SURESH BROTHERS, MUMBAI V. ADDL CIT RG 16(3), MUMBAI

ITA 7592/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3123 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 28-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 24-12-2012
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Bad and doubtful debts; Avoidance of tax
• Section: 92C; 143(3); 14A; 144; 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI R.C SHARMA, AM AND SHRI. AMIT SHUKLA, JM ITA NO. 7592/MUM - 2012 (ASSESSMENT YEAR : 2009 - 10) SURESH BROTHERS 511 PANCHRATNA MAMA PARMANAND MARG OPERA HOUSE, MUMBAI - 400004 VS. ADDL. CIT, RG 16(3) R.BNO. 211, 2 ND FLOOR, MATRU MANDIR, TARDEO, MUMBAI PAN : AAAFS3651F APPELLANT .. RESPONDENT APPELLANT BY SHRI. APURVA SHAH RESPONDENT BY SHRI . N.K CHAND DATE OF HEARING : 16.06.2016 DATE OF PRONOUNCEMENT : 1 5 . 0 9 . 2 0 1 6 ORDER P E R R.C SHARMA, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER DT. 29.10.2012 PASSED U/S 143(3) R.W SECTION 144C(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE ASSESSEE FIRM CHALLENGING THE ASSESSMENT ORDER FRAMED BY THE A.O UNDER THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) HAD RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) /TRANSFER PRICING OFFICER (TP O) UNDER THE DIRECTIONS OF THE HONBLE DISPUTE RESOLUTION PANEL (DRP) IS BAD IN LAW. 2. TRANSFER PRICING ADJUSTMENT MADE ON EXPORT SALES TO ASSOCIATED ENTERPRISES (AE) THE LEARNED AO/TPO HAS ERRED IN LAW AND ON FACTS IN MAKING TRANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF EXPORT 2 SALES OF ASSESSES TO AE ON THE BASIS OF VARIOUS PRESUMPTIONS AND SURMISES. A. THE LEARNED AO/TPO HAS ERRED IN APPLYING THE DIFFERENCE OF 1.61 PERCENT [7.32 PERCENT (ROCE OF COMPARABLE COMPANIES AS SELECTE D BY THE LEARNED TPO) LESS 5.71 PERCENT (ROCE OF ASSESSEE AS RECOMPUTED BY THE TPO)], TO THE ENTIRE SALES OF THE ASSESSEE INSTEAD OF RESTRICTING THE SAME TO THE EXPORT SALES MADE TO AE AS INTERNATIONAL TR ANSACTIONS DURING THE PREVIOUS YEAR. B. THE LEARNED AO/TPO HAS ERRED IN CONSIDERING NON - OPERATING EXPENSES OF BAD DEBTS AND FINANCE CHARGE AS OPERATING EXPENSES WHILE COMPUTING THE NET PROFIT OF ASSESSEE FOR CALCULATION OF ROCE. C. THE LEARNED AO/TPO HAS ERRED IN INCLUDING GOENKA DIAMOND AND JEWE LS LIMITED AND SB & T INTERNATIONAL LIMITED IN THE LIST OF COMPARABLE COMPANIES SELECTED BY THE TPO FOR BENCHMARKING OF THE INTERNATIONAL TRANSACTION WITH AE. D. THE ASSESSES VALUE OF EXPORT SALES FALLS WITHIN THE PLUS - MINUS 5 PERCENT OF THE ARMS LENGTH PR ICE DETERMINED BY RESTRICTING THE ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF EXPORT SALES AND HUMBLY PRAYS THE HONBLE TRIBUNAL TO DELETE THE TRANSFER PRICING ADJUSTMENT. 3. TRANSFER PRICING RESTRICTION OF ADJUSTMENT TO INTERNATIONAL TRANSACTIONS. THE LEARNED AO/TPO HAS ERRED IN LAW AND ON FACTS IN NOT RESTRICTING THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIONS BETWEEN THE ASSESSEE AND ITS AES. 4. TRANSFER PRICING GRANT OF PLUS - MINUS 5% BENEFIT UNDER SECTION 92C. THE ASSESSEE HUMBLY P RAYS FOR APPLICATION OF PLUS - MINUS 5% VARIATION WHILE COMPUTING ARMS LENGTH PRICE UNDER SECTION 92C. 5. TRANSFER PRICING COMPUTATION OF ASSESSES PROFITABILITY. THE ASSESSEE HUMBLY PRAYS THAT FOR THE PURPOSE OF TRANSFER PRICING, ASSESSEE PROFITABILITY BE COMPUTE D AFTER CONSIDERING THE EFFECT OF VARIOUS ALLOWANCES/DISALLOWANCES MADE BY THE LEARNED AO AND CONTESTED BY THE ASSESSEE IN THIS APPEAL. 3 6. INTEREST INCOME OF SBI THE AO ERRED IN MAKING AN ADDITION FOR INTEREST INCOME MERELY BASED ON AIR REPORTING WITHOUT ADEQUATELY CONSIDERING THE FACTS IN THE MATTER AND WITHOUT APPRECIATING THAT THE SAME INCOME HAD BEEN REPORTED TWICE BY STATE BANK OF INDIA. 7. THE ABOVE GROUNDS ARE DISTINCT AND SEPARATE , AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELL ANT CRAVES LEAVE TO ADD, MODIFY, ALTER WITHDRAW OR FOREGO ANY OF THE GROUNDS AT THE TIME OF HEARING. (A) FACTS OF THE CASE : 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF IMPORT, MANUFACTURING AND EXPORT OF CUT AND POLISHED DIAMONDS. RETURN OF INCOME WAS ELECTRONICALLY FILED BY THE ASSESSEE FIRM ON 30.09.2008 , DECLARING TOTAL INCOME AT RS. 5,85,90,152/ - . T H E RETURN OF INCOME FILED BY THE ASSESSEE FIRM WAS THEREAFTER SELECTED FOR SCRUTINY ASSESSMENT . DURING TH E COURSE OF THE ASSESSMENT PROCEEDINGS THE A.O AFTER PERUSING THE AUDIT REPORT FILED BY THE ASSESSEE FIRM IN FORM 3CEB WHICH REVEALED INTERNATIONAL TRANSACTIONS OF THE ASSESSEE FIRM WITH ITS ASSOCIATE ENTERPRISES (AE S ) IN EXCESS OF AN AMOUNT OF RS. 1 5 CRORE DURING THE YEAR UNDER CONSIDERATION, TH EREIN CONSIDERING IT NECESSARY AND EXPEDIENT SO TO DO, WITH THE PREVIOUS APPROVAL OF THE CIT - XVI, MUMBAI, REFERRED THE COMPUTATION OF THE ARMS LENGTH PRICE (ALP) IN RELATION TO THE SAID INTERNATIONAL TRANSACTI ONS TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA(1) OF THE ACT , WHEREIN THE LATTER PASSED AN ORDER U/S 92CA(3), DT. 25.10.2011, MAKING AN ADJUSTMENT OF RS. 5,06,84,790/ - TO THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE FIRM . THEREAFTER DRAFT ASSESSMEN T ORDER U/S 143(3) OF THE ACT WAS PASSED ON 30.12.2011 , WHEREIN THE A.O PROPOSED TO ASSESS THE INCOME OF THE ASSESSEE FIRM AT AN AMOUNT OF RS. 11, 15,68,660/ - , PURSUANT WHERETO OBJECTIONS WERE RAISED BY THE ASSESSEE FIRM U/S 144C(2) BEFORE THE DISPUTE RESOLUTION PANEL (DRP) , WHO VIDE HIS ORDER DT. 22.08.2012 ISSUED DIRECTIONS U/S 144C(5) , CONSIDERING WHICH THE A.O FRAMED THE ASSESSMENT U/SS. 143(3) R.W 144C OF THE ACT AND ASSESSED THE INCOME OF THE ASSESSEE FIRM AT AN AMOUNT OF RS . 9,40,59,730/ - . 4 2. 1 THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE FIRM HAD ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AES: - S.NO . NAME OF THE AES NATURE OF TRANSACTION AMOUNT IN INR 1. DIAMSTAR B.V.B.A IMPORT OF ROUGH DIAMONDS 26,93,03,737 2. DIAMSTAR B.V.B.A EXPORT OF ROUGH DIAMONDS 2,12,00,879 3. DIAMSTAR B.V.B.A EXPORT OF CUT AND POLISHED DIAMONDS 37,43,731 4. SURESH BROTHERS (HK) LIMITED EXPORT OF CUT AND POLISHED DIAMONDS 16,64,11,870 5. SURESH BROTHERS DMCC EXPORT OF CUT AND POLISHED DIAMONDS 13,16,62,424 6. SURESH BROTHERS (HK) LIMITED LOAN 2,20,42,500 7. SURESH BROTHERS (HK) LIMITED INTEREST ON LOAN 4,90,438 8. SURESH BROTHERS DMCC LOAN 26,74,195 9. SURESH BROTHERS DMCC INTEREST ON LOAN 1,48,611 THE AUDITOR OF THE ASSESSEE FIRM IN HIS AUDIT REPORT IN FORM 3CEB , DT. 30.09.2008, CLAIMING THAT THE AFORESAID INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE FIRM WITH ITS AES WERE AT ARMS LENGTH, THEREIN TAK ING 4 COMPARABLES, NAMELY, SAUSHISH DIAMONDS, SUN - RAJ D IAMONDS, SU - RAJ DIAMONDS AND ASIAN STAR, WORKED OUT THEIR AVERAGE MARGIN (OP/SALES) A T 4.26%, AGAINST WHICH THE MARGIN OF THE ASSESSEE FIRM (OP/SALES) WAS SHOWN AT 5.83%. (B). BEFORE THE TPO : 2. 2 THE ASSESSEE FIRM FURTHER DURING THE COURSE OF THE TRANSFER PRICING PROCEEDINGS, I N ITS TP STUDY REPORT FILED VIDE SUBMISSION DATED: 03.01.2011 WITH THE TPO , BENCHMARKED ITS INTERNATIONAL TRANSACTIONS LISTED AS S.NO. 1 TO 6 ABOVE, BY USING THE TRANSACTIONAL NET MARGIN METHO D (TNMM) AT THE ENTITY 5 LEVEL. AS PER THE REPORT , THE ASSESSEE FIRM HAD REFERRED TO A SET OF FOUR COMPARABLES, WHICH WERE DEALT WITH BY THE TPO, AS UNDER: - S.NO. ASSESSES COMPARABLES COMMENTS OF TPO 1. SHRENUJ & CO. LTD. (DIAMOND DIVISION) RPT MORE THAN 25%. HENCE, REJECTED AS COMPARABLE 2. CLASSIC DIAMONDS LTD. (DIAMONDS DIVISION) RPT MORE THAN 25%. HENCE, REJECTED AS COMPARABLE 3. SU - RAJ DIAMONDS LTD. ACCEPTED AS COMPARABLE. 4. ASIAN STAR CO. LTD. ACCEPTED AS COMPARABLE. THE TPO THEREAFTER TAKING COGNIZANCE OF THE COMPARABLES PREPARED BY THE DEPARTMENT FOR DIAMOND CUTING AND POLISHING, WHEREIN THE CALCULATION OF OPERATING PROFIT ( OP ) IN THE DEPARTMENTAL COMP ARABLES HAD BEEN DONE HAVING REGARD TO EBIDTA MARGIN, THEREIN COMPUTED THE ASSESS E ES MARGIN , AS UNDER: SALES RS. 325,60,68,789 OTHER INCOME NOT CONSIDERED COGS RS. 296,63,55,115 ADMIN & OTHER RS. 9,31,34,342 LESS NON OP. EXP. - EXCHANGE DIFF. ON LOAN REVALUATION - 2,13,694 BANK CHARGES 2,08,53,831 INTEREST NOT CONSIDERED DEPRECIATION NOT CONSIDERED OC 308,01,29,594 OP 17,59,39,195 OP/OC 5.71% OP/NS 5.40% AND REJECTING SOME OF THE COMPARABLES SELECTED BY THE ASSESSEE FIRM IN ITS DOCUMENTATION, PROCEEDED WITH AND SELECTED 11 COMPARABLES, AS UNDER: - S.NO. COMPANY NAME SOURCE NET SALES OP OP/OC% OP/NS% 6 1. ASIAN STAR CO. LTD. C LINE 1305.11 73.47 5.97% 5.63% 2. C. MAHENDRA EXPORTS . C LINE 1366.45 108.7 8.64% 7.96% 3. DIMEXON DIAMOND LTD. BB 1658.71 105 6.76% 6.33% 4. GOENKA DIAMOND & JEWELS LTD. C LINE 200.56 17.07 9.30% 8.51% 5. LASER DIAMONDS LTD. C LINE 1.59 0.18 12.77% 11.32% 6. MOHIT DIAMONDS PVT. LTD. BB 215.08 13.48 6.69% 6.27% 7. SB & T INTERNATIONAL LTD. C LINE 94.49 6.3 7.14% 6.67% 8. SU ASHISH DIAMOND S LTD. C LINE 1222.97 83.57 7.33% 6.83% 9. SUNRAJ DIAMOND EXPORTS LTD. C LINE 12.75 0.48 3.91% 3.76% 10. SU - RAJ DIAMOND INDUSTRIES LTD. C LINE 246.71 9.67 4.08% 3.92% 11. ZODIAC JRD - MKJ - LTD. C LINE 11.88 0.87 7.90% 7.32% AVERAGE 7.32% 6.77% 2.5 THE ASSESSEE FIRM ON BEING CONFRONTED BY THE TPO WITH THE FACT THAT AS ITS MARGIN WERE FOUND TO BE LESS AS IN COMPARISON TO THAT OF THE COMPARABLES, AND THUS ON BEING CALLED UPON TO SHOW CAUSE AS TO WHY ADJUSTMENTS SHOULD NOT BE MADE TO ITS TRANSACTIONS, THEREIN OBJECTED TO THE USE OF THE COMPARABLES MENTIONED AT SR. NO. 4, 5, 7 AND 11 HEREINABOVE, HOWEVER THE SAID OBJECTIONS RAISED BY THE ASSESSEE FIRM WERE DISMISSED BY THE TPO, WHO 7 THEREIN ADOPTING THE COMPARABLES, AS SUCH, THEREIN PROCEEDED WITH AND MA DE ADJUSTMENTS TO THE ASSESSES TRANSACTIONS, AS UNDER: - (I) . FOR EXPORT TRANSACTIONS OF ASSESSEE WITH I TS AES: S.NO. PARTICULARS 1. THE TPO ADOPTED THE AVERAGE OP/OC OF THE COMPARABLES, I.E 7.32% AS THE PROFIT LEVEL INDICATOR (PLI). 2. THE TPO IN THE COURSE OF COMPUTING THE ALP PROFIT, THEREIN APPLIED THE ALP PROFIT MARGIN OF 7.32% TO THE TOTAL OC OF RS. 308,01,29,594/ - , AND THUS COMPUTED THE SAME AT RS. 22,54,65,486/ - . 3. THE TPO TAKING COGNIZANCE OF THE ALP OF RS. 22,54,65,486/ - C OMPUTED THE SHORT FALL IN PROFIT OF THE ASSESSEE AT RS. 4,95,26,291/ - , AS UNDER: - SHORTFALL IN PROFIT = ALP PROFIT (MINUS) ASSESSES ACTUAL PROFIT = RS.22,54,65,486/ - (MINUS)RS. 17,59,39,195/ - = RS. 4,95,26,291/ - 4. THE TPO COMPUTED THE ALP SALE PRICE AT RS. 37,25,45,195/ - , AS UNDER: - ALP SALE PRICE = A SSESSES SALE PRICE TO AES + SHORT FALL IN PROFIT = RS. 32,30,18,904 + RS. 4,95,26,291/ - = RS. 37,25,45,195/ - 5. THE TPO THEREAFTER COMPUTED 95% OF ALP SALE PRICE TO AES AT RS. 35,39,17,936/ - , AS UNDER: = 95% X RS. 37,25,45,195/ - = RS. 35,39,17,936/ - 6. THE TPO OBSERVING THAT THE ASSESSES SALE PRICE TO AES AT RS. 32,30,18,904/ - WAS FOUND TO BE EVEN BELOW THE - 5% LIMIT OF RS. 35,39,17,936/ - (I.E 95% OF ALP SALE PRICE), THEREFORE NO BENEFIT OF BEING WITHIN THE ALLOWABLE PARAMETERS CONTEMPLATED UNDER OF SEC. 92C(2) COULD BE ALLOWED TO THE ASSESSEE FIRM. (II) . FOR IMPORT TRANSACTIONS OF ASSESSEE WITH ITS AES: S.NO. PARTICULARS 8 1. THE TPO ADOPTED THE AVERAGE OP/OC OF THE COMPARABLES, I.E 6.77% AS THE PROFIT LEVEL INDICATOR (PLI). 2. THE TPO IN THE COURSE OF COMPUTING THE ALP PROFIT, THEREIN APPLIED THE ALP PROFIT MARGIN OF 6.77% TO THE NET SALES OF RS. 325,60,68,789/ - , AND THUS COMPUTED THE SAME AT RS. 22,04,35,857/ - . 3. THE TPO TAKING COGNIZANCE OF THE ALP OF RS. 22,04,35,857/ - , THEREAFTER COMPUTED THE SHORTFALL IN PROFIT OF THE ASSESSEE AT RS. 4,44,96,662/ - , AS UNDER: - SHORTFALL IN PROFIT = ALP PROFIT (MINUS) ASSESSES ACTUAL PROFIT = RS. 26,93,03,739 / - (MINUS) RS. 4,44,96,662/ - = RS. 22,48,07,077/ - 4. THE TPO COMPUTED 105% OF ALP IMPORT PRICE TO AES AT RS. 23,60,47,431/ - , AS UNDER: = 105% X RS. 22,48,07,077/ - = RS. 23,60,47,431/ - 5. THE TPO THEREAFTER OBSERVING THAT THE ASSESSES IMPORT PRICE TO AES AT RS. 26,93,03,739/ - WAS FOUND TO BE COSTLIER THEN 105% OF ALP IMPORT PRICE OF RS. 23,60,47,431/ - , THEREFORE NO BENEFIT OF THE ALLO WABLE PARAMETERS CONTEMPLATED UNDER OF SEC. 92C(2) COULD BE ALLOWED TO THE ASSESSEE FIRM. THUS THE TPO THEREIN OBSERVING THAT AS THE T RANSACTIONS OF THE ASSESSEE FIRM ON BOTH THE EXPORT AND IMPORT SIDE WERE FOUND TO BE TAINTED, AS A RESULT WHEREOF ADJUSTMENTS TO PRICES P A ID AND PRICES TAKEN STOOD COMPUTED AT RS. 4.45 CRORE (APROX) AND RS. 4.95 C RORE (APROX) , RESPECTIVELY, THEREFORE CARRIED OUT ADJUSTMENT OF RS. 4,95,26,291/ - AS REGARDS THE EXPORT - IMPORT TRANSACTIONS OF THE ASSESSEE FIRM. (III) . FOR LOANS GIVEN BY ASSESSEE FIRM TO ITS AES: 9 S.NO. PARTICULARS TREATMENT BY TPO 1. (I). LOAN OF US$ 5 LAKH WAS GIVEN TO THE AE IN HONGKONG IN JANUARY, 2006, WHICH LOA N WAS REPAID BY THE AE IN FULL TO THE ASSESSEE FIRM ON 23.10.2007. (II).THE TP AUDITOR OF THE ASSESSEE FIRM IN HIS TP REPORT IN FORM 3CEB , REFERRING TO US - PLR RATE OF 7.25% IN JANUARY, 2006, COMPUTED THE INTEREST FOR THE PERIOD 01.04.2007 TO 23.10.2007 AT US$ 20,391 , TO WHICH HE APPLIED THE CLOSING RATE OF US $ OF RS. 39.38 AND COMPUTED THE INTEREST RECEIVABLE FOR THE AFORESAID PERIOD AT RS. 8,02,998/ - . (III).THE TP AUDITOR OF THE ASSESSEE FIRM, THEREAFTER REFERRING TO INTEREST RECEIVED OF RS. 4,90,438/ - AS STOOD REFLECTED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM, THEREIN WORKED OUT THE SHORTFALL OF INTEREST RECEIVED AT RS. 3,12,560/ - , WHICH WAS RE FLECTED AS SUCH IN THE TP REPORT IN FORM 3CEB , D T 30.09.2008 OF THE ASSESSEE FIRM. (I). THE TPO CALLED UPON THE ASSESSEE FIRM TO JUSTIFY THE ADOPTION OF THE US PLR RATE OF 7.25% AS BENCHMARK FOR RECEIVABLE RATE OF INTEREST, IN LIGHT OF THE FACT THAT THE LOAN WAS GIVEN TO THE AE IN HONG KONG. (II).THAT IN ABSENCE OF ANY EXPLANATION FROM THE ASSESSEE FIRM, COUPLED WITH ABSENCE OF THE DETAILS W.R.T THE COST OF FINANCE INVOLVED IN GIVING THE AFORESAID LOAN BY THE ASSESSEE FIRM TO THE AE, THE TPO THEREFORE PROCEEDED WITH AND REFERRING TO THE FINANCIALS OF THE ASSESSEE FIRM, THEREIN COMPUTED THE A PPLICABLE ARMS LENGTH ROI FOR LENDING OF LOAN TO AE AT 10.6%, AND ACCORDINGLY ON THE BASIS OF RATE DIFFERENTIAL OF BY ADOPTING THE SAID ROI OF 10.6%, THEREIN CARRIED OUT A FURTHER ADJUSTMENT OF RS. 6,90,501/ - ON ACCOUNT OF UNDER REMUNERATED INTEREST RECE IVABLE/INTEREST RECEIVED. 2. (I). LOAN OF AED 2,18,054 WAS GIVEN BY THE ASSESSEE FIRM TO ITS AE IN DUBAI ON 01.04.2005, 30.04.2005, 06.06.2005 AND 29.10.2005. (II). THE TP AUDITOR OF THE ASSESSEE FIRM IN HIS TP REPORT IN FORM 3CEB , REFERRING TO (I). THE TPO IN ABSENCE OF ANY EXPLANATION FROM T HE ASSESSEE FIRM TO JUSTIFY THE ADOPTION OF THE US PLR RATE OF 7.25% AS BENCHMARK FOR RECEIVABLE RATE OF INTEREST, IN LIGHT OF THE FACT THAT THE LOAN WAS GIVEN TO THE AE IN DUBAI , 10 US - PLR RATE S ON THE RESPECTIVE LENDING DATES, COMPUTED THE INTEREST INCOME AT AED 13634 , TO WHICH HE APPLIED THE CLOSING RATE OF 1 AED = RS. 10.9, AND COMPUTED THE INTEREST RECEIVABLE AT RS. 1,48,611 / - . COUPLED WITH ABSENCE OF THE DETAILS W.R.T THE COST OF FINANCE INVOLVED IN G IVING THE AFORESAID LOAN BY THE ASSESSEE FIRM TO THE AE, THEREFORE PROCEEDED WITH AND REFERRING TO THE FINANCIALS OF THE ASSESSEE FIRM, COMPUTED THE APPLICABLE ARMS LENGTH ROI FOR LENDING OF LOAN TO AE AT 10.6%, AND ACCORDINGLY ON THE BASIS OF RATE DIFFE RENTIAL OF BY ADOPTING THE SAID ROI OF 10.6%, THEREIN CARRIED OUT A FURTHER ADJUSTMENT OF RS. 4,67,998/ - ON ACCOUNT OF UNDER REMUNERATED INTEREST RECEIVABLE/INTEREST RECEIVED W.R.T THE AFORESAID TRANSACTION OF THE ASSESSEE FIRM. THUS IN LIGHT OF THE AFORESAID FACTS, THE TPO VIDE HIS ORDER DT. 25.10.2011 PASSED U/S 92CA(3) OF THE ACT, THEREIN CARRIED OUT AN AGGREGATE ADJUSTMENT OF RS. 5,06,84,790/ - TO THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE FIRM. (C). DRAFT ASSESSMENT ORDER : 3 . THE A.O ON RECEIPT OF THE REPORT OF THE TPO PASSED A DRAFT ASSESSMENT ORDER U/S 143(3) OF THE ACT, DT. 30.12.2011, THEREIN MAKING ADJUSTMENTS OF RS. 5,06,84,790/ - U/S 92C(4) R.W.S 92CA(4) OF THE ACT TO THE VALUE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE FIRM WITH ITS AES DURING THE YEAR UNDER CONSIDERATION , COUPLED WITH CERTAIN OTHER DISALLOWANCES/ADDITIONS IN THE HANDS OF THE ASSESSEE FIRM, AS UNDER: INCOME FROM BUSINESS (AS PER COMPUTATION OF RS. 5,85,90,151/ - 11 INCOME FILED BY ASSESSEE) ADDITIONS : 1. TRANSFER PRICING ADDITIONS RS. 5,06,84,790/ - 2. DISALLOWANCE OF SOFTWARE EXPENSES RS. 3,90,000/ - 3. DISALLOWANCES OF EXPENSES U/S 14A RS. 30,568/ - 4. ADDITION OF INTEREST INCOME RS. 18,73,150/ - RS. 5,29,78,508/ - TOTAL INCOME RS. 11,15,68,660/ - (D). BEFORE DRP : THE ASSESSEE FIRM FILED OBJECTIONS TO THE VARIATIONS PROPOSED IN THE DRAFT ASSESSMENT ORDER BEFORE THE DISPUTE RESOLUTION PANEL - II, MUMBAI (DRP). THE DRP VIDE ITS ORDER DT. 22.08.2012, ISSUED DIRECTIONS U/S 144 C (5) , WHICH ARE BRIEFLY CULLED AS UNDER: - S.NO. GROUNDS OF OBJECTIONS RAISED BY ASSESSEE DIRECTIONS OF DRP 1. TPO INSTEAD OF RESTRICTING THE DIFFERENCE BETWEEN THE PLI OF THE ASSESSEE FIRM AND THE PLI OF COMPARABLES TO THE SALES MADE TO AES, HAD ERRONEOUSLY APPLIED THE SAME TO THE TOTAL SALES OF THE ASSESSEE (INCLUDING SALES MADE TO NON - AES). NO DIRECTIONS ON THE ISSUE GIVEN BY DRP. 2. TPO HAD ERRED IN NOT ADJUSTING THE ENTIRE FINANCING COSTS WHILE ARRIVING AT THE OPERATING PROFI T/TOTAL COST AS THE PROFIT LEVEL INDICATOR (PLI) OF THE THE CLAIM OF THE ASSESSEE FIRM WAS REJECTED BY THE DRP, AS UNDER: - 12 ASSESSEE FIRM, DUE TO WHICH THE PLI OF THE ASSESSEE FIRM AS COMPUTED BY THE TPO IS FOUND TO BE SUPPRESSED. (I).THAT AS BILL DISCOUNTING & OTHER FINANCIAL COSTS RELATED TO OBTAINING FINANCE CAPITAL, THEREFORE THE SAME NOT BEING DIRECTLY INCURRED IN THE PROCESS OF MANUFACTURE AND SALES, WERE THUS RIGHTLY INCL UDED UNDER THE HEAD ADMINISTRATIVE OR FINANCIAL COSTS. (II). THAT AS BAD DEBTS WERE PURELY AN ADMINISTRATIVE COST AND NOT AN OPERATING EXPENDITURE, WHICH ALL THE MORE PERTAINED TO A DEBT OF AN EARLIER YEAR WHICH IS WRITTEN OFF IN A SUBSEQUENT YEAR AND THEREFORE DID NOT EVEN RELATE TO THE SALES OF THE YEAR FOR WHICH RATIOS WERE BEING WORKED OUT, THE SAME IN ABSENCE OF ANY DETAILS FURNISHED BY THE ASSESSEE FIRM TO PROVE OTHERWISE, WAS THERE FORE REJECTED. 3. TPO HAD WRONGLY INCLUDED THE FOLLOWING 4 COMPARABLES, FOR REASONS ASSIGNED AS UNDER: PARTY NAME REASON (AS PER ASSESSEE) (I).LASER DIAMONDS LTD. THE COMPANY WAS INTO TRADING BUSINESS. (II).GOENKA DIAMOND & JEWELS LTD. THE COMPANY DRP DEALT WITH THE CONTENTION OF THE ASSESSEE FIRM AS REGARDS EXCLUSION OF 4 COMPARABLES, AS UNDER : - (I). LASER DIAMONDS LTD: DRP AGREED WITH THE CLAIM OF THE ASSESSEE FIRM AND OBSERVING THAT THE COMPANY WAS NOT COMPARABLE TO THE ASSESSEE FIRM, THEREIN DIRECTED THE A.O/TPO TO 13 WAS INTO TRADING BUSINESS. (III).SB&T INTERNATIONAL LTD. THE RPT ARE MORE THAN 20% OF TOTAL SALES. (IV). ZODIAC JRD - KJ THE COMPANY WAS INTO TRADING BUSINESS. EXCLUDE THE SAID COMPANY FROM THE SET OF COMPARABLES AND RECOMPUTE THE ADJUSTMENTS ACCORDIN GLY. (II).GOENKA DIAMOND & JEWELS: DRP REBUTTING THE CONTENTION OF THE ASSESSEE FIRM, THEREIN OBSERVED THAT THE SALE OF DIAMOND STUDDED JEWELLERY OF THE COMPANY WAS IN THE START UP STAGE AND NOT A DOMINANT BUSINESS, WHEREIN THE SALES OF JEWELLERY W AS RS. 40 CRORE (APROX), AS IN COMPARISON TO THE SALES OF DIAMOND CUT & POLISHED OF R S . 158 CRORES. STILL FURTHER THE DRP OBSERVING THAT AS THE COMPANY DURING THE YEAR HAD INCURRED SUBSTANTIAL EXPENDITURE IN PROMOTING ITS JEWELLERY BRAND, SETTING UP SHOPS IN DIFFERENT PLACES, THEREFORE THE SAID COSTS/EXPENDITURE WOULD OFFSET THE ADVANTAGE IT MIGHT HAVE OVER THE ASSESSEE FIRM IN ITS TOTAL PROFIT RATIOS DUE TO ITS BEING IN THE JEWELLERY BUSINESS. (III). S B & T INTERNATIONAL LTD : THAT AS THE RPT OF THE COMPANY W AS LESS THAN 25%, TH E DRP THEREFORE HOLDING THAT IN NUMBER OF CASES THE THRESHOLD OF 25% HAD BEEN HELD AS AN ACCEPTABLE LIMIT TO FILTER OUT COMPARABLES, THEREFORE REJECTED THE OBJECTION OF THE ASSESSEE FIRM. 14 (IV). ZODIAC JRD - KJ NO DIRECTIONS AS REGARDS THE AFORESAID COMPARABLE COMPANY WAS GIVEN BY THE TPO. 5 . TPO HAD WRONGLY ADOPTED THE DOMESTIC BORROWING RATE FOR ARRIVING AT ALP INTEREST RATE ON LOANS GIVEN TO AES DURING THE YEAR. NO DIRECTIONS ON THE ISSUE GIVEN BY DRP. 5. THE A.O HAS ERRED IN NOT GRANTING DEDUCTION OF THE EXCHANGE DIFFERENCE LOSS ON REVALUATION OF FOREIGN CURRENCY LOANS AGGREGATING TO RS. 5,68,129/ - WHILE COMPUTING THE INCOME FOR THE YEAR UNDER CONSIDERATION. DRP DIRECTED THE A.O TO V E RIFY THE CLAIM OF THE A SSESSEE FIRM AND MAKE THE NECESSARY AMENDMENT IN THE ORDER, IF NECESSARY. 7 . A.O HAD ERRED IN MAKING ADDITION OF RS. 18,73,150/ - ON ACCOUNT OF INTEREST INCOME FROM STATE BANK OF INDIA. THE ASSESSEE FIRM CLAIMED THAT AS PER THE AIR INFORMATION RECEIVED BY THE A.O, THE INTEREST RECEIVED FROM THE SBI WAS REFLECTED TWICE . THE ASSESSEE FIRM EXPLAINING THE REASON FOR THE AFORESAID DISCREPANCY THEREIN LEADING TO TWICE REPORTING OF THE INTEREST RECEIVED , THEREIN SUBMITTED BEFORE THE DRP THAT SBI WHICH WAS REQUIRED TO DEDUCT TDS @11.33% ON THE INTEREST INCOME OF RS. 31,04,124/ - , HOWEVER ERRED AND INITIALLY DEDUCTED AT A RATE LESS THAN 11.33%, AND SUBSEQUENT THERETO IN ORDER TO MAKE UP FOR THE SHORTFALL/DEFICIT IN THE TDS, CARRIED OUT THE DEDUCTION ON THE S AID INTEREST INCOME AS REGARDS THE BALANCE SHORTFALL AMOUNT OF TDS, PURSUANT WHERETO THE SAID INTEREST INCOME WAS REPORTED AT AN AMOUNT OF RS. 49,77,274/ - IN THE AIR INFORMATION RECEIVED BY THE A.O. THE ASSESSEE FIRM IN ORDER TO SUBSTANTIATE ITS CONTEN TION DRP DIRECTED THE A.O/TPO TO VERIFY THE CONTENTION OF THE ASSESSEE FIRM IN LIGHT OF THE EVIDENCE AVAILABLE ON RECORD AND DECIDE THE SAME. 15 THAT IT WAS IN RECEIPT OF INTEREST INCOME OF RS. 31,04,124/ - , THEREIN FURNISHED A CERTIFICATE OF INTEREST DATED: 16.09.2008 ISSUED BY SBI, WHEREIN THE BANK HAD CERTIFIED THAT INTEREST OF RS. 31,04,124/ - WAS PAID TO THE ASSESSEE FIRM DURING THE F.Y. 2007 - 08 . (E). ASSESSMENT FRAMED BY THE A.O : 4. THAT THE A.O THEREAFTER PROCEEDED WITH AND FRAMED ASSESSMENT VIDE HIS ORDER DATED. 29.10.2012, PASSED U/S 143(3) R.W SEC. 144C OF THE ACT AND ASSESSED THE INCOME OF THE ASSESSEE FIRM AT RS. 9,40,59,730/ - , AS AGAINST THE LATTERS RETURNED INCOME OF RS. 5,85,90,151, AS UNDER: - PARTICULARS AMOUNT INCOME RETURNED BY THE ASSESSEE FIRM : RS. 5,85,90,151/ - ADDITIONS : (A). FOR EXPORT TRANSACTIONS OF ASSESSEE : THE A.O GOING BY THE DIRECTIONS OF THE DRP EXCLUDED M/S LASER DIAMONDS FROM THE SET OF COMPARABLES AND ADOPTING THE RECASTED PLI OF 6.77%, RECOMPUTE D THE ADJUSTMENT OF RS. 3,25,85,579/ - AS REGARDS THE EXPORT TRANSACTIONS OF THE ASSESSEE FIRM. (B). FOR IMPORT TRANSACTIONS OF ASSESSEE : THE A.O GOING BY THE DIRECTIONS OF THE DRP EXCLUDED M/S LASER DIAMONDS FROM THE SET OF COMPARABLES AND ADOPTING THE RECASTED PLI OF 6.32% RECOMPUTED THE ADJUSTMENT OF RS. 2,98,44,352/ - AS REGARDS THE IMPORT TRANSACTIONS OF THE ASSESSEE FIRM. THE A.O IN LIGHT OF THE AFORESAID FACTS, OBSERVING THAT THE ASSESSES TRANSACTIONS ON BOTH EXPORT AND IMPORT SIDE WERE TAINTED, THEREIN ADOPTED THE HIGHER OF THE AFORESAID ADJUSTMENTS, I.E RS. 3,25,85,579/ - , AND MAKING A FURTHER ADDITION OF RS. 1 1,58,499/ - AS REGARDS TP ADJUSTMENTS WHICH HAD REMAINED : RS. 3,37,44,078/ - 16 UNCHANGED, THEREIN MADE AN AGGREGATE ADDITION OF RS. 3,37,44,078/ - IN THE HANDS OF THE ASSESSEE FIRM. EXCESS AMOUNT OF DEDUCTION TOWARDS SOFTWARE EXPENDITURE. : RS. 3,90,000/ - DISALLOWANCE OF EXPENSES ATTRIBUTABLE FOR EARNING EXEMPT INCOME U/S 14A R.W RULE 8D. : RS. 30,568/ - DIFFERENCE IN THE INTEREST INCOME RECEIVED FROM SBI. RS. 18,73,150/ - TOTAL INCOME : RS. 9,40,59,730/ - SUBMISSIONS OF THE ASSESSEE : 5. THE ASSESSEE FIRM AGGRIEVED WITH THE AFORESAID ASSESSMENT FRAMED BY THE A.O IN LIGHT OF THE DIRECTIONS OF THE DRP, HAD THEREIN ASSAILED THE AFORESAID ADDITIONS/DISALLOWANCE BEFORE THE TRIBUNAL. HOWEVER THE LD. AR HAS MOSTLY CONFINED HIS ARGUMENT STATING THAT, EVEN IF THE MARGIN OF TPO IS A PPLIED ONLY TO INTERNATIONAL TRANSACTION WITH THE AE, THEN NO ADJUSTMENT WOULD BE REQUIRED TO BE MADE AS THEY WOULD FALL WITHIN THE TOLERANCE RANGE OF ALP. GROUND OF APPEAL 2(A) & (D) , 3 AND 4 : 5.1 THAT AS THE ISSUE INVOLVED IN GROUND OF APPEAL 2(A) & (D), 3 AND 4 IS THE SAME, THEREFORE THE SAME ARE BEING TAKEN UP AND DISPOSED OF TOGETHER. THE A.R FOR THE ASSESSEE FIRM AT THE VERY OUTSET HAD CHALLENGED THE ACTION OF THE TPO BY CLAIMING THEREIN THAT THE DIFFERENCE OF 1.61 PERCENT BETWEEN THE PLI OF THE ASSESSEE FIRM AND PLI OF COMPARABLES THOUGH WAS LIABLE TO BE RESTRICTED TO ONLY THE TRANSACTIONS WITH THE AES, BUT HOWEVER THE TPO HAD MOST ARBITRARILY APPLIED THE SAME TO THE TOTAL SALES OF THE ASSESSEE FIRM (INCLUDING SALES MADE TO NON - AES). THE A.R HAD FORTIFIED THE AFORESAID LOGICAL REASONING, BY PLACING RELIANCE ON THE JUDGMENT OF THE ITAT IN THE CASE OF M/S RATILAL BECHARLAL & SONS , ITA NO.7876/MUM/2011 ORDER DATED 07.11.2012, WHICH NOW HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF TH E 17 C IT - 16, MUMBAI VS. M/S RATILAL BECHARLAL & SONS (ITA NO. 1906 OF 2013; DT. 24/11/2015) , WHEREIN THE HONBLE HIGH COURT CLARIFYING THE SCOPE AND GAMUT OF CHAPTER X OF THE ACT, AND CONCLUDING THAT THAT THE SPECIAL PROVISIONS CONTEMPLATED THEREIN ARE STRICTLY TO BE RESTRICTED AS REGARDS THE DOMESTIC AND INTERNATIONAL TRANSACTIONS OF THE ASSESSEE CONCERN WITH ITS ASSOCIATED ENTERPRISES AND CANNOT BE EXTENDED TO THE ENTIRE SALES OF THE ASSESSEE, HELD AS UNDER: - (D). CHAPTER X OF THE ACT INTER ALIA DEALS WITH COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO THE ALP. SECTION 92 THEREOF SPECIFICALLY BRINGS TO CHARGE INCOME ARISING FROM INTERNATIONAL TR ANSACTIONS WITH AN ASSOCIATED ENTERPRISE TO TAX ON COMPUTATION OF INCOME HAVING REGARD TO THE ALP OF THE TRANSACTIONS ENTERED INTO BETWEEN THE ASSOCIATED ENTERPRISES, AS THE HEADING OF CHAPTER X ITSEL F INDICATES THAT THESE ARE SPECIAL PROVISIONS RELATING T O AVOIDANCE OF TAX AND THE MANDATE IS TO ENSURE ADJUSTMENT IN RESPECT OF THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES OR SPECIFIED DOMESTIC TRANSACTIONS ON THE DETERMINATION OF ALP. IT DOES NOT ALLOW ADJUSTMENT OF THE INCOME ON THE BASIS OF D ETERMINING OF ALP IN RESPECT OF THE ASSESSES TRANSACTIONS. IF THE CONTENTION OF THE REVENUE IS TO BE ACCEPTED, IT WOULD RESULT IN TAXING NON - EXISTING INCOME/PROFITS OF TRANSACTIONS ENTERED INTO BETWEEN THE RESPONDENT ASSESSEE AND INDEPENDENT THIRD PARTIES. THIS IN THE PRESENT FACT, EVEN IN THE ABSENCE OF AN ALLEGATION THAT THE TRANSACTIONS WITH PARTIES OTHER THAN ASSOCIATED ENTERPRISE IS NOT AT ALP. THE TRANSACTIONS WITH PARTIES OTHER THAN THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE OR IN RESP ECT OF SPECIFIED DOMESTIC TRANSACTIONS ARE NOT WITHIN THE AMBIT OF CHAPTER X OF THE ACT. THE LD. D.R ON THE OTHER HAND THOUGH CONCEDED TO THE SETTLED POSITION OF LAW THAT TP ADJUSTMENT, IF ANY, IS TO BE MADE ONLY AS REGARDS THE INTERNATIONAL TRANSACTIONS OF AN ASSESSEE WITH ITS AES, BUT IT WAS AVERRED BY HIM THAT THE ASSESSEE FIRM IN THE COURS E OF THE PROCEEDINGS BEFORE THE LOWER AUTHORITIES HAD FAILED TO PROVIDE THE SEGMENTAL ACCOUNTS FOR AE AND NON AE TRANSACTIONS , AND AS SUCH HAD FAILED TO DISCHARGE THE ONUS AS WAS CAST UPON IT, THEREFORE THE LATTER COULD NOT BE ALLOWED TO TAKE BENEFIT OF IT S OWN FAILURE . THE LD. D.R FURTHER SUPPORTING THE TP ADJUSTMENTS CARRIED OUT BY THE TPO, THEREIN SUBMITTED THAT AS THE DEPARTMENT IN THE ABSENCE OF AE/NON - AE SEGMENTS IS 18 REGULARLY WORKING OUT COST OF NON - AE TRANSACTION BY APPLYING AVERAGE PLI OF EXTERNAL C OMPARABLE S , THEREFORE NO INFIRMITY COULD BE ATTRIBUTED TO THE WORKING CARRIED OUT BY THE TPO. WE HAVE PERUSED THE REPORT OF THE TPO AND ARE OF THE PRIMA FACIE VIEW THAT THE LATTER VIDE HIS WORKING AT PAGE 4 - 5 OF HIS REPORT HAD OSTENSIBLY FAILED TO RESTRICT THE APPLICATION OF THE DIFFERENCE OF 1.61 PERCENT BETWEEN THE PLI OF THE ASSESSEE FIRM AND PLI OF COMPARABLES W.R.T THE TRANSACTIONS OF THE ASSESSEE FIRM WITH THE AES, AND RATHER HAD APPLIED THE SAME TO THE TOTAL SALES OF THE ASSESSEE FIRM (INCLUDING SALES MADE TO NON - AES). THUS IN THE INTEREST OF JUSTICE AND FAIRNESS, WE RESTORE THE ISSUE TO THE FILE OF THE TPO , WITH A DIRECTION TO VERIFY THE GENUINENESS AND VERACITY OF THE AFORESAID CONTENTION OF THE ASS ESSEE, AND KEEPING IN VIEW THE SCOPE OF APPLICABILITY OF THE SPECIAL PROVISIONS CONTEMPLATED UNDER CHAPTER X OF THE ACT, AS HAD BEEN LOOKED INTO BY THE HONBLE HIGH COURT OF JURISDICTION IN THE CASE OF : M/S RATILAL BECHARLAL & SONS (SUPRA), THEREIN RESTRICT THE ADJUSTMENTS IN THE HANDS OF THE ASSESSEE FIRM ONLY AS REGARDS THE LATTER INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES , AND THEREAFTER ADJUDICATE UPON THE SA ID ISSUE AFTER VERIFY ING AS TO WHETHER THE PLI OF THE ASSESSEE F IRM AS IN COMPARISON WITH THE PLI OF THE COMPARABLES FALLS WITHIN THE +/ - 5% LIMIT OF SAFE HARBOUR , AS CONTEMPLATED U/S 92C OF THE ACT . HOWEVER, BEFORE PARTING, IT IS DIRECTED THAT THE TPO BEFORE ADJUDICATING ON THE AFORESAID ISSUE IN LIGHT OF THE DIREC TIONS GIVEN HEREINABOVE, SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE FIRM TO SUBSTANTIATE ITS AFORESAID CONTENTION . IT HAS BEEN A DMITTED THAT, IF THE ABOVE ISSUE IS DECIDED IN FAVOUR THEN, ISSUES RAISED IN GROUND NO. 2(B) & 2(C) WILL BECOME PURELY ACADEMIC AND NEED NOT BE ADJUDICATED, AS THERE WOULD BE NO ADJUSTMENT REQUIRED TO BE MADE. ACCORDINGLY, WE ARE KEEPING THE ISSUES RAISED IN GROUND NO. 2(B) & 2(C) OPEN AND ARE TREATED AS DISMISSED AS IN - FRUCTUOUS. 19 GROUND OF APPEAL 5 6. THE A.R OF THE ASSESSEE FIRM HAD SUBMITTED BEFORE THE TRIBUNAL THAT THE PROFITABILITY OF THE ASSESSEE FIRM BE COMPUTED AFTER CONSIDERING THE EFFECT OF VARIOUS ALLOWANCES/DISALLOWANCES MADE BY THE A.O AND CONTESTED BY THE ASSESSEE FIRM IN THIS APPEAL. WE F IND FORCE IN THE SUBMISSIONS OF THE A.R AND HEREIN DIRECT THE A.O THAT THE PROFITABILITY OF THE ASSESSEE FIRM FOR THE PURPOSE OF TRANSFER PRICING BE COMPUTED AFTER GIVING EFFECT TO AND CONSIDERING THE MODIFICATIONS CARRIED OUT IN LIGHT OF THE ALLOWANCES/ ADJUSTMENTS MADE IN THE HANDS OF THE ASSESSEE FIRM. GROUND OF APPEAL NO. 6 7. THE A.R OF THE ASSESSEE FIRM HAD AVERRED THAT THE A.O HAD ERRED IN MAKING AN ADDI TION FOR INTEREST INCOME MERELY ON THE BASIS OF AIR REPORTING , WITHOUT ADEQUATELY CONSIDERING THE CLAIM OF THE ASSESSEE FIRM THAT THE SAID INCOME WAS REPORTED TWICE BY STATE BANK OF INDIA (SBI). IT WAS SUBMITTED BY THE A.R THAT THE INTEREST INCOME WHICH WAS STATED TO HAVE BEEN PAID/CREDITED AS PER THE AIR INFORMATION RECEIVED BY THE A.O FROM SBI , WAS FACTUALLY INCORRECT AND INCONSISTENT AS AGAINST THE ACTUAL INTEREST INCOME , AS UNDER: - NAME OF BANK AS PER AIR INFORMATION RECEIVED FROM BANK ACTUAL INTEREST INCOME RECEIVED/CREDITED (AS CLAIMED BY ASSESSEE FIRM) DIFFERENCE STATE BANK OF INDIA RS. 49,77,274/ - RS. 31,04,124/ - RS.18,73,150/ - THE A.R OF THE ASSESSEE FIRM SUBMITTED THAT THOUGH AN EXPLANATION DEMONSTRATING THE FACTUM AS REGARDS THE DISCREPANCY AS HAD CREPT IN THE AIR REPORTING OF THE BANK WAS FURNISHED WITH THE A.O, WHEREIN IT WA S SUBMITTED THAT CERTAIN ENTRIES OF INTEREST WERE SHOWN TWICE IN THE BANK STATEMENT , HOWEVER THE LATTER VIDE HIS DRAFT ASSESSMENT ORDER PASSED U/SS. 143(3) R.W 144C OF THE ACT, WITHOUT VERIFYING THE GENUINENESS AND VERACITY OF THE CLAIM OF THE ASSES SEE FIRM, MOST ARBITRARILY MADE AN ADDITION OF RS. 18,73,150/ - 20 (SUPRA) IN THE HANDS OF THE ASSESSE E FIRM . IT WAS FURTHER SUBMITTED BY THE A.R THAT THE ASSESSEE FIRM IN ITS OBJECTIONS FILED AGAINST THE DRAFT ORDER PASSED BY THE A.O U/SS. 143(3) R.W 144C OF THE ACT, THEREIN DEMONSTRATED AT LENGTH BEFORE THE DRP THE FACT THAT THE INTEREST ENTRIES HAD BEEN SHOWN TWICE IN THE AIR INFORMATION RECEIVED BY THE A.O FROM THE BANK, PURSUANT WHERETO THE DRP VIDE HIS ORDER PASSED U/S 144(5) OF THE ACT , IN ALL FAIRNESS THOUGH DIRECTED THE A.O/TPO TO VERIFY THE CONTENTION OF THE ASSESSEE FIRM IN LIGHT OF THE EVIDENCE ON RECORD AND THEN DECIDE THE CLAIM, HOWEVER THE A.O VIDE HIS ORDER PASSED U/SS. 143(3) R.W. 144C OF THE ACT, DT. 29.10.2012, INSTEAD OF FOLLOWING THE SPECIFIC DIRECTIONS OF THE DRP, RATHER PROCEEDED WITH IN A CALLOUS MANNER AND WITHOUT MAKING ANY VERIFICATION, AS DIRECTED BY THE DRP, THEREIN PROCEEDED WITH AND MADE AN ADDITION OF THE IMPUGNED INTEREST INCOME OF RS. 18,73,150/ - (SUPRA) IN THE HANDS OF THE ASSESSEE FIRM. THE A.R OF THE ASSESSEE FIRM FURTHER CHALLENGING THE ADOPTION OF THE INTEREST INCOME BY THE A.O MERELY ON THE BASIS OF AIR REPORTING, WITHOUT ADEQUATELY CONSIDERING THE CLAIM OF THE ASSESSEE FIRM THAT THE SAID INCOME WAS REPORTED TWICE BY STATE BANK OF INDIA (SBI), HAD RELIED ON A RECENT ORDER OF A CO - ORDINATE BENCH OF THE TRIBUNAL, PASSED IN THE CASE OF: M/S KRONER INVESTMENTS LIMITED, MUMBAI VS . DCIT - 5(2), MUMBAI (ITA NO. 5125 /M/201 3 ; DT. 10.04.2015 ), WHEREIN THE TRIBUNAL HELD AS UNDER: - 4. WE FIND THAT ADDITION IN THIS CASE HAS BEEN MADE SOLELY ON THE BASIS OF AIR INFORMATION AND WITHOUT ANY CORROBORATIVE EVIDENCE REGARDING THE RECEIPT OF ANY INTEREST BY THE ASSESSEE FROM THE SAID M/S ESSAR OIL LIMITED. THE ASSESSEE HAS SPECIFICALLY DENIED THE RECEIPT OF SUCH AN INTEREST INCOME. T H E REVENUE HAS NOT MADE ANY ENQUIRIES TO FIND OUT WHETHER THE AIR INFORMATION WAS CORRECT OR NOT. IT HAS BEEN HELD TIME AND AGAIN BY THIS TRIBUNAL THAT THE ADDITIONS MAD E SOLELY ON THE BASIS OF AIR INFORMATION ARE NOT SUSTAINABLE IN THE EYES OF LAW. IF THE ASSESSEE DENIES THAT IT IS IN RECEIPT OF INCOME FROM A PARTICULAR SOURCE, IT IS FOR THE AO TO PROVE THAT THE ASSESSEE HAS RECEIVED 21 INCOME AS THE ASSESSEE CANNOT PROVE T HE NEGATIVE. RELIANCE CAN BE PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. SHREE G. S E LVA KUMAR IN ITA NO. 868/BANG/2009 DECIDED ON 22.10.10 AND ANOTHER CASE IN THE CASE OF AARTI RAMAN VS. DCIT IN ITA NO. 245/BANG/2012 DECIDED 0N 05.10.12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIALS ON RECORD , INCLUDING THE ORDERS OF THE AUTHORITIES BELOW, AND THEREIN FIND THAT DESPITE THERE BEING A SPECIFIC DIRECTION BY THE DRP TO THE A.O TO VERIFY THE CONTENTION OF THE ASSESSEE FIRM IN LIGHT OF THE EVIDENCE ON RECORD , THE A.O HAD PROCEEDED WITH MOST ARBITR ARILY AND EXCEPT FOR TAKING COGNIZANCE OF THE DIRECTIONS OF THE DRP OSTENSIBLY FOR ACADEMIC PURPOSES ONLY, HAD RATHER BLATANTLY FAILED TO FOLLOW AND EFFECT COMPLIANCE TO THE SAME IN THE RIGHT SPIRIT, WHICH ACT ON THE PART OF THE A.O IS DEPRECATED . THE L D. REPRESENTATIVES OF BOTH THE PARTIES HAVE AGREED BEFORE US THAT IN LIGHT OF THE FACTUAL POSITION AS IT SO REMAINS, THE ISSUE BE RESTORED TO THE FILE OF THE A.O FOR CONSIDERING AFRESH. THUS WE ACCORDINGLY RESTORE THIS ISSUE TO THE FILE OF THE A.O TO CONSI DER AND VERIFY THE CONTENTION OF THE ASSESSEE FIRM AND PASS A SPEAKING ORDER AS REGARDS THE SAME. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE FIRM IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 1 5 / 0 9 / 201 6 . S D / - ( AMIT SHUKLA ) S D / - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 1 5 / 0 9 /2016 PKM , PS 22 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//