BHANSALI & CO., MUMBAI V. ADDL CIT RG 16(3), MUMBAI

ITA 7352/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71743 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 02-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: AJIT TOLANI
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Additional depreciation; Bad and doubtful debts; Notional interest
• Section: 143(3); 80G; 32

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI .. , !'# $ $ $ $ % &' , ( !'# !) BEFORE SHRI P.M. JAGTAP, AM AND SHRI AMIT SHUKLA, J M !./ I.T.A. NO. 7352/MUM/2012 ( (+ , $-, (+ , $-, (+ , $-, (+ , $-, / / / / ASSESSMENT YEAR : 2008-09 !./ I.T.A. NO. 7969/MUM/2010 ( (+ , $-, (+ , $-, (+ , $-, (+ , $-, / / / / ASSESSMENT YEAR : 2006-07 M/S BHANSALI & CO., 640-646, PANCHRATNA, MAMA PARMANAND MARG, OPERA HOUSE, MUMBAI 400 004. + + + + / VS. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 16(3), ROOM NO. 212, 2 ND FLOOR, MATRU MANDIR, TARDEO, MUMBAI 400 007. #. !./ PAN : AACFB 8643 C ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) APPELLANT BY SHRI AJIT TOLANI RESPONDENT BY : SHRI AJEET KUMAR JAIN !+$ 2 / // / DATE OF HEARING : 02-09-2013 34- 2 / DATE OF PRONOUNCEMENT : 22-11-2013 '& / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# OUT OF THESE TWO APPEALS FILED BY THE ASSESSEE, THE APPEAL FOR A.Y. 2006- 07 BEING ITA NO. 7969/MUM/2010 IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) -2 MUMBAI DATED 27-1-2010 WHILE THE APPEAL F OR A.Y. 2008-09 IS DIRECTED AGAINST THE ORDER OF ADDL. CIT RANGE 16( 3), MUMBAI DATED 12-10- 2012 PASSED U/S 143(3) R.W.S. 144-C OF THE INCOME T AX ACT, 1961. SINCE SOME OF THE ISSUES INVOLVED IN THESE APPEALS ARE CO MMON, THE SAME HAVE BEEN ITA 7969/M/2010& 7352/M/2012 2 HEARD TOGETHER AND ARE BEING DISPOSED BY THIS SINGL E CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE ASSESS EE FOR A.Y. 2008-09, GROUND NO. 1 OF WHICH IS GENERAL CALLING FOR WHICH NO SPECIFIC DECISION FROM US. 3. THE COMMON ISSUE RAISED IN GROUND NO. 2, 4 & 5 R ELATES TO THE ADDITION OF RS. 6,48,72,712/- MADE BY WAY OF TRANSFER PRICIN G ADJUSTMENT IN RESPECT OF EXPORT SALES MADE BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE (AE). 4. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION O N 29-9-2008 DECLARING TOTAL INCOME OF RS. 8,22,90,939/-. IT IS ENGAGED IN THE BUSINESS OF CUTTING ROUGH DIAMONDS, SUBJECTING THE SAME TO MANUFACTURIN G PROCESS AND THEN EXPORTING THE CUT AND POLISHED DIAMONDS. THE MANUF ACTURING PROCESS FOR CUTTING AND POLISHING DIAMONDS STATED TO INVOLVE VE RY SPECIALIZED SKILL WHICH IS CARRIED OUT BY EXPERT KARIGARS SOME OF WHOM AR E INDEPENDENT SUB- CONTRACTORS AND SOME OF WHOM ARE EMPLOYED BY THE AS SESSEE. THIS PROCESS RESULTS IN VARIOUS CATEGORIES OF POLISHED DIAMONDS HAVING DIFFERENT SIZES AND QUALITY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE EXPORT OF CUT AND POLISHED DIAMONDS TO ITS AES NAMELY PRIS M DIAMONDS, USA AND BHANSALI & CO., HONGKONG AMOUNTING TO RS. 7,10,78,5 75/- AND RS. 52,92,74,437/- RESPECTIVELY. THESE INTERNATIONAL T RANSACTIONS OF THE ASSESSEE COMPANY WERE REFERRED BY THE A.O. TO THE TPO ALONG WITH OTHER INTERNATIONAL TRANSACTIONS FOR THE DETERMINATION OF THE ARMS LEN GTH PRICE (ALP). IN THE TRANSFER PRICING STUDY REPORT, THE ASSESSEE HAD USE D PROFIT SPLIT METHOD AS THE PRIMARY METHOD OF BENCHMARKING SUPPORTED BY TNMM. I T HAD SELECTED 11 COMPARABLES AND SINCE THE AVERAGE (ARITHMETIC MEAN) OP/OC OF THE SAID COMPARABLES AT 6.64% WAS LESS THAN OP/OC OF THE ASS ESSEE AT 7%, IT WAS CLAIMED THAT THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH AES WERE AT ITA 7969/M/2010& 7352/M/2012 3 ARMS LENGTH. IT WAS ALSO REPORTED THAT THE AVERAG E OP/TC OF THE SAID ELEVEN COMPARABLES AT 6.18% WAS LESS THAN OP/TC OF THE ASS ESSEE COMPANY AT 6.54%. IN SO FAR AS THE PROFIT SPLIT METHOD ADOPTE D BY THE ASSESSEE, THE TPO WAS OF THE VIEW THAT THE CASE OF THE ASSESSEE WAS N OT THAT OF UNIQUE TRANSACTION. HE ALSO NOTED THAT THE RELATIVE CONTR IBUTIONS MADE BY EACH OF THE AES TO THE EARNING OF COMBINED NET PROFIT HAD N OT BEEN EVALUATED ON THE BASIS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND R ISKS ASSUMED. HE FURTHER NOTED THAT EVEN THE SPLIT FIGURES AS OBTAINED HAD T O BE BENCHMARKED USING THIRD PARTY DATA, WHICH WAS NOT DONE. HE, THEREFOR E, HELD THAT THE SPLIT PROFIT METHOD ADOPTED BY THE ASSESSEE WAS NOT APPROPRIATE AND THE TNMM WAS CONSIDERED BY HIM AS THE MOST APPROPRIATE METHOD IN THE FACTS OF THE ASSESSEES CASE. IN SO FAR AS THE OP/OC TAKEN BY T HE ASSESSEE AS PROFIT LEVEL INDICATOR (PLI), THE TPO WAS OF THE VIEW THAT THE M OST APPROPRIATE PLI IN THE FACTS OF THE ASSESSEES CASE WAS RETURN ON CAPITAL EMPLOYED (ROCE) AS THE INDUSTRY OF THE ASSESSEE WAS HIGHLY WORKING CAPITAL INTENSIVE. ACCORDING TO HIM, THE LEVEL OF SUNDRY DEBTS AND INVENTORIES WAS VERY HIGH IN THIS INDUSTRY WHEREAS THE VALUE ADDITION AS WELL AS CONTRIBUTION OF HUMAN CAPITAL WAS LESS WHEN COMPARED TO VALUE OF THE GOODS PURCHASED AND S OLD. HE, THEREFORE, ADOPTED ROCE AS THE MOST APPROPRIATE PLI AND PROCEE DED TO DETERMINE THE ALP. IN THIS REGARD, HE REJECTED SIX OF THE ELEVEN COMPARABLES SELECTED BY THE ASSESSEE FOR THE FOLLOWING REASONS:- ITA 7969/M/2010& 7352/M/2012 4 6 ZODIAC-JRD-MKJ LTD. THE COMPANY IS MAINLY INTO TRADING IN CUT & POLISHE D DIAMONDS. THE RPTS CONSTITUTE LESS THAN 25% OF THE REVENUES. RPTS RS. NIL. AS THE COMPANY IS NOT FUNCTIONALLY SIMILAR, THE SAME IS NOT CONSIDERED AS A COMPARABLE. 5. AFTER ADDING ONE NEW COMPARABLE TO THE REMAINING FIVE COMPARABLES SELECTED BY THE ASSESSEE, THE AVERAGE ROCE OF THESE FINAL SIX COMPARABLES WAS WORKED OUT BY THE TPO AT 8.93% AS UNDER:- ITA 7969/M/2010& 7352/M/2012 5 6. THE ASSESSEE RAISED VARIOUS OBJECTIONS TO THE CO MPARABILITY ANALYSIS MADE BY THE TPO TAKING ROCE AS PLI WHICH WERE NOT FOUND SUITABLE BY THE TPO ON THE FOLLOWING GROUNDS:- ITA 7969/M/2010& 7352/M/2012 6 ITA 7969/M/2010& 7352/M/2012 7 7. ACCORDINGLY, AFTER REJECTING THE OBJECTIONS OF T HE ASSESSEE, THE TPO PROCEEDED TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES OF EXPORT OF CUT AND POLISHED DIAMONDS. IN THIS REGARD, HE OBSERVED THAT THE RETURN ON CAPITAL EMPLOYED OF THE ASSESSEE WAS AT 6.92% BEING RS. 16.57 CRORES ON RS. 239.47 CRORES WHICH W AS LESS THAN THE AVERAGE ROCE OF THE COMPARABLES FINALLY SELECTED BY HIM AT 8.93%. ACCORDINGLY, THE TP ADJUSTMENT OF RS. 4.81 CRORES WAS PROPOSED BY HI M BEING 2.01% OF RS. 239.47 CRORES. 8. THE TP ADJUSTMENT PROPOSED BY THE TPO ON ACCOUNT OF INTERNATIONAL TRANSACTIONS OF EXPORT OF CUT AND POLISHED DIAMONDS TO ITS AES WAS OBJECTED BY THE ASSESSEE BEFORE THE DRP BY RAISING THE FOLLO WING OBJECTIONS:- THE TPO HAS DETERMINED A DIFFERENCE IN PLI BETWEEN THE ASSESSEE AND THE COMPARABLES OF 2.01% AND MADE AN ADDITION ON TH E TOTAL CAPITAL EMPLOYED OF THE ASSESSEE. IT IS WELL SETTLED LAW TH AT ANY ADDITIONS IF ITA 7969/M/2010& 7352/M/2012 8 MADE, TO THE ALP AS DETERMINED BY THE ASSESSEE THE SAME HAS TO BE RESTRICTED TO THE INTERNATIONAL TRANSACTIONS REPORT ED WITH THE AE AND NOT ON THE ENTIRE BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS USED THE PLI AS OP/TC OVER THE P AST `SEVERAL YEARS IN DETERMINING THE ALP. THE ASSESSMENTS FOR EARLIER YEARS WERE ALSO ASSESSED BY THE TPO AND THIS METHOD WAS DEEMED APPR OPRIATE. IN THE INSTANT ASSESSMENT YEAR, THE TPO HAS REJECTED OP/TC AND USED PLI AS ROCE. FOR THE REASONS STATED IN THE ORDER. IN THE GEMS AND JEWELLERY INDUSTRY, THERE ARE DISTO RTIONS IN R0CE DUE TO AGEING OF ASSETS. THESE DISTORTIONS CANNOT BE ID ENTIFIED AND ELIMINATED IN SCHEDULE VI OF THE BALANCE SHEET. FUR THER THERE ARE DISTORTIONS DUE TO LOCATION OF UNITS WHICH CANNOT B E IDENTIFIED AND ELIMINATED IN A SCHEDULE VI PREPARED BALANCE SHEET. FURTHER UNPRODUCTIVE ASSETS CANNOT BE SO IDENTIFIED. THEREF ORE, ROCE AS A CONCEPT IS NOT SUITABLE TO JEWELLERY MANUFACTURING AND SALES UNITS. THEREFORE, THE CHOICE OF PLI IS INCORRECT FOR THE I NDUSTRY IN WHICH THE ASSESSEE OPERATES. FROM THE LIST OF 11 COMPARABLES SELECTED BY THE A SSESSEE, KARP IMPEX LTD. HAS BEEN INCORRECTLY EXCLUDED. AS PER THE FINA NCIALS OF KARP IMPEX LTD NOTES TO ACCOUNTS CLEARLY STATE THE COMPANY OPERATES IN ONE SEGMENT I.E. MANUFACTURING AND SELLING A SINGLE PRO DUCT I.E. DIAMOND TO VARIOUS CUSTOMERS LOCATED OUTSIDE INDIA. FURTHER TH E NOTES TO ACCOUNTS AS WELL AS THE PROFIT AND LOSS ACCOUNT SHOW THAT MA NUFACTURING ACTIVITY IS CARRIED ON BY THE ASSESSEE AS ROUGH DIAMONDS ARE PURCHASED AND POLISHED DIAMONDS ARE SOLD. FURTHER, THE FIXED ASSE TS SHOWS GROSS BLOCK OF PLANT AND MACHINERY OF RS. 56 CRORES. THIS CLEARLY INDICATES THAT KARP IMPEX HAS BEEN INCORRECTLY EXCLUDED FROM THE LIST OF COMPARABLES OF THE ASSESSEE. IN ADDITION TO THE REJECTION OF SOME OF THE COMPA RABLES THAT THE ASSESSEE SELECTED, THE TPO HAS ON ITS OWN ADDED A F EW MORE COMPARABLES. NO BASIS HAS BEEN PROVIDED TO US FOR M AKING THE SAID ADDITION. IN THE FINAL LIST OF COMPARABLES TAKEN BY THE TPO , 2 OUTLIERS HAVE BEEN INCLUDED. ASIAN STAR HAVING A R0CE OF 24.63% AND SU RAJ DIAMOND INDUSTRIES LIMITED HAVING A ROCE OF 0.88%. OUTLIERS HAVE TOBE EXCLUDED AS PER THE JUDGEMENT REFERRED TO ABOVE. EXPORT INVOICES SHOW THAT CREDIT PERIOD GIVEN TO AE AND NON-AE IS 180 DAYS. THIS SUBMISSION HAS NOT BEEN TAKEN ON REC ORD BY THE TPO. AS THE CREDIT PERIOD GIVEN IN BOTH CASES IS THE SAM E, THE SAME IS AT ALP AND THERE SHOULD BE NO INTEREST CHARGE IN RESPECT O F THE DELAYED RECEIVABLES. ITA 7969/M/2010& 7352/M/2012 9 AS REGARDS THE OUTSTANDING DEBTORS, THE TOTAL OUTST ANDING DEBTORS AS ON 31 ST MARCH, 2008 FROM THE AE WERE RS. 32.26 CRORES. IN RESPECT OF THE OUTSTANDING DEBTORS FROM THE AE, THE ASSESSEE CONFI RMS THAT ALL SALES IN RESPECT OF WHICH THE DEBTORS ARE OUTSTANDING HAVE O CCURRED ON OR AFTER OCTOBER THE DETAILS OF WHICH HAVE ALREADY BEEN FURN ISHED TO THE ASSESSING OFFICER. THE USE OF THE DEBTORS/TURNOVER RATIO IS NOT RELE VANT AS SALES HAVE OCCURRED AT DIFFERENT TIMES DURING THE YEAR TO THE AE AND NON-AE. THE TERMS OF CREDIT ARE EQUIVALENT OF 180 DAYS TO BOTH THE AE AND NON-AE. THEREFORE, IF AN EXPORT HAS BEEN MADE ON L OCTOBER BY THE ASSESSEE FIRM, ANY REALIZATION RECEIVED BY 3L MARCH OF THE F OLLOWING YEAR IS DEEMED TO HAVE BEEN RECEIVED WITHIN TIME. AS STATED ABOVE, IN THE INSTANT CASE, THE OUTSTANDING DEBTORS FOR THE AE AR E FOR SALES MADE ON OR AFTER L OCTOBER AND THEREFORE, ARE AT ARMS LENG TH WITH THE CREDIT PERIOD GRANTED TO THE NON-AE OF 180 DAYS I.E. REALI ZATION RECEIVED BEFORE 315T MARCH OR OUTSTANDING AS ON 3LST MARCH. NOTWITHSTANDING THE ABOVE, IF AN ADDITION IS TO B E MADE FOR DELAYED REALISATION, THE RATE OF 12% BEING THE YIELD ON BON DS OF 1 TO 2 YEARS CANNOT BE USED AS A CUP. THE ASSESSEE WAS NOT GIVEN THE WORKING OF 12% AND ASKED TO SHOW CAUSE WHY THIS RATE SHOULD NO T BE USED. THEREFORE, THE ASSESSEE HAS NO OPPORTUNITY TO DETER MINE THE ADEQUACY OF THIS METHOD FOR CUP. 9. THE DRP DID NOT FIND THE ABOVE OBJECTIONS RAISED BY THE ASSESSEE TO BE SUSTAINABLE AND OVERRULING THE SAME, THE TP ADJUSTM ENT OF RS. 4.81 CRORES WAS HELD TO BE PROPER BY DRP FOR THE FOLLOWING REAS ONS GIVEN IN PARA 3.3 OF ITS IMPUGNED ORDER:- WE HAVE CONSIDERED THE TPOS ORDER AND THE ASSESSE ES SUBMISSIONS. CONSIDERING THE TP RULES, THE TRENDS IN THE ASSESSE ES LINE OF BUSINESS, THE FAR ANALYSIS AND OTHER FACTS BROUGHT ON RECORD BY THE TPO, WE AGREE WITH THE METHODOLOGY. THE PROFIT SPLIT METHOD USED BY THE ASSESSEE HAS BEEN RIGHTLY SUBSTITUTED BY THE TPO. T HERE ARE NO UNIQUE TRANSACTIONS IN THE ASSESSEES CASE AND THE RESPECT IVE CONTRIBUTIONS BY THE AES TO THE GROUPS NET PROFIT HAVE NOT BEEN DET ERMINED ON A SCIENTIFIC FAR ANALYSIS. THE RESULTS ARE ALSO NOT B ENCHMARKED WITH DATA FROM THIRD PARTIES. IN THESE CIRCUMSTANCES, THE TPO HAS RIGHTLY HELD THAT TNMM IS THE MOST APPROPRIATE METHOD. THE TPO H AS GIVEN DETAILED REASONS FOR ADOPTING THE ROCE AS THE MOST APPROPRIA TE PLI. THE GEM & JEWELLERY INDUSTRY IS HIGHLY WORKING CAPITAL INTENS IVE. THE TPO HAS ALSO FOUND THAT IN ASSESSEES CASE VALUE ADDITION AS WEL L AS EMPLOYEE COST AS A PERCENTAGE OF SALES IS LESS. ROCE HAS THUS BEEN R IGHTLY ADOPTED AS THE APPROPRIATE PLI. THE TPO HAS GIVEN DETAILED REASONS FOR REJECTING THE ASSESSEES COMPARABLES IN PARA 9 OF THIS ORDER. WE FIND THE TPOS ITA 7969/M/2010& 7352/M/2012 10 ANALYSIS APT. THE SIX COMPARABLES CHOSEN BY THE TPO ARE ALSO SCIENTIFIC AND COMPATIBLE TO THE ASSESSEES PROFILE AND BUSINE SS FUNCTIONS. THE ASSESSEES SPECIFIC REFERENCE TO THE REJECTION OF K ARP IMPEX LTD. AS A COMPARABLE IS MISPLACED. THE COMPANY IS FUNCTIONALL Y NOT SIMILAR. THIS COMPANY IS MAINLY INTO TRADING IN POLISHED DIAMONDS WHEREAS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CUTTING ROUG H DIAMONDS, SUBJECTING IT TO MANUFACTURING PROCESS AND THEN EXP ORTING THE CUT AND POLISHED DIAMONDS. THE ASSESSEES BUSINESS IS THUS HIGHLY SPECIALISED. SINCE THE TPO HAS USED ROCE AS THE P11, THERE COULD BE NO QUESTION OF APPLYING THE ARMS LENGTH R0CE TO THE SALES MADE TO THE AES, AND HE HAS CORRECTLY APPLIED THE SAME TO THE CAPITAL EMPLO YED IN THE ASSESSEES CASE TO DETERMINE THE ADJUSTMENT. THE ADJUSTMENT IS THUS IN ORDER. 10. THE LD. COUNSEL FOR THE ASSESSEE RAISED MAINLY TWO CONTENTIONS IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE. HE S UBMITTED THAT EVEN GOING BY THE RETURN ON CAPITAL EMPLOYED TAKEN BY THE TPO AS PRICE LEVEL INDICATOR, IF THE ADJUSTMENT IS LIMITED TO INTERNATIONAL TRANSACT IONS OF THE ASSESSEE WITH ITS AES, THE ALP OF THE TRANSACTIONS OF THE ASSESSEE OF EXPORT OF CUT AND POLISHED DIAMONDS WITH ITS AES WOULD COME TO RS. 61.15 CRORE S AS AGAINST RS. 60.04 CRORES CHARGED BY THE ASSESSEE AND THE DIFFERENCE B EING WITHIN THE RANGE OF 5%, NO TP ADJUSTMENT IS REQUIRED TO BE MADE IN RESP ECT OF THE SAID TRANSACTION. IN THIS REGARD, HE INVITED OUR ATTENT ION TO THE WORKING FURNISHED AT PAGE 6 OF HIS PAPER BOOK AND SUBMITTED THAT IF T HE DIFFERENCE IN ROCE OF 2.01% (8.93% AS PER TPOS COMPARABLES AND 6.92% THA T OF THE ASSESSEE) IS APPLIED TO THE AVERAGE CAPITAL EMPLOYED BY THE ASSE SSEE IN RELATION TO ITS TRANSACTIONS WITH AES OF RS. 55.37 CRORES, THE RESU LTANT ADJUSTMENT WOULD BE RS. 1.11 CRORES AND THE ALP WOULD ACCORDINGLY COME TO RS. 61.15 CRORES AS AGAINST RS. 60.04 CRORES CHARGED BY THE ASSESSEE. H E CONTENDED THAT SINCE THE DIFFERENCE IN THESE TWO PRICES IS LESS THAN 5%, NO ADJUSTMENT WOULD BE REQUIRED TO BE MADE AS PER THE PROVISO TO SECTION 9 2-C OF THE ACT. HE FURTHER SUBMITTED THAT THE OP/TC IS ACTUALLY MORE APPROPRIA TE PRICE LEVEL INDICATOR IN THE FACTS OF THE ASSESSEES CASE AND THE SAME HAS B EEN ACCEPTED BY THE ASSESSING OFFICER/TPO IN ASSESSEES OWN CASE FOR TH E EARLIER YEARS. HE SUBMITTED THAT IF THE SAID PLI IS USED BY ADOPTING THE CONSISTENT APPROACH, THE ARITHMETIC MEAN OF OP/TC OF THE COMPARABLES SEL ECTED BY THE TPO WOULD ITA 7969/M/2010& 7352/M/2012 11 COME TO 7.60% AS AGAINST 6.82% THAT OF THE ASSESSEE . HE INVITED OUR ATTENTION TO THE WORKING FURNISHED IN THIS REGARD A T PAGE 7 & 8 OF THE PAPER BOOK AND SUBMITTED THAT IF THE DIFFERENCE OF 0.78% IS ADJUSTED, THE ALP OF THE RELEVANT INTERNATIONAL TRANSACTIONS MADE BY THE ASS ESSEE WITH ITS AES WOULD COME TO RS. 60.48 CRORES AS AGAINST RS. 60.04 CRORE S AND THIS DIFFERENCE BEING LESS THAN 5%, NO ADJUSTMENT WOULD BE REQUIRED ON AC COUNT OF TRANSFER PRICING AS PER THE PROVISO TO SECTION 92-C OF THE ACT. IN S UPPORT OF THIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECI SION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S RATILAL BECHARLAL & SONS VS. JCIT RENDERED VIDE ITS ORDER DATED 7 TH NOVEMBER, 2012 PASSED IN ITA NO. 7876/MUM/2011. 11. THE LD. D.R., ON THE OTHER HAND, DID NOT RAISE ANY MATERIAL CONTENTION TO DISPUTE THE PROPOSITIONS PUT FORTH BY THE LD. CO UNSEL FOR THE ASSESSEE IN PRINCIPLE. HE, HOWEVER, CONTENDED THAT THE WORKING FURNISHED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL IN SUPPORT O F ITS TWO CONTENTIONS SHOWING THAT THE DIFFERENCE IS LESS THAN 5% BETWEEN THE ALP AND PRICE CHARGED BY THE ASSESSEE REQUIRES VERIFICATION AND THEREFORE AN OPP ORTUNITY MAY BE GIVEN TO THE A.O./TPO TO VERIFY THE SAME. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT ROCE IS TAKEN BY THE TPO AS PRICE LEVEL INDICATOR AND SINCE THE AVERAGE ROCE OF THE COMPARABLES SELECTED BY HIM WAS FOUND TO BE 8.93% AS AGAINST 6.92% THAT OF THE ASSESSEE, THE DIFFERENCE OF 2.01% WAS APPLIED BY HIM TO THE CAPIT AL EMPLOYED FOR THE ENTIRE BUSINESS OF THE ASSESSEE TO MAKE TP ADJUSTMENT OF R S. 4.81 CRORES. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, THE SAID DIFFERENCE OF 2.01% IS REQUIRED TO BE APPLIED ONLY TO THE CAPITAL EMPLOYED BY THE ASSESSEE FOR THE PURPOSE OF ITS TRANSACTIONS OF EXPORT OF CUT AND PO LISHED DIAMONDS WITH ITS AES. THE LD. COUNSEL FOR THE ASSESSEE HAS FURNISHE D THE FOLLOWING WORKING IN THIS REGARD:- ITA 7969/M/2010& 7352/M/2012 12 PARTICULARS TRANSACTIONS WITH AES TRANSACTIONS WITH NON-AES TOTAL SALES A 60.04 199.61 259.65 AVERAGE CAPITAL EMPLOYED B 55.37 184.10 239.47 ROCE AS PER ASSESSEES COMPARABLES C 6.92% 6.92% 6.92% ROCE AS PER TPOS COMPARABLES D 8.93% 8.93% 8.93% DIFFERENCE IN ROCE E=D-C 2.01% 2.01% 2.01% ADJUSTMENT TO EXPORT SALES F=E*B 1.11 3.70 4.81 ARMS LENGTH SALES G=A+F 61.15 203.31 264.46 RANGE OF ARMS LENGTH PRICE CONSIDERING 5% VARIATION FROM ALP +5% 64.21 277.69 -5% 58.10 251.24 13. A PERUSAL OF THE ABOVE WORKING SHOWS THAT IF TH E DIFFERENCE OF 2.01% IN ROCE IS APPLIED TO THE AVERAGE CAPITAL EMPLOYED AT RS. 55.37 CRORES FOR THE PURPOSE OF ASSESSEES TRANSACTIONS WITH ITS AES, TH E ADJUSTMENT REQUIRED TO BE MADE WOULD BE RS. 1.11 CRORES AND ACCORDINGLY THE A LP OF THE INTERNATIONAL TRANSACTIONS WOULD COME TO RS. 61.15 CRORES AS AGAI NST RS. 60.04 CRORES CHARGED BY THE ASSESSEE. CONSEQUENTLY, THE DIFFEREN CE BETWEEN THESE TWO VALUES BEING LESS THAN THE SAFE HARBOR LIMIT OF 5% STIPULATED IN PROVISO TO SECTION 92-C OF THE ACT, NO TP ADJUSTMENT IS REQUIR ED TO BE MADE IN RESPECT OF ITA 7969/M/2010& 7352/M/2012 13 ASSESSEES TRANSACTIONS OF EXPORT OF CUT AND POLISH ED DIAMONDS WITH ITS AES AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASS ESSEE. 14. IT IS ALSO OBSERVED THAT ROCE IS TAKEN BY THE T PO AS PLI FOR THE PURPOSE OF COMPARABILITY ANALYSIS AS AGAINST OPERAT ING PROFIT TO TOTAL COST (OP/TC) AS TAKEN CONSISTENTLY BY THE ASSESSEE AND E VEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS. IF OP/TC IS TAKEN AS PLI IN THE YEAR UNDER CONSIDERATION FOR THE PURPOSE OF COMPARABILITY ANAL YSIS IN CONSISTENT WITH THE APPROACH ADOPTED IN THE PRECEDING YEARS, THE ARITHM ETIC MEAN OF OP/TC OF THE COMPARABLES SELECTED BY THE TPO WOULD BE 7.60% AS SHOWN IN THE FOLLOWING WORKING FURNISHED BY THE ASSESSEE:- SR NO. NAME OF THE COMPARABLE COMPANY PLI (OP/TC)% COMMENTS 1 ASIA STAR CO. LTD. 7.14 SELECTED AS A COMPARABLE COMPANY BY THE ASSESSEE. 2 GOENKA DIAMONDS & JEWELS LTD. 9.30 SELECTED AS A COMPARABLE COMPANY BY THE ASSESSEE. 3 MOHIT DIAMONDS PVT. LTD. 4.46 SELECTED AS A COMPARABLE COMPANY BY THE ASSESSEE. 4 SHYAM STAR GEMS LTD. 17.15 NEW COMPANY INCLUDED BY THE TPO 5 SURAJ DIAMONDS & JEWELLERY LTD. 3.48 NEW COMPANY INCLUDED BY THE TPO 6 SURAJ DIAMOND INDUSTRIES LTD. 4.08 SELECTED AS A COMPARABLE COMPANY BY THE ASSESSEE. ARITHMETIC MEAN 7.60 AS AGAINST THE AVERAGE OP/TC OF THE COMPARABLES SEL ECTED BY THE TPO, THE OP/TC OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERAT ION IS 6.82%AS SHOWN IN THE FOLLOWING WORKING FURNISHED BY THE ASSESSEE:- ITA 7969/M/2010& 7352/M/2012 14 PARTICULARS AMOUNT(INR) INCOME SALES 2,596,478,466 OTHER INCOME 27,480 TOTAL INCOME 2,596,505,946 EXPENDITURE COST OF GOODS SOLD 2,164,488,618 ADMINISTRATIVE & OTHER EXPENSES (INCLUDES BANK CHARGES AND BAD DEBTS) 79,526,805 INCREASE/(DECREASE) IN STOCK 176,757,200 DEPRECIATION 10,002,802 TOTAL EXPENDITURE 2,430,775,425 NET OPERATING PROFIT 165,730,521 OP/TC(%) 6.82 15. THE OP/TC OF THE ASSESSEE THUS IS LOWER BY 0.78 % (7.60% (-) 6.82%) AND IF THE ADJUSTMENT TO THAT EXTENT IS MADE TO THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES ON ACCOUNT OF CUT AND POLISHED DIAMONDS AMOUNTING TO RS. 60.04 CRORES, THE ALP OF THE SAID TRANSACTIONS WOULD COME TO RS. 60.48 CRORES AS AGAINST RS. 60.04 CRORES CHA RGED BY THE ASSESSEE AS SHOWN IN THE FOLLOWING WORKING FURNISHED BY THE ASS ESSEE:- PARTICULARS TRANSACTIONS WITH AES TRANSACTIONS WITH NON-AES TOTAL SALES A 60.04 199.61 259.65 TOTAL COST B 56.21 186.61 243.07 TOTAL PROFIT C 3.83 12.75 16.58 OP/TC OF ASSESSEE D 6.82% 6.82% 6.82% OP/TC AS PER TPOS E 7.60% 7.60% 7.60% ITA 7969/M/2010& 7352/M/2012 15 COMPARABLES DIFFERENCE IN OP/TC F=E-D 0.78% ADJUSTMENT TO EXPORT SALES G=F*B 0.44 ARMS LENGTH SALES H=A+G 60.48 RANGE OF ARMS LENGTH PRICE CONSIDERING 5% VARIATION FROM ALP +5% 63.50 -5% 57.45 16. AS THE ALP OF THE RELEVANT TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES AS WORKED OUT ABOVE AT RS. 60.48 CRORES IS WITHIN THE RANGE OF SAFE HARBOR LIMIT OF 5% AS STIPULATED IN PROVISO TO SECT ION 92-C OF THE ACT, NO TP ADJUSTMENT IS REQUIRED TO BE MADE TO THE TRANSACTIO NS OF THE ASSESSEE COMPANY WITH ITS AES OF EXPORT OF CUT AND POLISHED DIAMONDS AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE. 17. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. HAS NOT RAISED ANY MATERIAL CONTENTION TO DISPUTE THE PROPOSITIONS PUT FORTH BY THE LD. COUNSEL FOR THE ASSESSEE DULY SUPPORTED BY THE WORKING FURN ISHED BY HIM SHOWING THAT THE ALP OF THE INTERNATIONAL TRANSACTIONS OF T HE ASSESSEE COMPANY WITH ITS AES OF EXPORT OF CUT AND POLISHED DIAMONDS WOUL D BE WITHIN THE RANGE OF SAFE HARBOR LIMIT OF 5% AS STIPULATED IN THE PROVIS O TO SECTION 92-C OF THE ACT GOING BY ANY OF THE TWO METHODS ADOPTED FOR THE PUR POSE OF COMPARABILITY ANALYSIS. HE, HOWEVER, HAS CONTENDED THAT THIS WOR KING FURNISHED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL IN SUPPORT OF ITS TWO ALTERNATIVE STANDS REQUIRES VERIFICATION AND THE A.O/TPO MAY TH EREFORE BE GIVEN AN OPPORTUNITY TO VERIFY THE SAID WORKING. WE FIND MER IT IN THIS CONTENTION OF THE ITA 7969/M/2010& 7352/M/2012 16 LD. D.R. ACCORDINGLY, THE MATTER IS RESTORED TO TH E FILE OF THE A.O./TPO WITH A DIRECTION TO VERIFY THE WORKING FURNISHED BY THE AS SESSEE IN SUPPORT OF ITS CASE THAT THE ALP AS WORKED OUT BY ANY OF THE TWO METHOD S BEING WITHIN THE SAFE HARBOR LIMIT OF 5% THAT THE PRICE CHARGED BY THE AS SESSEE, NO TP ADJUSTMENT IS REQUIRED TO BE MADE IN RESPECT OF THE TRANSACTIO NS OF THE ASSESSEE COMPANY WITH ITS AES OF IMPORT AND EXPORT OF CUT AND POLISH ED DIAMONDS. ON VERIFICATION, IF IT IS FOUND THAT THE DIFFERENCE IS LESS THAN 5% AS CLAIMED BY THE ASSESSEE, THE A.O. SHALL NOT MAKE ANY TP ADJUSTMENT IN RESPECT OF TRANSACTIONS OF THE ASSESSEE WITH ITS AES OF EXPORT OF CUT AND POLISHED DIAMONDS. GROUND NO. 1, 2, 4 & 5 OF THE ASSESSEES APPEAL FOR A.Y. 2008-09 ARE ACCORDINGLY TREATED AS ALLOWED AS INDICATED ABO VE. 18. THE ISSUE RAISED IN GROUND NO. 3 OF ASSESSEES APPEAL FOR A.Y. 2008-09 RELATES TO THE ADDITION MADE BY THE ASSESSING OFFIC ER/TPO BY WAY OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON OUTSTANDING AE DEBTORS. 19. AS NOTED BY THE TPO, THE ASSESSEE HAD GRANTED E XCESS CREDIT PERIOD TO ITS AES BY 85 DAYS VIS--VIS CREDIT GRANTED TO THIR D PARTIES. AS THE ASSESSEE COULD NOT BRING ANY EVIDENCE ON RECORD TO SUPPORT A ND SUBSTANTIATE ITS CLAIM THAT THE THIRD PARTIES WERE ALSO BEING GRANTED SAME CREDIT PERIOD OF 180 DAYS AS GRANTED TO THE AES, THE TPO HELD THAT THE ASSESS EE OUGHT TO HAVE CHARGED INTEREST ON THE EXCESS CREDIT PERIOD GRANTED BY IT TO THE AES. ON THE BASIS OF THE INFORMATION OBTAINED BY HIM FROM M/S CRISIL REG ARDING THE AVERAGE YIELD ON THE SHORT/LONG TERM INSTRUMENTS, HE ADOPTED ARM S LENGTH RATE OF SUCH INTEREST AT 12% BY FOLLOWING CUP METHOD. THIS INTE REST RATE OF 12% WAS APPLIED BY HIM TO THE EXCESS CREDIT OF 85 DAYS ALLO WED BY THE ASSESSEE TO ITS AES ON TOTAL SALES OF RS. 60.02 CRORES TO WORK OUT THE INTEREST THAT OUGHT TO HAVE BEEN CHARGED BY THE ASSESSEE TO ITS AES AT RS. 1,67,72,712/- AND ACCORDINGLY THE ADJUSTMENT TO THAT EXTENT WAS PROPO SED BY THE TPO. THE ITA 7969/M/2010& 7352/M/2012 17 ASSESSEE RAISED OBJECTION TO THE SAID ADJUSTMENT BE FORE THE DRP BY MAKING THE FOLLOWING SUBMISSIONS:- EXPORT INVOICES SHOW THAT CREDIT PERIOD GIVEN TO AE AND NON-AE IS 180 DAYS. THIS SUBMISSION HAS NOT BEEN TAKEN ON REC ORD BY THE TPO. AS THE CREDIT PERIOD GIVEN IN BOTH CASES IS THE SAM E, THE SAME IS AT ALP AND THERE SHOULD BE NO INTEREST CHARGE IN RESPECT O F THE DELAYED RECEIVABLES. AS REGARDS THE OUTSTANDING DEBTORS, THE TOTAL OUTST ANDING DEBTORS AS ON 31 ST MARCH, 2008 FROM THE AE WERE RS. 32.26 CRORES. IN RESPECT OF THE OUTSTANDING DEBTORS FROM THE AE, THE ASSESSEE CONFI RMS THAT ALL SALES IN RESPECT OF WHICH THE DEBTORS ARE OUTSTANDING HAVE O CCURRED ON OR AFTER OCTOBER THE DETAILS OF WHICH HAVE ALREADY BEEN FURN ISHED TO THE ASSESSING OFFICER. THE USE OF THE DEBTORS/TURNOVER RATIO IS NOT RELE VANT AS SALES HAVE OCCURRED AT DIFFERENT TIMES DURING THE YEAR TO THE AE AND NON-AE. THE TERMS OF CREDIT ARE EQUIVALENT OF 180 DAYS TO BOTH THE AE AND NON-AE. THEREFORE, IF AN EXPORT HAS BEEN MADE ON L OCTOBER BY THE ASSESSEE FIRM, ANY REALIZATION RECEIVED BY 3L MARCH OF THE F OLLOWING YEAR IS DEEMED TO HAVE BEEN RECEIVED WITHIN TIME. AS STATED ABOVE, IN THE INSTANT CASE, THE OUTSTANDING DEBTORS FOR THE AE AR E FOR SALES MADE ON OR AFTER L OCTOBER AND THEREFORE, ARE AT ARMS LENG TH WITH THE CREDIT PERIOD GRANTED TO THE NON-AE OF 180 DAYS I.E. REALI ZATION RECEIVED BEFORE 315T MARCH OR OUTSTANDING AS ON 3LST MARCH. NOTWITHSTANDING THE ABOVE, IF AN ADDITION IS TO B E MADE FOR DELAYED REALISATION, THE RATE OF 12% BEING THE YIELD ON BON DS OF 1 TO 2 YEARS CANNOT BE USED AS A CUP. THE ASSESSEE WAS NOT GIVEN THE WORKING OF 12% AND ASKED TO SHOW CAUSE WHY THIS RATE SHOULD NO T BE USED. THEREFORE, THE ASSESSEE HAS NO OPPORTUNITY TO DETER MINE THE ADEQUACY OF THIS METHOD FOR CUP. 20. AFTER TAKING INTO CONSIDERATION THE ABOVE OBJEC TION RAISED BY THE ASSESSEE, THE DRP DIRECTED THE A.O. TO DECIDE THIS ISSUE AS PER THE FOLLOWING DIRECTIONS GIVEN IN PARA 3. 3.1 OF HIS ORDER:- 3.3.1 THE ADJUSTMENT ON ACCOUNT OF EXCESS CREDIT P ERIOD OF 85 DAYS TO AE HAS ALSO BEEN EXAMINED BY US. THE ASSESSEE HAS S TATED THAT THE TERMS OF CREDIT ARE EQUIVALENT OF 180 DAYS TO BOTH THE AE AND NON-AE. IN THIS RESPECT WE FIND THAT IF THIS IS BORNE OUT B Y FACTS, THERE IS NO CASE FOR THE ADJUSTMENT AS THE TRANSACTION BETWEEN AE AN D NON-AE WILL BE AT PAR SO FAR AS THE CREDIT PERIOD IS CONCERNED. TH ERE IS NO SPECIFIC FINDING IN THE TPOS ORDER THAT THE NON-AES PAID BA CK EARLIER THAN 180 DAYS. THE TPO HAS ONLY GIVEN AN INFERENTIAL OBSERVA TION THAT THIS IS NOT ITA 7969/M/2010& 7352/M/2012 18 SO. IN VIEW OF THE ASSESSEES SUBMISSION BEFORE US WE FIND THAT THIS VERIFICATION NEEDS TO BE REVISITED. AC IS THEREFORE DIRECTED TO VERIFY THIS AND DELETE THE ADJUSTMENT F THE ASSESSEES CONTENTI ON IS FOUND CORRECT. OTHERWISE, IN ABSENCE OF EQUIVALENT BENEFIT TO NON- AE, THE ADJUSTMENT MADE BY THE TPO WILL BE IN ORDER. IN THIS SITUATION , IT IS OBVIOUS, THE ASSESSEE HAS GIVEN A BENEFIT TO ITS AE FOR WHICH A COMPENSATION WILL BE INEVITABLE: IN THAT EVENT, THE BASIS OF INTEREST CH ARGED BY THE TPO IS ALSO FOUND TO BE IN ORDER. 21. AS PER THE DIRECTIONS OF THE DRP, THE A.O. EXAM INED THIS ISSUE AND FOUND THAT ALTHOUGH THE CREDIT PERIOD IN THE CASE O F AES AND NON-AES WAS THE SAME OF 180 DAYS AS MENTIONED IN THE RELEVANT COPIE S OF INVOICES PLACED BY THE ASSESSEE ON RECORD, THERE WAS A SPECIFIC FINDIN G GIVEN BY THE TPO THAT THE ASSESSEE HAS GRANTED EXCESS CREDIT PERIOD TO ITS AE S BY 85 DAYS VIS--VIS CREDIT GRANTED TO THIRD PARTIES. ACCORDING TO THE A.O., THE ASSESSEE COULD NOT REBUT OR CONTROVERT THIS FINDING GIVEN BY THE TPO A ND ACCORDINGLY MADE AN ADDITION ON ACCOUNT OF INTEREST THAT THE ASSESSEE O UGHT TO HAVE CHARGED FROM ITS AES ON THE EXCESS CREDIT PERIOD ALLOWED. 22. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT THE SPECIFIC DIRECTION WAS GIVEN BY THE DRP TO THE A.O. AFTER CONSIDERING THE OBJECTION RAISED BY THE ASSESSEE TO VERIFY THAT THE CREDIT PERIOD GRANTED T O AES AND NON-AES WAS AT PAR. THE A.O. WAS ALSO DIRECTED BY THE DRP THAT IF THE CLAIM OF THE ASSESSEE WAS FOUND TO BE CORRECT, NO ADJUSTMENT WOULD BE REQ UIRED TO BE MADE ON THIS ISSUE. THE LD. COUNSEL FOR THE ASSESSEE IN THIS RE GARD HAS SUBMITTED THAT THE RELEVANT COPIES OF INVOICES WERE FILED BY THE ASSES SEE BEFORE THE A.O. SHOWING THAT THE CREDIT PERIOD ALLOWED WAS 180 DAYS TO BOTH THE AES AND NON-AES. HE HAS SUBMITTED THAT THE A.O., HOWEVER, BRUSHED ASIDE THE SAME ON THE BASIS OF FINDING GIVEN BY THE TPO THAT THE ASSESSEE HAS GRAN TED EXCESS CREDIT PERIOD TO ITS AES BY 85 DAYS VIS-A-VIS CREDIT GRANTED TO THIR D PARTIES AND MADE THE ADDITION ON THIS ISSUE WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY TO ESTABLISH ITS CLAIM ON FURTHER EVIDENCE THAT THE CREDIT PERIO D ALLOWED TO BOTH AES AND NON-AES WAS AT PAR. HE HAS SUBMITTED THAT THE ASSE SSEE IS IN A POSITION TO ITA 7969/M/2010& 7352/M/2012 19 ESTABLISH ITS CLAIM ON THIS ISSUE AND URGED THAT ON E MORE OPPORTUNITY MAY BE GIVEN TO THE ASSESSEE FOR THIS PURPOSE. SINCE THE LD. D.R. HAS NOT RAISED ANY OBJECTION IN THIS REGARD, WE SET ASIDE THIS ISSUE T O THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AFTER GIVING AN OPPORTUNIT Y TO THE ASSESSEE TO ESTABLISH ITS CLAIM ON FURTHER EVIDENCE THAT THE CR EDIT PERIOD OFFERED BY IT TO AES AS WELL AS NON-AES WAS AT PAR. GROUND NO. 3 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 23. IN GROUND NO. 6, A LIMITED ISSUE RAISED BY THE ASSESSEE IS THAT ITS PROFITABILITY FOR THE PURPOSE OF TRANSFER PRICING S HOULD BE COMPUTED AFTER CONSIDERING THE EFFECT OF VARIOUS ALLOWANCES/DISALL OWANCE AS MADE TO ITS TOTAL INCOME. 24. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH TH E SIDES, THIS ISSUE IS CONSEQUENTIAL IN NATURE AND ACCORDINGLY THE A.O. IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF TO THE ASSESSEE ON THIS ISSUE. 25. THE ISSUE RAISED IN GROUND NO. 7 RELATES TO THE DISALLOWANCE MADE U/S 40A(2)(B) OF THE ACT TO THE TOTAL INCOME OF THE ASS ESSEE ON ACCOUNT OF LABOUR CHARGES PAID TO M/S AAKASH DIAMONDS. 26. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD PAID TOTAL LABOUR CHARGES OF RS. 14,83,30,322/- TO M/S AAKASH DIAMOND S, THE RELATED CONCERN COVERED U/S 40A(2)(B) OF THE ACT. THE ASSESSEE WAS CALLED UPON BY THE A.O. TO JUSTIFY THE REASONABLENESS OF THESE PAYMENTS AND AF TER CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE IN THIS REGARD AS WELL AS THE MATERIAL PLACED ON RECORD IN SUPPORT, THE A.O. RECORDED HIS FINDINGS/OBSERVATIONS ON THIS ISSUE AS UNDER:- (I) THE ASSESSEE IS PAYING AVERAGE PER CARAT RATE OF RS. 831 PER CARAT FOR SURAT UNIT WHILE FOR THE DEESA UNIT; THE AVERAGE RATE OF RS. 870.31 IS PAID. NO JUSTIFICATION FOR THIS SUBSTANTI AL DIFFERENCE IS GIVEN. ITA 7969/M/2010& 7352/M/2012 20 (II) THE ASSESSEE HAS INCREASED THE RATES OF SURAT UNIT BY ONLY RS. 25 OVER THE YEAR BUT FOR DEESA UNIT, RATE WAS INCREASE D BY RS. 75. NO JUSTIFICATION FOR THIS SUBSTANTIAL VARIATION IS GIV EN. (III) THE ASSESSEE HAS NOT GIVEN ANY DETAIL IN THE BILLS IN RESPECT OF QUALITY OF DIAMOND PROCESSED BY THESE PARTIES. (IV) EVEN IN THE JANGADS ISSUED TO AD, NO DETAILS I N RESPECT OF QUALITY ARE MENTIONED. (V) IN THE STOCK REGISTER OF THE ASSESSEE ALSO, NO DETAILS OF DIAMONDS LIKE CARAT, COLOUR, QUALITY, SIZE ARE MENTIONED. (VI) DURING THE PRECEDING YEAR, THE LABOUR PAYMENTS FOR THE AD, SURAT HAVE INCREASED FROM RS. 810 PER CARAT FOR THE MONTH OF APRIL 2006 TO RS. 910 PER CARAT FOR THE MONTH OF MARCH 20 07. THE ASSESSEE HAS PAID AD, SURAT AT THE RATE OF RS. 910 PER CARAT FOR THE PERIOD OF JANUARY TO MARCH 2007. HOWEVER, FROM THE MONTH OF A PRIL 2007 TO DECEMBER 2007, THE RATES CHARGED WERE RS. 825 PER C ARAT WHICH HAVE INCREASED TO PS. 850 PER CARAT FROM JANUARY, 2008 T O MARCH 2008. THERE IS NO JUSTIFICATION AVAILABLE THE ASSESSEE FO R DECREASE OR INCREASE OF RATES. (VII) THE ASSESSEE HAS GOT POLISHING WORK OF 2586 C ARATS DONE FROM SHRI REVABHAI K. DESAI, ONE UN-RELATED PARTY, WHO H AS PROCESSED THE ROUGH DIAMONDS AT THE AVERAGE RATE OF RS. 313.63 PE R CARAT. IT IS SEEN THAT THIS PARTY IS ALSO WORKING FOR THE ASSESSEE FO R THE WHOLE YEAR AND AS IN THE CASE OF AD, IN CASE OF THIS PARTY ALSO TH E PARTY IS RAISING MONTHLY BILLS ONLY. HOWEVER, THE LABOUR RATES OF TH IS PARTY ARE VARYING OVER THE YEAR BETWEEN ABOUT RS. 275 PER CARAT TO PS . 487 PER CARAT AND THE AVERAGE RATE OF RS. 313.63 PER CARAT WAS CHARGE D. THE ASSESSEE COULD NOT GIVE ANY JUSTIFICATION FOR THIS SUBSTANTI AL DIFFERENCE BETWEEN THE RATE CHARGED BY THIS PARTY AND AD EXCEPT GIVING A GENERAL REPLY THAT ROUGH GIVEN TO THIS PARTY WAS VERY CHEAP AND LOWER QUALITY GOODS WERE GIVEN TO IT. HOWEVER, THE ASSESSEE COULD NOT SUBSTA NTIATE THE SAME BY DOCUMENTARY EVIDENCE. MOREOVER, THERE IS SUBSTANTIA L DIFFERENCE IN THE RATES CHARGED BY AD COMPARED TO THIS PARTY AND THE PAYMENTS TO AD ARE 2.72 TIMES OF THE RATES CHARGED BY THIS PARTY. THIS IN VIEW OF THE FACT THAT SHRI JYIBIAI K. DESAI IS A REGULAR PARTY WHO HAS WORKED FOR THE ASSESSEE FOR THE WHOLE YEAR AND IT IS THE ONLY UN-R ELATED PARTY WORKING FOR THE ASSESSEE. ON THE BASIS OF ABOVE FINDINGS/OBSERVATIONS, THE A. O. CAME TO THE CONCLUSION THAT THE ASSESSEE COMPANY AND ITS RELATED CONCERN M /S AAKASH DIAMONDS WERE NOT ACTING AS INDEPENDENT PARTIES AND THE TRAN SACTIONS BETWEEN THEM WERE NOT AT ARMS LENGTH. ACCORDING TO HIM, THE RE ASONABLE AVERAGE LABOUR RATE FOR POLISH WORK DONE BY AADASH DIAMONDS FOR TH E ASSESSEE WAS RS. 450/- ITA 7969/M/2010& 7352/M/2012 21 PER CARAT AND ACCORDINGLY THE EXCESS LABOUR CHARGES ALLEGEDLY PAID BY THE ASSESSEE TO AAKASH DIAMONDS WAS WORKED BY HIM AT RS . 7,00,92,107/-. ACCORDINGLY, THE DISALLOWANCE U/S 40A(2)(B) OF THE ACT WAS PROPOSED BY THE A.O. TO THAT EXTENT. ON OBJECTION RAISED BY THE ASS ESSEE, THE DRP HELD THAT THE REASONABLE LABOUR RATE FOR THE POLISH WORK DONE BY AAKASH DIAMONDS FOR THE ASSESSEE WAS RS. 808.33 PER CARAT AS PAID IN TH E EARLIER YEARS. ACCORDINGLY, THE DISALLOWANCE WAS FINALLY MADE BY T HE A.O. AT RS.77,91,886/-. 27. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT A SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR A.Y. 2005-06 AN D THE SAME WAS SET ASIDE BY THE TRIBUNAL TO THE FILE OF THE A.O. FOR DECIDIN G THE SAME AFRESH FOR THE FOLLOWING REASONS GIVEN IN PARA 11,12 & 13 OF ITS O RDER DATED 19 TH DECEMBER, 2012 PASSED IN ITA NO. 2282/MUM/2010:- 11. WE HAVE HEARD THE ARGUMENTS IN DETAIL AND WE F IND THAT MR. MAHESH BHASALI, PARTNER OF THE ASSESSEE FIRM IS ALS O A PARTNER IN 75% RATIO IN AAKASH, HENCE, THE ASSESSEE AND THE VENDOR , I.E. AAKASH ARE ASSOCIATES AND PROVISIONS OF SECTION 40A(2)(B) ARE ATTRACTED. ON THE ISSUE OF JUSTIFICATION OF ADDITION MADE BY THE AO A ND SUSTAINED BY THE CIT(A), WE FIND FROM THE IMPUGNED ORDER THAT THE AS SESSEE HAD, IN FACT, ACCEPTED THAT SOME ADDITION COULD BE JUSTIFIED, THE QUESTION IS HOW MUCH, I.E. RS 5,64,000 AS ADMITTED BY THE ASSESSEE OR RS. 43,97,629/- AS COMPUTED BY THE AO. SINCE THE ASSESSEE HAS ACCEP TED TO SOME ADDITION, IN THE SUBMISSIONS MADE BEFORE THE CIT(A) , WE CANNOT NOW, ACCEPT THAT THERE CANNOT BE ANY ADDITION. THIS OBSE RVATION GATHERS STRENGTH FROM THE ORDER OF THE CIT(A), WHEREIN HE O BSERVES, THEY HAVE GIVEN NO ANALYSIS OF LABOUR, WAGES, ETC. PAID AND C OST OF CUTTING AND POLISHING OF DIAMONDS... 12. IN OUR OPINION, NEITHER THE ASSESSEE HAS PROVID ED ANY COMPARABLE RATES TO THE REVENUE AUTHORITIES NOR THE REVENUE AU THORITIES HAVE MADE ANY ATTEMPT EITHER BY ASKING THE ASSESSEE TO PROVID E FOR THE COMPARABLE NOR THEY SUO MOTO COLLECTED ANY DATA FROM THE MARKE T. WHAT THE REVENUE AUTHORITIES HAVE DONE IS THAT THEY HAVE REL IED ON THE INTERNAL COMPARABLE ONLY TO ARRIVE AT A FIGURE OF ESTIMATED CHARGES PER CARAT. IN FACT, THE AO SHOULD HAVE COLLECTED INDEPENDENT DATA OR HAVE ASKED THE ASSESSEE TO PROVIDE COMPARABLE PERIODIC RATES PREVA ILING IN THE MARKET AT DEESA TO SET THE BENCH MARK. THIS EXERCISE HAS N OT BEEN DONE BY THE ITA 7969/M/2010& 7352/M/2012 22 AO OR BY THE CIT(A), WHICH ACCORDING TO US, THE REV ENUE AUTHORITIES SHOULD HAVE DONE TO ARRIVE AT SOME DEFINITE ESTIMAT E. 13. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION T HAT IN THE INTEREST OF JUSTICE TO BOTH THE SIDES, THE AO MUST MAKE ENQUIRI ES AND EXAMINE THE COMPARABLE RATES FROM THE THIRD PARTIES AT DEESA AN D THEN BENCHMARK THE AVERAGE JOB WORK RATE FOR THE FINANCIAL YEAR IN QUESTION AND COMPUTE THE JOB WORK CHARGES. THE ORDER FOR A.Y. 2005-06 HAS BEEN SUBSEQUENTLY FO LLOWED BY THE TRIBUNAL IN A.Y. 2007-08 TO RESTORE THE SIMILAR ISSUE TO THE FI LE OF THE A.O. FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN IN A.Y. 2005-06 VIDE AN ORDER DATED 21-02-2013 PASSED IN ITA NO. 7052/MUM/2011. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF A.Y. 2005-06, WE RES PECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR A.Y. 2005-06 AND RESTORE THIS MATT ER TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTION AS GIVEN IN A.Y. 2005-06. GROUND NO. 7 OF ASSESSEES APPEAL FOR A.Y. 2008-09 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 28. THE ISSUE RAISED IN GROUND NO. 8 RELATES TO THE DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FOR ADDITIONAL DEPRECIA TION ON PLANT AND MACHINERY. 29. IN ITS RETURN OF INCOME, THE ASSESSEE HAD CLAIM ED ADDITIONAL DEPRECIATION @ 20% U/S 32(1)(IIA) OF THE ACT ON THE NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED DURING THE YEAR UNDER CONSID ERATION. AS PER SECTION 32(1)(IIA) OF THE ACT, ADDITIONAL DEPRECIATION WAS ALLOWABLE TO AN ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUC TION OF ANY ARTICLE OR THING. IN THIS REGARD, THE A.O. RELIED ON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. GEM INDIA MANUFACTURIN G CO. (2001 249 ITR 307 (SC) WHEREIN IT WAS HELD THAT CUTTING AND POLISHING OF DIAMONDS DOES NOT AMOUNT TO MANUFACTURING OR PRODUCTION OF GOODS AND DISALLOWED THE CLAIM OF ITA 7969/M/2010& 7352/M/2012 23 THE ASSESSEE FOR ADDITIONAL DEPRECIATION IN PLANT A ND MACHINERY U/S 32(1)(IIA) OF THE ACT. 30. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COU NSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEE CASE ON THIS ISSUE HAS RELI ED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SHEETAL DIAMONDS LIMITED VS . ITO (ITA NO. 6687 TO 6689/MUM/2003 DATED 23 RD MARCH, 2011 WHERE IT WAS HELD THAT THE PROFITS DERIVED BY THE ASSESSEE FROM THE BUSINESS OF CUTTIN G AND POLISHING OF ROUGH DIAMONDS IS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. A PERUSAL OF THE ORDER OF THE TRIBUNAL, HOWEVER, SHOWS THAT ALTHOUGH A REF ERENCE IN THE SAID ORDER WAS MADE BY THE TRIBUNAL TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GEM INDIA MANUFACTURING CO. (SUPRA), THE TR IBUNAL FINALLY RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. LONDON STAR DIAMOND CO. (INDIA) LTD. 213 ITR 517 (BOM) AND THAT OF HONBLE SUPREME COURT IN THE CASE OF ITO VS. ARIHANT TILES & MARBLE S PVT. LTD., 320 ITR 79. IT IS, HOWEVER, OBSERVED THAT IN THE CASE OF LONDON ST AR DIAMOND CO. (INDIA) LTD. (SUPRA), IT WAS HELD BY THE HONBLE BOMBAY HIGH COU RT THAT THE ACTIVITY OF CUTTING AND POLISHING OF DIAMOND WOULD DEFINITELY C ONSTITUTE PROCESSING AND RELYING ON THE SAME, IT WAS HELD BY THE TRIBUNAL IN THE CASE OF SHEETAL DIAMONDS LTD. THAT THE ASSESSEE WAS ENTITLED TO DED UCTION U/S 80IA OF THE ACT AS THE PROCESSING OR PRODUCTION OF ARTICLES IS ALSO ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IN THE CASE OF ARIHANT TILES & MA RBLES PVT. LTD. (SUPRA), THE ISSUE BEFORE THE HONBLE SUPREME COURT WAS WHETHER CUTTING AND POLISHING OF MARBLE SLABS INTO MARBLE TILES WOULD AMOUNT TO MANU FACTURE OR PRODUCTION OF ARTICLE OR THING AND THE SAME WAS DECIDED BY THE HO NBLE APEX COURT IN FAVOUR OF THE ASSESSEE. IN THE CASE OF GEM INDIA MANUFACTU RING CO. (SUPRA) RELIED UPON BY THE A.O., THE ISSUE BEFORE THE HONBLE SUPR EME COURT WAS WHETHER THE CUTTING AND POLISHING OF DIAMONDS WOULD AMOUNT TO MANUFACTURING OR PRODUCTION OF GOODS AND THE SAME WAS DECIDED BY THE HONBLE SUPREME COURT ITA 7969/M/2010& 7352/M/2012 24 AGAINST THE ASSESSEE HOLDING THAT CUTTING AND POLIS HING OF DIAMONDS DOES NOT AMOUNT TO MANUFACTURING OR PRODUCTION OF GOODS. THE HONBLE APEX COURT DECISION IN THE CASE OF GEM INDIA MANUFACTURING CO. (SUPRA) THUS IS DIRECTLY APPLICABLE IN THE PRESENT CASE INVOLVING A SIMILAR ISSUE AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE A.O. DISALLOWING THE ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION U/S 32 (1)(IIA) OF THE ACT. GROUND NO. 8 OF ASSESSEES APPEAL IS ACCORDINGLY DISMISSED . 31. THE ISSUE RAISED IN GROUND NO. 9 RELATES TO THE ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DIFFEREN CE IN VALUE OF CLOSING STOCK AS SHOWN BY THE ASSESSEE IN THE STOCK STATEMENT SUB MITTED TO THE BANK AND AS SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. 32. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT ALTHOUGH THE QUANTITY OF STOCK OF DIAMOND S AS SHOWN IN THE STOCK STATEMENT SUBMITTED TO THE BANK AS O N 31-3-2008 WA S SAME AS SHOWN IN ITS BOOKS OF ACCOUNT, THE VALUATION AS SHOWN IN THE BAN K STATEMENT WAS HIGHER AT RS. 139.46 CRORES AS AGAINST 138.80 CRORES SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. SINCE THE DIFFERENCE COULD NOT BE EXPLAINED BY THE ASSESSEE TO THE SATISFACTION OF THE A.O. AND THE ASSESSEE AL SO COULD NOT GIVE ANY BASIS OF VALUATION OF STOCK AS SHOWN EITHER IN THE BANK S TATEMENT OR IN THE BOOKS OF ACCOUNTS, THE A.O. ADDED THE DIFFERENCE OF RS. 66 L ACS IN THE VALUATION OF CLOSING STOCK TO THE TOTAL INCOME OF THE ASSESSEE. 33. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LD. COUN SEL FOR THE ASSESSEE HAS TRIED TO JUSTIFY THE VALUATION OF CLOSING STOCK AS TAKEN BY THE ASSESSEE IN THE BALANCE SHEET, HE HAS NOT BEEN ABLE TO GIVE ANY BAS IS OF THE SAID VALUATION TAKEN BY THE ASSESSEE. IT IS NOTED THAT THE QUANTI TY OF ROUGH DIAMONDS AND POLISHED DIAMONDS SHOWN IN BOTH THE STATEMENT IS SA ME AND THERE IS ONLY A DIFFERENCE IN THE VALUATION OF THE SAID QUANTITY WH ICH IS HIGHER IN THE CASE OF ITA 7969/M/2010& 7352/M/2012 25 STATEMENT GIVEN TO THE BANK THAN THE ONE SHOWN BY T HE ASSESSEE IN ITS BOOKS OF ACCOUNTS. IN OUR OPINION, THE BURDEN IN THIS RE GARD IS ON THE ASSESSEE TO PROVE WHICH OF THESE TWO VALUES IS CORRECT BY PROVI DING THE RELEVANT DETAILS REGARDING THE BASIS ADOPTED FOR THE SAID VALUATION. SINCE THIS HAS NOT BEEN DONE BY THE ASSESSEE, WE ARE OF THE VIEW THAT THIS ISSUE NEEDS TO BE SET ASIDE TO THE A.O. TO GIVE ONE MORE OPPORTUNITY TO THE ASS ESSEE TO EXPLAIN THE BASIS OF VALUATION. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE FILE OF A.O. WITH A DIRECTION TO THE ASSESSEE TO FURNISH THE RELEVANT D ETAILS IN ORDER TO EXPLAIN THE BASIS OF VALUATION OF THE CLOSING STOCK ADOPTED BY IT. THE A.O. SHALL VERIFY THE DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD AN D DECIDE THE ISSUE ACCORDINGLY. GROUND NO. 9 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 34. THE ISSUE RAISED IN GROUND NO. 10 RELATING TO T HE DISALLOWANCE OF ASSESSEES CLAIM FOR DEDUCTION U/S 80G OF THE ACT I S NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEF ORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 35. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR A.Y. 2006-07 BEING ITA NO. 7969/MUM/2010, GROUND NO. 1 TO 5 OF WHICH I NVOLVE A COMMON ISSUE RELATING TO THE DISALLOWANCE MADE BY THE A.O. AND C ONFIRMED BY THE LD. CIT(A) U/S 40A(2)(B) OF THE ACT IN RESPECT OF LABOUR CHARG ES PAID TO AAKASH DIAMONDS. 36. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2005-06 & 2008-09, WE RESPECTFULLY FOLLOW THE SAID ORDERS OF THE TRIBUNAL FOR A.Y. 2005-06 & 2008-09 AND RESTORE THIS MATTER TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTION AS GIVEN IN A.Y. 2005-06 & 2 008-09. GROUND NO. 1 TO 5 OF ASSESSEES APPEAL FOR A.Y. 2006-07 IS ACCORDIN GLY ALLOWED FOR STATISTICAL PURPOSE. ITA 7969/M/2010& 7352/M/2012 26 37. THE NEXT ISSUE INVOLVED IN GROUND NO. 6 RELATES TO THE DISALLOWANCE OF 60% MADE BY THE A.O. OUT OF RESIDENTIAL TELEPHONE E XPENSES WHICH HAS BEEN SUSTAINED BY THE LD. CIT(A) TO THE EXTENT OF 30%. 38. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT OUT OF THE TOTAL TELEPHONE EXPENSES OF RS . 7,82,759/- CLAIMED BY THE ASSESSEE, A SUM OF RS. 4,38,668/- WAS IN RESPECT OF RESIDENTIAL TELEPHONE EXPENSES OF ITS PARTNERS. IN THIS REGARD, THE EXPL ANATION OFFERED BY THE ASSESSEE BEFORE THE A.O. WAS THAT IT IS DEALING IN IMPORT AND EXPORT OF GOODS WITH SUPPLIERS/CUSTOMERS FROM FAR EAST AND SOUTH EA ST ASIAN COUNTRIES, EUROPE, U.S.A., ISRAEL ETC. AND THE TELEPHONES ARE REQUIRED TO BE MADE DURING MORNING AND NIGHT HOURS FROM THE RESIDENTIAL TELEPH ONES OF THE PARTNERS. IT WAS ALSO BROUGHT TO THE NOTICE OF THE A.O. BY THE A SSESSEE THAT IT HAS ALREADY PAID FBT @ 20% ON TELEPHONE EXPENSES. THE A.O. PART LY ACCEPTED THIS EXPLANATION OF THE ASSESSEE. HE, HOWEVER, HELD THA T IN THE ABSENCE OF ANY RECORD MAINTAINED BY THE ASSESSEE TO SHOW THAT THE RESIDENTIAL TELEPHONE EXPENSES ARE WHOLLY INCURRED FOR THE BUSINESS, THE PERSONAL USE OF THE RESIDENTIAL TELEPHONES BY THE PARTNERS COULD NOT BE RULED OUT. ACCORDINGLY DISALLOWANCE OF 60% OUT OF THE TOTAL RESIDENTIAL TE LEPHONE EXPENSES WAS MADE BY HIM FOR SUCH PERSONAL USE. ON APPEAL, THE LD. C IT(A) RESTRICTED THE SAID DISALLOWANCE TO 30% OF THE RESIDENTIAL TELEPHONE EX PENSES. 39. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL AVAILABLE ON RECORD, WE FIND THAT NO RECOR D WAS MAINTAINED BY THE ASSESSEE TO SHOW THAT THE EXPENSES INCURRED ON RESI DENTIAL TELEPHONES OF THE PARTNERS WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF ITS BUSINESS. AS RIGHTLY HELD BY THE A.O., PERSONAL USE OF RESIDENTI AL TELEPHONES BY THE PARTNERS IN THE ABSENCE OF SUCH RECORD COULD NOT BE RULED OUT AND SOME REASONABLE DISALLOWANCE FOR SUCH PERSONAL USE WAS V ERY MUCH WARRANTED. ALTHOUGH, SUCH DISALLOWANCE MADE BY THE A.O. AT 60% OF THE TOTAL TELEPHONE ITA 7969/M/2010& 7352/M/2012 27 EXPENSES WAS EXCESSIVE AND UNREASONABLE, WE ARE OF THE VIEW THAT THE LD. CIT(A) IS QUITE FAIR AND REASONABLE TO RESTRICT THE SAME TO 30% OF THE RESIDENTIAL TELEPHONE EXPENSES. HAVING REGARD TO A LL THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THERE IS NO CASE OF ANY FURTHE R RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPHOLDING THE IMPUGNED ORDER OF THE LD. CIT(A), WE DISMISS GROUND NO. 6 OF THE ASSESSEES APPEAL. 40. IN THE RESULT, APPEAL OF THE ASSESSEE FOR A.Y. 2006-07 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND APPEAL F OR A.Y. 2008-09 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOVEMBER, 2013. . '& 2 34- 5'[phone] SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP ) ( !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 5'+ DATED 22-11-2013 $.(+.!./ RK , SR. PS '& 2 0(%7 87- '& 2 0(%7 87- '& 2 0(%7 87- '& 2 0(%7 87-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. 9 () / THE ADDL CITCONCERNED MUMBAI. 4. 9 / DRP - CONCERNED, MUMBAI 5. 7$< 0((+ , , / DR, ITAT, MUMBAI K BENCH 6. =, > / GUARD FILE. '&+! '&+! '&+! '&+! / BY ORDER, !17 0( //TRUE COPY// ? ? ? ?/ // /!@ !@ !@ !@ ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI