CUMMINS INDIA LTD.,, Pune v. DEPUTY CIT CIR 1(1), Pune

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO IT A NO. 277 & 1412/ PN/ 0 7 ( ASSTT. YEAR 2003 - 04 & 2004 - 05 ) CUMMINS INDIA LIMITED KOTHRUD PUNE - 411038 PAN NO. AAACC7258B .... APPELLANT V S. DY.CIT CIRCLE - 1(1) PUNE . RESPONDENT ITA NO. 148 /PN/07 (ASSTT. YEAR 2003 - 04 ) DY.CIT CIRCLE - 1(1) PUNE .... APPELLANT VS. CUMMINS INDIA LIMITED KOTHRUD PUNE - 411038 PAN NO. AAACC7258B . RESPONDENT ITA NO. 1430/PN/07 (ASSTT. YEAR 2004 - 05) ADDL. CIT RANGE - 1 PUNE .... APPELLANT VS. CUMMINS INDIA LIMITED KOTHRUD PUNE - 411038 PAN NO. AAACC7258B . RESPONDENT ASSESSEE BY : SHRI S.N. INAMDAR DEPARTMENT BY : SHRI HARESHWAR SHARMA ORDER PER D. KA RUNAKARA RAO AM TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 2 OF 6 THERE ARE FOUR APPEALS UNDER CON SIDERATION ITA NO. 277/PN/07 (A SSESSEES APPEAL) ITA 148/PN/07 (REVENUES APPEAL) FOR THE A.Y 2003 - 04 AND ITA 1412/PN/07 (ASSESSEES APPEAL) ITA NO. 1430/PN/07 (REVENUES APPEAL) FOR THE A.Y 2004 - 05 AG AINST THE DIFFERENT ORDER S OF THE CIT(A) - I PUNE DATED 09 - 11 - 2006 FOR THE A.Y 2003 - 04 AND 21 - 08 - 2007 FOR THE A.Y 2004 - 05 RESPECTIVELY . APPEAL WISE ADJUDICATION IS TAKEN UP IN THE PRECEDING PARAGRAPHS. DURING THE PROCEEDINGS BEFORE US REFERRING TO HIS APPEALS IE ITA NO. 277 & 1412 /PN/07 SHRI S.N. INAMDAR LD. COUNSEL FOR THE ASSESSEE APPEARED AND STATED THAT GROUNDS 1 TO 4 IN BOTH THE APPEALS ARE NOT PRESSED. LD. DR HAS NOTHING TO SAY ON THE REQUEST AND THEREFORE GROUNDS 1 TO 4 ARE DISMISSED AS NOT PRES SED . ITA NO. 277 & 1412 /PN/07 - ASSESSEES APPEAL S 2. ASSESSEE IS RESIDENT COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF IC ENGINES FOR POWER GENERATION AND INDUSTRIAL APPLICATION IN THE DOMESTIC MARKET . DURING THE YEARS ASSESSEE HAD INTE RNATIONAL TRANSACTIONS RELATING TO PROCUREMENT SUPPORT SERVICES AND THEREFORE THESE TRANSACTIONS WERE REFERRED TO THE TRANSFER PRICING OFFICER AT MUMBAI HELD THAT THE SAID TRANSAC TIONS ARE NOT AT ARM S LENGTH AND AN ORDER WAS PASSED U/S 92CA(3) OF THE A CT. IN THE PROCESS NO DEDUCTION FROM THE ARITHMETIC MEAN WAS ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST PROVISO TO SECTION 92C(2) OF THE ACT. OTHERWISE ON FACTS THE TPO CONSIDERED 61 COMPARABLE PRICES AND FINALLY RELIED ON 3 PRICES FOR ARRIV ING AT THE ARITHMETIC MEAN WHICH COMPUTING THE ARMS LENGTH PRICE IN THIS CASE FOR BOTH THE YEARS UNDER CONSIDERATION. THESE FACTS RELAT E TO GROUND 5 OF THE APPEALS. 3. IN THIS REGARD ON GROUND 5 LD. COUNSEL MENTIONED THAT THE ISSUE RAISED IN THE GRO UND RELATES TO THE PROPER APPRECIATION OF THE FIRST PROVISO TO SECTION 92(C)(2) OF THE ACT. IN THIS REGARD LD. COUNSEL TOOK US THROUGH THE REPORT OF THE TPO WHICH IS PARTLY REPRODUCED IN PARA 7.2 OF T HE IMPUGNED ORDER AND HE SUMMED UP STATING THAT THE AO /TPO ANALYSED 61 COMPARABLE PRICES AND FINALLY NARROWED DOWN TO 3 PRICES AS PER THE COMPARABLE UNCONTROLLED PRICE METHOD (CUP) FOR THE PURPOSE OF COMPUTATION OF ARMS LENGTH PRICE. CONSIDERING THE MULTIPLE PRICES INVOLVED AS PER THE FIRST PROVISO AT THE OPTION OF THE ASSESSEE TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 3 OF 6 THE ASSESSEE IS ENTITLED TO THE BENEFIT OF REDUCTION OF 5% FROM THE ARITHMETIC MEAN OF SUCH PRICES. IN THIS REGARD HE RELIED ON VARIOUS ORDERS OF THE HONBLE TRIBUNAL SUCH AS SAP LABS INDIA PVT. LTD. 6 ITR (TRIB) 81 (BANGALORE) AND SONI (I) PVT. LTD. 315 ITR (AT) 150. FURTHER HE MENTIONED THAT THE CIT(A) DID NOT HAVE THE BENEFIT OF THE SAID ORDERS OF THE TRI BUNAL . AS PER THE COUNSEL THE DECISIONS IN THE CASE OF SONI (I) PVT. LTD (SUPRA) AND SAP LABS INDIA PVT. LTD (SUPRA) ARE FAM OUS FOR THE PROPOSITION THAT THE BENEFIT OF DEDUCTION AT 5% HAS TO BE GIVEN TO THE ASSESSEE AS PER THE FIRST PROVISO FOR THE AY 2002 - 03 ONWARDS TILL THE AMENDMENT BROUGHT IN BY THE FINANCE (NO 2) ACT 2009. APPLYING THE SAID RATIO TO THE ASSESSEES CASE LD. COUNSEL TOOK US THROUGH PARA 7.3 OF THE IMPUGNED ORDER AND STATED THAT THE CIT(A) DID NOT HAVE THE BENEFIT OF ABOVE REFERRED ORDERS AND THEREFORE THE ISSUE WAS NOT DECIDED IN FAVOUR OF THE ASSESSEE. PER CONTRA LD. DR FOR THE REVENUE RELIED ON THE ORD ERS OF THE CIT(A) AND THE TPO. FURTHER LD CIT - DR RELIED ON THE ORDERS OF THE TRIBUNAL IN THE CASE OF ESSAR STEEL LTD ( FORMERLY HYDERABAD PELLETS LTD) ITA NO 228/VIZAG/2008 FOR THE AY 2004 - 05 AND UE TRADE CORPORATION (I) P LTD VIDE ITA NO 4405/DEL/2009 FO R THE AY 2003 - 04 FOR STRENGTHENING THE ORDERS OF THE AO/TPO/CIT(A) . 4 . DURING THE HEARING ON 24/2/2010 LD COUNSEL FILED A WRITTEN SUBMISSIONS VIDE THE LETTER DATED 21.1.2011 AND DEMONSTRATED ADEQUATELY TO MAKE OUT THT THE CASES WHICH ARE RELIED UPON BY THE DR ARE DISTINGUISHABLE. DETAILING FURTHER LD COUNSEL STATED THAT IN THE SAID CASES ONLY ONE COMPARABLE PRICE IS CONSIDERED. WHEREAS IN THE INSTANT CASE 61 PRICE CASES WERE CONSIDERED AND FINALLY USED THREE COMPARABLE PRICES. R E LEVANT DISCUSSION FRO M THE SAID LETTER IS REPRODUCED AS UNDER. NOW IN OUR CASE IT WILL BE SEEN FROM PAGES 10 & 16 (ANNEXURE - 3) OF THE PAPER BOOK THAT AS MANY AS 61 CASES WERE CONSIDERED AND FINALLY ARITHMETICAL MEAN OF 3 MOST COMPARABLE WAS ADOPTED VIZ. GILCON PROJECTS SER VICES LTD. RITES LTD. & NIS SPORTS LTD. THE TPO ALSO MENTIONS IN HER ORDER IN PARA 5 THAT THE COMPANY HAS EARNED AS OPERATING MARGIN AS A PERCENTAGE AND OPERATING COST EARNED BY THE COMPARABLES (PLURAL) OF 8.21%. SAME APPLIES TO AY 2004 - 05 WHERE THE T PO IN PARA 5 OF HER ORDER RECORDS THAT THE COMPANY HAS EARNED OPERATING MARGIN OF A PERCENTAGE OF OPERATING COST OF 1.42% AS AGAINST ARITHMETIC MEAN OF THE OPERATING MARGIN AS A PERCENTAGE OF OPERATING COST EARNED BY COMPARABLES (PLURAL) OF 5.51%. FOR THI S YEAR AS MANY AS FIVE COMPANIES WERE CONSIDERED . PAGE NO.10 OF THE PAPER BOOK). SINCE MORE THAN ONE COMPARABLES PRICES WERE CONSIDERED IN OUR CASE ACCORDING TO U.E. TRADE CORPORATION CASE BENEFIT OF 5% IS AVAILABLE TO US. TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 4 OF 6 FOR STRENGTHENING THE ABOV E SRI INAMDAR ALSO FILED CERTAIN DECISIONS OF VARIOUS TRIBUNALS IN FAVOUR OF THE INTERPRETATION OF THE IMPUGNED PROVISO TO SECTION 92C(2) OF THE ACT TO MEAN THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF 5% OUT OF THE ARITHMETICAL MEAN AT THE ASSESSEE OPTI ON OF THE ASSESSEE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE TRIBUNAL ORDERS CITED BY SRI INAMDAR THE LD. COUNSEL AND THE SRI SHARMA LD CIT DR . THE LIMITED ISSUE RAISED IN THE GROUND REVOLVES AROUND THE APP LICABILITY OF THE FIRST PROVISO TO SECTION 92C(2) OF THE ACT AND WHETHER THE ASSESSEE IS ENTITLED TO REDUCTION OF 5% FROM THE ARITHMETIC MEAN PRICE ADOPTED BY THE TPO WHILE COMPUTING THE ARMS LENGTH PRICE. 6. FIRST PROVISO TO SECTION 92C(2) OF THE ACT I S REQUIRED TO THE EXPLAINED HERE AND SAME AS EXISTED AT THE RELEVANT POINT OF TIME READS AS FOLLOWS. PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION OF THE ASSESSEE A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN OF AN AM OUNT NOT EXCEEDING FIVE PER CENT OF SUCH ARITHMETICAL MEAN. FROM THE ABOVE PROVISIONS IT IS CLEAR THAT THE ASSESSEE HAS AN OPTION WHEN THERE IS ARITH METICAL MEAN INVOLVED WHILE COMPUTING THE ARMS LENGTH PRICE AND IT HAPPENS ONLY IF MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD AS IN TH E CASE OF THE PRESENT ASSESSEE. THERE ARE THREE PRICES DETERMINED INVOLVING THREE COMPARABLE NAME LY GILCON PROJECTS SERVICES LTD. RITES LTD. & NIS SPORTS LTD . LD COUNSEL HAS DEMONSTRATED ABOVE FROM THE TEXT OF THE ORDER OF THE CIT(A) TOO WHERE PLURALITY WAS USED IN THE SUCH TEXT. FROM THE JUDICIAL DECISIONS RELIED UPON BY BOTH THE PARTIES WE FIND T HAT FIRST PROVISO BECOMES OPERATIONAL WHERE THERE ARE MORE COMPARABLE PRICE CASES ARE DETERMINED IN COMPUTATION OF ARMS LENGTH PRICE AND ASSESSEE AT HIS OPTION CAN MAKE CLAIM OF DEDUCTION OUT OF THE ARITHMETIC MEAN NOT EXCEEDING 5%. 7. WE HAVE ALSO PERU SED THE SAID JUDICIAL DECISIONS AND RELEVANT PORTIONS FROM TO THE ISSUE UNDER CONSIDERATION ARE REPRODUCED AS FOLLOWS. A. EXTRACT FROM THE DECISION IN THE CASE OF SAP LABS INDIA PVT. LTD REPORTED IN ( 6 ITR (TRIB.) 81 (BANGALORE) : THE PROVISO TO SECTION 92C SUBSTITUTED BY THE FINANCE (NO.2) ACT 2009 WITH EFFECT FROM OCTOBER 1 2009 WILL BE APPLICABLE TO THE ASSESSMENT YEAR TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 5 OF 6 2009 - 10 AND ONWARDS. FOR THE ASSESSMENT YEAR 203 - 04 THE PROVISO APPLICABLE WAS THE ONE WHICH STOOD BEFORE THE SUBSTITUTION BY THE FIN ANCE (NO.2) ACT 2009 WITH EFFECT FROM OCTOBER 1 2009. THAT PROVISO SAYS THAT AT THE OPTION OF THE ASSESSEE THE ASSESSEE MAY ADOPT A PRICE DIFFERENT FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5 PER CENT. OF SUCH ARITHMETICAL MEAN I.E. THE ASS ESSEE HAS AN OPTION TO CLAIM THE TAX PAYERS MARGINAL RELIEF AT 5 PER CENT. WITH REFERENCE TO THE ARITHMETICAL MEAN IRRESPECTIVE OF THE RANGE OF ACTUAL DEVIATION BETWEEN THE MARGIN DISCLOSED BY THE ASSESSEE AND THE AVERAGE MEAN MARGIN. THE ASSESSEE WILL GE T A STANDARD DEDUCTION OF 5 PER CENT. AND THE ASSESSEES ARMS LENGTH PRICE WILL BE INCREASED TO 15 PER CENT. AND THEREAFTER THE DIFFERENCE OF 5 PER CENT. BETWEEN 20 PER CENT. AND 15 PER CENT ALONE SHALL BE ADDED AS ARMS LENGTH PRICE ADJUSTMENT. B EXTRA CT FROM THE DECISION IN THE CASE OF UE TRADE CORPORATION (I) P LTD VIDE ITA NO 4405/DEL/2009 FOR THE AY 2003 - 04 5.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE PROVISO WHICH IS APPLICABLE TO THE PROCEEDINGS OF THIS YEAR CONTEMPLATES AN OPTION TO THE ASSESSEE TO CHOOSE A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN. THIS PROVISO IS APPLICABLE WHERE MORE THAN ONE PRICE IS DETERMINED AND THEREAFTER THE MEAN OF SUCH PRICES IS TAKEN TO BE ARMS LENGTH PRICE. HOWEVER THERE IS ONLY ONE COMPARABLE INSTANCE IN THIS CASE. THE DECISION IN THE CASE OF PEROT SYSTEMS TSI (INDIA) LTD. (SUPRA) SUPPORTS THE CASE OF THE REVENUE. C. EXTRACT FROM A DECISION IN THE CASE OF ESSAR STEEL LTD VIDE ITA NO. 228 /VISAK/ 2008 (VISAKAPATNAM): IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT THE ASSESSEE COULD NOT PLACE RELIANCE ON THE CIRCULAR NO. 12 AND FOR THE YEAR UNDER CONSIDERATION ONLY THE PROVISO TO SEC. 92C(2) AS AMENDED BY FINANCE ACT 2002 IS APPLICABLE. IN THAT CASE THE SAID PROVISO SHAL L APPLY ONLY IF THE MOST APPROPRIATE METHOD RESULTS IN MORE THAN ONE PRICE IN WHICH CASE THE ARITHMETICAL MEAN OF SUCH PRICES SHALL BE TAKEN AS THE ALP. HOWEVER THE ASSESSEE SHALL HAVE AN OPTION TO ADOPT A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEA N BY AN AMOUNT NOT EXCEEDING FIVE PERCENT OF SUCH ARITHMETICAL MEAN. D. EXTRACT FROM A DECISION IN THE CASE OF PEROT SYSTEMS TSI (I) LTD 130 TTJ 685 (DELHI) THE TRIBUNAL CAME TO THE CONCLUSION THAT SINCE ONLY ONE RATE WAS USED AS A COMPARABLE TRANSACT ION IT CANNOT BE EQUATED WITH MORE THAN ONE PRICE. THEREFORE THE TOLERANCE LIMIT OF 5% WAS NOT AVAILABLE IN THE RELEVANT PROVISO APPLICABLE TO THE PROCEEDINGS OF THESE YEARS: (EMPHASIS SUPPLIED). E. EXTRACT FROM A DECISION IN THE CASE OF SONY INDIA P . LTD. 315 ITR 150 AT PAGE 155 FOR EXPLAINING OF THE PROVISO THE PROVISO TO SECTION 92C() OF THE ACT CONSISTS MAINLY OF TWO PARTS: (A) WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THEN THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICE; OR (B) AT THE OPTION OF THE ASSESSEE A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5 PER CENT. OF SUCH ARITHMETICAL MEAN. THE FIRST LIMP OF THE PROVISO HAS GENERAL APPLICATION. THERE IS NO OPTION WITH NOR ANY SORT OF CONCESSION ALLOWED TO THE ASSESSEE. THE ARMS LENGTH PRICE SO DETERMINED MAY BE ACCEPTED OR TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 6 OF 6 CONTESTED BY THE ASSESSEE OR BY ANY AGGRIEVED PERSON IN ACCORDANCE WITH THE STATUTORY PROVISIONS. IT IS A STATUTORY LEVY WITHOUT AN O PTION. THE SECOND LIMB OF THE PROVISO GIVES AN OPTION TO THE ASSESSEE TO TAKE THE ARMS LENGTH PRICE WHICH MAY VARY FROM THE ARITHMETIC MEAN BY AN AMOUNT NOT EXCEEDING 5 PER CENT. OF SUCH ARITHMETIC MEAN. THE WORD OPTION IS SYNONYMOUS WITH CHOICE OR PREFERENCE. THEREFORE IT IS THE CHOICE OF THE ASSESSEE TO TAKE THE ARMS LENGTH PRICE WITH A MARGINAL BENEFIT AND NOT THE ARITHMETICAL MEAN DETERMINED AS THE MOST APPROPRIATE METHOD. THERE IS NOTHING IN THE LANGUAGE TO RESTRICT THE APPLICATION OF THE PROVISION ONLY TO MARGINAL CASES WHERE THE PRICE DISCLOSED BY THE ASSESSEE DOES NOT EXCEED 5 PER CENT. OF THE ARITHMETIC MEAN. THE ARMS LENGTH PRICE DETERMINED ON APPLICATION OF THE MOST APPROPRIATE METHOD IS ONLY AN APPROXIMATION AND IS NOT A SCIENTIFIC EVALUATION. THEREFORE THE LEGISLATURE THOUGH IT PROPER TO ALLOW MARGINAL BENEFIT TO ASSESSEES WHO OPT FOR SUCH BENEFIT. IN THE CASE OF AN ASSESSEE WHO EXERCISES THE OPTION AND ACCEPTS THE ARMS LENGTH PRICE EVEN EXCEEDING 5 PER CENT. OF THE ARITHMETIC ME AN DETERMINED B Y THE TAX AUTHORITY AS CORRECT AND IS READY TO PAY TAX ON THE DIFFERENCE BETWEEN THE PRICE DISCLOSED BY HIM AND THE ARMS LENGTH PRICE THE APPLICATION OF THE PROVISO IS NOT EXCLUDED. THE LEGAL POSITION CANNOT BE DIFFERENT IN A CASE WHERE MIN OR VARIATION OF 5 PER CENT. IS NOT ACCEPTED AND THE ARMS LENGTH PRICE IS FURTHER CHALLENGED IN APPEAL. THE MERE FACT OF ACCEPTANCE OR NON - ACCEPTANCE OF THE ARITHMETIC MEAN CANNOT BE TAKEN TO BE THE DETERMINING FACTOR RELATING TO THE RIGHT TO CONTEST THE A RMS LENGTH PRICE IN APPEAL. SUCH INFERENCE IS NOT SUPPORTED BY THE LANGUAGE OF THE PROVISION. BOTH IN THE FIRST AS ALSO IN THE SECOND LIMB THE IMPLICATIONS OF THE DETERMINED THE ARMS LENGTH PRICE ARE THE SAME EXCEPT FOR THE MARGINAL BENEFIT ALLOWED TO T HE ASSESSEE UNDER THE SECOND LIMB. HENCE THE SECOND LIMB OF THE PROVISO IS APPLICABLE EVEN TO CASES WHERE THE ASSESSEE INTENDS TO CHALLENGE THE ARMS LENGTH PRICE TAKEN AS ARITHMETIC MEAN AND DETERMINED THROUGH THE MOST APPROPRIATE METHOD. THEREFORE THE BENEFIT OF THE PRICE OF INTERNATIONAL TRANSACTION DISCLOSED BY THEM EXCEEDS THE MARGIN PROVIDED IN THE PROVISION. 8. ALL THE ABOVE MENTIONED JUDICIAL PRONOUNCEMENTS ARE UNIFORM IN MAKING A PROPOSITION THAT WHERE ARITHMETIC MEAN IS INVOLVED THE ASSESSEE OBTAINS THE ELIGIB ILITY FOR CLAIM OF DEDUCTION OUT OF SUCH ARITHMETIC MEAN. IT IS COMMONSENSE THAT THE STATISTICAL CONCEPT OF ARITHMETIC MEAN ARISES ONLY WHEN THERE EXISTS MORE THAN ONE PRICE DATA. SUCH CONCEPT IS IRRELEVANT TO THE DATA WITH ONLY ONE VARIA BLE. IN THE ASSESSEES CASE UNDISPUTEDLY THERE ARE THREE COMPARABLE PRICE DATA AND FURTHER IT IS A FACT THAT AS PER THE SAID FIRST PROVISO THE ASSESSEE EXERCISED THE OPTION TOO. IN SUCH CIRCUMSTANCES IN OUR CONSIDERED OPINION THE SAID FIRST PROVISO HAS DIRECT APPLICATION TO THE FACTS OF THE CASE AND THE ASSESSEE IS ENTITLED FOR DEDUCTION NOT EXCEEDING 5% OUT OF THE ARITHMETIC MEAN . IN THE EARLIER PARAGRAPHS WE HAVE EXPLAINED THE MEANING OF THE FIRST PROVISO AS THE ONE COMPARABLE PRICE VIS A VIS MAN Y COMPARABLE PRICES FOR THE PURPOSE OF GRANTING DEDUCTION NOT EXCEEDING 5% OUT OF THE ARITHMETIC MEAN OF THE COMPARABLE PRICES THREE IN ASSESSEES CASE. CONSIDERING BOTH LEGAL POSITION AS WELL AS THE TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 7 OF 6 DECIDED DECISION OF VARIOUS TRIBUNALS ON THIS ISSUE W E FIND THE ASSESSEE HAS TO SUCCEED ON THIS ISSUE. THUS THE ASSESSEES CASE STANDS COVERED BY THE RATIO OF VARIOUS DECISION S REFERRED TO ABOVE. CONSEQUENTLY THE IMPUGNED ORDER OF THE CIT(A) IS REQUIRED TO BE REVERSED ON THIS ISSUE RELATING TO THE APPLICAB ILITY OF THE FIRST PROVISO TO THE ASSESSEE. ACCORDINGLY G ROUND NO. 5 IN BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. 9. IN THE RESULT THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED. ITA NO. 148/PN/07 - REVENUES APPEAL 1 0 . GROUNDS RAISED IN THIS APPE AL ARE AS UNDER: - 1. THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF CALCULATING DEDUCTION U/S. 80HHC. 2. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING O FFICER TO INCLUDE INCOME FROM SCRAP SALE DISCOUNT AND COMMISSION INSPECTION AND TESTING CHARGES JOB WORK AND INCOME DERIVED FROM SUPPLIES PAYMENT IN TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. 3. THE LEARNED CIT(A) ERRED IN DIRECTIN G THE AO TO ALLOW THE PROVISION FOR WARRANTY EXPENSES. 4. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE PROVISION FOR WARRANTY WAS IN THE NATURE OF CONTINGENT LIABILITY AND HENCE NOT ALLOWABLE . 5. THE LEARNED CIT(A) ERRED IN ACCEPTING THE ASSESSEES CLAIM THAT PROVISION FOR WARRANTY IS MADE ON SCIENTIFIC BASIS. 6. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE ASSESSEES CLAIM IN RESPECT OF NEW ENGINE PERFORMANCE INSPECTION FEES AND ALLOW THE SAME WITHOUT GI VING A CLEAR FINDING AS THIS TANTAMOUNT TO SETTING ASIDE THE ASSESSMENT ORDER WHICH IS BEYOND HIS POWER. 11 . GROUND NO. 1 RELATES TO EXCLUSION OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF CALCULATING DEDUCTION U /S. 80HHC AND AS AGREED BY BOTH THE PARTIES IN THE DISPUTE THIS ISSUE IS DECIDED BY THE SU PREME COURT IN THE CASE OF LAKSHMI MACHINE WORKS 290 ITR 667 (SC) IN SUPPORT OF SUCH EXCLUSION . C ONSIDERING THE COVERED NATURE OF THE ISSUE AT GROUND 1 RELATING TO EX CLUSION OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURN OVER OF THE ASSESSEE FOR THE PURPOSE OF CALCULATING THE ELIGIBLE DEDUCTION U/S. 80HHC OF THE ACT THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE AS SESSEE. A CCORDINGLY THIS GROUND NO. 1 OF THE REVENUE S APPEAL IS DISMISSED. TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 8 OF 6 12 . REGARDING GROUND NO. 2 IT IS RELATING TO INCLUSION OF INCOME FROM SCRAP SALE DISCOUNT AND COMMISSION INSPECTION AND TESTING CHARGES JOB WORK AND INCOME DERIVED FROM THE SUPPLIERS FOR THE PURPOSE OF 80HHC DEDUCTION SHOULD B E REFERRED TO THE FILES OF THE AO FOR RE - ADJUDICATION AFTER CONSIDERING VARIOUS BINDING JUDGMENTS ON EACH ISSUE. AS SEEN FROM BOTH ORDER OF THE A.O AND OF THE CIT(A) IT IS NOTICED THAT BOTH THE AUTHORITIES HAVE NOT APPLIED THEIR MIND TO EACH OF THE RECEIP TS AND INSTEAD THEY HAVE SUMMARILY ADJUDICATED THE ISSUE WITHOUT PASSING A SPEAKING ORDER. CONSIDERING THIS FACT BOTH THE PARTIES HAVE CONCURRED TO THE PROPOSAL OF SENDING THESE MULTIPLE ISSUE S RAISED IN THIS GROUND TO THE FILES OF THE A.O. WE FIND NO REA SON TO DISHONOUR THEIR REQUEST. ASSESSEE IS DIRECTED TO FILE THE EVIDENCES TO SUPPORT HIS CASE AND ALSO THE COPIES OF THE DECISIONS /JUDGMENTS IF ANY WHICH SHALL BE TAKEN INTO COGNIZANCE BY THE I.T. AUTHORITIES WHILE ADJUDICATING THE ISSUE AFRESH. A.O SHAL L GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE ESTABLISHED PRINCIPLE OF NATURAL JUSTICE. THUS IN THE RESULT GROUND NO. 2 IS SET ASIDE. 13 . GROUND NO. 3 TO 6 RELATES TO THE CORRECTNESS OF THE DIRECTIONS GIVEN BY THE CIT(A) TO THE A.O . DURING THE PROCEEDINGS LD. COUNSEL MENTIONED THAT ASSESSEE GOT RELIEF ON THESE ISSUES RELATING TO PROVISION FOR WARRANTY IN THE ASSESSMENT YEAR EARLIER TO THIS. AFTER CONSIDERING THE FACTS OF THE CASE WE FIND NO MISTAKE IN THE DIRECTIONS GIVEN BY THE CIT(A) TO THE A.O. IN OUR OPINION SUCH DIRECTIONS DO NOT AMOUNT TO ASSUMING OF THE NON - EXISTENT POWERS OF SET ASIDE AS ARGUED BY LD DR FOR THE REVENUE. ACCORDINGLY GROUND S NO3 TO 6 ARE DISMISSED. 14 . IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALL OWED. ITA NO. 1430/PN/07 - REVENUES APPEAL 1 5 . GROUNDS IN THIS APPEAL ARE AS UNDER: - 1. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (APPEAL) ERRED IN DIRECTING THE AO TO INCLUDE BUSINESS INCOME FROM SCRAP SALE DISCOUNT AND COMM ISSION INSPECTION AND TESTING CHARGES JOB WORK AND INCOME DERIVED FROM SUPPLIERS PAYMENT IN THE BUSINESS INCOME WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE IT ACT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO VERIFY THE ASSESSEES CLAIM IN RESPECT OF NEW ENGINE PERFORMANCE INSPECTION FEES AND ALLOW THE TA NO. 277 1412 148 1430 /PN/0 7 A.Y: 2003 - 04 & 2004 - 05 PAGE 9 OF 6 SAME WITHOUT GIVING A CLEAR FINDING AS THIS TANTAMOUNT TO SETTING ASIDE OF THE ASSESSMENT ORDER WHICH IS BEYOND HIS POWERS. 16 . LD. DR MENTIONED THAT T HERE ARE TWO GROUNDS IN THIS APPEAL. GROUND NO.1 IS IDENTICAL TO GROUND NO. 2 OF THE ITA NO. 148/PN/07 ACCORDINGLY THE ISSUE HAS TO BE DECIDED IN LINE WITH THE SAME W HERE WE SET ASIDE THIS ISSUE TO THE FILES OF THE AO FOR WANT OF SPEAKING ORDER AND DECID ING THE ISSUES AFRESH AFTER CONSIDERING THE EXISTING JUDICIAL PRONOUNCEMENTS IN FORCE . ACCORDINGLY GROUND NO. 1 IS ALSO SET ASIDE WITH SIMILAR DIRECTIONS. 1 7 . REGARDING GROUND NO.2 RELATES TO THE CORRECTNESS OF THE DIRECTIONS GIVEN BY THE CIT(A) TO THE A.O. IT IS ARGUED BY THE DR THAT THE SAID DIRECTION WHICH HAS AN EFFECT OF SETTING ASIDE TO THE A.O IS SIDE THE POWERS OF THE CIT(A). DURING THE PROCEEDINGS LD. COUNSEL MENTIONED THAT ASSESSEE GOT RELIEF ON THESE ISSUES RELATING TO PROVISION FOR WARRAN TY IN THE ASSESSMENT YEAR EARLIER TO THIS. AFTER CONSIDERING THE FACTS OF THE CASE WE FIND NO MISTAKE IN THE DIRECTIONS GIVEN BY THE CIT(A) TO THE A.O. IN OUR OPINION SUCH DIRECTIONS DO NOT AMOUNT TO ASSUMING OF THE NON - EXISTENT POWERS OF SET ASIDE AS AR GUED BY LD DR FOR THE REVENUE. ACCORDINGLY GROUND NO. 2 IS DISMISSED. 18 . IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED. 19 . IN THE RESULT ALL THE FOUR APPEALS ARE DECIDED PRO - TANTO . ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF FEBRUARY 2011 . SD/ - SD/ - (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED THE 28 TH FEBRUARY 2011 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSES SEE 2. DCIT CIRCLE 1(1) PUNE / ADDL. RANGE - 1 PUNE 3. C IT(A ) - I PUNE 4. CIT - I PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE