Cisco Systems Capital (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 688/BANG/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1374 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 31-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Set aside
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND S MT. BEENA PILLAI, JUDICIAL MEMBER IT (TP) A NO S . 219/BANG/2018 & 688/BANG/2016 ASSESSMENT YEAR S : 2013 - 14 & 2011 - 12 CISCO SYSTEMS CAPITAL (INDIA) PVT. LTD., BRIGADE SOUTH PARADE, # 10, M.G. ROAD, BANGALORE 560 001. PAN: AACCC 4552A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), BANGALORE. APPELLANT RESPONDENT APP E LLANT B Y : SHRI RAJAN VORA, CA RESP ONDENT BY : S HRI C.H . S UNDAR R AO, CIT(DR - I), ITAT, BENGALURU. DATE OF HEARING : 04 .0 6 .2019 DATE OF PRONOUNCEMENT : 07 . 0 6 . 2 0 1 9 O R D E R PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AN D ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE AO PASSED U/S. 1 43(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 [THE ACT] FOR THE AYS 2011-12 & 2013-14 RESPECTIVELY. 2. THE ASSESSEE IS A REGISTERED NON BANKING FINANCI AL COMPANY (NBFC) WITH RBI AND IS A SUBSIDIARY OF CSI MAURITIU S, INC., WHICH IN TURN IS A SUBSIDIARY OF CISCO SYSTEMS INC. THE ASSESSEE I S ENGAGED IN THE IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 2 OF 12 BUSINESS OF PROVIDING END TO END FINANCIAL SOLUTION S TO THE CUSTOMERS OF CISCO, IN INDIA. 3. THE COMMON ISSUE THAT ARISES FOR ADJUDICATION FO R BOTH THE ASSESSMENT YEAR 2011-12 AND 2012-13 IS THE ALLOWABI LITY OF THE CLAIM FOR DEPRECIATION ON ASSETS GIVEN ON FINANCIAL LEASE. F OR THE AY 2011-12, THE ONLY OTHER ISSUE THAT ARISES FOR ADJUDICATION IS TP ADJUSTMENT ON THE ISSUE OF PROVISION OF MANAGEMENT SERVICES. FOR THE AY 2013-14, THE ONLY OTHER ISSUE THAT ARISES IS DETERMINATION OF ARMS LENGTH PRICE (ALP) AND VALIDITY OF THE CONSEQUENT TP ADJUSTMENT MADE FOR THE INTERNATI ONAL TRANSACTION OF PURCHASE OF EQUIPMENT FOR FINANCIAL LEASE FROM ASS OCIATE ENTERPRISE (AE). 4. WE HAVE HEARD MR. RAJAN VORA, THE LD. COUNSEL FO R THE ASSESSEE AND SHRI C.H. SUNDAR RAO, THE LD. CIT(DR) ON BEHALF OF THE REVENUE AT LENGTH. 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND ON A PERUSAL OF PAPERS ON RECORD AND ORDER S OF THE AUTHORITIES BELOW AS WELL AS CASE LAWS CITED, WE HOLD AS FOLLOW S. DISALLOWANCE OF CLAIM OF DEPRECIATION ON EQUIPMENT LEASED BY THE ASSESSEE UNDER FINANCIAL LEASE ARRANGEMENT 6. THE AO IN THIS CASE HAS NOT FOLLOWED THE BINDING JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. V CIT [CIVIL APPEAL NO.3282 OF 2008) . HE HAS FROM PAGE 6 ONWARDS IN HIS ORDER RECORDED VIEWS CONTRARY TO THE RATIO LAID DOWN BY THE HONBL E SUPREME COURT. THIS CANNOT BE APPROVED. HE RELIED ON THE JUDGMENT OF H ONBLE SUPREME COURT IN THE CASE OF M/S. ASEA BROWN BOVERI LTD. V. INDUSTRIAL FINANCE CORPORATION OF INDIA & ORS. IN CA 3574 OF 1998 DATE D OCTOBER 27, ,2004. THIS JUDGMENT IS NOT ON THE ISSUE OF CLAIM OF DEPRE CIATION OF ASSETS GIVEN IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 3 OF 12 ON FINANCIAL LEASE UNDER THE INCOME-TAX ACT, 1961 [ THE ACT]. THIS JUDGMENT WAS RENDERED IN AN APPEAL UNDER SECTION 10 OF THE SPECIAL COURTS (TRIALS OF OFFENCES RELATING TO TRANSACTIONS IN SEC URITIES) ACT, 1992. IN FACT, THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. (SUPRA) HAS BEEN DELIVERED MUCH AFTER THE JUDGMENT IN THE CASE OF ASEA BROWN BOVERI LTD (SUPRA) . HENCE, THESE FINDINGS OF THE LD. AO, WHICH WERE APPROVED BY THE DRP ARE HEREBY REVERSED AS THESE AR E NOT IN ACCORDANCE WITH LAW. 7. BE IT AS IT MAY, AS AT PAGE 18 OF THE FINAL ASSE SSMENT ORDER FOR THE AY 2011-12, THE AO RECORDS THAT THE ASSESSEE WAS AS KED TO PRODUCE COPIES OF AGREEMENTS AND THAT THE ASSESSEE HAD ONLY PRODUCED A FEW OF THEM. WE AGREE WITH THE ARGUMENT OF THE LD. DR THA T AT LEAST SOME MORE AGREEMENTS HAVE TO BE PRODUCED FOR EXAMINATION BEFO RE THE AO, SO THAT THE SUBMISSIONS OF THE ASSESSEE THAT, THE TERMS OF THE AGREEMENT IN THESE FINANCIAL LEASES ARE SIMILAR TO THE TERMS OF THE AG REEMENT CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. (SUPRA) IS CORRECT OR NOT. 8. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE TH E ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LA W. THE ASSESSEE IS DIRECTED TO PRODUCE COPIES OF THOSE AGREEMENTS WHIC H THE AO MAY CALL FOR. THE AO SHALL EXAMINE THESE AGREEMENTS AND IF THE TE RMS & CONDITIONS MENTIONED IN THESE AGREEMENTS ARE SIMILAR TO THE TE RMS AND CONDITIONS MENTIONED IN THE AGREEMENTS CONSIDERED BY THE HONB LE SUPREME COURT IN THE CASE OF ICDS LTD. (SUPRA) AND IF THERE ARE NO MATERIAL VARIATIONS IN THE CONTRACTS, THEN DEPRECIATION HAS TO BE GRANTED TO T HE ASSESSEE AS CLAIMED. WITH THESE OBSERVATIONS, WE SET ASIDE THIS ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW. IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 4 OF 12 9. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATIS TICAL PURPOSES. 10. WE NOW TAKE UP THE GROUNDS AGAINST THE TP ADJUS TMENT MADE FOR THE AY 2011-12 WHICH ARE ON ACCOUNT OF PAYMENTS MAD E FOR ADMINISTRATIVE SUPPORT SERVICES. ADMITTEDLY, THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY AN ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2008-09, AY 2009-10 AND AY 2010-11 VIDE IT(TP)A NO.1558/BANG/2012 ORDER DATED 19.09.2014, WHERE THI S VERY SAME ISSUE WAS EXAMINED. THE TRIBUNAL HAS SET ASIDE THE MATTE R TO THE FILE OF THE TPO WITH CERTAIN DIRECTIONS. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE RESTORE THE MATTER TO THE FILE OF THE TPO FOR FRESH ADJUDIC ATION IN ACCORDANCE WITH THE LAW. THE TPO SHALL DISPOSE OF THE MATTER IN AC CORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL ON THE VERY SAME I SSUE IN THE EARLIER ASSESSMENT YEARS IN AY 2008-09, AY 2009-10 AND AY 2010-11. 11. IN THE RESULT, APPEAL FOR AY 2011-12 IS ALLOWED FOR STATISTICAL PURPOSES. AY 2013-14 12. THE FIRST ISSUE THAT ARISES FOR ADJUDICATION FO R AY 2013-14 IS GRANT OF DEPRECIATION ON ASSETS GIVEN ON FINANCIAL LEASE. C ONSISTENT WITH THE VIEW TAKEN BY US ON THIS ISSUE IN THE EARLIER AY 2011-12 , WE SET ASIDE THE MATTER TO THE FILE OF AO WITH A DIRECTION TO APPLY THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. (SUPRA) AND GRANT DEPRECIATION, WHEREVER THE TERMS & CONDITIONS OF THE FINANCIAL LE ASE AGREEMENTS ENTERED INTO BY THE ASSESSEE IS SIMILAR TO THE TERMS & COND ITIONS OF THE FINANCIAL LEASE AGREEMENTS CONSIDERED BY THE HONBLE SUPREME COURT. THE ASSESSEE IS DIRECTED TO PRODUCE THE COPIES OF AGREE MENTS AS DESIRED BY IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 5 OF 12 THE AO FOR VERIFICATION. IN THE RESULT, THIS GROUN D IS ALLOWED FOR STATISTICAL PURPOSES. 13. THE SECOND ISSUE THAT ARISES BEFORE US IS DETER MINATION OF ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS FO R PURCHASE OF EQUIPMENT FOR FINANCIAL LEASE FROM AE. THE ASSESSEE DETERMI NED THE ALP BY ADOPTING THE TRANSACTIONAL NET MARGIN METHOD (TNMM) ON THE GROUND THAT THE SAME IS THE MOST APPROPRIATE METHOD (MAM). THE RETURN OF CAPITAL EMPLOYED (ROCE) WAS TAKEN AS PROFIT LEVEL INDICATO R (PLI) IN THE TNMM ANALYSIS. AS THE ROCE EARNED BY THE ASSESSEE WAS HELD AS MORE THAN THAT WHICH WAS EARNED BY THE COMPARABLE COMPANIES, IT WAS CONCLUDED BY THE ASSESSEE THAT THE LEASE SERVICE TRANSACTION U NDERTAKEN BY THE ASSESSEE ARE AT ALP. 14. THE TPO REJECTED THE SAME BY OBSERVING AS FOLLO WS:- 6. REJECTION OF THE TAXPAYER'S TP STUDY AS PER THE PROVISIONS OF SEC. 92C(3)(C) READ WITH S EC. 92CA, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS I N HIS POSSESSION, IF THE TPO IS OF THE OPINION THAT THE I NFORMATION OR DATA USED IN COMPUTATION OF THE ARM'S LENGTH PRICE IS NO T RELIABLE OR CORRECT, THE TPO MAY PROCEED TO DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS IN AC CORDANCE WITH SEC. 92C(1) AND 92C(2) ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. THE FOLLOWING PERTINENT DEFECTS HAVE BEEN FOUND IN THE TP ANALYSIS CARRIED OUT BY THE TAX PAYER. A. AS PER RULE 10B(4), IT IS MANDATORY TO THE USE T HE CURRENT FINANCIAL YEAR DATA I.E. THE FINANCIAL YEAR IN WHIC H THE INTERNATIONAL TRANSACTIONS TOOK PLACE (FY 2012-13) BUT THE TAXPAY ER HAS COMPUTED THE 3 YEAR AVERAGE OF THE DATA FOR THE LAS T THREE YEARS. IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 6 OF 12 THE TAXPAYER HAS SELECTED CASES EVEN WHERE NO CURRE NT YEAR DATA IS AVAILABLE AND HAS BASED ITS ANALYSIS ON EARLIER YEA R'S DATA. B. THE TAXPAYER HAS USED THE EARLIER YEAR DATA PERT AINING TO THE FYS 2010-11,2011-12 BESIDES THE CURRENT YEAR EN DING 2013 WHEREVER AVAILABLE BUT NO REASONS ARE GIVEN AS TO H OW THE EARLIER YEAR DATA HAS INFLUENCE OVER THE PRICE EITHER OF TH E TAXPAYER OR OF THE COMPARABLE SO TO ATTRACT THE PROVISO TO RULE 10 B(4). C. OUT OF THE TAXPAYER'S TOTAL REVENUE OF RS. 8373 LAKHS, RS. 4949 LAKHS ARISE OUT OF FINANCIAL LEASE AND RS. 906 LAKHS ARISE OUT OF OPERATING LEASE. HOWEVER, IT IS SEEN THAT THE CO MPARABLES CHOSEN BY THE TAXPAYER ARE NOT ENGAGED IN THE BUSINESS OF LEASING. THIS IS BECAUSE OF THE REASONS THAT THE TAXPAYER HAS NOT US ED A FILTER OF 'MINIMUM THRESHOLD LEASE INCOME OUT OF THE TOTAL IN COME'. THIS HAS RESULTED IN THE COMPARABLES CHOSEN BY THE TAXPA YER PREDOMINANTLY ENGAGED IN BUSINESSES OTHER THAN LEAS ING. D. THE ASSESSEE HAS TREATED ITS FINANCIAL LEASE TRA NSACTIONS AS PURE LOAN TRANSACTIONS AND ACCORDINGLY, HAS NOT CLA IMED DEPRECIATION ON THE LEASED ASSETS IN ITS BOOKS OF A CCOUNTS. HOWEVER, FOR COMPUTING THE TAXABLE INCOME UNDER THE INDIAN INCOME TAX LAW, IT HAS TREATED THE FINANCE LEASE TR ANSACTION AS PURE LEASE TRANSACTION AND CLAIMED DEPRECIATION ON THE LEASED ASSETS. IT IS NOT CLEAR WHETHER THE COMPARABLES CHO SEN BY THE ASSESSEE HAVE ADOPTED THE SAME METHOD OF ACCOUNTING IN RESPECT OF THEIR LEASE TRANSACTIONS. SUCH BEING THE CASE, COMP ARING THE PROFITS AFTER DEPRECIATION FOR ALP ANALYSIS WOULD BE INAPPR OPRIATE. WHEN THERE ARE DIFFERENCES IN THE CLAIMS OF DEPRECIATION OF THE TESTED PARTY ITSELF (THE CLAIM IN THE BOOKS OF ACCOUNTS AN D CLAIM UNDER THE INDIAN INCOME TAX LAW ARE DIFFERENT), COMPARING THE PROFITS BEFORE DEPRECIATION WOULD NOT LEAD TO CORRECT RESUL TS. THEREFORE, THE PLI CHOSEN BY THE TAXPAYER (PBIT/CAPITAL EMPLOY ED) CANNOT BE ACCEPTED. THEREFORE, IN VIEW OF SECTION 92C(3)(C), IT IS RELE VANT TO HOLD THAT THE DATA USED IN COMPUTATION OF THE ARM'S LENGTH PR ICE IS NOT RELIABLE OR CORRECT. THE TP ANALYSIS DONE BY THE TA XPAYER IS REJECTED AND THE TPO PROCEEDS TO DETERMINE ARM'S LENGTH PRIC E BY IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 7 OF 12 CONDUCTING AN INDEPENDENT SEARCH FOR COMPARABLES CO NSIDERING THE FUNCTIONS OF THE TAXPAYER, THE ASSETS EMPLOYED AND THE RISKS TAKEN AND THE RESULTS OF THE SEARCH IS GIVEN IN THE FOLLO WING PARAS.: 15. THE DRP UPHELD THE FINDINGS OF THE TPO. 16. THE LD. COUNSEL FOR THE ASSESSEE, MR. RAJAN VO RA, SUBMITTED THAT RETURN ON CAPITAL EMPLOYED(ROCE) EARNED BY COMPAR ABLE COMPANIES WERE CONSIDERED BY THE ASSESSEE FOR COMPARABILITY B Y ADOPTING TNMM AS THE MAM AND AS THE ROCE EARNED BY THE ASSESSEE WAS HIGHER THAN THAT EARNED BY THE COMPARABLE COMPANIES, IT CONCLUDED TH AT THE LEASING SERVICE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE IS AT ARMS LENGTH. MR. VORA DISPUTES THE ADOPTION OF TNMM AS THE MAM AND PLI OF ROCE AND SUBMITS THAT THIS METHOD CANNOT BE USED TO DETERMINE THE AL P OF THE EQUIPMENT PURCHASED BY THE ASSESSEE FROM ITS AE. 17. DESCRIBING THE TRANSACTION, HE SUBMITTED THAT T HE ASSESSEE PROVIDES FINANCIAL ASSISTANCE TO THIRD PARTY CUSTOMERS, WHO ARE UNRELATED PARTIES AND TO FACILITATE THIS, IT IMPORTS EQUIPMENT FROM ITS A SSOCIATE ENTERPRISE (AE), [CSI BV], WHICH IS IN TURN LEASED TO THE CUSTOMERS. IT WAS SUBMITTED THAT THIS UNRELATED THIRD PARTIES DIRECTLY NEGOTIATE THE PURCHASE OF THE EQUIPMENT AND ITS PRICE WITH THE AE AND THE ASSESSEE PURCHAS ES THIS EQUIPMENT ONLY AT SUCH NEGOTIATED PRICE AND THEN LEASES OUT THE SA ME TO THE UNRELATED THIRD PARTY. IT WAS SUBMITTED THAT THE EQUIPMENT I N QUESTION IS SHIPPED DIRECTLY TO THE LESSEE BY THE AE. THE LD. COUNSEL SUBMITTED THAT UNDER OECD GUIDELINES, CUP METHOD IS THE MAM TO DETERMINE THE ALP FOR TRANSFER OF COMMODITIES BETWEEN AES. HE RELIED ON CERTAIN CASE LAWS IN SUPPORT OF THE PROPOSITION THAT CUP IS THE MAM. IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 8 OF 12 18. HE FURTHER ARGUED THAT THE TRANSACTION IN QUEST ION IS MADE FOR PURCHASE OF EQUIPMENT AND HENCE IS A CAPITAL TRANSA CTION AND THEREFORE THE ADJUSTMENT, IF ANY, CAN BE MADE ONLY ON ACCOUNT OF ANY INCOME ARISING THEREFROM, WHICH IN THE CASE OF ASSESSEE, WOULD BE LEASED RENTALS ON THE INCOME ASPECT AND DEPRECIATION ON THE EXPENDITURE A SPECT. HE JUSTIFIES THE LEASE RENTALS ON THE INCOME SIDE AS AT ALP AS IT IS A PERCENTAGE OF THE PURCHASE PRICE THAT IS CHARGED I.E. 10% OF THE PURC HASE PRICE AND ARGUES THAT NO FURTHER ADJUSTMENT CAN BE MADE ON THE INCOM E SIDE AND THAT THE ADJUSTMENT REQUIRED, IF ANY, SHOULD BE RESTRICTED O NLY TO DEPRECIATION AND THAT TOO, ONLY ON DEPRECIATION ON OPERATING LEASE A RRANGEMENTS, AS THE ASSESSEE HAS NOT CLAIMED DEPRECIATION IN ITS BOOKS OF ACCOUNT ON FINANCIAL LEASE TRANSACTION, THOUGH DEPRECIATION HAD BEEN CLA IMED WHILE COMPUTING THE TAXABLE INCOME. 19. HE FURTHER SUBMITTED THAT THE ADJUSTMENT PROPOS ED WOULD RESULT IN REDUCTION OF INCOME U/S. 92(3) OF THE ACT AND PLEAD ED THAT SUCH ADJUSTMENT REDUCING THE INCOME IS NOT PERMISSIBLE. HE FILED A COMPUTATION TO DEMONSTRATE HIS CLAIM OF REDUCTION OF INCOME. HE POINTED OUT THAT THE PURCHASES FROM RELATED PARTY IS ONLY 16.51% OF TOTA L TRANSACTIONS AND HENCE ADJUSTMENT IN QUESTION SHOULD BE RESTRICTED TO SUCH TRANSACTION ONLY AS THEY ARE RELATABLE TO INTERNATIONAL TRANSACTIONS WITH AE . 20. ON MERITS OF THE ADJUSTMENT MADE, BY FOLLOWING THE TNMM AS A MAM AND FOR ARRIVING AT THE ROCE, HE SUBMITS THAT : - (A) PROVISION IN NPA SHOULD BE CONSIDERED AS NON- OPERATING ITEM AS IT IS NOT ALLOWABLE AS A DEDUCTION CLAIMED U/S. 36(1)( VII) OF THE ACT; (B) THE DOUBLE DISALLOWANCE OF THE SAME EXPENDI TURE IS BAD IN LAW FOR THE REASON THAT, PROVISION MADE FOR NPA BY THE ASSE SSEE HAD IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 9 OF 12 BEEN DISALLOWED SUO MOTU WHILE COMPUTING TAXABLE INCOME AND HENCE CONSIDERING THE SAME AS AN OPERATING ITEM WOU LD RESULT IN DOUBLE DISALLOWANCE; (C) ADJUSTMENT IN QUESTION SHOULD BE GRANTED ON T HE ASSESSEES MARGIN I.E., ASSESSEES PLI VIS--VIS COMPARABLE AR ITHMETIC MEAN; (D) WHILE COMPUTING THE CAPITAL EMPLOYED, ITEMS S UCH AS DEFERRED TAX ASSETS, LONG TERM PROVISIONS, ETC. HAVE TO BE EXCLU DED AS THEY DO NOT FORM PART OF THE CAPITAL EMPLOYED IN THE BUSINE SS; AND (E) WHILE COMPUTING RETURN ON CAPITAL EMPLOYED, I T IS CLAIMED THAT ITEMS OF NON-OPERATING NATURE HAVE TO BE EXCLUDED. A LIST OF THE SAME INCLUDES PROVISION FOR DEPRECIATION IN INVESTM ENT, PRELIMINARY EXPENDITURE WRITTEN OFF, TAX EXPENSE OF PRIOR YEARS, ETC. 21. IT WAS ARGUED THAT IF THE CONTENTIONS ARE CONSI DERED AND COMPUTATION OF ALP MADE, THEN THERE WOULD BE NO TP ADJUSTMENT T HAT REMAINS TO BE MADE. IT WAS SUBMITTED THAT THE ISSUE MAY BE RESTO RED TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW, AFTE R CONSIDERING ALL THE CLAIMS MADE BY THE ASSESSEE, WHICH WERE NOT ADJUDIC ATED EITHER BY THE TPO OR BY THE DRP, DESPITE THE ASSESSEE RAISING THE SAME BEFORE THEM. 22. THE LD. DR SUBMITTED THAT THE METHODOLOGY ADOPT ED BY THE ASSESSEE IN ITS TP STUDY YEAR AFTER YEAR WAS CONSIDERED BY T HE AO AND ONLY CERTAIN COMPARABLES WERE CHANGED FOR THE REASONS GIVEN IN H IS ORDER. HE STRONGLY CONTENDED THAT THE ASSESSEE CANNOT GO BACK ON ITS T P STUDY AND PLEAD THAT THE METHOD ADOPTED BY THE COMPANY YEAR AFTER YEAR I S NOT THE MAM AND THAT THE RESULTS GIVEN PROVIDE THE ALP. HE TOOK TH IS BENCH THROUGH THE ORDER OF THE LD. TPO AS WELL AS THE LD. DRP AND SUG GESTED THE SAME. THE IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 10 OF 12 LD. DR THOUGH NOT LEAVING HIS GROUND, ULTIMATELY SU BMITTED THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE TPO FOR FRESH A DJUDICATION. 23. THE LD. COUNSEL, ON THE OTHER HAND, RELIED ON A NUMBER OF CASE LAWS FOR THE PROPOSITION THAT THE ASSESSEE CAN, AT THE F IRST AVAILABLE OPPORTUNITY, BRING TO THE NOTICE OF THE AUTHORITIES THAT THE TP STUDY WAS WRONGLY MADE. HE SUBMITTED THAT THE TP STUDY IS NOT SACROSANCT AN D AS THERE WAS A MISTAKE, THE ASSESSEE HAD MADE THIS CLAIM BEFORE TH E DRP. HE PLEADED THAT THE RETURN OF CAPITAL EMPLOYED AT THE ENTITY L EVEL USING TNMM CANNOT DETERMINE THE PURCHASE PRICE OF EQUIPMENT AND THERE FORE CANNOT DETERMINE THE ALP OF EQUIPMENT PURCHASED BY THE ASSESSEE FROM THE AE. 24. AFTER HEARING THE RIVAL CONTENTIONS, WE ARE OF THE CONSIDERED OPINION THAT THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE ALP OF THE EQUIPMENT PURCHASES AND IMPORTED BY THE ASSESSEE CA NNOT BE DETERMINED BY COMPUTING THE ROCE AT THE ENTITY LEVEL BY USIN G TNMM AS THE MAM. THE ASSESSEE STATES THAT ONLY 16.51% OF ITS TOTAL T RANSACTIONS WERE FROM THE AE DURING THE YEAR. THE PLI WAS CALCULATED ON THE ENTIRE ASSETS GIVEN ON LEASE (OPERATING AND FINANCE) AND THE ADJUSTMENT OF RS.50.72 CRORES PERTAIN TO THE ENTIRE TRANSACTION AND WAS NOT PROPO RTIONATE TO THE PURCHASE AND IMPORT OF EQUIPMENT FROM AE. THE LD. DR AGREE S THAT A MISTAKE HAS CREPT INTO THE COMPUTATION OF ALP FOR THE PURPOSE O F DETERMINATION OF THE TP ADJUSTMENT, AS IT IS WELL SETTLED THAT THE ADJUS TMENT CAN BE RESTRICTED TO ONLY QUANTUM OF INTERNATIONAL TRANSACTION WITH THE AE. 25. WE FIND STRENGTH IN THE ARGUMENT OF THE ASSESSE E THAT THE PURCHASE PRICE OF THE EQUIPMENT CANNOT BE DETERMINED BASED O N ROCE ADOPTING TNMM AS THE MAM. THIS DOES NOT APPEAR TO BE A CORRE CT METHOD. CUP IS A MORE DIRECT METHOD AND WHEN INTERNAL CUP IS AVAILAB LE FOR DETERMINATION OF IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 11 OF 12 ALP, IT WOULD BE THE MOST DIRECT METHOD AND THIS, I N OUR VIEW, HAS TO BE ADOPTED AS THE MAM. 26. IT IS ALSO SUBMITTED THAT THE COST OF IMPORTED EQUIPMENT IS THE BASIS ON WHICH THE ASSESSEE DETERMINES THE RATE OF RETURN TO BE CHARGED FROM THE ULTIMATE CUSTOMER AND THAT IF THE PRICE OF THE PURC HASE IS INFLATED, THEN THE RATE OF RETURN WOULD ALSO BE HIGH. THE LD. COUNSEL FURTHER SUBMITTED THE ONLY ADJUSTMENTS THAT COULD BE MADE IS ON ACCOUNT OF DEP RECIATION ON THESE ASSETS, AS THIS IS THE ONLY ITEM OF EXPENDITURE THA T AFFECTS THE PROFIT & LOSS ACCOUNT. WE WOULD NOT EXPRESS ANY VIEW ON THIS ARG UMENT. 27. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE T HE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH TH E LAW. THE AO SHALL, WITHOUT BEING INFLUENCED WITH THE METHODOLOGY ADOPT ED BY THE ASSESSEE IN ITS TP STUDY, INDEPENDENTLY DECIDE AS TO WHAT IS TH E MAM FOR DETERMINATION OF ALP FOR THE INTERNATIONAL TRANSACTION OF PURCHAS E OF EQUIPMENT FOR FINANCIAL LEASE FROM AE. THE AO SHALL CONSIDER EAC H AND EVERY ARGUMENT OF THE ASSESSEE AND GIVE HIS CONCLUSIONS ON THE ARG UMENT. WITH THESE OBSERVATIONS, WE SET ASIDE THE MATTER TO THE FILE O F AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW. 28. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 07 TH DAY OF JUNE, 2019. SD/- SD/- ( BEENA PILLAI ) ( J. SUDHA KAR REDDY ) JUDICIAL MEMBER AC COUN TANT M EMBER BANGALORE, DATED, THE 7 TH JUNE, 2019. / D ESAI S MURTHY / IT(TP)A NOS.219/BANG/2018 & 688/BANG/2016 PAGE 12 OF 12 COPY TO: 1 . APPELLANT 2. RESP ONDENT 3. CIT 4. CIT(A) 5. DR, ITA T, BANGALORE. 6. GUARD FI LE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.