THYSSENKRUPP INDUSTRIES INDIA P. LTD, MUMBAI V. ASST CIT 3(3), MUMBAI

ITA 7032/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9504 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 15-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: P J PARDIWALA
• Keywords: Business income; Transfer pricing; International transaction; Notional interest
• Section: 143(3); 37(1); 92

Judgement Text

ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 7032/MUM/2011 (ASSESSMENT YEAR: 2007-08) M/S THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD., 154 C MITTAL TOWERS, 15 TH FLOOR, 210 NARIMAN POINT, MUMBAI 400021 PAN: AAACK 1947 K VS. ACIT, CENTRAL CIRCLE 3(3) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI P.J. PARDIWALA DEPARTMENT BY: SHRI AJEET KUMAR JAIN, CIT(DR) DATE OF HEARING: 15/10/2012 DATE OF PRONOUNCEMENT: 27/11/2012 O R D E R PER BENCH: THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF AO UNDER SECTION 143(3) R.W. SECTION 144C(13) DATED 29.09.20 11 IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL(D RP). IN THE COURSE OF APPEAL PROCEEDINGS, ASSESSEE FILED THE REVISED A ND CONCISE GROUNDS OF APPEAL WHICH ARE AS UNDER: 1. THE ASST. COMMISSIONER OF INCOME TAX - 3(3), MUMBA I ('AO') ERRED IN MAKING A TRANSFER PRICING (,TP') ADJUSTMENT OF RS. 9,67,80,0001- IN RELATION TO IMPO RT OF SPARES AND EQUIPMENT 1 ENTITY LEVEL PROFITABILITY. 2. THE AO ERRED IN DISREGARDING THE SEGMENTAL DAT A PROVIDED BY THE APPELLANT. 3. THE AO ERRED IN NOT RESTRICTING THE TP ADJUSTMENTS ONLY TO THE TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRI SES ('AES'). 4. THE AO ERRED IN MAKING TP ADJUSTMENT OF ` 11,27,16,302 IN RELATION TO PAYMENT OF ROYALTY AND ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 2 OF 16 PROJECT ENGINEERING AND MANUFACTURING DRAWING FEES. 5. WITHOUT PREJUDICE TO GROUND NO.4, THE AO ERRED IN MAKING A DOUBLE ADJUSTMENT OF ` .11 ,27,16,302 IN RELATION TO PAYMENT OF ROYALTY AND PROJECT ENGINEER ING AND MANUFACTURING DRAWING FEES. 6. THE AO ERRED IN MAKING A TP ADJUSTMENT OF ` 2,70,38,800 IN RELATION TO PAYMENT OF LIQUIDATED DAMAGES. 7. WITHOUT PREJUDICE TO GROUND NO.6, THE AO ERRED IN MAKING A DOUBLE ADJUSTMENT IN RESPECT OF PAYMENT OF LIQUIDATED DAMAGES OF ` 2,70,38,800. 8. THE AO ERRED IN MAKING TP ADJUSTMENT OF RS.32,359 BY ADDING NOTIONAL INTEREST ON PAYMENT RECEIVED FRO M AE. 9. THE AO OUGHT TO HAVE GRANTED THE 5% STANDARD DEDUCTION UNDER SECTION 92C(2) OF THE ACT. 10. THE REFERENCE TO THE TRANSFER PRICING OFFICER UNDER SECTION 92CA BY THE AO WAS BAD IN LAW, IN EXCESS OF JURISDICTION AND/ OR VOID IN LAW. 2. WE HAVE HEARD THE LEARNED COUNSEL SHRI P.J. PARDIWA LA AND THE LEARNED CIT (DR) SHRI AJEET KUMAR JAIN IN DETAI L AND PERUSED THE PAPER BOOK CONTAINING PAGES 1 TO 555. THE ISSUE IN THE PRESENT APPEAL IS WITH REFERENCE TO TRANSFER PRICING ADJUST MENTS MADE BY AO CONSEQUENT TO THE ORDERS OF THE TPO AND THE DRP. 3. BRIEFLY STATED, ASSESSEE IS A MEMBER OF THYSSEN KRU PP TECHNOLOGIES, A BUSINESS SEGMENT OF THE THYSSEN KRU PP AG OF GERMANY. IT EXECUTES TURNKEY CONTRACTS INVOLVING DE SIGN, MANUFACTURE, SUPPLY, ERECTION AND COMMISSIONING OF SUGAR PLANTS, CEMENT PLANTS, MINING AND BULK MATERIAL HANDLING EQ UIPMENT, STEAM GENERATORS ETC. ON REFERENCE UNDER SECTION 92 CA(1) OF THE I.T. ACT 1961, VIDE ORDER DATED 28.10.2010 ADJUSTMENTS W ERE MADE ON THE FOLLOWING TRANSACTIONS ASSESSEE HAD WITH ASSOCI ATED ENTERPRISES(AES):- ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 3 OF 16 IMPORT OF SPARES AND EQUIPMENTS/ENTITY LEVEL PROFIT ABILITY ADJUSTMENT OF ` .9,67,80,000). ROYALTY AND PROJECT ENGINEERING AND MANUFACTURING D RAWINGS (ADJUSTMENT OF ` .11,27,16,302), SETTLEMENT FOR LIQUIDITY DAMAGES (ADJUSTMENT OF ` .2,70,38,000). INTEREST ON DELAYED PAYMENTS (ADJUSTMENT OF ` .32,359). TOTAL ADJUSTMENTS CAME TO ` .23,65,67,461. THE OBJECTIONS ARE IN THIS BACKDROP. 