ACIT, Alwar V. M/S SAKATA INX INDIA LTD., Alwar

ITA 98/JPR/2010

• Counselvise Citation: 9823114 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 02-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ABHI SHEK KAUSHIK
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Arm length price; Unabsorbed depreciation
• Section: 154

Judgement Text

1 ITA 98(3)-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 98/JP/2010 ASSTT. YEAR : 2005-06. THE ACIT, CIRCLE-2, VS. M/S. SAKATA INX (INDIA) LTD., ALWAR. B-1245-1246, RIICO IND. AREA, BHIWADI, DISTT. ALWAR (RAJ.) (APPELLANT) (RESPONDENT) C.O. NO. 08/JP/2010 ( ARISING OUT OF ITA NO. 98/JP/2010 ) ASSTT. YEAR : 2005-06. M/S. SAKATA INX (INDIA) LTD., VS. THE ACIT, CIRCL E-2, BHIWADI. ALWAR. (CROSS OBJECTOR) ` (RESPONDENT) ITA NO. 724/JP/2011 ASSTT. YEAR : 2005-06. M/S. SAKATA INX (INDIA) LTD., VS. THE ACIT, CIRCL E-2, BHIWADI. ALWAR. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SUNIL MATHUR ASSESSEE BY : SHRI NITIN NARANG & SHRI ABHI SHEK KAUSHIK. DATE OF HEARING : 17.8.2011 DATE OF PRONOUNCEMENT : 16 .9.2011 2 ORDER DATE OF ORDER 16/09/2011. PER R.K. GUPTA, J.M. THESE ARE TWO APPEALS BY DEPARTMENT AND ASSESSEE A ND CROSS OBJECTION BY ASSESSEE RELATING TO ASSESSMENT YEAR 2005-06. 2. APPEAL IN ITA NO. 98/JP/2010 IS BY DEPARTMENT A ND CROSS OBJECTION BY ASSESSEE IS AGAINST THE ORDER OF LD. CIT (A) AND APPEAL IN I TA NO. 724/JP/11 BY ASSESSEE IS AGAINST THE ORDER OF LD. CIT (A) PASSED UNDER SECTION 154 F ILED BY DEPARTMENT. 3. IN APPEAL OF DEPARTMENT, THE FOLLOWING EFFECTIVE GROUND HAS BEEN TAKEN BY THE DEPARTMENT :- 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AS WELL A S ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 1,45,52,537/- AS MADE BY AO ON ACCOUNT OF ARMS LENGTHY PRICE DETERM INED BY TRANSFER PRICING OFFICER U/S 92CA(3). 2. THAT THE LD. CIT (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWA NCE OF RS. 3,09,031/- OUT PF PICNICS AND OTHER EXPENSES MADE BY THE AO. 3. THAT THE LD. CIT (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN ALLOWING THE GROUNDS O F THE APPEAL REGARDING SET-OFF OF UNABSORBED DEPRECIATION OF EARLIER YEAR AGAINST INCOME OF CURRENT YEAR FROM OTHER SOURCES. 4. REGARDING FIRST ISSUE, THE DEPARTMENT HAS MENTIO NED IN THE GROUND OF APPEAL ABOVE HAS CHALLENGED DELETING THE ADDITION OF RS. 1,45,52 ,537/-. 5. IN THIS RESPECT THE DEPARTMENT HAS AMENDED THEIR GROUNDS OF APPEAL AS ON FILING APPLICATION UNDER SECTION 154 BEFORE LD. CIT (A), T HE LD. CIT (A) HAS ALLOWED RELIEF TO THE 3 DEPARTMENT TO THE EXTENT OF RS. 40,42,759/-. THERE FORE, THE DEPARTMENTS GROUNDS ARE TAKEN AS AMENDED ACCORDINGLY. 6. THE ASSESSEE HAS AMENDED ITS CROSS OBJECTION IN CONSEQUENCE OF THE ORDER PASSED BY LD. CIT (A) UNDER SECTION 154 DATED 27.6.2011 AN D HAS ALSO FILED APPEAL AGAINST ORDER UNDER SECTION 154 BY WHICH THE LD. CIT (A) HAS SUST AINED THE ADDITION OF RS. 40,42,759/-. BESIDES THIS GROUND, VARIOUS OTHER GROUNDS HAVE BEE N TAKEN BY THE ASSESSEE IN ITS APPEAL. 7. NOW THE APPEALS OF THE DEPARTMENT AND THE ASSESS EE ARE DISPOSED OFF IN THE FOLLOWING MANNER. 8. THE BRIEF FACTS OF THE CASE DISCUSSED IN THE ORD ER OF LD. CIT (A) AT PAGES 4 TO 6 ARE AS UNDER :- THE APPELLANT COMPANY IS A 100% SUBSIDIARY OF SA KATA INX CORPORATION JAPAN ('SAKATA JAPAN') WHICH IS ONE OF THE LARGEST PRODUCER OF PRINTING INK GLOBALLY. DURING THE YEAR THE APPEL LANT COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLIN G PRINTING INK AND RESINS. SINCE, MANUFACTURING ACTIVITY COMMENCED W.E .F. 1.9.2004 THEREFORE, DURING THE 'F.Y. TILL 31.8.2004 THE APPE LLANT COMPANY WAS ENGAGED ONLY IN THE TRADING ACTIVITY. THE ASSESSING OFFICER HAD MADE A REFERENCE TO THE TPO TO DETERMINE THE ARM'S LENGTH PRICE U/S 92CA (3) OF I.T. ACT. FURTHER, ON PERUSAL OF ORDER PASSED U/S 9 2CA (3) OF I.T. ACT BY TPO I, JAIPUR IT IS SEEN THAT IN T.P. DOCUMENTATI ON THE APPELLANT COMPANY HAS CONSIDERED TRANSACTIONAL NET MARGIN METHOD KNOW N AS TNMM AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT MARGI N AS THE PROFIT LEVEL INDICATOR. WHILE EXAMINING THE DOCUMENTATION THE TP O HAS NOTICED THAT THE APPELLANT COMPANY HAS INCORRECTLY TAKEN INCREASE IN STOCK AT RS.86,70,387/- BECAUSE IT ALSO INCLUDED CLOSING STO CK OF RS.35.34 LACS PERTAINING TO TRADING GOODS WHICH NEEDS TO BE EXCLU DED FROM THE STOCK INCREASE AND THEREFORE, TOTAL OPERATING COST HAS BE EN 4 CONSIDERED AT RS.57,31,82,354/- AND ACCORDINGLY, OP ERATING PROFIT IS ALSO REDUCED BY RS.35.34 LAC AND IN T.P. STUDY T HE TPO HAS CONSIDERED OPERATING PROFIT AT RS.2,42,82,691/- AS AGAINST SUC H OPERATING PROFIT TAKEN BY THE APPELLANT COMPANY AT RS.2,78,17,500/- AND TH E AO HAS WORKED OUT THE OPERATING PROFIT MARGIN ON OPENING REVENUE AT 4 .06%. IN THE TP, DOCUMENTATION THE APPELLANT COMPANY HAS CONSIDERED 7 COMPARABLE COMPANIES BUT AO HAS REJECTED THE COMPAR ABLES FOR CAMAX INTERMEDIARIES LTD. SINCE, FINANCIAL DATA FOR THE Y EAR ENDING MARCH, 2005 OF THE SAID COMPANY WERE NOT AVAILABLE. THE TPO HAS ALSO EXCLUD ED THE COMPARABLE COMPANIES OF ATUL LTD. SINCE, THE COMPANY WAS HAVING 14.26% R ELATED PARTY TRANSACTIONS AS A PERCENTAGE OF SALES AND IN THIS RESPECT THE TPO HAS REJECTED THE ARGUMENT OF APPELLANT COMPANY BASED ON ITAT DELHI BENCH DECISION IN THE C ASE OF SONY INDIA PVT. LTD. WITH THE REMARK THAT THE OBSERVATION OF ITAT REGARDING 10 TO 15% RELATED PARTY TRANSACTION SQUARELY COVERS THE CASE OF APPELLANT COMPANY WHICH IS HAVIN G 14.26% RELATED PARTY TRANSACTION AND THE TPO HAS ALSO REMARK THAT THE PRODUCT OF M/S ATU L LTD. HAS A VARIED GROUP OF PRODUCTS AND THEREFORE THE PRODUCT RANCE OF THE COMPANY WAS ALSO NOT COMPARABLE FURTHER, DURING THE PROCESS OF IDENTIFICATION OF COMPARABLES AND REJECTION THE TPO HAS NOTICED THAT TWO COMPANIES NAMELY INDIAN TO NERS AND DEVELOPERS LTD. AS WELL AS RAINBOW INK AND VARNISH MANUFACTURING CO. LTD. WERE IDENTIFIED UNDER PRODUCT CODE 24222 O F NIC ON PROWESS DATA BASE FOR PRODUCT 'PRINTING INK' WHICH WERE FAI RLY COMPARABLE TO THE APPELLANT'S PRODUCT SEGMENT. THE TPO HAS ALSO EXCLU DED THE COMPARABLE OF MADHYA BHARAT PAPERS LTD. AND MULTIFLEX LAXMI PR INT LTD. SINCE THESE WERE NOT HAVING FINANCIAL DATA FOR THE PERIOD MARCH ,2005. BESIDES THIS THE TPO HAS INCLUDED THE FINANCIALS OF DIC INDIA LT D. ON THE GROUND THAT IT WAS ALSO DEALING IN PRINTING INK AND THEREF ORE, IT WAS CONSIDERED AS A COMPARABLE. THEREAFTER, THE AO HAS WORKED OUT THE MEAN OPERATING PROFIT MARGIN OF THE COMPARABLE AT 6.5% AND WORKED OUT ADJUSTMENTS IN THE IMPORT PRICE OF RAW MATERIAL AND SPARE PARTS FR OM A.E. AT RS.1,45,52,537/- IN THE FOLLOWING MANNER : 5 1. DYNAMIC INDUSTRIES LTD. 3.32% 2. JAYSYNTH IMPEX LTD. 10.92% 3. LONA INDUSTRIES LTD. 3.32% 4. METROOCHEM INDUSTRIES LTD. 4.87% 5. OR5GANIC COATING LTD. 3.54% 6. INDIAN TONERS & DEVELOPERS LTD. 16.22% 7. RAINBOW INK & VARNISH MANF. CO. LTD. 3.93% 8. DIC INDIA LTD. 5.96% MEAN 6.50% OPM OF UNCONTROLLED COMPARABLE (OPERATING PROFIT/OP ERATING REVENUE) + 6.50% (MEAN OPM OF 8 COMPARABLES). OPERATING REVENUE OF THE ASSESSEE = RS. 59,74,6 5,045/- ARMS LENGTH PROFIT OF THE ASSESSEE AT PLI OF 6.5 0% 59,74,65,045/- A = RS. 3,88,35,228/- OPERATING PROFIT OF THE ASSESSEE B = RS. 2,42,82 ,691/- DIFFERENCE (A-B) = RS. 1,45,52,537/- AMOUNT PAID BY THE ASSESSEE FOR IMPORT OF RAW MAT ERIALS AND SPARES FROM AE (AS PER FORM 3CB) = RS. 7,83,58,988/- ARMS LENGTH PRICE OF IMPORT = 78358988- 14552537 = RS.6,38,06,451/- % OF ADJUSTMENT TO ALP OF IMPORT = 22.80% WHICH IS MORE THAN 5%, THEREFORE, PROVISO TO SECTION 92C(2) IS NOT ATTRACT ED. THE IMPORT PRICE OF RAW MATERIAL AND SPARES FROM AE IS ACCORDINGLY ADJUSTED BY AN AMOUNT OF RS. 1,45,52,537/- AS OPERA TING PROFIT HAS BEEN 6 CALCULATED AS A PERCENTAGE OF OPERATING REVENUES. T HE ALP OF THE IMPORT OF RAW MATERIALS AND SPARES IS CALCULATED AT RS. 6, 38,06,451/-. 9. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT ( A) WHICH HAS BEEN DISCUSSED BY LD. CIT (A) IN HIS ORDER AT PAGES 6 TO 48. AFTER C ONSIDERING THOSE DETAILS, THE LD. CIT (A) HAS DELETED THE ADDITION OF RS. 1,45,52,537/- WHICH IS NOW REDUCED BY RS. 40,42,759/- BY PASSING ORDER UNDER SECTION 154. FINDINGS OF LD. CI T (A) HAVE BEEN RECORDED AT PAGERS 48 TO 54 WHICH ARE AS UNDER :- I HAVE CONSIDERED FACTS OF THE CASE, ORDER PASSE D BY TPO- I, JAIPUR AND ARGUMENTS TAKEN BY AUTHORIZED REPRESENTA TIVE OF THE APPELLANT COMPANY FROM TIME TO TIME QUITE CAREFULLY. AFTER GO ING THROUGH THE TPO ORDER WHICH HAS BEEN PASSED AFTER RECEIVING REFEREN CE FROM ASSESSING OFFICER OF ALWAR, IT IS NOTICED THAT THE ASSESSING OFFICER HAS 'CORRECTLY MADE THE REFERENCE U/S 92CA(1) OF I.T. ACT AFTER RECEIVI NG PROPER APPROVAL OF CIT ALWAR VIDE HIS LETTER DATED 23.1.2007 AND AS PE R PROVISIONS THERE WAS NO REQUIREMENT OF PROVIDING ANY OPPORTUNITY OF BEIN G HEARD BEFORE MAKING AFORESAID REFERENCE TO THE TPO. IT IS FURTHER NOTIC ED THAT THE TPO HAS GIVEN REASONABLE. OPPORTUNITIES TO THE APPELLANT COMPANY BEFORE PASSING THE ORDER U/S- 92CA (3) OF I.T. ACT. FURTHER, FOR THE P URPOSE OF PASSING ORDER U/S 92CA(3) OF I.T. ACT IT WAS ONLY EXPECTED FROM T PO TO KEEP IN VIEW THE RELEVANT PROVISIONS OF I.T. ACT AND I.T. RULES AND CERTAINLY THE GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX AD MINISTRATIONS ISSUED BY OECD WERE NOT MANDATORY TO BE FOLLOWED FOR THE TPO. AFTER DECIDING THESE TECHNICAL AND PROCEDURAL GROUNDS NOW I TAKE U P THE ISSUE THAT WHETHER T.P. ADJUSTMENTS WERE REQUIRED IN THIS CASE AND IF SO WHETHER SUCH ADJUSTMENTS HAS BEEN CORRECTLY WORKED OUT BY TPO IN THE ORDER PASSED U/S 92CA(3) OF I.T. ACT. THE FIRST MAJOR ISSUE IN THIS ORDER IS THE REDUCTION MADE IN THE OPERATING PROFIT OF THE APPELLANT COMPA NY BY TPO BY RS.35.34 LACS ON THE GROUND THAT IT WAS THE CLOSING STOCK PE RTAINING TO TRADING 7 GOODS WHICH NEEDED TO BE EXCLUDED FROM THE STOCK IN CREASE SHOWN AT RS.86, 70,387/- WHILE WORKING OUT OPERATING PROFIT BY THE APPELLANT COMPANY AT RS.2, 78, 17,500/-. HERE I AGREE WITH TH E AR THAT FOR THE PURPOSE OF WORKING OUT OPERATING PROFIT, THE CLOSIN G STOCK OF TRADING GOODS ALONE IN ISOLATION CANNOT BE EXCLUDED BUT THE OPERATING PROFIT COMPONENT PERTAINING TO TRADING GOODS IS REQUIRED T O BE EXCLUDED. SINCE, THERE IS NO SEGMENTED TRADING AND P&L A/C OF THE AP PELLANT COMPANY FOR TRADING ACTIVITY AND MANUFACTURING ACTIVITY THEREFO RE, THE WORKED OUT OPERATING PROFIT ON TRADING ACTIVITY HAS TO BE WORK ED OUT FROM THE GIVEN FINANCIALS OF THE APPELLANT COMPANY AND THAT AMOUNT IS REQUIRED TO BE REDUCED FROM THE TOTAL OPERATING PROFITS OF THE APP ELLANT COMPANY IN ORDER TO WORK OUT OPERATING PROFITS OF MANUFACTURING ACTI VITY WHICH IS CONSIDERED IN THE AFORESAID ORDER PASSED U/S 92CA(3 ) OF I.T. ACT BY THE TPO. IN ABSENCE OF SEPARATE TRADING AND P&L A/C FOR TRADING ACTIVITY THE EXPENDITURE PERTAINING TO TRADING ACTIVITY HAS TO B E WORKED OUT ON PRO RATA BASIS IN ABSENCE OF ANY OTHER SUITABLE BASIS B ECAUSE FROM THE FINANCIALS THE FIGURE OF PURCHASES, SALES AND CLOSI NG STOCK OF TRADING GOODS IS AVAILABLE. IT IS NOTICED THAT TOTAL OPERAT ING AND OTHER EXPENDITURE AS PER SCHEDULE XVII WERE AT RS.6,93,66 ,167/- ON A TOTAL TURNOVER OF RS.69,66,49,458/- AND THEREFORE, ON PRO PORTIONATE BASIS SUCH OPERATING AND OTHER EXPENDITURES PERTAINING TO TRADING SALES OF RS.1,43,44,625/- IS WORKED OUT AT RS.1, 43 ,44,625 /-. AFTER ADOPTING THIS FIGURE THE OPERATING PROFIT RELATABLE TO TRADING ACTIVITY IS WORKED OUT AS FOLLOWS: AMOUNT AMOUNT (RS.) PURCHASES 1,52,91,973 SALES 1,43,44,625 PROPORTIONATE OPERATING AND OTHER EXPENSES 14,28,310 CLOSING STOCK OF TRADING GOODS 35,34,808 OPERATING PROFIT 11,59,150 TOTAL 1,78,79,433 TOTAL 1,78,79,433 8 IN THE AFORESAID MANNER, THE OPERATING PROFIT PERTA INING TO TRADING ACTIVITY WORKED OUT AT RS.11,59,150/- IS REQUIRED T O BE EXCLUDED FROM OPERATING PROFIT SHOWN BY THE APPELLANT COMPANY AT RS.2,78,17,500/- AND SUCH OPERATING PROFIT PERTAINING TO MANUFACTURING A CTIVITY REMAINS AT RS.2,66.58,350/- AS AGAINST SUCH OPERATING PROFIT A DOPTED BY TPO IN THE ORDER PASSED U/S 92CA(3) OF I.T. ACT AT RS.2,42,82, 691/- WHICH HAS BEEN WORKED OUT SIMPLY BY REDUCING TOTAL AMOUNT OF CLOSI NG STOCK: OF TRADED GOODS FROM OPERATING PROFITS OF THE APPELLANT COMPA NY WHICH WAS NOT THE CORRECT APPROACH. NEXT ISSUE IS THAT WHETHER ASSESSING OFFICER HAS CO RRECTLY EXCLUDED THE FINANCIALS OF ATUL LTD, AS COMPARABLES WHICH WERE USED BY THE APPELLANT IN THE T.P. DOCUMENTATION. ON PERUSAL OF PARA 8 OF THE TPO'S ORDER FIRST OF ALL SHE HAS CONSIDERED THE DAT A FOR MARCH,2008 IN ORDER TO WORK OUT THE PERCENTAGE OF RELATED PARTY T RANSACTIONS WHICH WAS NOT THE CORRECT APPROACH AND SINCE. STUDY IS BEING CARRIED OUT FOR THE F.Y. ENDING MARCH,2005 THEREFORE, SUCH DATA IF AVAI LABLE SHOULD HAVE BEEN CONSIDERED ONLY FOR THE F.Y. ENDING MARCH,2005 AND THE APPROACH OF ASSESSING OFFICER IN CONSIDERING SUCH DATA FOR T HE F.Y. ENDING MARCH,2008 WAS NOT CORRECT AND NOT APPROVED. WITHOU T PREJUDICE TO THIS FINDING IT IS FURTHER SEEN THAT EVEN AS PER DATA OF MARCH, 2008 THE RELATED PARTY TRANSACTIONS OF ATUL LTD. WERE 14.26% WHILE A S PER ITAT DELHI BENCH DECISION ON THIS ISSUE IN THE CASE OF SONY IN DIA P.ITD. AND ENTITY CAN BE TAKEN AS UNCONTROLLED IF ITS RELATED PARTY T RANSACTION DO NOT EXCEED 10 TO 15 % OF TOTAL REVENUE. HERE AS PER AVA ILABLE ITAT DELHI BENCH DECISION THE UPPER CAP IS 15% WHILE THE RELAT ED PARTY TRANSACTIONS IN THE CASE OF ATUL LTD. EVEN FOR THE F.Y. ENDING MARCH,2008 ARE ONLY 14.26% WHICH IS VERY MUCH WITHI N THE UPPER LIMIT AS HELD BY ITAT DELHI BENCH AND THEREFORE, IN MY CO NSIDERED VIEW TPO WAS NOT JUSTIFIED IN EXCLUDING THE FINANCIAL RE SULTS AS COMPARABLE 9 FOR THE STUDY FOR ATUL LTD. AND IT HAS TO BE CONSID ERED AND INCLUDED TO WORK OUT THAT WHETHER TRANSACTIONS OF THE APPELLANT WITH A.E. IS AT ARM'S LENGTH OR NOT. THE ANOTHER ISSUE WHICH HAS ARISEN FROM THE SUBMI SSIONS OF AR OF THE COMPANY IS THAT WHETHER COMPARABLES FOR DIFF ERENT PERIOD OR AVERAGE OF MULTIPLE YEARS SHOULD HAVE BEEN ADOPTED BY TPO. IN THIS RESPECT, AS PER RULES 10B(4) OF I.T. RULES THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WI TH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE F.Y. IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO AND ONLY EXCEPTIO N TO THIS RULE IS THAT THE DATA RELATING TO THE ,PERIOD NOT BEING MORE THAN 2 YEARS PRIOR TO SUCH F.Y. MAY ALSO BE CONSIDERED IF SUCH DATA REVEALS FACT WH ICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES I N RELATION TO THE TRANSACTIONS BEING COMPARED. THE AR COULD NOT SATIS FY EITHER BEFORE TPO OR IN THE APPELLATE PROCEEDINGS THAT WHETHER SUCH D ATA IN RESPECT OF ANY COMPARABLE COMPANY FOR A PERIOD PRIOR TO CURRENT YE AR WERE HAVING AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES I N RELATION TO THE TRANSACTIONS UNDER COMPARISON. WITH THIS DISCUSSION IN MY, CONSIDERED VIEW THE AO HAS CORRECTLY CONSIDERED THE COMPARABLE S OF CURRENT RELEVANT YEAR OF DIFFERENT COMPARABLE CASES. THE NEXT ISSUE WHICH HAS ARISEN IN THIS APPEAL IS T HAT WHETHER ASSESSING OFFICER HAS CORRECTLY INCLUDED THE CASE O F INDIAN TONERS AND DEVELOPERS LTD. AS COMPARABLES. AFTER GOING THROUGH THE TPO'S ORDER IT IS SEEN THAT ACCORDING TO HER THE PRODUCT OF INDIAN TO NER AND DEVELOPERS LTD. BEST MATCHES WITH THAT OF THE APPELLANT HAVING PRODUCT CODE BEING 10 24222 FOR THE PRINTING INK. ANOTHER ARGUMENT TAKEN BY TPO IN SUPPORT OF INCLUDING THE FINANCIALS OF INDIAN TONER AND DEVELO PERS LTD. IS THAT AS FAR AS PRODUCT SIMILARITY IS CONCERNED, TONERS FOR LASE R PRINTERS, DIGITAL PRINTERS AND PHOTOCOPIERS WOULD BE NEARER TO THE PR ODUCT OF THE ASSESSEE AND FURTHER, THIS COMPANY AS WELL AS APPELLANT COMP ANY BOTH IS UNDER THE SAME NIC CODE 24222. HOWEVER, AFTER GOING THROUGH T HE DETAILED FACTUAL SUBMISSION AS MADE BY AR OF APPELLANT ON VARIOUS SU BSTANTIAL FACTORS THERE IS A DIFFERENCE BETWEEN APPELLANT COMPANY AND BETWE EN INDIAN TONERS AND DEVELOPERS LTD. BECAUSE OF WHICH INDIAN TONERS AND DEVELOPERS LTD. CANNOT BE UPHELD AS COMPARABLE AS ADOPTED BY T PO IN HER ORDER PASSED U/S 92CA(3) OF I.T. ACT. FIRST OF ALL PHYSIC AL PROPERTY OF THE PRODUCTS MANUFACTURED BY APPELLANT AND ITDL IS NOT SAME AS TONER IS A POWDER AND INK IS IN THE LIQUID FORM. THE RAW MATER IAL FOR INK PRODUCTION ARE PIGMENTS, BINDERS, SOLVENT AND ADDIT IVES WHILE RAW MATERIAL FOR TONER COMPRISE OF MAGNETIC POWDER PIGM ENTS, BINDERS RESIN, CHARGE CONTROL AGENTS AND WAX WHICH ARE VERY DIFFER ENT FROM THE RAW MATERIAL USED FOR MANUFACTURING THE INK. FURTHER, I N CASE OF THE ITDL THE COST OF RAW MATERIAL IN PERCENTAGE TERMS IS 37.5% W HILE IN THE CASE OF APPELLANT THE COST OF RAW MATERIAL IS 70% AND THIS FACT ALONE IS SUFFICIENT INDICATION THAT ITDL CANNOT BE CONSIDERED AS COMPAR ABLE TO THE APPELLANT. FURTHER, DIFFERENT PLANT AND MACHINERY A RE USED TO MANUFACTURE TONERS WHICH COMPRISES OF KNEADERS AND MILLING PLANTS WHEREAS IN CASE OF PRINTING INK GRINDERS AND HIGH S PEED DISSOLVERS ARE USED. FURTHER, THE PACKING SIZE FOR ITDL PRODUCT IS LESS THAN A KG. WHEREAS THE APPELLANT PRODUCT ARE PACKED SIZE OF 18 KG. AND MORE. 11 SIMILARLY, THE FINAL PRODUCT OF ITDL IS FOR HOME / OFFICE USE PRIMARILY IN PHOTOCOPIERS AND DIGITAL PRINTERS WHEREAS THE AP PELLANT PRODUCTS IS HAVING INDUSTRIAL APPLICATION MAINLY IN PACKAGING I NDUSTRY. FURTHER, THE NIC CODE OF 1998 AND 2004 VERSION PUT THE PRINT ING INK WHICH IS OF THE APPELLANT IN CODE NO.24223 WHEREAS EVEN AS PER TPOS ORDER ITDL IS COVERED UNDER CODE 24222. FURTHER, THE EXCISE TARIF F CODE FOR SAKATA IS COVERED UNDER CHAPTER 32 WHEREAS ITDL PRODUCT ARE COVERED UNDER CHAPTER 37 OF THE TARIFF UNDER IMAGING PRODUCTS. IT IS FURTHER SEEN THAT PER UNIT REALIZATION FOR THE TONERS AND DEVELOPERS IS AT RS.557.70 PER MT WHILE IN THE CASE OF PRINTING INK AND POLYURETHANE MANUFACTURED BY THE APPELLANT COMPANY IS AT 150.93 PER MT. WITH THIS DI SCUSSION I AM CONVINCED THAT A TONER MANUFACTURING COMPANY CANNOT BE COMPARED TO THE APPELLANT COMPANY AND THEREFORE, SELECTION OF I NDIAN TONERS AND DEVELOPERS LTD., AS COMPARABLES BY THE . TPO IS HEREBY NOT APPROVED AND THE SAME IS REQUIRED TO BE . EXCLUDED FOR THE , PURPOSE OF WORKING OUT MEAN OPERATING PROFIT MARGINS OF THE COMPARABLES. W ITH THIS DISCUSSION AFTER INCLUDING THE ATUL LTD. FOR THE REASONS DISCU SSED IN EARLIER PART OF THIS APPELLATE ORDER AND AFTER EXCLUDING INDIAN TON ERS AND DEVELOPERS LTD. THE OPERATING PROFIT MARGIN OF DIFFERENT COMPA RABLES SHALL BE AS FOLLOWS : S.NO. NAME OF COMPARABLE COMPANY OPERATING PROFIT MARGIN IN % 1 . ATUL LTD. 03.50 2 . DYNAMIC INDUSTRIES LTD. 03.32 3 . JAYSYNTH IMPEX LTD. 10.92 4 . LONA INDUSTRIES LTD. 03.32 5 . METROCHEM INDUSTR IES LTD. 04.87 6 . ORGANIC COATING LTD. 03.54 7 . RAINBOW INK AND VARNISH MANUFACTURING CO. 03.93 12 8 . DIC LTD. 05.96 TOTAL 39.86 ON THIS BASIS, THE MEAN OF OPERATING PROFIT MARGINS OF- AFORESAID 8 COMPARABLES IS WORKED; OUT AT 4.98%. ON THIS BASIS THE ARM'S LENGTH PROFIT OF THE APPELLANT IS WORKED OUT AT RS.2,97,53,759/- AS AGAINST OPERATING PROFIT OF THE APPELLANT WORKED OUT IN EARLIER PART OF THIS APPELLATE ORDER AT RS.2 ,66,58,350/-. THE DIFFERENCE OF BOTH THE FIGURES COMES RS.30,95,409/- . CONSIDERING THIS DIFFERENCE THE ARM LENGTH PRICE OF IMPORT COME S RS.7,52,63,579/- AS AGAINST AMOUNT PAID BY THE ASSE SSEE FOR IMPORT OF RAW MATERIAL AND SPARES FROM A.E. AT RS.7,83,58, 988/-. HOWEVER, ON THIS BASIS THE PERCENTAGE OF ADJUSTMENT TO ALP O F IMPORT IS WORKED OUT ONLY AT 4.11% WHICH IS LESS THAN 5% AND THEREFORE, AS PER PROVISO TO S. 92C(2) NO ADJUSTMENT IS REQUIRED AND THE AMOUNT PAID BY ASSESSEE FOR IMPORT OF RAW MATERIAL AND SPARES F ROM A.E. IS CONSIDERED AT ARM'S LENGTH AND WITH THIS DISCUSSION THE AFORESAID ADJUSTMENT MADE BY TPO AND ADOPTED BY ASSESSING OFF ICER IN THE ASSESSMENT ORDER AT RS.1,45,52,537/- IS HEREBY DELE TED. 10. NOW BOTH ARE IN APPEAL HERE BEFORE THE TRIBUNAL AGAINST THE ORDER OF LD. CIT (A). 11. DETAILED ARGUMENTS WERE ADVANCED BY BOTH THE PA RTIES. THE LD. D/R HAS EXPLAINED THE ORDER OF TPO. PAGE 2 ONWARDS WAS READ ALSO BY LD. D/R. IT WAS EXPLAINED THAT THERE IS NO DISPUTE IN METHOD ADOPTED BY ASSESSEE OR BY T HE TPO. METHOD ADOPTED IS TNMM METHOD. IT WAS EXPLAINED THAT LD. CIT (A) HAS DELET ED THE ADDITION MAINLY ON THE BASIS OF EARLIER TWO YEARS DATA WHEREAS HE SHOULD HAVE CONSI DERED THE DATA OF CURRENT YEAR. RULE 10B(4) WAS EXPLAINED. IT WAS FURTHER SUBMITTED THAT RULES ARE VERY CLEAR. ARM LENGTHS PRICE WILL BE APPLICABLE IN CASE OF INTERNATIONAL T RANSACTIONS EVEN IF THE TRANSACTIONS ARE OF RS. 1/-. ATTENTION OF THE BENCH WAS DRAWN ON PAGE 8 OF TPOS ORDER. IT WAS SUBMITTED 13 THAT THE DECISION IN CASE OF SONY INDIA SHOULD NOT HAVE BEEN APPLIED AS IN THIS CASE AS THE TRIBUNAL HAS MADE CERTAIN OBSERVATIONS ONLY. IN TH IS ORDER ITSELF IT HAS BEEN OBSERVED THAT THERE IS DIFFERENCE OF PRICE OF 10 TO 15% ONLY, TH EREFORE, THE ARM LENGTH PRICE WILL NOT BE APPLICABLE. THE LD. CIT (A) WAS NOT JUSTIFIED I N AGREEING WITH THE ARGUMENT OF LD. A/R ON THIS ACCOUNT. IT WAS FURTHER SUBMITTED THAT IN CASE OF M/S. ATUL LTD., PRODUCTS ARE NOT THE SAME AS THEY ARE SEPARATE, BUT LD. CIT (A) WAS NOT JUSTIFIED IN ACCEPTING THE ARGUMENT OF LD. A/R THAT IN CASE OF M/S. ATUL LTD. THAT FACT S ARE SIMILAR AND DATES OF EARLIER TWO YEARS HAVE BEEN CONSIDERED BY LD. CIT (A). 11.1. IT WAS SUBMITTED THAT IN RESPECT TO A PARTY M /S. RAINBOW INK & VARNISH MANUFACTURING CO. LTD. WITH WHOM THE TRANSACTION HA S BEEN ENTERED INTO, THE ASSESSEE AS WELL AS TPO IS AGREED THAT ARM LENGTH PRICE WILL BE APPLICABLE. 11.2. IN RESPECT TO PARTY M/S. INDIAN TONERS AND DE VELOPERS LTD., THE TPO HAS INCLUDED THIS PARTY FOR THE PURPOSE OF ARM LENGTH PRICE WHER EAS ASSESSEE HAS EXCLUDED BECAUSE OF THE REASON THAT ASSESSEE SAYS THAT PRODUCTS ARE DIF FERENT WHEREAS TPO SAYS THE PRODUCTS IS SAME. ATTENTION OF THE BENCH WAS DRAWN ON ASSESSEE S PAPER BOOK PAGE 38 WHEREAS THE DETAILS OF PRODUCTS OF OTHER COMPANIES WHICH HAVE B EEN INCLUDED BY ASSESSEE WHICH ARE FAR AWAY FROM THE PRODUCTS MANUFACTURED BY THE ASSE SSEE. IT WAS FURTHER SUBMITTED THAT LD. CIT (A) HAS TAKEN NIC CODE CLASSIFICATION OF 20 03-04 WHICH SHOULD NOT HAVE BEEN TAKEN AS A BASE. RELIANCE WAS PLACED ON THE DECISI ON OF SPECIAL BENCH REPORTED IN 294 ITR 32 AND IN A DECISION REPORTED IN T 10L 2009 376 . ACCORDINGLY IT WAS SUBMITTED THAT INDIAN TONERS & DEVELOPERS LTD. SHOULD HAVE BEEN I NCLUDED. 12. THE LD. COUNSEL OF THE ASSESSEE ON THE OTHER HA ND RELIED UPON THE FINDINGS OF LD. CIT (A). IT WAS FURTHER SUBMITTED THAT IMPOSSIBLE TASK CANNOT BE THRUST UPON ABOUT DATA. 14 REGARDING M/S. RAINBOW INK & VARNISH MFG. CO. LTD., THE ASSESSEE HIMSELF ADMITTED THAT THE DATA WERE AVAILABLE. IT WAS SUBMITTED THAT THE DECISION OF M/S. SONY INDIA PVT. LTD., WHICH HAS BEEN CONSIDERED BY LD. CIT (A) AND ALSO B Y TPO, THERE SHOULD BE DIFFERENCE OF MORE THAN 15% IN THE PRICING FOR ATTRACTING ALP AS HELD IN THE CASE OF SONY INDIA PVT. LTD. ATTENTION OF THE BENCH WAS DRAWN ON THE FINDI NGS OF LD. CIT (A) AT PAGE 50 ONWARDS AND RELIANCE WAS PLACED IN THE CASE OF SONY INDIA. 12.1. IN RESPECT TO M/S. INDIAN TONERS & DEVELOPERS LTD., IT WAS SUBMITTED THAT DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE LD. CIT (A), COPY OF WHICH IS PLACED AT PAGES 83 TO 126 OF THE PAPER BOOK-I, AND LD. CIT (A) HAS CONSID ERED THE SAME. 12.2. REGARDING NIC CODE, IT WAS SUBMITTED THAT OLD DATA CAN BE TAKEN INTO CONSIDERATION WHERE CURRENT DATA ARE NOT AVAILABLE. ATTENTION OF THE BENCH WAS DRAWN ON PAGE 52 OF THE PAPER BOOK. IT WAS ALSO SUBMITTED T HAT TPO HAS NOT LOOKED INTO DETAILS OF ALL THE COMPANIES AS HE HAS TAKEN INTO CONSIDERATIO N THE DETAILS OF ONLY INDIAN TONERS & DEVELOPERS LTD. 13. IN REPLY, THE LD. CIT D/R INVITED ATTENTION OF THE BENCH AT PAGE 8 OF THE ORDER OF TPO. IT WAS FURTHER SUBMITTED THAT 14.26% TRANSACTI ONS ARE FOR ASSESSMENT YEARS 2005-06 WHEREAS LD. CIT (A) HAS MENTIONED THAT THE TRANSACT IONS ARE OF 2008. THEREFORE, FINDINGS OF LD. CIT (A) ARE NOT CORRECT. ATTENTION OF THE BE NCH WAS DRAWN ON PAGE 19 OF ORDER OF LD. CIT (A). IT WAS ALSO SUBMITTED THAT PRICES ARE ALSO NOT THE SAME AS DIFFERENT ITEMS ARE PRODUCED. TPO HAS EXAMINED ALL THE COMPANIES AND TH EN ONLY INDIAN TONERS & DEVELOPERS LTD. WAS PICKED UP. 15 14. IN RESPECT OF GROUND RAISED IN THE CROSS OBJECT ION, THE LD. COUNSEL OF THE ASSESSEE STATED THAT GROUND NO. 1 IS INTER-LINKED WITH GROUN D NO. 1 OF THE DEPARTMENT, THEREFORE, THE SAME ARGUMENTS ARE ADVANCED. 15. THE LD. D/R HAS FAIRLY ACCEPTED THE CONTENTION OF THE LD. A/R. 16. GROUND NO. 2 RELATES TO NOT DISPOSING THE GROUN D RELATING TO COMPARABLE COMPANIES IDENTIFIED BY THE DEPARTMENT. ATTENTION OF THE BENCH WAS DRAWN ON ORDER OF LD. CIT (A) WHERE GROUND TAKEN BY ASSESSEE HAS BEEN REPRODUCED. BY GROUND NO. 6.6 THIS ISSUE WAS RAISED BEFORE LD. CIT (A). HOWEVER, THIS GROUND HAS NOT BEEN DISPOSED OFF, MAY BE FOR THE REASON THAT MAIN GROUND OF THE ASSES SEE AGAINST MAKING ADDITION OF RS. 1.45 CRORES OR ODD WAS ALLOWED BY LD. CIT (A) AT TH AT POINT OF TIME. 17. REGARDING GROUNDS TAKEN IN THE APPEAL AGAINST O RDER OF LD. CIT (A) PASSED UNDER SECTION 154 WHERE LD. CIT (A) HAS REDUCED THE DELET ION BY RS. 40.42 LACS OR ODD, IT WAS SUBMITTED THAT THIS GROUND IS INTER LINKED WITH THE GROUND NO. 6.6 RAISED BEFORE LD. CIT (A) WHICH HAS NOT BEEN DECIDED BY LD. CIT (A). IF GROUND NO. 6.6 IS CONSIDERED, THEN THE ADDITION WHICH IS SUSTAINED BY LD. CIT (A) BY PASSI NG ORDER UNDER SECTION 154 FILED BY DEPARTMENT WILL BE SET OFF. AT THIS POINT OF TIME, THE TRIBUNAL RAISED A QUERY THAT SINCE GROUND NO. 6.6 RAISED BEFORE LD. CIT (A) WHICH HAS BEEN TAKEN AS GROUND NO. 2 NOW IN THE CROSS OBJECTION HAS TO GO BACK TO THE FILE OF L D. CIT (A) TO DECIDE THE SAME AS HE HAS NOW SUSTAINED AN ADDITION OF RS. 40.42 LACS OR ODD, THEN THE LD. A/R FAIRLY STATED THAT THIS ISSUE CAN BE SENT BACK TO THE FILE OF LD. CIT (A) T O DECIDE THE SAME AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH THE P ARTIES I.E. ASSESSEE AND THE AO. 18. THE LD. D/R ALSO DID NOT OBJECT THIS QUERY RAIS ED BY TRIBUNAL AND ANSWERED BY LD. A/R AS DISCUSSED ABOVE. 16 19. IN RESPECT TO GROUND NO. 2 RAISED THROUGH CROSS OBJECTION AND IN RESPECT TO GROUNDS RAISED IN APPEAL NO. ITA 724/JP/2011 WHICH IS AGAIN ST ORDER OF LD. CIT (A) PASSED UNDER SECTION 154 DATED 27.6.2011, WE FIND THAT SINCE GRO UND NO. 2 WHICH WAS GROUND NO. 6.6 RAISED BEFORE LD. CIT (A) HAS NOT BEEN DISPOSED OFF AND, THEREFORE, THESE ISSUES ARE LIABLE TO BE SENT BACK TO THE FILE OF LD. CIT (A) TO DISPO SE OFF TOGETHER. WE FURTHER NOTED THAT WHILE DISPOSING THE RECTIFICATION APPLICATION UNDER SECTION 154 FILED BY AO, NO OPPORTUNITY HAS BEEN GRANTED TO THE ASSESSEE. ACCO RDINGLY, WE RESTORE THE ISSUE RAISED IN THE CROSS OBJECTION THROUGH GROUND NO. 2 AND ALL TH E ISSUES RAISED IN THE GROUNDS OF APPEAL FILED AGAINST ORDER UNDER SECTION 154 PASSED BY LD. CIT (A) TO DECIDE THE SAME AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BE ING HEARD TO BOTH THE PARTIES. WE ORDER ACCORDINGLY. 20. NOW WE WILL TAKE THE REMAINING ADDITION RAISED THROUGH GROUND NO. 1 OF THE DEPARTMENT AND GROUND NO. 1 OF THE CROSS OBJECTION FILED BY ASSESSEE. 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE MATERIAL ON RECORD AND TAKING INTO CONSIDERATION OTHER MATERIAL ON WHICH R ELIANCE HAS BEEN PLACED BY RESPECTIVE PARTIES, WE NOTED THAT TPO HAS MADE ADDITION OF RS. 1,45,52,530/- BY ADOPTING MEAN PROFIT @ 6.5% OF TOTAL REVENUE RECEIPTS SHOWN BY AS SESSEE AT RS. 59.75 CRORES OR ODD. IN THIS WAY THE TPO DEDUCED THE PROFIT OF ASSESSEE AT RS. 3.88 CRORES OR ODD AND AFTER REDUCING OPERATING PROFIT SHOWN BY ASSESSEE AT RS. 2.42 CRORES OR ODD, THE ADDITION OF RS. 1.50 CRORES OR ODD AS STATED ABOVE WAS MADE. THERE AFTER, THE AO PASSED ASSESSMENT ORDER IN VIEW OF THE FINDING OF LD. TPO. THE LD. T PO HAS TAKEN THE MEAN OPERATING PROFIT MARGIN OF 8 COMPARABLES I.E. M/S. DYNAMIC INDUSTRIE S LTD., M/S. JAYSYNTH IMPEX LTD., M/S. LONA INDUSTRIES LTD., M/S. METROCHEM INDUSTRIE S LTD., M/S. ORGANIC COATING LTD., 17 M/S. INDIAN TONERS & DEVELOPERS LTD., M/S. RAINBOW INK & VARNISH MFG. CO. LTD. AND M/S. DIC INDIA LTD. BEFORE ARRIVING AT PROFIT BY AP PLYING ARM LENGTH PRICE ON INTERNATIONAL TRANSACTIONS ON THE BASIS OF MAIN PRO FIT OF 8 ABOVE STATED COMPANIES, THE TPO FOUND THAT M/S. ATUL LTD. WAS NOT COMPARABLE WH EREAS ASSESSEE HAS SHOWN IT AS COMPARABLE. IN FACT, AS PER THE FIGURES AVAILABLE WITH THE ASSESSEE, M/S. ATUL LTD. HAD 14.26% RELATED PARTY TRANSACTION AS A PERCENTAGE OF SALES. THE ASSESSEE HAD RELIED UPON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN CASE OF SONY INDIA PVT. LTD. WHEREIN IT HAS BEEN HELD THAT AN ENTITY CAN BE TAKEN AS UN-CONTROL LED IF ITS RELATED PARTY TRANSACTIONS DO NOT EXCEED 10 TO 15% OF TOTAL REVENUE. HOWEVER, TH E TPO FOUND THAT THIS CANNOT BE TAKEN AS COMPARABLE CASE BECAUSE M/S. ATUAL LTD. WA S A RELATED PARTY AND WAS HAVING 14.26% TRANSACTION AS A PERCENTAGE OF SALES OF RELA TED TRANSACTION AND IT WAS NEARLY 15% AND, THEREFORE, IT WAS HELD THAT SINCE IT IS NEAR 1 5% AND THE DECISION OF TRIBUNAL IN CASE OF SONY INDIA PVT. LTD. CANNOT BE RELIED UPON AND HELD THAT THIS IS NOT A COMPARABLE CASE. 21.1. WE HAVE GONE THROUGH THE PRODUCT OF M/S. ATUA L LTD. AS WELL AS ASSESSEES CASE AND FOUND THAT THEY ARE COMPARABLE BECAUSE OF THE D ECISION OF TRIBUNAL IN CASE OF M/S. SONY INDIA PVT. LTD. THOUGH LD. CIT D/R HAS TRIED TO DISTINGUISH THE FACTS OF THE ASSESSEES CASE AS COMPARED WITH M/S. ATUL LTD. AND HAS STATED THAT LD. TPO WAS CORRECT IN HOLDING THAT BOTH THE COMPANIES ARE NOT COMPARAB LE. THE LD. CIT (A) HAS GIVEN DETAILED REASONING FOR HOLDING THAT BOTH THESE COMP ANIES ARE COMPARABLE. THE LD. CIT (A)S FINDING ARE REPRODUCED SOMEWHERE ABOVE IN THI S ORDER AND THESE FINDINGS REMAINED UNCONTROVERTED. ON TECHNICALITIES, THE TPO AS WELL AS LD. CIT D/R, NOW HERE BEFORE THE TRIBUNAL HAS TRIED TO DISTINGUISH THE FACTS OF BOTH THESE COMPANIES. IN OUR VIEW, A BROAD 18 VIEW HAS TO BE ADOPTED AND IF THE BROAD VIEW IS TAK EN THEN WE SEE NO UNREASONABLENESS IN THE FINDINGS OF LD. CIT (A). 22. THE OTHER COMPANY I.E. M/S. INDIAN TONERS AND D EVELOPERS LTD., THE ASSESSEE CLAIMED THAT THE COMPANY MANUFACTURES TONERS AND DE VELOPERS FOR PHOTOCOPIES, LASER PRINTERS AND DIGITAL PRINTERS. THE SAME WAS NOT CON SIDERED BY THE ASSESSEE TO BE COMPARABLE TO THE PRINTING INKS MANUFACTURED BY ASS ESSEE. HOWEVER, LD. TPO NOTED THAT THE COMPANY M/S. INDIAN TONERS AND DEVELOPERS LTD. AND ASSESSEE HAS SAME NIC CODE I.E. 24222 HENCE THIS COMPANY WAS HELD AS COMPARABL E. THE LD. CIT (A) HAS DISCUSSED THE FACTS OF BOTH THE COMPANIES AND FACTS OF THE ASSESS EES CASE AND FOUND THAT M/S. ATUL LTD. IS A COMPARABLE CASE BECAUSE OF THE DECISION OF TRI BUNAL IN CASE OF M/S. SONY INDIA PVT. LTD. AND IN RESPECT OF M/S. INDIAN TONERS & DEVELOP ERS LTD., IT WAS HELD THAT THIS IS NOT A COMPARABLE CASE BECAUSE THERE WAS VAST DIFFERENCE I N THE PRODUCT MANUFACTURED BY ASSESSEE AND MANUFACTURED BY M/S. INDIAN TONERS & D EVELOPERS LTD. THE LD. CIT (A) FOUND THAT THIS IS ALSO INCORRECT TO SAY THAT BOTH THE COMPANIES HAS SAME NIC CODE I.E. 24222. IT WAS FOUND THAT ASSESSEE COMPANYS NIC CO DE IS 24223 WHEREAS M/S. INDIAN TONERS & DEVELOPERS NIC CODE IS 24222. A LIST OF N IC CODE IS PLACED ON RECORD AND WE FIND THAT NIC CODE OF BOTH THE COMPANIES I.E. M/S. INDIAN TONERS & DEVELOPERS LTD. AND ASSESSEE COMPANY ARE DIFFERENT. 22.1. THE LD. CIT (A) HAS DISCUSSED IN DETAIL WHY M /S. INDIAN TONERS & DEVELOPERS LTD.2 IS NOT COMPARABLE WITH THE FACTS OF THE ASSES SEES CASE AND AGAIN THE FINDING OF LD. CIT (A) HAVE BEEN REPRODUCED SOMEWHERE ABOVE IN THI S ORDER WHICH, IN OUR VIEW, ARE FINDINGS OF FACT. IF THE FINDINGS OF LD. CIT (A) A RE TAKEN INTO CONSIDERATION, WHICH IN OUR HUMBLE VIEW REMAINED UNCONTROVERTED, THEN THE MEAN PROFIT ON THE BASIS OF 8 COMPANIES 19 MENTIONED ABOVE ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. THEREFORE, ARM LENGTH PRICE ADOPTED BY LD. TPO ON INTERNATIONAL TRANSACTI ONS WERE NOT CORRECT. 22.2. HOWEVER, ON APPLICATION UNDER SECTION 154, TH E LD. CIT (A) HAS HELD THAT AN ADDITION OF RS. 40 LACS HAS TO BE SUSTAINED WHICH I S ON ACCOUNT OF OPENING STOCK AND BY RECTIFYING ORDER UNDER SECTION 154 HAS REDUCED THE DELETION BY RS. 40 LACS OR ODD. THE ISSUE IN RESPECT TO DELETION REDUCED BY RS. 40 LACS OR ODD HAS BEEN RESTORED BY US TO THE FILE OF LD. CIT (A) TO DECIDE THE SAME AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS, AS PER ORDER OF LD. CIT (A), NO OPPORTUNITY WAS PROVIDED TO THE ASSESSEE. THEREFORE, WE HOLD THAT THE ORDER OF LD. CIT (A) DELETING THE ADDITION OF RS. 1 CRORE OR ODD WAS CORRECT AND WE CONFIRM THE ORDER TO THAT EXTENT. 23. GROUND NO. 2 IN THE APPEAL OF THE DEPARTMENT DE LETING THE DISALLOWANCE OF RS. 3,09,031/- OUT OF PICNIC AND OTHER EXPENSES. 24. THE LD. D/R PLACED RELIANCE ON THE ORDER OF AO. 25. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 26. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTIC ED THAT IN TOTAL CLAIM FOR WORKMEN AND STAFF WELFARE EXPENSES AT RS. 55,00,553 /- INCLUDES THE EXPENDITURE OF RS. 12,36,123/- INCURRED ON PICNIC, GET TOGETHER AND OT HER WELFARE. ASSESSEE COMPANY WAS REQUIRED TO EXPLAIN THIS EXPENDITURE THAT HOW THE S AME IS INCURRED FOR BUSINESS PURPOSES. THEREAFTER EXPLANATION WAS FILED. HOWEVER, THE AO W AS NOT SATISFIED FULLY. THEREFORE, HE DISALLOWED 1/4 TH OF EXPENDITURE WHICH IS EQUAL TO RS. 3,09,031/-. IT WAS SUBMITTED BEFORE 20 LD. CIT (A) THAT ALL THE EXPENDITURES HAVE BEEN INC URRED BY COMPANY FOR WELFARE OF EMPLOYEES WHICH IS REASONABLE AND BUSINESS NECESSIT Y. RELIANCE WAS PLACED IN CASE OF M/S. S.A. BUILDERS, 288 ITR 1 (SC). AFTER CONSIDER ING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THAT ASSE SSEE DESERVES TO SUCCEED IN THIS GROUND ALSO AS AO COULD NOT POINT OUT A SINGLE INSTANCE WH ERE THE EXPENDITURE WAS NOT INCURRED ON EMPLOYEES AND FOR THEIR WELFARE. IT WAS FOUND T HAT THE EXPENDITURES INCURRED WERE FOR BUSINESS EXPEDIENCY. THEREFORE, THE ENTIRE EXPENDI TURE WAS ALLOWABLE. 27. THE FINDING OF LD. CIT (A) REMAINED UNCONTROVER TED, THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A) WHICH IS, IN OUR VIEW, ARE FINDING OF FACT. ACCORDINGLY WE CONFIRM THE SAME. 28. REMAINING ISSUE IN THE APPEAL OF THE DEPARTMENT IS IN ALLOWING THE GROUND OF APPEAL REGARDING SET OFF OF UNABSORBED DEPRECIATION IN EARLIER YEAR AGAINST INCOME OF CURRENT YEAR FROM OTHER SOURCES. 29. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) AT PAGES 56 AND 57 OF HIS ORDER. THE AO DISALLOWED DEPRECIATION FOR THE REASON THAT THE SAME CANNOT BE ALLOWED TO BE SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST CURRENT YEARS INCOME FROM OTHER SOURCES. THE LD. CIT (A) ALLOWED THE ISSUE IN FAVOU R OF THE ASSESSEE FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF ESC ORTS ELECTRONICS LTD., 258 CTR 23 WHEREIN IT IS HELD THAT BROUGHT FORWARD UNABSORBED DEPRECIATION CAN BE ALLOWED FROM THE CURRENT YEARS INCOME FROM OTHER SOURCES. 21 30. FINDINGS OF LD. CIT (A) IN THIS RESPECT REMAINE D UNCONTROVERTED, THEREFORE, WE CONFIRM THE ORDER OF LD. CIT (A) IN THIS RESPECT AL SO. 31. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND CROSS OBJECTION OF THE ASSESSEE AS WELL AS APPEAL OF THE ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSES. 32. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16 .9.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ACIT, CIRCLE-2, ALWAR. M/S. SAKATA INX (INDIA) LTD., BHIWADI. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 98(3)/JP/2010) BY ORDER, AR ITAT JAIPUR.