Tecumseh Products India Private Limited, Hyderabad V. DCIT,Circle - 2(3), Hyderabad

ITA 643/HYD/2014

• Counselvise Citation: 64322514 RSA 2014
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: DHANESH K BAFNA; ABHIROOP BHARGAV
• Keywords: Transfer pricing; International transaction
• Section: 92F; 92A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.643/HYD/2014 ASSESSMENT YEAR 2009-2010 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD 500 037 PAN AABCT6893J VS. DCIT, CIRCLE 2(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. DHANESH K. BAFNA & MR. ABHIROOP BHARGAV FOR REVENUE : MR. D. SUDHAKAR RAO DATE OF HEARING : 13.10.2014 DATE OF PRONOUNCEMENT : 14.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL PREFERRED BY ASSESSEE IS AGAINST THE ORDER OF AO ON THE DIRECTIONS OF THE DISPUTES RESOL UTION PANEL (DRP), HYDERABAD U/S. 144C(5) OF THE INCOME TAX ACT DATED 26.12.2013. THE MAIN ISSUE IN THIS APPEAL IS ON TRA NSFER PRICING ADJUSTMENT MADE BY A.O. 2. WE HAVE HEARD LEARNED COUNSEL MR. DHANESH K. BAFNA & MR. ABHIROP BARGAV AND THE LEARNED CIT-D R MR. SOMASEKHAR REDDY. 3. BRIEFLY STATED, ASSESSEE-COMPANY IS ENGAGED IN THE MANUFACTURES COMPRESSORS FOR AIR-CONDITIONIN G EQUIPMENTS. IT MANUFACTURES AND EXPORTS COMPRESSOR SUB-ASSEMBLY AND COMPONENTS (PUMP KITS, CRANKSHAFTS 2 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. ETC.,) TO AE. CERTAIN PARTS AND COMPONENTS REQUIRED TO MANUFACTURE COMPRESSORS ARE IMPORTED FROM A.E. IT A LSO PROVIDES SOFTWARE ENGINEERING AND DESIGN SERVICES T O A.E. AS WELL AS TO NON-A.E. ASSESSEE IS WHOLLY OWN ED SUBSIDIARY OF TECUMSEH PRODUCTS CO. USA. IT HAS TWO MANUFACTURING FACILITIES AT HYDERABAD AND BALLABGAR H. THE HYDERABAD FACILITY MANUFACTURES COMPRESSORS FOR AIR-CONDITIONING EQUIPMENTS, WHEREAS THE BALLABGARH FACILITY MAKES COMPRESSORS FOR REFRIGERATION EQUIPMENTS. IN ADDITION, ASSESSEE MANUFACTURES SUB- ASSEMBLY AND COMPONENTS (PUMP KITS, CRANKSHAFTS ETC .) FROM ITS EXPORT ORIENTED MANUFACTURING UNIT (EOU UN IT) IN BALANAGAR AND EXPORTS THEM TO TPC USA. ALL THE COMPRESSOR SUB-ASSEMBLY & COMPONENTS PRODUCED FROM EOU UNIT IS EXPORTED ONLY TO TPC USA, IN ORDER TO MANUFACTURE COMPRESSOR FOR SALE IN USA MARKET. THE ANNUAL REQUIREMENTS AND THE SPECIFICATIONS OF THE COMPONENTS ARE PROVIDED BY TPC USA. ASSESSEE DOES NOT SELL SIMILAR COMPONENTS TO ANY OTHER CUSTOMER I N INDIA OR OUTSIDE INDIA AND THEREFORE ACTS AS A CONT RACT MANUFACTURER FOR TPC USA WITH RESPECT TO SALE OF COMPRESSOR SUB-ASSEMBLY AND COMPONENTS. 4. IN THIS APPEAL, ASSESSEE HAS RAISED 6 REVISED GROUNDS, OUT OF WHICH, GROUND NO.6 IS GENERAL IN NA TURE AND THEREFORE, IT NEED NOT BE ADJUDICATED. GROUND NOS.2, 3 AND 4 PERTAINS TO DETERMINATION OF ARMS LENGTH PRICE AND RESULTANT T.P. ADDITION. GROUND NO .5 PERTAINS TO DISALLOWANCE OF PAYMENT OF INR 5,02,000 TOWARDS DAUGHTERS MARRIAGE BENEFIT. ASSESSEE PLACE D ON RECORD VOLUMINOUS PAPER BOOK FROM PAGES 1 TO 589 3 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. AND ALSO RELIED ON THE ORDERS OF COORDINATE BENCH O F HYDERABAD TRIBUNAL IN ASSESSEES OWN CASES IN ITA.NO.1686/HYD/2010 DATED 13.11.2013 AND IN ITA.NO.2228 & 1863/HYD/2011 DATED 28.05.2014. 5. ASSESSEE FILED ITS ORIGINAL RETURN OF INC OME FOR THE IMPUGNED AY 2009-10 ON 30.09.2009 DECLARING THE TOTAL LOSS OF RS.34,02,16,352. DURING THE FINANCIAL YEAR 2008-09, ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AES: NATURE OF INTERNATIONAL TRANSACTION AMOUNT (RS.) SALE OF AK KITS & COMPONENTS 13,53,98,668 PROVISION FOR SOFTWARE ENGINEERING SERVICES 32,85,433 PURCHASE OF COMPONENTS & ACCESSORIES 4,93,48,427 PURCHASE OF COMPRESSORS FOR TRADING 1,28,02,516 SALE OF COMPRESSORS 1,43,39,631 REIMBURSEMENT OF EXPENSES 4,25,80,495 INTEREST PAID ON ECB LOAN 2,78,34,000 AS PER THE TRANSFER PRICING (TP) DOCUMENTATION PREPARED BY ASSESSEE, IT WAS SUBMITTED THAT ALL THE ABOVE INTERNATIONAL TRANSACTIONS HAVE MET THE ARMS LENGTH STANDARD AS PRESCRIBED IN THE INDIAN TRANSFE R PRICING REGULATIONS CONTAINED IN SECTION 92, 92A THROUGH 92F OF THE IT ACT, 1961 READ WITH RULES 10A TO 10E OF IT RULES, 1962, EXCEPT THE TRANSACTIONS IN RELATION TO SALE OF COMPRESSOR SUB-ASSEMBLY AND COMPONENTS IN THE EOU UNIT AT BALANAGAR. ACCORDINGL Y, ASSESSEE HAS OFFERED INR 2,32,86,044 AS A SUO-MOTO TRANSFER PRICING ADJUSTMENT IN ITS RETURN OF INCOME TO MEET THE ARMS LENGTH STANDARD. 4 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. 6. A REFERENCE U/S 92CA OF THE ACT WAS MADE TO ADDL. COMMISSIONER OF INCOME-TAX (TPO) IN ORDER TO DETERMINE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF ASSESSEE. THERE IS NO DISPUTE WITH REFERENCE TO METHOD ACCEPTED BEING TNMM. THE TPO AFTER ANALYZING THE TRANSACTIONS MADE ADJUSTMENTS U /S 92CA OF RS.3,16,50,796 TO THE SALE OF SUB-ASSEMBLY COMPONENTS TO ITS AE. ASSESSEE RAISED VARIOUS OBJECTIONS BEFORE THE DRP AND THE DRP, HOWEVER, REJECTED THE OBJECTIONS EXCEPT ONE PERTAINING TO SU O MOTTO ADJUSTMENT MADE BY ASSESSEE AND ACCORDINGLY, THE AO PASSED CONSEQUENTIAL ORDER MAKING THE ADJUSTMENTS TO THE INCOME RETURNED, ALONG WITH OTHE R CORPORATE ADJUSTMENTS IN COMPUTATION. 7. AT THE OUTSET LD COUNSEL SUBMITTED THAT THE ISSUES WERE ALREADY CRYSTALLIZED IN ASSESSEE FAVOUR IN EARLIER YEARS AND TPO REFERRED TO ORDERS IN EARLIER YEARS. THE LEARNED COUNSEL REFERRING TO THE ORDERS OF THE AUTHORITIES AND THE PAPER BOOKS FILED SUBMITTED THA T ORDERS OF THE TPO/DRP SUFFERS CERTAIN FACTUAL ERROR S AS WELL AS THE ISSUES ON COMPARABILITY. ON GROUND 2 REFERRING TO THE ADJUSTMENTS MADE WITH REFERENCE TO SALES MADE TO AE OF COMPRESSOR SUB-ASSEMBLY AND COMPONENTS, IT WAS SUBMITTED THAT ASSESSEE OPERATES 100% EOU AND EXPORTS TO TPC USA. ASSESSEE ARRIVED A T THE COST, WHICH IS IDENTIFIABLE FROM THE SEPARATE B OOKS OF ACCOUNT MAINTAINED FOR THE EOU AT 14,81,19,868/- . HOWEVER, THE AO WITHOUT ANY SHOW CAUSE NOTICE TO ASSESSEE, RE-WORKED OUT THE PROPORTIONATE OPERATING COST, IGNORING THE SEPARATE DETAILS FURNISHED IN TH IS 5 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. REGARD, AT OPERATING COST AT A FIGURE OF RS. 14.72 CRORES, ON THE BASIS OF SALES TURNOVER. IT IS THE SUBMISSIO N THAT WHEN ASSESSEE HAS MAINTAINED SEGMENTAL INFORMATION, PARTICULARLY 100% EOU UNIT ACCOUNTS ARE MAINTAINED AS SUCH, THERE IS NO NEED TO ADOPT PROPORTIONATE TURNO VER AT A HIGHER FIGURE THAN WHAT WAS SPENT BY ASSESSEE AS OPERATING COST. 8. THE LEARNED DR, HOWEVER, REFERRED VARIOUS FACTS AND SUBMITTED THAT TPO IS CORRECT IN ARRIVING AT THE OPERATING COST ON PROPORTIONATE BASIS AND IN SELECTION OF COMPARABLES WHICH WERE NOT OBJECTED TO BY ASSESSEE. HE SUPPORTED THE ORDERS OF TPO/DRP. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND EXAMINED THE RECORD. THERE ARE TWO ISSUES FOR ADJUDICATION IN THIS APPEAL UNDER THE TRANSFER PRIC ING PROVISIONS, WHICH ARE AS UNDER: A: COMPARABILITY ANALYSIS: 9 .A.1 TPO ANALYSED THE TRANSACTIONS AS UNDER: I) PURCHASE OF COMPONENTS, TOOLS ACCESSORIES & SPARES; AND SALE OF COMPRESSORS : ~ FOR THE TRANSACTIONS RELATING TO PURCHASE OF COMPONENTS, TOOLS ACCESSORIES & SPARES OF RS.4,93,48,427 AND SALE OF COMPRESSORS OF RS.1,28,02/516 THE TAXPA YER HAS USED CUP AS THE MAM. INITIALLY PRIOR TO THE ISS UE OF THE SHOW CAUSE NOTICE, THE TAXPAYER HAD NOT FURNISHED T HE CUP DATA. SUBSEQUENTLY, DURING THE COURSE OF PROCEEDING S, THE TAXPAYER HAS FILED THE REQUISITE INFORMATION ON 18. 12.2012. IN SUPPORT OF ITS CUP DATA, THE TAXPAYER HAS RELIED UPON A 6 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. QUOTE FROM AN INDEPENDENT THIRD PARTY VENDOR IN IND IA. IT IS STATED THAT THE COMPONENTS THAT ARE IMPORTED FROM T HE AES ARE UNIQUE AND SPECIFIC TO THE REQUIREMENTS OF THE GROUP ENTITIES AND THE REFERRED QUOTE IS CONSIDERED SIMIL AR TO THE COMPONENTS THAT ARE BEING IMPORTED. THE CONTENTION OF THE TAXPAYER IS CONSIDERED AND NOT FOUND ACCEPTABLE. FR OM THE DETAILS PROVIDED BY THE TAXPAYER IT IS SEEN THAT TH E PAYMENT TERMS ON THE IMPORTED ITEMS IS 45 DAYS AFTE R B/L DATE. WHEREAS, IT IS 30 DAYS FROM INVOICE DATE AND FREIGHT ON TO PAID BASIS. IT IS ALSO SEEN THAT FOR THE PROD UCT 302P88-108F330, THE LANDED COST IS RS.232.42, WHERE AS FOR THE SAME PRODUCT SUPPLIED LOCALLY THE RATE IS R S.222.99. THE CUP DATA, THEREFORE, CANNOT BE RELIED UPON AS T HERE ARE DIFFERENCES IN TERMS OF PAYMENT, LANDING COST AND T HE DIFFERENCE IN AT LEAST ONE OF THE PRODUCTS. IT WAS STATED BY THE AR DURING THE COURSE OF HEARING THAT THE DIFFER ENCE IN PRICE IN ONE COMPONENT IS TAKEN CARE OF WHILE SUPPL YING THE ENTIRE RANGE OF PRODUCTS. THIS PARTICULAR PRODUCT C ANNOT BE PURCHASED SEPARATELY. THIS IMPLIES THAT THE SUPPLYI NG TERMS OF A DOMESTIC VENDOR ARE HOLISTIC AND IT IS N OT KNOWN WHAT THE SUPPLYING TERM OF THE AE IS. THE CUP IS, T HEREFORE, REJECTED. II) PURCHASE OF COMPRESSORS FOR TRADING: FOR THE TRANSACTION RELATING TO PURCHASE OF COMPRES SORS OF RS. 1,28,02,516 THE TAXPAYER HAS AGAIN USED CUP AS MAM. THE TAXPAYER HAS PROVIDED DETAILS OF PURCHASE VALUE OF THE COMPONENT AND ITS RESALE VALUE. IT HAS BEEN SHOWN T HAT THERE IS A SIGNIFICANT INCREASE IN THE SALE VALUE. BASED ON SUCH INCREASED DIFFERENCE, THE TAXPAYER CONCLUDES T HAT THIS IS AN INTERNAL CUP. 7 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. THE CONTENTION OF THE TAXPAYER IS CONSIDERED AND NO T FOUND ACCEPTABLE. THE TAXPAYER HAS MIXED THE RPM AND THE CUP AND HAS CONCLUDED THAT THE TRANSACTIONS ARE AT ARM' S LENGTH PRICE. THE RPM RELIES ON THE GROSS PROFIT MA RGINS. FURTHER, THE GROSS PROFIT MARGINS OF THE INTERNATIO NAL TRANSACTIONS ARE REQUIRED TO BE COMPARED WITH THE G ROSS PROFIT MARGINS EARNED BY INDEPENDENT PARTIES. IN TH IS CASE THE TAXPAYER HAS COMPARED ITS GROSS PROFIT MARGIN W ITH ITSELF TO ARRIVE AT THE ARM'S LENGTH PRICE. THERE A RE NO EXTERNAL INDEPENDENT COMPARABLES USED BY THE TAXPAY ER. THE CUP CALLS FOR STRICT COMPARABILITY OF THE PRODU CT ON WHICH TRANSACTIONS HAPPEN BETWEEN THE RELATED PARTY AND INDEPENDENT PARTY, WHICH HAS NOT BEEN PROVIDED. THE METHOD THUS, FAILS. III) SALE OF AK KITS AND COMPONENTS: FOR THE TRANSACTION RELATING TO SALE OF AK KITS AND COMPONENTS OF RS.13,53,98,668 THE TAXPAYER HAS USED TNMM AS MAM. THE TAXPAYER HAS CARRIED OUT THE SEARC H USING PROWESS AND CAPITA LINE DATABASES. THE TAXPAY ER HAS CONSIDERED THE BROAD SEGMENT VIZ., 'NON-ELECTRI CAL MACHINERY' IN RESPECT OF EOU KITS MANUFACTURING SEG MENT. ACCORDINGLY, IT HAS SELECTED 9 COMPARABLES WITH AVE RAGE PLI (OP/OC) OF 9.96% AS AGAINST ITS OWN PLI OF (-) 8.72%. THE TAXPAYER HAS OFFERED A NOTIONAL INCOME BASED ON THE ARM'S LENGTH PRICE OF THE COMPARABLE COMPANIES AT RS.2,32,86,044 IN ITS COMPUTATION OF INCOME FOR AY 2009- 10. CONSEQUENT TO THIS ADJUSTMENT, THE PLI OF THE T AXPAYER WORKS OUT AT COST + 7% AS AGAINST COST + 9.96% EARNED BY THE COMPARABLES. THE CONTENTION OF THE TAXPAYER HAS BEEN CONSIDERED AND NOT FOUND ACCEPTABLE. AS STATED ABOV E, THE 8 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. TAXPAYER IS INTO MANUFACTURE OF HERMETICALLY SEALED COMPRESSORS. HOWEVER, IN ITS SEARCH THE TAXPAYER HA S CONSIDERED THE BROAD SEGMENT VIZ., 'NON-ELECTRICAL MACHINERY' IN RESPECT OF EOU KITS MANUFACTURING SEG MENT. FURTHER, THE TAXPAYER HAS USED THE DATA RELATING TO EARLIER TWO YEARS' DATA IN ADDITION TO THE CURRENT YEAR. TH E SELECTION OF KEYWORDS ITSELF IS NOT CORRECT AS THE TAXPAYER IS INTO MANUFACTURE OF COMPRESSOR AND THE WRONG SELECT ION OF KEYWORDS HAS RESULTED INTO INAPPROPRIATE SELECTION OF COMPARABLES. THEREFORE, THE STUDY MADE UNDER TNMM I S REJECTED. 9.A.2. ASSESSEE HAD DIFFERENT NATURE OF TRANS ACTIONS LIKE PURCHASE OF COMPONENTS AND PURCHASE OF COMPRESSORS FOR TRADING OF WHICH ASSESSEE GAVE COMPARABILITY ON CUP METHOD WHEREAS, SALE OF A.K. K ITS AND COMPONENTS ASSESSEE ITSELF USED TNMM. ASSESSEE S RELIANCE IS ON USING THE CUP METHOD WHILE NOT OBJEC TING TO THE TNMM AND ON SALE OF AK KITS AND COMPONENTS ASSESSEES MAIN OBJECTION IS WITH REFERENCE TO REJE CTION OF CUP METHOD WHEREAS, DATA WAS AVAILABLE WITH ASSESSEE. SINCE, IN EARLIER YEARS, THESE ISSUES ARE CONSIDERED AND ASSESSEES T.P. STUDY ADJUSTMENTS WE RE RESTORED TO THE FILE OF A.O. VIDE ORDER DATED 13.11 .2013 IN ITA.NO.1686/HYD/2010 FOR A.Y. 2006-07 AND ORDER DATED 28.05.2014 IN ITA.NO.2228/H/2011 AND 1863/HYD/2012 FOR A.YS. 2007-08 AND 2008-09 IN ASSESSEES OWN CASES, WE ARE OF THE OPINION THAT TH IS MATTER ALSO SHOULD GO BACK TO A.O. / TPO FOR FRESH ANALYSIS. WITH REFERENCE TO SELECTION OF COMPARABLE S, THIS ISSUE WAS ALSO RESTORED TO THE FILE OF A.O. IN EARLIER YEARS, PARTICULARLY, VIDE PARA-D OF THE ORDER IN 9 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. ITA.NO.2228/H/2011 AND 1863/H/2012 DATED 28.05.2014 WHICH IS AS UNDER : D) WHETHER THE COMPARABLES SELECTED BY THE TPO IS CORRECT ? THERE ARE TWO SETS OF OBJECTIONS ON THE COMPARABLES SELECTED BY TPO; ONE BEING DATA PERTAINING TO COMPANIES WHICH HAVE DIFFERENT ACCOUNTING PERIOD THAN THAT OF ASSESSEE AND THE SECOND ONE BEING THE FUNCTIONAL COMPARABILITY OF SELECTED COMPANIES, BEING IN BUSINESS OF COMPRESSOR MANUFACTURING WHEREAS ADJUSTMENTS WERE DONE IN THE SEGMENTED RESULTS OF SUPPLY OF COMPONENTS (TO THE COMPRESSORS ). AS SELECTION OF COMPARABLES BY TPO SUFFERS FROM THESE BASIC DEFICIENCIES, WE ARE OF THE OPINION THA T THIS ISSUE REQUIRES RE-EXAMINATION BY TPO BY SELECTING PROPER COMPARABLES AND THEN DETERMINE THE ALP. IN THE INTEREST OF JUSTICE, WE RESTORE THI S ISSUE OF ARRIVING AT ALP TO THE FILE OF TPO/AO FOR FRESH CONSIDERATION BY TAKING OBJECTIONS FROM ASSESSEE AND ALSO ON THE BASIS OF TP PROCEEDINGS OF EARLIER YEAR. THEREFORE, FOR DETERMINATION OF ALP, THE ISSUE IS SET ASIDE TO THE FILE OF THE TPO/AO TO DO THE SAME AFRESH AS PER THE PROVISIONS OF THE ACT. RESPECTFULLY FOLLOWING THE ORDERS IN EARLIER YEARS, THE MATTER IS RESTORED TO THE FILE OF AO/TPO. B. ADOPTING OPERATING COST ON THE BASIS OF ESTIMATION: 9.B.1 TPO, FOLLOWING THE ORDERS IN EARLIER YEARS ADOPTED THE OPERATING COST ON THE RATIO OF SALES TURNOVER. THIS ISSUE WAS ALREADY DECIDED IN EARLIER YEARS. THE ORDER IN A.Y. 2006-07 IN ASSESSEES OWN CASE IN ITA.NO.1686/HYD/2010 DATED 13.11.2013. THESE ISSUES ARE CONSIDERED IN DETAIL AND DECIDED AS UNDE R: 10 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. C) WHETHER OPERATING COST ADOPTED BY TPO IS CORRECT OR NOT WHILE CALCULATING THE NET PROFIT MARGIN FROM THE INTERNATIONAL TRANSACTION ON SUB-ASSEMBLY AND COMPONENTS SUPPLIED TO THE TPC USA, THE AO HAS CONSIDERED THE OPERATING COST AT RS. 20.02 CRORES. THIS HE HAS ARRIVED AT ON THE BASIS OF THE PROPORTIONATE TURNOVER IGNORING THE SEGMENTAL REPORTS PREPARED BY ASSESSEE. IN FACT, THE SALE OF SUB-ASSEMBLY AND COMPONENTS ARE ONLY 5% OF THE TURNOVER OF ASSESSEE AND THESE SUB-ASSEMBLY AND COMPONENTS ARE MANUFACTURED AT 100% EOU ESTABLISHED FOR THIS PURPOSES AT BALANAGAR. AS PER THE PROVISIONS OF THE ACT, THIS 100% EOU IS MAINTAINING SEPARATE BOOKS OF ACCOUNT AS ASSESSEE IS ALSO ELIGIBLE FOR DEDUCTION U/S 10A/10B. ASSESSE E REPORTED RS.16,38,68,871 AS THE COST IN THIS UNIT, BUT RESULTED IN A LOSS AS PER THE BOOKS OF ACCOUNT. CONSEQUENT TO THE TP DOCUMENTATION UNDERTAKEN BY ASSESSEE, ARMS LENGTH PRICE OF THE SALE PRICE WAS SHOWN AT RS.19,60,37,969 AS AGAINST RS. 16,38,68,871, WHICH WERE ACTUAL SALES. SINCE ACTUAL SALES IN THE BOOKS RESULTED IN OP/TC AT (-) 13.07%, ASSESSEE MADE ADJUSTMENT ON THE BASIS OF TP DOCUMENTATION WHERE OP/TC WAS AT 4%. THIS HAS RESULTED IN ADDITION OF THE ABOVE AMOUNT OF RS. 3,21,69,698/- U/S 92 SU-MOTO ADJUSTMENT MADE BY ASSESSEE. WITHOUT CONSIDERING THE OBJECTIONS OF ASSESSEE, TPO, SURPRISINGLY, DETERMINED THE OPERATING COST AT RS. 20.02 CRORES BASED ON THE PROPORTIONATE COST ON THE RATIO OF SALES IN VARIOUS 11 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. SEGMENTS. THIS ACTION OF THE TPO WAS NOT JUSTIFIED AT ALL WHEN ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT, WHICH WAS ALSO ACCEPTED UNDER THE PROVISIONS OF THE ACT AND, THEREFORE, THERE IS NO REASON FOR REJECTING THE SAME AND ESTIMATING THE OPERATING COST ON THE BASIS OF THE PROPORTIONATE TURNOVER. IN FACT, ASSESSEE HAS INCURRED LOSS IN THESE TRANSACTIONS, WHERE AS THERE WAS PROFIT IN OTHER ACTIVITY, WHICH CONSTITUTE 95% OF ASSESSEES TURNOVER. TAKING SALES AS BASIS AND ARRIVING AT TH E OP COST DOES NOT RESULT IN CORRECT APPRECIATION OF ASSESSEES TRANSACTIONS. THEREFORE, SINCE SEGMENTAL WORKING IS AVAILABLE ON THE BASIS OF SEPARATE BOOKS OF ACCOUNT MAINTAINED FOR EOU UNIT, WE ARE OF THE OPINION THAT OPERATING COST HAS TO BE TAKEN AT RS. 16,38,68,871 AND THE TPO/AO IS DIRECTED TO TAKE OPERATING COST WITH THE ABOVE FIGURE. ACCORDINGLY, THIS CONTENTION OF ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE AO/TP O TO ACCEPT THE OPERATING COST ON THE BASIS OF SEPARA TE BOOKS MAINTAINED. 10. IN VIEW OF THIS, SINCE, OPERATING COST I S ALSO DIRECTED TO BE ADOPTED ON THE BASIS OF THE AUDITED BOOKS OF ACCOUNTS, THE TPO/A.O. IS DIRECTED TO RE-WORKOUT THE ADJUSTMENTS IF ANY, REQUIRED AFTER FRESH ANALYSIS A S DIRECTED ABOVE, AS IN EARLIER YEARS, IN THIS YEAR A LSO. GROUNDS 2,3,4 ARE ACCORDINGLY ALLOWED FOR STATISTIC AL PURPOSES. 12 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. 11. GROUND NO.5 IS AS UNDER : THE LD. A.O. AND THE HONBLE DRP HAVE ERRED, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DISALLOWING THE PAYMENT OF INR 5,02,000 MADE ON ACCOUNT OF DAUGHTERS MARRIAGE BENEFIT. 11.1 THIS ISSUE HAS ALSO BEEN DECIDED IN ASSESSEES OWN CASE FOR A.YS. 2007-08 AND 2008-09 I N ITA.NO.2228/HYD/2011 AND ITA.NO.1863/HYD/2012 DATED 28.05.2014 VIDE PARAS 21 AND 22 WHICH IS AS UNDER : 21. GROUND NO.6 PERTAINS TO DISALLOWANCE OF AN AMOU NT OF EXPENDITURE PAID ON ACCOUNT OF DAUGHTERS MARRIA GE BENEFIT FUND. ASSESSEE CLAIMED AN AMOUNT OF RS.4,10,000/- ON PAYMENT BASIS WHILE DISALLOWING TH E AMOUNT OF RS.5,76,000/- IN THE COMPUTATION AS PER T HE CONSTANT ACCOUNTING POLICY ADOPTED BY THE ASSESSEE. A.O. HAS DISALLOWED THE AMOUNT OF RS.4,10,000/- WHILE ADMITTING THAT THIS AMOUNT WAS PAID OUT OF EARLIER YEARS DISALLOWANCES. IT WAS THE CONTENTION OF THE ASSESSE E BEFORE THE TPO AS WELL AS DRP THAT THIS AMOUNT IS M ADE FOR THE BENEFIT OF EMPLOYEES AS PART OF MEMORANDUM OF SETTLEMENT WITH THE EMPLOYEES AND THE AMOUNT IS TO BE CONSIDERED AS A DEDUCTION UNDER SECTION 37(1) RELYI NG ON VARIOUS PRINCIPLES LAID DOWN ON THIS ISSUE. HOWEVER , BOTH THE A.O. AND DRP REJECTED AND MADE THE DISALLOWANCE . IT WAS THE CONTENTION THAT THE ASSESSEE WAS MAKING PROVISION OF FUND AS PER THE SETTLEMENT REACHED WIT H THE EMPLOYEES BY MEDIATION OF DEPUTY LABOUR COMMISSIONE R, FARIDABAD AND ORIGINAL SETTLEMENT UNDER INDUSTRIAL DISPUTES ACT WAS FROM THE PERIOD SEPTEMBER 2001 TO 31 ST AUGUST, 2004 WHICH WAS FURTHER EXTENDED BY ANOTHER THREE YEARS FROM 1 ST SEPTEMBER, 2004 TO 31 ST AUGUST, 2007 AND THIS SETTLEMENT WAS STILL IN FORCE. SUBSEQUENTL Y ALSO, AS PER THE SETTLEMENT VIDE PARAG IN PAGE 9 DAUGHTE RS MARRIAGE BENEFIT FUND HAS BEEN INCREASED FROM RS.20,000/- TO RS.30,000/- AND THE PROVISION OF AMO UNT IS FROM MANAGEMENT AND EMPLOYEES WILL BE 50% EACH. ACCORDINGLY, IT WAS THE SUBMISSION THAT ASSESSEE MA DE THE PROVISION TO THE DAUGHTERS MARRIAGE BENEFIT FU ND AS PER THE REQUIREMENTS AND SINCE IT IS A PROVISION, A SSESSEE 13 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. WAS CONSISTENTLY DISALLOWING, FOLLOWING THE ACCOUNT ING PRINCIPLES. IT CLAIMED ONLY THE ACTUAL AMOUNT PAID OUT OF THE FUND DURING THE YEAR. SINCE THE AMOUNT WAS PAID FOR THE BENEFIT OF THE EMPLOYEES, THIS DOES NOT GET ATT RACTED UNDER SECTION 40A(9) OF THE ACT AND THE SAME IS ALL OWABLE UNDER SECTION 37(1). ASSESSEE ALSO RELIED ON THE DE CISION OF ITAT BENCH IN THE CASE OF BATA INDIA LTD. VS. DC IT 85 ITD 257 AND DECISION OF INDIA PISTONS REPCO LTD. 26 ITD 413 AND RASI CEMENTS LTD. 45 ITD 233. 22. CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSIONS MADE ON THIS BEHALF, WE ARE OF THE OPIN ION THAT THE AMOUNT IS AN ALLOWABLE DEDUCTION UNDER SEC TION 37(1) OF THE I.T. ACT. IN FACT, ASSESSEE IS ADDING BACK THE PROVISION AND CLAIMING ONLY THE ACTUAL AMOUNT. SINC E, INDUSTRIAL DISPUTE ACT PERMITS THIS SORT OF BENEFIT FOR THE EMPLOYEES AND ASSESSEE HAS BEEN MAKING MATCHING CONTRIBUTION, ALLOWABILITY OF THIS AMOUNT DOES NOT ATTRACT THE PROVISIONS OF SECTION 40A(9). THEREFORE, WE ARE OF THE OPINION THAT BOTH A.O. AND DRP ARE WRONGLY DISALLOW ED THE AMOUNT. WE DIRECT THE A.O. TO ALLOW THE AMOUNT, AS CLAIMED. 11.2 SINCE FACTS ARE SIMILAR AND ISSUE BEING S AME, WE DIRECT THE AO TO ALLOW THE AMOUNT ACCORDINGLY. GROU ND IS ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.11.2 014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 14 TH NOVEMBER, 2014 VBP/- 14 ITA.NO.643/HYD/2014 TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. COPY TO : 1.M/S. TECUMSEH PRODUCTS INDIA P. LTD. 9-40, BALANA GAR TOWNSHIP, HYDERABAD 500 003. 2. DCIT, CIRCLE 2(3), ROOM NO.823, 8 TH FLOOR, I.T. TOWERS, A.C. GUARDS, HYDERABAD 3. DISPUTES RESOLUTION PANEL, HYDERABAD 4. DCIT (TRANSFER PRICING)-II, 6 TH FLOOR, B BLOCK, I.T. TOWERS, A.C. GUARDS, HYDERABAD 5. D.R. ITAT, B BENCH, HYDERABAD.