4. ASSESSEE OBJECTED TO VARIOUS ADDITIONS PROPOSED BEF ORE THE DRP. A) WITH REFERENCE TO THE ADJUSTMENT ON IMPORT OF SPARES AND EQUIPMENTS OF ` 9,67,80,000 IT WAS THE SUBMISSION THAT THE ENTIRE AMOUNT WAS ARRIVED AT AFTER BENCH MARKING, USING TN MM METHOD, AT THE ENTITY LEVEL AND OPERATIONAL PROFITS ATTRIBU TABLE TO INTERNATIONAL TRANSACTIONS BY DETERMINING THE ARM L ENGTH PRICE(ALP) IS MUCH LESS THAN WHAT WAS PROPOSED BY T PO ON ENTIRE SALES TURNOVER AND IF MODIFIED IS WITHIN THE RANGE OF +/- 5% AS PER SECOND PROVISO TO SEC 92C(2). THE DRP HOWEVER, DID NOT AGREE ON THE REASON THAT THE TPOS VIEW WAS TO BE ACCEPTED A S THE PROPORTION OF ADJUSTMENT HAS TO BE DONE AT THE ENTITY LEVEL AN D THEREFORE THERE IS NO NEED TO VARY FROM THE OBSERVATIONS OF THE TPO . SEGMENTAL DATA PROVIDED TO THE DRP WAS ALSO NOT ACCEPTED. B) WITH REFERENCE TO THE ADJUSTMENTS MADE ON TRANSA CTIONS WITH AE FOR AVAILING MANUFACTURING AND DRAWING AND PROJECT ENGINEERING SERVICES AND KNOWHOW, IT WAS THE SUBMISSION THAT AS SESSEE OBTAINED THE KNOWHOW AND PROJECT ENGINEERING DRAWIN GS FROM ITS AE VIDE A COLLABORATION AGREEMENT DATED 23.07.1996. ASSESSEE PAID AE AT 2% OF THE CONTRACT VALUE FOR THE MANUFACTURIN G DRAWINGS & PROJECT ENGINEERING SERVICES AND ROYALTY @5% OF THE SELLING PRICE. EVEN THOUGH IT WAS SUBMITTED THAT SPECIFIC FIPB APP ROVAL HAS BEEN OBTAINED AND THEY WERE NO ADJUSTMENTS ON THIS TRANS ACTIONS IN EARLIER YEARS, THE TPO AS WELL AS THE DRP DID NOT A GREE AND ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 4 OF 16 DISALLOWED THE ENTIRE AMOUNT AS THE ARMS LENGTH PR ICE WAS TAKEN AT NIL AND ACCORDINGLY MADE ADJUSTMENT OF ` .11.2 CRORES. C) THE NEXT ISSUE IS OF LIQUIDATED DAMAGES. ASSESSE E MADE PAYMENT TO ITS AE ON ACCOUNT OF LIQUIDATED DAMAGES PAID BY THE AE TO NEYVELI LIGNITE CORPORATION LTD (NLC), THE THIRD PA RTY ON ACCOUNT OF DEALS MADE ON TWO CONTRACTS. THE BACKGROUND IS THAT NLC GAVE CONTRACT TO M/S KRUPP FORDERTECHNIK GMBH, GERMANY ( KF) FOR DESIGN AND SUPPLY OF TWO BUCKET WHEEL EXCAVATORS (B WE). AS PER THIS CONTRACT KF WAS TO SUPPLY PRODUCTS TO NLC. THE RE WAS ANOTHER AGREEMENT ACCORDING TO WHICH ASSESSEE WAS TO SUPPLY A FEW COMPONENTS OF BWE. THERE WAS A DELAY IN SUPPLY OF B WE AND AS A CONSEQUENCE, NLC CHARGED DAMAGES ON KF. ACCORDING T O ASSESSEE THE DELAY OCCURRED IN SUPPLY TO NLC IS DUE TO TECHN ICAL REASONS AND AS LIQUIDATED DAMAGES WERE DEDUCTED FROM KF PAYMENT S BY NLC, ASSESSEE WAS LIABLE TO REIMBURSE THE SAME TO KF. TH E TPO DID NOT AGREE. THE ARMS LENGTH PRICE WAS DETERMINED AT NIL AND MADE AN ADJUSTMENT OF ` .2,70,38,800. IT WAS THE SUBMISSION BEFORE THE DRP THAT THIS IS A BUSINESS DECISION AND THE AMOUNT PAI D TO KF WAS SAME AMOUNT DEDUCTED BY THE NLC. THIS ARGUMENT WAS NOT ACCEPTED AND THE DRP CONFIRMED THE SAME. D) IN ADDITION TO THE MAJOR THREE AMOUNTS MENTIONED ABOVE, THERE WAS ANOTHER ADDITION MADE BY THE TPO ON LEVY OF INT EREST IN RESPECT OF REIMBURSEMENTS OF EXPENSES AS TPO FOUND THAT THE RE WAS TIME GAP BETWEEN EXPENSES INCURRED AND THE AMOUNT RECEIV ED BY ASSESSEE AND ON THAT DELAY AN AMOUNT OF ` .32,359/- WAS MADE AS ADJUSTMENT WHICH WAS CONFIRMED BY THE DRP. THE PRES ENT APPEAL IS WITH REFERENCE TO THE ABOVE ACTION OF THE TPO AND T HE DRP IN MAKING TRANSFER PRICING ADJUSTMENTS. 5. THE LEARNED COUNSEL REFERRED TO THE SEQUENCE OF EVE NTS, THE TP STUDY, THE SELECTION OF VARIABLES, REVISED SELEC TION OF VARIABLES, CHANGE OF DATA FROM THREE YEARS TO THE RELEVANT ASS ESSMENT YEARS DATA BEFORE THE TPO TO SUBMIT THAT ASSESSEE IN THE TP REPORT HAS ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 5 OF 16 BENCH MARKED ITS TRANSACTIONS AT THE ENTITY LEVEL O N NINE COMPARABLES WHICH EARNED A MEAN PROFIT MARGIN OF 4. 12% AS AGAINST ASSESSEES MARGIN OF 5.19%. IN VIEW OF THE UPDATED DATA AND REJECTION OF THREE COMPARABLES, THE TPO HAS ARRIVED AT THE REVISED MEAN MARGIN AT 6.29% AS AGAINST ASSESSEES MARGIN O F 5.19%. THEREFORE, HE PROPOSED TO MAKE ADJUSTMENT OF ` .9,67,80,000 ON THE ENTIRE TURNOVER OF THE ENTITY. REFERRING TO THE PAG E NO.66 OF THE DOCUMENT FILED ALONG WITH THE APPEAL MEMO, IT WAS T HE SUBMISSION THAT ASSESSEE HAD TOTAL SALES OF ` .883.6 CRORES AND OPERATING EXPENSES WERE TO THE TUNE OF ` .837.7 CRORES. ASSESSEE HAD AN OPERATING PROFIT OF ` .45.9 CRORES. OUT OF THE OPERATING EXPENSES, PAYMENTS MADE TO AE ARE ONLY ` .35.5 CRORES WHICH IS LESS THAN 5% OF ASSESSEES TURNOVER. IT WAS SUBMITTED THAT THE T PO & DRP WRONGLY AFFIRMED THE ADJUSTMENT ON THE ENTIRE SALES TURNOVER OF ASSESSEE, THEREBY MAKING ADDITION AT THAT AMOUNT. I N FACT THEY SHOULD HAVE RESTRICTED TO THE TRANSACTIONS WITH THE AE ALONE. ON THIS PRELIMINARY ISSUE ITSELF, THE LEARNED COUNSEL SUBMITTED THAT THE ALP FIXED ON INTERNATIONAL TRANSACTIONS IS WITHIN T HE +/- 5% RANGE AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT AND REFERRED TO SAME PAGE TO EXPLAIN THE WORKING. IT IS ALSO A CONTENTIO N THAT THE TP ADJUSTMENT CANNOT BE MADE ON THE ENTIRE SALES OF TH E ORGANIZATION WHEREAS ONLY 5% OF THE TURNOVER PERTAIN TO THE PAYM ENTS MADE TO AE. IF THE ADJUSTMENT WAS RESTRICTED TO THE INTERNA TIONAL TRANSACTIONS ALONE, THEN THERE WILL BE NO NEED FOR ANY ADJUSTMENT AT ALL UNDER THE TP PROVISIONS. HE RELIED ON THE FOLLO WING DECISIONS TO SUBMIT THAT THE TP ADDITION CANNOT BE MADE ON THE E NTIRE TURNOVER OF THE ENTITY, WHEREAS THAT SHOULD BE RESTRICTED TO AE TRANSACTION ALONE ON PRO RATA BASIS. 1. DCIT V. STARLITE (40 SOT 421 (MUM) 2. DCIT VS. ANKIT DIAMONDS (43 SOT 523 (MUM) 3. ADDL. CIT VS. TEJ DAM (37 SOT 341 (MUM) 4. M/S GENESYS INTEGRATING SYSTEMS (INDIA) PVT. LTD (I TA NO.1231/BANG/2010) 5. ACIT VS. WOCKHARDT LTD (6 TAXMAN.COM 78 ITAT (MUM) 6. ABHISHEK AUTO INDUSTRIES LTD (2010 TII-54-ITAT (DEL ) ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 6 OF 16 7. DCIT VS. STARTEX NETWORKS (INDIA) PVT. LTD (2010 TII-13 ITAT (DEL). 8. IL JIN ELECTRONICS(I) LTD VS ACIT 36 SOT 227(DELHI) 9. PHOENIX MECANO (INDIA) LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX, 49 SOT 515 10. LION BRIDGE TECHNOLOGY LTD 9032/10 6. WITH REFERENCE TO THE OTHER ADJUSTMENTS IN ADDIT ION TO THE ARGUMENTS RAISED BEFORE THE TPO AND THE DRP, IT WAS ALSO SUBMITTED THAT ONCE THE ADJUSTMENTS ARE MADE AT THE ENTITY LEVEL, AO WAS PRECLUDED IN MAKING ITEM-WISE ADJUSTMENTS AS WAS DONE BY TPO ON ROYALTY PAYMENTS AND ON LIQUIDATED DAMAGES. THE LEARNED COUNSEL RELIED ON THE JUDGMENT OF THE HON'BLE DELH I HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD, 2012 TII 01-HC DEL-TP 29/03/2012 TO SUBMIT THAT UNDER THE TP PROVISIONS A ND RULE 10B, AO CANNOT INVOKE THE PROVISIONS OF SECTION 37(1) TO DETERMINE THE ALP AT NIL. IT WAS THE SUBMISSION THAT THE ACTION O F AO AND THE DRP IN MAKING ADJUSTMENTS OF THE ABOVE AMOUNTS IS NOT C ORRECT BOTH ON THE REASON THAT THE ENTITY LEVEL ADJUSTMENT WAS MAD E CONSIDERING THE OPERATING COST (INCLUDING THESE AMOUNTS) AND FU RTHER ALP CANNOT BE DETERMINED AT NIL AS WAS DONE BY THE TPO. IN VIEW OF THIS IT WAS THE SUBMISSION THAT THE ADJUSTMENTS ARE NOT REQUIRED TO BE MADE. 7. THE LEARNED AR ALSO JUSTIFIED THE SAID PAYMENTS ON FACTS WHICH WERE ALSO PLACED BEFORE THE TPO AND THE DRP. WITH R EFERENCE TO THE INTEREST ADJUSTMENT MADE IT WAS THE SUBMISSION THAT THERE ARE NO LOANS GRANTED TO THE AE AND IS ONLY THE CREDIT WHIC H AO CONSIDERED AS LOAN. HOWEVER, BEING A SMALL AMOUNT ADDED BY AO, THE LEARNED COUNSEL DID NOT PRESS THE ISSUE SERIOUSLY AT THE TI ME OF ARGUMENTS. 8. THE LEARNED COUNSEL ALSO REFERRED TO THE SEGMENT AL DATA PROVIDED TO THE DRP IN ORDER TO SUPPORT ITS CONTENTION THAT ASSESSEES PROFITS ARE MORE THAN THE COMPARABLES PROFIT. IT WAS SUBMI TTED THAT SEGMENTAL DATA WAS NOT CONSIDERED BY THE DRP, EVEN THOUGH AUDITED ACCOUNTS WERE FURNISHED. ANOTHER ARGUMENT O F THE LEARNED COUNSEL IS WITH REFERENCE TO ARRIVING AT THE OPERAT ING PROFITS BY ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 7 OF 16 EXCLUDING THE LOSSES INCURRED IN THE LOCAL PROJECTS . HE REFERRED TO THE SUBMISSIONS MADE BEFORE THE DRP THAT ASSESSEE HAS I NCURRED HUGE LOSSES IN TWO LOCAL PROJECTS AND IF THESE LOSSES IN THE PROJECTS WERE EXCLUDED, THEN ASSESSEES PROFIT MARGIN WAS MORE TH AN THE MARGIN ARRIVED AT BY THE COMPARABLES. 9. THE LEARNED DR HOWEVER, RELIED ON THE ORDERS OF THE TPO AND THE DRP TO SUBMIT THAT ONCE ENTITY LEVEL TNMM WAS CONSI DERED ADJUSTMENT WAS TO BE MADE ON THE ENTIRE TRANSACTION S. THEREFORE, THE ACTION OF AO WAS JUSTIFIED. WITH REFERENCE TO T HE SEGMENTAL DATA IT WAS SUBMITTED THAT EVEN THOUGH THE CERTIFICATE W AS FURNISHED THE VERIFICATION OF THE DATA WAS NOT COMPLETE AS THESE ARE NOT PLACED BEFORE THE TPO. HE THEN REFERRED TO THE SEGMENTAL D ATA PROVIDED IN THE ANNUAL REPORT TO SUBMIT THAT THIS IS NOT THE ST ANDARD SEGMENTAL DATA AND THEREFORE CANNOT BE ACCEPTED. THE LEARNED DR HOWEVER, SUBMITTED THAT THE MEAN MARGIN ARRIVED AT FROM THE COMPARABLES ON TNMM METHOD WAS NOT IN DISPUTE. THEREFORE, THE ADDI TION SO MADE IS JUSTIFIED ON THE FACTS OF THE CASE. 10. WITH REFERENCE TO THE ROYALTY AND THE LIQUIDATE D DAMAGES, IT WAS THE SUBMISSION THAT THE TPO WAS CORRECT IN ANALYZIN G THE INDIVIDUAL TRANSACTIONS EVEN THOUGH ENTITY LEVEL ADJUSTMENT WA S MADE AND ALP ON THESE TRANSACTIONS WAS DETERMINED AT NIL. 11. IN REPLY, THE LEARNED COUNSEL SUBMITTED THAT TH E AUDIT REPORT WAS SUBMITTED AS PER THE COMPANY LAW AND THE CERTIF ICATES WERE FURNISHED AS PROVIDED UNDER THE LAW. THE SEGMENTAL DATA AS REQUIRED FOR THE TP STUDY WAS NOT PART OF EITHER CO MPANY LAW OR UNDER THE I.T ACT AND THESE SEGMENTAL DATA WERE TAK EN FOR THE PURPOSE OF ANALYZING INTERNAL AND EXTERNAL COMPARAB LES AND TO BENCH MARK THE TRANSACTIONS. THE OBJECTION OF THE D R THAT THIS SEGMENTAL DATA IS NOT AS PRESCRIBED IS NOT VALID AS ASSESSEE HAS DULY FURNISHED THE RELEVANT SEGMENTAL DATA IN LINE WITH THE COMPARABLES ON FAR ANALYSIS AND SO THESE ARE TO BE ACCEPTED. ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 8 OF 16 12. ON A QUERY FROM THE BENCH WHETHER THE RELEVANT ROYALTY PAYMENTS MADE ON VARIOUS PROJECTS WERE ALSO TAKEN I NTO ACCOUNT IN SEGMENTAL DATA, THE LEARNED COUNSEL FAIRLY ADMITTED THAT THESE PAYMENTS WERE NOT TAKEN INTO ACCOUNT. 13. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE V ARIOUS ARGUMENTS PLACED BEFORE THE AUTHORITIES AS WELL AS BEFORE US INCLUDING THE DETAILS FURNISHED IN THE PAPER BOOK. THERE IS NO DISPUTE WITH REFERENCE TO APPLYING TNMM METHOD AND ASSESSEE BEING A TESTED PARTY, APPLYING THE PROFIT MARGIN ON THE OPERATING EXPENSES AT THE ENTITY LEVEL. ON VARIOUS PROPOSITI ONS MADE BY THE LEARNED COUNSEL, WE AGREE WITH THE ARGUMENT THAT TH E ADJUSTMENTS ARE TO BE RESTRICTED TO INTERNATIONAL TRANSACTIONS ALONE AND CANNOT BE APPLIED TO THE ENTIRE TURNOVER OF THE COMPANY. O N THE FACTS OF THE CASE ASSESSEES TRANSACTIONS WITH THIRD PARTIES CON STITUTE MORE THAN 95% AND WITH AES LESS THAN 5%. THEREFORE, ADJUSTMEN T MADE BY THE TPO ON THE ENTIRE TURNOVER OF THE ENTITY WITHOU T RESTRICTING TO THE INTERNATIONAL TRANSACTIONS IS NOT CORRECT ACCOR DING TO FACTS AND LAW. THIS ISSUE WAS ALREADY DISCUSSED ELABORATELY B Y VARIOUS COORDINATE BENCHES IN CASES REFERRED BY LD. COUNSEL ABOVE. THE ITAT IN THE CASE OF IL JIN ELECTRONICS (I) (P.) LTD . VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), NEW DELHI , [2010] 36 SOT 227 (DELHI) HELD AS UNDER: THE ASSESSEE HAD ALSO TAKEN AN ALTERNATIVE GROUND T HAT OUT OF THE TOTAL RAW MATERIALS CONSUMED BY IT FOR MANUFACTURING PRINT CIRCUIT BOARDS, ONLY 45.51 PER CENT OF THE TOTAL RAW MATERIALS WAS IMPORTED THROUGH THE ASSESSEES ASSOCIATE CONCERNS, AND, THEREFORE, ANY ADJUSTMENT, IF ANY CALLED FOR, COULD ONLY BE MADE T O THE 45.51 PER CENT OF THE TOTAL TURNOVER, AND NOT TO IT S TOTAL TURNOVER. AFTER CONSIDERING THE FACTS OF THE CASE, THERE WAS NO DIFFICULTY IN ACCEPTING THE CONTENTION OF TH E ASSESSEE THAT AT BEST ONLY 45.51 PER CENT OF THE OPERATING PROFIT COULD BE ATTRIBUTED TO IMPORTED RA W MATERIALS ACQUIRED FROM THE ASSESSEES ASSOCIATE CONCERNS. IN THE INSTANT CASE, THE ASSESSING OFFICE R HAD CALCULATED THE OPERATING PROFIT ON THE ENTIRE SALES OF THE ASSESSEE, WHICH WAS NOT JUSTIFIED, WHEN IT WAS AN ADMITTED POSITION THAT ONLY 45.51 PER CENT OF RAW ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 9 OF 16 MATERIALS HAD BEEN ACQUIRED BY THE ASSESSEE FROM IT S ASSOCIATE CONCERNS FOR THE PURPOSE OF MANUFACTURING ITEMS. THE ASSESSEE HAD STATED THAT THE OPERATING P ROFIT IF APPLIED TO 45.51 PER CENT OF THE TURNOVER WOULD COME TO RS. 35,52,573 AS AGAINST OPERATING PROFIT OF RS. 24,35,175 BOOKED BY THE ASSESSEE, AND THE DIFFERENC E THEREOF WOULD ONLY BE CALLED FOR TO BE MADE AS AN ADDITION TO THE PROFIT SHOWN BY THE ASSESSEE. THERE FORE, THE ASSESSING OFFICER WAS TO BE DIRECTED TO MODIFY THE ASSESSMENT AND MAKE THE ADJUSTMENT ONLY TO THE EXTE NT OF THE DIFFERENCE IN THE ARMS LENGTH OPERATING PRO FIT ADJUSTED WITH REFERENCE TO THE 45.51 PER CENT OF TH E TURNOVER, AND NOT TO THE TOTAL TURNOVER OF THE ASSE SSEE. THEREFORE, TO THAT EXTENT, THE ADDITION MADE BY THE ASSESSING OFFICER AND FURTHER CONFIRMED BY THE COMMISSIONER (APPEALS) WAS TO BE REDUCED. . 14. FURTHER, THIS ISSUE WAS ALREADY CRYSTALLIZED I N FAVOUR OF ASSESSEE BY THE FOLLOWING DECISIONS: A) DCIT V. STARLITE (40 SOT 421 (MUM) B) DCIT VS. ANKIT DIAMONDS (43 SOT 523 (MUM) C) ADDL. CIT VS. TEJ DAM (37 SOT 341 (MUM) D) M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT. LTD (I TA NO.1231/BANG/2010) E) ACIT VS. WOCKHARDT LTD (6 TAXMAN.COM 78 ITAT (MUM) F) ABHISHEK AUTO INDUSTRIES LTD (2010 TII-54-ITAT (DEL ) G) DCIT VS. STARTEX NETWORKS (INDIA) PVT. LTD (2010 TII-13 ITAT (DEL). H) PHOENIX MECANO (INDIA) LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX, 49 SOT 515 I) LION BRIDGE TECHNOLOGY LTD 9032/10 15. RESPECTFULLY FOLLOWING, WHATEVER BE THE METHOD FOLLOWED OR ADOPTED FOR ARRIVING AT THE ALP, THE ALP CAN ONLY B E DETERMINED ON THE VALUE OF INTERNATIONAL TRANSACTIONS ALONE AND N OT ON THE ENTIRE TURNOVER OF ASSESSEE AT ENTITY LEVEL. IF THIS SORT OF ADJUSTMENT IS PERMITTED, THIS WILL RESULT IN INCREASING THE PROFI T OF ASSESSEE ON THE ENTIRE NON-AE TRANSACTIONS ALSO, WHICH IS NOT ACCOR DING TO THE PROVISIONS OF TRANSFER PRICING MANDATED BY THE ACT. IN VIEW OF THIS THE ACTION OF THE TPO SUPPORTED BY THE DRP IN MAKIN G THE ADJUSTMENT OF ` .9,67,80,000 IS NOT CORRECT. THIS SHOULD BE RESTRICTED TO THE AE TRANSACTIONS ONLY. AS RIGHTLY POINTED OUT, THE ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 10 OF 16 FINALLY COMPARABLES MARGIN ON THE UPDATED DATA ARRI VED AT BY THE TPO WAS 6.29% AS AGAINST ASSESSEES MARGIN OF 5.19% . THEREFORE, THE ADDITION ON MARGIN OF 1.10% CAN ONLY BE DETERMI NED ON THE AE TRANSACTIONS. 16. THE NEXT ARGUMENT IS WITH REFERENCE TO THE APPL ICATION OF PROVISO TO SECTION 92C(2). THIS ARGUMENT EVEN THOUG H WAS RAISED BEFORE THE TPO AS WELL AS DRP, THEY HAVE NOT CONSID ERED THE ISSUE IN THE CORRECT PERSPECTIVE AS THEY HAVE APPLIED THE MARGINS ON THE ENTIRE SALES OF ASSESSEE, NATURALLY THE ALP DETERMI NED ALSO WAS HIGH. THE CORRECT WORKING SHOULD BE LIKE THIS: PARTICULARS PROFIT & LOSS A/C ( ` `` ` . IN CRS ) COMPUTATION OF ARMS LENGTH PRICE ( ` `` ` .IN CRS ) SALES (AS PER BOOKS OF ACCOUNT) (A) 883.6 883.6 LESS: OPERATING EXPENSES (B) 837.7 828.0 - PAYMENTS MADE TO AE 35.5 35.1 - PAYMENTS MADE TO NON AE 802.2 792.9 OPERATING PROFIT (OP) (C) = (A-B) 45.9 55.6 OP/SALES = (C)/(A) 5.19% 6.29% ARMS LENGTH PRICE (ALP) 35.1 APPLICATION OF THE RANGE ALP X 1.05 36.9 BASED ON THE ARMS LENGTH MARGIN OF 6.29%, THE ARM S LENGTH PROFIT WOULD BE ` 55.6 CRS (883.6 * 6.29%) AND ACCORDINGLY THE ARMS LENGTH OPERATING COSTS WOULD BE ` .828.0 CRS (883.6 55.6). THE SAID ARMS LENGTH PRICE OF OPERATING COST HAS BEEN APPORTIONED BETWEEN AE AND NON AE ON THE BASIS OF THE COST RATIO. THE WORKING OF THE SAME IS AS UNDER: ( ` .IN CRS) ARMS LENGTH OPERATING COSTS AE/ NON COSTS WORKING (APPORTIONED IN THE COSTS RATIO) ARMS LENGTH OPERATING COSTS AE 828.0 35.5 =828.0*35.5/837.7 35.1 NON AE 828.0 802.2 =828.0*802.2/837.7 792.9 TOTAL 837.7 828.0 ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 11 OF 16 THE VARIATION BETWEEN THE ARMS LENGTH PRICE FOR AE TRANSACTION I.E. ` .35.10 CRS AND THE VALUE OF INTERNATIONAL TRANSACTI ON I.E. ` .35.50 CRS DOES NOT EXCEED 5% OF THE FORMER AND IS WITHIN THE RANGE. ACCORDINGLY, ASSESSEE HAS AFTER EXERCISING ITS OPTI ON AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT COMPLIES WITH THE ARMS LENGTH STANDARD REQUIRED BY THE TRANSFER PRICING REGULATIO NS. 17. SINCE THE ALP DETERMINED AT ` .35.10 CRORES IS WITHIN THE +/- 5% RANGE OF THE AE TRANSACTIONS OF ` .35.5 CRS, THERE IS NO NEED FOR ANY ADJUSTMENT TO BE MADE ON THE SAID TRANSACTIONS. IN VIEW OF THIS THE ADJUSTMENT PROPOSED AT ` .9,67,80,000 REQUIRES TO BE CANCELLED. 18. WITH REFERENCE TO THE ADJUSTMENT FOR THE ROYA LTY PAYMENT AND LIQUIDITY DAMAGES, WE AGREE WITH THE SUBMISSION OF ASSESSEE THAT THESE ADJUSTMENTS ARE NOT REQUIRED. AS FAR AS FACTS ARE CONCERNED, ASSESSEE ENTERED INTO A COLLABORATION AGREEMENT DAT ED 23.07.1996 FOR PAYMENT OF 2% OF CONTRACT VALUE FOR THE MANUFAC TURING DRAWING & ENGINEERING SERVICES AND 5% OF THE SELLING PRICE AS ROYALTY. THIS AGREEMENT WAS APPROVED BY FIPB AND THE PAYMENTS ARE BEING MADE IN EARLIER YEARS. AS SUBMITTED BEFORE THE TPO, THIS IS THE 5 TH YEAR OF TP STUDY AND THERE WAS NO ADJUSTMENT MADE IN THE EA RLIER YEARS. ON FACTS, THE PAYMENT OF 2% OF CONTRACT VALUE AND 5 % OF SELLING ON ROYALTY SHOULD HAVE BEEN BENCH MARKED IF AT ALL, ON THE SIMILAR PAYMENTS WITH THE COMPARABLE CASES. NO SUCH EXERCIS E WAS UNDERTAKEN BY THE TPO. FURTHER THE LEARNED COUNSEL RELIED ON THE ORDER OF THE ITAT IN THE CASE OF CASTROL INDIA LTD IN ITA NO.3938/MUM/ 2010 FOR THE PROPOSITION THAT IT IS IN CUMBENT UPON THE TPO TO WORK OUT THE ALP OF RELEVANT TRANSACTION S BY FOLLOWING THE SOME AUTHORIZED METHOD AND THE ENTIRE COST BORN E BY ASSESSEE CANNOT BE DISALLOWED BY TAKING THE ALP AT NIL. THIS ASPECT WAS ALREADY DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES. THEREFORE, THERE IS NO NEED TO EXTRACT THE ITAT ORDER PLACED BEFORE US. THE HONBLE DELHI HIGH COURT IN THE CASE OF DCIT VS. EKL APPLIANCES LTD 2012 TII-1 HIGH COURT DEL. T P 29-03-2012, HAS HELD AS UNDER: ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 12 OF 16 19. THERE IS NO REASON WHY THE OECD GUIDELINES SHO ULD NOT BE TAKEN AS A VALID INPUT IN THE PRESENT CASE I N JUDGING THE ACTION OF THE TPO. IN FACT, THE CIT (AP PEALS) HAS REFERRED TO AND APPLIED THEM AND HIS DECISION H AS BEEN AFFIRMED BY THE TRIBUNAL. THESE GUIDELINES, IN A DIFFERENT FORM, HAVE BEEN RECOGNIZED IN THE TAX JURISPRUDENCE OF OUR COUNTRY EARLIER. IT HAS BEEN H ELD BY OUR COURTS THAT IT IS NOT FOR THE REVENUE AUTHORITI ES TO DICTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINESS AND IT IS NOT FOR THEM TO TELL THE ASSESSE E AS TO WHAT EXPENDITURE THE ASSESSEE CAN INCUR. WE MAY REF ER TO A FEW OF THESE AUTHORITIES TO ELUCIDATE THE POINT. IN EASTERN INVESTMENT LTD. V. CIT , (1951) 20 ITR 1, IT WAS HELD BY THE SUPREME COURT THAT THERE ARE USUALLY M ANY WAYS IN WHICH A GIVEN THING CAN BE BROUGHT ABOUT IN BUSINESS CIRCLES BUT IT IS NOT FOR THE COURT TO DEC IDE WHICH OF THEM SHOULD HAVE BEEN EMPLOYED WHEN THE COURT IS DECIDING A QUESTION UNDER SECTION 12(2) OF THE INCO ME TAX ACT. IT WAS FURTHER HELD IN THIS CASE THAT IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFIT ABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNED. IN CIT V. WALCHAND & CO. ETC. , (1967) 65 ITR 381, IT WAS HELD BY THE SUPREME COURT THAT IN APPLYING THE TEST OF COMM ERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AN D NOT OF THE REVENUE. IT WAS FURTHER OBSERVED THAT THE RU LE THAT EXPENDITURE CAN ONLY BE JUSTIFIED IF THERE IS CORRE SPONDING INCREASE IN THE PROFITS WAS ERRONEOUS. IT HAS BEEN CLASSICALLY OBSERVED BY LORD THANKERTON IN HUGHES V. BANK OF NEW ZEALAND , (1938) 6 ITR 636 THAT EXPENDITURE IN THE COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONE THE LESS A PROPER DEDUCTION IF WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSES OF TRA DE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE C REDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE. THE Q UESTION WHETHER AN EXPENDITURE CAN BE ALLOWED AS A DEDUCTIO N ONLY IF IT HAS RESULTED IN ANY INCOME OR PROFITS CA ME TO BE CONSIDERED BY THE SUPREME COURT AGAIN IN CIT V. RAJENDRA PRASAD MOODY , (1978) 115 ITR 519, AND IT WAS OBSERVED AS UNDER: - WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTH ERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BE CAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 13 OF 16 INTERPRETATION OF SECTION 57(III) CANNOT BE DIFFERE NT. THE DEDUCTION OF THE EXPENDITURE CANNOT, IN THE CIRCUMS TANCES, BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNIN G OF THE INCOME. IT IS NOTEWORTHY THAT THE ABOVE OBSERVATIONS WERE M ADE IN THE CONTEXT OF SECTION 57(III) OF THE ACT WHERE THE LANGUAGE IS SOMEWHAT NARROWER THAN THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT. THIS FACT IS RECOGNISED I N THE JUDGMENT ITSELF. THE FACT THAT THE LANGUAGE EMPLOYE D IN SECTION 37(1) OF THE ACT IS BROADER THAN SECTION 57 (III) OF THE ACT MAKES THE POSITION STRONGER. 20. IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD. V. CIT , (1979) 118 ITR 261 (SC), THE SUPREME COURT REFERR ED TO THE LEGISLATIVE HISTORY AND NOTED THAT WHEN THE INCOME TAX BILL OF 1961 WAS INTRODUCED, SECTION 37(1) REQU IRED THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHO LLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSES OF BU SINESS IN ORDER TO MERIT DEDUCTION. PURSUANT TO PUBLIC PRO TEST, THE WORD NECESSARILY WAS OMITTED FROM THE SECTION. 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT A NY LEGITIMATE EXPENDITURE INCURRED BY HIM WAS ALSO INC URRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY EXPENDITURE INCURRED BY HIM FOR TH E PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEA R OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOTHIN G MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSI ON IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCUR RED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF T HE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BU SINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FO R THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO T HE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUAN TUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSI NESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE EN TIRE ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 14 OF 16 EXPENDITURE OR A PART THEREOF ON THE GROUND THAT TH E ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANC IAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDG E ALLOWABILITY OF AN EXPENSE; THERE IS CERTAINLY NO A UTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED IN TO THE AGREEMENT TO PAY ROYALTY/BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPEN DITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCUR RED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDELINES, HE I S EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION A S HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR AUTHORIZED . KEEPING IN MIND THE PRINCIPLES LAID DOWN ABOVE, WE ARE OF THE VIEW THAT THE TPO SHOULD NOT HAVE UNDERTAKEN DETERMINING THE ALP AT NIL WHEREAS THE JURISDICTION PROVIDED TO HIM IS TO DETERMINE THE ALP OF THE TRANSACTIONS UNDER THE METHOD(S) PROVIDED UN DER THE ACT. THEREFORE, ON LEGAL PRINCIPLES ALSO THIS ADJUSTMENT MADE BY AO CANNOT BE UPHELD. THEREFORE, THIS IS DELETED. 19. SIMILAR IS WITH THE CASE WITH REFERENCE TO THE LIQUIDATED DAMAGES. THERE IS NO DISPUTE WITH REFERENCE TO THE PAYMENT OF LIQUIDATED DAMAGES TO NLC. NLC IS HAVING AGREEMENT WITH THE PRINCIPAL KF FOR SUPPLY OF BUCKET WHEEL EXCAVATORS (BWE) AND DELAY IN SUPPLY WAS HELD TO BE ON BEHALF OF ASSESSE E. SINCE THE AMOUNT WAS DEDUCTED BY THE NLC FROM THE PAYMENTS BE ING MADE TO KF, ASSESSEE HAS TO NECESSARILY REIMBURSE THE PAYME NT TO KF. IT HAS REIMBURSED THE SAME AMOUNT WHAT WAS DEDUCTED BY NLC FROM KF. AS FAR AS TP PROVISIONS ARE CONCERNED ON FACTS, THIS ADJUSTMENT CANNOT BE MADE AS ASSESSEE HAS PAID THE SAME AMOUNT WHICH WAS RECOVERED BY NLC AS THIRD PARTY. WHETHER THE LIQUID ATED DAMAGES ARE TO BE PAID BY ASSESSEE OR NOT IS A BUSINESS CON SIDERATION TO BE EXAMINED UNDER SECTION 37(1). THIS ASPECT, AS CONSI DERED BY THE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES (SUP RA), IS ALSO ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 15 OF 16 OUTSIDE THE PURVIEW OF THE TP PROVISIONS AS PAYMENT OF LIQUIDITY DAMAGES TO KF IS A BUSINESS DECISION TAKEN BY ASSES SEE AND IN OUR VIEW IT IS NECESSARY FOR THE PURPOSE OF BUSINESS, I N VIEW OF THE ONGOING AGREEMENTS WITH THE NLC. SINCE ASSESSEE REI MBURSED THE EXACT AMOUNT WHICH WAS RECOVERED BY NLC, WE ARE OF THE OPINION THAT NO ADJUSTMENT CAN BE MADE BOTH ON FACTS AND ON LAW. THEREFORE, AOS DISALLOWANCES OF THE ENTIRE AMOUNT OF ` .2,70,38,800 CANNOT BE SUPPORTED. ONE OF THE ARGUMENT BY THE TPO IS THAT THE SETTLEMENT DEED DOES NOT CLARIFY HOW THE EURO 4,60, 000 HAS BEEN QUANTIFIED. THE ENTIRE DATA WAS PLACED BEFORE AO AN D THERE IS NO DISPUTE WITH REFERENCE TO THE FACTS. IN VIEW OF THI S, WE ARE OF THE OPINION THAT ADJUSTMENT OF THE LIQUIDATED DAMAGES A T NIL ALSO CANNOT BE UPHELD. 20. THE ARGUMENT WHICH WAS RAISED THAT ONCE THE T P ADJUSTMENT WAS MADE AT THE ENTITY LEVEL, INDIVIDUAL ADJUSTMENT OF ROYALTY AND LIQUIDITY DAMAGES CANNOT BE MADE AGAIN HAS SOME MER IT. HOWEVER, THIS ASPECT WILL BE EXAMINED IN AN APPROPRIATE CASE . THEREFORE, WITHOUT GIVING ANY OBSERVATION OR FINDINGS ON THIS ARGUMENT, WE ARE OF THE OPINION THAT ON FACTS AND ON LAW AS DISCUSSE D ABOVE, THERE IS NO NEED FOR MAKING ADJUSTMENTS ON THE PAYMENTS MADE TOWARDS MANUFACTURING DRAWING AND TECHNICAL SERVICES AND RO YALTY AND LIQUIDITY DAMAGES AS WAS DONE BY THE TPO DETERMININ G THE ALP AT NIL. AO IS DIRECTED TO DELETE THE SAME. 21. THERE IS A SMALL ADJUSTMENT OF ` .32,359 BEING THE NOTIONAL INTEREST ON PAYMENT RECEIVED FROM AE. CONSIDERING T HE SMALLNESS OF THE AMOUNT AS THIS WAS NOT SERIOUSLY ARGUED, WITHOU T GOING INTO THE MERITS OF THE ABOVE AND LEGAL PRINCIPLES THEREON, W E CONFIRM THE ADDITION SO MADE. 22. THE LEARNED COUNSEL HAS PLACED VARIOUS DATA, SE LLING EXPENSES TO SALES ANALYSIS, PROFITABILITY STATEMENT BETWEEN AE AND NON AE TO JUSTIFY THE SUBMISSIONS MADE BEFORE THE DRP. WE ARE OF THE OPINION THAT THERE IS NO NEED FOR DISCUSSION ON THESE ELABO RATE SUBMISSIONS ITA NO.7032 OF 2011 THYSSENKRUPP INDUSTRIES INDIA P VT LTD MUMBAI PAGE 16 OF 16 AND ACCORDINGLY, EVEN THOUGH THEY HAVE BEEN CONSIDE RED, THEY WERE NOT SPECIFICALLY DISCUSSED IN THE ORDER. WITH REFER ENCE TO SEGMENTAL DATA PROVIDED BEFORE THE DRP, WE NOTICE THAT THE SA ME IS NOT PREPARED TAKING THE ROYALTY @5% ON SALES IN THE PRO JECT EXPENDITURE. THIS WILL HAVE AN IMPACT ON COST WORKI NG AS WELL AS PROFIT MARGIN. WE ARE OF THE VIEW THAT SEGMENTAL D ATA NEED NOT BE TAKEN INTO ACCOUNT ON THE FACTS OF THE CASE. IN THE RESULT, ASSESSEES GROUNDS 1 TO 7 ARE ALLOWED. GROUND 8 IS REJECTED. G ROUND 9 AND 10 DOES NOT REQUIRE ANY ADJUDICATION. AO IS DIRECTED T O MODIFY THE ORDER ACCORDINGLY. 23. IN THE RESULT APPEAL FILED BY ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2012. SD/- SD/- (AMIT SHUKLA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 27 TH NOVEMBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI