DOW CORNING INDIA P. LTD, MUMBAI V. ITO 14(1)(3), MUMBAI

ITA 7143/MUM/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3768 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 18-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 271(1)(c); 92C; 143(3); 234B; 10B; 73; 22

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI , # BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER . 7143/ / 2017 ('. . 2013-14 ) ITA NO.7143/MUM/2017(A.Y.2013-14) DOW CORNING INDIA PRIVATE LIMITED, GODREJ IT PARK-P2, 1 ST FLOOR, BLOCK B,02 LBS ROAD, GODREJ BUSINESS DISTRICT, PIROJESHANAGAR, VIKHROLI (WEST), MUMBAI 400 079 PAN: AAACV0807G ...... ) / APPELLANT ' VS. THE INCOME TAX OFFICER,14(1)(3), ROOM NO.458, 4 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ..... *+/ RESPONDENT ASSESSEE BY : SHRI NISHANT THAKKAR/ MS.JASMIN AMALSADVALA/ SHRI HITEN CHANDE REVENUE BY : SHRI ANAND MOHAN ',+ / DATE OF HEARING : 15/02/2021 -./ ,+ / DATE OF PRONOUNCEMENT : 22/02/2021 / ORDER PER VIKAS AWASTHY,JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 13/10/2012 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT), FOR THE ASSESSMENT YEAR 2013-14. 2 ITA NO.7143/MUM/2017(A.Y.2013-14) 2. THE BRIEF FACTS OF THE CASE ASSESSEE EMANATING F ROM RECORDS ARE: THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF DOW CORNING ENTERPR ISE INC.USA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DISTRI BUTION OF SILICONE BASED CHEMICALS & LUBRICANTS AND PROVIDING ENGINEERING D ESIGNS & OTHER SERVICES. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPE AL, THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTION WITH ITS ASSOCIAT ED ENTERPRISES(AE). THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS T HE MOST APPROPRIATE METHOD TO BENCHMARK ITS FOLLOWING TRANSACTIONS: (I) IMPORT OF RAW MATERIAL FOR MANUFACTURING. , (II) EXPORT OF MANUFACTURED FINISHED GOODS, (III)PAYMENT OF ROYALTY, (IV) IMPORT OF FINISHED GOODS FOR RESALE. (V) EXPORT OF FINISHED GOODS. (VI) RECEIPT OF INDENTING COMMISSION, (VII)PROVISION OF ENGINEERING SERVICES. THE TRANSFER PRICING OFFICER(TPO) REJECTED THE TNM M AS THE MOST APPROPRIATE METHOD AND INSTEAD APPLIED CUP. 2.1 FURTHER, THE TPO REJECTED BENCHMARKING OF IN TERNATIONAL TRANSACTION IN RESPECT OF PAYMENTS MADE BY THE ASSESSEE TO ITS AE WITH RESPECT TO MARKETING, ADMINISTRATIVE AND LOGISTIC SUPPORT SERVICES AND PAYMENTS MADE IN RESPECT OF INFORMATION TECHNOLOGY SERVICES. THUS, THE TPO MADE FOLLOWING ADJUSTMENTS: (I) ADJUSTMENT ON ACCOUNT OF EXPORTS RS.1,19,73,148/- (II) ADJUSTMENT ON ACCOUNT OF MARKETING, ADMINISTRATIVE, LOGISTIC SUPPORT SERVICES & IT SERVICES RS.3,79,69,985/- TOTAL: RS.4,99,43,133/- 3 ITA NO.7143/MUM/2017(A.Y.2013-14) IN LINE WITH THE ORDER OF TPO DATED 31/10/2016 PAS SED UNDER SECTION 92CA(3) OF THE ACT, THE ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER ON 13/12/2016. AGAINST THE SAID DRAFT ASSESSMENT ORDER THE ASSESSEE FILED APPE AL BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE DIRECTIONS DATED 22/09/2 017 REJECTED THE OBJECTIONS OF THE ASSESSEE IN TOTO. 3. SHRI NISHANT THAKKAR, APPEARING ON BEHALF OF TH E ASSESSEE SUBMITTED THAT THE ADJUSTMENTS MADE IN THE IMPUGNED ASSESSMENT YEAR A RE IDENTICAL TO THE ONE MADE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011-12. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN AS SESSMENT YEAR 2011-12 AS WELL THE TPO REJECTED THE ARMS LENGTH PRICE (ALP) DETER MINED BY THE ASSESSEE BY APPLYING TNMM AND INSTEAD ADOPTED CUP AS MOST APPRO PRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. THE LD.A UTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED THAT THE ASSESSEE CARRIED THE ISS UE IN APPEAL BEFORE THE TRIBUNAL IN ITA NO.991/MUM/2016. THE TRIBUNAL VIDE ORDER DATED 23/10/2020 RESTORED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRE SH EXAMINATION IN ACCORDANCE WITH THE DIRECTIONS/OBSERVATIONS OF THE TRIBUNAL. 3.1 THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSE E SUBMITTED THAT GROUNDS NO.3 TO 8 OF APPEAL ARE SIMILAR TO THE ONE RAISED IN ASSESSMENT YEAR 2011-12, THEREFORE, THESE GROUNDS CAN BE RESTORED BACK TO TH E FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTION. 3.2 THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSE E SUBMITTED THAT IN GROUNDS NO.9 TO 17 OF THE APPEAL, THE ASSESSEE HAS ASSAILED ADJUSTMENT IN RESPECT OF MARKETING, ADMINISTRATIVE, LOGISTIC SUPPORT AND IT SERVICES. THE FACTS IN THE IMPUGNED ASSESSMENT YEAR ARE SIMILAR TO THE FACTS IN ASSESSM ENT YEAR 2011-12. THE TRIBUNAL IN ASSESSEES APPEAL IN ITA NO.991/MUM/2016(SUPRA) DEL ETED THE ADJUSTMENT. FACTS BEING IDENTICAL, THE ADJUSTMENT MAY BE DELETED. 4 ITA NO.7143/MUM/2017(A.Y.2013-14) 3.3 THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSE E STATED AT THE BAR THAT HE IS NOT PRESSING GROUND NO.18 RAISED IN THE APPEAL. 3.4 IN RESPEPCT OF GROUNDS NO.20 AND 21, THE LD.AUT HORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS SEEKING DI RECTIONS TO THE ASSESSING OFFICER FOR RECOMPUTATION OF INTEREST UNDER SECTION 234C OF THE ACT ON RETURNED INCOME INSTEAD OF ASSESSED INCOME. 5. SHRI ANAND MOHAN, REPRESENTING THE DEPARTMENT VE HEMENTLY SUPPORTED THE IMPUGNED ASSESSMENT ORDER. HOWEVER, HE FAIRLY ADM ITTED THAT THE ISSUES RAISED IN THE PRESENT APPEAL BY THE ASSESSEE ARE SIMILAR TO T HE ISSUES RAISED IN THE APPEAL BY ASSESSEE FOR ASSESSMENT YEAR 2011-12 BEFORE THE TRI BUNAL. 6. BOTH SIDES HEARD, ORDERS OF AUTHORITIES BELOW EX AMINED. BOTH SIDES ARE UNANIMOUS IN ADMITTING THAT THE FACTS GERMANE TO TH E GROUNDS RAISED IN THE APPEAL ARE SIMILAR TO THE ONE ADJUDICATED BY CO-ORDINATE B ENCH OF THE TRIBUNAL IN APPEAL BY THE ASSESSEE IN ITA NO.991/MUM/2016 (SUPRA). 7. THE GROUNDS NO.1 AND 2 OF THE APPEAL ARE GENERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION. 8. IN GROUNDS NO.3 TO 8 OF THE APPEAL, THE ASSESSEE HAS ASSAILED APPLICATION OF CUP AS MOST APPROPRIATE METHOD TO BENCHMARK INTER NATIONAL TRANSACTIONS UNDERTAKEN BY ASSESSEE DURING THE PERIOD RELEVANT T O THE ASSESSMENT YEAR UNDER APPEAL WHEREAS THE ASSESSEE HAD APPLIED TNMM TO BEN CHMARK THE SAME TRANSACTION. WE FIND THAT SIMILAR ISSUE HAD COME UP IN APPEAL BY ASSESSEE FOR ASSESSMENT YEAR 2011-12 BEFORE THE TRIBUNAL.THE CO- ORDINATE BENCH OF THE TRIBUNAL AFTER CONSIDERING THE FACTS HELD AS UNDER: 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIGHT OF DECISIONS RELIED UPON AND PERUSED THE MATERIAL ON RECORD. THE BASIC DISPUTE BETWEEN T HE PARTIES IS WITH REGARD TO THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE EXPORT OF F INISHED GOODS TO THE AES. WHILE THE ASSESSEE HAS APPLIED TNMM ON SEGMENTAL BASIS, THE T RANSFER PRICING OFFICER HAS APPLIED CUP 5 ITA NO.7143/MUM/2017(A.Y.2013-14) TO DETERMINE THE ARM'S LENGTH PRICE OF THE TRANSACT ION. FROM THE MATERIAL PLACED ON RECORD, IT IS VERY MUCH CLEAR THAT THE SALES MADE TO THE NON-A ES SITUATED IN INDIA HAVE BEEN APPLIED AS CUP TO DETERMINE THE ARM'S LENGTH PRICE OF EXPORT M ADE TO THE AES. IT IS THE CASE OF THE ASSESSEE THAT NO COMPARABLE EXPORT SALES TO NON-AES ARE AVAILABLE TO APPLY AS CUP. THE AFORESAID FACTUAL POSITION HAS NOT BEEN CONTROVERTE D BY THE REVENUE. THEREFORE, THE MOOT POINT WHICH ARISES FOR OUR CONSIDERATION IS, WHETHE R THE DOMESTIC SALES CAN BE APPLIED AS CUP FOR DETERMINING THE ARM'S LENGTH PRICE OF EXPORT SA LES. IT IS FAIRLY WELL SETTLED, CUP METHOD REQUIRES STRICT COMPARABILITY. IT CANNOT BE DENIED THAT THE PRICING OF A PRODUCT VARIES ON THE BASIS OF GEOGRAPHICAL LOCATION. THUS, PRIMARILY, TH E PRICE OF PRODUCTS SOLD IN DOMESTIC MARKET CANNOT BE COMPARED WITH THE PRICE OF THE PRODUCT SO LD IN FOREIGN COUNTRY DUE TO VARIOUS FACTORS. THEREFORE, IF THE TRANSFER PRICING OFFICER SELECTS CUP AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE TRANSACTIONS, IT IS HIS DUTY TO FI ND OUT AND BRING ON RECORD PRICE CHARGED FOR UNCONTROLLED TRANSACTIONS CARRIED OUT UNDER SIMILAR CIRCUMSTANCES. IF, SUITABLE COMPARABLE UNCONTROLLED TRANSACTION IS UNAVAILABLE, CUP METHOD CANNOT BE APPLIED. 16. IT IS FURTHER NOTICED, DURING THE YEAR UNDER CO NSIDERATION ASSESSEE HAD SOLD 34 DIFFERENT PRODUCTS TO BOTH OVERSEAS AES AS WELL AS DOMESTIC U NRELATED PARTIES. OUT OF THE 34 PRODUCTS SOLD, TRANSFER PRICING OFFICER HAS ACCEPTED THE PRI CE OF. 16 PRODUCTS SOLD TO AES TO BE AT ARM'S LENGTH, SINCE, THE PRICE CHARGED TO AES IS MORE THA N THE PRICE CHARGED TO NON-AES. IN CASE OF 18 PRODUCTS ONLY THETRANSFER PRICING OFFICER HAS M ADE ADJUSTMENT AS THE PRICE CHARGED TO AES IS LESS THAN THE PRICE CHARGED TO NON-AES. THUS , IT APPEARS, THE TRANSFER PRICING OFFICER HAS ADOPTED A VERY SELECTIVE APPROACH WHILE APPLYIN G CUP. EVEN, WHILE APPLYING CUP, THE TRANSFER PRICING OFFICER HAS NOT PROPERLY LOOKED IN TO ASSESSEE'S CLAIM OF VARIOUS ADJUSTMENTS ON ACCOUNT OF GEOGRAPHICAL LOCATION, VOLUME AND TIM ING DIFFERENCE. THE TRANSFER PRICING OFFICER HAS ONLY ALLOWED VOLUME ADJUSTMENT ON PUREL Y AD-HOC BASIS, THAT TOO, ONLY IN RESPECT OF A SINGLE PRODUCT WHILE IGNORING VARIOUS OTHER PR ODUCTS WHEREIN VOLUME DIFFERENCE BETWEEN AE AND NON-AE TRANSACTION IS SUBSTANTIAL. SIMILARLY , ASSESSEE'S CONTENTION THAT THE PRICE OF PRODUCTS INSOFAR AS SALES MADE TO THE AE AND NON-AE WOULD VARY DUE TO TIMING DIFFERENCE HAS NOT BEEN PROPERLY CONSIDERED. THE VARIOUS ADJUSTMEN TS WHICH ARE REQUIRED TO BE MADE HAVE BEEN DEMONSTRATED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE BY FURNISHING CHARTS. IN OUR VIEW, ALL THESE FACTORS HAVE TO BE TAKEN INTO C ONSIDERATION, EVEN, WHILE APPLYING CUP METHOD. ONE MORE SUBMISSION OF THE ASSESSEE IS THAT THE DRP HAS ALLOWED ADJUSTMENT ON ACCOUNT OF MARKETING/ALLIED COST. HOWEVER, WHILE CO MPUTING SUCH ADJUSTMENT, THE ASSESSING OFFICER HAS NOT TAKEN NOTE OF MARKETING PERSONNEL C OST. WE FIND SUBSTANTIAL MERIT IN THE AFORESAID SUBMISSION OF THE LEARNED COUNSEL. AT PAG E-1104 OF THE PAPER BOOK, THE ASSESSEE HAS FURNISHED THE BREAK-UP OF THE MARKETING PERSONN EL COST. IF THE REVENUE IS HAVING ANY DOUBT ON THE AFORESAID CLAIM OF THE ASSESSEE, THE ASSESSEE MAY FURNISH A BREAK-UP CERTIFIED BY AN AUDITOR. HOWEVER, THE CLAIM OF THE ASSESSEE H AS TO BE EXAMINED WITHOUT ANY BIAS. THUS, IN OUR VIEW, THE MATTER NEEDS TO BE RESTORED TO THE ASSESSING OFFICER FOR EXAMINING AFRESH KEEPING IN VIEW OUR OBSERVATIONS HEREINABOVE. THUS, WITH THE AFORESAID OBSERVATIONS, THE ISSUE IS RESTORED BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THESE G ROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES 9. SINCE, THERE IS NO DISPUTE ABOUT THE FACTS BEIN G IDENTICAL IN ASSESSMENT YEAR 2011-12 AND IMPUGNED ASSESSMENT YEAR , WE DEEM IT A PPROPRIATE TO RESTORE THIS 6 ITA NO.7143/MUM/2017(A.Y.2013-14) ISSUE TO ASSESSING OFFICER WITH SIMILAR DIRECTIONS. THUS, GROUND NO. 3 TO 8 OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 10. IN GROUND NO.9 OF THE APPEAL, THE ASSESSEE HAS ASSAILED ACTION OF DRP IN NOT ACCEPTING ADDITIONAL EVIDENCES AND IN GROUNDS NO.10 TO 17 THE ASSESSEE HAS ASSAILED THE ADJUSTMENT MADE BY TPO IN RESPECT OF MARKETING, ADMINISTRATIVE, LOGISTIC SUPPORT SERVICES AND IT SERVICES FROM AE. THE TPO REJECTED ASSESSEES BENCHMARKING OF INTERNATIONAL TRANSACTION ON THE GROUND THAT THE AS SESSEE HAS NOT FURNISHED COMPLETE DETAILS VIZ. NUMBER OF WORKING HOURS, PER HOUR COST, ETC. THE TPO IN ORDER TO DETERMINE ARMS LENGTH PRICE OF THE TRANSACTION M ADE SOME ESTIMATIONS OF THE SALARY AND MAN HOURS AND COMPUTED MANHOUR RATE. TH E TPO PURPORTEDLY APPLIED CUP AND ARRIVED AT ALP OF TRANSACTION I.E. PAYMENT FOR MARKETING, ADMINISTRATION AND LOGISTIC SUPPORT SERVICES AND PAYMENT OF I.T SERVIC ES AT RS.1,20,00,000/- AS AGAINST RS.4,99,69,985/- (RS.2,10,21,018/- + RS.2,89,48,967 /-) DETERMINED BY ASSESSEE. THOUGH, THE TPO HAS MENTIONED THAT CUP HAS BEEN APP LIED TO BENCHMARK THE TRANSACTION BUT IN EFFECT THE CALCULATIONS HAVE BEE N MADE BY TPO ON MERE ESTIMATIONS. THE PROCEDURE AS ENVISAGED UNDER SECT ION 92C OF THE ACT FOR COMPUTATION OF ALP HAS NOT BEEN FOLLOWED. WE FIND THAT IN ASSESSMENT YEAR 2011-12 IN ASSESSEES OWN CASE ADJUSTMENT WAS MADE IN RESPE CT OF SAME SERVICES IN SIMILAR MANNER ON ESTIMATIONS AND BY ADOPTING AD-HOC RATE. THE CO-ORDINATE BENCH REJECTED TPOS METHOD OF COMPUTING ALP AND DELETED THE ADJUSTMENT. THE CO- ORDINATE BENCH AFTER EXAMINING THE FACTS IN ASSE SSMENT YEAR 2011-12 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER :- 25. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSEE HAS ENTERED INTO TWO SEPARATE AGREEMEN TS WITH GROUP ENTITIES FOR AVAILING MARKETING, ADMINISTRATIVE AND LOGISTIC SERVICES AS WELL AS INFORMATION TECHNOLOGY SERVICES. IT IS THE CONTENTION OF THE ASSESSEE THAT THE SERVICES WERE ESSENTIALLY REQUIRED NOT ONLY FOR CARRYING ON THE BUSINESS ACTIVITIES BUT OVERALL GRO WTH OF THE BUSINESS. INITIALLY, IN COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, TH E ASSESSEE HAS CLAIMED THE PAYMENT MADE TOWARDS INTRA-GROUPS SERVICES TO BE AT ARM'S LENGTH BY BENCHMARKING THEM ON COST ALLOCATION BASIS TO THE THREE DIFFERENT SEGMENTS I.E., MANUFAC TURING, ENGINEERING AND TRADING. HOWEVER, AT THE STAGE OF DRP PROCEEDINGS, THE ASSESSEE HAS F URNISHED SEGMENTAL BENCHMARKING UNDER 7 ITA NO.7143/MUM/2017(A.Y.2013-14) TNMM WHICH INCLUDED THE COST ALLOCATED TOWARDS THE INTRA-GROUP SERVICES. APPARENTLY, NEITHER THE TRANSFER PRICING OFFICER NOR LEARNED DR P HAVE ACCEPTED THE BENCHMARKING DONE BY THE ASSESSEE. THE TRANSFER PRICING OFFICER HAS O BSERVED THAT THE ASSESSEE WAS UNABLE TO PROVE THE AVAILING OF SPECIFIC SERVICES AND ALSO TH E BENEFIT DERIVED FROM SUCH SERVICES AND HAS THEREAFTER PROCEEDED TO DETERMINED THE ARM'S LENGTH PRICE PURELY ON ESTIMATE BASIS BY APPLYING THE MAN-HOUR SALARY RATE OF ONE EMPLOYEE I N RESPECT OF MARKETING ADMINISTRATIVE AND LOGISTIC SERVICES AND AT THE AD-HOC RATE OF 30% IN RESPECT OF IT SERVICES, LEARNED DRP HAS MORE OR LESS AGREED WITH THE AFORESAID BENCHMARKING OF THE TRANSFER PRICING OFFICER, THOUGH, LEARNED DRP HAS OBSERVED THAT THE TRANSFER PRICING OFFICER HAS BENCHMARKED THE PAYMENT MADE TOWARDS INTRA-GROUP SERVICES BY APPLYING CUP M ETHOD, HOWEVER, A CAREFUL SCRUTINY OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER DO ES NOT REVEAL ANY SUCH OBSERVATION BY HIM. THE TRANSFER PRICING OFFICER HAS SIMPLY PROCEEDED T O BENCHMARK THE TRANSACTION ON A PURELY AD-HOC/ESTIMATE BASIS WITHOUT FOLLOWING ANY ONE OF THE METHODS PRESCRIBED UNDER SECTION 92C OF THE ACT IT IS PATENT AND OBVIOUS FROM THE OR DER PASSED BY THE TRANSFER PRICING OFFICER THAT HE HAS NOT DETERMINED THE ARM'S LENGTH PRICE B Y APPLYING EITHER CUP OR ANY OTHER APPROVED METHOD. HAD THE BENCHMARKING BEEN DONE UND ER CUP METHOD, THE TRANSFER PRICING OFFICER SHOULD HAVE BROUGHT ON RECORD AT LEAST A FE W COMPARABLE UNCONTROLLED TRANSACTIONS TO DEMONSTRATE THAT THE PAYMENT MADE BY THE ASSESSE E TOWARDS INTRA-GROUP SERVICES IS NOT AT ARM'S .LENGTH. WHEREAS, THE TRANSFER PRICING OFF ICER HAS NOT BROUGHT ON RECORD EVEN A SINGLE COMPARABLE UNCONTROLLED TRANSACTION TO DEMON STRATE THAT THE PRICE CHARGED BY THE ASSESSEE IS NOT AT ARM'S LENGTH. ON THE CONTRARY, I T IS TELLTALE FROM THE ORDER OF THE TRANSFER PRICING OFFICER THAT HE HAS PROCEEDED TO BENCHMARK THE TRANSACTION PURELY ON ESTIMATE BASIS BY APPLYING MAN-HOUR SALARY RATE OF A SINGLE EMPLOY EE IN CASE OF MARKETING, ADMINISTRATIVE AND LOGISTIC SERVICES. SIMILAR IS SITUATION IN CASE OF IT SERVICES, WHEREIN, THE TRANSFER PRICING OFFICER HAS ESTIMATED THE ARM'S LENGTH PRICE AT 30% OF THE AMOUNT PAID. 26. THE AFORESAID METHOD OF ESTIMATING THE ARM'S LENGTH PRICE IS NOT IN TERMS WITH THE PROVISIONS CONTAINED UNDER SECTION 92C R/W RULE 10B , HENCE, OPPOSED TO LAW. THOUGH, BOTH THE TRANSFER PRICING OFFICER AND LEARNED DRP HAVE A LLEGED THAT THE ASSESSEE HAS NOT SUBSTANTIATED THE FACT THAT THE SERVICES WERE ACTUA LLY RENDERED AND BENEFIT ACCRUED TO THE ASSESSEE, HOWEVER, THE VERY FACT THAT THE TRANSFER PRICING OFFICER HAS ALLOWED A PART OF THE PAYMENT MADE TOWARDS INTRA GROUP SERVICES, THOUGH O N ESTIMATE BASIS, CLEARLY INDICATES THAT EVEN THE REVENUE ACCEPTS THAT SERVICES INDEED WERE RECEIVED BY THE ASSESSEE AND THE ASSESSEE ALSO BENEFITED FROM THEM. IT IS A FACT ON RECORD THAT IN COURSE OF PROCEEDINGS BEFORE LEARNED DRP, THE ASSESSEE HAD FURNISHED SEGMENTAL B ENCHMARKING UNDER TNMM WHICH INCLUDED ALLOCATION OF COST TOWARDS INTRA-GROUP SE RVICES. THUS, IT IS A FACT ON RECORD THAT THE ASSESSEE HAS BENCHMARKED THE TRANSACTION BY APPLYIN G ONE OF THE APPROVED METHODS. IF THE TRANSFER PRICING OFFICER WAS NOT SATISFIED WITH THE BENCHMARKING DONE BY THE ASSESSEE UNDER TNMM, HE SHOULD HAVE INDEPENDENTLY BENCHMARKED THE TRANSACTION BY APPLYING ONE OF THE APPROVED METHODS. HOWEVER, THAT IS NOT THE CASE IN THE FACTS OF THE PRESENT CASE, THE TRANSFER PRICING OFFICER HAS SIMPLY ESTIMATED THE A RM'S LENGTH PRICE OF THE TRANSACTION ON ESTIMATE BASIS WITHOUT APPLYING ANY ONE OF THE APPR OVED METHODS. THIS CANNOT BE ACCEPTED. THERE IS UMPTEENTH NUMBER OF JUDICIAL PRECEDENTS, W HEREIN, IT HAS BEEN HELD THAT DETERMINATION OF ARM'S LENGTH PRICE HAS TO BE DONE BY APPLYING ANY ONE OF THE METHODS PRESCRIBED UNDER SECTION 92C R/W RULE 10B. IN THIS CONTEXT, WE MAY REFER TO THE FOLLOWING DECISIONS:- I) CIT V/S MERCK LTD., [2016] 73 TAXMANN.COM 23 (BOM.); 8 ITA NO.7143/MUM/2017(A.Y.2013-14) II) FIRMENICH AROMATICS INDIA PVT. L TD. V/S DCIT, ITA NO.2590/MUM./2017, DATED 23,07.2018; AND III) EMERSON CLIMATE TECHNOLOGIES INDIA LTD. V/S DOT, [2018] 90 TAXMANN.COM 125; 27. THEREFORE, IF WE APPLY THE RATIO LAID DOWN IN T HE AFORESAID DECISIONS TO THE FACTS OF THE PRESENT CASE, THE INESCAPABLE CONCLUSION WOULD BE T HAT THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER TO THE ARM'S LENGTH PRICE OF PAYMEN T MADE TOWARDS INTRA-GROUP SERVICES IS UNSUSTAINABLE. IN VIEW OF THE AFORESAID, WE HAVE NO HESITATION IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE AFORESAI D ADJUSTMENT. GROUNDS ARE ALLOWED. 11. BOTH SIDES ADMITTED THAT THE FACTS IN IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS IN ASSESSMENT YEAR 2011-12. TAKING IN TO CONSIDERATION ENTIRETY OF FACTS THE GROUNDS NO.9 TO 17 OF APPEAL ARE ALLOWED FOR PARITY OF REASONS. 12. THE GROUND NO.18 OF APPEAL IS IN RESPECT OF N ON-GRANT OF FOREIGN TAX CREDIT. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ST ATED AT BAR THAT HE IS NOT PRESSING THIS GROUND. THE GROUND NO.18 OF APPEAL IS DISMISSED AS NOT PRESSED. 13. IN GROUND NO.19 OF APPEAL THE ASSESSEE HAS AS SAILED LEVY OF INTEREST UNDER SECTION 234B OF THE ACT . CHARGING OF INTEREST UN DER SECTION 234B OF THE ACT IS MANDATORY AND CONSEQUENTIAL, ACCORDINGLY GROUND NO. 19 OF THE APPEAL IS DISMISSED. 14. IN GROUNDS NO.20 AND 21 OF THE APPEA, THE ASSES SEE HAS ASSAILED ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST UNDER SECT ION 234C OF THE ACT ON ASSESSED INCOME INSTEAD OF RETURNED INCOME. THE ASSESSING O FFICER IS DIRECTED TO RECOMPUTED INTEREST UNDER SECTION 234C OF THE ACT ON RETURNED INCOME, IN ACCORDANCE WITH LAW. THE GROUND NO.20 AND 21 OF APPEAL ARE ALLOWED FOR S TATISTICAL PURPOSE. 15. IN GROUND NO.22 OF THE APPEAL, THE ASSESSEE HAS ASSAILED INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. CH ALLENGE TO PENALTY PROCEEDINGS AT THIS STAGE IS PREMATURE, HENCE, GROUND NO.22 OF THE APPEAL IS DISMISSED. 9 ITA NO.7143/MUM/2017(A.Y.2013-14) 16. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY THE 22 ND DAY OF FEBRUARY, 2021. SD/- SD/- (RAJESH KUMAR) (VIKAS AWASTHY) 0 / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 1'/ DATED 22/02/2021 VM , SR. PS (O/S) *+2 3/+ COPY OF THE ORDER FORWARDED TO : 1. ) / THE APPELLANT , 2. *+ / THE RESPONDENT. 3. 4+ ( )/ THE CIT(A)- 4. 4+ CIT 5. 56 *+' , . . . , / DR, ITAT, MUMBAI 6. 678 9: / GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI