Bundy India Limited, Vadodara V. The Dy. CIT., Circle-1(1)(1), Baroda

ITA 720/AHD/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0028 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PARIN SHAH ARS
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Commercial expediency
• Section: 43B; 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.720/AHD/2017 (ASSESSMENT YEAR : 2011-12) BUNDY INDIA LIMITED, 2, GIDC INDUSTRIAL ESTATE, MAKARPURA, VADODARA -390 010. VS. DY. CIT, CIRCLE 1(1)(1), BARODA. [PAN NO. AAACB 3039 M] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI URVASHI SODHAN & PARIN SHAH, A.RS. RESPONDENT BY : SHRI UMA SHANKAR PRASAD, SR. D.R. DATE OF HEARING 24.10.2019 DATE OF PRONOUNCEMENT 27.12.2019 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED 06.12.2016 PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS) 1, VADODARA UNDER SECTION 143(3) R.W.S 144C(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT) ARISING OUT OF THE ORDER DATED 07.04.2015 PASSED BY THE DCIT, CIRCLE-1(1)(1), VADODARA FOR AS SESSMENT YEAR 2011-12 WITH THE FOLLOWING GROUNDS : YOUR APPELLANT BEING AGGRIEVED BY THE ORDER DATED 6 TH DECEMBER 2016 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) - 1 BARODA, [CIT(A)'] PREFERS AN APPEAL AGAINST THE SAME ON TH E FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER : 1. THE LEARNED CIT(A) ERRED IN LAW AND FACTS IN UPHOLD ING THE ADDITION MADE BY LEARNED AO ON ACCOUNT OF EMPLOYEE CONTRIBUTION TO P ROVIDENT FUND AND ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 2 - EMPLOYEES' STATE INSURANCE CORPORATION AMOUNTING RS .1,63,872 ON THE GROUND THAT THE SAME WAS NOT PAID ON OR BEFORE PRES CRIBED DUE DATE AND THEREFORE NOT ALLOWABLE UNDER SECTION 43B OF THE IN COME-TAX ACT, 1961 ('THE ACT). IT IS SUBMITTED THAT IT BE SO HELD NOW AND D ISALLOWANCE CONFIRMED BE DELETED. 1.1 THE LEARNED CIT(A) AS WELL AS THE LEARNED AO ERRED IN LAW AND FACT BY NOT APPRECIATING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LIMITED [319 ITR 306]. 2 THE LEARNED CIT(A) ERRED IN LAW AND FACTS IN UPHOLD ING THE DISALLOWANCE OF DEPRECIATION ON BUILDING GIVEN ON LEASE AMOUNTING R S.60,91,110/- BY UPHOLDING THE AO'S DECISION THAT THE LEASE RENTAL I NCOME IS INCOME FROM HOUSE PROPERTY AND NOT BUSINESS INCOME UNDER THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DISALLOWANCE CONFIRMED BE DELETED. 3 THE LD. AO ERRED IN LAW AND ON FACTS IN MAKING AND THE LD. CIT(A) IN UPHOLDING AN UPWARD ADJUSTMENT OF RS.2,32,35,833/- U/S 92CA(3) OF THE ACT IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE APP ELLANT PERTAINING TO PAYMENT OF MANAGEMENT FEES. 4 THE LD. AO ERRED IN LAW AND ON FACTS AND LD. CIT(A) IN UPHOLDING DETERMINATION OF ARM'S LENGTH PRICE OF INTERNATIONA L TRANSACTIONS PERTAINING TO PAYMENT OF MANAGEMENT FEES AS 'NIL' BY APPLYING COM PARABLE UNCONTROLLED PRICE (CUP) METHOD, WITHOUT PROVIDING ANY COMPARABL E INSTANCES. 5 THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN MERELY FOLLOWING CIT(A)'S ORDER FOR EARLIER YEARS WITHOUT EXPLICITLY DEALING WITH E ACH OF THE GROUNDS AND FAILED TO APPRECIATE DISTINCT FACTS INCLUDING CHANGE IN AG REEMENT., TOWER ALLOCATION OF MANAGEMENT FEES TO THE APPELLANT, AND VARIOUS DO CUMENTS SUBMITTED BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. 6 THE LD. AO / CIT(A) ERRED IN HOLDING THAT THE SERVI CES RECEIVED BY THE APPELLANT FROM THE AES ARE WITHOUT ANY ECONOMIC BEN EFIT NOT REQUIRED OR ASKED FOR BY THE APPELLANT AND NOT COMMENSURATE WIT H THE PAYMENT MADE BY THE APPELLANT, THEREBY QUESTIONING THE COMMERCIAL E XPEDIENCY. 7 THE LD. AO / CIT(A) ERRED IN LAW AND ON FACTS IN CO MPLETELY DISREGARDING DETAILED MANAGEMENT RECHARGE ANALYSIS AND VARIOUS D OCUMENTARY EVIDENCES SUBMITTED BY THE APPELLANT TO SUPPORT ITS CONTENTIO NS REGARDING ARM'S LENGTH PAYMENT MANAGEMENT FEES. ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 3 - 8 THE LD. AO / CIT(A) ERRED IN LAW AND ON FACTS, IN D ISREGARDING AGGREGATION OF PAYMENT OF MANAGEMENT FEES WITH THE MANUFACTURING S EGMENT UNDER TRANSACTIONAL NET MARGIN METHOD (TNMM) SELECTED BY THE APPELLANT. 9 THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN COMPLET ELY DISREGARDING THE DIRECTIONS GIVEN BY THE HONORABLE DISPUTE RESOLUTIO N PANEL (DRP) IN APPELLANT'S OWN CASE OF AY 2010-11. 10 WITHOUT PREJUDICE, ON APPLYING RATIO OF ADVANCE PRI CING AGREEMENT (APA) CONCLUDED BY THE APPELLANT WITH THE CENTRAL BOARD O F DIRECT TAXES (CBDT) ON THE SAME ISSUE, NO ADJUSTMENT IS WARRANTED IN CA SE OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. THE APPELLANT CRAVES LEAVE TO ADD TO AND/ OR TO ALT ER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMEN TS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. THE FIRST GROUND RELATES TO ADDITION ON ACCOUNT OF EMPLOYEES PROVIDENT FUND AND EMPLOYEE STATE INSURANCE CORPORATION AMOUN TING TO RS. 1,63,872/-. SUCH CLAIM OF THE ASSESSEE AS IT APPEARS FROM THE R ECORDS, WAS REJECTED BY THE LD. AO ON THE GROUND THAT THAT THE SAME WAS NOT PAI D ON OR BEFORE PRESCRIBED DUE DATE. THE LD. AO, THEREFORE, ADDED THE SAME AS IT IS NOT ALLOWABLE UNDER SECTION 43B OF THE INCOME TAX ACT, 1961. THE SAME WAS FURTHER CONFIRMED BY THE LD. CIT(A) THE ISSUE IS ALREADY BEEN DECIDED AG AINST THE ASSESSEE IN TERMS OF THE RATIO LAID DOWN PASSED BY THE HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION (G SRTC) REPORTED IN [2014] 41 TAXMANN.COM 100 (GUJARAT). HENCE, WE FIND NO ME RIT IN THIS GROUND OF APPEAL PREFERRED BY THE ASSESSEE. THE SAME, THUS, DISMISSED. 3. NEXT GROUND RELATES TO DISALLOWANCE OF DEPRECIAT ION OF BUILDING GIVEN ON LEASE AMOUNTING TO RS. 60,91,110/-. ON THE GROU ND THAT THE LEASE RENTAL INCOME IS INCOME FROM HOUSE PROPERTY AND NOT BUSINE SS INCOME UNDER THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS RECEIVED RENT OF RS. 93,72,000/- FROM HANIL TUBES INDIA PVT. LTD. (HTIL) IN RESPECT OF LEASING OF ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 4 - LAND AND FACTORY BUILDING. THE SAID INCOME WAS OFF ERED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME. IN REPLY TO SHOW-CAUSE ISSUED BY THE AO AS TO WHETHER THE SAID INCOME SHOULD NOT BE TAXED UNDER T HE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF INCOME FROM BUSINESS OR PROFESSION. THE ASSESSEE STATED THAT IT WAS A FACTORY BUILDING WHICH WAS GIV EN ON RENT; THE SAME WAS CONSTRUCTED FOR CARRYING OUT MANUFACTURING ACTIVITI ES OF THE APPELLANT. SUBSEQUENTLY, DUE TO CERTAIN COMMERCIAL EXPEDIENCY THE ENTIRE BUSINESS WAS DEMERGED TO A SEPARATE LEGAL ENTITY NAMED HANIL TUB ES INDIA PVT. LTD. (HTIL). HOWEVER, AS PER RESTRUCTURING ARRANGEMENT LAND AND FACTORY BUILDING WAS NOT TRANSFERRED TO THE NEW COMPANY AND INSTEAD GIVEN ON LEASE IN THE INITIAL YEAR TO MAKE ASSET BASE OF HANIL TUBES INDIA PVT. LTD. (HTI L). THIS WAS DONE ONLY TO SUPPORT THE SUBSIDIARY COMPANY. SUBSEQUENTLY, DURI NG THE YEAR 2011-12 LEASE HELD LAND HAS BEEN TRANSFERRED TO A SAID NEW ENTITY HTIL. MORESO, THE BUILDING GIVEN A RENT IS NOT A BARE SALE BUILDING BUT CONSIS TENT OF AMENITIES REQUIRED TO RUN THE BUSINESS. SINCE THE BUILDING WAS GIVEN ON LEASE OUT OF COMMERCIAL EXPERIENCE AND NOT WITH THE INTENTION OF THE EARNIN G INTEREST INCOME THE INCOME EARNED THEREFROM SHOULD BE CONSIDERED AS INCOME FR OM BUSINESS OR PROVISION AND NOT INCOME FROM HOUSE PROPERTY. HOWEVER, SUC H PLEA OF THE ASSESSEE WAS NOT FIT BY THE LD. AO AND THE DEPRECIATION ON T HE SAID LEASE HOLD BUILDING AMOUNTING TO RS. 60,91,110/- FOR THE YEAR UNDER CON SIDERATION WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE SAME WAS FURTHER CONFIRMED BY THE FIRST APPELLATE AUTHORITY. HENCE, THE INSTA NT APPEAL BEFORE US. HEARD THE PARTIES, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. AS IT APPEARS FROM THE RECORDS THAT THE CASE OF THE ASSESSEE IS THIS THAT THE FACTORY BUILDING WAS NOT CONSTRUCTED WITH THE OBJEC T TO EARN RENT INCOME, BUT TO USE THE SAME FOR MANUFACTURING ACTIVITY TO SERVE TH E CLIENT IN BETTER WAY; THE ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 5 - SAME WAS CONSTRUCTED OF COMMERCIAL USE AND NOT DWEL LING FOR RESIDENTIAL PURPOSE AND HENCE INCOME RECEIPT CANNOT BE CATEGORI ZED AS INCOME FROM HOUSE PROPERTY. FURTHER THAT THE BUILDING OWNED B Y THE APPELLANT AND USED IN ITS DOES NOT PAY LEASING DEPRECIATION IS TO BE ALLO WED. THE CASE OF THE REVENUE IS THIS THAT THE ASSESSEE IS NOT IN THE BUSINESS OF LEADING THE PROPERTY ON RENT AND, THEREFORE, THE INCOME FROM RENT IS NOT LIABLE TO FORM PART OF BUSINESS INCOME OF THE ASSESSEE. IN THAT VIEW OF THE MATTER THE RENT INCOME IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY AND DEPRECIAT ION IS ALLOWABLE TO BE DISALLOWED. IT IS A FACT THAT THE BUILDING HAS BEE N GIVEN ON THE LEASE ON APPELLANT AMOUNTS TO LETTING OUT OF THE HOUSE PROPE RTY SIMPLY SITTER WITHOUT INVOLVING ANY OTHER ACTIVITY ON THE PART OF THE APP ELLANT AND THUS LETTING OUT OF THE SAID HOUSE PROPERTY CANNOT BE DEEMED TO BE CARR YING ON ANY BUSINESS BY THE APPELLANT. IN AN IDENTICAL SITUATION THE HONB LE APEX COURT IN THE MATTER OF THE UNIVERSAL PLAST LTD. (1999) 103 TAXMANN 493(SC) . THE HONBLE APEX COURT DECIDE LEASE RENT RECEIVED FROM LETTING OUT T HE FACTORY PREMISES IN RESPECT OF WHICH THE ASSESSEE HAD DECIDED TO GO OUT OF BUSINESS WAS TO BE ASSESSED AS INCOME FORM HOUSE PROPERTY AND NOT BUSI NESS INCOME. RELYING UPON THE JUDGMENT WHILE CONFIRMING THE ORDER PASSED BY THE LD. AO THE LD. CIT(A) OBSERVED AS FOLLOWS:- 5.4. ON THE BASIS OF SUCH DISCUSSIONS, THE APEX CO URT RULED THAT THE LEASE RENT RECEIVED FROM LETTING OUT THE FACTORY PREMISES IN RESPECT OF WHICH THE ASSESSEE HAD DECIDED TO GO OUT OF BUSINESS, WAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME. IN THE P RESENT CASE ALSO, THE APPELLANT NEVER INTENDED TO CONDUCT ANY BUSINESS BY UTILIZING THE FACTORY PREMISES WHICH WERE GIVEN ON RENT TO HTIL. HENCE TH E ISSUE IS COVERED AGAINST THE APPELLANT BY THE RATIO LAID DOWN BY THE APEX COURT IN THE ABOVE DECISION. IT MAY ALSO BE MENTIONED HERE THAT THE HO N'BLE HIGH COURT OF MADRAS IN ITS DECISION IN THE CASE OF [2014 ] 52 TAXMANN.COM 469 (MADRAS), KEYARAM HOTELS (P.) LTD. HAS HELD THAT WHERE THE ASSESSEE WAS NOT ENGAGED IN ANY BUSINESS ACTIVITY, RENTAL INCOME EARNED FROM LETTING OUT OF COMMERCIAL BUILDINGS WILL BE ASSESSED AS INCOME FROM HOUSE PRO PERTY AND NOT AS BUSINESS INCOME. THE SLP FILED BY THE ASSESSEE AGAINST THIS DECISION IS ALSO DISMISSED ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 6 - BY THE HON'BLE SUPREME COURT OF INDIA, AS REPORTED IN (2015) 63 TAXMANN.COM 301 (SC). IN THE PRESENT CASE ALSO, THE APPELLANT IS NOT CARR YING ON ANY BUSINESS ACTIVITY IN RELATION TO THE FACTORY PREMISES GIVEN ON LEASE TO M/S. HTIL AND HENCE, THE RENTAL INCOME RECEIVED ON ACCOUNT OF LEASING OUT OF SAID PREMISES HAS TO BE ASSESSED AS INCOME FROM HOU SE PROPERTY AS HAS BEEN DONE BY THE AO. ACCORDINGLY, THE ACTION OF THE AO I S UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. WE, THEREFORE, TAKING INTO CONSIDERATION THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE ISSUE BEFORE US FIND NO I RREGULARITIES IN THE ORDER PASSED BY THE AUTHORITIES BELOW IN NOT ALLOWING SUC H INCOME OF RENT RECEIVED BY THE APPELLANT AS INCOME FROM BUSINESS OR PROFESS ION AND IN NOT ALLOWING THE DEPRECIATION CLAIMED BY THE ASSESSEE UPON THE CATEG ORIZING THE SAID INCOME AS INCOME FROM HOUSE PROPERTY. SO AS TO, WARRANT INTE RFERENCE HENCE WE CONFIRM THE SAME. ASSESSES APPEAL IS THUS FOUND TO BE DEV OID OF ANY MERIT AND HENCE DISMISSED. 4. GROUND NOS. 3 TO 10 ARE INTERLINKED AND, THUS, T HE SAME ARE DEALT WITH ANALOGOUSLY HEREINBELOW. 5. THE MAIN GRIEVANCE OF THE ASSESSEE IS THIS THAT THE LEARNED CIT(A) HAS UPHELD AN UPWARD ADJUSTMENT OF RS. 2,31,35,833/- UN DER SECTION 92CA(3) OF THE INCOME TAX ACT IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT PERTAINING TO PAYMENT OF MANAGEMENTS FEES. 6. THE BRIEF FACTS LEADING TO THE CASE IS THIS THAT M/S. BUNDY INDIA LIMITED (THE APPELLANT) WAS INCORPORATED IN THE YEA R 1970 HAVING ITS REGISTERED OFFICE AT VADODARA, GUJARAT. BUNDY INDIA LIMITED WA S ORIGINALLY PROMOTED AS BUNDY TUBING OF INDIA LIMITED BY THE MURUGAPPA GROU P IN THE TECHNICAL COLLABORATION WITH BUNDY CORPORATION, USA. IN THE L ATTER YEARS, TI GROUP ACQUIRED BUNDY CORPORATION. IN THE YEAR 1992, TI GR OUP ALSO ACQUIRED ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 7 - MAJORITY SHAREHOLDING IN BUNDY INDIA AND THE NAME O F THE COMPANY WAS CHANGED TO BUNDY INDIA LIMITED. SINCE THEN, BUNDY I NDIA LIMITED BECAME PART OF TI GROUP. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COPPER COATED STEEL TUBES, PLASTIC FUEL TANKS AND PROVIDING SUPPORT SER VICES IN IT, CAD & OTHER SERVICES AND MANUFACTURING OF EQUIPMENT REQUIRED TO MAKE FLUID CARRYING COMPONENTS. THE APPELLANT HAD FILED ITS RETURN OF INCOME FOR T HE YEAR AY 2011-12 ON 29LH NOVEMBER 2011 DECLARING AN INCOME OF RS. 2,96, 83.690 UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 (THE ACT) BA SED ON THE POSITION PREVAILING AS ON THE DATE OF FILING OF THE RETURN O F INCOME. THE BOOK PROFIT RETURNED U/S. 115JB OF THE ACT AMOUNTED TO RS. 7,35 ,82,357. THE RETURN WAS THEN SELECTED FOR SCRUTINY ASSESSME NT AND AN ORDER DATED 7 TH APRIL 2015 WAS PASSED U/S. 143(3) R.W.S. 144C(3) O F THE ACT BY THE LEARNED DY. COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), VADO DARA (THE LEARNED AO) ASSESSING THE TOTAL INCOME AT RS. 2,96.83,690 UNDER THE NORMAL PROVISIONS OF THE ACT EFFECTING VARIOUS ADDITIONS / DISALLOWANCES . IT IS AGAINST THIS ASSESSMENT ORDER DATED 7TH APRI L 2015 PASSED U/S. 143(3) R.W.S. 144C(3) OF THE ACT THAT THE APPELLANT PREFERRED THIS APPEAL BEFORE US LD. CIT(A) WHO ULTIMATELY DISALLOWED THE APPEAL. 3 ADDITIONS UNDER THE TRANSFER PRICING REGULATIONS DISALLOWING THE MANAGEMENT CHARGES - RS. 2,31,35,833/-. ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 8 - DURING THE COURSE OF PROCEEDING BEFORE THE LEARNED COUNSEL PRICING OFFICER THE ASSESSEE SUBMITTED THAT THE EXPENDITURE WAS INCURRED ON DIFFERENT HENCE SUCH AS FINANCE AND ADMINISTRATION, HUMAN RES OURCES, LEGAL AND PROFESSIONAL, MANAGEMENT AND INFORMATION SYSTEM, AS IA-PACIFIC MANAGEMENT CHARGE, MANUFACTURING AND TECHNOLOGY AND COMMERCIAL SALES AND MARKETING. THE LD. TRANSFER PRICING OFFICER WAS OF THE VIEW TH AT NO SUBSTANTIAL DIFFERENCE BETWEEN THE FUNCTIONS OR ALLEGED MANAGEMENT SERVICE S AND IN THAT VIEW OF THE MATTER HE HAS PROPOSED TO BENCHMARK THE MANAGEMENT FEES ON THE SAME LINE AS DONE IN THE TRANSFER PRICING PROCEEDING FOR LAST YE AR. THE ASSESSEE FURTHER SUBMITTED THE DETAILS AGAINST THE PROPOSAL TO BENCH MARK THE MANAGEMENT CHARGES IN REPLY TO THE SHOW CAUSE ISSUED DATED 26. 11.2014. IT IS RELEVANT TO MENTION THAT THE ASSESSEE HAS AGGREGATED THESE TRAN SACTIONS FOR THE PURPOSE OF BENCHMARKING AND USED TNMM METHOD AS THE MOST APPRO PRIATE METHOD ON THE ENTITY LEVEL. ACCORDING TO THE LD. TRANSFER PRICING OFFICER EVEN IN THE OECD GUIDELINES IT HAS BEEN SUGGESTED THAT EAT EACH INDI VIDUAL TRANSACTION SHOULD BE SEPARATELY BENCHMARKED. HOWEVER, TRANSACTION WHICH IS SIMILAR IN NATURE OR CLOSELY INTERLINKED TRANSACTION COULD BE BENCHMARKE D TOGETHER AS ONE SEGMENT. IN THE INSTANT CASE AN ATTEMPT HAS BEEN MADE BY THE ASSESSEE TO TAKE UNDUE ADVANTAGE OF THIS PARTICULAR GUIDELINES AND PROVISI ONS OF LAW. ACCORDING TO THE LD. TRANSFER PRICING OFFICER CUP IS THE APPROPRIATE METHOD IN THE INSTANT CASE, WHILE OUGHT TO HAVE BEEN FOLLOWED BY THE ASSESSEE. FINALLY AFTER TAKING INTO CONSIDERATION THE ENTIRE SUBMISSION MADE BY THE ASS ESSEE AND THE JUDICIAL PRONOUNCEMENT ON THIS ASPECT THE LD. TRANSFER PRICI NG OFFICER CAME TO A FINDING THAT THE ASSESSEE IS REQUIRED TO JUSTIFY TH E ARMS-LENGTH NATURE OF THE PAYMENT BEFORE HIM ESTABLISHING THAT THE PAYMENTS W ERE MADE COMMENSURATE TO THE VOLUME AND QUALITY OF SERVICE. THE ASSESSEE HAS FAILED TO JUSTIFY THE ARMS-LENGTH NATURE OF THE MANAGEMENT CHARGES PAID BY IT TO THE ASSOCIATE ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 9 - ENTERPRISE AND THEREFORE THE ARMS-LENGTH PRICE OF THE MANAGEMENT FEES IS TAKEN AT NIL USING CUP METHOD AS THE MOST APPROPRIATE MET HOD AS THE OBSERVATION MADE BY THE LD. TPO. ACCORDINGLY, AN ASSESSMENT OF RS.2,31,35,833/- HAS BEEN PROPOSED TO BE MADE TO THE TOTAL INCOME OF THE ASSESSEE IN ORDER THAT THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE COMPANY ARE AT ARMS-LENGTH WHICH WAS ALSO FOLLOWED BY THE LD. ASSESSING OFFICER AGAI NST WHICH APPEAL HAS BEEN PREFERRED BY THE ASSESSEE. HOWEVER THE SAME HAS BEE N CONFIRMED BY THE FIRST APPELLATE AUTHORITY. HENCE, THE INSTANT APPEAL BEFO RE US. 7. HEARD THE RESPECTIVE PARTIES, PERUSED THE RELEVA NT MATERIALS AVAILABLE BEFORE US. WE HAVE ALSO GONE THROUGH THE DATE PROVI DED BY THE LD. SENIOR COUNSEL IN THIS ASPECT AT THE TIME OF HEARING BEFOR E US. IT APPEARS THAT UNDER THE MUTUAL AGREEMENT PROCEDURE THE 70% ACTUAL EXPENSES INCURRED UNDER THE MANAGEMENT FEES WAS ALLOWED FOR ASSESSMENT YEARS 20 07-08, 2008-09, AND 2009-10 IN RESPECT OF THE CASE OF THE ASSESSEE ITSE LF. THE DETAILS IN RESPECT OF ALLOWABILITY OF EXPENSES UNDER THE ADVANCED PRICING AGREEMENT HAS ALSO BEEN PLACED ON RECORD BY THE APP ELLANT COMPANY BEFORE US WHEREFROM IT APPEARS THAT 2% OF THE OPERATING REVEN UE OF MANUFACTURING SEGMENT HAS BEEN ALLOWED IN RESPECT OF ASSESSMENT Y EAR 2015-16, 2016-17 AND 2017-18. HOWEVER 3% OF THE OPERATING REVENUE OF MAN UFACTURING SEGMENT HAS BEEN ALLOWED UNDER THE ADVANCED PRICING AGREEMENT F OR ASSESSMENT YEAR 2018- 19. IT IS RELEVANT TO MENTION THAT THE ADVANCED PRI CING AGREEMENT HAS BEEN RECOGNIZED AS THE HIGHEST BODY UNDER THE INCOME TAX AUTHORITY BEING THE CBDT AND IN VIEW OF THE ALLOWABILITY OF EXPENSES MADE BY THE APA AS MENTIONED HEREINABOVE WE ARE OF THE VIEW THAT THE MANAGEMENT EXPENSES CANNOT, AT ALL BE SAID TO BE NEARLY AS THE CASE SOUGHT TO BE MADE OUT BY THE REVENUE BEFORE US. IN THAT VIEW OF THE MATTER TAKING INTO CONSIDERATION T HE ADVANCED PRICING ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 10 - AGREEMENT WHICH WAS APPLIED IN RESPECT OF ASSESSMEN T YEARS 2015-16, 2016- 17, 2017-18 AND 2018-19, WE ARE OF THE CONSIDERED O PINION TO ALLOW 1.5% OF THE OPERATING REVENUE OF ON THE IDENTICAL FACTS AND CIRCUMSTANCES AVAILABLE BEFORE US TAKING INTO CONSIDERATION THE INCREASING RATIO OF THE ALLOWABILITY OF THE EXPENSES INCURRED BY THE ASSESSEE. IT IS ON REC ORD THAT FOR ASSESSMENT YEARS 2015-16 TO 2017-18 THE DISALLOWANCE WAS OF 2% ONLY WEARERS, IN 2018-19 IT HAS INCREASED TO 3%. SINCE THE ASSESSMENT PROCEEDIN G BEFORE US IS FOR THE YEAR 2011-12 MARCH BEFORE THE CONSIDERATION OF THE YEAR UNDER APA IN OUR CONSIDERED VIEW 1.5% DISALLOWANCE WILL BE APPROPRIA TE FOR THE CASE OF THE ASSESSEE BEFORE US .FURTHER THAT THE LEARNED AND DE PARTMENTAL REPRESENTATIVE FAILED TO BRING ANY COUNTRY DOCUMENT WHICH SHOWS TH AT THE FACT IS OTHERWISE THAN THAT HAS BEEN DEALT WITH BY THE ADVANCED PRICI NG AGREEMENT WHILE DETERMINING THE ALLOWABILITY OF EXPENSES OF THE APP ELLANT COMPANY. SINCE THE ASSESSEE HAS CLAIMED THE EXPENSES TO THE TUNE OF RS .2,31,35,833/- AND AFTER APPLYING 2% OF THE OPERATING REVENUE OF MANUFACTURI NG SEGMENT WHICH IS WORKED OUT AT RS.2,20,88,379/-, HENCE WE DISALLOW R S.10,47,454/- LAKH AGAINST THE ASSESSEE IN RESPECT OF THE OPERATING REVENUE OF MANUFACTURING SEGMENT. IN THE RESULT ASSESSES APPEAL IS PARTLY ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 27/12/2019 SD/- SD /- ( PRAMOD KUMAR ) ( MS. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 27/12/2019 TANMAY, SR. PS TRUE COPY ITA NO.720/AHD/2017 BUNDY INDIA LTD. VS. DCIT ASSESSMENT YEAR 2011-12 - 11 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. !' #$ / GUARD FILE. / BY ORDER //TRUE COPY// / (DY./ASSTT.REGISTRAR) , !' / ITAT, AHMEDABAD 1. DATE OF DICTATION . (COMPUTER DICTATION) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S .. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK02.01 .2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER