ACIT 2(3), MUMBAI V. WELSPUN ZUCCHI TEXTILES LTD, MUMBAI

ITA 891/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75486 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 05-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: MITESH SHAH
• Keywords: Depreciation; Transfer pricing; International transaction; Initiation of penalty proceedings

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , / , ! ' # BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 587/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 M/S. WELSPUN ZUCCHI TEXTILES LTD., TRADE WORLD, B WING, 9 TH FLOOR, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. / VS. THE ACIT 2(3), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. & ! ./ '( ./ PAN/GIR NO. : AAACW 2067L ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) . / ITA NO. 891/MUM/2012 % % % % / ASSESSMENT YEAR 2008-09 THE ACIT 2(3), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. / VS. M/S. WELSPUN ZUCCHI TEXTILES LTD., TRADE WORLD, B WING, 9 TH FLOOR, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. & ! ./ '( ./ PAN/GIR NO. : AAACW 2067L ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) REVENUE BY : SHRI AJEET KUMAR JAIN ASSESSEE BY : SHRI MITESH SHAH , -.! / DATE OF HEARING : 05/02/2014 /0% , -.! / DATE OF PRONOUNCEMENT : 05/02/2014 . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 2 1 / O R D E R PER I.P.BANSAL,J.M: THESE CROSS APPEALS ARE DIRECTED AGAINST ORDER DATED 02/11/2012 PASSED BY LD. CIT(A)-15, MUMBAI FOR ASSESSMENT YE AR 2008-09. GROUNDS OF APPEAL READ AS UNDER: GROUNDS OF ASSESSEES APPEAL: THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJU DICE TO ONE ANOTHER. 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A). ERRED IN NOT ACCEPTING THE PLEA OF THE APPELLANT TH AT THE ADJUSTMENTS MADE BY THE AO TOWARDS ARMS LENGTH PRICE IN RESPECT OF THE E XPORT OF BATHROBES ON THE BASIS OF ADJUSTMENTS MADE BY THE TPO VIDE ORDER U/S.92CA( 3) DATED 28-10-2011 ARE INCORRECT AND INVALID. B) THE LD. CIT(A) FAILED TO APPRECIATE THAT: (I) THE APPELLANT HAS CONSISTENTLY FOLLOWED CUP MET HOD TO SUPPORT ITS CONTENTION THAT THE TRANSACTIONS WITH THE AE ARE AT ARMS LENG TH PRICE AND THE SAME HAS BEEN ACCEPTED BY THE AO/TPO IN THE PAST; (II) THE WORKING OF OP/NET SALE AND OP/TC OF ASHNOO R TEXTILES MILLS LTD. AND MODERN TERRY TOWELS LTD. AS WORKED OUT BY THE TPO D OES NOT MATCH WITH THE DATA FROM CAPITALINE DATABASE; AND (III) THE LD. TPO HAS CHOSEN TO IGNORE THE COMPARAT IVE DATA OF SANTOGEN EXPORTS LTD. AND VANASTHALI TEXTILES INDUSTRIES WITHOUT ASS IGNING ANY REASONS WHEN IN THE PAST COMPARATIVE DATA OF THESE COMPANIES WERE C ONSIDERED. 2. THE ID. CIT(A) ERRED IN HOLDING THAT LEVY OF INT EREST U/S.234B, 234C AND 234D OF THE INCOME TAX ACT, 1961 IS MANDATORY. THE APPELLANT DENIES ITS LIABILITY FOR SUCH INTEREST. 3. THE LD. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROCEEDINGS U/ S.271(1)(C) IS PRE-MATURE. T HE APPELLANT DENIES ITS LIABILITY FOR SUCH PENALTY. GROUNDS OF REVENUES APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THAT THE DEPRECIATION BE TREATED AS OP ERATING EXPENSE WHILE WORKING . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 3 OUT THE ARMS LENGTH PRICE BY TNMM METHOD DISREGARD ING THE FACT THAT SUCH DIRECTION IS NOT PERMISSIBLE IN LAW AS PER THE PROV ISION OF SECTION 92CA(3). 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 2. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTION: TRANSACTION ASSOCIATED ENTERPRISE ASSOCIATED ENTERPRISE AMOUNT OF TRANSACTION IN RS. METHOD ADOPTED SALE OF BATHROBES VINCENZO ZUCCHI S.P.A ITALY 21,21,02,367 TNMM THE ASSESSEE IN ITS TP REPORT HAS CONSIDERED THIS T RANSACTION AT ARMS LENGTH PRICE(ALP) BY COMPARING AVERAGE RATE CHARGED FROM A .E AND NON-AE. ACCORDING TO T.P REPORT SALES OF AE WAS AT RS.7.62 PER PIECE WHICH IS MORE THAN THE AVERAGE RATE CHARGED FROM NON AE WHICH IS RS.6.39 PER PIECE. HOWEVER, TPO DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESSEE ON T HE GROUND THAT QUALITY AND STYLING OF PRODUCT SOLD TO DIFFERENT COUNTRIES IS N OT EXACTLY SAME AS PER REQUIREMENT OF CUP METHOD. THEREFORE, HE HELD THAT CUP METHOD WAS NOT APPLICABLE AND ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY TNMM SHOULD NOT BE APPLIED. APPLYING SAID METHOD TPO HAS ADOPT ED FOUR COMPARABLES COMPUTING THEIR MARGIN AT 9.06% AS PER FOLLOWING TA BLE: S.NO. NAME OF THE COMPANY OP/NET SALE OP/COST SOURC E 1. ASHNOOR TEXTILE MILLS LTD. 6.38 6.81 C APITALINE 2. MODERN TERRY TOWELS 7.12 7.766 CAPITAL INE 3. RIBA TEXTILES LTD. 13.61 15.75 CAPITALIN E 4. S.R.INDUSTRIES LTD. 5.68 6.02 CAPITA LINE 8.20 9.06 2.1 IN REGARD TO QUERY RAISED BY THE TPO THE ASSE SSEE HAD FURNISHED THE WORKING OF MARGIN OF COMPARABLES AFTER EXCLUDING O THER INCOME IN THE SHAPE OF DEPB BENEFIT AND INCLUDING DEPRECIATION IN THE EXPE NSES AND IT WAS CONTENDED THAT THE MARGIN OF ASSESSEE ARE COMPARABLE WITH OTH ER COMPANIES. ON THESE SUBMISSIONS OF THE ASSESSEE TPO OBSERVED THAT RECEI PTS OF DEPB IS GENERATED . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 4 FROM THE OPERATION OF THE COMPANY AND HENCE NOT TO BE EXCLUDED FOR THE PURPOSE OF CALCULATING OPERATING PROFITS. THE TPO FURTHER OBSERVED THAT WORKING OF THE ASSESSEE BY INCLUDING DEPRECIATION AS OPERATION COST WAS NOT ACCEPTABLE. ACCORDING TO TPO THE DEPRECIATION WAS NOT CONSIDERED AS OPERATING EXPENSES AND HENCE HE HAS EXCLUDED THE SAME WHILE WORKING OUT MARGIN OF THE ASSESSEE AS WELL AS COMPARABLE COMPAN IES. ACCORDINGLY, THE TP ADJUSTMENT OF RS.3,96,43,381/- WAS MADE AS PER FOLL OWING TABLE: OPERATING COST RS.27,55,33,552/- ARMS LENGTH MEAN MARGIN 9.06% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @109.06% OF OPERATING COST RS.30,04,96,892/- ARMS LENGTH PRICE OF SERVICE RENDERED RS.3 0,04,96,892/- PRICE RECEIVED (EXCL. OTHER INCOME) RS.2 6,08,53,511/- SHORTFALL BEING ADJUSTMENT U/S. 92CA RS. 3,96,43,381/- 2.3 ON CONSIDERATION OF THE SUBMISSIONS OF THE ASSE SSEE LD. CIT(A) HAS HELD THAT TPO WAS RIGHT IN REJECTING CUP METHOD AND APP LYING TNMM METHOD. HOWEVER, LD. CIT(A) HAS HELD THAT TPOS ACTION OF EXCLUDING DEPRECIATION AS NON-OPERATING EXPENSES IS NOT ACCEPTABLE AND ON DEP B IT IS THE FINDING OF LD. CIT(A) THAT THE SAME SHOULD BE CONSIDERED AS OPERA TIONAL RECEIPTS. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE HAV E BEEN PARTLY ALLOWED BY LD. CIT(A). THE DEPARTMENT IN ITS APPEAL IS AGITAT ING THE ACTION OF LD. CIT(A) REGARDING DEPRECIATION TO BE TREATED AS OPERATING E XPENSES. THE ASSESSEE IN ITS APPEAL IS CONTESTING THE ORDER OF LD. CIT(A) REGARD ING APPLICATION OF TNMM IN PLACE OF CUP METHOD AND ALSO THE WORKING OF THE TPO WITH REGARD TO TWO COMPARABLES NAMELY ASHNOOR TEXTILES MILLS LTD. AND MODERN TERRY TOWELS LTD. SIMILARLY THE ASSESSEE IS AGITATING THE EXCLUSION O F COMPARABLES NAMELY SANTOGEN EXPORTS LTD. AND VANASTHALI TEXTILES INDUS TRIES 3. AFTER NARRATING THE FACTS LD. AR SUBMITTED THAT THE GRIEVANCE OF THE ASSESSEE ARE AS FOLLOWS: (1) FOLLOWING TWO COMPARABLES HAVE WRONGLY BEEN E XCLUDED. . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 5 1. SANTOGEN EXPORTS LTD. 2. VANASTHALI TEXTILES INDUSTRIES HE SUBMITTED THAT THESE COMPARABLES WERE INCLUDED I N ASSESSMENT YEAR 2007- 08 AND THESE HAVE BEEN EXCLUDED SIMPLY FOR THE REAS ON THAT FOR THE YEAR UNDER CONSIDERATION THERE IS A LOSS SHOWN BY THEM. (2) DEPB BENEFITS SHOULD INCLUDED IN THE PROFITS OF THE ASSESSEE WHILE COMPUTING THE MARGINS AS WELL AS IN THE PROFITS OF THE COMPARABLES WHILE COMPUTING THEIR MARGINS. FOR THIS PURPOSE LD. AR H AS RELIED UPON THE ORDER OF THE TRIBUNAL FOR A.Y 2005-06, COPY OF WHICH IS PLAC ED AT PAGES 288 TO 302. THE SAID ORDER WAS FOLLOWED BY TRIBUNAL IN A.Y 2007-08 . COPY OF THE SAID ORDER IS ALSO FILED AT PAGE 282 TO 287 OF THE PAPER BOOK. (3) DEPRECIATION HAS WRONGLY BEEN EXCLUDED FROM OPE RATING COST BY THE TPO AND LD. CIT(A) HAS RIGHTLY OBSERVED THAT DEPRECIATI ON SHOULD BE TAKEN AS OPERATIVE COST IN THE CASE OF ASSESSEE AS WELL AS I N THE CASE OF COMPARABLES. 3.1 FOR THE PURPOSE OF GRIEVANCE NO.1 MENTIONED ABO VE, LD.AR HAS INVITED OUR ATTENTION TOWARDS SUBMISSIONS MADE BEFORE LD. C IT(A), COPY OF WHICH IS FILED AT PAGES 1 TO 33 OF THE PAPER BOOK. ATTENTIO N WAS DRAWN TO FOLLOWING SUBMISSIONS: 1. OP/TC OF SANTOGEN EXPORTS LTD. AND VANASTHALI T EXTILE INDUSTRIES OUGHT NOT TO BE EXCLUDED FROM THE COMPARISON, AND 2. DEPRECIATION SHOULD BE CONSIDERED AS ON OPERATI NG COST ARE ALSO ACCEPTED, THEN THE WORKING WOULD BE AS UNDER: SR.NO. NAME TOTAL COSTS OPERATING PROFIT OP/TC(%) 1. * ASHNOOR TEXTILEXS MILLS - - 6.81 2. * MODERN TERRY TOWELS LTD. - - 7.66 3. * RIBA TEXTILES LTD. - - 15.7 5 4. * S.R.INDUSTRIES - - 6.02 5. SANTOGEN EXPORTS LTD. 17.58 (3.22) (18.32) . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 6 6. VANASTHALI TEXTILES 117.72 (10.55) (8.96) ARITHMETIC MEAN 1.49 7. WELSPUN ZUCHI TEXTILES LTD. 28.23 0.43 1.52 REFERRING TO ABOVE TABLE IT WAS SUBMITTED THAT IF S ANTOGEN EXPORTS LTD. AND VANASTHALI TEXTILES INDUSTRIES. IS INCLUDED IN THE COMPARABLES AND DEPRECIATION IS CONSIDERED AS OPERATING COST THEN T HE ASSESSEES MARGIN WILL BE AT ARMS LENGTH AS THE SAME WILL BE 1.52% AGAINST AR ITHMETICAL MEANS OF COMPARABLES AT 1.49%. HE ALSO INVITED OUT ATTENTIO N TOWARDS THESE SUBMISSIONS OF THE ASSESSEE WHICH ARE RECORDED BY L D. CIT(A) IN PARA 13 AT PAGE 19 OF THE ORDER OF LD. CIT(A), WHEREIN SUCH PL EA WAS TAKEN THAT THESE TWO COMPARABLES WERE CHOSEN AS COMPARABLE BY TPO FOR AS SESSMENT YEAR 2007-08. THE SAID PARA OF LD. CIT(A) READ AS UNDER: XIII. THE APPELLANT IN ITS SUBMISSION HAS CONTENDE D THAT THE TPO HAS CHOSEN TO IGNORE THE COMPARATIVE DATA OF SANTOGEN EXPORTS AND VANSTHARI TEXTILE INDUSTRIES WITHOUT ASSIGNING ANY REASON FOR DOING SO. IN THIS REGARD, IT IS STATED THAT BOTH THESE COMPANIES WERE CHOSEN AS COMPARABLES BY THE T PO FOR A.Y.2007-08. HOWEVER, IN THE SEARCH CONDUCTED FOR THE YEAR UNDER CONSIDERATION FOR THE ( PURPOSES OF BENCHMARKING THESE COMPARABLES DID NOT FORM PART OF THE SET OF COMPARABLES FINALLY ARRIVED AT BY THE TPO. IT IS FU RTHER MENTIONED THAT SIMPLY FOR THE REASON THAT THESE COMPANIES WERE CHOSEN AS COMP ARABLES IN THE EARLIER YEARS CANNOT BE THE REASON FOR TAKING THEM IN THE SET OF COMPARABLES FOR THE YEAR) UNDER CONSIDERATION FOR THE PURPOSES OF BENCH RNARKING. E ACH OF THE COMPARABLE HAS TO BE CHOSEN FROM THE PERSPECTIVE OF THEIR FUNCTIONAL COMPARABILITY AS WELL AS THE OTHER PARAMETERS AS GIVEN IN RULE IOB(2) OF THE I.T . RULE, 1962. IT IS SEEN THAT THESE TWO COMPANIES WHICH HAVE MADE PROFIT IN THE E ARLIER YEARS HAVE SUDDENLY COME INTO LOSSES IN THE YEAR UNDER CONSIDERATION. T HE APPELLANT HAS NOT ANALYZED THE REASONS OF THE LOSSES AND FURTHER, THE ASPECT O F COMPARABILITY IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED BY THESE COMPANIES VIS-A-VIS THOSE OF THE APPELLANT. UNDER SUCH FACTS AND CIRCUMSTANCES OF THE CASE, THESE TWO COMPANIES CANNOT BE CONSIDERED AS COMPARA BLES SIMPLY FOR THE REASONS THAT THEY WERE FORMING PART OF THE SET OF C OMPARABLES IN THE EARLIER YEAR. IT NEEDS TO BE VALIDATED AND DEMONSTRATED THAT IN T ERM OF FACTORS OF COMPARABILITY, THESE COMPANIES CONTINUE TO BE VALID COMPARABLES EVEN DURING THE .YEAR UNDER CONSIDERATION, WHICH THE APPELLANT HAS FAILED TO DO. ACCORDINGLY, SUCH CONTENTION OF THE APPELLANT THAT THESE TWO COMPANIE S SHOULD BE INCLUDED IN THE SET OF COMPARABLES IS NOT FOUND TO BE ACCEPTABLE. . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 7 3.2 THUS IT WAS PLEADED BY LD. AR THAT APPROPRIATE RELIEF MAY BE GRANTED TO THE ASSESSEE AND ADJUSTMENT MADE ON ACCOUNT OF TRAN SFER PRICING SHOULD BE DELETED. 4. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE ASS ESSEE DID NOT SUBMIT ANY REASONABLE EXPLANATION FOR INCLUSION OF AFOREM ENTIONED TWO COMPARABLES NAMELY, SANTOGEN EXPORTS LTD. AND VANASTHALI TEXTI LES INDUSTRIES AS THEY HAVE INCURRED LOSS DURING YEAR UNDER CONSIDERATION. LD. DR FURTHER SUBMITTED THAT NEITHER DEPB NOR DEPRECIATION COULD BE CONSIDE RED WHILE COMPUTING THE MARGINS OF THE ASSESSEE AS WELL AS COMPARABLES FOR THE REASONS GIVEN BY THE TPO IN HIS ORDER. THEREFORE, LD. DR PLEADED THAT T HE ADJUSTMENT MADE BY TPO SHOULD BE UPHELD. ARGUING FOR DEPARTMENTAL APPEAL LD. DR SUBMITTED THAT LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT DEPR ECIATION AS OPERATING EXPENSES WHILE COMPUTING ALP BY TNMM. THUS IT WAS PLEADED BY LD. DR THAT TRANSFER PRICING ADJUSTMENT MADE BY TPO SHOULD BE U PHELD. 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. SO FAR AS IT RELATES TO INCLUSION OF T WO COMPARABLES NAMELY, SANTOGEN EXPORTS LTD. AND VANASTHALI TEXTILES INDUS TRIES THE FACT HAS NOT BEEN DENIED THAT THOSE TWO COMPARABLES WERE INCLUDED IN THE LIST OF COMPARABLES DURING THE ASSESSMENT YEAR 2007-08. IT HAS NOT BEE N SHOWN THAT THESE TWO COMPARABLES WERE CONSISTENT LOSS MAKING COMPANIES. IT IS THE PLEA OF THE ASSESSEE THAT COMPARABLES SHOULD BE CHOSEN FROM TH E PERSPECTIVE OF THEIR FUNCTIONAL COMPARABILITY AND AS PER PARAMETER LAID DOWN IN RULE 10B(2) OF INCOME TAX RULES, 1962. IT WAS ALSO THE SUBMISSION S OF THE ASSESSEE THAT THESE TWO COMPANIES HAD MADE PROFIT IN THE EARLIER YEARS AND HAVE SUDDENLY COME INTO LOSSES IN THE YEAR UNDER CONSIDERATION. IF IT IS SO, THOSE TWO CONCERNS CANNOT BE EXCLUDED FROM THE LIST OF COMPAR ABLES JUST FOR THE REASON THAT FOR THE YEAR UNDER CONSIDERATION THESE TWO CON CERNS HAVE INCURRED LOSSES. THEREFORE, WE SE NO JUSTIFIABLE REASON FOR EXCLUSI ON OF THESE COMPARABLES. . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 8 5.1 NOW COMING TO THE PLEA OF THE ASSESSEE THAT DEP B SHOULD BE TAKEN AS OPERATING INCOME, WE FOUND THAT LD.CIT(A) VIDE PARA -11 AT PAGE 18 OF HIS ORDER HAS HELD THAT DEPB SHOULD BE CONSIDERED AS OPERATIN G INCOME AND IF ANY SUCH RECEIPT IS THERE IN THE CASE OF COMPARABLES, THE SAME SHOULD ALSO BE INCLUDED ON ACTUAL AS REFLECTED IN THE ANNUAL REPORT OF COMP ARABLES AND NOT BASED ON ANY ASSUMPTION OR PRESUMPTION THAT SUCH COMPARABLES WOULD HAVE EARNED 6.7% OF ITS SALES FROM DEPB. FOLLOWING OBSERVATION S ARE REPRODUCED: ACCORDINGLY, IT IS STATED THAT UNDER TNMM, THE NET PROFIT MARGIN OF THE ASSESSEE SHOULD BE COMPUTED AFTER INCLUDING THE DEPB AS OPER ATING INCOME AND IF ANY SUCH RECEIPT IS THERE IN THE CASE OF THE COMPARABLE S, THE SAME SHOULD ALSO BE INCLUDED ON ACTUALS AS REFLECTED IN THE ANNUAL REP ORT OF THE COMPARABLES AND NOT BASED ON ANY PRESUMPTION OR ASSUMPTION, THAT SUCH C OMPARABLES AND NOT BASED ON ANY PRESUMPTION OR ASSUMPTION, THAT SUCH COMPARA BLES WOULD HAVE EARNED 6.7% OF ITS SALES FROM DEPB. MOREOVER, ITAT ALSO HAS UPHELD SUCH CONTENTION OF THE ASSESSEE IN RESPECT OF A.Y 2005-06 VIDE ORDER DATED 11/1/2013 PASSED IN IT A NO.6539/MUM/2009 AND 898/MUM/2010. THE OBSERVATIONS OF THE TRIBUN AL ARE AS UNDER: 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE DEPB BENEFIT WAS NO T TAKEN INTO CONSIDERATION BY THE AO/TPO FOR THE PURPOSE OF WORKING OUT THE PROFI T MARGIN OF THE ASSESSEE WHEREAS SUCH BENEFIT WAS TAKEN INTO ACCOUNT IN THE COMPARABLE CASES WHILE WORKING OUT THEIR PROFIT MARGIN AS FOUND BY THE LEA RNED CIT(APPEALS). BEFORE US, NOTHING HAS BEEN BROUGHT ON RECORD TO CONTROVERT OR REBUT THIS FINDING RECORDED BY THE LEARNED CIT(APPEALS) AND THIS BEING SO, WE FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE DECISION OF THE LEARNED CIT(APPE ALS) THAT THE DEPB BENEFIT RECEIVED DURING THE YEAR UNDER CONSIDERATION SHOULD BE CONSIDERED AS PART OF THE TURNOVER OF THE ASSESSEE FOR WORKING OUT THE PROFIT MARGIN TO MAKE THE COMPARISON OF LIKE TO LIKE AND SIMILAR TO SIMILAR. SINCE THE P ROFIT MARGIN OF THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE DEPB BENEFIT AS PART OF ITS TURNOVER COMES TO 12.30% AS AGAINST THE AVERAGE NET PROFIT MARGIN OF 13.05% OF THE COMPARABLES WHICH IS WITHIN THE SAFE LIMIT OF 5%, WE FIND OURSELVES IN A GREEMENT WITH THE LEARNED CIT(APPEALS) THAT NO TP ADJUSTMENT IN RESPECT OF TR ANSACTIONS MADE WITH THE ASSOCIATED ENTERPRISES WAS REQUIRED TO BE MADE IN T HE CASE OF THE ASSESSEE. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DELETING THE ADDITION MADE BY THE AO BY WAY OF TP ADJUSTMENT AND DISMISS THE APPEAL OF THE REVENUE. . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 9 THE AFOREMENTIONED ORDER WAS LATER ON FOLLOWED FOR ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 7/8/2013 IN DEPARTMENTAL APPEAL VI DE ITA NO.7961/MUM/2011. 5.2 IN VIEW OF ABOVE DISCUSSION, WE DO NOT FIND AN Y ERROR IN THE ORDER OF LD. CIT(A) VIDE WHICH IT IS HELD THAT DEPB BENEFITS SHOULD BE INCLUDED IN OPERATING PROFIT MARGIN. WE ARE AWARE THAT DEPART MENT IN ITS APPEAL HAS NOT AGITATED SUCH DIRECTION OF LD. CIT(A) BUT AS IT WAS ARGUED BEFORE US AND WE UPHOLD THE INCLUSION OF DEPB BENEFIT IN OPERATING P ROFIT MARGIN. 5.3 SO FAR AS IT RELATES TO CONTENTION OF THE REVEN UE THAT LD. CIT(A) HAS ERRED IN HOLDING THAT DEPRECIATION BE TREATED AS OPERATIN G EXPENSES WHILE COMPUTING ALP BY TNMM, WE FOUND THAT LD. CIT(A) HAS DECIDED T HIS ISSUE IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING OBSERVATIONS: THE TPO IN HIS ORDER HAS NOT CONSIDERED DEPRECIATI ON AS OPERATING EXPENSE IN NATURE. IN THIS REGARD IT IS MENTIONED THAT THE APP ELLANT IS IN TO MANUFACTURING AND DEPRECIATION IS COST WHICH NEEDS TO BE CONSIDER ED AS OPERATING COST. FURTHER UNDER TNMM THE NET PROFIT NEEDS TO BE CONSIDERED AN D NET PROFIT CANNOT BE EITHER NOTIONAL OR ONE WHICH IS COMPUTED NOT IN ACCORDANCE WITH THE ACCEPTED NORMS. FURTHER UNDER TNMM, PBIT IS NORMALLY CONSIDERED NET PROFIT FOR THE OF COMPUTING THE PROFIT RATIO. ONLY PORTION OF NON-OPERATING REV ENUE AND NON-OPERATING EXPENSES ARE EXCLUDED. ACCORDINGLY THE TPOS ACTION IN EXCLUDING THE DEPRECIATION AS NON-OPERATING EXPENSE IS NOT FOUND TO BE ACCEPTA BLE. 5.4 AFTER CONSIDERING THE ARGUMENTS OF BOTH THE PAR TIES WE DO NO FIND ANY INFIRMITY IN SUCH DIRECTIONS OF LD. CIT(A) AS ACCOR DING TO WELL ESTABLISHED PRINCIPLE OF LAW WHILE WORKING OUT PROFIT MARGIN AN D COST, COMPARISON SHOULD BE MADE WITH LIKE TO LIKE AND SIMILAR TO SIMILAR. THIS PRINCIPLE HAS ALSO BEEN HELD APPLICABLE BY THE ITAT IN ASSESSEES OWN CASE IN THE AFOREMENTIONED TWO ORDERS, WHERE ON THE BASIS OF SIMILAR PROPOSITION DEPB BENEFITS HAVE BEEN HELD TO BE COMPUTED AS PART OF PROFITS WHILE COMPUT ING MARGIN OF THE ASSESSEE AS WELL AS COMPARABLES. ACCORDINGLY, WE DECLINE TO INTERFERE IN SUCH FINDING RECORDED BY LD. CIT(A) AND THE GROUND OF REVENUE IS DISMISSED. . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 10 5.5 IT MAY BE MENTIONED HERE THAT NO ISSUE OTHER TH AN DISCUSSED ABOVE WAS ARGUED BY BOTH THE PARTIES. THEREFORE, THE OTHER G ROUNDS ARE TREATED AS NOT BEING PRESSED AND ARE DISMISSED. 5.6 TO SUM UP, FOR COMPUTATION OF ALP ON THE ISSUE ARGUED BEFORE US, OUR FINDINGS ARE AS FOLLOWS: (I) SANTOGEN EXPORTS LTD. AND VANASTHALI TEXTILES SHOULD BE INCLUDED IN THE LIST OF COMPARABLE. (II) DEPB BENEFITS SHOULD BE CONSIDERED AS PART OF TURNOVER FOR WORKING OUT PROFIT MARGIN OF THE ASSESSEE AS WELL AS COMPARABLE S. (III) DEPRECIATION SHOULD BE CONSIDERED AS OPERATIN G EXPENSES WHILE COMPUTING THE MARGIN OF THE ASSESSEE AS WELL AS COMPARABLES. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/02/2014 1 , /0% ! 2 34 05/02/2014 0 , 5 # SD/- SD /- ( / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) ! / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 3 DATED 05/02/2014 . / ITA NO. 587& 891/MUM/2013 % % % % / ASSESSMENT YEAR 2008-09 11 1 1 1 1 , ,, , *- *- *- *- 6%- 6%- 6%- 6%- / COPY OF THE ORDER FORWARDED TO : 1. &) / THE APPELLANT 2. *+&) / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 85 *- , , / DR, ITAT, MUMBAI 6. 59 : / GUARD FILE. 1 1 1 1 / BY ORDER, +- *- //TRUE COPY// ; ;; ; / < < < < ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS