Geodis Overseas (P) Ltd., Gurgaon v. DCIT, New Delhi

ITA 4243/DEL/2010 | 2006-2007
Pronouncement Date: 11-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 424320114 RSA 2010
Assessee PAN AAACC6168L
Bench Delhi
Appeal Number ITA 4243/DEL/2010
Duration Of Justice 5 month(s) 27 day(s)
Appellant Geodis Overseas (P) Ltd., Gurgaon
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 11-03-2011
Date Of Final Hearing 21-02-2011
Next Hearing Date 21-02-2011
Assessment Year 2006-2007
Appeal Filed On 14-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL JUDICIAL MEMBER ITA NO.4243/DEL/2010 ASSESSMENT YEAR : 2006-07 GEODIS OVERSEAS (P) LTD. DLF BUILDING NO.8 TOWER-A 5 TH FLOOR DLF CITY PHASE II SECTOR 25 GURGAON. PAN : AAACC6168L VS. DCIT CIRCLE 12 (1) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MUKESH BUTANI SHRI AMIT AGARWAL & SHRI DEEP RAJ REVENUE BY : SHRI NARESH K. CHAND SR. DR & SHRI A.D. MEHROTRA CIT/DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE UNDER THE PROVISI ONS OF SECTION 253 (1) (D) OF THE IT ACT 1961 AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER DATED 29 TH JULY 2010 U/S 143 (3) READ WITH SECTION 144C OF THE INCOME-TAX ACT 1961 (THE ACT). THE MA IN ADDITION AGITATED IN THE PRESENT APPEAL IS AN AMOUNT OF `6 97 92 811/- ON ACCOUNT OF VARIATION IN INCOME AS A CONSEQUENCE OF OR DER OF TRANSFER PRICING OFFICER (TPO) U/S 92C (3) OF THE ACT. THE O THER DISALLOWANCES WERE MADE REGARDING (I) DISALLOWANCE OF CLAIM OF SET OFF OF LOSS OF ` 38 89 499; AND (II) ` 16 057/- ON ACCOUNT OF EXCESS C LAIM OF DEPRECIATION I.E. THE DEPRECIATION CLAIMED ON COMP UTER PERIPHERALS ITA NO.4243/DEL/2010 2 AND PRINTERS AND UPS @ 60% AS ACCORDING TO THE ASSESSIN G OFFICER THE SAME WAS ALLOWABLE AT 15% ONLY. THE GROUNDS OF AP PEAL READ AS UNDER:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE GEOD IS OVERSEAS PRIVATE LIMITED (HEREINAFTER REFERRED TO AS TH E APPELLANT) RESPECTFULLY SUBMITS WITH RESPECT OF THE ORD ER PASSED BY THE LD. DCIT CIRCLE 12(1) NEW DELHI (AO) U/S 143(3)/144C OF THE INCOME TAX ACT 1961 (HEREINAFTER R EFERRED TO AS THE ACT) APPEAL ON THE FOLLOWING GROUNDS: 1. THE LD. ASSESSING OFFICER (AO) BASED ON THE DIRE CTIONS RECEIVED FROM LD. DISPUTE RESOLUTION PANEL (DRP) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADJUSTMENT IN ITS ENTI RETY TO THE TRANSFER PRICE MADE BY THE LD. TRANSFER PRICING OF FICER (TPO). 2. THE LD. AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS BY MAKING AN ADJUSTMENT OF RS. 69 792 811 TO THE INCOME OF THE APPELLANT AND IN HOLDING THAT THE TRANSACTIONS BETWEEN THE APPELLANT AND ITS ASSOCIATED ENTERPRISE WERE NOT AT AN AR MS LENGTH PRICE. 3. THAT THE LD. DRP HAS ERRED IN OVERLOOKING THE SUBMI SSIONS MADE BY THE APPELLANT TO THE DRP THUS NOT PROVIDING AN EQUAL OPPORTUNITY OF BEING HEARD TO THE APPELLANT. THE LD. DR P HAS CONSEQUENTLY ERRED IN IGNORING THE ARGUMENT OF THE APPE LLANT THAT SINCE ONLY A SMALL PART OF ACTIVITY UNDERTAKEN BY THE APPELLANT CONSTITUTED RELATED PARTY TRANSACTION APPLICATIO N OF TRANSACTION NET MARGIN METHOD ON ANY ENTITY WIDE BASIS WAS INCORRECT. 4. THE LD. AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS BY NOT APPRECIATING THAT THE APPELLANT IS OPERATING AT 63% OF ITS CAPACITY AND THERE ARE SIGNIFICANT AMOUNT OF IDLE CAPAC ITY COSTS ABSORBED BY APPELLANT DURING THE SUBJECT ASSESSMENT YEA R. 5. THE LD. AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS BY NOT ALLOWING THE WORKING CAPITAL ADJUSTMENTS MADE BY THE APP ELLANT FOR DEMONSTRATING THE ARMS LENGTH NATURE OF THE INTERNATIO NAL TRANSACTIONS. 6. THE LD. AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS BY NOT ALLOWING THE FIXED ASSETS ADJUSTMENTS MADE BY THE APPELL ANT FOR DEMONSTRATING THE ARMS LENGTH NATURE OF THE INTERNATIONAL TRANSACTIONS. 7. THE LD. AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS BY NOT APPRECIATING THAT LOSS INCURRED BY THE APPELLANT DURING THE SUBJECT ASSESSMENT YEAR WAS NOT ON ACCOUNT OF INTERNATION AL ITA NO.4243/DEL/2010 3 TRANSACTIONS BUT DUE TO VARIOUS EXTERNAL AND INTERNAL ECONOMIC/COMMERCIAL FACTORS. 8. THE LD. AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS BY IGNORING THE PROVISIONS OF RULE 10B(4) OF THE RULES WHICH ENVISAGE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE CO MPANIES FOR THE PURPOSE OF DETERMINATION OF THE ARMS LENGTH PRI CE AS DEFINED U/S 92F OF THE ACT. 9. THE LD. AO/DRP/TPO HAS ERRED BY NOT ALLOWING THE A PPELLANT THE BENEFIT OF 5% RANGE AS PROVIDED BY THE PROVISO OF SEC. 92C(2) OF THE ACT. 10. THE LD. AO/DRP/TPO HAS ERRED IN LAW AND ON FACTS IN MAKING SEVERAL OBSERVATIONS AND FINDINGS WHICH ARE B ASED ON INCORRECT INTERPRETATION OF LAW AND WITHOUT APPRECIATING A ND UNDERSTANDING THE INTRICACIES AND CRITICALITIES OF THE FA CTS OF THE CASE. 11. THE LD. TPO HAS ERRED IN LAW IN NOT PROVIDING AD EQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLANT WHILE ADJUDI CATING ON THE TRANSFER PRICING ISSUES AND HAS CONSEQUENTLY N OT FOLLOWED THE PRINCIPAL OF NATURAL JUSTICE. 12. THE LD. AO HAS ERRED IN LAW AND IN FACTS IN MAKI NG AN ADDITION OF RS. 16 057 TO THE INCOME OF THE APPELLANT ON ACCOUNT OF EXCESSIVE DEPRECIATION ON COMPUTER PERIPHERALS PR INTERS AND UPS. 13. THE LD. DRP HAS ERRED IN NOT ADJUDICATING IN ITS D IRECTIONS ON THE ISSUE OF ALLOWANCE OF DEPRECIATION ON COMPUTER PER IPHERALS PRINTERS AND UPS. 14. THE LD. AO HAS ERRED IN LAW IN THE ADJUSTMENT ON A CCOUNT OF DEPRECIATION WITHOUT PROVIDING AN OPPORTUNITY OF BEING H EARD TO THE APPELLANT. NO DISCUSSION WAS UNDERTAKEN WITH THE AP PELLANT WITH RESPECT TO THIS ADJUSTMENT DURING THE COURSE OF ASSES SMENT PROCEEDINGS. 15. THE LD. COLLEGIUM OF COMMISSIONERS COMPRISING THE DRP ERRED IN LAW AND ON FACTS BY NOT ADHERING TO THE PRINC IPLES OF NATURAL JUSTICE BY SUMMARILY REJECTING THE APPELLANTS O BJECTIONS AND DISREGARDING THE MATERIAL PLACED ON RECORDS. THA T THE PROCEDURE LAID DOWN IN SEC. 144C(5) 144C(6) AND 14 4C(7) HAS NOT BEEN FOLLOWED. 16. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN IN ITIATING PENALTY PROCEEDINGS WITH RESPECT TO TRANSFER PRICING AD DITIONS CLAIM OF BROUGHT FORWARD LOSS AND EXCESS DEPRECIATION . ITA NO.4243/DEL/2010 4 17. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN CH ARGING INTEREST U/S 234B AND 234D OF THE ACT. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDIC E TO EACH OTHER. THE APPELLANT PRAYS FOR LEAVE TO ADD ALTER AMEND ANY /OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 2. THE DRAFT ORDER CAME TO BE PASSED ON 4 TH DECEMBER 2009 WHICH WAS FORWARDED TO THE ASSESSEE. AGAINST THE DRAFT ORDER T HE ASSESSEE OPTED TO REFER THE MATTER TO THE DISPUTE RESOLUTION P ANEL (DRP) WHO VIDE ITS ORDER DATED 27 TH MAY 2010 AFTER REPRODUCING THE 13 GROUNDS OF OBJECTIONS RAISED BY THE ASSESSEE AGAINST THE TRANSFER P RICING ADJUSTMENT HAS CONCLUDED THE MATTER AGAINST THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS:- ASSESSEE WAS HEARD AT LENGTH. ASSESSEE COMPANY IN I TS TP REPORT RESORTED TO IN NOVEL CALCULATION OF OPERATING INC OME. THE SALES OF RS.981 102 417 WAS INCREASED TO RS.1 542 95 1 945.63. ASSESSEE HAS RESORTED TO THIS CALCULATION ASSESSEE COM PANY HAS ARRIVED AT NPM 4.95% ON THIS PROJECTED SALES FIGURES. ACTUAL NPM IS 0.34% TPO RIGHTLY REJECTED THE NOTIONAL SALE. SH. MANISH KHURANA ARGUED THAT THE COMPARABLE COMPANIE S WHICH HAVE BEEN REJECTED ON THE GROUND OF FAR ANALYS IS AND NEGATIVE NET WORTH ARE NOT APPROPRIATE. HE HAS SUGGESTED THAT SOME MORE DATA AND DETAILS ARE AVAILABLE ABOUT COMPANI ES WHICH HAVE BEEN REJECTED BY TPO. TRANSFER PRICING O FFICER HAS GIVEN DETAILED ARGUMENTS IN PARA 8.3.10 OF THE ORDER. HE HAS ALSO RELIED ON CIT V/S PHILIPS SOFTWARE PVT. LTD. [200 9-TIOL-324- KAR-IT-HQ. ASSESSEE HAS FILED A DETAILED CALCULATION ON PAGE 90 OF HIS PAPER BOOK IN WHICH AN ADJUSTMENT NPM 4.59% HA S BEEN CALCULATED. ASSESSEES SUBMISSION HAVE BEEN ANALYSE D. IN VIEW OF THE WRONG PROJECTED SALES FIGURES (NOTIONAL) AND VE RY LOW NPM SHOWN BY ASSESSEE THE APPROACH OF TPO IS HELD TO BE CORRECT. NO INTERFERENCE IS CALLED FOR. THE LAST GROUND OF APPEAL IS PREMATURE. 3. THE ASSESSEE IS AGGRIEVED HENCE HAS RAISED THE ABOVE G ROUNDS OF APPEAL AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R IN ITA NO.4243/DEL/2010 5 PURSUANCE OF THE ORDER PASSED BY THE DRP. THE GROUNDS OF APPEAL WERE SUMMARISED BY THE BY THE LEARNED AR AS UNDER:- 3.1 GROUND NOS.1 AND 2 WERE STATED TO BE GENERAL IN N ATURE. 3.2 GROUND NO.2 AS DID NOT REPRESENT THE ACTUAL GRIE VANCE OF THE ASSESSEE WAS REVISED AND READ AS UNDER:- 2. THE LEARNED A.O/DRP/TPO HAS ERRED IN LAW AND O N FACTS BY MAKING AN ADJUSTMENT OF RS.69 792 811 TO THE INCOME OF THE APPELLANT AND IN HOLDING THAT THE TRANSACTIONS BETWEEN THE APPELLANT AND ITS ASSOCIATE ENTERPRISE WERE NOT AT AN ARM S LENGTH PRICE. 3.3 GROUND NO.4 5 AND 6 REPRESENT THE GRIEVANCE OF THE ASSESSEE REGARDING ADJUSTMENT CLAIMED IN RESPECT OF INTERNATIO NAL TRANSACTION ON ACCOUNT OF CAPACITY UTILIZATION FIXED ASSETS AND WORK ING CAPITAL ADJUSTMENT. 3.4 GROUND NO.7 AND 10 REPRESENT THE GRIEVANCES OF TH E ASSESSEE REGARDING NON-APPRECIATION OF BUSINESS MODALITIES OF IT S BUSINESS BY THE TPO/DRP AS A RESULT OF WHICH PROPER ADJUSTMENT HAS NOT BEEN GRANTED. 3.5 GROUND NO.8 IS REGARDING USER OF MULTIPLE YEAR DA TA OF COMPARABLES TO ARRIVE AT MEAN MARGIN OF COMPARABLES. 3.6 GROUND NO.9 IS REGARDING GRANT OF BENEFIT OF 5% RANGE. 3.7 GROUND NO.11 EXPRESS THE GRIEVANCE REGARDING NON- GRANT OF ADEQUATE OPPORTUNITY BY THE TPO. 3.8 GROUND NO.12 13 AND 14 ARE AGAINST DISALLOWANCE OF DEPRECIATION AMOUNTING TO ` 16 057/- ITA NO.4243/DEL/2010 6 3.9 GROUND NO.15 REPRESENT THE GRIEVANCE OF THE ASSESSEE AGAINST VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BY DRP. 3.10 GROUND NO.16 ASSAILS THE INITIATION OF PENALTY P ROCEEDINGS. 3.11. GROUND NO.17 ASSAILS CHARGING OF INTEREST U/S 234B AND 234D. 4. THE ASSESSEE IS A DOMESTIC COMPANY HAVING 94.03% EQUIT Y HOLDING WITH GEODIS ASIA AND 5.97% EQUITY HOLDING WIT H INDEV SHIPPING SERVICES. THE ASSESSEE IS PRIMARILY ENGAGED IN THE BUSINESS OF TRANSPORTATION OF TIME SENSITIVE PACKAGES DOCUMENTS AND CARGO TO DOMESTIC AND INTERNATIONAL SECTOR. IT ALSO OFFERS A RA NGE OF FREIGHT FORWARDING CONSOLIDATION AND BULK SERVICES. IT ALSO M ONITORS ALL CARGO SHIPMENTS THROUGH ITS TRACKING AND TRACING COMPUTER ON LINE SYSTEM. DURING THE YEAR THE ASSESSEE HAS UNDERTAKEN THE FOLLOWIN G INTERNATIONAL TRANSACTIONS:- S.NO. S.NO. S.NO. S.NO. DESCRIPTION OF TRANSACTION DESCRIPTION OF TRANSACTION DESCRIPTION OF TRANSACTION DESCRIPTION OF TRANSACTION METHOD METHOD METHOD METHOD VALUE VALUE VALUE VALUE (IN RS.) (IN RS.) (IN RS.) (IN RS.) 1. FREIGHT CHARGES TNMM 389 69 295 2. REIMBURSEMENT OF EXPENSES - 29 902 696 3. RECOVERY OF EXPENSES - 373 625 5. IN THE TP REPORT THE ASSESSEE HAS TREATED ITSELF AS TE STED PARTY. IT HAS USED TRANSACTIONAL NET MARGIN METHOD (TNMM). T HE NET PROFIT MARGIN HAS BEEN COMPUTED AT 4.95% AGAINST ACTUAL NET PROFIT SHOWN IN THE BOOKS OF ACCOUNT AT 0.34%. FOR COMPUTING NET PR OFIT MARGIN OF 4.95% THE ASSESSEE HAS ADOPTED ADJUSTED FIGURES WHICH DO NOT MATCH THE FIGURE SHOWN IN THE BOOKS OF ACCOUNT. FOR BETTER APPRECIATION REFERENCE CAN BE MADE TO THE FOLLOWING TWO TABLES WH ICH SHOW THE CALCULATION OF NET PROFIT MARGIN AT 4.95% (TABLE A) AND NET PROFIT MARGIN OF 0.34% AS PER BOOKS OF ACCOUNT (TABLE B):- ITA NO.4243/DEL/2010 7 TABLE A (AFTER ADJUSTMENT OF CAPACITY UTILIZATION) TABLE A (AFTER ADJUSTMENT OF CAPACITY UTILIZATION) TABLE A (AFTER ADJUSTMENT OF CAPACITY UTILIZATION) TABLE A (AFTER ADJUSTMENT OF CAPACITY UTILIZATION) PARTICULARS AMOUNT (IN RS.) OPERATING INCOME SALES 1 542 951 945.63 EXCHANGE GAIN 677 296.00 TOTAL 1 545 785 430.63 LESS: FREIGHT & OTHER OPERATIONAL EXPENSES 1 344 949 070.77 GROSS PROFIT 200 836 359.86 OPERATIONAL EXPENSES EMPLOYEE COSTS 52 326 690.00 ADMINISTRATIVE EXPENSES 39 642 651.00 BUSINESS PROMOTION EXPENSES 29 709 060.00 DEPRECIATION 2 589 758.00 TOTAL 1 24 268 159.00 NET OPERATING PROFIT 76 568 200.86 NPM(%) 4.95 TABLE B (AS PER BOOKS OF ACCOUNT) TABLE B (AS PER BOOKS OF ACCOUNT) TABLE B (AS PER BOOKS OF ACCOUNT) TABLE B (AS PER BOOKS OF ACCOUNT) PARTICULARS AMOUNT (RS.) INCOME SALES 971 055 854 OTHER INCOME 10 046 563 TOTAL (A) 981 102 417 EXPENDITURE FREIGHT & OTHER OPERATIONAL EXPENSES 46 447 867 PERSONNEL EXPENSES 52 326 690 OPERATING & OTHER EXPENSES 76 409 408 DEPRECIATION 2 589 758 MISCELLANEOUS EXPENDITURE WRITTEN OFF 8 000 TOTAL (B) 977 774 723 NET PROFIT(C) = (A) (B) 3 327 694 NPM (%) (C)/(A)+100 0.34% 6. OBSERVING THE DIFFERENCE IN FIGURES THE TPO ISSUED THE SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY THE ACT UAL FIGURES SHOULD NOT BE TAKEN AGAINST THE NOTIONAL FIGURES. THE ASSESSEE INTER ALIA SUBMITTED THAT ACCORDING TO THE GUIDELINES OF OE CD CAPACITY UTILISATION ADJUSTMENT WAS REQUIRED TO BE EFFECTED AND THEREFORE THE ASSESSEE HAS COMPUTED ITS NET PROFIT MARGIN IN THE TRANSFE R PRICING STUDY AT 4.95%. CERTAIN OTHER REASONS WERE ALSO GIVEN WHICH HAVE ITA NO.4243/DEL/2010 8 BEEN DEALT WITH IN LENGTH BY THE TPO IN HIS ORDER. THE TPO AFTER ANALYZING THE PROVISIONS THE CONTENTIONS OF THE ASSESSEE AND THE RELEVANT CASE LAW HAS COME TO THE CONCLUSION THAT THE ACTUAL DATA OF THE ASSESSEE WAS TO BE TAKEN INTO CONSIDERATION AND HE RE JECTED THE CLAIM OF THE ASSESSEE THAT THE FIGURES OF SALES ETC. SHOUL D BE TAKEN AFTER THE SO CALLED CAPACITY UTILISATION ADJUSTMENT. 7. SO FAR AS IT RELATES TO THE ISSUE REGARDING TRANSFER PRICING ADJUSTMENT THE ASSESSEE HAD CALCULATED ARITHMETICAL MEA NS ON THE BASIS OF 16 COMPARABLE PARTIES WHICH ARE DESCRIBED AS BE LOW IN THE ORDER OF THE TPO AT PAGE 80 OF THE PAPER BOOK. TABLE C TABLE C TABLE C TABLE C S.NO. S.NO. S.NO. S.NO. NAME OF THE COMPANY NAME OF THE COMPANY NAME OF THE COMPANY NAME OF THE COMPANY NPM (MARCH 2006) NPM (MARCH 2006) NPM (MARCH 2006) NPM (MARCH 2006) 1. A B C INDIA LTD. 6.00 2. BALMER LAWRIE & CO. LTD. 23.52 3. COASTAL ROADWAYS LTD. NA 4. DELHI ASSAM ROADWAYS CORPN. LTD. 3.27 5. ELBEE SERVICES LTD. NA 6. GATI LIMITED 10.05 7. LEE & MUIRHEAD LTD. NA 8. NORTH EASTERN CARRYING CORPN. LTD. NA 9. PATEL ON-BOARD COURIERS LTD. NA 10. PREMIER ROAD CARRIES LTD. 1.44 11. ROADWAYS INDIA LIMITED 0.96 12. S E R INDUSTRIES LIMITED 1.31 13. SICAL LIMITED 13.72 14. SKYPAK SERVICE SPECIALIST LTD. (21.15) 15. SWG SEA LINK LIMITED NA 16. TRANSPORT CORPORATION OF INDIA LTD. 4.46 ARITHMETIC MEAN 4.36 8. THE TPO AFTER DISCUSSING THE VARIOUS SUBMISSIONS OF THE ASSESSEE AND JUDICIAL PRECEDENTS AVAILABLE HAS COME TO T HE CONCLUSION THAT THE COMPARABLES IN RESPECT OF WHOM THE CURRENT Y EAR DATA WAS AVAILABLE COULD ONLY BE CONSIDERED AS COMPARABLE. REF ERRING TO THE AFOREMENTIONED TABLE-C THE TPO HAS FOUND THAT OUT O F THE AFOREMENTIONED 16 PARTIES DATA FOR 6 COMPARABLES WAS NOT AVAILABLE ITA NO.4243/DEL/2010 9 FOR THE FINANCIAL YEAR 2005-06. THE TPO ALSO REJECT ED THE TWO COMPARABLES NAMELY SKYPAK SERVICE SPECIALIST LTD. AND TRANSPORT CORPORATION OF INDIA LTD. ON THE GROUND THAT THOSE T WO CONCERNS WERE NOT COMPARABLE AS THEY WERE HAVING NEGATIVE NET WORT H. HE HAS TAKEN INTO CONSIDERATION THE FOLLOWING 8 PARTIES TO ARRIVE AT AN ARITHMETICAL MEAN OF 7.53%:- TABLE D TABLE D TABLE D TABLE D S.NO. NAME OF THE COMPANY NPM (MARCH 2006) 1. ABC INDIA LTD. 6.00 2. BALMER LAWRIE & CO. LTD. 23.52 3. DELHI ASSAM ROADWAYS CORPN. LTD. 3.27 4. GATI LIMITED 10.05 5. PREMIER ROAD CARRIES LTD. 1.44 6. ROADWAYS INDIA LTD. 0.96 7. SER INDUSTRIES LTD. 1.31 8. SICAL LTD. 13.72 ARITHMETIC MEAN 7.53% 9. SO AS IT RELATES TO THE CLAIM OF THE ASSESSEE REGARDING ADJUSTMENT ON ACCOUNT OF CAPACITY UTILIZATION WORKI NG CAPITAL AND FIXED ASSET LEARNED TPO HAS OBSERVED THAT IT WAS FOR THE ASSESSEE TO FURNISH THE REQUISITE INFORMATION ON THE BASIS OF WHICH SUCH AD JUSTMENTS WERE CLAIMED AND IN THE ABSENCE OF SUCH DETAILS THE ADJUSTM ENT COULD NOT BE PROVIDED TO THE ASSESSEE. IN THIS MANNER HE HAS REJE CTED THE SAID CLAIM OF THE ASSESSEE AND HAS COMPUTED THE ARMS LENGTH P RICE BY TAKING NET PROFIT MARGIN RATIO AT 7.53%. THE OPERA TIONAL INCOME OF THE ASSESSEE HAS BEEN TAKEN AS PER FIGURE IN THE BOOKS OF ACCO UNT WHICH IS A SUM OF ` 97 10 55 854/- ON WHICH ARMS LENGTH PROFI T HAS BEEN DETERMINED AT ` 7 31 20 505/-. AFTER REDUCING THE O PERATING PROFIT OF ` 33 27 694/- THEREFROM THE DIFFERENCE HAS BEEN CALCU LATED BY THE TPO AT ` 6 97 92 811/- WHICH HAS BEEN ADDED TO THE INCOM E OF THE ASSESSEE ON ACCOUNT OF DIFFERENCE BETWEEN THE ARMS LENGTH PR OFIT AND THE OPERATING PROFIT OF THE ASSESSEE. HE REJECTED THE CLAI M OF THE ASSESSEE REGARDING 5% ADJUSTMENT ON ACCOUNT OF APPLICATION OF PROVISO TO ITA NO.4243/DEL/2010 10 SECTION 92C (2) AS ACCORDING TO LEARNED TPO THE DI FFERENCE IN THE ARMS LENGTH PRICE IS MORE THAN 5%. IN THIS MANNER T HE TPO HAS ARRIVED AT A CONCLUSION THAT INTERNATIONAL TRANSACTIO N OF THE ASSESSEE IS TO BE ADJUSTED BY A SUM OF ` 6 97 92 811/-. ACCORDIN GLY THE SAID ADDITION WAS MADE BY THE ASSESSING OFFICER AND HAS BEEN U PHELD BY THE DRP AS PER ORDER REPRODUCED IN THE ABOVE PART OF THIS ORDER. 10. ON THE BASIS OF ARGUMENTS SUBMITTED BY BOTH THE PAR TIES THE ISSUES ON WHICH WE ARE CALLED UPON TO ADJUDICATE ARE SU MMARIZED AS FOLLOWS:- I) THE DRP HAS REJECTED THE OBJECTIONS OF THE ASSESSEE BY WAY OF A NON-SPEAKING AND CRYPTIC ORDER. UNLESS REASONS ARE GI VEN TO REJECT THE SAME THE ORDER PASSED BY THE DRP IS VIOLATI VE OF PRINCIPLES OF NATURAL JUSTICE. II) THE NET PROFIT MARGIN OF THE ASSESSEE SHOULD BE TAKE N AT 4.95% (AFTER THE ADJUSTMENT OF CAPACITY UTILIZATION) AS AGAINST 0.34% ARRIVED AT IN THE BOOKS OF ACCOUNT AND HENCE TPO AS WELL AS DRP WERE WRONG IN REJECTING THE CLAIM OF THE ASSESSEE REGARDING NET PROFIT MARGIN OF 4.95%. III) THE TOTAL SALES INCLUDING DOMESTIC SALES HAVE BEEN CONSIDERED TO CALCULATE THE DIFFERENCE IN THE ARMS L ENGTH PRICE WHEREAS THE RELATED PARTY INTERNATIONAL TRANSAC TIONS ARE ONLY AT ` 20 39 25 826/- AGAINST TOTAL SALE TURNOVER OF THE ASSESSEE OF ` 97 10 55 854/- WHICH COMES TO ONLY 21% OF THE TOTAL SALES AND SIMILARLY OUT OF TOTAL OPERATING EXPE NSES OF ` 97 77 74 723/- THE RELATED PARTY EXPENSES AND REIMBURSEMENTS ARE ONLY ` 21 56 76 165/- WHICH COMES O UT TO ONLY 22% OF THE OPERATING EXPENSES AND THUS THE DIFF ERENCE HAS WRONGLY BEEN CALCULATED AT ` 6 97 92 811/-. IV) ACCORDING TO OECD GUIDELINES THE DATA REGARDING EARLIER YEARS COULD ALSO BE USED THEREFORE THE TRANSFER PRICING STU DY ITA NO.4243/DEL/2010 11 SUBMITTED BY THE ASSESSEE FOR CALCULATION OF ARMS LENGTH PRICE ON THE BASIS OF AVAILABLE THREE YEARS FINANCIAL DATA SH OULD HAVE BEEN ACCEPTED. V) DRP HAS COMMITTED AN ERROR IN NOT TAKING INTO CON SIDERATION THE CURRENT YEAR DATA OF FOLLOWING TWO PARTIES AS THE SAME WAS AVAILABLE IN THE PROCEEDINGS BEFORE DRP:- A) COASTAL ROADWAYS LTD. NET PROFIT MARGIN 0.73% B) NORTH EASTERN CARRYING CORPORATION LTD. 1.63% VI) THE EXCLUSION OF COMPARABLE NAMELY TRANSPORT CO RPORATION OF INDIA IS NOT PROPER AS ACCORDING TO THE DATA AVAI LABLE IT WAS NOT HAVING A NEGATIVE WORTH. VII) 5% DIFFERENCE IN THE CALCULATION OF ARMS LENGT H PRICE SHOULD BE ALLOWED AS STANDARD DEDUCTION AND SUCH CLAIM HAS WRO NGLY BEEN REJECTED BY TPO AND DRP. VIII) THE ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL CAPACITY UTILIZATION AND FIXED ASSET IS REQUIRED TO BE GIVEN AN D HAS WRONGLY BEEN REJECTED BY THE DRP WITHOUT ASSIGNING AN Y REASON FOR REJECTION OF THE SAME. IX) DEPRECIATION @ 60% WAS REQUIRED TO BE GIVEN FOR COMPUTER PERIPHERALS. X) THE INITIATION OF PENALTY PROCEEDINGS IS WRONG. XI) THE CHARGING OF INTEREST U/S 234B AND 234D IS WRON G. REGARDING REJECTION OF OBJECTIONS BY DRP BY WAY OF NON REGARDING REJECTION OF OBJECTIONS BY DRP BY WAY OF NON REGARDING REJECTION OF OBJECTIONS BY DRP BY WAY OF NON REGARDING REJECTION OF OBJECTIONS BY DRP BY WAY OF NON- -- -SPEAKING ORDER. SPEAKING ORDER. SPEAKING ORDER. SPEAKING ORDER. 11. THE DRP HAS VAST POWERS TO EXAMINE THE MATTER PLAC ED BEFORE IT AND SUCH POSITION OF LAW HAS BEEN DESCRIBED IN THE PROC ESS LAID OUT IN SECTION 144C. UNDER SUB-SECTION (1) OF SECTION 144C THE ASSESSING OFFICER IS UNDER AN OBLIGATION TO FORWARD A DRAFT OF THE PROPOSED ORDER OF ASSESSMENT TO THE ASSESSEE IF HE PROPOSES TO MAKE ON OR A FTER THE FIRST DAY OF OCTOBER 2009 ANY VARIATION IN THE INC OME OR LOSS RETURNED WHICH IS PREJUDICIAL TO THE INTEREST OF SUCH ASSESSEE. UN DER SUB-SECTION ITA NO.4243/DEL/2010 12 (2) OF SECTION 144 THE ASSESSEE WITHIN 30 DAYS OF THE R ECEIPT OF SUCH DRAFT ORDER CAN ACCEPT THE VARIATION MADE BY THE ASSE SSING OFFICER OR HE CAN FILE OBJECTIONS EITHER TO DISPUTE RESOLUTION PA NEL OR TO THE ASSESSING OFFICER. SINCE THE ASSESSEE HAD FILED HIS OBJECTI ONS WITH DRP THEN UNDER SUB-SECTION (5) THE DRP UPON RECEIP T OF OBJECTION IS UNDER OBLIGATION TO ISSUE DIRECTIONS AS IT THINKS FIT FO R THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASSESSM ENT AND UNDER SUB-SECTION (6) SUCH DIRECTIONS WHICH ARE PUT UP UNDER SUB- SECTION (5) WOULD BE FURTHER CONSIDERING THE FOLLOWIN G DOCUMENTS: (A) DRAFT ORDER; (B) THE OBJECTION FILED BY THE ASSESSEE; ( C) THE EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT IF ANY OF THE ASSE SSING OFFICER VALUATION OFFICER OR TPO OR ANY OTHER AUTHORITY; ( E) RECORDS RELATING TO THE DRAFT ORDER; (F) EVIDENCE COLLECTED BY OR CAUSE D TO BE COLLETED BY IT; AND (G) RESULT OF ANY INQUIRY MADE BY OR CAUSED TO BE MADE BY IT. UNDER SUB-SECTION (7) DRP IS ALSO AUTHORIZED BEFORE ISSU ING OF DIRECTION UNDER SUB-SECTION (5) TO MAKE SUCH FURTHER I NQUIRY AS IT THINK FIT OR CAUSE ANY FURTHER INQUIRY TO BE MADE BY ANY I NCOME-TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. UNDER SUB-SEC TION (8) THE DRP HAS POWER TO CONFIRM REDUCE OR ENHANCE THE VARIATIO NS PROPOSED IN THE DRAFT ORDER SO HOWEVER THAT IT SHALL NOT SET ASID E ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FOR FURTHER INQUIRY AND PASSING OF THE ASSESSMENT ORDER. UNDER SUB-SECTION (11 ) NO DIRECTION U/S SUB-SECTION (5) SHALL BE ISSUED UNLESS AN OPP ORTUNITY OF BEING HEARD IS GIVEN TO THE ASSESSEE AND THE ASSESSING OFFIC ER ON SUCH DIRECTIONS WHICH ARE PREJUDICIAL TO THE INTEREST OF T HE ASSESSEE OR THE INTEREST OF THE REVENUE RESPECTIVELY. UNDER SUB-SECTI ON (12) DIRECTIONS UNDER SUB-SECTION (5) CANNOT BE PASSED AFTER NINE MONTH S FROM THE END OF THE MONTH IN WHICH DRAFT ORDER IS FORWARDED T O THE ELIGIBLE ASSESSEE. UNDER SUB-SECTION (13) ON RECEIPT OF DIRECTIO NS ISSUED UNDER SUB-SECTION (5) THE ASSESSING OFFICER HAS TO PASS THE ASSESSMEN T ORDER IN CONFORMITY WITH THE DIRECTIONS WITHOUT PROVIDING ANY FURTHER ITA NO.4243/DEL/2010 13 OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WITHIN ONE M ONTH FROM THE END OF THE MONTH IN WHICH SUCH DIRECTIONS ARE RECEIVE D. 12. IN VIEW OF AFOREMENTIONED STATUTORY PROVISIONS THE RE CANNOT BE ANY DISPUTE TO THE PROPOSITION THAT WHERE THE ORDER O F THE DRP IS A NON-SPEAKING ORDER THE SAME CANNOT WITHSTAND THE TEST OF LAW AND THIS ISSUE HAS ALSO BEEN SET AT REST BY THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF VODAFONE ESSAR LTD. VS. DISPUTE RESOLUTION PANEL-II IN WRIT PETITION (CIVIL) NO.7028/2010. THE DECISION IN THE SAID CASE READS AS UNDER:- JUDGEMENT JUDGEMENT JUDGEMENT JUDGEMENT HEARD MR. SYALI LD. SR. COUNSEL FOR THE PETITIONER AN D MR. SANJEEV SABHARWAL LD. STANDING COUNSEL FOR THE REVENUE. BY THIS WRIT PETITION THE PETITIONER HAS PRAYED FOR ISSUE OF A WRIT OF CERTIORARI FOR QUASHMENT OF THE ORDER DATED 30 TH SEPTEMBER 2010 PASSED BY THE DISPUTE RESOLUTION PANEL-II THE FIR ST RESPONDENT HEREIN. WHAT COULD HAVE BEEN A MATTER OF DE BATE WAS PUT TO REST BY MR. SANJEEV SABHARWAL LD. COUNSEL FOR THE REVENUE BY STATING THAT THE ORDER PASSED ON 30 TH SEPTEMBER 2010 CONTAINED IN ANNEXURE-P1 DESERVES TO BE QUASHE D AND THE MATTER BE REMANDED TO THE SAID AUTHORITY FOR FRESH ADJUDI CATION. IN VIEW OF THE AFORESAID FAIR CONCESSION THE ORDER D ATED 30 TH SEPTEMBER 2010 PASSED BY THE RESPONDENT NO. 1 IS QUAS HED AND THE MATER IS REMANDED TO THE SAID RESPONDENT TO ADJUDICATE AFRESH. BE IT NOTED WHEN A QUASI JUDICIAL AUTHORITY D EALS WITH A LIST IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND G ERMANE REASONS AS THE SAME IS THE HEARD AND SOUL OF THE MATTER AND FURTHER THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BEFORE THE SUPERIOR FORUM. NEEDLE S TO SAY THAT THE COMPETENT AUTHORITY WHILE PASSING THE ORDER SHALL K EEP IN MIND THE ORDER DATED 29 TH NOVEMBER 2010 WHEREIN WE HAD DIRECTED THAT THE PERIOD FROM THE DATE OF FILING THE WRITE PETITION AND FOUR WEEKS AFTER ITS DISPOSAL SHALL STAND EXCLUDED WHILE COMPUTING THE LIMITATION FOR THE DEPARTMENT TO PASS AN ASSESSMENT ORDER. THE WRIT PETITION IS ALLOWED TO THE EXTENT INDICATED ABOVE WITHOUT ANY ORDER AS TO COSTS. ORDER DASTI UNDER THE SIGNATURES OF THE COURT MASTER. [WPO (C) 7028/2010] ITA NO.4243/DEL/2010 14 13. THE ORDER PASSED BY THE DRP HAS ALREADY BEEN REPRO DUCED IN THE ABOVE PART OF THIS ORDER. IT IS OBSERVED THAT THE REJ ECTION OF OBJECTIONS RAISED BY THE ASSESSEE LACK OF REASONS. SO PRINCIPALLY THE ARGUMENT OF THE LD. AR HAS TO BE ACCEPTED THAT THE LACK OF RE ASONS WILL VITIATE THE ORDER PASSED BY THE DRP AND MATTER WILL BE REQUIRED T O BE RESTORED BACK TO THE FILE OF DRP WITH A DIRECTION TO RE-ADJU DICATE THE OBJECTIONS BY WAY OF A SPEAKING ORDER. HOWEVER TO AVOID MULTI PLICITY OF THE PROCEEDINGS TO SOME EXTENT THE MAIN GRIEVANCES OF THE ASSESSEE AS ENUNCIATED ABOVE IN PARA 11 ARE BEING DEALT HEREUND ER. WHETHER ADJUSTED BOOK PROFIT OR PROFIT AS PER BOOKS OF ACCOUNT SHOULD BE WHETHER ADJUSTED BOOK PROFIT OR PROFIT AS PER BOOKS OF ACCOUNT SHOULD BE WHETHER ADJUSTED BOOK PROFIT OR PROFIT AS PER BOOKS OF ACCOUNT SHOULD BE WHETHER ADJUSTED BOOK PROFIT OR PROFIT AS PER BOOKS OF ACCOUNT SHOULD BE CONSIDERED FOR COMPUTING NET PROFIT MARGIN OF THE A S CONSIDERED FOR COMPUTING NET PROFIT MARGIN OF THE A S CONSIDERED FOR COMPUTING NET PROFIT MARGIN OF THE A S CONSIDERED FOR COMPUTING NET PROFIT MARGIN OF THE A SSESSEE. SESSEE. SESSEE. SESSEE. 14. WE HAVE GONE THROUGH THE TRANSFER PRICING REPORT FILED BY THE ASSESSEE AND A COPY OF SUCH REPORT IS FILED AT PAGES 202-3 10 OF THE PAPER BOOK. THERE IS NO DISCUSSION IN THE REPORT WITH REGARD TO CALCULATION OF NET PROFIT MARGIN OF 4.95%. NO BASIS HAS BEEN GIVEN UPON WHICH THE TOTAL RECEIPTS OF THE ASSESSEE HAVE BEEN WORKED OUT AT ` 154 57 85 430/- AGAINST THE ACTUAL FIGURE IN THE B OOKS OF ACCOUNT OF ` 98 11 02 417/-. SIMILAR IS THE CASE FOR OPERATIONAL EXPENSES WHICH ARE STATED IN THE TRANSFER PRICING REPORT AT ` 134 49 49 070/- AGAINST BOOK FIGURE OF ` 97 77 74 723/-. TO SUPPORT SUCH CALCULAT ION THE ASSESSEE HAS ASSUMED THAT ITS RECOVERY OF COST IS AT A LOWER RATE 55% AS COMPARED TO COST INCURRED AT 100% AND IN THIS MANNER CAPACITY UTILIZATION HAS BEEN TAKEN BY THE ASSESSEE @ 55%. AN ASSUM PTION HAS BEEN MADE THAT 100% CAPACITY UTILIZATION IS ACHIEVED AND ON THAT BASIS THE RECEIPTS ARE NOTIONALLY TAKEN. LEARNED TPO HAS T URNED DOWN SUCH PLEAS FOR THE FOLLOWING REASONS:- (A) IT IS EVIDENT FROM AUDITED FINANCIAL THAT DURING YEA R THE ASSESSEE HAS EARNED FREIGHT AND OTHER OPERATIONAL INCOME AT RS. 9 71 055 854/- WHEREAS COST OF FREIGHT AND OTHER OPERATIONAL EXPENSE W AS AT RS. 8 45 442 807/-. THIS DATA CLEARLY PROVE THAT ASSUMPTIO N OF RETURN RATE OF 55% ON THE COST INCURRED IS FACTUALLY INCORRECT. ITA NO.4243/DEL/2010 15 (B) THE ASSESSEE HAS NOTED LOWER RETURN RATE OF 55% AT FOOTNOTE OF PAGE 8 OF REPLY DATED 19.2.09 HOWEVER BASIS OF COMPUTING R ETURN RATE OF 55% IS NOT DISCLOSED. THIS CLEARLY PROVES THAT THE ASSUMPTI ON IS NOT BASED ON CREDIBLE BASIS. (C) IN THE ANNUAL AUDITED REPORT NO DATA OF CAPACITY UTIL IZATION IS MENTIONED. (D) UNDER THE EXISTING TRANSFER PRICING REGULATION DISC LOSED NET OPERATING MARGIN OR LOSS GETS BENCHMARKED UNDER TNMM. HOWEVER IN THIS CASE THE ASSESSEE HAS COMPUTED HYPOTHETICAL NET OPERATIN G MARGIN ON THE BASIS OF HYPOTHETICAL SALE I.E. AS AGAINST DISC LOSED SALE OF RS. 97.10 CRORE IN AUDITED FINANCIALS THE ASSESSEE HAD A SSUMED SALE OF RS. 154.57 CRORE IN ORDER TO COMPUTED NET OPERATING MAR GIN. 15. THE ASSESSEE HAS SUPPORTED THIS ISSUE ON THE BASIS OF SUBMISSIONS MADE BY IT BEFORE THE TPO AND HAS JUSTIFIED I TS MOVE TO CLAIM THE NET PROFIT MARGIN AT 4.95% ON THE BASIS OF AFOREMENTIONED ASSUMED FULL CAPACITY UTILIZATION. 16. AS AGAINST THAT APART FROM RELYING ON THE REASONI NG RECORDED BY THE TPO FOR REJECTION OF SUCH CLAIM OF THE ASSESSEE LEA RNED DR HAS DRAWN OUR ATTENTION TOWARDS THE PROVISIONS OF RULE 10B (1)(E)(I) WHICH READ AS UNDER:- 10B(1)(E) TRANSACTIONAL NET MARGIN METHOD BY WHICH - (I) THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FR OM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE EN TERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; 17. EMPHASIZING ON THE EXPRESSION NET PROFIT MARGIN R EALIZED IT HAS BEEN THE CONTENTION OF LEARNED DR THAT THE WORD USED IS REALIZED WHICH MEANS THE NET PROFIT MARGIN ACTUALLY REALIZED AND ACTUAL COST INCURRED AND SALE EFFECTED. THUS HE PLEADED THAT T HERE IS NO ROOM FOR ANY ASSUMPTION WHILE TAKING THE PROFIT MARGIN WHICH H AS BEEN REALIZED IN A METHOD WHICH IS CALLED TRANSACTIONAL NET MARGIN METHOD (TNMM) WHICH IS A METHOD ADOPTED BY THE ASSESSEE AND APPLIED BY THE TPO. THEREFORE HE SUBMITTED THAT THE CLAIM OF THE ASSESSEE I N THIS REGARD ITA NO.4243/DEL/2010 16 HAS RIGHTLY BEEN REJECTED AND THE ORDER OF THE TPO I N THIS REGARD SHOULD BE UPHELD. 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS O F THE PARTIES ON THIS ISSUE. THE OBSERVATIONS OF THE DRP HAVE ALREADY BEEN REPRODUCED. IT HAS CLEARLY BEEN DESCRIBED THAT SALES H AVE BEEN TAKEN BY THE ASSESSEE AT A HIGHER FIGURE WHICH IS NOT PERMISSIBL E TO BE TAKEN. MOREOVER THE NET PROFIT MARGIN IS THE ACTUAL MARGIN IN THE CASE OF THE TESTED PARTY WHICH IN THE PRESENT CASE IS THE ASSESSEE I TSELF. IT IS VERY DIFFICULT TO ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE THAT ON THE BASIS OF ASSUMPTION THAT THE ASSESSEE HAS ATTAINED FULL CAPACITY I TS RECEIPTS SHOULD BE PRESUMED AT A FIGURE AND THEN THE NET PRO FIT MARGIN SHOULD BE CALCULATED ACCORDINGLY. IF IT IS SO DONE THEN T HE VERY PURPOSE OF THE STATUTE WILL BE DEFEATED. WHAT HAS TO BE SEEN IN THE PRESENT CASE IS THAT WHETHER THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES ARE AT AN ARMS LENGTH PRICE OR NO T. THEREFORE WE ARE OF THE OPINION THAT SUCH CLAIM OF THE ASSESSEE HA S RIGHTLY BEEN REJECTED. THE PROVISIONS CONTAINED IN THE ACT AND RU LE DO NOT SUPPORT THE ASSUMPTION OF TURNOVER OR OPERATIONAL EXPENSES ON H YPOTHETICAL BASIS IGNORING THE ACTUAL FIGURES. IF IT IS ALLOWED TO BE DONE THEN THERE WILL BE NO END TO THE PROCEEDINGS. IN THIS MANNER W E FIND NO JUSTIFICATION IN INTERFERING WITH THE DECISION OF TPO DRP AND THE ASSESSING OFFICER WHEREBY THE CONTENTION OF THE ASSESSEE WI TH REGARD TO CONSIDERATION OF ITS NET PROFIT MARGIN AT 4.95% HA S BEEN REJECTED. THE NET PROFIT MARGIN OF THE ASSESSEE HAS RIGHTLY BEEN T AKEN AS NET OPERATING PROFIT BASED ON AUDITED FINANCIALS. WHETHER ONLY TURNOVER RELATING TO WHETHER ONLY TURNOVER RELATING TO WHETHER ONLY TURNOVER RELATING TO WHETHER ONLY TURNOVER RELATING TO INTERNATIONAL TRA NSACTIONS WITH INTERNATIONAL TRANSACTIONS WITH INTERNATIONAL TRANSACTIONS WITH INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES IS ONLY TO BE CONSIDERED FOR ARRIVING AT THE ASSOCIATE ENTERPRISES IS ONLY TO BE CONSIDERED FOR ARRIVING AT THE ASSOCIATE ENTERPRISES IS ONLY TO BE CONSIDERED FOR ARRIVING AT THE ASSOCIATE ENTERPRISES IS ONLY TO BE CONSIDERED FOR ARRIVING AT THE DIFFERENCE BETWEEN ARMS LENGTH PRICE TAKEN BY THE ASSESSEE AND DIFFERENCE BETWEEN ARMS LENGTH PRICE TAKEN BY THE ASSESSEE AND DIFFERENCE BETWEEN ARMS LENGTH PRICE TAKEN BY THE ASSESSEE AND DIFFERENCE BETWEEN ARMS LENGTH PRICE TAKEN BY THE ASSESSEE AND COMPUTED BY THE ASSESSING OFFICER. COMPUTED BY THE ASSESSING OFFICER. COMPUTED BY THE ASSESSING OFFICER. COMPUTED BY THE ASSESSING OFFICER. 19. AFTER HEARING BOTH THE PARTIES WE HAVE FOUND TH AT THOUGH THIS ISSUE IS NOT FOUND PLACE IN THE ORDER OF THE TPO BUT THE ASSESSEE WHILE ITA NO.4243/DEL/2010 17 FILING THE OBJECTION BEFORE THE DRP HAS SPECIFICALLY TAKEN SUCH OBJECTION VIDE LETTER DATED 31 ST MAY 2010 A COPY OF WHICH IS PLACED AT PAGE 16- 18 OF THE PAPER BOOK WHEREIN IT HAS BEEN SPECIFICALLY STATED BY THE ASSESSEE THAT THE DIFFERENCE IN THE ARMS LENGTH PRICE SH OULD HAVE BEEN ONLY WITH RESPECT TO INTERNATIONAL TRANSACTIONS O F THE ASSESSEE WHICH ARE RESTRICTED TO ` 20 39 25 826/- OUT OF TOTA L SALES OF ` 97 10 55 854/-. DRP HAS NOT GIVEN ANY SPECIFIC FINDIN G ON SUCH SUBMISSION OF THE ASSESSEE. SECTION 92C AUTHORIZE THE DEP ARTMENT TO COMPUTE THE ARMS LENGTH PRICE ONLY IN RELATION TO A N INTERNATIONAL TRANSACTIONS BY ADOPTING ANY OF THE METHODS DESCRIBED T HEREIN WHICH SHOULD BE THE MOST APPROPRIATE METHOD HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATE P ERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVA NT FACTORS ONE OF WHICH IS A METHOD OF TRANSACTIONAL NET MARGIN METHOD (TNMM). IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE METHOD IS ADOPTED BY THE ASSESSEE AS TNMM AND THE SAID METHOD HAS ALSO BEEN ACCE PTED BY THE TPO. THIS CLAIM OF THE ASSESSEE SHOULD HAVE BEEN ACC EPTED AFTER VERIFICATION THAT WHETHER SUCH CONTENTION OF THE ASSESSE E IS CORRECT AND ITS INTERNATIONAL TRANSACTION WITH ASSOCIATE ENTERPRISES ARE ONLY TO THE EXTENT OF ` 20 39 25 826/- AS HAS BEEN STATED IN THE A FOREMENTIONED LETTER DATED 21 ST MAY 2010 FILED BEFORE THE DRP. TO SUPPORT SUCH CLA IM THE ASSESSEE HAS ALSO RELIED UPON THE DECISION IN THE CASE OF IL GIN ELECTRONIC INDIA PVT. LTD 438/DEL/2008 IN WHICH IT HAS BEEN HELD THAT THE ADJUSTMENT CAN BE MADE ONLY TO THE EXTENT OF DIF FERENCE IN THE ARMS LENGTH OPERATING PROFIT WITH ADJUSTED PROFIT WI TH REFERENCE TO THE INTERNATIONAL TRANSACTION AND NOT TO THE TOTAL TURNO VER OF THE ASSESSEE. HOWEVER NO SPECIFIC FINDING HAS BEEN GIVEN BY DRP ON THIS ISSUE WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF DRP FOR VERIFICATION OF THE CLAIM OF THE ASSESSEE. AFTER GIVIN G THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING IN THIS REGARD AND AFTER MAKING THE VERIFICATION THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWE D ACCORDINGLY. ITA NO.4243/DEL/2010 18 THEREFORE THIS ISSUE IS RESTORED BACK TO THE FILE OF TH E DRP WITH A DIRECTION TO PASS A SPEAKING ORDER ON THIS ISSUE IN THE M ANNER AFORESAID. WHETHER CURRENT FINANCIAL YEAR DATA IS ONLY TO BE C ONSIDERED WHETHER CURRENT FINANCIAL YEAR DATA IS ONLY TO BE C ONSIDERED WHETHER CURRENT FINANCIAL YEAR DATA IS ONLY TO BE C ONSIDERED WHETHER CURRENT FINANCIAL YEAR DATA IS ONLY TO BE C ONSIDERED . 20. THIS ISSUE IS REGULATED BY THE PROVISIONS OF RULE 10 (4) WHICH READ AS UNDER: 10 (4) THE DATA TO BE USED IN ANALYZING THE COMPARABI LITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO: PROVIDED PROVIDED PROVIDED PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THA N TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALSO BE CONSI DERED IF SUCH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON TH E DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSA CTIONS BEING COMPARED. 21. SUB-RULE (4) OF RULE 10B CLEARLY STATE THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF UNCONTROLLED TRANSACT ION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTER ED INTO. THE PROVISO CARVES OUT AN EXCEPTION THAT THE DATA RELATIN G TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEA R MAY ALSO BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICE IN RELATION TO T RANSACTIONS BEING COMPARED. THUS ACCORDING TO THE LAW THE DATA RELA TING TO RELEVANT FINANCIAL YEAR IS ONLY THE CONTEMPORANEOUS DATA AND THE PROVISO IS APPLICABLE ONLY IN SOME SPECIFIED CONDITIONS. NO MATE RIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SUGGEST THAT THERE W ERE CIRCUMSTANCES PREVAILING FOR APPLICATION OF PROVISO. APART FROM THIS LEARNED TPO WHILE REJECTING THE CLAIM OF THE ASSESSEE H AS RELIED UPON THE SPECIAL BENCH DECISION IN THE CASE OF AZTEC SOFTW ARE AND TECHNOLOGY SERVICES LTD. (2007) 294 ITR (AT) 32 AND THE DECISIONS OF ITA NO.4243/DEL/2010 19 DELHI TRIBUNAL IN THE CASES OF MENTOR GRAPHICS PVT. LT D. (2007) 109 ITD 101 AND CUSTOMER SERVICES INDIA PVT. LTD. VS. ACIT (20 09) 30 SOT 486 IN WHICH IT HAS BEEN HELD THAT THE COMPARABILITY ANA LYSIS IS TO BE CONDUCTED ON THE BASIS OF CURRENT YEAR DATA. THEREFO RE THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND IT IS HELD THAT NO CASE H AS BEEN MADE OUT BY THE ASSESSEE FOR APPLICABILITY OF PROVISO TO SUB-RULE (4) OF RULE 10B. WHETHER CURRENT YEAR DATA IN RESPECT OF TWO CO WHETHER CURRENT YEAR DATA IN RESPECT OF TWO CO WHETHER CURRENT YEAR DATA IN RESPECT OF TWO CO WHETHER CURRENT YEAR DATA IN RESPECT OF TWO CONCERN S NAMELY COASTAL NCERNS NAMELY COASTAL NCERNS NAMELY COASTAL NCERNS NAMELY COASTAL ROADWAYS LTD. AND NORTH EASTERN CARRYING CORPN. LTD . WHICH WAS MADE ROADWAYS LTD. AND NORTH EASTERN CARRYING CORPN. LTD . WHICH WAS MADE ROADWAYS LTD. AND NORTH EASTERN CARRYING CORPN. LTD . WHICH WAS MADE ROADWAYS LTD. AND NORTH EASTERN CARRYING CORPN. LTD . WHICH WAS MADE AVAILABLE TO DRP SHOULD BE CONSIDERED TO COMPUTE NE T PROFIT MARGIN. AVAILABLE TO DRP SHOULD BE CONSIDERED TO COMPUTE NE T PROFIT MARGIN. AVAILABLE TO DRP SHOULD BE CONSIDERED TO COMPUTE NE T PROFIT MARGIN. AVAILABLE TO DRP SHOULD BE CONSIDERED TO COMPUTE NE T PROFIT MARGIN. 22. THIS ISSUE WAS ARGUED AT LENGTH BY BOTH THE PARTIES. IT HAS BEEN THE CASE OF LD. AR THAT BY THE TIME THE MATTER CAME UP FOR CONSIDERATION BEFORE THE DRP THE CURRENT FINANCIAL YEAR DATA RELATING TO THESE TWO PARTIES WAS AVAILABLE AND IT WAS SUBMITTED BY THE ASSESSEE THAT THOSE TWO PARTIES SHOULD ALSO BE INCLUDED TO COMPUTE THE MEAN MARGIN TO BE APPLIED TO THE CASE OF THE ASSESSE E. REFERENCE IN THIS REGARD WAS MADE TO THE AFOREMENTIONED LETTER FILED BEFORE THE DRP DATED 21 ST MAY 2010 IN WHICH THE ASSESSEE HAS SUBMITTED AS UNDER:- THE NET OPERATIONAL MARGIN (BASED ON SALES) OF BOTH C OASTAL ROADWAYS LIMITED AND NORTH EASTERN CARRYING CORPORATION LIMITED WORKS OUT TO 0.73 & 1.63 PERCENT RESPECTIVELY (A TTACHED AS ANNEXURE 2 ANNEXURE 2 ANNEXURE 2 ANNEXURE 2). 23. TO SUPPORT SUCH CONTENTION THE CALCULATIONS REGAR DING NET OPERATING PROFIT RATIO OF COASTAL ROADWAYS LTD. WAS SUB MITTED AT PAGE 18-B OF THE PAPER BOOK AND FOR NORTH EASTERN CARRYIN G CORPORATION LTD. IT WAS SUBMITTED AT PAGE 18-C OF THE PAPER BOOK . IT WAS SUBMITTED BY LEARNED AR THAT TILL THE MATTER REACHED BEFORE DRP THE ASSESSMENT WAS NOT FINALIZED AS THE ASSESSING OFFICER HAD FRA MED ONLY DRAFT ASSESSMENT ORDER. AS PER PRINCIPLE OF NATURAL JUST ICE IF ANY DOCUMENT IS AVAILABLE BEFORE THE ASSESSMENT IS FRAMED AND THAT ITA NO.4243/DEL/2010 20 DOCUMENT SUPPORTS THE CASE OF THE ASSESSEE THEN THE SAME SHOULD HAVE BEEN CONSIDERED BY THE AUTHORITY. THUS HE SUBMI TTED THAT THE SAID REQUEST OF THE ASSESSEE HAS WRONGLY BEEN REJECTED AND THOSE TWO COMPARABLES SHOULD HAVE BEEN ACCEPTED TO COMPUTE THE MEAN MARGIN. 24. AS AGAINST THAT IT HAS BEEN THE SUBMISSION OF LEARNED DR THAT THE TPO IN HIS ORDER HAS CLEARLY STATED THAT THE CURRENT Y EAR FINANCIAL DATA OF THESE TWO COMPANIES WAS NOT AVAILABLE THEREFORE T HEY CANNOT BE INCLUDED IN THE COMPARABLES. HE SUBMITTED THAT THE A SSESSEE HAS NOT SHOWN THAT THE FINANCIAL DATA OF THOSE TWO COMPANIES W ERE AVAILABLE ON THE DATE WHEN THE TPO HAS FRAMED THE ORDER. HE SU BMITTED THAT THE FINANCIAL DATA OF THESE TWO COMPANIES FOR RELEVAN T YEAR COULD BE PRODUCED BY THE ASSESSEE BEFORE THE DRP ONLY IN THE SHAP E OF ADDITIONAL EVIDENCE FOR WHICH THE PERMISSION TO ADMIT SUCH EVIDENCE WAS REQUIRED TO BE GIVEN BY THE DRP. HE SUBMITTED TH AT THE ASSESSEE DID NOT MAKE ANY REQUEST FOR SEEKING PERMISSION TO SUBMI T THE FINANCIAL DATA OF CURRENT FINANCIAL YEAR OF THESE TW O CONCERNS. HE SUBMITTED THAT ACCORDING TO RULE 9 OF INCOME-TAX (DI SPUTE RESOLUTION PANEL) RULES 2009 ADDITIONAL EVIDENCE COULD NOT BE SUBMITTED UNLESS THE SAID EVIDENCE IS CALLED UPON BY THE PANEL BY DEEM ING IT NECESSARY TO BE FURNISHED OR PERMITTED TO BE SUBMITTED. HE SUBM ITTED THAT EVEN BEFORE THE TRIBUNAL NO REQUEST HAS BEEN MADE FOR ADM ISSION OF THESE DOCUMENTS AND THEREFORE CURRENT FINANCIAL DATA OF THESE COMPANIES SHOULD NOT BE ADMITTED. HE SUBMITTED THAT THE ASSESSEE I S PRECLUDED FROM DOING SO AND IF THE ASSESSEE IS PERMITTED TO DO SO T HEN THERE WILL BE NO END TO THE PROCEEDINGS WHICH MAY LINGER ON FOR INFINITE TIME. 25. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. WE F IND FORCE IN THE SUBMISSION OF LEARNED AR THAT THE PROCEEDINGS BEFOR E THE DRP ARE CONTINUATION OF ASSESSMENT PROCEEDINGS AS BY THAT TIME WH AT HAS BEEN PREPARED BY THE ASSESSING OFFICER IS ONLY A DRAFT ASSESSMENT ORDER. AS PER THE PRINCIPLES OF NATURAL JUSTICE IF ANYTHING WH ICH GOES IN FAVOUR OF ITA NO.4243/DEL/2010 21 THE ASSESSEE AND WHICH HAS BEEN IGNORED IF CAN BE PRODU CED BEFORE THE COMPLETION OF THE ASSESSMENT MUST BE TAKEN INTO CON SIDERATION WHILE FRAMING THE ASSESSMENT. THE RELEVANT SUBMISSION OF THE ASSESSEE BEFORE THE DRP VIDE LETTER DATED 21 ST MAY 2010 HAVE ALREADY BEEN REPRODUCED. THUS IT IS CLEAR THAT THE ASSESSEE HAD CURRENT YEAR FINANCIAL DATA OF THESE COMPANIES TO BE SUBMITTED BEFO RE THE DRP. THEREFORE WE ARE OF THE OPINION THAT THE CURRENT Y EAR DATA OF THOSE TWO COMPARABLES SHOULD HAVE BEEN TAKEN INTO CONSIDERAT ION AFTER VERIFICATION OF THE SAME. AS THIS SUBMISSION OF THE ASSESSEE HAS NOT BEEN SPECIFICALLY DEALT BY THE DRP AND THIS ALSO DOES N OT FORM PART OF THE TPO ORDER WE CONSIDER IT NECESSARY TO RESTORE THIS ISSUE TO THE FILE OF DRP WITH A DIRECTION TO PASS A SPEAKING ORDER ON TH IS ISSUE AFTER MAKING VERIFICATION OF THE CLAIM OF THE ASSESSEE AND IF CURRENT YEAR DATA OF THESE TWO COMPANIES ARE AVAILABLE THEN THE SAME ALSO SHOULD BE TAKEN INTO CONSIDERATION AS COMPARABLE AFTER VERIF ICATION OF THE FIGURES SUBMITTED BY THE ASSESSEE. WE DIRECT ACCORDINGLY . 26. SO FAR AS IT RELATES TO APPLICABILITY OF RULE 9 WE OBSERVE THAT THE SAME IS NOT ACCEPTABLE FIRSTLY ON THE GROUND THAT THESE DOCUMENTS WERE NOT IN THE SHAPE OF ADDITIONAL EVIDENCE AS THESE PARTIES WERE INCLUDED BY THE ASSESSEE IN THE LIST OF COMPARABLES FOR I TS TRANSFER PRICING DOCUMENT. THESE PARTIES WERE EXCLUDED ONLY O N THE GROUND THAT CURRENT YEAR DATA WAS NOT AVAILABLE. THE CURRE NT YEAR FINANCIAL DATA OF THESE TWO COMPARABLES WAS SUBMITTED BY THE ASSESSEE BEFORE THE DRP THEREFORE IT CANNOT BE SAID THAT IT WAS IN THE SHAPE OF ADDITIONAL EVIDENCE. SECONDLY IT ALSO CANNOT BE SAI D THAT PERMISSION WAS REJECTED BY THE DRP AS NO SPEAKING ORDER HAS BEEN P ASSED ON SUCH REQUEST OF THE ASSESSEE THAT WHY THE CURRENT YEAR DA TA SUBMITTED BY THE ASSESSEE WITH REGARD TO THESE TWO COMPARABLES WAS N OT ACCEPTABLE. THIS OBJECTION OF THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID AND THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSE S. ITA NO.4243/DEL/2010 22 THE EXCLUSION OF COMPARABLE NAMELY TRANSPORT CORP ORATION OF INDIA. THE EXCLUSION OF COMPARABLE NAMELY TRANSPORT CORP ORATION OF INDIA. THE EXCLUSION OF COMPARABLE NAMELY TRANSPORT CORP ORATION OF INDIA. THE EXCLUSION OF COMPARABLE NAMELY TRANSPORT CORP ORATION OF INDIA. 27. ACCORDING TO THE ASSESSEE TRANSPORT CORPORATION OF INDIA DOES NOT HAVE NEGATIVE WORTH AS HAS BEEN HELD BY THE TPO. THIS OBJECTION OF THE ASSESSEE WAS REQUIRED TO BE DEALT WITH BY THE DRP . WITH REGARD TO THIS ISSUE THE ASSESSEE HAS SUBMITTED BEFORE THE DRP VIDE AFOREMENTIONED LETTER DATED 21 ST MAY 2010 THAT THE NET WORTH OF THE TRANSPORT CORPORATION OF INDIA WAS `103.76 CRORE AND TO SUPPORT SUCH CONTENTION DOCUMENTARY EVIDENCE WAS ALSO FILED:- LEARNED TRANSFER PRICING OFFICER (TPO) HAS REJECTED ONE OF THE COMPARABLES NAMELY. TRANSPORT CORPORATION OF INDIA L IMITED ON ACCOUNT OF NEGATIVE NET WORTH. IN THIS REGARD IT IS SUB MITTED THAT AS ON MARCH 31 2006 THE NET WORTH OF TRANSPORT CORPORATION OF INDIA WAS 103.76 CORES (BACK UP DOCUM ENT IS BEING ATTACHED AS ANNEXURE 1 ANNEXURE 1 ANNEXURE 1 ANNEXURE 1). 28. IN THIS VIEW OF THE SITUATION AS THE ISSUE RAISED BY THE ASSESSEE BEFORE DRP HAS NOT BEEN DEALT WITH WE RESTORE THIS ISSU E TO THE FILE OF DRP WITH A DIRECTION TO ADJUDICATE THE SAME AS PER LA W AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THE I THE I THE I THE ISSUE REGARDING ADJUSTMENT OF 5% AS STANDARD DE DUCTION SSUE REGARDING ADJUSTMENT OF 5% AS STANDARD DEDUCTI ON SSUE REGARDING ADJUSTMENT OF 5% AS STANDARD DEDUCTI ON SSUE REGARDING ADJUSTMENT OF 5% AS STANDARD DEDUCTI ON . 29. IT IS SEEN THAT BEFORE DRP THE ASSESSEE HAS RAISED OBJE CTION NO.12 AS UNDER:- 12. THE LEARNED ASSESSING OFFICER/TPO HAS ERRED BY NOT ALLOWING THE ASSESSEE THE BENEFIT OF 5 PER CENT RANGE A S PROVIDED BY THE PROVISO OF SECTION 92C (2) OF THE ACT. 30. BEFORE US LEARNED AR HAD ARGUED THIS ISSUE AT LENG TH. HE HAS RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS TO CONTEN D THAT IN ANY CASE ADJUSTMENT OF 5% IS ALLOWABLE AS STANDARD DEDUCTION . ON THE OTHER HAND LEARNED DR OBJECTED TO SUCH ARGUMENT OF LEARNED AR AND CONTENDED THAT 5% ADJUSTMENT CANNOT BE GRANTED AS STAN DARD ITA NO.4243/DEL/2010 23 DEDUCTION AND IT IS APPLICABLE ONLY IN A CASE WHERE T HE DIFFERENCE IS LESS THAN 5% AND THIS PROVISO IS IN THE NATURE OF MAKE OR BREAK RULE. 31. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. WE F OUND THAT LEARNED DRP HAS NOT RECORDED ANY FINDING ON THIS ISSUE. THEREFORE IN THE INTEREST OF JUSTICE WE ARE OF THE OPINION THAT T HIS ISSUE IS REQUIRED TO BE RESTORED TO THE FILE OF DRP WITH A DIRECTION T O RE-ADJUDICATE THE SAME AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ADJUSTMENT OF CAPACITY UTILIZATION WORKING CAPITA L FIXED ASSET HAS NOT ADJUSTMENT OF CAPACITY UTILIZATION WORKING CAPITAL FIXED ASSET HAS NOT ADJUSTMENT OF CAPACITY UTILIZATION WORKING CAPITAL FIXED ASSET HAS NOT ADJUSTMENT OF CAPACITY UTILIZATION WORKING CAPITAL FIXED ASSET HAS NOT BEEN GRANTED FOR COMPUTING ARMS LENGTH PRICE. BEEN GRANTED FOR COMPUTING ARMS LENGTH PRICE. BEEN GRANTED FOR COMPUTING ARMS LENGTH PRICE. BEEN GRANTED FOR COMPUTING ARMS LENGTH PRICE. 32. IT WAS EXTENSIVELY ARGUED BY THE LEARNED AR THAT THE ASSESSEE IS REQUIRED TO BE GIVEN ADJUSTMENT OF CAPACITY UTILIZAT ION WORKING CAPITAL AND FIXED ASSET AND THESE FACTORS WERE ARGUED NOT ONLY BEFORE TPO BUT ALSO BEFORE DRP AND THE DRP HAS NOT GIVEN ANY VERDICT UPON THESE THREE ADJUSTMENTS. HE SUBMITTED THAT THE ASSESSEE IS ENTIT LED TO HAVE ADJUSTMENT OF ALL THE THREE ITEMS WHILE COMPUTING THE ARMS LENGTH PRICE AND SUCH CLAIM OF THE ASSESSEE HAS NOT BEEN REJECTE D BY WAY OF A SPEAKING ORDER AND THE DRP HAS SIMPLY UPHELD THE ORDER OF THE TPO. HE SUBMITTED THAT THIS ISSUE MAY BE SENT BACK TO THE FIL E OF DRP WITH A DIRECTION TO PASS A SPEAKING ORDER ON ALL THESE THREE A SPECTS. AS AGAINST THAT LD. DR SUBMITTED THAT THE TPO HAS ASSIGNED REASONS FOR REJECTION OF SUCH ADJUSTMENTS HENCE LD. DRP WAS RIGHT IN UPHOLDING THE ORDER OF THE TPO AND REJECTING THE CONTENTION O F THE ASSESSEE REGARDING ADJUSTMENT OF THESE THREE FACTORS. 33. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF MATERIAL PLACED BEFORE US. IT CAN BE SEEN FROM THE O RDER OF THE DRP THAT THE OBJECTIONS OF THE ASSESSEE REGARDING ADJUSTMENT OF WORKING CAPITAL CAPACITY UTILIZATION AND FIXED ASSET HAVE NO T BEEN TAKEN INTO CONSIDERATION. NO SPEAKING ORDER HAS BEEN PASSED FOR RE JECTING SUCH CLAIM OF THE ASSESSEE. THEREFORE WE CONSIDER IT JUST AN D PROPER TO ITA NO.4243/DEL/2010 24 RESTORE THIS ISSUE TO THE FILE OF DRP WITH A DIRECTION TO DECIDE THESE ISSUES BY WAY OF A SPEAKING ORDER AS PER PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THIS I SSUE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID . 34. IN GROUND NO.12 13 AND 14 THE ASSESSEE HAS RAISED TH E ISSUE OF DISALLOWANCE OF DEPRECIATION OF ` 16 057/- IN RESPECT OF COMPUTER PERIPHERALS PRINTERS AND UPS. IT IS THE GRIEVANCE OF THE ASSESSEE THAT THE DRP HAS NOT ADJUDICATED THIS ISSUE AND THE ASSESSING OF FICER HAS ERRED IN LAW IN MAKING THE SAID ADJUSTMENT WITHOUT PR OVIDING OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THESE CIRCUM STANCES AFTER HEARING BOTH THE PARTIES THIS ISSUE IS ALSO RESTORED BACK TO THE FILE OF DRP FOR ADJUDICATION THEREOF AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THIS ISSUE IS ALLOWED FOR STATI STICAL PURPOSES IN THE MANNER AFORESAID. INITIATION OF PENALTY PROCEEDINGS INITIATION OF PENALTY PROCEEDINGS INITIATION OF PENALTY PROCEEDINGS INITIATION OF PENALTY PROCEEDINGS 35. THIS GROUND IS PREMATURE THEREFORE NEED NOT BE ADJUDICATED AT THIS STAGE THEREFORE DISMISSED. CHARGING OF INTEREST U/S 234B AND 234D CHARGING OF INTEREST U/S 234B AND 234D CHARGING OF INTEREST U/S 234B AND 234D CHARGING OF INTEREST U/S 234B AND 234D . 36. AT THE TIME OF HEARING LEARNED AR SUBMITTED THA T THE LEVY OF INTEREST IS CONSEQUENTIAL HENCE THE ASSESSING OFFICER IS D IRECTED TO CHARGE INTEREST ON THE FINALLY COMPUTED INCOME AFTER GIVING EFFECT TO THIS ORDER. WE DIRECT ACCORDINGLY. THIS ISSUE IS ALLOW ED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ITA NO.4243/DEL/2010 25 37. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.03.20 11. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED 11.03.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES