M/S. SAMSONITE SOUTH ASIA PVT. LTD ( FORMERLY SAMSONITE INDIA PVT. LTD), MUMBAI v. THE JT CIT (OSD), RG 8(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 2496/MUM/2007 (ASSESSMENT YEAR: 2003-04) M/S. SAMSONITE SOUTH ASIA P. LTD. JCIT (OSD) RANGE 8(3) (FORMERLY SAMSONITE INDIA P. LTD.) MUMBAI 401/B-MIDC CROSS ROAD VS. ANDHERI (E) MUMBAI 400059 PAN - AAACS 8598 L APPELLANT RESPONDENT APPELLANT BY: SHRI D.B. SHAH RESPONDENT BY: SHRI NARENDER SINGH O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXIX MUMBAI DATED 19.01.2007 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1(A) THE COMMISSIONER OF INCOME-TAX (APPEALS) HER EINAFTER REFERRED TO AS CIT(A) HAS ERRED IN DISALLOWING DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT 1961 ON THE GROUND THAT THE APPELLA NT HAS BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION . 2(A) THE CIT(A) HAS ERRED IN UPHOLDING THE DECISION OF THE AO TO DISALLOW DEDUCTION FOR THE AMOUNT OF PROFITS ELIGIB LE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT WHILE COMPUTING BOO K PROFIT UNDER SECTION 115JB OF THE ACT. 3(A) THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.430 442/- ON THE BASIS OF THE ORDER UNDER SECTION 92CA(3) OF THE ACT WITHOUT APPRECIATING THE FACT THAT TRANSFER OF SUB-ASSEMBLI ES (SEMI- FINISHED GOODS) INVOLVES FURTHER PROCESSING AND HE NCE THE PRICE OF SUB-ASSEMBLIES CAN NOT BE COMPARED WITH THE TRANSFE R PRICE OF RAW MATERIALS (WHICH ARE SIMPLY BOUGHT AND SOLD WIT HOUT FURTHER PROCESSING). SUB-GROUNDS (B) & (C) IN ALL THE ABOVE GROUNDS ARE NOTHING BUT SUBMISSION OF THE ASSESSEE WHICH ARE NOT EXTRACTED. GROUND NO. 4 IS GENERAL IN NATURE WHICH DOES NOT REQUIRE ANY ADJUDICATION. ITA NO. 2496/MUM/2007 2 3. DURING THE COURSE OF HEARING THE LEARNED COUNSEL HA S NOT PRESSED GROUND NO. 1 IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE CIT VS. SHIRKE CONSTRUCTION EQUIPMENT LTD. 291 ITR 380. ACCORDINGLY THE GROUND IS TREATED AS WITHDRAWN. 4. GROUND NO. 2(A): BRIEFLY STATED THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.5 33 27 898/- UNDER SECTION 80HHC WHILE COMPUTIN G PROFITS UNDER SECTION 115JB WHEREAS THE DEDUCTION CLAIMED UNDER N ORMAL COMPUTATION WAS RS.2 66 63 949/- AS PER THE AUDIT REPORT IN FOR M NO. 10CCAC. IN THE COURSE OF ASSESSMENT SINCE THE ASSESSEE HAD CARRY FORWARD LOSSES DEDUCTION UNDER SECTION 80HHC WAS NOT ALLOWED WHICH WAS THE BONE OF CONTENTION IN GROUND NO. 1 NOW WITHDRAWN BY THE ASSESSEE. CONSEQU ENT TO THE DENIAL UNDER SECTION 80HHC IN THE NORMAL COMPUTATION THE A .O. DENIED THE SAME WHILE COMPUTING DEDUCTION UNDER SECTION 115JB AS IN HIS OPINION THE DEDUCTION ALLOWABLE UNDER SECTION 80HHC CAN ONLY BE CONSIDERED FOR EXCLUSION WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT UNDER THE PROVISIO NS OF THE ACT THE BOOK PROFITS HAS TO BE RE-DETERMINED AND WHILE DOING SO THE PROFIT AS COMPUTED UNDER SECTION 115JB ALONE CAN BE CONSIDERED IN REWO RKING OUT THE DEDUCTION UNDER SECTION 80HHC AND ACCORDINGLY THE A SSESSEE WAS ELIGIBLE FOR DEDUCTION AND CLAIM WAS CORRECT. THE ASSESSEE F URTHER RELIED ON THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CA SE OF CIT VS. G. T. N. TEXTILES LTD. 248 ITR 372 AND TRIBUNALS DECISIONS IN THE CASE OF STARCHIK SPECIALITIES LTD. 90 ITD 34 (HYD) AND SMRUTHI ORGAN ICS LTD. VS. DCIT 101 ITD 205 (PUNE). THE CIT(A) HOWEVER REJECTED THE C ONTENTIONS HOLDING THAT SECTION 115JB(4) IS MATERIALLY DIFFERENT FROM THE P ROVISIONS OF SECTION 115J AND 115JA. IN VIEW OF THAT HE DIFFERED FROM THE DEC ISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF G. T. N. TEXTILES LTD. WHICH IS GIVEN IN THE CONTEXT OF SECTION 115J AND THE DECISIONS OF THE HO N'BLE ITAT WHICH ARE IN RESPECT OF SECTION 115JA. HE FOLLOWED THE PRINCIPLE S LAID DOWN IN THE CASE OF IPCA LABORATORIES LTD. 266 ITR 521 (SC) AND UPHELD THE ORDER OF THE A.O. 5. THE LEARNED COUNSEL SUBMITTED THAT SIMILAR ISSUE AR OSE IN THE CASE OF CIT VS. RAJANIKANT SCHNELDAR AND ASSOCIATE PVT. LTD . 302 ITR 22 (MAD) ITA NO. 2496/MUM/2007 3 WHEREIN THE HON'BLE MADRAS HIGH COURT HAS UPHELD TH E CONTENTIONS WHILE COMPUTING THE DEDUCTION UNDER SECTION 115JA. IT WAS HIS SUBMISSION THAT SPECIAL LEAVE PETITION FILED BEFORE THE HON'BLE SUP REME COURT WAS DISMISSED AS REPORTED IN 320 ITR (ST.) 21 AND ACCORDINGLY THE DECISION OF THE HON'BLE MADRAS HIGH COURT HAS BECOME FINAL. SIMILAR IS THE POSITION WITH REFERENCE TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MALAYALA MANORAMA VS. CIT 300 ITR 251 AND SUBMITTED THAT THE A.O. SHOULD HAVE TAKEN BOOK PROFIT ARRIVED U/S 115JB FOR THE PURPOSE OF CALCULATION OF DEDUCTION UNDER SECTION 80HHC AND NOT NORMAL PROFIT COMPUTED UNDER THE GENERAL COMPUTATION. 6. THE LEARNED D.R. HOWEVER SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL WERE IN THE CONTEXT OF 115J AND 115JA WHEREAS THERE IS DIRECT DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AJANTA PHARMA LTD. 318 ITR 252 WHERE THE HON'BLE HI GH COURT HAS CONSIDERED THAT THE SPECIAL BENCH DECISION IN THE C ASE OF CIT VS. SYNCOME FORMULATIONS (I) LTD. 292 ITR (AT) 144 (MUM) (SB) W AS NOT CORRECT AND UPHELD THE REVENUES CONTENTIONS. 7. WE HAVE CONSIDERED THE ISSUE. AS RIGHTLY POINTED OU T BY THE LEARNED D.R. THIS ISSUE IS IN NOW CRYSTALLISED BY THE DECI SION OF THE HON'BLE BOMBAY HIGH COURT JUDGEMENT IN THE CASE OF CIT VS. ANAJTA PAHRMA LTD. WHEREIN THE HON'BLE COURT HAS HELD AS UNDER: - WHERE THE PLAIN LITERAL INTERPRETATION OF A STATU TORY PROVISION PRODUCES A MANIFESTLY ABSURD AND UNJUST RESULT WHIC H COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE THE COURT MAY MOD IFY THE LANGUAGE USED BY THE LEGISLATURE OR EVEN DO SOME VIOLENCE TO IT SO AS TO ACHIEVE THE OBVIOUS INTENTION OF THE LEGISLATURE AND PRODUC E A RATIONAL CONSTRUCTION. THE STATEMENT OF THE FINANCE MINISTER WHO MOVED TH E BILL IN PARLIAMENT COULD BE LOOKED INTO TO ASCERTAIN THE MI SCHIEF SOUGHT TO BE REMEDIED BY THE LEGISLATION AND THE OBJECT AND PURP OSE FOR WHICH THE LEGISLATION IS ENACTED. WHEN SECTION 115J OF THE INCOME-TAX ACT 1961 WAS ORIGINALLY INTRODUCED MAT COMPANIES WERE NOT ENTITLED TO DEDUC TION OF PROFITS UNDER SECTION 80HHC WHILE WORKING OUT THE BOOK PROF ITS. THAT BENEFIT CAME TO BE INTRODUCED BY THE DIRECT TAX LAWS (AMEND MENT) ACT 1989 WITH EFFECT FROM APRIL 1 1989. PARLIAMENT THEREFO RE INITIALLY HAD EVEN ITA NO. 2496/MUM/2007 4 DENIED TO MAT COMPANIES DEDUCTION UNDER SECTION 80H HC. WHEN SECTION 115JA WAS INTRODUCED WITH EFFECT FROM APRIL 1 1997 SECTION 80HHC BENEFITS WERE ONCE AGAIN NOT AVAILABLE TO MAT COMPA NIES. THE AMENDMENT BY THE FINANCE ACT 1997 TO GIVE THE BEN EFIT WAS WITH EFFECT FROM APRIL 1 1998. THUS MAT COMPANIES CONSIDERIN G SECTION 115JB(2) EXPLANATION 1(IV) ARE NOT ENTITLED TO BE PLACED IN A BETTER POSITION THAN OTHER COMPANIES ENTITLED TO THE EXPORT DEDUCTION UN DER SECTION 80HHC THOUGH EARLIER THEY CONSTITUTED ONE CLASS. NO RULE OF CONSTRUCTION NOR THE LANGUAGE OF SECTION 80HHC READ WITH SECTION 115JB WILL PERMIT SUCH CONSTRUCTION. IF SUCH CONSTRUCTION IS NOT POSSIBLE THEN BOTH THE CLASSES OF COMPANIES WILL BE ENTITLED TO THE SAME DEDUCTION. T HIS WOULD CONTEMPLATE THAT BOTH WOULD BE ENTITLED TO DEDUCTIO N OF PROFITS IN TERMS OF SECTION 80HHC(1B). SO READ IT WOULD BE A HARMONIOU S CONSTRUCTION. A CLASS OF COMPANIES COVERED BY SECTION 80HHC CANNOT BE SUB-CLASSIFIED INTO TWO CLASSES MORE SO WHEN FOR INTERMITTENT PE RIODS PARLIAMENT HAD EVEN DENIED THE BENEFIT OF SECTION 80HHC TO MAT COM PANIES. THE LANGUAGE USED IN SECTION 115JB IS DEDUCTION AV AILABLE UNDER SECTION 80HHC. IT IS DIFFICULT TO CONCEIVE OF ANY R ATIONAL REASON AS TO WHY THE LEGISLATURE SHOULD HAVE THOUGHT TO GIVE MAT COM PANIES ADDITIONAL BENEFITS THAN THE OTHER COMPANIES WHO ARE PAYING TA X ON THEIR TOTAL INCOME AND NOT THE TAX BASED ON BOOK PROFIT AS CALC ULATED UNDER SECTION 115JB. THE OBJECT OF SECTION 115JB OR FOR THAT MATT ER SECTION 115J OR 115JA WAS TO IMPOSE TAX ON THOSE COMPANIES WHICH OT HERWISE CONSIDERING VARIOUS EXEMPTIONS OR DEDUCTIONS AVAILA BLE UNDER THE ACT THOUGH MAKING HUGE PROFITS AND PAYING LARGE DIVIDEN DS WERE NOT PAYING ANY TAX. IT IS THEREFORE NOT POSSIBLE TO ACCEPT TH E CONSTRUCTION THAT SHOULD BE TREATED ON A DIFFERENT FOOTING IN COMPUTI NG EXPORT PROFITS UNDER SECTION 80HHC FOR THE PURPOSE OF SECTION 115JB. MAT COMPANIES ARE ENTITLED TO THE SAME DEDUCTION O F EXPORT PROFITS UNDER SECTION 80HHC AS ANY OTHER COMPANY INVOLVED I N EXPORT IN TERMS OF SECTION 80HHC(1B). 8. IN VIEW OF THIS WE UPHOLD THE ORDER OF THE CIT(A) WHICH WAS IN CONFORMITY WITH THE PRINCIPLES LAID DOWN BY THE JUR ISDICTIONAL HIGH COURT. ACCORDINGLY THE GROUND IS REJECTED. 9. GROUND NO. 3(A): BRIEFLY STATED THE ASSESSEE COMPANY HAD TRANSACTIONS WITH THE ASSOCIATE ENTERPRISES (AE) EX CEEDING RS.5 CRORES AND ON A REFERENCE UNDER SECTION 92CA(3) OF THE I.T. AC T THE TRANSFER PRICING OFFICER ACIT (TP) 3 MUMBAI SUGGESTED AN ADDITION OF RS.4 30 442/- ON ACCOUNT OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH THE AE. THE A.O. EVENTHOUGH GAVE AN OPPORTUNITY TO THE ASSESSEE HAS FOLLOWED THE SAME IMPUGNED ADDITION OF RS.4 30 442/-. BEFORE THE CIT(A) IT WAS CONTENDED THAT THE TRANSFER PRICE OF SUB-ASSEMBLIES PURCHASED BY THE ITA NO. 2496/MUM/2007 5 ASSESSEE FROM THE AE IS ARRIVED AT BY USING COST+25 %. COST INCLUDED ONLY DIRECT MATERIAL (INCLUDING OVER CONSUMPTION AT STAN DARD RATE DIRECT LABOUR AND DIRECT OVERHEADS). IN ADDITION TO THE DIRECT CO ST THE ASSESSEE HAS STATED THAT THERE ARE OTHER PERIODIC MANUFACTURING COSTS R EQUIRE TO BE CONSIDERED AND ACCORDINGLY GAVE A DETAILED WORKING OF THE PERI ODIC MANUFACTURING EXPENSES INCURRED BY THE AE. IN ADDITION TO THE ABO VE DETAILS THE ASSESSEE ALSO JUSTIFIED THE PERIODIC MANUFACTURING COST AND PROFIT EARNED BY THE AE WITH COMPARATIVE COST PROFIT RATIO WITH OTHER COMPA NIES AS WELL AND JUSTIFIED THAT COST + 25% WAS REASONABLE WHEREAS THE TPOS O RDER ON PURCHASE OF SUB-ASSEMBLIES CHARGING MARK UP AT COST +10% IS NOT APPROPRIATE. IT WAS SUBMITTED THAT ADDITIONAL 15% WAS ATTRIBUTED TO THE GENERAL MANUFACTURING COST. IN ADDITION TO THE ABOVE EXPLANATION THE ASSE SSEE HAS FURTHER JUSTIFIED ADAPTATION OF 25% OVER THE COST AS THE AE HAS SPENT ABOUT 21.20% TOWARDS INDIRECT MANUFACTURING OVERHEADS AND 25% MARGIN PAI D OVER THE COST TO THE AE IS FAIR. THE CIT(A) HOWEVER HAS REJECTED THE C ONTENTIONS BY HOLDING AS UNDER: - I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMI SSION MADE BY AR/APPELLANT . I DO NOT AGREE WITH THE SUBMISSION OF APPELLANT. IT IS SEEN FROM THE RECORDS THAT APPELLA NT HAS ENTERED INTO VARIOUS TRANSACTIONS WITH THE ASSOCIATED ENTERPRISE S WHICH HAVE BEEN NOTED BY TRANSFER PRICING OFFICER IN HIS ORDER AS F OLLOWS: NATURE OF TRANSACTION TOTAL VALUE METHOD PURCHASE OF RAW MATERIALS & SUB-ASSEMBLIES 4 68 59 645 COST PLUS PURCHASE OF CAPITAL GOODS 5 61 13 246 COST PLUS SALE OF GOODS 47 21 27 943 CUP PAYMENT OF ROYALTY 1 73 43 949 CUP IT IS ONLY IN RESPECT OF PURCHASE OF RAW MATERIALS & SUB-ASSEMBLIES THAT THERE HAS BEEN A DISPUTE RAISED BY TRANSFER PR ICING OFFICER. APPELLANT IS FOLLOWING COST PLUS METHOD (CPM) IN RE SPECT OF PURCHASE OF RAW MATERIALS & SUB-ASSEMBLIES. IN RESPECT OF RAW M ATERIAL THE TRANSFER PRICING IS COST PLUS 10% WHILE IN RESPECT OF SUB-ASSEMBLIES IT IS COST PLUS 25%. THE TRANSFER PRICING OFFICER RAIS ED THE QUERY REGARDING DIFFERENTIATION IN TRANSFER PRICING OF SUB-ASSEMBLI ES. APPELLANT HAS STATED THAT SUPPLY OF SUB-ASSEMBLIES INVOLVES USE O F ADDITIONAL RESOURCES AND THEREFORE TRANSFER PRICING WAS MADE COST PLUS 25%. THE ITA NO. 2496/MUM/2007 6 TRANSFER PRICING OFFICER HAS POINTED OUT THAT ADDIT IONAL RESOURCES UTILIZED WOULD FORM PART OF THE COST AND THEREFORE COST FO R THE PURPOSE OF SUB- ASSEMBLIES IS DIFFERENT FROM THE COST IN RESPECT OF RAW MATERIAL. SINCE ADDITIONAL RESOURCES UTILIZED WOULD FORM PART OF TH E COST THE MARGIN OF 10% ON SUB-ASSEMBLIES WOULD BE REASONABLE AND THERE IS NO REASON TO INCREASE THE MARGIN IN RESPECT OF SUB-ASSEMBLIES TH AN WHAT HAS BEEN PROVIDED IN RESPECT OF RAW MATERIAL. ACCORDINGLY T HE TRANSFER PRICING OFFICER HAS MADE AN ADJUSTMENT OF RS.4 30 442/-. IN MY CONSIDERED OPINION THE REASONS GIVEN BY TRANSFER PRICING OFFI CER ARE ACCEPTABLE AND THEREFORE THE ADJUSTMENTS MADE ARE NOT UNREAS ONABLE. AO HAS RIGHTLY MADE AN ADDITION OF RS.4 30 442/-. THEREFORE THIS GROUND IS ALSO DISMISSED. 10. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD PURCHASED RAW- MATERIALS AT COST + 10% WHEREAS THE SUB-ASSEMBLIES WERE PURCHASED COST + 25% AND THE TPO CONSIDERED THAT THE MARK UP OF 15% WAS NOT REQUIRED AND MADE ADJUSTMENT AT RS.4 30 442/- UNDER SECTION 92CA (3). IT WAS SUBMITTED THAT THE CIT(A) IN THE LATER YEAR HAS ACCEPTED CO ST + 30% MARK UP ON SUB- ASSEMBLIES ON THE BASIS OF THE EXPLANATION GIVEN BY THE ASSESSEE AND THIS ORDER WAS ACCEPTED BY THE REVENUE AND HAS NOT COME IN APPEAL TO THE ITAT AND SINCE THE PURCHASES WERE SIMILAR IN THESE TWO Y EARS THE ORDER OF THE CIT(A) HAS TO BE REVERSED AND ASSESSEE BE GIVEN REL IEF ON THIS ISSUE. FURTHER HE HAS NO OBJECTION IF THE MATTER IS RESTORED BACK TO THE A.O. FOR VERIFICATION OF THE DETAILS. 11. THE LEARNED D.R. HOWEVER SUBMITTED THAT EACH YEAR IS SEPARATE AND IT IS FOR THE ASSESSEE TO SHOW THAT IT HAS DONE THE MA RK UP CORRECTLY. GENERALLY SINCE RAW-MATERIAL WAS PURCHASED AT 10% MARK UP SU B-ASSEMBLIES COST ALSO SHOULD BE LIKELY TO BE CONSIDERED AT SAME 10% WHEREAS THE ASSESSEE HAS PAID 25% MARK UP AND ACCORDINGLY THE ORDERS OF THE TPO AND A.O. ARE TO BE UPHELD. IT WAS HIS SUBMISSION THAT THE ASSESS EE SHOULD SUBMIT THE CURRENT DATA AND RELEVANT DATA AS HELD BY THE SPECI AL BENCH IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. VS. ACIT 107 ITD 141 AND SINCE THE ASSESSEE HAS NOT SUBMITTED THE RELEVANT DATA TH E ORDER OF THE CIT(A) SHOULD BE UPHELD. 12. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ORDE R OF THE CIT(A) FOR A.Y. 2004-05 PLACED ON RECORD THE ASSESSEE MADE SIM ILAR SUBMISSIONS AND THE CIT(A) HAS GIVEN THE FOLLOWING FINDINGS: - ITA NO. 2496/MUM/2007 7 6.10 I HAVE EXAMINED THE ABOVE SUBMISSIONS IN DETA IL. I AM SATISFIED THAT NEITHER TPO NOR THE AO HAVE CONSIDERED THE FAC T THT THE SUB- ASSEMBLIES ARE THE SEMI-FINISHED GOODS AND THAT THE APPELLANT IS BOUND TO INCUR SOME ADDITIONAL EXPENDITURE FOR PROCESSING THE RAW MATERIALS SO AS TO COME TO THE STAGE OF SUB-ASSEMBLIES. IN THE S UBMISSIONS MADE BEFORE ME AND SUPPORTED AS STATED ABOVE THIS ASPEC T IS AMPLY DEMONSTRATED ON BEHALF OF THE APPELLANT. 6.11 THIS ISSUE WAS ALSO A SUBJECT MATTER OF THE AP PELLANTS APPEAL FOR ASSESSMENT YEAR 2003-04. IN THE ORDER PASSED BY MY PREDECESSOR FOR THAT YEAR HE HAS OBSERVED THAT SINCE THE ADDITIONA L RESOURCES UTILISED WOULD FORM PART OF THE COST THE MARGIN OF 10% ON S UB-ASSEMBLIES WOULD BE REASONABLE AND THERE IS NO REASON TO INCREASE TH E MARGIN IN RESPECT OF SUB-ASSEMBLIES THAN WHAT HAS BEEN PROVIDED IN RESPE CT OF RAW MATERIALS. WITH THIS OBSERVATION THE ADDITION FOR T HAT YEAR WAS UPHELD BY MY PREDECESSOR. IN THIS CONNECTION THE LEARNED AR HAS DRAWN MY ATTENTION TO THE FACT THAT THE PERIOD MANUFACTURING COSTS ARE NOT INCLUDED IN THE COST AS OBSERVED BY MY PREDECESSOR IN HIS OR DER FOR ASSESSMENT YEAR 2003-04. THEREFORE THERE IS ENOUGH JUSTIFICAT ION FOR MARK UP OF 30% IN THE CASE OF THE SUB-ASSEMBLIES AS COMPARED TO TH E MARK UP OF 10% IN THE CASE OF RAW MATERIALS. 6.12 HE HAS SUPPORTED HIS ARGUMENT BY REFERRING TO PAGE NO. 39 IN THE COMPILATION WHICH SHOWS THAT THE ACTUAL PERIOD IC MANUFACTURING COSTS INCURRED BY OUDENNARDE (BELGIUM) UNIT OF SAM SONITE EUROPE ARE 21.2%. THIS MEANS THAT THE NET MARGIN OF SAMSONITE EUROPE FOR SUB- ASSEMBLIES IS 8.8% WHICH IS QUITE COMPARABLE WITH 10% MARGIN CONSIDERED FOR THE RAW MATERIALS. FURTHER THE DATA COLLECTED BY THE APPELLANT FROM THE PROWESS SITE AND SUBMITTED TO ME AT PAGE NO. 44 OF THE COMPILATION ALSO SHOWS THAT AVERAGE RATIO OF GR OSS PROFIT TO SALES FOR THE LUGGAGE INDUSTRY IS 22.3% AND THE INDUSTRY RANG E IS FROM 21.24% TO 25.56% AS AGAINST THE SAID RATIO OF 31.05% IN THE C ASE OF THE APPELLANT. 6.13 THE ABOVE ANALYSIS DEMONSTRATES THAT THE PRICE PAID BY THE APPELLANT FOR THE SUB-ASSEMBLIES PURCHASED BY IT FR OM SAMSONITE EUROPE IS VERY CLOSE TO THE ARMS LENGTH PRICE. HENCE I A M OF THE CONSIDERED VIEW THAT THE ADDITION WAS PROPOSED BY THE TOP WITH OUT PROPERLY APPLYING HIS MIND TO THE FACTS OF THE CASE AND THE AO ALSO HAS FOLLOWED THE SAME WITHOUT LOOKING INTO THESE SUBMISSIONS MAD E BY THE APPELLANT. AS NEITHER THE TPO NOR THE AO HAVE BROUGHT ON RECOR D ANY COMPARABLE INSTANCE OR ANY OTHER MATERIAL TO SUPPORT THE ARMS LENGTH RATE OF 10% ADOPTED BY THEM I AM INCLINED TO ACCEPT THE ARGUME NTS PUT UP BEFORE ME ON BEHALF OF THE APPELLANT. ACCORDINGLY I DIRECT T HE AO TO DELETE THE ADDITION OF RS.2 78 990/- ON ACCOUNT OF ADJUSTMENT UNDER SECTION 92CA(3) OF THE ACT. 13. WE WERE ALSO INFORMED AND EVIDENCES PLACED ON RECOR D THAT THE ORDER OF THE CIT(A) FOR A.Y. 2004-05 HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO APPEAL WAS PREFERRED (VIDE LETTER DATED 19.02.2010 ADDRESSED BY THE DCIT ITA NO. 2496/MUM/2007 8 8(3) MUMBAI TO THE CIT DR COPY OF WHICH IS PLAC ED ON RECORD). SINCE ON SIMILAR FACTS THE CIT(A) HAS COME TO A CONCLUSION T HAT THERE IS ENOUGH JUSTIFICATION FOR MARK UP OF 30% IN THE CASE OF SUB -ASSEMBLIES AS COMPARED TO THE MARK UP OF 10% IN THE CASE OR RAW MATERIALS IN THE LATER YEAR WE ARE OF THE OPINION THAT MARK UP OF 25% DURING THE YEAR IS REASONABLE AND NO ADJUSTMENT IS REQUIRED. HOWEVER AS RIGHTLY POINTED OUT BY THE LEARNED D.R. AND ALSO SUBMITTED BY THE LEARNED COUNSEL THE WORK ING OF THE COST OF PERIODICAL COST HAS NOT BEEN EXAMINED BY THE A.O. A ND THE TPO. IN THE INTEREST OF JUSTICE WE ARE OF THE OPINION THAT THI S ISSUE CAN BE RE-EXAMINED BY THE TPO/AO AND TAKE APPROPRIATE DECISION IN THIS YEAR IN THE LIGHT OF THE DECISION TAKEN IN A.Y. 2004-05 FOR EXAMINATION OF T HE DETAILS OF WORKING OF COST OF MARK UP. THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSE. 14. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL 2010. SD. SD. (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 13 TH APRIL 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXIX MUMBAI 4. THE CIT VIII MUMBAI CITY 5. THE DR L BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.