Panasonic India (P) Ltd, v. ITO ward-14 (4),

ITA 1418/DEL/2008 | 2003-2004
Pronouncement Date: 18-11-2014 | Result: Partly Allowed

Appeal Details

RSA Number 141820114 RSA 2008
Assessee PAN NUARY2005O
Bench Delhi
Appeal Number ITA 1418/DEL/2008
Duration Of Justice 6 year(s) 7 month(s) 2 day(s)
Appellant Panasonic India (P) Ltd,
Respondent ITO ward-14 (4),
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 18-11-2014
Date Of Final Hearing 03-09-2014
Next Hearing Date 03-09-2014
Assessment Year 2003-2004
Appeal Filed On 15-04-2008
Judgment Text
ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES IBENCH DELHI BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG JUDICIAL MEMBER ITA NO.2329/DEL/2010 ITA NO.2330/DEL/2010 ITA NO. 1418/D/2008 1419/DEL/2008 ASSESSMENT YEARS : 2003-04 2004-05 M/S PANASONIC CONSUMER INDIA VS ASSTT. COMM ISSIONER OF INCOME TAX PVT. LTD. (FORMERLY KNOWN AS CIRCLE 14 (1) NEW DELHI. PANASONIC INDIA PVT. LTD.) K-39 CONNAUGHT CIRCUS NEW DELHI. ITA NO. 1374/DEL/2008 & ITA NO. 1375/DEL/2008 ASSESSMENT YEARS : 2003-04 2004-05 DY.COMMISSIONER OF INCOME TAX VS M/S PANASONIC CONSUMER INDIA CIRCLE 14(1) NEW DELHI. PVT . LTD. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRADEEP DINODIA ADV. RESPONDENT BY : SHRI YOGESH VERMA CI T DR O R D E R PER CHANDRA MOHAN GARG JUDICIAL MEMBER THE AFOREMENTIONED ITA NO. 1418 1419/DEL/2008 HAVE BEEN PREFERRED BY THE ASSESSEE WHEREAS ITA NO. 1374 AND 1375/D/200 8 HAVE BEEN PREFERRED BY THE REVENUE AGAINST THE SEPARATE TWO ORDERS OF THE CIT(A)-XX NEW DELHI BOTH DATED 31.1.2008 IN APPEAL NO. 180 & 181/2007-08/CIT (A)-XX FOR AYS 2003- 04 AND 2004-05 RESPECTIVELY. FOR THE SAKE OF BREVI TY CLARITY AND CONVENIENCE IN ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 2 THE PROPER ADJUDICATION THESE APPEALS HAVE BEEN CL UBBED AND ARE BEING ADJUDICATED BY THIS CONSOLIDATED ORDER. ASSEESSEES APPEAL IN ITA NO. 1418 & 1419/DEL/2008 2. FROM CAREFUL PERUSAL OF THE GROUNDS RAISED BY TH E ASSESSEE IN BOTH THESE APPEALS WE NOTE THAT EXCEPT AMOUNT GROUNDS RAISED IN THESE APPEALS ARE SIMILAR. FOR THE SAKE OF CLARITY AND TRANSPARENCY IN OUR FIN DINGS THE GROUNDS RAISED BY THE ASSESSEE IN AY 2003-04 READ AS UNDER:- 1.0 THAT THE LD. CIT (A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELL ANT'S CASE IN HOLDING THAT THE SEGREGATION OF TRADING FUNCTIONS P ERTAINING TO THE CPD AND SPD DIVISIONS OF THE ASSESSEE WERE PROP ERLY DONE BY TPO ALTHOUGH : I) FUNCTIONS PERFORMED RISK ASSUMED AND ASSETS EMP LOYED BY BOTH THE DIVISIONS WERE IDENTICAL. II) METHOD EMPLOYED FOR DETERMINING THE ARM'S LEN GTH I.E. TNMM WAS PROPER. III) THE PLI OF THE COMPARABLES WAS ALRIGHT. 2.0 THAT THE ORDER PASSED BY THE CIT (A) IS BAD I N LAW AND ON THE FACTS & IN THE CIRCUMSTANCES OF THE APPE LLANT'S CASE ON THE ASPECT OF TRANSFER PRICING IN WHICH ADDITION OF RS.L 15 03 254/- HAS BEEN CONFIRMED BY CIT (A) U/S 92CA (3) OF THE I.T. ACT. 3.0 THAT THE CIT (A) HAS GROSSLY ERRED IN HOLDING THAT SEGREGATION OF CPD AND SPD DIVISION OF THE ASSESSEE WHICH ARE TWO TRADING DIVISIONS WAS PROPER MERELY ON THE GROUND THAT THE TARGET CUSTOMERS OF THESE TWO DIVISIONS WE RE DIFFERENT. 4.0 THE CIT (A) OUGHT TO HAVE HELD THAT UNDER THE TNMM METHOD IT IS THE BROAD FUNCTIONS WHICH ARE REQ UIRED TO BE COMPARED AND IF MOST OF THE FUNCTIONS PERFORMED BY THE ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 3 ASSESSEE AND THE COMPARABLE CASES ARE IDENTICAL TH E SAME CANNOT BE REJECTED ON AN ISOLATED REASON THAT THE T ARGET CUSTOMERS AND PRODUCT LINES OF CPD & SPD ARE DIFFER ENT. 5.0 THE CIT (A) HAS GROSSLY ERRED IN LAW IN MIS- INTERPRETING THE OECD GUIDELINES PERTAINING TO AGGR EGATION VS. SEGREGATION OF THE FUNCTIONS. 6.0 THE CIT CA) HAS GROSSLY ERRED ON THE FACTS OF THE APPELLANT'S CASE IN HOLDING THAT THERE EXIST A DIST INCT DIFFERENCE BETWEEN THE DYNAMICS OF THE TWO DIVISIONS OF THE AS SESSEE I.E. CPD AND SPD. 7.0 THE CIT CA) OUGHT TO HAVE HELD THAT ONCE HAVIN G ACCEPTED THE TNMM METHOD HAVING ACCEPTED THE COMPA RABLES AND THE PLI OF THE COMPARABLE THE CIT (A) SHOULD N OT HAVE REJECTED ASSESSEE'S TRADING FUNCTIONS ON MERELY CON JECTURES SURMISES AND ERRONEOUS CONSIDERATIONS. 8.0 THE ORDER OF THE CIT CA) IS FULL OF CONTRADIC TIONS IN AS MUCH AS THAT ON THE ONE HAND HE HAS ACCEPTED THE CO MPARABLES FOUND BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY AND ON THE OTHER HAND HE HAS PARTIALLY REJECTED THE SAME WHEN IT COMES TO AGGREGATION AND SEGREGATION OF THE TWO TRADING DIVI SIONS OF THE ASSESSEE. 9.0 THE CIT CA) HAS GROSSLY ERRED IN HOLDING THAT APPELLANT'S RELIANCE ON THE SPECIAL VALUATION CELL OF THE CUSTO M'S DEPARTMENT WAS NOT PROPER AND HE HAS FURTHER ERRED IN REJECTING THE SAME. 10.0 THE CIT CA) HAS ERRED ON LAW AND ON THE FACTS OF THE CIRCUMSTANCES IN THE APPELLANT'S CASE IN CONFIRMING THE VIEW OF THE A.O./TPO FOR TREATING THE REIMBURSEMENT OF ADVE RTISEMENT EXPENSES BY ASSESSEE'S A.E. AS A NON-OPERATING REVE NUE RECEIPT. 11.0 THE CIT CA) HAS GROSSLY ERRED IN HOLDING THAT THE REIMBURSEMENT OF EXPENSES CANNOT BE CONSIDERED EITH ER AS A REVENUE RECEIPT OR IN HOLDING THAT THE SAME ARE NOT TO BE 'NETTED' OFF AGAINST THE EXPENDITURE INCURRED ON TH E ADVERTISEMENT BY THE ASSESSEE. 12.0 THAT THE CIT CA) HAS FAILED TO TAKE A HOLISTIC VIEW OF THE MATTER PERTAINING TO THE REIMBURSEMENT OF ADVERTISE MENT ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 4 EXPENSES IN AS MUCH AS THAT THE PURE REIMBURSEMENT COULD NOT FALL WITHIN THE PURVIEW OF TRANSFER PRICING. 13.0 THE CIT CA) HAS GROSSLY ERRED IN LAW AND ON TH E FACTS OF THE APPELLANT'S CASE IN NOT ENTERTAINING THE PLEA O F THE ASSESSEE FOR ALLOWING AN ADJUSTMENT ON ACCOUNT OF HUGE ADVER TISEMENT COST INCURRED BY THE ASSESSEE WHEREAS THE COMPARABL E CASES HAD NOT INCURRED THE SIMILAR AMOUNT OF ADVERTISEMEN T COSTS FOR DETERMINING THE NPM. 14.0 THE CIT (A) HAS GROSSLY ERRED IN HOLDING THAT ALLOCATION OF THE UNALLOCATED EXPENSES AND INCOME TO THE ISD D IVISION OF THE ASSESSEE WAS PROPER BY THE TPO 15.0 THAT THE AFORESAID GROUNDS OF APPEAL ARE WITHO UT PREJUDICE TO ONE ANOTHER. 3. THE GROUNDS RAISED IN AY 2004-05 ARE SIMILAR TH EREFORE THESE ARE BEING ADJUDICATED BY THIS CONSOLIDATED ORDER. GROUND NO. 1 TO 8 OF THE ASSESSEE IN BOTH THE APEPA LS 4. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE MATERIAL PLACED ON RECORD. LD. AR SUBMITTED A WRIT TEN SYNOPSIS AND HAS DRAWN OUR ATTENTION TOWARDS DECISION OF ITAT F BENCH NE W DELHI IN ASSESSEES OWN CASE I.E. ITA NO. 1417/D/2008 FOR AY 2002-03 DATED 24.9.2010 REPORTED AS 2010-TII-47-ITAT-DEL-TP AND SUBMITTED THAT THE ISSU E OF SEGREGATION VS AGGREGATION OF THE CPD AND SPD DIVISIONS AND THE AC CEPTANCE WITH SAME COMPARABLES FOR BOTH THE DIVISIONS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THE PRESENT APPEALS OF THE ASSESSEE ARE SQUAREL Y COVERED IN FAVOUR OF THE ASSESSEE BY THIS ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE. LD. DR SUBMITTED THAT THE DEPARTMENT IS INTENDING TO CHALLENGE THIS ORDER IN THE HIGHER FORUM. AT ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 5 THE SAME TIME THE DR FAIRLY ACCEPTED THAT THE TRIB UNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR AY 2002-03 BY THE ORDER DATED 24.9.2010 (SUPRA) BUT THERE IS NOTHING IN HIS HAND TO CONTROVERT THE CONC LUSION OF THE TRIBUNAL OR TO SHOW THAT THE DECISION OF THE TRIBUNAL (SUPRA) HAS BEEN EITHER SET ASIDE OR MODIFIED BY ANY COMPETENT OR HIGHER FORUM. 5. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS W E NOTE THAT ON SIMILAR ISSUES AND GROUNDS OF THE ASSESSEE RAISED AS GROUND NO. 1 TO 8 IN AY 2002-03 BEFORE F BENCH OF THE TRIBUNAL THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITH THE FOLLOWING CONCLUSION:- 14. THESE DETAILS ARE ALSO GIVEN AT PAGES 89-90 OF THE PAPER BOOK OF THE TRANSFER PRICING REPORT SUBMITTED BY TH E ASSESSEE ON THIS ISSUE SUBMITTING THAT THE FUNCTIONS PERFORM ED RISKS ASSUMED AND THE ASSETS DEPLOYED ARE ABSOLUTELY THE SAME IN ALL ITS TRADING FUNCTIONS WHICH CLEARLY INDICATE TH E FACT THAT SEGREGATION FOR ANY OTHER REASON IS NOT PERMITTED A S PER STATUTORY RULE 10B(2)(B) OF THE RULES WHICH ARE PAR T OF THE TRANSFER PRICING REGULATIONS CONTAINED IN CHAPTER X OF THE INCOME TAX ACT AND THE RULES MADE THEREUNDER. THERE FORE THE TEST FOR FINDING WHETHER SEGREGATION IS REQUIRED IS PROVIDED IN THE RULES THEMSELVES AND AS IS BORNE OUT FROM THE F ACTS OF THE CASE RULE 10B(2(B) CLEARLY IS IN FAVOUR OF THE PRO POSITION THAT SEGREGATION SHOULD NOT BE DONE. IN ADDITION THE CO MPARABLES USED ARE ALSO THE SAME FOR BOTH THE DIVISIONS. IT A LSO LENDS WEIGHT TO RETURNING THE FINDING THAT SEGREGATION WA S NOT CALLED FOR. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE ISSUE AND THE ORDER OF THE AUTHORITIES BELOW AND THE RECONCIL IATION FOR ALL SEGMENTS AND THE AUDITED BALANCE SHEET WAS ALSO MAD E AVAILABLE TO HIM AT PAGES 428-435 OF THE PAPER BOOK . THE SEGMENT-WISE DETAILS OF SALES AND PURCHASE AT GP LE VEL WERE ALSO MADE AVAILABLE TO HIM AT PAGE 485. ALL THESE W ERE ALSO POINTED OUT TO US BY THE AR DURING THE COURSE OF HE ARING AND THE SENIOR DR COULD NOT REBUT ANY FACTUAL ASPECTS T HEREOF. ON ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 6 A CAREFUL CONSIDERATION THEREOF NO DISCREPANCY IS FOUND IN THE FIGURES AS REPORTED BY THE ASSESSEE. IN ANY CASE T PO AS WELL AS THE CIT(A) HAVE RE-DRAWN THE ACCOUNTS AS HAS BE EN CATEGORICALLY FOUND BY CIT(A) AT PAGES 13 AND 14 P ARA 5.3. OF HIS ORDER AS REPRODUCED ABOVE. WE THEREFORE HOLD T HAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER THE PROVISIONS LAID DOWN IN THE TRANSFER PRICING REGULATIONS IN IN DIA THE ASSESSEE SUCCEEDS ON THESE GROUNDS. THE SEGREGATION WAS TOTALLY ARTIFICIAL AND UNCALLED FOR AND THE AUTHORI TIES BELOW WERE NOT JUSTIFIED IN SEGREGATING THEM. THE TRADING FUNCTIONS HAVING THE SAME FAR AND HAVING CLOSELY LINKED TRANS ACTIONS WERE TO BE TAKEN AS A WHOLE AND NOT SEPARATELY THE REBY CREATING ARTIFICIAL LOSS IN ONE SEGMENT AND PROFIT IN THE OTHER. BOTH HAVE TO BE TAKEN AS A WHOLE AND THE ADDITIONS MADE BY TPO AND CONFIRMED BY CIT(A) FOR DOING THIS SEGREGAT ION ARE REQUIRED TO BE DELETED. 6. IN VIEW OF ABOVE ORDER OF THE TRIBUNAL IN ASSESS EES OWN CASE (SUPRA) WE ARE INCLINED TO HOLD THAT THE FACTS AND CIRCUMSTANC ES OF THE EXTANT CASE AND AS PER PROVISIONS OF TRANSFER PRICING REGULATIONS IN I NDIA THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE FOR AY 2002-03. THEREFORE WE FURTHER HOLD THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND THE ASSESSEE SUCCEEDS ON THESE GROUNDS AS THE SEGREGATION EMANAT ED BY THE AUTHORITIES BELOW WAS TOTALLY ARTIFICIAL AND UNCALLED FOR AND THE IMP UGNED SEGREGATION WAS NOT JUSTIFIED UNDER THE FACTUAL MATRIX OF THE CASE. WE ARE ALSO IN AGREEMENT WITH THE FINDINGS OF THE TRIBUNAL THAT THE TRADING FUNCTIONS HAVING THE SAME FAR AND HAVING CLOSELY LINKED TRANSACTIONS WERE TO BE TAKEN AS A WHOLE AND NOT SEPARATELY THEREFORE CREATION OF ARTIFICIAL LOSS IN ONE SEGMENT AND CREATION OF ARTIFICIAL PROFIT IN THE OTHER SEGMENT IS NOT PERMI SSIBLE. WE ARE OF THE FORTIFIED VIEW THAT BOTH SEGMENTS HAVE TO BE TAKEN AS A WHOLE AND ADDITIONS CONFIRMED BY ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 7 THE CIT(A) ON THE BASIS OF ALLEGED SEGREGATION DESE RVE TO BE DELETED AND WE DELETE THE SAME. ACCORDINGLY GROUND NO. 1 TO 8 OF THE ASSESSEE IN AY 2003-04 AND 2004-05 ARE ALLOWED. GROUND NO. 9 OF THE ASSESSEE IN BOTH THE APPEALS 7. APROPOS GROUND NO. 9 LD. AR HAS FURTHER DRAWN O UR ATTENTION TOWARDS DECISION OF ITAT F BENCH IN ASSESSEES OWN CASE F OR AY 2002-03 AT PARA 37 PAGE 45 AND FAIRLY ACCEPTED THAT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE PERTAINING TO THE VALU ATION OF THE SPECIAL VALUATION CELL OF THE CUSTOMS DEPARTMENT. LD. AR SUBMITTED T HAT WITHOUT PREJUDICE TO THE RIGHT OF THE ASSESSEE TO AGITATE THIS ISSUE BEFORE THE HONBLE HIGHER FORUM THE ASSESSEE FAIRLY ACCEPTS THAT THE TRIBUNAL FOR AY 20 02-03 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. LD. DR SUPPORTED THE IMPUGNED ORDERS AND SUBMITTED THAT THE ORDER OF THE TRIBUNAL IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE HOLDS FIELD. 8. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS W E NOTE THAT F BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03 (SUPRA) HAS DECIDED THE ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REV ENUE WITH FOLLOWING CONCLUSION:- 37. LEARNED ARS CONTENTION WAS THAT ALL ITS IMPOR TS FROM AES ARE BASED ON VALUATION ACCEPTED BY THE CUSTOMS DEPARTMENT OF THE MINISTRY OF FINANCE GOVERNMENT O F INDIA ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 8 AND IN ONE PARTICULAR CASE WHERE A CHARGE WAS LEVIE D OF UNDER-INVOICING ON THE ASSESSEE THE SPECIAL VALUAT ION BENCH OF THE CUSTOMS DEPARTMENT EXONERATED THE ASSESSEE THEREFORE THE VALUATION MADE BY CUSTOM AUTHORITIES SHOULD BE GUIDING FACTOR FOR TPO WHILE MAKING ADJUSTMENT ON ACCOUNT O F ARMS LENGTH PRICE. WE DO NOT FIND ANY FORCE IN THIS GROU ND AND ARE OF THE VIEW THAT WHERE SPECIFIC RULES OF LAW EXIST IN THE STATUTE ON A PARTICULAR SUBJECT THEN THEY WOULD HOLD THE F IELD. CHAPTER X AND RULES MADE THEREUNDER ARE A SELF CONTAINED CO DE AND ANSWERS TO ALL QUESTIONS MUST BE FOUND IN THE WRITT EN LAW CONTAINED IN THE ACT AND STATUTE. HERE WE ARE INCLI NED TO AGREE WITH LD CIT DR THAT THAT CUSTOMS VALUATION IS FOR D IFFERENT CONTAINED IN THE ACT AND STATUTE. HERE WE ARE INCL INED TO AGREE WITH LD. CIT DR THAT THE CUSTOMS VALUATION IS FOR DIFFERENT PURPOSES AND CHAPTER X OF THE INCOME TAX ACT IS FOR DIFFERENT PURPOSES AND DIFFERENT CRITERIA ARE BEING USED. 38. IN THE RESULT GROUND NO. 9 OF ASSESSEES APPEAL IS DISMISSED. 9. ACCORDINGLY WE CONCLUDED THAT GROUND NO. 9 OF T HE ASSESSEE IN BOTH THE APPEALS IS SQUARELY COVERED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. THUS GROUND NO. 9 IN BOTH THE APPEALS IS DISMISSED . GROUND NO. 10 11 12 & 13 OF THE ASSESSEE IN BOTH THE APPEALS 10. APROPOS THESE GROUNDS LD. AR HAS DRAWN OUR ATT ENTION TOWARDS THE DECISION OF THE TRIBUNAL FOR AY 2002-03 (SUPRA) PAR A 23 AT PAGE 37 AND SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING THAT THE TPO AND THE CIT(A) WERE WRONG IN EXCLUDING THE REIMBURSEMENT OF ADVERTISEMENT EXPENDITURE WHIL E CALCULATING THE PLI OF THE ASSESSEE. LD. AR HAS DRAWN OUR ATTENTION TOWARDS P ARA 23 AT PAGE 37 AND PARA ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 9 26 AT PAGE 40 OF THE ORDER OF THE TRIBUNAL FOR AY 2 002-03 (SUPRA) AND SUBMITTED THAT GROUND NO. 10 TO 13 IN BOTH THE APPEALS ARE SQ UARELY COVERED IN FAVOUR OF THE ASSESSEE. THE RELEVANT OPERATIVE PARAS VIZ. PARA 2 3 (AT PAGE 37) AND PARA 26 (AT PAGE 40) READ THUS:- 23 . RULE 10B(2)(C) STATES THE CONTRACTUAL TERMS (WHETH ER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRA NSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES RISKS AND BENEFITS ARE TO BE DIVI DED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS. . THE TRANSFER PRICING RULE ITSELF STATES THAT THE CONTRACTUAL TER MS MAY BE FORMAL OR MAY NOT BE FORMAL MAY BE IN WRITING MAY NOT BE IN WRITING AND MAY BE IMPLICIT OR EXPLICIT. NOW HERE T HE ASSESSEE HAS DEMONSTRATED BY FACT THAT IT WAS IN REASONABLE EXPECTATION OF REIMBURSEMENT OF EXPENDITURE BY THE PAST CONDUCT OF ITS MOTHER COMPANIES I.E. AES OF RECEIVING AT LEAST 2/ 3RD OF ITS EXPENDITURE IN REIMBURSEMENT. THEREFORE AS PER THE RULE ITSELF THIS HAS TO BE TAKEN COGNIZANCE OF AND COULD NOT BE IGNORED ARBITRARILY. ONCE RULE 10B(2)(C) IS SEEN AND INVOKE D THEN THE OBJECTIONS BOTH OF THE TPO AND CIT(A) WOULD NOT HOL D GROUND AND THE CONDUCT OF THE ASSESSEE IS BASED ON FACTS A ND FIGURES FROM THE AY 1998-99 ON RECORD THE ORDER OF THE TRI BUNAL ON RECORD ACCEPTED BY THE REVENUE IT CAN BE CONCLUDED THAT THE RECEIPT OF ADVERTISEMENT REIMBURSEMENT WOULD FORM A PART OF OPERATING PROFIT EITHER BY WAY OF BY ADDING TO INCO ME OR BY WAY OF REDUCTION OF ADVERTISING EXPENDITURE TO THE EXTENT OF REIMBURSEMENT. BOTH HAVE THE SAME EFFECT OF INCREAS ING OPERATING PROFITS TO THIS EXTENT. WE THEREFORE HOLD THAT THE TPO AND THE CIT(A) WRONG IN EXCLUDING REIMBURSEMENT OF ADVERTISEMENT EXPENSES WHILE CALCULATING THE PLI OF THE APPELLANT. 26. WE THEREFORE HOLD THAT IN VIEW OF THE CORREC T ANALYSIS AND WORKING AS GIVEN ABOVE ON THE COMPARISON BETWEE N THE ASSESSEE AND THE COMPARABLES AND BY CORRECTING THE TWO ERRORS COMMITTED BY THE TPO AND CIT(A) AND CONFINING THE F INANCIALS TO ONE YEAR ONLY AND NOT TO MULTIPLE YEARS FOR THE TRADING FUNCTIONING OF ASSESSEE THE PLI OF THE ASSESSEE CO MES TO ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 10 8.43% AND THAT OF THE COMPARABLES 3.58%. AS THE PLI OF THE ASSESSEE IS HIGHER OF THE TWO THE INTERNATIONAL TR ADING TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE HELD TO BE AT ARMS LENGTH PRICE AS PER TRANSFER PRICING REGULATI ONS IN INDIA. ACCORDINGLY THE ADDITION MADE BY THE TPO AND UPHELD BY CIT(A) AMOUNTING TO RS.1 23 48 509/- IS ORDERED TO BE DELETED. 11. LD DR SUBMITTED THAT THE DEPARTMENT IS TAKING U P THE ISSUE OF TREATMENT OF ADVERTISEMENT SUBSIDY RECEIVED AS NON-OPERATING AND THE ISSUE OF ADJUSTMENT ON ACCOUNT OF ADVERTISEMENT EXPENSES TO LEVEL THE FIEL D BETWEEN THE COMPARABLES AND THE ASSESSEE TO THE HONBLE HIGHER FORUM. AT THE SAME TIME THE DR FAIRLY ACCEPTED THAT TILL DATE HE IS UNABLE TO SHOW ANY C ONTRARY DECISION ON THIS ISSUE WHICH MAY TAKE US TO ACCEPT ANY DIFFERENT VIEW ON T HIS ISSUE OF ADVERTISEMENT SUBSIDY ADJUSTMENT OF ADVERTISEMENT EXPENSES AND R EIMBURSEMENT OF ADVERTISEMENT EXPENSES BY THE ASSESSEES ASSOCIATED ENTERPRISES AS A NON- OPERATING REVENUE RECEIPT. 12. IN VIEW OF ABOVE AND ON CAREFUL PERUSAL OF THE ORDER OF THE TRIBUNAL FOR AY 2002-03 (SUPRA) WE NOTE THAT GROUND NO. 10 TO 1 3 IN BOTH THE APPEALS ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY THE ORDER OF THE TRIBUNAL FOR AY 2002-03 (SUPRA). WE ARE OF THE CONSIDERED OPINION THAT UNDER FACTUAL MATRIX OF THE INSTANT CASE WE ARE IN AGREEMENT WITH THE CONCLUSION OF THE TRIBUNAL THAT RULE 10B(2)(C) STATES THAT TH E CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRA NSACTION WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITY RI SKS AND BENEFITS ARE TO BE ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 11 DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANS ACTIONS. ON CAREFUL PERUSAL OF THE MATERIAL PLACED ON RECORD AND THE ORDER OF T HE TRIBUNAL WE FIND THAT THE ASSESSEE HAS DEMONSTRATED BY SUBSTANTIATING THE FAC T THAT IT WAS IN REASONABLE EXPECTATION OF REIMBURSEMENT OF EXPENDITURE BY THE PAST CONDUCT OF ITS MOTHER COMPANIES I.E. AES OF RECEIVING AT LEAST 2/3 RD OF ITS EXPENDITURE IN REIMBURSEMENT. IN THIS SITUATION RULE 10B(2)(C) IS INVOKABLE AND THEN THE OBJECTION OF THE TPO AND THE CIT(A) WOULD NOT HOLD THE FIELD ESPECIALLY WHEN THE CONDUCT OF THE ASSESSEE IS BASED ON THE FACTS A ND FIGURES EMANATING FROM RECORD OF AY 1998-99. 13. UNDER THESE FACTS AND CIRCUMSTANCES IT CAN SAF ELY BE HELD THAT THE RECEIPT OF ADVERTISEMENT EXPENDITURE WOULD FORM A PART OF O PERATING PROFIT EITHER BY WAY OF ADDING TO INCOME OR OTHERWISE EXPENDITURE HAS TO BE REDUCED FROM TOTAL ADVERTISEMENT EXPENDITURE TO THE EXTENT OF REIMBURS EMENT; EITHER WAY WE LOOK AT IT THE RESULT WILL BE THE SAME. THIS IS A WELL-ES TABLISHED ACCOUNTING PROPOSITION THAT BOTH WAYS IT IS HAVING THE SAME EFFECT ON OPE RATING PROFITS UP TO THIS EXTENT THUS WE ARE INCLINED TO HOLD THAT THE TPO AND THE CIT(A) WERE NOT JUSTIFIED IN EXCLUDING THE ADVERTISEMENT EXPENDITURE WHILE CALCU LATING THE PLI OF THE ASSESSEE. 14. ON THE ISSUE OF ADJUSTMENT ON ACCOUNT OF HUGE ADVERTISEMENT COST INCURRED BY THE ASSESSEE DURING THE FINANCIAL YEAR UNDER CONSIDERATION WHERE COMPARABLE CASES HAD NOT GIVEN A SIMILAR AMOUNT OF EXPENDITURE COST FOR ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 12 DETERMINING THE NET PROFIT MARGIN (NPM) AS PER PARA 11 OF THE TRIBUNAL FOR AY 2002-03 AS REPRODUCED HEREINABOVE WE ARE IN AGREEM ENT WITH THE OBSERVATIONS AND CONCLUSION OF THE TRIBUNAL THAT IF THE TPO AND THE CIT(A) WERE OF THE OPINION THAT THESE TWO DIVISIONS VIZ. CPD AND SPD W ERE SEPARATE DIVISIONS AND REQUIRED A DIFFERENT CRITERIA FOR DETERMINING THE A LP THEN THEY COULD NOT HAVE COMPARED BOTH THE DIVISIONS RESULTS AS HAS BEEN DO NE BY THEM WITH THE SAME SET OF COMPARABLE; THERE IS OBVIOUSLY A CONTRADICTION B ETWEEN THE TWO. 15. WE FURTHER NOTE THAT IF FOR THE SAKE OF ARGUME NT IT IS ACCEPTED THAT THE TWO DIVISIONS HAVE SEPARATE CHARACTERISTICS THEN O BVIOUSLY DIFFERENT COMPARABLES SHOULD HAVE BEEN USED. IF IN THE SITUA TION WHERE TWO DIVISIONS ARE TO BE TREATED SEPARATELY THE DEPARTMENT OUGHT NOT TO BE USED THE SAME SET OF COMPARABLES WHICH WERE USED BY THE TPO AND THE CIT( A) FOR BOTH THE DIVISIONS THEN THE PLI OF COMPARABLES FOR THE CPD DIVISION WO ULD HAVE TO BE ADJUSTED AS PER PROVISIONS OF RULE 10B(1)(E)(III) OF THE INCOME TAX RULES 1962. 16. THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002 -03 CONCLUDED THAT THE TRADING TRANSACTIONS OF THE ASSESSEE ARE AT ARMS L ENGTH AND NO ADJUSTMENT IS REQUIRED. ON SPECIFIC QUERY FROM THE BENCH LD. DR SEEMS TO BE UNABLE TO SUBMIT ANY FACT OR MATERIAL BEFORE US WHICH MAY COM PEL US TO TAKE A DIFFERENT VIEW ON THE ISSUE OF ADJUSTMENT ON ACCOUNT OF HUGE ADVERTISEMENT COST INCURRED BY THE ASSESSEE SPECIALLY IN THE PECULIAR FACTS AN D CIRCUMSTANCES OF THE PRESENT CASE WHEREAS THE COMPARABLE CASES HAD NOT INCURRED SIMILAR HUGE AMOUNT OF ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 13 ADVERTISEMENT COST FOR DETERMINING THE NPM. FROM T HE ORDER OF THE TRIBUNAL FOR AY 2002-03 (SUPRA) IN PARA 26 AT PAGE 40 IT HAS B EEN HELD THAT IN VIEW OF THE CORRECT ANALYSIS AND WORKING AS GIVEN BY THE ASSESS EE ON THE COMPARISON BETWEEN COMPARABLE USED BY THE ASSESSEE AND THE ACC EPTED COMPARABLES BY CORRECTING THE TWO ERRORS COMMITTED BY THE AUTHORIT IES BELOW AND CONFINING THE FINANCIAL RESULTS TO ONE YEAR ONLY AND NOT TO THE M ULTIPLE YEARS FOR THE TRADING FUNCTION OF THE ASSESSEE THE PLI OF THE ASSESSEE W AS CALCULATED AT 8.43% AND THE PLI OF THE COMPARABLES WAS CALCULATED AT 3.58%. 17. IN THIS SITUATION WE RESPECTFULLY FOLLOW THE O BSERVATIONS OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03 (SUPRA) AND HOLD THAT AS THE PLI OF THE ASSESSEE IS HIGHER OF THE TW O (HERE IT IS 8.43% WHICH IS MORE THAN 3.58%) INTERNATIONAL TRADING TRANSACTION S ENTERED INTO BY THE ASSESSEE ARE HELD TO BE ALP AS PER TRANSFER PRICING REGULATI ONS IN INDIA. ACCORDINGLY WE CONCLUDE THAT GROUND NO. 10 11 12 AND 13 OF THE A SSESSEE ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBU NAL IN AY 2002-03. WE ORDER ACCORDINGLY TO FOLLOW THE EARLIER ORDER FOR AY 2003 -04 AND 2004-05. GROUND NO. 14 OF THE ASSESSEE IN BOTH THE APPEALS 18. APROPOS GROUND NO. 14 LD. AR ALSO SUBMITTED TH AT THE ISSUE OF ALLOCATION OF THE UNALLOCATED EXPENSES AND INCOME TO THE ISD D IVISION OF THE ASSESSEE WAS ERRONEOUS AND UNJUSTIFIED. LD. AR HAS DRAWN OUR AT TENTION TOWARDS PARA NO. 32 ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 14 TO 34 AT PAGE 44 OF THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE FOR AY 2002-03(SUPRA) AND SUBMITTED THAT GROUND NO. 14 OF THE ASSESSEE IN BOTH THE APPEALS IS ALSO SQUARELY COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THE TRIBUNAL (SUPRA). LD. DR SUBMITTED THAT THE REVEN UE HAS NOT ACCEPTED THE ORDER OF THE TRIBUNAL AND WE ARE TAKING UP THE ISSUE TO T HE HIGHER FORUM BUT AT THE SAME TIME LD. AR FAIRLY ACCEPTED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND TILL DATE HE DOES NOT H AVE ANY ORDER IN HAND WHICH CAN SHOW US THAT THE ORDER OF TRIBUNAL (SUPRA) HAS BEEN SET ASIDE OR MODIFIED BY ANY COMPETENT AUTHORITY OR HONBLE HIGHER FORUM WHI CH MAY COMPEL US TO TAKE OR ACCEPT A DIFFERENT VIEW. 19. THE RELEVANT OPERATIVE PART OF THE ORDER OF THE TRIBUNAL FOR AY 2002-03 READS AS UNDER:- 32. THEREFORE THE PLI OF THE TEST PARTY OF 33.27 % WHEN COMPARED TO THE PLI OF THE COMPARABLES AT PAGE 40 O F CIT(A)S ORDER TABLE 15 OF 2.95% CLEARLY SHOW T HAT THE ASSESSEES TRANSACTION IN THE ISD DIVISION WERE DON E AT ARMS LENGTH AND ADDITION OF RS. 74 92 166/- IS DELETED. 33. NEXT ISSUE IS WITH REGARD TO ALLOCATION OF EXPE NSES. THE CIT(A) HAS DEALT WITH THIS ISSUE ON PAGE 36 PARA 9. 6 OF HIS ORDER. THE TPO HAS ALLOCATED NONALLCOATED EXPENSE S OF RS.6.05 CRORES TO THE THREE DIVISIONS CPD SPD AN D ISD WHEREAS THE ASSESSEE HAS ALLOCATED THIS ENTIRE EXPE NDITURE TO ITS TRADING FUNCTIONS I.E. TO CPD AND SPD. THE LD. AR CONTENDED THAT ALLOCATION OF RS.20 59 661 TO ISD IS NOT CORRECT AS THIS EXPENDITURE HAS NOTHING TO DO WITH THE SALE S COMMISSION AND THE SERVICE PART OF THE ASSESSEE. TH E ASSESSEE SUBMITTED VIDE ITS LETTER DATED 25TH JANUARY 2005 O N PAGE 425 PB VOL. II THAT ISD IS AN INDEPENDENT DIVISION AND NO PART OF ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 15 HEAD OFFICE EXPENDITURE COULD BE ALLOCATED TO IT AS IT DOES NOT NEED HEAD OFFICE SUPPORT. IN OUR VIEW THERE IS SUBS TANCE IN THE SUBMISSIONS OF THE LEARNED AR THAT OUT OF A TOTAL B USINESS OF RS.361 CORES THE ISD SERVICE AND COMMISSION INCOME IS ONLY RS.12 28 831/-. IT IS UNREASONABLE TO ALLOCATE RS.2 0 59 669/- AS EXPENDITURE ON SUCH A MEAGER GROSS RECEIPT. IN A NY CASE IN VIEW OF THE FACT THAT THREE YEARS AVERAGE IS BEING TAKEN ON THE ISD DIVISION ON THE BASIC FACTS OF THE CASE FOLLOWI NG THE PROVISO TO RULE 10B(A) EVEN IF IT IS TAKEN TO THE B ASIS OF ISD DIVISION IT WILL NOT MAKE ANY DIFFERENCE. 20. ON CAREFUL READING AND PERUSAL OF THE ABOVE ORD ER OF THE TRIBUNAL ON THE ABOVE ISSUE WE ARE COMPELLED TO HOLD THAT THE ISSU E OF ALLOCATION OF UNALLOCATED EXPENSES AND INCOME TO THE ISD DIVISION OF THE ASSE SSEE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE LIGHT OF ABOVE DECISIO N OF THE TRIBUNAL WE ARE OF THE CONSIDERED OPINION THAT THE ADDITION CANNOT BE MADE IN THE OVERALL FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ON THE ISSUE OF A LLOCATION OF UNALLOCATED EXPENSES AND INCOME TO THE ISD DIVISION FOLLOWING T HE PROVISO TO RULE 10B(A) OF INCOME TAX RULES 1962. THUS GROUND NO. 14 OF T HE ASSESSEE IN BOTH THE APPEALS IS ALSO ALLOWED IN CONSONANCE WITH THE EARL IER ORDER OF THE TRIBUNAL FOR AY 2002-03 (SUPRA). 21. GROUND NO. 15 AND 16 OF THE ASSESSEE IN BOTH TH E APPEALS ARE GENERAL IN NATURE WHICH REQUIRE NO ADJUDICATION AND WE DISMISS THE SAME. REVENUE APPEAL IN ITA NO. 1374 1375/D/2008 FOR AY 2003-04 AND 2004-05 ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 16 22. THE REVENUE HAS RAISED SOLE SIMILAR GROUND IN B OTH THE APPEALS WHICH READS AS UNDER:- LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN HOLDING THAT ONLY CURR ENT YEAR DATA FOR 2003-04 IS TO BE USED FOR COMPUTATION OF T HE ARMS LENGTH PRICE. 23. APROPOS ABOVE GROUND OF THE REVENUE LD. DR SUB MITTED THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN HOLDING THAT ONLY CURRENT YEAR DATA FOR 2003-04 IS TO BE USED FOR COM PUTATION OF THE ARMS LENGTH PRICE. LD. DR HAS DRAWN OUR ATTENTION TOWARDS FIND INGS OF THE CIT(A) IN PARA 9.2.8 AND 9.2.9 AT PAGE 19 OF THE ORDER OF THE CIT( A) FOR AY 2004-05 AND SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLD ING THAT THE RELEVANT DATA TO BE USED FOR DETERMINATION OF ALP IN AY 2003-04 IS T HE DATA OF FINANCIAL YEAR 2002-03 AND FOR AY 2004-05 THE DATA OF FINANCIAL YE AR 2003-04 IS RELEVANT. LD. DR FURTHER SUBMITTED THAT THE DATA OF EARLIER AND S UBSEQUENT YEAR SHOULD ALSO BE CONSIDERED FOR COMPUTATION OF ALP AND THE CONCLUSIO N OF THE CIT(A) IS NOT SUSTAINABLE ON THIS ISSUE. 24. REPLYING TO THE ABOVE LD. AR HAS DRAWN OUR ATT ENTION TOWARDS FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04 (SUPRA) IN PARA 35 AT PAGE 44 AND SUBMITTED THAT THE DATA TO BE USED IN ANALYS ING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE RELEVANT YEAR IN WHICH THE INTERNAT IONAL TRANSACTION HAS BEEN ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 17 ENTERED INTO. LD. AR SUPPORTED THE IMPUGNED ORDERS AND SUBMITTED THAT THE CONCLUSION OF THE CIT(A) HAS BEEN UPHELD BY THE TRI BUNAL IN AY 2002-03 (SUPRA) AND THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 25. ON CAREFUL AND VIGILANT READING OF THE ORDER OF THE TRIBUNAL FOR AY 2002- 03 (SUPRA) WE NOTE THAT THE ISSUE OF DATA TO BE US ED FOR COMPUTATION OF ALP HAS BEEN DECIDED IN PARA 35 BY HOLDING THAT THE DATA TO BE USED FOR COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL T RANSACTION OF THE ASSESSEE SHALL BE THE DATA OF RELEVANT YEAR IN WHICH THE INTERNATI ONAL TRANSACTION HAS BEEN ENTERED INTO. THE OPERATIVE PARA 35 AT PAGE 44 OF THE ORDER OF THE TRIBUNAL READS THUS:- 35. IN THE APPEAL OF THE REVENUE THE ONLY GROUND R AISED IS THAT 'LD. CITCA) HAS ERRED IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE CASE IN HOLDING THAT ONLY CURR ENT YEAR DATA FOR 2003-04 IS TO BE USED FOR COMPUTATION OF T HE ARM'S LENGTH PRICE. THE GROUND RAISED BY THE REVENUE HAS ALREADY BEEN DISCUSSED BY US WHILE DISPOSING OF THE ASSESSE E'S APPEAL IN WHICH WE HAVE REPRODUCED RULE 10B(4) AND PROVISO THERETO REFERRED TO IN PARA 41-43. THE CIT(A) IS RIGHT IN H OLDING THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE RELEVANT YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. TH E SR. DR WHO APPEARED ON BEHALF OF THE DEPARTMENT HAS NOT DI SPUTED THIS PROPOSITION OF LAW NEITHER ANYTHING HAS BEEN BROUGHT TO OUR NOTICE BY THE SR. DR TO TAKE A CONTRARY VIEW. T HEREFORE AS FAR AS THE TRADING OPERATIONS ARE CONCERNED USE OF SINGLE YEAR DATA IS CORRECT AND THIS HAS BEEN THE STAND BEFORE US BY BOTH THE PARTIES. TO THIS EXTENT THE REVENUE'S APPEAL IS DISMISSED. ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 18 26. IN VIEW OF ABOVE AND ON CAREFUL PERUSAL OF THE ORDER OF THE CIT(A) AND THE ORDER OF THE TRIBUNAL FOR AY 2002-03 (IN ASSESSEES OWN CASE) WE ARE UNABLE TO SEE ANY COGENT REASON TO TAKE A DIFFERENT VIEW BECA USE THE CIT(A) WAS RIGHT IN HOLDING THAT THE FINANCIAL DATA TO BE USED IN ANALY SING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE IMPUGNE D UNCONTROLLED TRANSACTION AND THE COMPARABLE INTERNATIONAL TRANSACTION HAVE BEEN ENTERED INTO. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN A SSESSEES OWN CASE FOR AY 2002-03(SUPRA) WE ARE INCLINED TO GO WITH THE EARL IER ORDER OF THE TRIBUNAL AND HOLD THAT THE CIT(A) WAS RIGHT IN HOLDING THAT ONLY THE CURRENT YEAR DATA FOR THE RELEVANT FINANCIAL YEAR PERTAINING TO RESPECTIVE AS SESSMENT YEAR DESERVE TO BE USED FOR COMPUTATION OF ALP AN INTERNATIONAL TRANSA CTION WITH THE UNCONTROLLED TRANSACTION OF THE ASSESSEE. ACCORDINGLY SOLE GRO UND OF THE REVENUE IN BOTH THE APPEALS BEING DEVOID OF MERITS IS DISMISSED. ASSESSEES APPEALS IN ITA NO. 2329 2330/DEL/2010 F OR AY 2003-04 AND 2004-05 RESPECTIVELY 27. THESE APPEALS OF THE ASSESSEE HAVE BEEN DIRECTE D AGAINST THE ORDER OF THE CIT(A)-XVII NEW DELHI BOTH DATED 23.03.2010 IN AP PEAL NO. 05 06/CIT- XVII/09-10 FOR AY 2003-04 AND AY 2004-05 RESPECTIVE LY BY WHICH THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE ACT HAS BEEN UPHELD AND CONFIRMED. SINCE THE CONTROVERSY AND GROUND OF THE ASSESSEE ARE SIMI LAR THEREFORE FOR THE SAKE OF ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 19 BREVITY CLARITY AND CONVENIENCE THESE HAVE BEEN C LUBBED AND WE ARE DISPOSING THEM BY THIS CONSOLIDATED ORDER. 28. ALTHOUGH THE ASSESSEE HAS TAKEN AS MANY AS NINE GROUNDS IN BOTH THE APPEALS BUT EXCEPT GROUND NO. 1 OTHER GROUNDS OF T HE ASSESSEE ARE ARGUMENTATIVE AND SUPPORTIVE TO THE MAIN GROUND NO. 1 IN BOTH THE APPEALS WHICH READS AS UNDER:- THAT THE CIT(A) HAS GROSSLY ERRED IN LAW AND ON FA CTS AND IN THE CIRCUMSTANCES OF THE APPELLANT CASE IN U PHOLDING THE ACTION OF THE AO IN LEVYING THE PENALTY U/S 271 (1)( C) OF THE INCOME TAX ACT. 29. BRIEF FACTS GIVING RISE TO THESE APPEALS ARE TH AT THE ASSESSEE IS A SUBSIDIARY COMPANY OF M/S MATSUSHITA ELECTRIC INDUSTRIAL CO. L TD. THE MAIN OBJECT OF THE APPELLANT COMPANY VIDE THE OBJECT CLAUSE WAS GIVEN AS SELLING AND DISTRIBUTING IN DOMESTIC AS WELL AS IN EXPORT MARKET THE PRODUCTS H AVING THE MATSUSHITA BRAND NAMES OF 'NATIONAL PANASONIC' MANUFACTURED BY THE M ATSUSHITA GROUP AND ITS VARIOUS COLLABORATION COMPANIES. THE ASSESSMENT WA S COMPLETED U/S 143(3) OF THE ACT FOR AY 2003-04 ON TOTAL INCOME OF RS.38 91 49 470/- AS AGAINST RETURNED NEGATIVE INCOME (LOSS) OF RS.16 41 87 090/-. THE A O MADE ADDITION OF RS.1 79 83 544/- ON ACCOUNT OF TRANSFER PRICING ADJ USTMENT. THE CIT(A) VIDE ITS ORDER DATED 31.1.2008 CONFIRMED THE ADDITION TO THE EXTENT OF RS.1 15 03 854/-. ASSESSMENT WAS ALSO COMPLETED U/S 143(3) FOR AY 2004-05 ON TOTAL INCOME OF RS.22 16 14 720/- AS AGAINST RETURN ED LOSS OF RS. 7 24 54 710/-. ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 20 THE AO MADE ADDITION OF RS.29 40 69 430/- ON ACCOUN T OF TRANSFER PRICING. ON THE APPEAL FILED BY THE ASSESSEE THE ID. CIT(A) XX NEW DELHI VIDE HIS ORDER DATED 31.01.2008 CONFIRMED THE ADDITION TO THE EXTE NT OF RS.8 15 01 718/- AND ALLOWED A RELIEF OF RS.21 25 67 712/-. THE AO AFT ER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD LEVIED PENALTY OF RS. 4 8 27 446/- IN AY 2003-04 AND PENALTY OF RS. 2 92 38 741/- IN AY 2004-05. 30. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHICH WAS DISMISSED UPHOLDING THE PENALTY. THE RELEVANT OPERATIVE PARA OF THE CIT(A)S ORDER FOR AY 2004-05 READS AS UNDER:- 4.9. IN THE CASE UNDER CONSIDERATION THE TRANSFER PRICING ADOPTED BY THE APPELLANT WAS FOUND TO BE IN CORRECT. THEREFORE THE AO HAD MADE ADDITION ON ACCOUNT OF T RANSFER PRICING. THE ID. CIT(A) HAD CONFIRMED THE ADDITION MADE BY THE AO TO THE EXTENT OF RS.8 15 01 718/-. THE APPE LLANT HAS NOT BEEN ABLE TO SATISFACTORILY EXPLAIN AS TO HOW THEY HAD ADOPTED THE RATE OF TRANSFER PRICING. THEREFORE THE CASE W OULD BE COVERED BY EXPLANATION 7 TO SECTION 271 (1)(C). IN VIEW OF THE- FACTS OF THE CASE DISCUSSED ABOVE AND LEGAL POSITIO N ON THE ISSUE THE CONTENTIONS OF LD. AR ARE REJECTED. THE AO WAS FULLY JUSTIFIED IN LEVYING THE PENALTY. I THEREFORE CON FIRM THE PENALTY LEVIED BY THE AO. 31. IN AY 2003-04 THE CIT(A) DISMISSED THE APPEAL WITH THE SAME CONCLUSION AS ABOVE. NOW THE AGGRIEVED ASSESSEE IS BEFORE THIS TRIBUNAL WITH THE SOLE SIMILAR GROUND IN BOTH THE APPEALS AS REPR ODUCED HEREINABOVE. 32. WE HAVE HEARD ARGUMENTS OF BOTH THE PARTIES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. LD. AR AT THE OUTSET SUBMITTED THAT THE ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 21 ASSESSEE HAS CHALLENGED SIMILAR ADDITION MADE ON TH E BASIS OF RECOMMENDATIONS OF THE TPO IN ITA NO. 1418 1419/DEL/2008 ON THE ST RENGTH OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03 (SUPRA). LD. AR FURTHER SUBMITTED THAT THE QUANTUM APPEALS OF THE ASSESSEE FOR AY 2003-04 AND 2004-05 DESERVE TO BE ALLOWED AND IN THIS SITUATION PENAL TY IMPOSED BY THE AO AND UPHELD BY THE CIT(A) IS NOT SUSTAINABLE. LD. AR FU RTHER POINTED OUT THAT WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS AND THE RESULT OF THE APPEAL OF THE ASSESSEE IT IS FURTHER SUBMITTED THAT ON THE ISSUE WHERE TWO VIEWS ARE POSSIBLE PENALTY IS NOT IMPOSABLE AND IN EVERY CASE WHERE TH E CLAIM OF THE ASSESSEE WAS NOT ACCEPTED OR WAS NOT FOUND TO BE ACCEPTABLE BY T HE REVENUE AUTHORITIES DOES NOT AUTOMATICALLY ATTRACT PENALTY. THE AR FINALLY PRAYED THAT THE PENALTY ORDER PASSED BY THE AO AND CONFIRMED BY THE CIT(A) MAY KI NDLY BE SET ASIDE. HE PLACED RELIANCE ON THE DECISION OF HONBLE APEX COU RT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. 33. LD. DR REPLIED THAT THE RESULT OF THE ASSESSEE S APPEAL FOR AY 2003-04 AND AY 2004-05 CANNOT BE NOTICED OR CONSIDERED AT THIS STAGE AND IF THE ASSESSEE IS PROVIDING INCORRECT DATA AND IRRELEVANT COMPARABLES THEN THE ADDITION MADE ON THE DIRECTION OF THE TPO ATTRACTS PENALTY. LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 34. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND CONTEN TIONS OF BOTH THE PARTIES AND GONE THROUGH THE RELEVANT MATERIAL PLACED ON RE CORD. FROM A CAREFUL PERUSAL ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 22 OF THE PENALTY ORDER SPECIALLY OPERATIVE PART AS R EPRODUCED HEREINABOVE WE OBSERVE THAT THE AO HAS IMPOSED PENALTY ON THE ISSU E OF ADDITION TO THE EXTENT OF RS.1 15 03 254 ON ACCOUNT OF ALP IN THE YEAR 2003-0 4 AND ON THE ADDITION TO THE EXTENT OF RS.8 15 01 718 IN AY 2004-05. SINCE BY T HE EARLIER PART OF THIS ORDER WE HAVE HELD THAT THE ADDITIONS MADE BY THE TPO AND CONFIRMED BY THE CIT(A) BY SEGREGATING THE CPD AND SPD DIVISIONS ARE NOT SU STAINABLE AND FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03 (SUPRA) WE HAVE DIRECTED TO DELETE THE ENTIRE ADDITION IN THIS REGARD IN BOTH THE AYS I.E. 2003-04 AND 2004-05. UNDER THESE CIRCUMSTANCES ON CE IMPUGNED ADDITION HAS BEEN DELETED THE ACT OF IMPOSITION OF PENALTY IS R UDIMENTARY BECAUSE THERE CANNOT BE ANY TAX SOUGHT TO BE EVADED ON WHICH PENA LTY COULD BE COMPUTED AND LEVIED THEREFORE NO PENALTY ON THE ASSESSEE IS IM POSABLE IN BOTH THE ASSESSMENT YEARS ON ACCOUNT OF ADDITIONS MADE BY THE AO TO THE EXTENT OF RS.1 15 03 265/- IN AY 2003-04 AND TO THE EXTENT OF RS.8 15 01 718/- IN AY 2004-05. ACCORDINGLY WE ARE INCLINED TO ALLOW BOTH THE APPE ALS OF THE ASSESSEE AND WE ALLOW THE SAME AND AO IS DIRECTED TO DELETE THE IMP UGNED PENALTY IN BOTH THE YEARS. 35. IN THE RESULT APPEALS OF THE ASSESSEE ITA NO. 1418 & 1419/DEL/2008 ON GROUND NO. 9 ARE DISMISSED AND ON GROUND NO. 1 TO 8 AND 10 TO 14 ARE PARTLY ALLOWED. THE APPEALS OF THE REVENUE ITA NO. 1374 & 1375/DEL/2008 ARE ITA NO. 2329 2330/D/2010 ITA NO.1418 1419 1374 1375/D/2008 ASSTT.YEAR: 2003-04 & 2004-05 23 DISMISSED. THE APPEALS OF THE ASSESSEE ITA NO. 232 9 & 2330/DEL/2009 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.11.2014. SD/- SD/- (PRAMOD KUMAR) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 18TH NOVEMBER 2014 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT. REGISTRAR