VAIBHAV GLOBAL LIMITED,JAIPUR V. DCIT, CC-4, JAIPUR

ITA 1485/JPR/2024

AI Insights

The case involves two appeals by M/s Vaibhav Global Limited against the orders of the Deputy Commissioner of Income Tax, Central Circle-04, Jaipur, concerning the assessment years 2020-21 and 2021-22. The primary issues in the appeals were related to transfer pricing adjustments and the tax implications of a buyback of shares. The Tribunal examined the methods used for determining the arm's length price of international transactions and the applicability of section 115QA concerning the buyback of shares. The Tribunal found that the adjustments made by the Assessing Officer were not justified and that the buyback of shares was in compliance with the regulations as they existed prior to the amendment on 5th July 2019.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705678 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2021-2022
• Other Referred Cases: Sumitomo Corporation India P Ltd Vs CIT, Mitsubishi Corporation India P Ltd Vs CIT, Kusum Healthcare Pvt. Ltd. Vs ACIT, Satyam Venture Engineering Venture P Ltd Vs ACIT, DCIT Vs Indo American Jewellery Limited, Mahati Software P Ltd Vs ACIT, Goldstar Jewellery Ltd Vs CIT, Avnet India Pvt Ltd Vs CIT, Tally Solutions P Ltd Vs ACIT, Checkmate Services P. Ltd Vs CIT, CIT Vs EKL Appliances Limited, CIT Vs Dolphin Builders (P) Ltd, CIT Vs Discovery Estates (P) Ltd, CIT Vs Shree Bhagwati Steel Rolling Mills, CIT Vs PEPSICO INDIA HOLDING PVT. LTD., CIT Vs Sumitomo Corporation India P Ltd, CIT Vs Indo American Jewellery Ltd, CIT Vs Radial International Vs ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH OJHA
• Assessee Lawyers: VINOD KUMAR GUPTA; TREATING; TREATING OUTSTANDING
• Keywords: Business income; Transfer pricing; International transaction; Retrospective amendment; Question of law; Depreciation; Rule of consistency; Document seized; Documents seized; Capital Gains; Search and seizure; Loose papers; Notional interest; Deemed to accrue or arise in india
• Section: 143(3); 142(1); 69C; 92; 92B; 10B; 92C; 92E; 92D; 260A

Judgement Text

" vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 1144/JP/2024 fu/kZkj.k o\"kZ@Assessment Year : 2020-21 M/s Vaibhav Global Limited K-6B, Fateh Tiba, Jaipur cuke Vs. DCIT, Central Circle-04, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACV4679F vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 1485/JP/2024 fu/kZkj.k o\"kZ@Assessment Year : 2021-22 M/s Vaibhav Global Limited K-6B, Fateh Tiba, Jaipur cuke Vs. DCIT, Central Circle-04, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACV4679F vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vinod Kumar Gupta, Adv. jktLo dh vksj ls@ Revenue by : Shri Rajesh Ojha, CIT-DR lquokbZ dh rkjh[k@ Date of Hearing: 23/04/2025 & 29/04/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 30/06/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM The above two appeals were filed by the assessee wherein the above named assessee challenges the two separate orders of assessment dated 2 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 30.07.2024 and 29.10.2024 which was passed by the office of the Deputy Commissioner of Income Tax, Central Circle -4, Jaipur [ for short AO ]. The dispute relates to the assessment year 2020-21 & 2021-22. That order has been passed by the ld. AO after considering the direction of the Dispute Resolution Panel-2, New Delhi [ for short DRP ] vide their order dated 30.06.2024 and 20.09.2024 respectively as per provision of section 144C(5) of the Income Tax Act, 1961 [ for short Act ]. 2. Though these two appeals were argued on the different dates but having similar ground the bench decided to dispose these two appeals by a common order. 2.1 In appeal no. 1144/JP/2024 the assessee has raised the following grounds: - 1 Under the facts and circumstances of the case and in law, the learned A.O. has erred by initiating proceedings and passing order u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 being without jurisdiction and against the statutory provisions. Thus, the resultant order is against the law and deserves to be quashed. 2 Under the facts and circumstances of the case and in law, Ld.AO has erred in assessing the total income of the appellant at Rs. 325,44,82,409/- as against the returned income of Rs. 115,97,35,540/- in the assessment order passed under section143(3) r.w.s. 144C(13) of the Income Tax Act, 1961. 3 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 3 The Ld. TPO and Hon'ble DRP has erred on facts and in law in proposing an adjustment of amount of Rs. 136,31,75,249/- to the income of the appellant on account of alleged difference in Arm's Length Price (ALP) of the international transaction of sale and purchase made to/from Associated Enterprises (AEs) during the relevant previous year and adjustment of Rs. 96,03,898/- to the income of the appellant by treating outstanding receivables as unsecured loans and charging notional interest thereon. Further, the Ld. AO has erred on facts and in law in adjusting the amount of Rs.137,27,79,147/-(136,31,75,249 +96,03,898) to the income of the appellant. 4 Under the facts and circumstances of the case the Ld. AO has erred in making addition of PF payment made u/s 36(1)(va) of Rs. 19,68,509 without considering that the due date for depositing PF was a public holiday. 5 Under the facts and circumstances of the case the Ld. AO has erred by invoking section 115QA of the Act and further erred by charging additional tax of distributed income in relation to buy back of shares of Rs. 71,99,99,211 u/s 115QA of the Act. 6 Under the facts and circumstances of the case and in law, the Ld.AO has erred in incorrectly computing book profits INR 3,25,44,82,409/- after incorrectly adding the impugned TP adjustments and other disallowances required to be made only for purposes of computing income under normal provisions of the Act. As per settled legal principles and provisions of Section 115JB, only certain specified adjustments may be carried out for computing book profits, and hence the above action of Ld.AO is contrary to the provisions of the Act. 7 Under the facts and circumstances of the case and in law, the Ld.AO has erred in computing tax liability in a sense that income which is liable for tax at special rate of tax has been charged at normal rate of tax. Further, the Ld. AO has also erred in not giving credit of FTC while computing tax liability in the current case. Hence the action of the Ld. AO is contrary to the provisions of the Act. 8 Under the facts and in law, the Ld.AO has failed to appreciate the direction of the Hon'ble DRP. 9 Under the facts and in law, the Ld. AO/Ld. TPΟ erred in initiating penalty under section 270A of the Act for alleged under reporting of income. 10 The appellant craves your Honors' indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing. 4 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 11. Due to limitation of space, remaining GOA cannot be added. However, complete GOA have been attached with this appeal. As stated, vide ground no. 11 the assessee vide separate sheet filed the grounds of appeal in the present appeal which reads as under : I. General Grounds: 1. Under the facts and circumstances of the case and in law, the Ld. A.Ο. has erred by initiating proceedings and passing order u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 being without jurisdiction and against the statutory provisions. Thus, the resultant order is against the law and deserves to be quashed. 2. Under the facts and circumstances of the case and in law, the Ld.AO has erred in assessing the total income of the appellant at Rs. 325,44,82,409/- as against the returned income of Rs. 115,97,35,540/- in the assessment order passed under section143(3) r.w.s 144C(13) of the Income Tax Act, 1961. 3. The Ld. TPO and Hon'ble DRP has erred on facts and in law in proposing an adjustment of amount of Rs. 136,31,75,249/- to the income of the appellant on account of alleged difference in Arm's Length Price (ALP) of the international transaction of sale and purchase made to/from Associated Enterprises (AEs) during the relevant previous year and adjustment of Rs. 96,03,898/- to the income of the appellant by treating outstanding receivables as unsecured loans and charging notional interest thereon. Further, the Ld. AO has erred on facts and in law in adjusting the amount of Rs. 137,27,79,147/-(136,31,75,249/- + 96,03,898/-) to the income of the appellant. II. Sale and Purchases made to/from Associated Enterprises (AES): Adjustments of Rs. 136,31,75,249/-. 1. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the economic analysis including the Most Appropriate Method and the filters applied by the appellant in the Transfer Pricing (\"TP\") documentation maintained under section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962 (the Rules) and subsequently applying new filters for the purpose of identification of companies comparable to the appellant. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP failed to discharge the statutory onus to establish that any of the conditions Specified in clause (a) to (d) of Section 92C(3) of the Act has not been satisfied. 5 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 2. Under the facts and circumstances of the case and in law, the Id. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the Transactional Net Margin Method (TNMM) considered by the appellant as the Most Appropriate Method ('MAM') with Operating profit margin/ Operating Expenses ('OP/OE) as the Profit Level Indicator (PLI), without giving any cogent reason. 3. Under the facts and circumstances of the case and in law, the Ld. TΡΟ, Ld. AO and the Hon'ble DRP erred in applying 'Berry ratio' with Operating Profit/Value Added Expenses (OP/VAB) as the PLI under The Transactional Net Margin Method (TNMM) based on conjectures and surmises, without appreciating that the appellant is engaged in manufacturing activities and therefore, purchases and cost of production ought to be included in the cost base, thereby, completely disregarding the facts of the case, the functional profile of the appellant, established legal principles and internationally accepted transfer pricing guidelines. In doing so, the Id. TPO, Ld. AO and the Hon'ble DRP also failed to appreciate that Berry ratio is applied only in specific circumstances, ie. low risk procurement and distributors. Additionally, the Ld. AO has erred in applying 'Berry Ratio' even when in appellant's own case, Berry Ratio was rejected as PLI in the A.Y. 2016-17 & 2017-18 by the Hon'ble ITAT. 4. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in applying “Berrey Ratio” with operating profit / value added expenses (OP/VAB) as the PLI under the Transaction Net Margin Method (TNMM) based on the conjectures and surmises, without appreciating that the appellant is engaged in manufacturing activities and therefore, purchase and cost of production ought to be included in the cost base, thereby completely disregarding the facts of the case, the functional profile of the appellant, established legal principles and internationally accepted transfer pricing guidelines. In doing so, the ld. TPO, Ld. AO and the Hon’ble DRP also failed to appreciate that Berry ratio is applied only in specific circumstances i.e. low risk procurement and distributors. Additionally, the ld. AO has erred in applying ‘Berry Ratio’ even when in appellant’s own case. Berry Ratio was rejected as PLI in the A. Y. 2016-17 and 2017-18 by the Hon’ble ITAT. 5. Under the facts and circumstances of the case and in law, the ld. TPO, Ld. AO and the Hon’ble DRP erred in violating the provisions of Rule 10B(2) of the Rules by rejecting functionally similar comparable Companies identified by the Appellant in its TP documentation and in arbitrarily identifying a new comparable company without conducting a methodical without considering the differences in the functions performed, assets employed, and risks assumed by such comparable company vis-à-vis the Appellant as required in accordance with Rules 10B and 6 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Rule 10C of the rules, thereby restoring to cherry-picking and unsubstantiated selection of the comparable. 6. Under the facts and circumstances of the case and in law, without prejudice to the other grounds, even if TNMM is adopted as the Most Appropriate Method in the given case, ld. TPO, Ld. AO and the Hon’ble DRP erred in not considering Operating Profit / Operating Cost (OP/OC) as the most appropriate PLI instead of berry ratio. 7. Under the facts and circumstance of the case and in law, without prejudice to the above grounds, of berry ratio. Ld. AO, Ld. TPO and Hon'ble DRP erred in incorrectly computing OP/VAE of the Appellant and the alleged comparable companies selected by ld. TPO applying berry ratio and disregarding the Appellant's submission for considering the correct computation of OP/VAE. 8. Under the facts and circumstances of the case and in law, without prejudice to the above grounds, the Ld. AO and the Ld. TPO erred in ignoring Net Operating Margin calculations carried out by the appellant considering Net Operating Margin (Operating Profit/Operating cost or NCP) as the PLI and instead applied Berry Ratio. III. Addition on account of Notional Interest on outstanding receivables: Adjustment of Rs. 96,03,898/-. 1. Under the facts and in law, the Ld. AO and the Ld. TPO erred in making addition of INR 96,03,898/- to the income of the Appellant by considering the receivable outstanding beyond stipulated time of the Appellant as an international transaction' and arbitrarily imputing an interest thereon at 2.056 % plus 400 basis points i.e. 6.056 %. In doing so, the ld. AO / Ld. TPO: a) erred in re-characterizing the same as a 'deemed interest-free unsecured loan' granted by Appellant to the AE during the relevant previous year, b) failed to appreciate that the outstanding receivables are not a separate international transaction' but a 'result of the primary international transaction undertaken by the Appellant 2. Without prejudice, the Ld. AO and the Ld. TPO erred in ignoring the fact that the gross as well as net margin earned by the Appellant from the primary international transaction of ‘sale made to its AEs and related aggregated international transactions’ during the year was much higher than the arim’s length margin of comparable. In doing so, the ld. AO and Ld. TPO failed to appreciate that the impact of outstanding receivable is already subsumed in the higher margins earned by the Appellant. 7 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 3. Without prejudice, the Ld. AO and the Ld. TPO erred in adopting an ad-hoc period of 60 days to determine overdue receivables from the AEs for the purpose of treating such overdue receivables in nature of interest free unsecured loans. In doing so, the Ld. TPO/ AO grossly erred in ignoring that:- a) the Appellant has granted a credit period of up to 180 days to both AEs as well as non-AE third parties; b) the Appellant has not charged interest on delayed receivables from third parties as well; c) the Reserve Bank of India ('RBI') has itself acknowledged the hardships faced by the companies (operating in similar industries) and has revised the foreign remittance guidelines related to credit period norm for jewellery exporters to 180 days; d) not charging any interest on delayed receipts is a generally accepted practice for companies engaged in similar business segment as the Appellant. 4. Without prejudice to above, under the facts and in law, the Ld. TPO, the Ld. AO and Hon'ble DRP erred in arbitrarily & incorrectly imputing an interest of INR 96,03,898/- based on 6 months LIBOR plus a mark-up of 400 basis points. In doing so, the Ld. AO, Ld. TPO and Hon'ble DRP erred in:- a) Adopting an arbitrary & inappropriate mark up of 400 basis points over and above the 6 months LIBOR for calculating the rate of interest; b) not giving benefit of early realization from AEs for computing interest on overdue receivables. 5. Without prejudice to above objections, on facts and in law, the Ld. TPO, Ld. AO and Hon'ble DRP erred in arbitrarily applying a mark-up of 400 bps on USD LIBOR rate which is not warranted specifically considering that in Appellant's own case for A.Y 2013-14, the Hon'ble Tribunal and High Court has restricted the arm's length price to 'LIBOR' for notional interest on loans provided to AEs: a) It is further submitted that in Appellant's own case for AY 2013-14, Hon'ble Income Tax Appellate Tribunal (ITAT) vide order dated 24 April 2018, followed the High Court order in the VGL's case for AY 2009-10 and AY 2010-11 wherein judgement of Delhi High Court in case of Cotton Naturals (1) P. Ltd. (276 CTR 445 [2015]) was relied upon and thereby, restricted the arm's length rate to LIBOR for the notional interest on loans granted to AEs. Accordingly, any mark-up on LIBOR rate is not warranted in the instant case. 8 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT b) Furthermore, the Ld. AO and the Ld. AO had not followed the judgement of the Hon'ble ITAT, Jaipur, in the case of the appellant, for the A.Y. 2017-18. IV. Addition on account of disallowance of PF : 1. Under the facts and circumstances of the case the ld. AO has erred in making the addition of PF payment made u/s. 36(1)(va) of Rs. 19,68,509/- without considering that the due date for depositing PF was a public holiday. V. Addition on account of distributed income of Buy Back: 1. Under the facts and circumstances of the case the Ld. AO has erred in invoking section 115QA of the Act and further erred by charging additional tax of distributed income in relation to buy back of shares of Rs. 71,99,99,211/- u/s. 115QA of the Act. 2. Under the facts and circumstances of the case the Ld. AO has erred by charging additional tax on whole amount of buy back rather than on distributed income as per section 115QA. V. Other Grounds 1. Under the facts and circumstances of the case and in law, the Ld.AO has erred in incorrectly computing book profits at INR 325,44,82,409/-after incorrectly adding the impugned TP adjustments and other disallowances required to be made only for purposes of computing income under normal provisions of the Act. As per settled legal principles and provisions of Section 115JB, only certain specified adjustments may be carried out for computing book profits, and hence the above action of Ld.AO is contrary to the provisions of the Act. 2. Under the facts and circumstances of the case and in law, the Ld.AO has erred in computing tax liability in a sense that income which is liable for tax at special rate of tax has been charged at normal rate of tax. Further, the ld. AO has also erred in not giving credit of FTC while computing tax liability in the current case. Hence the action of the Ld. AO is contrary to the provisions of the Act. 3. Under the facts and in law, the Ld.AO has failed to appreciate the direction of the Hon'ble DRP. 9 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 4. Under the facts and in law, the Ld. AO/ Ld. TPO erred in initiating penalty under section 270A of the Act for alleged under reporting of income. 2.2 In appeal no. 1485/JP/2024 the assessee has raised the following grounds: - 1. The appellant craves your Honors indulgence to add, amend or alter all or any Ground of Appeal before or at the time of hearing 2. Due to limitation of space, remaining GOA are not mentioned. However, all the GOA are attached with this appeal. 3. Under the facts and circumstances of the case and in law, the Ld.AO has erred in assessing the total income of the appellant at Rs.152,04,41,812/- as against the returned income of Rs. 9,82,71,110/- in the assessment order passed under section 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 4. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the economic analysis including the Most Appropriate Method and the filters applied by the appellant in the Transfer Pricing (\"TP\") documentation maintained under section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962 (the Rules) and subsequently applying new filters for the purpose of identification of companies comparable to the appellant. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP failed to discharge the statutory onus to establish that any of the conditions Specified in clause (a) to (d) of Section 92C(3) of the Act has not been satisfied 5. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the Transactional Net Margin Method ('TNMM') considered by the appellant as the Most Appropriate Method ('MAM') with Operating profit margin/ Operating Expenses ('OP/OE') as the Profit Level Indicator ('PLI'), without giving any cogent reason. 6. Under the facts and circumstances of the case and in law, the Ld. Ld. AO and the Hon'ble DRP erred in applying 'Berry ratio' with Operating Profit/Value Added Expenses (OP/VAB) as the PLI under The Transactional Net Margin Method (TNMM') based on conjectures and surmises, without appreciating that the appellant is engaged in manufacturing activities and therefore, purchases and cost of production ought to be included in the cost base, thereby, completely disregarding 6 the facts of the case, the functional profile of the appellant, 10 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT established legal principles and internationally accepted transfer pricing guidelines. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP also failed to appreciate that Berry ratio is applied only in specific circumstances, i.e. low risk procurement and distributors. Additionally, the Ld. AO has erred in applying 'Berry Ratio' even when in appellant's own case, Berry Ratio was rejected as PLI in the A.Y. 2016-17 & 2017-18 by the Hon'ble ITAT. 7. Under the facts and in law, the Ld. TPO has erred in re-calculating the interest on outstanding receivables to Rs. 1,09,25,934/-, Further, the Ld. AO erred in confirming the same in the assessment order. The action of the Ld. TPO and Ld. AO is contrary to the facts and unjustified. 8. Under the facts and circumstances of the case the Ld. AO has erred in making addition of Rs. 3,97,000/- u/s 69C of the Act 8 treating 'Dumb Document', as unaccounted expenses, without any corroborative material. The said addition is against the facts of the case. Hence, deserves to be deleted. 9. Under the facts and circumstances of the case the Ld. AO has erred in making addition of Rs. 2,43,927/- u/s 69C of the Act, contrary to the order of Ld. DCIT-TP- 2(3)(1) and Hon'ble DRP. The said addition is against the facts of the case and illegal. Hence, deserves to be deleted. 10. Under the facts and in law, the Ld. AO/Ld. TPO erred in initiating penalty under section 270A & 271AAC of the Act for alleged under reporting of income. 11. Under the facts and circumstances of the case and in law, the Ld.AO has erred in incorrectly computing book profits at INR 1,52,04,41,812/- after incorrectly adding the impugned TP adjustments and other disallowances required to be made only for purposes of computing income under normal provisions of the Act. As per settled legal principles and provisions of Section 115JB, only certain specified adjustments may be carried out for computing book profits, and hence the above action of Ld.AO is contrary to the provisions of the Act.” The assessee, in addition to the above ground filed along with form no. 36 they have also filed vide separate sheet the following grounds of appeal in the present appeal which reads as under : 1. General Grounds: 1. Under the facts and circumstances of the case and in law, the Ld. A.O. has erred by initiating proceedings and passing order u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 being without jurisdiction and against the statutory 11 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT provisions. Thus, the resultant order is against the law and deserves to be quashed. 2. Under the facts and circumstances of the case and in law, the Ld.AO has erred in assessing the total income of the appellant at Rs. 152,04,41,812/- as against the returned income of Rs. 9,82,71,110/-- in the assessment order passed under section143(3) r.w.s 144C(13) of the Income Tax Act, 1961. 3. The Ld. TPO and Hon'ble DRP has erred on facts and in law in proposing an adjustment of amount of Rs. 141,06,22,743/- to the income of the appellant on account of alleged difference in Arm's Length Price (ALP) of the international transaction of sale and purchase made to/from Associated Enterprises (AEs) during the relevant previous year. Further, the Ld. TPO and Hon'ble DRP and adjustment of Rs. 1,09,25,934/- to the income of the appellant by treating outstanding receivables as unsecured loans and charging notional interest thereon. Further, the Ld. AO has erred on facts and in law in adjusting the amount of Rs. 142,15,48,677/-(141,06,22,743 + 1,09,25,934/-) to the income of the appellant. II. Sale and Purchases made to/from Associated Enterprises (AEs): Adjustments of Rs. 141,06,22,743/-. 1. Under the facts and circumstances of the case and in law, the Ld. TPΟ, Ld. AO and the Hon'ble DRP erred in rejecting the economic analysis including the Most Appropriate Method and the filters applied by the appellant in the Transfer Pricing (\"TP\") documentation maintained under section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962 (the Rules) and subsequently applying new filters for the purpose of identification of companies comparable to the appellant In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP failed to discharge the statutory onus to establish that any of the conditions Specified in clause (a) to (d) of Section 92C(3) of the Act has not been satisfied. 2. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the Transactional Net Margin Method (TNMM) considered by the appellant as the Most Appropriate Method ('MAM') with Operating profit margin/ Operating Expenses (OP/OE) as the Profit Level Indicator ('PLI'), without giving any cogent reason. 3. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in applying 'Berry ratio' with Operating Profit/Value Added Expenses (OP/VAB') as the PLI under The Transactional Net Margin Method (TNMM) based on conjectures and surmises, without appreciating that the 12 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT appellant is engaged in manufacturing activities and therefore, purchases and cost of production ought to be included in the cost base. thereby, completely disregarding the facts of the case, the functional profile of the appellant, established legal principles and internationally accepted transfer pricing guidelines. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP also failed to appreciate that Berry ratio is applied only in specific circumstances, Le. low risk procurement and distributors. Additionally, the Ld. AO has erred in applying Berry Ratio' even when in appellant's own case, Berry Ratio was rejected as PLI in the A.Y. 2016-17 & 2017-18 by the Hon'ble ITAT. 4. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) of the Rules by rejecting functionally similar comparable Companies identified by the Appellant in its TP documentation and in arbitrarily identifying a new comparable company without conducting a methodical without considering the differences in the functions performed, assets employed, and risks assumed by such comparable company vis-à-vis the Appellant as required in accordance with Rules 10B and Rule 10C of the rules, thereby restoring to cherry-picking and unsubstantiated selection of the comparable. 5. Without prejudice, under the facts, even if the final set of comparable companies' proposed by Ld. TPO in the TPO Order are considered, the Ld. AO, Ld. TPO and Hon'ble DRP erred in ignoring Net Operating Margin calculations carried out by the Appeallant considering Net Operating Margin (Operating Profit/ Operating Cost' or 'NCP) as the PLI and instead applied Berry Ratio. 6. Under the facts and in law, without prejudice to the above grounds, the Ld. AO, Ld. TPO and Hon'ble DRP erred in incorrectly computing OP/VAE of the Appellant while applying berry ratio and disregarding the Appellant's submission for considering the correct computation of OP/VAE. III. Addition on account of Notional Interest on outstanding receivables: Adjustment of Rs. 1,09,25,934/-. 1. Under the facts and in law, the Ld. TPO has erred in re-calculating the interest on outstanding receivables to 1,09,25,934/-. Further, the Ld. AO erred in confirming the same in the assessment order. The action of the Ld. TPO and Ld. AO is contrary to the facts and unjustified. 2. Under the facts and in law, the Ld. AO, the Ld. TPO and the Hon'ble DRP erred in making an addition of INR 1,09,25,934/- to the income of the Appellant by 13 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT considering the receivables outstanding beyond stipulated time of the Appellant as an international transaction' and arbitrarily imputing an interest thereon at 0.371% plus 400 basis points, i.e., 4.371%. In doing so, the Ld. AO/ Ld. TPO: a) erred in re-characterizing the same as a 'deemed interest-free unsecured loan' granted by Appellant to the AE during the relevant previous year; b) failed to appreciate that the outstanding receivables are not a separate international transaction' but a 'result' of the primary international transaction undertaken by the Appellant 3. Without prejudice, the Id. AO and the Ld. TPO erred in adopting an ad-hoc period of 60 days to determine overdue receivables from the AEs for the purpose of treating such overdue receivables in nature of interest free unsecured loans. In doing so, the Ld. TPO/AO grossly erred in ignoring that:- a) the Appellant has granted a credit period of up to 180 days to both AEs as well as non-AE third parties; b) the Appellant has not charged interest on delayed receivables from third parties as well; c) the Reserve Bank of India ('RBI') has itself acknowledged the hardships faced by the companies (operating in similar industries) and has revised the foreign remittance guidelines related to credit period norm for jewellery exporters to 180 days; d) not charging any interest on delayed receipts is a generally accepted practice for companies engaged in similar business segment as the Appellant. 4. Without prejudice to above, under the facts and in law, the Ld. TPO, the Ld. AO and Hon'ble DRP erred in arbitrarily & incorrectly imputing an interest of INR 1,09,25,934/- based on 6 months LIBOR plus a mark-up of 400 basis points. In doing so, the Ld. AO, Ld. TPO and Hon'ble DRP erred in:- a) Adopting an arbitrary & inappropriate mark up of 400 basis points over and above the 6 months LIBOR for calculating the rate of interest; b) not giving benefit of early realization from AEs for computing interest on overdue receivables. 5. Without prejudice to above objections, on facts and in law, the Ld. TPO, Ld. AO and Hon'ble DRP erred in arbitrarily applying a mark-up of 400 bps on USD LIBOR 14 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT rate which is not warranted specifically considering that in Appellant's own case for A.Y 2013-14, the Hon'ble Tribunal and High Court has restricted the arm's length price to 'LIBOR' for notional interest on loans provided to AEs: a) It is further submitted that in Appellant's own case for AY 2013-14, Hon'ble Income Tax Appellate Tribunal (ITAT) vide order dated 24 April 2018, followed the High Court order in the VGL's case for AY 2009-10 and AY 2010-11 wherein judgement of Delhi High Court in case of Cotton Naturals (1) P. Ltd. (276 CTR 445 [2015]) was relied upon and thereby, restricted the arm's length rate to LIBOR for the notional interest on loans granted to AEs. Accordingly, any mark-up on LIBOR rate is not warranted in the instant case. b) Furthermore, the Ld. AO and the Ld. AO had not followed the judgement of the Hon'ble ITAT, Jaipur, in the case of the appellant, for the A.Y. 2017-18. IV. Addition on account of unexplained Expenses of Rs. 6,40,927: 1. Under the facts and circumstances of the case the Ld. AO has erred in making addition of Rs. 3,97,000/- u/s 69C of the Act treating 'Dumb Document', as unaccounted expenses, without any corroborative material. The said addition is against the facts of the case. Hence, deserves to be deleted. 2. Under the facts and circumstances of the case the Ld. AO has erred in making addition of Rs. 2,43,927/- u/s 69C of the Act, contrary to the order of Ld. DCIT-TP- 2(3)(1) and Hon'ble DRP. The said addition is against the facts of the case and illegal. Hence, deserves to be deleted. V. Other Grounds 1. Under the facts and circumstances of the case and in law, the Ld.AO has erred in incorrectly computing book profits at INR 1,52,04,41,812/-after incorrectly adding the impugned TP adjustments and other disallowances required to be made only for purposes of computing income under normal provisions of the Act. As per settled legal principles and provisions of Section 115JB, only certain specified adjustments may be carried out for computing book profits, and hence the above action of Ld. AO is contrary to the provisions of the Act. 2. Under the facts and circumstances of the case and in law, the Ld.AO has erred by not giving credit of FTC while computing tax liability in the current case and further erred by applying normal rates on income liable to be taxed at special Rates. Hence the action of the Ld. AO is contrary to the provisions of the Act. 15 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 3. Under the facts and in law, the Ld.AO has failed to appreciate the direction of the Hon'ble DRP. 4. Under the facts and in law, the Ld. AO/ Ld. TPO erred in initiating penalty under section 270A & 271AAC of the Act for alleged under reporting of income. 5. The appellant craves your Honors indulgence to add, amend or alter all or any Ground of Appeal before or at the time of hearing. 2.3 Since these detailed issue wise grounds is taken by the assessee we deal with those grounds one by one. First, we will deal with the appeal of the assessee in ITA no. 1144/JP/2024. 3. Succinctly, the fact as culled out from the records is that the assessee is a company involved in the business of manufacturing and exporting colored gems stones and studded jewellery with precious and semi-precious stones. The assessee filed its return of Income for A.Y. 2020-21 at total income of Rs. 1,15,97,35,540/- on 10.2.2021. The case was selected for scrutiny under CASS and notice u/s 143(2) was issued on 29.6.2021 and served on the assessee. Thereafter, the case was referred to Transfer Pricing Office [ for short TΡΟ ] u/s 92CA(1) on 6.10.2022 after approval of Pr. Commissioner of Income Tax (Central), Jaipur. The draft order of TPO was received by the ld. AO on 30.07.2023. The ld. AO passed the draft order on 26.09.2023. Subsequently the assessee filed the 16 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT objections before the Dispute Resolution Panel (DRP) and in turn DRP passed direction on 30.06.2024. 3.1 As is evident from the record that M/s Vaibhav Global Limited (VGL) was incorporated in 1989 and is the parent entity of the Vaibhav Group with its registered and corporate offices situated in Jaipur. The company is engaged in the business of manufacturing and exports of colored gems stones and studded jewellery with its manufacturing units located at Jaipur and Mumbai. It processes stones, diamonds and other raw materials into rings, bracelets, pendants, etc. and exports to its associated enterprises located in USA Hong Kong. Thailand UK, Japan and Indonesia. 3.2 The ld. AO has tabulated the International and specified domestic transactions that have been entered into by the assessee. The TP report has described the functions of the assessee. The same were analyzed by the ld. AO. After considering the comparable and filters applied which are found appropriate and inappropriate considering the profile of the company and justification given for these Specified Domestic Transactions and International Transactions, ld. AO determined the Arm’s length price of the transaction which he proposed to recast after taking the Operating Profit 17 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT [OP] / Value adding Expenses [VAE] margin calculated by him. Ld. AO noted that the median margin of the comparable was more than assessee’s margin and therefore, he noted that the transactions are not at arm's length. Therefore, he asking the assessee as to why the internation transactions should not bench marked using the margin of 153.53 % rather at 37.43 %. 3.3. On the issue of interest receivables ld. AO upon examination of the balance sheet noted that the payment of invoices raised by the assessee was not received withing the stipulated time as provided in assessee’s agreement with AE. Since the receivables outstanding are from foreign entities, the interest rate proposed to be charged based on the prevailing LIBOR rate plus 400 basis points. The assessee was issued a show cause notice asking them to explain as to why an adjustment should not be made on account of interest on trade receivables. Ld. AO after considering the submission of the assessee and judicial decision he noted that 6-month LIBOR plus 400 basis points is the most appropriate CUP. After considering the submission ld. AO held that interest rate of LIBOR + 400 basis points i.e. 2.056 % + 400 bps = 6.056 % is arm’s length level of interest that needs to be charged for the deemed loan advanced for the outstanding period 18 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT during the current financial year and thereby he derived the amount at Rs. 96,03,898/-. 3.4 Thus, the final cumulative adjustment made on the issue are tabulated here in below : S. No. Nature of international transaction Adjustment u/s 92CA (in Rs.) 1 Sale 1,36,31,75,249/- 2 Interest on Receivables 96,03,898/- Total 1,37,27,79,147/- Ld. AO added a sum of Rs. 1,37,27,79,147/- added as an adjustment u/s 92CA of the Act. 3.5 While assessment proceeding ld. AO based on the tax audit report filed by the assessee noted there has been late payment of PF of amount of Rs. 19,68,509/- which is required to be disallowed. 3.6 Ld. AO on perusal of the ITR and financial statements of assessee noticed that an amount of Rs. 72,75,94,000/- has been paid on account of Buy Back of Shares to the tune of Rs. 71,99,99,211/-. Ld. AO noted that as there has been an amendment vide Finance Act, 2019 section 115QA has 19 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT been enacted and the assessee was required to pay the tax on distributed income to the tune of Rs. 71,99,99,211/-. Therefore, the assessee was found in violation of section 115QA of Income Tax Act, 1961 and thereby a show cause notice was issued to the assessee on 15.09.2023 to show cause as to why the abovementioned transactions should not be added to his total income. The assessee submitted its explanation on the issue that the company VGL's case falls under proviso to section 115QA because substantial activities were already completed before 5.7.2019. Assessee has requested for a positive and liberal perspective. Ld. AO noted that the reply of the assessee considered but considering the plain reading of the section 115QA, it can be seen that earlier, the amount distributed as buy- back of shares was chargeable to capital gains in the hands of the shareholders and not charged to the company which used to result into income tax payable at lower rates. This was used by the companies as a tool to avoid taxation and to distribute surplus income amongst shareholders. As an anti-tax avoidance measure, the government introduced the provision of section 115QA under the Act vide the Finance Act, 2013, initially applicable only to unlisted companies. However, the Union Budget 2019 enhanced the bracket of this provision to the listed 20 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT companies as well for all buybacks after 5th July, 2019. Ld. AO noted that the key aspect of applicability of this section is the proviso to the section which says that the companies which has made public announcement of buyback of its share on or before 5th July, 2019 will not require to pay taxes on distributed income. Based on that provision of law he noted that the Act put two points:- (i) public announcement by the company in accordance with the provisions of SEBI (Buy Back of securities) Regulations, 2018 Act, and (ii) public announcement before 5th July 2019 by the company. Record shows that M/s Vaibhav Global Limited has made ‘Public Announcement’ for buyback of its shares on 07.08.2019 as per the procedure laid down under SEBI (Buyback of Securities) Regulations, 2018. However, considering all the above facts and circumstances, ld. AO holds that the company made a public announcement as per the SEBI’s guidelines on 07.08.2019 i.e. after 05.07.2019, the cutoff date provided under section 115QA of Act and therefore, the company is liable to pay tax on the distributed income of Rs. 71,99,99,211/-. 3.7 Based on these observations, ld. AO prepared the draft order dated 26/09/2023 proposing the following additions: 21 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Transfer pricing adjustment u/s 92CA Rs. 1,37,27,79,147/- Late deposit of PF amount disallowance u/s 36(1)(va) Rs. 19,68,509/- Distributed income u/s 115Q (to be taxed @ 20%) Rs. 71,99,99,211/- 4. The assessee has filed objections to the draft assessment order in Form no. 35A on 25.10.2023 before the Dispute Resolution Panel [DRP]. The DRP vide order dated 30.06.2024 given the direction u/s 144C(5) of the Act to the ld. AO. Ld. AO considering that direction, passed a final order on 30.07.2024 and against that order the assessee is in appeal before this tribunal on the grounds as reiterated herein above in para 2 above. 5. Apropos to the grounds of appeal raised by the assessee ld. AR of the assessee filed detailed written submissions which reads as under : Brief General Facts: 1. The appellant is a company carrying on the business of manufacturing and export of colored gems stone and studded Jewellery. 2. It has filed its return of income, declaring total income of Rs. 115,97,35,540/-, on 10.02.2021 which was selected for scrutiny and notices u/s 143(2) and 142(1) were issued. 3. During the course of assessment, a reference to the Transfer Pricing Officer u/s 92CA(1) of the Act was made on 06.10.2022 for determining the arms’ length price of international transactions undertaken by the appellant during the year under consideration. 4. During the course of proceedings before Ld. TPO, transfer pricing documents, so maintained by the appellant, were submitted for perusal and consideration. 5. The appellant has been using the Cost-Plus Method (‘CPM’) and Gross Profit/Cost of 22 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Production (‘GPM/COP’) as the appropriate profit level indicator (‘PLI’) for benchmarking of its international transactions. 6. However, the Ld. TPO, without giving any cogent reason, rejected the PLI adopted by the appellant viz GPM/COP thereby rejecting CPM as the most appropriate method adopted by the appellant and arbitrarily proceeded to apply Berry ratio i.e. Operating profit/ Value Adding Expenses (‘OP/VAE’) as appropriate PLI to benchmark VGL’s international transactions. 7. The Ld. TPO rejected 27 out of 31 of comparable companies, selected by the appellant, and undertook a fresh benchmarking by applying arbitrary filters and selecting fresh set of comparable without complying the specific direction of the DRP. 8. The TPO, vide order dated 30.07.2023, stated that the median OP/VAE of the comparable is proposed to be taken at 136.78% and using the same, arms’ length revenues of the appellant were determined at Rs. 567,00,24,249 /- as against reported operating revenues of Rs. 430,68,49,000/- resulting in a difference of Rs.136,31,75,249/- for which an adjustment u/s 92CA of the Act has been made. 9. In addition to the above, adjustment and addition was also proposed on account of interest on receivables and disallowance of PF of Rs.96,03,898/- and Rs.19,68,509/- respectively. 10. Before the final order, as stipulated under the provisions of the Act, a draft order was passed, vide order dated 26.09.2023, against which appellant filed objections, u/s 144C(2), before the Hon’ble DRP. Ld. DRP passed its direction vide order dated 30.06.2024 and confirmed the adjustments so proposed by the Ld. TPO. 11. Final assessment order, u/s 143(3) r.w.s. 144C(13), dated 30.07.2024, was passed on 30.07.2024 wherein following additions, for the year under consideration, were made: Particulars Addition (Rs.) Transfer Price Adjustment 137,27,79,147/- Distributed Income u/s 115QA 71,99,99,211/- Disallowance of PF amount 19,68,509/- Total Addition 209,47,46,867/- 12. Aggrieved with the final assessment order, the appellant filed appeal before your Honors. Grounds of Appeal: 23 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT I. General Grounds: 1. Under the facts and circumstances of the case and in law, the learned A.O. has erred by initiating proceedings and passing order u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 being without jurisdiction and against the statutory provisions. Thus, the resultant order is against the law and deserves to be quashed. 2. Under the facts and circumstances of the case and in law, Ld.AO has erred in assessing the total income of the appellant at Rs.325,44,82,409/- as against the returned income of Rs. 115,97,35,540/-- in the assessment order passed under section143(3) r.w.s 144C(13) of the Income Tax Act, 1961. 3. The Ld. TPO and Hon’ble DRP has erred on facts and in law in proposing an adjustment of amount of Rs. 136,31,75,249/- to the income of the appellant on account of alleged difference in Arm’s Length Price (ALP) of the international transaction of sale and purchase made to/from Associated Enterprises (AEs) during the relevant previous year and and adjustment of Rs. 96,03,898/- to the income of the appellant by treating outstanding receivables as unsecured loans and charging notional interest thereon. Further, the Ld. AO has erred on facts and in law in adjusting the amount of Rs.137,27,79,147/-(136,31,75,249 + 96,03,898) to the income of the appellant. Submission: General in nature. Hence not pressed. II. Sale and Purchases made to/from Associated Enterprises (AEs): Adjustments of Rs. 136,31,75,249/-. 1. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the economic analysis including the Most Appropriate Method and the filters applied by the appellant in the Transfer Pricing (\"TP\") documentation maintained under section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 (the Rules) and subsequently applying new filters for the purpose of identification of companies comparable to the appellant. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP failed to discharge the statutory onus to establish that any of the conditions Specified in clause (a) to (d) of Section 92C(3) of the Act has not been satisfied. 2. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the CPM considered by the appellant as the Most Appropriate Method with GP /COP as the PLI, without giving any cogent reason. 3. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon’ble DRP erred in not appreciating that CPM has consistently been accepted by the revenue authorities in the prior years as the most appropriate method with GP /COP as the PLI and there being no change in the facts and Circumstances of the current year vis-à-vis prior years, the Ld. TPO has disregarded the Rule of consistency’. Additionally, the Ld. A.O and the Ld. TPO has erred in not appreciating that CPM has been upheld as the Most 24 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Appropriate Method in appellant’s own case, by Hon’ble ITAT, in A.Y. 2016-17 and A.Y. 2017-18. 4. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in applying ‘Berry ratio’ with Operating Profit/Value Added Expenses (OP/VAB') as the PLI under The Transactional Net Margin Method (TNMM) based on conjectures and surmises, without appreciating that the appellant is engaged in manufacturing activities and therefore, purchases and cost of production ought to be included in the cost base. thereby, completely disregarding the facts of the case, the functional profile of the appellant, established legal principles and internationally accepted transfer pricing guidelines. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP also failed to appreciate that Berry ratio is applied only in specific circumstances, i.e. low risk procurement and distributors. Additionally, the Ld. AO has erred in applying ‘Berry Ratio’ even when in appellant’s own case, Berry Ratio was rejected as PLI in the A.Y. 2016-17 & 2017-18 by the Hon’ble ITAT. 5. Under the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) of the Rules by rejecting functionally similar comparable Companies identified by the Appellant in its TP documentation and in arbitrarily identifying a new comparable company without conducting a methodical without considering the differences in the functions performed, assets employed, and risks assumed by such comparable company vis-a-vis the Appellant as required in accordance with Rules 10B and Rule 10C of the rules, thereby restoring to cherry-picking and unsubstantiated selection of the comparable. 6. Under facts and circumstances of the case and in law, without prejudice to the other grounds, even if TNMM is adopted as the Most Appropriate Method in the given case, Ld. TPO, Ld. AO and Hon’ble DRP erred in not considering Operating Profit/ Operating Cost (OP/OC) as the most appropriate PLI instead of berry ratio. 7. Under the facts and circumstances of the case and in law, without prejudice to the above grounds, of berry ratio. Ld. AO and The Hon'ble DRP erred in incorrectly computing OP/VAE of the Appellant and the alleged comparable companies selected by Ld. TPO applying berry ratio and disregarding the Submission for considering the correct computation of OP/VAE. 8. Under the facts and circumstances of the case and in law, without prejudice to the above grounds, the Ld. AO and the Ld. TPO erred in ignoring Net Operating Margin calculations carried out by the appellant considering Net Operating Margin (Operating Profit/Operating Cost or NCP) as the PLI and instead applied Berry ratio. Brief Facts: A. Summary of international transactions and benchmarking approach adopted by the 25 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT appellant in its TP Documentation: 1. Details of sale made by the appellant company to its AEs and other unrelated parties: Details of Sale made to Amount (Rs.) Percentage Associated Enterprises 385,87,97,000/- 89.60% Other Unrelated Parties 44,80,52,000/- 10.40% Total 430,68,49,000/- 100.00% 2. Details of purchased made by appellant from its AEs and other unrelated parties were as under: Details of Purchases made from Amount (Rs.) Percentage Associated Enterprises 51,45,11,000/- 17.37% Other Unrelated Parties 244,68,96,000/- 82.63% Total 296,14,07,000/- 100.00% 3. Following tables summarizes the results of the economic analysis relied upon by the appellant: International Transaction Assessee’s GP/COP Arm’s Length Price (Three Year Weighted Average of Comparable) Sales of gem stones, studded Jewellery and other product to AEs. 15.95% 35th to 65th percentile = 11.49% to 19.78% Median = 14.84% Purchase of Gem stones, roughs, diamonds, other raw material from AEs. 4. After detailed review of functions performed, risk assumed and assets employed along with an understanding of nature of services rendered by each comparable company was undertaken and following 31 companies were identified, by the appellant, as functionally comparable to VGL: 26 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Sr. No. Company Name Weighted Average GPM (%) 1. AVR Swarnamahal Jewelry Pvt Ltd. 12.19% 2. Azure Jouel Pvt Ltd. 47.71% 3. Banaras Beads Ltd. 120.71% 4. Concept Images Pvt Ltd. 1.45% 5. Creative Gems & Jewellery Ltd 18.99% 6. Darshan Orna Ltd. 2.70% 7. Golkunda Diamonds & Jewellery Ltd. 14.66% 8. GRT Jewellers India Pvt Ltd 11.87% 9. Inter Gold India Pvt Limited 32.73% 10. Jashan Jewels Pvt Ltd. 45.69% 11. Kalyan Jewellers India Pvt Ltd. 19.78% 12. Kanani Industries Ltd. 3.46% 13. Kays Jewels Pvt Ltd. 18.91% 14. KGK Creations (India) Pvt Ltd. 25.09% 15. Lalithaa Jewellery Mart Pvt Ltd 8.17% 16. Laxmi Diamond Pvt Ltd 14.84% 17. Mohammed Khan Jewellers Pvt Ltd. 17.90% 18. Moksh Ornaments Ltd. 4.16% 19. PC Jeweller Ltd. 12.39% 20. Rohit Jewellers Pvt Ltd. 6.44% 21. Shantivijay Jewels Ltd. 18.80% 22. Sovereign Diamonds Ltd. 25.74% 23. Swarnasarita Gems Ltd. 3.81% 24. Thangamayil Jewellery Ltd. 11.49% 25. Titan Company Ltd. 36.59% 26. Tribhovandas Bhimji Zaveri Ltd. 24.88% 27. Uday Jewellery Industries Ltd. 9.48% 28. Zel Jewellers Ltd. 23.20% 29. Zodiac-Jrd-Mkj Ltd. 7.45% 30. Tiara Jewels Pvt Ltd. 6.55% 31. Suashish Diamonds Ltd 67.83% 27 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Median 14.84% 5. At the outset, it is submitted that the issue under consideration is squarely covered by the decision of Hon’ble Bench, Jaipur in appellant’s own case for assessment year in AY 2016- 17 in ITA No. 97/JP/2021 vide order dated 07.02.2022 and A.Y.: 2017-18 and ITA(TP) No. 4/JP/2022 vide order dated 05.06.2024 (PBP:1 - 116). 6. Since, the facts of the decision of A.Y. 2016-17 and 2017-18 are same, we are hereinbelow producing submission with regard to the analysis of the findings made by Ld.AO and TPO in the current year vis. a vis. Adjudicated by Hon’ble Bench in ITA No. 97/JP/2021 for A.Y. 2016-17: a) Method adopted, by the appellant, as PLI: (i) Method adopted in A.Y. 2016-17 is GPM/COP method (Page-21, Para-19 of order of Hon’ble Bench) (ii) Method adopted in the assessment year under question is also GPM/COP method (Page-8, Point no. 2 of draft assessment order) (iii) Thus, in the both the years the same method as PLI has been adopted. b) Method opted by Ld. TPO: (i) Method adopted by TPO in A.Y. 2016-17 is OP/VAE. (Page-21, Para-19 of order of Hon’ble Bench) (ii) Method adopted by TPO in assessment year under question is also OP/VAE. (Point No. 9; Page 26 of TPO) (iii) Thus, in principle in A.Y. 2016-17 and in the year under consideration, TPO has taken the same action and consequent thereto adjustments have been made. c) Findings of Hon’ble Bench in the case of A.Y. 2016-17, facts discussed therein vis. a vis. fact of the assessment year under consideration: (i) Para-19: discussion about the method adopted by the assessee vis a vis adopted by TPO. As mentioned above, against the GPM/COP as PLI, TPO proceeded to opt OP/VAE as PLI. (ii) Para-20 - 24: discussion about OECD transfer pricing guidelines, United Nation Practical Manual on Transfer Pricing for developing countries (2017) and other judicial precedents relied upon the appellant. In this assessment year under question also, we rely upon the discussed judicial precedents, provisions and legislature/enactments. 28 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT (iii) Para-25: discussion upon the profile of the assessee company as stemming out from the Transfer Pricing Report. In this regards Para 2 of the TP Report of the assessment year under consideration is reproduced below clearly showing that functions and activities of the assessee company are exactly same as preceding assessment years decided by Hon’ble ITAT. “2. Profile of the Assessee Company: As per your TP submission, M/s Vaibhav Global Limited Vaibhav Global Ltd. (“VGL”), incorporated in 1989, is the parent entity of the Vaibhav Group with its registered and corporate offices situated in Jaipur. The company is engaged in the business of manufacturing and exports of colored gems stones and studded jewellery with its manufacturing units located at Jaipur and Mumbai. It processes stones, diamonds and other raw materials into rings, bracelets, pendants, etc. and exports to its associated enterprises located in U.S.A., Hong Kong, Thailand, UK, Japan and Indonesia”. (iv) Para-26: In this para reference has been made to the findings of Ld. Lower authorities affirming the fact that assessee company is engaged in manufacturing. It is important to note that similar findings have been made for the assessment year under consideration wherein at Page-1 of final assessment order dated 30.07.2024 it has been clearly mentioned that “the assessee is a company involved in the business of manufacturing and exporting of colored gems stones and studded jewellery with precious and semi-precious stones”. Similar finding has also been made by the DRP in point no. 3 at page 3 of its order dated 30.06.2024 which reads as under: “it is engaged in the business of manufacturing and exporting of colored gems stones and studded fashion jewelry ”. (v) Para-27: discussion about nature of functions performed, assets employed and risk undertaken by the assessee company. Please note that there is no change in the same in the current year, accordingly, appellant is covered by the finding made by Hon’ble Bench made at Para-27. (vi) Para-28: During the assessment year under consideration, the nature of international transactions undertaken pertains to purchase/sale to/from related entities similar to A.Y. 2016-17. In the assessment year under consideration, the assessee has carried out the independent benchmarking analysis with independent third party comparable. (vii) Para-31: The method of calculation of GPM in A.Y. 2016-17 and the assessment year under consideration is similar. The GP/COP shown by the assessee, in the year under consideration, was 15.43% as against 15.62% shown by the appellant in the A.Y. 2016-17. 29 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT In the assessment year under consideration the appellant has shown followed the same method to compute GP/COP: Particulars Amount as on 31.03.2020 (in crores) Sales (A) 422.67 Tota Cost of Production (B) 366.17 Gross Profit (C = A – B) 56.50 GP/COP (C/B) 15.43% Thus, based on the above, since CPM with GP/COP as the PLI has been accepted as the most appropriate method by the Hon’ble Tribunal for the AY 2016-17, the Ld. TPO as well as the Ld. AO erred in not accepting the same for the current Assessment year. (viii) Para-33 and 34: a) In the current case, the reasoning adopted by the TPO, in point no. 2 at page 5 of TPO order, to select OP/VAE (Berry Ratio) as the PLI, is that since the appellant is purchasing from related parties and selling to related parties, hence both cost and revenue sides are tainted. The DRP has also upheld, in point no. 3.4 at page 11 of its order, the reasoning so adopted by the TPO. The same identical findings were made by the Ld. AO and DRP in the A.Y. 2016-17 and 2017-18 also. b) To justify the validity of application of berry ratio, Ld. DRP has placed its reliance on the decision of Hon’ble Delhi High Court in the case of Sumitomo Corporation 30 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT India P Ltd Vs CIT (2016) 71 taxmann.com 290 (Delhi HC). c) In this regard, reference in invited to para 33 and 34 of the order of the Hon’ble, ITAT wherein the Hon’ble ITAT explicitly stated that the judgement of Sumitomo (supra) does not support the case of the Revenue rather the appellant. Since, there being no change in facts and circumstances, the case of appellant is squarely covered by the decision arrived at by the Hon’ble Bench at Para-33 and 34. xi) Para 35: a) As far as the contention of the Ld. TPO and DRP about purchase and sales being tainted, is concerned, the Ld. TPO has failed to appreciate that the appellant purchases raw material, such as Gems, colored stones etc. primarily from unrelated third parties. However, on certain occasions, on need basis, the also purchases, such materials from its AEs. During the year under consideration, purchases from AEs constitute merely 17.37% of its total purchases besides purchases from other entities. b) Further, it is to be noted that since the appellant is a manufacturer and exporter, it processes such raw material in its manufacturing facilities and thereafter, export them to its associated enterprises or unrelated third parties. Therefore, it carries out significant manufacturing and processing operations on raw materials procured by it. Hence, the appellant is not in the business of trade intermediary where it buys from its AEs and sells to its AEs rather a manufacturer who further processes the goods procured before selling them. Hence, the facts of the case have been mis-conceptualized by the lower authorities.. c) Since the facts were similar in A.Y. 2016-17, the Hon’ble ITAT stated that the approach adopted by Ld. TPO to be bereft of factual position of the appellant and is not in consonance with the approach suggested by OECD and the UN. Therefore, rejected the contention of the Ld. TPO and DRP that berry ratio is applicable in the case of the appellant. xii) Para-36 and 37: Hon’ble ITAT has recorded a finding apropos comparable companies selected by TPO and their weighted average PLI using the GP/COP method. The finding so made by Hon’ble Bench is reproduced hereunder: 31 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT In the case in hand, following comparable companies were identified, by Ld. TPO, for benchmarking: S.No. Comparable Company Three Year Weighted Average GPM 1. Classic Ornaments Pvt. Ltd. 2.52% 2. Suvarna Shilpi Jewellers Pvt. Ltd. 3.04% 3. Master Chain Pvt. Ltd. 3.17% 4. Karp Impex Ltd. 8.84 5. Uday Jewellery Industries Ltd. 11.43% 6. Golkunda Diamonds & Jewellery Ltd. 13.68% 7. Inter Gold (India) Pvt. Ltd. 31.12% 8. Azure Jouel Pvt. Ltd. 49.12% 32 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Median 9.99% Assessee’s Gross Margin 15.43% Without prejudice to anything stated in above para and without any admission, even otherwise also perusal of the comparable relied upon by the Ld. TPO shows that their median GPM comes to 9.99% which is lower than the GPM of 15.43% shown by the appellant, which makes it evident that transactions with the associated enterprises have been entered at arm’s length price. xiii) Further, we are also submitting comparative analysis of the facts present in the A.Y.:2016-17 vis-a-vis facts present in the assessment year under consideration. a) Method adopted as PLI: Particular A.Y. 2016-17 A.Y. 2020-21 Method as per appellant GPM/COP (Page-21, Para-19 of ITAT Order) GPM/COP (Page-45, Point-2 of AO Order) Method as per Revenue OP/VAE (Page-21, Para-19 of ITAT Order) OP/VAE (page-45, Point-2 of AO Order) b) Nature of business of the appellant company: Particulars A.Y 2016-17 AY 2020-21 Nature/Profile Export Manufacturer (Para 27; Page-38 of ITAT Order) Export Manufacturer (Point I of AO) Profile of assessee company as per findings of lower authorities Manufacturer (Para 26; Page-37 of ITAT Order) Manufacturer (Page 2, Point 3 of AO) xiv) The appellant possesses all the characteristics of a routine manufacturer performing all the entrepreneurial functions which is duly corroborated by its financial statements. In this regard, we are also producing extracts of Financial Statements 33 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT depicting characteristics of a manufacturer: Fixed assets: S. No. Name of Assets Balance as on 31.03.2016 Balance as on 30.03.2020 A. Tangible Assets Freehold Land 48,94,908 Leasehold Land 3,51,56,343 34,24,000 Building 21,50,47,894 19,50,48,304.41 Plant & Machinery 18,79,50,445 21,91,29,234.95 Electric Installation 7,55,77,605 5,77,98,634.61 Furniture & Fixtures 2,19,30,577 1,87,25,272.70 Office Equipment 1,52,02,246 1,48,03,488.72 Computer 5,55,71,870 3,83,76,235.81 Vehicles 85,46,685 66,05,500.58 B. Intangible Assets Computer Software 1,97,27,351 6,66,98,129.05 Total 63,96,05,924 62,06,08,800.83 C. Capital Work In Progress 2,82,05,679 0.00 Total 66,78,11,603 62,06,08,800.83 Inventories Particulars A.Y. 2016-17 A.Y. 2020-21 Materials-in-process 114,71,78,872 91,64,84,305.89 Semi-Finished Goods 9,48,14,854 1,20,71,502.96 Finished Goods 6,18,62,091 12,73,03,920.62 34 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Stores and Consumables 2,62,37,152 1,48,24,867.08 Total 133,00,92,969 107,06,84,596.55 Revenue From Operations: Particulars A.Y. 2016-17 A.Y. 2020-21 Sale of Products: Export Sales 323,27,84,983 398,04,57,709 Domestic Sales 36,95,49,715 31,71,56,031 Other Operating income 37,11,679 92,35,074 Total 360,60,46,377 430,68,48,813.91 Sale of Products: Particulars A.Y. 2016-17 A.Y. 2020-21 Gemstones 5,62,51,029 91,59,60,060 Jewellery 286,46,93,753 264,26,19,853 Life Style Products 14,98,67,046 23,37,76,113 Diamonds 2,52,63,600 50,52,57,714 Total 360,23,34,698 429,76,13,739 Other Expenses Manufacturing Expenses Particulars A.Y. 2016-17 A.Y. 2020-21 Job Work Charges 29,71,74,362 36,22,29,734.05 Stores and Consumables 5,64,85,051 4,71,13,477.01 35 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Power and Fuel 3,57,87,155 4,36,33,845.24 Repairs and Maintenance - Plant and machinery 1,22,48,322 82,78,559.53 Other Manufacturing/direct Expenses 1,32,81,415 1,56,24,705.16 Total 41,49,76,305 47,68,80,320.99 Ratio of Sales to/Purchase from AEs Particulars A.Y 2016-17 A.Y 2020-21 Sales to AEs 88.34% 89.60% Sales to Non-AEs 11.66% 10.40% Purchase from AEs 21.09% 17.37% Purchase from Non- AEs 78.91% 82.63% Thus, there is no material change in ratio of sale to/purchase from AEs to take any divergent view. xv) Applicability of Berry Ratio: a) As submitted above, it is an admitted fact that the appellant is engaged in manufacturing activities. To support this further, reference is also invited to the set of filters found to be appropriate and inappropriate, keeping in mind the profile of the appellant, by the TPO, in his order dated 30.07.2023, wherein the Ld. TPO remarked: “Accept companies whose ratio of manufacturing to net sales is more than 75%. Buy accepting the companies, that had the ratio of manufacturing to net sales of more than 75%, the Ld. TPO himself admitted that the appellant is engaged in ‘manufacturing activities. Hence, since it is a settled position that ‘Berry ratio’ is not appropriate to apply on ‘manufacturer’ and the Ld. TPO himself categorized the appellant as ‘manufacturer’, applicability of berry ratio is unjustified. b) Further, reference is invited to the following observations made by the DRP in its order dated 30.06.2024 and the appellant’s submission with respect to said observations: (i) Point No. 3.4.1 and 3.4.3 at page 11: The berry ratio, named after American economist: Prof. Charles Berry, is the ratio of gross profit to 36 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT operating expenses. It genesis is traced in E.I. du Pont de Nemours & Co. Vs. US [608 F. 2d 445 (Ct. Cl. 1979)] which involved the distributor. Prof. Berry was able to evaluate the return of a distributor earned on its purely value adding distribution activities with the assumption that the cost these activities were fully captured in the distributor operating expenses. Thus, Berry ratio should generally be used to test only the profits of limited risk distributor or service providers that do not own or use any intangible asset and the reliability of the berry ratio depends upon the existence of a relationship between gross profit and operating expenses. Appellant’s Submission: a) In view of the DRP itself, berry ratio can be applied on distributors and further distributor who do not own or use any intangible asset whereas in the current case appellant is a manufacturer and exporter of studded jewellery and not a distributor. The assessee performs significant manufacturing functions right from procurement of raw material in terms of rough diamonds and gemstones, product conceptualization and designing, processing of rough diamonds and gemstones thereby employing its assets both tangible and intangibles and infrastructure facility and requisite manpower, which are further used for manufacture of studded jewellery and subsequent marketing and sales. In this regard observation of the Hon’ble ITAT, in para 27 of its order deserves attention where it is clearly stated that the appellant has necessary manufacturing set up with requisite assets and infrastructure in place which are employed. Thus, functional and asset employed test for berry ratio to be applied in the instance case is failed. b) The applicability as stated in the order of DRP that berry ratio can be applied where only limited risk is involved. In this regard that Hon’ble ITAT, in para 27 of its order made specific observation that the appellant takes all types of risk such as inventory risk, credit & collection risk, product risk, manpower risk, market risk (to limited extent), technology risk, general business risk and foreign exchange risk. Therefore, the above submission is supported by the findings of the Hon’ble ITAT, at para 34 of order passed for A.Y. 2016-17. Thus, risk test for berry ratio to be applied in the instance case is failed. c) The above referred issued has also been dealt by Hon’ble ITAT, in para 27 of its order, while discussing the judgement of Hon’ble Delhi High Court(supra). c) Point No. 3.4.2 at page 11: Chapter 2 of the OECD Guidelines gives the example of intermediary activities where taxpayer purchases goods from an associated enterprise and on-sells those goods to other associated enterprises 37 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT as an example where Berry Ratio may be applied. Appellant’s Submission: a) As submitted above, the appellant is a manufacturer and not a intermediary. The appellant procures goods from its associated enterprises and other vendors, process them in its manufacturing activities and export them. The above submission is supported by the findings of the Hon’ble ITAT, at para 35 of order passed for A.Y. 2016-17. d) Point No. 3.4.4 at page 11: The DRP relied on the judgement of Sumitomo Corporation (supra). Appellant’s Submission: a) The said judgement, in fact, supports the appellant. The above submission is supported by the findings of the Hon’ble ITAT, at para 34 of order passed for A.Y. 2016-17. d) Please not that Berry Ratio cannot be considered as an appropriate PLI for the appellant since Berry Ratio only reflects value adding activities performed by the entity and excludes any purchases and manufacturing related expenses in the cost base. Further since the appellant is engaged in Manufacturing activities, the purchases and cost of production ought to be included in the cost base and since Berry Ratio includes only the service element, it cannot be applied in the case of the manufacturing assessee as it is not reflective of assessee’s functional profile. The manufacturing entities are not good candidates for Berry Ratio because of their capital intensity. e) Further, the Berry Ratio is usually applied when the value of the goods is not directly linked to the quantum of profits, and the profits are mainly dependent on expenses incurred on value adding activities and not manufacturing costs. f) Berry Ratio is mostly used with low-risk procurement and distribution service providers, which have no funds blocked in inventories and employ no intangible assets. g) It is pertinent to note that considering the profile of the appellant company and nature of activities carried on, the Hon’ble ITAT has made a categorical finding, in point no. 34 to 35 at Page-43 to 47, of the order passed for the A.Y. 2016- 17, that berry ratio is not applicable in the case of appellant. The relevant part is reproduced hereunder: “34. Firstly, referring to the decision of the Hon’ ble Delhi High Court in case of Sumitomo Corporation ( Supra), in that case, it was held that Berry ratio can be used effectively where the value of goods have no role to play in the profits earned by the assessee and the profits earned 38 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT are directly linked with the operating expenditure incurred by the assessee. It has been held that where the assessee uses intangibles or has substantial fixed assets, the value of such intangibles or value addition by such assets would not be captured in the operating cost and thus, Berry ration would not be an appropriate PLI. It has been held that the fundamental premise which needs to be examined before applying Berry ratio is that the operating expenses should adequately represent all functions performed and risk undertaken and for this reason, Berry ratio is effectively applied only in case of stripped down distributors which have no financial exposure and risk in respect of goods so distributed by them. Therefore, we agree that the Berry ratio can be applied in certain circumstances but in the facts of the present case, where the assessee is admittedly and undisputedly, a manufacturer and exporter of coloured gemstones and studded fashion jewellery and not a distributor, one wonder how the value of goods so manufactured and exported have no role to play in the profits earned by the assessee. The assessee performs significant manufacturing functions right from procurement of raw material in terms of rough diamonds and gemstones, product conceptualization and designing, processing of rough diamonds and gemstones at its Adarsh Nagar, Sitapura and SEZ Jaipur, SEEPZ Mumbai facilities thereby employing its assets both tangible and intangibles and infrastructure facility and requisite manpower, which are further used for manufacture of studded jewellery and subsequent marketing and sales to its associated enterprises and other independent entities and providing after sales services. We find that it is the associated enterprises which performs the distributorship functions and sells the assessee’ s products through its retail stores and TV Channels and not the assessee. In the process, the assessee takes all types of risk such as inventory risk, credit & collection risk, product risk, manpower risk, market Risk ( to a limited extent), technology risk, general business risk and foreign exchange risk. In terms of cost base for carrying out these functions and related risk, there are material costs, manufacturing expenses and employment/manpower costs which have been incurred by the assessee and therefore, for determining an appropriate return on such costs, these costs have to be necessarily considered and which has been rightly considered by the assessee as part of its “ cost of production” and based thereon, has adopted operating profit/cost of production as an appropriate PLI. We failed to understand how the TPO has worked out the value added expenses and quantum thereof in the face of these undisputed facts and circumstances of the case ignoring the manufacturing functions and risk so undertaken and the asset employed by the assessee. We therefore find that the decision of the Hon’ ble Delhi High Court doesn’ t support the case of the Revenue rather its supports the contentions advanced by the ld AR on behalf of the assessee. 39 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 35.Now, coming back to the reasoning adopted by the TPO where he says that since the assessee is purchasing from related parties and selling to related parties, both cost and revenue sides are tainted and in such a scenario, OP/COP will not be an appropriate PLI and OP/VAE has then been adopted by him. It appears that the TPO seems to be guided by some misconception that the assessee is in the business of trade intermediary where it buys from its associated enterprises and then, sells to its associated enterprises. As we noted above, the undisputed facts are that the assessee is a manufacturer and exporter and as part of its activities, it procures certain goods from its associated enterprises which constitute merely 21 .09 % of its total purchases besides purchases from other entities, process them in its manufacturing facilities and thereafter, export them to its associated enterprises. Therefore, it carries out significant manufacturing and processing operations and it is not a case of simpliciter purchase and sale activity which is being undertaken by the assessee. Only in a latter scenario, where it purchases from its associated enterprises and on-sells them to other associated enterprises, berry ratio can be held to be useful and appropriate PLI as stated in para 2 .102 of the OECD guidelines. Following the same, the Coordinate Bench in case of Mitsubishi Corporation ( supra) has also held that in case of a low risk high volume trading business involving back to back trading without any value addition to the goods traded, berry ratio could be appropriate PLI. However, in a situation in which there is further processing of the goods procured before selling the same or in a situation which necessitates employment of assets in infrastructure for processing or maintenance of inventories, the use of berry ratio does not seem to be quite appropriate. We therefore find that in the facts of the present case, the approach adopted by the TPO is bereft of the factual position of the assessee in terms of functions performed, the assets employed and risk undertaken while carrying out its manufacturing and export activities and the approach so adopted is also not in consonance with the approach so suggested by OCED and UN, and the decisions of the Hon’ ble Delhi High Court and the Coordinate Benches and therefore, the adoption of berry ratio as an appropriate PLI is not justified in the instant case. ” h) Issue is Covered by decision of Hon’ble ITAT in appellant’s own case for A.Y. 2016-17 and A.Y.2017-18: i) As elaborated in the tables above, there is no change in nature of activities undertaken during the year under consideration as well as in the A.Y. 2016- 17 and 2017-18. ii) Further, the level and extent to which assets are employed are similar to the A.Y. 2016-17 which are further indicative of the fact that appellant is a manufacturer. Thus, covered by the decision of Hon’ble ITAT. 40 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT iii) In view of the above, as held by Hon’ble ITAT, appellant being a manufacturer and looking at the assets employed and risk undertaken, application of berry ratio is not in justified and deserves to be quashed. xvi) Calculation of GPM: (Page-47, Para-36 of ITAT Order: A.Y. 2016-17) a) Findings of Hon’ble ITAT: “36. Now,coming to the selection of comparable and application of the PLI ( i.e. Gross Profit margin / Cost of production), it has been submitted by the ld AR that where the PLI of GP/COP is applied on the comparable companies so selected by TPO, the transaction of assessee will meet the arm' s length test requirement and our reference was drawn to the following figures which are available as part of assessee’ s paperbook and submitted before the lower authorities: 37. Taking into consideration the comparables so selected by the TPO where the median OP/COP comes to 12.90% and given that the assessee has reported OP/COP of 13.51%, we find that the assessee’s transactions with its associated enterprises meets the arms length requirements and no adjustment is warranted. 38. Therefore, in the entirety of facts and circumstances of the case and in light of aforesaid discussions and following the approach so suggested by OECD/UN transfer pricing guidelines and the decisions of the Hon’ ble High Court and Coordinate Benches referred supra, the transfer pricing adjustment of Rs 29,25,17,385/- is hereby directed to be deleted. b) Issue is covered: In the assessment year: 2016-17, as observed by Hon’ble Bench, OP/COP shown by the appellant is higher than the average PLI of comparable. The similar facts are present in the current assessment year and accordingly the issue being covered in the favor of appellant, no adjustment is warranted. xvii) Not prejudicial to above and without any admission, it is important to note that in A.Y. 2016-17, 2017-18 and 2020-21, lower authorities have worked out berry ratio (OP/VAE) of 55.27%, 75.24% and of 136.78% respectively which itself shows abnormality and absurdity. Further, due to inconsistent application of filters to the comparable and due to violation of Hon’ble DRP directions, in general. 41 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT In view of the above, since on identical facts the issue has been decided in the favor of the appellant in assessment year: 2016-17 and 2017-18, the issue being covered, the adjustment of Rs. 137,27,79,147/- made u/s 92CA of the Act, in the current, deserves to be deleted in full. Grounds of Appeal III. Addition on account of Notional Interest on outstanding receivables: Adjustment of Rs. 96,03,898/-. 1. Under the facts and in law, the Ld. AO and the Ld. TPO erred in making an addition of INR 96,03,898 to the income of the Appellant by considering the receivables outstanding beyond stipulated time of the Appellant as an ‘international transaction’ and arbitrarily imputing an interest thereon at 2.056% plus 400 basis points, i.e., 6.056%. In doing so, the Ld. AO/ Ld. TPO: a) erred in re-characterizing the same as a ‘deemed interest-free unsecured loan’ granted by Appellant to the AE during the relevant previous year; b) failed to appreciate that the outstanding receivables are not a separate international transaction’ but a ‘result’ of the primary international transaction undertaken by the Appellant 2. Without prejudice, the Ld. AO and the Ld. TPO erred in ignoring the fact that the gross as well as net margin earned by the Appellant from the primary international transaction of ‘Sale made to its AEs and related aggregated international transactions’ during the year was much higher than the arm’s length margin of comparable. In doing so, the Ld. AO and the Ld. TPO failed to appreciate that the impact of outstanding receivables is already subsumed in the higher margins earned by the Appellant. 3. Without prejudice, the Ld. AO and the Ld. TPO erred in adopting an ad- hoc period of 60 days to determine overdue receivables from the AEs for the purpose of treating such overdue receivables in nature of interest free unsecured loans. In doing so, the Ld. TPO/ AO grossly erred in ignoring that: - a) the Appellant has granted a credit period of up to 180 days to both AEs as well as non- AE third parties; b) the Appellant has not charged interest on delayed receivables from third parties as well; c) the Reserve Bank of India (‘RBI) has itself acknowledged the hardships faced by the companies (operating in similar industries) and has revised the foreign remittance guidelines related to credit period norm for jewellery exporters to 180 days; d) not charging any interest on delayed receipts is a generally accepted practice for companies engaged in similar business segment as the Appellant. 4. Without prejudice to above objections, on facts and in law, the Ld. TPO/AO erred in 42 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT arbitrarily & incorrectly imputing an interest of INR 96,03,898 based on 6 months LIBOR plus a mark-up of 400 basis points. In doing so, the Ld. TPO/AO have erred in:- a) Adopting an arbitrary & inappropriate mark up of 400 basis points over and above the 6 months LIBOR for calculating the rate of interest, b) not giving benefit of early realization from AEs for computing interest on overdue receivables. 5. Without prejudice to above objections, on facts and in law, the Ld. TPO and Ld. AO erred in arbitrarily applying a mark-up of 400 bps on USD LIBOR rate is not warranted specifically considering that in Appellant’s own case for AY 2013-14, the Hon’ble Tribunal and High Court has restricted the arm’s length price to ‘LIBOR’ for notional interest on loans provided to AEs. a) It is further submitted that in Appellant’s own case for AY 2013-14, Hon’ble Income Tax Appellate Tribunal (ITAT) vide order dated 24 April 2018, followed the High Court order in the VGL’s case for AY 2009-10 and AY 2010-11 wherein judgement of Delhi High Court in case of Cotton Naturals (I) P. Ltd. (276 CTR 445 [2015]) was relied upon and thereby, restricted the arm’s length rate to LIBOR for the notional interest on loans granted to AEs. Accordingly, any mark-up on LIBOR rate is not warranted in the instant case. b) Furthermore, the Ld. AO and the Ld. AO had not followed the A.Y. 2017-18. Brief Facts: 1. As a result of its primary international transaction of Sale & Purchases made to/from AEs, the appellant had continuing debit and credit balances of receivables and payables respectively from its AEs during the year under consideration. 2. The Ld. TPO in its order considered the receivables outstanding from AEs for more than 60 days as a separate ‘international transaction' and re-characterized the same as deemed unsecured interest free loan given by appellant to its AE. 3. Accordingly, an interest at the rate of 6.056% based on 6 months LIBOR plus a mark-up of 400 basis points was imputed on the same which was confirmed by the Ld. DRP. Submissions: A. Receivables are not unsecured loans: 1. The Ld. TPO proposed to treat the amount receivable from AEs as ‘unsecured loans’ on the ground that payments for the invoices raised have not been received within 60 days and on this premise, adjustment have been made. Thus, action of the Ld.AO has resulted into treating the amount of receivable as ‘unsecured loans’ and accordingly imputing the interest thereon. It is being most respectfully submitted that said characterization of receivable as \"unsecured loan' is not in accordance with the provisions of the Indian transfer pricing regulations which provides as under. 43 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 2. As per Para 1.141 and 1.143 of OECD Guidelines (updated January, 2022), the tax authorities should recognize and appreciate the actual transaction undertaken by a taxpayer and the same should not be disregarded barring exceptional circumstances. The relevant extracts are provided below for your kind consideration: “D.2 Recognition of the accurately delineated transaction: 1.141 A tax administration, should not disregard the actual transaction or substitute other transactions for it unless the exceptional circumstances described in the following paragraphs 1.142-1.145 apply: 1.143 Restructuring of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the arbitrary other tax administration does not share the same views as to how the transaction should be structured”. 3. In this regard, we place our reliance on the following case laws: \u0001 CIT v. EKL Appliances Limited (2012) 345 ITR 241 (Delhi HC): “17. The significance of the aforesaid guidelines lies in the fact that they recognize that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction, should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage restructuring of legitimate business transactions. The reason for characterization of such restructuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other ta administration does not share the same view as to how the transaction should be structured. …It has been held by our courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur ...\" \u0001 Nimbus Communications Limited (TA No.2361 (Mum.) of 2007) ITAT, Mumbai: “8. The TPO in this case has not followed the mandate of the Act. No method has been specified. Under these circumstances, the adjustment made on the basis of the Transfer Pricing Officer under section 92CA(3) of the Act cannot be sustained. Even on merits, we find that the assessee has not charged interest on fees receivable by it from WSN and whereas it has charged interest on a loan granted to NCWI, the rate of interest charged was at 2.262 per cent per annum. This rate of interest is used by the Assessing Officer to hold that the assessee not charging interest on fees receivable from AE, requires an adjustment under the Transfer Pricing provisions, On facts, charging interest on a loan granted, is different from charging interest on bills raised for services rendered. Both are not comparable. Thus, we agree with the submissions of the learned counsel for the assessee and delete these additions both on law as well as on merits” 44 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 4. In view of these facts and circumstances, it is evident that outstanding receivables from AEs were in the course of business and not any lending of money. It is further important to note that Rule 10B(2) of the Income-tax Rules, 1962 (“the Rules\"), which lay down the various comparability factors to be considered while undertaking a comparability analysis also inter- alia, include the following: “Conditions prevailing in the markets in which the operate, including the geographical location and size of the markets, laws and Government orders in force, costs of labour and capital in market, overall economic development and level of competition and whether the markets are wholesale or retail.” 5. In view of the above discussion, the outstanding balances arising from rendering of services to the AEs are in the nature of 'trade receivables' and cannot be re-characterized as loans/moneys advanced to AEs under any circumstances. B. Continuing Debit Balance is not a standalone international transaction but result of an international transaction: 1. At the outset, the appellant submits that the outstanding receivables are a result/consequence of appellant’s international transactions with its overseas AEs and is not a separate international transaction per se as per provisions of section 92B of the Act and therefore the same does not warrant determination of any separate arm's length price under section 92C of the Income-tax Act, 1962. 2. It is submitted that in the absence of any specific provision in the Act which seeks to tax any ‘hypothetical income’, the appellant cannot be subject to tax in respect of hypothetical income, i.e., to say an income which ought to have been earned or that the appellant failed to earn. 3. It is further submitted that in the present case, since no income has been earned or can be said to have been earned by the appellant, in respect of interest chargeable from AEs, the question of applying the provisions of section 92 of the Act does not arise. 4. The appellant would like to highlight your kind attention on the definition of section 92(1) of the Ac which states that \"any income arising from an international transaction shall be computed having regard to the arm's length price\". Further, Section 92B(1) of the Act defines an \"international transaction\" as under: “For the purposes of this section and sections 92, 92C, 92D and 92E, \"international transaction\" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution any cost or expense incurred or to be incurred in connection with a benefit, service or facility 'provided or to be provided to any one or more of such enterprises”. 45 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 5. The above definition implies that there should be a ‘real transaction' between two AE's, i.e., a transaction involving actual exchange of goods/services to constitute an international transaction. It does not seek to cover any hypothetical transaction which has not taken place between the AEs. 6. The terms and conditions of the inter-company transactions undertaken by Assessee with its AE were concluded on arm’s length basis in the TP documentation maintained by the appellant. 7. The early or late realization of proceeds is incidental to the sale transaction and is not a separate transaction in itself. In other words, these represent the consequence of an international transaction and not an international transaction per-se, as per Section 92B of the Act. Therefore, the same does not warrant the determination of any separate arm's length price ((ALP'\") under Section 92C of the Act. 8. If the ALP in respect of an international transaction is determined, in that case non- receipt of interest in such transaction cannot be treated as a separate international transaction warranting any further adjustment. Once ALP is determined in respect of the primary export transaction, it would be deemed to be covering all the elements and consequences of such transaction. 9. Hence, after having determined the ALP of the primary transaction, it cannot be assumed that separate arm's length analysis of outstanding receivables is required since outstanding receivables emanate from the said international transaction itself. 10. We rely on the Guidance Note on Report u/s 92E issued by the Institute of Chartered Accountants of India (Revised 2022) Para 4.12 of the Guidance Note states as under: Para 4.14 of the Guidance Note states as under: “… Advance payments received or made and debts arising during the course of business shall need to be carefully considered and reported by the accountant however ensuring that there is no duplication or overlap with reporting of the principal transactions to which such advances or debts relate to ...\" 11. Hence, it is evident from the above extract of the Guidance Note that once the ‘principal transaction' has been covered, separate consideration of the consequential debtors is not required. 12. In support of the above contention, we rely on following Judicial Precedents: \u0001 Kusum Health Care Pvt. Ltd. in ITA 765/ 2016, wherein the Hon’ble Delhi High Court held that: “10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression, receivables \" does not mean that de hors the context every item of receivables dealings with foreign AEs would 46 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT automatically be characterized as an international appearing in the accounts of an entity, which may have transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, đue to a variety of factors which will have to be investigated on a case-to-case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analyzing the statistics over a period of time to discern a pattern which would indicate that vis-a-yis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. ” \u0001 By placing its reliance on the aforesaid judgment of Hon’ble Delhi High Court, Hon’ble Delhi Tribunal in the case of Global Login India Ltd held as under: “…The inclusion in the Explanation to Section 92B of the Act of the expression 'receivables' does not mean that de hors the context every item of receivables' appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterized as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case-to-case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analyzing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. So, no adjustment can be made on account of notional interest on receivables by relying upon Explanation (i), (a) and (c) of section 92B by treating the continued debt balance as an international transaction... \"In view of the discussion and following the consistent decisions of the Tribunal in Assessee's own case for the preceding as well as the succeeding assessment years, no adjustment on account of interest due on receivables from its AE can be made. ” \u0001 We further place our reliance on the following case laws: - Gillette Diversified P Ltd in ITA No. 5736/5675/5677(Del) 2015 (Delhi Trib) - Target Sourcing Services India P Ltd (ITA No.4132/Del/2017) (Delhi Trib) - Lotus Labs Pvt Ltd in ITA No. 2295/Bang/2016 (Bangalore Trib.) - Dell International Services India P Ltd Vs JCIT in ITA(TP) No. 308/Bang/2015 (Bangalore Trib.) - Tally Solutions P Ltd Vs ACIT (2016) 73 taxmann.com 70 (Bangalore Trib.) - Goldstar Jewellery Ltd Vs JCIT (2015) 53 taxmann.com 353 (Mumbai Trib.) - Avnet India Pvt Ltd in IT(TP)A No.757/Bang/2011 (Bangalore Trib.) - DCIT Vs Indo American Jewellery Limited in ITA No.5872/Mum/2009 (Mumbai Trib.) - Bechtel India P Ltd Vs DCIT in ITA No. 1478/Del/2015 (Delhi Trib) C. Margins earned by the appellant are much higher than the ALP Computed: 47 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 1. In this regard, the appellant would like to submit that the outstanding receivables & payables are part and parcel of any business, as it arises as an outcome of the business itself. While testing the prima international transactions of appellant using the Cost-Plus Method (CPM\"), these receivables automatically get tested. 2. As submitted before the Ld. TPO through various submissions, the gross level margin earned by the appellant is computed at 15.43% which falls within the arm’s length range i.e. 11.49% to 19.78% of the comparable set of 31 companies and even higher than the median of the comparable set, computed at 14.84%. 3. Further, even at net level, the Net Cost Plus (‘NCP’) margin earned by appellant is computed at 7.56%, which is higher than the arm’s length margin i.e., the median of the comparable set of 31 companies, computed at 4.52%. 4. Accordingly, it is submitted that because of the reason that the margins earned by the appellant is much higher than the median of the dataset of comparable companies’ arm’s length margin computed, the case does not warrant any separate adjustment to be made for the overdue balances of receivables. Similar view has been taken by Hon’ble Delhi Tribunal in the case of M/s Motherson Sumi Infotech & Designs Limited Vs DCIT, Circle-17(1) in ITA No.6331/Del/2016 (Delhi Trib) it was held as under: “…It was also explained that non-charging of interest from AEs as well as non-AE on interest receivables was that it being pre-dominantly involved in the provision of services to its AEs as well as third parties. The contention of the assessee have not been disputed by the authorities below. It may also be noted here that all international transactions were accepted by the TPO to be at arm's length, except, payment of interest on loan. The authorities below have treated the delayed payment beyond 30 days as loans. In fact, no loan have been extended by the assessee. It was the amount 'due' against the AEs as well as non-AE on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (Supra), squarely apply in the case of the assessee since the Assessee earned significantly higher margin than the comparable companies, which have been accented by the TPO, therefore, there was no justification to charge interest on outstanding. ” \u0001 CRM Services India P Ltd in ITA No. 432/Del/2016 (Delhi Trib.) “16. Furthermore, when we examine the entity level margin of the taxpayer vis. a vis. comparable companies, the taxpayer has earned higher margin i.e. taxpayer earned 38.39% OP/OC margin vis a vis margin of comparable companies at 11.43%. In such circumstances, no separate adjustment on accent of interest can be made. Because the credit period extended to AE cannot be considered as a standalone transaction without considering the main transaction of the sale”. This principle was earlier upheld in the case of \"Kusum Healthcare Pvt Ltd. Vs ACIT, Range-5 ITA No. 6814/Del/2014 wherein it was held as under: 48 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT \"..17. From the above analysis, it is clear that Assessee had learned significantly higher margins than the comparable companies (which have been accepted by the TPO) which more than compensates for the credit period extended to the AEs. Thus, the approach by the assessee of aggregating the international transactions pertaining to sale of goods to AE and receivables arising from such transactions which is undoubtedly inextricable connected is in accordance with established TP principles as well as ratio Laid down by the Hon'ble jurisdictional High Court in the case of Sony Ericson Mobile Communication India Pvt. Ltd. (supra). For the aforesaid reasons, we allow the appeal of the assessee.\" \u0001 We further place our reliance on the decision of Mahati Software P Ltd Vs ACIT in IT Appeal No.68(Viz) of 2017. D. No interest charged on payables by the appellant: 1. Without prejudice to the above and without admitting anything contrary it is further submitted that appellant also had an outstanding payable balance with respect to invoices raised on it by its overseas AEs during the year under consideration. Notably, appellant has not been charged any interest by such overseas AEs for the delay in payment made to it. 2. In view of the above, no adjustment on account of delayed outstanding receivables or payables from/ to overseas AE is warranted in the instant case. 3. In this regard, we place our reliance on the following case laws wherein it has been held that no adjustment on account of delayed outstanding receivable or payable is warranted. \u0001 Satyam Venture Engineering Venture P Ltd Vs ACIT in ITA No.431 and 432/Hyd/2015 (Hyd. Trib): “We have heard the arguments of both the parties and perused the material on record as well as the orders of revenue authorities. From the above, it may be perceived that assessee has not charged any interest to AE as well as non-AE entities. Moreover, the TPO has considered only the account receivable of AE without considering the account payable to AEs. It is pertinent to note that account payable to AE and its affiliates are INR 28,58,98,204 compared to account receivables from AE and its affiliates of INR 26,88,97,856. We find that the account payables are more than the account receivables from AE. Hence charging of interest does not arise. Therefore, we are inclined to remit the issue back to the file of DRP to give their findings clearly in this matter after going through the material available on record and give their findings according to the provisions of the income-tax Act”. E. Inappropriate Adoption of ad-hoc 60 days credit policy: 1. In the instant case the entire adjustment is based on the premise that the amount realization should have taken place within 60 days of invoices and any amount beyond 60 days has been termed as loans advanced to AEs. In this regard, the appellant respectfully submits that in a trade scenario like appellant, the credit period is typically considered after factoring a variety of aspects such as relationship with the buyer, 49 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT pricing, discounts, credit worthiness, number of years of relationship. Etc. and accordingly, it would not be feasible to consider a uniform credit period without taking into consideration the specific factors for the particular trade. 2. In the instant case, the appellant has granted a credit period of up to 180 days to both AEs as well as third parties. The appellant wishes to emphasize that granting a credit period of 180 days to third parties can itself be considered as an internal benchmark for the realization policy of the appellant and the same is in line with the RBI Guidelines (also discussed in the decisions of Hon’ble Tribunal discussed hereunder) 3. Appellant further wish to place reliance RBI Master Circular on Export of Goods and Services (FED Master Direction No. 16/2015-16). In the said direction, it is stated that proceeds from export of goods and services must be realized within a period of 9 months from the date of export. Relevant extract of the circular is given below: “A3. Realisation and Repatriation of proceeds of export of goods/software/services It is obligatory on the part of the exporter to realize and repatriate the full value of goods/software/services to India within a stipulated period from the date of export, as under: (i) It has been decided in consultation with the Government of India that the period of realization and repatriation of export proceeds shall be nine months from the date of export for all exporters including Units in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs until further notice”. 4. Further as per FTP 2015-2020 also, all the proceeds should be realized within 9 months. This further goes on to prove that credit period of 9 months is usual norm based on the requirement of industry and trade practice. 5. In this regard, we rely on the following supporting Case Laws: \u0001 C3i Support Services P Ltd in ITA No.503/Hyd/2017 for AY 2012-13: “We have considered the rival contentions. As seen from assessee's contentions, assessee is not charging interest of any of the receivables outstanding. Assessee is providing 180 (One Hundred and Eighty) days credit period on the amount receivable and is consistent with the RBI guidelines on foreign exchange receivables. RBI allows a period of one year for the amounts to be realized if they are in foreign exchange. In our view, putting a limit of one month of credit itself by the DRP is arbitrary. ” \u0001 GSS Infotech Ltd in ITA No.497/Hyd/2015 (Hyd. Trib.): “11.We have considered the issue and examined the contentions. As seen from assessee’s contentions, assessee is neither charging interest on any of the receivables outstanding. There is also no basis for adopting only two months as credit period. RBI itself allows a year for the amount to be realized if they are in foreign exchange. Whether it is AE or non-AE, it is in the interest of business that assessee receives the foreign exchange early so that it can claim deduction u/s 10A. Therefore, in our view, putting a limit of two months of credit period itself is arbitrary. ” 50 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 6. In view of the facts and circumstances elaborated above, it is humbly submitted that ad- hoc consideration of a credit period of 60 days is devoid of the facts and circumstances of the case, specifically considering that a statutory government body has itself acknowledged the hardship faced by the companies (operating in similar industry) in realizing the export remittances and has revised the foreign remittance guidelines to 180 days. F. No interest charged from Non-AEs as well: 1. Appellant wish to submit that it has allowed a credit period of 180 days in case of exports made to its AEs as well as to non-AEs i.e. third parties. The same is clearly evident from the invoices raised on AEs as well as non-AEs. Such Invoices raised on AEs as well as Non-AEs on sample basis were placed on record before the ld. TPO (PBP: 117 – 120). 2. In this regard, it is further submitted that it is the policy of appellant to not charge any interest from AEs as well as from the unrelated third parties on delayed receipts. It is imperative to note that no interest has been charged by appellant from third parties even in the cases where realization from third parties s exceeds beyond 180 days. The said practice is in line with the general industry standards of Gem & Jewellery industry. 3. Therefore, it is submitted that not charging interest from third parties could be regarded as CUP to determine that no interest was required to be charged from AEs as well. Thus, without prejudice to appellants other contentions, even if it is assumed that the said overdue debts are treated as international transactions, the right course of applying the CUP method would be to consider whether appellant has charged interest on overdue debts with unrelated parties or not. 4. In this regard, we rely on following Case Laws: \u0001 CIT Vs Indo American Jewellery Ltd (ITA No. 1053 of 2012, Bombay HC): “in the facts of the present case, the specific finding of the ITAT is that there is complete uniformity in the act of the Appellant in not charging interest from both the Associated Enterprises and Non-Associated Enterprises debtors and the delay in realisation of the export proceeds in both the cases is same. Ih these circumstances the decision of the Tribunal in deleting the notional interest on outstanding amount of export proceeds realised belatedly cannot be faulted” \u0001 ITO Vs Aglisys IT Services P Ltd (ITA No.7515/Mum/2012) Mumbai Trib: “Hon'ble Tribunal relying on the decision of the jurisdictional High Court i.e. Mumbai High Court in case of lndo American Jewellery Ltd {Supra) had held that where there is complete uniformity in the act of the Appellant in not charging interest from both the AE. and non-AE debtors for delay in realization of proceeds, the Assessing Officer is not justified in making the addition of notional interest to the appellant’s arm's length price. The ratio decided in the said case is squarely 51 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT applicable in the present case also and accordingly, the entire adjustment on account of interest is deleted. ” \u0001 Add. CIT 4, Ahmedabad Vs Mastek Limited (ITA No. 3120/Ahd/2010) (Ahmedabad Tribunal): \"The moot question is that in deciding this issue; a commercial consideration and market practice has to be taken into account. Naturally, even as per the OECD {TP} guidelines, now worth mentioning, it has been subscribed that to ensure a healthy relationship and to maintain a long business transaction, such compensation or charging of interest are being ignored commonly by businessman. Non-charging of compensation of interest is stated to be the market practice of this Industry. Referring one of the guidelines of OECD (para 1.29), it is prescribed that no interest could be charged on delayed payment on commercial consideration for ensuring a long and healthy relationship. it is observed that only in the event of severance of relationship; parties do resort to charging of interest. \"If the AEs are not recovering interests from third parties for late recoveries, then in the instant case it would be too much to expect the assessee to charge the interest from the AEs. There is no rationale to inflict upon the assessee, merely on presumption that he ought to have charged the interest from its AEs “ \u0001 Evonik Degussa India P Ltd Vs ACIT in ITA No.7653/Mum/2011 (Mumbai Trib) \u0001 Lintas India P Ltd Vs ACIT in ITA No.2024/Mum/2007 (Mumbai Trib) \u0001 DCIT Mumbai Vs Tech Mahindra Limited in ITA No.1176/Mum/2010 (Mumbai Trib) \u0001 S Vinod kumar Diamonds P Ltd in ITA No.79/Mum/2015 (Mumbai Trib). G. Issue, under consideration, is covered by the Judgment of Hon’ble ITAT, Jaipur passed, for the A.Y. 2017-18, in appellant’s own case: 1. Without prejudice to anything stated hereinbefore and without any admission, at the outset, the appellant humbly submits that the addition on same issue, with same reasons, was also made in A.Y. 2017-18, in the case of the appellant itself. 2. Further, the Hon’ble ITAT Jaipur, in order dated 05.06.2024, passed for the A.Y. 2017- 18, perused the TPO order, material available on record and submissions made by the appellant. After hearing the appellant and the respondent, the Hon’ble Bench deleted the addition with the following observation and reason: “27.We have heard both the parties and perused the material available on record. The entire issue stem from action of TPO wherein vide Show Cause Notice dated 24.01.2021 the receivables which are outstanding beyond 60 days have been treated as unsecured loans advanced to AEs and accordingly interest has been imputed thereon. Further TPO has adopted a credit policy of 60 days and the outstanding beyond 60 days have been termed as unsecured loans advanced whereas assessee has been giving a standard credit period of 180 days to AEs as well as third parties. Moreover, assessee is not charging any interest on payables too. The credit policy of 52 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT the assessee is in line with RBI Guidelines on foreign exchange receivables thus there is no basis with the TPO in adopting credit period of only two months. Similar view has been expressed in the decision of GSS Infotech Ltd Vs ACIT Circle-2(2), Hyderabad in ITA No.497/Hyd/2015 which the assessee has relied upon. 28.Moreover, on the same credit terms export has been made to Non AEs by giving credit period of 180 days and no interest has been charged therefrom. Thus there is complete uniformity in the act of the assessee in not charging any interest from both the AE as well as Non AE debtors and on the same delay, the assessing officer is not justified in making the addition of notional interest to the assessee’s arm’s length price. The ratio decided in the case of CIT Vs Indo American Jewellery Ltd (ITA No.1053 of 2012 Bombay HC) is applicable in the present case also and accordingly the adjustment of interest is deleted.” In view of the facts, circumstances, judicial precedents and order of the Hon’ble ITAT, Jaipur cited above, the adjustment made by Ld. TPO and confirmed by Hon’ble DRP and subsequently addition made by Ld.AO may kindly be deleted in full. Grounds of Appeal: IV. Addition on account of disallowance of PF: 1. Under the facts and circumstances of the case the Ld. AO has erred in making addition of PF payment made u/s 36(1)(va) of Rs. 19,68,509 without considering that the due date for depositing PF was a public holiday. Findings of the Ld. AO: Ld. assessing officer in the assessment order has relied on the judgment rendered by the Hon’ble Supreme Court in the case of CHECKMATE SERVICES P. LTD VS. COMMISSIONER OF INCOME TAX [2023] 290 Taxman 19 (SC)/[2022] 448 ITR 518 (SC): “One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations. The deductions are to be granted only when the conditions which govern them are strictly complied with.” Direction of Hon’ble DRP: If the due date is a public holiday, by application of General Clauses Act, the due date shifted to the subsequent day. The Ld. AO examine the issue and follow the direction. Submission: 1. The Hon’ble DRP directed the Ld. AO to examine that whether the due date is holiday or not and, in case it happens to be a public holiday, to allow the deduction of PF of Rs. 53 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 19,68,509/-. However, the Ld. AO even after specific direction, not even paid heed to the direction rather made the addition which is complete non application of mind and unjustified. 2. Without prejudice to anything stated hereinbefore and without any admission, any admission, for the sake of submission, It is humbly submitted that the appellant deposited the amount of INR 19,68,509/- received as employees’ contribution for provident fund on 16.12.2019 i.e. with a delay of 1 day due the reason that the due date specified under respective PF Act/ Regulation for the Month of November, 2019 fell on Sunday which was a public holiday (PBP: 121). 3. In this regard, the appellant wants to draw the attention of your honours to the provisions of Section 10 of The General Clauses Act, 1897 which specifies that where any act etc. is to be done within a prescribed period by any Central Act or Regulation and if the court/ office is closed on that day then the act etc. shall be considered as done in due time if it is done the next day on which the court or office is open. Section 10 is reproduced below for your reference: “10 Computation of time. — 1) Where, by any Central Act or Regulation made after the commencement of this Act, any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court or office is open: Provided that nothing in this section shall apply to any act or proceeding to which the Indian Limitation Act, 1877 20, applies. 2) This Section applies also to all Central Acts and Regulations made on or after the fourteenth day of January, 1887”. 4. Perusal of sub-section (2) of Section 10 of The General Clauses Act clearly shows that Section 10 applies to all Central Acts and Regulations made after 14.01.1887 and accordingly it will apply to Employees' Provident Funds Act, 1952 which is Central Act. 5. In the present case, the due date for depositing employees contribution of INR 19,68,509/- was 15.12.2019 i.e. Sunday, however the said amount was deposited on next working day since it was a public holiday, therefore by virtue of Section 10 The General Clauses Act it shall be considered to be deposited within due date i.e. on 15.12.2019 and no disallowance can be made on the ground of its being deposited after the specified date since the due date in current case would be 16.12.2019 and not 15.12.2019. 6. Further, we would like to draw attention to judgement passed by Hon’ble Delhi High court after considering the judgement of Checkmate services P. Ltd vs. Commissioner of income 54 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT tax (supra), which was passed in support of the contention of appellant and where the facts of case are similar to that of assessee’s case, as under: \u0001 Pr. Commissioner of Income Tax-7 vs PEPSICO INDIA HOLDING PVT. LTD. (Delhi HC judgement) [ITA 12/2023]. The observations made by us therein, being opposite, are extracted hereafter: “11. Therefore, insofar as the first submission of Mr Chopra is concerned, which is founded on a Tribunal’s view that disallowances could not be made under Section 143(1) of the Act while processing refund, we are of the opinion that this argument cannot be sustained. The reason being that the law declared by the Supreme Court in Checkmate Services (P.) Ltd.’s case would be the law as it ought to have been when the provision was inserted. The judgment of the Supreme Court does not say it will apply prospectively, and therefore, the judicial view that prevailed when the Tribunal had pronounced its judgment, having undergone change, it can only be stated that the position of law was always as declared in Checkmate Services (P.) Ltd, and therefore, deduction could never have been claimed by the respondent/assessee while filing the return. Accordingly, the first question of law framed is allowed in favour of the appellant/revenue, and against the respondent/assessee. 11.1 However, that being said, what we need to consider, is the second submission advanced by Mr. Chopra in the given facts of the case i.e., whether the deposit of Rs.1,56,12,404/- on 16.08.2018 was within time, given the fact that the due date fell on 15.08.2018. This issue relates to the second question of law, as framed hereinabove. 7. According to us, this submission advanced by Mr. Rai cannot be accepted. Since the due date fell on a date which was a National Holiday, the deposit could have been made by the respondent/assessee only on the date which followed the National Holiday. 8. Mr. Chopra, as noticed on 12.01.2023, was right that Section 10 of the General Clauses Act would help the respondent/assessee to tide over the objections raised on behalf of the appellant/revenue. 9. Therefore, the second question of law, as framed via the order dated 12.01.2023, which is extracted hereinabove, is answered against the appellant/revenue and in favour of the respondent/assessee.” 7. The above view is also supported by another judgement of Hon’ble Delhi High Court in case of M/S. AERO CLUB V/S Assistant Commissioner of Income Tax, Circle 49(1) [ITA 267/2023] wherein the judgement as passed in case of Pepsico India Holding Pvt. Ltd (supra) was reiterated. 8. In this regard, we further rely on the following judgements: \u0001 The Hon’ble ITAT, Delhi Bench ‘B’: New Delhi in the case of M/s G.D. Foods and Manufacturing (India) Pvt. Ltd. Vs ADIT, New Delhi [ITA No. 221/Del/2023] vide order 55 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT dated 10.07.2023 deleted that disallowance of delay in deposit of one day on account of public holiday/ Sunday. Relevant extract is reproduced below: “11. Thus, in our opinion, considering the fact that the due date for depositing the contribution of ESIC & EPF falls on Sunday and gazette holiday, the said delay of one day deserves to be condoned as per Section 10 of General Clauses Act. Further it is also observed that the assessee has no intention not to deposit the contribution of ESI & EPF well within the time, depositing the contribution very next day of Holiday proves the bona-fide of the Assessee. Therefore, in our opinion, the authorities have committed error in disallowing the deposit made with one day delay where the due date under respective acts falls either on Sunday or on gazetted holiday. 12. In view of the above discussion, we allow Ground No. 3 of the assessee and delete the disallowance of delay deposit of one day on account of public holiday/Sunday on ESIC of Rs. 3,89,086/- and EPF of Rs. 15,47,915/-. Since the assessee has restricted Appeal to Ground No. 3 and the to the amount mentioned above, the Ground No. 1,2, 4 to 9 are dismissed as not pressed. \u0001 The Hon’ble ITAT, Delhi Bench ‘F’: New Delhi in the case of Radial International Vs DCIT, New Delhi [ITA No. 340/Del/2023] vide order dated 18.07.2023 wherein it was held as under: “6. Upon careful consideration and after hearing both the parties, we agree with the submissions that if the last date for depositing of payment is a holiday and the payment is made on the next date, the same should be allowed, as has been decided in the abovesaid case of ITAT. We also feel it appropriate to remit the issue back to the file of AO for examining the payments made on day next to due date, being holiday on due date and allow the deduction accordingly”. Therefore, in light of Section 10 of The General Clauses Act and judicial precedents(supra), the employee contribution of INR 19,68,509/- should be allowed and should not be considered as deemed income since the same has been deposited within the due date as explained above. Accordingly, the addition made by the Ld. AO deserves to be deleted. Grounds of Appeal: V. Addition on account of distributed income of Buy Back: 1. Under the facts and circumstances of the case the Ld. AO has erred by invoking section 115QA of the Act and further erred by charging additional tax of distributed income in relation to buy back of shares of Rs. 71,99,99,211 u/s 115QA of the Act. Findings of the Ld. AO (Second para at page 113 of final assessment order): According to the Ld. AO, it is beyond any doubt that M/s Vaibhav Global Limited has made ‘Public Announcement” for buyback of its shares on 07.08.2019 as per the procedure laid down under SEBI (Buyback of Securities) Regulations, 2018. 56 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT A. History of Section 115QA of the Act: 1. 1st June 2013: Section 115QA of the Act was inserted vide Finance Act, 2013 w.e.f. 01.06.2013. The said section provided for levy of tax, in the hands of unlisted companies, on the amount of distributed income (@20%), by such company, on buy-back of shares. Section 115QA, as on 01.06.2013, read as under: “Tax on distributed income to shareholders. 115QA. (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock exchange) from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income:” (Emphasis Supplied) 2. 5th July, 2019: The Finance (No. 2) Bill, 2019 was introduced, on 05.07.2019, in the Lok Sabha whereby the phrase ‘not being shares listed on a recognised stock exchange’, as appearing the original section 115QA (supra), was proposed to be ‘omitted’ from the provisions of 115QA resulting bringing listed companies under section 115QA. The said amendment was proposed to be inserted w.r.e.f. 5th July, 2019. 3. 1st August, 2019: The Finance (No. 2) Bill, 2019 received the accent of the President on 1st August, 2019 and became Finance (No. 2) Act, 2019 bringing, into effect, the proposed amendment, in section 115QA, w.r.e.f. 05.07.2019 thereby including listed companies also in its scope. The amended section reads as under. “Tax on distributed income to shareholders. 115QA. (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income:” It is to be noted that in above referred section, text: ‘not being shares listed on a recognised stock exchange’, was omitted and the other part of the section remained same. 4. 20th September, 2019: In the press conference, Hon’ble Finance Minister announced that certain amendments in the Finance (No. 2) Act, 2019 would be brought through an Ordinance. The relevant extract of the statement, along with PIB, made by the Hon’ble Finance Minister is re-produced hereunder: \"In order to provide relief to listed companies which have already made a public announcement of buy-back before 5th July 2019, it is provided that tax on buy-back of shares in case of such companies shall not be charged.\" 57 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 5. 20th September, 2019: As stated by the Hon’ble FM on 20.09.2019, the Taxation Laws (Amendment) Ordinance, 2019 was promulgated on 20th September, 2019. The said Ordinance inserted a proviso to exclude, from the applicability of Section 115QA, listed companies who had made ‘public announcement’ before 05.07.2019, for buy back of shares, in accordance with SEBI Regulations. The said Proviso was also inserted w.r.e.f. 05.07.2019 and reads as under: “Provided that the provisions of this sub-section shall not apply to such buy-back of shares (being the shares listed on a recognised stock exchange), in respect of which public announcement has been made on or before the 5th day of July, 2019 in accordance with the provisions of the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992)”. 6. 20th November, 2019: The Union Cabinet approved the proposal for introducing the Taxation Laws (Amendment) Bill, 2019 in order to replace the Ordinance. 7. 25th November, 2019: the Taxation Laws (Amendment) Bill, 2019 introduced in the Lok Sabha. 8. 11th December, 2019: the Taxation Laws (Amendment) Bill, 2019 received accent of the President and the proposed proviso was made of the statute w.r.e.f. 05.07.2019. B. Facts in the case of the appellant with respect to Buy Back of Shares: • 22nd May, 2019: Notice of Board Meeting sent to directors and Stock Exchanges regarding Buy-back of shares (PBP: 122); • 30th May, 2019: Board Meeting held wherein Buy Back of Shares, terms and condition of Buy Back, Appointment of Merchant Banker and company’s broker etc. was approved 58 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT (PBP: 123 – 128); • 30th May, 2019: The outcome of Board Meeting was intimated to Stock Exchanges (PBP:129 – 131); • 30th May, 2019: Postal ballot was issued containing, inter alia, material information as contained in Schedule I of SEBI (Buy Back of Securities) Regulation, 2018 (PBP:132 - 139); • 30th May, 2019: Buy back of shared by the appellant was extensively covered in various social media platform and news channel (PBP: 140 – 142) • 31st May, 2019: Press release of Buy Back intimated to Stock Exchanges (PBP:143 – 145) • 7th August, 2019: Declaration of result of postal Ballot; • 8th August, 2019: Date of publication of public announcement as per SEBI (Buy Back of Securities) Regulation, 2018. Submission: I. Amendment in Section 115QA of the Act is not applicable on the appellant: 1. At the outset, as enumerated in the facts above, buy back of shares, by listed companies, were not subject to tax, under Section 115QA of the Act, prior to 5th July, 2019 meaning thereby no tax, on distributed income, was required to be paid by listed companies on account of buy back of shares. In view of this, the appellant commenced the process of buy back of its shares on 22nd May, 2019 and made substantial compliances with the requirement of SEBI Act, 1992, SEBI Regulation and other relevant Acts. 2. However, the phrase “not being shares listed on a recognised stock exchange”, contained in Section 115QA, was ‘omitted’ vide Finance (No.2) Act, 2019. The legal effect of omission of such text, from the Section, was that it included listed companies in its jurisdiction. Hence, now listed companies is also made liable to pay tax on buy back of shares. 3. In the above context, the moot question arises as to whether the said ‘omission’ would take away the right accrued to the assessees who have commenced the process of buy back before 5th July, 2019. 4. In this regard, it is humbly submitted that it is a settled principle that ‘repeal’ and ‘omission’ are interchangeable and ‘omission’ amounts to ‘repeal’. This submission gains support from the following judgement of Hon’ble Supreme Court: \u0001 The Hon’ble Supreme Court in the matter of Fibre Boards P. Ltd dated 11.08.2005 reported vide [(2015) 52 taxmann.com 135] /(2015) 10 SCC 333, as well as in the matter 59 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT of M/s. Shree Bhagwati Steel Rolling Mills, reported vide (2016) 3 SCC 643, wherein the Hon’ble Supreme Court in these two cases elaborately discussed the issue of repeal /omission/ amendment etc, and held that ‘omission’ would amount to ‘repeal’. \u0001 Similarly, the Hon’ble Supreme Court in Bhagat Ram Sharma Vs Union of India (AIR 1988 SC 740) held that it is a matter of legislative practice to provide while enacting an amending law that an existing provision shall be deleted and a new provision substituted. Such deletion has the effect of repeal of the existing provision. Such a law may also provide for the introduction of a new provision. There is no real distinction between 'repeal' and an 'amendment'. As per the commentary on Principles of Statutory interpretation by Justice G.P. Singh, “the legislative practice in India shows that ‘omission’ of a provision is treated as ‘amendment’ 5. Hence, in view of the above judgements of the Hon’ble Apex Court, it would not be wrong to say, in the current case, that there is a ‘repeal’ of the repeal of the provision of the enactment by way of omission/ amendment. 6. With this background, attention is invited to clause (6) and clause (6A) of The General Clauses Act, 1897 which keep intact the rights accrued during operation of repealed/ omitted enactment. Specific attention is invited to sub-clause (c) Clause (6) which specifically state that repeal/ omission of enactment shall not affect, inter alia, the right accrued under any enactment so repealed. Hence, the right continued to subsist and are saved unless they are taken away expressly. Relevant clauses are re-produced for ready reference: “6. Effect of repeal.—Where this Act, or any 4 [Central Act] or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not- (a)… (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or [6A. Repeal of Act making textual amendment in Act or Regulation.—Where any Central Act] or Regulation made after the commencement of this Act repeals any enactment by which the text of any Central Act or Regulation was amended by the express omission, insertion or substitution of any matter, then, unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal”. 7. In light of clause 6 and 6A (supra), when an Act is passed, repealing an earlier enactment or part thereof, it could not be said to take away any right already accrued, under the repealed enactment, to the assessee. The right which accrued to an assessee, during the operation of repealed Act, becomes substantive or vested right of the assessee. 60 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 8. It is to be noted that prior to amendment in Section 115QA, right was accrued to the listed companies, who has initiated the buy-back process, by virtue of the pre-amended Section 115QA of the Act. 9. Recognizing the above referred law or spirit or intent of the legislature, Hon’ble FM came out with the press statement on 20.09.2019 (referred above). 10. Applying the above legal principle and provisions in the case of the appellant, it is not in dispute that the appellant had commenced the process of buy back of its shares on 22nd May, 2019 when it issued notices for board meeting to board of directors/ stock exchanges and further made public the substantial material information, as required by the SEBI Act, 1992, SEBI(Buy Back of Securities) Regulation, 2018, related regulations and other relevant laws (Point B, containing the detail discussion with relevant facts of the case, can be referred), by 30th May, 2019.Therefore, right was also accrued to the appellant before 5th July, 2019. Such right became the substantive or vested right of the appellant and will continue to be capable of being enforced notwithstanding the repeal/ omission of the enactment under which that right accrued. 11. Accordingly, such right of the appellant entitle them to be in the category of exclusion. Accordingly, charging tax on income distributed by the appellant on account of buy back of its shares will affect the substantive or vested right of the appellant. 12. Attention is also invited to the ‘Principle of Fairness’ which states that the ‘legislation introduced for the first time need not change the character of past transactions carried out upon the faith of the then existing law’. The said principle deserves its due recognition, in the current case. It is an admitted fact that tax was imposed on listed companies, for buy back of shares, first time after introduction of section 115QA in the statute on 01.06.2013. Further, appellant had also never been subject to such regulations in the past since it has bought back shares for the first time and complied with the then existing law. Therefore, in light of the ‘Principle of Fairness’ the appellant should not be subject to tax for the buy- back carried out, by it, before 5th July, 2019 as per the then prevailing law. II. Appellant cannot be subjected to tax even according to Proviso to Section 115QA of the Act being substantially complied: Without prejudice to anything stated above and without any admission, it is humbly submitted as under: 1. During the year under consideration, the appellant made buy-back of its equity shares and the component distributed, to the shareholders, was to the tune of Rs. 71,99,99,208.42. Since, the appellant, even otherwise also, was falling under the proviso to Section 115QA of the Act, no tax, on such distributed income, was required to be paid by the appellant. 2. However, in the view of the Ld. AO, the appellant does not fall under the said proviso since the buy-back was completed after 05.07.2019. Accordingly, appellant was liable to pay tax, on distributed income of Rs. 71,99,99,211, u/s 115QA of the Act. 61 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 3. In this background, the question that needs to be addressed is “whether the appellant can be subject to tax even after the insertion of proviso to Section 115QA or not”. In this regard, it is pertinent to understand the rationale and intention for inserting the ‘proviso’ to section 115QA in the Act. 4. From the perusal of proviso to section 115QA (kindly refer sub-point 5 of Point A above), it is clear that relief, provided vide such proviso, has a direct link with the ‘Public announcement’ for the buy back of shares by the listed companies. Hence, listed companies which has made public announcement before 05th July, 2019, shall not be covered in proviso’s ambit. 5. It is also important to understand that why it was deemed necessary to bring the said proviso, by way of an ordinance, since the said proviso was in fact going to have a mitigating effect on Government treasury. Further, why so much weightage has been given to the action: ‘public announcement’. In our humble view, the said proviso was brought to address a very genuine and practical problem associated with the amendment of section 115QA vide Finance Act, 2019 which was the additional burden, in the form of extra tax outflow, it would place on companies who had initiated/ commenced the process of buy back before 5th July, 2019 since the decision to buy back was planned as per the provision existed prior to 5th July, 2019 and neither the amended provision was existed then nor such amendment was proposed in the Interim Budget(2019-20) introduced in the Lok Sabha on 1st February, 2019. Hence, the companies, who has initiated the process of buy back of shares, before 5th July, 2019 had no clue about the amended provision which was going to form part of Section 115QA. Therefore, in order to address this hardship, the Government provided relief by way of the proviso to Section 115QA of the Act. 6. Without prejudice to anything stated in point no. 5 above, further, with regard to associating the relief with ‘public announcement’, it is to be noted that the intent of law was to provide relief to listed companies who are in transition phase i.e. process to buy back was initiated but not completed. This interpretation is also supported by the simple fact that the law maker could have linked the relief with the ‘completion of the buy-back’ which had made the proviso clearer rather the law makers chose ‘public announcement’ implying that the intent was to cover those cases where the information, with regard to buy back, was into the knowledge of the public prior to 5th July, 2019. 7. At this juncture, we would like to bring, into the kind attention of your honours, followings events happened or compliance made by the appellant, before 05.07.2019, with respect to buy back of shares: Sr. No. Date Event Details 1. 22nd May, 2019 Notice of Board Meeting sent to directors and Stock Exchanges regarding Buy-back of shares (PBP: 122) 2. 22nd May, 2019 Intimation to Stock Exchange regarding trading 62 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT window closure period (PBP: 122) 3. 30th May, 2019 Board Meeting held and approved, inter alia, the following (PBP:123 – 128): a). Buy Back of Shares; b). Price of Buy Back; c). Total Buyback Amount; d). Mode of Buy-back; e).Appointment of Merchant Banker and company’s broker; f). Formation of Buy-back committee. 4. 30th May, 2019 The outcome of Board Meeting was intimated to Stock Exchanges (PBP:129 – 131) 6. 30th May, 2019 The information of Buyback and it’s all terms and conditions were already in the public knowledge or domain on 30th May, 2019 through Postal ballot and Media coverages. (PBP: 132 – 142) 7. 31st May, 2019 Press release of Buy Back intimated to Stock Exchanges (PBP:143 – 145) 8. As it can be seen from the above table, the buy-back scheme was already been initiated/ commenced, by the company, on 30th May, 2019 when the board of directors approved the scheme. Further, the material information was also available in public, on 30th May, 2019 as enumerated in the table above. 9. Moreover, it is to be noted that it is not the case where any changes/ revision has been made, by the appellant company, subsequently, in the terms and conditions of the buy-back scheme as approved in the board of directors meeting, intimated to stock exchanges and information available in public domain rather the said buy back was completed as per the said terms and conditions only. 10. As far as the contention of the Ld. AO is concerned that the public announcement should have been in accordance with the provisions of the SEBI (Buy-Back of Securities) Regulation, 2018 made under the SEBI Act, 1992, it is humbly submitted that till the announcement by the Hon’ble FM, no company had any information about the proviso or the relief to be provided. Further, even after the statement, on 20.09.2019 that relief will be provided to listed companies which have already made a public announcement of buy-back before 5th July 2019, no listed company had any idea as to what ‘public announcement’ will constitute since the Hon’ble FM had neither said anything with regard to the such term nor referred the SEBI Act/ Regulation. 63 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 11. Furthermore, in terms of regulation 7(i) of the SEBI (Buy-Back of Securities) Regulation, 2018, company which has been authorised, by a special resolution or a resolution passed by the board of directors, as the case may be, shall make a public announcement in at least one English National Daily, one Hindi National Daily and one Regional language daily, at the place where the Registered office of the company is situated and the said public announcement shall contain all the material information as specified in Schedule II. Regulation, along with Schedule-II, is re-produced below for ready reference: “Disclosures, filing requirements and timelines for public announcement: 7. (i) The company which has been authorised by a special resolution or a resolution passed by the board of directors, as the case may be, shall make a public announcement within two working days from the date of declaration of results of the postal ballot for special resolution/board of directors resolution in at least one English National Daily, one Hindi National Daily and one Regional language daily, all with wide circulation at the place where the Registered Office of the company is situated and the said public announcement shall contain all the material information as specified in Schedule II.” SCHEDULE - II [Regulation 7(i) and Regulation 22(ii)(b)] Disclosures in the Public Announcement for buy-back through tender offer and from odd lot holders and from the open market through book building process Particulars Content Public Announcement i) The Public announcement shall be dated and signed on behalf of the Board of Directors of the company by its manager or secretary, if any, and by not less than two directors of the company one of whom shall be a managing director where there is one. ii) A full and complete disclosure of all material facts including the disclosures mentioned in Schedule I shall be made. 12. One crucial point that need foremost consideration, in the current case, is that all the material information (as specified in Schedule I) which should form part of the public announcement, as per SEBI (Buy-Back of Securities) Regulation, 2018 has already been informed to the shareholders, on 30th May, 2019, by way of Postal Ballot Notice (PBP:132 – 139). In this regard, a comparative table of material information, contained in Schedule I vis- à-vis Postal Ballot Notice, is produced below for ready reference: Material Information as Per Schedule I [Regulation 5(iv)(b)] Point No. of Postal Ballot Notice i) Date of the Board meeting at which the proposal for buy-back was approved by the Board of Directors of the company; Point No. 1 64 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT (PBP:134) ii) Necessity for the buy-back; Point No. 2 (PBP:134) iii) Maximum amount required under the buy-back and its percentage of the total paid up capital and free reserves; Point No. 3 (PBP:134) iv) Maximum price at which the shares or other specified securities are proposed be bought back and the basis of arriving at the buy-back price; Point No. 4 (PBP:134) v) Maximum number of securities that the company proposes to buy- back; Point No. 5 (PBP:134) vi) Method to be adopted for buy-back as referred to in sub- regulation (iv) of regulation 4, Point No. 6, 7 and 8 (PBP:135) vii) (a) the aggregate shareholding of the promoter and of the directors of the promoters, where the promoter is a company and of persons who are in control of the company as on the date of the notice convening the General Meeting or the Meeting of the Board of Directors; (b) aggregate number of shares or other specified securities purchased or sold by persons including persons mentioned in (a) above from a period of six months preceding the date of the Board Meeting at which the buy- back was approved till the date of notice convening the general meeting; (c) the maximum and minimum price at which purchases and sales referred to in (b) above were made along with the relevant dates; Point No. 9 (PBP:135 – 136) viii) Intention of the promoters and persons in control of the company to tender shares or other specified securities for buy-back indicating the number of shares or other specified securities, details of acquisition with dates and price; Point No. 10 (PBP:136) ix) A confirmation that there are no defaults subsisting in repayment of deposits, redemption of debentures or preference shares or repayment of term loans to any financial institutions or banks; Point No. 11(vii) (PBP:136 – 137) x) A confirmation that the Board of Directors has made a full enquiry into the affairs and prospects of the company and that they have formed the opinion- Point No. 12 65 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT a) that immediately following the date on which the General Meeting or the meeting of the Board of Directors is convened there will be no grounds on which the company could be found unable to pay its debts; b) as regards its prospects for the year immediately following that date that, having regard to their intentions with respect to the management of the company’s business during that year and to the amount and character of the financial resources which will in their view be available to the company during that year, the company will be able to meet its liabilities as and when they fall due and will not be rendered insolvent within a period of one year from that date; and c) in forming their opinion for the above purposes, the directors shall take into account the liabilities as if the company were being wound up under the provisions of the Companies Act, 1956 or Companies Act or the Insolvency and Bankruptcy Code 2016 (including prospective and contingent liabilities); (PBP:137) xi) A report addressed to the Board of Directors by the company’s auditors stating that- (a) they have inquired into the company’s state of affairs; (b) the amount of the permissible capital payment for the securities in question is in their view properly determined; and (c) the Board of Directors have formed the opinion as specified in clause (x) on reasonable grounds and that the company will not, having regard to its state of affairs, will not be rendered insolvent within a period of one year from that date. Point No. 13 (PBP:137) 13. It is to be noted that the ‘purpose’ of public announcement is to bring, the buy-back of shares and material information related to it, into the attention of the shareholders/ beneficial owners of shares, of a company. Perusal of the above comparison shows that all the material information, as required by the SEBI (Buy-Back of Securities) Regulation, 2018, has already been announced publicly by the appellant company. Therefore, in these facts and circumstances, denying the benefit of proviso to the appellant would be sheer ‘injustice’. In this reference, observation of the Hon’ble Apex Court in the case of Sardar Amarjit Singh Kalra (Dead) by Lrs. Vs Pramod Gupta (Smt) (Dead) by Lrs. & Anr. [(2003) 3 SCC 272] is apt in this situation where it held that: 66 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT “26. Laws of procedure are meant to regulate effectively, assist and aid the object of doing substantial and real justice and not to foreclose even an adjudication on merits of substantial rights of citizen under personal, property and other laws. Procedure has always been viewed as the handmaid of justice and not meant to hamper the cause of justice or sanctify miscarriage of justice……..” 14. Doctrine of Substantial Compliance: At this stage, without any admission, the appellant wants to draw attention, of your honours, to the ‘Doctrine of Substantial Compliances’ which states that if mandatory conditions/ requirements are complied with, the enactment can be considered substantially complied with, even if there is non-compliance with procedural requirements. The substantial condition of the proviso, to section 115QA, was that the ‘public announcement’ should have been made before 5th July, 2019 and the mode of such public announcement i.e. the procedural requirement, was that public announcement should be made in accordance with SEBI (Buy-Back of Securities) Regulation, 2018. Hence, the ‘essence’ of proviso to section 115QA, was to inform the shareholders about the buy-back and material information related to it, which, in the instant case, was complied with by the appellant company way before 5th July, 2019 rather more than 90% of the requirement was complied with by the appellant (as elaborated in point no. 12 above). Hence, the said substantial compliances cannot be overlooked simply because the appellant had not made the publish the information in one Hindi, English and Regional Daily i.e. procedural requirement, prior to 5th July, 2019. In this regard, we rely on the following case laws: \u0001 The Hon'ble Supreme Court in Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal and others [(2011) 1 SCC 236], held as follows: “Doctrine of substantial compliance and “intended use” 32. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted on some minor or in consequent aspects which cannot be described as the “essence” or the “substance” of the requirements. Like the concept of “reasonableness”, the acceptance or otherwise of a plea of substantial compliance depends upon the facts and circumstances of each case and the purpose and object to be achieved in the context of the prerequisites which are essential to achieve the object and purpose of the rule or regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuate the object and the scope of the statute has not been met. Certainly, it means that the court would determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means “actual compliance in respect to the substance essential to every reasonable object of the statute” and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. 33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is 67 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT insisted, where mandatory and direct recruitment requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and forgive non- compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. (Emphasis Supplied) \u0001 The Hon’ble Gujarat High Court decision in the case of CIT Vs. Tarnetar Corporation (2012) 26 taxmann.com 180 held as under: “5. We have perused the detailed discussion of the CIT (Appeals) as well as the Tribunal on the issue. In particular, the Tribunal noted that the construction was completed in 2006. Application for BU permission to the Municipal authorities was filed on 15.2.2006 which was rejected on 1.7.06. Several residential units were occupied since the same was done without necessary permission. The assessee had also paid penalty and got such occupation regularized. Several tenements were sold long before the last date. 6 In the present case, therefore, the fact that the assessee had completed the construction well before 31st March, 2008 is not in doubt. It is, of course, true that formally BU permission was not granted by the Municipal Authority by such date. It is equally true that explanation to clause (a) to section 80-IB(10) links the completion of the construction to the BU permission being granted by the local authority. However, not every condition of the statute can be seen as mandatory. If substantial compliance thereof is established on record, in a given case, the court may take the view that minor deviation thereof would not vitiate the very purpose for which deduction was being made available. 7. In the present case, the facts are peculiar. The assessee had not only completed the construction two years before the final date and had applied for BU permission. Such BU permission was not rejected on the ground that construction was not completed, but the some other technical ground. In that view of the matter, granting benefit of deduction cannot be held to be illegal. 8. In the result, the Tax Appeal is dismissed.” 15. Machinery provisions cannot overpower or negate Intention of Legislature: a) It is a well settled law that the dominant purpose, in interpretating a charging section is to ascertain the intention of the legislature. Further, it is also an established principle that the purpose of machinery provisions is to give effect to the clear intention of the legislature. 68 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT b) Perusal of the charging Section: 115QA of the Act that the intention of the amendment was not to tax listed companies who has commenced the process of buy-back on or after 5th July, 2019 irrespective of the fact that the said buy back is completed after 5th July, 2019. c) The underlying ‘objective’ of the proviso to section 115QA was also to take out such companies from the ambit of amended section 115QA and to provide relief to them. That’s the reason the Hon’ble Finance Minister used the word ‘relief’ in her statement which was with specific reference to companies in ‘transition phase’ since there was no point in giving any relief to companies who have not even started the process of buy back/ completed the buy back before 5th July, 2019. Any other interpretation would bring harsh consequences to the listed companies whose buy buck of shares was ‘underway’ prior to 5th July, 2019. d) Under the current case, the machinery provision, as submitted above, was to make the public announcement as per SEBI (Buy Back of Securities) Regulation, 2018 which provides how the public announcement is to be made. However, such machinery provision can never overshadow the intention of the law and has to be construed liberally. In this regard, observation of the Hon’ble Supreme Court in the case of CIT-III Vs. M/s Calcutta Knitwears [CA No. 3958 of 2014] is produced below for reference: “35. It is also trite that while interpreting a machinery provision, the courts would interpret a provision in such a way that it would give meaning to the charging provisions and that the machinery provisions are liberally construed by the courts...” e) On the other hand, if we go by the contention of the Ld. AO and make the machinery provision i.e. public announcement as per SEBI (Buy Back of Securities) Regulation, 2018 as the deciding factor, the object of the charging section would not be achieved. 16. Further, as far as allegation to evade tax is concerned, the appellant humbly submits that the transaction of buy back and relevant legal compliance is part of regular books of accounts of the appellant and documented with various regulatory bodies and is in public domain by way of publications. Therefore, there is no case of any falsification of books of accounts or entry or omission of entry or creating circumstances enabling a person to evade any tax. Therefore, under these facts and circumstances, it would be fallacious to allege an attempt to evade tax on the part of the appellant. III. Unintended Differential/ Un-equal Tax Treatment: Without prejudice to anything stated above and without any admission, contention of the Ld. AO would lead to differential or conflicting treatment to the taxpayers which was never the intention of the legislature. In this regard, we submit as under: 1. Submission with respect to SEBI Regulation: 69 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT a) It is important to note that sub-clause (b) of clause (i) of regulation 5(i) of SEBI (Buy Back of Securities) Regulations, 2018 prescribes two different set of procedures: one for buy back up to 10% of paid- up equity capital and free reserves and second is for buy back of more than 10% of paid-up equity capital and free reserves. For buy back up to 10%, no approvals from shareholders are required and within 48 hours from approval of Board of Directors, public announcement can be made whereas in other case, approval of shareholders, in the shareholders meeting which required calling of EGM/AGM which further have minimum stipulation of time in relevant law, are required. Relevant regulation is re-produced for ready reference: “General compliance and filing requirements for buy-back: 5. (i) The company shall not authorise any buy-back (whether by way of tender offer or from open market or odd lot) unless: a) … b) A special resolution has been passed at a general meeting of the company authorising the buy-back: Provided that nothing contained in this clause shall apply to a case where the buy-back is, ten per cent or less of the total paid-up equity capital and free reserves of the company; and such buy-back has been authorised by the board of directors by means of a resolution passed at its meeting”. b) Under such circumstances, it may result into unintended differential or unequal tax treatment which can further be explained by following examples: Sr. No. Particulars ABC Ltd XYZ Ltd 1 Capital & Reserve (Rs. in lacs) 20 20 2 Buy Back Value (Rs. in lacs) 2.002 2 3 Percentage of Buy back 10.01% 10% 4 Board Approval Date 29.06.2019 29.06.2019 5 Approval of Shareholder required Yes No 6 Date of Shareholder Approval 12.08.2019 NA 7 Public announcement 14.08.2019 01.07.2019 8 Applicability of buyback Tax Yes No 9 Tax amount @20% 0.4004 Nil 70 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT c) In view of foregoing illustration, it is clear that proviso has not been inserted to give differential or unequal tax treatment but to carve out genuine cases where process, of buy back, as per SEBI Regulation, 2018 has started prior to 05.07.2019. d) Moreover, said treatment would infringe the ‘Right to Equality’ enshrined in Article 14 of the Constitution of India. The said Article is re-produced below for ready reference: “Right to Equality 14. Equality before law.—The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.” e) The above Article is relevant under Income Tax Act also to ensure that no discrimination occurs between two persons while imposing tax. In view of the table above, imposing tax on a listed company: ABC Ltd while not charging tax on XYZ Ltd. is discriminatory and violative of Article 14 of the Constitution f) In the instant case, substantial activities were already been completed before 05th July, 2019 as per SEBI Regulation, 2018. Hence, benefit of proviso should be given. 2. Principle of Harmonious Construction: a) The legislature is presumed to enact a consistent and harmonious body of law in deference to rule of law. In the instant case, the above referred proviso to section 115QA of Income Tax Act, is further dependent on, for the purpose of procedural part, the SEBI Regulations when we apply the intent of the Income Tax provisions to the SEBI Regulations. The relevant procedures have been designed to capture two different situations as per SEBI Regulations. However, Section 115QA is not envisaged to capture two different situations. This situation resulted into conflict the intent of Section 115QA and the procedure laid down in the SEBI Regulations and therefore, Harmonious Construction lies with intent of the Income Tax provisions and, as far as procedural part is concerned, the substantial compliances as per SEBI Regulation which resulted into reconcile to seemingly conflicting situations arises due to reason stated above. b) The construction of the section 115QA as made by the Ld. AO resulted into failure to achieve the purpose of legislature whereas Harmonious Construction of machinery provision must be construed to effectuate the object and purpose of Section 115QA and not to defeat it. 3. Submission with respect to Differential treatment due to omission in Section 115QA of the Act: a) In terms of sub-clause (1) of clause 7 of SEBI (Buy-Back of Securities) Regulation, 2018 (supra), companies have to make public announcement withing 2 days from the date of declaration of results of the postal ballot for special resolution/board of directors resolution 71 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT b) Now for instance, a listed company has commenced the buy-back process on 1st April, 2019 and done all the regulatory compliances and declaration of result of the postal ballot for special resolution/ board of directors on 3rd July, 2019. Accordingly, in terms of regulation 7(i) of SEBI (Buy-Back of Securities) Regulation, 2018, the said company had time to make public announcement, within 2 days i.e. till 5th July, 2019. c) Hence it made the public announcement on 5th July, 2019. Now, as per the strict reading of the section, although such listed company has complied with all the regulatory requirement before 5th July, 2019 except public announcement, which was made on 5th July, 2019, it will come under the purview of Section 115QA and it had to pay 20% additional. d) On the other hand, if such company would have made the public announcement on 4th of July, 2019, no additional burden of tax would come onto it. e) Therefore, can such harsh interpretation be ‘reasonable’ considering the fact that the said company, who made public announcement on 5th July, 2019, had no idea of the proposed amendment and was following the compliance made by a specific Act: SEBI Act, 1992 read with SEBI (Buy-Back of Securities) Regulation, 2018. f) Further, going by such interpretation, would it be ‘justified’ to cover such companies, under the jurisdiction of section 115QA of the Act by making retrospective amendment w.e.f. 5th July, 2019, after almost 1 month from the completion of buy back period. Perusal of the proviso inserted w.r.e.f. 5th July, 2019 does not align with such interpretation. g) If the section is read in the context in which submission has been made by the appellant, then the true spirit, of inserting the proviso to Section 115AQ, vide an ordinance, would come out and actual relief will be delivered instead of differential or conflicting treatment of taxpayer(s). Accordingly, any buy back which was initiated before 5th July, 2019 would be out of the scope of Section 115QA of the Act irrespective of the fact that the buy back is completed after 5th July, 2019. Grounds of Appeal: 2. Under the facts and circumstances of the case the Ld. AO has erred by charging additional tax on whole amount of buy back rather than on distributed income as per Section 115QA. Submission: 1. Incorrect determination of ‘distributed income’ as per Section 115QA: a) Without prejudice to anything stated above and without any admission, perusal of the assessment order shows complete non-application on the part of the Ld. AO in a sense that the Ld. AO has completely overlooked the meaning of ‘distributed income’ as provided in clause (ii) of Explanation to Section 115QA of the Act. Relevant definition is read as under: 72 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT “Explanation.—For the purposes of this section,— (i) … (ii) \"distributed income\" means the consideration paid by the company ` on buy-back of shares as reduced by the amount, which was received by the company for issue of such shares, determined in the manner as may be prescribed” b) As it can be seen that an exhaustive definition of distributed income is provided whereby the amount which was received by the company, at the time of issuance of shares, which was bought back by the company, has to be reduced from the consideration paid by the company on buy back of such shares. To put it formula, the distributed income would mean: “[consideration paid by the company on buy-back of shares minus amount received by the company for issue of such shares]” c) However, instead of following the above formula for computing the addition to be made for alleged violation of Section 115QA, the Ld. AO added the whole consideration, paid on buy back of shares by the appellant, in the hands of the company, which indicate complete non application of mind. d) Nevertheless, in order to determine correct amount of distributed income, reference is to be made to Rule 40BB of the Income Tax Rules which prescribes the manner of determining the ‘amount received by the company in respect of issue of share’. Since the appellant had issued such shares by way of Initial Public Offer Subscription, hence sub-rule (2) of Rule 44BB would be relevant which is re-produced for your reference: “(2) Where the share has been issued by a company to any person by way of subscription, amount actually received by the company in respect of such share including any amount actually received by way of premium shall be the amount received by the company for issue of such share. e) In the instant case, the appellant has issued shares (8,65,675/- shares) at Rs. 30 and received Rs. 2,59,70,250/- which were subsequently bought back. The extracts of prospectus is reproduced below for reference: 73 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT f) Accordingly, in terms of explanation read with above rule, such amount needs to be reduced from the addition, of Rs. 71,99,99,211, made by the Ld. AO in the assessment order. Hence, in view of the above submission, it is humbly requested to kindly delete the addition to the extent of Rs. 2,59,70,250/-. VI. Other Ground of Appeal: 1. Under the facts and circumstances of the case and in law, the Ld.AO has erred in incorrectly computing book profits INR 3,25,44,82,409/- after incorrectly adding the impugned TP adjustments and other disallowances required to be made only for purposes of computing income under normal provisions of the Act. As per settled legal principles and provisions of Section 115JB, only certain specified adjustments may be carried out for computing book profits, and hence the above action of Ld.AO is contrary to the provisions of the Act. Submission: General in nature. Hence, not pressed. 2. Under the facts and in law, the Ld. AO/ Ld. TPO erred in initiating penalty under section 270A of the Act for alleged under reporting of income. 74 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 6. To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions: Sr. No. Particulars Page No. 1. Copies of order passed by Hon'ble ITAT, Jaipur for the A.Y. 2016-17 and 2017-18. 1 - 116 2. Copies of invoices raised to AE and Non-AE 117 - 120 3. Copy of Challan of PF payment made on 16.12.2019 121 4. Copy of Notice, of Board Meeting, dated 22nd May, 2019 send to Board of Directors and Stock Exchanges 122 5. Copies of Board resolution dated 30th May, 2019 123 - 128 6. Copy of letter, dated 30th May, 2019, intimating outcome of board meeting, to Stock Exchanges 129 - 131 7. Copy of Postal Ballot Notice dated 30th May, 2019 132 - 139 8. Copies of sites containing information about buy back of shares 140 - 142 9. Copy of press release intimated to stock exchanges 143 - 145 7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee the addition made by the ld. AO as regards with the specified domestic transaction and internation transaction the issue is covered by the decision of this co- ordinate bench in the case of the assessee and he invited our attention to the relevant finding on the issue raised demonstrating that the issue is fully covered by the decision of the order filed in the paper book. 75 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT As regards the issue of ESI/PF the last date being Holiday ld. DRP considered the submission of the assessee and directed the ld. AO to verify if the last day being Holiday then the same should be allowed. Ld. AR of the assessee in this regard filed the copy of the calendar stating that the last date being Sunday the direction of the DRP also support the contention of the assessee and thereby the addition is required to be deleted. As regards the issue of buy back ld. AR of the assessee submitted with the history of the section saying that earlier the provision was applicable to unlisted companies. On 5th July 2019 vide Finance (No.2) Bill, 2019 the phrase “not being shares listed on a recognized stock exchange” as appearing in the section was omitted. That bill which was proposed on 05.07.2019 become Act as the same was passed on got the approval of the Hon’ble President of India on 01.08.2019. Going further ld. AR of the assessee invited our attention to the statement of the Hon’ble Finance Minister in the press conference dated 20.09.2019 wherein it was clarified that “ f. In order to provide relied to listed companies which have already made public announcement of buy back before 5th July 2019 it is provided that tax on buy back of shares in case of such companies shall not be charged.” If the sequent of event mentioned in the written submission read with the statement of the Hon’ble Finance Minister, then the assessee has 76 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT made the public announcement on 30.05.2019 in the media as well as to the stock exchange. As the requirement was introduced with retrospective effect the assessee cannot be fastened with the additional tax liability. To drive home to this contention ld. AR of the assessee cited the decision of the Apex Court in the case of Fibre Boards P. Ltd. and Bhagat Ram Sharma (Supra) wherein it has been held that while enacting an amending law that an existing right continued to subsist and are saved unless they are taken away expressly. Thus, in this case considering the sequent of the event given in the written submission at page 46 and 47 the rights which was accrued cannot be taken away even the statement of the Hon’ble Finance Minister did not clarify the specific as noted by the ld. AO. Thus, considering the sequent of event all the information was in public domain, thus considering the doctrine of principle of fairness carried on faith of law should be adopted. Going further ld. AR of the assessee referring to the SEBI regulation he referred that there are differential treatment is required to be given for the buy back. If the buy back is up to 10 % no approval from the shareholders are required and thereby the company is not under default if that is the case but in the case of hand it is more than 10 % then the assessee has to do certain formalities for getting approval of shareholders 77 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT and for that specific time notice is required. Thus, if that way also the assessee’s put under disadvantage is not the intention of the law and the treatment of 10 % is considered there is not default on the part of the section 115QA of the Act. The ld. AR of the assessee submitted that harmonious construction is required when the circumstances of the case of the assessee arise. Ld. AR of the assessee also argued that the lower authority has not considered the cost of issue price while making the addition and added the entire amount of the buy back. Therefore, even on that count the addition is required to be deleted. 8. The ld. DR is heard who relied on the findings recorded in the final order of the ld. AO. As regards the contention that the two issue of TPO adjustment covered by the decision of the co-ordinate bench of ITAT, he stated that the addition were made to have the issue alive as the revenue has challenged the finding before the Hon’ble High Court. As regards the disallowance of PF amount the ld. DRP has already given direction and the same direction be given to the ld. AO. The amendment made vide Finance Bill from 05.07.2019 was already in public domain. As per the amended provision the assessee is suppose to 78 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT pay tax and the law does not differential treatment to the assessee and the spirit of the provision of law to be read as it is enacted. As regards the requirement of the SEBI Act that cannot apply in the Income Tax Act. The decision of the board of director and that of the shareholders can be reversed till the same is not intimated to SEBI and therefore, the contention of the assessee is not tenable. 9. We have heard the rival contentions and perused the material placed on record. As is evident from the written submission filed by the ld. AR of the assessee that he has not pressed three sperate ground raised under the head General Grounds. Considering that prayer the same are not required to be adjudicated and the same are treated as dismissed. 10. Now coming to the effective ground for adjustment made for an amount of Rs. 136,31,75,249/- on account of Sale and Purchases made to / from Associated Enterprises (AE). Before we deal with the grounds it would be appropriate to deal with the documentation or the basis of computing the TP approach considered by the assessee. The details available from the records are as under : B. Summary of international transactions and benchmarking approach adopted by the appellant in its TP Documentation: 7. Details of sale made by the appellant company to its AEs and other unrelated parties: Details of Sale made to Amount (Rs.) Percentage 79 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Associated Enterprises 385,87,97,000/- 89.60% Other Unrelated Parties 44,80,52,000/- 10.40% Total 430,68,49,000/- 100.00% 8. Details of purchased made by appellant from its AEs and other unrelated parties were as under: Details of Purchases made from Amount (Rs.) Percentage Associated Enterprises 51,45,11,000/- 17.37% Other Unrelated Parties 244,68,96,000/- 82.63% Total 296,14,07,000/- 100.00% 9. Following tables summarizes the results of the economic analysis relied upon by the appellant: International Transaction Assessee’s GP/COP Arm’s Length Price (Three Year Weighted Average of Comparable) Sales of gem stones, studded Jewellery and other product to AEs. 15.95% 35th to 65th percentile = 11.49% to 19.78% Median = 14.84% Purchase of Gem stones, roughs, diamonds, other raw material from AEs. 10. After detailed review of functions performed, risk assumed and assets employed along with an understanding of nature of services rendered by each comparable company was undertaken and following 31 companies were identified, by the appellant, as functionally comparable to VGL: Sr. No. Company Name Weighted Average GPM (%) 80 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 1. AVR Swarnamahal Jewelry Pvt Ltd. 12.19% 2. Azure Jouel Pvt Ltd. 47.71% 3. Banaras Beads Ltd. 120.71% 4. Concept Images Pvt Ltd. 1.45% 5. Creative Gems & Jewellery Ltd 18.99% 6. Darshan Orna Ltd. 2.70% 7. Golkunda Diamonds & Jewellery Ltd. 14.66% 8. GRT Jewellers India Pvt Ltd 11.87% 9. Inter Gold India Pvt Limited 32.73% 10. Jashan Jewels Pvt Ltd. 45.69% 11. Kalyan Jewellers India Pvt Ltd. 19.78% 12. Kanani Industries Ltd. 3.46% 13. Kays Jewels Pvt Ltd. 18.91% 14. KGK Creations (India) Pvt Ltd. 25.09% 15. Lalithaa Jewellery Mart Pvt Ltd 8.17% 16. Laxmi Diamond Pvt Ltd 14.84% 17. Mohammed Khan Jewellers Pvt Ltd. 17.90% 18. Moksh Ornaments Ltd. 4.16% 19. PC Jeweller Ltd. 12.39% 20. Rohit Jewellers Pvt Ltd. 6.44% 21. Shantivijay Jewels Ltd. 18.80% 22. Sovereign Diamonds Ltd. 25.74% 23. Swarnasarita Gems Ltd. 3.81% 24. Thangamayil Jewellery Ltd. 11.49% 25. Titan Company Ltd. 36.59% 26. Tribhovandas Bhimji Zaveri Ltd. 24.88% 27. Uday Jewellery Industries Ltd. 9.48% 28. Zel Jewellers Ltd. 23.20% 29. Zodiac-Jrd-Mkj Ltd. 7.45% 30. Tiara Jewels Pvt Ltd. 6.55% 31. Suashish Diamonds Ltd 67.83% Median 14.84% 81 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 10.1 After considering the TP approach and documentation in this regard the bench also noted the following comparison of facts with this year with that of the earlier year so as to establish that the facts of the year under consideration are similar so as to considered the TP documentation in this year. The relevant part of that comparison is reproduced for the sake of brevity : 11. Since, the facts of the decision of A.Y. 2016-17 and 2017-18 are same, we are hereinbelow producing submission with regard to the analysis of the findings made by Ld.AO and TPO in the current year vis. a vis. Adjudicated by Hon’ble Bench in ITA No. 97/JP/2021 for A.Y. 2016-17: d) Method adopted, by the appellant, as PLI: (iv) Method adopted in A.Y. 2016-17 is GPM/COP method (Page-21, Para-19 of order of Hon’ble Bench) (v) Method adopted in the assessment year under question is also GPM/COP method (Page-8, Point no. 2 of draft assessment order) (vi) Thus, in the both the years the same method as PLI has been adopted. e) Method opted by Ld. TPO: (iv) Method adopted by TPO in A.Y. 2016-17 is OP/VAE. (Page-21, Para-19 of order of Hon’ble Bench) (v) Method adopted by TPO in assessment year under question is also OP/VAE. (Point No. 9; Page 26 of TPO) (vi) Thus, in principle in A.Y. 2016-17 and in the year under consideration, TPO has taken the same action and consequent thereto adjustments have been made. f) Findings of Hon’ble Bench in the case of A.Y. 2016-17, facts discussed therein vis. a vis. fact of the assessment year under consideration: (ix) Para-19: discussion about the method adopted by the assessee vis a vis adopted by TPO. As mentioned above, against the GPM/COP as PLI, TPO proceeded to opt OP/VAE as PLI. (x) Para-20 - 24: discussion about OECD transfer pricing guidelines, United Nation Practical Manual on Transfer Pricing for developing countries (2017) and other judicial precedents relied upon the appellant. In this assessment year under question also, we rely upon the discussed judicial precedents, provisions and legislature/enactments. 82 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT (xi) Para-25: discussion upon the profile of the assessee company as stemming out from the Transfer Pricing Report. In this regards Para 2 of the TP Report of the assessment year under consideration is reproduced below clearly showing that functions and activities of the assessee company are exactly same as preceding assessment years decided by Hon’ble ITAT. “2. Profile of the Assessee Company: As per your TP submission, M/s Vaibhav Global Limited Vaibhav Global Ltd. (“VGL”), incorporated in 1989, is the parent entity of the Vaibhav Group with its registered and corporate offices situated in Jaipur. The company is engaged in the business of manufacturing and exports of colored gems stones and studded jewellery with its manufacturing units located at Jaipur and Mumbai. It processes stones, diamonds and other raw materials into rings, bracelets, pendants, etc. and exports to its associated enterprises located in U.S.A., Hong Kong, Thailand, UK, Japan and Indonesia”. (xii) Para-26: In this para reference has been made to the findings of Ld. Lower authorities affirming the fact that assessee company is engaged in manufacturing. It is important to note that similar findings have been made for the assessment year under consideration wherein at Page-1 of final assessment order dated 30.07.2024 it has been clearly mentioned that “the assessee is a company involved in the business of manufacturing and exporting of colored gems stones and studded jewellery with precious and semi-precious stones”. Similar finding has also been made by the DRP in point no. 3 at page 3 of its order dated 30.06.2024 which reads as under: “it is engaged in the business of manufacturing and exporting of colored gems stones and studded fashion jewelry ”. (xiii) Para-27: discussion about nature of functions performed, assets employed and risk undertaken by the assessee company. Please note that there is no change in the same in the current year, accordingly, appellant is covered by the finding made by Hon’ble Bench made at Para-27. (xiv) Para-28: During the assessment year under consideration, the nature of international transactions undertaken pertains to purchase/sale to/from related entities similar to A.Y. 2016-17. In the assessment year under consideration, the assessee has carried out the independent benchmarking analysis with independent third party comparable. (xv) Para-31: The method of calculation of GPM in A.Y. 2016-17 and the assessment year under consideration is similar. The GP/COP shown by the assessee, in the year under consideration, was 15.43% as against 15.62% shown by the appellant in the A.Y. 2016-17. 83 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT In the assessment year under consideration the appellant has shown followed the same method to compute GP/COP: Particulars Amount as on 31.03.2020 (in crores) Sales (A) 422.67 Tota Cost of Production (B) 366.17 Gross Profit (C = A – B) 56.50 GP/COP (C/B) 15.43% Thus, based on the above, since CPM with GP/COP as the PLI has been accepted as the most appropriate method by the Hon’ble Tribunal for the AY 2016-17, the Ld. TPO as well as the Ld. AO erred in not accepting the same for the current Assessment year. (xvi) Para-33 and 34: d) In the current case, the reasoning adopted by the TPO, in point no. 2 at page 5 of TPO order, to select OP/VAE (Berry Ratio) as the PLI, is that since the appellant is purchasing from related parties and selling to related parties, hence both cost and revenue sides are tainted. The DRP has also upheld, in point no. 3.4 at page 11 of its order, the reasoning so adopted by the TPO. The same identical findings were made by the Ld. AO and DRP in the A.Y. 2016-17 and 2017-18 also. e) To justify the validity of application of berry ratio, Ld. DRP has placed its reliance on the decision of Hon’ble Delhi High Court in the case of Sumitomo Corporation India P Ltd Vs CIT (2016) 71 taxmann.com 290 (Delhi HC). f) In this regard, reference in invited to para 33 and 34 of the order of the Hon’ble, ITAT wherein the Hon’ble ITAT explicitly stated that the judgement of Sumitomo 84 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT (supra) does not support the case of the Revenue rather the appellant. Since, there being no change in facts and circumstances, the case of appellant is squarely covered by the decision arrived at by the Hon’ble Bench at Para-33 and 34. xviii) Para 35: d) As far as the contention of the Ld. TPO and DRP about purchase and sales being tainted, is concerned, the Ld. TPO has failed to appreciate that the appellant purchases raw material, such as Gems, colored stones etc. primarily from unrelated third parties. However, on certain occasions, on need basis, the also purchases, such materials from its AEs. During the year under consideration, purchases from AEs constitute merely 17.37% of its total purchases besides purchases from other entities. e) Further, it is to be noted that since the appellant is a manufacturer and exporter, it processes such raw material in its manufacturing facilities and thereafter, export them to its associated enterprises or unrelated third parties. Therefore, it carries out significant manufacturing and processing operations on raw materials procured by it. Hence, the appellant is not in the business of trade intermediary where it buys from its AEs and sells to its AEs rather a manufacturer who further processes the goods procured before selling them. Hence, the facts of the case have been mis-conceptualized by the lower authorities.. f) Since the facts were similar in A.Y. 2016-17, the Hon’ble ITAT stated that the approach adopted by Ld. TPO to be bereft of factual position of the appellant and is not in consonance with the approach suggested by OECD and the UN. Therefore, rejected the contention of the Ld. TPO and DRP that berry ratio is applicable in the case of the appellant. xix) Para-36 and 37: Hon’ble ITAT has recorded a finding apropos comparable companies selected by TPO and their weighted average PLI using the GP/COP method. The finding so made by Hon’ble Bench is reproduced hereunder: 85 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT In the case in hand, following comparable companies were identified, by Ld. TPO, for benchmarking: S.No. Comparable Company Three Year Weighted Average GPM 1. Classic Ornaments Pvt. Ltd. 2.52% 2. Suvarna Shilpi Jewellers Pvt. Ltd. 3.04% 3. Master Chain Pvt. Ltd. 3.17% 4. Karp Impex Ltd. 8.84 5. Uday Jewellery Industries Ltd. 11.43% 6. Golkunda Diamonds & Jewellery Ltd. 13.68% 7. Inter Gold (India) Pvt. Ltd. 31.12% 8. Azure Jouel Pvt. Ltd. 49.12% Median 9.99% 86 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Assessee’s Gross Margin 15.43% Without prejudice to anything stated in above para and without any admission, even otherwise also perusal of the comparable relied upon by the Ld. TPO shows that their median GPM comes to 9.99% which is lower than the GPM of 15.43% shown by the appellant, which makes it evident that transactions with the associated enterprises have been entered at arm’s length price. xx) Further, we are also submitting comparative analysis of the facts present in the A.Y.:2016-17 vis-a-vis facts present in the assessment year under consideration. c) Method adopted as PLI: Particular A.Y. 2016-17 A.Y. 2020-21 Method as per appellant GPM/COP (Page-21, Para-19 of ITAT Order) GPM/COP (Page-45, Point-2 of AO Order) Method as per Revenue OP/VAE (Page-21, Para-19 of ITAT Order) OP/VAE (page-45, Point-2 of AO Order) d) Nature of business of the appellant company: Particulars A.Y 2016-17 AY 2020-21 Nature/Profile Export Manufacturer (Para 27; Page-38 of ITAT Order) Export Manufacturer (Point I of AO) Profile of assessee company as per findings of lower authorities Manufacturer (Para 26; Page-37 of ITAT Order) Manufacturer (Page 2, Point 3 of AO) xxi) The appellant possesses all the characteristics of a routine manufacturer performing all the entrepreneurial functions which is duly corroborated by its financial statements. In this regard, we are also producing extracts of Financial Statements depicting characteristics of a manufacturer: Fixed assets: S. Name of Assets Balance as on Balance as on 87 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT No. 31.03.2016 30.03.2020 A. Tangible Assets Freehold Land 48,94,908 Leasehold Land 3,51,56,343 34,24,000 Building 21,50,47,894 19,50,48,304.41 Plant & Machinery 18,79,50,445 21,91,29,234.95 Electric Installation 7,55,77,605 5,77,98,634.61 Furniture & Fixtures 2,19,30,577 1,87,25,272.70 Office Equipment 1,52,02,246 1,48,03,488.72 Computer 5,55,71,870 3,83,76,235.81 Vehicles 85,46,685 66,05,500.58 B. Intangible Assets Computer Software 1,97,27,351 6,66,98,129.05 Total 63,96,05,924 62,06,08,800.83 C. Capital Work In Progress 2,82,05,679 0.00 Total 66,78,11,603 62,06,08,800.83 Inventories Particulars A.Y. 2016-17 A.Y. 2020-21 Materials-in-process 114,71,78,872 91,64,84,305.89 Semi-Finished Goods 9,48,14,854 1,20,71,502.96 Finished Goods 6,18,62,091 12,73,03,920.62 Stores and Consumables 2,62,37,152 1,48,24,867.08 Total 133,00,92,969 107,06,84,596.55 Revenue From Operations: Particulars A.Y. 2016-17 A.Y. 2020-21 88 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Sale of Products: Export Sales 323,27,84,983 398,04,57,709 Domestic Sales 36,95,49,715 31,71,56,031 Other Operating income 37,11,679 92,35,074 Total 360,60,46,377 430,68,48,813.91 Sale of Products: Particulars A.Y. 2016-17 A.Y. 2020-21 Gemstones 5,62,51,029 91,59,60,060 Jewellery 286,46,93,753 264,26,19,853 Life Style Products 14,98,67,046 23,37,76,113 Diamonds 2,52,63,600 50,52,57,714 Total 360,23,34,698 429,76,13,739 Other Expenses Manufacturing Expenses Particulars A.Y. 2016-17 A.Y. 2020-21 Job Work Charges 29,71,74,362 36,22,29,734.05 Stores and Consumables 5,64,85,051 4,71,13,477.01 Power and Fuel 3,57,87,155 4,36,33,845.24 Repairs and Maintenance - Plant and machinery 1,22,48,322 82,78,559.53 Other Manufacturing/direct Expenses 1,32,81,415 1,56,24,705.16 Total 41,49,76,305 47,68,80,320.99 Ratio of Sales to/Purchase from AEs 89 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Particulars A.Y 2016-17 A.Y 2020-21 Sales to AEs 88.34% 89.60% Sales to Non-AEs 11.66% 10.40% Purchase from AEs 21.09% 17.37% Purchase from Non- AEs 78.91% 82.63% Thus, there is no material change in ratio of sale to/purchase from AEs to take any divergent view. xxii) Applicability of Berry Ratio: i) As submitted above, it is an admitted fact that the appellant is engaged in manufacturing activities. To support this further, reference is also invited to the set of filters found to be appropriate and inappropriate, keeping in mind the profile of the appellant, by the TPO, in his order dated 30.07.2023, wherein the Ld. TPO remarked: “Accept companies whose ratio of manufacturing to net sales is more than 75%. Buy accepting the companies, that had the ratio of manufacturing to net sales of more than 75%, the Ld. TPO himself admitted that the appellant is engaged in ‘manufacturing activities. Hence, since it is a settled position that ‘Berry ratio’ is not appropriate to apply on ‘manufacturer’ and the Ld. TPO himself categorized the appellant as ‘manufacturer’, applicability of berry ratio is unjustified. j) Further, reference is invited to the following observations made by the DRP in its order dated 30.06.2024 and the appellant’s submission with respect to said observations: (ii) Point No. 3.4.1 and 3.4.3 at page 11: The berry ratio, named after American economist: Prof. Charles Berry, is the ratio of gross profit to operating expenses. It genesis is traced in E.I. du Pont de Nemours & Co. Vs. US [608 F. 2d 445 (Ct. Cl. 1979)] which involved the distributor. Prof. Berry was able to evaluate the return of a distributor earned on its purely value adding distribution activities with the assumption that the cost these activities were fully captured in the distributor operating expenses. Thus, Berry ratio should generally be used to test only the profits of limited risk distributor or service providers that do not own or use any intangible asset and the reliability of the berry ratio depends upon the existence of a relationship between gross profit and operating expenses. Appellant’s Submission: e) In view of the DRP itself, berry ratio can be applied on distributors and further distributor who do not own or use any intangible asset whereas in the current case appellant is a manufacturer and exporter of studded jewellery and not a distributor. The assessee performs significant manufacturing functions right from procurement of raw material in terms of rough diamonds and gemstones, product conceptualization and designing, processing of rough diamonds and gemstones thereby 90 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT employing its assets both tangible and intangibles and infrastructure facility and requisite manpower, which are further used for manufacture of studded jewellery and subsequent marketing and sales. In this regard observation of the Hon’ble ITAT, in para 27 of its order deserves attention where it is clearly stated that the appellant has necessary manufacturing set up with requisite assets and infrastructure in place which are employed. Thus, functional and asset employed test for berry ratio to be applied in the instance case is failed. f) The applicability as stated in the order of DRP that berry ratio can be applied where only limited risk is involved. In this regard that Hon’ble ITAT, in para 27 of its order made specific observation that the appellant takes all types of risk such as inventory risk, credit & collection risk, product risk, manpower risk, market risk (to limited extent), technology risk, general business risk and foreign exchange risk. Therefore, the above submission is supported by the findings of the Hon’ble ITAT, at para 34 of order passed for A.Y. 2016-17. Thus, risk test for berry ratio to be applied in the instance case is failed. g) The above referred issued has also been dealt by Hon’ble ITAT, in para 27 of its order, while discussing the judgement of Hon’ble Delhi High Court(supra). k) Point No. 3.4.2 at page 11: Chapter 2 of the OECD Guidelines gives the example of intermediary activities where taxpayer purchases goods from an associated enterprise and on-sells those goods to other associated enterprises as an example where Berry Ratio may be applied. Appellant’s Submission: b) As submitted above, the appellant is a manufacturer and not a intermediary. The appellant procures goods from its associated enterprises and other vendors, process them in its manufacturing activities and export them. The above submission is supported by the findings of the Hon’ble ITAT, at para 35 of order passed for A.Y. 2016-17. h) Point No. 3.4.4 at page 11: The DRP relied on the judgement of Sumitomo Corporation (supra). Appellant’s Submission: b) The said judgement, in fact, supports the appellant. The above submission is supported by the findings of the Hon’ble ITAT, at para 34 of order passed for A.Y. 2016-17. l) Please not that Berry Ratio cannot be considered as an appropriate PLI for the appellant since Berry Ratio only reflects value adding activities performed by the entity and excludes any purchases and manufacturing related expenses in the cost base. Further since the appellant is engaged in Manufacturing activities, the purchases and cost of production ought to be included in the cost base and since Berry Ratio includes only the service element, it cannot be applied in the case of the manufacturing assessee as it is not reflective of 91 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT assessee’s functional profile. The manufacturing entities are not good candidates for Berry Ratio because of their capital intensity. m) Further, the Berry Ratio is usually applied when the value of the goods is not directly linked to the quantum of profits, and the profits are mainly dependent on expenses incurred on value adding activities and not manufacturing costs. n) Berry Ratio is mostly used with low-risk procurement and distribution service providers, which have no funds blocked in inventories and employ no intangible assets. o) It is pertinent to note that considering the profile of the appellant company and nature of activities carried on, the Hon’ble ITAT has made a categorical finding, in point no. 34 to 35 at Page-43 to 47, of the order passed for the A.Y. 2016- 17, that berry ratio is not applicable in the case of appellant. The relevant part is reproduced hereunder: “34. Firstly, referring to the decision of the Hon’ ble Delhi High Court in case of Sumitomo Corporation ( Supra), in that case, it was held that Berry ratio can be used effectively where the value of goods have no role to play in the profits earned by the assessee and the profits earned are directly linked with the operating expenditure incurred by the assessee. It has been held that where the assessee uses intangibles or has substantial fixed assets, the value of such intangibles or value addition by such assets would not be captured in the operating cost and thus, Berry ration would not be an appropriate PLI. It has been held that the fundamental premise which needs to be examined before applying Berry ratio is that the operating expenses should adequately represent all functions performed and risk undertaken and for this reason, Berry ratio is effectively applied only in case of stripped down distributors which have no financial exposure and risk in respect of goods so distributed by them. Therefore, we agree that the Berry ratio can be applied in certain circumstances but in the facts of the present case, where the assessee is admittedly and undisputedly, a manufacturer and exporter of coloured gemstones and studded fashion jewellery and not a distributor, one wonder how the value of goods so manufactured and exported have no role to play in the profits earned by the assessee. The assessee performs significant manufacturing functions right from procurement of raw material in terms of rough diamonds and gemstones, product conceptualization and designing, processing of rough diamonds and gemstones at its Adarsh Nagar, Sitapura and SEZ Jaipur, SEEPZ Mumbai facilities thereby employing its assets both tangible and intangibles and infrastructure facility and requisite manpower, which are further used for manufacture of studded jewellery and subsequent marketing and sales to its associated enterprises and other independent entities and providing after sales services. We find that it is the associated enterprises which performs the distributorship functions and sells the assessee’ s products through its retail stores and TV Channels and not the assessee. In the process, the assessee takes all types of risk such as inventory risk, credit & collection risk, product risk, manpower risk, market Risk ( to a limited extent), technology risk, general business risk and foreign exchange risk. In terms of cost base for carrying out these functions and 92 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT related risk, there are material costs, manufacturing expenses and employment/manpower costs which have been incurred by the assessee and therefore, for determining an appropriate return on such costs, these costs have to be necessarily considered and which has been rightly considered by the assessee as part of its “ cost of production” and based thereon, has adopted operating profit/cost of production as an appropriate PLI. We failed to understand how the TPO has worked out the value added expenses and quantum thereof in the face of these undisputed facts and circumstances of the case ignoring the manufacturing functions and risk so undertaken and the asset employed by the assessee. We therefore find that the decision of the Hon’ ble Delhi High Court doesn’ t support the case of the Revenue rather its supports the contentions advanced by the ld AR on behalf of the assessee. 35.Now, coming back to the reasoning adopted by the TPO where he says that since the assessee is purchasing from related parties and selling to related parties, both cost and revenue sides are tainted and in such a scenario, OP/COP will not be an appropriate PLI and OP/VAE has then been adopted by him. It appears that the TPO seems to be guided by some misconception that the assessee is in the business of trade intermediary where it buys from its associated enterprises and then, sells to its associated enterprises. As we noted above, the undisputed facts are that the assessee is a manufacturer and exporter and as part of its activities, it procures certain goods from its associated enterprises which constitute merely 21 .09 % of its total purchases besides purchases from other entities, process them in its manufacturing facilities and thereafter, export them to its associated enterprises. Therefore, it carries out significant manufacturing and processing operations and it is not a case of simpliciter purchase and sale activity which is being undertaken by the assessee. Only in a latter scenario, where it purchases from its associated enterprises and on-sells them to other associated enterprises, berry ratio can be held to be useful and appropriate PLI as stated in para 2 .102 of the OECD guidelines. Following the same, the Coordinate Bench in case of Mitsubishi Corporation ( supra) has also held that in case of a low risk high volume trading business involving back to back trading without any value addition to the goods traded, berry ratio could be appropriate PLI. However, in a situation in which there is further processing of the goods procured before selling the same or in a situation which necessitates employment of assets in infrastructure for processing or maintenance of inventories, the use of berry ratio does not seem to be quite appropriate. We therefore find that in the facts of the present case, the approach adopted by the TPO is bereft of the factual position of the assessee in terms of functions performed, the assets employed and risk undertaken while carrying out its manufacturing and export activities and the approach so adopted is also not in consonance with the approach so suggested by OCED and UN, and the decisions of the Hon’ ble Delhi High Court and the Coordinate Benches and therefore, the adoption of berry ratio as an appropriate PLI is not justified in the instant case. ” p) Issue is Covered by decision of Hon’ble ITAT in appellant’s own case for A.Y. 2016-17 and A.Y.2017-18: 93 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT iv) As elaborated in the tables above, there is no change in nature of activities undertaken during the year under consideration as well as in the A.Y. 2016- 17 and 2017-18. v) Further, the level and extent to which assets are employed are similar to the A.Y. 2016-17 which are further indicative of the fact that appellant is a manufacturer. Thus, covered by the decision of Hon’ble ITAT. vi) In view of the above, as held by Hon’ble ITAT, appellant being a manufacturer and looking at the assets employed and risk undertaken, application of berry ratio is not in justified and deserves to be quashed. xxiii) Calculation of GPM: (Page-47, Para-36 of ITAT Order: A.Y. 2016-17) b) Findings of Hon’ble ITAT: “36. Now,coming to the selection of comparable and application of the PLI ( i.e. Gross Profit margin / Cost of production), it has been submitted by the ld AR that where the PLI of GP/COP is applied on the comparable companies so selected by TPO, the transaction of assessee will meet the arm' s length test requirement and our reference was drawn to the following figures which are available as part of assessee’ s paperbook and submitted before the lower authorities: 37. Taking into consideration the comparables so selected by the TPO where the median OP/COP comes to 12.90% and given that the assessee has reported OP/COP of 13.51%, we find that the assessee’s transactions with its associated enterprises meets the arms length requirements and no adjustment is warranted. 38. Therefore, in the entirety of facts and circumstances of the case and in light of aforesaid discussions and following the approach so suggested by OECD/UN transfer pricing guidelines and the decisions of the Hon’ ble High Court and Coordinate Benches referred supra, the transfer pricing adjustment of Rs 29,25,17,385/- is hereby directed to be deleted. c) Issue is covered: In the assessment year: 2016-17, as observed by Hon’ble Bench, OP/COP shown by the appellant is higher than the average PLI of comparable. The similar facts are present in the current assessment year and accordingly the issue being covered in the favor of appellant, no adjustment is warranted. xxiv) Not prejudicial to above and without any admission, it is important to note that in A.Y. 2016-17, 2017-18 and 2020-21, lower authorities have worked out berry ratio (OP/VAE) of 55.27%, 75.24% and of 136.78% respectively which itself shows abnormality and absurdity. Further, due to inconsistent application of filters to the 94 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT comparable and due to violation of Hon’ble DRP directions, in general. 10.2 Before us ld. DR did not controvert this submission made by the ld. DR that the facts of this case with that of earlier year determined by the co- ordinate bench. On this issue we note from page no. 10 of the order of the DRP wherein DRP noted that “3.4.5 In the case at hand, since both sales and purchases are controlled transactions, no fault can be found with the action of the TPO in applying the berry ratio as the profit level indicator.” Thus, we note that the adjustment was made by applying the berry ratio and while dealing with the appeal of the assessee for Assessment Year 2016-17 in ITA no. 97/JP/2021 the co-ordinate bench held that the adoption of berry ratio as an appropriate PLI is not justified. The relevant finding of the co-ordinate bench is as under : 19. We have heard the rival contentions and perused the material available on record. As contended by the ld AR during the course of hearing, the principle dispute which arises in the present case is adoption of appropriate PLI for benchmarking and determining the arms’ length nature of the international transactions undertaken by the assessee company with its associated enterprises. The assessee has adopted Gross Profit Margin/Cost of Production as the PLI whereas the TPO has applied Operating Profit/Value Added Expenses as an appropriate PLI for benchmarking the international transactions with the associated enterprises. 20. Before we examine the applicability of both the ratios in the instant case, it would be relevant to refer to the OECD Transfer Pricing Guide lines (2017) wherein the relevant discussions are found at para B.3.5 and the relevant contents thereof read as under: “B. 3.5 Berry ratios 2.106 \"Berry ratios\" are defined as ratios of gross profit to operating expenses. Interest and extraneous income are generally excluded from the gross profit determination; depreciation and amortisation may or may not be included in the operating expenses, depending in particular on the possible uncertainties they can 95 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT create in relation to valuation and comparability. 2.107 The selection of the appropriate financial indicator depends on the facts and circumstances of the case, see paragraph 2.82. Concerns have been expressed that Berry ratios are sometimes used in cases where they are not appropriate without the caution that is necessary in the selection and determination of any transfer pricing method and financial indicator. See paragraph 2.98 in relation to the use of cost-based indicators in general. One common difficulty in the determination of Berry ratios is that they are very sensitive to classification of costs as operating expenses or not, and therefore can pose comparability issues. In addition the issues raised at paragraphs 2.99-2.100 above in relation to pass-through costs equally arise in the application of Berry ratios. In order for a Berry ratio to be appropriate to test the remuneration of a controlled transaction (e.g. consisting in the distribution of products), it is necessary that: • The value of the functions performed in the controlled transaction (taking account of assets used and risks assumed) is proportional to the operating expenses, • The value of the functions performed in the controlled transaction (taking account of assets used and risks assumed) is not materially affected by the value of the products distributed, i.e. it is not proportional to sales, and • The taxpayer does not perform, in the controlled transactions, any other significant function (e.g. manufacturing function) that should be remunerated using another method or financial indicator. 2.108 A situation where Berry ratios can prove useful is for intermediary activities where a taxpayer purchases goods from an associated enterprise and on-sells them to other associated enterprises. In such cases, the resale price method may not be applicable given the absence of uncontrolled sales, and a cost plus method that would provide for a mark-up on the cost of goods sold might not be applicable either where the cost of goods sold consists in controlled purchases. By contrast, operating expenses in the case of an intermediary may be reasonably independent from transfer pricing formulation, unless they are materially affected by controlled transaction costs such as head office charges, rental fees or royalties paid to an associated enterprise, so that, depending on the facts and circumstances of the case, a Berry ratio may be an appropriate indicator, subject to the comments above.” 21. Further, we refer to the United Nat ion Practical Manual on Transfer Pricing for developing countries (2017) wherein the relevant discussion reads as under: ITA No.97/JP/2021 A.Y.2016-17 23 “B.3.3.7.3. Although all of the above PLIs are possible, the three PLIs: (i) return on capital employed (ROCE) (ii) operating margin (OM) and (iii) return on total cost (ROTC) are most used in practice. The Berry Ratio may also be used, but subject to certain concerns about its inappropriate use.50 An OM is typically used for marketing, sales and distribution activities; a Berry ratio may sometimes be used for service of distribution activities; and full cost plus, ROCE or ROA are typically used for manufacturing activities. The ROA and ROCE divide operating profit by a balance sheet figure. These PLIs are based on assets actively employed in the business. Such tangible assets consist of all assets minus investments (e.g. in subsidiaries), minus cash and cash equivalents beyond the amount needed for working capital. In the case of the ROA a deduction is also made for intangible assets such as goodwill. These two PLIs may, for example, be used for leasing companies. This type of PLI maybe the most reliable if the tangible operating assets have a high correlation, to profitability. For example, a manufacturer's operating assets such as property, plant, and equipment could have more impact on profitability than a distributor's operating assets, since often 96 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT the primary value added by a distributor is basedon services it provides and these are often less dependent on operating assets. The difference between the ROA and the ROCE is that the ROA focuses on the assets used while the ROCE focuses on the amount of debt and equity capital that is invested in the company. B.3.3.7.4. Other PLIs listed above are ratios between income statement items. PLIs based on income statement items are often used when fixed assets do not play a central role in generating operating profits. This is often the case for wholesale distributors and service providers. Operating margin has often been used when functions of the tested party are not close to those of the comparables, since differences in function have less effect on operating profit than on gross profit. B.3.3.7.5. The Berry Ratio represents a return on a company's value added functions on the assumption that these value added functions are captured in its operating expenses. It has been observed in practice that the Berry Ratio is used as a PLI for distributors and service providers. The Berry Ratio assumes that there is a relationship between the level of operating expenses and the level of gross profits earned by distributors and service providers in situations where their value-added functions can be considered to be reflected in the operating expenses. Consequently, it may be appropriate to use the Berry Ratio if the selling or marketing entity is a service provider entitled to a return on the costs of the provision of its services. However, some key limitations of the Berry Ratio are: > The Ratio is very sensitive to functions and classifying of cost as operating cost; > It misses values of cost needed to maintain the intangible property of an entity; and > Its reliability diminishes if asset intensities (the efficiency with which assets are used) of the entities differ.” 22. Further, the Hon'ble Delhi High Court in the case of Sumitomo Corporat ion India Private Limited V s . C IT (Supra) had an occasion to examine the applicability of Berry ratio and the relevant findings reads as under: “45. Traditionally, the denominator of the ratio only comprised of selling, general and administration expenses. However, the Treasury Legislation of USA also included depreciation as a part of the Operating Expenses used as a denominator in the berry ratio. As is apparent, Berry ratio has limited applicability; it can be used effectively only in cases where the: value of goods have no role to play in the profits earned by an Assessee and the profits earned are directly linked with the operating expenditure incurred by the Assessee. In other words, the operating expenditure incurred by the Assessed effectively captures all functions; performed and risks undertaken by the Assessee. Thus, in cases where an Assessee uses intangibles as a part of its business, Berry ratio would not be an apposite PLI as the value of such tangibles would not be captured in the operating cost and, therefore, it would not be appropriate to compute the ALP based on net profit margin having regard to the operating cost as a relevant base. Similarly, Berry ratio would not be an appropriate PLI for determining ALP in cases of Assessees who have substantial fixed assets since the value added by such assets would not be captured in Berry ratio. 46. It can be seen from the above that the Berry ratio can be used only in very limited circumstances and the limitations that we have listed above are by no means exhaustive. There is also a view expressed that use of Berry ratio as a PLI results in indicating less than fair ALPs in tax jurisdiction where the Assessees have a lower 97 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT bargaining power. In the aforesaid context, in our view, the TPO had correctly reasoned that Berry ratio could not be used as a PLI in cases of Assessees which were using intangibles. However, we find that there was no cogent material for the TPO to hold that the Assessee had developed supply chain and human resources intangibles. In any event, there was no material to conclude that costs of such intangibles were not captured in the operating expenses. 47. In our prima facie view, the third reason stated by the TPO, that is, the rate of commission, paid to the Assessee is based on the value of the goods, would be a valid reason to reject the use of Berry ratio because Berry ratio can only be applied where the value of the goods are not directly linked to the quantum of profits and the profits are mainly dependent on expenses incurred. The fundamental premise being that the operating expenses adequately represent all functions performed and risks undertaken. For this reason Berry ratio is effectively applied only in cases of stripped down distribution; that is, distributors that have no financial exposure and risk in respect of the goods distributed by them.” 23. Further, we refer to the Coordinate Delhi Benches decision in the case of Mitsubishi Corporation India Private Limited V s . DC IT (Supra) and the relevant discussion and findings are contained at paras 44 to 59 of its order which read as under: Berry ratio: connotations and its background 44. Simply put, berry ratio is ratio of gross profit to the operating expenses. 45. Unlike in Indian TP regulation, wherein no specific ratios are prescribed, US Regulation 482- 5(b)(ii)(4)(B) accepts this PLI as one of the “financial ratios that may be appropriate” to measure the arm’s length price, even though it puts a rider that, “reliability under this profit level indicator also depends on the extent to which the composition of tested party’s operating expenses is similar to that of the uncontrolled comparables”. So far as Indian TP provisions are concerned, the PLIs set out in rule 10B(1)(e)(i) are only illustrative inasmuch as it ends with the expression “or having regard to any other relevant base” but there is no prohibition as such on the use of this ratio. However, having regard to the use of this ratio worldwide, and for the reasons we will set out in detail in a short while, the use of this ratio cannot be eliminated from the India transfer pricing practices altogether. 46. In the July 2010 version of OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, berry ratio is specifically recognized as follows: 2.100 “Berry ratios” are defined as ratios of gross profit to operating expenses. Interest and extraneous income are generally excluded from the gross profit determination; depreciation and amortisation may or may not be included in the operating expenses, depending in particular on the possible uncertainties they can create in relation to valuation and comparability. 2.101 The selection of the appropriate financial indicator depends on the facts and circumstances of the case, see paragraph 2.76. Concerns have been expressed that Berry ratios are sometimes used in cases where they are not appropriate without the caution that is necessary in the selection and determination of any transfer pricing method and financial indicator. See paragraph 2.92 in relation to the use of cost-based indicators in general. One common difficulty in the determination of Berry ratios is that they are very sensitive to classification of costs as operating expenses or not, and therefore can pose comparability issues. In addition, the issues raised at paragraphs 2.93-2.94 above in relation to pass-through costs equally arise in the application of Berry ratios. In order for a Berry ratio to be appropriate to test the remuneration of a 98 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT controlled transaction (e.g. consisting in the distribution of products), it is necessary that: • The value of the functions performed in the controlled transaction (taking account of assets used and risks assumed) is proportional to the operating expenses, • The value of the functions performed in the controlled transaction (taking account of assets used and risks assumed) is not materially affected by the value of the products distributed, i.e. it is not proportional to sales, and • The taxpayer does not perform, in the controlled transactions, any other significant function (e.g. manufacturing function) that should be remunerated using another method or financial indicator. 2.102 A situation where Berry ratios can prove useful is for intermediary activities where a taxpayer purchases goods from an associated enterprise and on-sells them to other associated enterprises. In such cases, the resale price method may not be applicable given the absence of uncontrolled sales, and a cost plus method that would provide for a mark-up on the cost of goods sold might not be applicable either where the cost of goods sold consists in controlled purchases. By contrast, operating expenses in the case of an intermediary may be reasonably independent from transfer pricing formulation, unless they are materially affected by controlled transaction costs such as head office charges, rental fees or royalties paid to an associated enterprise, so that, depending on the facts and circumstances of the case, a Berry ratio may be an appropriate indicator, subject to the comments above. 47. As evident from the underlined portion of the OECD approach, highlighted above, berry ratio can be particularly useful in the situations in which the entity is engaged in the business as a trade intermediary, the value of services performed by the entity is adequately reflected by operating expenses, the value of functions performed and assets employed in the controlled transactions is not proportionate to sales and when the entity does not perform any significant operations such as manufacturing or processing. Typically, a low risk high volume trading business involving back to back trading without any value addition to the goods traded, which is what MCJ is engaged in and the MCI is contributing to, satisfies all these tests. We are in agreement with the approach adopted by the OECD document in this regard. Going by this approach, and, applying the tests laid down above, it does indeed seem that berry ratio could be appropriate in the present case. 48. Berry ratio is increasingly finding specific acceptance in many jurisdictions. While it is use in US for long, in Japan, even as berry ratio was used in APAs earlier as well, the 2013 amendment to the transfer pricing regulations, with effect from 1st April 2013, now specifically list berry ratio as acceptable in appropriate cases. In India, there have been several recent judicial precedents, which we will deal with a little later, upholding the use of berry ratio as a PLI. 49. Lets take a pause here and take a look at the circumstances in which berry ratio came into existence and its common usage in the TP analysis. 50. In the landmark case of E.I. DuPont de Nemours & Co. v. United States, 608 F.2d 445, Charles Berry, an economist, served as an expert witness on behalf of the U.S. government and the development of berry ratio is attributed to his testimony. What came up for consideration in the said case was the \"proper,\" arm's length 99 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT compensation that a Swiss subsidiary of DuPontUSA, engaged as a distributor of the DuPont-USA, should earn on the distribution services it performed in Switzerland on behalf of the AE. In his analysis, Charles Berry determined that the best method for determining an arm's length result was to compare the Swiss distributor's markup on operating expenses to the same markup earned by uncontrolled (i.e., third-party) distributors performing substantially similar functions. Berry's key insight in the case was that distributors should earn a return commensurate to the distribution services performed and that the value of the products being distributed, in other words, was irrelevant. The implicit emphasis was thus on the service element even in trading activity, and in the costs incurred on rendering this service rather than in the value of goods traded. That was a case in which the assessee was simply involved in distributorship function without much risks, though certainly much more risks than in a back to back trading, associated with inventories or with uncertainties of normal trading. The key contribution to the economic activity was recognized as performing the distributorship function rather than the value of goods sold. Accordingly, distributors must achieve a particular gross profit in order to compensate them for their services, the costs of which are accounted for, almost entirely, in their operating expenses. To reflect the reality of distributors' economic significance and to provide an arm's length return to DuPont's Swiss subsidiary, Berry utilized a ratio that has since been named in his honor and is computed as gross profit to operating expenses. There are some variants to this ration but that aspect of the matter is not really relevant for the present purposes. 51. The underlying assumption for applicability of berry ratio is that the return to the tested party should be commensurate with his operating expenses and the value of goods dealt in was irrelevant for this purpose. While this proposition so laid down was in the case of a limited risk distributor without any value addition to the goods or significant risks associated with inventories, we are of the considered view that it is equally useful in a case in which the business entity is engaged in trading, with zero or low inventory levels, and particularly as it does not involve any unique intangibles or value addition to the goods traded. 52. The answer to the fundamental question of whether a taxpayer should be entitled to a return on the value of goods handled by it, would actually depend on the functions performed and the related risks borne by it, with respect to the goods; and not on whether the taxpayer has taken title to the goods, shorn of the assessee’s FAR profile. 53. Clearly and undisputedly, on the facts of this case, neither the assessee has performed any functions on or with respect to the goods traded by it, beyond holding flash title for the goods in some of the cases, nor has the assessee borne any significant risks associated with the goods so traded. All the functions, assets and risk of the assessee are quite reasonably reflected by the operating costs incurred and the value of goods traded does not have much of an impact on its analysis of FAR. The cost of goods sold would be relevant if and only if the assessee would have assumed any significant risks associated with such goods sold and when monetary impact of such risks is not reflected in operating expenses of the assessee. The berry ratio should, therefore, be equally useful in the present case as well. In the case of the traders like assessee, who neither assume any major inventory risk nor commit any significant assets for the same and particularly as there is no value addition or involvement of unique intangibles, the berry ratio should also be equally relevant as in the case of a limited risk distributor. 100 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 54. In the case of GAP International Sourcing India Pvt Ltd Vs ACIT [20 ITR (Trib) 779], a coordinate bench has upheld the use of this ratio. While taking note of the contentions of the assessee in this case, the coordinate bench has, inter alia, observed as follows: 6.4 Ld. counsel then referred to the well recognized Berry ratio in determination of ALP. Berry ratio also propounds that routine distributors should earn a return commensurate to the distribution services performed, measured as a percentage of the value-adding (operating) expenses incurred by them. The value of the products being distributed, in other words, is irrelevant. Distributors must achieve a particular gross profit in order to compensate them for their value-adding services, the costs of which are accounted for in their value-adding (operating) expenses. An excerpt from the article by Dr. Berry on this aspect reads as under:- \"Similarly, the cost of goods sold is excluded from the cost base because the measure indicates the value of the merchandise distributed, not the service rendered by the firm that distributes the merchandise. It was for exactly the same reason that I excluded in the case of advertising agencies, the cost of advertisement placement. The placement cost is a measure of the activities of the media carrying the advertising agency in planning and designing that advertising. If we use a cost plus method, and the Berry ratio is a cost plus method, we want a measure of the costs of the firm involved, i.e. the distributor or advertising agency in these examples, not something that measures only the value of the product distributed, or the value of the exposure provided by radio, television or print media\". 6.5 It is contended that the Berry ratio is merely a variant of the cost plus method. If one were to think of the gross margins earned by a distributor as analogous to a firm's total revenues available to a distributor, and the operating expenses incurred to distribute products as analogous to the firm's total costs, then the ratio of gross margin to operating expenses would capture the mark-up on operating expenses that is afforded to the distributor. 6.6 The Berry ratio can also be applied to service providers, as it can be conceptualized as the mark-up earned on the costs of provision of services, by subtracting one from the Berry ratio expressed in unit terms as follows:- Berry ratio - 1 = GP/VAE - 1 = (GP-VAE)/VAE = OP/VAE wherein GP = gross profit; OP = operating profit; and VAE = value adding (operating) expenses. 55. In the case before the coordinate bench, it was noticed that the berry ratio is used for distributorship functions, though, as a variant of the berry ratio, its application could also be related to the service providers. This decision, however, is important for the short reason that it recognizes and upholds application of berry ratio in the situations in which value of goods traded is not important enough a consideration. We would draw analogy from this case to the limited extent that when the assessee does not assume any significant risks associated with the goods traded nor performs any functions on the same, and all the risks assumed by the assessee are adequately reflected by the operating costs, the berry ratio could be equally relevant. 56. What berry ratio thus seeks to examine is the relationship of the operating costs with the operating profits. It thus proceeds on the basis that there is a cause and effect relationship between operating costs and the operating profits. The factors, however, which can also have 101 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT substantial impact on the operating profits, and thus dilute this direct relationship, could be factors like (a) in terms of functions – processing and value addition to the goods; (b) in terms of assets – fixed assets such as machinery, inventory, debtors and otherwise high assets, including intangible assets; and (c) in terms of risks – risk associated with holding inventories. In a diagram form, this relationship could be as follows: WHERE RELATIO SHIP IN OPERATING COSTS AND OPERATING PROFITS IS DIREC T AND UNDILUATED ; APPLICATION OF BERRY RATIO IS JUSTIFIED WHERE RELATIO SHIP IN OPERATING COSTS AND OPERATING PROFITS IS NOT D IRECT AND IS DILUTED BY USE O MORE FUNCTIONS ( SUCH AS PROCESSING ) , MORE ASSETS ( SUCH AS SIGNIFICANT CURRENT ASSETS OR UNIQUEINTANG I BLES ) AN MORE RISKS ( SUCH AS RISKS ASSOCIATED WITH INVENTORIES ) ; AP PLICATION OF BERRY RATIO IS NOT JUSTIFIED 57. In our considered view, to sum up, in a situation in which a business entity does not assume any significant inventory risk or perform any functions on the goods traded or add any value to the same, by use of unique intangibles or otherwise, the right profit level indicator should be operating profit to operating expenses i.e. berry ratio. In such a situation, no other costs are relevant since (a) the cost of goods sold, in effect, is loses its practical significance, (ii) there is no value addition, and, accordingly, there are processing costs involved, and (iii) there is no unique intangible for which the business entity is to be compensated. 58. In typical cases of pure international trading, there is neither any processing of goods involved nor is there use of any significant trade or marketing intangibles. The inventory levels are also extremely low, at least with respect to the goods traded, since the nature of activity does not require maintenance of inventories and there is sufficient lead time between order being received and the actual procurement activity. There are no other factors, in addition to the operating costs, which affect direct relationship between operating costs and operating profits. Therefore, except in a situation in which significant trade or marketing intangibles are involved or in a situation in which there is further processing of the goods procured before selling the same or in a situation which necessitates employment of assets in infrastructure for processing or maintenance of inventories, the use of berry ratio does seem to be quite appropriate. 59. As we make the above observations, we also make it clear that in case the assessee is not able to find other comparables with significantly low or zero inventory levels, it does not prejudice the interests of the revenue authorities in any manner. The reason is this. When a comparable has an additional risk associated with inventories, which is not present in the case of the assessee, the profits achieved by the comparables can only be higher than the profits achieved by the assessee. As is elementary, higher the functions performed, risks assumed and assets employed, higher the profits. A comparables, with economic justification for higher profits, cannot be rejected on the ground of being eligible for higher profits.” 24. Similarly, Coordinate Ahmedabad Benches in the case of AC IT V s . Bagad iya Brothers Pr ivate L im ited (Supra) had an occasion to examine the applicability of the Berry ratio and the relevant findings are contained at para 6.5 to 6.9 of its order which read as under: 102 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT “6.5 Adverting to assessee's adoption of TNMM method as most appropriate method for computation of ALP under TP regulation and adopting AE as a tested party, we find the TP working provided by the assessee to be correct. Similarly Berry Ratio cannot be applied to the assessee's case as it is applicable in specific circumstances of a pure distributor where no value added services are rendered. The observation of the TPO that AE had utilized the tangible and intangible assets of the parent company in earning such huge profit in the first year of its activity and cannot be treated as independent shipping service provider is only a presumption without any support. We are of the view that various functions for ship chartering have been outsourced by the AE to one M/s R. M. Martine, since inception of the AE. The AE had its own funds, undertook business risk and many instances of such risk which actually borne by AE pertaining to various vessels have been proved with evidence. The payment of hire charges, bunker charges, port charges have been made by the AE from its own funds evidenced by cash flow statement could not be controverted by revenue. In our studied and considered view the AE has performed proper business functions, assumed business risks by employing its own funds independently without help of appellant and, therefore, in no way AE can be considered as pure distributor. In view of these facts and circumstances, the Berry ratio is not at all applicable in the present case. Our view is fortified by Hon'ble Delhi High Court judgment in the case of Sumitomo Corpn. (supra). 6.6 In Transfer Pricing study, it is imperative to employ proper understanding of business, business practice, functions performed by AE and the appellant, risks assumed by both the parties and the assets employed by both of them is very relevant. In our view Id. TPO/AO did not properly appreciated the functions performed, risk assumed and bassets employed by the AE and appellant. 6.7 In this year, only 20 vessels were chartered by AE to the appellant, where large number of employees are not required. The number of employees quoted by TPO in the comparable company as 216 to 5056 is not relevant as these companies were having their own vessels and are also engaged in other allied business activities with wider assets base. The least number of employees is 48 in case of Sanyan Group Limited. Considering the size and the assets employed, the number of employees in such comparable cases may be higher as compared to the case of AE. 6.8 We are of the considered opinion that Berry ratio is not applicable in this case and therefore, appropriate profit indicator in this case is operating profit to total cost i.e. OP/TC. In case of pure distributor, only value added expenses are considered and Berry ratio can be applied. The AE made value addition, assumed various risks of business and also incurred damages and losses in the business, as discussed by me in detail earlier. As per TNMM study filed by the appellant, the margin on total cost earned by AE is 4.52% which is less when compared with 5.18% in case of other eleven comparable companies. This is within arm's length. Therefore, otherwise also no transfer pricing adjustment is called for by the safe harbor clause. 6.9 In view of the facts, circumstances, material available on record and after hearing the rival contentions we uphold the order of Id. CIT(A) on all counts which are upheld. Revenue grounds in this behalf are dismissed. 103 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 25. In the light of above OECD and UN guidelines and domestic jurisprudence, for the applicability of appropriate PLI or for that matter, Berry ratio in the instant case, what is therefore relevant to determine is the profile of the assessee company in terms of functions performed, assets employed and related risk undertaken by it. In this regard, we refer to the Transfer Pricing Report submitted by the assessee before the Transfer Pricing Officer wherein the profile of the assessee company has been described at para 4.1, which reads as under: “ 4.1 Profile of VGL Vaibhav Global Ltd. (\"VGL'') was incorporated in 1989 in Jaipur. VGL is engaged in the business of manufacturing and exports of colored gems stones and studded Jewellery. VGL has presence in USA, Gerrnany, Thailand, Hong Kong, Japan, etc. by way of its subsidiaries. VGL is one of the largest exporters of colored gemstones from India & also one of the largest exporters of studded Jewellery. VGL processes gems and raw materials into rings, bracelets, pendants, etc. and export it to its associated company in U.S.A and other overseas countries, in financial year 2005-06, VGL become an Indian MNC, perhaps the first in the Indian gems and Jewellery sector by extending its operations in more than 10 countries through the acquisition of Companies of STS Group and extending its Retail Stores network at major holiday destination of the world from 12 to 19. It has also launched operation through TV channels by its associates i.e., The Jewellery Channel Ltd, UK and Jewellery Channel, USA. VGL is professionally managed, end-to-end vertically integrated gems and jewellery business organization. It is one of the eight world-wide 'sight holder' in Tanzanite and is the leader in processing other popular gemstones such as Fire Opal, Apatite and Emerald. Procuring directly from the sources, it imports raw material like Stones, Rough Gems Stones, Chains, Findings, Diamond, Mounting and Preform, etc. The raw materials imported undergoes through various stages of processing (like cutting calibrating, polishing, etc.) and is used captively for the manufacturing of studded jewellery which is then exported. At VGL manufacturing infrastructure is most contemporary and significant by making full use of CAD, CAM system and equipment such as Laser soldering machines. Besides this, the company has a modern, extensive computer network, and implemented an ERP solution to integrate all its operations. 1. Adarsh Nagar, Jaipur - It has Gems Stones and diamond-processing unit for processing rough gems stone to finished gems stone, which are either directly exported to Associated Enterprises or Independent party or used as captive consumption in manufacturing studded jewellery. 2. Sitapura, Jaipur - Sitapura is 100% EOU. It has Chain Division and Jewellery Division, manufacturing chains and studded Jewellery. Company required to purchase gold from banks locally and gems stones from Adarsh Nagar, Jaipur. These are processed together or manufactured studded jewellery, which are majorly exported to its associated enterprises and to a limited extent exported to third parties. 3. SEZ, Jaipur - SEZ unit started commercial production during the financial year 2015- 16. The VGL has set up state of the art jewellery manufacturing unit at Sitapura SEZ and is involved in manufacturing of high end Jewellery. These are mainly exported to associated enterprises. 4. Seepz, Mumbai - In Seepz Unit, company is involved in manufacturing of high end Jewellery. These are either exported to associated enterprises as well as to non associated enterprises. 104 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 3. Bharat Diamond Bourse, BKC, Mumbai - It purchases diamond locally as well as imported from its associated enterprises. These are either exported or used for captive consumption for manufacturing of studded jewellery which is sold to unrelated party locally or internationally.” 26. It is relevant to note that the TPO while issuing the show cause notice as well as while proposing the adjustment as well as the DRP has not disputed the fact rather there is an categorical affirmation that the assessee is engaged in the business of manufacture and export of colored stones and studded jewellery and has manufacturing units in Jaipur and Mumbai as noted from para 2 of the order so passed by the TPO. 27. In terms of the functions performed, assets employed and the risk undertaken by the assessee while carrying out its manufacturing activities, it is noted from the transfer pricing report and the financial statements placed on record that the assessee performs the functions of purchases, product conceptualization and designing, manufacturing/processing of final product, sales and marketing and after sales services. It has the necessary manufacturing set up with requisite assets and infrastructure in place which are employed. The associated enterprises perform substantial part of marketing, sales and distribution functions. The assessee takes all types of risk such as inventory risk, credit & collection Risk, product risk, manpower risk, market risk (to limited extent), technology risk, general business risk and foreign exchange risk. Therefore, we donot find any infirmity in assessee being classified as a manufacturer performing all the entrepreneurial functions. It is again noted that the TPO while issuing the show cause notice as well as while proposing the adjustment as well as the DRP has not disputed the functions performed, the assets employed and the risk undertaken (nature and extent thereof) by the assessee while carrying out its business of manufacture and export of colored stones and studded jewellery. 28. Moving further, if we look at the international transactions undertaken by the assessee which are subject matter of examination before us, the same relates to import of gems stones, rough diamonds and other raw material from its associated enterprises as well as export of gems stones and studded jewellery to its associated enterprises. For the purposes, the assessee has considered the Cost Plus Method as the most appropriate method for determining the arms’ length and has adopted Gross Profit/COP as the appropriate Profit Level Indicator and accordingly has carried out the benchmarking analysis with independent third party comparables. 29. Regarding the purchases and adoption of Cost Plus Method, from the transfer pricing report, it is noted as under: “In the case of VGL, the associated enterprises are only facilitating the procuring or purchasing activities for and on behalf of VGL. The associated enterprises purchase Roughs, Color stones, Diamonds, Mountings/findings, etc., from the local market of their respective countries and send/export such goods/materials to VGL. For such facilitations/support work, the associated enterprises incur logistics and administration costs in this regard. We have been explained that these logistics and administration costs are recovered from VGL on actual basis. In substance, associated enterprises purchase these goods/materials from the local market and export it to VGL after adding logistics and administration costs incurred by them in this regard. We have been further given to understand that, no mark-up has been charged by such associated enterprises. The costs incurred have been charged back to / recovered from VGL on actual basis. Therefore, the price paid by VGL for such imports from its 105 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT associated enterprises would be obviously lower than the price prevalent in the industry for similar purchases. Therefore, based on the facts and circumstances of the case, Cost Plus Method (CPM) appears to be the most appropriate method to benchmark VGL's import transactions.” 30. Regarding export of gems stones and gems jewellery and adoption of cost plus method, from the transfer pricing report, it is noted as under: “The CPM examines the gross profit mark-up to direct and indirect cost that a taxpayer realizes from a controlled transaction. First, the direct and indirect costs of production incurred by the enterprise in respect of the goods transferred to an associated enterprise are determined. To this, a normal gross profit mark up in the same or similar comparable uncontrolled transactions by the enterprise or an unrelated enterprise is added. The price so arrived at is then adjusted to take into account the functional and other differences between the international transactions and comparable uncontrolled transactions which could materially affect the amount of gross profit margin in the open market to arrive at the ALP. The CPM method is used to test transfer price of manufacturers, assemblers and others that add value. Determination of comparability under the CPM depends in particular on similarity between functions employed. In the instant case, as VGL during the year has mainly exported Gold / Silver Studded Jewellery, we have determined CPM as the most appropriate method due to following reasons: - a. Comparability between international transactions and comparable transactions: VGL's export to AE's mainly consists of Gold/Silver/Other Metal Studded Jewellery which forms more than 80% of the total turnover of the VGL. Since in current year 80% of the VGL transactions is of Gold/Silver/ Other Metal Studded Jewellery, the functional and product similarity between independent companies becomes quite reliable as the functions involved in manufacturing of Studded Jewellery is very much same across the industry which includes designing, mounting, setting, polishing, finishing etc. b. Extent to which reliable and accurate adjustments can be made: Once the functional and product similarity is established, under CP method not many adjustments are required except that of accounting and other differences. Since the comparables used in testing are from listed companies and are available publicly which are following ail Accounting Standards and are governed by the Companies Act. VGL also prepare its financial statements in compliance to applicable Accounting Standards and as per the Companies Act. Since, both the comparables and VGL are governed by Companies Act and follow accounting standards; no adjustment is warranted in respect of the accounting aspects. We, therefore, based on the above facts, have determined that CPM is the most appropriate method to evaluate the arm's-length nature of intercompany transactions based on Gross Profit markup as the profit level indicator.” 31. The assessee thereafter considering Cost Plus Method and adopting the Gross Profit/cost of production as the PLI has worked out its Gross Profit Margin during the year under consideration as under: 106 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 32. The assessee thereafter carrying out the search procedure for independent comparable companies and selecting the comparables has determined yearly average gross margin of 8.95% of cost of production (GP/COP) and given its GP/COP of 15.62% has determined its sales transactions to its associated enterprises which constitute 88.34% of total sales at arm’s length. The TPO however has not agreed with the PLI so adopted by the assessee company and has adopted OP/VAE as the appropriate PLI. 33. The reasoning adopted by the TPO is that as the assessee is purchasing from related parties and selling to related parties, both cost and revenue sides are tainted and in such a scenario, OP/COP will not be an appropriate PLI and OP/VAE has then been adopted by him. The DRP has upheld the reasoning so adopted by the TPO drawing reference to the decision of Hon’ble Delhi High Court in case of Sumitomo Corporation (Supra) where use of berry ratio in certain situations has been upheld even though the Income Tax Act doesn’t specifically provide for either the Berry ratio or the bright line test. 34. Firstly, referring to the decision of the Hon’ble Delhi High Court in case of Sumitomo Corporation (Supra), in that case, it was held that Berry ratio can be used effectively where the value of goods have no role to play in the profits earned by the assessee and the profits earned are directly linked with the operating expenditure incurred by the assessee. It has been held that where the assessee uses intangibles or has substantial fixed assets, the value of such intangibles or value addition by such assets would not be captured in the operating cost and thus, Berry ration would not be an appropriate PLI. It has been held that the fundamental premise which needs to be examined before applying Berry ratio is that the operating expenses should adequately represent all functions performed and risk undertaken and for this reason, Berry ratio is effectively applied only in case of stripped down distributors which have no financial exposure and risk in respect of goods so distributed by them. Therefore, we agree that the Berry ratio can be applied in certain circumstances but in the facts of the present case, where the assessee is admittedly and undisputedly, a manufacturer and exporter of coloured gemstones and studded fashion jewellery and not a distributor, one wonder how the value of goods so manufactured and exported have no role to play in the profits earned by the assessee. 107 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT The assessee performs significant manufacturing functions right from procurement of raw material in terms of rough diamonds and gemstones, product conceptualization and designing, processing of rough diamonds and gemstones at its Adarsh Nagar, Sitapura and SEZ Jaipur, SEEPZ Mumbai facilities thereby employing its assets both tangible and intangibles and infrastructure facility and requisite manpower, which are further used for manufacture of studded jewellery and subsequent marketing and sales to its associated enterprises and other independent entities and providing after sales services. We find that it is the associated enterprises which performs the distributorship functions and sells the assessee’s products through its retail stores and TV Channels and not the assessee. In the process, the assessee takes all types of risk such as inventory risk, credit & collection risk, product risk, manpower risk, market Risk (to a limited extent), technology risk, general business risk and foreign exchange risk. In terms of cost base for carrying out these functions and related risk, there are material costs, manufacturing expenses and employment/manpower costs which have been incurred by the assessee and therefore, for determining an appropriate return on such costs, these costs have to be necessarily considered and which has been rightly considered by the assessee as part of its “cost of production” and based thereon, has adopted operating profit/cost of production as an appropriate PLI. We failed to understand how the TPO has worked out the value added expenses and quantum thereof in the face of these undisputed facts and circumstances of the case ignoring the manufacturing functions and risk so undertaken and the asset employed by the assessee. We therefore find that the decision of the Hon’ble Delhi High Court doesn’t support the case of the Revenue rather its supports the contentions advanced by the ld AR on behalf of the assessee. 35. Now, coming back to the reasoning adopted by the TPO where he says that since the assessee is purchasing from related parties and selling to related parties, both cost and revenue sides are tainted and in such a scenario, OP/COP will not be an appropriate PLI and OP/VAE has then been adopted by him. It appears that the TPO seems to be guided by some misconception that the assessee is in the business of trade intermediary where it buys from its associated enterprises and then, sells to its associated enterprises. As we noted above, the undisputed facts are that the assessee is a manufacturer and exporter and as part of its activities, it procures certain goods from its associated enterprises which constitute merely 21.09% of its total purchases besides purchases from other entities, process them in its manufacturing facilities and thereafter, export them to its associated enterprises. Therefore, it carries out significant manufacturing and processing operations and it is not a case of simpliciter purchase and sale activity which is being undertaken by the assessee. Only in a latter scenario, where it purchases from its associated enterprises and on-sells them to other associated enterprises, berry ratio can be held to be useful and appropriate PLI as stated in para 2.102 of the OECD guidelines. Following the same, the Coordinate Bench in case of Mitsubishi Corporation (supra) has also held that in case of a low risk high volume trading business involving back to back trading without any value addition to the goods traded, berry ratio could be appropriate PLI. However, in a situation in which there is further processing of the goods procured before selling the same or in a situation which necessitates employment of assets in infrastructure for processing or maintenance of inventories, the use of berry ratio does not seem to be quite appropriate. We therefore find that in the facts of the present case, the approach adopted by the TPO is bereft of the factual position of the assessee in terms of functions performed, the assets employed and risk undertaken while carrying out its manufacturing and export activities and the approach so adopted is also not in consonance with the approach so suggested by OCED and UN, and the decisions of the Hon’ble Delhi High Court and the Coordinate 108 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Benches and therefore, the adoption of berry ratio as an appropriate PLI is not justified in the instant case. 10.3 As is evident from the records that in this case the Transfer Pricing Officer, Ld. AO and DRP rejected the economic analysis including the Most Appropriate Method and the filters applied by the appellant in the Transfer Pricing (\"TP\") documentation maintained under section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 (the Rules) and subsequently applying new filters for the purpose of identification of companies comparable to the appellant. While doing so we note that it has not been established that which conditions as Specified in clause (a) to (d) of Section 92C(3) of the Act have not been satisfied by the assessee. Leaving that contention of the assessee the bench noted that the Ld. TPO, Ld. AO and DRP rejected the CPM considered by the assessee as the Most Appropriate Method with GP /COP as the PLI, without giving any cogent reason. Without appreciating the fact that the assessee follows the CPM consistently and has been accepted by the revenue authorities in the prior years as the most appropriate method with GP /COP as the PLI and there being no change in the facts and Circumstances of the current year vis-à- vis prior years, the Ld. TPO has disregarded the Rule of consistency’ by not accepting CPM as the Most Appropriate Method in assessee’s own case in the order of this tribunal for A.Y. 2016-17 and A.Y. 2017-18. 109 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 10.4 Record reveals that while making the adjustment Ld. TPO, Ld. AO and DRP applied ‘Berry ratio’ with Operating Profit/Value Added Expenses (OP/VAB') as the PLI under The Transactional Net Margin Method (TNMM) based on conjectures and surmises, without appreciating that the appellant is engaged in manufacturing activities and therefore, purchases and cost of production ought to be included in the cost base. thereby, completely disregarding the facts of the case, the functional profile of the appellant, established legal principles and internationally accepted transfer pricing guidelines. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP also failed to appreciate that Berry ratio can be applied only in specific circumstances, i.e. low risk procurement and distributors. Additionally, the Ld. AO has erred in applying ‘Berry Ratio’ even when in appellant’s own case, Berry Ratio was rejected as PLI in the A.Y. 2016-17 & 2017-18 by the co-ordinate bench of ITAT. Thus, we note that the Ld. TPO, Ld. AO and the DRP erred in violating the provisions of Rule 10B(2) of the Rules by rejecting functionally similar comparable Companies identified by the Appellant in its TP documentation and in arbitrarily identifying a new comparable company without conducting a methodical without considering the differences in the functions performed, assets employed, and risks assumed by such comparable company vis-a-vis the Appellant as required 110 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT in accordance with Rules 10B and Rule 10C of the rules, thereby restoring to cherry-picking and unsubstantiated selection of the comparable. Even otherwise if we considered TNMM as the Most Appropriate Method in the given case, Ld. TPO, Ld. AO and DRP has to consider Operating Profit/ Operating Cost (OP/OC) as the most appropriate PLI and berry ratio. 10.5 So after dealing with the ratio applied by the ld. TPO, ld. AO and DRP we deal with the selection of comparable and application of the PLI ( i.e. Gross Profit Margin / Cost of Production ) on this issue ld. AR of the assessee drawn our attention to the fact that where the PLI of GP/COP were applied on the comparable companies so selected by the TPO, the transaction of the assessee will meet the arm’s length test requirement and ld. AR invited a reference to the submission of the assessee on this issue as contended before the lower authorities which reads as under : In the case in hand, following comparable companies were identified, by Ld. TPO, for benchmarking: S.No. Comparable Company Three Year Weighted Average GPM 1. Classic Ornaments Pvt. Ltd. 2.52% 2. Suvarna Shilpi Jewellers Pvt. Ltd. 3.04% 3. Master Chain Pvt. Ltd. 3.17% 4. Karp Impex Ltd. 8.84 5. Uday Jewellery Industries Ltd. 11.43% 111 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 6. Golkunda Diamonds & Jewellery Ltd. 13.68% 7. Inter Gold (India) Pvt. Ltd. 31.12% 8. Azure Jouel Pvt. Ltd. 49.12% Median 9.99% Assessee’s Gross Margin 15.43% Without prejudice to anything stated in above para and without any admission, even otherwise also perusal of the comparable relied upon by the Ld. TPO shows that their median GPM comes to 9.99% which is lower than the GPM of 15.43% shown by the appellant, which makes it evident that transactions with the associated enterprises have been entered at arm’s length price. 10.6 Considering the submission of the assessee which has not been controverted by the ld. DR and as the comparable so selected by the TPO where the median OP/COP comes to 9.99 % whereas the Margin of the assessee reported for the year under consideration at 15.43 %. Thus we are of the considered view that the assessee’s transactions with its associated enterprises meets the requirement of transaction the same at arm’s length and thereby no adjustment is warranted. Thus, based on the above discussion and on being consistent with the finding so recorded on the similar facts in ITA no. 97/JP/2021 we do not find any reason to sustain the addition on account of sales and purchases made to/from associated enterprises for an amount of Rs. 1,36,31,75,249/- is directed to deleted. 112 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Based on the observation sub ground no. 1 to 8 of Ground no. II are allowed. 11. As regards the ground III related to addition on account of Notional Interest on outstanding receivable upon which adjustment was made for an amount of Rs. 96,03,898/- wherein the assessee has taken as much 1 to 5 sub grounds. Since they all relate to the one issue the same are dealt together. On this aspect we note that on account of the primary international transaction of Sale & Purchases made to/from AEs, the appellant had continuing debit and credit balances of receivables and payables respectively from its AEs during the year under consideration. On these transactions ld. TPO while dealing with the reference considered the receivables outstanding from AEs for more than 60 days as a separate ‘international transaction' and re-characterized the same as deemed unsecured interest free loan given by appellant to its AE. While doing so he assumed that an interest at the rate of 6.056% based on 6 months LIBOR plus a mark-up of 400 basis points was rate to be charged on that transaction. As regards the adopting 60 days to determine overdue receivables from the AEs for the purpose of treating such overdue receivables in nature of interest free unsecured loans, we note that the 113 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT assessee in the written submission submitted that while doing so, the Ld. TPO/ AO ignored the following facts : - a) the Appellant has granted a credit period of up to 180 days to both AEs as well as non-AE third parties; b) the Appellant has not charged interest on delayed receivables from third parties as well; c) the Reserve Bank of India (‘RBI) has itself acknowledged the hardships faced by the companies (operating in similar industries) and has revised the foreign remittance guidelines related to credit period norm for jewellery exporters to 180 days; d) not charging any interest on delayed receipts is a generally accepted practice for companies engaged in similar business segment as the Appellant. The above issue has already been dealt with in the case of the assessee for A. Y. 2017-18 vide ITA no. 04/JP/2022 wherein the co-ordinate bench has held as under : 27. We have heard both the parties and perused the material available on record. The entire issue stem from action of TPO wherein vide Show Cause Notice dated 24.01.2021 the receivables which are outstanding beyond 60 days have been treated as unsecured loans advanced to AEs and accordingly interest has been imputed thereon. Further TPO has adopted a credit policy of 60 days and the outstanding beyond 60 days have been termed as unsecured loans advanced whereas assessee has been giving a standard credit period of 180 days to AEs as well as third parties. Moreover, assessee is not charging any interest on payables too. The credit policy of the assessee is in line with RBI Guidelines on foreign exchange receivables thus there is no basis with the TPO in adopting credit period of only two months. Similar view has been expressed in the decision of GSS Infotech L.td Vs ACIT Circle-2(2), Hyderabad in ITA No.497/Hyd/2015 which the assessee has relied upon. 28. Moreover, on the same credit terms export has been made to Non AEs by giving credit period of 180 days and no interest has been charged therefrom. Thus there is complete uniformity in the act of the assessee in not charging any interest from both the AE as well as Non AE debtors and on the same delay, the assessing 114 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT officer is not justified in making the addition of notional interest to the assessee's arm's length price. The ratio decided in the case of CIT Vs Indo American Jewellery Ltd (ITA No.1053 of 2012 Bombay HC) is applicable in the present case also and accordingly the adjustment of interest is deleted. Since ld. DR on this issue merely submitted that the revenue has challenged the finding of the co-ordinate bench before our Hon’ble Court however he did not controvert the facts and submission raised on the issue. Be that it may on being consistent with the finding so recorded by the co- ordinate bench on the issue we do not find any reasons to sustain the adjustment of Rs. 96,03,898/- and thereby sub ground no. 1 to 5 of ground no. III are allowed. 12. Ground no. IV deals with the addition of PF payment made u/s 36(1)(va) of Rs. 19,68,509/- on account of delay in making the payment with in the due date prescribed. On this issue the bench noted that when the issue raised before the DRP, DRP has given the following direction: Direction of Hon’ble DRP: If the due date is a public holiday, by application of General Clauses Act, the due date shifted to the subsequent day. The Ld. AO examine the issue and follow the direction. On this issue ld. AR of the assessee submitted even though the specific direction was given by the ld. DRP the ld. AO confirmed the addition in violation of the direction of the ld. DRP. On this issue ld. AR of the assessee vide continuation to the written submission has also filed 115 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT placed on record the copy of the calendar stating that 15th December 2019 being Sunday and Holiday the payment was made on 16th December fully covered with the direction of the DRP. Ld. DR did not controvert this fact and therefore, considering that fact we see no reason to sustain the addition of Rs. 19,68,509/- and thereby the same is directed to be deleted. Based on this observation ground no. IV raised by the assessee is allowed. 13. Vide Ground no. V the assessee challenges action of the ld. AO invoking provision of section 115QA of the Act and thereby making the additional tax on the distributed income in relation to buy back of shares of Rs. 71,99,99,211/-. The assessee also contended that an exhaustive definition of distributed income is provided whereby the amount, which was received by the company, at the time of the issuance of shares, which was bought back by the company, must be reduced from the consideration paid by the company on buy back of such shares. Record reveals that Assessee – appellant M/s Vaibhav Global Limited has made ‘Public Announcement” for buyback of its shares on 07.08.2019 as per the procedure laid down under SEBI (Buyback of Securities) Regulations, 2018 read with the proviso to section 115QA of the Act which become the upon passing of the same on 11.12.2019 with retrospective 116 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT effect from 05.07.2019. So the basic question that whether the assessee can be deemed to be aware of the proviso that has been inserted on 11.12.2019 with retrospective effect from 05.07.2019. Since, there is a change in the intervening period with that of the various actions taken by the assessee, it would be appropriate to deal with the History of this provision and consequential events as occurred in this case so as decide as to applicability of the amended provision in the case of the assessee. Section 115QA of the Act was inserted vide Finance Act, 2013 w.e.f. 01.06.2013. The said section provides levy of tax, in the hands of unlisted companies, on the amount of distributed income ( @20%), by such a company, on buyback of shares. Vide Finance (No. 2) Bill, 2019 which was introduced, on 05.07.2019, in the Lok Sabha whereby the phrase ‘not being shares listed on a recognized stock exchange’, as appearing the original section 115QA was proposed to be ‘omitted’ from the provisions of 115QA. This amendment shall bring all listed companies under coverage of section 115QA of the Act. The provision of this section proposed to be amended with retrospective effect from 05.07.2019. Considering that fact and the dispute on hand it would be appropriate to deal with the sequence of the event to understand the facts of the case. 117 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT On 20.09.2019 in a press conference, Hon’ble Finance Minister announced while dealing with the questions of the public that certain amendments in the Finance (No. 2) Act, 2019 would be brought through an Ordinance on that it was clarified by the Hon’ble Minister that “ f. In order to provide relief to listed companies which have already made public announcement of buy back before 5th July 2019 it is provided that tax on buy back of shares in case of such companies shall not be charged.” While doing so there was no clarity as to what would constitute the public announcement, a copy of the same is available in the written submission of the assessee. As is evident that the thrust was on the public announcement. Thus, to understand what is the exact provision existed and what is the amended, it would be appropriate to deal with the provision of the Act pre amendment and post amendment. Section 115QA, as on 01.06.2013, “Tax on distributed income to shareholders. 115QA. (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock exchange) from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income:” Now examine the amended provision of law which reads as follows: “Tax on distributed income to shareholders. 118 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 115QA. (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income:” As is evident that in the above referred provision the text “‘not being shares listed on a recognised stock exchange” was removed. From the sequence of the event placed on record we note that the amendment was proposed on 05.07.2019 and become the law on 11.12.2019 upon receiving the accent of the President and the proposed proviso was made of the statute w.r.e.f. 05.07.2019. Now with this factual aspect of the amended provision it would be appropriate to deal with the facts of the present case to decide the amened provision in the case of the assessee as submitted in the written submission and not controverted by the revenue: • 22nd May, 2019: Notice of Board Meeting sent to directors and Stock Exchanges regarding Buy-back of shares (PBP: 122); • 30th May, 2019: Board Meeting held wherein Buy Back of Shares, terms and condition of Buy Back, Appointment of Merchant Banker and company’s broker etc. was approved (PBP: 123 – 128); • 30th May, 2019: The outcome of Board Meeting was intimated to Stock Exchanges (PBP:129 – 131); • 30th May, 2019: Postal ballot was issued containing, inter alia, material information as contained in Schedule I of SEBI (Buy Back of Securities) Regulation, 2018 (PBP:132 - 139); 119 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT • 30th May, 2019: Buy back of shared by the appellant was extensively covered in various social media platform and news channel (PBP: 140 – 142) • 31st May, 2019: Press release of Buy Back intimated to Stock Exchanges (PBP:143 – 145) • 7th August 2019: Declaration of result of postal Ballot; • 8th August, 2019: Date of publication of public announcement as per SEBI (Buy Back of Securities) Regulation, 2018. Now at this juncture as on 05.07.2019 the assessee reached at the stage as mentioned at serial no. 6 above thereby even the stock exchange was informed that of the buyback announcement made to the public at large including that of the shareholders of the company. Be that it may read with the public announcement made on 20.09.2019 in a press conference by Hon’ble Finance Minister wherein though the amendment was under the approval but since it was with retrospective effect the Hon’ble Minister stated that listed companies which have already made public announcement of buy back before 5th July 2019 tax on such buy back of shares shall not be charged. Before we go into the deep further in the matter it would be appropriate to deal with the exact provision brought in to the bill which reads as under : Notes on clause amended: Upon reading the above proposed amendment, notes on amended clause with that of the public announcement made by the Hon’ble Finance Minister in the public domain, the assessee reached to t concluded the transaction which was made public. Accordingly read provision in that terms that what is available in public domain is the amendment made, notes on clause and guidelines given by the Hon’ble Finance Minister and the assessee not available in the public domain till it become the law. As is evident that revenue relying upon the proviso which was added 120 ITA No Vaibhav Global Limited vs. DCIT Notes on clause amended: Upon reading the above proposed amendment, notes on amended clause with that of the public announcement made by the Hon’ble Finance Minister in the public domain, the assessee reached to the destination and concluded the transaction which was made public. Accordingly read provision in that terms that what is available in public domain is the amendment made, notes on clause and guidelines given by the Hon’ble Finance Minister and the alleged proviso applied in the case of the assessee not available in the public domain till it become the law. As is evident that revenue relying upon the proviso which was added ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT Upon reading the above proposed amendment, notes on amended clause with that of the public announcement made by the Hon’ble Finance he destination and concluded the transaction which was made public. Accordingly reading that provision in that terms that what is available in public domain is the amendment made, notes on clause and guidelines given by the Hon’ble alleged proviso applied in the case of the assessee not available in the public domain till it become the law. As is evident that revenue relying upon the proviso which was added 121 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT to that section which was not in the bill but came to be in the final law upon receipt of accent of president on 11.12.2019 reads as under : Provided that the provisions of this sub-section shall not apply to such buy-back of shares (being the shares listed on a recognised stock exchange), in respect of which public announcement has been made on or before the 5th day of July, 2019 in accordance with the provisions of the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992): [Inserted by Act No. 46 of 2019, dated 11.12.2019.] Thus, the amended provision with notes on clauses with the memorandum explaining the amended provision the same was not in public till 08.08.2019 and that proviso which was not in public till that date that provision cannot be fastened for compliance upon the assessee on 05.07.2019 which was not in the knowledge of the assessee. What is available as on 05.07.2019 till 08.08.2019 duly complied by the assessee and the revenue cannot enforce the proviso was not in public domain and therefore, condition mentioned in the proviso which was not known to the assessee till 08.08.2019 the condition of that cannot be expected to be applied which was not known to the assessee. Record reveals the contention of the revenue is that M/s Vaibhav Global Limited has made ‘Public Announcement’ for buyback of its shares on 07.08.2019 as per the procedure laid down under SEBI (Buyback of Securities) Regulations, 2018. However, considering all the above facts 122 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT and circumstances, ld. AO holds that the company made a public announcement as per the SEBI’s guidelines on 07.08.2019 i.e. after 05.07.2019, the cutoff date provided under section 115QA of Act and therefore, the company is liable to pay tax on the distributed income of Rs. 71,99,99,211/-. But as discussed here in above the requirement as prescribed under the proviso was not made public till 11.12.2019. With that background it would be appropriate to repeat the date sequence as under: • 22nd May, 2019: Notice of Board Meeting sent to directors and Stock Exchanges regarding Buy-back of shares (PBP: 122); • 30th May, 2019: Board Meeting held wherein Buy Back of Shares, terms and condition of Buy Back, Appointment of Merchant Banker and company’s broker etc. was approved (PBP: 123 – 128); • 30th May, 2019: The outcome of Board Meeting was intimated to Stock Exchanges (PBP:129 – 131); • 30th May, 2019: Postal ballot was issued containing, inter alia, material information as contained in Schedule I of SEBI (Buy Back of Securities) Regulation, 2018 (PBP:132 - 139); • 30th May, 2019: Buy back of shared by the appellant was extensively covered in various social media platform and news channel (PBP: 140 – 142) • 31st May, 2019: Press release of Buy Back intimated to Stock Exchanges (PBP:143 – 145) • 7th August 2019: Declaration of result of postal Ballot; • 8th August 2019: Date of publication of public announcement as per SEBI (Buy Back of Securities) Regulation, 2018. 123 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT As is evident that till 08.08.2019 when the assessee completed the process that proviso which revenue relied was not available in public and assessee cannot be expected to comply as is interpreted by the revenue. When the assessee made reliance on the announcement made by Hon’ble Finance Minister, provision of law and notes on clause the assessee cannot be found at fault for which there was no knowledge upon the assessee to act upon it on the proviso as it was not available in public domain. We also note that the substantial compliance of providing the material information to the shareholders by way of postal ballet notice dated 30.05.2019 therefore, in our considered view substantial was made by the assessee to the parties concerned including that information which was required to be published but provided in postal ballet. This event so performed by the assessee shows the substantial compliance was made by the assessee. As is held by the apex court in the case of Commissioner of Excise, New Delhi v. Hari Chand Shri Gopal and others [(2011) 1 SCC 236], wherein it has been held as follows: “Doctrine of substantial compliance and “intended use” 32. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted on some minor or in consequent aspects which cannot be described as the “essence” or the “substance” of the requirements. Like the concept of “reasonableness”, the acceptance or otherwise of a plea of substantial compliance depends upon the facts and circumstances of each case and the purpose and object to be achieved in the context of the prerequisites which are essential to 124 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT achieve the object and purpose of the rule or regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuate the object and the scope of the statute has not been met. Certainly, it means that the court would determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means “actual compliance in respect to the substance essential to every reasonable object of the statute” and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. 33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and direct recruitment requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and forgive non- compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. (Emphasis Supplied) This view is further supported by the decision of the Hon’ble Gujarat High Court decision in the case of CIT Vs. Tarnetar Corporation (2012) 26 taxmann.com 180 held as under: “5. We have perused the detailed discussion of the CIT (Appeals) as well as the Tribunal on the issue. In particular, the Tribunal noted that the construction was completed in 2006. Application for BU permission to the Municipal authorities was filed on 15.2.2006 which was rejected on 1.7.06. Several residential units were occupied since the same was done without necessary permission. The assessee had also paid penalty and got such occupation regularized. Several tenements were sold long before the last date. 6 In the present case, therefore, the fact that the assessee had completed the construction well before 31st March, 2008 is not in doubt. It is, of course, true that formally BU permission was not granted by the Municipal Authority by such date. It is equally true that explanation to clause (a) to section 80-IB(10) links the completion of the 125 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT construction to the BU permission being granted by the local authority. However, not every condition of the statute can be seen as mandatory. If substantial compliance thereof is established on record, in a given case, the court may take the view that minor deviation thereof would not vitiate the very purpose for which deduction was being made available. 7. In the present case, the facts are peculiar. The assessee had not only completed the construction two years before the final date and had applied for BU permission. Such BU permission was not rejected on the ground that construction was not completed, but the some other technical ground. In that view of the matter, granting benefit of deduction cannot be held to be illegal. 8. In the result, the Tax Appeal is dismissed.” Respectfully following the ratio of the judgment and the discussion so made we are of the view that the Machinery provisions cannot overpower or negate Intention of Legislature. Thus, considering the ratio as discussed and the compliance made based on the information available in public domain the assessee cannot be found at fault of the proviso which was not in public and therefore, we are of the considered view that what was not known to the assessee of the provision and compliance which were made were well within the proposed law and therefore, we direct the ld. AO to delete the addition of Rs. 71,99,99,211/- considering the fact that law, notes on clause and public announcement were compiled and proviso which was relied upon by the revenue was not made public and therefore, activities which were undertaken by the assessee based on the information available in public 126 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT which till 08.08.2019 were followed and thereby cannot be considered or differentiated to tax the transaction which has retrospective effect. While reaching the conclusion we get support on the various judicial precedent cited in the written submission that the accrual of right on the repeal provision cannot be taken away. Even otherwise the assessee, before the change proposed i.e. on 05.07.2019 completed all the action which would be considered as the action of the assessee was in the public domain. Based on this observation sub ground no 1 of ground no. V raised by the assessee is allowed. Since we have directed to delete the main addition the contention of allowing the cost becomes educative in nature and does not require our finding. 14. So, far as ground no. VI under the head Other Grounds the bench noted that the assessee vide their written submission so filed and relied submitted that these grounds being general in nature. Hence not pressed and thereby the same are treated as dismissed as not pressed. In the result, the appeal of the assessee in ITA no. 1144/JP/2024 is Partly Allowed. 127 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 15. Now Moving towards the appeal of the assessee in ITA no. 1485/JP/2024 the bench noted that the facts of the case in this appeal is similar to the fact of the assessee in ITA No. 1144/JP/2024. 16. Though ITA No. 1144/JP/2024 was argued on 23.04.2025 and ITA No. 1485/JP/2024 was argued on 29.04.2025 we feel that since the facts of the case of the assessee in ITA No. 1485/JP/2024 is similar to that of the facts and also with majority of the grounds raised by the assessee. As those similar grounds raised vide ITA No. 1144/JP/2024, the bench feels that it is not imperative to repeat all the facts, arguments and finding while dealing with that similar ground in appeal of the assessee in ITA no. 1485/JP/2024 and the decision taken by the bench on those similar ground shall apply mutatis mutandis with that background we deal with the appeal of the assessee in ITA no. 1485/JP/2024. 17. The bench noted that the assessee vide their written submission for these ground stated that these grounds are general in nature and hence not pressed. Considering that facts the bench treat this ground no. I as not pressed and thereby we considered as dismissed being not pressed. 18. Vide Ground Nos. (II) the assessee deals with the sales and purchases made to/from Associated Enterprises (AEs) upon which and 128 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT adjustment of Rs. 141,06,22,743/- was proposed. This issue has already been dealt with while dealing ground no. II in detail in ITA No. 1144/JP/2024. Therefore, it is not imperative to repeat facts and findings and decisions taken by the bench fact while dealing with ITA No. 1144/JP/2024 shall apply mutatis mutandis in this case and grounds no. II raised by the assessee is allowed. 19. Vide ground no. (III), the assessee challenges and addition of Rs. 1,09,25,934/- being notional interest on outstanding receivable. The similar ground raised by the assessee is also dealt with by the bench while dealing with the appeal of the assessee in ITA No. 1144/JP/2024, vide ground No. (III), thus, the decision taken by the bench shall apply mutatis mutandis to the ground No. (III) raised in this appeal. Thereby ground No. (IIII) raised by the assessee is allowed. 20. Vide ground no. IV the assessee challenges the addition of unexplained Expenses of Rs. 6,40,927/- wherein the ld. CIT(A) sustain the addition of Rs. 3,97,000/- u/s 69C of the Act treating 'Dumb Document', as unaccounted expenses, without any corroborative material, the assessee also contests the addition of Rs. 2,43,927/- u/s 69C of the Act which is made against the facts of the case. 129 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT 20.1 The brief facts related to this addition is that a search/survey operations were conducted on, various premises of the appellant from 23.11.2021 to 27.11.2021. During that process, a rough diary (marked as Exhibit – 1 of Party: B-5) (PBP: 167) , pertaining to an employee of the company, containing rough jottings were found and impounded. Ld. AO on perusal of this exhibit noted that the particulars written on that page were related to IT Cell of VGL. On a few pages, the expenses incurred upon the acquisition / procurement of equipment / items were written which reads as under: 20.2 During that proceeding a statement of Shri Ansuman Khandelwal, DGM ( Finance & Accounts ) was recorded and he was confronted about the content written vide question no. 37 of his statement. Vide that reply he denied to have any knowledge about the amounts mentioned / written on various pages of this exhibit. After that proceeding the assessee submitted that the pages of this exhibits are daily task, routine work, IT related task, 130 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT network ip, quotations of vendors, nottings of discussion and issues of team including the personal notting were written. These noting remained unexplained and therefore, the ld. AO after going through that page noted that when the question related to this page was asked , assessee vide reply dated 14.9.2023 stated that this amount is rough jottings and that submitted that vendor agreed for an amount of Rs. 2,97,000/-. The theory advanced was not satisfactory to the ld. AO. Therefore, a show cause notice was issued to the assessee wherein the assessee denied to have any transaction of Rs. 3,97,000/- but stated that the final bill of Rs. 2,97,000/- and then ultimately at Rs. 2,70,928/- were considered after thought and thereby added a sum of Rs. 3,97,000/- 20.3 Ld. AO further noted from the post search proceeding wherein the assessee vide letter dated 20.04.2022 stated that exhibit 17 of the party B- 3 is goods on approval, delivery challan, approval memo for goods received on approval for selection of various parties and some daily workings, issue to workers etc., few gems receipts, challans etc. Ld. AO noted that these transactions were not found in regular books of accounts of the assessee seized during the search proceedings. Vide reply dated 14.09.2023 the assessee submitted an affidavit that the above transaction belongs to Divya Gems and the assessee. But the basis and logic for the 131 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT same was not explained and even the clarification from Divya Gems was not filed therefore, ld. AO taken a view that the transaction remains unaccounted for an amount of Rs. 2,43,927/-. 20.4 Therefore, finally ld. AO based on those seized documents made total addition of Rs. 3,97,000/- and Rs. 2,43,927/- totaling to Rs. 6,40,927/- in the draft order. 20.5 The assessee challenged that draft order before DRP in ground no. 7. Record reveals that DRP has confirmed the finding of the ld. AO for an amount of Rs. 3,97,000/- giving finding that the assessee has not discharged their onus and there is no finding on Rs, 2,43,927/-. 20.6 Before us the ld. AR of the assessee filed a detailed written submission challenging the addition. The submission so filed by the assessee reads as under : Submission: 1. No addition can be made on the basis of loose page/ dumb document: a) In this regard, the appellant wants to draw attention of your honours to the following whole page no. 3 of the Exhibit-1 of Party Number: B5 (PBP: 167) under consideration. 132 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT b) Since it is an undisputed fact that the said diary is prepared by employee of the appellant. Hence, the employee is the author of the diary. Therefore, understanding the psyche of the author behind those jottings is crucial to understand their relevance and purpose. c) On careful analysis of such page, it can be observed that multiple jottings including marks, signs, random diagrams, arrows, circles, lines are appearing on the complete page. This pattern indicates that the author had a habit of jotting down marks, signs, arrows, circles, lines etc. while discussing anything which may be during discussion over phone or in person. d) In practical life it is common that certain discussions or thoughts are subsequently converted to transaction either as it is or with modification or in most of the case it could not be materialize. Therefore, jottings merely reflecting the discussion on a particular moment and not representing any transaction per se. 133 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT e) In the present case, substance of the actual nature of the jotting cannot be known by randomly picked jotting rather can be known from the complete page. The actual nature, in the current case, is apparent from the overview of the complete page which is that these are rough jottings which neither imply any payment nor any receipt. Hence, the said page contains rough jottings and, at most, can be classified as dumb document. f) Please note that if these types of jottings are not considered ‘rough’ then what will be considered as ‘rough’ since the said page is void of vendor’s name, payment terms, mode of payment, description of expenditure etc. g) Further, without prejudicial to anything stated above and without any admission, it is humbly submitted that it is a settled legal position that no addition can be made on the basis of loose page or dumb document. The subjected loose page is a non-speaking page, not depicting the nature of transaction, payee or payor, hence a dumb document. The above view gathers reinforcement from the following judgements: \u0001 Hon’ble Gujarat High court in the case of CIT vs. Maulik kumar K Shah reported in 307 ITR 137 wherein it was held that: “Notings in the seized diary found from the premises were the only material on the basis of which the Assessing Officer had made the impugned additions. The Assessing Officer had not brought any corroborative material on record to prove that such sales were made and ‘on-money’ was received by the assessee outside the books of account. The Assessing Officer had not examined any purchaser to whom the sales of shops were effected. Onus heavily lay on the revenue to prove with corroborative evidence that the entries in the seized diary actually represented the sales made by the assessee. Such onus had not been discharged by the revenue. Mere entries in the seized material were not sufficient to prove that the assessee had indulged in such a transaction. The inference of the Assessing Officer that the assessee has received ‘on-money’, was merely based on suspicion and surmises and there was no material whatsoever to support the conclusion of the Assessing Officer that the assessee had in fact received any ‘on-money’. The addition as made by the Assessing Officer being based on mere presumptions and assumptions and without any corroborative evidence, could not be sustained.” \u0001 Hon’ble Karnataka High Court in the case of DCIT/ CIT(A) Vs. Sunil Kumar Sharma [W.A. No. 830/2022] vide order 22.01.2024, rejected the appeal of the revenue by holding that loose sheets have no evidentiary value without corroborative evidence. Further, the Hon’ble Supreme Court has also dismissed SLP filed by the revenue against the said order. Relevant extracts of Hon’ble High Court order are reproduced below: 134 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT “50. In the instant case, the first issue raised by the Revenue is as regards the addition of income made by the Assessing Officer based on loose sheets found in the house of a third party. However, we find that the Revenue has not established the said loose sheets to be considered as evidence in law by producing corroborative evidence supported by judgments and findings. Further, since the statement made by Shri K. Rajendran under Section 132 of the IT Act is later retracted by him by filing an affidavit, the statement given by him does not hold any evidentiary value. 51. The notice issued under Section 153C of the IT Act in respect of the Assessment year 2018-19 is not applicable, which is also supported by various judgments of the High Court. Further, the notice as regards the Assessment years 2015-16, 2016-17 and 2017-18 are also not applicable, as the total addition of income were made on the basis of loose sheets. Further, the panchanama or mahazar of all the loose sheets said to have been seized from the house of Shri Rajendran, are now unavailable and the learned counsel for the Revenue has no answer for the same. On these premise, the assessment order made for the Assessment years 2015-16, 2016-17, 2017-18 and 2018-19 requires to be quashed. … 56. In the light of the above said Apex court Decisions and the Panchanama provided herein, it is deemed appropriate to conclude that the notice provided under Section 153C is bad in law”. \u0001 The Hon'ble Supreme Court in case of Common Cause (A Registered Society) And Others Vs. UOI [W.P (Civil) No. 505 of 2015]. In this case, the Hon'ble Supreme Court, following the judgment rendered in case of V.C. Shukla , laid down the following principles: - i. Entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act. It is only where the entries are in the books of account regularly kept, depending on the nature of occupation, that those are admissible; ii. As to the value of entries in the books of account, such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability; iii. The meaning of account book would be spiral note book/pad but not loose sheets; iv. Entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the 135 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another; v. Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts; \u0001 The Hon’ble High Court of Madhya Pradesh in the case of PCIT-I Vs Shri Pukhraj Soni [ ITA No. 53 of 2017] dated 06.02.2019. After taking into account the judgement(supra) of Hon’ble supreme court dismissed the department appeal where addition was made on the basis of loose papers Relevant extracts read as under: “The Apex Court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers. In the present case also entries found during search and seizure which are on loose papers are being made the basis to add income of this respondent. Resultantly, in light of the Supreme Court judgments, referred above, no case for interference is made out with the order passed by the Tribunal. Moreover no substantial question of law arises in the present appeal, the appeal is dismissed” On the basis of above judgements, we hereby submit that seized loose page have no authenticity and therefore cannot be relied upon for making addition under the current case. 2. The alleged jottings don’t even contain name of the appellant or the payee or nature/ description of expenditure or mode of payment: a) Without any admission, perusal of the page shows that there is neither mention of appellant’s name nor of the payee nor any description with regard to the expenditure incurred in cash. b) It is pertinent to note that to constitute any transaction, at least 2 persons are required i.e. a payer and payee. In the instant case, even if we assume that appellant has incurred some expenditure then who is the payee. Both the loose 136 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT page and the assessment order are completely silent on this aspect as to who is the payee of the alleged cash expenses. c) Hence, it is clear that the page under consideration, is a rough working and cannot be considered as a conclusive proof about the authenticity of the figures appearing therein. d) In this regard, we rely on the following case laws: \u0001 Hon’ble ITAT, Hyderabad in the case of Sri Tarun Kumar Goyal Vs ACIT, vide order dated 20.04.2021 after referring decision of Hon'ble Apex Court in Common Cause, Vs. Union of India held as under: 13.Lastly comes the crucial issue as to whether the impugned seized material / ‘Excel’ sheet (not mentioning the assessees’ names) forms a dumb document or not. We make it clear that the department has failed to corroborate the impugned seized document indicating assessee’s alleged on money payment over and above the sale price itself. All it has done is to rely on their father’s name only. It is nowhere clear as to whether it is an alleged document forming part of the books of account maintained in the regular course of business either by the vendor or vendee side. All it contains therefore is rough notings and jottings only. This tribunal co-ordinate bench’s decision Nishan Constructions Vs. ACIT ITA No.1502/Ahd/2015; after considering the hon'ble apex court’s landmark decision in Common Cause, Vs. Union of India (2017) 77 taxmann.com 245 (SC) and CBI Vs. V.C.Shukla (1998) 3 SCC 410 (SC) holds that such loose sheets deserves to be treated as a dumb documents only since not revealing full details about the dates containing lack of further particulars and therefore, ought not to be made basis of an addition. Similar other judicial precedents ACIT Vs. Layer Exports P.Ltd., (2017) [184 TTJ 469] (Mumbai) & ITO Vs. Kranti Impex Pvt. Ltd., ITA No.1229/Mum/2013, dt.28-02- 2018 (dealing with a seized document seized not either bearing the taxpayer’s name or signature). Shri Neeraj Goyal Vs. ACIT, ITA No.5951/Del/2017, dt.21-03-2018, (Del) (2012) 23 taxmann.com 269] Nagarjuna Construction Co. Ltd., Vs. DCIT, CIT Vs. S.M.Agarwal, [293 ITR 43], CIT Vs. Shri Girish Chaudhary (2008) 296 ITR 619 (Del) also echo the very principle. We accordingly hold that the impugned addition of on-money payment made in both these assessees’ hands on the basis of a mere dumb document and not corroborated by any other evidence is not sustainable. We thus direct to delete the impugned identical addition forming subject matter of adjudication in both these cases”. 3. No addition can be made without corroborative evidence: a) Without prejudice to anything stated hereinbefore and without any admission, it is to be noted that, in the present case, the addition is based entirely on rough/loose page which lack evidentiary value and are legally inadmissible. 137 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT b) It is also a settled legal position that without any corroborative material, no seized material can be considered as incriminating material. Further, loose page does not carry any evidentiary value and are not admissible evidence. c) In the present case, no corroborative material has been brought on record to support that the jotting of 3,97,000/- represent actual expenditure which proves that the whole inference has been drawn on the basis of presumptions and hypothesis only. d) In this regard, we rely on the following case laws: \u0001 CIT vs. Dolphin Builders (P) Ltd (2013) (356 ITR 420), the Hon’ble Madhya Pradesh High Court vide order dated 30.04.2013 held that though there may be some doubt about the price of the flats, but until and unless it could have been proved by some evidence, aforesaid doubt cannot take place of proof. Until and unless such noting is corroborated by some material evidence, the Assessing Officer erred in making addition in the income. “13. We have also perused the material in the matter and find that there was no evidence in the matter that the excess amount, if any, was collected by M/s Goyal Builders or even if it was collected then it was passed on to the respondent. There was no search, survey or seizure of the premises of the assessee. Apart from this, the department had not examined any purchaser or flat owner to verify the correctness of the aforesaid noting that some higher amount was paid by the said purchaser to M/s Goyal Builders or the fact that actual price was much higher to the price which was recorded in the account books. The Tribunal have also found that if any amount was collected in excess to the agreed price then M/s Goyal Builders could have been liable for that and not the assessee. We find the aforesaid reasoning of the Tribunal to be reasonable. Though there may be some doubt about the price of the flats but until and unless it could have been proved by some evidence, aforesaid doubt cannot take place of proof. Until and unless such noting is corroborated by some material evidence, the Assessing Officer erred in making addition in the income”. \u0001 In the case of CIT vs. Discovery Estates (P) Ltd (2013)(356 ITR 159)(Delhi), the Hon’ble Delhi High Court has laid down following principles for making additions towards unaccounted sale receipts:- “The power of the assessing officer to raise valid queries on the basis of the facts or unusual features noticed by him must be conceded. The features noticed by him in the assessees' business certainly constitute a starting point of inquiry. They are, however, not to be taken as evidence or material showing any suppression or understatement of the sale price. If on further probe, the assessing officer was able to unearth any evidence or material on the basis of which actual suppression 138 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT of the sale price could be found, then the additions made on that basis would be valid. Even if the evidence does not show the precise amount of suppressed sale price, but shows clearly and categorically that there was understatement of sale consideration, that would be sufficient to empower the assessing officer to reject the account books as being incorrect and incomplete. He may thereafter make an estimate of the profits of the business to the best of his judgment, on the basis of the evidence unearthed by him revealing suppression of sale price. But it is not open to him, merely on the basis of what he perceives to be the market conditions, to make additions to the sale price or the profits, without any evidence of understatement.” \u0001 Hon’ble Delhi Bench ‘F’ of ITAT, New Delhi in the case of Sh. Rishi Aggarwal Vs. DCIT [ITA No. 1643 of 2019] wherein it was held as under: “12. We have heard the parties and perused the materials available on record. During the search and seizure operation on M/s Shubkamna Buildteck Pvt. Ltd. two documents were found from the premises of the searched person which are (i) a copy of the agreement between Late Sh. Buti Singh and the assessee for transfer of right on future plot of land of 343 sq. meter to be allotted by NOIDA authority for Rs.30,87,000/- to the assessee. In the said agreement the assessee is stated to have paid a cheque of Rs.27.80 lakhs (ii) an unsigned and undated loose paper/ a computer generated sheet which contained a list of different properties with the name of farmer (owner) and the purchaser. As per AO one of the entries pertaining to the copy of the agreement is between late Buti Singh and the assessee for transfer of rights on future allotment of 343 sq. mtr. but with distorted sales consideration. In the computer-generated sheet, the total sale consideration was stated to be Rs.10,29,000/-, whereas as per agreement the total sale consideration was Rs.30,87,000/-. Further, certain handwritten jottings were made on on the margins of the paper “Ch.27.80 and cash 76.75(74.15 +2.60)”. The loose paper found during search which is reproduced as under: … 13.It can be seen from the above paper found during the search placed at page 30 of the Paper Book that: It is neither dated nor signed/stamped, there is no head note on the paper which could suggest the purpose for which it was created, the loose paper contained list of many other property transaction which were related neither to the assessee nor to Sh. Buti Singh (seller) which demonstrates that neither the assessee nor the seller was the author of the document. The loose paper did not belong to the assessee or to the seller, there is no description or comment explaining the hand written jottings-whether it represented a proposal for purchase or construction by the builder or payment between assessee and right seller, there is no date of receipt or payment mentioned against any figure, the 139 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT content of the paper was incorrect as the total sales consideration did not match to the sales consideration as per the agreement. Further, the sales consideration as per the loose paper did not even match to the handwritten jottings which raise serious doubts on its validity and accuracy. 14. Thus, the above said loose paper was not speaking document and it is a dumb document which can be used as a basis for making the addition u/s 69 of the Act in the absence of any substantive enquiry to validate the content of the paper with any supportive and corroborative material and evidence. The evidentiary value of loose paper which is unsigned, undated and unverified has been held to be highly questionable and has not been accepted by the Hon’ble Supreme Court and various High Courts in following judgments”. 1. Without prejudice to anything stated hereinbefore and without any admission, the appellant wants to reiterate its submission made before the Ld. AO that although the jotting of 3,97,000/- does not carry any description of transaction, however, we tried to explain, to the best of our knowledge, that it might be related to discussion made with vendor (A Tech Solutions, Jaipur) regarding price of Aruba Switches and Fiber Module used in IT cell of the appellant. Looking at the psyche and habit or method of the author, the said jottings might be with regard to the said vendor where it quoted INR 3,97,000/- during initial negotiation of the transaction and subsequently agreed on amount of INR 2,97,000/- (as evident from the noting itself wherein just above the amount of 397000, 297 is mentioned. Eventually settled for Rs. 2,70,928/-. The said expense of 2,70,928/- is recorded in regular books of accounts (PBP: 168). 20.7 The ld. AR of the assessee in addition to the written submission so filed vehemently argued that the impugned page is without any head and tail. The page relates to the personal diary of Information Technology (IT) in charge. The noting relates to discussion with the vendor wherein the assessee has written two prices one is Rs. 3,97,000 and another 297. Before the ld. AO the assessee has already explained the nature of the transaction and has even placed on record the invoice which were under 140 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT negotiation and the ultimately the same was billed and accounted at Rs. 2,70,928/- the copy of the invoice is also placed on record. As regards the other transaction the assessee has made the complete submission and thereby the DRP has considered the submission and has not given any directions and therefore, considering that aspect both the addition made by the ld. AO is required to be deleted. 20.8 On the other hand ld. DR relied upon the finding recorded in the orders of the lower authority. The addition made is duly supported by the seized material and based on the pre and post search proceedings. The explanation given by the assessee are nothing but the after though contention and has no force and therefore, he prayed to sustain the addition. 20.9 We have heard the rival contentions and perused the material placed on record. The bench noted that the ld. AO made two additions which were based on the material collected by the revenue in the search operation carried out at the various premises. In that proceeding a rough diary (marked as Exhibit – 1 of Party: B-5) (PBP: 167) , pertaining to an employee of the company, containing rough jottings were found and impounded. Ld. AO on perusal of this exhibit noted that the particulars written on that page were related to IT Cell of VGL. On a few pages, the 141 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT expenses incurred upon the acquisition / procurement of equipment / items were written. To counter that paper a specific question no. 37 was asked to Shri Ansuman Khandelwal, DGM ( Finance & Accounts ) while recording the statement. Vide that reply he denied to have any knowledge about the amounts mentioned / written on various pages of this exhibit. After that proceeding the assessee submitted that the pages of these exhibits are daily task, routine work, IT related task, network ip, quotations of vendors, noting of discussion and issues of team including the personal notting were written. These noting remained unexplained and therefore, the ld. AO after going through that page noted that when the question related to this page was asked , assessee vide reply dated 14.9.2023 stated that this amount is rough jottings. The assessee submitted that ultimately vendor was ready to deliver the services / goods for an amount of Rs. 2,97,000/- and ultimately the same was billed for an amount of Rs. 2,70,928/ [ APB-168]. Ld. AO since not satisfied with the reply issued a show cause notice to the assessee. In that submission the submitted that ultimately that transaction was settled at Rs. 2,70,928/- discussion was going for Rs. 3,97,000/- and Rs. 2,97,000 [ 000 silent ]. Since this transaction was not explained satisfactory the ld. AO made the addition of Rs. 3,97,000/-. As regards the other addition ld. AO noted from the post search 142 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT proceeding wherein the assessee vide letter dated 20.04.2022 stated that exhibit 17 of the party B-3 is goods on approval, delivery challan, approval memo for goods received on approval for selection of various parties and some daily workings, issue to workers etc., few gems receipts, challans etc. Ld. AO noted that these transactions were not found in regular books of accounts of the assessee seized during the search proceedings. When the ld. AO asked to explain the assessee vide reply dated 14.09.2023 submitted an affidavit that the above transaction belongs to Divya Gems and the assessee. But the basis and logic for the same was not explained and even the clarification from Divya Gems was not filed therefore, ld. AO taken a view that the transaction remains unaccounted for an amount of Rs. 2,43,927/- and thereby the same was added. When the matter carried to DRP, DRP confirmed the addition of Rs. 3,97,000/- and for the remaining addition of Rs. 2,43,927/- there is no finding in the order of DRP. On this issue the bench noted that the page upon which the revenue made reliance is without any head and tail. The page is not a regular books or voucher or record it is merely a diary of an employee. Thus, these paper is nothing but a rough jotting and can not be made basis to make the addition u/s 69C of the Act and it can be applied only where there an expenditure which clearly available to have been incurred and not 143 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT explanation for source of that expenditure is submitted then the addition can be made. Thus, here in this case only the rough jotting or discussion noting does not tantamount to an addition u/s. 69C of the Act. On this aspect the assessee has already identified the person whose made noting and other corroborative evidence of having the expenditure incurred was submitted in fact the assessee submitted a bill submitting that the ultimately finally negotiated bill is duly recorded in the books of accounts. No enquiry whatsoever with the employee or with that of the vendor was done even though the assessee has discharged their onus. We get support of our view from the decision of our Jurisdictional High Court in the case of CIT Vs. Kailash Chand Sharma [ 146 Taxman 376 (Raj) ] wherein the our High Court observed as under : 15. Having perused the three loose papers, it appears to us that the finding recorded by the Tribunal about the non-appearance of Chandra Kanta Pandit in the case of assessee is a finding based on appreciation of evidence which does not stand vitiated by perversity nor it can be said to be partly relevant or partly irrelevant consideration or not founded on the material on record. 16. Undoubtedly, non-appearance of Smt. Chandra Kanta Pandit may be one of the factors which has also relevance and can be taken into consideration but it is not possible to hold as a matter of law that every material on record must be discarded merely because of non-appearance of Smt. Chandra Kanta Pandit before the Assessing Officer and it would render all other materials unreliable and incredible and not relevant and on that basis, finding cannot be reached. In fact, in the letter submitted by the assessee, which has been quoted by the Assessing Officer in his order, gives a complete and comprehensive picture and explain the material which is placed in support of his explanation in this regard. If the status of Gopal Sharma who admits himself to be author of the three loose sheets prepared at the instance of the seller of land Smt. Chandra Kanta Pandit, the finding reached by the Tribunal cannot be held to be vitiated so as to give rise to a substantial question of law. The Tribunal has recorded its finding as under:— 144 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT \"17. At the time of hearing, the ld. A.R. submits that these are all rough working papers and are not in the handwriting of the assessee or any of his family members. The assessee explained the contents of the papers and identified the owners and adduced the relevant evidences before the Assessing Officer. The assessee has also filed some of the sale deeds in support of the transactions mentioned in the said loose papers. It was also submitted by the ld. A.R. that the statement of Shri Gopal Sharma was recorded by the Assessing Officer in which he has confirmed that the transactions noted in these papers are the sale transactions of the lands sold by Smt. Chandra Kanta Pandit and are in his handwriting. The ld. A.R. further submitted that an affidavit was also filed by the assessee in this regard, supported by necessary documentary evidence and also produced Shri Gopal Sharma, who has confirmed the version of the assessee. He, therefore, submits that the addition made by the Assessing Officer and confirmed by the CIT(A) should be deleted. The ld. A.R. also cited various decisions. 18. On the other hand, the ld. D.R. strongly supported the order of the Assessing Officer and the findings of the CIT(A). 19. We have carefully considered the rival submissions of the parties and pursued the material available on record. We find that the assessee has denied the transactions mentioned in these papers as well as the handwriting. Even at the time of search, in reply to Question No. 21, the assessee has answered that the account mentioned in Page No. 66 is the account of his Mamiji, Smt. Chandra Kanta Pandit and the same belongs to her. The assessee has also filed his affidavit along with necessary documentary evidence and has also produced Shri Gopal Sharma in support of his contention. The assessee has also requested the Assessing Officer to examine Smt. Chandra Kanta Pandit under section 131 with regard to the transactions mentioned in Annexure A/6 Pages 66, 67 and 69. The Assessing Officer, after accepting the request of the assessee, has issued summons under section 131 to Smt. Chandra Kanta Pandit and Shri Gopal Sharma. However, Smt. Chandra Kanta Pandit has sought adjournments and could not attend office on account of her illness but Shri Gopal Sharma has confirmed the contents of the transactions that the same are with regard to the sale transactions of agricultural lands, which belonged to Smt. Chandra Kanta Pandit and also that he is the author of this document. Under such circumstances, and the facts available, the Assessing Officer still did not pursue the matter with the lady for dislodging the claim of the appellant. The Assessing Officer has failed to discharge his onus. Accordingly, we hold that the transactions mentioned in the seized annexure A-6, pages 66, 67 and 69 do not belong to the appellant and hence the addition made by the Assessing Officer at Rs. 42,27,900 is directed to be deleted.\" 17. In the totality of the facts and circumstances of the case, the Tribunal accepted 145 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT the submissions made by the assessee that the transaction does not belong to the assessee. It cannot be said that the finding is such to which no person of ordinary prudence will reach on the basis of material on record or that is founded on irrelevant consideration. The finding does not call for any interference under the domain of section 260A of the Act, which envisages only to consider and decide substantial questions of law arising out of the Tribunal’s order and not to re- appreciate the evidence and reach the finding on its own by the High Court. 18. As a result of aforesaid discussion, the appeal fails and is hereby dismissed. Since the assessee has already explained the complete facts which was not countered by the lower authority merely on rough noting no addition can be made even otherwise the assessee submitted that the negotiated transaction is already recorded and therefore, we direct the ld. AO to delete the addition of Rs. 3,97,000/-. As regards the addition of Rs. 2,43,927/- the ld. AR of the assessee has not raised any arguments before us and therefore, the same is considered as not pressed. Based on this observation ground no. IV raised by the assessee is partly allowed. 21. Now coming to the last ground no. VI under the head Other Grounds the bench noted that the assessee vide their written submission so filed and relied submitted that these grounds being general in nature. Hence not pressed and thereby the same are treated as dismissed as not pressed. 146 ITA Nos. 1144 &1486/JP/2024 Vaibhav Global Limited vs. DCIT In the result, the appeal of the assessee in ITA no. 1185/JP/2024 is Partly Allowed. Thus, both the appeal of the assessee in ITA no. 1144/JP/2024 and that of the ITA No. 1185/JP/2024 are partly allowed. Order pronounced in the open court on 30/06/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 30/06/2025 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s Vaibhav Global Limited, Jaipur 2. izR;FkhZ@ The Respondent- DCIT, Central Circle-04, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 1144 & 1485/JP/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar "