PepsiCo India Holdings Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 936/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7510 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 17-05-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 24-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 115JB

Judgement Text

1 ITA NO. 93 6/DEL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT ME MBER & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A .NO.-936/DEL /2012 (ASSESSMENT YEAR-2003- 04) PEPSICO INDIA HOLDINGS P. LTD. BLOCK 3B, DLF CORPORATE PARK, S BLOCK QUTAB ENCLAVE, DLF PHASE III, GURGAON. AAACP1272G VS ACIT CIRCLE 14(1) C.R. BLDG., I.P. ESTATE, NEW DELHI. ASSESSEE BY SH. VISHAL KALRA, ADV. REVENUE BY SH. AMRENDRA KUMAR, CIT DR ORDER PER S.V. MEHROTRA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(APPEALS)-XX, NEW DELHI, DATED 18.10.2012 PASSED UNDER SECTION 250(6) OF THE I.T. ACT FOR A.Y. 2003-04. 2. BRIEF FACTS OF THE CASE ARE THAT, IN THE RELEVAN T ASSESSMENT YEAR ALSO AS IN EARLIER YEARS, THE ASSESSEE CONTINUED TO CARRY ON THE BUSINESS OF MANUFACTURING AND SALE OF AERATED AND N ON-AERATED BEVERAGE PRODUCTS AND EXPORT OF TRADED AND ITS MANU FACTURED PRODUCTS. THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL LOSS OF RS. 135,54,53,820/- UNDER THE NORMAL PROVIS ION OF THE ACT DATE OF HEARING 17.05.2016 DATE OF PRONOUNCEMENT 30.05.2016 2 ITA NO. 93 6/DEL/2012 AND LOSS OF RS. 143,04,28,448/- UNDER THE PROVISION S OF SECTION 115JB OF THE I.T. ACT. THE TOTAL INCOME WAS COMPUTE D AS UNDER: A. INCOME UNDER THE NORMAL PROVISIONS OF THE ACT : INCOME AS PER RETURN (-) RS. 135,54,53,820 ADD: (I) PRELIMINARY EXPENSES DISALLOWED 8,02,000 (II) EXPENDITURE ON GLOW SIGN/NEON SIGN 11,83,07,422 (III) ON A/C OF DETERMINATION OF ARMS LENGTH PRICE FOR INTERNATIONAL TRANSACTION 5,40,589 RS. 11,96,50,011 LESS: DEPRECIATION CLAIM ALLOWED TO THE ASSESSEE RS. 3,42,32,624 TOTAL INCOME UNDER NORMAL PROVISION OF THE ACT (-) RS. 127,00,36,433 B. INCOME UNDER SECTION 115JB OF THE ACT : BOOK PROFIT AS PER RETURN (-) RS. 143,04,28,4 48 ADD: (I) PROVISION FOR GRATUITY 3,49,10,315 (II) PROVISION FOR LEAVE ENCASHMENT 1,79,69,702 (III) PRELIMINARY EXPENSES 8,02,000 (IV) EXPENDITURE ON GLOW SIGN/NEON SIGN 11,83,07,422 RS. 17,19,89,439 TOTAL INCOME UNDER SECTION 115JB (-) RS. 125,84,39 ,009 3. LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL. 4. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS)-XX, N EW DELHI (HEREINAFTER REFERRED TO AS THE LD. CIT(A)) HAS ERRED IN UPHOLDING THE AD-HOC DISALLOWANCE OF RS. 1,00,00 ,000 MADE BY THE LD. AO (HEREINAFTER REFERRED TO AS LD. AO) OUT OF TOTAL UPFRONT FEES PAID TO VARIOUS MERCHANT ESTABLISHMENTS AMOUNTING TO RS. 1,80,00,000 ALLEGIN G THAT THE SAME RELATES TO SUCCEEDING YEARS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADJ USTMENT ON ACCOUNT OF PROVISION FOR GRATUITY AMOUNTING TO R S. 34,910,315 AND PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS. 17,969,702 WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT HOLDING THAT THE 3 ITA NO. 93 6/DEL/2012 SAID PROVISIONS WERE UNASCERTAINED LIABILITY, WITHO UT APPRECIATING THE FACT THAT SUCH PROVISIONS HAVE BEE N MADE ON THE BASIS OF ACTUARIAL VALUATION. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ADJUSTME NT OF RS. 5,40,589 MADE BY THE TRANSFER PRICING OFFICER T O THE VALUE OF INTERNATIONAL TRANSACTIONS PERTAINING TO E XPORT OF GUAR GUM AND PET CHIPS WITHOUT APPRECIATING THE BUS INESS RATIONALE FOR UNDERTAKING SUCH TRANSACTIONS BY THE APPELLANT. ALSO, SINCE THE ADJUSTMENT, INTER ALIA, CONSIST OF LOSS INCURRED BY APPELLANT ON ACCOUNT OF FLUCTUA TION IN FOREIGN EXCHANGE, NO BENEFIT CAN BE SAID TO BE DERI VED BY THE ASSOCIATED ENTERPRISE IN THIS REGARD. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING AND IN NOT A CCEPTING THE ARMS LENGTH PRICE DETERMINED BY THE APPELLANT, AND IN CHOOSING TO DETERMINE THE ARMS LENGTH PRICE BY MAK ING REFERENCE TO THE TPO EVEN THOUGH NONE OF THE CONDIT IONS LAID DOWN U/S 92C(3) OF THE ACT, WERE SATISFIED. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING/CONFIRMING T HE ACTION OF THE LD. AO/TPO IN DENYING THE (+/-)5% BEN EFIT ENVISAGED UNDER PROVISO TO SECTION 92C(2) OF THE AC T. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE YOUR HONOR TO DECIDE THIS APPEAL ACCORDING TO LAW. 5. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE DID NOT PRESS GROUND NO. 1. ACCORDINGLY, THE SAME IS DISMI SSED AS NOT PRESSED. 6. BRIEF FACTS APROPOS GROUND NO. 2 ARE THAT DURING THE YEAR THE ASSESSEE HAD CREATED A PROVISION FOR GRATUITY OF RS . 34,910,315/- AND FOR LEAVE ENCASHMENT OF RS. 17,969,702/-. THES E PROVISIONS WERE ADDED BACK BY ASSESSEE WHILE COMPUTING INCOME UN DER NORMAL PROVISIONS OF THE ACT. HOWEVER, THE SAME WERE NOT ADDED 4 ITA NO. 93 6/DEL/2012 WHILE COMPUTING THE BOOK PROFIT U/S 115JB. THE ASSE SSEE SUBMITTED THAT THE PROVISION FOR GRATUITY AND LEAVE ENCASHMENT WERE CREATED SCIENTIFICALLY ON THE BASIS OF ACTUARIA L VALUATION AND, THEREFORE, IN THE NATURE OF ASCERTAINED LIABILITY. THE ASSESSEE HAD RELIED ON THE CASE LAWS NOTED BY THE AO IN THE ASSE SSMENT ORDER. THE AO, AFTER CONSIDERING THE ASSESSEES SUBMISSION S AND EXAMINING THE REPORT OF ACTUARIAL VALUER, CONCLUDED THAT THE PROVISION FOR GRATUITY AND LEAVE ENCASHMENT WERE BAS ED ON ESTIMATES AND PRESUMED FIGURES AND WERE UNCERTAIN A S FAR AS THEIR QUANTUM WAS CONCERNED. HE, ACCORDINGLY, ADDED BACK BOTH THE PROVISIONS FOR COMPUTING BOOK PROFIT U/S 115JB. 7. LD. CIT(A), FOLLOWING THE ORDER OF THE TRIBUNAL F OR A.Y. 2001-02 IN ASSESSEES OWN CASE, VIDE ITA NO. 5722, 5663, 49 89/DEL/2004 DATED DECEMBER 31, 2009, UPHELD THE AOS ACTION 7.1 AT THE TIME OF HEARING, LD. COUNSEL REFERRED TO PAGE 102 TO 134 OF THE PAPER BOOK, WHEREIN THE TRIBUNALS ORDER DATE D DECEMBER 22, 2015 IN ASSESSEES OWN CASE FOR AY 2002-03, VIDE ITA NO. 834/DEL/2010 & 945/DEL/2010 RESPECTIVELY IS CONTAIN ED. HE POINTED OUT THAT THE TRIBUNAL HAS SET ASIDE THE ISS UE RELATING TO PROVISION FOR GRATUITY TO THE FILE OF AO. HOWEVER, THE PROVISION FOR LEAVE ENCASHMENT HAS BEEN HELD TO BE ASCERTAINED LI ABILITY AND, THEREFORE, NOT REQUIRED TO BE ADDED BACK FOR COMPUT ING BOOK PROFITS U/S 115JB. 8. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE T RIBUNAL IN THE AFORESAID ORDER IN PARA 6 TO 8 HAS HELD AS UNDER: 5 ITA NO. 93 6/DEL/2012 6. VIDE GROUND NO. 2, THE GRIEVANCE OF THE ASSESS EE RELATES TO THE ADJUSTMENT ON ACCOUNT OF PROVISION F OR GRATUITY AND LEAVE ENCASHMENT WHILE COMPUTING THE B OOK PROFITS FOR THE PURPOSE OF SECTION 115JB OF THE INC OME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). DU RING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THE ISSUE RELATING TO DISAL LOWANCE ON ACCOUNT OF LEAVE ENCASHMENT HAS BEEN ALLOWED BY THE ITAT AND THE ISSUE RELATING TO DISALLOWANCE FOR GRA TUITY HAS BEEN RESTORED TO THE AO VIDE ORDER DATED 16.07. 2009 IN ITA NOS. 2303, 2836 & 4988/DEL/2004 IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2000-01 AND THE SA ME VIEW WAS TAKEN FOR THE AY 2001-02 IN ITA NOS. 5722, 5663 & 4989/DEL/2004 VIDE ORDER DT. 31.12.2009. A REFERENCE WAS MADE TO PAGE NOS. 235 TO 286 OF THE ASSESSEES PAPER BOOK. IT WAS ALSO STATED THAT THE ISSUE RELATING TO THE DISALLOWANCE OF GRATUITY HAS BEEN A DMITTED BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 02.07.2012 IN ITA NO. 739/2010. 7. THE LD. DR IN HIS RIVAL SUBMISSIONS ALTHOUGH SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW BUT C OULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVA ILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISS UE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF THE ADJUDICAT ION FOR THE AY 2001-02 IN ASSESSEES OWN CASE IN ITA NOS. 5 722, 5663 & 4989/DEL/2004 WHEREIN RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 33 & 34 OF THE ORDER DT. 31.12. 2009 WHICH READ AS UNDER: 33. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. IT HAS BEEN THE CONTENTION OF THE ASSESSEE RIGHT FROM THE BEGINNING THAT A CUMULATIVE SUM OF RS. 97,84,178/- (RS. 68,23,350/- ON A/C OF GRATUITY AND RS. 29,60,828/- ON ACCOUNT OF LEAVE ENCASHMENT) WAS DEBITED TO THE PROFIT & 6 ITA NO. 93 6/DEL/2012 LOSS ACCOUNT. OUT OF THE SAID SUM ASSESSEE ITSELF HAS ADDED BACK THE GRATUITY OF RS. 68,23,350/- WHILE COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS AND THUS, EFFECTIVELY THE ONLY AMOUNT REMAINED TO BE DEBITED TO THE P&L ACCOUNT WAS A SUM OF RS. 29,60,828/-. IF THE AMOUNT WAS NOT DEBITED TO P&L ACCOUNT DURING THE YEAR UNDER CONSIDERATION, THEN THE SAME IS NOT SUBJECT TO ADJUSTMENT MADE WHILE COMPUTING BOOK PROFIT U/S 115JA. TO THAT EXTENT THERE COULD BE ANY DISPUTE. THEREFORE, IT HAS TO BE HELD THAT TO THE EXTENT THE AMOUNT WHICH WAS NOT DEBITED DURING THE YEAR UNDER CONSIDERATION TO THE PROFIT AND LOSS ACCOUNT RELATING TO SCHEDULE 10 IN THE BALANCE SHEET OF THE ASSESSEE, THE ADDITION CANNOT BE MADE FOR COMPUTING BOOK PROFIT U/S 115JA. IT IS THE CASE OF THE ASSESSEE THAT PROVISION OF GRATUITY OF RS. 68,23,350/- WAS THOUGH DEBITED TO THE P&L ACCOUNT BUT IT WAS AGAIN ADDED WHILE COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS. COPY OF COMPUTATION OF INCOME HAS BEEN FILED BY THE ASSESSEE AT PAGE 107 TO 110 OF THE PAPER BOOK. IT IS OBSERVED THERE FROM THAT WHILE COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS THE AMOUNT OF RS. 68,23,350/- BEING PROVISION MADE FOR GRATUITY U/S 40A(7) IS ADDED WHEREAS NO SUCH ADDITION HAS BEEN MADE WHILE COMPUTING THE BOOK PROFIT U/S 115JA. IT HAS NOT BEEN SHOWN THAT PROVISION FOR PAYMENT OF GRATUITY IS CALCULATED ON THE BASIS OF ACTUARIAL VALUATION. IT HAS ALSO NOT BEEN SHOWN THAT PROVISION ON ACCOUNT OF GRATUITY IS AN ASCERTAIN LIABILITY. THEREFORE, THE ADDITION TO THAT EXTENT WHILE COMPUTING BOOK PROFIT U/S 115JA WAS REQUIRED TO BE 7 ITA NO. 93 6/DEL/2012 MADE. HOWEVER, SO AS IT RELATES TO ANOTHER COMPONENT I.E. A SUM OF RS. 29,60,828/- THE CLAIM IS MADE BY THE ASSESSEE ON THE BASIS OF ACTUARIAL VALUATION. IT HAS NOT BEEN SHOWN BY THE DEPARTMENT THAT THERE WAS ANY DEFECT IN SUCH VALUATION. IT HAS NOT BEEN SHOWN BY THE DEPARTMENT THAT THERE WAS ANY DEFECT IN SUCH VALUATION MADE BY THE ASSESSEE. IF IT IS SO THEN THIS CLAIM OF THE ASSESSEE HAS TO BE ACCEPTED IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTHMOVERS VS. CIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT LIABILITY INCURRED BY THE ASSESSEE UNDER THE LEAVE ENCASHMENT SCHEME APPLICABLE TO ITS EMPLOYEES PROPORTIONATE TO THE ENTITLEMENT EARNED BY THE EMPLOYEES SUBJECT TO CEILING ON ACCUMULATION NOT BEING A CONTINGENT LIABILITY, PROVISION MADE THEREOF IS DEDUCTIBLE. THEREFORE, THIS CLAIM OF THE ASSESSEE HAS TO BE ACCEPTED. THE AO IS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS. 29,60,888/-. TO CONCLUDE OUR FINDINGS ON THIS GROUND ARE THAT (I) OPENING BALANCE STANDING TO PROVISION FOR STAFF BENEFITS, IF NOT DEBITED TO THE P&L ACCOUNT OF THE YEAR UNDER CONSIDERATION, COULD NOT BE CONSIDERED FOR ADDITION WHILE COMPUTING PROFIT U/S 115JA. (II) PROVISION FOR GRATUITY BEING NOT ASCERTAINED LIABILITY WAS TO BE ADDED WHILE COMPUTING BOOK PROFIT U/S 115JA. (III) LIABILITY OF RS. 29,60,828/- ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT BEING A LIABILITY BASED ON ACTUARIAL VALUATION IS TO BE CONSIDERED 8 ITA NO. 93 6/DEL/2012 ASCERTAINED LIABILITY HENCE DEDUCTIBLE WHILE COMPUTING BOOK PROFIT U/S 115JA. THIS GROUND IS PARTLY ALLOWED. 34. THERE IS NO DISPARITY ON FACTS. THE CONTENTS OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT ACTUARIAL REPORT IS ON THE RECORD, THEREFORE, THE PROVISIONS SHOULD NOT BE TREATED AS UNASCERTAINED LIABILITY. THIS REPORT HAS NOT BEEN RELIED UPON BY THE REVENUE AUTHORITIES BELOW. THERE ARE SPECIFIC DEFECT IN THE REPORT. TAKING INTO CONSIDERATION THE FINDINGS OF THE ITAT IN AY 2000-01, DEFECTS IN THE REPORT AND THE CLAIM OF ASSESSEE THAT IN ASSESSMENT YEAR 2000-01, A MISCELLANEOUS APPLICATION HAS ALREADY BEEN FILED. WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION. ASSESSEE WILL SUBMIT THE ACTUARIAL REPORT AFRESH TO THE AO. AO SHALL CONSIDER THE ORDER OF THE ITAT IN AY 2000-01 ALSO. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9. LD. COUNSEL FURTHER REFERRED TO PAGE 171 AND 172 OF THE PAPER BOOK, WHEREIN THE HONBLE HIGH COURT HAS ADMITTED TH E FOLLOWING SUBSTANTIAL QUESTIONS OF LAW FOR ADJUDICATION: 1. WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS JUST IFIED IN LAW IN HOLDING THAT AN AMOUNT OF RS. 68,23,350/- REPRESENTING THE LIABILITY TOWARDS GRATUITY AND PAY ABLE TO EMPLOYEES AND DULY DEBITED IN THE PROFIT & LOSS ACC OUNT REPRESENTED AN UNASCERTAINED LIABILITY SO AS TO ENH ANCE THE BOOK PROFIT IN TERMS OF PROVISIONS OF CLAUSE (C ) OF EXPLANATION TO SECTION 115JA(1) OF THE INCOME TAX A CT, 1961? 2. WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTI FIED IN LAW IN NOT DIRECTING, THAT THE AMOUNT OF RS. 29, 60,828/- BEING THE LIABILITY TOWARDS LEAVE ENCASHMENT DUE TO THE EMPLOYEES COULD NOT BE DEDUCTED FROM THE INCOME COMPUTED UNDER THE PROVISIONS OF THE INCOME TAX ACT , 9 ITA NO. 93 6/DEL/2012 1961, INSPITE OF JUDGMENT OF APEX COURT IN THE CASE OF BHARAT EARTHMOVERS V. CIT, REPORTED IN 245-ITR-428- SC? 3. WHETHER IN THE CIRCUMSTANCES OF THE CASE WAS NOT TH E INCOME TAX APPELLATE TRIBUNAL RIGHT IN NOT DEDUCTIN G AN ADDITION MADE OF RS. 2,83,70,822/- DESPITE THE FACT THAT NO SUCH DEDUCTION WAS EITHER CLAIMED IN THE COMPUTA TION OF INCOME OR WAS DEBITED IN THE PROFIT & LOSS ACCOU NT? MRS. PREM LATA BANSAL, LD. COUNSEL FOR THE REVENUE ACCEPTS NOTICE. IN VIEW OF THE AFORESAID, NO FURTH ER NOTICE NEED TO BE ISSUED. 10. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF TR IBUNAL, THE ISSUE RELATING TO PROVISION FOR GRATUITY IS RESTORE D BACK TO THE FILE OF THE AO TO BE ADJUDICATED IN THE SAME MANNER AS HAS BEEN DIRECTED, VIDE ORDER DT. 22/12/2015 FOR AY 2002-03. HOWEVER, THE PROVISION FOR LEAVE ENCASHMENT IS TO BE CONSIDERED ASCERTAINE D LIABILITY AND, THEREFORE, NOT REQUIRED TO BE ADDED BACK FOR COMPUT ING BOOK PROFITS U/S 115JB. 11. IN THE RESULT, THIS GROUND IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. 12. BRIEF FACTS APROPOS GROUND NOS. 3 & 4 ARE THAT THE TPO VIDE HIS ORDER DATED 10/02/2006 DETERMINED ARMS LENGTH PRICE IN RESPECT OF SERVICE PROVIDED BY THE ASSESSEE TO PEPS ICO TRADING USA AT RS. 5,40,589/-. SINCE THE ASSESSEE HAD NOT SHOWN THIS TRANSACTION IN FORM 3CEB, THEREFORE, THE AO MADE AN ADDITION OF RS. 5,40,589/- TO THE ASSESSEES INCOME. 13. LD. CIT(A) HAS CONSIDERED THIS ISSUE IN PARA 8 OF HIS ORDER AND HAS UPHELD THE ADDITION. 14. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THI S ISSUE IS ALSO COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES O WN CASE FOR AY 10 ITA NO. 9 36/DEL/2012 2002-03, WHEREIN THE TRIBUNAL CONSIDERED THIS ISSUE FROM PARA 11 TO 21 OF ITS ORDER AND FINALLY CONCLUDED THAT THE L OSS INCURRED BY THE ASSESSEE WAS ONLY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AND THE STRUCTURE OF THE TRANSACTION WAS SUCH FOR TH E ASSESSEE THAT IT COULD NOT MAKE ANY PROFIT OR INCUR ANY LOSS AS T HE TRANSACTIONS WERE NOT BEING UNDER TAKEN FOR THE SAKE OF ANY PROFI T. HE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE. 15. THE FACTS AS NOTED BY THE LD. CIT(A) IN HIS ORD ER ARE AS UNDER: THE ASSESSEE IS A SUBSIDIARY OF PEPSICO INC., USA A ND IS MAINLY INVOLVED IN THE PRODUCTION OF AERATED AND NON-AERAT ED SOFT DRINK BEVERAGES AND SNACK FOOD. IT ALSO EXPORTS GUAR GUM S, PET CHIPS, RICE, PEANUT BUTTER AND CHILLY PASTE ETC. TO OVERSE AS MARKETS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE E XPORTED GUA GUMS AND PET CHIPS TO ITS ASSOCIATED ENTERPRISE, PW T. THE ASSESSEE UNDERTOOK THE EXPORT OF GUAR GUMS AND PET CHIPS TO ITS AE IN ORDER TO MEET ITS EXPORTS TURNOVER OBLIGATIONS T O HELP ASSESSEE IN ACHIEVING STAR EXPORT HOUSE STATUS. AE-PWT FURTHER SOLD THE SAME GUAR GUM TO UNRELATED ENTERPRISES OUTSIDE INDI A. THE PWT WAS SELECTED AS TESTED PARTY FOR THE ECONOMIC ANALYS IS OF THIS TRANSACTION. TNMM WAS ADOPTED FOR TP ANALYSIS WITH OP/SALES AS RELEVANT PLI. THE ASSESSEE CLAIMED THAT THE RESULT S FROM THE ECONOMIC ANALYSIS CONDUCTED BY THE ASSESSEE PROVIDE D EVIDENCE THAT BOTH THE PRICING BASIS ITSELF OF THE INTERNATI ONAL TRANSACTIONS THAT IMPACTED THE PROFITABILITY OF THE COMPANY AND THE OUTCOME OF THAT PRICING, I.E., THE PROFITABILITY WERE AT ARMS LENGTH AND HENCE 11 ITA NO. 9 36/DEL/2012 SATISFIED THE ARMS LENGTH STANDARD PRESCRIBED UNDE R THE INDIAN REGULATIONS. HOWEVER, THE LD. TPO CHARACTERIZED ASS ESSEE AS A SERVICE PROVIDER AND HELD THAT THE ASSESSEE HAD PRO VIDED SERVICE TO ITS AES AND, THEREFORE, ASSESSEE SHOULD HAVE RECOVE RED NOT ONLY COST INCURRED IN PROCURING THE GOODS BUT ALSO A MAR K UP ON FOR PROVIDING THE SERVICES. THE ASSESSEES MAIN PLEA WA S THAT THE PRICE CHARGED BY ASSESSEE TO PWT WAS THE SAME AS HAS BEEN CHARGED BY THE LOCAL VENDORS FROM THE ASSESSEE. THE EXPORTS B Y ASSESSEE WERE FOR THE LIMITED PURPOSE OF MEETING EXPORT STATUS OB LIGATIONS AND THESE PRODUCTS DID NOT CONSTITUTE THE MAIN LINE BUS INESS OF THE ASSESSEE. FURTHER PWT HAD NOT EARNED ANY PROFIT FR OM THE SALE OF COMMODITIES IMPORTED FROM ASSESSEE. ON THE CONTRAR Y, THE ASSESSEE-PWT HAD INCURRED LOSS TO THE EXTENT OF SEL LING, GENERAL AND ADMINISTRATIVE EXPENSES INCURRED BY IT TO PROCE SS THESE PURCHASES AND SALE TRANSACTIONS. 16. LD. CIT(A), HOWEVER, AFTER CONSIDERING THE ASSE SSEES DETAILS SUBMISSIONS UPHELD THE TPOS ACTION OBSERVING IN PA RA 8.6 AS UNDER: 8.6 I HAVE GONE THROUGH THE ORDER OF THE TPO AS WELL AS THE SUBMISSION MADE BY THE APPELLANT IN THI S REGARD. THIS ISSUE WAS THE SAME AS IN THE EARLIER YEAR. MY LD. PREDECESSOR HAS ELABORATELY DISCUSSED THIS I SSUE AND HAS HELD THAT THE APPELLANT IS PROVIDING A VALU ABLE SERVICE TO ITS ASSOCIATED ENTERPRISE. I AM IN FULL AGREEMENT WITH THE DECISION OF MY PREDECESSOR. THEREFORE, THE APPELLANT DESERVES MARK-UP ON SUCH SERVICES. SECONDLY, THE NATURE OF THE AGREEMENT BETWEEN THE AE AND THE APPELLANT IS SUCH THAT THE APPELLANT WILL NEVER BE ABLE TO MAKE PROFIT FROM SU CH TRANSACTIONS. THEREFORE, THE TPO WAS RIGHT IN HOLD ING 12 ITA NO. 9 36/DEL/2012 THAT THE FOREIGN EXCHANGE LOSS SHOULD BE RECOVERED FROM ITS RELATED PARTY. THEREFORE, I UPHOLD THE ORDER O F THE TPO/AO. THESE GROUNDS OF THE APPELLANT ARE DISMISSED. 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. WE FIND THAT THE TRIBUNAL FOR AY 2002-03 HAS OBSERVED IN PARA 21 AS UNDER: 21. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH T HE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT I S AN ADMITTED FACT THAT THE LOSS INCURRED BY THE ASESSEE WAS ONLY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AS THE COMMODITIES WERE SOLD TO THE AE AT THE SAME RAT E AT WHICH THESE WERE PURCHASED FROM THE LOCAK MARKET . ON A SIMILAR ISSUE THE ITAT DELHI BENCH IN THE CASE OF DCIT VS. GLOBAL VANTEDGE P. LTD. IN ITA NOS. 1432 & 2321/DEL/2009 AND 116/DEL/2011 (SUPRA), HELD THAT ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS CANNOT EXCEED THE AMOUNT RECEIVED BY THE ASSOCIATED ENTERPRISES FROM THE CUSTOMER AND THE ACTUAL VALUE OF INTERNATIONAL TRANSACTIONS I.E. AMOUNT RECEIVED BY THE ASSESSEE I N RESPECT OF INTERNATIONAL TRANSACTIONS. THE SAID DECISION OF THE ITAT DELHI BENCH HAS BEEN AFFIREMED BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 14.03.2013 IN ITA NOS. 1828 & 1829/2010 AND 1254/2011 AGAINST THE SAID ORDER OF THE HONBLE HIG H COURT. THE SPECIAL LEAVE PETITION (SLP) OF THE REV ENUE HAD BEEN DISMISSED BY THE HONBLE SURPEME COURT VIDE ORDER DATED 02.01.2014 IN CC NO. 22166 OF 2013 . THE ITAT DELHI BENCH, I-2, NEW DELHI IN THE CASE OF HCL TECHNOLOGIES BPO SERVICES LTD. VS. ACIT, CC-2, NEW DELHI (SUPRA) BY FOLLOWING THE AFORESAID DECISI ON OF THE ITAT IN THE CASE OF DCIT VS. GLOBAL VANTEDGE PVT. LTD. HAS DISMISSED THE APPEAL OF THE REVENUE. IN THE PRESENT CASE ALSO THE ASSESSEE HAD NOT GAINED, THE 13 ITA NO. 9 36/DEL/2012 AE HAD NOT PAID ANYTHING AND THE COMMODITIES WERE SOLD TO THE AE AT THE SAME PRICE AT WHICH THOSE WER E PURCHASED FROM THE LOCAL MARKET, JUST TO RETAIN ASSESSEE WAS ONLY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. THE STRUCTURE OF THE TRANSACTION WAS SUCH FOR THE ASSESSEE THAT IT COULD NOT MAKE ANY PROFIT OR INCUR ANY LOSS AS THE TRANSACTIONS WERE NOT BEING UNDERTAKEN FOR THE SAKE OF ANY PROFIT. WE, THEREFO RE, ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO AN D SUSTAINED BY THE LD. CIT(A) ON ACCOUNT OF ARMS LEN GTH PRICE WAS NOT JUSTIFIED BECAUSE THE ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. IN THE PRESENT CASE, THE ASSESSEE DI D NOT MAKE ANY PROFIT AND SOLD THE GOODS TO THE PWT A T THE SAME PRICE AT WHICH IT WAS PURCHASED FROM THE LOCAL MARKET AND THE PWT IN TURN SOLD THE COMMODITI ES TO THE CUSTOMERS AT THE SAME PRICE AT WHICH THESE WERE BOUGHT FROM THE ASSESSEE. THEREFORE, THE INTERNATIONAL TRANSACTIONS WITH PWT MET THE ARMS LENGTH STANDARD. THEREFORE, BY KEEPING IN VIEW THE TOTALITY OF THE FACTS AS DISCUSSED HEREIN ABOVE THE ADDITION SUSTAINED BY THE LD. CIT(A) IS DELETED. 18. RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL THIS ADDITION IS DELETED. 19. IN THE RESULT, BOTH THE GROUNDS ARE ALLOWED. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30.05.2016 SD/- SD/- (SUDHANSHU SRIVASTAVA) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30.05.2016 *KAVITA ARORA 14 ITA NO. 9 36/DEL/2012 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 27.05.2016/30.5.16 2. DRAFT PLACED BEFORE AUTHOR 30.05.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 30.05.2016 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 30.05.2016 5. APPROVED DRAFT COMES TO THE SR.PS/PS 30.05.2016 6. KEPT FOR PRONOUNCEMENT ON 30.05.2016 7. FILE SENT TO THE BENCH CLERK 30.05.2016 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.