Invteva Products India Automotive Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 830/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6390 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 12-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Question of law; Initiation of penalty proceedings
• Section: 271(1)(c); 92C; 234B; 144; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER IT (TP) A NO.830/BANG/2017 (ASSESSMENT YEAR : 2012 13) M/S. INTEVA PRODUCTS INDIA AUTOMOTIVE PVT. LTD., APPELLANT (FORMERLY KNOWN AS MERITOR LVS INDIA PVT. LTD.) MANYATA EMBASSY BUSINESS PARK, N1 BLOCK, 4 TH FLOOR, OUTER RING ROAD, K R PURAM HOBLI, NAGAWARA, RACHENAHALLI VILLAGE, BANGALORE 560045. PAN. AABCM9623K VS THE ACIT, CIRCLE 3 (1) (1), RESPONDENT BANGALORE. ASSESSEE BY : SHRI M. P. LOHIA, C. A. REVENUE BY : SHRI C. H. SUNDAR RAO, CIT (DR) DATE OF HEARING : 08 01 2019 DATE OF PRONOUNCEMENT : 18 01 2019 O R D E R PER A. K. GARODIA, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ASSESSMENT ORDER DATED 13.02.2017 FOR A. Y. 2012 13 U/S 143 (3) R. W.S 144C AS PER THE DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ALONG WITH MO DIFIED GROUNDS NO. 16 AND 25 ARE AS UNDER:- PAGE 2 OF 20 IT(TP)A NO. 830/BANG/2017 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, I NTEVA PRODUCTS INDIA AUTOMOTIVE PRIVATE LIMITED (HEREINAFTER REFER RED TO AS 'THE APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL UNDER SECTION 253(1)(D) OF THE INCOME-TAX ACT, 1961 (HERE INAFTER REFERRED TO AS 'ACT'), AGAINST THE ORDER DATED 13 FEBRUARY 2 017 BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1 ) (HEREINAFTER REFERRED TO AS THE LEARNED 'AO') UNDER SECTION 143( 3) READ WITH SECTION 144 C OF THE ACT IN PURSUANCE OF THE DIRECT IONS DATED 12 OCTOBER 2015 ISSUED BY THE HON'BLE DISPUTE RESOLUTI ON PANEL (HEREINAFTER REFERRED TO AS `DRP'), ON THE FOLLOWIN G GROUNDS, WHICH ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OT HER. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO BASED ON THE DIRECTIONS OF HON'BLE DRP, HAS: GENERAL GROUND OF APPEAL 1. ERRED IN ASSESSING THE TOTAL INCOME AT INR 12,62 ,13,471 AS AGAINST RETURNED LOSS OF INR 4,65,58,225 BY THE APPELLANT I N ITS RETURN OF INCOME; GROUNDS OF APPEAL IN RELATION TO TRANSFER PRICING A DJUSTMENTS 2. TRANSFER PRICING ADJUSTMENT ERRED IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTI NG TO INR 17,27,71,696 (INR 14,66,72,905 FOR MANUFACTURING SE GMENT AND INR 2,60,98,791 FOR DESIGN ENGINEERING SERVICES SEGMENT ); 3. REJECTION OF ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT ERRED IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERT AKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE IN CONNECTION WITH THE IN TERNATIONAL TRANSACTION PERTAINING TO MANUFACTURING AND DESIGN ENGINEERING SERVICES SEGMENT OF APPELLANT; 4. INAPPROPRIATE USE OF SINGLE YEAR MARGINS OF THE COMPARABLE COMPANIES FOR TRANSFER PRICING ANALYSIS ERRED IN CONSIDERING THE OPERATING PROFIT MARGINS O N OPERATING COST OF THE COMPARABLE COMPANIES BASED ON THE FINANCIAL DAT A PERTAINING ONLY TO FINANCIAL YEAR ENDED 31 MARCH 2012 AND REJECTING USE OF FINANCIAL DATA OF COMPARABLE COMPANIES FOR MULTIPLE YEARS I.E . INCLUDING 31 MARCH 2011 AND 31 7 MARCH 2010; 5. USE OF NON-CONTEMPORANEOUS FINANCIAL DATA OF COM PARABLE COMPANIES FOR TRANSFER PRICING ANALYSIS ERRED IN COMPUTING THE ARM'S LENGTH PRICE USING THE FINANCIAL INFORMATION OF COMPARABLE COMPANIES AVAILABLE AT THE TIME OF ASSES SMENT PROCEEDINGS, ALTHOUGH SUCH INFORMATION WAS NOT AVAILABLE AT THE TIME WHEN THE APPELLANT COMPLIED WITH THE TRANSFER PRICING REGULATIONS; PAGE 3 OF 20 IT(TP)A NO. 830/BANG/2017 A. GROUNDS OF APPEAL IN RELATION TO MANUFACTURING S EGMENT OF APPELLANT 6. INAPPROPRIATELY COMPUTING OPERATING PROFIT MARGINS OF THE APPELLANT PERTAINING TO ITS MANUFACTURING SEGMENT ERRED IN INAPPROPRIATELY COMPUTING OPERATING PROFIT MARGINS OF THE APPELLANT PERTAINING TO ITS MANUFACTURING SEGMENT B Y CONSIDERING MISCELLANEOUS INCOME AS NON-OPERATING IN NATURE AND DONATION EXPENSE AS OPERATING IN NATURE; 7. ABNORMAL EXPENDITURE CONSIDERED AS OPERATING IN NAT URE ERRED IN CONSIDERING CERTAIN ABNORMAL EXPENSES LIKE EXCESSIVE SORTING CH ARGES AND WARRANTY CHARGES, AS PART OF THE OPERATIN G EXPENSES FOR COMPUTATION OF MARGI N S OF THE APPEL L ANT ;. 8. INAPPROPRIATELY CONSIDERING ADDITIONAL COMPANIES AS COMPARABLE TO THE APPELLANT IN RELATION TO MANUFACTURING SEGME NT ERRED IN ACCEPTING AN ADDITIONAL COMPANY NAMELY FRO NTIER SPRINGS LIMITED AS COMPARABLE TO THE APPELLANT BASED ON UNR EASONABLE COMPARABILITY CRITERIA; 9. REJECTION OF INTERNAL TNMM ANALYSIS DONE FOR INTEVA MANUFACTURING SEGMENT ERRED IN REJECTING THE ALTERNATIVE ANALYSIS UNDERTA KEN BY THE APPELLANT USING INTERNAL TNMM AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTION PERTAINING TO MANUFAC TURING SEGMENT; 10. INCORRECT COMPUTATION OF DEPRECIATION ADJUSTMENT PO ST HON'BLE DRP'S DIRECTIONS ERRED IN INCORRECTLY COMPUTING THE DEPRECIATION ADJ USTMENT ON THE MARGINS OF THE COMPARABLE COMPANIES AS PER THE HON' BLE DRP DIRECTIONS. THE LEARNED AO ERRED IN CONSIDERING INC ORRECT AMOUNT OF TOTAL OPERATING COST OF THE APPELLANT FOR CALCULATI NG DEPRECIATION ADJUSTMENT RESULTING IN INCORRECT COMPUTATION OF DE PRECIATION ADJUSTMENT; 11. NON- GRANT OF WORKING CAPITAL ADJUSTMENT ERRED IN NOT GRANTING SUITABLE ADJUSTMENTS TO ACCOU NT FOR DIFFERENCES IN THE WORKING CAPITAL EMPLOYED BY THE COMPARABLE C OMPANIES SELECTED BY THE APPELLANT IN ITS TRANSFER PRICING S TUDY AS WELL AS ACCEPTED BY THE LEARNED TPO; 12. TP ADJUSTMENT SHOULD BE RESTRICTED TO INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES PAGE 4 OF 20 IT(TP)A NO. 830/BANG/2017 ERRED IN MAKING TRANSFER PRICING ADJUSTMENT ON THE ENTIRE MANUFACTURING SEGMENT OF THE APPELLANT RATHER THAN RESTRICTING THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIO NS PERTAINING TO MANUFACTURING SEGMENT OF THE APPELLANT; 13. TRANSFER PRICING ADJUSTMENT WITHOUT GIVING BENEFIT OF +/- 5 PERCENT AS AVAILABLE UNDER PROVISO TO SECTION 92C(2) OF THE ACT ERRED IN COMPUTING THE ARM'S LENGTH PRICE OF THE IN TERNATIONAL TRANSACTIONS, WITHOUT TAKING INTO ACCOUNT THE BENEF IT OF +/- 5 PER CENT VARIATION FROM THE MEAN WHERE IT IS WITHIN THE RANG E, WHICH K PERMITTED AND OPTED FOR BY THE APPELLANT UNDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT. THE APPELLANT PRAYS THAT, WHILE COMPUTING ADJUSTMEN T/RELIEF, BENEFIT OF +/-5% SHOULD BE PROVIDED AS PER SECTION 92C(2) OF T HE ACT; B. GROUNDS OF APPEAL IN RELATION TO DESIGN ENGINEER ING SERVICES SEGMENT OF APPELLANT 14. INAPPROPRIATELY COMPUTING OPERATING PROFIT MARGINS OF THE APPELLANT PERTAINING TO ITS DESIGN ENGINEERING SERV ICES SEGMENT ERRED IN INAPPROPRIATELY COMPUTING OPERATING PROFIT MARGINS OF THE APPELLANT PERTAINING TO ITS DESIGN ENGINEERING SERV ICES SEGMENT. THE LEANED AO/ TPO ERRED IN CONSIDERING MISCELLANEOUS I NCOME AS NON- OPERATING IN NATURE AND DONATION EXPENSE AND PRIOR PERIOD MANAGEMENT FEES PAYMENT AS OPERATING IN NATURE; 15. MODIFICATION/ APPLICATION OF ADDITIONAL FILTER WHIL E SELECTING COMPARABLE COMPANIES ERRED IN MODIFYING AND ADDING CERTAIN INAPPROPRIATE NEW FILTERS FOR REJECTION OF COMPARABLE COMPANIES; 16. ACCEPTING CERTAIN ADDITIONAL COMPANIES AS COMPARABL E TO THE APPELLANT IN RELATION TO PROVISION OF DESIGN ENGINE ERING SERVICES SEGMENT ERRED IN ACCEPTING CERTAIN ADDITIONAL COMPANIES AS COMPARABLE BASED ON UNREASONABLE COMPARABILITY CRITERIA; 17. ERRED IN REJECTING FOLLOWING COMPANIES IDENTIFIED B Y THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT ON THE BASIS O F NON-AVAILABILITY OF THE DATA IN PUBLIC DOMAIN: CIGNITI TECHNOLOGIES LIMITED CALIBER POINT BUSINESS SOLUTIONS LTD. EVOKE TECHNOLOGIES PRIVATE LIMITED HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. YBRANT DIGITAL LTD. MAVERIC SOFTWARE LIMITED THIRDWARE SOLUTIONS LTD. PAGE 5 OF 20 IT(TP)A NO. 830/BANG/2017 SILVERLINE TECHNOLOGIES LTD. 18. ERRED IN REJECTING FOLLOWING COMPANIES IDENTIFIED B Y THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT BY INAPPROPRIA TE APPLICATION OF EMPLOYEE COST FILTER: CG-VAK SOFTWARE & EXPORTS LTD. KLG SYSTEL LIMITED 19. ERRED IN REJECTING FOLLOWING COMPANIES IDENTIFIED B Y THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT BY INAPPROPRIA TE APPLICATION OF FOREIGN EXCHANGE EARNINGS FILTER: GOLDSTONE TECHNOLOGIES LTD. THINKSOFT GLOBAL SERVICES LTD. VAMA INDUSTRIES LIMITED 20. ERRED IN REJECTING FOLLOWING COMPANY IDENTIFIED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT BEING FUNCTION ALLY DIFFERENT: AKSHAY SOFTWARE TECHNOLOGIES LTD. 21. ERRED IN REJECTING FOLLOWING COMPANY IDENTIFIED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT BY INAPPROPRIA TE APPLICATION OF DIFFERENT FINANCIAL YEAR ENDING FILTER: R SYSTEMS INTERNATIONAL LTD. 22. ERRED IN REJECTING FOLLOWING COMPANY IDENTIFIED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT FOR NOT BEING ABLE TO SATISFY RELATED PARTY TRANSACTIONS COMPARABILITY CRITERIA/ FILTER: SAVEN TECHNOLOGIES LTD. 23. ERRED IN REJECTING FOLLOWING COMPANY IDENTIFIED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY REPORT ON THE BASIS OF NON-AVAILABILITY OF THE SEGMENTAL DATA: CAT TECHNOLOGIES LTD. 24. ERRED IN REJECTING FOLLOWING ADDITIONAL COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT DURING ASSESSMENT PROCEEDINGS ON THE BASIS OF NON-S ELECTION OF THE SAME IN TP DOCUMENTATION FOR AY 2012-13: TATA ELXSI LTD. TANEJA AEROSPACE & AVIATION LTD 25. INCORRECT COMPUTATION OF OPERATING MARGIN OF COMPAN IES CONSIDERED AS COMPARABLE IN THE TP ORDER ERRED IN INCORRECTLY COMPUTING THE OPERATING MARGIN S OF THE COMPANIES CONSIDERED AS COMPARABLE TO THE DESIGN EN GINEERING SERVICES SEGMENT OF THE APPELLANT; PAGE 6 OF 20 IT(TP)A NO. 830/BANG/2017 26. NON- GRANT OF WORKING CAPITAL ADJUSTMENT ERRED IN NOT GRANTING SUITABLE ADJUSTMENTS TO ACCOU NT FOR DIFFERENCES IN THE WORKING CAPITAL EMPLOYED BY THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN ITS TRANSFER PRICING S TUDY AS WELL AS ACCEPTED BY THE LEARNED TPO; 27. RISK ADJUSTMENT ERRED IN NOT GRANTING SUITABLE ADJUSTMENTS FOR DIFF ERENCES IN FUNCTION, ASSET AND RISK PROFILE OF THE APPELLANT VIS--VIS T HE COMPARABLE; 28. TRANSFER PRICING ADJUSTMENT WITHOUT GIVING BENEFIT OF +/- 5 PERCENT AS AVAILABLE UNDER PROVISO TO SECTION 92C(2) OF THE ACT ERRED IN COMPUTING THE ARM'S LENGTH PRICE OF THE IN TERNATIONAL TRANSACTIONS, WITHOUT TAKING INTO ACCOUNT THE BENEF IT OF +/- 5 PER CENT VARIATION FROM THE MEAN WHERE IT IS WITHIN THE RANG E, WHICH IS PERMITTED AND OPTED FOR BY THE APPELLANT UNDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT. THE APPELLANT PRAYS THAT, WHILE COMPUTING ADJUSTMEN T/RELIEF, BENEFIT OF +/-5% SHOULD BE PROVIDED AS PER SECTION 92C(2) OF T HE ACT; 29. LEVY OF INTEREST UNDER SECTION 234B OF THE ACT ERRED IN CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT; 30. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT ERRED IN INITIATING THE PENALTY PROCEEDINGS UNDER S ECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT; THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFO RE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORD ING TO LAW. EACH OF THE ABOVE GROUND OF APPEAL IS INDEPENDENT AND WI THOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL PREFERRED BY THE APP ELLANT. GROUNDS OF APPEAL IN RELATION TO DESIGN ENGINEERING SERVICES SEGMENT OF APPELLANT REVISED GROUND 16. ERRED IN ACCEPTING THE FOLLOWING ADDITIONAL COM PANIES AS COMPARABLE BASED ON UNREASONABLE COMPARABILITY CRIT ERIA: PAGE 7 OF 20 IT(TP)A NO. 830/BANG/2017 HOLTEC CONSULTING PRIVATE LIMITED; TRACTEBEL CONSULTING ENGINEERS PRIVATE LIMITED (FOR MERLY KNOWN AS CETHAR CONSULTING ENGINEERS LIMITED); MAHINDRA ENGINEERING SERVICES LIMITED; AND TCE CONSULTING ENGINEERS LIMITED. 25. ERRED IN INCORRECTLY COMPUTING THE OPERATING MA RGINS OF THE FOLLOWING COMPANIES CONSIDERED AS COMPARABLE IN THE TP ORDER TO THE DESIGN ENGINEERING SERVICES SEGMENT OF THE APPELLAN T: CADES DIGITECH PRIVATE LIMITED; HOLTEC CONSULTING PRIVATE LIMITED; ONWARD TECHNOLOGIES LIMITED; AND MAHINDRA ENGINEERING SERVICES LIMITED. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES TO LEAVE OR ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. LEARNED AR OF THE ASSESSEE SUBMITTED A GROUND WI SE SUMMARY AND HE SUBMITTED THAT IN THIS SUMMARY, IT IS STATED BY HIM THAT SOME GROUNDS BEING GROUND NOS. 1 TO 3, 15 ARE GENERAL AND SOME GROUNDS BEING GROUND NOS. 4,5, 8 TO 10 AND 17 TO 23 ARE NOT PRESSED. HE SUBMITTED THAT AS PER THE SAME GROUND WISE SUMMARY, GROUND NO. 29 ABOUT INTEREST U /S 234B IS CONSEQUENTIAL AND GROUND NO. 30 ABOUT INITIATION OF PENALTY PROCE EDINGS U/S 271 (1) ( C) IS PREMATURE. ACCORDINGLY, THESE GROUNDS ARE REJECTED. WE HAVE TO DECIDE GROUND NOS. 6,7,11 TO 14, 16, 24 TO 28 AND ADDITIONAL GROU NDS 31 & 32. HE ALSO SUBMITTED THAT IN LAST COLUMN OF THE SAME GROUND WI SE SUMMARY, THE ARGUMENTS OF THE ASSESSEE ARE NOTED AND THESE GROUN DS CAN BE DECIDED BY CONSIDERING THE SAME AND AFTER HEARING THE LEARNED DR OF THE REVENUE. WE THEREFORE, NOTE THE SAID SUBMISSIONS OF THE LEARNED AR OF THE ASSESSEE AND ALSO NOTE THE ARGUMENTS ADVANCED BY THE LEARNED DR OF THE REVENUE FOR EACH OF THE GROUNDS PRESSED BEFORE US AND DECIDE THESE G ROUNDS. 4. REGARDING GROUND NO. 6, IT IS SUBMITTED BY THE L EARNED AR OF THE ASSESSEE IN LAST COLUMN OF THE SAME GROUND WISE SUMMARY THAT TH E TPO HAS REMOVED MISCELLANEOUS INCOME FROM OPERATING INCOME AND CONS IDERED DONATION AS OPERATING EXPENSES WITHOUT GIVING ANY OPPORTUNITY T O THE ASSESSEE. IT IS ALSO A SUBMISSION THAT THIS MATTER CAN BE REMANDED BACK TO AO/TPO TO DECIDE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE. LEARNED D R OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. PAGE 8 OF 20 IT(TP)A NO. 830/BANG/2017 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT ON PAGES 42 TO 47 OF THE APPEAL MEMO IS THE COPY OF ORDER DATED 29.11.20 16 PASSED BY TPO U/S 154 AND ON PAGES 14 TO 19 OF THE APPEAL MEMO IS THE ORDER DATED 09.02.2017 PASSED BY THE TPO AS ORDER GIVING EFFECT TO DRP ORD ER. IN THE ORDER DATED 29.11.2016 ON PAGE NO. 42 OF APPEAL MEMO, IT IS NOT ED BY THE TPO THAT THE ASSESSEE FILED A RECTIFICATION APPLICATION RAISING TWO POINTS ABOUT MANUFACTURING SEGMENT. FIRST POINT IS THIS THAT INCREASE IN STOCK WAS WRONGLY ADDED INSTEAD OF REDUCING THE SAME FROM OPERATING EXPENSES. SECOND P OINT NOTED BY TPO IS THIS THAT AS PER THE ASSESSEE, THERE IS INAPPROPRIATE CO MPUTATION OF T P ADJUSTMENT ON THE TOTAL TURNOVER OF THE ASSESSEE FROM MANUFACT URING OPERATIONS INSTEAD OF INTERNATIONAL TRANSACTIONS PERTAINING TO MANUFACTUR ING OPERATIONS. BUT ON THE NEXT PAGE I.E. PAGE NO. 43, THE TPO HAS CORRECTLY R EDUCED THE AMOUNT OF INCREASE IN STOCK FROM OPERATING EXPENSES RS. 692,5 5,657/-. THE SECOND CLAIM ABOUT ALLEGED MISTAKE IN COMPUTATION OF T P ADJUSTM ENT ON THE TOTAL TURNOVER OF THE ASSESSEE FROM MANUFACTURING OPERATIONS INSTEAD OF INTERNATIONAL TRANSACTIONS PERTAINING TO MANUFACTURING OPERATIONS WAS REJECTED BY THE TPO. BUT IN ADDITION TO THIS, THE TPO HAS OMITTED THE IN CLUSION OF MISC. INCOME RS. 525,846/- IN OPERATING INCOME (OR) WITHOUT ANY DISC USSION IN THIS REGARD. IN THIS ORDER, HE HAS REDUCED RS. 15,000/- FROM OPERAT ING EXPENSES. IN THE ORDER DATED 09.02.2017 PASSED BY THE TPO AS ORDER GIVING EFFECT TO DRP ORDER ON PAGE 17, MISC. INCOME OF RS. 525,846/- WAS NOT ADDE D IN OPERATING INCOME. ON THE SAME PAGE, IT IS NOTED THAT DONATION PAID RS. 1 5,000/- WAS REDUCED FROM OPERATING EXPENSES AS PER THE ORDER OF TPO DATED 22 .01.2016 BUT AS PER POST DRP ORDER, THIS AMOUNT IS NOT REDUCED FROM OPERATIN G EXPENSES ALTHOUGH WE FIND THAT IN ORDER DATED 29.11.2016 ALSO PASSED U/S 154, THIS AMOUNT OF RS. 15,000/- WAS REDUCED FROM OPERATING EXPENSES. BUT W E FIND THAT ON PAGE 13 OF DRP ORDER, IT IS HELD BY DRP BY FOLLOWING A TRIBUNA L ORDER RENDERED IN THE CASE OF SAP LABS INDIA LTD. IN ITA NO. 398/BANG/2008 THA T DONATION IS AN OPERATING EXPENDITURE. HENCE, IN OUR CONSIDERED OPINION, NO O PPORTUNITY OF HEARING IS REQUIRED TO BE GIVEN BY AO/TPO IN THIS REGARD AND S INCE, LEARNED DRP HAS FOLLOWED A TRIBUNAL ORDER RENDERED IN THE CASE OF S AP LABS INDIA LTD. (SUPRA) FOR DECIDING THIS ISSUE, WE FIND NO INFIRMITY ON TH IS ASPECT REGARDING NON REDUCTION OF DONATION FROM OPERATIVE EXPENSES. BUT REGARDING NON INCLUSION OF PAGE 9 OF 20 IT(TP)A NO. 830/BANG/2017 MISC. INCOME IN OR, WE FIND FORCE IN THIS SUBMISSIO N OF THE LEARNED AR OF THE ASSESSEE THAT THIS MATTER BE REMANDED BACK TO AO/TP O TO DECIDE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY, WE RESTORE THIS MATTER BACK TO AO/TPO TO DECIDE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE. GROUND NO. 6 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. REGARDING GROUND NO. 7, IT IS SUBMITTED BY THE L EARNED AR OF THE ASSESSEE IN LAST COLUMN OF THE SAME GROUND WISE SUMMARY THAT IN A. Y. 2010 11 & 2011 12, SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE AND THE MATTER WAS RESTORED TO AO/TPO IN THESE TWO YEARS AN D HENCE, IN THE PRESENT YEAR ALSO, THIS MATTER SHOULD BE RESTORED TO AO/TPO . IT WAS SUBMITTED THAT RELEVANT PORTION OF THE TRIBUNAL ORDER FOR A. Y. 20 10 11 IS AVAILABLE ON PAGES 1050 1051 OF THE PAPER BOOK AND RELEVANT PORTION OF THE TRIBUNAL ORDER FOR A. Y. 2011 12 IS AVAILABLE ON PAGES 1080 1081 OF T HE PAPER BOOK. AS AGAINST THIS, LEARNED DR OF THE REVENUE SUBMITTED THAT A. Y . 2010 11 WAS THE FIRST YEAR OF OPERATION AND A. Y. 2011 12 WAS SECOND YE AR OF OPERATION OF THE ASSESSEE AND THE PRESENT YEAR IS THIRD YEAR OF OPER ATION AND THEREFORE, EARLIER TRIBUNAL ORDERS CANNOT BE BLINDLY FOLLOWED. HE SUPP ORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT IN A. Y. 2010 11, THE TRIBUNAL HAS DECIDED TWO ISSUES TOGETHER IN RESPECT OF ABNORMAL EXPENDITURE CONSIDERED AS OPERATING IN NATURE AND NON ALLOWANCE OF CAPACITY UTILIZATION ADJUSTMENT. IN A. Y. 2011 12, ALSO, BOTH THESE IS SUES WERE DECIDED TOGETHER BY FOLLOWING THE EARLIER TRIBUNAL ORDER. IN THE PRE SENT YEAR, THERE IS NO ISSUE RAISED BEFORE US ABOUT NON ALLOWANCE OF CAPACITY UT ILIZATION ADJUSTMENT. BUT THE ISSUE REGARDING ABNORMAL EXPENDITURE CONSIDERED AS OPERATING IN NATURE IS IDENTICAL AND ONLY DIFFERENCE IN FACTS POINTED OUT BY THE LEARNED DR OF THE REVENUE IS THIS THAT IN THOSE TWO YEARS FOR WHICH T HE TRIBUNAL ORDER IS AVAILABLE, THE YEAR INVOLVED WAS FIRST AND SECOND YEAR OF OPER ATION AND IN THE PRESENT CASE, IT IS THIRD YEAR OF OPERATION. THIS MAY BE A MATERIAL DIFFERENCE BUT HOW IT IS IMPORTANT IN THE PRESENT CASE, HE COULD NOT ELABORA TE. HENCE, WE FEEL IT PROPER TO RESTORE THIS ISSUE BACK TO AO/TPO AS IN THOSE TW O EARLIER YEARS WITH THE DIRECTION THAT THE AO/TPO SHOULD DECIDE THIS ISSUE AFRESH AFTER PROVIDING PAGE 10 OF 20 IT(TP)A NO. 830/BANG/2017 ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND IF THE ASSESSEE CAN ESTABLISH THAT THE EXPENDITURE IN QUESTION (CLAIMED BY THE ASSESSEE AS ABNORMAL EXPENDITURE) IS NOT AN OPERATING EXPENDITU RE, THEN THE SAME SHOULD BE EXCLUDED FROM OPERATING EXPENDITURE. GROUND NO. 7 IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT GROUND TO BE DECIDED BY US IS GROUND NO . 11 IN RESPECT OF NOT GRANTING OF WORKING CAPITAL ADJUSTMENT. IN THIS REG ARD, IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE IN LAST COLUMN OF THE GR OUND WISE SUMMARY THAT PARA 13 OF THE TRIBUNAL ORDER IN ASSESSEES OWN CAS E FOR A. Y. 2010 11 SHOULD BE CONSIDERED TO DECIDE THIS GROUND. HENCE, WE REPR ODUCE THE SAME FROM PAGES 1050 1051 OF THE PAPER BOOK AS UNDER:- 13. THE ASSESSEE HAS BENCH MARKED ITS INTERNATIONAL TRANSACTIONS IN MANUFACTURING SEGMENT BY CONSIDERING THE COMPOSITE TRANSACTION OF SALE AS WELL AS ROYALTY PAID TO THE AE. THE TPO HAS SEPARATED THE ROYALTY FROM MANUFACTURING TRANSACTION SEGMENT AND TREATED THE ALP AT NIL. WE HAVE ALREADY SET ASIDE THE ISSUE OF ALP OF ROYALTY TO THE RECORD OF THE TPO/A.O. AS REGARDS THE ISSUE RAISED IN THE MANUFACTURING SEGMENT FOR NON-GRANT OF WORKING CAPI TAL ADJUSTMENT ABNORMAL EXPENDITURE AND NON-ALLOWANCE OF CAPACITY UTILISATION, WE FIND THAT IT IS THE FIRST YEAR OF THE ASSESSEES MA NUFACTURING ACTIVITY THEN THE ISSUE OF CAPACITY UTILISATION ADJUSTMENT I S REQUIRED TO BE EXAMINED BY CONSIDERING THE LEVEL OF CAPACITY UTILI SATION OF THE ASSESSEE AS WELL AS THE COMPARABLE. ACCORDINGLY, WE SET ASIDE THIS MATTER OF TP ADJUSTMENT IN MANUFACTURING SEGMENT TO THE RECORD OF THE TPO TO CONSIDER THE ADJUSTMENT ON ACCOUNT OF CA PACITY UNDER- UTILISATION AS WELL AS EXCLUDING THE ABNORMAL EXPEN DITURE. NEEDLESS TO SAY THAT THE ASSESSEE BE GIVEN AN APPROPRIATE OPPOR TUNITY OF HEARING BEFORE DECIDING THE ISSUE AFRESH. 9. FROM THE ABOVE PARA OF THE TRIBUNAL ORDER FOR A. Y. 2010 11, IT IS SEEN THAT IN THIS PARA, THE TRIBUNAL HAS DECIDED TWO GROUNDS I.E . GROUND NO. 3 AND 4 WHICH ARE REGARDING ABNORMAL EXPENDITURE CONSIDERED AS OP ERATING IN NATURE AND NON ALLOWANCE OF CAPACITY UTILIZATION ADJUSTMENT AND TH EREFORE, THIS PARA IS NOT RELEVANT TO DECIDE GROUND NO. 11 IN THE PRESENT APP EAL. IN ADDITION TO THIS, IT IS SUBMITTED IN LAST COLUMN OF THE GROUND WISE SUMMARY THAT AS PER PARA 4.7 OF THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN AY 2007 08 ALSO, THIS ISSUE IS COVERED. THIS JUDGMENT IS AVAILABLE ON RECORD. W E FIND THAT IN THIS JUDGMENT, IT IS NOTED THAT THERE ARE FOUR SUBSTANTIAL QUESTIO N OF LAW AND OUT OF THAT, PAGE 11 OF 20 IT(TP)A NO. 830/BANG/2017 SUBSTANTIAL QUESTION OF LAW NO. 3 & 4 ARE REGARDING THIS ISSUE I.E. WORKING CAPITAL ADJUSTMENT. QUESTION NO. 2 IS ABOUT THE EXC LUSION OF SOME COMPARABLES. THESE THREE QUESTIONS I.E. QUESTION NO . 2 TO 4 ARE DECIDED TOGETHER. HONBLE HIGH COURT HAS REPRODUCED PARA NO . 12 TO 14 OF THE TRIBUNAL ORDER IN THAT YEAR AND WE FIND THAT THESE PARAS OF THAT TRIBUNAL ORDER ARE REGARDING EXCLUSION OF SOME COMPARABLES I.E. QUESTI ON OF LAW NO. 2 AND THEREAFTER, HONBLE HIGH COURT HAS REPRODUCED RELEV ANT PARAS OF ITS OWN JUDGMENT RENDERED IN THE CASE OF PCIT VS. M/S SOFTB RANDS INDIA PVT. LTD. IN ITA NO. 536 & 537/2015 DATED 25.06.2018 AND FINALLY HEL D THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION AND THE AP PEAL FILED BY THE REVENUE WAS DISMISSED. HENCE, AS PER THIS JUDGMENT, THERE IS NO DISCUSSION ABOUT THIS ISSUE IN RESPECT OF WORKING CAPITAL ADJUSTMENT BUT THIS V ERY FACT THAT THIS ISSUE WAS RAISED BY THE REVENUE IN THIS APPEAL FILED BEFORE H ONBLE HIGH COURT, ESTABLISHES ONE THING THAT ON THIS ISSUE, THE TRIBUNAL ORDER IN THAT YEAR WAS IN FAVOUR OF THE ASSESSEE WHICH IS NOT REVERSED BY THIS JUDGMENT OF HONBLE HIGH COURT. SINCE, THE JUDGMENT OF HONBLE HIGH COURT IS SILENT ON THI S ISSUE, THE LEARNED AR OF THE ASSESSEE SHOULD HAVE BROUGHT ON RECORD THE TRIBUNAL ORDER FOR THAT YEAR. SINCE THIS WAS NOT DONE, WE FEEL IT PROPER TO RESTORE THI S MATTER BACK TO CIT (A) FOR A FRESH DECISION AFTER CONSIDERING THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR A. Y. 2007 08. IF SOME LATER YEARS ORDER OF THE TRI BUNAL OR ANY SPEAKING ORDER OF HONBLE HIGH COURT IS AVAILABLE BY THAT TIME, LEARN ED CIT (A) SHOULD CONSIDER THAT ALSO AND SHOULD DECIDE THIS ISSUE AFRESH AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. GROUND NO . 11 IS ALLOWED FOR STATISTICAL PURPOSES. 10. THE NEXT GROUND TO BE DECIDED BY US IS GROUND N O. 12 IN RESPECT OF THIS CLAIM OF THE ASSESSEE THAT TP ADJUSTMENT SHOULD BE RESTRI CTED TO INTERNATIONAL TRANSACTIONS WITH AE. IN THIS REGARD, IT IS SUBMITT ED BY THE LEARNED AR OF THE ASSESSEE IN LAST COLUMN OF THE GROUND WISE SUMMARY THAT PARA 21 TO 23 OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR A. Y. 201 0 11 AVAILABLE ON PAGES 1060 TO 1061 OF THE PAPER BOOK AND PARA 10 OF THE T RIBUNAL ORDER IN ASSESSEES OWN CASE FOR A. Y. 2011 12 AVAILABLE ON PAGES 108 1 TO 1083 OF THE PAPER BOOK SHOULD BE CONSIDERED TO DECIDE THIS GROUND. LE ARNED DR OF THE REVENUE PAGE 12 OF 20 IT(TP)A NO. 830/BANG/2017 SUBMITTED THAT THE PRODUCT SUPPLIED TO AE AND OTHER S IS NOT SAME AND THEREFORE, THE ASSESSEE HAS TO PROVIDE BIFURCATION OF COST OF THE PRODUCTS SUPPLIED TO AE AND OTHERS AND THEN ONLY, TP ADJUSTMENT CAN BE MADE IN RESPECT OF SUPPLIES TO AE ALONE AND IN THE ABSENCE OF THAT, THE TP ADJUSTM ENT HAS TO BE MADE ON TOTAL SALES. IN REJOINDER, IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT THE PRODUCT SUPPLIED TO AE AND OTHERS ARE SAME. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN PARA 23 OF THE TRIBUNAL ORDER FOR A. Y. 2010 11, THE TRIBUNAL DI RECTED THE TPO TO CONFINE THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIO N ONLY. IN A. Y. 2011 12, THE TRIBUNAL FOLLOWED THE EARLIER TRIBUNAL ORDER AND DI RECTED THE TPO TO CONFINE THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIO N ONLY. NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY THE LEARNED DR OF THE REVEN UE IN THE PRESENT YEAR AS COMPARED TO THESE EARLIER TWO YEARS AND HENCE, WE F IND NO REASON TO TAKE A DIFFERENT VIEW IN THE PRESENT YEAR. THEREFORE, RESP ECTFULLY FOLLOWING THE EARLIER TRIBUNAL ORDERS, WE DIRECT THE TPO TO CONFINE THE A DJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTION ONLY. THIS GROUND IS ALLO WED. 12. THE NEXT GROUND TO BE DECIDED BY US IS GROUND N O. 13 IN RESPECT OF THIS CLAIM OF THE ASSESSEE THAT TP ADJUSTMENT SHOULD BE DETERM INED AFTER ALLOWING +/- 5 PERCENT AS AVAILABLE UNDER PROVISO TO SECTION 92C ( 2) OF I T ACT. IN THIS REGARD, IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE IN L AST COLUMN OF THE GROUND WISE SUMMARY THAT THIS LEGAL GROUND MAY BE REMANDED BACK TO AO/TPO WITH THE DIRECTION TO ALLOW THIS CLAIM AS PER LAW. LEARN ED DR OF THE REVENUE HAD NOTHING TO SAY IN THIS REGARD. WE DIRECT THE AO/TPO TO EXAMINE THIS CLAIM OF THE ASSESSEE AND DECIDE THE SAME AS PER LAW. THIS GROUN D IS ALLOWED FOR STATISTICAL PURPOSES. 13. THE NEXT GROUND TO BE DECIDED BY US IS GROUND N O. 14 IN RESPECT OF THIS CLAIM OF THE ASSESSEE THAT TPO HAS REMOVED MISC. INCOME F ROM OPERATING INCOME IN RELATION TO DESIGN ENGINEERING SERVICES SEGMENT WIT HOUT GIVING OPPORTUNITY TO THE ASSESSEE. LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ARGUMENTS ARE SAME AS ARE RAISED IN RESPECT OF GROUND NO. 6 FOR T HE SAME CLAIM IN RESPECT OF MANUFACTURING SEGMENT. GROUND NO. 6 WAS DECIDED AS PER PARA NO. 5 ABOVE PAGE 13 OF 20 IT(TP)A NO. 830/BANG/2017 AND ABOUT THIS ISSUE I.E. REMOVAL MISC. INCOME FROM OPERATING INCOME FOR THAT SEGMENT, IT WAS HELD THAT REGARDING NON INCLUSION O F MISC. INCOME IN OR, THERE IS FORCE IN THIS SUBMISSION OF THE LEARNED AR OF TH E ASSESSEE THAT THIS MATTER BE REMANDED BACK TO AO/TPO TO DECIDE IT AFRESH AFTER G IVING OPPORTUNITY TO THE ASSESSEE. THIS MATTER ABOUT THAT SEGMENT WAS REMAND ED BACK TO AO/TPO TO DECIDE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSES SEE. ON SIMILAR LINE, ABOUT THIS SEGMENT ALSO, WE HOLD THAT THERE IS FORCE IN T HIS SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT THIS MATTER BE REMANDED BAC K TO AO/TPO TO DECIDE IT AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE. AC CORDINGLY, THIS MATTER ABOUT THIS SEGMENT IS REMANDED BACK TO AO/TPO TO DECIDE A FRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE. THIS GROUND NO. 14 IS ALLOWED FOR STATISTICAL PURPOSES. 14. THE NEXT GROUNDS TO BE DECIDED BY US ARE GROUND NO. 16 AND 24 IN RESPECT OF THIS CLAIM OF THE ASSESSEE THAT IN RESPECT OF DESIG N ENGINEERING SERVICES SEGMENT, THE TPO HAS WRONGLY ADDED CERTAIN COMPANIE S AS COMPARABLES BASED ON UNREASONABLE COMPARABILITY CRITERIA AND WR ONGLY EXCLUDED TWO COMPANIES. IN THIS REGARD, IT IS SUBMITTED BY THE L EARNED AR OF THE ASSESSEE IN LAST COLUMN OF THE GROUND WISE SUMMARY THAT DIRECTI ON CAN BE GIVEN BASED ON THE SUMMARY CHART SUBMITTED BY HIM. AS PER THE SAID SUMMARY CHART, THE AR OF THE ASSESSEE IS REQUESTING FOR EXCLUSION OF FOUR CO MPARABLES I.E. (1) HOTLEC CONSULTING PVT. LTD., (2) TRACTEBEL CONSULTING ENGI NEERS PVT. LTD., (3) MAHINDRA ENGINEERING SERVICES LTD. & (4) TCE CONSULTING ENGI NEERS LTD. AND REQUESTING FOR INCLUSION OF TWO COMPARABLES I.E. (1) TATA ELXS I LTD. AND (2) TANEJA AEROSPACE & AVIATION LTD. REGARDING THE REQUEST FOR EXCLUSION OF THE FIRST COMPANY, I.E. ENGINEERS PVT. LTD., HE PLACED RELIAN CE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF BECHTEL INDIA PVT. LTD. VS. DCIT IN ITA NO. 1477/DEL/2015 DATED 20.11.2015 FOR A. Y. 2004 - 05 AVAILABLE ON PAGES 1550 TO 1553 OF THE PAPER BOOK. REGARDING EXCLUSION OF T HE SECOND COMPANY I.E. TRACTEBEL CONSULTING ENGINEERS PVT. LTD., THE ASSES SEE HAS TWO OBJECTIONS THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND IT HAS S UPER NORMAL PROFIT. FOR THE THIRD COMPANY I.E. MAHINDRA ENGINEERING SERVICES LTD., IT IS SUBMITTED THAT THIS COMPANY HAS RPT OF 53.99% AND THE TPO HAS ERRONEOUS LY COMPUTED THE RPT PAGE 14 OF 20 IT(TP)A NO. 830/BANG/2017 PERCENTAGE. FOR THE FOURTH COMPANY I.E. TCE CONSULT ING ENGINEERS LTD. , HE PLACED RELIANCE ON TWO TRIBUNAL ORDERS RENDERED IN THE CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. VS. ACIT IN IT (TP) A NO. 291/BANG/2015 DATED 28.04.2017 FOR A. Y. 2010 11 AVAILABLE ON PAGES 1564 TO 1569 OF THE PAPER BOOK AND RENDERED IN THE CASE OF DELL INTERNATIONAL SERVICES INDIA PVT. LTD. VS. DCIT IN IT (TP) A NO. 85/BANG/2014 & CO NO. 21/BANG/2016 DATED 13.10.2017 FOR A. Y. 2005 06 AVAILABLE ON PAGES 1570 TO 1605 OF THE PAPER BOOK. REGARDING THE REQUEST FO R INCLUSION OF TWO COMPANIES I.E. TATA ELXSI LTD. AND TANEJA AEROSPACE & AVIATION LTD., IT IS SUBMITTED THAT ONLY THE REQUEST FOR INCLUSION OF TA NEJA AEROSPACE & AVIATION LTD. IS PRESSED AS PER SUMMARY CHART. THIS COMPANY IS FUNCTIONALLY SIMILAR BUT STILL EXCLUDED ON THIS BASIS THAT THIS WAS NOT TAKE N AS COMPARABLE IN THE ORIGINAL TP STUDY AND THEREFORE, REQUEST FOR INCLUSION AT A LATER STAGE IS CHERRY PICKING. COMMON OBJECTION ABOUT BOTH THESE GROUNDS IS THIS T HAT THE ORDER OF DRP IS CRYPTIC. LEARNED DR OF THE REVENUE SUPPORTED THE OR DERS OF TPO/AO/DRP. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT BOTH THESE ISSUES WERE RAISED BY THE ASSESSEE BEFORE DRP AS PER OBJECTION NO. 13 AND 14. ON PAGE 17 OF ITS ORDER, THE DRP HAS ALSO NOTED THAT THE ASSES SEE HAS OBJECTED THESE FOUR COMPARABLES ON FUNCTIONALITY AND FOR EARNING SUPER NATURAL PROFITS BUT LEARNED DRP HAS PASSED A CRYPTIC ORDER IN THIS REGARD BY SA YING THAT THE TPO HAS EXAMINED THE OBJECTIONS OF THE ASSESSEE AND HE HAS RECORDED HIS FINDINGS IN PARA 13.2 OF TP ORDER. WE FIND THAT THERE IS NO IND EPENDENT FINDING OF DRP ABOUT THESE TWO OBJECTIONS RAISED BY THE ASSESSEE I .E. FUNCTIONALITY AND FOR EARNING SUPER NATURAL PROFITS. REGARDING THE NEXT G ROUND I.E. GROUND NO. 24 FOR INCLUSION OF ONE COMPARABLE I.E. TANEJA AEROSPACE & AVIATION LTD. ALSO, THE DRP HAS PASSED A CRYPTIC ORDER BY SAYING THAT TPO H AS EXAMINED THE ASSESSEES REQUEST AND HAS RECORDED HIS FINDINGS WI TH WHICH THEY ARE IN AGREEMENT. HENCE, WE FEEL IT PROPER TO RESTORE BOTH THESE MATTERS TO DRP FOR A FRESH DECISION BY WAY OF A SPEAKING AND REASONED OR DER AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. ACCORDINGLY, GROUND NO. 14 IS ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO. 24 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PAGE 15 OF 20 IT(TP)A NO. 830/BANG/2017 16. THE NEXT GROUND TO BE DECIDED BY US IS GROUND N O. 25 IN RESPECT OF ASSESSEES CLAIM THAT TPO HAS MADE INCORRECT COMPUTATION OF OP ERATING MARGIN OF COMPANIES CONSIDERED AS COMPARABLE IN ITS ORDER IN RESPECT OF DESIGN ENGINEERING SERVICES SEGMENT OF THE ASSESSEE. IT W AS SUBMITTED THAT THIS OBJECTION WAS RAISED BEFORE DRP AS PER GROUND OF OB JECTION NO. 15. BUT THE DRP HAS SIMPLY DIRECTED THE AO TO CORRECT THE ARITH METICAL ERRORS IN THE MARGIN COMPUTATION OF THE COMPANIES POINTED OUT BY THE ASS ESSEE WHILE GIVING EFFECT TO THE DIRECTIONS OF DRP IN THE DRP ORDER. HE SUBM ITTED THAT DRP SHOULD HAVE DIRECTED TO RECTIFY OTHER ERRORS ALSO IN MARGIN COM PUTATION AND NOT ONLY ARITHMETICAL ERRORS. HE ALSO DRAWN OUR ATTENTION TO PAGE NOS. 141 AND 142 OF THE APPEAL MEMO AND POINTED OUT THAT THE OPERATING MARG IN OF M/S. CADES DIGITECH PVT. LTD. IS 1.13% AND THE SAME FOR HOLTEC CONSULTI NG PVT. LTD. IS 48.48% AND FOR MAHINDRA ENGINEERING SERVICES LTD. IT IS 26.77% AND FOR ONWARD TECHNOLOGIES LTD. IT IS 15.21%. BUT THE TPO ON PAG E NO. 11 OF ITS ORDER HAS CONSIDERED OPERATING MARGIN OF M/S. CADES DIGITECH PVT. LTD. AT 2.92%, FOR HOLTEC CONSULTING PVT. LTD. HE HAS CONSIDERED OPERA TING MARGIN AT 59%, FOR MAHINDRA ENGINEERING SERVICES LTD. HE HAS CONSIDERE D THE OPERATING MARGIN AT 30.68%. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS ISSUE MAY BE RESTORED BACK TO THE FILE OF AO/TPO/DRP FOR FRESH DECISION. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND FORCE IN THIS SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT THIS ISSUE MAY BE RESTORED BACK TO THE FILE OF AO/TPO FOR FRESH DECISION AFTER PROVIDING OPPORT UNITY OF BEING HEARD TO ASSESSEE. IN VIEW OF THE FACTS NOTED ABOVE, WE FEE L IT PROPER TO RESTORE BACK THE MATTER TO THE FILE OF AO/TPO FOR FRESH DECISION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BECAUSE ONLY CORRECT OPERATING MARGIN OF THE COMPARABLE SHOULD BE ADOPTED FOR THE PURPOSE OF TP ANALYSIS. WE ORDER ACCORDINGLY. THIS GROUND IS ALLOWED FOR S TATISTICAL PURPOSES. 18. GROUND NO. 26 IS REGARDING NON-GRANTING OF WORK ING CAPITAL ADJUSTMENT. IN THIS REGARD, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT IN PAGE 16 OF 20 IT(TP)A NO. 830/BANG/2017 ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 AND ALSO BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 20 10-11 AND RELEVANT PART OF THIS TRIBUNAL ORDER IS PARA NO. 13 AVAILABLE ON PAGES 1050 TO 1051 OF PAPER BOOK. THE LD. DR OF REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE ISSUE REGARDING WORKING CAPITAL ADJUSTMENT WAS RAISED BY ASSESSEE B EFORE DRP AS PER GROUND OF OBJECTION NO. 7. THIS ISSUE WAS DECIDED BY DRP ON PAGE NO. 9 OF ITS ORDER AND THEREIN IT IS HELD BY DRP THAT WHEN THE MARGIN OF THE CASE OF THE ASSESSEE AS WELL AS COMPARABLES ARE CONSIDERED BY EXCLUDING THE FINANCE COST, NO SEPARATE ADJUSTMENT IS REQUIRED TO BE GIVEN. IN OU R CONSIDERED OPINION, THIS FINDING OF DRP IS NOT PROPER BECAUSE WORKING CAPITA L ADJUSTMENT IS NOT ON ACCOUNT OF FINANCE COST INCURRED BY THE TESTED PART Y OR THE COMPARABLES. WORKING CAPITAL ADJUSTMENT IS FOR THIS REASON THAT IF MORE CREDIT IS ALLOWED TO THE CUSTOMERS, HIGH PRICES ARE LIKELY TO BE REALISE D AND IF MORE CREDIT PERIOD IS AVAILED FROM SUPPLIER THEN IT IS LIKELY THAT MORE P RICES ARE TO BE PAID AND THEREFORE, IN A CASE WHERE WORKING CAPITAL IS HIGH, PROFIT IS LIKELY TO BE BE HIGHER AS COMPARED TO A COMPANY WHERE WORKING CAPITAL IS L OW. IN ASSESSMENT YEAR 2010-11 IN ASSESSEES OWN CASE, IN PARA 13 OF THAT TRIBUNAL ORDER IN THAT YEAR, THIS ISSUE REGARDING WORKING CAPITAL ADJUSTMENT WAS RESTORED BACK BY THE TRIBUNAL TO THE FILE OF TPO FOR FRESH DECISION AFTE R PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HAV E ALREADY NOTED THAT THE BASIS OF THE DECISION OF DRP IN THIS REGARD IS NOT PROPER AND HENCE, WE FEEL IT PROPER TO RESTORE BACK THIS ISSUE TO THE FILE OF AO /TPO FOR FRESH DECISION AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING H EARD TO ASSESSEE. WE ORDER ACCORDINGLY. GROUND NO. 26 IS ALLOWED FOR STATISTI CAL PURPOSES. 20. THE NEXT ISSUE IS AS PER GROUND NO. 27 IN RESPE CT OF NON-GRANTING OF RISK ADJUSTMENT. IT IS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS ISSUE CAN BE REMANDED TO THE FILE OF AO/TPO FOR FRESH DECISION A FTER PROVIDING OPPORTUNITY TO ASSESSEE. THE LD. DR OF REVENUE SUPPORTED THE ORDE RS OF AUTHORITIES BELOW. 21. THE LD. AR OF ASSESSEE ALSO SUBMITTED THAT ON P AGE NO. 147 OF THE APPEAL MEMO IS THE WORKING OF THE ASSESSEE IN RESPECT OF A SSESSEES CLAIM FOR RISK ADJUSTMENT. PAGE 17 OF 20 IT(TP)A NO. 830/BANG/2017 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THIS ISSUE WAS RAISED BY ASSESSEE BEFORE DRP AS PER GROUND OF OBJECTION N O. 16. THIS ISSUE WAS DECIDED BY THE DRP AS PER PARA NO. 2.13 OF ITS ORDE R ON PAGES 18 AND 19 OF ITS ORDER. FOR THE SAKE OF READY REFERENCE, WE REPRODU CE THIS PARA FROM THE ORDER OF DRP. 2.13 GROUND OF OBJECTION NO 16: RISK ADJUSTMENT DURING THE COURSE OF HEARING, THE AR SUBMITTED THAT IF GROUND NO 11 IS DECIDED FAVOURABLY THEN THE OTHER GROUNDS 12 TO 16 BECOME IN FRUCTUOUS AS THE MARGIN OF THE ASSESSEE FROM THE SEGMENT COMES TO 14.13%. HAVING DECIDED THE GROUND NO 11 IN ASSESSEE 'S FAVOUR WE TREAT GROUNDS 12 TO 16 AS WITHDRAWN/REJECTED. HAVING CONSIDERED THE SUBMISSIONS, IN ADDITION TO T HE REASONS GIVEN BY THE TPO, WE ARE OF THE VIEW THAT WHEN THE ARITHMETIC MEAN MARGIN IS TAKEN OF THE COMPARABLE COMPANIES IT TAKE S CARE OF THE ADJUSTMENTS ON ACCOUNT OF SUCH DIFFERENCES. FURTHER , THE HON'BLE ITAT MUMBAI IN THE CASE OF SYMANTEC SOFTWARE SOLUTIONS P VT LTD VS ACIT (2011) 46 SOT 48 (MUMBAI) HAS IN PARAGRAPH 16 OBSER VED THAT 'EVEN OTHERWISE, UNTIL AND UNLESS SUCH DIFFERE NCES RESULTS IN DEFLATION OR INFLATION OF FINANCIAL RESULT OF TH E COMPARABLES, IT IS NOT GENERAL RULE OF STANDARD ADJUSTMENT. THE ASSESSEE H AS NOT BROUGHT ON RECORD HOW SUCH FUNCTIONAL DIFFERENCE AND RISK HAS INFLUENCED THE RESULT OF THE COMPARABLES WITH QUANTIFIED DATA TO T HE SATISFACTION OF THE AUTHORITIES'. FURTHER, THE HON'BLE DELHI ITAT, IN THE CASE OF ACTIS GLOBAL SERVICES (P) LTD. V. ITO (2016) 150 TR (B) 8 09 (DEL-TRIB), DATED 10/12/2015, HELD THAT 'TPO HAD DENIED THE RISK ADJUSTMENT CLAIMED BY ASSE SSEE ON THE GROUND THAT ASSESSEE FAILED TO SHOW THAT THE CO MPARABLES HAD ACTUALLY UNDERTAKEN SUCH RISK AND FAILED TO DEMONST RATE HOW THE SAME MATERIAL AFFECTED FROM MARGINS. HE POINTED OUT THAT UNLESS IT WAS SHOWN THAT HOW THE RISK ADJUSTMENT WAS TO FETCH THE RESULT OF EACH COMPARABLE AND HOW THE SAME WOULD IMPROVE THE COMPA RABILITY AND UNLESS ADEQUATE REASONS WERE GIVEN FOR SUCH ADJUSTM ENT, NO ADJUSTMENT COULD BE ALLOWED TO TAXPAYER. UNLESS THE DIFFERENCE COULD BE ASCERTAINED ACCURATELY AND THEIR IMPORT ON THE M ARGIN COULD BE ASSESSED WITH REASONABLE ACCURACY, THE ADJUSTMENT C OULD NOT BE ALLOWED.' THE DETAILED FUNCTIONAL ANALYSIS OF THE COMPANIES M ENTIONED BY THE ASSESSEE IN ITS OBJECTION HAS BEEN CONSIDERED IN OU R DIRECTIONS LATER ON IN THIS ORDER. ACCORDINGLY, THIS OBJECTION IS NOT F OUND ACCEPTABLE AND REJECTED. 23. FROM THE ABOVE PARA REPRODUCED FROM THE ORDER O F DRP, IT IS SEEN THAT IT IS WAS NOTED BY DRP THAT THESE ARE THE SUBMISSIONS BEFORE DRP THAT IF GROUND OF PAGE 18 OF 20 IT(TP)A NO. 830/BANG/2017 OBJECTION NO. 11 IS DECIDED IN FAVOUR OF THE ASSESS EE THEN GROUND OF OBJECTION NOS. 12 TO 16 BECOME INFRUCTUOUS. THE DRP HELD THA T HAVING DECIDED THE GROUND OF OBJECTION NO. 11 IN ASSESSEES FAVOUR, TH EY TREAT THAT GROUND OF OBJECTION NOS. 12 TO 16 ARE WITHDRAWN AND ACCORDING LY REJECTED. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT AS PER GROUND OF OBJECTION NO. 11, THE ASSESSEES REQUEST WAS FOR NO N EXCLUSION OF CERTAIN NON- OPERATING EXPENSES WHILE COMPUTING MARGIN OF INTEVA BANGALORE UNIT. THIS REQUEST WAS IN RESPECT OF VARIOUS EXPENSES SUCH AS LOSS ON SALE OF FIXED ASSETS, DONATIONS PAID AND PRIOR PERIOD ADJUSTMENT OF MANAGEMENT FEES AND AS PER THE DECISION OF DRP ON PAGE NO. 13 OF ITS ORDER , IT WAS HELD THAT ASSESSEES CLAIM IS ALLOWABLE ONLY IN RESPECT OF SALE OF FIXED ASSETS AND OTHER CLAIMS ARE NOT ALLOWABLE. HENCE THIS IS NOT PROPER ON THE PAR T OF THE DRP IN STATING IN PARA 2.13 THAT GROUND OF OBJECTION NO. 11 OF ASSESSEES OBJECTIONS IS DECIDED IN FAVOUR OF THE ASSESSEE. APART FROM SAYING SO THAT THIS OBJECTION IS CONSIDERED AS WITHDRAWN / REJECTED, DRP HAS MADE DISCUSSION ON ANOTHER ASPECT OF THIS MATTER BUT SUCH DISCUSSION AND DECISION IS ALSO VER Y CRYPTIC AND HENCE, WE FEEL IT PROPER TO RESTORE THIS MATTER BACK TO THE FILE O F DRP FOR FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER AFTER PROVIDING RE ASONABLE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. ACCORDINGLY GROUND NO. 27 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 25. GROUND NO. 28 IS REGARDING TRANSFER PRICING ADJ USTMENT WITHOUT GIVING BENEFIT OF +/- 5 PERCENT AS AVAILABLE UNDER PROVISO TO SECTION 92C(2) OF IT ACT. REGARDING THIS ISSUE, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THIS IS LEGAL GROUND AND CAN BE REMANDED BACK WITH THE DIRECTION TO ALLOW AS PER LAW. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE RESTORE THIS MATTER BACK TO THE FILE OF AO/TPO WITH THE DIRECTION TO ALLOW THIS BENEFIT TO THE ASSESSEE AS PER LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 27. REGARDING GROUND NO. 29 IN RESPECT OF LEVY OF I NTEREST U/S. 234B OF IT ACT, IT WAS PAGE 19 OF 20 IT(TP)A NO. 830/BANG/2017 SUBMITTED THAT THIS GROUND IS CONSEQUENTIAL. REGAR DING GROUND NO. 30, IT IS SUBMITTED THAT IT IS PREMATURE. ACCORDINGLY THESE TWO GROUNDS ARE REJECTED. 28. NOW WE ARE LEFT WITH ADDITIONAL GROUND NOS. 31 AND 32. THESE GROUNDS ARE AS UNDER. GROUND 31- INAPPROPRIATELY CONSIDERING MISCELLANEOU S INCOME PERTAINING TO MANUFACTURING SEGMENT AMOUNTING TO IN R 5,25,846 AS NON-OPERATING AND DONATION EXPENSES AMOUNTING TO IN R 15,000 AS OPERATING IN NATURE THE LEARNED AO/TPO HAVE ERRED IN LAW AND IN FACTS B Y EXCEEDING JURISDICTION BY NOT GIVING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT AND ENHANCING THE TRANSFER PRICING ORDER BY SUO MOTO CONSIDERING MISCELLANEOUS INCOME AS NON-OPERATING W HICH WAS NOT CONTENDED BY THE APPELLANT IN THE RECTIFICATION APP LICATION FILED BEFORE TPO OR DIRECTED BY THE HON'BLE PANEL AND HENCE THE SAME SHOULD BE QUASHED; GROUND 32 - INAPPROPRIATELY CONSIDERING MISCELLANEO US INCOME PERTAINING TO DESIGN ENGINEERING SEGMENT AMOUNTING TO INR 53,26,497 AS NON-OPERATING AND DONATION EXPENSES AM OUNTING TO INR 5,471 AS OPERATING IN NATURE THE LEARNED AO/TPO HAVE ERRED IN LAW AND IN FACTS B Y EXCEEDING JURISDICTION BY NOT GIVING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT AND ENHANCING THE TRANSFER PRICING ORDER BY SUO MOTO CONSIDERING MISCELLANEOUS INCOME AS NON-OPERATING W HICH WAS NOT CONTENDED BY THE APPELLANT IN THE RECTIFICATION APP LICATION FILED BEFORE TPO OR DIRECTED BY THE HON'BLE PANEL AND HENCE THE SAME SHOULD BE QUASHED; THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY THE ABOVE GROUND OF APPEAL. 29. REGARDING GROUND NO. 31 RAISED BY THE ASSESSEE AS ADDITIONAL GROUND, IT IS SEEN THAT THE SAME ISSUE IS RAISED BY ASSESSEE AS P ER GROUND NO. 6 WHICH IS DECIDED AS PER PARA NO. 5 ABOVE AND HENCE, GROUND N O. 31 REQUIRES NO FURTHER ADJUDICATION. 30. REGARDING GROUND NO. 32 ALSO, IT IS SEEN THAT S AME ISSUE HAS BEEN RAISED BY ASSESSEE AS PER GROUND NO. 14 WHICH IS DECIDED AS P ER PARA NO. 13 ABOVE AND HENCE THIS GROUND IS ALSO NOT REQUIRED TO BE ADJUDI CATED UPON. PAGE 20 OF 20 IT(TP)A NO. 830/BANG/2017 31. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTA NT MEMBER BANGALORE, DATED, THE 18 TH JANUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.