SOCIETE GENERAL, MUMBAI V. ADDL DIT (IT) RG 2, MUMBAI

ITA 7568/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71741 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 03-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

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. 7568/MUM/2012 ( (+ , $-, (+ , $-, (+ , $-, (+ , $-, / / / / ASSESSMENT YEAR : 2008-09 M/S SOCIETE GENERALE, MAKER CHAMBERS OV, 13 TH FLOOR, J. BAJAJ MARG, NARIMAN POINT, MUMBAI 400 021. + + + + / VS. ADDITIONAL DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), RANGE -2, IST FLOOR, ROOM NO. 108, SCINDIA HOUSE, N.M. MARG, MUMBAI 400 038. #. !./ PAN : AABCS7484C ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) APPELLANT BY SHRI K. GOPAL RESPONDENT BY : SHRI AJEET KUMAR JAIN !+$ 2 / // / DATE OF HEARING : 03-09-2013 34- 2 / DATE OF PRONOUNCEMENT : 22-11-2013 '& / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RAN GE 2(1), MUMBAI DATED 31-10-2012 PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961. 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE DISALLOWANCE OF RS. 4,64,50,501/- MADE BY THE A.O. ON ACCOUNT OF ASSESS EES CLAIM FOR THE LOSS ON UNEXPIRED FORWARD EXCHANGE CONTRACTS AS ON 31-3-200 8. ITA 7568/M/2012 2 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS RESIDENT IN FRANCE. IT IS ENGAGED IN THE BUSINESS OF BANKING IN INDIA. IT IS ALSO REGISTERED AS A FOREIGN INSTITUTIONAL INVESTMENT (FII) WITH SE BI. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30-9-2008 DECLARING TOTAL INCOME OF RS. 573,971,060/-. IN THE SAID RETURN, TH E ASSESSEE HAD DISCLOSED THE PROFIT ON FOREIGN EXCHANGE CONTRACT ENTERED INT O THE BY BANK IN THE YEAR UNDER CONSIDERATION AMOUNTING TO RS. 134,000,412/- WHICH WAS INCLUSIVE OF THE LOSS ON REVALUATION OF UNEXPIRED FOREIGN EXCHAN GE CONTRACT AS ON 31-3-2008 AMOUNTING TO RS. 46,450,501/-. IT WAS EXP LAINED BY THE ASSESSEE BEFORE THE A.O. THAT THE SAID LOSS WAS QUANTIFIED A ND PROVIDED AS PER THE RBI GUIDELINES. IT WAS CONTENDED THAT SUCH LOSS ON ACCO UNT OF EXCHANGE DIFFERENCE ARISING DUE TO RESTATEMENT OF LIABILITY AT THE PREV AILING EXCHANGE RATE ON THE BALANCE SHEET DATE COULD NOT BE REGARDED AS NOTIONA L OR CONTINGENT LOSS WHEN THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING. IT WAS POINTED OUT THAT SUCH RESTATEMENT OF LIABILITY HAD RESULTED IN PROFIT ON UNEXPIRED CONTRACTS IN THE EARLIER YEARS AND IT WAS OFFERED T O TAX BY THE ASSESSEE IN THE EARLIER YEARS. THE STAND OF THE ASSESSEE ON THIS IS SUE WAS NOT ACCEPTED BY THE A.O. ACCORDING TO HIM, THE FORWARD EXCHANGE CONTRA CT HAD NOT MATURED AS ON THE LAST DAY OF THE YEAR UNDER CONSIDERATION AND SI NCE IT COULD RESULT IN A GAIN OR LOSS ON A FUTURE DAY WHEN THE CONTRACT WAS MATUR ING, THE LOSS CLAIMED BY THE ASSESSEE WAS NOTIONAL IN NATURE. HE, THEREFORE , DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE ON THIS ACCOUNT AND MADE AD DITION OF RS. 46,450,501/- TO THE INCOME OF THE ASSESSEE. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED B Y THE LD. REPRESENTATIVES OF BOTH THE SIDES, THIS ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FO R A.Y. 2004-05 RENDERED VIDE ORDER DATED 20 TH MAY, 2011 IN ITA NO. 3370/MUM/2009 WHEREIN IT WAS HELD RELYING ON THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF ITA 7568/M/2012 3 WOODWARD GOVERNOR INDIA PVT. LTD. REPORTED IN (2009 ) 312 ITR 354 (SC) THAT THE LOSS ON FOREIGN EXCHANGE CONTRACT AS A RESULT O F REVALUATION AS ON THE LAST DATE OF THE RELEVANT PREVIOUS YEAR IS NOT A NOTIONA L LOSS AND THE SAME IS ALLOWABLE WHILE COMPUTING THE INCOME OF THE ASSESSE E. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05, WE DIRECT THE A.O. TO ALLOW THE L OSS CLAIMED BY THE ASSESSEE ON UNEXPIRED FOREIGN EXCHANGE CONTRACTS AS ON 31 ST MARCH, 2008 AND ALLOW GROUND NO. 1 OF ASSESSEES APPEAL. 5. THE ISSUE RAISED IN GROUND NO. 2 RELATES TO THE ADDITION OF RS. 30,95,060/- MADE TO THE TOTAL INCOME OF THE ASSESSE E ON ACCOUNT OF DEFERRED GUARANTEE COMMISSION. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD SHOWN COMMISSION INCOME ON GUARANTEE AMOUNTING TO RS. 23, 069,903/-. FROM THE DETAILS FURNISHED BY THE ASSESSEE, IT WAS NOTICED B Y THE A.O. THAT THE ASSESSEE HAS SHOWN RS. 13,338,111/- AS GUARANTEE COMMISSION RECEIVED IN ADVANCE AS ON 31-03-2008 AND RS. 10,243,051/- AS GUARANTEE COM MISSION RECEIVED IN ADVANCE AS ON 31-03-2007. ACCORDING TO THE A.O., T HE DIFFERENCE BETWEEN THESE TWO AMOUNTS TO THE TUNE OF RS. 3,095,060/- SH OULD HAVE BEEN SHOWN BY THE ASSESSEE AS ITS INCOME FOR THE YEAR UNDER CONSI DERATION AND SINCE THE SAME WAS NOT DONE, HE REQUIRED THE ASSESSEE TO OFFE R ITS EXPLANATION IN THE MATTER. ACCORDINGLY, THE FOLLOWING EXPLANATION WAS OFFERED BY THE ASSESSEE:- - THE BANK FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING FOR ACCOUNTING GUARANTEE COMMISSION. THE ENTIRE GUARANTEE COMMISS ION IS RECEIVED AT THE TIME OF FURNISHING THE GUARANTEE. HOWEVER, WHE RE THE VALIDITY OF THE GUARANTEE EXTENDS INTO THE NEXT YEAR, GUARANTEE COM MISSION RECEIVED IN EXCESS OF RS 50,000, IS TREATED AS GUARANTEE COMMIS SION RECEIVED IN ADVANCE AND IS RECOGNISED AS INCOME OVER THE PERIOD OF THE GUARANTEE. - THERE IS NO JUSTIFICATION TO ASSESS THE SAME ON R ECEIPT BASIS. ITA 7568/M/2012 4 - THE ASSESSEE HAS FOLLOWED THE SAME SYSTEM OF ACCO UNTING CONTINUOUSLY AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. - RELIANCE HAS BEEN PLACED ON THE DECISION OF CALCU TTA HIGH COURT IN THE CASE OF CIT VS. BANK OF TOKYO LTD. (71 TAXMA NN 85). - ASSESSEE HAS ALSO PLACED RELIANCE ON DECISION TAK EN BY DELHI HIGH COURT IN CIT V. VISHNU INDUSTRIAL GASES WHEREI N IT WAS DECIDED THAT SINCE THE TAX RATES WERE THE SAME IN B OTH THE ASSESSMENT YEARS THERE IS NO REVENUE LOSS TO THE DE PARTMENT AND THEREFORE SHOULD NOT QUESTION THE YEAR OF ALLOWABIL ITY OF EXPENSES. - ASSESSEE HAS ALSO CONTENDED THAT CIT (A) HAS ALLO WED THE APPEAL ON THIS GROUND IN EARLIER YEAR. 7. THE EXPLANATION OF THE ASSESSEE WAS NOT FOUND AC CEPTABLE BY THE A.O. KEEPING IN VIEW THAT SIMILAR METHOD ADOPTED BY THE ASSESSEE IN OFFERING THE INCOME FROM GUARANTEE COMMISSION HAD NOT BEEN ACCEP TED BY THE DEPARTMENT IN THE EARLIER YEARS. FOLLOWING THE STAND TAKEN ON THIS ISSUE IN THE EARLIER YEARS, HE HELD THAT THE MOMENT GUARANTEE WAS GIVEN, THE ASSESSEE BANK HAD THE RIGHT TO RECEIVE THE GUARANTEE COMMISSION IRRES PECTIVE OF THE PERIOD FOR WHICH THE GUARANTEE WAS GIVEN. HE HELD THAT THE GUA RANTEE COMMISSION RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION, THEREFORE, COULD NOT BE TERMED AS COMMISSION RECEIVED IN ADVANCE AND ACCORDINGLY THE DIFFERENCE OF RS. 3,095,060/- WAS ADDED BY HIM TO T HE TOTAL INCOME OF THE ASSESSEE. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED B Y THE LD. REPRESENTATIVES OF BOTH THE SIDES, THIS ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE TRIBUNA L PASSED IN ASSESSEES OWN CASE FOR A.Y. 2002-03 IN ITA NO. 3769/MUM/2009 DATED 25 TH JUNE, 2010 WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL VIDE PARA NO. 4 OF ITS ORDER WHICH READS AS UNDER:- ITA 7568/M/2012 5 4. THIS ISSUE IS BEING AGITATED IN EARLIER YEARS A LSO. SINCE THE ASSESSEE IS CONSISTENTLY ACCOUNTING THE GUARANTEE COMMISSION AND SPREAD IT OVER A OF GUARANTEE GIVEN IN EACH CASE AND SUBSTANTIAL A MOUNT OF GUARANTEE COMMISSION WAS ACCOUNTED IN THE YEAR ALSO, THERE IS NO NEED TO DEVIATE FROM THE FINDINGS OF THE CIT(A), BOTH LEGALLY AND F ACTUALLY. THERE IS NO MERIT IN REVENUES CONTENTIONS. IT IS ALSO NOTICED T HAT THE A.O. HAS NOT EXAMINED WHETHER ANY SUCH BANK GUARANTEE COMMISSION RECEIVED IN EARLIER YEARS WAS ACCOUNTED IN THIS YEAR AS PER THE ACCOUNTING POLICY FOLLOWED. IF HE IS OF THE OPINION THAT THE AMOUNT H AS ACCRUED AT THE TIME OF RECEIPT ITSELF SIMILAR ADJUSTMENT FOR THE OPENIN G AMOUNT SHOULD ALSO HAVE BEEN CONSIDERED BY HIM. THIS WAS NOT DONE. THE ASSESSEE IS CONSISTENTLY FOLLOWING OFFERING GUARANTEE COMMISSIO N SPREADING OVER THE PERIOD OF GUARANTEE GIVEN. SINCE THIS ISSUE WAS AGI TATED IN EARLIER YEARS AND CONSISTENTLY HELD BY THE CIT(A) IN ASSESSEES F AVOUR, THERE IS NO NEED FOR US TO DEVIATE FROM THE ORDERS OF THE CIT(A ). ACCORDINGLY THE GROUNDS ARE REJECTED. 9. IT IS ALSO OBSERVED THAT THE DECISION RENDERED I N A.Y. 2002-03 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL TO DECIDE A S IMILAR ISSUE IN FAVOUR OF THE ASSESSEE IN THE SUBSEQUENT YEARS INCLUDING A.Y. 2005-06 WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ITS ORDER DATED 08-07-2011 IN ITA NO. 571/MUM/2010. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MAT ERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF THE EARLIER YEARS, WE RESPEC TFULLY FOLLOW THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE EARLIER YEARS AND DELETE THE ADDITION MADE BY THE A .O. TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DEFERRED GUARANTEE COMMI SSION AMOUNTING TO RS. 3,095,060/-. GROUND NO. 2 OF ASSESSEES APPEAL IS A CCORDINGLY ALLOWED. 10. THE ISSUE RAISED IN GROUND NO. 3 RELATES TO THE ADDITION OF RS. 66,80,02,000/- MADE BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE BY WAY OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF INCOME EARNED BY THE ASSESSEE FROM THE MARKETING OF DERIVATIVE PRODUCTS ON BEHALF OF ITS ASSOCIATED ENTERPRISE. 11. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD RECEIVED COMMISSION OF RS. 21.49 CRORES ON ACCOUNT OF SALE O F FIXED INCOME AND ITA 7568/M/2012 6 DERIVATIVE PRODUCTS MADE IN INDIA ON BEHALF OF ITS ASSOCIATED ENTERPRISE (AE) SOCIETE GENERALE (SG), PARIS. IT WAS SUBMITTED THAT THE ASSESSEE WAS COMPENSATED IN TERMS OF THE AGREEMENT WITH THE SG, PARIS FOR ITS PERFORMANCE ACTIVITY WHEREBY SALES CREDIT WAS PAID TO THE ASSES SEE BY SG, PARIS AS GROSS SALES LESS COUNTERPART RISK LESS COST OF CAPITAL. IT WAS SUBMITTED THAT THE SAME FORMULA HAD BEEN CONSISTENTLY APPLIED BY THE A SSESSEE IN THE EARLIER YEARS AND SINCE THE SAME WAS ACCEPTED IN THE EARLIE R ASSESSMENTS BEING AT ARMS LENGTH, THE TRANSACTION SHOULD BE ACCEPTED AS AT ARMS LENGTH IN THE YEAR UNDER CONSIDERATION. IT WAS ALSO POINTED OUT T HAT THE COMMISSION RECEIVED BY THE ASSESSEE AS NET SALES CREDIT WAS 64 % OF THE TOTAL INCOME BOOKED IN INDIA FOR SG, PARIS AS AGAINST 66%, 43% A ND 61% IN ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 RESPECTIVELY. W HEN A REFERENCE WAS MADE BY THE A.O. TO THE TPO FOR DETERMINING THE ALP OF THESE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES IN RESPEC T OF COMMISSION RECEIVED ON ACCOUNT OF SALE OF ITS FIXED INCOME AND DERIVATI VE PRODUCTS, THE TPO FOUND THAT THE COMMISSION OF 64% CLAIMED TO BE RECEIVED B Y THE ASSESSEE ON THE INCOME BOOKED IN INDIA BY SG, PARIS WAS NOT THE NET PROFIT OF THE ASSESSEE AND IT WAS THE TOTAL VALUE AGAINST WHICH VARIOUS EX PENSES WERE STANDING. HE, THEREFORE, PROCEEDED TO DETERMINE THE ALP OF THE TR ANSACTIONS OF THE ASSESSEE WITH ITS AES BY FOLLOWING TNMM TAKING OP/TC AS THE PRICE LEVEL INDICATOR TO BENCHMARK THE SAID TRANSACTION. IN THIS REGARD, HE SELECTED 25 COMPARABLES AND FOUND THAT THEIR AVERAGE OP/TC WAS 59.95% AS AG AINST THE OP/TC OF 16.38% SHOWN BY THE ASSESSEE. ACCORDINGLY, APPLYING THE OP/TC OF 59.95% TO THE TOTAL OPERATING COST OF THE ASSESSEE AT RS. 153 .30 CRORES, HE WORKED OUT THE ARMS LENGTH PROFIT AT RS. 91.91 CRORES AND SIN CE THE NET PROFIT SHOWN BY THE ASSESSEE WAS ONLY RS. 25.11 CRORES, ADJUSTMENT OF RS. 66.80 CRORES WAS PROPOSED BY THE TPO. THE ADDITION ON ACCOUNT OF TRA NSFER PRICING ADJUSTMENT AS PER THE ORDER OF THE TPO WAS MADE BY THE A.O. IN DRAFT ASSESSMENT ISSUED ON 15-10-2011. AGAINST THE SAID DRAFT ORDER, OBJECT IONS WERE FILED BY THE ASSESSEE BEFORE THE DRP AND AFTER CONSIDERING THE S UBMISSIONS MADE BY THE ITA 7568/M/2012 7 ASSESSEE IN SUPPORT AS WELL AS THE MATERIAL AVAILAB LE ON RECORD, THE DRP DIRECTED THE TPO TO RECOMPUTE THE ALP ON THE BASIS OF CERTAIN DIRECTIONS. THE CORE DIRECTION GIVEN BY THE DRP WAS PERTAINING TO T HE VALUE OF TOTAL REVENUES FROM DERIVATIVE CONTRACTS AND VERIFICATION OF CORRE CTNESS OF PROFITS CALCULATION/ALLOCATIONS AS MADE BY THE ASSESSEE AND DETERMINATION OF ALP ON THE BASIS OF COMPARABLE MARGINS. ACCORDING TO THE DIRECTION OF DRP, THE TPO CONSIDERED THE ISSUE OF DETERMINATION OF ALP AFRESH AND HELD THAT THERE WAS NO CASE OF ANY RELIEF TO THE ASSESSEE. ACCORDINGLY , THE ADDITION OF RS. 66.80 CRORES WAS MADE BY THE A.O. BY WAY OF TP ADJUSTMENT IN THE FINAL ASSESSMENT ORDER PASSED U/S 14393) R.W.S. 144-C(13) OF THE ACT . 12. THE LD. COUNSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE RAISED VERY LIMITED AND SPECIFIC CONTENT IONS. HE SUBMITTED THAT THE ASSESSEE IS NOT DISPUTING EITHER THE TNMM FOLLOWED BY THE TPO AS MOST APPROPRIATE METHOD OR THE OP/TC TAKEN BY HIM AS PLI FOR THIS PURPOSE. HE SUBMITTED THAT THE ASSESSEE IS ALSO NOT DISPUTING I TS OP/TC WORKED OUT BY THE TPO AT 16.38%. HE SUBMITTED THAT WHAT THE ASSE SSEE IS DISPUTING IS THE COMPARABLES SELECTED BY THE TPO FOR THE PURPOSE OF CALCULATING THE AVERAGE MARGIN AT 59.95%. HE INVITED OUR ATTENTION TO THE SPECIFIC OBJECTIONS RAISED BY THE ASSESSEE IN THIS REGARD IN THE WRITTEN SUBMI SSION FILED BEFORE THE DRP PLACED AT PAGE 111 AND 113 OF HIS PAPER BOOK AND SU BMITTED THAT THE SAME HAVE NOT BEEN CONSIDERED EITHER BY THE DRP AND EVEN BY THE TPO DURING THE COURSE OF REMAND PROCEEDINGS. HE CONTENDED THAT TH E AVERAGE MARGIN OF THE COMPARABLES THUS IS REQUIRED TO BE RECOMPUTED AFTER TAKING INTO CONSIDERATION THE SAID OBJECTIONS SPECIFICALLY RAISED BY THE ASSE SSEE. HE FURTHER CONTENDED THAT THE AVERAGE MARGIN OF THE COMPARABLES AS RECOM PUTED AFTER TAKING INTO CONSIDERATION THE OBJECTION OF THE ASSESSEE IS REQU IRED TO BE APPLIED ONLY TO THE TOTAL COST OF THE ASSESSEE RELATING TO ITS INTE RNATIONAL TRANSACTIONS WITH ITS AES AND NOT TO THE ENTIRE COST OF THE ASSESSEE AS D ONE BY THE TPO. HE SUBMITTED THAT THE COMMISSION RECEIVED BY THE ASSES SEE ON ACCOUNT OF SALE OF ITA 7568/M/2012 8 FIXED INCOME AND DERIVATIVE PRODUCTS TO SG, PARIS I S ONLY RS. 21.49 CRORES AND THE RELEVANT COST THEREOF ONLY SHOULD BE CONSIDERED FOR APPLYING THE AVERAGE MARGIN OF THE COMPARABLES AS RECOMPUTED. 13. THE LD. D.R., ON THE OTHER HAND, DID NOT DISPUT E THE POSITION THAT THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE DRP AS REGARDS THE COMPARABLES SELECTED BY THE TPO AND THEIR MARGINS TAKEN TO COMP UTE THE AVERAGE MARGIN AT 59.95% HAVE NOT BEEN CONSIDERED EITHER BY THE DR P OR EVEN BY THE TPO IN THE REMAND PROCEEDINGS. HE ALSO DID NOT DISPUTE TH E POSITION THAT SUCH AVERAGE MARGIN OF COMPARABLES IS REQUIRED TO BE APP LIED ONLY TO THE TOTAL COST PERTAINING TO THE RELEVANT INTERNATIONAL TRANSACTIO NS OF THE ASSESSEE WITH ITS AES TO WORK OUT THE ALP OF THE SAID TRANSACTIONS. H E, HOWEVER, CONTENDED THAT THIS MATTER SHOULD BE REMANDED TO THE A.O./TPO TO CONSIDER THE OBJECTIONS OF THE ASSESSEE IN RESPECT OF COMPARABLE S IN ORDER TO RECOMPUTE THE AVERAGE MARGIN OF THE SAID COMPARABLES AS WELL AS T O QUANTIFY THE TP ADJUSTMENT. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE TP ADJUSTMENT IN QUESTION HAS BEEN MADE BY THE A.O./TPO BY FOLLOWING TNMM AND TAKING OP/TC AS PRICE LEVEL INDICATOR. THE AVERAGE OP/TC OF THE TWENTY FIVE COMPARABLES TAKEN BY THE TPO IS WORKED OUT AT 59.95 % AND THE SAME BEING HIGHER THAN 16.38% OP/TC OF THE ASSESSEE AS WORKED OUT BY THE TPO, THE TP ADJUSTMENT OF RS. 66.80 CRORES HAS BEEN MADE BY APP LYING THE AVERAGE OP/TC AT 59.95% OF THE COMPARABLES TO THE TOTAL OPE RATING COST OF RS. 153.31 CRORES TO THE ASSESSEE. AS CONTENDED BY THE LD. CO UNSEL FOR THE ASSESSEE AND ACCEPTED EVEN BY THE LD. DR, THE AVERAGE MARGIN OF COMPARABLES IS REQUIRED TO BE APPLIED TO THE TOTAL COST OF THE ASSESSEE RELATI NG TO ITS RELEVANT TRANSACTIONS WITH ITS AES IN ORDER TO DETERMINE THE ALP OF THE S AID TRANSACTIONS AS WELL AS TP ADJUSTMENT AND NOT TO THE ENTIRE OPERATING COST OF THE ASSESSEE AS DONE BY THE TPO. THE ASSESSEE HAS NOT DISPUTED THE TNMM FO LLOWED BY THE TPO AS ITA 7568/M/2012 9 MOST APPROPRIATE METHOD AS WELL AS THE OP/TC TAKEN AS PLI. HE HAS ALSO NOT DISPUTED THE OP/TC AS WORKED OUT BY THE TPO AT 16.3 8%. THE TWENTY FIVE COMPARABLES SELECTED BY THE TPO AS WELL AS THEIR OP /TC TAKEN BY THE TPO, HOWEVER, WERE SPECIFICALLY DISPUTED BY THE ASSESSEE BY RAISING SPECIFIC OBJECTIONS BEFORE THE DRP, WHICH WERE AS UNDER:- ITA 7568/M/2012 10 ITA 7568/M/2012 11 15. A PERUSAL OF THE ORDER OF THE DRP AS WELL AS TH AT OF THE TPO PASSED IN THE REMAND PROCEEDINGS, HOWEVER, SHOWS THAT THESE O BJECTIONS SPECIFICALLY RAISED BY THE ASSESSEE HAVE NOT BEEN CONSIDERED AND THIS POSITION IS NOT DISPUTED EVEN BY THE LD. DR AT THE TIME OF HEARING BEFORE US. WE, THEREFORE, CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO SET ASIDE THIS MATTER TO THE A.O./TPO WITH A DIRECTION TO CONSIDER THE SAID OBJECTIONS OF THE ASSESSEE AND RECOMPUTE THE AVERAGE MARGIN OF THE CO MPARABLES AFTER TAKING INTO CONSIDERATION THE SAID OBJECTIONS. WE ALSO DI RECT THE A.O./TPO TO APPLY THE AVERAGE MARGIN OF COMPARABLES SO RECOMPUTED TO THE OPERATING COST OF THE ASSESSEE RELATING TO ITS RELEVANT TRANSACTIONS WITH ITS AES IN ORDER TO DETERMINE THE ALP OF THE SAID TRANSACTION AS WELL A S THE TP ADJUSTMENT TO BE MADE IN RESPECT OF SUCH TRANSACTIONS. NEEDLESS TO OBSERVE THAT THE A.O. SHALL OFFER PROPER AND SUFFICIENT OPPORTUNITY TO THE ASSE SSEE OF BEING HEARD ON THIS MATTER. GROUND NO. 3 OF THE ASSESSEES APPEAL IS A CCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA 7568/M/2012 12 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED AS INDICATED ABOVE. 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 $.(+.!./ RK , SR. PS '& 2 0(%7 87- '& 2 0(%7 87- '& 2 0(%7 87- '& 2 0(%7 87-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. 9 () / THE ADDL CIT CONCERNED, MUMBAI. 4. 9 / DRP - CONCERNED, MUMBAI 5. 7$< 0((+ , , / DR, ITAT, MUMBAI K BENCH 6. =, > / GUARD FILE. '&+! '&+! '&+! '&+! / BY ORDER, !17 0( //TRUE COPY// ? ? ? ?/ // /!@ !@ !@ !@ ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI