Calsonic Kansei Motherson Auto Products Ltd, New Delhi V. DCIT, New Delhi

ITA 667/DEL/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7124 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 01-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUNESH KUMAR
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Additional evidence
• Section: 143(3); 92D; 244A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA: JUDICIAL MEMBER ITA NO. 667/DEL/2015 ASSTT. YR: 2010-11 CALSONIC KANSEL MOTHERSON VS. DCIT CIRCLE 5(2), PRODUCTS LTD., F-7, B-1, NEW DELHI. MOHAN COOPERTIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI. PAN: AADCC 1932 F ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI KANCHAN KAUSHAL CA & SH. RAVI SHARMA ADV. RESPONDENT BY : SHRI MUNESH KUMAR CIT (DR) DATE OF HEARING : 01/07/2016. DATE OF ORDER : 06/07/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS ASSESSEES APPEAL AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WITH SECTION 144C PURSUANT TO DRPS DIRECTIONS U/S 144C OF THE INCOME-TAX ACT, 1961, RE LATING TO AY 2010-11. 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS ISSUED -BY THE LD. DISPUTE RESOLUTION PA NEL ('LD. DRP') IS A VITIATED ORDER AS THE LD. DRP HAS ERRED BOTH ON FACTS 2 AND IN LAW, IN NOT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT AND IN CONFIRMING THE ADDITION MADE BY TH E LD. ASSESSING OFFICER ('LD. AO')/ LD. TRANSFER PRICING OFFICER ('LD. TPO') TO THE APPELLANT'S INCOME. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO [FOLLOWING THE DIRECTIONS OF LD. DR P] ERRED IN ASSESSING THE RETURNED INCOME OF THE APPELLANT OF R S. 22,87,383/- AT THE INCOME OF RS.2,71,84,416/-. 3. THE LD. DRP / LD. TPO ERRED ON FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW BY CONFIRMING AN TRANSFER PR ICING ADJUSTMENT AMOUNTING TO RS. 7,74,42,676/- HOLDING T HAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPE LLANT WITH ITS ASSOCIATED ENTERPRISES ('AES') DURING THE FINANCIAL YEAR ('FY') 2009-10 PERTAINING TO PURCHASE OF RAW MATERIAL, SAL E OF FINISHED GOODS AND PURCHASE OF FIXED ASSETS DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAVE GROSSLY ERRED IN: 3.1 BY DISREGARDING THE ECONOMIC ANALYSIS CONDUCTE D BY THE APPELLANT TO DETERMINE THE ARM'S LENGTH PRICE (,ALP ') OF THE INTERNATIONAL TRANSACTIONS IN COMPLIANCE WITH SECTI ON 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 ('RULES') IN THE TRANSFER PRICING ('TP') DOCUMENTAT ION; 3.2 REJECTING THE ARM'S LENGTH MARGIN COMPUTED BY THE APPELLANT USING MULTIPLE YEAR / AVERAGE DATA AND IN STEAD OF USING CURRENT YEAR DATA FOR COMPARABLE COMPANIES, I .E. DATA FOR FY 2009-10, DESPITE THE FACT THAT THE SAME WAS NOT AVAILABLE WITH THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 3.3 BY INCLUDING CERTAIN COMPANIES IN THE FINAL SE T OF COMPARABLES WHICH ARE NOT COMPARABLE TO THE APPELLA NT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND R ISKS ASSUMED; 3 3.4 REJECTING OPERATING PROFIT/VALUE ADDED EXPENSE S ('OP/VAE') AS A VALID PROFIT LEVEL INDICATOR ('PLI' ) SELECTED BY APPELLANT IN ITS TP DOCUMENTATION AND ERRED IN SELE CTING OP /SALES AS A PROFIT LEVEL INDICATOR ('PLI') TO DETER MINE ARM'S LENGTH NATURE OF TRANSACTIONS; 3.5. NOT APPRECIATING THE MECHANISM ADOPTED BY THE APPELLANT TO PROVIDE FOR SUITABLE CAPACITY UTILIZAT ION ADJUSTMENT CONSIDERING THE FIXED COSTS INCURRED BY THE APPELLA NT TO VITIATE THE FACT THAT THERE ARE SIGNIFICANT DIFFERENCES IN THE LEVELS OF CAPACITY UTILIZED BY THE COMPARABLES VIS-A- VIS THA T OF THE ASSESSEE. IN DOING SO THE LD. DRP / LD. TPO HAS ERR ED: 3.5.1 BY NOT EXCLUDING THE OPERATING COSTS PERTAINI NG TO ONE OF THE UNITS (CHENNAI) OF THE APPELLANT WHICH HAD NOT COMMENCED COMMERCIAL PRODUCTION AND WAS ENGAGED IN ONLY TRIAL RUNS DURING AY 2010-11, WHILE COMPUTING THE OPERATING MA RGINS OF THE APPELLANT; 3.5.2 ALLOWING CAPACITY ADJUSTMENT ONLY IN RESPECT OF DEPRECIATION COST AND NOT TAKING INTO CONSIDERATION OTHER FIXED COSTS INCURRED BY THE APPELLANT ON ACCOUNT OF LOWER CAPACITY UTILIZATION OF APPELLANT VIS-A-VIS THE IDENTIFIED C OMPARABLE COMPANIES; 3.5.3 ALLOWING CAPACITY UTILISATION ADJUSTMENT TO T HE OPERATING MARGINS OF THE COMPARABLE COMPANIES INSTEAD OF TEST ED PARTY; 3.6. BY DISREGARDING THE ADDITIONAL EVIDENCE FURNIS HED BY THE APPELLANT DURING THE COURSE OF THE PROCEEDINGS, PER TAINING TO THE PROFITABILITY AND THE PRICE CHARGED BY THE AES IN RESPECT OF THE COMPONENTS SOLD TO THE APPELLANT, WHICH DEMONST RATE THAT THE INTERNATIONAL TRANSACTION PERTAINING TO PURCHAS E OF RAW MATERIAL WAS AT ARM'S LENGTH; 4 3.7. BY NOT PLACING RELIANCE ON INTERNATIONAL COMME NTARIES AND JUDICIAL PRONOUNCEMENTS WHILE DISALLOWING COMPA RABILITY ADJUSTMENTS; 3.8. BY NOT PROVIDING RELIEF ON ACCOUNT OF WORKING CAPITAL ADJUSTMENT TO REFLECT THE DIFFERING LEVELS OF TRADE RECEIVABLES, TRADE PAYABLES AND INVENTORIES BETWEEN THE APPELLAN T AND THE POTENTIAL COMPARABLES; 3.9. REJECTING THE MINISCULE MARK UP OF 4% CHARGED BY ITS AE AGAINST THE OVERHEADS AND OTHER COSTS INCURRED, ON THE FIXED ASSETS IMPORTED BY THE APPELLANT AND THEREBY ENHANC ING THE INCOME OF THE APPELLANT BY RS. 11,56,332/-; 3.10 DENYING THE BENEFIT OF (+ / -) 5% RANGE MENTI ONED IN THE PROVISO TO SECTION 92C(2) OF THE ACT IN DETERMINATI ON OF THE ARM'S LENGTH PRICE; 4. THAT THE LD. AO HAS GROSSLY ERRED IN LAW IN LEVY ING INTEREST UNDER SECTION 234D OF THE ACT AND ALSO WIT HDRAWING INTEREST UNDER SECTION 244A OF THE ACT; 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C), 271AA AND 271BA OF THE ACT . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D FILED ITS RETURN OF INCOME DECLARING NIL INCOME AFTER ADJUSTING BROUGHT FORWARD LOSSES OF RS. 91,01,938/-. SUBSEQUENTLY, THE ASSESSEE REVISED ITS RETURN OF INCOME DECLARING A LOSS OF RS. NIL, AFTER ADJUSTING BROUGH T FORWARD LOSS OF RS. 22,87,383/-. THE AO NOTICED THAT DURING THE YEAR TH E ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS AS PER F ORM 3CEB: 5 NAME OF THE AE NATURE OF TRANSACTIONS AMOUNT (RS.) CALSONIC KANSEL CORP., JAPAN PURCHASE OF RAW MATERI AL 83830475 CALSONIC KANSEL THAILAND CO. LTD. PURCHASE OF RAW MATERIAL 336715771 CALSONIC KANSEL CORP., JAPAN SALE OF FINISHED GOODS 754032 CALSONIC KANSEL CORP. PURCHASE OF FIXED ASSETS 3006 4627 CALSONIC KANSEL CORP. TECHNICAL ASSISTANCE FEES 16 09452 CALSONIC KANSEL CORP. INTEREST PAID ON EXTERNAL COMMERCIAL BORROWING 1790092 CALSONIC KANSEL CORP. REIMBURSEMENT OF EXPENSES 107 6276 4. ACCORDINGLY, REFERENCE WAS MADE TO TPO TO DETERM INE THE ALP U/S 92CA(3) IN RESPECT OF AFOREMENTIONED TRANSACTIONS. LD. TPO HAS NOTICED THE BUSINESS PROFILE OF ASSESSEE AS UNDER: 2. CALSONIC KANSEI MOTHERSON AUTO PRODUCTS LIMITED WAS INCORPORATED IN SEPTEMBER 2007 TO MANUFACTURE/ ASSE MBLE HEATING VENTILATION AND AIR-CONDITIONING (HVAC) A ND COMPRESSORS. THE COMPANY WAS SET UP AS A JOINT VENT URE BETWEEN CKC JAPAN AND MSSL. THE COMPANY WAS SET UP TO CATER THE COMPRESSORS AND HVAC REQUIREMENTS OF MARU TI AND NISSAN IN INDIA WITH TECHNOLOGICAL BACK UP FROM CKC JAPAN. THE MANUFACTURING FACILITIES OF CKM INDIA ARE LOCAT ED AT MANESAR AND CHENNAI. SINCE IT WAS THE FIRST YEAR OF ITS MANUFACTURING OPERATIONS, THE CHENNAI PLANT DID NOT HAVE ANY MAJOR ACTIVITIES DURING THE YEAR AND HAD CONTRIBUTE D TO ONLY 0.29% OF THE TOTAL SALES OF THE COMPANY. FURTHER, T HE MANESAR PLANT WAS ALSO NOT FULLY OPERATIONAL AND WAS WORKIN G ONLY 20% OF ITS ACTUAL CAPACITY, DUE TO WHICH THE COMPANY HA S SUFFERED LOSSES IN THE INITIAL YEAR OF ITS OPERATIONS. 2.1 OWNERSHIP STRUCTURE OF THE COMPANY IS AS UNDER: CKC, JAPAN (51%) & MSSL, INDIA 49% = CALSONIC KANSEL MOTHERSON AUTO PRODUCTS LTD. 6 5. LD. TPO DETERMINED THE ADJUSTMENT AS UNDER: S.N NATURE OF INTERNATIONAL TRANSACTION ALP DETERMINED BY TAXPAYER (RS.) ALP DETERMINED BY THIS OFFICE (RS) ADJUS TMENT U/S 92CA(RS) 1. SALE FINISHED FOODS/ PURCHASE OF RAW MATERIAL -24836550 90236044 115,072,594 2. PURCHASE OF CAPITAL GOODS 30064627 28908295 1156 332 TOTAL 116228926 6. AO PASSED A DRAFT ORDER IN PURSUANCE TO THE ADJU STMENTS DIRECTED BY LD. TPO. THE ASSESSEE FILED OBJECTIONS BEFORE LD. D RP AND AFTER LD. DRPS DIRECTIONS THE AO DETERMINED THE ADJUSTMENTS ON ACC OUNT OF ALP AT RS. 7,74,42,676/-. 7. APROPOS GROUND NO. 3.5.3, REGARDING CAPACITY UTI LIZATION ADJUSTMENT TO BE ALLOWED TO ASSESSEE, LD. COUNSEL SUBMITTED THAT THAT MOST OF THE COMPARABLES UNCONTROLLED COMPANIES WERE INCORPORATE D PRIOR TO THE FY 1995 AND WERE NOT IN THEIR FIRST FULL YEAR OF OPERATIONS . THEY WERE NOT OPERATING IN THE GESTATION PHASE AND HENCE WOULD NOT BE INCURRIN G SIMILAR LEVELS OF EXPENSES. THEREFORE, IN ORDER TO ENSURE CLOSER COMP ARABILITY, CAPACITY ADJUSTMENT IS REQUIRED, LD. COUNSEL SUBMITTED THAT AS FAR AS CHENNAI PLANT IS CONCERNED, THE SAME DID NOT START DURING THE YEAR, BUT STARTED ON 19.4.2010. IN THIS REGARD HE REFERRED TO PAGE 298 OF APPEAL SE T, WHEREIN THE CERTIFICATE ISSUED BY THE COMPANY IN THIS REGARD IS CONTAINED. HE FURTHER REFERRED TO THE 7 TP REPORT, CONTAINED AT PAGE 326 OF PAPER BOOK, WH EREIN THIS FACT IS MENTIONED. 8. AS REGARDS MANESAR PLANT, LD. COUNSEL POINTED OU T THAT THIS PLANT STARTED ON 1.4.2009, WHICH IS EVIDENT FROM THE CERT IFICATE OF COMPANY, CONTAINED AT PAGE 296 OF APPEAL SET. HE SUBMITTED T HAT IT WORKED ONLY 18.93% OF ITS ACTUAL CAPACITY DURING THE YEAR. 9. LD. COUNSEL POINTED OUT THAT ALL THESE FACTS ARE NOT DISPUTED. HE REFERRED TO PAGE 17 OF LD. DRPS ORDER, WHEREIN LD. DRP HAS NOTED THESE ASPECTS, BUT DID NOT DISPUTE THE SAME. HE ALSO POIN TED OUT THAT LD. DRP HAS RESTRICTED THE ADJUSTMENTS ONLY TO DEPRECIATION, WH ICH IS NOT CORRECT BECAUSE ASSESSEE HAD INCURRED FIXED COST ON VARIOUS ITEMS F OR WHICH ADJUSTMENT HAS TO BE PROVIDED. 10. LD. CIT(DR) SUBMITTED THAT ASSESSEE HAD NOT PRO VIDED DETAILS OF EXPENSES AND DID NOT DEMONSTRATE THE IMPACT OF INST ALLED CAPACITY CLEARLY OF EACH AND EVERY EXPENSES ITEMWISE AS NOTED BY LD. DR P. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. LD. DRP IN PRINCIPL E HAS ACCEPTED THAT ADJUSTMENT ON ACCOUNT OF CAPACITY UTILIZATION IS TO BE ALLOWED TO ASSESSEE. HOWEVER, IN THE ABSENCE OF NON-AVAILABILITY OF ITEM WISE EXPENSES, IN THE CASE OF COMPARABLE COMPANIES, RESTRICTED THE ADJUST MENT ONLY TO 8 DEPRECIATION. IN OUR OPINION, THIS IS NOT THE CORRE CT APPROACH BECAUSE UNUTILIZED CAPACITY HAS DIRECT BEARING ON THE OPERA TIONAL PROFITS OF THE COMPANY, BECAUSE IN INITIAL YEARS THERE IS OVER-ABS ORPTION OF FIXED COSTS LEADING TO LOSSES. THE FIXED COST IS NOT LIMITED TO DEPRECIATION ONLY BUT THERE ARE OTHER ELEMENTS OF FIXED COSTS ALSO. THEREFORE, PROPER ADJUSTMENT HAS TO BE ALLOWED TO ASSESSEE. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF LD. AO/ TPO TO COMPUTE THE QUANTUM OF CAPACITY ADJUSTMENT. THE ASSESSEE IS DIRECTED TO PROVIDE NECESSARY DETAILS IN THIS REGAR D. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 12. APROPOS GROUND NO. 3.8 REGARDING WORKING CAPITA L ADJUSTMENT, LD. COUNSEL REFERRED TO PAGE 308 OF APPEAL SET, WHEREI N THE SUBMISSIONS MADE BEFORE LD. DRP ARE CONTAINED AND REFERRED TO PAGE 3 11 WHEREIN LD. DRP IN ITS NOTICE HAD REQUIRED THE ASSESSEE TO FURNISH THE CAL CULATION OF WORKING CAPITAL ADJUSTMENT CARRIED OUT TAKING INTO ACCOUNT ALL THE COMPARABLES OF THE TPO AND THE COMPARABLES OF THE TAX PAYER ACCORDING TO T HE PRESCRIBED FORMAT. LD. COUNSEL REFERRED TO PAGES 313 TO 315 OF THE APPEAL SET, WHEREIN ASSESSEE HAD FURNISHED CALCULATION IN REGARD TO WORKING CAPITAL ADJUSTMENT MARGIN FOLLOWING OECD GUIDELINES. 13. LD. COUNSEL POINTED OUT THAT LD. DRP HAS NOT CO NSIDERED THIS ISSUE. 9 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. IT IS NOW WELL SETTLED THAT IN ORDER TO ARRIVE AT CORRECT COMPARAB ILITY CRITERIA, IT IS NECESSARY THAT THE WORKING CAPITAL EMPLOYED BY COMPARABLES VI S A VIS WORKING CAPITAL EMPLOYED BY TESTED PARTY HAS TO BE EXAMINED AND NEC ESSARY WORKING CAPITAL ADJUSTMENT HAS TO BE MADE IN ORDER TO ARRIVE AT LEV EL PLAYING FIELD. WE, THEREFORE, RESTORE THIS MATTER TO THE FILE OF LD. T PO TO CONSIDER THE WORKING CAPITAL ADJUSTMENT AS CLAIMED BY ASSESSEE AS PER PA GES 313 TO 315 OF APPEAL SET AND ALLOW THE CAPITAL WORKING ADJUSTMENT, IF S O REQUIRED. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 15. BRIEF FACTS, APROPOS GROUND NO. 3.9, ARE THAT ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS OF PURCHASE OF FIXED ASS ETS AMOUNTING TO RS. 3,00,64,627/- FROM CKC, JAPAN. THESE GOODS HAD BEEN PROCURED BY CKC JAPAN FROM THIRD PARTIES AS PER THE SPECIFICATION P ROVIDED BY ASSESSEE/ CKM INDIA. THE ASSESSEE IN ITS SUBMISSIONS MADE BEFORE LD. TPO POINTED OUT THAT THE COMPLETE PROCESS OF PROCURING THE SPECIFIED CAP ITAL GOODS INVOLVED A DETAILED EXAMINATION OF SPECIFICATIONS, SUPPLIER ID ENTIFICATION, QUALITY MANAGEMENT AND THEREUPON THE DISPATCH PROCEDURE ETC . IN CONNECTION WITH ALL THE FUNCTIONS UNDERTAKEN, CKC JAPAN HAD CHARGED A NOMINAL MARK UP OF 4% APPROXIMATELY FOR THE PROCUREMENT OF CAPITAL GOO DS. THIS MARK UP OF 4% 10 WAS CHARGED BY CKC JAPAN AGAINST THE OVERHEADS AND TIME COST OF ENGINEERS INCURRED FOR THE PROCUREMENT AND SUPPLY OF CAPITAL GOODS. 16. LD. TPO POINTED OUT THAT ASSESSEE HAD USED FORE IGN COMPARABLES TO JUSTIFY THE MARK UP ON CAPITAL GOODS. HE POINTED O UT THAT THE USE OF FOREIGN COMPARABLE WAS NOT ACCEPTED. IN THIS REGARD RELIANC E WAS PLACED ON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF RANBAXY LABORATORIES LTD. VS. DCIT (2008) 299 ITR (AT) 175 (DEL.). 17. LD. TPO AFTER REFERRING TO VARIOUS SUBMISSIONS OF ASSESSEE, FINALLY CONCLUDED THAT SINCE TAX PAYER FAILED TO PROVIDE AN Y OF THE DOCUMENTS MENTIONED UNDER RULE 10D, THEREFORE, THE MARK UP OF 4% CHARGED BY THE AE ON SALE OF CAPITAL GOODS, IS TO BE DISALLOWED. 18. LD. COUNSEL POINTED OUT THAT FOR THE PURPOSE OF TRANSFER PRICING OF PURCHASE OF CAPITAL GOODS FROM AE, WHICH HAD BEEN S OURCED FROM THIRD PARTIES, THE PRICE PAID FOR SUCH TRANSACTION WILL C ONFORM TO THE ARMS LENGTH STANDARD, IF THE SERVICE FEE PAID BY THE ASSESSEE T O ITS AES FOR PROCUREMENT SERVICE WAS LOWER OR EQUAL TO THE COST PLUS MARK UP RATE CHARGED BY THE UNRELATED ENTITY IN THE SIMILAR CIRCUMSTANCES. THE ASSESSEE HAD PROVIDED THE LIST OF COMPARABLE COMPANIES UNDERTAKING SIMILAR FU NCTIONS AS CARRIED ON BY CKC JAPAN AND THE SAME HAS BEEN GIVEN AT PAGE 50 OF LD. TPOS ORDER. 11 19. THE ASSESSEE DEMONSTRATED THAT ARITHMETIC MEAN OF TOTAL COST PLUS MARKUP OF COMPARABLE COMPANIES ENGAGED IN SIMILAR F UNCTIONS I.E. PROCUREMENT, FACILITATION, LOGISTICS AND RELATED SE RVICES WAS 8.06%. THEREFORE, MARK UP CHARGED BY CKC JAPAN FOR THESE S ERVICES WAS LOWER THAN AVERAGE COST PLUS MARK UP EARNED BY COMPARABLE COMP ANIES. 20. LD. COUNSEL SUBMITTED THAT LD. TPO WAS BOUND TO COMPUTE ALP OF THE TRANSACTIONS AND COULD NOT DISALLOW THE ENTIRE MAR K UP OF 4% PAID TO AE FOR PURCHASING ASSETS ON ASESSEES BEHALF. HE SUBMITTED THAT LD. TPO SHOULD HAVE SEARCHED FOR LOCAL COMPARABLES IN ORDER TO FI ND OUT THE CHARGES TO BE PAID TO AE FOR THE SERVICES RENDERED BY IT. 21. HAVING HEARD BOTH THE PARTIES, WE ARE OF THE OP INION THAT ENTIRE SERVICE CHARGES PAID TO AE BY ASSESSEE COULD NOT BE DISALLO WED. IT IS TRUE THAT ASSESSEE IS REQUIRED TO MAINTAIN THE INFORMATION AN D DOCUMENTS AS PER RULE 10D REQUIREMENTS BUT ONCE ASSESSEE HAS FURNISHED TH E INFORMATION AND DOCUMENTS AS MAINTAINED BY IT, THEN LD. TPO HAS TO CONSIDER THE SAME AND IF HE FINDS THAT SAME CANNOT BE RELIED UPON FOR DETERM INING THE ALP, THEN HE CAN RESORT TO HIS OWN SEARCH PROCESS IN ORDER TO FI ND OUT THE ALP OF THE TRANSACTIONS. WE, THEREFORE, RESTORE THIS MATTER TO THE FILE OF LD. TPO TO FIND OUT LOCAL COMPARABLES WHICH HAD UNDERTAKEN SIMILAR SERVICE AS THE ASSESSEE. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTIC AL PURPOSES. 12 22. ADDITIONAL GROUND: LD. COUNSEL HAS RAISED ADDIT IONAL GROUND VIDE ITS PETITION DATED 20.5.2015, WHICH IS REPRODUCED HEREU NDER: 3. THE LD. DRP / LD. TPO ERRED ON FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW BY CONFIRMING AN TRANSFER PR ICING ADJUSTMENT AMOUNTING TO RS, 7,74,42,676/- HOLDING T HAT THE INTERNATIONAL TRANSACTIONS PERTAINING TO PURCHASE O F RAW MATERIAL, SALE OF FINISHED GOODS AND PURCHASE OF FI XED ASSETS DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UN DER THE ACT AND IN DOING SO HAVE GROSSLY ERRED IN: 3.11 BY MAKING THE ADDITION TO THE ENTIRE VALUE O F TRANSACTIONS ENTERED INTO BY THE APPELLANT AND NOT ONLY TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT (I.E. PROPORTIONATE ADJUSTMENT) AND IGNOR ING ESTABLISHED JURISPRUDENCE IN THIS REGARD. 23. LD. COUNSEL SUBMITTED THAT THE ADDITIONAL GROUN D SOUGHT TO BE ADMITTED BEING PURELY A LEGAL GROUND, MAY BE ADMITT ED AND THE MATTER MAY BE RESTORED BACK TO THE FILE OF LD. TPO. 24. LD. CIT(DR) SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY REASONS AS TO WHY THIS GROUND COULD NOT BE RAISED EARLIER. 25. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT THE IS SUE RAISED IN THE ADDITIONAL GROUND IS PURELY LEGAL IN NATURE VIZ. WHETHER THE A DJUSTMENT IN REGARD TO PURCHASE OF RAW MATERIAL AND SALE OF GOODS IS TO BE RESTRICTED TO INTERNATIONAL TRANSACTION OR TO BE MADE AT ENTITY LEVEL. THIS ISS UE HAS NOT AT ALL BEEN CONSIDERED BY LOWER REVENUE AUTHORITIES. WE, THEREF ORE, ADMIT THE ADDITIONAL 13 GROUND RAISED BY ASSESSEE AND RESTORE THE MATTER TO THE FILE OF LD. TPO TO CONSIDER THE ISSUE DE NOVO. 26. NO ARGUMENTS WERE ADVANCED IN RESPECT OF OTHER GROUNDS RAISED. 27. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCEMENT IN OPEN COURT ON 06/07/2016. SD/- SD/- (SUDHANSHU SRIVASTAVA ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 06/07/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.