JOTUN INDIA P.LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 7666/MUM/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7225 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 12-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 31-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR LD
• Assessee Lawyers: GIRISH DAVE KETAN VED; NINAD PATADE LD ARS
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Initiation of penalty proceedings
• Section: 143(3); 92

Judgement Text

ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , BEFORE SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.1126/MUM/2013 ( ASSESSMENT YEAR: 2007-08) JOTUN INDIA PRIVATE LIMITED ROOM NO.502,5 TH FLOOR BOSTON HOUSE, SUREN ROAD BEHIND CINEMAX THEATRE ANDHERI(EAST), MUMBAI-400 093 VS. INCOME TAX OFFICER 3(2)(1) MUMBAI PAN/GIR NO. AABCJ-6665-J ( APPELLANT) : ( RESPONDENT) & I.T.A. NO.7437/MUM/2012 & 7666/MUM/2013 ( ASSESSMENT YEARS: 2008-09 & 2009-10) JOTUN INDIA PRIVATE LIMITED ROOM NO.502,5 TH FLOOR BOSTON HOUSE, SUREN ROAD BEHIND CINEMAX THEATRE ANDHERI(EAST),MUMBAI-400 093 VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(2) MUMBAI PAN/GIR NO. AABCJ-6665-J ( APPELLANT) : ( RESPONDENT) ASSESSEE BY : GIRISH DAVE, KETAN VED & NINAD PATADE, LD. ARS REVENUE BY : JAYANT KUMAR, LD. CIT DR ! ' DATE OF HEARING : 19/04/2018 #$% ' / DATE OF PRONOUNCEMENT : 04 /05/2018 O R D E R ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 2 PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEALS BY ASSESSEE FOR ASSESSMENT YEARS [AY] 2007-08 TO 2009-10 CONTEST SEPARATE ORDERS OF LOWER AUTHORITIES. SINCE COMMON ISSUES ARE INVOLVED, ALL THE APPEALS ARE BEI NG DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E & BREVITY. ITA NO. 1126/MUM/2013, AY 2007-08 2. THIS APPEAL CONTEST FINAL ASSESSMENT ORDER DATED 28/10/2011 PASSED BY LD. INCOME TAX OFFICER-3(2)(1) [AO] U/S 1 43(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 PURSUANT TO THE DIRECTI ONS OF LD. DISPUTE RESOLUTION PANEL [DRP]. THE HEADS OF EFFECTIVE GROUND RAISED IN THE APPEAL READS AS UNDER:- 1. TRANSFER PRICING ADJUSTMENT PAYMENT OF PROJECT EXPENSES-RS.17,246,260/-. 2. TRANSFER PRICING ADJUSTMENT PROVISION OF SALES SUPPORT SERVICES RS.74,37,000/- 3. USE OF MULTIPLE YEAR DATA 4. BENEFIT OF +/-5% 5. INITIATION OF PENALTY PROCEEDINGS 6. GENERAL 3.1 FACTS IN BRIEF ARE THAT ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN TRADING OF DECORATIVE PAINTS AND SALES SUPPORT SERV ICES WAS ASSESSED U/S 143(3) AT LOSS OF RS.159.90 LACS AFTER CERTAIN TRANSFER PRICING [TP] ADJUSTMENT OF RS.246.83 LACS AS AGAINST RETURNED LOSS OF RS.406.73 LACS E-FILED BY THE ASSESSEE ON 29/10/2007. THE ASSESSEE WAS A 99.85% SUBSIDIARY COMPANY OF JOTUN AS, NORWAY WHICH WAS A PART OF JOTUN GROUP. THE GROUP WAS ENGAGED IN MANUFACTURING OF PAINTS, COATINGS AND POWDER COATINGS. THE ASSESSEE WAS INCORPORATED DURING MARCH, 2006 TO MANUFACTURE LIQUID PAINTS TO BE USED FOR COATINGS IN ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 3 MARINE, INDUSTRIAL AND HOUSING SECTOR . THE IMPUGNED AY WAS THE FIRST YEAR OF COMMERCIAL OPERATIONS OF THE ASSESSEE. SINC E THE PLANT WAS NOT SET UP, THE ASSESSEE CARRIED OUT ONLY TRADING ACTIV ITIES AND WAS ENGAGED IN PROVIDING CERTAIN SALE SUPPORT SERVICES TO ITS AE IN THE IMPUGNED AY. 3.2 THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY T HE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES [AE] AS REPORTED IN FORM 3CEB WERE REFERRED FOR DETERMINATION OF ARMS LENGTH PRICE [ALP] U/S 92CA(1) TO LD. TRANSFER PRICING OFFICER [TPO] ON 11/12/2009. THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING IMPUGNED AY AND METHODS USED TO BENCHMARK THE SAME IN ITS TRANSFER PRICING STUDY AR E LISTED BELOW:- NO. NATURE OF TRANSACTION VALUE (IN CRORES) METHOD USED 1. PURCHASE OF FINISHED GOODS 5.38 RPM 2. PURCHASE OF FIXED ASSETS 1.20 AT COST 3. RECEIPT OF SALE SUPPORT SERVICES 2.01 TNMM 4. PAYMENT FOR PROJECT EXPENSES AND TECHNICAL SERVICES 1.72 AT COST 5. PAYMENT OF INTEREST ON ECB 0.13 CUP THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR TRANSAC TIONS LISTED AT SERIAL NUMBER 1 & 5 HAS BEEN ACCEPTED BY LD. TPO AN D NO ADJUSTMENT HAS BEEN PROPOSED AGAINST THESE TRANSACTIONS. THE TP ADJUSTMENT AGAINST PURCHASE OF FIXED ASSETS AS SUGGESTED BY LD. TPO HAS BEEN DELETED BY LD. DRP AND IT HAS BEEN SUBMITTED THAT N O APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE SAME. AS EVIDE NT FROM GROUNDS OF APPEAL, THE ISSUE UNDER APPEAL IS RELATED WITH DETE RMINATION OF ALP OF PROJECT EXPENSES AND SALES SUPPORT SERVICES. 3.3 THE ASSESSEE PROVIDED SALES SUPPORT SERVICES AMOUNTING TO RS.2.01 CRORES TO ITS AE SITUATED AT SINGAPORE TO PROMOTE ITS PRODUCTS IN ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 4 INDIA. THESE SERVICES WERE MOSTLY IN THE NATURE OF MANAGEMENT INFORMATION SYSTEM [MIS] AND FORWARDING OF PURCHASE ORDERS RECEIVED FROM THIRD PARTIES. THESE TRANSACTIONS WERE BENCHMA RKED USING TRANSACTIONAL NET MARGIN METHOD [TNMM] WITH BERRY RATIO AS PROFIT LEVEL INDICATOR [PLI] . TO WORK OUT THE SEGMENTAL RESULTS , LD. TPO APPORTIONED THE TOTAL COST IN THE RATIO OF COMMISSION INCOME EARNED BY THE ASSESSEE TO TOTAL OPERATING INCOME WHICH HAS RESULTED INTO ASSESSEES PLI BEING WORKED OUT AT (-)25.37% AS AGAINST PLI OF 12% REFLECTED BY ONE COMPARABLE. RESULTANTLY, THE TP AD JUSTMENT HAS BEEN WORKED OUT @37.37% OF COMMISSION INCOME OF RS.2.01 CRORES WHICH TRANSLATED INTO TP ADJUSTMENT OF 74.37 LACS AGAINST THE SAME. 3.4 THE SECOND TP ADJUSTMENT WAS RELATED WITH PURCHASE OF FIXED ASSETS VIZ. FURNITURE, COMPUTERS, AIR CONDITIONERS ETC. FROM INDIAN BRANCH OF ITS SINGAPORE AE . THE SAME HAS BEEN BENCHMARKED BY THE ASSESSEE ON COST BASIS. THE ASSESSEE SUBMITTED THAT THESE ASSETS WER E PURCHASED BY INDIAN BRANCH FOR USE OF ASSESSEE AND THE SAME HAS BEEN REIMBURSED ON COST- TO-COST BASIS AND FURTHER, THE SAME HAS NOT BEEN CAPITALIZED IN THE BOOKS OF INDIAN BRANCH. HOWEVER, FOR WANT OF REQUISITE EVIDENCES, ALP OF FIXED ASSETS AMOUNTING TO RS.78.38 LACS HAS BEE N DETERMINED AS NIL AND ADJUSTMENT TO THAT EXTENT WAS PROPOSED BY LD. TPO. 3.5 THE THIRD TP ADJUSTMENT WAS RELATED WITH REIMBURSEMENT OF PROJECT EXPENSES AND TECHNICAL SERVICES AGGREGATING TO RS.172.46 LACS CLAIMED TO BE REIMBURSED TO ITS AE BY THE ASSESSEE ON COST-TO-COST BASIS. HOWEVER, FOR WANT OF EVIDENCES, LD. TPO PROPOSED TP ADJUSTMENT OF RS.82.96 LACS IN THE SAME. ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 5 3.6 THE AFORESAID THREE TP ADJUSTMENTS AGGREGATING TO RS.235.72 LACS AS PROPOSED BY LD. TPO VIDE ITS ORDER U/S 92 CA (3) DATED 25/10/2010 WAS INCORPORATED BY LD. AO IN THE DRAFT ASSESSMENT ORDER DATED 28/12/2010 IN TERMS OF SECTION 92 CA(4) WHICH WAS S UBJECTED TO OBJECTIONS BY ASSESSEE BEFORE LD. DRP. 3.7 THE LD. DRP WHILE CONFIRMING THE STAND OF LD. T PO OPINED THAT ALP OF TOTAL PROJECT EXPENSES AGGREGATING TO RS.172.46 LACS WERE TO BE TREATED AS NIL SINCE THE SETTING UP OF THE PROJECT WAS A PART OF SHAREHOLDERS ACTIVITY AND THE BENEFIT THEREOF WAS TO BE RECEIVED BY THE GROUP AS A WHOLE. THE AFORESAID STAND OF LD. DRP, I N EFFECT, RESULTED INTO ENHANCEMENT OF TP ADJUSTMENT AGAINST PROJECT EXPENSES BY RS.89.49 LACS. THE TP ADJUSTMENT ON ACCOUNT OF SALES SUPPORT SERVICES HAS BEEN CONFIRMED WHEREAS ADJUSTMENT ON ACCOUNT OF FIX ED ASSETS WAS DELETED BY LD. DRP SINCE ADEQUATE EVIDENCES WERE AD DUCED BY THE ASSESSEE TO SUPPORT ITS SUBMISSIONS. INCORPORATING THE AFORESAID ADJUSTMENTS, FINAL ASSESSMENT ORDER DATED 28/10/201 1 HAS BEEN PASSED BY LD. AO WHEREIN TP ADJUSTMENTS AGGREGATING TO RS.246.83 LACS HAS BEEN CARRIED OUT ON ACCOUNT OF SALES SUPPORT SERVICES & PROJECT EXPENSES. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFOR E US. 4. THE LD. AUTHORIZED COUNSEL FOR ASSESSEE [AR], DR AWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER-BOOK, ASSAILED THE STAND OF LOWER AUTHORITIES, INTER-ALIA, ON THE GROUND OF VIOLATION OF PRINCIPLE OF NATURAL JUSTICE BY SUBMITTING THAT VARIOUS EVIDENCE S SUBMITTED BY THE ASSESSEE WERE NOT PROPERLY CONSIDERED WHILE ARRIVIN G AT THE SAID ADJUSTMENT. IT HAS FURTHER BEEN CONTENDED THAT ENHA NCEMENT HAS BEEN MADE BY LD. DRP WITHOUT PROVIDING ADEQUATE OPPORTUN ITY OF BEING HEARD ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 6 TO THE ASSESSEE IN VIOLATION OF STATUTORY PROVISION S AND THEREFORE THE MATTER REQUIRE RECONSIDERATION BY LOWER AUTHORITIES . PER CONTRA , LD DEPARTMENTAL REPRESENTATIVE [DR] SUBMITTED THAT THE ASSESSEE DID NOT FILE THE REPLIES ON TIME AND DID NOT COOPERATE WITH LOWER AUTHORITIES AND THEREFORE THE ADJUSTMENT HAS RIGHTLY BEEN MADE BY L OWER AUTHORITIES AND THE SAME NEED TO BE CONFIRMED. 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLACED IN TH E PAPER-BOOK . SO FAR AS THE ADJUSTMENT ON ACCOUNT OF FIXED ASSETS IS CON CERNED, WE FIND THAT THE ASSESSEE HAS BENCHMARKED THE SAME AT COST WHICH HAS BEEN ACCEPTED BY THE REVENUE AND LD. DRP, AFTER APPRECIA TING THE EVIDENCES SUBMITTED BY THE ASSESSEE HAS DELETED THIS ADJUSTME NT ALTOGETHER. IT HAS BEEN SUBMITTED BEFORE US THAT NO APPEAL AGAINST THE SAME HAS BEEN FILED BY THE REVENUE AND THEREFORE, THE MATTER HAS ALREAD Y ATTAINED FINALITY. 6. SO FAR AS THE ADJUSTMENT ON ACCOUNT OF SALES SUPPORT SERVICES IS CONCERNED, THE PRIME GRIEVANCE OF THE ASSESSEE REVO LVES AROUND METHOD OF COST ALLOCATION BETWEEN TRADING ACTIVITY AND SALES SUPPORT SERVICES . UPON PERUSAL, WE FIND THAT THE ASSESSEE, VIDE ITS L ETTER DATED 18/10/2010 MADE SEVERAL SUBMISSIONS TO CONTEST THE ADJUSTMENT UNDER THIS HEAD. THE SAID SUBMISSIONS, IN OUR OPINION, ARE VITAL TO ADJUDICATION OF THIS ISSUE SINCE THESE SUBMISSIONS, BESIDES POINTING OUT CERTAIN ERRORS IN THE COMPUTATIONS MADE BY LD. TPO, CONTAIN ALTERNATIVE S UBMISSIONS AS TO COST ALLOCATION AND DETERMINATION OF ALP OF THESE TRANSACTIONS. THE SAID SUBMISSIONS HAVE ALTOGETHER BEEN IGNORED BY LD. TPO AS WELL AS LD. DRP, SINCE THE SAME, PRIMA FACIE, HAS BEEN SUBMITTED BY THE ASSESSEE AFTER PASSING-OFF OF THE ORDER BY LD. TPO. IN VIEW OF THE ABOVE STATED ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 7 FACTS AND IN THE INTEREST OF JUSTICE, WE REMIT THIS MATTER BACK TO THE FILE OF LD. AO / TPO FOR DUE CONSIDERATION AND RE-ADJUDICAT ION IN THE LIGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE. NEEDLESS TO ADD T HAT ALP OF THE TRANSACTIONS HAS TO BE COMPUTED WITHIN THE FRAMEWOR K OF STATUTORY PROVISIONS AND AS PER METHODOLOGY PROVIDED IN RULE 10B. THE ASSESSEE IS DIRECTED TO SUBSTANTIATE HIS STAND IN THIS REGAR D. GROUND NO. 2 STANDS ALLOWED FOR STATISTICAL PURPOSES. 7.1 AS SUBMITTED BY ASSESSEE, THE PROJECT EXPENSES ARE PRIMARILY RELATED WITH TRAVEL EXPENSES OF ENGINEERS, SALARY, PENSION, INSU RANCE OF THE PROJECT MANAGER, LOGISTICS FOR IMPORTING THE MA TERIAL RELATED TO THE PROJECT, ETC. STATED TO BE PAID BY THE AE ON BEHALF OF THE ASSES SEE AND SUBSEQUENTLY REIMBURSED BY THE ASSESSEE ON COST-TO-COST BASIS . THE LD. TPO, WHILE ACCEPTING THE STAND OF THE ASSESSEE, MAD E A TP ADJUSTMENT OF RS. 82.96 LACS AGAINST THE SAME FOR WANT OF DOCU MENTARY EVIDENCES. THE LD. DRP, ALTOGETHER TAKING A DIFFERENT VIEW, EN HANCED THE SAID ADJUSTMENT VIEWING THE TRANSACTIONS AS PART OF SHAREHOLDERS ACTIVITIES . THE AFORESAID ENHANCEMENT HAS, PRIMA FACIE , BEEN MADE WITHOUT AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE IN VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. THE REVE NUE IS UNABLE TO CONTROVERT THE AFORESAID FACT. 7.2 PROCEEDING FURTHER, WE FIND THAT NO PLAUSIBLE R EASONING HAS BEEN ADDUCED BY LD. DRP WHILE ARRIVING AT THE CONCLUSION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS PART OF SHAREHOLDERS ACTIVITIES AND WOULD BRING BENEFIT ONLY TO ITS AE PARTICULARLY WHEN THE ASSESSEE HAS CONSISTENTLY SUBMITTED THAT THE AFORESAID EXPENDITU RE WAS DIRECTLY RELATED TO THE PROJECT BEING SET UP BY THE ASSESSEE AT RANJANGAON, PUNE AND THE ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 8 SAME WAS REIMBURSED TO ITS AE ON COST TO COST BASIS . THESE EXPENDITURE PRIMARILY INCLUDED EXPENDITURE TOWARDS PROJECT MANAGEMENT AND PROCUREMENT OF MATERIAL TO SET UP THE PROJECT. AS PER SETTLED LEGAL POSITION, WE FIND THAT THE REVENUE IS NOT TO PUT HI MSELF INTO THE ARMCHAIR OF THE BUSINESSMAN SO AS TO ADJUDGE THE NECESSITY O F INCURRING THE EXPENDITURE UNLESS IT IS SHOWN THAT THE EXPENDITURE WAS NOT AT ALL, REQUIRED TO BE INCURRED FOR THE BENEFIT OF THE ASSE SSEE AND THE ASSESSEE, IN NORMAL CIRCUMSTANCES, WOULD NOT BE WILLING TO PA Y THE SAME TO INDEPENDENT THIRD PARTIES. THE AFORESAID PROPOSITIO N, KNOWN AS, BENEFIT TEST, IN OUR OPINION, HAS BEEN OVERLOOKED BY THE LD. DRP AND THEREFORE, LD. DRP ERRED IN TREATING THE ALP OF THE SAME AT NIL WITHOUT DEMONSTRATING THAT THE IMPUGNED EXPENDITURE WAS EXC LUSIVELY MEANT TO BENEFIT THE ASSESSEES AE AND THE ASSESSEE, UNDER N ORMAL CIRCUMSTANCES, WOULD NOT HAVE BEEN WILLING TO PAY T HE SAME TO INDEPENDENT THIRD PARTIES. 7.3 ANOTHER ASPECT TO THIS TRANSACTION IS THAT UPON PERUSAL OF MATERIAL ON RECORD, WE FIND THAT MAJOR PART OF THE PROJECT E XPENSES HAVE BEEN CAPITALIZED IN THE BALANCE SHEET BY THE ASSESSEE AS CAPITAL WORK-IN- PROGRESS AND THE SAME HAS NOT, AT ALL, BEEN CLAIMED BY THE ASSESSEE BY WAY OF DEBIT TO PROFIT & LOSS ACCOUNT. IT IS TO BE NOTED THAT UPON COMPLETION OF THE PROJECT, FIXED ASSET IN THE SHAPE OF MANUFACTURING PLANT WOULD COME INTO EXISTENCE, AGAINST WHICH THE ASSESS EE SHALL BE ENTITLED TO CLAIM THE DEPRECIATION WITHIN STATUTORY FRAMEWOR K. THEREFORE, THE APPROACH OF REVENUE TO ADD BACK THE AFORESAID ADJUS TMENT TO DETERMINE THE PROFIT / LOSS FOR THE YEAR WAS CLEARLY FALLACIO US IN NATURE. ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 9 7.4 IN VIEW OF THE ABOVE STATED FACTS, WE HAVE NO O PTION BUT TO REMIT THE MATTER BACK TO THE FILE OF LD. AO / TPO TO RE-A PPRECIATE THE FACTUAL MATRIX AND FOR DE-NOVO ADJUDICATION OF THIS ISSUE BY AFFORDING SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THIS REGARD. THE ASSESSEE, IN TURN, IS DIRECTED TO SUBSTANTIATE HIS STAND WITH NECESSARY EXPLANATIONS / DOCUMENTARY EVIDENCES. GROUND NO.1 STAND ALLOWED FO R STATISTICAL PURPOSES. 8. BY WAY OF GROUND NO. 3, THE ASSESSEE HAS PLEADED FOR USE OF MULTIPLE YEAR DATA. HOWEVER, WE DO NOT FIND MUCH FO RCE IN THE SAME SINCE IT IS SETTLED PROPOSITION AND ALSO IN TERMS O F RULE-10B(4) , SINGLE YEAR DATA OF IMPUGNED AY HAS TO BE GIVEN PREFERENCE TO BENCHMARK THE TRANSACTIONS AS AGAINST DATA OF EARLIER YEARS. THIS GROUND RAISED IN ALL THE THREE YEARS FAILS. GROUND NO. 4 PLEADS FOR GRANT OF BENEFIT OF +/-5%. NEEDLESS TO ADD THAT WHATEVER CONCESSIONS / BENEFIT S ARE AVAILABLE TO THE ASSESSEE IN TERMS OF STATUTORY PROVISIONS, THE SAME SHALL BE GRANTED TO THE ASSESSEE. THIS GROUND RAISED IN ALL THE THRE E YEARS STANDS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 5 IS CONSEQUEN TIAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. GROUND NO. 6 IS GENERAL IN NATURE. ALL THE GROUNDS STANDS DISPOSED-OFF IN TERMS OF OUR ABOVE ORDER. 9. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED FO R STATISTICAL PURPOSES IN TERMS OF OUR ABOVE ORDER. 10. THE ASSESSEE, IN AY 2008-09, HAS BEEN SADDLED W ITH SIMILAR TP ADJUSTMENT OF RS.391.82 LACS AGAINST PROJECT EXPENSES BY LD. TPO, VIEWING THE SAME AS PART OF SHAREHOLDERS ACTIVITIES . THE LD. DRP HAS PROVIDED PARTIAL RELIEF AGAINST THE SAME TO THE EXT ENT OF RS.58.69 LACS, BEING INTEREST EXPENSES SINCE THE SAME WAS SEPARATE LY BENCHMARKED BY ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 10 THE ASSESSEE. RESULTANTLY, THE NET TP ADJUSTMENT AS SUSTAINED BY LD, DRP AMOUNTS TO RS.333.13 LACS WHICH HAS BEEN CONFIR MED PRIMARILY BY PLACING RELIANCE ON THE STAND OF LD. DRP IN AY 2007 -08. SIMILARLY, IN AY 2009-10, LD. TPO, ON SIMILAR REASONING, HAS PROPOSE D THE AFORESAID ADJUSTMENT OF RS.138.75 LACS AND THE SAME HAS BEEN CONFIRMED BY LD. DRP. SINCE THE FACTS AND CIRCUMSTANCES IN THESE YEA RS ARE SIMILAR TO AY 2007-08 AND THE ADJUSTMENT IN THESE YEARS HAVE BEEN MADE BY PLACING RELIANCE ON THE STAND TAKEN IN AY 2007-08, THE SAME STAND REMITTED BACK TO THE FILE OF LD. AO / TPO ON SIMILAR LINES. RESUL TANTLY, THESE GROUNDS OF APPEAL FOR AY 2008-09 & 2009-10 STANDS ALLOWED FOR STATISTICAL PURPOSES. NOW, WE TAKE UP OTHER GROUNDS RAISED IN AY 2008-09 & 2009-10. ITA NO. 7437/MUM/2012, AY 2008-09 11. IN THIS YEAR, THE ASSESSEE HAS BEEN SADDLED WIT H AGGREGATE TP ADJUSTMENT OF RS.806.87 LACS COMPRISING OF ADJUSTMENT AGAINST IMPORT OF FINISHED GOODS FOR RS.415.04 LACS AND ADJUSTMENT AGAINST PROJECT EXPENSES FOR RS.391.82 LACS. THE ISSUE RELATING TO TP ADJUSTMENT OF PROJECT EXPENSES HAS ALREADY BEEN DEALT BY US IN PARA-10 ABOVE. 12. THE FINISHED GOODS IMPORTED BY ASSESSEE FROM IT S AE AGGREGATING TO RS.556.97 LACS HAVE BEEN BENCHMARKED BY HIM IN TP STUDY USING RESALE PRICE METHOD [RPM] AS MOST APPROPRIATE METHOD [MAM]. THE PRIMARY ARGUMENT TO ADOPT THIS METHOD WAS THAT THE ASSESSEE ACT AS DISTRIBUTOR BUYING FINISHED GOODS AND SELLING IT IN THE DOMESTIC MARKET WITHOUT ADDING SIGNIFICANT VALUE TO THE PRODUCTS. T HE METHODOLOGY ADOPTED BY ASSESSEE, IN THE OPINION OF LD. TPO, WAS NOT CORRECT SINCE MARKETING EFFORTS / COSTS WAS A CRUCIAL FACTOR TO DETERMINE THE PROFIT LEVEL ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 11 INDICATOR [PLI] OF THE TESTED PARTY AS WELL AS COMPARABLES. THE LD . TPO, IN THE ALTERNATIVE, ADOPTED TRANSACTIONAL NET MARGIN METHOD [TNMM] AS MAM WITH OPERATING PROFIT / OPERATING INCOME AS PLI . THE ASSESSEES PLI , THUS COMPUTED, WORK OUT TO -29% AS AGAINST AVERAG E PLI OF 1.53% REFLECTED BY SEVEN COMPARABLES BASED ON SINGLE YEAR DATA WHICH RESULTED INTO IMPUGNED TP ADJUSTMENT OF RS.451.04 L ACS. THE SAME, UPON CONFIRMATION BY LD. DRP, HAS BEEN ASSAILED BEF ORE US. 13. THE LD. AR HAS JUSTIFIED THE ADOPTION OF RPM METHOD SINCE THE SAME WAS MAM KEEPING IN VIEW THE NATURE OF ACTIVITIES BEING CARR IED OUT BY THE ASSESSEE. IT HAS BEEN SUBMITTED THAT THE REV ENUE HAD NO JUSTIFICATION TO REJECT THE ASSESSEES METHODOLOGY AND ADOPT TNMM METHOD TO BENCHMARK THE SAME WITHOUT ASSIGNING BRIN GING ON RECORD ANY COGENT MATERIAL TO SUBSTANTIATE THE SAME. THE LD. A R HAS ALSO PLACED RELIANCE ON THE RULE OF CONSISTENCY BY SUBMITTING THAT RPM METHOD TO BENCHMARK THESE TRANSACTIONS HAS BEEN ACCEPTED BY T HE REVENUE IN AY 2007-08 AND THEREFORE, THE SAME SHOULD BE ADOPTED I N THIS YEAR ALSO. PER CONTRA , LD. DR SUBMITTED THAT THE ASSESSEE WAS NOT INTO P URE TRADING ACTIVITY BUT DEALING IN HIGHLY SOPHISTICATE D BRANDED GOODS. TO PROMOTE THE PRODUCTS, IT WAS INCURRING HEAVY MARKET ING EXPENDITURE FOR ITS AE SINCE THE PRODUCT WAS AT INTRODUCTION STAGE IN THE MARKET AND THEREFORE, THE AFORESAID RELATED COSTS WERE FACTORE D INTO GROSS PROFIT MARGINS EARNED BY THE ASSESSEE AND THEREFORE, RPM METHOD COULD NOT BE APPLIED UNDER THE CIRCUMSTANCES SINCE THE COMPAR ABLES SELECTED BY THE ASSESSEE MAY NOT BE OPERATING UNDER THE SIMILAR BUSINESS CONDITIONS OR EXPOSED TO SAME BUSINESS ENVIRONMENT. OUR ATTENT ION HAS BEEN ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 12 DRAWN TO THE FINANCIAL STATEMENTS OF THE ASSESSEE T O SUPPORT THE SUBMISSIONS. 14.1 WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE SAME. SO FAR AS THE RULE OF CONSISTENCY IS CONCERNED, WE FIND THAT THE BENEFIT OF THE SAME COULD NOT BE GRANTED TO THE ASSESSEE SINCE AY 2007- 08 WAS THE FIRST YEAR OF COMMERCIAL OPERATIONS OF THE ASSESSEE AND T HE METHODOLOGY ADOPTED BY THE ASSESSEE TO BENCHMARK THESE TRANSACT IONS IN AY 2007- 08 HAS BEEN ACCEPTED BY LD. TPO WITHOUT ANY ELABORA TE DISCUSSIONS IN THE ORDER U/S 92CA(3). OUR CONCLUSION IS FURTHER SU PPORTED BY THE FACT THAT THE ASSESSEES METHODOLOGY FOR AY 2009-10 WAS NOT ACCEPTED BY THE REVENUE AND LD. TPO HAS BENCHMARKED THESE TRANS ACTIONS USING TNMM METHOD. HOWEVER, THE TP ADJUSTMENT ON THIS ACCOUNT HAS BEEN DELETED BY LD. DRP IN THAT YEAR SINCE THE ADJUSTMEN T FELL WITHIN SAFE HARBOR OF +/-5%. THEREFORE, TO SAY THAT THE REVENUE HAS ACCEPTED TH E METHODOLOGY AS ADOPTED BY ASSESSEE AND THEREFORE TH E SAME SHOULD BE ADOPTED IN VIEW OF THE RULE OF CONSISTENCY IS NOT A CORRECT PROPOSITION AND THEREFORE, THE SAME STAND REJECTED. 14.2 PROCEEDING FURTHER, IN OUR OPINION, SINCE RESALE PRICE METHOD PRIMARILY COMPARES GROSS PROFIT MARGINS EARNED BY THE ASSESSEE VIS-- VIS CORRESPONDING MARGINS EARNED BY THE COMPARABLES AND THEREFORE, BEFORE APPLYING THIS METHOD, IT BECOMES IMPERATIVE TO FIND OUT THAT THE ASSESSEE AS WELL AS COMPARABLES WERE EXPOSED TO SIM ILAR BUSINESS CONDITIONS, RISKS AND FUNCTIONS AND WERE OPERATING UNDER SIMILAR BUSINESS ENVIRONMENT. THIS VITAL FACT HAS NOT BEEN ADDRESSED BY EITHER OF THE REPRESENTATIVES OR BY ANY OF THE LOWER AUTHO RITIES. ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 13 14.3 A BARE PERUSAL OF THE FINANCIAL STATEMENTS FOR IMPUGNED AY REVEALS THAT THE ASSESSEE HAS EARNED AGGREGATE REVENUE OF R S.18.04 CRORES INCLUDING TURNOVER OF TRADING GOODS FOR RS.13.34 CR ORES. AGAINST THE SAME, THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.28 .45 CRORES WHICH BROADLY CONSIST OF FOLLOWING ITEMS:- NATURE OF TRANSACTION VALUE (IN CRORES) COST OF GOODS TRADED 9.19 PERSONNEL EXPENSES 5.62 OPERATING & OTHER EXPENSES 11.71 AMORTIZATIONS 0.86 FINANCIAL EXPENSES 1.07 TOTAL 28.45 A BARE PERUSAL OF THE ASSESSEES FINANCIALS MAKE IT DIFFICULT TO ACCEPT THE CONTENTION THAT THE ASSESSEE WAS PURELY A TRADER IN NATURE AND WAS NOT ADDING ANY VALUE TO SELL THE PRODUCT IN INDIAN MARK ET SINCE IT WAS INCURRING HEAVY OPERATING EXPENDITURE WHICH GIVES C ERTAIN STRENGTH TO THE STAND OF THE REVENUE. 14.4 THEREFORE, IN TOTALITY OF FACTUAL MATRIX, WE A RE OF THE OPINION THAT FEW VITAL ISSUES AS STATED ABOVE HAVE REMAIN TO BE ADDR ESSED BY LOWER AUTHORITIES AND THE MATTER, IN OUR OPINION, REMAIN INCONCLUSIVE. THEREFORE, THE ISSUE STAND REMITTED BACK TO THE FIL E OF LD. AO / TPO, KEEPING ALL THE ISSUES OPEN, FOR RE-APPRECIATION OF FACTUAL MATRIX AND RE- ADJUDICATION IN THE LIGHT OF SUBMISSIONS MADE BY TH E ASSESSEE. THE ASSESSEE, IN TURN IS DIRECTED TO JUSTIFY THE METHOD OLOGY ADOPTED TO BENCHMARK THE SAME AND THEREAFTER, JUSTIFY THE SELE CTION OF COMPARABLES. ACCORDINGLY, THIS GROUND STANDS ALLOWED FOR STATIST ICAL PURPOSES WHEREAS THE APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PU RPOSES. ITA NOS.7437/MUM/2012,7666/MUM/2013 & 1126/MUM/2013 JOTUN INDIA PRIVATE LIMITED ASSESSMENT YEARS: 2007-08 TO 2009-2010 14 ITA NO. 7666/MUM/2013, AY 2009-10 15. THE SOLE GROUND RAISED IN THIS YEAR IS RELATED WITH TP ADJUSTMENT AGAINST PROJECT EXPENSES. THE SAME HAS ALREADY BEEN DEALT WITH BY US AT PARA-10. ACCORDINGLY, THE APPEAL STANDS ALLOWED FOR STATISTI CAL PURPOSES. CONCLUSION 16. ALL THE APPEAL STANDS PARTLY ALLOWED FOR STATIS TICAL PURPOSES IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH MAY, 2018 SD/- SD/- (MAHAVIR SINGH) (M ANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER '! MUMBAI; DATED : 04 .05.2018 SR.PS:- THIRUMALESH ! COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. () / THE RESPONDENT 3. * / THE CIT(A) 4. * / CIT CONCERNED 5. +, ('- - % '! / DR, ITAT, MUMBAI 6. ,./ 0! GUARD FILE ' / BY ORDER, # '$ % (DY./ASSTT. REGISTRAR) '! / ITAT, MUMBAI