE NOTICE OF THE TRANSFER PRICING OFFICER DURING THE COURSE OF THE PROCEEDING BEFORE H IM, THE PROVISIONS OF THIS CHAPTER SHALL APPLY AS IF SUCH TRANSACTION IS AN INTERNATIONAL TRANSACTION REFERRED TO HIM UNDER SUB - SECTION (1). 8 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED (2C) NOTHING CONTAINED IN SUB - SECTION (2B) SHALL EMPOWER THE ASSESSING OFFICER EITHER TO ASSESS OR REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154 , FOR ANY ASSESSMENT YEAR, PROCEEDINGS FOR WHICH HAVE BEEN COMPLETED BEFORE THE 1ST DAY OF JULY, 2012. (3) ON THE DATE SPECIFIED IN THE NOTICE UNDER SUB - SECTIO N (2), OR AS SOON THEREAFTER AS MAY BE, AFTER HEARING SUCH EVIDENCE AS THE ASSESSEE MAY PRODUCE, INCLUDING ANY INFORMATION OR DOCUMENTS REFERRED TO IN SUB - SECTION (3) OF SECTION 92D AND AFTER CONSIDERING SUCH EVIDENCE AS THE TRANSFER PRICING OFFICER MAY REQUIRE ON ANY SPECIFIED POINTS AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIALS WHICH HE HAS GATHERED, THE TRANSFER PRICING OFFICER SHALL, BY ORDER IN WRITI NG, DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION IN ACCORDANCE WITH SUB - SECTION (3) OF SECTIO N 92C AND SEND A COPY OF HIS ORDER TO THE ASSESSING OFFICER AND TO THE ASSESSEE. (3A) WHERE A REFERENCE WAS MADE UNDER SUB - SECTION (1) BEFORE THE 1ST DAY OF JUNE, 2007 BUT THE ORDER UNDER SUB - SECTION (3) HAS NOT BEEN MADE BY THE TRANSFER PRICING OFFICER BEFORE THE SAID DATE, OR A REFERENCE UNDER SUB - SECTION (1) IS MADE ON OR AFTER THE 1ST DAY OF JUNE, 2007, AN ORDER UNDER SUB - SECTION (3) MAY BE MADE AT ANY TIME BEFORE SIXTY DAYS PRIOR TO THE DATE ON WHICH THE PERIOD OF LIMITATION REFERRED TO IN SECTION 153 , OR AS THE CASE MAY BE, IN SECTION 153B FOR MAKING THE ORDER OF ASSESSMENT OR REASSESSMENT OR RECOMPUTATION OR FRESH ASSESSMENT, AS THE CASE MAY BE, EXPIRES: PROVIDED THAT IN THE CIRCUMSTANCES REFERRED TO IN CLAUSE ( II ) OR CLAUSE ( X ) OF EXPLANATION 1 TO SECTION 153 , IF THE PERIOD OF LIMITATION AVAILABLE TO THE TRANSFER PRICING OFFICER FOR MAKING AN ORDER IS LESS THAN SIXTY DAYS, SUCH REMAINING PERIOD SHALL BE EXTENDED TO SIXTY DAYS AND THE AFORESAID PERIOD OF LIMITATION SHALL BE DEEMED TO HAVE BEEN EXTENDED ACCORDINGLY. (4) ON RECEIPT OF THE ORDER UNDER SUB - SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE UNDER SUB - SECTION (4) OF SECTION 92C IN CONFORMITY WITH THE ARM'S LENGTH PRICE AS SO DETERMINED BY THE TRANSFER PRICING OFFICER. (5) WITH A VIEW TO RECTIFYING ANY MISTAKE APPARENT FROM THE RECORD, THE TRANSFER PRICING OFFICER MAY AME ND ANY ORDER PASSED BY HIM UNDER SUB - SECTION (3), AND THE PROVISIONS OF SECTION 154 SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY. (6) WHERE ANY AMENDMENT IS MADE BY THE TRANSFER PRICING OFFICER UNDER SUB - SECTION (5), HE SHALL SEND A COPY OF HIS ORDER TO THE ASSESSING OFFICER WHO SHALL 9 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED THEREAFTER PROCEED TO AMEND THE ORDER OF ASSESSMENT IN CONFORMITY WITH SUCH ORDER OF THE TRANSFER PRICING OFFICER. (7) THE TRANSFER PRICING OFFICER MAY, FOR THE PURPOSES OF DETERMINING THE ARM'S LENGTH PRICE UNDER THIS SECTION, EXERCISE ALL OR ANY OF THE POWERS SPECIFIED IN CLAUSES ( A ) TO ( D ) OF SUB - SECTION (1) OF SECTION 131 OR SUB - SECTION (6) OF SECTION 133 OR SECTION 133A . EXPLANATION. FOR THE PURPOSES OF THIS SECTION, 'TRANSFER PRICING OFFICER' MEANS A JOINT COMMISSIONER OR DEPUTY COMMISSIONER OR ASSISTANT COMMISSIONER AUTHORISED BY THE BOARD 45 TO PERFORM ALL OR ANY OF THE FUNCTIONS OF AN ASSESSING OFFICER SPECIFIED IN SECTIONS 92C AND 92D IN RESPECT OF ANY PERSON OR CLASS OF PERSONS. 11. A READING OF THE ABOVE, MAKES IT CLEAR THAT SECTION 92CA INTER ALIA PROVIDES THAT WHEN THE ASSESSEE HAS ENTERED INT O AN INTERNATIONAL TRANSACTION AND THE ASSESSING OFFICER CONSIDERS IT NEC ESSARY HE MAY WITH APPROPRIATE APPROVAL REFER THE COMPUTATION OF ARMS LENGTH PRICE IN RELATION WITH THE SAID INTERNATIONAL TRANSACTION TO THE TRANSFER PRICING OFFICER . THIS PROVISION WAS CONSIDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE I NDIA SERVICES P. LTD. (SUPRA). WE MAY GAINFULLY REFER TO PARA 3 4 OF THE SAID DECISION AS UNDER: 34. HOWEVER, IN CASES OF TRANSACTION REFERRED TO THE TPO, IT WOULD BE FOR THE ASSESSING OFFICER TO FIRST DETERMINE THE ISSUE OF ANY INCOME ARISING AND/OR BEING AFFECTED OR POTENTIALLY ARISING ON DETERMINATION OF ALP BEFORE REFERRING THE TRANSACTION TO THE TPO, WHEN SPECIFICALLY CONTENDED BY THE PETITIONER/ASSESSEE. THIS IS ALSO INDICATED IN SECTION 92CA(1) WHICH REQUIRES AN ASSESSING OFFICER TO REFER AN INTERNAT IONAL TRANSACTION FOR DETERMINATION TO THE TPO ONLY IF HE CONSIDERS IT 'NECESSARY OR EXPEDIENT' TO REFER THE MATER TO THE TPO. THE EXERCISE OF FINDING OUT WHETHER ANY INCOME ARISES AND/OR IS AFFECTED OR POTENTIALLY ARISES AND/OR IS AFFECTED BY THE INTERNAT IONAL TRANSACTION WOULD CERTAINLY BE A FACTOR TO DETERMINE WHETHER OR NOT IT IS NECESSARY OR EXPEDIENT TO REFER THE MATTER TO THE TPO. IN CASE NO OBJECTION IS RAISED BY THE ASSESSEE TO THE APPLICABILITY OF CHAPTER X THEN THE PRIMA FACIE VIEW OF THE ASSESSI NG OFFICER WOULD BE SUFFICIENT BEFORE REFERRING THE TRANSACTION TO THE TPO FOR DETERMINING THE ALP. HOWEVER WHERE AN OBJECTION IS RAISED ABOUT THE 10 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED APPLICABILITY OF CHAPTER X BY AN ASSESSEE THEN THE REQUIREMENT FOR TAKING A DECISION AFTER TAKING ON BOARD TH E OBJECTION BECOMES NECESSARY. IN THE ABSENCE OF IT BEING CONSIDERED AT THIS STAGE, THE SAME COULD ONLY BE CONSIDERED BY THE DRP AND AS POINTED OUT ABOVE, IF CONSIDERED AT THE VERY THRESHOLD BY THE ASSESSING OFFICER IT COULD SAVE AN ELABORATE EXERCISE OF D ETERMINING THE ALP WHICH MAY TURN OUT TO BE ENTIRELY ACADEMIC. IT IS FOR THE ABOVE REASON THAT GRANT OF PERSONAL HEARING BEFORE REFERRING THE MATTER TO THE TPO HAS TO BE READ INTO SECTION 92CA(1) IN CASES WHERE THE VERY JURISDICTION TO TAX UNDER CHAPTER X IS CHALLENGED BY THE ASSESSEE. ADMITTEDLY THE AFORESAID EXERCISE OF CONSIDERING THE OBJECTION OF NO INCOME ARISING OR POTENTIALLY ARISING FROM THE TRANSACTION HAS NOT BEEN DONE IN THIS CASE AND FINDS NO MENTION EVEN IN THE DRAFT ASSESSMENT ORDER. 12. FURT HERMORE, IN THIS CONNECTION, THE CBDT HAS ISSUED INSTRUCTION NO. 15 OF 2015 DATED 16.10.2015 THE RELEVANT PART OF WHICH READS AS UNDER: HOWEVER, IN THE FOLLOWING SITUATIONS, THE AO MUST, AS A JURISDICTIONAL REQUIREMENT, RECORD HIS SATISFACTION THAT THERE I S AN INCOME OR A POTENTIAL OF AN INCOME ARISING AND/OR BEING AFFECTED ON DETERMINATION OF THE ALP OF AN INTERNATIONAL TRANSACTION BEFORE HE PROCEEDS TO DETERMINE THE ALP UNDER SUB - SECTION (3) OF SECTION 92C OF THE ACT OR TO REFER THE MATTER TO THE TPO TO D ETERMINE THE A LP UNDER SUB - SECTION (1) OF SECTION 92CA OF THE ACT: (A) WHERE THE TAXPAYER HAS NOT FILED THE ACCOUNTANTS REPORT UNDER SECTION 92E OF THE ACT BUT INTERNATIONAL TRANSACTIONS UNDERTAKEN BY IT COME TO THE NOTICE OF THE AO; (B) WHERE THE TAXP AYER HAS NOT DECLARED ONE OR MORE INTERNATIONAL TRANSACTION IN THE ACCOUNTANT S REPORT FILED UNDER SECTION 92E OF THE ACT AND THE SAID TRANSACTION OR TRANSACTIONS COME TO THE NOTICE OF THE AO; AND (C) WHERE THE TAXPAYER HAS DECLARED THE INTERNATIONAL TRA NSACTION OR TRANSACTIONS IN THE ACCOUNTANTS REPORT FILED UNDER SECTION 92E OF THE ACT BUT HAS MADE CERTAIN QUALIFYING REMARKS TO THE EFFECT THAT THE SAID TRANSACTION OR TRANSACTIONS ARE NOT INTERNATIONAL TRANSACTIONS OR DO NOT IMPACT THE INCOME OF THE TAX PAYER. IN ALL THE ABOVE SITUATIONS, THE AO MUST PROVIDE AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER BEFORE RECORDING HIS SATISFACTION OR OTHERWISE. 13. IN THE PRESENT CASE, WE NOTE THAT NO ISSUE HAS BEEN RAISED BY THE ASSESSEE THAT THERE IS NO REQUISITE SATISFACTION BY THE ASSESSING OFFICER. FURTHER, NO CASE HAS BEEN 11 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED MADE OUT THAT THE ASSESSEE HAS SUBMITTED ANY OBJECTION FOR ANY TRANSACTION TO BE TREATED AS INTERNATIONAL TRANSACTION. IT IS NOT THE CASE OF THE ASSESSEE THAT ANY OF THE INTERNATIONAL TRANSA CTION REFERRED TO THE TRANSFER PRICING OFFICER WAS NOT AN INTERNATIONAL TRANSACTION. WE FIND THAT IN THE ABSENCE OF ANY OF THE ABOVE OBJECTION, THE PLEA RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND HAS NO MERIT. WE FIND THAT IN THE CASE OF VODAFONE INDI A SERVICES P. LTD. (SUPRA), THE HON'BLE JURISDICTIONAL HIGH COURT HAS EXPOUNDED THAT THE GRANT OF PERSONAL HEARING BEFORE REFERRING THE MATTER TO THE TRANSFER PRICING OFFICER HAS TO BE READ INTO SECTION 92CA(1) IN CASES WHERE THE JURISDICTION T O TAX UNDER CHAPTER X H AS BEEN CHALLENGED BY THE ASSESSEE. IT WAS FURTHER EXPOUNDED THAT IN CASE NO OBJECTION IS RAISED BY THE ASSESSEE TO THE APPLICABILITY UNDER CHAPTER X , THEN THE PRIMA FACIE VIEW OF THE ASSESSING OFFICER WOULD BE SUFFICIENT BEFORE REFERRING THE MA TTER TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF THE AMP. WE FIND THAT THE ABOVE EXPOSITION AND THE FACTS OF THE PRESENT CASE CLEARLY SHOW THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE CANNOT BE SUSTAINED . IT IS NOT AT ALL THE CASE OF THE ASSE SSEE THAT THERE IS ANY OBJECTION TO THE APPLICABILITY OF CHAPTER X OF THE I. T. ACT. HENCE, ON THE AN VIL OF THE ABOVE SAID HON'BLE JURISDICTIONAL HIGH COURT DECISION, THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE DESERVES TO BE DISMISSED. 14. FURTHERMORE, A READING OF THE CBDT INSTRUCTION REFERRED ABOVE, PROVIDES FOR THREE SITUATIONS WHERE THE ASSESSING OFFICER MUST PROVIDE AN OPPORTUNITY OF BEING 12 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED HEARD TO TAX PAYERS BEFORE RECORDING HIS SATISFACTION OR OTHERWISE. THESE SITUATIONS ARE AS UNDER: (A) WHERE T HE TAXPAYER HAS NOT FILED THE ACCOUNTANTS REPORT UNDER SECTION 92E OF THE ACT BUT INTERNATIONAL TRANSACTIONS UNDERTAKEN BY IT COME TO THE NOTICE OF THE AO; (B) WHERE THE TAXPAYER HAS NOT DECLARED ONE OR MORE INTERNATIONAL TRANSACTION IN THE ACCOUNTANT S REPORT FILED UNDER SECTION 92E OF THE ACT AND THE SAID TRANSACTION OR TRANSACTIONS COME TO THE NOTICE OF THE AO; AND (C) WHERE THE TAXPAYER HAS DECLARED THE INTERNATIONAL TRANSACTION OR TRANSACTIONS IN THE ACCOUNTANTS REPORT FILED UNDER SECTION 92E OF T HE ACT BUT HAS MADE CERTAIN QUALIFYING REMARKS TO THE EFFECT THAT THE SAID TRANSACTION OR TRANSACTIONS ARE NOT INTERNATIONAL TRANSACTIONS OR DO NOT IMPACT THE INCOME OF THE TAXPAYER. 15. NO CASE HAS BEEN MADE OUT BY THE LD. COUNSEL OF THE ASSESSEE THAT TH E ASSESSEES CASE FALLS UNDER ANY OF THE SITUATIONS AS MENTIONED IN THE ABOVE CBDT CIRCULAR. HENCE, ON THE TOUCH STONE OF THE ABOVE SAID CBDT CIRCULAR ALSO, THE ASSESSEES ADDITIONAL GROUND IS LIABLE TO BE DISMISSED. AS REGARDS THE DECISION OF THE ITAT IN THE CASE OF VIDEOCON OIL VENTURES LTD. (SUPRA), THE SAME W AS ALSO RENDERED IN THE CONTEXT THAT THERE WAS AN OBJECTION BY THE ASSESSEE THAT THE TRANSACTION WAS NOT AN INTERNATIONAL TRANSACTION. HENCE, THIS CASE LAW ALSO DOES NOT HELP THE CASE OF THE ASSESSE E. ACCORDINGLY , IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 16. NOW WE DEAL WITH THE MERITS OF THE ISSUES RAISED IN THE APPEALS. SINCE THE FACTS AND FIGURES ARE COMMON, WE A RE REFERRING THE FACTS AND FIGURES FROM ASSESSMENT YEAR 2012 - 13. 13 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED COMMON GROUND RELATING TO ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS RELATING TO EXPORT OF GOODS . 17. BRIEF FACTS OF THE CASE ARE AS UNDER: OMNI ACTIVE HEALTH TECHNOLOGIES LTD. IS IN TH E FIELD OF NATURAL APIS AND NOVEL DELIVERY SYSTEMS FOR NUTRIENTS AND ACTIVE INGREDIENTS. THE COMPANY HAS ESTABLISHED AN INTERNATIONAL REPUTATION FOR ITS RANGE OF ACTIVE NATURAL INGREDIENTS FOR HEALTHCARE, FOOD AND PERSONAL CARE APPLICATIONS. DURING THE YEA R UNDER CONSIDERATION, THE ASSESSEE HAS REPORTED THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ONE AES M/S. OMNIACTIVE HEALTH TECHNOLOGIES INC, USA (OHTI) AND M/S. OMNIACTIVE HEALTH TECHNOLOGIES INC, CANADA (AMOUNT IN RS.) S. NO. TRANSACTION FY 2011 - 12 2010 - 11 METHOD ADOPTED BY ASSESSEE 1 SALE OF FINISHED GOODS 430776529 347689679 TNMM 2 PURCHASE OF RAW MATERIAL (MARCOAT) 10373706 3993282 TNMM 3 PURCHASE OF FINISHED GOODS 756157 7116652 TNMM 4 INVESTMENT IN EQUITY CAPITAL 5057 - 5 INVESTMENT I N PREFERENCE CAPITAL 6902250 - 6 ADVANCE GIVEN 414400 - 7 CORPORATE GUARANTEE $25,00,000 (VALUE OF GUARANTEE AS ON 31.03.2012) 12,85,50,000 - DETERMINATION OF ALP : EXPORT OF FINISHED GOODS: RS.43,07,76,529/ - PURCHASE OF RAW MATERIALS (MARCOAT) RS.1,03,73,706/ - PURCHASE OF FINISHED GOODS RS.7,56,157/ - 14 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED 18. THE ASSESSEE HAS ADOPTED TRANSITIONAL NET MARGIN METHOD FOR DETERMINING ALP FOR EXPORT OF FINISHED GOODS TO AE OMNI ACTIVE HEALTH TECHNOLOGIES INC, USA. IT WAS SUBMITTED THAT THE ASSESSEE MAN UFACTURES AND SUPPLIES NATURAL INGREDIENT PRODUCTS. IT HAS SOLD NATURAL INGREDIENT PRODUCTS TO AE DURING THE YEAR UNDER REVIEW. ALSO, OCCASIONALLY, ASSESSEE ALSO SOURCES RAW MATERIAL FROM THIRD PARTIES BASED IN USA. ON ACCOUNT OF PRESENCE OF AE IN USA, SUC H SOURCING IS DONE VIA AE AND AE CHARGES ASSESSEE ON COST TO COST BASIS. DURING THE YEAR UNDER REVIEW, ASSESSEE IMPORTED RAW MATERIAL VIA AE MOUNTING TO ONLY RS.1,03,73,706/ - AND FINISHED GOODS OF RS.7,56,157/ - WHICH IS MINISCULE AS COMPARED TO OVERALL VOL UME OF ASSESSEES BUSINESS. THUS, BOTH OF AFORESAID INTERNATIONAL TRANSACTIONS ARE CLUBBED TOGETHER AND THE EXPORT OF FINISHED GOODS BEING THE MAJOR TRANSACTION. THE ASSESSEE HAS CHOSEN TNMM AS THE MOST APPROPRIATE METHOD IT HAS CHOSEN ITSELF AS THE TEST ED PARTY OP/TC WAS TAKEN AS THE PLI AND THE WORKING IS GIVEN AS UNDER (RS. I N LAKHS) FY 2011 - 12 FY 2010 - 11 INCOME OPERATING REVENUE 7322 5953 TOTAL INCOME (A) 7322 5953 OPERATING EXPENSES (B) 6355 4431 OPERATING PROFIT (C) = (A) (B) 967 1521 OPERATING PROFIT/OPERATING EXPENSES (C)/(B)*100 15.21% 34.33% OPERATING PROFIT/OPERATING REVENUE (C)/(A)*100 13.20% 25.55% 19. BEFORE THE TRANSFER PRICING OFFICER, T HE ASSESSEE HAS ALSO SUBMITTED SEGMENTED AUDITED PROFITABILITY STATEMENT (I.E. , PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR UNDER 15 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED EXAMINATION) INTO TWO SEGMENTS NAMELY, SEGMENT I: RELATING TO TRANSACTIONS WITH INDEPENDENT UNCONTROLLED PARTIES AND SEGMENT II: RELATING TO THE TRANSACTIONS WITH ASSOCIATED ENTERPRISE. REVENUES AND EXPENSES HAVE BEEN ALLOCATED AND APPORTIONED BASED ON APPROPRIATE ALLOCATION KEY OR BASIS. SEG MENTAL PROFITABILITY STATEMENT WA S ALSO ATTACHED IN ITS SUBMISSION IN TRANSFER PRICING STUDY REPORT. SEGMENTAL PROFITABILITY STATEMENT REFLECTS THE FOLLOWING OPERATING RESULTS: (RS. IN LAKHS) OPERATING REVENUES 4458 2864 OPERATING COST 3864 2492 OPERATING PROFIT 594 373 RETURN ON TOTAL COST (%) 15.37% 14.96% ON THE BASIS OF THE ABOVE, THE ASSESSEE CLAIMED THAT THE TRANSACTIONS AS REPOR TED SHOULD BE TREATED AS AT ARMS LENGTH PRICE. 20. THE TPO ASKED THE ASSESSEE TO PROVIDE AN UPDATED MARGIN OF COMPARABLES SELECTED IN EARLIER YEAR, I.E., INDIA GLYCOLS LIMITED AND E.I.D. PARRY (INDIA) LIMITED . THE UPDATED PLI COME TO 6.5% WHILE THE PLI OF THE ASSESSEE WAS 15.21%. HENCE, THE ASSESSEE SUBMITTED THAT THE TRANSACTION IS AT ARMS LENGTH. 21. AT THIS POINT, T HE TRANSFER PRICING OFFICER NOTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS BASED ON THE SUBMISSIONS MADE BY THE ASSESSEE, IT WA S OBSERVED THAT THE AVERAGE SALE PRICE AT WHICH GOODS WERE SOLD TO AE WERE LOWER THAN THE AVERAGE SALE PRICE AT WHICH THE GOODS WERE SOLD TO NON AE. THE TRANSFER PRICING OFFICER ISSUED A SHOW CAUSE NOTICE . IN THIS HE MENTIONED THAT THOUGH THE ASSESSEE IN 16 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED T HE TP REPORT HAS BENCH MARK ED THE TRANSACTION UNDER TNMM, NO VERIFIABLE DATA HAS BEEN PROVIDED TO SUBSTANTIATE THE METHOD USED. HE FURTHER ADDED THAT CUP WOULD BE A MO RE APPROPRIATE METHOD TO BENCH MARK THE SALE TRANSACTION. HE PROCEEDED TO ADD THAT IT WAS SEEN FROM THE CUP DETAILS IN RESPECT OF EXPORT OF SALE MAJOR DISCREPANCIES WERE NOTED. HENCE, HE INFERRED THAT THE ASSESSEE HAS SOLD THE GOODS AT A VERY LOWER RATE TO THE AE VIS - A - VIS NON AE ENTITIES. HE PROCEEDED TO COMPUTE THE AMOUNT AT WHICH SALE WAS M ADE TO THE AE AT A LESSER PRICE. ACCORDINGLY, THE TRANSFER PRICING OFFICER SHOW CAUSED THE ASSESSEE AS TO WHY A SUM OF RS.13,42,05,433.80/ - SHOULD NOT BE ADDED WHILE WORKING OUT THE ALP OF THE TRANSACTION ON ACCOUNT OF SALE TO AE. THE ASSESSEES RESPONSE W AS SUMMARISED BY THE TRANSFER PRICING OFFICER AS UNDER: - THE ASSESSEE HAS ADOPTED THE TNMM METHOD CONSIDERING THE ABOVE MENTIONED TWO COMPARABLE COMPANIES. THE REASONS FOR THE EXPORT SALE PRICE CHARGED AT A LOWER RATE TO THE AES BECAUSE THERE IS A HIGH LE VEL OF COMPETITION IN THOSE GEOGRAPHIES. - THE REASON FOR NON - APPLICATION OF THE CUP BEING THE PRODUCTS ARE PATENTED TECHNOLOGY AND NOT AVAILABLE IN THE OPEN MARKET, THE FACTORS LIKE VOLUME, CONTRACTUAL TERMS AND LOCATION DIFFERENCE, HENCE NO EXTERNAL CUP IS AVAILABLE AND THE REASONS FOR DIFFERENCE IN THE PRICES CHARGED TO AE AND NON - AE SUCH AS GEOGRAPHICAL MARKET, VOLUME, INCIDENTAL EXPENSES, BUSINESS STRATEGY, DIFFERENCE IN COMMERCIAL TERMS. - THE ASSESSEE ALSO RELIED ON THE OECD GUIDELINES, ITAT DECI SION IN CASE OF WELSPUN ZUC CHI TEXTILES LTD. VS ACIT 2(3). 22. THE TRANSFER PRICING OFFICER HELD AS UNDER: - THE APPLICATION OF TNMM IS THE METHOD OF LAST RESORT WHEN THE COMPARABLE UNCONTROLLED PRICE METHOD CANNOT BE APP LIED. HOWEVER, IN THE CASE OF TH E ASSESSEE SINCE THE COMPARABLE UNCONTROLLED PRICE FOR THE SAME OR SIMILAR PRODUCTS TO THE THIRD PARTIES HAS BEEN PROVIDED BY THE ASSESSEE, THE SAME HAS TO BE CONSIDERED FOR BENCH - MARKING THIS TRANSACTION. FURTHER, THIS IS 17 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED COLLABORATED BY THE FACT THAT THE ASSESSEE HAS MENTIONED THAT THE LOWER PRICE IS ON ACCOUNT OF COMPETITION IN THE MARKET. - THE ASSESSEE HAS PROVIDED VARIOUS REASONS FOR THE VARIATION IN THE PRICES CHARGED TO THE AE AND NON - AE HOWEVER, THE ASSESSEE COULD NOT QUANTIFY THE ADJUSTMENT ON AC COUNT OF VARIOUS DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTIONS AND COMPARABLE UNCONTROLLED TRANSACTIONS AS PER CLAUSE (II) TO RULE 10B(L)(A) OF THE INCOME TAX RULES, 1962. THE ASSESSEE'S SUBMISSION ON EXTERNAL CUP IS OF NO USE SINCE INTERNAL CUP IE SA LES PRICE TO NON - AE IS CONSIDERED AS A CUP. - THE ASSESSEE'S RE LIED ON OECD GUIDELINES HAS BEEN CONSIDERED WHICH ALSO SUPPORTS THE ABOVE CONTENTION OF MAKING ACCURATE ADJUSTMENTS TO ELIMINATE THE EFFECT OF SUCH DIFFERENCES. SIMILARLY, THE ASSESSEE'S REL IANCE ON THE ABOVE DECISION HAS BEEN CONSIDERED WHICH EMPHASIZE ON THE VARIATION IN THE FEATURES OF THE PRODUCTS AND GEOGRAPHICAL LOCATIONS. HOWEVER, IN THE ASSESSEE'S CASE SINCE THERE IS NO VARIATION IN THE PRODUCTS SOLD TO THE AE AND NON - AE, THE ABOVE JU DGEMENT IS NOT APPLICABLE IN THIS CASE. THIS OFFICE HAS CONSIDERED THE PRIR.ES FOR THE SAME PRODUCTS FROM THE AE AND NON - AE AS CUP. 23. THE ASSESSING OFFICER PROCEEDED TO MAKE THE COMPUTATIONS ACCORDINGLY AND ARRIVED AT AN ADJUSTMENT OF RS.13,55,73,433/ - TO BE MADE TO THE INTERNATIONAL TRANSACTION OF THE EXPORT OF GOODS. THE ASSESSEE FILED OBJECTIONS AGAINST THE ABOVE BEFORE THE DRP. THE DRP CONFIRMED THE ACTION OF THE TRANSFER PRICING OFFICER BY HOLDING AS UNDER: 4.3 THE DRP HAS NOTED THAT THE AVERAGE SA LE PRICE AT WHICH GOODS WERE SOLD TO A E WERE LOWER THAN THE AVERAGE SALES PRICE AT WHICH THE GOODS WERE SOLD TO NON - A E . THE DRP IS CONSTRAINED TO NOTE THAT THE PRICE DIFFERENCE IS SUBSTANTIAL AND CAN'T BE JUST EXPLAINED BY GEOGRAPHICAL FACTORS, VOLUME SA LES, COMMISSION EXPENSES E T C. THE RULE 10B(A)(II)CLEARLY PROVIDE THAT EVEN WHEN CUP METHOD IS ADOPTED, ADJUSTMENTS CAN BE MADE IF IT MATERIALLY AFFECTS THE PRICE IN THE OPEN MARKET. DURING THE DRP PROCEEDINGS, THE ASSESSEE COMPANY HAS JUST MADE GENERAL OBS ERVATIONS AND HAS FAILED TO PROVIDE ANY DATA OR EVIDENCE TO ENABLE IT TO MAKE ECONOMIC ADJUSTMENTS ON THESE GROUND. 4.4 THE DRP IS ALSO OF THE CONSIDERED OPINION THAT WHEN AN INTERNAL CUP IS EASILY AVAILABLE, THE TNMM IS TO BE TREATED AS THE METHOD OF LAS T RESORT. IN VIEW OF THESE CIRCUMSTANCES, THE ACTION OF THE TPO / AO IN MAKING AN ADJUSTMENT OF 18 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED RS. 13,55,73,433 / - ON ACCOUNT OF TRANSACTION OF EXPORT OF GOODS IS UPHELD. ACCORDINGLY, THIS GROUND OF OBJECTION OF THE ASSESSEE COMPANY IS REJECTED. 24. AGAI NST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 25. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SINCE THE LAST THREE YEARS THE ASSESSEE HAS BEEN FOLLOWING TNMM METHOD WHICH HAS BEEN DUL Y ACCEPTED BY THE REVENUE. HE SUBMITTED THAT NO COGENT REASON HAS BEEN GIVEN FOR REJECTING THE TNMM METHOD IN THE PRESENT YEAR. HE PLACED RELIANCE ON SEVERAL DECISIONS FROM THE HON'BLE APEX COURT INCLUDING RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC) FOR THE PROPOSITION THAT THERE SHOULD BE A CONSISTENCY IN THE INCOME TAX PROCEEDINGS UNLESS MAND AT ED BY CHANGE IN LAW AND THE FACTS. 26. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE TRANSFER PRICING OFFICER. JUSTIFYING THE CHANGE FROM TNMM TO CUP METHOD, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THE CASE LAW FOR THE PROPOSITION THAT ERROR SHOULD NOT BE PERPETUATED. HE FURTHER REFERRED TO ITAT DECISION IN THE CASE OF SERDIA PHARMACEUTICALS (INDIA) PVT LTD . V S ACIT ( 44 SOT 391 ) THAT CUP METHOD WAS TO BE PREFERRED. 27. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND ALL THE RELEVANT RECORDS HAVE BEEN PERUSED. WE FIND THAT THE FIRST OBJECTION OF THE LD. COUNSEL OF THE ASSESSEE IS THAT IN THE PRECEDING YEARS, FOR THREE YEARS TRANSACTIONAL NET MARGIN METHOD WAS USED TO 19 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED BENCH MARK THE INTERNATIONAL TRANSACTION. IN THE PRESENT ASSESSMENT YEAR, THE TRANSFER PRICING OFFICER NOTED THAT THE ASSESSEE HAS ADOPTED TRANSACTIONAL NET MARGIN METHOD FOR DETERMINING THE ARMS LENGTH PRI CE FOR EXPORT OF FINALISED GOODS TO THE ASSOCIATE ENTERPRISES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE TRANSFER PRICING OFFICER PROCEEDED WITH THE SAME AND ALSO ASKED THE ASSESSEE TO PROVIDE AN UPDATED MARGIN OF THE COMPARABLE SELECTED. THE UPDATE D MARGIN WAS GIVEN TO THE TRANSFER PRICING OFFICER. FROM THE COMPUTATION OF UPDATED MARGIN ALSO, THE PLI OF THE ASSESSEE COME TO 15.21% WHICH WAS HIGHER THAN THE PLI OF THE TWO COMPARABLE COMPANIES. HENCE, FROM THIS ANALYSIS OF UPDATED COMPARABLES ALSO, TH E TRANSACTION WAS FOUND TO BE AT ARMS LENGTH. AT THIS JUNCTURE, THE TRANSFER PRICING OFFICER CHANGED HIS TRACKS. HE OBSERVED THAT NO VERIFIABLE DATA HAS BEEN PROVIDED TO SUBSTANTIATE THE METHOD USED. HE FURTHER HELD THAT CUP WOULD BE A MORE APPROPRIATE ME THOD TO BENCH MARK THE SALE TRANSACTION. THE ASSESSEE OBJECTED TO THE SAME. IN THE OBJECTION S , THE ASSESSEE ALSO RELIED UPON THE OECD GUIDELINES AND THE ITAT DECISION IN THE CASE OF WELSPUN ZUC CHI TEXTILES LTD. VS ACIT . H OWEVER, THE TRANSFER PRICING OFFICE R SUMMARILY REJECTED AND HELD THAT THE APPLICATION OF TNMM IS THE METHOD OF LAST RESORT WHEN THE COMPARABLE PRICE METHOD CANNOT BE APPLIED. HOWEVER, HE NOTED THAT IN THE ASSESSEES CASE SINCE THE COMPARABLE PRICE FOR THE SAME OR SIMILAR PRODUCTS TO THE THI RD PARTIES HAS BEEN PROVIDED BY THE ASSESSEE, THE SAME HAS TO BE CONSIDERED FOR BENCH - MARKING THIS TRANSACTION. ACCORDINGLY, TRANSFER PRICING OFFICER PROCEEDED TO APPLY THE CUP METHOD FOR BENCH MARKING. THE ASSESSEES OBJECTION IN THIS REGARD WAS ALSO DISM ISSED 20 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED BY THE DRP WHEN IT HELD THAT IT WAS OF THE OPINION THAT WHEN INTERNAL CUP IS EASILY AVAILABLE, THE TNMM IS TO BE TREATED AS METHOD OF LAST RESORT. 28. FROM THE ABOVE DISCUSSION, WE FIND THAT THE TRANSFER PRICING OFFICER HAS REJECTED THE CONSISTENTL Y APPLIED TNMM METHOD WITHOUT BRINGING ON RECORD ANY COGENT REASON. IT IS THE SETTLED LAW THAT THE CONSISTENT METHOD FOLLOWED CAN BE CHANGED ONLY IF THERE IS A CHANGE OF FACTS OR LAW. THERE ARE VARIOUS DECISIONS OF HON'BLE APEX COURT IN THIS REGARD INCLUDI NG THAT FROM RADHASOAMI SATSANG (SUPRA). IN THE PRESENT CASE, THERE IS NO CASE THAT THERE IS A CHANGE OF LAW OR THERE IS A CHANGE IN FACT. IT IS ALSO NOT THE CASE THAT TNMM METHOD WHICH HAS BEEN CONSISTENTLY APPLIED IN PAST WAS TOTALLY WRONG METHOD. IN THI S REGARD, WE MAY GAINFULLY REFER TO THE R ELEVANT PROVISIONS CONTENDED BY THE TRANSFER PRICING OFFICER AS UNDER: I . 92C COMPUTATION OF ARMS LENGTH PRICE 2) THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF TH E FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE NAMEL Y : ( A ) COMPARABLE UNCONTROLLED PRICE METHOD; ( B ) RESALE PRICE METHOD; ( C ) COST PLUS METHOD; ( D ) PROFIT SPLIT METHOD; ( E ) TRANSACTIONAL NET MARGIN METHOD; ( F ) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. 3) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB - SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED; PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHME TICAL MEAN OF SUCH PRICES. 21 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED II. RULE 10C OF THE INCOME - TAX RULES, 1962 (RULES) STATES THAT: (1) FOR THE PURPOSES OF SUB - SECTION (1) OF SECTION 92C, THE MOST APPROPRIATE METHOD SHALL BE THE METHOD WHICH IS BEST SUITED TO THE FACTS AND CIRCUMSTANCES OF EACH PARTICULAR INTERNATIONAL TRANSACTION PROVIDES THE MOST RELIABLE MEASURE OF AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION. (2) IN SELECTING THE MOST APPROPRIATE METHOD AS SPECIFIED IN SUB - RULE (1), THE FOLLOWING FACTORS SHALL BE TAKEN INTO ACCOUNT, NAMELY: ( A ) THE NATURE AND CLASS OF THE INTERNATIONAL TRANSACTION ; ( B ) THE CLASS OR CLASSES OF ASSOCIATED ENTERPRISES ENTERING INTO THE TRANSACTION AND THE FUNCTIONS PERFORMED BY THEM TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOY ED AND RISKS ASSUMED BY SUCH ENTERPRISES; ( C ) THE AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF THE METHOD; ( D ) THE DEGREE OF COMPARABILITY EXISTING BETWEEN THE INTERNATIONAL TRANSACTION AND THE UNCONTROLLED TRANSACTION AND BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS; ( E ) THE EXTENT TO WHICH RELIABLE AND ACCURATE ADJUSTMENTS CAN BE MADE TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTION OR B ETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS; ( F ) THE NATURE, EXTENT AND RELIABILITY OF ASSUMPTIONS REQUIRED TO BE MADE IN APPLICATION OF A METHOD. III. RULE 10B OF THE INCOME - TAX RULES, 1962 (RULES) STATES THAT: (1) FOR THE PURPOSES OF SUB - SECTION (2) OF SECTION 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : ( E ) TRANSACTIONAL NET MARGIN METHOD , BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTER PRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE ; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB - CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT 22 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED MARGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB - CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB - CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION 29. THUS FROM THE ABOVE, IT IS EVIDEN T THAT THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION IS TO BE DETERMINED BY ONE OF THE PRESCRIBED METHODS WHICH IS MOST APPROPRIATE METHOD HAVING REGARD TO THE NATURE OF TRANSACTION, CLASS OF TRANSACTION, CLASS OF ASSOCIATED PERSONS, FUNCTIONS TO FORM BY SUCH PERSON, OR SUCH OTHER RELEVANT FACTORS. SECTION 92C(2) PROVIDES THAT IT IS ONLY THE APPROPRIATE METHO D AS REFERRED TO IN SECTION 92C( 1) WHICH CAN BE APPLIED FOR DETERMINING ARMS LENGTH PRICE IN THE PRESCRIBED MANNER. THE CHOICE O F METHOD ON THE BASIS OF WHICH ARMS LENGTH PRICE IS DETERMINED HAS TO BE EXERCISED ON THE TOUCH STONE OF PRINCIPLES GOVERNING SELECTION OF MOST APPROPRIATE METHOD SET OUT IN SECTION 92C(1). THE LEGISLATURE DOES NOT PROVIDE FOR AN ORDER OF PREFERENCE OF ME THOD OF DETERMINING OF ARMS LENGTH PRICE. NOW ONCE AN APPROPRIATE METHOD FOR DETERMINING THE ARMS LENGTH PRICE HAS BEEN CHOSEN AND ACCEPTED BY THE REVENUE CONSISTENTLY OVER A NUMBER OF YEARS, THERE HAS TO BE SOME COGENT REASON TO MAKE IT DEPARTURE FROM TH E CONSISTENT METHOD. WE DO NOT FIND THAT ANY CASE HAS BEEN MADE OUT BY THE TRANSFER PRICING OFFICER OR THE DRP THAT THERE WAS AN ERROR COMMITTED EARLIER WHEN THE TNMM METHOD WAS CHOSEN AND APPROVED. THE TRANSFER PRICING OFFICER WHILE JUSTIFYING THE CHANGE STATED THAT IN T.P. REPORT ASSESSEE HAS BENCH MARKED THE TRANSACTION UNDER TNMM, NO 23 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED VERIFIABLE DATA HAS BEEN PROVIDED TO SUBSTANTIATE THE METHOD USED. HENCE, FROM THE ABOVE DISCUSSION, WE FIND THAT NO COGENT REASON HAS BEEN POINTED OUT BY THE AUTHORITIES B ELOW THAT THE TNMM METHOD APPLIED EARLIER WAS NOT IN ACCORDANCE WITH THE MANDATE OF LAW AS ABOVE. IT IS SETTLED LAW THAT RESJUDICAT A DOES NOT APPLY TO TAXATION PROCEEDINGS BUT IT HAS FAIRLY OFTEN BEEN HELD BY THE HIGH ER COURTS INCLUDING BY THE HON'BLE APE X COURT THAT THE CONSISTENCY SHOULD BE MAINTAINED IN THE ASSESS MENT PROCEEDINGS. A CONSISTENTLY APPLIED METHOD CAN BE CHANGED ONLY IF THERE IS A CHANGE IN FACTS AND LAW. IN THE PRESENT CASE, WE FIND THAT THERE IS NO SUCH CASE HAS BEEN MADE OUT. RATHER THE TRANSFER PRICING OFFICER HAS PROCEEDED TO EXAMINE THE ISSUE ON THE BASIS OF TNMM METHOD. HE HAS ORDERED FOR UPDATE D DATA OF COMPARABLE. THEREAFTER, WHEN EVEN ON THE BASIS OF UPDATED DATA, THE INTERNATIONAL TRANSACTION WAS FOUND TO BE AT ARMS LENGTH, HE LA CONICALLY HELD THAT CUP METHOD WOULD BE PRE FERRED . THE DRP HAD SUMMARILY UPHELD THE CHANGE FROM TNMM TO CUP METHOD WITHOUT ASSIGNING ANY COGENT REASON WHATSOEVER . BY NO MEANS IT IS JUSTIFIED TO KEEP ON FINDING A METHOD FOR ADDITION BY TRIAL AND ERROR METHO D. ACCORDINGLY , ON THE ANVIL OF AFORESAID HON'BLE APEX COURT S DECISION AS DISCUSSED HEREINABOVE, WE HOLD THAT THERE WAS NO JUSTIFICATION IN REJECTING THE TNMM METHOD APPLIED BY THE ASSESSEE AS IN TH E PRECEDING YEAR. SINCE AS PER THE SAME COMPUTATION THE A SSESSEES MARGIN WAS FOUND TO BE AT ARMS LENGTH, WE SET ASIDE THE ORDER OF AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. SINCE WE HAVE ALREADY ALLOWED THE ASSESSEES APPEAL ON THIS ISSUE, FOR LACK OF JUSTIFICATION IN 24 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED CHANG ING THE METHO D OF BENCH MARKING WE ARE NOT DEALING WITH THE ARGUMENTS ON OTHER ASPECTS OF MERITS OF APPLICATION OF CUP METHOD COMPUTATION OF ARMS LENGTH PRICE BY THE TRANSFER PRICING OFFICER IN THIS CASE. THE CASE LAW REFERRED BY THE LD. DEPARTMENTAL REPRESENTATIVE ARE DISTINGUISHABLE ON THE FACTS OF THIS CASE. COMMON GROUND RELATING TO ADJUSTMENT TO THE INTERNATIONAL TRANSACTION RELATING TO CORPORATE GUARANTEE . 30 . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PROVIDED CORPORATE GUARANTEE OF USD 2,500,000 TO SU N NATIONAL BANK, NEW JERSEY, USA FOR THE BANKING FACILITIES AVAILED BY A E . THE VALUE OF THE SAID CORPORATE GUARANTEE AS ON 3 1/03/2012 WAS EQUIVALENT TO RS. 128,550,000. AGAINST THE SAID CORPORATE GUARANTEE, ON 05/03/2012 THE AE AVAILED LOAN AMOUNTING TO USD 1,459,578 (E QUIVALENT TO RS.75,051,543/ - ). 31 . THE ASSESSEE HAS BENCH MARKED THIS TRANSACTION USING THE CREDIT RATES OF AE AT 2% AND THE ASSESSEE AT - 2.25% RESULTING IN SPREAD OF - 0.25%. THE ASSESSING OFFICER PROCEEDED TO REJECT THE ASSESSEES SUBMISSIO N. HE WENT ON TO DETAIL ABOUT THE COMPARISON ABOUT THE BANK GUARANTEE AND CORPORATE GUARANTEE AND CONCLUDED AS UNDER: 7.8 IN THIS REGARD, ATTENTION IS INVITED IN THE CASE OF GLENMARK PHARMACEUTICALS LTD. IN ITA NO. 5031/MUMBAI/2012 DATED 13.11.2013 (A.Y. 2 008 - 09), THE HONBLE ITAT HAS HELD THAT THE NAKED QUOTE RATES APPLICABLE TO THE BANK GUARANTEE CAN BE MADE COMPARABLE TO THE CORPORATE GUARANTEE ONLY AFTER DOWNWARD ADJUSTMENTS (PARA 22). IN VIEW OF THE ABOVE, A DOWNWARD ADJUSTMENT TO BE NAKED QUOTES OF TH E RATES OF BANK GUARANTEE HAS BEEN DONE IN THIS YEAR, WHILE BENCHMARKING THIS TRANSACTION. IT IS SEEN THAT THE BANK GUARANTEE RATES VARY GENERALLY BETWEEN 2% TO 3% GIVING AN AVERAGE OF ABOUT 25 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED 2.5%. ACCORDINGLY, IT WOULD BE APPROPRIATE TO CHARGE 2.25% AS ARM S LENGTH RATE OF GUARANTEE. 32 . AGAINST THE ABOVE, THE ASSESSEE APPEALED BEFORE THE DRP. 3 3 . THE DRP PROCEEDED TO CONSIDER THE DEFINITION OF INTERNATIONAL TRANSACTION U/S. 92B OF THE I. T. ACT. IT HELD THAT THE TRANSACTION RELATING TO PROVISION FOR GUA RANTEE AND PAYMENT OF COMMISSION FOR THE SERVICES BY THE AE TO THE ASSESSEE WOULD FAL L WITHIN THE DEFINITION OF TERM INTER NATIONAL TRANSACTION U/S. 92B. IT FURTHER REFERRED THAT RETROSPECTIVE AMENDMENT BROUGHT IN FINANCE ACT , 2012 TO SECTION 92B H AS NOW SE T AT REST ALL THE P URSUANT AMBIGUITIES ABOUT THE STATUS OF GUARANTEE BEING AN INTERNATIONAL TRANSACTION WHICH IS WELL COVERED IN EXPLANATION C. THE DRP HELD THAT IF THE GUARANTEE HAS NOT BEEN PROVIDED, THE AE COULD NOT HAVE OBTAINED THE LOAN. HENCE, BY PRO VIDING THE CORPORATE GUARANTEE, THE ASSESSEE HAS PROVIDED A SERVICE TO ITS AE. THEREAFTER, THE DRP REFERRING TO SEVERAL DECISIONS OF ITAT, IT ALSO REFERS TO OECD TRANSFER PRICING GUIDELINES. THE DRP CONCLUDED AS UNDER: 6.22 IN VIEW OF THE DETAILED DISCUSSI ON ABOVE, FOLLOWING THE RECENT DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF EVEREST KANTO, AND MUMBAI ITAT IN GLENMARK PHARMACEUTICALS LTD. IN ITA NO. 5031/MUMBAI/2012 DATED 13.11.2013 (A.Y. 2008 - 09), A DOWNWARD ADJUSTMENT TO THE NAKED QUOTES OF TH E RATES OF BANK GUARANTEE HAS BEEN DONE IN THIS YEAR, WHILE BENCHMARKING THE TRANSACTION. IT IS SEEN THAT THE BANK GUARANTEE RATES VARY GENERALLY BETWEEN 1% TO 3% GIVING AN AVERAGE OF ABOUT 2.0%. ACCORDINGLY, IT WOULD BE APPROPRIATE TO CHARGE A CORPORATE G UARANTEE OF 1.5% FROM THE AE. 3 4 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 26 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED 3 5 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. UPON CAREFUL CONSIDERATION WE FIND THAT THE LD. DRP HAS CAREFULLY EXAMINED THE ISSUE AND PASSED A REASONABLE ORDER. IN OUR CONSIDERED OPINION IT DOES NOT NEED ANY INTERFERENCE ON OUR PART. ACCORDINGLY, WE UPHOLD THE SAME. GROUND RELATING TO ADDITION BEING DISALLOWANCE U/S. 14A FOR ASSESSMENT YEAR 2012 - 13 : 3 6 . ON THIS ISSUE, THE ASSESSING OFFICER NO TED THAT THE ASSESSEE COMPANY HAS INVESTED IN SHARES TO THE TUNE OF RS.2,42,85,000/ - . HE NOTED THAT NO DISALLOWANCE U/S. 14A HAS BEEN DONE. HE REJECTED THE ASSESSEES SUBMISSION THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT DIVIDEND INCOME BY PLACING RELIANC E UPON THE ITAT DECISION IN THE CASE OF CHEMINVEST LTD. V. ITO [2009] 121 ITD 318 (DEL) (SB) . THE ASSESSING OFFICER PROCEEDED TO APPLY RULE 8D AND MADE THE DISALLOWANCE OF RS. 7,41,654/ - . 3 7 . AGAINST THE ABOVE ORDER, THE ASSESSEE FILED OBJECTION BEFORE THE TRP AND THE DRP GRANTED PART RELIEF DIRECTING AS UNDER: 8.8 IN VIEW OF THE ABOVE DETAILED DISCUSSION, THE ACTION OF THE A.O. IN APPLYING RULE 8D IS UPHELD. HOWEVER, THE DRP HAS NOTED THAT WHILE MARKING THE DISALLOWANCE U/S.14A, CREDIT HAS NOT BEEN GIVEN F OR THE INCOME ALREADY OFFERED TO TAX OF RS.4,86,322/ - IN THE COMPUTATION OF INCOME. DURING THE COURSE OF THE DRP PROCEEDINGS, A COPY OF COMPUTATION OF INCOME WAS FILED IN SUPPORT OF THE CLAIM MADE BY THE ASSESSEE COMPANY. THUS, DRP HAS TAKEN NOTE OF THE FA CT THAT THIS HAS LED TO DOUBLE ADDITION. ACCORDINGLY, THE A.O. IS DIRECTED TO AGAIN VERIFY THE FACTS FROM THE ORIGINAL RECORD AND GIVEN CREDIT OF RS.4,86,322/ - FOR THE SUO - MOTO DISALLOWANCE MADE IN THE COMPUTATION OF INCOME AND FURTHER, ADDITION SHOULD BE MADE ONLY FOR THE BALANCE AMOUNT. 27 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED 3 8 . UPON CAREFUL CONSIDERATION WE FIND THAT IT IS NOW DECIDED BY VARIOUS HIGH COURTS INCLUDING THE HON'BLE JURISDICTIONAL HIGH COURT THAT NO DISALLOWANCE U/S.14A IS REQUIRED WHEN NO EXEMPT INCOME HAS BEEN EARNED. 3 9 . IN THE PRESENT CASE, THE ASSESSEES CONTENTION IS THAT IT HAS NOT EARNED ANY DIVIDEND INCOME FROM ITS SUBSIDIARY COMPANY IN INDIA. AS REGARDS THE INCOME FROM FOREIGN SUBSIDIARY IT HAS BEEN SUBMITTED THAT THE SAME IS SUBJECT TO TAX U/S. 115BBD OF THE ACT. WE FIND THAT PRINCIPALLY WE ARE IN AGREEMENT WITH THE ABOVE SAID SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. HOWEVER, SINCE THE ABOVE REQUIRES FACTUAL EXAMINATION OF THE CONTENTION THAT NO DIVIDEND INCOME HAS BEEN RECEIVED FROM THE SUBSIDIARY COMPANIES IN INDIA AND DIVIDEND INCOME FROM FOREIGN SUBSIDIARY ARE ALREADY SUBJECT TO TAX , T HE ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE VERACITY OF THE ABOVE SUBMISSIONS AND THEREAFTER GRANT THE ASSESSEE NECESS ARY RELIEF, AS PER LAW. ADDITION OF RS.6 , 66 , 3 0, 953/ - BEING THE DISALLOWANCE U/S. 35(2 AB ) FOR ASSESSMENT YEAR 2013 - 14 : 40 . THE ASSESSEE HAS SET UP AN IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY WHICH HAS BEEN APPROVED BY THE SECRETARY, DEPARTMENT OF SCIENT IFIC & INDUSTRIAL RESEARCH (PRESCRIBED AUTHORITY/ DSIR). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INCURRED REVENUE EXPENDITURE OF RS.5,31,21,608/ - AND CAPITAL EXPENDITURE OF RS.67,54,672/ - IN CONNECTION WITH ITS IN - HOUSE RESEARCH AND DEVELO PMENT FACILITY AND 28 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED IT HAS CLAIMED A WEIGHTED DEDUCTION OF 200% OF THE SAID EXPENDITURE IN ITS RETURN OF INCOME. 41 . THE ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED AS THE ASSESSEE HAS NOT FILED THE NECESSARY CERTIFICATE ISSUED BY THE PRESCRIBED AU THORITY IN FORM 3CL FROM 3CM. 42. BEFORE THE DRP, THE ASSESSEE INTER ALIA SUBMITTED THAT THE ASSESSEE ADHERE TO COMPLIANCE REQUIREMENTS ON ITS PART TO CLAIM THE DEDUCTION BY MAKING APPLICATION BEFORE THE PRESCRIBED AUTHORITY. IT ALSO REFERRED TO A CASE LA W FROM THE ITAT MUMBAI THAT THE ASSESSEE CANNOT BE PENALISED AND IT IS BEYOND THE ASSESSEES CONTROL TO DIRECT THE AUTHORITY TO SUBMIT THE PRESCRIBED FORM TO THE DEPARTMENT AND THERE IS NO STATUTORY TIME L INE FOR GRANTING APPROVAL IN FORM 3C L . 43 . AGAINS T THE ASSESSEE S OBJECTION IN THIS REGARD, THE DRP UPHELD THAT DISALLOWANCE BY OBSERVING AS UNDER: 8.3 IT IS CLEAR FROM THE ABOVE RULE THAT THE APPROVAL OF EXPENDITURE INCURRED ON IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY IS TO BE GIVEN BY SECRETARY, DEPA RTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH IN FORM NO. 3CL TO THE DIRECTOR GENERAL OF INCOME - TAX (EXEMPTIONS) WITHIN SIXTY DAYS OF ITS GRANTING APPROVAL. FOR THE CLAIM OF WEIGHTED DEDUCTION U/S. 35(2AB) OF THE I. T. ACT, 1961, THE EXPENDITURE IS TO BE DU LY CERTIFIED BY THE PRESCRIBED AUTHORITY, WHICH IN THIS CASE IS SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH IN FORM NO. 3CL. FURTHER, THE DRP HAS NOTED THAT THE CERTIFICATE OF APPROVAL IN FORM 3CM, WHICH GIVES IN - PRINCIPLE APPROVAL TO THE R & D FACILITY IS ALSO NOT ON RECORD. 8.4 IN THE ABSENCE OF THE STATUTORY APPROVALS IN FORM 3CL/FORM 3CM, THE A.O. HAS RIGHTLY DENIED THE BENEFIT OF WEIGHTED DEDUCTION U/S. 35(2AB) OF THE I. 29 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED T. ACT, 1961. ACCORDINGLY, THIS GROUND OF OBJECTION THE ASSESSEE IS REJECTED AND NO DIRECTIONS ARE BEING ISSUED TO THE A.O. ON THIS ISSUE. 4 4 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4 5 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE S AID CERTIFICATE COULD NOT BE PRODUCED BEFORE THE AUTHORITIES BELOW AS THE SAME WAS RECEIVED LAT E . THE LD. COUNSEL OF THE ASSESSEE SOUGHT TO FILE THE SAME BEFORE US AS ADDITIONAL EVIDENCE. 4 6 . UPON CAREFUL CONSIDERATION WE NOTE THAT THE ASSESSEE HAS MADE ADDITIONAL SUBMISSIONS, WHICH NEEDS TO BE VERIFIED AT THE ASSESSING OFFICERS LEVEL. HE NCE, WE REMIT THIS ISSUE TO THE ASSESSING OFFICER TO CONSIDER THE SAME AFRESH IN LIGHT OF SUBMISSION BEING MADE BY THE ASSESSEE. 47. IN THE RESULT, THE ASSESSEES APPE ALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.03.2018 SD/ - SD/ - ( PAWAN SINGH ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 06.03.2018 . . ./ ROSHANI , SR. PS 30 ITA NOS. 638 & 4643 /MUM/2017 OMN I ACTIVE HEALTH TECHNOLOGIES LIMITED / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI