Yazaki India Ltd., Pune V. Additional Commissioner of Income-tax,

ITA 886/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7472 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 02-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PAVAN R DUDHEDIYA; K VENKATACHALAM DINESH SUPEKAR
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Principle of natural justice; International transaction; Rule of consistency; Additional evidence; Corroborative evidences; Onus to prove
• Section: 92C; 43B; 143(3); 92D; 92F; 10B; 6; 139; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 8 86 /P U N/20 1 4 / ASSESSMENT YEAR : 20 0 5 - 06 YAZAKI INDIA LIMITED (FORMERLY KNOWN AS TATA YAZAKI AUTOCOMP. LTD.), GAT NO.93, SURVEY NO.166, HIGH CLIFF INDUSTRIAL ESTATE, WAGHOLI - RAHU ROAD, KESNAND, PUNE 414 207 . / APPELLANT PAN: AAACT5570F VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 7, PUNE . / RESPONDENT . / ITA NO. 1026 /P U N/20 1 4 / ASSESSMENT YEAR : 20 0 5 - 06 THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 7, PUNE . / APPELLANT VS. YAZAKI INDIA LIMITED (FORMERLY KNOWN AS TATA YAZAKI AUTOCOMP. LTD.), GAT NO.93, SURVEY NO.166, HIGH CLIFF INDUSTRIAL ESTATE, WAGHOLI - RAHU ROAD, KESNAND, PUNE 414 207 . / RESPONDENT PAN: AAAC T5570F ITA NO S . 886 & 102 6 /P U N/201 4 2 ASSESSEE BY : S /S HRI K. VENKATACHALAM, DINESH SUPEKAR AND PAVAN R. DUDHEDIYA REVENUE BY : S /S HRI RAJEEV KUMAR, CIT AND ACHAL S HARMA / DATE OF HEARING : 14 .0 6 . 201 7 / DATE OF PRONOUNCEMENT: 11 . 0 9 .201 7 / ORDER PER SUSHMA CHOWLA, J M : THE CROSS APPEAL S FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT (A) - IT/TP, P UNE , DATED 2 0.02.2014 RELATING TO ASSESSMENT YEAR 20 0 5 - 06 PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SH ORT THE ACT) . 2 . T HE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO. 8 86 /P U N/20 1 4 HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL : - BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , YAZAKI INDIA LIMITED (HEREINAFTER REFERRED TO AS THE ' APPELLANT ' OR ' YIL ' ) RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL UNDER SECTION 253(1 )(A) OF THE INCOME TAX ACT , 1961 ( ' HEREINAFTER REFERRED TO AS ' THE ACT ' ) , AGAINST THE ORDER DATED 20 FEBRUARY 2014 (RECEIVED BY THE APPELLANT ON 3 MARCH 2014) PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)(HEREINAFTER REFE R RED TO AS THE ' LD. CIT(A)') ON THE FOLLOWING GROUNDS, WHICH ARE INDEPENDENT OF AND W I THOUT PREJUDICE TO EACH OTHER. CORPORATE TAX ADJUSTMENT GROUND 1: DISALLOWANCE OF PAYMENT OF EXCISE DUTY INCLUDING INTEREST THEREON BASED ON THE FACTS AND C I RCUMSTANCES OF THE CASE AND I N LAW , THE LD . CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F THE LD. AO IN DISALLOWING THE AMOUNT OF EXCISE DUTY AND INTEREST THEREON AMOUNTING TO RS . 11 , 60 , 72 , 000 . PRAYER THE APPELLANT PRAYS THAT THE AMOUNT OF EXCISE DUTY AND THE INTEREST THEREON OF RS . 11,60 , 72 , 000 BE ALLOWED AS A DEDUCTIBLE EXPENDITURE . ITA NO S . 886 & 102 6 /P U N/201 4 3 GROUN D 2: APPLICABILITY OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ON PAYMENT TOWARDS TECHNICAL FEES THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN DISALLOW I NG THE EXPENSES TOWARDS TECHNICAL FEES AMOUNTING TO RS. 2 , 45,515 BY HOLDING T HAT NO TAX HAS BEEN DEDUCTED AT SOURCE ON THE SAME. PRAYER THE APPELLANT PRAYS THAT THE PAYMENT MADE TOWARDS TECHN I CAL FEES OF RS . 2 , 45,515 BE ALLOWED AS A DEDUCTIBLE EXPENDITURE. GROUND 3: APPLICABILITY OF THE PROVISIONS OF SECTION 40( A) OF THE ACT ON PAYMENT TOWARDS RENT THE LD. CIT(A) , HAS ERRED I N CONFIRMING THE ACTION OF THE LD. AO IN DISALLOWING EXPENSES TOWARDS REN T AMOUNTING TO RS . 1 , 37 , 595 BY HOLDING THAT NO TAX HAS BEEN DEDUCTED AT SOURCE ON THE SAME . PRAYER THE APPELLANT PRAYS THAT THE PAYM ENT MADE TOWARDS RENT OF RS . 1,37 , 595 BE ALLOWED AS A DEDUCTIBLE EXPENDITURE . TRANSFER PRICING ADJUSTMENT GROUND 4: GENERAL GROUND BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW , THE LD . CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE L D. ASSESSING OFFICER/TPO OF MAKING THE TRANSFER PRICING ADJUS T MENT IN CONNECTION WITH THE INTERNATIONAL TRANSACTIONS OF THE APPE L LANT . PRAYER THE APPELLANT PRAYS THAT THE TRANSFER PRICING ADJUSTMENT SHOULD BE DELETED. GROUND 5: TRANSACTIONAL LEVEL ANA LYSIS BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LD. ASSESSING OFFICER/TPO IN REJECTING THE TRANSACTIONAL LEVEL ANALYSIS AS DOCUMENTED IN THE TRANSFER PRICING STUDY REPORT AND SELECTI NG TRANSACTIONAL NET MARGI METHOD (HEREINAFTER REFERRED TO AS THE 'TNMM ' ) AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT . PRAYER THE APPELLANT PRAYS THAT THE TRANSACTIONAL LEVEL ANALYSIS AS SUBMITTED BY THE APPEL L ANT SHOULD BE ACCEPTED. GROUND 6: APPLICATION OF TNMM AS MOST APPROPRIATE METHOD BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD . CIT(A) HAS ERRED IN CONFIRMING THE FOLLOWING ACTIONS OF LD. ASSESSING OFFICER. 6.1 SELECTING IN APPROPRIATE COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACT I ONS OF THE APPELLANT UNDER TNMM. PRAYER THE APPELLANT PRAYS THAT THE LD. AO/TPO SHOULD BE DIRECTED TO SELECT APPROPRIATE COMPARABLE AS SUBMITTED IN THE FORM OF ADDITIONAL EVIDENCE TO ITA NO S . 886 & 102 6 /P U N/201 4 4 LD.CI T(A). 6.2 COMPUTING THE OPERATING MARGIN OF THE APPELLANT AFTER CONSIDERING THE EXTRAORDINARY EXPENDITURE IN RELATION TO EXCISE DUTY PAYMENT AMOUNTING TO RS.52,678,000 AS AN OPERATING EXPENSE. PRAYER THE APPELLANT PRAYS THAT THE EXCISE DUTY PAYMENT AMOUNTING TO RS.52,678,000 SHOULD BE CONSIDERED AS EXTRAORDINARY EXPENDITURE WHILE CALCULATING THE OPERATING MARGIN OF THE APPELLANT. 6.3 NOT ALLOWING FOR DEPRECIATION ADJUSTMENT FOR THE DIFFERENCE BETWEEN THE APPELLANT VIS - A - VIS COMPARABLES. PRAYER THE APPELLANT PRAYS THAT THE EXCESS DEPRECIATION AMOUNTING TO RS.82,28,000 SHOULD NOT BE CONSIDERED WHILE CALCULATING THE OPERATING MARGIN OF THE APPELLANT. GROUND 7 : REJECTION OF COMPARABLES SUBMITTED AS ADDITIONAL EVIDENCE TO LD.CIT(A). BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN REJECTING THE COMPARABLES SUBMITTED AS ADDITIONAL EVIDENCE. PRAYER THE APPELLANT PRAYS THAT THE COMPARABLES AS SUBMITTED BY THE APPELLANT SHOULD BE ACCEPTED. GROUND 8 : PROP ORTIONATE ADJUSTMENT BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LD. AO IN COMPUTING TRANSFER PRICING ADJUSTMENT ON THE BASIS OF ENTITY LEVEL SALES INSTEAD OF COMPUTING A PROPORTIONATE ADJUSTMENT ONLY IN CONNECTION WITH THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT. PRAYER THE APPELLANT PRAYS THAT THE TRANSFER PRICING ADJUSTMENT IF ANY, SHOULD BE COMPUTED ON PROPORTIONATE BASIS. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER OR OMI T ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 4. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS , WHICH READ AS UNDER : - GROUND NO.9 : ERROR IN COMPUTATION OF APPELLANTS OPERATING MARGIN 9.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LEARNED TPO ERRED IN COMPUTING THE OPERATING MARGIN OF THE APPELLANT BY TREATING ITEMS SUCH AS LOAN PROCESSING CHARGES, LOSS ON DISPOSAL OF ASSETS AND INTEREST ON LOANS AS OPERATING IN NATURE. ITA NO S . 886 & 102 6 /P U N/201 4 5 IT IS PRAYED THAT THE ABOVE ITEMS BEING NON - OPERATING IN NAT URE SHOULD BE EXCLUDED FROM THE COMPUTATION OF OPERATING MARGIN OF THE APPELLANT AND THE CORRECT MARGIN BE CONSIDERED FOR THE PURPOSE OF TRANSFER PRICING ANALYSIS. 9.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED IN COMPUTING THE OPERATING MARGIN OF THE APPELLANT BY TREATING THE ITEM OF SCRAP SALES AS NON - OPERATING IN NATURE. IT IS PRAYED THAT SCRAP SALES BEING OPERATING IN NATURE SHOULD BE INCLUDED IN THE COMPUTATION OF OPERATING MARGIN OF THE APPELLANT AND THE CORR ECT MARGIN BE CONSIDERED FOR THE PURPOSE OF TRANSFER PRICING ANALYSIS. GROUND NO.10 : ECONOMIC ADJUSTMENT FOR HIGHER IMPORT CONTENT 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED IN NOT GRANTING ECONOMIC ADJUSTMEN T FOR THE DIFFERENCES ON ACCOUNT OF IMPORT CONTENT BETWEEN THE APPELLANT VIS - - VIS COMPARABLE COMPANIES. IT IS PRAYED THAT AN ADJUSTMENT SHOULD BE GRANTED TO THE APPELLANT FOR ITS HIGHER IMPORT CONTENT VIS - - VIS COMPARABLE COMPANIES WHILE DETERMINING THE OPERATING MARGIN OF THE APPELLANT FOR TRANSFER PRICING ANALYSIS. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT O R BEFORE THE APPEAL HEARING. 5. THE REVENUE IN ITA NO. 1026 /PUN/201 4 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) - IT/TP ERRED IN DIRECTING THAT DISALLOWANCE ON ACCOUNT OF PAYMENT OF EARLIER ASSESSMENT YEARS EXCISE DUTY IN CURRENT ASSESSMENT YEAR BE ADDED TO M/S. YAZAKI INDIA LIMITEDS PROFIT FOR CALCULATION OF PROFIT LEVEL INDICATOR (PLI). 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) - IT /TP IS JUSTIFIED IN DIRECTING THAT WHILE DISALLOWANCE ON ACCOUNT OF PAYMENT OF EARLIER ASSESSMENT YEARS EXCISE DUTY IN CURRENT ASSESSMENT YEAR BE ADDED TO PROFIT IN CALCULATION OF PROFIT LEVEL INDICATOR (PLI) FOR M/S. YAZAKI INDIA LIMITED, WHEN PLI OF COM PARABLE COMPANIES WAS DIRECTED TO BE CALCULATED AS PER FINANCIAL RESULTS. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) - IT/TP ERRED IN DIRECTING THAT WHILE DISALLOWANCE ON ACCOUNT OF PAYMENT OF EARLIER ASSESSMENT YEARS EXCISE DUTY IN CURRENT ASSESSMENT YEAR BE ADDED TO PROFIT IN CALCULATION OF PROFIT LEVEL INDICATOR (PLI) FOR M/S. YAZAKI INDIA LIMITED, SHOULD NOT HAVE DIRECTED THAT HIGHER FIGURE OF THE TWO ADDITIONS OF (A) TP ADJUSTMENT OF RS.14.09 CRORE OR (B) DISALLOWA NCE ON ACCOUNT OF PAYMENT OF EARLIER ASSESSMENT YEARS EXCISE DUTY IN CURRENT ASSESSMENT YEAR OF RS.11.60 CRORES BE CONFIRMED. 4. THE APPELLANT CRAVES TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL. ITA NO S . 886 & 102 6 /P U N/201 4 6 6. FIRST, WE SHALL TAKE UP THE CORPORATE ISSUES RAIS ED BY THE ASSESSEE VIDE GROUNDS OF APPEAL NO.1 TO 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN DISALLOWING THE AMOUNT OF EXCISE DUTY AND INTEREST THEREON AMOUNTING TO RS.11,60,72,000/ - . 7. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FURNISHED THE RETURN OF INCOME DECLARING NIL INCOME. THE CASE OF ASSESSEE WAS PICKED UP FOR SCRUTINY. THE ASSESSEE WAS A LEADING MANUFACTURER OF INTEGRATED HARNESS AND ELECTRICAL DISTRIBUTION SYSTEM FOR THE AUTOMOTIVE INDUSTRIES. IN COLUMN 22(B) OF THE AUDIT REPORT IN FORM 3CD, THE ASSESSEE HAD REPORTED PRIOR PERIOD EXPENSES OF RS.5,26,74,668/ - BEING EXCISE DUTY IN RESPECT OF PRIOR YEARS, WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE WAS ASKE D TO JUSTIFY THE CLAIM OF EXPENSES TOTALING RS.11,60,72,000/ - COMPRISING OF THE FOLLOWING: - SR.NO. PARTICULARS AMOUNT (RS.) 1 DEFICIT EXCISE DUTY FOR 2004 - 05 5,26,78,000 2 DEFICIT EXCISE DUTY FOR EARLIER YEARS 5,26,75,000 3 INTEREST ON DEFICIT EXCISE DU TY 1,07,19,000 TOTAL 11,60,72,000 8. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE DEFICIT EXCISE DUTY OF EARLIER YEARS AND INTEREST ON DEFICIT EXCISE DUTY SHOULD NOT BE DISALLOWED. THE ASSESSING OFFICER ALSO NOTED THAT THERE WAS PENALTY IMPO SED AT RS.11 LAKHS AND WHY THE SAME SHOULD NOT BE DISALLOWED. THE ASSESSEE IN REPLY, POINTED OUT THAT IT HAD PAID DEFICIT EXCISE DUTY OF RS.11.60 CRORES INCLUDING THE DEFICIT OF RS.5,26,75,000/ - IN RESPECT OF EARLIER YEARS. THE LIABILITY HAD CRYSTALLIZED DURING THE YEAR AFTER SEARCH BY THE EXCISE DEPARTMENT AND HENCE, IT WAS PROVIDED FOR DURING THE YEAR AND PAID OFF TILL JULY, 2005 I.E. BEFORE DUE DATE FOR FILING THE RETURN OF INCOME. THE ASSESSEE CLAIMED THAT EXCISE DUTY WAS A STATUTORY DUTY AND IN ITA NO S . 886 & 102 6 /P U N/201 4 7 ANY CASE, ITS DEDUCTION WAS GOVERNED UNDER THE PROVISIONS OF SECTION 43B OF THE ACT. THE ASSESSEE ALSO CLARIFIED THAT IT WAS NEITHER FINE NOR PENALTY, HENCE, ALLOWABLE. IN RESPECT OF INTEREST ON DEFICIT EXCISE DUTY OF RS.1.07 CRORES, THE ASSESSEE ALSO CLAIME D THAT THE LIABILITY HAD CRYSTALLIZED DURING THE YEAR AFTER SEARCH BY THE EXCISE DEPARTMENT, WHICH WAS PROVIDED FOR DURING THE YEAR AND PAID OFF TILL JULY, 2005. INTEREST WAS PAID UNDER SECTION 11AB OF CENTRAL EXCISE ACT, 1944 READ WITH RULE 12 OF CENVAT RULES 2002. THE SAID INTEREST WAS DUE BECAUSE OF DELAY IN PAYMENT OF EXCISE DUTY AFTER THE PRESCRIBED DUE DATE. THUS, THE SAID INTEREST WAS COMPENSATORY PAYMENT TO GOVERNMENT I.E. TO COMPENSATE FOR DELAY IN PAYMENT OF DUTY AND WAS NEITHER FINE NOR PENALT Y. IT WAS A STATUTORY DUTY WHICH WAS PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME AND WAS ALLOWABLE IN THE HANDS OF ASSESSEE. THE ASSESSEE ALSO EXPLAINED THAT PENALTY OF RS.11 LAKHS IMPOSED BY THE EXCISE DEPARTMENT WAS NEITHER PROVIDED NOR PAI D DURING THE YEAR, IT WAS MERELY A CONTINGENT LIABILITY. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD TWO WORK UNITS - ONE EXPORT ORIENTED UNIT (EOU) UNIT AND ONE DOMESTIC TARIFF AREA (DTA) UNIT. WHILE THE DTA UNIT WAS IN OPERATION SINCE 1998 FROM GAT NO.93, S.NO.166, HIGHCLIFF INDUSTRIAL AREA, WAGHOLI RAHU ROAD, KESNAND, PUNE, THE EOU WAS SET UP IN JULY 2002 BY CONVERTING A PART OF EXISTING DTA UNIT INTO EOU UNIT. NO DEDUCTION UNDER SECTION 10B OF THE ACT WAS CLAIMED FOR 100% EOU UNIT. THE ASSESS EE HAD WAIVED THE EXCISE AND CUSTOMS DUTY ON EXPORT AND IMPORT IN RESPECT OF EOU UNIT. THE ASSESSEE HAD IMPORTED CAPITAL GOODS, SPARES, COMPONENTS AND DUTY FREE MATERIAL THROUGH EOU UNIT. AS PER THE NORMS LAID DOWN IN EXIM POLICY FOR THE TIME BEING IN FO RCE, FOR IMPORT OF DUTY FREE RAW MATERIAL, CAPITAL GOODS AND COMPONENTS, THE ASSESSEE WAS COMPULSORILY REQUIRED TO EXPORT ITS ENTIRE PRODUCTION FROM THE EOU UNIT, EXCEPT FOR THE QUANTUM PERMITTED BY THE DEVELOPMENT COMMISSIONER, SEEPZ, WHICH COULD BE SOLD THROUGH DTA UNIT FOR INTERNAL CONSUMPTION. DUE TO SELF DECLARATION OF ITS ITA NO S . 886 & 102 6 /P U N/201 4 8 EXPORT PERFORMANCE BETWEEN THE FINANCIAL YEARS 2002 - 03 TO 2004 - 05 I.E. UPTO THE DATE OF SEARCH, THE ASSESSEE WAS ALLOWED TO REMOVE GOODS WORTH RS.10.93 CRORES FOR INTERNAL CONSUMPTI ON AS PER EXIM POLICY. THE CUSTOMS & EXCISE DEPARTMENT FOUND THAT THE ASSESSEE HAD REMOVED MORE THAN STIPULATED AMOUNT / QUANTITY OF WIRE HARNESS MANUFACTURED IN THE 100% EOU FOR SALE IN DTA UNIT TO CLIENTS LIKE HONDA SIEL CARS LTD., TOYATA KIRLOSKAR MOTO RS LTD. AND GENERAL MOTORS INDIA LTD. IT WAS ADMITTED BY THE ASSESSEE THAT GOODS MANUFACTURED IN 100% EOU UNIT WERE CLEARED FOR SALE TO CUSTOMERS IN DTA UNIT, ON THE INVOICES OF DTA UNIT, UNDER THE GUISE OF PRODUCTION IN DTA UNIT. IT WAS ALSO FOUND THAT THE ASSESSEE HAD MANIPULATED ITS STATUTORY RECORDS TO SHOW THAT WIRE HARNESSES MANUFACTURED IN 100% EOU UNIT FROM JUNE, 2002 TO JANUARY, 2005 AND SOLD TO TOYATA KIRLOSKAR WERE MANUFACTURED IN THE DTA UNIT. SIMILARLY, STATUTORY RECORDS WERE MANIPULATED FOR THE PERIOD JUNE, 2002 TO MAY, 2004, IN RESPECT OF SALES EFFECTED TO GENERAL MOTORS AND HONDA SIEL CARS LTD. THE STATUTORY RECORDS WERE ALSO MANIPULATED FOR THE PERIOD JUNE, 2004 TO JANUARY, 2005 TO SHOW THAT THE GOODS MANUFACTURED IN 100% EOU WERE TRANSF ERRED TO DTA UNIT FOR SALES AFTER PROCESSING, WHEREAS NO SUCH TRANSFER OR PROCESSING HAD TAKEN PLACE IN DTA UNIT, GENERAL MOTORS AND HONDA SIEL CARS LTD. IT WAS THUS, FOUND THAT THE CLAIM OF RS.10.93 CRORES, EXCEPT FOR THE AMOUNTS OF RS.1.84 CRORES, OUT O F RS.10.93 CRORES FOR THE QUARTER ENDING 31.03.2003, IN RESPECT OF SALE ENTITLEMENTS FOR DTA SALES WAS ALSO FALSE AND MISLEADING AND IN FACT THE ASSESSEE WAS NOT PERMITTED TO AVAIL ANY SUCH ENTITLEMENT. THE ASSESSEE HAD WRONGLY AVAILED CENVAT CREDIT. THE ASSESSING OFFICER THUS, FOUND THAT THE ASSESSEE HAD PLANNED THE ENTIRE FRAUD WITH THE SOLE AND MALAFIDE INTENTION OF MISUSE OF DUTY FREE RAW MATERIAL FOR THE MANUFACTURE OF GOODS FOR SALE TO CUSTOMERS IN DTA AND TO EVADE PAYMENT OF CENTRAL EXCISE, CUSTOMS DUTIES. THE ASSESSEE WAS THUS, FOUND TO HAVE INFRINGED THE PROVISO TO SECTION 3(1) OF CEA, 1944. CONSEQUENT TO SEARCH, ITA NO S . 886 & 102 6 /P U N/201 4 9 THE ASSESSEE ADMITTED THE CHARGES LEVELED BY THE EXCISE DEPARTMENT IN ITS SHOW CAUSE NOTICE FOR INFRINGEMENT OF LAW AND PAID DEFAULTED DUTIES AND INTEREST THEREON, AGGREGATING TO RS.11.60 CRORES. THE SAID WERE CLAIMED AS EXPENSES BY THE ASSESSEE. THE ASSESSING OFFICER NOTES THAT THE ASSESSEE HAD CARRIED OUT THE SAID OFFENCES SYSTEMATICALLY OVER THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEARS 2003 - 04, 2004 - 05 AND 2005 - 06. THE ASSESSEE HAD SYSTEMATICALLY OVER THE SAID PERIOD REMOVED THE GOODS WORTH RS.45.32 CRORES WITHOUT PAYMENT OF EXCISE DUTY AND SOLD IT TO THE CUSTOMERS IN DTA . IN FACT, THE EXCISE DEPARTMENT HAD PROVED THAT THAT AT TH E TIME OF MANUFACTURE, THE ASSESSEE WAS IN ABSOLUTE KNOWLEDGE OF THE FACT THAT THE FACILITIES OF 100% EOU WERE BEING USED TO MANUFACTURE PRODUCTS FOR SALE TO CLIENTS SITUATED IN DTA, HENCE, THE LIABILITY ARISEN TO THE ASSESSEE ON ACCOUNT OF PAYMENTS MADE F OR THE OFFENCES COMMITTED UNDER VARIOUS PROVISIONS OF CUSTOMS AND CENTRAL EXCISE ACTS WAS SPREAD OVER THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEARS MENTIONED . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD SYSTEMATICALLY PERPETUATED THE FRAUD ON THE CUSTOMS AND CENTRAL EXCISE DEPARTMENT FOR A PROLONGED PERIOD, WITH INTENTION TO MISUSE THE FACILITIES GIVEN TO 100% EOU UNIT BY THE EXIM POLICY 2002 - 07, THROUGH DUTY FREE IMPORTS, USE OF CENVAT CREDIT AND DTA SALES ENTITLEMENT, ONLY FOR THE P URPOSE OF EVASION OF CENTRAL EXCISE DUTY. THE ASSESSEE INDULGED IN CLANDESTINE REMOVAL OF GOODS FROM 100% EOU UNIT DIRECTLY TO CUSTOMERS ON DTA INVOICES, DUTY FREE IMPORT OF RAW MATERIAL AND COMPONENTS, MISREPRESENTATION TO THE DEVELOPMENT COMMISSIONER, S EEPZ FOR CLAIMING WRONGFUL DTA SALE ENTITLEMENTS, MANIPULATION OF STATUTORY RECORDS OF 100% EOU AND DTA. AS PER THE ASSESSING OFFICER, THESE ACTS WERE PROHIBITED UNDER THE CENTRAL EXCISE RULES, 2002. RULE 4 OF CENTRAL EXCISE RULES PROHIBITS THE REMOVAL O F GOODS, ON WHICH CENTRAL EXCISE DUTY IS PAYABLE, FROM THE PLACE OF MANUFACTURE OR PRODUCTION, WITHOUT PAYMENT OF DUTY. FURTHER, RULE 11 PROHIBITS ITA NO S . 886 & 102 6 /P U N/201 4 10 THE REMOVAL OF EXCISABLE GOODS WITHOUT INVOICES. RULE 17 MAKES IT MANDATORY FOR PAYMENT OF CENTRAL EXCISE O N REMOVAL OF ANY GOODS MANUFACTURED IN 100% EOU UNIT TO DTA UNIT. THE ASSESSING OFFICER THUS, WAS OF THE VIEW THAT THE ABOVE PAYMENTS WERE MADE FOR PURPOSES WHICH WERE OFFENCES IN LAW. THE EXPENSES WHICH WERE INCURRED ON ACCOUNT OF INFRINGEMENT OF LAW OF EXCISE / CUSTOMS DEPARTMENT INCLUDING THE INTEREST PAYABLE ON ACCOUNT OF PAYMENT FOR THESE OFFENCES, AS PER THE ASSESSING OFFICER, TOOK THE COLOUR FROM OFFENCE AND HELD THAT THE SAID EXPENSES WERE NOT ALLOWABLE AS BUSINESS EXPENSES UNDER THE INCOME TAX AC T. THE EXPENDITURE INCURRED IN CONNECTION WITH OR IN RELATION TO THE ACTIVITIES WHICH ARE PROHIBITED IN LAW, AS PER THE ASSESSING OFFICER, COULD NOT BE ALLOWED AS BUSINESS EXPENDITURE BECAUSE THE BUSINESS OF REMOVAL AND SALE OF ARTICLES OR GOODS, WITHOUT PAYMENT OF SAID LEVIES WAS BOTH ILLEGAL AND NOT ALLOWED. 9. THE SECOND ASPECT WHICH WAS CONSIDERED BY THE ASSESSING OFFICER WAS WHETHER OR NOT THE SAID EXPENDITURE ON DUTY AND INTEREST WAS AN ADMISSIBLE EXPENSE UNDER SECTION 43B OF THE ACT. THE EXPENSE S PERTAINING TO PREVIOUS YEARS RELATING TO ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 WERE PART AND PARCEL OF EXPENSES PERTAINING TO PREVIOUS YEAR RELATING TO ASSESSMENT YEAR 2005 - 06 ; THEY WERE NOT BOOKED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. HENCE, THE ASSES SEE CLAIMED THAT THEY HAD CRYSTALLIZED ONLY DURING THE YEAR AND THE SAME WERE CLAIMED AS DEDUCTION. REFERRING TO VARIOUS PROVISIONS OF CENTRAL EXCISE RULES, 2002, THE ASSESSING OFFICER HELD THAT THE LIABILITY TO BE CHARGED WITH EXCISE DUTY AROSE ON PRODUC TION OR MANUFACTURE OF GOODS OR ARTICLES AND THE SAME HAD TO BE PAID IMMEDIATELY ON REMOVAL OF GOODS. SINCE THE ASSESSEE HAD REMOVED THE GOODS IN VARIOUS YEARS WITHOUT PAYMENT OF EXCISE DUTY AND SINCE ALL THE GOODS WERE CLANDESTINELY REMOVED FROM 100% EOU UNIT FOR SALE TO DTA UNIT DURING THE ITA NO S . 886 & 102 6 /P U N/201 4 11 RELEVANT PREVIOUS YEAR, THEN LIABILITY TO PAY EXCISE DUTY AROSE AND CRYSTALLIZED AT THE TIME OF REMOVAL AND NOT AT THE TIME OF DETECTION OF NONPAYMENT BY THE CENTRAL E XCISE DEPARTMENT. THE ASSESSING OFFICER REFERRED T O THE PROVISIONS OF SECTION 43B OF THE ACT THAT IN RESPECT OF STATUTORY DUES, DEDUCTION IS TO BE ALLOWED IN THE COMPUTATION OF INCOME IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY WAS INCURRED BY THE ASSESSEE, ACCORDING TO THE METHOD OF A CCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IN OTHER WORDS, LIABILITY TO MAKE PAYMENTS HAD TO BE DISCHARGED BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME AS STIPULATED IN SECTION 139(1) OF THE ACT. THE ASSESSING OFFICER THUS, NOTED THAT WHERE THE ASSESSEE HAD NOT RECORDED EXCISE DUTY PAYABLE IN ITS BOOKS OF ACCOUNT IN RESPECT OF CLANDESTINE TRANSACTIONS AND SINCE THE ASSESSEE HAD NOT CHOSEN TO BOOK THE SAID ITEMS OF EXPENSES IN ITS AMOUNTS, DURING THE RELEVANT PREVIOUS YEAR, THEN THE SAME COULD NO T BE ALLOWED AS BUSINESS EXPENSES DURING THE PREVIOUS YEAR IN WHICH THE SAME WERE PAID. THE ASSESSING OFFICER FURTHER HELD THAT THE SAME ALSO INCLUDES PAYMENT OF EXCISE DUTY MADE DURING THE YEAR AFTER THE DISCOVERY OF FRAUD BY THE EXCISE DEPARTMENT FOR TH E REASON THAT THE ASSESSEE HAD NOT MADE DECLARATION TO THAT EFFECT IN THE DIRECTORS OR THE AUDITORS REPORT DURING THE RELEVANT PREVIOUS YEAR . THE PLEA OF ASSESSEE THAT THE SAID PAYMENTS HAD CRYSTALLIZED DURING THE YEAR AFTER THE DISCOVERY BY THE EXCISE DEPARTMENT AND WERE PAID CONSEQUENTLY, WAS NOT ACCEPTED AND THE ENTIRE AMOUNT WAS DISALLOWED IN THE HANDS OF ASSESSEE. 10. THE NEXT CORPORATE ISSUE WHICH WAS CONSIDERED BY THE ASSESSING OFFICER WAS THE PAYMENT OF ROYALTY AND INTEREST THEREON, WHEREIN THE ASSESSEE HAD PAID SUM OF RS.5,11,217/ - . THE ASSESSEE FAILED TO DEDUCT TDS ON THE SAME AND HENCE, THE SAME W ERE ADDED UNDER SECTION 40(A) OF THE ACT. ITA NO S . 886 & 102 6 /P U N/201 4 12 11. SIMILARLY, NO TDS WAS DEDUCTED ON PART PAYMENT OF TECHNICAL FEES OF RS.2,97,467/ - WHICH WAS ALSO ADDE D UNDER SECTION 40(A) OF THE ACT. 12. THE NEXT EXPENDITURE CONSIDERED BY THE ASSESSING OFFICER WAS SALES PROMOTION EXPENSES AND MISCELLANEOUS EXPENSES OF RS.3,83,110/ - WHICH WAS REIMBURSED TO TACO FOR EXPENSES INCURRED BY THEM. THE ASSESSEE CLAIMED THAT EXPENSES OF RS.1,37,595/ - WERE ON ACCOUNT OF RENT TO JAMSHEDPUR OFFICE . A S THE PAYMENT OF RENT ATTRACTS TDS PROVISIONS, THE ASSESSEE WAS TO DEDUCT TAX FROM THE PAYMENT TO TACO. SINCE THE ASSESSEE HAD FAILED TO SO DEDUCT, THEN SUM OF RS.1,37,595/ - WAS ADD ED TO THE INCOME OF ASSESSEE. FURTHER, RS.2,45,515/ - WAS PAID TO TACO FOR TECHNICAL FEES FOR MR. SHINOHARA FROM JAPAN. THE PAYMENT OF TECHNICAL FEES ALSO ATTRACTS PROVISIONS OF TDS AND SINCE NO TDS WAS DEDUCTED, THE SAME WAS ADDED TO THE INCOME OF ASSESS EE. 13. ANOTHER ADJUSTMENT MADE IN THE HANDS OF ASSESSEE WAS ON ACCOUNT OF TRANSFER PRICING ISSUE, WHEREIN THE ASSESSING OFFICER HAD MADE REFERENCE UNDER SECTION 92CA(1) OF THE ACT . T HE TRANSFER PRICING OFFICER (TPO) VIDE ORDER PASSED UNDER SECTION 92C A(3) OF THE ACT, HAD PROPOSED AN UPWARD ADJUSTMENT OF RS.14,09,92,866/ - ON ACCOUNT OF INTERNATIONAL TRANSACTIONS, WHICH WAS ADOPTED BY THE ASSESSING OFFICER WHILE FRAMING ASSESSMENT. 14. NOW, COMING TO THE ORDER OF CIT(A). THE FIRST ISSUE OF DISALLOWAN CE ON PAYMENT OF EXCISE DUTY AND INTEREST THEREON, THE CLAIM OF THE ASSESSEE WAS THAT IT HAD VOLUNTARILY PAID THE EXCISE DUTY OF RS.10.53 CRORES UNDER THE PROVISO TO SECTION 3 AND THERE WAS NO ELEMENT OF PENALTY EMBEDDED THEREON. IN RESPECT OF ANOTHER PAY MENT OF RS.1,07,19,000/ - I.E. INTEREST ON DELAYED PAYMENT OF EXCISE DUTY WAS ALSO CLAIMED TO HAVE BEEN VOLUNTARILY PAID AND NO ELEMENT OF PENALTY ITA NO S . 886 & 102 6 /P U N/201 4 13 WAS EMBEDDED IN IT. THE ASSESSEE ALSO CLAIMED THAT THE SAID EXCISE DUTY AND INTEREST THEREON WAS ALLOWABLE UN DER SECTION 43B OF THE ACT BEING STATUTORY LIABILITIES. RELIANCE WAS PLACED ON VARIOUS DECISIONS BEFORE THE CIT(A). THE CIT(A) NOTED THAT THE ASSESSEE HAD MADE THE PROVISION FOR PAYMENT OF EXCISE DUTY IN CONSEQUENCE TO THE DISCOVERY OF REGULATORY LAPSES AND CONSEQUENT SHORTFALL IN PAYMENT OF EXCISE DUTY FOUND BY THE CENTRAL EXCISE AUTHORITIES. CONSEQUENTLY, THE ASSESSEE HAD PAID THE DEFICIT EXCISE DUTY OF RS.11.67 CRORES. THE ASSESSEE CONTENDED THAT IT HAD VOLUNTARILY PAID THE AMOUNT AND NOT AGAINST ANY NOTICE OR DEMAND RAISED BY THE AUTHORITIES. THE ASSESSEE HAD CONTENDED THAT THE PAYMENT IS COMPENSATORY IN NATURE AND IT WAS REQUIRED TO PAY THE SAID AMOUNTS BECAUSE OF ACTION TAKEN BY THE CENTRAL EXCISE AUTHORITIES. THE CIT(A) REFERRING TO THE ORDER OF SETTLEMENT COMMISSION, CUSTOMS AND CENTRAL EXCISE, NOTED T H AT THE COMMISSION HAD OBSERVED THE ASSESSEE TO HAVE MADE ARTFUL ATTEMPT TO CREATE FALSE EVIDENCE, CIRCUMSTANCES TO SUPPORT FALSE CONTENTIONS THAT THE GOODS WERE MANUFACTURED IN DTA UNIT. THE CIT( A) FURTHER OBSERVED THAT THE ASSESSEE DELIBERATELY DID NOT PAY THE EXCISE DUTY WHICH WAS DUE FROM IT. THEREFORE, IT WAS NOT A CASE OF SIMPLE PAYMENT OF EXCISE DUTY RELATABLE TO EARLIER YEARS BUT A PROVISION WAS CREATED ONLY AFTER THE EXCISE AUTHORITIES I NVESTIGATION AND RELATED TO DEFICIT EXCISE DUTY PERTAINING TO EARLIER YEARS. THE CIT(A) WAS OF THE VIEW THAT WHERE THE EXCISE DUTY RELATABLE TO EARLIER YEARS WAS DUE TO THE DEMAND NOTICE RAISED BY THE AUTHORITY, THEN THE SAME WAS ALLOWABLE. HOWEVER, IN T HE CASE OF ASSESSEE, IT CONSCIOUSLY CHOSE NOT TO PAY TAXES DUE TO IT IN THE RELEVANT YEARS AND HENCE, THE PAYMENT MADE AFTER DE TECTION OF TAX EVASION BY THE EXCISE AUTHORITIES IS NOT TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. THE CIT(A) FURTHE R HELD THAT THE PROVISIONS OF SECTION 43B OF THE ACT WERE NOT APPLICABLE BECAUSE THE ASSESSEE CONSCIOUSLY DID NOT PAY THE EXCISE DUTY AND DID NOT CLAIM ITS DEDUCTION IN THE RESPECTIVE YEARS. ITA NO S . 886 & 102 6 /P U N/201 4 14 15. IN RESPECT OF DISALLOWANCE UNDER SECTION 40(A)(I) OF THE AC T, THE ASSESSEE CLAIMED THAT IT DID NOT DEDUCT TAX ON PAYMENT OF INTEREST AND ROYALTY AND IN RESPECT OF OTHER PAYMENTS, SINCE THEY WERE IN THE NATURE OF REIMBURSEMENT, NO TAX WAS TO BE DEDUCTED. THE CIT(A) HELD THAT THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAXES ON CREATION OF PROVISION OF INTEREST AND ROYALTY. REGARDING TAXABILITY OF OTHER TRANSACTIONS, IT WAS NOTED THAT THE SAID PAYMENTS TOWARDS TECHNICAL FEES AND RENT TO JAMSHEDPUR OFFICE WERE NOT IN THE NATURE OF REIMBURSEMENT AND THE ASSESSEE WAS BOUN D TO DEDUCT TAX ON SOURCE. IN VIEW THEREOF, THE ADDITION WAS CONFIRMED. HOWEVER, IN RESPECT OF PAYMENT OF TECHNICAL FEES, SINCE THE ASSESSING OFFICER HAD NOT EXAMINED THE ASPECT OF REIMBURSEMENT, WAS HELD TO BE NOT SUSTAINABLE. THE FINDINGS OF CIT(A) IN RESPECT OF TRANSFER PRICING ADJUSTMENT OF RS.14.09 CRORES W OULD BE REFERRED WHILE DECIDING THE TP ISSUE. 16. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN RESPECT OF CLAIM OF DEDUCTION ON ACCOUNT OF EXCISE DUTY PAID AND INTEREST ON EXCISE DUT Y AFTER TAKING US THROUGH THE FACTS OF CASE, POINTED OUT THAT THE SAID DEMAND WAS RAISED DURING THE YEAR CONSEQUENT TO THE ACTION TAKEN BY THE EXCISE AUTHORITIES AND EVEN IF RELATED TO THE PAST YEARS, SINCE THE AMOUNT WAS PAID DURING THE YEAR AND WAS NOT C LAIMED IN EARLIER YEARS AS DEDUCTION, THE SAME WAS ALLOWABLE AS DEDUCTION UNDER SECTION 43B OF THE ACT. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF CHANDIGARH TRIBUNAL IN DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. (2007) 107 ITD 343 (SB) . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT UNDER THE PROVISIONS OF SECTION 43B OF THE RULES, THE YEAR TO WHICH THE SAID EXCISE DUTY RELATES DOES NO T MATTER AND ON PAYMENT OF EXCISE DUTY DUES, THE SAME ARE DEDUCTIBLE IN THE ITA NO S . 886 & 102 6 /P U N/201 4 15 HANDS OF ASSESSEE. OUR ATTENTION WAS DRAWN TO THE DETAILS OF EXCISE DUTY PAYMENT PLACED AT PAGE 150 OF THE PAPER BOOK . 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ASSESSEE WAS EVADING THE EXCISE DUTY AND AMOUNT WAS PAID ONLY ON DETECTION BY THE EXCISE AUTHORITIES. THE ASSESSEE HAD NOT MADE ANY PROVISION FOR PAYMENT OF EXCISE DUTY IN THE RESPECTIVE YEARS AND HENCE, THE PROVISIONS OF SECTION 43B OF THE ACT WOULD NOT APPLY. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN CHET NA ZARDA COMPANY VS. DCIT (2011) 16 TAXMANN.COM 61 (MUM.) 18. THE LEARNED AUTHORIZED REPRES ENTATIVE FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT SURELY THE ASSESSEE COMPANY HAD NOT PAID EXCISE DUTY BUT BECAUSE CONSEQUENT TO EXCISE AUTHORITIES ACTION, IT HAD PAID EXCISE DUTY AND ALSO THE INTEREST ON EXCISE DUTY. THE DEMAND WAS RAISED BECAUSE O F SHIFTING OF GOODS FROM 100% EOU UNIT TO DTA UNIT AND HENCE, ALLOWABLE IN THE HANDS OF ASSESSEE. IN RESPECT OF INTEREST COMPONENT, IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT IT WAS NOT INTEREST DEPOSIT BUT INTEREST PAID AND QUANTIFICATION OF THE SAME IS PROVIDED AT PAGE 215 OF THE PAPER BOOK. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD MADE PROVISION FOR EXCISE DUTY FOR THE EARLIER YEARS AND ALSO FOR CURRENT YEAR AND ALSO MADE A PROVISION FOR INTEREST ON EXCISE DUTY TOTALING RS.11.60 CRORES AND CLAIMED THAT THE SAID EXCISE DUTY WAS PAID BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME AND HENCE, WAS ITA NO S . 886 & 102 6 /P U N/201 4 16 ALLOWABLE AS DEDUCTION IN THE HANDS OF AS SESSEE. THE BREAK - UP OF RS.11.60 CRORES IS AS UNDER: - AMOUNT (RS.) PROVISION FOR EXCISE DUTY FOR FY 2002 - 03 78,74,000 PROVISION FOR EXCISE DUTY FOR FY 2003 - 04 4,48,01,000 PROVISION FOR EXCISE DUTY FOR FY 2004 - 05 5,26,78,000 PROVISION FOR INTEREST O N EXCISE DUTY 1,07,19,000 TOTAL 11,60,72,000 20. THE ASSESSEE HAD MADE NOTES 2(D) TO THE ACCOUNTS OF THE YEAR ENDING 31.03.2005 WHICH READS AS UNDER: - IN JANUARY, 2005, THE CENTRAL EXCISE AUTHORITIES HAD DETECTED CERTAIN SIGNIFICANT REGULATORY LAPSES I N THE MANNER IN WHICH GOODS MANUFACTURED IN THE EXPORT ORIENTED UNIT OF THE COMPANY, WERE CLEARED TO DOMESTIC CUSTOMERS AND THE CONSEQUENT SHORTFALL IN PAYMENT OF EXCISE DUTIES ON SUCH CLEARANCES. CONSEQUENT TO THIS THE COMPANY HAS PAID THE DEFICIENT DUTI ES OF RS.116,072 (000) [INCLUDING EXCISE DUTY OF RS.52,675(000) IN RESPECT OF THE EARLIER YEARS AND INTEREST THEREON OF RS.10,719 [000]. THESE PAYMENTS HAVE BEEN PROVIDED FOR IN THE ACCOUNTS OF THE COMPANY FOR THE YEAR ENDED MARCH 2005. HOWEVER NO PRO VISION HAS BEEN MADE IN THE ACCOUNTS FOR ANY PENALTIES THAT MAY BE LEVIED DUE TO REGULATORY LAPSES SINCE THE AUTHORITIES HAVE SO FAR NOT MADE ANY DEMAND FOR THE SAME AND THE SAME ARE NOT ASCERTAINABLE ON A REASONABLY ACCURATE BASIS. THE PENALTIES COULD BE LEVIED UNDER THE PROVISIONS OF THE CENTRAL EXCISE ACT, 1944, THE CUSTOMS ACT, 1962 AND THE FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT, 1992. 21. THE ASSESSEE HAD TWO UNITS OPERATING I.E. DTA UNIT AND 100% EOU UNIT . THE ASSESSEE DID NOT CLAIM ANY DEDU CTION UNDER SECTION 10B OF THE ACT FOR 100% EOU UNIT BUT IT WAIVED THE EXCISE AND CUSTOMS DUTY ON EXPORT AND IMPORT IN RESPECT OF SAID UNIT AS PER EXIM POLICY. AS PER THE NORMS OF SAID POLICY, FOR IMPORT OF DUTY FREE RAW MATERIAL, CAPITAL GOODS AND COMPON ENTS, THE ASSESSEE WAS COMPULSORILY REQUIRED TO EXPORT ITS ENTIRE PRODUCTION FROM 100% EOU UNIT EXCEPT FOR THE QUANTUM PERMITTED, WHICH COULD BE SOLD THROUGH DTA UNIT FOR INTERNAL CONSUMPTION. CONSEQUENT TO SEARCH OPERATION ON THE PREMISES OF ASSESSEE, TH E CUSTOMS & EXCISE DEPARTMENT FOUND THAT THE ASSESSEE HAD REMOVED MORE THAN STIPULATED AMOUNT / QUANTITY OF WIRE HARNESS MANUFACTURED IN 100% EOU UNIT FOR SALE IN DTA UNIT TO DIFFERENT CLIENTS IN INDIA. THE SAID SALE S TO ITA NO S . 886 & 102 6 /P U N/201 4 17 CUSTOMERS IN DTA UNIT WERE CLEARED ON THE INVOICES OF DTA UNIT. THE ASSESSEE WAS FOUND TO HAVE MANIPULATED ITS STATUTORY RECORDS TO SHOW THAT WIRE HARNESS MANUFACTURED IN 100% EOU UNIT SOLD IN DOMESTIC MARKET W ERE MANUFACTURED IN DTA UNIT. THE EXCISE AUTHORITIES COLLECTED THE DETAILS IN THIS REGARD AND IT WAS FOUND THAT THE ASSESSEE HAD ALSO WRONGLY AVAILED CENVAT CREDIT THROUGH MISREPRESENTATION. THE ASSESSEE THUS, WAS HELD TO HAVE MALAFIDELY MISUSED THE DUTY FREE RAW MATERIAL FOR THE MANUFACTURE OF GOODS FOR SALE TO CUSTOMERS IN DTA AN D TO EVADE THE PAYMENT OF EXCISE / CUSTOMS DUTY. CONSEQUENT TO SEARCH, THE ASSESSEE PAID THE DEFAULTED EXCISE DUTY AND INTEREST THEREON AGGREGATING TO RS.11.60 CRORES WHICH WAS CLAIMED AS BUSINESS EXPENDITURE BY THE ASSESSEE. THE SAID EXPENDITURE WAS NOT ALLOWED IN THE HANDS OF ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD SYSTEMATICALLY EVADED THE PAYMENT OF CENTRAL EXCISE AND THE LIABILITY AROSE TO THE ASSESSEE ON ACCOUNT OF PAYMENTS MADE FOR OFFENCES COMMITTED UNDER VARIOUS PROVISIONS OF CUSTOMS & EXCIS E ACT. THE CLAIM OF ASSESSEE THAT THE AMOUNT PAID ON ACCOUNT OF EXCISE DUTY IS DULY ALLOWABLE IN ITS HANDS IN THE YEAR OF PAYMENT, IN VIEW OF PROVISIONS OF SECTION 43B OF THE ACT, WAS NOT ACCEPTED ON THE GROUND THAT THE AMOUNTS WHICH HAVE BEEN PAID ARE NO T STATUTORY DUES BUT ARE DUE RECOVERABLE IN RESPECT OF CLANDESTINE TRANSACTIONS. 22. SECTION 43B OF THE ACT CLEARLY PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THE ACT, DEDUCTION OTHERWISE ALLOWABLE UNDER THE ACT IN RESPE CT OF ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEES, UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL BE ALLOWED IN THE YEAR OF PAYMENT , IRRESPECTIVE OF PREVIOUS YEAR IN WHICH LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE, ACCO RDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM. IT IS FURTHER PROVIDED THAT NOTHING CONTAINED IN SECTION WOULD APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE ITA NO S . 886 & 102 6 /P U N/201 4 18 THE DUE DATE APPLICABLE FOR FURNISHING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. UNDER EXPLANATION (2), IT IS FURTHER PROVIDED THAT ANY SUM PAYABLE MEANS A SUM FOR WHICH THE ASSESSEE INCURRED LIABILITY IN THE PREVIOUS YEAR EVEN THOUGH THE SAME MIGHT NOT HAVE BEEN PAYABLE WITHIN THAT YEAR UNDE R THE RELEVANT LAW. THUS, SECTION 43B OF THE ACT ALLOWS DEDUCTION ON ACCOUNT OF ANY TAX, DUT Y , CESS OR FEES IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE. IN OTHER WORDS, INTENTION OF THE LEGISLATUR E IS TO ALLOW DEDUCTION UNDER SECTION 43B OF THE ACT OF A SUM WHETHER RELATING TO PREVIOUS YEAR OR TO ANY EARLIER OR LATER YEARS. EXPLANATION (2) FURTHER LAYS DOWN THAT ANY SUM PAYABLE MEANS SUM FOR WHICH THE ASSESSEE INCURRED THE LIABILITY FOR THE PREV IOUS YEAR WHERE THE SUM MAY NOT HAVE BEEN PAYABLE IN THAT YEAR UNDER THE RELEVANT LAW. IN THE LIGHT OF SPECIFIC AND STRONG INTENTION OF THE LEGISLATURE, THERE IS NO SCOPE FOR ARGUMENT THAT BESIDES ACTUAL PAYMENT, THE ASSESSEE MUST ALSO PROVE THE INCURRING OF LIABILITY PRIOR TO PAYMENT, TO BE ENTITLED TO DEDUCTION IN THE YEAR OF PAYMENT. SUCH WAS THE PROPOSITION LAID DOWN BY THE SPECIAL BENCH OF CHANDIGARH TRIBUNAL IN DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. (SUP RA), WHICH READ AS UNDER: - 38. THE ABOVE POSITION IS EMERGING OUT OF THE LANGUAGE OF THE STATUTE ITSELF. SEC. 43B PROVIDES FOR THE DEDUCTION OF SUMS PAYABLE MENTIONED IN CLS. (A) TO (F), ONLY IF ACTUALLY PAID; BUT SHALL BE ALLOWED IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE. THE INTENTION OF THE LEGISLATURE IS APPARENT IN THE ABOVE LANGUAGE USED IN S. 43B, THAT THE DEDUCTION IN RESPECT OF TAX OR DUTY, WHICH WAS ACTUALLY PAID BY THE ASSESSEE HAS TO BE ALLOWED AS DEDUCTION WITHOUT L OOKING INTO THE YEAR OF INCURRING LIABILITY. THE EXPRESSION 'IRRESPECTIVE OF THE PREVIOUS YEAR' DISPENSES WITH THE CONCEPT OF PREVIOUS YEAR, IN THE MATTER OF THE SUMS COVERED BY S. 43B. THE EXPRESSION 'IRRESPECTIVE' MEANS LACKING RELATION, REGARDLESS OF WH AT IS MENTIONED. HERE THE SUBJECT MENTIONED IS 'PREVIOUS YEAR'. IT MEANS THE DEDUCTION HAS TO BE ALLOWED REGARDLESS OF THE PREVIOUS YEAR. ANY REFERENCE TO THE TIME OF INCURRING OR ACCRUING OF THE LIABILITY IS DISPENSED WITH BY THE STATUTE, WHILE CONCENTRAT ION IS MADE ON THE POINT OF ACTUAL PAYMENT OF THE SUM TO THE TREASURY OF THE GOVERNMENT. 23. IT WAS FURTHER HELD BY SHRI VIMAL GANDHI, PRESIDENT (THEN) CONCURRING AND SUPPLEMENTING AS UNDER: - ITA NO S . 886 & 102 6 /P U N/201 4 19 ACCRUAL OF LIABILITY .. THE SCHEME IS THAT DEDUCTION WOULD N OT BE ALLOWED ON INCURRING OF LIABILITY WHERE MERCANTILE SYSTEM IS FOLLOWED BUT SHALL BE ALLOWED IN THE YEAR IN WHICH THE AMOUNT IS ACTUALLY PAID. IT DOES NOT APPEAL TO REASON THAT EVEN AFTER INTRODUCTION OF S.43B AND ITS CLEAR WORDING, THE LEGISLATURE CAN INTEND TO INSIST UPON THE INCURRING OF THE LIABILITY AS A CONDITION FOR ALLOWABILITY OF THE DEDUCTION. 24. IT WAS FURTHER HELD THAT THERE IS NO JUSTIFICATION TO EXAMINE THE PREVIOUS YEAR IN WHICH LIABILITY TO PAY THE SUM WAS INCURRED WHEN MANDATE IS IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH LIABILITY WAS INCURRED AND CLAIM IS TO BE ALLOWED ON THE BASIS OF ACTUAL PAYMENTS. 2 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, HAD PLACED RELIANCE ON THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN CHETNA ZARDA COMPANY VS. DCIT (SUPRA), WHEREIN THE ASSESSEE HAD SUPPRESSED ITS SALES WHICH WERE DISCOVERED IN SEARCH CONDUCTED BY THE EXCISE DEPARTMENT, THEN THE ASSESSEES CLAIM OF PAYMENT OF EXCISE DUTY WAS NOT ALLOWED UND ER SECTION 43B OF THE ACT, SINCE SOME SALES HAD BEEN KEPT OUTSIDE THE BOOKS OF ACCOUNT. THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, WHERE THE ASSESSEE HAD DISCLOSED SALES IN ITS BOOKS OF ACCOUNT, EXCEPT SHOWING THE SALES TO BE OF EOU UNIT, WHEREAS IN FACT THE SALES WERE MADE BY DTA UNIT. HENCE, NO MERIT IN THE SAID RELIANCE. 2 6 . APPLYING THE SAID PRINCIPLE TO THE FACTS OF THE PRESENT CASE, WE HOLD THAT THE CLAIM OF ASSESSEE IS IN RESPECT OF EXCI SE DUTY PAID AND THE INTEREST ON EXCISE DUTY PAID IN JULY, 2005 I.E. BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT, FOR WHICH A PROVISION WAS MADE AS ON THE CLOSE OF THE YEAR. THE SAID PAYMENT IS IN RESPECT OF EXCISE DUTY DUE FOR THE CURRENT YEAR AND ALSO FOR THE PREVIOUS YEARS AND THE INTEREST IS DUE ON THE LATE PAYMENT ITA NO S . 886 & 102 6 /P U N/201 4 20 OF EXCISE DUTY DUES FOR THE EARLIER YEARS. WE FIND NO MERIT IN THE STAND OF REVENUE THAT THE SAID EXCISE DUTY BEING NOT RECORDED IN THE BOOKS OF ACCO UNT IN THE RESPECTIVE YEARS, CANNOT BE ALLOWED AS BUSINESS EXPENDITURE DURING THE PREVIOUS YEAR IN WHICH THEY WERE PAID. REVERSING THE ORDER OF CIT(A), WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF ASSESSEE ON ACCOUNT OF PROVISION MADE FOR EXCISE DUTY AND INTEREST DUE ON EXCISE DUTY TOTALED RS.11.60 CRORES. 2 7 . TH E ISSUE IN GROUNDS OF APPEAL NO.2 AND 3 IS IN RESPECT OF NON DEDUCTION OF TAX AT SOURCE ON PAYMENT TOWARDS TECHNICAL FEES AND ALSO RENT. THE CLAIM OF ASSESSEE IS THAT BOTH THE AMOUNTS ARE REIMBURSEMENT OF EXPENSES. OUR ATTENTION WAS DRAWN TO DEBIT NOTE S PLACED AT PAGES 248 TO 357 OF THE PAPER BOOK, WHEREIN SUM OF RS.2,45,515/ - WAS ALLOCATED TO DIFFERENT COMPANIES BY TACO; THE SAID AMOUNT WAS PAID BY TACO AND THE ASSESSEE REIMBURSED THE SAME. IN RESPECT OF JAMSHEDPUR OFFICE ALSO, IT WAS POINTED OUT THAT THE RECOVERY OF RENT WAS MADE FROM THE ASSESSEE AND IN VIEW THEREOF, THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE. IN VIEW OF THE EVIDENCE PRODUCED, WE FIND MERIT IN THE PLEA OF ASS ESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF ASSESSEE. THE GROUNDS OF APPEAL NO.2 AND 3 ARE THUS, ALLOWED. 2 8 . NOW, COMING TO THE TRANSFER PRICING ISSUES RAISED BY THE ASSESSEE. 2 9 . THE ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) IN CON FIRMING THE ADDITION MADE BY THE ASSESSING OFFICER / TPO IN RESPECT OF TRANSFER PRICING ADJUSTMENT AT RS. 14,09,92,866/ - . THE ASSESSEE HAS RAIS ED THE FIRST ISSUE OF REJECTING THE TRANSACTIONAL LEVEL ANALYSIS AS DOCUMENTED IN TRANSFER PRICING STUDY REPORT A ND SELECTING TNMM METHOD AS MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF ASSESSEE. THIS IS BY WAY OF GROUND OF APPEAL ITA NO S . 886 & 102 6 /P U N/201 4 21 NO.5. FURTHER, VIDE GROUND OF APPEAL NO.6, THE ASSESSEE HAS RAISED THE ISSUE OF APPLICATION OF TNMM METHOD AS THE MOST APPROPRIATE METHOD AND IN SELECTION OF CERTAIN COMPARABLE CONCERNS TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF ASSESSEE AND REJECTION OF ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE THE CIT(A) IN RESPECT OF SET OF COMPARABLE COMPANIES SELE CTED BY THE ASSESSEE. 30 . THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.6.2 I.E. COMPUTATION OF OPERATING MARGINS BY CONSIDERING EXTRAORDINARY EXPENDITURE IN RELATION TO EXCISE DUTY PAYMENT OF RS.5.26 CRORES AS NOT PART OF OPERATING EXPENSES. 31 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT IN CASE THE SAID EXPENDITURE IS ALLOWED AS BUSINESS EXPENDITURE, THEN THIS GROUND OF APPEAL WOULD BECOME ACADEMIC IN NATURE. 32. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE R EVENUE ON THE OTHER HAND, STRESSED THAT THE EXCISE DUTY HAS AN IMPACT ON THE OPERATING PROFITS AND HENCE, HAS TO BE CONSIDERED AS PART OF OPERATING EXPENDITURE. 33. WE HAVE ALREADY DECIDED THE SAID ISSUE IN THE PARAS HEREINABOVE AND ALLOWED THE CLAIM OF A SSESSEE. ONCE THE EXCISE DUTY IS ALLOWED AS EXPENDITURE, THEN EXCISE DUTY FOR THE CURRENT YEAR IS TO BE INCLUDED AS PART OF OPERATING EXPENDITURE. HOWEVER, EXCISE DUTY RELATING TO EARLIER YEARS DOES NOT AFFECT THE MARGINS OF ASSESSEE FOR CURRENT YEAR AND THE SAME IS TO BE EXCLUDED. ACCORDINGLY, WE HOLD SO. 34 . THE NEXT GROUND OF APPEAL NO.6.3 IS AGAINST THE ORDER OF CIT(A) IN NOT ALLOWING DEPRECIATION ADJUSTMENT ON ACCOUNT OF EXCESS DEPRECIATION OF RS.82,28,000/ - , WHILE CALCULATING THE OPERATING MARGI NS OF ASSESSEE. ITA NO S . 886 & 102 6 /P U N/201 4 22 3 5 . THE GROUND OF APPEAL NO.7 IS AGAINST ADDITIONAL COMPARABLES SUBMITTED BY THE ASSESSEE AS ADDITIONAL EVIDENCE WHICH WERE REJECTED BY THE CIT(A). THE GROUND OF APPEAL NO.8 IS AGAINST PROPORTIONATE ADJUSTMENT TO BE MADE ONLY IN CONNECTI ON WITH INTERNATIONAL TRANSACTIONS OF ASSESSEE. THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALSO RELATING TO COMPUTATION OF OPERATING MARGINS OF ASSESSEE, WHICH WE SHALL DEAL IN THE PARAS HEREINAFTER. 3 6 . BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE WAS A JOINT VENTURE BETWEEN YAZAKI CORPORATION, JAPAN AND TATA AUTOCOMP SYSTEMS LTD. THE ASSESSEE WAS ENGAGED IN MANUFACTURING OF WIRING HARNESSES FOR THE AUTOMOTIVE INDUSTRY, INCLUDING PASSENGER CARS AND COMMERCIAL VEHICLES. THE A SSESSEE WAS ALSO SUPPLYING WIRING HARNESSES FOR APPLICATIONS SUCH AS AIR BAG ASSEMBLIES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ON ACCOUNT OF IMPORT OF RAW MATERIAL , EXPORT OF FINISHED GOODS, IMPORT OF MACHINERY, PAYMENT OF ROYALTY, PAYMENT OF TECHNICAL CONSULTANCY FEES AND INTEREST ON DELAYED PAYMENTS. FOR BENCHMARKING INTERNATIONAL TRANSACTIONS, THE ASSESSEE APPLIED CUP METHOD AS MOST APPROPRIATE METHOD WHICH WAS REJECTED BY THE TPO AND INSTEAD, TNMM METHOD WAS APPLIED AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE TPO HAD WORKED OUT THE OPERATING MARGINS OF ASSESSEE AT ( - ) 8.30% AND ARITHMETIC MEAN OF COMP ARABLES SELECTED BY THE TPO WAS 3.56% AND CONSEQUENTLY, TP ADJUSTMENT OF RS.14,09,92,866/ - WAS MADE IN THE HANDS OF ASSESSEE. THE SAID APPROACH OF THE TPO WAS UPHELD BY THE CIT(A). 3 7 . THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) AND HAS POINTED OUT THAT CUP METHOD SHOULD BE ADOPTED AS THE MOST APPROPRIATE METHOD IN THE ITA NO S . 886 & 102 6 /P U N/201 4 23 HANDS OF ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD APPLIED CUP METHOD ON THE BASIS OF PRICE LIST OF ASSOC IATED ENTERPRISES WHICH COULD BE USED AS COMPARABLE. THE ASSESSEE HAS FURNISHED WRITTEN SUBMISSIONS IN THIS REGARD AND HAS STRESSED THAT CUP METHOD BE APPLIED TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIAL AND MACHINERY. THE LEARNE D AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS TIME AND AGAIN ASKED TO FILE EVIDENCE OF ASSOCIATED ENTERPRISES HAVING SOLD ITS GOODS TO OTHER PARTIES ON THE BASIS OF SAID PRICE LIST OR TO FILE ANY OTHER EVIDENCE ESTABLISHING ITS CLAIM THAT THE ASSOCIATED ENTERPRISES WERE TRANSACTING ON THE BASIS OF SAID PRICE LIST. HOWEVER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HA D FAILED TO FILE ANY SUCH EVIDENCE BEFORE US. 3 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT TH OUGH THE ASSESSEE PLEADS THAT IT IS A LABOUR ORIENTED UNIT BUT THE FUNCTIONS PERFORMED BY THE ASSESSEE OF PROCUREMENT, MANUFACTURING, MARKETING, SALES AND AFTER SALES SERVICE, IN WHICH YAZAKI CORPORATION HAS NO ROLE TO PLAY, DOES NOT MAKE THE ASSESSEE TO B E LABOUR ORIENTED UNIT. THE SECOND ISSUE WHICH WAS RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE WAS THAT AS PER THE PROVISIONS OF THE ACT, WHAT HAS TO BE SELECTED IS THE MOST APPROPRIATE METHOD AND THE SAME HAS TO BE APPLIED TO BENCHM ARK THE INTERNATIONAL TRANSACTIONS . FURTHER, REFERRING TO DIFFERENT METHODS PROVIDED, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STRESSED THAT FOR APPLYING CUP METHOD, THERE SHOULD BE VARIOUS FACTORS INCLUDING PRODUCT COMPARABILITY, SOURCING OF PRODUCTS, ETC. BUT THE ASSESSEE EXCEPT FOR FILING THE PRICE LIST HAS NOT FURNISHED ANY OTHER EVIDENCE. THE CERTIFICATE OF CA FILED BY THE ASSESSEE IS ALSO NOT BACKED BY ANY EVIDENCE WITH RELEVANT DATA THAT THE PRICE LIST HAS BEEN RELIED UPON FOR MAKING ANY OTHER SALES, SO THE SAID CERTIFICATE HAS NO RELEVANT AS FAR AS ITA NO S . 886 & 102 6 /P U N/201 4 24 APPLICABILITY OF CUP METHOD IS CONCERNED. HE FURTHER STRESSED THAT IN SPITE OF PRICE LIST I.E. WHERE THE ASSESSEE HAD PURCHASED THE GOODS ON PREDETERMINED PRICE, IT HAD INCURRED LOSSES AN D HE THUS, POINTED OUT THAT CUP METHOD CANNOT BE APPLIED IN THE ABSENCE OF PRODUCT COMPARABILITY AND MERELY ON THE BASIS OF PRICE LIST. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT WHERE THE ASSESSEE HAS NOT FULFILLED THE CONDI TIONS OF CUP COMPARABILITY, THERE IS NO MERIT IN THE PLEA OF ASSESSEE. HE FURTHER POINTED OUT THAT SIMILAR ARGUMENTS WERE TO BE APPLIED IN RESPECT OF IMPORT OF MACHINES, WHERE THE MACHINES WERE SPECIFICALLY MADE FOR THE ASSESSEE. HE STATED THAT CUP METHO D CANNOT BE APPLIED AS NO DATA HAS BEEN FILED BY THE ASSESSEE THAT YAZAKI CORPORATION HAS SOLD SIMILAR MACHINES TO OTHER CONCERNS. HE FURTHER STRESSED THAT WHERE THE ASSESSEE HAS FAIRLY CONCEDED THAT HE DOES NOT HAVE THE RELEVANT DATA, SO CUP METHOD CANNO T BE APPLIED AND TNMM METHOD IS THE ONLY RESORT FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. OUR ATTENTION WAS DRAWN TO THE LIST OF COMPARABLES PLACED AT PAGE 113 OF PAPER BOOK AND POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT IT WAS NOT UNDERSTOOD AS TO WHY THE SAID COMPARABLES WERE NOT ACCEPTABLE TO THE ASSESSEE. IN RESPECT O F SELECTION OF TWO NEW CONCERNS, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ASSESSEE IS ADOPTING CHERRY PICKING A PPROACH AND TWO CONCERNS BEING NOT FUNCTIONALLY COMPARABLES, THE FINANCIALS OF SAID CONCERNS CANNOT BE APPLIED. 3 9 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES AND THE ASSESSEE APPLIED CUP METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS : - ITA NO S . 886 & 102 6 /P U N/201 4 25 S.NO. NATURE OF TRANSACTION AMOUNT (RS.) ALP METHOD 1 IMPORT/PURCHASE OF RAW - MATERIALS AND SPARES 57,37,98,913/ - CUP 2 SALES 19,98,70,649/ - COST PL US 3 IMPORT OF PLANT & MACHINERY 2,42,76,876/ - CUP 4 ROYALTY ON TECH . KNOW - HOW 67,27,128/ - CUP 5 TECHNICAL CONSULTANCY 5,30,245/ - CUP 6 INTEREST ON DELAYED PAYMENTS 5,63,544/ - CUP TOTAL 80,57,67,355/ - 40 . DURING THE COURSE OF TP PROCEEDINGS, THE TPO REJECTED THE CUP METHOD SELECTED BY THE ASSESSEE, PROPOSED THE ADOPTION OF TNMM METHOD AS MOST APPROPRIATE METHOD AND ALSO SELECTED CERTAIN CONCERNS AS FUNCTIONALLY COMPARABLE AND ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY BENCHMARKING SHOULD NOT BE DO NE FOR ALL THE INTERNATIONAL TRANSACTIONS . F OLLOWING TNMM METHOD , THE ARITHMETIC MEAN OF COMPARABLES, PLI WORKED OUT TO 3.56%. THE ASSESSEE EXPLAINED THAT IN RESPECT OF IMPORT OF RAW MATERIALS AND CONSUMABLES, MATERIALS ARE SOLD BY YAZAKI CORPORATION TO ANY BUYER AT THE PRICE WHICH IS STATED IN THE PRICE LIST. IN RESPECT OF IMPORT OF MACHINERY ALSO, SIMILAR PLEAS WERE RAISED. AS FAR AS EXPORT OF GOODS WERE CONCERNED, THE ASSESSEE PLEADED THAT THE MARGINS EARNED ON EXPORT TO ASSOCIATED ENTERPRISES WAS CO MPARABLE WITH THE MARGINS EARNED ON SALES TO NON - ASSOCIATED ENTERPRISES. THE PAYMENT OF ROYALTY AND TECHNICAL FEES WAS ALSO HELD TO BE AT ARM'S LENGTH PRICE. THE TPO REJECTED THE CLAIM OF ASSESSEE OF APPLICATION OF CUP METHOD AS THE ASSESSEE DESPITE BEIN G GIVEN SEVERAL OPPORTUNITIES TO ESTABLISH ANY COMPARABLE UNCONTROLLED TRANSACTIONS, EXCEPT PRICE LIST OF ASSOCIATED ENTERPRISES AND THE BENCHMARKING DONE BY THE ASSESSEE BY APPLYING CUP METHOD WAS REJECTED. THE TPO NOTED THAT EXCEPT FOR CLAIMING THAT THE TRANSACTIONS WERE BASED ON INTERNAL PRICE LIST FOR ALL GROUP ENTITIES ON WHICH SUCH RAW MATERIALS / CONSUMABLES WERE SOLD TO AF FILIATES AND WHERE THE EXISTENCE OF COMPARABLE UNCONTROLLED PRICE COULD NOT BE DEMONSTRATED, THEN SUCH A PLEA OF ASSESSEE WAS NO T ACCEPTABLE. FURTHER, THE DETAILS GIVEN IN ANNEXURE - I TO TPOS ORDER SHOWS THAT THE PRICES PAID TO ITA NO S . 886 & 102 6 /P U N/201 4 26 ASSOCIATED ENTERPRISES FOR RAW MATERIALS AND CONSUMABLES WERE HIGHER AND HENCE, THE METHOD ADOPTED FOR BENCHMARKING INTERNATIONAL TRANSACTIONS RELATING TO IMPORT OF RAW MATERIALS AND CONSUMABLES COULD NOT BE BENCHMARKED BY APPLYING CUP METHOD. IN RESPECT OF IMPORT OF MACHINERY, WHERE THE PURCHASE ORDERS WERE PLACED TO YAZAKI CORPORATION AND AS PER THE REQUIREMENT, THE MACHINES IMPORTED WERE SPECIFICALLY MAD E AND DESIGNED, THEN THE PLEA OF ASSESSEE IN APPLYING CUP METHOD IN THE ABSENCE OF VALID CUP, WAS NOT ACCEPT ED . FURTHER, THERE WAS NO PRICE LIST FOR CAPITAL EQUIPMENT WHICH WAS EVIDENT FROM THE COMPANY CERTIFICATE DATED 14.07.2008 WHICH STATED THAT THE PR ICE WAS BASED ON PRESENT COST STRUCTURE. AS FAR AS EXPORT OF GOODS WAS CONCERNED, THE ASSESSEE CLAIMED THAT CONTRIBUTION OR MARGINS IN RESPECT OF EXPORTS TO ASSOCIATED ENTERPRISES AND SALES TO OTHER ENTERPRISES HAD BEEN WORKED OUT AND THAT THE MARGIN ALON E ON EXPORT S TO ASSOCIATED ENTERPRISES WAS MORE THAN THE MARGINS EARNED ON OTHER SALES , DEMONSTRATES THAT THE PRICE CHARGED TO ASSOCIATED ENTERPRISES WAS AT ARM'S LENGTH. THE TPO REJECTED THE SAID PLEA OF ASSESSEE BECAUSE OF TAINTED TRANSACTION OF IMPORT OF GOODS AND HENCE, COST PLUS METHOD WAS FOUND TO BE NOT ACCEPTABLE. THE ASSESSEE ALSO CLAIMED THAT THE PAYMENT OF ROYALTY AND TECHNICAL FEES WERE APPROVED BY THE GOVERNMENT OF INDIA AND HENCE, AT ARM'S LENGTH PRICE. THE SAID PLEA OF ASSESSEE WAS ALSO NO T ACCEPTED BY THE TPO ON THE GROUND THAT THE APPROVAL GRANTED BY THE RBI WAS TOWARDS AGREEMENT OF LICENCE AND TECHNICAL ASSISTANCE WI TH YAZAKI CORPORATION, JAPAN AND CONSEQUENT PAYMENT OF ROYALTY AND TECHNICAL FEES AS APPROVED UNDER FEMA. HOWEVER, THE PER CENTAGE OF PAYMENT OF ROYALTY WA S AT THE FIGURE OF NET SALES ON WHICH ROYALTY PAYABLE , WA S LEFT TO THE PARTIES AND THE ASSESSEE HAD ALSO PAID ROYALTY ON THE EXPORT SALES WHICH HAD BEEN MADE TO YAZAKI CORPORATION AND HENCE, BENCHMARKING DONE BY THE ASSESSEE WAS REJECTED. SIMILARLY, INTEREST ON DELAYED PAYMENT OF IMPORT PRICE AND ROYALTY ITA NO S . 886 & 102 6 /P U N/201 4 27 IN THE ABSENCE OF VALID COMPARABILITY, WAS NOT ACCEPTED. THE TPO ON THE OTHER HAND, PROPOSED T HE APPLICATION OF TNMM METHOD O N THE TOTAL TURNOVER OF ASSESSEE . T HE TPO CONS IDERED COMPARABLES SELECTED BY THE ASSESSEE ON WITHOUT PREJUDICE BASIS AS COMPARABLE AS THEY WERE ENGAGED IN THE SAME LINE OF AUTOMOBILE INDUSTRY EXCEPT FOR THE EXCLUSION OF THE COMPANY PREMIUM AUTO ELECTRICALS. THE ARITHMETIC MEAN OF PLI OF SET OF COMPAR ABLES WAS 3.56% AS AGAINST THE OPERATING PROFIT OF THE ASSESSEE AT ( - ) 8.3% AND CONSEQUENTLY, ADJUSTMENT WAS MADE UNDER SECTION 92C OF THE ACT AT RS.14,09,92,866/ - . 41 . THE CIT(A) UPHELD THE ORDER OF TPO IN REJECTING THE CUP METHOD ON THE GROUND THAT RULE 10B(1A) OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) PROVIDES FOR COMPARISON OF CONTROLLED TRANSACTIONS WITH UNCONTROLLED TRANSACTIONS FOR APPLICATION OF CUP METHOD. HOWEVER, THE PRICE LIST PERSE COULD NOT CONSTITUTE UNCONTROLLED TRANSACTION. IT WAS FURTHER OBSERVED BY THE CIT(A) THAT AS PER RULE 10 D (3) OF THE RULES, INFORMATION IN SUB - RULE (1) IS TO BE SUPPORTED BY AUTHENTIC DOCUMENTS. HOWEVER, THE DOCUMENT MAINTAINED IN SUPPORT OF TRANSFER PRICE COULD NOT BE SUBSTITUTED OF THE UNCONTROLLED TRA NSACTIONS. IN THE ABSENCE OF COMPARISON WITH UNCONTROLLED TRANSACTIONS, WHERE THE CONTROLLED TRANSACTION WAS COMPARED WITH PRICE LIST AND IN THE ABSENCE OF THE ASSESSEE FURNISHING ANY EVIDENCE OF TRANSACTION WITH THIRD PARTIES BEING UNDERTAKEN AS PER THE PRICE LIST, THE SAME COULD NOT BE USED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF IMPORT OF GOODS AND MACHINERY. IN RESPECT OF TRANSACTION OF EXPORT OF GOODS, WHERE THERE WERE TWO TYPES OF TRANSACTIONS I.E. INTERNATIONAL TRANSACTIONS OF EXPORT OF GOOD S AND INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIALS, THEN COMPARISON OF MARGINS OF ASSOCIATED ENTERPRISES SEGMENT WITH NON - ASSOCIATED ENTERPRISES SEGMENT BECAUSE THE NON - ASSOCIATED ENTERPRISES SEGMENT HAD PRESEN CE OF RAW MATERIAL IMPORTED FROM ASSO CIATED ENTERPRISES, THEN SUCH NON - ASSOCIATED ITA NO S . 886 & 102 6 /P U N/201 4 28 ENTERPRISES SEGMENT COULD NOT BE SAID TO BE FREE FROM CONTROLLED TRANSACTIONS AND HENCE, IT BECOMES TAINTED. THE CIT(A) UPHELD THE ORDER OF TPO IN NOT USING CUP METHOD. SIMILARLY ON BENCHMARKING OF TRANSACTION OF ROYALTY AND TECHNICAL FEES, THE CIT(A) OBSERVES THAT THE ASSESSEE HAS FAILED TO JUSTIFY THE ABSENCE OF BENCHMARKING DONE BY IT AND HENCE, THE ORDER OF TPO IN REJECTING TRANSFER PRICING METHODS USED BY THE ASSESSEE AND APPL YING TNMM METHOD WAS UPHELD. HE FURTHER WENT ON TO DECIDE THE ISSUE OF ADMISSION OF ADDITIONAL EVIDENCE IN TERMS OF NEW SET OF COMPARABLE COMPANIES. THE CIT(A) HELD THAT WHERE THE TPO HAD APPLIED THE COMPARABLES WHICH WERE SELECTED BY THE ASSESSEE, THEN AT THIS JUNCTURE, THE ASSESSEE COULD NOT RAISE A PLEA THAT THE SAME SHOULD NOT BE APPLIED . I N RESPECT OF NEW CONCERNS SELECTED, THE CIT(A) HELD THAT RE - SEARCH WAS NOT PERMITTED EVERY TIME, NEW COMPANIES WOULD BE THROWN UP FOR CONSIDERATION AND THE ADDITIONAL EVIDENCE FILED BY THE ASSE SSEE WAS NOT ACCEPTED. EVEN ON MERITS, WHERE ELLORA TRADING LTD. DID NOT HAVE ANNUAL REPORT FOR FINANCIAL YEAR 2005 - 06, THE PLEA OF ASSESSEE WAS REJECTED. IN RESPECT OF MINDA S A I LTD. , THE ASSESSEE FAILED TO FURNISH THE COMPANYS ANNUAL REPORT AND BECA USE OF THE SAME, THE SAID COMPANY WAS NOT CONSIDERED AS COMPARABLE. THE SECOND POINT OF REJECTION WAS THE ROYALTY RECEIVED BY THE SAID CONCERN. 42 . THE FIRST ISSUE WHICH ARISES BEFORE US IS THE APPLICATION OF MOST APPROPRIATE METHOD. THE CASE OF ASSES SEE BEFORE THE AUTHORITIES BELOW AND IN ITS TRANSFER PRICING REPORT AND EVEN BEFORE US IS THE CUP METHOD, IS THE MOST APPROPRIATE METHOD. FOR APPLYING CUP METHOD, THE ASSESSEE HAS IN RESPECT OF TRANSACTION OF IMPORT OF RAW MATERIALS RELIED ON PRICE LIST O F ASSOCIATED ENTERPRISES FROM WHOM SUCH RAW MATERIALS WERE IMPORTED. THE ASSESSEE WAS TIME AND AGAIN ASKED TO JUSTIFY THAT THE SAID GOODS WERE ALSO SOLD BY THE ASSOCIATED ENTERPRISES TO THIRD PARTIES. IN THIS REGARD, THE ASSESSEE HAS ONLY FURNISHED A ITA NO S . 886 & 102 6 /P U N/201 4 29 CER TIFICATE OF CA WITHOUT ANY SUPPORTING EVIDENCE THAT ASSOCIATED ENTERPRISES HAS SOLD THE GOODS TO OTHER PARTIES ON THE BASIS OF PRICE LIST. IN THIS REGARD, IT MAY BE NOTED THAT THOUGH THE ASSESSEE CLAIMS THAT IT HAD BOUGHT THE GOODS AS PER PRICE LIST OF AS SOCIATED ENTERPRISES BUT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN LOSS IN ITS HANDS FROM ITS TRANSACTION . FURTHER, IN THE ABSENCE OF ASSESSEE HAVING ESTABLISHED THAT PRICE LIST WAS APPLICABLE TO THIRD PARTIES FOR EXPORTS AND IN THE ABSENCE OF ANY THIRD PARTY EVIDENCE, WE FIND NO MERIT IN THE PLEA OF ASSESSEE IN APPLYING CUP METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT UNDER SECTION 92F(II) OF THE ACT, ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS IS TO BE WORKED OUT ON THE BASIS OF PRICE APPLIED OR PROPOSED TO BE APPLIED, HENCE IT WAS NOT NECESSARY TO HAVE EXACT TRANSACTION BUT EVEN PROPOSED TRANSACTIONS COULD BE COVERED. HOWEVER, RULE 10B(1) OF THE RULES TALKS OF PRICE CHARGED OR PAID AND ADMITTEDLY, DOES NOT TALK OF PROPOSED PRICE. HE STRESSED THAT THOUGH THERE WAS CONFLICT BETWEEN THE ACT AND THE RULES, BUT THE PROVISIONS OF THE ACT WOULD PREVAIL. WHERE THE PRICE LIST WAS AVAILABLE, THEN THE PROPOSED PRICE L IST IS TO BE TAKEN AS COMPARABLE. HOWEVER, WE FIND NO MERIT IN THE PLEA OF ASSESSEE IN THE ABSENCE OF ANY THIRD PARTY EVIDENCE AND WE REJECT THE PLEA OF ASSESSEE IN THIS REGARD. SIMILARLY, IN RESPECT OF IMPORT OF MACHINERY WHERE THE ASSESSEE HAD PURCHASE D THE MACHINERY FROM ITS ASSOCIATED ENTERPRISES ON ITS SPECIFICATION, CUP METHOD CANNOT BE APPLIED TO BENCHMARK ITS TRANSACTIONS . I N RESPECT OF EXPORT OF GOODS, WHEREIN THE ASSESSEE HAD MADE A COMPARISON BETWEEN THE MARGINS OF ASSOCIATED ENTERPRISES SEGME NT WITH NON - ASSOCIATED ENTERPRISES BUT BECAUSE OF IMPORT OF RAW MATERIAL BEING UTILIZED BY BOTH THE SEGMENTS AND THE SAME BEING TAINTED, THEN THERE IS NO MERIT IN APPLYING CPM METHOD. IN RESPECT OF PAYMENT OF ROYALTY AND TECHNICAL CONSULTANCY FEES AND INT EREST ON DELAYED PAYMENTS, THE ASSESSEE HAS NOT RAISED ANY ISSUES EITHER ITA NO S . 886 & 102 6 /P U N/201 4 30 BEFORE THE CIT(A) OR BEFORE US AND IN VIEW THEREOF, WE REJECT THE APPLICATION OF CUP METHOD BY THE ASSESSEE AND UPH O LD THE APPROACH OF THE TPO IN APPLYING TNMM METHOD ON AGGREGATE BAS IS. 4 3. THE NEXT ISSUE WHICH ARISES IS THE SELECTION OF TNMM METHOD AS MOST APPROPRIATE METHOD ON AGGREGATE D BASIS . WITHOUT PREJUDICE TO ITS CLAIM OF APPLYING CUP METHOD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WHEN THE TP O PROPOSED THAT TNMM METHOD IS TO BE APPLIED, THE ASSESSEE GAVE ITS LIST OF COMPARABLES AND ALSO POINTED OUT THAT THE COMPARABLE COMPANIES WERE SUBMITTED ON WITHOUT PREJUDICE BASIS , THOUGH THE ASSESSEE BELIEVED THAT THE BUSINESS OF SAID COMPARABLES WAS NOT COMPARABLE. THE SAID SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED BY THE TPO IN THE TP ORDER AT PAGE 119 OF PAPER BOOK. THE TPO HOWEVER, RECORDED THE ARGUMENTS OF ASSESSEE AND PROCEEDED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS BY SELECTING SAID COMPANI ES AS COMPARABLE. 44 . BEFORE THE CIT(A), THE ASSESSEE REITERATED THAT THE COMPANIES WHICH WERE SELECTED AS COMPARABLES, MANUFACTURED, DIFFERENT FINISHED PRODUCTS, WHICH WERE NOT COMPARABLE TO THE PRODUCTS MANUFACTURED BY THE ASSESSEE AND IT ALSO SUBMITT ED THE ANNUAL REPORTS OF SAID CONCERNS AND ELABORATE NOTE PROVIDING THE BUSINESS DESCRIPTION OF THE COMPANIES. THE PLEA OF ASSESSEE BEFORE THE CIT(A) WAS THAT THE COMPANIES WHICH WERE SELECTED BY THE TPO WERE IN DIFFERENT SUB - INDUSTRIES , THOUGH PART OF AU TO COMPONENT INDUSTRIES. HOWEVER, THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING AND SELLING OF WIRE HARNESSES , WHICH WAS VERY COMPETITIVE BUSINESS , BUT WITH LOW MARGINS. THE ASSESSEE STRESSED THAT THE CONCERNS WHICH WERE PRIMARILY ENGAGED IN WIRE AND HARNESSING SHOULD BE SELECTED AS COMPARABLE. IN THIS REGARD, ADDITIONAL EVIDENCE WAS FURNISHED ITA NO S . 886 & 102 6 /P U N/201 4 31 BEFORE THE CIT(A) UNDER RULE 46A OF THE RULES AND IDENTIFIED THE COMPANIES WHICH WERE ENGAGED IN THE SAID BUSINESS AND RELATED PRODUCTS AND SELECTED TWO CONCER NS I.E. ELLORA TRADING LTD. AND MINDA S A I LTD. THE ADDITIONAL EVIDENCE WAS REMANDED TO THE TPO, WHO REJECTED THE PLEA OF ASSESSEE ON THE GROUND THAT THE REPORT FOR ASSESSMENT YEAR 2005 - 06 WAS NOT MADE AVAILABLE OF ELLORA TRADING LTD. AND THE TURNOVER OF THE SAID CONCERN WAS JUST ABOUT AT RS.1.17 CRORES. THE OTHER CONCERN MINDA S A I LTD. WAS REJECTED SINCE IT EARNS ROYALTY MEANING THE COMPARABLE HAD INTANGIBLE S, WHICH WAS BRINGING IN REVENUE AS AGAINST THE ASSESSEE WHICH WAS A SIMPLE MANUFACTURING CONCE RN. FURTHER, THERE WERE CERTAI N EXTRAORDINARY ITEMS WHICH HAD AFFECTED PROFITABILITY. THE ASSESSEE IN REPLY, POINTED OUT THAT ELLORA TRADING LTD. CLEARS ALL THE QUANTIT AT I VE AND QUALITATIVE FILTERS AND THE REPORTS OF ASSESSMENT YEAR 2006 - 07 HAD OPENING F IGURES FOR ASSESSMENT YEAR 2005 - 06 . SINCE THE BUSINESS OF THE COMPANY REMAINED THE SAME AND SINCE THE SAID COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING WIRE HARNESSES AND THE AVAILABILITY OF FINANCIAL DATA AND DATA BASE , THE COMPANY SHOULD HAVE BE EN CONSIDERED AS COMPARABLE. IT WAS ALSO POINTED OUT THAT THE SAID CONCERN WAS SELECTED AND ACCEPTED AS COMPARABLE IN ASSESSMENT YEAR 2007 - 08 BY THE TPO . IN RESPECT OF MINDA S A I LTD., THE ASSESSEE POINTED OUT THAT THE SAID CONCERN HAS BEEN SELECTED AS COMPARABLE BY THE TPO IN THE TRANSFER PRICING ORDER FOR ASSESSMENT YEAR 2009 - 10. IN RESPECT OF ROYALTY, IT WAS POINTED OUT THAT OUT OF TOTAL REVENUE OF RS.72.49 CRORES, ROYALTY INCOME WAS ONLY RS.6,29,611/ - WHICH WAS MINIS CULE AND HENCE, IT SHOULD NOT BE A DECIDING FACTOR FOR REJECTING THE SAID CONCERN. IT WAS FURTHER POINTED OUT THAT THE FIGURES FOR FINANCIAL YEAR 2004 - 05 SHOULD NOT BE COMPARED WITH THE FIGURES FOR FINANCIAL YEAR 2003 - 04. ITA NO S . 886 & 102 6 /P U N/201 4 32 4 5 . THE ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) IN REJECTI NG THE ADDITIONAL EVIDENCE BY STATING THAT THERE WAS AN ATTEMPT TO HAVE A SECOND INNINGS AGAINST THE ADJUSTMENT PROPOSED BY THE TPO. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF CHENNAI BENCH OF TRIBUNAL IN SL LUMAX LTD. VS. ACIT (2013) 140 ITD 158 (CHEN TRIB). THE ASSESSEE IS AGGRIEVED BY THE DECISION OF CIT(A) IN NOT ALLOWING IT TO SELECT THE COMPARABLES WHICH WERE FUNCTIONALLY COMPARABLE AND MAKE THE ADJUSTMENT RELYING ON COMPANIES WHICH WERE ENGAGED IN BUSINESS OTHER THAN THE BUSINESS OF A SSESSEE. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE SPECIAL BENCH OF CHANDIGARH IN DCIT VS. QUARK SYSTEMS (P) LTD. (2010) 38 SOT 307 (CHD) (SB ). 4 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, STRONGL Y OBJECTED TO THE ADDITIONAL EVIDENCE WHICH WAS FILED BY THE ASSESSEE BEFORE THE CIT(A) AND ALSO REFERRED TO THE OBSERVATIONS OF CIT(A) IN RESPECT OF SAID TWO COMPARABLES SELECTED BY THE ASSESSEE. 4 7 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RE CORD. THE LIMITED ISSUE WHICH ARISES BEFORE US IS THAT ONCE THE CUP METHOD IS REJECTED AND TNMM METHOD IS HELD TO BE APPLIED AS MOST APPROPRIATE METHOD, THEN THE MARGINS OF ASSESSEE ARE TO BE COMPARED WITH FUNCTIONALLY COMPARABLE COMPANIES. THE ASSESSEE DURING THE TP PROCEEDINGS HAD ON WITHOUT PREJUDICE BASIS SELECTED CERTAIN CONCERNS WHICH WERE IN AUTOMOBILE SECTOR AND ITS COMPONENTS. THE TPO SELECTED FIVE CONCERNS OUT OF SIX SUGGESTED BY THE ASSESSEE , HAD BENCHMARKED THE INTERNATIONAL TRANSACTIONS AND DETERMINED THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE ASSESSEE BEFORE THE CIT(A) POINTED OUT THAT ON LATER SEARCH, IT HAS FOUND TWO ADDITIONAL CONCERNS TO BE IN THE SAME SEGMENT OF WIRING HARNESSES AS THAT OF THE ASSESSEE AND WERE FUNCTIONA LLY COMPARABLE TO ITA NO S . 886 & 102 6 /P U N/201 4 33 THE ASSESSEE, AS AGAINST THE CONCERNS WHICH WERE INITIALLY SELECTED. THE PLEA OF ASSESSEE IN THIS REGARD WAS THAT THOUGH THOSE CONCERNS WERE IN AUTOMOBILE SECTOR BUT THEY WERE UNDER DIFFERENT SUB - HEADS, WHEREAS THE CONCERNS SELECTED MIND A S A I LTD. AND ELLORA TRADING LTD. WERE ENGAGED IN MANUFACTURE OF WIRING HARNESSES SYSTEMS AS THAT OF THE ASSESSEE. THE OBJECTION OF CIT(A) IN APPLYING MARGINS OF SAID CONCERNS WAS THAT NEW SEARCH CANNOT BE PERMITTED AS LATE AS APPELLATE PROCEEDINGS. 4 8 . THE FIRST PLEA OF ASSESSEE RAISED BEFORE US IS IN RESPECT OF ADDITIONAL EVIDENCE FILED BEFORE THE CIT(A) BY WAY OF SELECTION OF TWO COMPARABLES WHICH WERE ENGAGED IN THE SAME BUSINESS AS THAT OF ASSESSEE. THE FIRST ASPECT OF THE ISSUE IS WHETHER SUCH ADDITIONAL EVIDENCE MERITS TO BE ACCEPTED, WHERE THE ASSESSEE HIMSELF HAD SELECTED CERTAIN CONCERNS AS COMPARABLE WHICH HAD BEEN ADOPTED BY THE TPO TO BENCHMARK THE INTERNATIONAL TRANSACTIONS . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS PO INTED OUT THAT THESE WERE THE INITIAL YEARS OF TP PROCEEDINGS WHEN THE LAW WAS DEVELOPING AND BECAUSE OF NON - CLARITY OF PROVISIONS OF THE ACT, CERTAIN MISTAKES WERE MADE AND INITIAL SET OF COMPARABLES WERE SELECTED BY THE ASSESSEE BUT STRICTLY ON WITHOUT P REJUDICE BASIS . IT WAS POINTED OUT BEFORE THE CIT(A) THAT THESE CONCERNS WERE NOT COMPARABLE ON ACCOUNT OF VARIOUS REASONS WHICH ARE INCORPORATED IN THE ORDER OF CIT(A) . THE TPO APPLIED THE MARGINS OF SAID CONCERNS AND BENCHMARKED THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE GRIEVANCE OF ASSESSEE IS THAT ALL THOSE CONCERNS WHOSE MARGINS HAVE BEEN APPLIED TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS ARE ENGAGED IN THE BUSINESS THOUGH IN THE AUTOMOBILE INDUSTRY BUT UN DER DIFFERENT SUB - HEADS, WHEREAS THE TWO CONCERNS WHICH HAVE BEEN SELECTED BY THE ASSESSEE I.E. ELLORA TRADING LTD. AND MINDA S A I LTD. AS ADDITIONAL EVIDENCE BEFORE THE CIT(A) ARE ENGAGED IN ITA NO S . 886 & 102 6 /P U N/201 4 34 SIMILAR BUSINESS AS THAT OF THE ASSESSEE I.E. MANUFACTURING OF WIRING HARNESSES IN AUTOMOBILE SECTOR. THE NEXT PLEA OF THE ASSESSEE BEFORE US IS THAT THE COMPARABLES AS PER FRESH SEARCH SHOULD BE TAKEN TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 4 9 . WE FIND THAT THE ISSUE OF SELECTION OF NEW COMPA RABLES AROSE BEFORE THE SPECIAL BENCH OF CHANDIGARH IN DCIT VS. QUARK SYSTEMS (P) LTD. (SUPRA) AND THE TRIBUNAL HELD THAT THE TAXPAYER WAS NOT E STOPPED FROM POINTING OUT A MISTAKE IN THE ASSESSMENT THOUGH SUCH MISTAKE WAS THE RESULT OF EVIDENCE ADDUCED BY THE TAXPAYER. ACCORDINGLY, IT WAS HELD THAT THE TAXPAYER COULD NOT BE E STOPPED FRO M POINTING OUT THAT DATA MATRIX OF THE CONCERN TAKEN WRONGLY AS COMPARABLE. THE TRIBUNAL FURTHER NOTED THAT SINCE TRANSFER PRICING WAS IN THE INITIAL STAGES IN THE SAID YEA R, A LIBERAL APPROACH BE GIVEN AND THE ASSESSEE BE ALLOWED AN OPPORTUNITY TO MAKE OUT ITS CASE PROPERLY AND PLACE ALL THE RELEVANT FACTS BEFORE THE TAX AUTHORITIES, SO THAT PROPER ARM'S LENGTH PRICE COULD BE DETERMINED IN ACCORDANCE WITH LAW. 50. WE FUR THER FIND THAT THE TRIBUNAL IN VISHAY COMPONENTS PVT. LTD. VS. ACIT IN ITA NO.1712/PUN/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 10.02.2017, HAS ALSO UPHELD THE ORDER OF TPO IN SELECTING THE CONCERNS AS COMPARABLE ON THE BASIS OF DATA WHICH CA ME IN PUBLIC DOMAIN AFTER THE TP STUDY REPORT. THE RELEVANT FINDINGS OF THE TRIBUNAL IN VISHAY COMPONENTS PVT. LTD. VS. ACIT (SUPRA), ARE AS UNDER: - 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE WHICH ARISES BY WAY OF G ROUNDS OF APPEAL NO.2 AND 4 RAISED BY THE ASSESSEE UNDER TRANSFER PRICING PROVISIONS IS THE SELECTION OF DATA BY THE TPO DURING THE COURSE OF TP PROCEEDINGS. THE PLEA OF ASSESSEE BEFORE US IS THAT SELECTION PROCESS CARRIED OUT BY THE TPO DURING THE COURSE OF TP PROCEEDINGS IS THAT THE DATA OF CERTAIN COMPANIES WHICH WAS NOT ORIGINALLY AVAILABLE IN PUBLIC DOMAIN, IS USED BY THE TPO WHILE BENCHMARKING INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN THE MANUFACTURING SEGMENT. UNDOUBTEDLY, THE LEARNED AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEE HAS NOT SUBMITTED THAT THE SAID CONCERN IS NOT ITA NO S . 886 & 102 6 /P U N/201 4 35 FUNCTIONALLY COMPARABLE; THE ONLY OBJECTION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THE SELECTION OF SAID CONCERN ON LATER DATE BY THE TPO, ESPECI ALLY WHERE THE DATA OF THE SAID CONCERN WAS NOT AVAILABLE WHILE ASSESSEE PREPARED ITS TP STUDY REPORT. 12. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF RESISTORS AND CAPACITORS, WHICH IN TURN, WERE USED IN VARIOUS ELECTRONIC APPLICATIONS AND PRODUCTS. THE ASSESSEE HAD UNDERTAKEN SEVERAL INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES. THE ASSESSEE IN THE MANUFACTURING SEGMENT HAD APPLIED TNMM METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS, WHEREIN CERTAIN COMPARABLES WERE SELEC TED BY THE ASSESSEE AND IT WAS PLEADED THAT THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE AT ARM'S LENGTH PRICE. HOWEVER, THE TPO CONDUCTED FRESH SEARCH AND SELECTED CERTAIN OTHER COMPANIES ALSO; ONE OF WHICH WAS TIBREWALA ELECTRONICS LTD ., AGAINST THE SAME, THE ASSESSEE IS IN APPEAL. 13. THE TRIBUNAL IN ITA NO.133/PN/2011 RELATING TO ASSESSMENT YEAR 2006 - 07, VIDE ORDER DATED 25.05.2012 HAD DECIDED THE ISSUES RELATING TO TRANSFER PRICING ADJUSTMENT, BUT THEREAFTER, THE ASSESSEE MOVED MISC ELLANEOUS APPLICATION NO.82/PN/2013, RELATING TO ASSESSMENT YEAR 2006 - 07. THE TRIBUNAL VIDE ORDER DATED 02.08.2013 IN THE SAID MISCELLANEOUS APPLICATION OBSERVED THAT THE GROUNDS OF APPEAL NO.2, 3, 5, 9, 12, 13 AND 15 WERE NOT ADJUDICATED BY THE TRIBUNAL IN THE FIRST ROUND, THEREAFTER, THE TRIBUNAL VIDE ORDER DATED 16.05.2016 ADJUDICATED THE AFORESAID ISSUES. THE ISSUE ARISING BY WAY OF GROUND OF APPEAL NO.2 I.E. FRESH SEARCH CONDUCTED BY THE TPO AND SELECTION OF TIBREWALAL ELECTRONICS LTD. WAS ALSO ADJUD ICATED IN THE SECOND ROUND OF PROCEEDINGS BY THE TRIBUNAL. THE TRIBUNAL VIDE PARAS 13 TO 22 OBSERVED AS UNDER: - 13. NOW, COMING TO THE STAND OF ASSESSEE WITH REGARD TO FRESH SEARCH UNDERTAKEN AT THE TIME OF ASSESSMENT PROCEEDINGS. 14. UNDER SECTION 9 2D OF THE ACT, IT IS PROVIDED THAT EVERY PERSON WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION IS TO KEEP AND MAINTAIN SUCH INFORMATION AND DOCUMENTS IN RESPECT THEREOF AS MAY BE PRESCRIBED. RULE 10D OF THE RULES PRESCRIBES THE INFORMATION AND DOCUMENT S TO BE KEPT AND MAINTAINED UNDER SECTION 92D OF THE ACT. IT IS NOT ANY ONES CASE THAT THE ASSESSEE HAS NOT MAINTAINED SUCH DOCUMENTS AS PRESCRIBED UNDER RULE 10D OF THE RULES. THE PLEA OF THE ASSESSEE BEFORE US IS THAT BY WAY OF MAINTENANCE OF SUCH INF ORMATION AND DOCUMENTS, THE ASSESSEE IS TO KEEP A RECORD OF ITS INTERNATIONAL TRANSACTIONS AND BY WAY OF CLAUSE (L) TO ALSO PREPARE THE DETAILS OF ADJUSTMENTS, IF ANY, MADE TO THE TRANSFER PRICES TO ALIGN THEM WITH ARM'S LENGTH PRICES DETERMINED UNDER THES E RULES AND CONSEQUENT ADJUSTMENTS MADE TO THE TOTAL INCOME FOR TAX PURPOSES. THE PROVISO UNDER SUB - RULE (2) TO RULE 10D OF THE RULES PROVIDES THAT THE ASSESSEE SHALL BE REQUIRED TO SUBSTANTIATE, ON THE BASIS OF MATERIAL AVAILABLE WITH HIM, THAT INCOME AR ISING FROM INTERNATIONAL TRANSACTION ENTERED INTO BY HIM HAS BEEN COMPUTED IN ACCORDANCE WITH SECTION 92 OF THE ACT. FURTHER, INFORMATION WHICH IS SPECIFIED IN SUB - RULE (1) IS TO BE SUPPORTED BY AUTHENTIC DOCUMENTS WHICH INCLUDE VARIOUS PUBLICATIONS, REPO RTS AND FINANCIAL STATEMENTS AS PER SUB - RULE (3) TO THE SAID RULE 10D OF THE RULES. UNDER SUB - RULE (4), IT IS PROVIDED THAT THE INFORMATION AND DOCUMENTS SPECIFIED UNDER SUB - RULES (1) AND (2) AS FAR AS POSSIBLE BE CONTEMPORANEOUS AND SHOULD EXIST LATEST B Y SPECIFIED DATE REFERRED TO IN CLAUSE (4) OF SECTION 92F OF THE ACT . 15. UNDER THE PROVISIONS OF SECTION 92F(4) OF THE ACT, THE SPECIFIED DATE IS THE SAME AS ASSIGNED TO DUE DATE IN EXPLANATION (2) SUB - SECTION (1) OF SECTION 139 OF THE ACT. IN OTHER WO RDS, THE DATA WHICH IS TO BE USED ITA NO S . 886 & 102 6 /P U N/201 4 36 BY THE ASSESSEE IN RELATION TO ITS INTERNATIONAL TRANSACTION VIS - - VIS TRANSFER PRICING PROVISIONS SHOULD BE SUCH WHICH IS AVAILABLE BY THE DUE DATE OF FILING THE RETURN OF INCOME. FIRST ONUS IS UPON THE ASSESSEE TO JUSTI FY THAT THE INTERNATIONAL TRANSACTION ENTERED INTO BY IT WITH ITS ASSOCIATE ENTERPRISES IS AT ARM'S LENGTH PRICE, IN CASE IT IS COMPARED WITH UNCONTROLLED TRANSACTIONS I.E. TRANSACTIONS ENTERED INTO BY OTHER CONCERNS IN SIMILAR CIRCUMSTANCES. THIS DOCUME NTATION IS TO BE COMPILED BY THE ASSESSEE BY WAY OF TRANSFER PRICING REPORT IN ORDER TO JUSTIFY THE ARM'S LENGTH PRICE OF ITS INTERNATIONAL TRANSACTIONS. 16. UNDER SECTION 92C OF THE ACT, IT IS PROVIDED THAT ARM'S LENGTH PRICE IN RELATION TO INTERNATION AL TRANSACTION SHALL BE DETERMINED BY FOLLOWING ANY OF THE METHODS PRESCRIBED THEREIN WHICH IS THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE INTERNATIONAL TRANSACTION OR CLASS OF TRANSACTIONS OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONED PERFORMED BY SU CH PERSONS OR SUCH OTHER RELEVANT ENTITIES AS THE BOARD MAY PRESCRIBE. SUB - SECTION (2) THEREIN PROVIDES THAT THE MOST APPROPRIATE METHOD SHALL BE APPLIED FOR DETERMINATION OF ARM'S LENGTH PRICE IN THE MANNER AS MAY BE PRESCRIBED. SECTION 92C(3) OF THE AC T READS AS UNDER: - 92C. (1)..... (2)..... (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR THE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE OPINION THAT (A) THE PRICE CH ARGED OR PAID IN AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB - SECTIONS (1) AND (2); OR (B) ANY INFORMATION AND DOCUMENT RELATING TO AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANS ACTION] HAVE NOT BEEN KEPT AND MAINTAINED BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB - SECTION (1) OF SECTION 92D AND THE RULES MADE IN THIS B EHALF; OR (C) THE INFORMATION OR DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR (D) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SPECIFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FURNISH BY A NOTICE I SSUED UNDER SUB - SECTION (3) OF SECTION 92D , THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] IN ACCORDANCE WITH SUB - SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. 17. UNDER THE SAID SUB - SECTION, THE ASSESSING OFFICER DURING THE COURSE OF ANY PROCEEDINGS FOR A SSESSMENT OF INCOME, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS IN HIS POSSESSION, IS OF THE OPINION THAT THE CONDITIONS LAID IN CLAUSES (A) TO (D) ARE NOT FULFILLED, THEN THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARM'S LENGTH PRICE IN R ELATION TO SUCH INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SUB - SECTION (1) AND (2), ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS AVAILABLE WITH HIM. THE SAID EXERCISE OF POWER BY THE ASSESSING OFFICER IS AFTER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ARM'S LENGTH PRICE SHOULD NOT BE SO DETERMINED ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS IN THE POSSESSION OF ASSESSING OFFICER. ITA NO S . 886 & 102 6 /P U N/201 4 37 18. UNDER SECTION 92CA OF THE ACT, WHERE THE ASSESSEE HAD ENTERED IN TO INTERNATIONAL TRANSACTION IN ANY PREVIOUS YEAR AND WHERE THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT, HE MAY WITH PREVIOUS APPROVAL OF THE COMMISSIONER REFER THE COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANS ACTION UNDER SECTION 92C OF THE ACT TO THE TPO. UNDER SECTION 92CA(3) OF THE ACT, THE TPO IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SUB - SECTION (3) OF SECTION 92C OF THE ACT. FOR DOIN G SO, THE TPO IS TO SERVE NOTICE UPON THE ASSESSEE REQUIRING HIM TO PRODUCE OR CAUSE TO BE PRODUCED, ANY EVIDENCE ON WHICH HE MAY RELY UPON IN SUPPORT OF COMPUTATION MADE BY HIM OF THE ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION. AFTER HEA RING SUCH EVIDENCE INCLUDING ANY INFORMATION OR DOCUMENTS REFERRED TO IN SECTION 92C(3) OF THE ACT AND AFTER CONSIDERING SUCH EVIDENCE AS THE TPO MAY REQUIRE ON SPECIFIED DATE AND ALSO TAKING INTO ACCOUNT RELEVANT MATERIAL WHICH HE HAS GATHERED AND CONFRON TED TO ASSESSEE, THE TPO HAS TO PASS AN ORDER IN WRITING. HENCE, UNDER THE PROVISIONS OF THE ACT, THE MACHINERY TO PASS AN ORDER FOR DETERMINATION OF ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION ENTERED INTO BY ANY PERSON IS SO PROVIDED. IT IS NOT ONLY THE EVIDENCES WHICH ARE RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS COMPUTATION OF ARM'S LENGTH PRICE OF ITS INTERNATIONAL TRANSACTION BUT ALSO ANY OTHER EVIDENCE WHICH THE TPO MAY REQUIRE ON SOME SPECIFIED POINTS OR THE INFORMATION WHICH MAY BE GAT HERED BY THE TPO CAN BE USED BY THE TPO TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. UNDOUBTEDLY, THE ASSESSEE IS THE FIRST PERSON WHO IS TO COLLECT THE INFORMATION AND DOCUMENTS IN RESPECT OF ITS INTERNATIONAL TRANSACTION WHICH ARE E NLISTED UNDER RULE 10D OF THE RULES. BUT MERE COLLECTIONS OF DOCUMENTS AND COMPILATION OF DATA IS NOT THE ONLY RESPONSIBILITY OF THE ASSESSEE, WHO CAN BE ASKED TO PRODUCE SUCH OTHER EVIDENCE AS THE TPO MAY REQUIRE ON ANY POINTS. FURTHER, THE TPO IS ALSO EMPOWERED TO TAKE INTO ACCOUNT SUCH MATERIAL WHICH HE HAS GATHERED I.E. THE DATA. HOWEVER, THERE IS A RESTRICTION IN THE SECTION ITSELF THAT SUCH DATA SHOULD BE AVAILABLE IN PUBLIC DOMAIN. SUCH MATERIAL COLLECTED TO BE USED AGAINST ASSESSEE SHOULD BE PUT TO THE ASSESSEE TO EXPLAIN. FURTHER, AS DECIDED BY US IN THE PARAS HEREINABOVE IN VIEW OF RULE 10B(4) OF THE RULES, THE DATA SHOULD BE RELATABLE TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. THUS, IT IS INCUMBENT UP ON THE TPO TO ENSURE THAT ALL THE CONDITIONS PROVIDED UNDER THE ACT AND AS PER THE RULES ARE FULFILLED. 19. IN THE FACTS OF THE PRESENT CASE ITSELF, WE HAVE NOTED THAT THE ASSESSEE HAD PREPARED ITS TRANSFER PRICING REPORT AND COMPUTED THE PLI OF COMPARA BLES BY ADOPTING THE DATA FOR PRECEDING TWO YEARS. THE ASSESSEE IN ITS TRANSFER PRICING REPORT HAD NOT USED THE DATA OF THE YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAD TAKEN PLACE TO BENCHMARK ITS INTERNATIONAL TRANSACTION TO BE AT ARM'S LENGTH PRICE OR NOT. DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS, THE TPO SHOW CAUSED THE ASSESSEE AS TO WHY INSTANT YEARS DATA SHOULD NOT BE USED AND FURTHER COMPUTED THE ARITHMETIC MEAN OF PLI OF COMPARABLES ON THE BASIS OF DATA RELATING TO ASSESSMENT YEAR 20 06 - 07. THE DATA COMPILED BY THE TPO RELATES TO ASSESSMENT YEAR 2006 - 07 OF THE LISTED COMPANIES WHICH WERE PICKED UP BY THE ASSESSEE ITSELF AS BEING COMPARABLES. HOWEVER, WHILE DOING THE SEARCH PROCESS FOR BENCHMARKING THE INTERNATIONAL TRANSACTION, THE T PO INCLUDED TWO FURTHER COMPANIES I.E. DEKI ELECTRONICS LTD. AND TIBREWALA ELECTRONICS LTD., DATA OF WHICH WAS CONFRONTED TO THE ASSESSEE. THE OBJECTION OF ASSESSEE TO THE INCLUSION OF ABOVE SAID CONCERNS WAS THAT THE DATA RELATING TO THE SAID CONCERNS WA S NOT AVAILABLE AT THE TIME OF COMPLYING WITH THE DOCUMENTATION REQUIREMENTS AND HAD COME INTO PUBLIC DOMAIN MUCH LATER. WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE THAT THE ITA NO S . 886 & 102 6 /P U N/201 4 38 DATA OF COMPANIES WHICH WERE NOT AVAILABLE IN PUBLIC DOMAIN AT THE TIME OF COMP LYING WITH DOCUMENTATION REQUIREMENTS CANNOT BE CONSIDERED. THE COMPANIES WHICH ARE PICKED UP BY THE TPO ARE FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THE DATA WHICH HAS BEEN COMPILED BY THE TPO RELATES TO ASSESSMENT YEAR 2006 - 07, AND WAS CONFRONTED TO THE ASSESSEE AND MERELY BECAUSE THE DATA CAME INTO PUBLIC DOMAIN AT A LATER DATE, THE SAME CANNOT BE IGNORED. THE TPO HAS POWER TO USE ANY DATA WHICH COMES INTO HIS POSSESSION AND SECTION HAS NOT PROVIDED ANY FETTERS TO THE COLLECTIONS OF DATA ON A PARTIC ULAR DATE OR OTHERWISE AND USE OF SUCH DATA; IN THE ABSENCE OF WHICH, THERE COULD NOT BE CURTAILMENT OF POWERS TO BE EXERCISED BY THE TPO FOR DETERMINING ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. MERELY BECAUSE, THE FINANCIAL RESULTS OF A CONCERN W HICH WERE FUNCTIONALLY SIMILAR TO THE ASSESSEE CAME INTO PUBLIC DOMAIN ON A LATER DATE, BUT RELATE TO THE YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAD BEEN UNDERTAKEN, CANNOT BE REJECTED ON THE SURMISE THAT THEY WERE NOT AVAILABLE ON THE DATE OF COMPILA TION OF DOCUMENTATION AND / OR CAME IN THE PUBLIC DOMAIN LATER. THE ARGUMENT OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US IS THAT IF THE TP PROCEEDINGS OF A PARTICULAR CASE HAD BEEN TAKEN UP ON AN EARLIER DATE WHEN NO SUCH DATA WAS AVAI LABLE, WOULD PUT SUCH A PERSON ON AN ADVANTAGEOUS POSITION AS COMPARED TO PERSON WHOSE TP PROCEEDINGS WERE TAKEN UP ON A LATER DATE WHEN INFORMATION IN RESPECT OF SUCH COMPARABLES WERE RECENTLY PUBLISHED. THE SEARCH PROCESS IS TO BE CARRIED OUT BY THE TPO WHO IN TURN, HAS TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION ON THE BASIS OF INFORMATION AVAILABLE WITH HIM AND ONCE SUCH INFORMATION IS MADE AVAILABLE TO HIM, THEN THE SAME CAN BE APPLIED BY THE TPO AFTER CONFRONTING THE SAME TO ASSE SSEE, TO COMPUTE THE TRANSFER PRICING ADJUSTMENT, IF ANY, IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE TPO UNDER THE ACT IS FULLY JUSTIFIED IN CARRYING OUT THE FRESH SEARCH, IF NEEDED, FOR IDENTIFYING THE COMPARABLE COMPANIES, MAY BE ADDITIONAL AND PROC EED WITH TRANSFER PRICING PROCEEDINGS. SUCH DATA COLLECTED BY THE TPO CANNOT BE CALLED AS NON - CONTEMPORANEOUS, WHERE THE CONCERNS PICKED UP BY THE TPO ARE FUNCTIONALLY COMPARABLE AND THE DATA FOR THE RELEVANT YEAR WAS AVAILABLE. 20. WE FIND SUPPORT F ROM THE RATIO LAID DOWN BY THE BANGALORE SPECIAL BENCH IN AZTEC SOFTWARE AND TECHNOLOGY VS. ACIT (SUPRA), WHEREIN THE TRIBUNAL WHILE CONSIDERING THE STATUTORY PROVISIONS FOR DETERMINATION OF ARM'S LENGTH PRICE OF A TAXPAYER OBSERVED THAT THE BURDEN TO ESTA BLISH THE TRANSACTION TO BE AT ARM'S LENGTH PRICE WAS UPON THE TAXPAYER, WHO HAD TO FURNISH COMPARABLE TRANSACTIONS, APPLY APPROPRIATE METHOD FOR DETERMINATION OF ARM'S LENGTH PRICE AND JUSTIFY THE SAME BY PRODUCING THE RELEVANT MATERIAL AND DOCUMENTS BEFO RE THE REVENUE AUTHORITIES. WHERE THE REVENUE AUTHORITIES WERE NOT SATISFIED WITH THE ARM'S LENGTH PRICE AND SUPPORTING DOCUMENTS / INFORMATION FURNISHED BY THE TAXPAYER, THE TRIBUNAL HELD THAT THE AUTHORITIES HAD AN AMPLE POWER TO DETERMINE THE SAME AND MAKE SUITABLE ADJUSTMENT. IN SUCH CASE, THE RESPONSIBILITY OF DETERMINATION OF ARM'S LENGTH PRICE IS SHIFTED TO THE REVENUE AUTHORITIES WHO ARE TO DETERMINE THE SAME IN ACCORDANCE WITH STATUTORY REGULATIONS. THE TRIBUNAL FURTHER WHILE CONCLUDING THE ISSU E HAD CONSIDERED THE BURDEN OF PROOF ON THE TAXPAYER AND THE REVENUE AUTHORITIES AND HAD OBSERVED AS UNDER: - 132. A DISPASSIONATE STUDY OF PROVISIONS OF VARIOUS COUNTRIES ON BURDEN OF PROOF, WOULD SHOW, THE FOLLOWING FUNDAMENTAL FEATURES: (I) THAT THE BU RDEN TO ESTABLISH THAT INTERNATIONAL TRANSACTION IS CARRIED AT ALP, IS ON THE TAXPAYER WHO IS TO DISCLOSE ALL THE ITA NO S . 886 & 102 6 /P U N/201 4 39 RELEVANT INFORMATION AND DOCUMENTS RELATING TO PRICES CHARGED AND PROFIT EARNED WITH RELATED AND UNRELATED CUSTOMER. (II) IF THE ASSESSING OF FICER HAS DETERMINED AN ALP, OTHER THAN THE PRICE DECLARED BY THE ASSESSEE, ASSESSING OFFICER HAS TO PROVE THAT THE PRICE DETERMINED BY HIM IS RELIABLE AND REASONABLE AND CONFIRMS THE STATUTORY REQUIREMENT UNLESS THE CASE IS COVERED BY SITUATION NO. (III) BELOW. (III) IN CASE OF FAILURE ON THE PART OF THE TAXPAYER TO COMPLY WITH THE STATUTORY PROVISIONS, THE TAX AUTHORITIES WOULD HAVE TO DETERMINE THE ALP. IN SUCH A SITUATION, BURDEN OF PROOF ON TAX AUTHORITIES IS MUCH REDUCED. 21. THEREAFTER, THE CONCLU SION OF THE TRIBUNAL WAS THAT THE TAXPAYER HAD TO COOPERATE WITH THE TAX AUTHORITIES BY FURNISHING RELEVANT INFORMATION. FURTHER, WHERE THE AUTHORITIES WERE OF THE VIEW THAT ARM'S LENGTH PRICE WAS NOT CORRECTLY DETERMINED BY TAXPAYER, THEN THE SAME COULD BE SUBSTITUTED BY ARM'S LENGTH PRICE ON THE BASIS OF MATERIAL OR INFORMATION FURNISHED BY THE ASSESSEE OR COLLECTED BY THE REVENUE AUTHORITIES. IT WAS FURTHER HELD THAT SUCH ARM'S LENGTH PRICE HAD TO BE DETERMINED BY KEEPING IN MIND THE PROVISIONS OF THE ACT AND ALSO THE PRINCIPLES OF NATURAL JUSTICE AND BE FAIR AND REASONABLE TO THE TAXPAYER AND ANY MATERIAL COLLECTED TO BE USED AGAINST THE TAXPAYER WAS TO BE PUT TO THE TAXPAYER TO EXPLAIN. IT WAS FURTHER HELD THAT THE ADJUSTMENTS MADE ON ACCOUNT OF ARM' S LENGTH PRICE BY TAX AUTHORITIES COULD BE DELETED IN APPEAL ONLY IF APPELLATE AUTHORITIES ARE SATISFIED AND RECORDS A FINDING THAT ARM'S LENGTH PRICE SUBMITTED BY THE ASSESSEE WAS FAIR AND REASONABLE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 133. HAVING REGARD TO THE STATUTORY PROVISIONS, PARTICULARLY THE MANDATE OF SECTIONS 92(1) AND 92D READ WITH RELEVANT RULES, WE HOLD THAT IT IS OBLIGATORY ON THE PART OF THE TAXPAYER TO FURNISH INFORMATION RELATING TO CONTROLLED INTERNATIONAL TRANSACTION S, SELECT A SUITABLE METHOD FOR DETERMINATION AND FURNISH ALP OF SUCH INTERNATIONAL TRANSACTIONS CARRIED BY IT AND GIVE BASIS AND SUPPORTING AUTHENTIC EVIDENCE OF ALP AND ADJUSTMENTS MADE. THE TAXPAYER HAS FURTHER TO COOPERATE IN THE DETERMINATION OF THE A LP BY THE TAX AUTHORITIES BY FURNISHING ALL RELEVANT INFORMATION. THE TAX AUTHORITIES IN CASES WHERE THEY ARE OF THE OPINION THAT ALP HAS NOT BEEN CORRECTLY DETERMINED BY THE TAXPAYER, CAN SUBSTITUTE THEIR OWN ALP ON THE BASIS OF MATERIAL OR INFORMATION FU RNISHED BY THE ASSESSEE OR COLLECTED BY THEM. HOWEVER, SUCH ALP HAS TO BE DETERMINED HAVING IN MIND PROVISIONS OF SECTIONS 92 AND 92C AND OTHER RULES AND REGULATIONS. WHILE DETERMINING ALP, TAX AUTHORITIES ARE BOUND TO FOLLOW PRINCIPLES OF NATURAL JUSTICE AND BE FAIR AND REASONABLE TO THE TAXPAYER. ANY MATERIAL COLLECTED TO BE USED AGAINST THE TAXPAYER IS TO BE PUT TO TAXPAYER TO EXPLAIN. HAVING REGARD TO THE PURPOSE OF THE LEGISLATION AND APPLICATION OF SIMILAR ENACTMENT WORLD OVER, IT MUST FURTHER BE HELD THAT ADJUSTMENTS MADE ON ACCOUNT OF ALP BY TAX AUTHORITIES CAN BE DELETED IN APPEAL ONLY IF THE APPELLATE AUTHORITIES ARE SATISFIED AND RECORDS A FINDING THAT ALP SUBMITTED BY THE ASSESSEE IS FAIR AND REASONABLE. MERELY BY FINDING FAULTS WITH THE TRANSFER PRICE DETERMINED BY THE REVENUE AUTHORITIES (AO/TPO), ADDITION ON ACCOUNT OF ADJUSTMENTS CANNOT BE DELETED. THIS IS BECAUSE THE MANDATE OF SECTION 92(1) IS THAT IN EVERY CASE OF INTERNATIONAL TRANSACTION, INCOME HAS TO BE DETERMINED HAVING REGARD TO ALP . THEREFORE, UNLESS ALP FURNISHED BY THE TAXPAYER IS SPECIFICALLY ITA NO S . 886 & 102 6 /P U N/201 4 40 ACCEPTED, THE APPELLATE AUTHORITIES ON THE BASIS OF MATERIAL AVAILABLE ON RECORD HAS TO DETERMINE ALP ITSELF. SUBJECT TO STATUTORY PROVISIONS, APPELLATE AUTHORITIES CAN DIRECT LOWER REVENUE AUTHORITIES TO CARRY THIS EXERCISE IN ACCORDANCE WITH LAW. THE MATTER CANNOT BE LEFT HANGING IN BETWEEN. ALP OF INTERNATIONAL TRANSACTION HAS TO BE DETERMINED IN EVERY CASE. 22. THE ABOVE SAID PROPOSITION HAS BEEN LAID DOWN BY THE SPECIAL BENCH OF BANGAL ORE TRIBUNAL WHILE INTERPRETING THE TRANSFER PRICING PROVISIONS AND THE PRINCIPLE LAID DOWN BY THE SPECIAL BENCH OF TRIBUNAL IS APPLICABLE TO THE ISSUE BEFORE US. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT IN SCINDIA STEAM NAVIGATION CO. LTD. VS. CIT (SUPRA), WHEREIN THE ISSUE WAS THE APPLICABILITY OF AMENDED PROVISIONS OF THE ACT. THE QUESTION ARISING BEFORE THE HONBLE BOMBAY HIGH COURT WAS THAT IN CASE ANY PRO VISION HAS BEEN AMENDED LATER, WERE SUCH AMENDED PROVISIONS TO BE APPLIED WHILE COMPLETING ASSESSMENT OF THE YEAR WHICH WAS PENDING AS ON THE DATE, ON WHICH THE AMENDMENT WAS BROUGHT IN OR AS PER THE PROVISIONS WHICH WERE APPLICABLE TO THE RELEVANT YEAR. THE HONBLE BOMBAY HIGH COURT DID NOT ACCEPT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN THIS REGARD AS IT WOULD CAUSE STARTLING RESULTS. THE SAID PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BEFORE US, WHERE UNDER THE PROVISIONS OF THE ACT ITSELF, THE TPO IS EMPOWERED TO SUBSTITUTE THE ARM'S LENGTH PRICE ON THE BASIS OF MATERIAL OR INFORMATION FURNISHED BY THE ASSESSEE OR COLLECTED BY HIM. IN CASE, SUCH AN AUTHO RITY HAS BEEN DELEGATED TO THE TPO AND IN EXERCISE OF SUCH AUTHORITY, CERTAIN INFORMATION IS COLLECTED BY THE TPO, WHICH IN TURN, IS CONFRONTED TO THE ASSESSEE AND THEREON APPLIED TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION, THE SAID E XERCISE OF THE JURISDICTION BY THE TPO CANNOT POSSIBLY BE QUESTIONED. ACCORDINGLY, WE FIND NO MERIT IN THE RELIANCE PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER RELI ED UPON ON OTHER DECISIONS WHICH ARE FACTUALLY DIFFERENT FROM THE ISSUE BEFORE US. ACCORDINGLY, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD AND UPHOLDING THE ACTION OF TPO, THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE ARE DISMISSED . 14. THE ISSUE ARISING IN THE PRESENT GROUNDS OF APPEAL NO.2 AND 4 IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE TPO HAD RIGHTLY EXERCISED ITS POWERS IN SELECTING TH E SAID CONCERN AND HENCE, WE FIND NO MERIT IN THE GROUNDS OF APPEAL NO.2 AND 4 RAISED BY THE ASSESSEE. 51 . APPLYING THE SAID PROPOSITION, WE ACCORDINGLY HOLD THAT IN THE CASE BEFORE US, THE YEAR OF TAXATION IS ASSESSMENT YEAR 2005 - 06 WHICH W ERE THE INITI AL YEAR S OF TRANSFER PRICING AND BECAUSE OF AVAILABILITY OF DATA OF CONCERNS WHICH WERE FUNCTIONALLY COMPARABLE TO THE ASSESSEE, THERE IS NO MERIT IN THE REJECTION OF SAID ADDITIONAL EVIDENCE BY THE CIT(A) AT THE INITIAL STAGE ITSELF. ACCORDINGLY, WE REVE RSE THE FINDINGS OF CIT(A) AND HOLD THAT IN CASE TWO CONCERNS MINDA S A I ITA NO S . 886 & 102 6 /P U N/201 4 41 LTD. AND ELLORA TRADING LTD. ARE FUNCTIONALLY COMPARABLE TO THE ASSESSEE, THEN THE MARGINS OF SAID CONCERNS BE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE A SSESSEE. 52 . NOW, COMING TO THE SECOND ASPECT AS TO WHETHER THE SAID TWO CONCERNS ARE FUNCTIONALLY COMPARABLE OR NOT. IN THIS REGARD, WITHOUT GOING INTO VARIOUS ISSUES RAISED BY THE CIT(A) AND THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN REJECTION OF TWO CONCERNS, WE FIND THAT IN RESPECT OF ELLORA TRADING LTD., THE ASSESSEE HAD TAKEN THE SAID CONCERN TO BE FUNCTIONALLY COMPARABLE IN ITS TP STUDY REPORT DURING ASSESSMENT YEAR 2007 - 08 AND THE TPO HAS NOT PASSED ANY ADVERSE COMMENTS ON THE AC CEPTABILITY OF THE SAME. IN RESPECT OF MINDA S A I LTD., THE TPO HIMSELF IN THE TRANSFER PRICING ORDER FOR ASSESSMENT YEAR 2009 - 10 HAD TAKEN THE SAID COMPANY AS FUNCTIONALLY COMPARABLE. ONCE THE SAID CONCERNS ARE ACCEPTED TO BE FUNCTIONALLY COMPARABLE IN SUBSEQUENT YEARS AND UNLESS IT IS BROUGHT ON RECORD THAT THE FUNCTIONS PERFORMED BY THE SAID CONCERNS IN THE YEAR UNDER CONSIDERATION WERE DIFFERENT THAN THE FUNCTIONS PERFORMED IN LATER YEARS, THEN THE SAID CONCERNS CANNOT BE REJECTED TO BE COMPARABLE. ACCORDINGLY, WE HOLD SO. 53 . IN RESPECT OF OTHER ASPECTS POINTED OUT BY THE CIT(A) I.E. IN RESPECT OF MINDA S A I LTD., ANNUAL REPORT IS NOT AVAILABLE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS DRAWN ATTENTION TO PAGE 528 OF THE PAPER BOO K AND POINTED OUT THAT THE ANNUAL REPORT IS VERY MUCH AVAILABLE IN PUBLIC DOMAIN. THE ROYALTY INCOME EARNED BY THE SAID CONCERN IS NEGLIGIBLE TO AFFECT THE MARGINS OF SAID CONCERN AND HENCE, THIS PLEA OF REVENUE IS REJECTED. IN RESPECT OF ELLORA TRADING LTD., THE CIT(A) HAS POINTED OUT THAT ANNUAL REPORT WAS NOT AVAILABLE IN D ATA BASE, HE ADMITTED THAT THOUGH ANNUAL REPORT WAS NOT ITA NO S . 886 & 102 6 /P U N/201 4 42 AVAILABLE BUT ALL THE FIGURES WERE THERE IN PROWESS DATA BASE. HE ALSO POINTED OUT THAT ANNUAL REPORT OF SUBSEQUENT YEAR WAS AVAILABLE AND AUDITED I.E. FOR ASSESSMENT YEAR 2006 - 07. HENCE, THE DATA WHICH WAS AVAILABLE COULD BE CONSIDERED AS RELIABLE DATA. WE FIND MERIT IN THE PLEA OF ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO BENCHMARK THE INTERNATIONAL TRANSACT IONS OF ASSESSEE BY APPLYING TNMM METHOD AND COMPARING THE MARGINS OF ASSESSEE WITH MARGINS OF TWO CONCERNS I.E. MINDA S A I LTD. AND ELLORA TRADING LTD. AS AGAINST THE COMPARABLES ORIGINALLY ADOPTED BY THE TPO AND UPHELD BY THE CIT(A) . THE ASSESSING OFFI CER SHALL DETERMINE THE ADDITION, IF ANY, WITH RESPECT TO ASSESSEES INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ON AN AGGREGATE BASIS UNDER TNMM METHOD . THIS TAKES CARE OF GROUNDS OF APPEAL NO.6.1 AND 7. 5 4. THE ISSUE IN GROUND OF APPEAL NO.6.3 IS AGAINST ADJUSTMENT ON ACCOUNT OF RATE OF DEPRECIATION. 55 . THE PLEA OF ASSESSEE BEFORE US WAS THAT IT HAD PROVIDED FOR DEPRECIATION AT RATES HIGHER THAN THE RATES PRESCRIBED IN SCHEDULE XIV OF COMPANIES ACT, WHEREAS THE COMPARABLE COMPANIES HAD FOLLOWED THE RATES PRESCRIBED AS PER THE COMPANIES ACT. THE ASSESSEE THUS, WANTS ADJUSTMENT ON ACCOUNT OF SUCH DIFFERENCE IN THE DEPRECIATION BETWEEN ASSESSEE AND COMPARABLE COMPANIES UNDER TNMM METHOD. WE HAVE ALREADY ADJUDICATED SIMILAR ISSUE IN VISHAY COMPONENTS PVT. LTD. VS. ACIT (SUPRA) AND HAVE REJECTED THE PLEA OF ASSESSEE HOLDING AS UNDER: - 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS AGGRIEVED BY THE NON - SPEAKING ORDER OF DRP, WHEREIN THE PLEA OF ASSESSEE THAT WHILE BENCHMARKING ITS INTERNATIONAL TRANSACTION OPBDIT SHOULD BE BENCHMARKED AGAINST OPBDIT EARNED BY THE COMPARABLE COMPANY BECAUSE OF DIFFERENCE IN DEPRECIATION POLICIES. THE ASSESSEE HAD MADE THE PLEA THAT AN ADJUSTED PLI I.E. OPBDIT / OPERATING COST COULD PROVIDE BETTER COMPARISON. THE ITA NO S . 886 & 102 6 /P U N/201 4 43 ASSESSEE PLEADS THAT IT WAS CHARGING HIGHER DEPRECIATION BECAUSE OF ITS INTERNAL POLICIES WHICH IN TURN, AFFECT THE NET PROFITS IN THE OPEN MARKET AND HENCE, THE ECONOMIC ADJUSTMENT SHOULD BE MADE FOR DIFFERENCE IN AC COUNTING POLICIES. THE ASSESSEE BEFORE US IS ENGAGED IN ASSET INTENSIVE INDUSTRY, WHEREIN THE GROSS VALUE OF PLANT & MACHINERY IS TO THE TUNE OF RS.93 CRORES AND THE COST OF TOTAL ASSETS IS RS.117 CRORES (GROSS VALUE). 34. ANOTHER ASPECT TO BE NOTED IS THAT IN ADDITION TO THE DEPRECIATION, THE ASSESSEE HAS ALSO CLAIMED HEAVY REPAIRS AND MAINTENANCE EXPENDITURE I.E. ON BUILDING OF RS.77.66 LAKHS, ON PLANT & MACHINERY OF RS.3.28 CRORES AND OTHERS OF RS.1.41 CRORES. IN SUCH AN INCIDENT, WHERE DEPRECIATION IS SIGNIFICANT COST, THEN A PRUDENT BUSINESSMAN WOULD NOT IGNORE THE SAME WHILE BENCHMARKING ITS COST. 35. FURTHER, IN THE INITIAL YEARS WHEN THE ASSET IS NEW THEN, THE DEPRECIATION TO BE ALLOWED IS HIGHER BUT FOR THE SAME MACHINERY, DEPRECIATION WOULD BE LOWER AS THE ASSET AGES. WHEN AGE OF MATERIALLY SAME ASSET IS RELATABLY LESS THEN DEPRECIATION INCIDENCE COULD BE MUCH HIGHER. FOR EXAMPLE, WHERE THE VALUE OF ASSET IS 100 AND THE RATE OF DEPRECIATION IS 30, THEN DEPRECIATION WOULD BE 30; IN SECOND Y EAR OF ACQUISITION, DEPRECIATION WOULD BE 21, IN THIRD YEAR IT WOULD BE 14.7 AND IN THE FOURTH YEAR, THE DEPRECIATION WOULD BE 10. SUCH HUGE VARIATION IN DEPRECIATION INCIDENCE COULD MAKE COMPARISON UNWORKABLE. BUT THAT IS NOT THE CASE HERE. IN SUCH INC IDENCE, THE PLI DETERMINED BY EXCLUDING DEPRECIATION FROM THE PROFITS FOR COMPARISON UNDER TNMM ANALYSIS DISTORTS COMPARABILITY ANALYSIS. THERE ARE VARYING OPINIONS WHETHER DEPRECIATION COULD BE TAKEN INTO ACCOUNT FOR WORKING OUT THE PROFITS OF AN ENTERPR ISE OR NOT. THE BANGALORE BENCH OF TRIBUNAL IN TOYOTA KIRLOSKAR MOTORS (P) LTD. VS. ACIT 2012) 28 TAXMAN.COM 293 (BANG.) HAD IN SUCH CIRCUMSTANCES OBSERVED AS UNDER: - 19.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS CITED ON BOTH SIDES. THERE ARE VARYING OPINIONS AMONG EXPERTS WHETHER DEPRECIATION SHOULD BE TAKEN INTO ACCOUNT FOR WORKING OUT PROFITS OF AN ENTERPRISE. ONE VIEW IS THAT IT IS NOT REVENUE DEDUCTION AT ALL. AS PER T HAT VIEW, DEPRECIATION IS ONLY AN ANNUAL LOSS IN THE COST / VALUE OF THE CAPITAL ASSETS DUE TO FACTORS LIKE AGE OF ASSETS, THEIR USAGE ETC. AND THEREFORE ALLOWANCE OF DEPRECIATION, BEING CAPITAL IN NATURE, SHOULD FIND NO PLACE IN THE COMPUTATION OF PROFITS . THE OPPOSITE VIEW IS THAT DEPRECIATION, THOUGH A CAPITAL LOSS, NEEDS TO BE DEDUCTED, TO REPLACE THE VALUE OF ASSETS TO THE EXTENT IT HAS DEPRECIATED. BE THAT AS IT MAY, IN THE PRESENT CASE, ALP OF THE TRANSACTIONS TO BE DETERMINED BY COMPARING THE PROFIT S OF THE ASSESSEE WITH THAT OF THE COMPARABLE COMPANIES. THERE ARE NO EXPRESS STATUTORY PROVISIONS WHICH INDICATE THAT DEDUCTION FOR DEPRECIATION IS A MUST. DEPRECIATION, WHICH CAN HAVE VARIED BASIS AND IS ALLOWED AT DIFFERENT RATES, IS NOT AN EXPENDITURE WHICH MUST BE DEDUCTED IN ALL SITUATIONS. IT HAS NO DIRECT BEARING OR CONNECTION ON PRICE, COST OR PROFIT MARGIN OF INTERNATIONAL TRANSACTIONS. IT CAN THEREFORE BE HELD THAT DEPRECIATION CAN BE TAKEN INTO ACCOUNT OR DISREGARDED IN COMPUTING PROFIT, DEPENDI NG ON THE CONTEXT AND PURPOSE FOR WHICH PROFIT IS TO BE COMPUTED. 19.4.2 IN THE CASE OF SCHEFENACKER MOTHERSON LTD (SUPRA) OF THE ITAT, DELHI, THE ISSUE OF WHETHER DEPRECIATION CAN BE EXCLUDED FOR COMPARISON HAS BEEN DISCUSSED AT LENGTH AND IT WAS HELD I N PARA 22 THEREOF THAT .. THE BASIC ISSUE INVOLVED WAS WHETHER THE COST PAID OR CHARGED FOR INTERNATIONAL TRANSACTIONS WAS AT ARMS LENGTH OR NOT. THE FACTORS WHICH GO TO INFLUENCE PRICE, COST OR PROFITS ARE / WERE RELEVANT FOR COMPUTING PROFIT AND NOT DEPRECIATION HAVING NO DIRECT CONNECTION WITH PRICE OR PROFIT BUT RESPONSIBLE FOR WIDE DIFFERENCES. THE CASE OF REVENUE IS NOT CLEAR. IF DEPRECIATION IS NOT LEADING TO ITA NO S . 886 & 102 6 /P U N/201 4 44 ANY DIFFERENCE, ITS EXCLUSION IS IMMATERIAL. IF IT IS LEADING TO DIFFERENCES, THEN D IFFERENCES ARE REQUIRED TO BE ADJUSTED, AS REQUIRED BY THE IT REGULATIONS. THERE IS NO WAY TO DISLODGE THE CLAIM OF THE TAX PAYER. THE CONTEXT AND PURPOSE OF LEGISLATION AND FACTS OF THE CASE OVERWHELMINGLY APPROVE ADOPTION OF CASH PROFIT ONLY. THIS CAS E WAS RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS PROPOSITION THAT CASH PLI OR PBDIT IS THE APPROPRIATE PLI. 19.4.3 WE FIND THAT THE ABOVE FINDING OF THE TRIBUNAL WAS GIVEN AS THE CASE OF REVENUE WAS NOT CLEAR AND THE TPO HAD REJECTED CASH PLI WITHOUT ASSIGNING ANY REASONS. SUBSEQUENTLY, THE MUMBAI, ITAT, IN THE CASE OF FIAT INDIA PVT LTD (SUPRA) HELD THAT IN AN ASSET INTENSIVE INDUSTRY WHERE ASSETS ARE THE KEY DRIVERS, EXCLUDING DEPRECIATION WOULD NOT LEAD TO ANY MEANINGFUL OUTCOME AND PBIT AND NOT PBD IT IS TO BE TAKEN FOR COMPUTING PLI. THE ASSESSEE IN THE INSTANT CASE IS ALSO SIMILARLY IN THE ASSET - INTENSIVE INDUSTRY OF AUTOMOBILE MANUFACTURING LIKE THE ASSESSEE IN THE CITED CASE (SUPRA), WHERE DEPRECIATION IS A SIGNIFICANT COST, WHICH NO PRUDENT BUSI NESSMAN WOULD IGNORE WHILE PRICING A PASSENGER CAR. IN SUCH AN INSTANCE, WHEN THE PRICE IS DETERMINED BY CONSIDERING THE DEPRECIATION COST, EXCLUDING DEPRECIATION FROM THE PROFITS FOR COMPARISON UNDER TNMM DISTORTS THE COMPARABILITY ANALYSIS. WE ARE THEREF ORE OF THE OPINION THAT IN VIEW OF THE FINDING OF THE MUMBAI ITAT IN THE CASE OF FIAT INDIA PVT LTD (SUPRA) IN WHICH THE ASSESSEE THEREIN IS IN THE ASSET INTENSIVE AUTOMOBILE INDUSTRY, AS IS THE ASSESSEE IN THE PRESENT CASE, THAT CASH PLI OR PBDIT TO SALES IS NOT THE APPROPRIATE PLI AND ALSO NOTE THAT THE TPO HAS GIVEN DEPRECIATION ADJUSTMENT FOR DIFFERENCES IN RELATIVE LEVEL OF DEPRECIATION COST WITH REFERENCE TO SALES. WE, THEREFORE, DISMISS THIS GROUND RAISED BY THE ASSESSEE. 36. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS PLACED HEAVY RELIANCE ON THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN SCHEFENACKER MOTHERSON LTD. VS. ITO (SUPRA), BUT THE SAME HAS BEEN DISTINGUISHED BY THE LATER DECISION OF BANGALORE BENCH OF TRIBUNAL IN TOY OTA KIRLOSKAR MOTORS (P) LTD. VS. ACIT (SUPRA), WHERE RELIANCE IS PLACED ON THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN FIAT INDIA PVT. LTD. VS. DCIT (2010 - TIOL - 30 - ITAT - MUM - TP). HENCE, WE FIND NO MERIT IN THE SAID RELIANCE PLACED UPON BY THE LEARNED AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE. 37. ANOTHER RELIANCE WHICH WAS PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS ON THE RATIO LAID DOWN BY THE HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF M/S. B.A. CONTINUUM INDIA PVT. LTD. ( SUPRA), WHEREIN THE ISSUE WAS AGAINST THE ORDER OF TPO WHILE CALCULATING THE PLI HAD CONSIDERED THE PROFIT BEFORE DEPRECIATION BUT HAD FAILED TO EXCLUDE THE SAME IN DENOMINATOR I.E. OPERATING COST / TOTAL COST WHICH AS PER THE ASSESSEE RESULTED IN ERRONEOU S COMPUTATION OF PLI OF THE ASSESSEE COMPANY AS WELL AS THAT OF COMPARABLE COMPANIES. THE TRIBUNAL IN SUCH CIRCUMSTANCES HAD HELD THAT THE DEPRECIATION HAS IMPACT ON THE PROFIT MARGINS OF THE ASSESSEE AND HENCE, ADJUSTMENT HAD TO BE MADE. THE HONBLE HIG H COURT OF ANDHRA PRADESH HAD UPHELD THE SAID ORDER OF TRIBUNAL. HOWEVER, THE SAID ISSUE DOES NOT ARISE IN THE PRESENT CASE AND HENCE, THE SAME IS NOT APPLICABLE BEING FACTUALLY DIFFERENT. ACCORDINGLY, WHERE THE FIXED ASSETS DRIVES REVENUES OF MANUFACTUR ING ENTERPRISE AND WHERE DEPRECIATION IS SIGNIFICANT COST COMPONENT TO BE ACCOUNTED FOR, THEN SUCH DEPRECIATION COULD NOT BE DISREGARD FOR TRANSFER PRICING PURPOSES WHILE BENCHMARKING INTERNATIONAL TRANSACTION UNDER TNMM METHOD. THE EXCLUSION OF DEPRECIAT ION WOULD DISTORT THE COMPARABILITY ANALYSIS, THEREFORE, CASH PROFIT OR PBDIT COULD NOT BE ADOPTED AS THE PLI. ITA NO S . 886 & 102 6 /P U N/201 4 45 38. THE DELHI BENCH OF TRIBUNAL IN A LATER DECISION IN DCIT VS. SUMI MOTHERSON INNOVATIVE ENGINEERING LTD. (2014) 150 ITD 195 (DELHI), WHERE THE COMPANY MANUFACTURED MODELS, DYES, MOLTED COMPONENTS AND PROVIDED CONSULTANCY SERVICES TO ASSOCIATE ENTERPRISES, HELD THAT UNDER TNMM METHOD, NET PROFIT MARGIN WAS THE STARTING POINT FOR DETERMINING ARM'S LENGTH PRICE. IT WAS FURTHER HELD THAT NET PROFIT MARGIN WAS SYNONYMOUS TO NET OPERATING PROFIT, WHICH MEANT PROFIT FROM BUSINESS ACTIVITY AFTER CONSIDERING ALL DIRECT AND INDIRECT COSTS AND AFTER EXCLUDING NON - OPERATING INCOMES AND EXPENSES. THUS, ALL OPERATING EXPENSES WERE REQUIRED TO BE TAKEN INTO A CCOUNT. THE TRIBUNAL THUS, HELD THAT THE ASSESSEE IN THAT CASE COULD NOT SUBSTITUTE THE NET OPERATING PROFIT WITH CASH PROFIT AND THE TPO WAS JUSTIFIED IN ADOPTING THE OPERATING PROFIT / SALES AS THE PLI. THE ASSESSEE THEREIN FURTHER CONTENDED THAT IF DE PRECIATION HAD TO BE TAKEN INTO ACCOUNT FOR DETERMINING THE ARM'S LENGTH MARGIN, THEN IT WAS ENTITLED TO MAKE AN APPROPRIATE ADJUSTMENT ON ACCOUNT OF HIGHER DEPRECIATION CHARGED DURING THE RELEVANT TAX PERIOD DUE TO CHANGE IN THE DEPRECIATION POLICY. THE SAID PLEA OF THE ASSESSEE WAS ALSO REJECTED SINCE THE CHANGE IN POLICY WAS ONLY IN RESPECT OF SOME OF THE ASSETS, OTHERWISE THE DEPRECIATION METHOD HAD NOT CHANGED. THE PLEA OF THE ASSESSEE THAT SUITABLE ADJUSTMENT WAS WARRANTED BECAUSE OF ASSESSEES RATI O OF DEPRECIATION / SALES WAS AT 24% AS COMPARED TO THE AVERAGE RATIO OF 5.48%, IN CASE OF COMPARABLE COMPANIES, WAS HELD TO BE IRRELEVANT BECAUSE DEPRECIATION HAD TO BE RECKONED WITH COST OF ASSETS RATHER THAN SALES. ANOTHER PLEA OF THE ASSESSEE THAT THE TPO HAD ACCEPTED CP/S AS PLI FOR SUBSEQUENT TAX PERIOD AND TO BE APPLIED IN ACCORDANCE WITH RULE OF CONSISTENCY WAS ALSO REJECTED AS FOR TWO YEARS SUBSEQUENT TO THE RELEVANT TAX YEAR THE TPO HAD REJECTED THE CP/S. 39. FURTHER, IN ANOTHER DECISION OF DELH I BENCH OF TRIBUNAL IN HONDA MOTORCYCLE & SCOOTERS INDIA PVT. LTD. IN ITA NO.1379/DEL/2011, ORDER DATED 13.04.2015 INVOLVING THE MANUFACTURING ENTERPRISE WHERE THE TNMM METHOD WAS ADOPTED AS MOST APPROPRIATE METHOD, THE TRIBUNAL HELD THAT FOR THE FOR PURPO SE OF TNMM, OPERATING PROFITS AS ENVISAGED UNDER THE RELEVANT INDIAN TRANSFER PRICING RULES EMBRACED CUMULATIVE EFFECT OF ALL ITEMS OF OPERATING INCOME AND EXPENSES. IN OTHER WORDS, IT WAS NOT PERMISSIBLE TO CONSIDER INDIVIDUAL ITEMS OF REVENUE AND EXPE NSES. THE TRIBUNAL HELD AS UNDER: - WHEN WE CONSIDER THE OPERATING PROFIT MARGIN, THE EFFECT OF ALL THE INDIVIDUAL HIGHER OR LOWER ITEMS OF EXPENSES OR INCOME GETS SUBSUMED IN THE OVERALL OPERATING PROFIT MARGIN, RULING OUT THE NEED FOR ANY ADJUSTMENT O N COMPARISON OF ONE - TO - ONE ITEMS RESULTING INTO THE DETERMINATION OF THE OPERATING PROFIT MARGIN. 40. HOWEVER, THE TRIBUNAL ACKNOWLEDGED THAT THE DIFFERENCES IN AMOUNTS OF DEPRECIATION IN CASE OF TESTED PARTY VIS - - VIS COMPARABLES DUE TO DIFFERENT DEPREC IATION RATES CALLED FOR APPROPRIATE ADJUSTMENT. 41. WE FURTHER FIND SUPPORT FROM THE RATIO LAID DOWN IN RECENT DECISION BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. WELSPUN ZUCCHI TEXTILES LTD. IN INCOME TAX APPEAL NO.1286 OF 2014, JUDGMENT DATED 06 .01.2017, WHERE THE QUESTION RAISED BEFORE THE HONBLE HIGH COURT WAS AS UNDER: - (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND DESPITE THE PRESCRIPTION OF PARAMETERS OF COMPARABILITY BY RULE 10B(2) OF THE INCOME TAX RULES, 1962, THE TRIBUNAL WAS CORRECT IN LAW, IN DIRECTING THE INCLUSION OF DEPB IN TURNOVER AND DEPRECIATION IN NET PROFIT FOR THE PURPOSE OF PROFIT MARGIN OF COMPARABLES AND ASSESSEE? 42. THE HONBLE HIGH COURT HELD THAT THE DEPRECIATION IS TO BE INCLUDED AS OPERATING EXPENSES TO DETERMINE THE OPERATING COST OF THE ASSESSEE AND THE COMPARABLES. THE QUESTION BEFORE THE HONBLE HIGH COURT WAS THE COMPARABILITY BETWEEN PROFIT MARGINS OF ASSESSEE AND THE COMPARABLES IN VIEW OF THE ITA NO S . 886 & 102 6 /P U N/201 4 46 PARAMETERS OF COMPARABILITY UNDER RULE 10B (2) OF IT RULES. THE HONBLE HIGH COURT HAS HELD AS UNDER: - 4.. (A). (B). (D) WE FIND THAT SO FAR AS EXCLUSION OF DEPB BENEFIT IN ARRIVING AT THE OPERATING PROFIT OF THE RESPONDENT ASSESSEE IS CONCERNED, THE ORDER OF THE TRIBUNAL FOR THE ASSESS MENT YEARS2005 - 06 AND 2007 - 08 WERE APPEALED BY THE REVENUE TO THIS COURT. MR. SURESH KUMAR, LEARNED COUNSEL APPEARING FOR THE REVENUE VERY FAIRLY STATES THAT THIS VERY ISSUE WAS RAISED BY THE REVENUE IN ITS APPEAL BEFORE THIS COURT FOR THE EARLIER ASSESSM ENT YEARS BEING INCOME TAX APPEAL NO.1827 OF 2013 RELATING TO A.Y. 2005 - 06 AND INCOME TAX APPEAL NO.171 OF 2014 RELATING TO A.Y. 2007 - 08. HOWEVER, THIS COURT BY ORDERS DATED 22 ND SEPTEMBER, 2015 FOR A.Y. 2005 - 06 AND 1 ST JULY, 2016 FOR A.Y. 2007 - 08, DISMIS SED THE REVENUES APPEAL. IN THE ABOVE VIEW, THE ISSUE WITH REGARD TO THE EXCLUSION OF THE DEPB BENEFIT STANDS CONCLUDED BY VIRTUE OF ORDER OF THIS COURT AGAINST THE REVENUE AND IN FAVOUR OF THE RESPONDENT ASSESSEE. (E) SO FAR AS DEPRECIATION IS CONCERNE D, WE FIND THAT THE ANALYSIS DONE BY THE TRIBUNAL TO INCLUDE DEPB BENEFIT TO HOLD IT TO BE AN OPERATING REVENUE TO DETERMINE OPERATING PROFIT, WOULD BE EQUALLY APPLICABLE IN CASE OF DEPRECIATION FOR THE PURPOSES OF HOLDING IT TO BE AN OPERATING EXPENSES TO DETERMINE OPERATING COSTS. IT MUST BE BORNE IN MIND THAT THE DEPRECIATION WHICH IS INCURRED BY THE COMPARABLES ARE NOT BEING EXCLUDED BEFORE ARRIVING AT THE TOTAL COST WHILE APPLYING THE TNMM METHOD FOR THE PURPOSES OF DETERMINING THE ALP PRICE OF THE RE SPONDENT ASSESSEES EXPORT TO ITS ASSOCIATE ENTERPRISE. THE COMPARISON TO DETERMINE THE ALP HAS TO THE EXTENT POSSIBLE HAS TO BE DONE BETWEEN LIKE TO LIKE AND SIMILAR TO SIMILAR. ONE SIDED EXCLUSION WOULD LEAD TO DISTORTION IN COMPARISON. 43. IN VIEW OF ABOVE SAID, WE HOLD THAT WHERE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF RESISTORS AND CAPACITORS WHICH IN TURN, ARE USED IN VARIOUS ELECTRONIC APPLICATIONS AND PRODUCTS AND WHERE THE ASSESSEES MANUFACTURING FACILITIES ARE ESTABLISHED SEPARATELY FOR THE DOMESTIC TARIFF AREA AND FOR EXPORT ORIENTED UNIT AND THE ITEMS MANUFACTURED BY THE ARE USED IN DIFFERENT PRODUCTS WHICH CONTAINED ELECTRONIC CIRCUITS AND HAS WIDE APPLICATION IN DIFFERENT SPHERES, THERE IS NO MERIT IN THE CLAIM OF ASSES SEE IN ADOPTING THE CASH PLI OR PBDIT AS THE PLI. WE DISMISS THE PLEA OF THE ASSESSEE IN THIS REGARD. 56 . THE FACTUAL ASPECTS OF THE PRESENT CASE ARE SIMILAR AND F OLLOWING THE SAME PARITY OF REASONING, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE AND THE S AME IS REJECTED . 57 . THE ISSUE IN GROUND OF APPEAL NO.8 IS AGAINST PROPORTIONATE ADJUSTMENT TO BE MADE WHILE APPLYING TNMM METHOD ONLY TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN AND NOT AT THE ENTITY LEVEL. ITA NO S . 886 & 102 6 /P U N/201 4 47 5 8 . WE FIND THAT THE ISSUE IS COVERED BY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. IN INCOME TAX APPEAL NO.2201 OF 2013, JUDGMENT DATED 02.12.2015 AND ALSO BY THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN CIT VS. KEIH IN PANALFA LTD. IN ITA NO.11/2015 AND CIT KEIHIN PANALFA LTD. IN ITA NO.12/2015, JUDGMENT DATED 09.09.2015 . HENCE, WE DIRECT THE TPO TO COMPUTE TRANSFER PRICING ADJUSTMENT, IF ANY, ONLY WITH RESPECT TO INTERNATIONAL TRANSACTIONS. THE GROUND OF APPEAL NO. 8 IS THUS, ALLOWED. 5 9 . NOW, COMING TO THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE, WHEREIN THE ASSESSEE HAS CHALLENGED THE COMPUTATION OF OPERATING MARGINS OF ASSESSEE BY CONSIDERING THE INTEREST EXPENDITURE, LOAN PROCESSING CHARGES AND LOSS ON DISPOSAL OF ASSETS AS OPERATING EXPENDITURE I.E. ADDITIONAL GROUND OF APPEAL NO.9 AND IN CONSIDERING THE SCRAP SALES INCOME AS NON - OPERATING IN NATURE. FURTHER, VIDE GROUND OF APPEAL NO.10, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) IN NOT ALLOWI NG ECONOMIC ADJUSTMENT ON ACCOUNT OF NON CENVAT, CUSTOMS DUTY ON ACCOUNT OF WIRE IMPORTS MADE BY THE ASSESSEE VIS - - VIS COMPARABLES. 60 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUES RAISED BY WAY OF ADDITIONAL GROUNDS OF APPEAL ARE COVERED BY GENERAL GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE BUT THE ADDITIONAL GROUNDS OF APPEAL ARE MORE SPECIFIC IN NATURE. IN VIEW OF THE SAME, ADDITIONAL G ROUNDS OF APPEAL BE ADMITTED. 61. THE ASSESSEE IS AGGRIEVED BY THE DETERMINA TION OF OPERATING MARGINS OF ASSESSEE, WHEREIN THE FOLLOWING ITEMS I.E. LOAN PROCESSING CHARGES, LOSS ON ITA NO S . 886 & 102 6 /P U N/201 4 48 DISPOSAL OF ASSETS AND INTEREST ON LOAN TAKEN AS OPERATING IN NATURE. THE CASE OF ASSESSEE IS THAT THE SAID ITEMS ARE ON CAPITAL ACCOUNT AND CANNOT BE CONSIDERED AS PART OF OPERATING COST FOR THE PURPOSE OF CALCULATING OPERATING MARGINS. FURTHER, THE ASSESSEE IS ALSO AGGRIEVED IN IGNORING TO CONSIDER SCRAP SALES AS OPERATING INCOME WHILE COMPUTING OPERATING MARGINS OF ASSESSEE. THE CLAIM OF ASSESSEE I N THIS REGARD IS THAT SCRAP SALES ARE LINKED TO THE REGULAR MANUFACTURING ACTIVITIES OF THE ASSESSEE AND THUS, SHOULD BE CONSIDERED AS OPERATING IN NATURE. IN THE PETITION FILED FOR ADMISSION OF ADDITIONAL EVIDENCE, THE ASSESSEE HAS POINTED OUT THAT CALCU LATION OF OPERATING MARGINS WAS SUBMITTED BEFORE THE LOWER AUTHORITIES. HOWEVER, SPECIFIC GROUND SEEKING FOR CORRECT TREATMENT OF AFORESAID ITEMS IN CALCULATION OF OPERATING MARGINS WAS NOT TAKEN BEFORE THE LOWER AUTHORITIES AND HENCE, ADDITIONAL GROUND O F APPEAL BEFORE THE TRIBUNAL. THIS ISSUE VIDE ADDITIONAL GROUND OF APPEAL NO.9 IS RAISED BY THE ASSESSEE. 62. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WORKING OF OPERATING MARGINS EXCLUDING THE ITEMS OF INTEREST EXPENDITURE , LOAN PROCESSING CHARGES AND LOSS ON DISPOSAL OF ASSETS WAS FILED BEFORE THE LOWER AUTHORITIES AND MENTION OF THE SAME WAS MADE IN THE SUBMISSIONS FILED BEFORE THE CIT(A), COPY OF WHICH IS PLACED AT PAGE 195 OF THE PAPER BOOK. HE FURTHER POINTED OUT THAT THE ISSUE OF INTEREST EXPENDITURE BEING NON - OPERATING IN NATURE, IS ACCEPTED IN SUBSEQUENT YEARS IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2008 - 09 TO 2010 - 11 AND FURTHER, EVEN THE LOSS ON SALE OF FIXED ASSETS IS NOT PART OF REGULAR BUSINESS OPERATIONS OF ASSESSEE AND OUGHT TO BE EXCLUDED FROM OPERATING COST HAS BEEN SO ACCEPTED IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10. HE FURTHER REFERRED TO THE LOAN PROCESSING CHARGES ALSO AND SAID THAT IT IS NOT TO BE PART OF OPERATING COST. IN RESPECT OF SCR AP SALES OF RS.27.34 ITA NO S . 886 & 102 6 /P U N/201 4 49 CRO RES, THE ASSESSEE POINTED OUT THAT EVEN IN SUBSEQUENT YEARS I.E. 2010 - 11, SCRAP SALES HAS BEEN CONSIDERED AS OPERATING INCOME, THE SAME MAY BE SO INCLUDED. 63. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THA T NO SUCH GROUND OF APPEAL WAS RAISED BEFORE THE LOWER AUTHORITIES AND THERE IS NO MERIT IN FRESH CLAIM BEING MADE. HE ALSO POINTED OUT THAT WHATEVER TREATMENT IS TO BE GIVEN IN ASSESSEES HAND, THE SAME SHOULD BE GIVEN IN THE HANDS OF COMPARABLES ALSO. 64. WE FIND THIS ISSUE OF WORKING OF OPERATING MARGINS ON ACCOUNT OF LOSS ON DISPOSAL OF ASSETS, LOAN PROCESSING CHARGES AND INTEREST EXPENDITURE, WHETHER IS NON - OPERATING OR OPERATING IN NATURE, HAS NOT BEEN LOOKED INTO EITHER BY THE TPO OR BY THE CIT(A). THE ASSESSEE HAD RAISED THIS ISSUE AND HENCE, ADDITIONAL GROUND OF APPEAL NO.9 IS ADMITTED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTS OUT THAT THE INTEREST EXPENSES AND LOSS ON DISPOSAL OF ASSETS HAS BEEN HELD TO BE NON - OPERATING IN THE HANDS OF ASSESSEE IN LATER YEARS. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TPO TO VERIFY THIS PLEA OF ASSESSEE. IN CASE, SIMILAR EXPENDITURE HAS NOT BEEN TAKEN AS NON - OPERATING IN NATURE AND THE EXPENDITURE BOOKED IN THE YEAR UNDER CONSIDERATIO N IS FALLING IN SAME CATEGORY, THEN THE SAME IS NOT TO BE INCLUDED AS PART OF OPERATING COST. THE ASSESSING OFFICER / TPO IS ALSO DIRECTED TO LOOK INTO THE PLEA OF ASSESSEE WITH REGARD TO LOAN PROCESSING CHARGES AND THE NATURE OF SUCH CHARGES. IN RESPECT OF SCRAP SALES, IN CASE, IT ARISES ON ACCOUNT OF BUSINESS ACTIVITY OF THE ASSESSEE, THEN THE SAME IS TO BE INCLUDED IN THE HANDS OF ASSESSEE AS OPERATING REVENUE. THE ASSESSING OFFICER / TPO IS ALSO DIRECTED TO VERIFY THIS CLAIM AND ALLOW THE CLAIM OF AS SESSEE AS SIMILAR CLAIM HAS BEEN ALLOWED IN THE HANDS OF ITA NO S . 886 & 102 6 /P U N/201 4 50 ASSESSEE IN LATER YEARS. THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND OF APPEAL NO.9 RAISED BY THE ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURP OSES. 65. NOW, COMING TO THE LAST GROUND OF APPEAL I.E. ADDITIONAL GROUND OF APPEAL NO.10 RAISED BY THE ASSESSEE AGAINST ECONOMIC ADJUSTMENT TO BE ALLOWED ON HIGHER IMPORT CONTENT. 66. THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE IS A NEW P LEA RAISED BEFORE US I.E. IN RESPECT OF ECONOMIC ADJUSTMENT FOR HIGHER IMPORT CONTENT OF ASSESSEE VIS - - VIS COMPARABLE COMPANIES. THE FIRST ASPECT OF ADDITIONAL GROUND OF APPEAL IS THAT NO SUCH PLEA WAS EVER RAISED BEFORE ANY AUTHORITIES BELOW. THE ASSES SEE IN ORDER TO PLEAD ITS CASE OF ECONOMIC ADJUSTMENT FOR HIGHER IMPORT CONTENT OF THE ASSESSEE VIS - - VIS ITS COMPARABLES HAS MOVED AN APPLICATION UNDER RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 SEEKING PERMISSION TO FILE ADDITIONAL EVIDEN CE. IN SUPPORT OF THE SAID CLAIM, THE ASSESSEE HAS ATTACHED COMPUTATION OF EXCESS NON - CENVAT DUTY PAID BY THE ASSESSEE DURING THE YEAR AND DETAILED COMPUTATION OF IMPORT OF RAW MATERIALS, SPARES AND COMPONENTS ALONG WITH SCHEDULES FORMING PART OF THE ACCO UNT FOR THE YEAR ENDING 31.03.2005, WHEREIN IN THE NOTES TO THE ACCOUNTS, CONSUMPTION OF RAW MATERIALS, CIF VALUE OF IMPORTS, ETC. ARE PROVIDED . IN APPENDIX - 2, THE ASSESSEE PROVIDED OTHER DETAILS. 67. THE ISSUE RAISED BEFORE US IS PURELY A FACTUAL ISSU E AND CANNOT BE ADMITTED AS ADDITIONAL GROUND OF APPEAL. THE HON'BLE SUPREME COURT IN NATIONAL THERMAL POWER CORPORATION VS. CIT REPORTED IN 229 ITR 383 (SC) HAS LAID DOWN THAT THE ADDITIONAL GROUND OF APPEAL CAN BE ADMITTED IN RESPECT OF SUCH AN ISSUE ITA NO S . 886 & 102 6 /P U N/201 4 51 FO R WHICH THE FACTS ARE ALREADY AVAILABLE ON RECORD. HOWEVER, THAT IS NO SO IN THE PRESENT CASE. EVEN ON MERITS OF THE CASE, THE ASSESSEE COMPANY WAS INCORPORATED IN 1997 AND THE PRODUCTION WAS STARTED IN 1999. THE FINANCIAL YEAR IN APPEAL IS 2004 - 05 AND THE ASSESSEE IS ASKING FOR ADJUSTMENT ON ACCOUNT OF IMPORT CONTENT. WE FIND NO MERIT IN THE PLEA OF ASSESSEE, IN VIEW OF THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN SON Y INDIA (P) LTD. VS. DCIT, ORDER DATED 23.09.2008. 68. THE LEARNED AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN DEMAG CRANES & COMPONENTS (INDIA) (P) LTD. VS. DCIT (2012) 144 TTJ (PUNE) 320 AND THE MUMBAI BENCH OF TRIBUNAL IN CAPGEMINI IND IA (P) LTD. VS. ACIT (2013) 33 TAXMANN.COM 5 (MUMBAI TRIB.) . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SOUGHT ADJUSTMENT IN THE HANDS OF ASSESSEE IN THIS REGARD. IT IS SETTLED THAT THE ADJUSTMENT, IF ANY, HAS TO BE MADE IN THE HANDS OF COM PARABLES AND HENCE, IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, THERE IS NO MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD. RELIANCE PLACED ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN SKODA AUTO INDIA (P) LTD. VS. ACIT (2009) 122 TTJ (PUNE) 699 IS MISPLACED AS THE ADJUSTMENT IN THAT YEAR WAS ALLOWED BEING THE INITIAL STAGES OF BUSINESS, WHEREAS IN THE FACTS OF PRESENT CASE, THE BUSINESS OF ASSESSEE WAS SETTLED IN 1999 AND CANNOT BE SAID TO BE IN INITIATE STAGES AND HENCE, THIS PLE A OF ASSESSEE IS ALSO REJECTED ON MERITS. 69. NOW, COMING T O THE APPEAL FILED BY THE REVENUE. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) THAT THE DISALLOWANCE ON ACCOUNT OF PAYMENT OF EARLIER ASSESSMENT YEARS EXCISE DUTY IN CURRENT YEAR BE ADDED TO THE ITA NO S . 886 & 102 6 /P U N/201 4 52 PROFIT OF ASSESSEE FOR CALCULATING P ROFIT LEVEL INDICATOR. WE HAVE ALREADY DECIDED THE ISSUE OF ALLOWABILITY OF EXCISE DUTY BOTH IN RESPECT OF EARLIER YEARS AND CURRENT YEAR ALONG WITH INTEREST ON DELAYED PAYMENT OF EXCISE DUTY AS ALLOWABLE IN THE HANDS OF ASSESSEE . HENCE, THE ASSESSING OF FICER IS NOT TO RE - COMPUTE ASSESSEES PLI AFTER INCLUDING THE AMOUNT OF DISALLOWANCE MADE ON ACCOUNT OF EXCISE DUTY. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE ALLOWED THOUGH ON DIFFERENT GROUNDS. 70 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLO WED AND THE APPEAL OF REVENUE IS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 11 TH DAY OF SEPTEMBER , 201 7 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 11 TH SEPTEMBER , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2 . THE RESPONDENT; 3. THE CIT(A) - IT/TP / CIT - IV , PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE