Akzo Nobel Chemicals (India) Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 83/PUN/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6763 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 10B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1169/PN/2011 (ASSESSMENT YEAR : 2001-02) AKZO NOBEL CHEMICALS (INDIA) LTD., TELLUS BUILDING, 2 ND FLOOR, 209/1B/1A, RANGE HILLS, PUNE 411 020. PAN : AADCA3941N . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 1(1), PUNE. . RESPONDENT ITA NO.668/PN/2012 (ASSESSMENT YEAR : 2002-03) AKZO NOBEL CHEMICALS (INDIA) LTD., TELLUS BUILDING, 2 ND FLOOR, 209/1B/1A, RANGE HILLS, PUNE 411 020. PAN : AADCA3941N . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 1(1), PUNE. . RESPONDENT ITA NO.2181/PN/2012 (ASSESSMENT YEAR : 2008-09) AKZO NOBEL INDIA LTD., ( FORMERLY KNOWN AS AKZO NOBEL CHEMICALS (INDIA) LTD. ), TELLUS BUILDING, 2 ND FLOOR, 209/1B/1A, RANGE HILLS, PUNE 411 020. PAN : AADCA3941N . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- 1(1), PUNE. . RESPONDENT ITA NO.2583/PN/2012 A.Y. : 2008-09 ITA NO.83/PN/2014 (ASSESSMENT YEAR : 2009-10) AKZO NOBEL CHEMICALS (INDIA) LTD., ( MERGED WITH AKZO NOBEL INDIA LTD. W.E.F. MAY 18, 2012 ), TELLUS BUILDING, 2 ND FLOOR, 209/1B/1A, RANGE HILLS, PUNE 411 020. PAN : AADCA3941N . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- 1(1), PUNE. . RESPONDENT ASSESSEE BY : MR. KANCHAN KAUSHAL DEPARTMENT BY : MR. A. K. MODI DATE OF HEARING : 16-07-2014 DATE OF PRONOUNCEMENT : 25-07-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED FOUR APPEALS PREFERRED BY THE ASSESSE E RAISE CERTAIN COMMON ISSUES AND THEREFORE THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CONSOLIDATED ORD ER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. FIRST, WE SHALL TAKE-UP THE APPEAL OF THE ASSESS EE IN ITA NO.1169/PN/2011 WHICH IS DIRECTED AGAINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 18.11.2010 WHICH , IN TURN, HAS ARISEN FROM AN ORDER DATED 30.12.2008 PASSED BY THE ASSESS ING OFFICER U/S 143(3) R.W.S. 147 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2001-02. 3. IN THIS APPEAL, THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE :- 1. THE LD COMMISSIONER OF INCOME-TAX (APPEALS)-L ( 'CIT(A)') HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSESSING O FFICER ('AO') HAD VALIDLY ISSUED THE NOTICE UNDER SECTION 148 OF THE ACT. ITA NO.2583/PN/2012 A.Y. : 2008-09 2. THE LD CIT(A)-I HAS FURTHER ERRED ON FACTS AND I N LAW: IN HOLDING THAT THE ROYALTY AMOUNT (IN CONNECTION W ITH PROVISION OF TECHNOLOGY) NEEDS TO BE COMPUTED BY DEDUCTING TH E COST OF BOUGHT OUT COMPONENTS FROM THE SALES VALUE, THEREBY REJECTING THE METHODOLOGY ADOPTED BY THE APPELLANT FOR COMPUTING ROYALTY PAYABLE TO THE ASSOCIATED ENTERPRISE. IN CONFIRMING THE DISALLOWANCE OF EXCESS PROVISION OF ROYALTY PAYABLE TO THE ASSOCIATED ENTERPRISE THE EXTENT OF RS.1,954,132 UNDER SECTION 40A(2B) OF THE ACT. 4. THE APPELLANT, BEFORE US, IS A COMPANY INCORPORA TED UNDER THE PROVISIONS OF THE INDIAN COMPANIES ACT, 1956 AND IS , INTER-ALIA, ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ORGANIC PEROXID ES, WHICH ACTS AS INITIATORS IN POLYMERIZATION REACTIONS AND ARE USED IN MAKING OF POLYMERS LIKE PVC, LDPE, HDPE, POLYACRYLITE, ABS, ETC.. FOR THE ASSES SMENT YEAR UNDER CONSIDERATION I.E. 2001-02, IT FILED A RETURN OF IN COME ON 29.10.2001 DECLARING TOTAL INCOME OF RS.4,76,81,780/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT DATED 23.02.2004 WHICH RESULT ED IN ASSESSED INCOME OF RS.12,96,91,700/-. IN SUCH ASSESSMENT EXPENDITURE OF RS.90,80,278/- CLAIMED BY THE ASSESSEE AS ROYALTY WAS DISALLOWED ON THE GR OUND THAT IT WAS ONLY A PROVISION IN NATURE. SUBSEQUENTLY, THE SAID DISALL OWANCE WAS DELETED BY THE CIT(A) ON THE GROUND THAT THE PROVISION WAS NOT IN THE NATURE OF A CONTINGENT LIABILITY. 5. IN THE MEANTIME, IN THE SUBSEQUENT ASSESSMENT YE AR OF 2005-06, THE TRANSFER PRICING OFFICER (TPO) NOTED THAT THE COMPU TATION OF PAYMENT OF ROYALTY WAS INCORRECT AND ACCORDINGLY HE PROPOSED A N ADJUSTMENT. IN THIS BACKGROUND, THE ASSESSING OFFICER NOTED THAT SIMILA R METHOD WAS ADOPTED BY THE ASSESSEE COMPANY FOR COMPUTING PAYMENT OF ROYAL TY IN THE INSTANT ASSESSMENT YEAR I.E. 2001-02 ALSO. HENCE A NOTICE U/S 148 OF THE ACT DATED 31.03.2008 WAS ISSUED FOR REOPENING THE ASSESSMENT DATED 23.02.2004 (SUPRA) ON THE GROUND THAT THE COMPUTATION OF PAYME NT OF ROYALTY WAS INCORRECT, FOLLOWING THE REASONING FOR ASSESSMENT Y EAR 2005-06. IN THE SUBSEQUENT ASSESSMENT PROCEEDINGS COMPLETED U/S 143 R.W.S 147 OF THE ACT ITA NO.2583/PN/2012 A.Y. : 2008-09 DATED 30.12.2008, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.19,54,132/- ON ACCOUNT OF EXCESS PAYMENT OF ROYALTY ON THE GROU ND THAT THE ROYALTY PAYABLE WORKED OUT ONLY TO RS.71,26,596/- INSTEAD O F RS.90,82,728/- CLAIMED BY THE ASSESSEE. THE ADDITION SO MADE BY THE ASSES SING OFFICER ON ACCOUNT OF EXCESS OF ROYALTY PAID AMOUNTING TO RS.19,54,132 /- IS THE SUBJECT-MATTER OF DISPUTE IN THE PRESENT APPEAL BECAUSE SUCH AN ACTIO N OF THE ASSESSING OFFICER HAS SINCE BEEN UPHELD BY THE CIT(A) ALSO. 6. IN THIS BACKGROUND, THE RELEVANT FACTS IN ORDER TO APPRECIATE THE CONTROVERSY CAN BE SUMMARIZED AS FOLLOWS. THE APPE LLANT COMPANY IS PAYING ROYALTY TO M/S AKZO NOBEL CHEMICALS INTERNATIONAL B V, NETHERLANDS, AN ASSOCIATED ENTERPRISE, IN TERMS OF A FOREIGN TECHNO LOGY COLLABORATION AGREEMENT APPROVED BY THE GOVERNMENT OF INDIA FOR T RANSFER OF TECHNOLOGY @ 5% ON DOMESTIC SALES AND @ 8% ON EXPORT SALES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE COMPUTED ROYALTY PAYA BLE AT RS.90,80,728/- WHICH ACCORDING TO THE ASSESSING OFFICER IS IN EXCE SS OF THE CORRECT AMOUNT OF ROYALTY PAYABLE. AS PER THE ASSESSING OFFICER, THE ROYALTY COMPUTABLE COMES TO RS.71,26,596/- AS AGAINST RS.90,80,728/- COMPUTE D BY THE ASSESSEE THUS RESULTING IN EXCESS ROYALTY OF RS.19,54,132/-. AS PER THE ASSESSING OFFICER COST OF CERTAIN RAW MATERIALS, WHICH ACCORDING TO H IM WERE MERE CONSTITUENT MATERIAL AND THUS WERE TO BE UNDERSTOOD AS BOUGHT OUT COMPONENTS WERE LIABLE TO BE REDUCED FROM THE VALUE OF SALES TO ARR IVE AT NET SALES VALUE ON WHICH ROYALTY @ 5% IS TO BE COMPUTED. THE CIT(A) H AS ALSO AFFIRMED THE ACTION OF THE ASSESSING OFFICER AGAINST WHICH THE A SSESSEE IS IN APPEAL BEFORE US. 7. ON THIS ASPECT, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR STAND OF THE ASSESSING OFFICER, BASED ON TH E ORDER OF THE TRANSFER PRICING OFFICER IN ASSESSMENT YEARS 2006-07 AND 200 7-08 WAS A SUBJECT- MATTER OF CONSIDERATION OF THE TRIBUNAL IN ASSESSEE S OWN CASE VIDE ITA ITA NO.2583/PN/2012 A.Y. : 2008-09 NO.1477/PN/2010 AND ITA NO.1659/PN/2011 DATED 11.02 .2014. AS PER THE TRIBUNAL, THE METHODOLOGY ADOPTED BY THE REVENUE TO REWORK THE NET SALES VALUE FOR THE PURPOSES OF COMPUTING ROYALTY PAYABLE WAS NOT JUSTIFIED. IN THIS CONTEXT, THE RELEVANT DISCUSSION IN THE ORDER OF TH E TRIBUNAL DATED 11.02.2014 (SUPRA) READS AS UNDER :- 17. EVEN OTHERWISE, THE ACTION OF THE TPO IN CONSI DERING CERTAIN RAW MATERIALS USED IN THE PRODUCTION PROCESS AS MER E CONSTITUENT CHEMICALS AND EQUATING IT TO STANDARD BOUGHT-OUT COMPONENTS S O AS TO REDUCE THE COST OF SUCH MATERIAL FROM THE SALES FOR THE PURPOSES OF CO MPUTING NET SALES ELIGIBLE FOR ROYALTY PAYMENT, IS WITHOUT ANY COGENT BASIS. AT THE TIME OF HEARING, ASSESSEE WAS ASKED TO EXPLAIN ITS MANUFACTURING PRO CESS AND IN RESPONSE A NOTE WAS FURNISHED EXPLAINING THE PROCESS UNDERTAKE N AND THE MATERIALS USED, WHICH IS REPRODUCED HEREIN :- PROCESS : THE MANUFACTURING PROCESS IS DESIGNED BY THE PARENT COMPANY FOR UTMOST SAFE OPERATIONS AND ALL THE NECESSARY PROCESS SAFETY INTERLOCKS AND SYSTEMS ARE DESIGNED AND VERIFIED BY THE PARENT COMPANY. TH E RAW MATERIALS LIKE HYDROGEN PEROXIDE ARE REACTED AT CERTAIN PROCESS STAGES WITH RECOMMENDED PROCESS PARAMETERS (LIKE FLOW RATES, TEMPERATURE, PH ETC) TO FORM AN INTERMEDIATE (SAY, NA2O2) AND THE SAME IS FURTHER REACTED WITH THE KEY RAW MATERIAL, NAMELY CHLOROFORMATES. THIS REACTION GIVES A MOLECULE OF CRUDE PRODUCT (I.E. PEROXIDE WHICH CONTAINS WEAK OXYGEN BOND). TO GET FURTHER CONVERSION, POST REACT ION TIME IS ALLOWED. THIS CRUDE PRODUCT IS FURTHER PURIFIED AND DILUTED TO GET THE NECESSARY PURITY. NO SIDE PRODUCTS ARE FORMED IN THE PROCESS. A DIAGRAMMATIC FLOW CHART AND SIMPLIFIED VERSION OF PROCESS AND CHEMICAL REACTIONS IS ATTACHED HEREWITH . TECHNOLOGY : THE PROCESS KNOW HOW IS OWNED BY AKZO NOBEL. THE TECHNOLOGY USED FOR HIGHER CONVERSION AND SAFE OPERATION IS 'SIMULTANEOUS DOSING' PROCESS OF MANUFACTURING. THIS DESCRIBES IMPORTANT PARAMETERS LIKE THE QUALITY OF RAW MATERIALS TO BE USED, SEQUE NCE OF DOSING RAW MATERIALS, THEIR RATIOS, FLOWRATES, AND TIME ALLOWED FOR REACTIONS, MIXING REQUIREMENTS, SEPARAT ION TECHNIQUES PURIFYING STAGES ETC. THE R & D OF PAREN T COMPANY ALWAYS SUGGESTS FURTHER IMPROVEMENTS IN PROCESS FOR BETTER CONVERSIONS AND STABILITY OF THE FINISHED GOODS. THE MATERIAL OF CONSTRUCTION FOR REACTORS, CONCENTRATION OF RAW MATERIALS, IN-PROCES S CHECKS ARE THE OTHER KEY FACTORS REACTION : THE REACTION IS IRREVERSIBLE IN NATURE. ONLY THERMAL DECOMPOSITION IS POSSIBLE. DECOMPOSITION : THE PRODUCT CAN DECOMPOSE AT CERTAI N TEMPERATURE. SUCH DECOMPOSITION CAN PRODUCE PRODUCTS LIKE CARBON DIOXIDE (CO2), CARBON MONOXIDE AND 2- ETHYLHEXANOL. HOWEVER NONE OF THE ORIGINAL RAW MATERIALS LIKE HYDROGEN PEROXIDE OR CHLOROFORMATES CAN BE RETRIEVED. 18. FURTHER, THE DIFFERENCE BETWEEN THE KEY RAW MAT ERIAL AND THE FINISHED GOODS HAVE ALSO BEEN BROUGHT OUT AS FOLLOW S :- ITA NO.2583/PN/2012 A.Y. : 2008-09 CRITERIA CHLOROFORMATE FINISHED GOOD STORAGE CONDITIONS MISCIBLE/REACTIVITY IN WATER PURITY APPLICATION APPEARANCE HAZARD CLASS AMBIENT IMMISCIBLE WITH WATER AND REACTS 98% TO MANUFACTURE ORGANIC CHEMICALS CLEAR LIQUID TOXIC (6.1) -15 DEG C MAX MISCIBLE WITH WATER 50 TO 60% INITIATOR TO PVC POLYMERIZATION WHITE EMULSION OXIDISING AGENT (5.2) 19. ON THE BASIS OF THE ABOVE, IT WAS SOUGHT TO BE CANVASSED THAT THE CHEMICALS SOUGHT TO BE CLASSIFIED BY THE TPO AS CONSTITUENT MATERIAL ARE INDEED RAW MATERIALS. IT IS CANVASSED THAT THE RAW MATERIALS USED BY THE ASSESSEE IN ITS PRODUCTION PROCESS INCLUDING THE SO -CALLED CONSTITUENT CHEMICALS CLASSIFIED BY THE TPO, UNDERGO A CHEMICA L REACTION IN THE MANUFACTURING PROCESS, WHICH IS IRREVERSIBLE. IT I S FURTHER EXPLAINED THAT THE PROPERTIES AND USAGE OF THE FINISHED GOODS ACHIEVED , NAMELY, POLYMERIZATION INITIATORS, IS QUITE, DISTINCT FROM THE RAW MATERIA LS CONSUMED AND NONE OF THE RAW MATERIALS, INCLUDING THE SO-CALLED CONSTITUENT CHEMICALS USED IN THE MANUFACTURE OF FINISHED GOODS, CAN BE RETRIEVED AFT ER THE END OF THE MANUFACTURING PROCESS. 20. THE EFFORT OF THE TPO TO CLASSIFY CERTAIN INPUT MATERIAL AS CONSTITUENT CHEMICALS (INSTEAD OF RAW MATERIAL) A ND EQUATE IT TO STANDARD BOUGHT-OUT COMPONENTS IS BECAUSE OF THE FOLLOWING STATEMENT CONTAINED IN THE MANUAL FOR FOREIGN DIRECT INVESTMENT POLICY & P ROCEDURES ISSUED BY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION, GOVT. OF INDIA :- THE ROYALTY WILL BE CALCULATED ON THE BASIS OF THE NEXT EX- FACTORY SALE PRICE OF THE PRODUCT, EXCLUSIVE OF EXC ISE DUTIES, MINUS THE COST OF THE STANDARD BOUGHT-OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SOURCE OF PROCUREMENT, INCLUDING OCEAN FRIGHT, INSURANCE, CUSTOM DUTIES, E TC. 21. IN TERMS OF THE AFORESAID, APART FROM OTHER SUM S THE COST OF THE STANDARD BOUGHT-OUT COMPONENTS AND THE LANDED COS T OF IMPORTED COMPONENTS IS TO BE REDUCED FROM THE SALE PRICE OF THE PRODUCT IN ORDER TO CALCULATE THE ROYALTY PAYABLE. AS PER THE TPO, CER TAIN MATERIAL USED IN THE PRODUCTION PROCESS, NAMELY, HYDROGEN PEROXIDE AND H YDROPEROXIDE, CHOLORFORMATE AND CHLORIDE, CATALYST AND OTHERS ARE NOT MANUFACTURED BY THE ASSESSEE FROM THEIR BASIC RAW MATERIALS AND THE SAM E BEING MERELY CONSTITUENT CHEMICALS, THERE IS NO VALUE ADDITION ON THESE MATERIAL IN THE MANUFACTURING PROCESS; THUS, THE SAME ARE EXCLUDIBL E FROM THE VALUE OF SALES TO COMPUTE THE AMOUNT OF ROYALTY PAYABLE. 22. IN THIS CONTEXT, WE HAVE PERUSED THE CLARIFICAT ION ISSUED BY MINISTRY OF COMMERCE & INDUSTRY (DEPARTMENT OF INDU STRIAL POLICY & PROMOTION) TO SOME OF THE QUERIES PUT BY THE ASSESS EE, COPIES OF THE SAME HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 41 TO 4 5. WE ARE TEMPTED TO REPRODUCE HEREINAFTER THE FOLLOWING RELEVANT EXTRAC T OF THE CLARIFICATION ON COMPUTATION OF ROYALTY :- MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION BULLETIN BOARD FOLLOW UP COMPUTATION OF ROYALTY QUERY : DEAR SIR, ONE OF OUR CORPORATE CLIENT WANTS TO REMI T ROYALTY (NO TECHNICAL KNOWHOW PAID AND ROYALTY RATE IS 5%, HENCE COVERED UNDER AUTOMATIC ROUTE) TO ITS PARENT COMPANY ABROAD . FOR CALCULATION OF ROYALTY, AMONG OTHER DEDUCTIONS, LANDED COST OF IMPORTED COMPONENTS, STANDARD BOUGHT OUT COMPONENTS USED IN THE MANUFACTURE OF THE FINAL PRODUCT HAVE TO BE REDUCED FROM THE SALE ITA NO.2583/PN/2012 A.Y. : 2008-09 PRICE, ON WHICH ROYALTY IS PAYABLE. THE QUERY IS: O UR CLIENT IS A MANUFACTURING COMPANY, IN WHICH IT IS USING IMPORTE D RAW MATERIALS, WHICH ARE MIXED AND USED TO MANUFACTURE THE FINAL P RODUCT. SHOULD THIS RAW MATERIALS ALSO BE TREATED AT PAR WITH THE IMPORTED COMPONENTS/ BOUGHT-OUT COMPONENTS? AND BE DEDUCTED FROM SALE PR ICE TO CALCULATE ROYALTY. WOULD HIGHLY APPRECIATE YOUR GUIDANCE ON T HE SAME. REPLY : DEAR SIR, IN OUR OPINION, NO. REGARDS BB SHARMA. QUERY : THANKS FOR THE REPLY. JUST TO CONFIRM YOUR VIEW ON COMPUTATION, DOES IT MEAN THAT ONLY BOUGHT OUT COMP ONENTS ON WHICH NO FURTHER PROCESSING IS REQUIRED IN THE COMPANY AN D ARE DIRECTLY FITTED INTO THE FINAL PRODUCTS ARE TO BE SUBTRACTED FROM T HE SELLING PRICE? YOUR GUIDANCE IN THIS REGARD WOULD BE HIGHLY APPRECIATED . REPLY : DEAR SIR: YOUR UNDERSTANDING SEEMS TO BE CORRECT RE GARDS B B SHARMA 23. FROM THE AFORESAID, IT IS CLEAR THAT WHAT IS LI ABLE TO BE CONSIDERED AS STANDARD BOUGHT-OUT COMPONENTS ARE SU CH MATERIAL ON WHICH NO FURTHER PROCESSING IS REQUIRED AND ARE DIRECTLY FITTED INTO THE FINAL PRODUCT; AND, COST OF SUCH MATERIAL ONLY NEEDS TO BE DEDUCTE D FROM THE SALE PRICE TO COMPUTE THE ROYALTY PAYABLE. APPLYING THE SAID CLA RIFICATION TO THE PRESENT SITUATION, CONSIDERING THE MANUFACTURING PROCESS EX PLAINED, IT CANNOT BE CONSTRUED THAT THE SO-CALLED CONSTITUENT MATERIAL A RE MERELY FITTED INTO THE FINAL PRODUCT; ON THE CONTRARY, IT IS A CASE WHERE SUCH M ATERIAL ALSO UNDERGOES A CHEMICAL REACTION IN THE PROCESS OF PRODUCING THE F INAL PRODUCT AND THE SAME ARE IRRETRIEVABLE ONCE THE FINISHED PRODUCT IS MANU FACTURED. FOR THE SAID REASON ALSO, IN OUR CONSIDERED OPINION, THE SO-CALL ED CONSTITUENT MATERIALS CLASSIFIED BY THE TPO CANNOT BE EQUATED TO STANDARD BOUGHT-OUT COMPONENTS SO AS TO REDUCE THEIR COST FROM THE SALES VALUE TO COMPUTE THE ROYALTY PAYABLE. FOR ALL THE ABOVE REASONS, WE THEREFORE FIND NO JUS TIFICATION ON THE PART OF THE TPO IN REJECTING THE METHODOLOGY ADOPTED BY THE ASS ESSEE TO CALCULATE NET SALES FOR THE PURPOSES OF COMPUTING THE ROYALTY PAY ABLE. 8. FOLLOWING THE AFORESAID PRECEDENT IN THE ASSESS EES OWN CASE, WHICH HAS BEEN RENDERED IN IDENTICAL CIRCUMSTANCES, THE A CTION OF THE ASSESSING OFFICER IN CONSIDERING CERTAIN RAW MATERIALS USED I N THE PRODUCTION PROCESS AS MERE CONSTITUENT CHEMICALS AND EQUATING IT TO STA NDARD BOUGHT-OUT COMPONENTS SO AS TO REDUCE THEIR COST FROM THE SALE S VALUE FOR THE PURPOSES OF COMPUTING NET SALES VALUE ELIGIBLE FOR ROYALTY PAYM ENT IS LIABLE TO BE SET-ASIDE. WE HOLD SO. 9. AS A RESULT, THE ORDER OF THE CIT(A) ON THIS ASP ECT IS SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIO N OF RS.19,54,132/- MADE ON ACCOUNT OF EXCESS ROYALTY. ITA NO.2583/PN/2012 A.Y. : 2008-09 10. THE ONLY OTHER ISSUE IN THIS APPEAL WITH REGARD TO THE VALIDITY OF THE PROCEEDING INITIATED BY THE ASSESSING OFFICER BY IS SUANCE OF NOTICE U/S 147/148 OF THE ACT. SINCE THE ASSESSEE HAS GOT THE NECESSARY RELIEF ON ACCOUNT OF OUR ABOVE DECISION, THE AFORESAID GROUND OF APPEAL HAS BEEN RENDERED ACADEMIC AND IS THEREFORE KEPT UPON AND IS NOT ADJUDICATED AT THE PRESENT STAGE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2001-02 VIDE ITA NO.1169/PN/2011 IS PARTLY ALLOWED. 12. NOW, WE MAY TAKE-UP THE APPEAL OF THE ASSESSEE IN ITA NO.668/PN/PN2012 IS DIRECTED AGAINST AN ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 08.09.2011 WHICH , IN TURN, HAS ARISEN FROM AN ORDER DATED 24.12.2009 PASSED BY THE ASSESS ING OFFICER U/S 143(3) R.W.S. 147 OF THE ACT PERTAINING TO THE ASSESSMENT YEAR 2002-03. 13. THE GROUNDS OF APPEAL RAISED IN THIS APPEAL ARE IDENTICAL TO THOSE CONSIDERED BY US IN THE APPEAL FOR ASSESSMENT YEAR 2001-02 (SUPRA) IN THE EARLIER PARAGRAPHS. THUS, OUR DECISION IN THE APPE AL FOR ASSESSMENT YEAR 2001-02 (SUPRA) WOULD APPLY MUTATIS-MUTANDIS IN THI S APPEAL ALSO. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2002-03 VIDE ITA NO.668/PN/2012 IS PARTLY ALLOWED IN THE SA ME MANNER AS THE APPEAL FOR ASSESSMENT YEAR 2001-02. 15. NOW, WE MAY TAKE-UP THE APPEAL OF THE ASSESSEE IN ITA NO.2181/PN/2012 FOR ASSESSMENT YEAR 2008-09, WHICH IS DIRECTED AGAINST THE ORDER OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), PUNE (IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(1 ) OF THE ACT DATED ITA NO.2583/PN/2012 A.Y. : 2008-09 03.10.2012, WHICH IS IN CONFORMITY WITH THE DIRECTI ONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHORT THE DRP) DATED 0 5.09.2012. 16. IN THIS APPEAL, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER :- THE LD. ASSESSING OFFICER ('AO'), PURSUANT TO THE DIRECTIONS GIVEN BY THE LD. DISPUTE RESOLUTION PANEL ('DRP'), ERRED IN RULI NG THAT THE TRANSACTIONS PERTAINING TO ROYALTY PAYMENT, EXPORT OF CERTAIN FI NISHED GOODS AND PROVISION OF MARKETING AND SALES SUPPORT SERVICES H AVE NOT BEEN CONDUCTED AT ARM'S LENGTH, AND THEREBY MAKING A TRA NSFER PRICING ADJUSTMENT OF RS.1,00,43,577/- TO THE INCOME OF THE APPELLANT. IN DOING SO, THE LD AO/DRP SPECIFICALLY ERRED IN: GROUND NO. 1: MAKING TRANSFER PRICING ADJUSTMENT FOR ROYALTY PAYMENTS OF RS.79,96,489/- BY: 1.1 CONSIDERING THE CONTROLLED ROYALTY RATE (PREVAI LING BETWEEN TWO OF THE APPELLANT'S GROUP COMPANIES) AS A COMPARABLE TO THE RATE OF ROYALTY AT WHICH THE APPELLANT PAID ROYALTY TO ITS ASSOCIATED ENTERPRISES ('AE'), FOR BENCHMARKING PURPOSE UNDER THE COMPARABLE UNCONTROL LED PRICE ('CUP') METHOD. 1.2 HOLDING THAT THE ROYALTY AMOUNT (IN CONNECTION WITH PROVISION OF TECHNOLOGY) NEEDS TO COMPUTED BY DEDUCTING THE COST OF RAW MATERIALS FROM THE SALES VALUE, THEREBY REJECTING THE METHODO LOGY ADOPTED BY THE APPELLANT FOR COMPUTING ROYALTY PAID TO THE AE. 1.3 REJECTING THE SPECIFIC CLARIFICATIONS OBTAINED FROM DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTIONS ('DIPP') WHICH SUP PORTS THE METHODOLOGY ADOPTED BY THE APPELLANT. GROUND NO. 2: MAKING TRANSFER PRICING ADJUSTMENT FO R EXPORT OF CERTAIN FINISHED GOODS OF RS.14,63,820/- BY: DISREGARDING THE UNDERLYING TRANSACTIONAL DIFFERENC ES WHILE CONSIDERING THE PRICES CHARGED (FOR CERTAIN PRODUCTS) TO THIRD PARTIES IN INDIA AS CUPS FOR DETERMINING THE ARM'S LENGTH NATURE OF SIM ILAR PRODUCTS EXPORTED TO THE AE. GROUND NO. 3: MAKING TRANSFER PRICING ADJUSTMENT FOR MARKETING A ND SALES SUPPORT SERVICE OF RS.5,83,268/- BY: REJECTING CERTAIN COMPARABLES IDENTIFIED BY THE APP ELLANT WITHOUT PROVIDING ANY COGENT REASONS GROUND NO. 4 : THE LD. DRP / AO ERRED IN NOT GRANTING THE BENEFI T OF +/- 5% RANGE AS PER THE PROVISO TO SECTION 92C(2) AS IT STOOD BEFORE THE AMENDMENT. GROUND NO. 5: THE LD. AO ERRED IN INITIATING THE PENALTY PROCEEDI NGS UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961 , ON THE PREMISE THAT THE APPELLANT HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME MERELY ON THE PREMISE OF TRANSFER PRICING ADJUSTMENT BEING MADE WHICH IS NOT IN ACCORDANCE WITH THE LAW. ITA NO.2583/PN/2012 A.Y. : 2008-09 17. BEFORE ADJUDICATING THE RESPECTIVE GROUNDS OF A PPEAL, WE MAY NOTICE THE BACKGROUND OF THE CASE. IN ASSESSMENT YEAR 200 8-09, ASSESSEE COMPANY FURNISHED A RETURN OF INCOME ON 29.09.2008 DECLARIN G A TOTAL INCOME OF RS.20,57,73,770/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT. IT WAS NOTICED THAT ASSESSEE HAD UNDERTAKEN CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES, WHICH WERE SUBJECT TO THE T RANSFER PRICING ANALYSIS BY THE TPO AS A CONSEQUENCE OF A REFERENCE MADE BY THE ASSESSING OFFICER IN TERMS OF SECTION 92CA(1) OF THE ACT. THE TPO VIDE HIS ORDER DATED 17.10.2011 PASSED U/S 92CA(3) OF THE ACT PROPOSED AN ADJUSTMEN T OF RS.97,43,577/- TOWARDS TRANSFER PRICING ADJUSTMENT TO THE STATED V ALUES OF INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH THE ASSOCIATED ENTERPR ISES SO AS TO BRING THEM AT AN ARM'S LENGTH PRICE. THE ASSESSING OFFICER HAS T HEREAFTER PROPOSED A DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S. 144C(1) OF THE A CT DATED 20.12.2011 PROPOSING TO COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS BY MAKING ADJUSTMENT OF RS.97,43,577/-. THE ASSESS EE FILED OBJECTIONS BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER PROPOSED BY THE ASSESSING OFFICER. THE DRP VIDE ITS ORDER DATED 05.09.2012 D ISPOSED OF THE OBJECTIONS RAISED BY THE ASSESSEE AND ACCORDINGLY THE ASSESSIN G OFFICER PASSED THE FINAL ASSESSMENT ORDER GIVING EFFECT TO SUCH DIRECTIONS. THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE TRANSFER PRICIN G ADJUSTMENT TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTIONS HAVE BEEN A SSAILED BY THE ASSESSEE BY WAY OF THE AFORESAID GROUNDS OF APPEAL. 18. IT IS NOTICEABLE THAT ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES ON SEVERAL ASPECTS WHIC H WERE SEGREGATED BY THE ASSESSEE INTO TWO SEGMENTS AND WERE BENCHMARKED FOL LOWING THE TRANSACTIONAL NET MARGIN (TNM) METHOD. AS PER THE TRANSFER PRICING STUDY CONDUCTED BY THE ASSESSEE, THE STATED VALUES OF THE INTERNATIONAL TRANSACTIONS WAS CLAIMED TO BE AN ARM'S LENGTH PRICE. THE TWO S EGMENTS SEGREGATED BY THE ASSESSEE WERE, VIZ. (I) MANUFACTURING SEGMENT WHERE THE TRANSACTIONS ITA NO.2583/PN/2012 A.Y. : 2008-09 RELATING TO IMPORT OF RAW MATERIALS, EXPORT OF FINI SHED GOODS AND PARTS, IMPORT OF BULK RAW MATERIAL GOODS FOR TRADING AND REPACKIN G AND PAYMENT OF ROYALTY HAD BEEN GROUPED; AND, (II) MARKETING AND SALES SUP PORT SEGMENT WHERE THE VARIOUS MARKETING AND SALES SUPPORT ACTIVITIES WERE GROUPED, AND WERE SEPARATELY BENCHMARKED. THE TPO HAS NOT ACCEPTED T HE PLEA OF THE ASSESSEE TO AGGREGATE THE TRANSACTIONS OTHER THAN M ARKETING AND SALE SUPPORT SERVICES IN ORDER TO BENCHMARK THE SAME. ACCORDING TO THE TPO, EACH TRANSACTIONS WERE DIFFERENT IN ITS NATURE AND SCOPE AND COULD NOT BE SAID TO BE CLOSELY INTERLINKED WITH EACH OTHER AND FURTHER AS PER THE TPO, SEPARATE PROFITABILITY IN RESPECT OF THE TRANSACTIONS COULD BE ARRIVED AT, IF AN ATTEMPT WAS SO MADE. THEREFORE, THE TPO HAS CONCLUDED THAT BEN CHMARKING DONE BY THE ASSESSEE IN RESPECT OF EXPORT OF FINISHED GOODS; PA YMENT OF ROYALTY; AND, MARKETING AND SALES SUPPORT SERVICES WAS NOT ACCEPT ABLE AND HE HAS PROCEEDED TO MAKE ADJUSTMENT TO THE STATE VALUES OF THE AFORESAID THREE TRANSACTIONS IN ORDER TO ARRIVE AT THEIR ARM'S LENG TH PRICE. 19. AT THIS POINT, IT MAY BE RELEVANT TO OBSERVE TH AT BOTH THE PARTIES AT THE TIME OF HEARING SUBMITTED THAT THE ACTION OF THE TP O WAS PARI-MATERIA TO HIS STAND FOR ASSESSMENT YEAR 2006-07 IN THE ASSESSEES OWN CASE. FOLLOWING HIS STAND IN THE ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER HAS MADE ADDITION OF RS.14,63,820/- IN RESPECT OF EXPORT OF FINISHED GOODS. SECONDLY, WITH RESPECT TO THE ROYALTY PAYMENT TO ASSOCIATED E NTERPRISES, AN ADJUSTMENT OF RS.79,96,489/- HAS BEEN MADE. THIRDLY, THE ADJUSTM ENT IN RESPECT OF OTHER SEGMENT, NAMELY, MARKETING AND SALES SUPPORT SERVIC ES HAS BEEN MADE AT RS.5,83,268/-. ALL THE AFORESAID ADDITIONS HAVE BE EN MADE IN THE SAME MANNER AS WAS IN ASSESSMENT YEAR 2006-07, WHICH HAS BEEN A SUBJECT-MATTER OF CONSIDERATION BY THE TRIBUNAL VIDE ORDER DATED 1 1.02.2014 (SUPRA). 20. IN THE ABOVE BACKGROUND, THE LEARNED COUNSEL FO R THE ASSESSEE HAS REFERRED TO THE FACTS OF THE PRESENT YEAR TO POINT OUT THAT THE STAND OF THE ITA NO.2583/PN/2012 A.Y. : 2008-09 REVENUE AS WELL AS THE SUBMISSIONS AND MATERIAL FUR NISHED BY THE ASSESSEE TO THE LOWER AUTHORITIES IN THIS YEAR STAND ON THE SIMILAR FOOTING AS WAS IN ASSESSMENT YEAR 2006-07. THE LEARNED CIT-DR, WHILE REFERRING TO THE ORDER OF THE AUTHORITIES BELOW HAS NOT CONTROVERTED THE FACT UAL MATRIX THAT THE ISSUES AND THE RIVAL STANDS ARE SIMILAR TO THOSE IN THE AS SESSMENT YEAR 2006-07. THUS, THE ISSUES IN THE INSTANT YEAR ARE LIABLE TO BE DECIDED IN THE LIGHT OF THE PRECEDENT IN THE ASSESSEES OWN CASE VIDE ORDER OF THE TRIBUNAL DATED 11.02.2014 (SUPRA). 21. THE FIRST ISSUE IS WITH REGARD TO AN ADDITION O F RS.79,96,489/- MADE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY TO THE ASSOCIATED ENTERPRISES. IN THIS CONTEXT, WE REPRODUCE HEREINA FTER THE FOLLOWING PORTION OF THE ORDER OF THE TRIBUNAL DATED 11.02.2014, WHICH B RINGS OUT THE CONTROVERSY AS WELL AS THE ADJUDICATION BY THE TRIBUNAL THEREOF :- 7. THE FIRST SUBJECT-MATTER OF THE DISPUTE IS WITH REGARD TO AN ADDITION OF RS.91,66,061/- MADE ON ACCOUNT OF INTER NATIONAL TRANSACTION OF PAYMENT OF ROYALTY TO THE AE. THE APPELLANT HAS AS SAILED THE ACTION OF THE ASSESSING OFFICER ON THIS ASPECT, WITHOUT PREJUDICE TO ITS PRELIMINARILY GRIEVANCE THAT THE ADOPTION OF THE CUP METHOD FOR T HE PURPOSES OF BENCHMARKING INTERNATIONAL TRANSACTION OF ROYALTY I S NOT JUSTIFIED INASMUCH AS THE ASSESSING OFFICER WAS WRONG IN REJECTING THE AS SESSEES APPROACH OF AGGREGATING SUCH TRANSACTION WITH THOSE OF MANUFACT URING SEGMENT AND THEREAFTER BENCHMARKING IT UNDER THE TNM METHOD. T HE RELEVANT FACTS ARE THAT ASSESSEE HAS ENTERED INTO A TECHNICAL COLLABORATION AGREEMENT WITH M/S AKZO NOVEL B.V., NETHERLANDS (HEREINAFTER REFERRED TO AS THE AE), WHICH HAS BEEN APPROVED BY THE GOVT. OF INDIA, MINISTRY OF CO MMERCE AND INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION (SIA) , NEW DELHI ON 11.02.2005 FOR A PERIOD OF SEVEN YEARS W.E.F. 19.12 .2004. IN TERMS OF SUCH APPROVAL, ASSESSEE WAS AUTHORIZED TO PAY ROYALTY TO ITS AE I.E. M/S AKZO NOVEL CHEMICALS B.V., NETHERLANDS @ 5% ON DOMESTIC SALES AND @ 8% ON EXPORT SALES. FURTHER, IN TERMS OF CLAUSE (8)(I) OF THE S AID APPROVAL, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 259 TO 2 61, ROYALTY PAYABLE IS REQUIRED TO BE CALCULATED IN ACCORDANCE WITH THE PR OVISIONS OF FOREIGN EXCHANGE CONTROL MANUAL OF RBI AND OTHER SUBSISTING INSTRUCTIONS OF THE GOVT. OF INDIA/RESERVE BANK OF INDIA. AS PER THE SAID AP PROVAL, ASSESSEE COMPUTED THE ROYALTY OF RS.1,35,28,221/- ON ITS DOMESTIC SAL ES, AND RS.81,28,514/- ON ITS EXPORT SALES THEREBY TOTALING TO RS.2,60,56,735/-. THE AFORESAID INTERNATIONAL TRANSACTION HAS NOT BEEN ACCEPTED BY THE TPO/ASSESS ING OFFICER AS BEING AT AN ARMS LENGTH PRICE. PRIMARILY, THE AREAS OF DIF FERENCE BETWEEN THE ASSESSEE AND THE TPO, WHICH HAVE BEEN ARTICULATED B EFORE US BY THE APPELLANT, ARE TWO FOLD. FIRSTLY, AS PER THE TPO, THE COST OF CERTAIN RAW MATERIALS, WHICH ACCORDING TO HIM, ARE MERE CONSTI TUENT MATERIAL NEED TO BE DEDUCTED FROM THE SALES VALUES TO ARRIVE AT NET SA LES VALUE ON WHICH ROYALTY ITA NO.2583/PN/2012 A.Y. : 2008-09 IS TO BE COMPUTED. THUS, AS PER THE TPO, ROYALTY H AS BEEN CALCULATED BY THE ASSESSEE IN EXCESS OF WHAT IS OTHERWISE WARRANTED. SECONDLY, AS PER THE TPO, THE ROYALTY PAID TO THE AE FOR EXPORT SALES @ 8% IS NOT AT AN ARMS LENGTH PRICE FOR REASON THAT ROYALTY PAID BY ANOTHE R AKZO GROUP COMPANY I.E. TIANJIN AKZO NOBEL PEROXIDES, CHINA (HEREINAFTER RE FERRED TO AS TANPC) TO THE SAME AE WAS @ 5%; AND, THEREFORE THE TPO ADOPTE D THE RATE OF 5% TO DETERMINE THE ARMS LENGTH ROYALTY PAYABLE BY ASSES SEE TO THE AE ON THE EXPORT SALES. THE AFORESAID POSITION HAS SINCE BEE N AFFIRMED BY THE DRP ALSO. 8. ON BOTH THE AFORESAID ASPECTS, THE LEARNED COUNS EL FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE LOWER AUTHOR ITIES HAVE ERRED IN LAW AS WELL ON FACTS. FIRSTLY, IT IS CONTENDED THAT THE E XPRESSION NET SALES, WAS REQUIRED TO BE INTERPRETED IN TERMS OF THE STANDARD TERMS AND CONDITIONS PRESCRIBED BY THE RESERVE BANK OF INDIA, WHICH ARE APPLICABLE TO ALL AGREEMENTS PERTAINING TO ROYALTY PAYMENTS ON TECHNO LOGY TRANSFERS TO INDIAN COMPANIES. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE MEANING OF EXPRESSION NET SALES PROVIDED IN PARA 3.3 OF CHAP TER III OF THE MANUAL FOR FOREIGN DIRECT INVESTMENT POLICY & PROCEDURES ISSUE D BY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION, MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA, IN TERMS OF WHICH ONLY THE COST OF STANDA RD BOUGHT-OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS WAS LIAB LE TO BE REDUCED WHEREAS IN THE PRESENT CASE THE TPO HAS REDUCED THE COST OF CERTAIN RAW MATERIALS BY TERMING THEM AS CONSTITUENT CHEMICALS , AN ACTION WHICH IS STATED TO BE INCONSISTENT WITH RELEVANT GOVERNMENT MANUALS . IT WAS ALSO POINTED OUT THAT THE COST SOUGHT TO BE REDUCED BY THE TPO WAS THE COST OF RAW MATERIALS, AND THE SAME COULD NOT BE EQUATED TO BOUGHT-OUT CO MPONENTS. IT IS ALSO POINTED OUT THAT DURING THE PROCEEDINGS BEFORE THE LOWER AUTHORITIES, ASSESSEE HAD OBTAINED CLARIFICATIONS FROM THE DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION, MINISTRY OF COMMERCE & INDUSTRY, GOVERNM ENT OF INDIA IN THIS CONNECTION, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 41 TO 45, WHICH CLEARLY SUGGEST THAT THE ACTION OF THE TPO WAS WRONG. THE LEARNED COUNSEL SUBMITTED THAT EVEN SUCH SPECIFIC C LARIFICATIONS OBTAINED FROM THE DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION, GO VERNMENT OF INDIA HAVE BEEN IGNORED. 9. FURTHER, THE ADOPTION OF THE RATE OF 5% FOR ROYA LTY PAYABLE ON EXPORT SALES TO DETERMINE THE ARMS LENGTH PRICE WA S ALSO ASSAILED ON THE GROUND THAT THE TRANSACTION OF ROYALTY PAYMENT BY T ANPC, CHINA TO THE AE WAS NOT AN UNCONTROLLED COMPARABLE TRANSACTION. MO REOVER, IT WAS POINTED OUT THAT THE ROYALTY OF 5% PAID BY TANPC TO THE AE WAS SUBJECT TO CERTAIN REGULATORY RESTRICTIONS IN CHINA AND THEREFORE IN T ERMS OF RULE 10B(2)(D) OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) THE E XISTENCE OF SUCH GOVERNMENTAL RESTRICTION ARE REQUIRED TO BE CONSIDE RED FOR THE PURPOSES OF DETERMINING THE COMPARABILITY OF A TRANSACTION. IT WAS, THUS, POINTED OUT THAT THE PAYMENT OF ROYALTY @ 5% BY TANPC WAS NOT A COMP ARABLE TRANSACTION. FURTHERMORE, IT IS POINTED OUT THAT THE TRANSACTION OF ROYALTY PAYMENT BY TANPC TO THE AE WAS A CONTROLLED TRANSACTION AND TH EREFORE IT COULD NOT HAVE BEEN CONSIDERED AS A TRANSACTION FALLING WITHIN THE SCOPE OF CUP METHOD. IN SUPPORT OF SUCH PROPOSITION, RELIANCE HAS BEEN PLAC ED ON THE JUDGEMENT OF THE SKODA AUTO INDIA PVT. LTD.30 SOT 319 (PUNE). EVEN OTHERWISE IT IS SOUGHT TO BE MADE OUT BY REFERRING TO THE ROYALTY AGREEMENT B ETWEEN ASSESSEE AND THE AE, THAT THE SAME IS QUITE DIFFERENT FROM THE AGREE MENT BETWEEN THE CHINESE ENTITY TANPC AND THE AE, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 376 TO 386 OF THE PAPER BOOK FOR ASSE SSMENT YEAR 2006-07 AND AT PAGE 186 OF THE PAPER BOOK FOR ASSESSMENT YE AR 2007-08 RESPECTIVELY. IN THIS CONTEXT, IT IS SOUGHT TO BE MADE OUT THAT T HE PERIOD OF THE AGREEMENT AND THE PRODUCTS COVERED ARE DIFFERENT INASMUCH AS THE INDIAN AGREEMENT IS ITA NO.2583/PN/2012 A.Y. : 2008-09 FOR SEVEN (7) YEARS WHEREAS THE CHINAS AGREEMENT I S FOR TWENTY (20) YEARS. THE PRODUCTS COVERED UNDER THE TWO AGREEMENTS ARE A LSO DIFFERENT INASMUCH AS THE INDIAN AGREEMENT HAS 22 PRODUCTS WHEREAS CHI NAS AGREEMENT HAS 33 PRODUCTS. IT IS SUBMITTED THAT WHERE THE PERIOD AN D THE PRODUCTS COVERED ARE DIFFERENT, SUCH TRANSACTIONS CANNOT BE CONSIDERED A S COMPARABLE AND REFERENCE HAS BEEN MADE TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KIRLOSKAR EBARA PUMPS LTD. 47 SOT 20 (P UNE) IN THIS REGARD. THIRDLY, IT IS SOUGHT TO BE MADE OUT THAT THERE IS AN ERROR IN THE ADDITION MADE ON ACCOUNT OF ROYALTY INASMUCH AS A SUM OF RS.3,07, 170/- HAS BEEN ADDED IN EXCESS, EVEN IF THE STAND OF THE TPO WAS LIABLE TO BE UPHELD. 10. ON THE OTHER HAND, THE LEARNED CIT(DR) APPEARIN G FOR THE REVENUE HAS REFERRED TO THE ORDERS OF THE AUTHORITI ES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. THE LEARNED CIT(DR) SUBMITTED THAT THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR COMPUTING ROYALTY PAYAB LE TO ITS AE WAS CORRECTLY REJECTED BY THE TPO AND IN THIS CONTEXT A REFERENCE HAS BEEN MADE TO PARA 8.3 OF THE ORDER OF THE TPO. IT WAS EMPHASIZED THA T FOR MANUFACTURING THE SPECIALITY CHEMICALS, ASSESSEE WAS USING HYDROGEN P EROXIDE AND HYDROPEROXIDE, CHOLORFORMATE AND CHLORIDE, CATALYST AND OTHERS WHICH WERE MERE CONSTITUENT CHEMICALS AND NOT RAW MATERIALS. ACCORDING TO THE REVENUE, THESE CONSTITUENT CHEMICALS ARE EQUIVALE NT TO THE EXPRESSION BOUGHT-OUT COMPONENTS OR IMPORTED COMPONENTS WH ICH ARE REQUIRED TO BE REDUCED FROM THE GROSS VALUE OF SALES BEFORE COMPUT ING THE AMOUNT OF ROYALTY PAYABLE. JUSTIFYING THE CONSIDERATION OF SUCH CHEM ICALS AS MERE CONSTITUENT CHEMICALS IT WAS POINTED OUT THAT SUCH CHEMICALS A RE NOT MANUFACTURED BY THE ASSESSEE FROM THEIR BASIC RAW MATERIALS AND THE SAM E BEING MERELY CONSTITUENT CHEMICALS, THERE IS NO VALUE ADDITION ON THESE MATERIAL IN THE MANUFACTURING PROCESS; THUS, THE SAME ARE EXCLUDIBL E FROM THE VALUE OF SALES TO COMPUTE THE AMOUNT OF ROYALTY PAYABLE. IN THIS MANNER, THE DETERMINATION OF THE FIGURE OF NET SALE BY THE TPO FOR THE PURP OSE OF COMPUTATION OF ROYALTY PAYABLE HAS BEEN DEFENDED. THE ADOPTION OF THE RAT E OF 5% ON EXPORT SALES FOR PAYMENT OF ROYALTY AS AGAINST 8% ADOPTED BY THE ASSESSEE, HAS ALSO BEEN DEFENDED. IN THIS REGARD A REFERENCE HAS BEEN MADE TO PARA 1.70 OF THE OECD GUIDELINES TO JUSTIFY THE ADOPTION OF THE TRAN SACTION OF ROYALTY PAYMENT BY TANPC TO THE AE AS A COMPARABLE TRANSACTION FOR THE PURPOSES OF COMPARABILITY ANALYSIS. ACCORDING TO THE LEARNED C IT(DR), THE AFORESAID GUIDELINE OF OECD SUGGESTS THAT USEFUL INFORMATION COULD NOT BE IGNORED BY APPLYING STRICT STANDARDS OF COMPARABILITY AND EVEN EVIDENCE FROM THE ENTERPRISES ENGAGED IN CONTROLLED TRANSACTIONS WITH ASSOCIATED ENTERPRISES MAY ALSO BE USEFUL IN CARRYING OUT THE COMPARABILIT Y ANALYSIS. IT WAS, THEREFORE, CONTENDED THAT THE APPLICATION OF A RATE OF 5% FOR PAYMENT OF ROYALTY ON EXPORT SALE BASED THE TRANSACTION OF ROYALTY PAY MENT BY TANPC TO THE AE, WAS JUSTIFIED UNDER THE CUP METHOD. A REFERENCE HA S ALSO BEEN MADE TO THE DISCUSSION MADE BY THE DRP IN THIS REGARD WHEREIN I T IS SOUGHT TO BE STATED THAT THE TRANSACTION ON ROYALTY PAYMENT BY TANPC TO ITS AE @ 5% WAS A PERFECT COMPARABLE WHILE APPLYING THE CUP METHOD AN D THUS THE ACTION OF THE TPO IS SOUGHT TO BE JUSTIFIED. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ON THIS ASPECT. BEFORE PROCEEDING TO ADJUDICATE THE ADDITI ON OF RS. 91,66,061/- MADE ON ACCOUNT OF ROYALTY PAYMENT, IT WOULD BE RELEVANT TO NOTE THE PERTINENT FACTS. THE APPELLANT COMPANY IS PAYING ROYALTY TO THE AE F OR TRANSFER OF TECHNOLOGY IN TERMS OF A FOREIGN TECHNOLOGY COLLABORATION AGREEME NT, WHICH HAS BEEN DULY APPROVED BY THE GOVERNMENT OF INDIA, A COPY OF SUCH AGREEMENT IS PLACED AT PAGES 259 TO 261 OF THE PAPER BOOK. IN TERMS OF TH E SAID AGREEMENT, ROYALTY PAYMENTS ARE AUTHORIZED ON DOMESTIC SALES AND ON EX PORT SALES @ 5% AND 8% RESPECTIVELY OF NET SALES, SUBJECT TO TAXES. THE ITEMS OF MANUFACTURE COVERED BY THE FOREIGN COLLABORATION ARE POLYMERIZ ATION INITIATORS, WHICH IS A ITA NO.2583/PN/2012 A.Y. : 2008-09 PRODUCT MANUFACTURED BY THE ASSESSEE FOR USE AS CAT ALYST IN MANUFACTURING OF POLYMERS. THE APPROVAL PRESCRIBES THAT THE ROYALTY PAYABLE SHALL BE CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF THE FOREIGN EXCHANGE CONTROL MANUAL OF RBI AND OTHER SUBSISTING INSTRUCTIONS OF GOVT. OF INDIA/RESERVE BANK OF INDIA. IN THIS CONTEXT, A REFERENCE HAS BE EN MADE TO THE CHAPTER III OF THE MANUAL FOR FOREIGN DIRECT INVESTMENT ISSUED BY DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION, GOVT. OF INDIA WHICH CONTAINS , INTER-ALIA, THE POLICY & PROCEDURES CONCERNING THE FOREIGN TECHNOLOGY AGREEM ENTS. IN PARA 3.3, IT IS PRESCRIBED THAT THE ROYALTY PAYMENTS FOR FOREIGN TE CHNOLOGY COLLABORATION BY INDIAN COMPANIES ARE LIMITED TO CERTAIN PERCENTAGE OF SALES AND ARE NET OF TAXES AND ARE CALCULATED ACCORDING TO STANDARD COND ITIONS. IT IS FURTHER PRESCRIBED THAT THE ROYALTY IS TO BE CALCULATED ON THE BASIS OF NET EX-FACTORY SALE PRICE OF THE PRODUCT, EXCLUSIVE OF EXCISE DUTI ES, MINUS THE COST OF THE STANDARD BOUGHT-OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SOURCE OF PROCUREME NT, INCLUDING OCEAN FREIGHT, INSURANCE, CUSTOM DUTIES, ETC. THE FIRST BONE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE IS WITH REGARD TO THE BASIS, ON WHICH THE ROYALTY IS PAYABLE. AS PER THE APPELLANT, THE AMOU NT OF ROYALTY PAYABLE CALCULATED BY IT IS IN LINE WITH THE APPLICABLE INS TRUCTIONS OF THE GOVT. OF INDIA AND/OR RBI. THE REVENUE, ON THE OTHER HAND, CONTEN DS THAT CERTAIN CHEMICALS USED IN THE MANUFACTURING PROCESS, BEING HYDROGEN P EROXIDE AND HYDROPEROXIDE, CHOLORFORMATE AND CHLORIDE, CATALYST AND OTHERS AMOUNTING TO RS.21,34,016/- ARE MERE CONSTITUENT CHEMICALS, AND COST OF THE SAME IS TO BE REDUCED ON PRO RATA BASIS FROM THE FIGURE OF DOMESTIC SALES AND EXP ORT SALES AND ONLY ON THE REMAINING AMOUNT OF NET SALES ROY ALTY PAYABLE IS TO BE CALCULATED. THE CLAIM OF THE ASSESSEE IS THAT SUCH CHEMICALS ARE INDEED RAW MATERIALS USED BY THE ASSESSEE IN ITS MANUFACTURING PROCESS, AND FOR THE PURPOSE OF COMPUTING ROYALTY PAYABLE IN TERMS OF FO REIGN TECHNOLOGY COLLABORATION AGREEMENT, COST OF RAW MATERIAL IS NO T PRESCRIBED AS A DEDUCTIBLE ITEM IN ORDER TO CALCULATE NET SALES. THEREFORE, WHILE CALCULATING THE ROYALTY PAYABLE, ASSESSEE HAS NOT REDUCED THE C OST OF ANY OF THE RAW MATERIALS CONSUMED. THE ASSESSEE HAS COMPUTED ROYA LTY PAYABLE WITH REFERENCE TO SALES OF RS.37,21,70,846/- WHILE THE TPO HAS DONE SO WITH REFERENCE TO SALES OF RS.24,98,13,470/-. BE THAT A S IT MAY, THE FIRST POINT OF DIFFERENCE IS MEANING OF THE EXPRESSION NET SALES , BECAUSE THE ROYALTY PAYABLE IS TO BE CALCULATED ON THE NET SALES, SUBJECT TO TAXES, AS PER THE APPROVAL OF GOVT. OF INDIA. 12. BEFORE WE PROCEED FURTHER ON THIS ASPECT, IT WO ULD BE APPROPRIATE TO REFER TO A PERTINENT POINT ASSERTED BY THE APPELLANT, WHICH IS TO THE EFFECT THAT THE AMOUNT OF ROYALTY REMITTED TO T HE FOREIGN COLLABORATION, I.E. THE AE, IS AS PER THE PROVISIONS OF FOREIGN EXCHANG E CONTROL MANUAL OF RBI. NOTABLY, THE APPROVAL BY THE DEPARTMENT OF INDUSTRI AL POLICY & PROMOTION (SECRETARIAT FOR INDUSTRIAL ASSISTANCE) DATED 11.02 .2005 ITSELF PRESCRIBES THAT ROYALTY SHALL BE PAYABLE IN ACCORDANCE WITH THE PRO VISIONS OF FOREIGN EXCHANGE CONTROL MANUAL OF RBI AND OTHER SUBSISTING INSTRUCTIONS OF THE GOVT. OF INDIA/RESERVE BANK OF INDIA. THERE IS NO MATERI AL ON RECORD TO SUGGEST THAT THE CALCULATION OF ROYALTY MADE BY THE ASSESSEE HAS BEEN FOUND TO BE VIOLATIVE OF THE RESPECTIVE PROVISIONS OF FEMA OR OTHER SUBSI STING INSTRUCTIONS OF THE GOVT. OF INDIA/RESERVE BANK OF INDIA. IN THIS BACK GROUND, A MOOT QUESTION WHICH ARISES IS WHETHER THE TPO IS COMPETENT TO REW ORK THE ROYALTY PAYMENT ON THE BASIS OF HIS INTERPRETATION OF THE MEANING O F EXPRESSION NET SALES, FOR THE PURPOSE OF DETERMINING ITS ARMS LENGTH PRICE UNDER THE CUP METHOD. 13. IN OUR CONSIDERED OPINION, THE ACTION OF THE TP O IN RE-WORKING THE AMOUNT OF ROYALTY PAYABLE BASED ON HIS INTERPRE TATION OF THE EXPRESSION NET SALES FOR THE PURPOSES OF DETERMINING ITS ARM S LENGTH PRICE IS NOT A RIGHT DECISION. THE TPO WAS EXPECTED TO EXAMINE THE INTE RNATIONAL TRANSACTION OF ITA NO.2583/PN/2012 A.Y. : 2008-09 ROYALTY PAYMENT AS HE ACTUALLY FOUND IT OR IN OTHER WORDS, AS IT WAS TRANSACTED BETWEEN THE PARTIES; AND, THEN MAKE SUITABLE ADJUST MENTS, IF REQUIRED, IN ORDER TO DETERMINE ITS ARMS LENGTH PRICE, BUT IT WAS IMP ERMISSIBLE FOR HIM TO RE-WORK OR RE-CAST THE TRANSACTION BASED ON HIS OWN UNDERST ANDING OF THE TERMS AND CONDITIONS OF AGREEMENT UNDERLYING THE TRANSACTION. WE SAY SO IN THE BACKGROUND OF THE FACT THAT THE TERMS AND CONDITION S OF THE AGREEMENT ON THE BASIS OF WHICH ASSESSEE HAS COMPUTED THE ROYALTY PA YABLE HAS BEEN APPROVED BY THE GOVT. OF INDIA; AND, IT IS MANDATED THAT THE CALCULATIONS OF ROYALTY ARE SUBJECT TO THE RELEVANT PROVISIONS OF F OREIGN EXCHANGE CONTROL MANUAL OF RBI AND OTHER INSTRUCTIONS OF THE GOVT. O F INDIA/RESERVE BANK OF INDIA. NOTABLY, THERE IS NO MATERIAL TO SUGGEST TH AT THE AMOUNT OF ROYALTY CALCULATED BY THE ASSESSEE HAVE BEEN FAULTED BY ANY STATUTORY AUTHORITY FOR BEING INCONSISTENT WITH THE FOREIGN EXCHANGE CONTRO L MANUAL OF RBI OR ANY OTHER SUBSISTING INSTRUCTIONS OF THE GOVT. OF INDIA /RESERVE BANK OF INDIA. RATHER THE AFORESAID ASSERTION OF THE ASSESSEE, HAS BEEN REJECTED BY THE TPO ON THE BASIS OF HIS OWN SUBJECTIVE INTERPRETATION O F THE EXPRESSION NET SALES. 14. AT THIS STAGE, WE MAY REFER TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LT D. (2012) 345 ITR 241 (DEL). IN THE SAID CASE, ASSESSEE HAD ENTERED INTO AN INTERNATIONAL TRANSACTION BY WAY OF PAYMENT OF BRAND FEE/ROYALTY TO ITS ASSOC IATED ENTERPRISE UNDER AN AGREEMENT. THE REVENUE WAS REQUIRED TO DETERMINE T HE ARMS LENGTH PRICE OF THE TRANSACTION. WHILE DOING SO, THE TPO NOTICED T HAT ASSESSEE HAS BEEN INCURRING LOSSES YEAR AFTER YEAR, AND CONSIDERING S UCH PERPETUAL LOSSES THE TPO HELD THAT THE PAYMENT OF ROYALTY DID NOT APPEAR JUSTIFIED AS THE TECHNICAL KNOWHOW/BRAND FEE AGREEMENT WITH THE ASSOCIATED ENT ERPRISE HAD NOT BENEFITED THE ASSESSEE IN ACHIEVING PROFITS FROM IT S OPERATIONS. FOR THE SAID REASON, THE TPO HELD THAT THE BRAND FEE PAYMENT MAD E BY THE ASSESSEE TO THE ASSOCIATED ENTERPRISE WAS UNJUSTIFIED AND THE A RMS LENGTH PRICE OF THE TRANSACTION SHOULD BE TAKEN AS NIL. THE HONBLE HIGH COURT DISAPPROVED THE ACTION OF THE TPO, AND AFTER REFERRING TO THE OECD S TRANSFER PRICING GUIDELINES OBSERVED THAT THE TPO WAS EXPECTED TO EXAMINE THE I NTERNATIONAL TRANSACTIONS AS HE ACTUALLY FOUND THEM. IN OUR CONSIDERED OPINI ON, THE AFORESAID PARITY OF REASONING LAID DOWN BY THE HONBLE DELHI HIGH COMES INTO PLAY IN THE PRESENT FACT-SITUATION ALSO, AS OUR FOLLOWING DISCUSSION WO ULD SHOW. 15. IN THE CASE BEFORE THE HONBLE DELHI HIGH COURT , THE TPO HAD APPLIED THE CUP METHOD WHILE EXAMINING THE PAYMENT OF BRAND FEE/ROYALTY, WHICH ALSO IS THE POSITION IN THE CASE BEFORE US. THE HONBLE HIGH COURT REFERRED TO THE OECDS TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS, AND REPRODUCED PARAS 1.36 TO 1.41 OF SUCH GUIDELINES, WHICH PROVIDE FOR RECOGNITION OF THE ACTUAL TRANSACTIONS UNDERTAKEN . THEREAFTER, THE HONBLE HIGH COURT OPINED AS UND ER :- 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES L IES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL C ASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRAN SACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMINATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANS ACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSO CIATED ENTERPRISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES D ISCOURAGE RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERISATION OF SUCH RESTRUCTURING AS AN ARBITRARY EXERCISE, AS GIV EN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXAT ION IF THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS TO H OW THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESA ID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBST ANCE OF A ITA NO.2583/PN/2012 A.Y. : 2008-09 TRANSACTION DIFFERS FROM ITS FORM; AND (II) WHERE T HE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MA DE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER F ROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVI NG IN A COMMERCIALLY RATIONAL MANNER. 16. FROM THE AFORESAID, IT FOLLOWS THAT THE EXAMINA TION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED O N THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSO CIATED ENTERPRISES. THUS, THE TPO SHOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. THE TWO EXCEPTIONS WHICH HA VE BEEN PRESCRIBED ARE (I) WHERE THE ECONOMIC SUBSTANCE DIFFERS FROM ITS FORM; AND, (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION IS THE SAME BUT AR RANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN ITS TOTALITY , DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVI NG IN A COMMERCIALLY RATIONAL MANNER. NOW, COMING BACK TO THE FACT-SITU ATION OF THE PRESENT CASE. IN THIS CASE, THE TPO HAS REWORKED THE ROYALTY PAYA BLE BY THE ASSESSEE TO ITS AE ON THE BASIS OF HIS INTERPRETATION OF THE EXPRES SION NET SALES FOR THE PURPOSES OF DETERMINING ARMS LENGTH PRICE OF THE I NTERNATIONAL TRANSACTION OF ROYALTY PAYMENT TO THE AE, WHILE APPLYING THE CUP M ETHOD. THE MOOT POINT TO BE CONSIDERED IS WHETHER THE ACTION OF THE TPO IN I NTERPRETING THE EXPRESSION NET SALES, CONTAINED IN THE FOREIGN TECHNOLOGY CO LLABORATION AGREEMENT APPROVED BY THE GOVT. OF INDIA, DIFFERENTLY FROM WH AT HAS BEEN UNDERSTOOD BY THE ASSESSEE IS JUSTIFIED AND FALLS WITHIN THE EXCE PTIONS PROVIDED IN THE OECD GUIDELINES WHICH PERMIT THE TPO TO RE-WRITE THE TRA NSACTION OR TO DISREGARD ACTUAL TRANSACTIONS. CONSIDERED IN THE CONTEXT OF THE OECD GUIDELINES WHICH HAVE BEEN EXHAUSTIVELY REFERRED BY THE HONBLE DELH I HIGH COURT IN THE CASE OF EKL APPLIANCES LTD. (SUPRA) THE IMPUGNED SITUATI ON DOES NOT FIT INTO THE TWO EXCEPTIONS. FIRSTLY, NEITHER THE REVENUE HAS ALLEG ED AND NOR IS THERE ANY MATERIAL ON RECORD TO SUGGEST THAT THE ECONOMIC SUB STANCE OF THE IMPUGNED TRANSACTION DIFFERS FROM ITS FORM. SECONDLY, THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THERE IS AN ARRANGEMENT BETWEEN ASSESS EE AND THE AE MADE IN RELATION TO THE IMPUGNED TRANSACTION WHICH WOULD DI FFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. WE SAY SO FOR THE RE ASON THAT THE ENTIRE GAMUT OF ROYALTY PAYMENT BY THE ASSESSEE TO THE AE IS IN TERMS OF THE FOREIGN TECHNOLOGY COLLABORATION AGREEMENT, WHICH IS DULY A PPROVED BY GOVT. OF INDIA IN TERMS OF ITS POLICY, WHICH IS APPLICABLE ACROSS THE SPECTRUM. MOREOVER, IT IS NOT THE CASE OF THE TPO OR EVEN OF THE REVENUE BEFO RE US THAT THE ROYALTY REMITTED BY THE ASSESSEE TO THE AE HAS BEEN FOUND T O BE INCONSISTENT OR VIOLATIVE OF THE RESPECTIVE GOVERNMENT OR RBI GUIDE LINES OR ANY OTHER AUTHORITY IN LAW. THUS, THE TPO ERRED IN CALCULATING ROYALTY PAYABLE ON SALES OF RS.24,98,13,475/- AS AGAINST RS.37,21,70,846/- CONS IDERED BY THE ASSESSEE FOR THE PURPOSE OF DETERMINING ITS ARMS LENGTH PRI CE. 17. EVEN OTHERWISE, THE ACTION OF THE TPO IN CONSID ERING CERTAIN RAW MATERIALS USED IN THE PRODUCTION PROCESS AS MER E CONSTITUENT CHEMICALS AND EQUATING IT TO STANDARD BOUGHT-OUT COMPONENTS S O AS TO REDUCE THE COST OF SUCH MATERIAL FROM THE SALES FOR THE PURPOSES OF CO MPUTING NET SALES ELIGIBLE FOR ROYALTY PAYMENT, IS WITHOUT ANY COGENT BASIS. AT THE TIME OF HEARING, ASSESSEE WAS ASKED TO EXPLAIN ITS MANUFACTURING PRO CESS AND IN RESPONSE A NOTE WAS FURNISHED EXPLAINING THE PROCESS UNDERTAKE N AND THE MATERIALS USED, WHICH IS REPRODUCED HEREIN :- PROCESS : THE MANUFACTURING PROCESS IS DESIGNED BY THE PARENT COMPANY FOR UTMOST SAFE OPERATIONS AND ALL THE NECESSARY PROCESS SAFETY INTERLOCKS AND SYSTEMS ARE DESIGNED AND VERIFIED BY THE PARENT COMPANY. TH E RAW MATERIALS LIKE HYDROGEN PEROXIDE ARE REACTED AT ITA NO.2583/PN/2012 A.Y. : 2008-09 CERTAIN PROCESS STAGES WITH RECOMMENDED PROCESS PARAMETERS (LIKE FLOW RATES, TEMPERATURE, PH ETC) TO FORM AN INTERMEDIATE (SAY, NA2O2) AND THE SAME IS FURTHER REACTED WITH THE KEY RAW MATERIAL, NAMELY CHLOROFORMATES. THIS REACTION GIVES A MOLECULE OF CRUDE PRODUCT (I.E. PEROXIDE WHICH CONTAINS WEAK OXYGEN BOND). TO GET FURTHER CONVERSION, POST REACT ION TIME IS ALLOWED. THIS CRUDE PRODUCT IS FURTHER PURIFIED AND DILUTED TO GET THE NECESSARY PURITY. NO SIDE PRODUCTS ARE FORMED IN THE PROCESS. A DIAGRAMMATIC FLOW CHART AND SIMPLIFIED VERSION OF PROCESS AND CHEMICAL REACTIONS IS ATTACHED HEREWITH . TECHNOLOGY : THE PROCESS KNOW HOW IS OWNED BY AKZO NOBEL. THE TECHNOLOGY USED FOR HIGHER CONVERSION AND SAFE OPERATION IS 'SIMULTANEOUS DOSING' PROCESS OF MANUFACTURING. THIS DESCRIBES IMPORTANT PARAMETERS LIKE THE QUALITY OF RAW MATERIALS TO BE USED, SEQUE NCE OF DOSING RAW MATERIALS, THEIR RATIOS, FLOWRATES, AND TIME ALLOWED FOR REACTIONS, MIXING REQUIREMENTS, SEPARAT ION TECHNIQUES PURIFYING STAGES ETC. THE R & D OF PAREN T COMPANY ALWAYS SUGGESTS FURTHER IMPROVEMENTS IN PROCESS FOR BETTER CONVERSIONS AND STABILITY OF THE FINISHED GOODS. THE MATERIAL OF CONSTRUCTION FOR REACTORS, CONCENTRATION OF RAW MATERIALS, IN-PROCES S CHECKS ARE THE OTHER KEY FACTORS REACTION : THE REACTION IS IRREVERSIBLE IN NATURE. ONLY THERMAL DECOMPOSITION IS POSSIBLE. DECOMPOSITION : THE PRODUCT CAN DECOMPOSE AT CERTAI N TEMPERATURE. SUCH DECOMPOSITION CAN PRODUCE PRODUCTS LIKE CARBON DIOXIDE (CO2), CARBON MONOXIDE AND 2- ETHYLHEXANOL. HOWEVER NONE OF THE ORIGINAL RAW MATERIALS LIKE HYDROGEN PEROXIDE OR CHLOROFORMATES CAN BE RETRIEVED. 18. FURTHER, THE DIFFERENCE BETWEEN THE KEY RAW MAT ERIAL AND THE FINISHED GOODS HAVE ALSO BEEN BROUGHT OUT AS FOLLOW S :- CRITERIA CHLOROFORMATE FINISHED GOOD STORAGE CONDITIONS MISCIBLE/REACTIVITY IN WATER PURITY APPLICATION APPEARANCE HAZARD CLASS AMBIENT IMMISCIBLE WITH WATER AND REACTS 98% TO MANUFACTURE ORGANIC CHEMICALS CLEAR LIQUID TOXIC (6.1) -15 DEG C MAX MISCIBLE WITH WATER 50 TO 60% INITIATOR TO PVC POLYMERIZATION WHITE EMULSION OXIDISING AGENT (5.2) 19. ON THE BASIS OF THE ABOVE, IT WAS SOUGHT TO BE CANVASSED THAT THE CHEMICALS SOUGHT TO BE CLASSIFIED BY THE TPO AS CONSTITUENT MATERIAL ARE INDEED RAW MATERIALS. IT IS CANVASSED THAT THE RAW MATERIALS USED BY THE ASSESSEE IN ITS PRODUCTION PROCESS INCLUDING THE SO -CALLED CONSTITUENT CHEMICALS CLASSIFIED BY THE TPO, UNDERGO A CHEMICA L REACTION IN THE MANUFACTURING PROCESS, WHICH IS IRREVERSIBLE. IT I S FURTHER EXPLAINED THAT THE PROPERTIES AND USAGE OF THE FINISHED GOODS ACHIEVED , NAMELY, POLYMERIZATION INITIATORS, IS QUITE, DISTINCT FROM THE RAW MATERIA LS CONSUMED AND NONE OF THE RAW MATERIALS, INCLUDING THE SO-CALLED CONSTITUENT CHEMICALS USED IN THE MANUFACTURE OF FINISHED GOODS, CAN BE RETRIEVED AFT ER THE END OF THE MANUFACTURING PROCESS. ITA NO.2583/PN/2012 A.Y. : 2008-09 20. THE EFFORT OF THE TPO TO CLASSIFY CERTAIN INPUT MATERIAL AS CONSTITUENT CHEMICALS (INSTEAD OF RAW MATERIAL) A ND EQUATE IT TO STANDARD BOUGHT-OUT COMPONENTS IS BECAUSE OF THE FOLLOWING STATEMENT CONTAINED IN THE MANUAL FOR FOREIGN DIRECT INVESTMENT POLICY & P ROCEDURES ISSUED BY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION, GOVT. OF INDIA :- THE ROYALTY WILL BE CALCULATED ON THE BASIS OF THE NEXT EX- FACTORY SALE PRICE OF THE PRODUCT, EXCLUSIVE OF EXC ISE DUTIES, MINUS THE COST OF THE STANDARD BOUGHT-OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SOURCE OF PROCUREMENT, INCLUDING OCEAN FRIGHT, INSURANCE, CUSTOM DUTIES, E TC. 21. IN TERMS OF THE AFORESAID, APART FROM OTHER SUM S THE COST OF THE STANDARD BOUGHT-OUT COMPONENTS AND THE LANDED COS T OF IMPORTED COMPONENTS IS TO BE REDUCED FROM THE SALE PRICE OF THE PRODUCT IN ORDER TO CALCULATE THE ROYALTY PAYABLE. AS PER THE TPO, CER TAIN MATERIAL USED IN THE PRODUCTION PROCESS, NAMELY, HYDROGEN PEROXIDE AND H YDROPEROXIDE, CHOLORFORMATE AND CHLORIDE, CATALYST AND OTHERS ARE NOT MANUFACTURED BY THE ASSESSEE FROM THEIR BASIC RAW MATERIALS AND THE SAM E BEING MERELY CONSTITUENT CHEMICALS, THERE IS NO VALUE ADDITION ON THESE MATERIAL IN THE MANUFACTURING PROCESS; THUS, THE SAME ARE EXCLUDIBL E FROM THE VALUE OF SALES TO COMPUTE THE AMOUNT OF ROYALTY PAYABLE. 22. IN THIS CONTEXT, WE HAVE PERUSED THE CLARIFICAT ION ISSUED BY MINISTRY OF COMMERCE & INDUSTRY (DEPARTMENT OF INDU STRIAL POLICY & PROMOTION) TO SOME OF THE QUERIES PUT BY THE ASSESS EE, COPIES OF THE SAME HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 41 TO 4 5. WE ARE TEMPTED TO REPRODUCE HEREINAFTER THE FOLLOWING RELEVANT EXTRAC T OF THE CLARIFICATION ON COMPUTATION OF ROYALTY :- MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION BULLETIN BOARD FOLLOW UP COMPUTATION OF ROYALTY QUERY : DEAR SIR, ONE OF OUR CORPORATE CLIENT WANTS TO REMI T ROYALTY (NO TECHNICAL KNOWHOW PAID AND ROYALTY RATE IS 5%, HENCE COVERED UNDER AUTOMATIC ROUTE) TO ITS PARENT COMPANY ABROAD . FOR CALCULATION OF ROYALTY, AMONG OTHER DEDUCTIONS, LANDED COST OF IMPORTED COMPONENTS, STANDARD BOUGHT OUT COMPONENTS USED IN THE MANUFACTURE OF THE FINAL PRODUCT HAVE TO BE REDUCED FROM THE SALE PRICE, ON WHICH ROYALTY IS PAYABLE. THE QUERY IS: O UR CLIENT IS A MANUFACTURING COMPANY, IN WHICH IT IS USING IMPORTE D RAW MATERIALS, WHICH ARE MIXED AND USED TO MANUFACTURE THE FINAL P RODUCT. SHOULD THIS RAW MATERIALS ALSO BE TREATED AT PAR WITH THE IMPORTED COMPONENTS/ BOUGHT-OUT COMPONENTS? AND BE DEDUCTED FROM SALE PR ICE TO CALCULATE ROYALTY. WOULD HIGHLY APPRECIATE YOUR GUIDANCE ON T HE SAME. REPLY : DEAR SIR, IN OUR OPINION, NO. REGARDS BB SHARMA. QUERY : THANKS FOR THE REPLY. JUST TO CONFIRM YOUR VIEW ON COMPUTATION, DOES IT MEAN THAT ONLY BOUGHT OUT COMP ONENTS ON WHICH NO FURTHER PROCESSING IS REQUIRED IN THE COMPANY AN D ARE DIRECTLY FITTED INTO THE FINAL PRODUCTS ARE TO BE SUBTRACTED FROM T HE SELLING PRICE? YOUR GUIDANCE IN THIS REGARD WOULD BE HIGHLY APPRECIATED . REPLY : DEAR SIR: YOUR UNDERSTANDING SEEMS TO BE CORRECT RE GARDS B B SHARMA 23. FROM THE AFORESAID, IT IS CLEAR THAT WHAT IS LI ABLE TO BE CONSIDERED AS STANDARD BOUGHT-OUT COMPONENTS ARE SU CH MATERIAL ON WHICH NO FURTHER PROCESSING IS REQUIRED AND ARE DIRECTLY FITTED INTO THE FINAL PRODUCT; AND, COST OF SUCH MATERIAL ONLY NEEDS TO BE DEDUCTE D FROM THE SALE PRICE TO ITA NO.2583/PN/2012 A.Y. : 2008-09 COMPUTE THE ROYALTY PAYABLE. APPLYING THE SAID CLA RIFICATION TO THE PRESENT SITUATION, CONSIDERING THE MANUFACTURING PROCESS EX PLAINED, IT CANNOT BE CONSTRUED THAT THE SO-CALLED CONSTITUENT MATERIAL A RE MERELY FITTED INTO THE FINAL PRODUCT; ON THE CONTRARY, IT IS A CASE WHERE SUCH M ATERIAL ALSO UNDERGOES A CHEMICAL REACTION IN THE PROCESS OF PRODUCING THE F INAL PRODUCT AND THE SAME ARE IRRETRIEVABLE ONCE THE FINISHED PRODUCT IS MANU FACTURED. FOR THE SAID REASON ALSO, IN OUR CONSIDERED OPINION, THE SO-CALL ED CONSTITUENT MATERIALS CLASSIFIED BY THE TPO CANNOT BE EQUATED TO STANDARD BOUGHT-OUT COMPONENTS SO AS TO REDUCE THEIR COST FROM THE SALES VALUE TO COMPUTE THE ROYALTY PAYABLE. FOR ALL THE ABOVE REASONS, WE THEREFORE FIND NO JUS TIFICATION ON THE PART OF THE TPO IN REJECTING THE METHODOLOGY ADOPTED BY THE ASS ESSEE TO CALCULATE NET SALES FOR THE PURPOSES OF COMPUTING THE ROYALTY PAY ABLE. 24. THE SECOND CONTROVERSY IS WITH RESPECT TO THE A CTION OF THE TPO IN CONSIDERING 5% RATE OF ROYALTY PAYMENT ON EXPORT SALES AS ARMS LENGTH PRICE AS AGAINST 8% PAID BY THE ASSESSEE. IN DOING SO, THE TPO HAS APPLIED THE CUP METHOD. AS PER THE TPO, A GROUP COMPANY IN CHINA I.E. TANPC WAS PAYING ROYALTY @ 5% TO THE AE, WHEREAS ASSESSEE WAS PAYING ROYALTY @ 8% TO AE ON EXPORT SALES. ACCORDING TO THE TPO, THE R ATE OF ROYALTY BEING CHARGED BY THE AE TO ANOTHER GROUP ENTITY ENGAGED I N MANUFACTURE OF SIMILAR PRODUCTS, IS A GOOD COMPARABLE FOR THE PURPOSE OF B ENCHMARKING ASSESSEES INTERNATIONAL TRANSACTION OF ROYALTY PAYMENT. IN T HIS CONTEXT, CLAUSE (A) OF SUB- RULE (1) OF RULE 10B OF THE RULES PRESCRIBES THE MA NNER IN WHICH THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSA CTION IS TO BE DETERMINED UNDER CUP METHOD, WHICH READS AS UNDER :- (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHIC H, - (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER RED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUS E (II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN THE INTERNATIONAL TRANSACTION; 25. THE AFORESAID THREE STEPS WOULD REVEAL THAT TH E ACTION OF THE TPO IN THE PRESENT CASE IS CONTRARY TO THE PRESCRIP TION CONTAINED IN SUB-CLAUSE (I) OF CLAUSE (A) OF SUB-RULE (1) OF RULE 10B OF TH E RULES. OSTENSIBLY, IN TERMS OF SUB-CLAUSE (I), THE PRICE CHARGED OR PAID IN A COMPARABLE UNCONTROLLED TRANSACTION IS TO BE IDENTIFIED FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION BEING TESTED . IT IS STARKLY EVIDENT THAT IN THE PRESENT CASE, THE COMPARABLE TRANSACTION PICKED -UP BY THE TPO, NAMELY, ROYALTY PAYMENT BY TANPC TO THE AE IS A TRANSACTION BETWEEN TWO RELATED/ASSOCIATED ENTERPRISES AND THEREFORE IT IS A CONTROLLED TRANSACTION AND NOT A UNCONTROLLED TRANSACTION. SUCH A TRANSACTI ON UNDERTAKEN BETWEEN TWO CONTROLLED ENTITIES, IN OUR VIEW CANNOT BE CONSIDER ED AS A COMPARABLE UNCONTROLLED TRANSACTION , AS ENVISAGED IN CLAUSE (A) OF SUB-RULE (1) OF RUL E 10B OF THE RULES. HENCE, ON THIS COUNT ITSELF, IN OUR VIEW, THE ADJUSTMENT MADE BY THE TPO BY CONSIDERING 5% ON EXPORT SALES AS AN ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF ROYALTY PAYMENT HAS TO FAIL. ITA NO.2583/PN/2012 A.Y. : 2008-09 26. APART THEREFROM, FACTUALLY SPEAKING, ASSESSEE H AS BROUGHT OUT DIFFERENCES BETWEEN THE TWO AGREEMENTS I.E. AGREEME NT BETWEEN ASSESSEE AND THE AE AND THE AGREEMENT BETWEEN TNAPC AND THE AE ON THE OTHER HAND. THE TWO AGREEMENTS DIFFER IN THEIR PERIOD OF OPERATION AS ALSO THE PRODUCTS COVERED; AND SUCH A FACTUAL MATRIX HAS NOT BEEN REBUTTED BY THE REVENUE BEFORE US. HENCE, ON THIS COUNT TOO, THE T RANSACTION OF ROYALTY PAYMENT BY THE CHINESE COMPANY, M/S TNAPC TO THE AE CANNOT BE CONSIDERED AS A COMPARABLE TRANSACTION FOR THE PURP OSES OF DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF ROYALTY PAYMENT ON EXPORT SALES, UNDER THE CUP METHOD APPLIED BY THE TPO. 27. AS A RESULT OF THE AFORESAID DISCUSSION, WE HOL D THAT THE TPO ERRED IN (I) RE-WORKING THE STATED VALUE OF THE INT ERNATIONAL TRANSACTION OF ROYALTY PAYMENT BASED ON HIS INTERPRETATION OF THE EXPRESSION NET SALES AND, (II) CONSIDERING THE ROYALTY PAYMENT BY TNAPC TO TH E AE AS A COMPARABLE TRANSACTION UNDER THE CUP METHOD FOR THE PURPOSES O F DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF RO YALTY PAYMENT CLAIMED BY THE ASSESSEE. AS A CONSEQUENCE THE ADJUSTMENT/ADDITION OF RS.91,66,061/- MADE IN RESPECT OF ROYALTY PAYMENT IS DIRECTED TO BE DEL ETED. 22. FOLLOWING THE AFORESAID PRECEDENT, WHICH ENTIRE LY COVERS THE INSTANT CONTROVERSY BEFORE US, WE DIRECT THE ASSESSING OFFI CER TO DELETE THE ADJUSTMENT OF RS.79,96,489/- MADE IN RESPECT OF ROY ALTY PAYMENT. 23. THE NEXT ISSUE IN THIS APPEAL IS WITH REGARD TO THE TRANSFER PRICING ADJUSTMENT FOR EXPORT OF CERTAIN FINISHED GOODS OF RS.14,63,820/-. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT THE TPO NOTICE D THAT ASSESSEE MADE EXPORT SALE OF A PRODUCT, NAMELY, TX423 TO THE ASSO CIATED ENTERPRISES, THE TPO APPLIED THE INTERNAL CUP METHOD BY ADOPTING THE TRANSACTION OF SALE TO THE THIRD PARTIES IN INDIA AS A COMPARABLE UNCONTRO LLED TRANSACTION AND ACCORDINGLY MADE ADJUSTMENT TO THE STATED VALUE OF EXPORT SALES CORRESPONDING TO THE DIFFERENCE BETWEEN THE PRICE C HARGED TO THE THIRD PARTIES IN INDIA AND THAT CHARGED TO THE ASSOCIATED ENTERPR ISES. THUS, AN ADJUSTMENT OF RS.14,63,820/- HAS BEEN WORKED OUT. 24. BRIEFLY PUT THE OBJECTION OF THE ASSESSEE TO TH E ACTION OF THE TPO ARE TWO FOLD. FIRSTLY, ACCORDING TO THE ASSESSEE, THE TPO WAS NOT JUSTIFIED IN APPLYING THE CUP METHOD WHEREAS ASSESSEE HAD APPLIE D THE TNM METHOD FOR DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO T HE TRANSACTIONS OF EXPORT OF ITA NO.2583/PN/2012 A.Y. : 2008-09 FINISHED GOODS TO THE ASSOCIATED ENTERPRISES. SECO NDLY, IT WAS SUBMITTED THAT THE TRANSACTION OF EXPORT TO THE ASSOCIATED ENTERPR ISES AND DOMESTIC SALE OF THE PRODUCT TO THIRD PARTIES CANNOT BE CONSIDERED A S COMPARABLE ON ACCOUNT OF DIFFERENCES IN VOLUMES, GEOGRAPHICAL FACTORS, FUNCT IONS AND RISKS INVOLVED. BOTH THE AFORESAID POINTS WERE RAISED BY THE ASSESS EE AGAINST SIMILAR ACTION OF THE TPO IN ASSESSMENT YEAR 2006-07 ALSO. THE RIVAL STAND HAS BEEN CONSIDERED BY THE TRIBUNAL IN ITS ORDER DATED 11.02 .2014 (SUPRA), AND THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNAL DA TED 11.02.2014 (SUPRA) READS AS UNDER :- 31. FACTUALLY SPEAKING, IN THE PRESENT CASE ASSESS EE HAS EXPORTED FINISHED GOODS TO ITS AES AND ONE SUCH EXPORT WAS O F A PRODUCT TRIGONOX 25C75. IN SEPTEMBER, 2005 ASSESSEE EXPORTED 9000 KG. OF TRIGONOX 25C75 AT A PRICE RATE OF RS.239/- PER KG. TO THE AE, WHER EAS THE SAME PRODUCT WAS ALSO SOLD BY THE ASSESSEE ON THREE OCCASIONS IN JUL Y, AUGUST AND SEPTEMBER; 2005 TO A PARTY IN INDIA IN QUANTITIES OF 1000, 700 AND 1000 KG. RESPECTIVELY @ RS.365 PER KG. . FOR THE SAID REASON, THE TPO CONSIDERED THE SALE OF THE PRODUCT TO THE INDIAN PARTY AS AN INTERNAL COMPARAB LE WHILE APPLYING THE CUP METHOD AND DETERMINED THE ARMS LENGTH PRICE OF THE EXPORT TRANSACTION BY ADOPTING THE RATE/PRICE CHARGED FROM THE DOMESTIC P ARTY AS THE ARMS LENGTH PRICE. IN OUR CONSIDERED OPINION, THERE IS NO INFI RMITY ON THE PART OF THE TPO IN INVOKING THE CUP METHOD BECAUSE THE PRODUCT SOLD IS IDENTICAL. MOREOVER, IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT THE SALE TO THE AE, THOUGH A SOLITARY INSTANCE, IS NOT A SALE IN THE ORDINARY COURSE OF I TS BUSINESS. THE FACT THAT SOME OTHER PRODUCT HAS BEEN EXPORTED TO THE AE AT R ATE HIGHER OTHER THAN THE RATE AT WHICH IT HAS BEEN SOLD IN THE LOCAL MARKET IS NO REASON TO DEFEAT THE ACTION OF THE TPO IN BENCHMARKING THE IMPUGNED INTE RNATIONAL TRANSACTION BY APPLYING THE CUP METHOD. BE THAT AS IT MAY, WE MAY NOW CONSIDER THE ALTERNATIVE PLEA OF THE ASSESSEE SEEKING ADJUSTMENT S IN THE PRICE CHARGED FROM THE DOMESTIC BUYER SO AS TO ACCOUNT FOR THE DI FFERENCES BETWEEN THE INTERNATIONAL TRANSACTION OF EXPORT OF THE PRODUCT TO THE AE AND THE COMPARABLE UNCONTROLLED TRANSACTION. ON THIS POINT, WE ARE NO T PERSUADED BY THE ACTION OF THE TPO IN DISREGARDING THE POINTS RAISED BY THE AS SESSEE AND HOLDING THAT NO ADJUSTMENTS ARE REQUIRED. OSTENSIBLY, THE COMPARIS ON OF SUCH TRANSACTIONS, WHICH IS ELUCIDATED AT PAGE 253 OF THE PAPER BOOK S HOW THAT THE SALE TO AE IS ON A CREDIT OF 30 DAYS WHEREAS THE TERMS OF CREDIT TO THE LOCAL PARTY IS OF 60 DAYS; SECONDLY, THE SALE TO THE AE IS ON A SINGULAR OCCASION OF 9000 KG. WHEREAS THE SALES TO THE INDIAN PARTY HAS BEEN MADE ON THREE DIFFERENT OCCASIONS OF 1000, 700 AND 1000 KG. . THIRDLY, THE ASSESSEE POINTED OUT THAT THE PRODUCT WAS NOT EXPORTED TO THE ULTIMATE CUSTOM ER BUT THE AE CONTRACTED THIS PRODUCT FROM THE ASSESSEE FOR ONWARD SALE TO T HE ULTIMATE INDUSTRIAL CONSUMER. THIS ASPECT OF THE MATTER IS EVIDENT FRO M PAGES 199 200 OF THE PAPER BOOK WHEREIN IS PLACED THE COPY OF EXPORT INV OICES/DELIVERY DETAILS OF THE PRODUCT EXPORTED TO THE AE. THE AE ON ITS PART , SOLD THE GOODS TO THE ULTIMATE CONSUMER AT A PRICE EQUIVALENT TO RS. 288/ - PER KG., AFTER BUYING FROM THE ASSESSEE AT RS.239/- PER KG. . THE LOCAL SALE, ON THE OTHER HAND, IS CLAIMED TO HAVE BEEN MADE TO A CUSTOMER, WHO HAS UT ILIZED IT FOR ITS OWN CONSUMPTION. FOURTHLY, ASSESSEE HAS POINTED OUT TH AT THE SALES TO THIRD PARTIES REQUIRE CERTAIN LEVEL OF ADDITIONAL COSTS, VIZ. SELLING, MARKETING, ITA NO.2583/PN/2012 A.Y. : 2008-09 PAYMENT FOLLOW-UP ETC., WHICH IS NOT SO IN CASE OF EXPORT TO THE AE. FIFTHLY, IT IS POINTED OUT THAT THE EXPORT MADE TO THE AE HAS RESU LTED IN AN INDIRECT ECONOMIC BENEFIT BY WAY OF OBTAINING ADVANCE LICENS E FOR DUTY FREE IMPORTS. A ROUGH CALCULATION IN THIS REGARD HAS BEEN FURNISHED AT THE TIME OF HEARING IN TERMS OF WHICH IT IS POINTED OUT THAT SUCH ECONOMIC BENEFIT WAS TO THE TUNE OF RS.10-11 PER KG. . THE AFORESAID POINTS BROUGHT OUT BY THE ASSESSEE, IN OUR VIEW, ARE BONAFIDE GROUNDS TO PERMIT ADJUSTMENT TO THE COMPARABLE UNCONTROLLED PRICE BEING CONSIDERED IN ORDER TO BEN CHMARK THE TRANSACTION OF EXPORT. NOTABLY, SUCH ADJUSTMENT IS CALLED FOR, HA VING REGARD TO THE PROVISIONS OF SUB-CLAUSE (II) OF CLAUSE (A) OF SUB-RULE (1) OF RULE 10B OF THE RULES AND KEEPING IN MIND THE AFORESAID DIFFERENCES. A PERTI NENT POINT HAS ALSO BEEN MADE OUT BY THE ASSESSEE THAT AFTER EXPORT TO THE A E, THE SAME PRODUCT HAS BEEN ULTIMATELY SOLD BY THE AE TO A UNCONTROLLED PA RTY AT A PRICE, WHICH CAN BE TAKEN TO BE THE THEN PREVAILING INTERNATIONAL PRICE S. THEREFORE, IT IS SOUGHT TO BE MADE OUT THAT THE MAXIMUM PRICE, WHICH ASSESSEE COULD HAVE REALIZED ON EXPORT OF THE PRODUCT TO A NON-AE WOULD BE THE PREV AILING INTERNATIONAL PRICE, WHICH WAS THE PRICE FOR WHICH THE AE SOLD THE PRODU CT TO THE ULTIMATE CUSTOMER. IT WAS THEREFORE POINTED OUT THAT CONSID ERED IN THE SAID LIGHT, THE ADJUSTMENT PERMISSIBLE IN ORDER TO BRING THE TRANSA CTION TO THE LEVEL OF ARMS LENGTH PRICE CAN IT BEST BE RESTRICTED TO THE DIFFE RENCE BETWEEN THE PRICE CHARGED BY THE AE FROM THE ULTIMATE CUSTOMER AND TH E PRICE CHARGED BY ASSESSEE TO THE AE. 32. CONSIDERING THE AFORESAID SUBMISSIONS PUT-FORTH , IN OUR VIEW, IT WOULD BE IN THE FITNESS OF THINGS THAT A CERTAIN LE VEL OF ADJUSTMENT IS MADE TO THE COMPARABLE UNCONTROLLED PRICE OF RS.365/- PER K G. CONSIDERED BY THE TPO IN ORDER TO MAKE IT COMPARABLE WITH THE IMPUGNED IN TERNATIONAL TRANSACTION. PRESENTLY, THE TPO HAS WORKED OUT THE DIFFERENTIAL AT RS.126/- PER KG. {I.E RS.365/- (SALE PRICE TO INDIAN BUYER) MINUS RS.239/ - (EXPORT PRICE TO AE)}. CONSIDERING THE DIFFERENCES ON ACCOUNT OF : (I) VOL UME OF SALES; (II) EXPORT TO AE AND THEREOF SALE TO ULTIMATE CUSTOMER AND THE DO MESTIC SALE BEING TO THE DIRECT CUSTOMER; (III) A PORTION OF THE PROFIT BEIN G RETAINED BY THE AE FOR ITS FUNCTIONS PERFORMED; (IV) THE BENEFIT ON ACCOUNT OF LICENSE TO IMPORT GOODS AT CONCESSIONAL IMPORT DUTY; (V) INCURRENCE OF MARKETI NG/SELLING COST ON DOMESTIC SALES; (VI) DIFFERENCE IN CREDIT TERMS; ETC., IN OU R CONSIDERED OPINION, IT WOULD MEET THE ENDS OF JUSTICE IF THE PRICE OF RS.365/- PER KG. IS ADJUSTED TO RS.300/- PER KG. . THE ADJUSTED PRICE OF RS.300/- PER KG., IN OUR VI EW, IS LIABLE TO BE TAKEN AS AN ARMS LENGTH PRICE IN RESPECT OF EXPORT OF TRIGONOX 25C75 TO THE AE INSTEAD OF THE STATED PRICE OF RS.239/- PER KG. . AS A RESULT, THE ADDITION OF RS.11,34,000/- MADE BY THE TPO ON THIS COUNT SHALL BE SCALED DOWN TO RS.5,49,000/-. ACCORDINGLY, WE DIRECT THE ASSESSIN G OFFICER TO RESTRICT THE ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF EXPORT TO THE AE TO RS.5,49,000/- INSTEAD OF RS.11,34,000/-. THUS, ON THIS ASPECT, ASSESSEE PARTLY SUCCEEDS. 25. IN THE LIGHT OF THE AFORESAID, IT IS EVIDENT TH AT THE TRIBUNAL DID NOT INTERFERE WITH THE ACTION OF THE TPO IN BENCHMARKIN G THE IMPUGNED INTERNATIONAL TRANSACTIONS BY APPLYING THE CUP METH OD. SO HOWEVER, WITH REGARD TO THE ALTERNATIVE PLEA OF THE ASSESSEE SEEK ING ADJUSTMENT IN THE PRICE CHARGED FROM THE DOMESTIC BUYERS SO AS TO ACCOUNT F OR DIFFERENCES WITH THE INTERNATIONAL TRANSACTIONS OF EXPORT OF PRODUCTS TO THE ASSOCIATED ENTERPRISES ITA NO.2583/PN/2012 A.Y. : 2008-09 WAS ACCEPTED SO AS TO FACILITATE THEIR COMPARABILIT Y. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE FURNISHED A WORKIN G, BASED ON THE ORDER OF THE TRIBUNAL DATED 11.02.2014 (SUPRA) WHEREBY AN AD JUSTMENT WAS MADE TO THE PRICE CHARGED TO THE THIRD PARTIES SO AS TO MAK E IT COMPARABLE WITH THE PRICE CHARGED FROM THE ASSOCIATED ENTERPRISES. IN TERMS OF THE SAID WORKING, IT IS SUBMITTED THAT IN THE INSTANT YEAR, THE ADJUSTED PRICE WOULD COMPARE FAVOURABLY WITH THE EXPORT PRICE CHARGED FROM THE A SSOCIATED ENTERPRISES AND THEREFORE NO FURTHER ADJUSTMENT IS REQUIRED IN EXPO RT PRICE TO BRING IT TO AN ARM'S LENGTH PRICE. SINCE, THE AFORESAID ASPECT RE QUIRES A FACTUAL APPRECIATION, WE THEREFORE DEEM IT FIT AND PROPER TO REMAND THE I SSUE BACK TO FILE OF THE ASSESSING OFFICER, WHO SHALL CONSIDER THE WORKING O F THE ASSESSEE IN THIS REGARD. THE ASSESSING OFFICER SHALL SATISFY HIMSEL F THAT THE WORKING HAS BEEN DONE BY THE ASSESSEE IN CONFORMITY WITH THE ORDER O F THE TRIBUNAL DATED 11.02.2014 (SUPRA) ON THIS ASPECT, WHICH WE HAVE RE PRODUCED IN THE EARLIER PARAS. NEEDLESS TO SAY, THE ASSESSING OFFICER SHAL L ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND ONLY THER EAFTER HE SHALL PASS AN APPROPRIATE ORDER ON THIS ASPECT IN CONFORMITY WITH THE DIRECTIONS OF THE TRIBUNAL DATED 11.02.2014 (SUPRA). THUS, ON THIS A SPECT ALSO ASSESSEE SUCCEEDS. 26. THE LAST GROUND IN THIS APPEAL IS WITH REGARD T O THE TRANSFER PRICING ADJUSTMENT WITH RESPECT TO THE MARKETING AND SALE S UPPORT SERVICES SEGMENT AMOUNTING TO RS.5,83,268/-. IN THIS CONTEXT, THE O NLY PLEA OF THE ASSESSEE IS THAT OUT OF THE FOUR COMPARABLES ADOPTED BY THE ASS ESSING OFFICER BASED ON THE DIRECTIONS OF THE DRP, A CONCERN M/S AGRIMA CON SULTANTS INTERNATIONAL LTD. IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABL ES FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2006-07. IN THIS CONTEXT, THE RELEVANT DISCUSSION IS CONTAINED IN PA RA 40 OF THE ORDER OF THE TRIBUNAL DATED 11.02.2014 (SUPRA), WHICH READS AS U NDER :- ITA NO.2583/PN/2012 A.Y. : 2008-09 40. NOW, WE MAY CONSIDER THE EXCLUSION OF THE CONC ERN M/S IDC (INDIA) LTD. FROM THE LIST OF COMPARABLE, WHICH IS BEING AGITATED BY THE ASSESSEE. FIRSTLY, THERE IS NO DISPUTE TO THE POSI TION ASSERTED BY THE ASSESSEE THAT THE SAID CONCERN HAS BEEN CONSIDERED AS A COMP ARABLE IN SUBSEQUENT ASSESSMENT YEAR 2007-08; AND, THERE IS ALSO NO CHAN GE IN THE ACTIVITY PROFILE OF THE SAID CONCERN. SECONDLY, WE SEE FROM THE DIS CUSSION IN PARA 8.4(5) OF THE ORDER OF THE TPO THAT THE SAID CONCERN ALONGWIT H TWO CONCERNS, NAMELY, GAUR & NAGI LTD. AND AGRIMA CONSULTANTS INTERNATION AL LTD. WERE REJECTED FOR BEING FUNCTIONALLY ON THE GROUND THAT THEY WERE ENG AGED IN PROVIDING SUPPORT SERVICES WITH RESPECT TO MARKET RESEARCH (MARKET IN TELLIGENCE FUNCTION AND RELATED SERVICES). IN THIS CONNECTION, WE FIND THA T IN SO FAR AS , GAUR & NAGI LTD. AND AGRIMA CONSULTANTS INTERNATIONAL LTD. ARE CONCERNED, THE SAID CONCERNS ARE INDEED ENGAGED IN PROVIDING AN ARRAY O F SERVICES IN THE FIELD OF MARKET RESEARCH AND INTELLIGENCE GATHERING, WHICH I S QUITE DISTINCT FROM THE ACTIVITY OF MARKETING OF PRODUCTS. THEREFORE, WHIL E THE TPO WAS JUSTIFIED IN REJECTING M/S GAUR & NAGI LTD. AND AGRIMA CONSULTAN TS INTERNATIONAL LTD. AS BEING FUNCTIONALLY INCOMPARABLE, HOWEVER IN THE CAS E OF IDC (INDIA) LTD. THE FUNCTIONAL PROFITS IS DIFFERENT AS IT IS ENGAGED IN THE FIELD OF MARKETING ACTIVITY ALONE. PERHAPS, THE ABOVE DISTINCTION ESCAPED THE ATTENTION OF THE TPO FOR THE YEAR UNDER CONSIDERATION BECAUSE IN THE NEXT AS SESSMENT YEAR 2007-08 THE SAID CONCERN HAS BEEN ACCEPTED AS FUNCTIONALLY COMPARABLE. THUS, FOR THE AFORESAID REASONS, WE HOLD THAT ASSESSEE IS JUSTIFI ED IN CLAIMING THAT CONCERN IDC (INDIA) LTD. BE CONSIDERED AS A COMPARABLE FOR THE PURPOSES OF BENCHMARKING INTERNATIONAL TRANSACTIONS OF INTENDIN G COMMISSION AND MARKETING SUPPORT FEES. THE TPO IS DIRECTED TO RE- WORK THE ADJUSTMENT, IF ANY ON THIS ASPECT AND ACCORDINGLY ASSESSEE PARTLY SUCC EEDS. 27. OSTENSIBLY, IN ASSESSMENT YEAR 2006-07 (SUPRA) THE TRIBUNAL APPROVED THE STAND OF THE TPO IN EXCLUDING M/S AGRIMA CONSUL TANTS INTERNATIONAL LTD. FROM THE LIST OF COMPARABLES ON THE GROUND THAT THE SAID CONCERN WAS FUNCTIONALLY DISTINCT. THEREFORE, WE FIND ENOUGH J USTIFICATION FOR THE ASSESSEE TO SEEK EXCLUSION OF THE SAID CONCERN FROM THE LIST OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION ALSO. HOWEVER, THE LEARNED CIT -DR POINTED OUT THAT THE SAID CONCERN HAS BEEN INCLUDED IN THE LIST OF COMPA RABLES BY ASSESSEE ITSELF IN ITS TRANSFER PRICING STUDY AND THEREFORE IT IS NOT APPROPRIATE FOR THE ASSESSEE TO CANVASS THAT THE SAME BE EXCLUDED NOW. 28. FACTUALLY SPEAKING, WHAT IS ARGUED BY THE LEARN ED CIT-DR IS NOT IN DISPUTE. THE ASSESSEE HAD INCLUDED THE AFORESAID C ONCERN AS A COMPARABLE IN ITS TRANSFER PRICING STUDY. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE QUESTION OF INCLUSION OR EXCLUSION OF A CO MPARABLE OUGHT TO BE DECIDED, HAVING REGARD TO THE MERITS OF THE CLAIM A ND NOT MERELY BECAUSE ITA NO.2583/PN/2012 A.Y. : 2008-09 INADVERTENTLY ASSESSEE HAD INCLUDED OR EXCLUDED A C ONCERN IN ITS TRANSFER PRICING STUDY. 29. IN OUR CONSIDERED OPINION, THE CLAIM OF THE ASS ESSEE TO EXCLUDE M/S AGRIMA CONSULTANTS INTERNATIONAL LTD. FROM THE LIST OF COMPARABLES CANNOT BE SHUTOUT MERELY BECAUSE AT A CERTAIN POINT OF TIME A SSESSEE HAD INCLUDED IT, IN THE LIST OF COMPARABLES. SO LONG AS ASSESSEE CAN D EMONSTRATE THAT THE SAID CONCERN IS NOT INCLUDIBLE ON ACCOUNT OF ITS DIFFERE NCES HAVING REGARD TO THE FAR ANALYSIS THE SAME WOULD BE LIABLE TO BE EXCLUDE D. IN-FACT, THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF QUARK SYSTEMS PVT. LTD. VS. DCIT, (2010) 132 TTJ 01 (CHD.) (SB) ALLOWED THE ASSESSEE TO CLAI M EXCLUSION OF CERTAIN CONCERN FROM THE LIST OF COMPARABLES WHICH WAS INAD VERTENTLY INCLUDED BY IT IN ITS TRANSFER PRICING STUDY. IN VIEW OF THE AFORESA ID, WE AGREE WITH THE ASSESSEE THAT IN-PRINCIPLE IT CAN MAKE OUT A CASE F OR EXCLUSION OF M/S AGRIMA CONSULTANTS INTERNATIONAL LTD., ALTHOUGH THE SAID C ONCERN WAS INCLUDED BY IT IN ITS LIST OF COMPARABLES IN THE TRANSFER PRICING STU DY. NOTABLY, THE SAID CONCERN HAS ALSO BEEN FOUND TO BE EXCLUDIBLE BY THE TPO IN ASSESSMENT YEAR 2006-07, WHICH ACTION HAS SINCE BEEN AFFIRMED BY THE TRIBUNA L IN ITS ORDER DATED 11.02.2014 (SUPRA). HOWEVER, IN ORDER TO ENSURE TH AT THE FACTS AND CIRCUMSTANCES PERTAINING TO M/S AGRIMA CONSULTANTS INTERNATIONAL LTD. IN THE INSTANT ASSESSMENT YEAR STAND ON SIMILAR FOOTING TO THOSE IN ASSESSMENT YEAR 2006-07, WHICH MERITED ITS EXCLUSION, WE DEEM IT FI T AND PROPER TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE AN OPPORTUNITY TO SUBMIT MATERIA L AND INFORMATION TO SHOW THAT THE FUNCTIONS AND OTHER NECESSARY FACTORS IN T HE CASE OF M/S AGRIMA CONSULTANTS INTERNATIONAL LTD. IN THIS YEAR ARE SIM ILAR TO THOSE IN ASSESSMENT YEAR 2006-07 WHEREIN SUCH A CONCERN HAS BEEN FOUND TO BE EXCLUDIBLE FROM THE LIST OF COMPARABLES. AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER SHALL PASS AN APPROPRIATE ORD ER ON THIS ASPECT. NO OTHER ITA NO.2583/PN/2012 A.Y. : 2008-09 OBJECTION HAS BEEN RAISED BY THE ASSESSEE ON THIS A SPECT, THEREFORE, GROUND OF APPEAL NO.2 IS ACCORDINGLY PARTLY ALLOWED. 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2008-09 IN ITA NO.2181/PN/2012 IS PARTLY ALLOWED. 31. NOW, WE MAY TAKE-UP THE APPEAL OF THE ASSESSEE IN ITA NO.83/PN/2014 FOR ASSESSMENT YEAR 2009-10, WHICH IS DIRECTED AGAINST THE ORDER OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), PUNE (IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(1 3) OF THE ACT DATED 29.11.2013, WHICH IS IN CONFORMITY WITH THE DIRECTI ONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHORT THE DRP) DATED 2 9.11.2013. 32. THE GROUNDS OF APPEAL RAISED IN THIS APPEAL ARE IDENTICAL TO THOSE CONSIDERED BY US IN THE APPEAL FOR ASSESSMENT YEAR 2008-09 (SUPRA) IN THE EARLIER PARAGRAPHS. THUS, OUR DECISION IN THE APPE AL FOR ASSESSMENT YEAR 2008-09 (SUPRA) WOULD APPLY MUTATIS-MUTANDIS IN THI S APPEAL ALSO. 33. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2009-10 VIDE ITA NO.83/PN/2014 IS PARTLY ALLOWED IN THE SAM E MANNER AS THE APPEAL FOR ASSESSMENT YEAR 2008-09. 34. RESULTANTLY, FOUR CAPTIONED APPEALS OF THE ASSE SSEE ARE PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 25 TH JULY, 2014. SUJEET ITA NO.2583/PN/2012 A.Y. : 2008-09 COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DRP, PUNE; 6) THE DR B BENCH, I.T.A.T., PUNE; 7) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE