Randox Laboratories (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 800/BANG/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8215 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-07-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment; Question of law; Wholly owned subsidiary; Notional interest; Set aside
• Section: 92C; 92D; 92B; 92F; 92E; 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I T (TP) A NO. 433/BANG/2016 ASSESSMENT YEAR : 2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE. VS. M/S. RANDOX LABORATORIES INDIA PRIVATE LIMITED, PLOT NO.191-195 & 246-250, KIADB INDUSTRIAL AREA, BOMMASANDRA JIGANI LINK ROAD BENGALURU 560 105. PAN: AADCR 0074K APP EL L ANT RESPONDENT IT(TP)A NO.800/BANG/2016 ASSESS MENT YEAR : 2011 - 12 M/S. RANDOX LABORATORIES INDIA PRIVATE LIMITED, BENGALURU 560 105. PAN: AADCR 0074K VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE. APPELLANT RESPONDENT REVENUE BY : SHRI C.H. SUNDAR RAO, CIT(DR - I ), ITAT, BANGALORE. RE SPONDENT BY : SHRI TATA KRISHNA, ADVOCATE DATE OF HEARING : 09. 0 7 .2019 DATE OF PRONOUNCEMENT : 17 . 0 7 . 201 9 IT(TP)A NO.433/BANG/2016 PAGE 2 OF 27 O R D E R PER N V VASUDEVAN, VICE PRESIDENT IT(TP)A NO.433/BANG/2016 IS AN APPEAL BY THE REVE NUE WHILE IT(TP)A.NO.800/BANG/2016 IS AN APPEAL BY THE ASSESS EE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 28.1.2 016 OF THE DY.CIT, CIRCLE 5(1)(1), BANGALORE PASSED U/S.143(3) READ WI TH SEC.144C OF THE INCOME TAX ACT, 1961 (THE ACT) IN RELATION TO ASSES SMENT YEAR 2011-12. 2. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE APP EAL BY THE ASSESSEE. GROUNDS NO. E & F RAISED BY THE ASSESSEE ARE WITH R EGARD TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPEC T OF AN INTERNATIONAL TRANSACTION OF SALE OF REAGENTS BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE (AE). THE ASSESSEE IS A WHOLLY OWNED INDIAN SUBSID IARY OF RANDOX LABORATORIES LTD., A COMPANY BASED IN UNITED KINGDO M (HEREINAFTER REFERRED TO AS AE). THE PARENT COMPANY IS PRIMARILY ENGAGED IN THE BUSINESS OF MANUFACTURING MEDICAL DIAGNOSTIC REAGEN TS AND ANALYZERS. THE ASSESSEE IMPORTS REAGENTS AND DIAGNOSTIC EQUIPMENTS (ANALYZERS) FROM THE PARENT RANDOX LABORATORIES (INDIA) P. LTD. AND SELL S THEM TO INDEPENDENT THIRD PARTIES IN INDIA. THE QUESTION BEFORE THE AO WAS, WHETHER THE PRICE PAID BY THE ASSESSEE TO ITS AE FOR PURCHASE OF REAG ENTS WAS AT ARMS LENGTH BECAUSE AS PER THE PROVISIONS OF SEC.92 OF T HE ACT, INCOME ARISING FROM AN INTERNATIONAL TRANSACTION HAS TO BE DETERMI NED HAVING REGARD TO ARMS LENGTH PRICE (ALP). 3. THE AO REFERRED TO THE TRANSFER PRICING OFFICER (TPO) THE QUESTION OF DETERMINATION OF ALP OF THE AFORESAID TRANSACTION OF PURCHASE OF REAGENTS, AS PER PROVISIONS OF SEC.92CA OF THE ACT. THE MAIN DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE IS WITH REGARD TO WHICH IS THE MOST APPROPRIATE IT(TP)A NO.433/BANG/2016 PAGE 3 OF 27 METHOD (MAM) FOR DETERMINATION OF ALP, WHETHER IT I S TRANSACTION NET MARGIN METHOD (TNMM) AS CONTENDED BY THE REVENUE OR THE RESALE PRICE METHOD (RPM) AS CONTENDED BY THE ASSESSEE. IT IS U NDISPUTED BEFORE US THAT IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE ITAT MUMBAI BENCH IN ASSESSEES OWN CASE IN AY 2010-11 IN IT(TP )A NO.507/MUM/2015 AND THE TRIBUNAL BY ITS ORDER DATED 7.6.2019 HELD THAT RPM WAS THE MAM AND DIRECTED THE TPO TO DETERMINE A LP APPLYING RPM AS THE MAM. THE FOLLOWING WERE THE RELEVANT OBSERV ATIONS OF THE TRIBUNAL ON THIS ISSUE:- 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND T O THE DECISIONS RELIED UPON. THE CORE ISSUE ARISING FOR C ONSIDERATION IS, WHETHER THE INTERNATIONAL TRANSACTION RELATING TO P URCHASE OF REAGENTS, SPARES, CONSUMABLES FROM THE AE IS A SIMP LE TRADING ACTIVITY, HENCE, CAN BE BENCHMARKED UNDER RPM. BEFO RE WE ADVERT TO THE CORE ISSUE, IT IS NECESSARY TO UNDERS TAND THE ACTIVITIES OF THE ASSESSEE WITH ITS AE. AS STATED EARLIER IN T HE ORDER, ASSESSEE'S AE IS MANUFACTURING MEDICAL DIAGNOSTIC R EAGENTS, ANALYZERS AND CONSUMABLES. ASSESSEE IMPORTS THESE R EAGENTS FORM THE AE AND SELLS THEM TO DIAGNOSTIC UNITS / LABORAT ORIES IN INDIA FOR USE IN VARIOUS CHEMICAL ANALYSIS. THESE REAGENT S ARE ANALYZED IN MACHINES / EQUIPMENTS KNOWN AS ANALYZERS. FOR TH E PURPOSE OF SALE OF REAGENTS, THE ASSESSEE ENTERS INTO SPECIFIC AGREEMENTS WITH THIRD PARTY CUSTOMERS. AS PER THE TERMS OF THE AGRE EMENT, A SAMPLE COPY OF WHICH IS PLACED IN THE PAPER BOOK, T HE CUSTOMER IN INDIA IS REQUIRED TO PURCHASE REAGENTS FROM THE ASSESSEE AND IN THE EVENT OF SUCH PURCHASE, THE ASSESSEE PROVIDES T HEM THE ANALYZER FOR CARRYING OUT THE CHEMICAL ANALYSIS WIT H THE REAGENTS. AS PER THE TERMS OF THE AGREEMENT, THE ANALYZER IS MADE AVAILABLE TO THE CUSTOMER FOR A PERIOD OF FIVE YEARS WITHOUT ANY EXTRA COST. FURTHER, AS PER THE TERMS OF AGREEMENT, THE ASSESSE E IS REQUIRED TO PROVIDE SPARES FOR THE ANALYZER AND ALSO PROVIDE SE RVICES INCLUDING REPAIRS. THE ANALYZERS WERE KEPT WITH THE THIRD PARTY CUSTOMERS SINCE THE ASSESSEE WAS UNDERTAKING A RESE ARCH REGARDING ITS PRODUCTS AS PER INDIAN NORMS FOR CLIN ICAL TESTS AND TO PROVIDE FEEDBACK TO THE HEAD OFFICE. THUS, AS COULD BE SEEN FROM IT(TP)A NO.433/BANG/2016 PAGE 4 OF 27 THE FACTS ON RECORD, THE ANALYZERS WERE NEVER SOLD TO THE THIRD PARTY CUSTOMERS WHO BUY THE REAGENTS FROM THE ASSES SEE, BUT, WERE ONLY INSTALLED IN THEIR PREMISES FOR CHEMICAL ANALYSIS AND RESEARCH WORK FOR A PERIOD OF FIVE YEARS. AFTER EXP IRY OF FIVE YEAR PERIOD, THE WDV OF THE ANALYZERS GET REDUCED TO ZER O AND ACCOUNTING ENTRIES TO THAT EFFECT ARE PASSED IN THE BOOKS. THESE FACTS ARE EVIDENT FROM THE MATERIALS AVAILABLE ON R ECORD. THUS, IT IS CLEAR, THE ASSESSEE IS MERELY PURCHASING REAGENT S FROM ITS AE AND RESELLING THEM TO THIRD PARTY CUSTOMERS IN INDI A WITHOUT MAKING ANY VALUE ADDITION. IN FACT, THE ANALYZER / SPARES OF THE MACHINES ARE NEVER SOLD TO THE THIRD PARTY CUSTOMER S BUT ALWAYS REMAIN THE PROPERTY OF THE ASSESSEE. 8. HAVING EXAMINED THE NATURE OF TRANSACTION CARR IED ON BY THE ASSESSEE, IT IS NECESSARY NOW TO ADVERT TO THE CORE ISSUE. UNDISPUTEDLY, IN THE TRANSFER PRICING ANALYSIS, THE ASSESSEE HAS SELECTED RPM AS THE MOST APPROPRIATE METHOD. HOWEVE R, THE TRANSFER PRICING OFFICER HAS REJECTED THE RPM PRIMA RILY ON THE FOLLOWING REASONING:- I) IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE ADDITIONS TO THE PLANT AND MACHINERY TO THE TUNE OF ` 2.18 CRORE; II) IT HAS CAPITALIZED COST OF PRODUCT DEVELOPMEN T TO THE TUNE OF 1.07 CRORE; AND III) THE NOTES TO THE FIXED ASSET SCHEDULE SHOWS THAT THE COMPANY IS SETTING UP OF A MANUFACTURING UNIT. 9. ON THE AFORESAID REASONING, THE TRANSFER PRICIN G OFFICER HAS CONCLUDED THAT THE ASSESSEE IS NOT MERELY A TRA DER BUT IS ALSO ENGAGED IN MANUFACTURING AND RESEARCH ACTIVITY. LEA RNED DRP HAS SIMPLY ENDORSED THE AFORESAID VIEW OF THE TRANS FER PRICING OFFICER WITHOUT DISCUSSING MUCH ON THE ISSUE. HOWEV ER, WHILE DOING SO, LEARNED DRP HAS OBSERVED THAT IN THE TRAN SFER PRICING ANALYSIS, THE ASSESSEE HAS APPLIED TNMM. FURTHER, L EARNED DRP WHILE REJECTING THE CONTENTION OF THE ASSESSEE FOR ADOPTING SEGMENTAL RESULTS OF THE ASSESSEE AND COMPARABLES, HAS OBSERVED THAT SINCE THE SEGMENTAL ACCOUNTING OF THE ASSESSEE IS UNAUDITED, IT CANNOT BE ACCEPTED. IT(TP)A NO.433/BANG/2016 PAGE 5 OF 27 10. BE THAT AS IT MAY, IT IS NECESSARY TO EXAMINE WHETHER THE FINDING OF THE TRANSFER PRICING OFFICER THAT THE AS SESSEE IS ALSO INVOLVED IN MANUFACTURING ACTIVITY IS FACTUALLY BOR NE OUT FROM RECORD. IN THIS REGARD, THE TRANSFER PRICING OFFICE R HAS REFERRED TO THE NOTES TO THE RANDOX LABORATORIES (INDIA) P. LTD . FIXED ASSET SCHEDULE FORMING PART OF THE BALANCE SHEET OF THE A SSESSEE. ON A PERUSAL OF THE SAID NOTE, IT BECOMES CLEAR THAT, TH OUGH, THE ASSESSEE WAS INTENDING TO SET-UP A MANUFACTURING UN IT IN INDIA AND FOR THAT PURPOSE HAS ACQUIRED LEASE HOLD LAND F ROM KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD (KIADB), HOWEVER, THE ASSESSEE WAS IN THE PROCESS OF SETTING-UP OF MANUFA CTURING UNIT WHICH IS EVIDENT FROM NOTE NO.16 TO THE NOTES TO TH E ACCOUNT FORMING PART OF ANNUAL REPORT. IT IS SEEN THAT IN D ECEMBER 2005, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH KIA DB FOR LEASE HOLD LAND TO SET-UP ITS MANUFACTURING UNIT. AS PER THE AGREEMENT, LEASE PERIOD WAS FOR SIX YEARS. THE AGREEMENT FURTH ER PROVIDED, IF THE ASSESSEE SETS-UP THE UNIT WITHIN THE LEASE PERI OD AND OTHER CONDITIONS OF THE AGREEMENT ARE FULFILLED, TITLE OF THE LEASE HOLD LAND IS TO BE CONVEYED TO THE ASSESSEE AFTER THE EN D OF SIX YEAR PERIOD. HOWEVER, IF THE ASSESSEE FAILS TO INVEST TH E MINIMUM AMOUNT OF PROJECT COST WITHIN THE AGGREGATE PERIOD PENALTY COULD BE LEVIED ON THE ASSESSEE. IT IS FURTHER EVIDENT, T IME FOR IMPLEMENTATION OF THE MANUFACTURING UNIT WAS EXTEND ED TILL 16TH MAY 2011, SINCE, THE ASSESSEE WAS IN THE PROCESS OF OBTAINING RELEVANT APPROVAL FROM KIADB FOR SETTING-UP OF THE UNIT. FURTHER, FROM THE FINANCIAL STATEMENTS OF THE ASSESSEE IT IS EVIDENT THAT THE ASSESSEE HAS NOT STARTED ITS MANUFACTURING ACTIVITY IN THE IMPUGNED ASSESSMENT YEAR AS IT WAS STILL IN THE PRO CESS OF SETTING- UP OF THE PLANT. THEREFORE, THE FINDING OF THE TRAN SFER PRICING OFFICER AND LEARNED DRP THAT THE ASSESSEE IS INVOLV ED IN MANUFACTURING ACTIVITY IS FACTUALLY INCORRECT. FURT HER THE FACT THAT THE ANALYZERS WERE NOT SOLD TO THE THIRD PARTY CUST OMERS IS EVIDENT FROM THE SAMPLE COPY OF THE AGREEMENT PLACED IN THE PAPER BOOK. INSOFAR AS THE PRODUCT DEVELOPMENT COST IS CONCERNE D, THE MATERIAL ON RECORD INDICATES THAT SUCH COST WAS INC URRED TOWARDS SPARES FOR THE ANALYZERS AND THE ASSESSEE CAPITALIZ ED SUCH COST. 11. THUS, FROM THE AFORESAID FACTS, IT IS VERY MUC H CLEAR THAT IN THE YEAR UNDER CONSIDERATION, ASSESSEE HAS NOT UNDE RTAKEN ANY MANUFACTURING ACTIVITY AS THE MANUFACTURING UNI T WAS STILL IN THE PROCESS OF BEING SET-UP. ON THE CONTRA RY, THE FACTS IT(TP)A NO.433/BANG/2016 PAGE 6 OF 27 ON RECORD CLEARLY REVEAL THAT THE ASSESSEE HAD PURC HASED REAGENTS AND CHEMICALS FROM ITS AE AND SOLD TO THE THIRD PARTY CUSTOMERS WITHOUT ANY VALUE ADDITION. FURTHER , THE ANALYZERS, SPARES AND CONSUMABLES, THOUGH, WERE IMP ORTED, HOWEVER, THEY WERE NOT SOLD BUT WERE PROVIDED IN TH E LABORATORIES / DIAGNOSTICS UNITS OF THE THIRD PARTY CUSTOMERS FOR TESTING AND RESEARCH ACTIVITY. KEEPING IN PERSP ECTIVE THE AFORESAID FACTUAL POSITION, IT HAS TO BE EXAMINED W HICH IS THE APPROPRIATE METHOD TO BENCHMARK THE ARM'S LENGTH PR ICE OF THE TRANSACTION. ON GOING THROUGH THE PROVISIONS OF RULE 10B AND MORE PARTICULARLY SUB-RULE-1(B) OF THE AFORESAI D RULE, IT IS EVIDENT THAT RPM IS APPLICABLE TO A CASE WHERE THE PRICE AT WHICH PROPERTY PURCHASED OR SERVICE OBTAINED BY A E NTERPRISE FROM THE AE IS RESOLD OR PROVIDED TO AN UNRELATED E NTERPRISE. THE GROSS PROFIT MARGIN OF SUCH A TRANSACTION IS TH EREAFTER COMPARED TO THE GROSS PROFIT MARGIN OF SIMILAR COMP ARABLE UNCONTROLLED TRANSACTIONS AFTER MAKING NECESSARY AD JUSTMENT WITH REGARD TO THE EXPENDITURE INCURRED, FUNCTIONAL AND OTHER DIFFERENCES, THE ARM'S LENGTH PRICE IS DETERMINED. THUS, IN THE FACTS OF THE PRESENT CASE, SINCE THE ASSESSEE HAS R ESOLD THE GOODS IMPORTED FROM THE AE WITHOUT ANY VALUE ADDITI ON, THE MOST APPROPRIATE METHOD WHICH CAN BE APPLIED FOR DETERMINING THE ARM'S LENGTH PRICE IS RPM AND TNMM CANNOT BE THE MOST APPROPRIATE METHOD IN SUCH TYPE OF TRANSACTION. 12. HAVING HELD SO, IT IS NECESSARY TO DEAL WITH THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE . THE CO- ORDINATE BENCH IN L'OREAL INDIA LTD. (SUPRA) WHILE DECIDING THE DISPUTE OF SIMILAR NATURE HELD THAT IN SUCH TYPE OF TRANSACTION RPM IS THE MOST APPROPRIATE METHOD. WHILE DECIDING REVENUE'S APPEAL AGAINST THE AFORESAID ORDER OF THE TRIBUNAL, THE HON'BLE JURISDICTIONAL HIGH COURT, IN THE DECISION REFERRED TO ABOVE, HELD THAT IN CASE OF DISTRIBUTION OR MARKETING ACTIVITIE S WHEN THE GOODS ARE PURCHASED FROM ASSOCIATE ENTITIES AND SALES OF THOSE GOODS ARE EFFECTED TO UNRELATED PARTIES WITHOUT ANY FURTHER P ROCESSING, RPM HAS TO BE ADOPTED. THE CO-ORDINATE BENCH IN CASE OF AIRPORT RETAIL PVT. LTD. (SUPRA) HAS HELD AS UNDER:- '10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT IT(TP)A NO.433/BANG/2016 PAGE 7 OF 27 OF THE DECISIONS RELIED UPON. AS COULD BE SEEN FROM THE TRANSFER PRICING ORDER AS WELL AS THE FACTS MATERIA LS ON RECORD, THERE IS NO DISPUTE TO THE FACT THAT THE AS SESSEE IS A RESELLER OF FINISHED GOODS, IN THE DUTY FREE SHOPS SET UP AT THE DELHI AIRPORT. IT IS ALSO ACCEPTED THAT THE PROD UCTS SOLD BY THE ASSESSEE SUCH AS LIQUOR, PERFUMES, CONFECTIO NARY, TOBACCO, ETC., ARE PURCHASED FROM A.ES AND SOLD TO CUSTOMERS WITHOUT ANY VALUE ADDITION OR MATERIAL CH ANGE TO SUCH PRODUCTS. IT IS A FACT THAT THE ASSESSEE HA D BENCH MARKED THE INTERNATIONAL TRANSACTION RELATING TO PU RCHASE OF FINISHED GOODS FROM A.ES BY ADOPTING RPM. HOWEVER , THE TRANSFER PRICING OFFICER HAS REJECTED RPM PRIMA RILY ON THE GROUND THAT GROSS PROFIT COMPUTATION OF COMPARABLES WAS NOT PRODUCED BY THE ASSESSEE. HE HA D ALSO STATED THAT THE GROSS PROFIT MARGIN OF THE PRO DUCTS SOLD BY THE ASSESSEE CANNOT BE COMPARED WITH GROSS PROFIT MARGIN OF THE PRODUCTS SOLD BY THE COMPARABLES AS T HEY ARE DIFFERENT IN NATURE. IN THIS CONTEXT, IT IS TO BE NOTED THAT AT THE OUTSET, THE TRANSFER PRICING OFFICER HA D OPINED THAT THE TRANSACTION OF PURCHASE OF FINISHED GOODS FOR RESALE WAS TO BE BENCH MARKED AS PER CUP METHOD. WE ARE UNABLE TO UNDERSTAND WHY THE TRANSFER PRICING O FFICER ABANDONED BENCH MARKING UNDER CUP IF HE CONSIDERED IT AS THE MOST APPROPRIATE METHOD TO BENCH MARK THE INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND THE A.ES. 11. AT THIS STAGE, IT WOULD BE APPROPRIATE TO REFE R TO CERTAIN PROVISIONS IN THE STATUE RELATING TO TRANSF ER PRICING ADJUSTMENT. SECTION 92C OF THE ACT, PROVIDES FOR COMPUTATION OF ARM'S LENGTH PRICE OF AN INTERNATION AL TRANSACTION BETWEEN THE ASSESSEE AND ITS A.E. BY FOL LOWING ONE OF THE METHODS PRESCRIBED THEREIN. RULE 10C, DE FINES MOST APPROPRIATE METHOD TO BE ONE WHICH IS BEST SUI TED TO THE FACTS AND CIRCUMSTANCES OF EACH PARTICULAR TRAN SACTION AND WHICH PROVIDES THE MOST RELIABLE MEASURE OF ARM 'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANS ACTION. SUB-RULE (2) OF RULE 10C, SPECIFIES THE FACTORS TO BE CONSIDERED FOR SELECTING MOST APPROPRIATE METHOD. R ULE 10B PROVIDES THE MODE AND MANNER OF DETERMINATION O F ARM'S LENGTH PRICE UNDER DIFFERENT METHODS. AS PER R ULE 10B(1)(B), DETERMINATION OF ARM'S LENGTH PRICE UNDE R RPM IS APPLICABLE TO A CASE WHERE THE PRICE AT WHICH PR OPERTY PURCHASED OR SERVICE OBTAINED BY THE ENTERPRISE FRO M THE A.E. IS RESOLD OR IS PROVIDED TO AN UNRELATED ENTERP RISE. IT(TP)A NO.433/BANG/2016 PAGE 8 OF 27 THE GROSS PROFIT MARGIN IN RESPECT OF SUCH A TRANSA CTION IS THEREAFTER COMPARED TO THE GROSS PROFIT MARGIN OF S IMILAR COMPARABLE UNCONTROLLED TRANSACTIONS AND AFTER MAKI NG NECESSARY ADJUSTMENT WITH REGARD TO EXPENDITURE INCURRED, FUNCTIONALLY AND OTHER DIFFERENCES THE AR M'S LENGTH PRICE IS DETERMINED. THUS, WHEN THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IS PURCHASING FINISHE D PRODUCTS FROM THE A.ES FOR THE PURPOSE OF RESELLING TO UNRELATED PARTIES WITHOUT ANY VALUE ADDITION, UNDER NORMAL CIRCUMSTANCES, THE MOST APPROPRIATE METHOD T O BENCH MARK THE ARM'S LENGTH PRICE OF SUCH TRANSACTI ON IN TERMS OF 10B IS RPM. THE TRIBUNAL, MUMBAI BENCH, IN MATTEL TOYS INDIA PVT. LTD. (SUPRA), AFTER ANALYZIN G THE APPLICABILITY OF MOST APPROPRIATE METHOD IN RESPECT OF SUCH KIND OF INTERNATIONAL TRANSACTIONS HAS OBSERVE D, UNDER RPM PRODUCT SIMILARITY IS NOT A VITAL ASPECT FOR CARRYING OUT COMPARABILITY ANALYSIS BUT OPERATIONAL COMPARABILITY IS TO BE SEEN. THE BENCH OBSERVED, GR OSS PROFIT MARGIN EARNED BY THE INDEPENDENT ENTERPRISE IN COMPARABLE UNCONTROLLED TRANSACTION WILL SERVE AS A GUIDING FACTOR WHICH IS ALSO THE CASE IN CASE OF A DISTRIBUTOR WHEREIN PROPERTY AND SERVICE PURCHASED FROM THE A.E. ARE RESOLD TO OTHER INDEPENDENT ENTITIES WI THOUT ANY VALUE ADDITION. THUS, IT WAS CONCLUDED BY THE B ENCH THAT IN SUCH CASE OF PURCHASE AND RESALE OF FINISHE D PRODUCTS WITHOUT ANY VALUE ADDITION RPM, IS THE BES T METHOD TO EVALUATE THE ARM'S LENGTH PRICE OF THE TRANSACTIONS. IN CASE OF LUXOTTICA INDIA EYEWARE PV T. LTD. (SUPRA), THE TRIBUNAL, DELHI BENCH, FOLLOWING A NUM BER OF OTHER DECISIONS HELD AS UNDER:- '10.2. COMING TO THE ARGUMENT THAT THE ASSESSEE HIMSELF HAS ADOPTED TNMM AS THE MAM FOR ITS TRANSFER PRICING STUDY AND HENCE IT CANNOT TURN AROUND AND ARGUE FOR ADOPTION OF RSPM AS THE MAM, WE FIND THAT THE MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE OF MATTEL TOYS(I) PVT.LTD. IN ITA NO.2476/MUM/2008 HELD AS FOLLOWS. '41. NOW COMING TO THE ARGUMENT OF THE LD.DR THAT ONCE THE ASSESSEE ITSELF HAS CHOSEN TNMM AS THE MAM IN TPR, THEN IT CANNOT RESORT TO CHANGE ITS METHOD AT AN ASSESSMENT OR APPELLATE STAGE. IN OUR OPINION, SUCH A CONTENTION CANNOT BE UPHELD BECAUSE IF IT IS FOUND ON THE FACTS OF THE CASE THAT A PARTICULAR METHOD WILL NOT IT(TP)A NO.433/BANG/2016 PAGE 9 OF 27 RESULT INTO PROPER DETERMINATION OF THE ALP, THE TP O OR THE APPELLATE AUTHORITIES CAN VERY WELL HOLD THA T WHY A PARTICULAR METHOD CAN BE APPLIED FOR GETTING PROPER DETERMINATION OF ALP OR THE ASSESSEE CAN DEMONSTRATE A PARTICULAR METHOD TO JUSTIFY ITS ALP. THUS, EVEN IF THE ASSESSEE HAD ADOPTED TNMM AS THE MAM IN THE TP REPORT, THEN ALSO IT IS NOT PRECLUDED FROM RAISING THE CONTENTIONS/OBJECTIONS BEFORE THE TPO OR THE APPELLATE COURTS THAT SUCH A METHOD WAS NOT AN APPROPRIATE METHOD AND IS NOT RESULTING INTO PROPER DETERMINATION OF ALP AND SOME OTHER METHOD SHOULD BE RESORTED. THE ULTIMATE AIM OF THE TP IS T O EXAMINE WHETHER THE PRICE OR THE MARGIN RAISING FROM AN INTERNATIONAL TRANSACTION WITH THE RELATED PARTY IS AT ALP OR NOT. THE DETERMINATION OF APPROXIMATE ALP IS THE KEY FACTOR FOR WHICH THE MAM IS TO BE FOLLOWED. THEREFORE, IF AT ANY STAGE O F THE PROCEEDINGS, IT IS FOUND THAT BY ADOPTING ONE O F THE PRESCRIBED METHODS OTHER THAN CHOSEN EARLIER, THE MOST APPROPRIATE ALP CAN BE DETERMINED, THE ASSESSMENT AUTHORITIES AS WELL AS THE APPELLATE COURTS SHOULD TAKE INTO CONSIDERATION SUCH A PLEA BEFORE THEM PROVIDED, IT IS DEMONSTRATED AS TO HOW A CHANGE IN THE METHOD WILL PRODUCE BETTER OR MORE APPROPRIATE ALP ON THE FACTS OF THE CASE. ACCORDING LY, WE REJECT THE CONTENTIONS OF THE LD.DR AND ALSO THE OBSERVATIONS OF THE AO AND THE LD.CIT(A) THAT THE ASSESSEE CANNOT RESORT TO ADOPTION OF RPM METHOD INSTEAD OF TNMM.' 10.3 THE CASE OF THE ASSESSEE IS MUCH BETTER THAN T HE CASE OF M/S MATTEL TOYS (I) PVT.LTD. (SUPRA) FOR TH E REASON THAT THE ASSESSEE IN ITS TRANSFER PRICING RE PORT HAS ALSO USED RSPM AS THE MAM. HENCE THIS ARGUMENT OF THE REVENUE IS REJECTED. 10.4. AS THE UNDISPUTED FACT IS THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE IS THAT OF A TRADER AND AS THE CHARACTERISATION OF THE TRANSACTION IS PURCHASE AND SALE OF GOODS, WE HOLD THAT RSPM IS THE MAM BY APPLYING THE FOLLOWING DECISIONS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL. IT(TP)A NO.433/BANG/2016 PAGE 10 OF 27 13. THIS FINDING IN OUR HUMBLE OPINION IS WRONG FO R THE REASON THAT THE CIT(A) HAS ADOPTED THESE VERY COMPARABLES, ALONG WITH THREE OTHERS WHILE ARRIVING AT THE OPERATING MARGINS AT PARA 7.16 OF HIS ORDER. AS THE ASSESSEE IS A TRADER, WITHOUT VALUE ADDITION TO THE GOODS, WE FIND FORCE IN THE SUBMISSIONS OF THE ASSESSEE THAT RESALE PRICE METHOD IS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALV WITH RESPECT TO AE TRANSACTION. IN FACT, THE REVENUE HAS ACCEPTED THIS METHOD IN EARLIER TWO YEARS. THE TPO IN HIS ORDER DT. 7.3.2005 FOR THE AY 2002- 03 AND ORDE R DT. 20.3.2006 FOR THE AY 2003-04, HAS AGREED WITH THE COMPUTATION OF ARM'S LENGTH PRICE MADE BY THE ASSESSEE UNDER THE RESALE PRICE METHOD.' (II) IN TH E CASE OF L'OREAL INDIA P. LTD. VS. ITO (ITA NO.5423/MUM/2009) IT IS HELD AS FOLLOWS: '19. DURING THE COURSE OF HEARING, LD.DR ALSO SUPPORTED THE METHOD CONSIDERED BY TPO AND REFERRED TO PARA 2.29 OF OECD PRICE GUIDELINES 2010 AS STATED HEREINABOVE. ON THE OTHER HAND, LD.AR JUSTIFIED THE RPM METHOD ADOPTED BY IT AND ALSO REFERRED TO ORDER OF TPO IN THE PRECEDING AY AS WEL L AS SUCCEEDING AY TO THE AY UNDER CONSIDERATION TO SUBSTANTIATE THAT RPM IS THE MOST APPROPRIATE METHOD TO DETERMINE ALP. HE SUBMITTED THAT THE ASSESSEE MADE ADJUSTMENT FOR MARKETING AND SELLING EXPENSES TO THE PROFITS TO MAKE IT COMPARABLE TO TH E COMPARABLE COMPANIES' PROFITS. WE AGREE WITH THE LD.CIT(A) THAT THERE IS NO ORDER OF PRIORITY OF METHODS TO DETERMINE ALP. RPM IS ONE OF THE STANDARD METHOD AND OECD GUIDELINES ALSO STATES THAT IN CASE OF DISTRIBUTION AND MARKETING ACTIVITI ES WHEN THE GOODS ARE PURCHASED FROM AES WHICH ARE SOLD TO UNRELATED PARTIES, RPM IS THE MOST APPROPRIATE METHOD. IN THE CASE BEFORE US, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE BUYS PRODUCTS FROM ITS AES AND SELLS TO UNRELATED PARTIE S WITHOUT ANY FURTHER PROCESSING.' IT(TP)A NO.433/BANG/2016 PAGE 11 OF 27 (III) IN THE CASE OF DANISCO (INDIA) PVT.LTD. VS. A CIT, CIRCLE 10(1), NEW DELHI (ITA NO.5291/DEL/2010), IT IS HELD AS FOLLOWS: '22. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE ASSESSEE ESTABLISHED IN 1998 AS A 100% SUBSIDIARY OF DANISCO A/S DENMARK. DANISCO INDIA IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FOOD ADDITIVES. THE MANUFACTURING BUSINESS IN RESPECT OF FOOD FLAVOURS AND THE TRADIN G BUSINESS IS FOR PRODUCTS FOR FALLING UNDER THE CATE GORY OF FOOD INGREDIENTS. THE MAIN GRIEVANCES OF THE ASSESSEE AGAINST THE ORDER OF THE LD. TPO UPHELD BY THE LD.DRP ARE REGARDING THEIR APPROACH IN THE MANNER IN WHICH TRANSFER PRICING ADJUSTMENT HAS BEEN MADE, THE APPROACH ADOPTED BY THE LD.TPO IN GRANTING 17 COMPARABLE COMPANIES DENYING THE ECONOMIC ADJUSTMENT CLAIM MADE BY THE ASSESSEE, REGARDING COMPUTATION OF MARGINS OF THE ASSESSEE, NON CONSIDERATION OF SUPPLEMENTARY TRANSACTION AND DENIAL OF ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE BY THE AUTHORITIES BELOW AS WELL AS THEIR FAILURE TO EXAMINE THE CONTENTIONS AND ARGUMENTS OF THE ASSESSEE IN THIS REGARD. CONSIDERING THESE GRIEVANCES AS DISCUSSED HEREIN ABOVE BY US IN THE ARGUMENTS ADVANCED BY THE PARTIES/THEIR SUBMISSIONS AND HAVING GONE THROUGH THE DECISION RELIED UPON, WE FIND SUBSTANCE IN THE SUBMISSION OF THE ASSESSE3E AND THUS WE ARE OF THE VIEW THAT IT I S A FIT CASE TO SET ASIDE THE MATTER TO THE FILE OF THE LD.TPO FOR HIS FRESH CONSIDERATION AND DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DISCUSSING THEIR SUBMISSIONS IN THE ORDER AND REASONS, IF ANY, FOR N OT AGREEING OR AGREEING WITH THEM. IT IS ORDERED ACCORDINGLY WITH DIRECTION TO THE LD.TPO TO: A) FIR ST EXAMINE AS TO WHETHER, WAS THERE ANY VALUE ADDITION ON IMPORTED GOODS, AND IF ANSWER IS IN NEGATIVE THE N APPLY RPM AS A MOST APPROPRIATE METHOD FOR TRADING TRANSACTIONS OF IMPORTED GOODS AND IN CONSEQUENCE EXAMINE THE APPLICATION OF APPROPRIATE METHOD AS COMMISSION PAYMENT; IT(TP)A NO.433/BANG/2016 PAGE 12 OF 27 (IV) FRIGOGLASS INDIA P.LTD. (ITA NO.463/DEL/2013), IT IS HELD AS FOLLOWS: 'WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW, ONCE ASSESSEE HAS GIVEN A METHODOLOGY FOR WORKING OF ALP ON SELECTION OF A PARTICULAR METHOD SUPPORTED BY APPROPRIATE COMPARABLES, THE WORKING CAN BE DISLODGED BY TPO ON THE BASIS OF COGENT REASONS AND OBJECTIVE FINDINGS. IN THIS CASE EXCEPT THEORETICAL ASSERTIONS AND GENERALIZED OBSERVATIONS , NO OBJECTIVE FINDINGS HAVE BEEN GIVEN TO COME TO A REASONED CONCLUSION THAT ASSESSEE'S ADOPTION OF CPM FOR MANUFACTURING SEGMENT AND RPM FOR TRADING SEGMENT WAS FACTUALLY AND OBJECTIVELY NOT CORRECT. THUS THE REJECTION OF METHODS BY TPO AS ADOPTED BY ASSESSEE IS BEREFT OF ANY COGENCY AND OBJECTIVITY. THE SAME IS A WORK OF GUESSING AND CONJECTURED. SIMILAR LY THE TNMM METHOD APPLIED BY THE TPO SUFFERS FROM THE SAME INHERENT ABERRATIONS AS MENTIONED ABOVE. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT ASSESSEE'S METHODS OF CPM AND RPM RESPECTIVELY WORKED BY APPLYING APPROPRIATE COMPARABLES IS TO BE UPHELD. THUS THE ALP WORKING RETURNED BY THE ASSESSEE IS UPHELD. THE ASSESSEE'S TP GROUNDS ARE ALLOWED.' (V) TEXTRONIC INDIA PVT.LTD. VS. DCIT (ITA NO. 1334/BANG/ 2010), IT IS HELD AS FOLLOWS: 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE DISPUTE IS WITH REGARD TO THE ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS WHEREBY THE ASSESSEE IMPORTS EQUIPMENT FROM ITS AE AND RESELLS THEM WITHOUT ANY VALUE ADDITION TO THE INDIAN CUSTOMERS. IN SIMILAR CIRCUMSTANCES, MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF L'OREAL INDIA PVT.LTD. (SUP RA) HAS TAKEN THE VIEW THAT THE RPM WOULD BE THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. THE MUMBAI BENCH OF TRIBUNAL IN THIS REGARD, HAS REFERRED TO THE OECD GUIDELINES WHEREIN A VIEW HAS BEEN EXPRESSED THAT RPM WOULD BE THE BEST METHOD IT(TP)A NO.433/BANG/2016 PAGE 13 OF 27 WHEN A RESALE TAKES PLACE WITHOUT ANY VALUE ADDITIO N TO A PRODUCT. IN THE PRESENT CASE, THE ASSESSEE BUY S PRODUCTS FROM THE AE AND SELLS IT WITHOUT ANY VALUE ADDITION TO THE INDIAN CUSTOMERS. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE RATIO LA ID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF L'OREAL INDIA PVT. LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE. IN THAT EVENT, THE GP AS A PERCENTAGE OF SALE S ARRIVED AT BY THE TPO IN ANNEXURE TO THE TPO'S ORDE R INSOFAR AS TRADING ACTIVITY OF COMPARABLES IDENTIFI ED BY THE TPO AT 12.90%. THE GP AS A PERCENTAGE OF SALES OF THE ASSESSEE IS AT 35.6% WHICH IS MUCH ABO VE THE PERCENTAGE OF COMPARABLES IDENTIFIED BY THE TPO. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT NO ADJUSTMENT COULD BE MADE BY WAY OF ALP. WE, THEREFORE, ACCEPT THE ALTERNATIVE PLEA OF THE ASSES SEE AND DELETE THE ADDITION MADE BY THE AO. IN VIEW OF THE ABOVE CONCLUSION, WE ARE NOT GOING INTO THE OTHER ISSUES ON MERITS RAISED BY THE ASSESSEE ON TH E APPROACH ADOPTED BY THE TPO IN ARRIVING AT THE ALP. THUS, GROUND NOS. 2 TO 7 ARE ALLOWED. 10.5 IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE TPO TO ADOPT RPM AS THE MAM IN THIS CASE.' 12. THE AFORESAID DECISION OF THE TRIBUNAL, DELHI B ENCH, WAS CHALLENGED BEFORE THE HON'BLE DELHI HIGH COURT BY T HE DEPARTMENT. HOWEVER, THE HIGH COURT DISMISSED THE A PPEAL OF THE REVENUE ON THE ISSUE OF ACCEPTANCE OF RPM SELEC TED BY THE ASSESSEE OVER TNMM APPLIED BY THE DEPARTMENT. IT IS FURTHER NECESSARY TO OBSERVED, IN CASE OF OSI SYSTEMS PVT. LTD. (SUPRA), THE TRIBUNAL, HYDERABAD BENCH, FOLLOWING THE DECISI ON IN CASE OF LUXOTTICA INDIA EYEWARE PVT. LTD. (SUPRA) HELD AS U NDER:- '44. ON A PERUSAL OF THE EXTRACTED PORTION FROM THE ORDER OF THE COORDINATE BENCH, IT IS VERY MUCH CLEAR THAT AFTER CONSIDERING A NUMBER OF DECISIONS ON THE VERY SAME ISSUE FROM DIFFERENT BENCHES OF THE ITAT, IT WAS HELD THAT IN CASE OF TRANSACTIONS RELATED TO PURCHASE AND SALE O F GOODS, RPM IS THE MOST APPROPRIATE METHOD. THE PRINCIPLES LAID DOWN BY THE DELHI BENCH CLEARLY APPLIES TO THE FACT S OF THE IT(TP)A NO.433/BANG/2016 PAGE 14 OF 27 PRESENT CASE NOT ONLY BECAUSE THE ASSESSEE IS INVOL VED PURELY IN TRADING ACTIVITY, BUT ALSO IN THE TP STUD Y ASSESSEE HAS ADOPTED RPM AS THE MOST APPROPRIATE METHOD. ONL Y BECAUSE IN THE PRECEDING ASSESSMENT YEAR FOR SOME R EASON ASSESSEE HAS NOT CHALLENGED THE DECISION OF DRP IN UPHOLDING APPLICATION OF TNMM, ASSESSEE CANNOT BE PREVENTED FROM OBJECTING TO ADOPTION OF TNMM IN THE IMPUGNED ASSESSMENT YEAR. IN VIEW OF THE AFORESAID, WE REMIT THE MATTER BACK TO THE FILE OF THE AO/TPO TO EXAMINE ASSESSEE'S ANALYSIS UNDER THE RPM AND DECID E THE ISSUE ACCORDINGLY AFTERDUE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE.' 13. THE FACTS ON RECORD REVEAL THAT THE TRANSFER PR ICING OFFICER UNDER A MISCONCEPTION THAT THE ASSESSEE HAS UNDERTA KEN MANUFACTURING ACTIVITY HAS REJECTED RPM. LEARNED DR P HAS ALSO NOT EXAMINED THE FACTS IN PROPER PERSPECTIVE. RATHE R, LEARNED DRP HAS RECORDED AN ERRONEOUS FINDING BY STATING TH AT IN THE TRANSFER PRICING ANALYSIS THE ASSESSEE HAS CHOSEN T NMM AS THE MOST APPROPRIATE METHOD. THE AFORESAID FINDING OF L EARNED DRP IS FACTUALLY INCORRECT, AS, ON A PERUSAL OF THE TRA NSFER PRICING ANALYSIS OF THE ASSESSEE, A COPY OF WHICH IS PLACED IN PAPER BOOK, IT IS REVEALED THAT THE ASSESSEE HAS SELECTED RPM A S THE MOST APPROPRIATE METHOD AND HAS ALSO EXPLAINED WHY TNMM IS NOT APPLICABLE TO THE SUBJECT TRANSACTION. IN VIEW OF T HE AFORESAID, WE HOLD THAT RPM IS THE MOST APPROPRIATE METHOD TO BEN CHMARK THE SUBJECT INTERNATIONAL TAXATION RELATING TO PURCHASE OF REAGENTS ANALYZERS, ETC. SINCE, NEITHER THE TRANSFER PRICING OFFICER NOR LEARNED DRP HAS POINTED OUT ANY OTHER DEFECT IN THE TRANSFER PRICING ANALYSIS OF THE ASSESSEE EXCEPT THAT THE AS SESSEE IS INVOLVED IN MANUFACTURING ACTIVITY, WE ARE OF THE V IEW THAT THE BENCHMARKING DONE BY THE ASSESSEE UNDER RPM HAS TO BE ACCEPTED. MORE SO, WHEN THE TRANSFER PRICING OFFICE R HAS ACCEPTED THE COMPARABLES SELECTED BY THE ASSESSEE. THAT BEING THE CASE, ONLY THING WHICH REQUIRES VERIFICATION IS THE GROSS MARGIN OF THE ASSESSEE WITH THAT OF THE COMPARABLES. WE DIREC T THE ASSESSING OFFICER / TRANSFER PRICING OFFICER TO EXA MINE THIS ASPECT AND DECIDE THE ISSUE ACCORDINGLY AFTER DUE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. WITH THE AFORESAID OBS ERVATIONS, GROUNDS ARE ALLOWED. SINCE, WE HAVE ALLOWED ASSESSE E'S CLAIM THAT RPM IS THE MOST APPROPRIATE METHOD, THE OTHER ISSUE RELATING TO COMPUTATION OF MARGIN OF COMPARABLES UNDER TNMM DOES NOT IT(TP)A NO.433/BANG/2016 PAGE 15 OF 27 REQUIRE ADJUDICATION. FURTHER, WE DIRECT THE ASSESS ING OFFICER / TRANSFER PRICING OFFICER TO ADOPT THE CORRECT PURCH ASE FIGURE AS DEBITED TO THE PROFIT & LOSS ACCOUNT AFTER DUE VERI FICATION. 4. THE REASONS ASSIGNED BY THE TPO FOR REGARDING RP M AS THE MAM AND OTHER FACTS AND CIRCUMSTANCES REMAIN THE SAME I N THE PRESENT AY ALSO AND THEREFORE THE DECISION OF THE TRIBUNAL WOULD BE EQUALLY APPLICABLE TO THE PRESENT AY ALSO. THE LEARNED DR HOWEVER SUBMIT TED THAT THE DECISION OF THE ITAT IN AY 2010-11 WAS ON THE BASIS THAT THE ASSESSEE DID MANUFACTURING ACTIVITY WHEREAS IN THIS YEAR THERE I S NO SUCH PRESUMPTION. HE ALSO SUBMITTED THAT THE ASSESSEE SELLS RE AGENTS FOR USE THROUGH ANALYSERS BUT THE ANALYSERS ARE GIVEN FREE OF COST WITH NO TRANSFER OF OWNERSHIP. HE ALSO HIGHLIGHTED THE FINDINGS OF THE TPO IN PAGE-16 OF HIS ORDER ESPECIALLY PARAGRAPH (D) TO (G). HE PLACED R ELIANCE ON THE ORDER OF THE DRP IN PARAGARAPH 4.3 TO 4.7. HE THEREFORE SUB MITTED THAT THE CONCLUSION OF THE TPO IN THE PRESENT AY THAT TNMM I S THE MAM HAS TO BE UPHELD. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEV ER REITERATED THAT THE FACTS OF THE CASE IN THE PRESENT AY ARE IDENTICAL A S IT PREVAILED IN AY 2010- 11. 5. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS AND HAVE ALSO TAKEN NOTE OF THE FACTUAL BASIS OF ASSESS MENT IN AY 2010-11 AND THE PRESENT AY INVOLVED IN THIS APPEAL VIZ., AY 201 1-12. THE TPO IN AY 2011-12 HAS PROCEEDED ON THE BASIS THAT THE ASSESSE E WAS MAKING ADDITIONS TO PLANT AND MACHINERY AND DOING SO SUGGE STS THAT THE ASSESSEE IS NOT NEARLY INTO TRADING AND FURTHER IS MAKING EX PENDITURE ON PLANT AND MACHINERY. IN THE PAST THE ASSESSEE HAS CAPITALIZE D COST ON PRODUCT DEVELOPMENT WHICH IS STILL APPEARING IN ITS BALANCE SHEET. ACQUISITION OF LAND FROM KIDBA FOR CONSTRUCTION OF FACTORY FOR MAN UFACTURE HAS ALSO BEEN CITED BY THE TPO. THE ASSESSEE SELLS RE AGENTS (CH EMICALS) AFTER PURCHASE IT(TP)A NO.433/BANG/2016 PAGE 16 OF 27 FROM AE BUT TO USE RE AGENTS THE CUSTOMER HAS TO PO SSESS ANALYSERS, WHICH IS GIVEN FREE OF COST BY THE ASSESSEE. THEREFORE, THE ASSESSEE IS NOT MERELY INDULGING IN SIMPLE TRADING IN REAGENTS. PE RUSAL OF THE ORDER OF THE TRIBUNAL FOR AY 2010-11 (PARAGRAPH-8) WOULD SHOW TH AT THE SAME REASONS WERE GIVEN BY THE TPO IN AY 2010-11 FOR COMING TO T HE CONCLUSION THAT THE ASSESSEE IS NOT A RESELLER SIMPLICITER AND THEREFOR E RPM CANNOT BE THE MAM. THE FINDINGS RECORDED BY THE TRIBUNAL IN PARA GRAPH-11 OF ITS ORDER FOR AY 2010-11 WOULD SHOW THAT MANUFACTURING ACTIVI TY HAD NOT COMMENCED IN THAT YEAR AND THIS FACT REMAINS THE SA ME FOR AY 2011-12 ALSO. THE FINDING IN THE SAME PARAGRAPH BY THE TRI BUNAL IS THAT THE ASSESSEE PURCHASES AND SELLS RE AGENTS AND CHEMICAL S WITHOUT ANY VALUE ADDITION. THE TRIBUNAL HAS ALSO RECORDED A FINDING THAT ANALYZER, SPARES AND CONSUMABLES, THOUGH WERE IMPORTED, HOWEVER, THEY WE RE NOT SOLD BUT WERE PROVIDED IN THE LABORATORIES/DIAGNOSTICS UNITS OF T HE THIRD PARTY CUSTOMERS FOR TESTING AND RESEARCH ACTIVITY. IN THE LIGHT O F SIMILARITY OF FACTS IN AY 2011-12 & 2010-11, WE ARE OF THE VIEW THAT THE DECI SION RENDERED BY THE TRIBUNAL IN AY 2010-11 WOULD EQUALLY APPLY TO AY 20 11-12 ALSO. FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL WE HOLD THAT RPM IS THE MAM FOR DETERMINING ALP AND THE AO IS DIRECTED TO COMPUTE T HE ALP AS DIRECTED BY THE TRIBUNAL IN PARAGRAPH-13 OF ITS ORDER FOR AY 20 10-11. WE HOLD AND DIRECT ACCORDINGLY AND ALLOW THE RELEVANT GROUNDS N O. E & F TO THE EXTENT INDICATED IN THIS ORDER. 6. GROUND NO.G RAISED BY THE ASSESSEE IN ITS APPEAL READS THUS:- G. AS REGARDS COMPUTING ARM'S LENGTH INTEREST IN R ESPECT OF RECEIVABLE OUTSTANDING FROM THE AES BEYOND SIX MONT HS AS ON 31.03.2011: 1. THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED TPO IN APPLYING TRANSFER PRIC ING IT(TP)A NO.433/BANG/2016 PAGE 17 OF 27 PROVISION TO BOOK DEBT, WHEN THERE, IS NO INCOME AR ISING OUT OF SUCH TRANSACTION. 2. THE HONOURABLE DRP AND LEARNED TPO HAVE FAILED T O APPRECIATE THAT EXPLANATION (I) TO SECTION 92B OF T HE IT ACT THOUGH INSERTED BY FINANCE ACT 2012, WITH EFFEC T FROM 01.04.2002, IS NOT RETROSPECTIVE IN NATURE AS IT CR EATES ADDITIONAL LIABILITY AND HENCE. NO TRANSFER PRICING ADDITION COULD HAVE BEEN MADE ACCORDINGLY. 3. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE D RP AND LEARNED TPO HAVE FAILED TO APPRECIATE THAT BOOK DEB T CANNOT REGARDED AS AN INTERNATIONAL TRANSACTION EVE N WITHIN THE MEANING OF NEWLY INSERTED EXPLANATION (I)(C) TO SECTION 92B OF IT ACT. 4. THE HONOURABLE DRP AND LEARNED TPO HAVE FAILED T O APPRECIATE THAT NEWLY INSERTED EXPLANATION (I)(C) T O SECTION 92B OF IT ACT WOULD APPLY ONLY TO A RECEIVABLE WITH ASSOCIATED ENTERPRISE AS A CONSEQUENCE OF A NON- INTERNATIONAL TRANSACTION LIKE TAKEOVER OF BUSINESS BY ASSOCIATED ENTERPRISE AND WOULD NOT INCLUDE A RECEI VABLE AS A CONSEQUENCE OF AN INTERNATIONAL TRANSACTION. H E HAS FAILED TO APPRECIATE THAT THE LATTER IS THE EFFECT OF AN EXISTING INTERNATIONAL TRANSACTION AND HENCE NOT A TRANSACTION AT ALL IN ITS VERY NATURAL MEANING THER EBY FAILING THE TEST OF INTERNATIONAL TRANSACTION. 5. THE HONOURABLE DRP AND LEARNED TPO HAVE FAILED T O APPRECIATE THAT AN UNILATERAL DELAY IN PAYMENT OF D EBT BY THE ASSOCIATED ENTERPRISE CANNOT BE REGARDED AS AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT WIT HIN THE MEANING OF SECTION 92F (V) OF IT ACT. 6. THE HONOURABLE DRP AND LEARNED TPO HAVE FAILED T O APPRECIATE THAT WHETHER ANY INTEREST IS TO BE CHARG ED OR NOT OR WHAT STRATEGY NEEDS TO BE ADOPTED FOR CARRYING O UT A BUSINESS ACTIVITY IS THE SOLE PREROGATIVE OF THE AS SESSEE, AND NEITHER THE TPO NOR THE ASSESSING OFFICER HAS A NY ROLE IN THIS REGARD. THE LEGITIMATE BUSINESS NEEDS OF TH E ASSESSEE CANNOT BE DICTATED BY THE REVENUE AUTHORIT IES AS HELD IN THE CASES OF S.A. BUILDERS LTD. VS. CIT [20 06] 288 IT(TP)A NO.433/BANG/2016 PAGE 18 OF 27 ITR 1 (SC), FESTO CONTROLS (P.) LTD. VS. DCIT [2013 ] 30 TAXMANN.COM 16 (BANG.-ITAT), CIT VS. EKL APPLIANCES LTD. [2012] 345 ITR 241 (DELHI), DRESSER-RAND INDIA (P.) LTD. VS. ADDL. CIT [2011] 13 TAXMANN.COM 82 (MUM.) & ABHISHEK AUTO INDUSTRIES LTD. VS. DCIT [2012] 15 IT R (TRIB) 168 (DELHI). 7. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE D RP AND LEARNED TPO HAVE FAILED TO APPRECIATE THAT APPELLAN T HAS BOTH TRADE RECEIVABLE OF RS. 4,48,35,896/- AND TRAD E PAYABLE OF RS.23,16,01,984/- WITH M/S. RANDOX LABORATORIES LTD., UK AND TRADE PAYABLE IS MORE THA N TRADE RECEIVABLE NECESSITATING NO ADJUSTMENT. 8. THE HONOURABLE DRP AND LEARNED TPO HAVE FAILED T O AGGREGATE THE TRADE RECEIVABLE AND TRADE PAYABLE AS BOTH ARE INEXTRICABLY CONNECTED WITH EACH OTHER. 9. THE HONOURABLE DRP AND LEARNED TPO HAVE FAILED T O TAKE COGNIZANCE OF THE FACT THAT THE APPELLANT DID NOT C HARGE ANY INTEREST EVEN TO ITS NON-AES ON THE OUTSTANDING RECEIVABLES AND THEREFORE, HE IS NOT JUSTIFIED IN D ETERMINING THE ARM'S LENGTH PRICE INTEREST IN RESPECT OF BOOK DEBT WITH THE ASSOCIATED ENTERPRISE. 10. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED TPO IS NOT JUSTIFIED IN FAILING TO APPRECIATE THAT THE NIL INT EREST CHARGED BY THE APPELLANT IN RESPECT OF BOOK DEBTS WITH NON- ASSOCIATE ENTERPRISE CONSTITUTES AN INTERNAL COMPAR ABLE UNCONTROLLED TRANSACTION FOR BENCHMARKING INTEREST TO BE CHARGED ON BOOK DEBTS WITH ASSOCIATED ENTERPRISE AN D VIEWED THUS, NO ADJUSTMENT IS REQUIRED. 11. THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDIN G THE ACTION OF THE LEARNED TPO IN APPLYING PREMIUM OF 3% ON LIBOR RATE WITHOUT SUBSTANTIATING THE NEED AND EXTE NT OF THE SAID PREMIUM. 7. THE ABOVE GROUNDS CAN BE CONVENIENTLY DECIDED TO GETHER WITH GROUNDS RAISED BY THE REVENUE IN ITS APPEAL, WHICH READS THUS:- IT(TP)A NO.433/BANG/2016 PAGE 19 OF 27 1. THE DIRECTION OF THE DISPUTE RESOLUTION PANEL A RE OPPOSED TO THE LAW AND NOT ON THE FACTS AND CIRCUMSTANCES O F THE CASE. 2. THE ID. HAS ERRED IN GRANTING TO APPLY LIBOR RAT E PLUS 3% AS ALP FOR INTEREST ON LOAN WITHOUT APPRECIATING TH E FACTS OF THE CASE AND ITS COMPARABLES. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UP ON, DIRECTION OF THE DISPUTE RESOLUTION PANEL MAY BE RE VERSED AND THAT ASSESSMENT ORDER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEA L. 8. THE FACTS AS FAR AS THE AFORESAID GROUNDS OF APP EAL ARE CONCERNED, ARE THAT THE AO NOTICED THAT A SUM OF RS.4,48,35,89 6/- WAS RECEIVABLE BY THE ASSESSEE FROM M/S. RANDOX LABORATORIES LTD., U. K.(AE) AS ON 31.3.2011. THE ASSESSEE WAS ALSO DUE AND PAYABLE T O M/S. RANDOX LABORATORIES LTD., UK, A SUM OF RS.23,16,01,984/-. THE TPO CALLED UPON THE ASSESSEE TO EXPLAIN THE NATURE OF AMOUNT RECEIV ABLE BY THE ASSESSEE FROM ITS AE. THE ASSESSEE EXPLAINED THAT AMOUNT WE RE RECEIVABLE FROM AE FOR SERVICES RENDERED BY THE ASSESSEE TO THE AE LIK E LIFE SCIENCE SUPPORT SERVICES, ENGINEERING PRODUCT SERVICES, MARKET SUPP ORT SERVICES AND ACCOUNTING SUPPORT SERVICES RENDERED BY THE ASSESSE E TO AE DURING FINANCIAL YEAR 2007-08 & 2008-09. THE OUTSTANDING BALANCE ALSO INCLUDES A BALANCE WHICH IS ON ACCOUNT OF SALE OF CERTAIN UNUS ABLE FIXED ASSETS. 9. THE TPO ON PERUSAL OF THE AFORESAID REPLY OF THE ASSESSEE WAS OF THE VIEW THAT NORMAL CREDIT PERIOD WAS ONLY 60-90 D AYS WHEREAS THE ASSESSEE HAD ALLOWED CREDIT PERIOD OF MORE THAN 700 TO 800 DAYS. ACCORDING TO THE TPO ALLOWING LARGER CREDIT PERIOD THAN THE USUAL PERIOD CONFERRED BENEFIT ON THE AE AND WAS ALSO AN INTERNA TIONAL TRANSACTION AND THE INCOME IN THE FORM OF INTEREST WHICH THE ASSESS EE OUGHT TO HAVE RECEIVED FOR SUCH ENLARGED CREDIT PERIOD OUGHT TO B E ADDED AS INCOME ON IT(TP)A NO.433/BANG/2016 PAGE 20 OF 27 ACCOUNT OF DETERMINATION OF ALP. THE TPO ALSO OBSE RVED THAT THE ASSESSEE WAS AVAILING LOANS FROM HDFC BANK LTD., AN D PAYING INTEREST AT 9% P.A. ON SUCH BORROWINGS. ON THE ABOVE REASONING THE AO MADE AN ADDITION OF RS.52,33,657/- TO THE TOTAL INCOME OF T HE ASSESSEE AS ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST INCOME A S FOLLOWS:- 6.2.5 DURING THE COURSE OF HEARING THE REPRESENTAT IVES OF THE ASSESSEE COMPANY ALSO COULD NOT SATISFACTORILY EXPL AIN ANYTHING. HENCE THE ARM'S LENGTH PRICE OF THE BENEFIT EXTENDE D TO THE AE SHALL DETERMINE BY THE COST OF BORROWING OF FUND PL US A SUITABLE MARK-UP. IT IS ALSO SEEN THAT THE ASSESSEE AVAILED SECURED LOANS FROM HDFC BANK AT THE RATE OF 9% P.A., WHICH IS USE D TO BENCHMARK FOR DETERMINATION OF ALP PLUS A MARK UP O F 3% TOWARDS OVERHEAD EXPENSES, CREDIT RISK ETC. THE ARM 'S LENGTH PRICE OF THE FACILITY EXTENDED TO THE AE IS CALCULATED AS FOLLOWS; OPENING VALUE OF DEBIT BALANCE WITH THE AE RS. 4,23 ,91,715/ - CLOSING VALUE OF DEBIT BALANCE WITH THE AE RS. 4,48 ,35,896/ - AVERAGE VALUE OF DEBIT BALANCE WITH THE AE RS. 4,36,13,806/- RATE OF INTEREST AT WHICH HDFC BANK ADVANCED LOAN 9% RATE OF APPLICABLE INTEREST: 9% + 3% = 12% VALUE OF ALP (NOTIONAL INTEREST) RS. 4,36,13,806*12/100 = RS. 52,33,657/- 7. IN VIEW OF THE ABOVE DISCUSSION, THE SUMMARY OF THE ADJUSTMENTS MADE TO THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IS AS UNDER: SR NO. ISSUE AMOUNT IN RS. 1 PURCHASE FROM AE 1,83,88,023/ - 2 INTEREST 52,33,657/- TOTAL ADJUSTMENT 2,36,21,680/- IT(TP)A NO.433/BANG/2016 PAGE 21 OF 27 10. BEFORE THE DRP THE ASSESSEE CONTENDED THAT GIVI NG OF EXTENDED OR GREATER CREDIT PERIOD TO THE AE IN RESPECT OF RECEI VABLES CANNOT BE REGARDED AS AN INTERNATIONAL TRANSACTION AT ALL. THE DRP DI D NOT AGREE WITH THE SUBMISSION OF THE ASSESSEE AND THEY MADE A REFERENC E TO THE AMENDMENT TO THE DEFINITION OF INTERNATIONAL TRANSACTION AS C ONTAINED IN SEC.92B WHEREBY CLAUSE (C) TO EXPLANATION (I) TO SEC.92B WA S INTRODUCED BY THE FINANCE ACT, 2012 W.R.E.F 1-4-2002. THE SAID AMEND MENT READS THUS: MEANING OF INTERNATIONAL TRANSACTION . 92B. (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92 , 92C , 92D AND 92E , 'INTERNATIONAL TRANSACTION' MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PU RCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVIS ION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSAC TION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT O R ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BEN EFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR M ORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WIT H A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOS ES OF SUB- SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANSACTION BETWEEN SUCH O THER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELE VANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERS ON AND THE ASSOCIATED ENTERPRISE. EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' S HALL INCLUDE IT(TP)A NO.433/BANG/2016 PAGE 22 OF 27 (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, MACHINE RY, EQUIPMENT, TOOLS, PLANT, FURNITURE, COMMODITY OR ANY OTHER ART ICLE, PRODUCT OR THING; (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF INTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR TH E PROVISION OF USE OF RIGHTS REGARDING LAND USE, COPYRIGHTS, PATEN TS, TRADEMARKS, LICENCES, FRANCHISES, CUSTOMER LIST, MARKETING CHAN NEL, BRAND, COMMERCIAL SECRET, KNOW-HOW, INDUSTRIAL PROPERTY RI GHT, EXTERIOR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUS INESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE; (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG -TERM OR SHORT- TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR S ALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYME NTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT AR ISING DURING THE COURSE OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SE RVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR RE ORGANISATION, ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED EN TERPRISE, IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF THE TRANSACTION OR AT ANY FUTURE DATE; (THE AFORESAID EXPLANATION (I) TO SEC.92B WAS INSER TED BY THE FINANCE ACT, 2012 W.R.E.F. 1-4-2002.) 11. ACCORDING TO THE DRP, CLAUSE (C) OF THE AFORESA ID EXPLANATION (I) APPLIES TO A CASE OF DEFERRING RECEIPT OF PAYMENT O N ACCOUNT OF RECEIVABLES AND BY DEFERRING PAYMENT ON ACCOUNT OF RECEIVABLES BEYOND THE NORMAL CREDIT PERIOD, THE AE GETS A BENEFIT AND SUCH TYPE OF ARRANGEMENT SHOULD ALSO BE REGARDED AS INTERNATIONAL TRANSACTION TO WH ICH PROVISIONS OF SEC.92 APPLIES. IT(TP)A NO.433/BANG/2016 PAGE 23 OF 27 12. WE SHALL FIRST TAKE UP THE ISSUE WHETHER ALLOWI NG A GREATER PERIOD OF PAYMENT TO THE AE WOULD BE AN INTERNATIONAL TRANSAC TION AND INCOME FROM SUCH ARRANGEMENT SHOULD ALSO BE DETERMINED HAVING R EGARD TO ARMS LENGTH PRICE AS LAID DOWN IN SEC.92 OF THE ACT. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THE ABOVE ISSUE. THE INTERNATIONAL TRANSACTION REPORTED BY THE ASSESSEE IN FORM NO.3CEB WAS (I) PURCHASE OF REAGENTS, SPARES, ANALYZERS AND CON SUMABLES OF THE VALUE OF RS.12,50,36,145/-, (II) PURCHASE OF FIXED ASSET S OF THE VALUE OF RS.3,58,208; (III) REIMBURSEMENT OF EXPENSES OF RS. 3,64,251 AND (IV) RECOVERY OF EXPENSES OF THE VALUE OF RS.12,336/-. WE HAVE ALREADY SEEN THAT THE ASSESSEE EXPLAINED ABOUT THE NATURE OF REC EIVABLES FROM THE AE AS DUE FOR SERVICES RENDERED BY THE ASSESSEE TO THE AE LIKE LIFE SCIENCE SUPPORT SERVICES, ENGINEERING PRODUCT SERVICES, MAR KET SUPPORT SERVICES AND ACCOUNTING SUPPORT SERVICES RENDERED BY THE ASS ESSEE TO AE DURING FINANCIAL YEAR 2007-08 & 2008-09. THE OUTSTANDING BALANCE ALSO INCLUDES A BALANCE WHICH IS ON ACCOUNT OF SALE OF CERTAIN UNUS ABLE FIXED ASSETS. THE OUTSTANDING HAS THEREFORE NOTHING TO DO WITH ANY IN TERNATIONAL TRANSACTION. THEREFORE THERE IS NO QUESTION OF ANY NORMAL CREDIT PERIOD EXISTING FOR SUCH RECEIVABLES. THERE ARE CONFLICTING DECISIONS OF TRIBUNALS ON THIS ISSUE AS TO WHETHER GIVING OF GREATER CREDIT PERIOD CAN BE R EGARDED AS INTERNATIONAL TRANSACTION OR NOT LIKE DECISION OF ITAT BANGALORE IN THE CASE OF INGERSOLL- RAND INDIA LTD. VS.ACIT (2015) 57 TAXMANN.COM 413(B ANGALORE-TRIB.) HOLDING THE VIEW THAT IT IS NOT AN INTERNATIONAL TR ANSACTION AND THE DECISION IN THE CASE OF LOGIX MICRO SYSTEMS VS. ACIT (2011) 136 TTJ 0366 BANGALORE TRIBUNAL HOLDING A CONTRARY VIEW. 14. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER PL ACED RELIANCE ON A DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF PRL.CIT VS. KUSUM HEALTH CARE PVT.LTD. ITA NO.765/2016 JUDGMENT DATED 25.4.2017 WHEREIN IT(TP)A NO.433/BANG/2016 PAGE 24 OF 27 THE RETROSPECTIVE AMENDMENT TO THE LAW REFERRED TO IN EARLIER PARAGRAPH WAS ALSO CONSIDERED BY THE COURT. THE FACTS IN THE AFO RESAID CASE WAS THAT THE TPO NOTED THAT THE CREDIT PERIOD FOR THE DEBTORS AS MENTIONED IN THE SALE CONTRACT WITH UNRELATED ENTITIES WAS 180 DAYS. HOWE VER, IN THE CASE OF THE AES THEY WERE ALLOWED TO LINGER FOR LONG. THE SAI D RECEIVABLES QUA THE AE WAS TREATED AS A SEPARATE INTERNATIONAL TRANSACTION . AN ADDITION OF RS. 1,57,54,943/- TO THE INCOME OF THE ASSESSEE WAS PRO POSED BY THE TPO AS THE ALP INTEREST THAT THE ASSESSEE OUGHT TO HAVE CH ARGED FOR THE EXTENDED PERIOD OF CREDIT ALLOWED TO THE AE. ON APPEAL BY T HE ASSESSEE, THE ITAT SET ASIDE THE ASSESSMENT ORDER. THE ITAT NOTED THAT THE ASSESSEE HAD UNDERTAKEN WORKING CAPITAL ADJUSTMENT FOR THE COMPA RABLE COMPANIES SELECTED IN ITS TRANSFER PRICING REPORT. IT WAS FUR THER NOTED THAT THE DIFFERENTIAL IMPACT OF WORKING CAPITAL OF THE ASSES SEE VIS--VIS ITS COMPARABLES HAD ALREADY BEEN FACTORED IN THE PRICIN G/PROFITABILITY WHICH WAS MORE THAN THE WORKING CAPITAL ADJUSTED MARGIN O F THE COMPARABLES AND, THEREFORE, ANY FURTHER ADJUSTMENT TO THE MARG INS OF THE ASSESSEE ON THE PRETEXT OF OUTSTANDING RECEIVABLES IS UNWARRANT ED AND WHOLLY UNJUSTIFIED. AGAINST THE ORDER OF THE ITAT, THE R EVENUE PREFERRED APPEAL BEFORE THE HONBLE DELHI HIGH COURT. THE REVENUE S OUGHT TO RELY ON THE STATUTORY RETROSPECTIVE AMENDMENT BY INSERTION OF E XPLANATION (I) TO SEC.92B OF THE ACT. THE HONBLE DELHI HIGH COURT U PHELD THE ORDER OF THE TRIBUNAL BY OBSERVING AS FOLLOWS:- 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SU BMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUNTS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WO ULD AUTOMATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SU PPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF F ACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CASE BASI S. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL O F THE ASSESSEE IT(TP)A NO.433/BANG/2016 PAGE 25 OF 27 WILL HAVE TO BE STUDIED. IN OTHER WORDS, THERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF WWW.TAXGURU.IN ITA 765/2016 PAGE 5 OF 5 TIME TO DIS CERN A PATTERN WHICH WOULD INDICATE THAT VIS--VIS THE REC EIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO C ONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUT ES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSES SEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES O N THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VI S--VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BAS IS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PI CTURE AND RE- CHARACTERISED THE TRANSACTION. THIS WAS CLEARLY IMP ERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIA NCES LTD. (2012) 345 ITR 241 (DELHI). 12. CONSEQUENTLY, THE COURT IS UNABLE TO FIND ANY E RROR IN THE IMPUGNED ORDER OF THE ITAT GIVING RISE TO ANY SUBST ANTIAL QUESTION OF LAW FOR DETERMINATION. THE APPEAL IS, A CCORDINGLY, DISMISSED. 15. IN THE PRESENT CASE, ADMITTEDLY THE RECEIVABLES RELATE TO TRANSACTIONS IN FY 2007-08 & 2008-09. THE TPO HAS NOT SPELT OUT AS TO WHAT IS THE NATURE OF THE RECEIVABLES AND WHETHER IT HAD ANY RE LATION WITH ANY INTERNATIONAL TRANSACTION OF THOSE YEARS AND WHAT I S THE POSITION WITH REGARD TO THE ALP OF THOSE TRANSACTIONS, WHETHER WORKING C APITAL ADJUSTMENT WERE MADE WHILE DETERMINING ALP OF CONNECTED INTERNATION AL TRANSACTION, WHAT IS THE EFFECT OF PAYABLES BY THE ASSESSEE TO THE VERY SAME AE AND ON WHAT ACCOUNT THESE PAYABLES WERE DUE TO THE ASSESSEE, WH ETHER IN THE CIRCUMSTANCE WHERE THERE IS RECEIVABLES AS WELL AS PAYABLES FROM THE VERY SAME AE, CAN YOU SAY THAT THERE IS ANY REAL BENEFIT OF LONGER CREDIT PERIOD ALLOWED TO THE AE IN RESPECT OF RECEIVABLES FROM AE . WITHOUT AN ANALYSIS OF ALL THESE FACTS, IT IS NOT POSSIBLE TO COME TO A CO NCLUSION THAT ALLOWING IT(TP)A NO.433/BANG/2016 PAGE 26 OF 27 LONGER CREDIT PERIOD TO THE AE WAS AN INTERNATIONAL TRANSACTION AND INCOME FROM SUCH TRANSACTION HAS TO BE DETERMINED HAVING R EGARD TO ALP. WE ARE THEREFORE THE VIEW THAT THE ISSUE REQUIRES TO BE SE T ASIDE TO THE TPO FOR EXAMINATION AFRESH OF THE QUESTION WHETHER ALLOWING LONGER CREDIT PERIOD WAS IN THE NATURE OF AN INTERNATIONAL TRANSACTION I N THE FACTS AND CIRCUMSTANCES OF THE CASE. THE TPO WILL DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. 16. AS FAR AS THE QUESTION WITH REGARD TO THE RATE OF INTEREST TO BE ADOPTED, ASSUMING THAT THERE WAS AN INTERNATIONAL T RANSACTION, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY APPLIED LIBOR RATE + 3% AS THE APPROPRIATE RATE OF INTEREST, TAKING NOTE OF THE JU DICIAL PRONOUNCEMENTS ON THE ISSUE INCLUDING THE PRONOUNCEMENT OF THE HONBL E DELHI HIGH COURT IN THE CASE OF CIT V. COTTON NATURALS (I) PRIVATE LIMITED [TS-117- HC- 2015(DELHI) WHEREIN IT WAS HELD THAT ARMS LENGTH INTEREST RATE NEEDS TO BE THE MARKET-DETERMINED RATE APPLICABLE TO THE CURREN CY IN WHICH THE LOAN HAS TO BE REPAID. THEREFORE THERE IS NO MERIT IN THE AP PEAL BY THE REVENUE. 17. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF JULY, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 17 TH JULY, 2019. / D ESAI S MURTHY / IT(TP)A NO.433/BANG/2016 PAGE 27 OF 27 COPY TO: 1. THE APP ELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.