DCIT, New Delhi v. M/s. Johnson Matthey India (P) Ltd, New Delhi

ITA 4767/DEL/2009 | 2003-2004
Pronouncement Date: 29-03-2012 | Result: Dismissed

Appeal Details

RSA Number 476720114 RSA 2009
Assessee PAN AAACJ2919A
Bench Delhi
Appeal Number ITA 4767/DEL/2009
Duration Of Justice 2 year(s) 3 month(s) 13 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Johnson Matthey India (P) Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 29-03-2012
Date Of Final Hearing 31-01-2012
Next Hearing Date 31-01-2012
Assessment Year 2003-2004
Appeal Filed On 16-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI U.B.S. BEDI JUDICIAL MEMBER AND SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO.344/DEL./2010 (ASSESSMENT YEAR : 2003-04) M/S. JOHNSON MATTHEY INDIA PRIVATE LTD. VS. DCIT CIRCLE 4 (1) C/O LUTHRA & LUTHRA LAW OFFICES NEW DELHI. 103 ASOKA ESTATE BARAKHAMBA ROAD NEW DELHI 110 001. (PAN : AAACJ2919A) ITA NO.4767/DEL./2009 (ASSESSMENT YEAR : 2003-04) DCIT CIRCLE 4 (1) VS. M/S. JOHNSON MATTHEY INDIA PRIVATE LTD. NEW DELHI. C/O LUTHRA & LUTHRA LAW OFFICES 103 ASOKA ESTATE BARAKHAMBA ROAD NEW DELHI 110 001. (PAN : AAACJ2919A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIKAS SRIVASTAVA CA REVENUE BY : MS. REENA SINHA PURI CIT DR ORDER PER B.C. MEENA ACCOUNTANT MEMBER : BOTH THESE CROSS APPEALS EMANATE FROM THE ORDER OF CIT (APPEALS)-XX NEW DELHI DATED 26.11.2009 FOR THE ASSESSMENT YEAR 2003-04. THE GROUNDS IN ASSESSEES APPEAL IN ITA NO.344/DEL/2010 READ AS UNDER :- ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 2 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XX (HEREINAFTER REFERRED AS 'CIT (A) UNDER SECTION 250 OF THE ACT IS BAD IN LAW AND ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT (A) AS WELL LEARNED ASSESSING O FFICER (AO) / TRANSFER PRICING OFFICER (TPO) HAVE ERRED IN LAW AS WELL AS FACTS OF THE CASE IN NOT ACCEPTING THE ARM'S LEN GTH PRICE (HEREINAFTER REFERRED AS ALP') DETERMINED BY THE A PPELLANT. 3. THE LEARNED CIT (A) AS WELL AS LEARNED AO / TPO HAVE ERRED IN FACTS OF THE CASE BY REJECTING THE PLI CON SIDERED BY THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION MAI NTAINED BY IT. THE LEARNED CIT (A) HAS MENTIONED ONLY ONE INSTANCE WHERE ROCE MAY NOT BE AN APPROPRIATE PLI I.E. IN THE CASE OF A SEASONAL BUSINESS. HOWEVER EVEN THOUGH HE HIMSELF ADMITTED THAT THE APPELLANT IS NOT ENGAGED IN A SEASONAL BUS INESS HE STILL HELD THAT ROCE CANNOT BE USED IN THE CASE OF THE AP PELLANT WITHOUT PROVIDING ANY COGENT REASON. 4. THE LEARNED CIT (A) AS WELL AS LEARNED AO / TPO HAVE ERRED IN FACTS OF THE CASE BY INTRODUCING A NEW PLI I.E. OPERATING PROFIT AS A PERCENTAGE OF TOTAL COST. THE LEARNED C IT (A) HAS ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE BY HOL DING THAT THE RAW MATERIAL COST IS NOT A PASS THROUGH COST AND TH US REJECTING THE APPELLANT'S CONTENTION THAT RAW MATERIAL COST S HOULD BE EXCLUDED FROM TOTAL COST. 5. THE LEARNED CIT (A) HAS ERRED IN NOT ALLOWING AN ADJUSTMENT OF 5% WHILE DETERMINING THE ALP AS PR OVIDED BY PROVISO TO SECTION 92C (2) OF THE ACT. 6. THE ABOVE GROUNDS OF APPEALS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 7. THE APPELLANT CRAVES LEAVE TO ADD / WITHDRAW OR AMEND ANY GROUND OF APPEAL AT THE TIME OF HEARING. THE GROUNDS IN REVENUES APPEAL IN ITA NO.4767/DEL/ 2009 READ AS UNDER :- 01. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRON EOUS & CONTRARY TO FACTS & LAW. ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 3 02. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN RESTRICTING THE ADDITION OF RS.8 33 86 859/- TO RS.7 03 05 000/- MADE BY THE AO ON ACCOUNT OF ARM'S LENGTH PRICING. 2.1. THE LD. CIT (A) ERRED IN IGNORING THE REASONIN G GIVEN BY THE TPO AND AO BY RECALCULATING THE ARM'S LENGTH PR ICING. 03. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN DIRECTING T O AO TO INCLUDE INTEREST INCOME IN THE BUSINESS INCOME QUAL IFIED FOR DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT . 3.1 THE LD. CIT (A) HAD IGNORED THE FACT THAT INTER EST INCOME IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. 04. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF H EARING. 2. GROUND NOS.1 6 & 7 OF ASSESSEES APPEAL AND GRO UND NOS.1 & 4 OF REVENUES APPEAL ARE GENERAL IN NATURE AND THE SPEC IFIC ISSUES ARE COVERED UNDER THE REMAINING GROUNDS IN RESPECTIVE APPEALS HENCE THESE GROUNDS DO NOT REQUIRE SEPARATE ADJUDICATION. IN VIEW OF THIS FOR STATISTICAL PURPOSES THESE GROUNDS ARE TREATED AS DISMISSED. 3. IN THE ASSESSEES APPEAL THE GROUND NOS.2 3 4 & 5 ARE RELATED TO THE TRANSFER PRICING ADJUSTMENT AND IN REVENUES APPEAL GROUND NOS.2 & 2.1 ARE ALSO RELATED TO TRANSFER PRICING. HENCE ALL THESE GROUNDS ARE INTER-RELATED AND INTER-CONNECTED TO THE DETERMINATION OF ARMS LENGTH PRICE (ALP IN SHORT). HENCE ALL THESE GROUNDS ARE BEING CONSIDERED ON CU MULATIVE BASIS. 4. THE BRIEF FACTS OF THE CASE ARE AS UNDER :- ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 4 JOHNSON MATTHEY INDIA PRIVATE LIMITED THE ASSESSE E IS A PRIVATE LIMITED COMPANY REGISTERED UNDER THE COMPANIES ACT 1956. THE ASSESSEE WAS INCORPORATED ON 16TH JANUARY 1998 AND 90% OF IT S SHARES ARE HELD BY JOHNSON MATTHEY PLC. UK ('JMUK') THROUGH MATTHEY FI NANCE B.V. NETHERLANDS. THE ASSESSEE IS ENGAGED IN THE BUSINES S OF MANUFACTURING AUTOMOBILE CATALYSTS IN INDIA FROM ITS MANUFACTURIN G UNIT LOCATED AT IMT MANESER IN HARYANA. THE ASSESSEE SELLS FINISHED CA TALYSTS TO ITS CUSTOMERS. THE ASSESSEE USES TWO BASIC RAW MATERIALS FOR MANUF ACTURE OF CATALYST I.E. PRECIOUS METALS AND WASH COATED SUBSTRATES. THE ASS ESSEE PROCURES SUCH PRECIOUS METALS (PLATINUM PALLADIUM AND RHODIUM) F ROM ITS ASSOCIATED ENTERPRISE JMUK AND WASH COATED SUBSTRATES FROM ITS ASSOCIATED ENTERPRISE JOHNSON MATTHEY MALAYSIA ('JMM'). JMM PURCHASE RAW SUBSTRATES FOR FURTHER PROCESSING FROM INDEPENDENT SUPPLIERS AND PERFORMS WASH COATING OPERATIONS BEFORE SUPPLYING TO THE ASSESSEE. THE ECONOMIC AN ALYSIS CARRIED OUT BY THE ASSESSEE IN THE TRANSFER PRICING REPORT SUBMITTED W ITH THE ASSESSING OFFICER CAN BE SUMMARIZED AS BELOW :- (I) ON THE BASIS OF EASY AVAILABILITY OF FINANCIAL DATA AND NON POSSESSION OF INTANGIBLES THE APPELLANT SELECTED I TSELF AS THE TESTED PARTY IN ORDER TO BENCHMARK THE INTERNATIONA L TRANSACTIONS WITH ITS AES. (II) ON THE BASIS OF FUNCTIONAL AND RISK PROFILE AN D ON EXAMINING THE AVAILABLE COMPARABLE DATA THE TRANSA CTIONAL NET MARGIN METHOD QJ ('TNMM') WAS DETERMINED TO BE THE MOST APPROPRIATE METHOD FOR DETERMINATION OF ARM'S LENGT H PRICE ('ALP'). ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 5 (III) FOR APPLICATION OF TNMM THE 'RATE OF RETURN O N CAPITAL EMPLOYED' WAS SELECTED AS THE PROFIT LEVEL. INDICAT OR ('PLI') FOR ALL THE INTERNATIONAL TRANSACTIONS EXCEPT FOR TRANS ACTIONS INVOLVING SALE OF CATALYSTS TO THE AES FOR WHICH NE T PROFIT MARGIN (I.E. PROFIT AFTER TAX) AS A PERCENTAGE OF S ALES WAS SELECTED AS THE PLI. (IV) BASED ON THE SEARCH CONDUCTED THE APPELLANT SE LECTED A SET OF 11 COMPARABLE COMPANIES AND ON THE BASIS OF DATA FOR THE FINANCIAL YEAR 2002-03 THE AVERAGE RETURN ON CAPIT AL EMPLOYED OF THE COMPARABLE COMPANIES CAME TO 18.33% WHICH W AS LESS THAN THAT OF THE APPELLANT BEING 28.42%. THE APPELL ANT THEREFORE CONCLUDED THAT ITS INTERNATIONAL TRANSACTION IS AT ARM'S LENGTH. IN ORDER TO BENCHMARK THE TRANSACTION OF SALE OF C ATALYST TO THE AES THE APPELLANT'S NET MARGIN (PROFIT AFTER T AX AS A PERCENTAGE OF SALES) IN RELATION TO EXPORT SALES WA S 6.98% WHICH WAS MORE WHEN COMPARED WITH NET 6 MARGIN ON LOCAL SALES TO UNRELATED PARTIES (3.73%). THE APPELLANT THEREFORE CONCLUDED THAT THE INTERNATIONAL TRANSACTION OF SALES TO AE'S WAS ALSO AT ALP. IN THE REFERENCE TO THE TRANSFER PRICING OFFICER (T PO) BY THE ASSESSING OFFICER UNDER SECTION 92CA (1) OF THE INCOME-TAX AC T THE COMPUTATION OF THE ALP IN RESPECT OF THE FOLLOWING INTERNATIONAL TRANS ACTIONS WAS MADE :- S.NO. NAME OF THE AE METHOD VALUE (IN RS.) 1. PAYMENT OF ROYALTY TNMM 1 30 85 200 2. EXTERNAL COMMERCIAL BORROWINGS TNMM 53 32 377 3. CESSATION OF LIABILITY --- 73 14 100 4. PURCHASE OF 599.91 KGS. OF PRECIOUS METAL TNMM 3 8 72 34 757 5. PURCHASE OF 90 616 WASH COATED SUBSTRATES TNMM 3 0 56 53 787 6. PURCHASE OF 8920 RAW SUBSTRATES TNMM 23 19 859 7. SALE OF 36 494 UNIT OF CATALYSTS TNMM 5 17 54 21 6 8. SALE OF 535 UNITS OF CATALYSTS TNMM 1 99 994 9. PURCHASE OF MANUAL BENCHES & ACCESSORIES TNMM 1 66 000 10. SUPPORT SERVICE CONTRACT TNMM 99 40 900 11. PAYMENT OF TESTING CHARGES TNMM 3 76 326 ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 6 AFTER RECEIVING THE TPOS REPORT ASSESSING OFFICER DECIDED THE ISSUE AS UNDER:- ASSESSEE HAD ENCLOSED REPORT IN FORM NO. 3CE8 IN ACCORDANCE WITH SECTION 92E OF THE ACT. ON EXAMININ G THE SAME IT IS NOTED THAT THE ASSESSEE HAS ENTERED INT O INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES TO THE TUN E OF RS.78.20 CRORES. THEREFORE THE MATTER WAS REFERRED TO THE T PO U/S 92CA(3) OF THE ACT. THE TPO IN HIS ORDER U/S 92CA(3 ) DATED 22.3.2000 DETERMINED THE VALUE OF THE INTERNATIONAL TRANSACTIONS WITH THEIR ASSOCIATE ENTERPRISES AT RS.62 49 06 74 4/- AS AGAINST THE PURCHASE PRICE OF RS.70 82 93 603/- GIVING A DI FFERENCE OF RS.8 33 86 859/-. ACCORDINGLY ASSESSEE WAS CONFRO NTED WITH THE FINDINGS OF TILE TPO VIDE NOTE SHEET ENTRY DATE D 24.3.2006. ASSESSEE HAS FILED ITS REPLY VIDE LETTER DATED 28.3 .2006 WHICH IS PLACED ON RECORD. ASSESSEE'S SUBMISSION IN THIS REGARD HAS BEEN CONSI DERED. IN THE SUBMISSION ASSESSEE HAS MORE OR LESS REITERATED TH E ARGUMENTS THAT WERE PUT FORTH BEFORE THE TPO. THE TPO WHILE A NALYZING THE CASE OF THE ASSESSEE ADOPTED THE OPERATING PROF IT/ TOTAL COST RATIO METHOD AS THE PROFIT LEVEL INDICATOR (PLI). A SSESSEE HAD SHOWN AN OP/TC OF 6.79%. HOWEVER ON COMPARING THE OP/TC OF THE ASSESSEE COMPANY WITH THAT OF THE COMPARABLE COMPANIES IT IS SEEN THAT ASSESSEE HAD UNDER STATED SUCH PROF IT LEVEL INDICATOR AND THE VARIANTS IN MORE THAN THE PERMISS IBLE LIMIT OF +/5%. THE AVERAGE OP/TC OF THE COMPARABLE COMPANIES WORKED OUT TO 16.85%. ON THE OTHER HAND THE OP/TC S HOWN BY THE ASSESSEE IS 6.79%. SO THE DIFFERENCE BETWEEN TH E TWO RATIOS IS 10.06% WHICH IS ALMOST DOUBLE OF THE NORMAL ACCE PTABLE RANGE OF +/- 5% VARIANCE. THEREFORE IT IS HELD TH AT ASSESSEE HAS UNDER DISCLOSED HIS OP/TC WHICH WHEN QUANTIFIED RES ULTS IN AN UPWARD REVISION OF HIS INCOME BY RS.8 33 86 859/-. IN VIEW OF THE SAME ASSESSEE'S INCOME IS ENHANCED BY SUCH AMOU NT. 5. THE ISSUE OF PROFIT LEVEL INDICATOR (PLI) HAD BE EN DECIDED BY THE CIT (A) AS UNDER :- 10.2.1 I HAVE GONE THROUGH THE ABOVE SUBMISSION OF THE APPELLANT AND HAVE ALSO PERUSED THE TPO'S ORDER TH E MAIN ARGUMENT OF APPELLANT REVOLVES AROUND THE CONTENTIO N THAT THE ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 7 TPO HAD INCORRECTLY REJECTED THE PLI TAKEN BY APPEL LANT AND SUBSTITUTED THE SAME WITH HIS OWN PLI. 10.2.2 PLIS ARE THE RATIOS THAT MEASURE RELATIONSH IP BETWEEN PROFITS WITH COSTS OR RESOURCES. THE USE OF PARTICULAR PLI DEPENDS ON NUMBER OF FACTORS INCLUDING. A) NATURE OF ACTIVITIES OF TESTED PARTLY B) THE RELIABILITY OF AVAILABLE DATA WITH RESPECT TO UNCONTROLLED COMPARABLES C) THE EXTENT TO WHICH THE PLI A LIKELY TO PRODUCE AVAILABLE MEASURE OF INCOME. 10.2.3 THE SELECTION OF PLI IS THEREFORE MADE ON TH E BASIS OF ITS APPROPRIATENESS FOR THE TRANSACTION UNDER RE VIEW (WHICH IS DETERMINED WITH REFERENCE TO THE DETAILED FUNCTIONA L ANALYSIS OF THE TRANSACTION) AND THE MEANING ASSIGNABLE TO THE RESULTS OBTAINED BY ITS APPLICATION. A PLI DOES NOT REPRESENT JUST AN ABSTRACT ABSOLUT E NUMBER WITH NO MEANING ASSIGNABLE TO IT BUT IT REPR ESENTS A LOGICAL FINANCIAL RELATIONSHIP AMONGST THE TWO COMP ONENTS / VARIABLES. THEREFORE THE PLI SHOULD BE SELECTED KE EPING IN MIND THE PECULIARITIES OF A PARTICULAR BUSINESS. 10.2.4 IN THE INSTANT CASE THE APPELLANT HAS APPLI ED RETURN ON CAPITAL EMPLOYED AS PLI IN THE TRANSFER PRICING DOCUMENTATION PREPARED BY IT. I HAVE PERUSED THE JU STIFICATION PROVIDED IN THE TRANSFER PRICING REPORT FOR SELECTI ON OF RETURN ON CAPITAL EMPLOYED AS PLI. AS PER THE SAID JUSTIFICAT ION SINCE THE PROFIT OF APPELLANT IS DEPENDENT ON 'MANUFACTURING CHARGE' AND NOT ON 'INVOICE VALUE' COMPARISON OF 'SALES VALUE' WITH 'NET PROFITS' WOULD GIVE MISLEADING PICTURE OF PROFITABI LITY. THE JUSTIFICATION ONLY PROVIDES THE REASONING FOR NOT C OMPARING PROFITS WITH SALES VALUE HOWEVER IT NOWHERE PROVI DES THE JUSTIFICATION FOR SELECTION FOR RETURN ON CAPITAL E MPLOYED. IN THIS REGARD I AGREE WITH THE TPO'S OBSERVATIO N THAT THE RELIABILITY OF THE RETURN TO CAPITAL EMPLO YED AS A PLI IS ALSO DEPENDENT UPON THE EXTENT TO WHICH THE COMPOSI TION OF ASSETS / CAPITAL EMPLOYED IS SIMILAR AND VALUATION OF THE SAME. MOREOVER IN THOSE INSTANCES IN WHICH THE OPERATING ASSETS ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 8 REPORTED IN THE BALANCE SHEET DO NOT RELIABLY MEASU RE THE CAPITAL EMPLOYED ROA MAY BE A LESS RELIABLE PLI THAN THE F INANCIAL RATIOS. ALSO IF THE AVERAGE BALANCE SHEET DOES NOT ACCURATELY REFLECT THE AVERAGE USE OF CAPITAL THROUGHOUT THE Y EAR ROA MAY BE A LESS RELIABLE PLI. SUCH SITUATIONS OCCUR FOR INSTANCE WHEN THE BUSINESS OF A COMPANY IS SEASONAL. 10.2.5 FROM THE ABOVE DISCUSSION SINCE THE APPELLA NT IS NOT ENGAGED IN A SEASONAL BUSINESS AND THE APPELLAN T IS ENGAGED IN THE MANUFACTURING OF AUTOMOBILE EXHAUST CATALYST S AND MAKING IMPORT OF RAW-MATERIAL FROM ITS AE IN THESE CIRCUMSTANCES I AM OF THE VIEW THAT RETURN ON CAPI TAL EMPLOYED IS NOT AN APPROPRIATE PLI IN THE CASE OF A PPELLANT AND THUS THE TPO WAS RIGHT IN REJECTING SUCH PLI. CIT (A) DISMISSED THE ASSESSEES APPEAL ON THIS GRO UND. 6. THE ISSUE REGARDING THE TREATMENT OF RAW MATERIA L WHICH WAS RAISED AS AN ALTERNATE CONTENTION BY THE ASSESSEE THE CIT (A ) DECIDE THE ISSUE AS UNDER: 10.3.1 THE APPELLANT HAS RAISED ANOTHER CONTENTIO N THAT IF THE PLI SUGGESTED BY TPO (I.E. OPERATING PROFITS AS A PERCENTAGE OF TOTAL COST) WERE TO BE ACCEPTED THEN INSTEAD OF OPERATING PROFIT AS A PERCENTAGE OF TOTAL COST OPERATING PRO FIT AS A PERCENTAGE OF TOTAL COST MINUS RAW MATERIAL COST SH OULD BE CONSIDERED. I HAVE CAREFULLY CONSIDERED THE DETAILE D SUBMISSIONS ALONG WITH THE EXPLANATIONS MADE BY THE APPELLANT I N SUPPORT OF THIS ARGUMENT. 10.3.2 IN THIS REGARD THE APPELLANT HAS TRIED TO EX PLAIN ITS BUSINESS MODEL AND PRICING ARRANGEMENT WITH ITS CUS TOMER. THE APPELLANT HAS STATED THAT THE APPELLANT'S INCOME IS BASED ON A FIXED MANUFACTURING CHARGE PER UNIT (AGREED AND NEG OTIATED WITH THE CUSTOMER) WHICH HAS NO RELATION WITH THE COST O F RAW MATERIAL INCURRED FOR THE MANUFACTURING OPERATIONS CARRIED O UT BY THE APPELLANT. ENTIRE COST OF RAW MATERIAL COMPRISING O F PRECIOUS METALS AND SUBSTRATES IS PASSED ON TO / RECOVERED F ROM THE ULTIMATE CUSTOMER WITHOUT ANY MARK UP. IN FACT THE APPELLANT HAS NO CONTROL OVER THE COST OF RAW MATERIAL IN VIEW OF THE SPECIFIC ARRANGEMENT WITH ITS CUSTOMERS. ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 9 THE APPELLANT CLAIMS THAT AS PER THE ARRANGEMENT WITH ITS CUSTOMERS THE APPELLANT HAS NO ROLE TO PL AY IN SELECTING EITHER THE SUPPLIER OF RAW MATERIAL OR DETERMINING THE TERMS OF PRICING OF THE RAW MATERIAL AND THESE ARE DETERMINE D BY THE CUSTOMERS ONLY. THE ENTIRE COST OF RAW MATERIAL IS RECOVERED FROM THE CUSTOMERS AND IS IN THE NATURE OF PASS THR OUGH COST FOR THE APPELLANT. THE APPELLANT ALSO SUBMITS THAT ANY CHANGE IN THE COST OF RAW MATERIAL DOES NOT IMPACT ITS PROFITABIL ITY AND THEREFORE SUCH COSTS SHOULD BE EXCLUDED FROM TOTAL COST FOR COMPUTING THE PLI I.E. OPERATING PROFIT AS A PERCEN TAGE OF TOTAL COST. 10.3.3 DURING THE COURSE OF APPELLATE PROCEEDINGS I T WAS ALSO NOTICED THAT NO DOUBT THE RAW-MATERIAL IS PURC HASED ON THE INSTRUCTIONS OF MARUTI UDYOG LIMITED BUT AFTER THE MANUFACTURING OF AUTOMOBILE CATALYST THE SAME IS S OLD NOT TO MARUTI UDYOG LIMITED BUT IT IS SOLD TO THE VENDORS OF MARUTI UDYOG LIMITED. INSPITE OF NUMBER OF OPPORTUNITIES GIVEN TO THE APPELLANT DURING THE APPELLATE PROCEEDINGS TO PRODU CE THE AGREEMENT BETWEEN THE APPELLANT AND THE 'VENDORS' T O WHOM THE CATALYSTS ARE SOLD BY THE APPELLANT THEY HAVE NOT B EEN PRODUCED SO AS TO KNOW THE KNOW THE REAL TERMS CONDITIONS OF THE TRANSACTIONS AND BUSINESS MODEL. IN THE ABOVE BACK GROUNDS MY FINDINGS ARE AS UNDE R. 10.4.1 IN THE GIVEN CASE THE APPELLANT PURCHASES T HE MATERIAL FOR THE MANUFACTURE OF FINISHED GOODS TO B E SUPPLIED TO MARUTI UDYOG LIMITED AND THERE IS NO DISPUTE IN THI S REGARD THAT THE PURCHASE OF THE MATERIALS IS AS PER THE ADVICE OF MARUTI UDYOG LIMITED. MARUTI UDYOG LIMITED ADVISES THE APP ELLANT THE PRICE AND THE QUANTITY WHICH IS TO BE PURCHASED AND THE APPELLANT ACTS ACCORDINGLY. FURTHER THE USAGE OF THE MATERIAL ALSO HAS TO BE DONE FOR THE PURPOSES OF MANUFACTURING THE ITEMS WH ICH ARE TO BE SOLD TO VENDORS OF THE MARUTI UDYOG LIMITED. BASED ON THE ABOVE FACTS THE APPELLANT CLAIMS TH AT THE PURCHASE OF THE MATERIALS SHOULD BE TREATED AS A PASS THROUGH ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 10 COST AND THE APPELLANT SHOULD BE TREATED AS CONTRAC T MANUFACTURER AND THE MARGINS BE COMPUTED EXCLUDING THE COST OF T HE MATERIAL. 10.4.2 IT IS NECESSARY TO EXAMINE THE ROLE OF THE A PPELLANT IN DETAIL BOTH IN LIGHT OF THE ABOVE FACTS AND ALSO IN LIGHT OF THE AGREEMENTS ENTERED INTO BETWEEN THE APPELLANT AND M ARUTI UDYOG LIMITED AND THE AE WITH RESPECT TO THE ABOVE PURCHASE. 10.4.3 THE APPELLANT HAS AN AGREEMENT WITH MARUTI U DYOG LIMITED UNDER WHICH IT IS OBLIGED TO PURCHASE THE M ATERIAL ON THE BASIS OF PRICE QUOTES ADVISED BY MARUTI UDYOG L IMITED. IN THE COURSE OF THE MANUFACTURE THE APPELLANT IS PER MITTED A SET AMOUNT OF MANUFACTURING LOSS AND NAY UNUTILIZED MAT ERIAL IS TO BE DISPOSED OFF AS PER THE ADVICE OF MARUTI UDYOG L IMITED. IT IS PERTINENT TO NOTE THAT THE MATERIAL IN QUES TION IS A VERY EXPENSIVE MATERIAL AND AS SUCH ITS PRICE HEA VILY INFLUENCES THE COST OF THE MATERIAL WHICH IS BEING MANUFACTURED BY THE APPELLANT. ANOTHER IMPORTANT FEATURE OF THIS MATERIAL IS THAT THE PRICES FLUCTUATE HEAVILY AND FREQUENTLY. A S SUCH IS SUCH CASES WHEN MARUTI UDYOG LIMITED PLACES THE PURCHAS E ORDER FOR THE END PRODUCT IT IS IN MARUTI UDYOG LIMITED INTE REST TO ENSURE THAT THE COST OF THE MATERIAL IS FROZEN OTHERWISE I T RUNS THE RISK OF PRICE VARIATIONS IN THE END PRODUCT PRICING. THERE IS A POSSIBILITY THAT IMMEDIATELY AFTER PLACING THE ORDER THE PRICE S OF THE PRECISIONS METAL MAY CRASH AND THIS MAY RESULT IN A BUMPER PRICE BEING PAID TO THE APPELLANT. CONVERSELY IF THE PRIC ES OF PRECISIONS METAL ARE NOT FROZEN AT THE TIME OF PLACING OF THE ORDER THE APPELLANT MAY END UP LOSING HUGE AMOUNTS OF MONEY I N THE EVENT THE PRICES OF PRECISIONS METAL SHOOT UP IMMED IATELY AFTER PLACING OF THE ORDER. HENCE IN SUCH CASES IT IS AND AN ESTABLISHED INDUSTRY PRACTICE THAT THE TWO PARTIES EVOLVE A MEC HANISM TO ENSURE THAT NEITHER PARTY SUFFERS AN ADVERSE FINANC IAL SHOCK BECAUSE OF THE PRICE MOVEMENT OF PRECISIONS METAL A FTER PLACING OF THE ORDER. THE INDUSTRY PRACTICE IN SUCH CASES I S THAT THE MANUFACTURE (IN THIS CASE THE APPELLANT) WILL NEVER PURCHASES AND STOCK THE PRECISIONS METAL UNLESS THERE IS A SET AN D CONFIRMED ORDER IN WHICH THE MATERIAL CAN BE UTILIZED. ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 11 10.4.4 THIS IS EXACTLY WHAT THE APPELLANT IS DOING IT IS PURCHASING THE MATERIAL ONLY WHEN MARUTI UDYOG LIMI TED ADVISES IT AND PLACES A CONFIRMED ORDER FOR THE PUR CHASE OF THE END PRODUCT IN WHICH THE PRECISIONS METAL IS TO BE USED. FURTHER IT IS INTERESTING TO NOTE THAT THE MARUTI UDYOG LIMITED DOES NOT GUARANTEE THE RECOVERABILITY OF TH E COST OF THE MATERIAL. THE END PRODUCT MANUFACTURED B THE APPELLANT IS SOLD NOT TO MARUTI UDYOG LIMITED BUT TO THIRD PARTY VENDORS OF MARUTI UDYOG LIMITED WHO IN TURN SELLS THE PRODUCT TO MARUTI UDYOG LIMITED. HENCE FOR THE APPELLANT THE COST OF PURCHASE OF T HE MATERIAL IS TO BE RECOVERED BY SELLING THE PRODUCT TO VENDORS OF MARUTI UDYOG LIMITED AND NOT MARUTI UDYOG LIMITED. HAD IT BEEN A TRUE PASS THROUGH COST MARUTI UDYOG LIMITED SHOULD HAVE ENSURED THAT THE PRICE OF THE PRECISIONS METAL BEIN G PURCHASED BY THE APPELLANT IS MADE AVAILABLE IN ADV ANCE TO THE APPELLANT. LET ALONE BEING MADE AVAILABLE IN AD VANCE IN THE GIVEN CASE THE APPELLANT IS SUPPOSED TO RECOVE R IT NOT FROM MARUTI UDYOG LIMITED BUT FROM THE VENDORS OF M ARUTI UDYOG LIMITED AND THAT TOO AFTER A PROLONGED CREDIT PERIOD. EVEN AT THE END OF THE CREDIT PERIOD MARUTI UDYOG LIMITED DOES NOT GIVE A GUARANTEE THAT IN THE EVENT OF A DE FAULT BY THE VENDOR MARUTI UDYOG LIMITED WILL MAKE THE PAYMENT. 10.4.5 IN THIS REGARD IT IS WORTH MENTIONING HERE T HAT INSPITE OF OPPORTUNITIES GIVEN AT THE APPELLATE STA GE NO AGREEMENT BETWEEN THE APPELLANT AND THE 'VENDORS OF MARUTI UDYOG LIMITED' HAVE BEEN MADE AVAILABLE SO AS TO KN OW THE TERMS / CONDITIONS AND THE BUSINESS MODEL. 10.4.6 FURTHER IT IS ALSO IMPORTANT TO NOTE THE AC COUNTING ENTRIES WHICH ARE EFFECTED BY THE APPELLANT AND THE AE IN THE COURSE OF THE TRANSACTION. THE AE AT THE TIME OF SE LLING THE MATERIAL TO THE APPELLANT INCLUDES IT IN ITS TURNOV ER AND THE APPELLANT INCLUDES THE CORRESPONDING PURCHASE IN IT S EXPENDITURE SIDE. ONCE THE MATERIAL IS PROCESSED AND SOLD TO TH E VENDORS OF MARUTI UDYOG LIMITED THE APPELLANT INCLUDES THE TO TAL SALE VALUE IN ITS TURNOVER. NOWHERE THE ACCOUNTING ENTR IES SHOW THAT THE MATERIAL PURCHASED IS TO BE TREATED AS PASS THR OUGH COST. NO DOUBT THAT THE ACCOUNTING ENTRIES ARE NOT CONCLUSIV E PROOF FOR THE PURPOSES OF TAXATION BUT THEY DO INDICATE THE INTE NTION OF THE ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 12 TRANSACTING PARTIES. IN THIS CASE THE ACCOUNTING EN TRIES CLEARLY INDICATE THAT THE COST OF THE MATERIAL IS TO BE TRE ATED AS A VALUE ADDED COST AND NOT AS A PASS THROUGH COST. 10.4.7 IT IS ALSO WORTH MENTIONING HERE THAT NOT ON LY THE APPELLANT EVEN ITS 'AE' WHICH IS ALSO USING THE PRE CISION METAL AND MANUFACTURING CATALYST THEY ARE ALSO ACCOUNTIN G THE PRECISION METAL IN THE SAME MANNER AND NO WHERE IT IS BEING TREATED AS A PASS THROUGH COST. 10.4.8 KEEPING IN VIEW THE ABOVE DISCUSSION THE APPELLANT'S CONTENTION THAT THE COST OF PURCHASES O F PRECISION METAL IS TO BE TREATED AS A PASS THROUGH COST AND N O PROFIT ELEMENT BE CHARGED ON SUCH A COST IS NOT ACCEPTABLE . IN THEREFORE HOLD THAT THE COST OF PURCHASE OF PRECISION METAL I S A VALUE ADDED COST AND SHOULD BE A PART OF THE COST BASE FOR COMP UTING THE PROFIT ELEMENT. 7. WHILE PLEADING ON BEHALF OF THE ASSESSEE THE LE ARNED AR HAS SUBMITTED THAT THE REVENUE HAS ACCEPTED THE POSITION IN DIFFE RENT YEARS. FOR THAT LEARNED AR SUBMITTED A CHART BEFORE US. LEARNED AR HAS AL SO SUBMITTED WRITTEN SUBMISSION IN RESPECT OF THE USE OF PLI IN DIFFEREN T YEARS WHICH IS REPRODUCED AS UNDER :- ASSESSMENT YEAR PLI USED IN TP STUDY STATUS OF CONTRACT MANUFACTURER PLI AS PER TP ORDER 2002-03 ROCE YES ROCE 2003-04 ROCE YES OP/TC 2004-05 OP/TC RAW MATERIAL YES OP/TC RAW MATERI AL 2005-06 OP/TC RAW MATERIAL YES OP/TC RAW MATERI AL 2006-07 OP/TC RAW MATERIAL YES OP/TC RAW MATERI AL AY 2002-03 RETURN ON CAPITAL EMPLOYED WAS CONSIDERED AS THE AP PROPRIATE PROFIT LEVEL INDICATOR ('PLI') IN THE TRANSFER PRIC ING STUDY. IN THE TRANSFER PRICING ORDER THE TRANSFER PRICING ORDER ('TPO') HAS MENTIONED THAT THE APPELLANT IS A CONTRACT MANUFACT URER AND ALSO ACCEPTED THE PLI CONSIDERED BY THE APPELLANT. ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 13 AY 2003-04 RETURN ON CAPITAL EMPLOYED WAS CONSIDERED AS THE AP PROPRIATE PLI IN THE TRANSFER PRICING STUDY. IN THE TRANSFER PRICING ORDER THE TPO HAS MENTIONED THAT THE APPELLANT IS A CONTR ACT MANUFACTURER. HOWEVER HE REJECTED THE PLI CONSIDER ED BY THE APPELLANT AND SUBSTITUTED THE SAME WITH HIS OWN PLI WHICH IS OP / TC (WITHOUT EXCLUDING THE COST OF RAW MATERIAL). AY 2004-05 OP / TC - RAW MATERIAL WAS CONSIDERED AS THE APPROP RIATE PLI IN THE TRANSFER PRICING STUDY. IN THE TRANSFER PRIC ING ORDER THE TPO HAS MENTIONED THAT THE APPELLANT IS A CONTRACT MANUFACTURER AND ALSO ACCEPTED THE PLI CONSIDERED BY THE APPELLA NT. AY 2005-06 OP / TC - RAW MATERIAL WAS CONSIDERED AS THE APPROP RIATE PLI IN THE TRANSFER PRICING STUDY. IN THE TRANSFER PRIC ING ORDER THE TPO HAS MENTIONED THAT THE APPELLANT IS A CONTRACT MANUFACTURER AND ALSO ACCEPTED THE PLI CONSIDERED BY THE APPELLA NT. AY 2006-07 OP / TC - RAW MATERIAL WAS CONSIDERED AS THE APPROP RIATE PLI IN THE TRANSFER PRICING STUDY. IN THE TRANSFER PRIC ING ORDER THE TPO HAS MENTIONED THAT THE APPELLANT HAS CLASSIFIED ITSELF AS A CONTRACT MANUFACTURER AND ALSO ACCEPTED THE PLI CON SIDERED BY THE APPELLANT. LD. AR PLEADED THAT FOR THE ASSESSMENT YEAR 2003-04 THE RETURN ON CAPITAL EMPLOYED WAS CONSIDERED AS THE MOST APPROPRIATE PLI IN THE TRANSFER PRICING STUDY. THE TPO HAS STATED THAT THE ASSESSEE IS A C ONTRACT MANUFACTURER. HOWEVER HE REJECTED THE PLI CONSIDERED BY THE ASSE SSEE AND SUBSTITUTED THE SAME WITH HIS OWN PLI WHICH IS OP / TC (WITHOUT EXC LUDING THE COST OF RAW MATERIAL). IN ASSESSMENT YEAR 2002-03 THE ASSESSE E CONSIDERED THE RETURN ON ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 14 CAPITAL EMPLOYED AS APPROPRIATE PLI IN THE TRANSFER PRICING STUDY. IN THE TRANSFER PRICING ORDER THE TPO MENTIONED THAT ASSE SSEE IS A CONTRACT MANUFACTURER AND ALSO ACCEPTED THE PLI CONSIDERED B Y THE ASSESSEE. IN THE ASSESSMENT YEAR 2004-05 THE ASSESSEE CONSIDERED OP / TC MINUS RAW MATERIAL COST AS AN APPROPRIATE PLI IN THE TRANSFER PRICING STUDY. THE TPO HAS MENTIONED IN HIS ORDER THAT THE ASSESSEE IS A CONTR ACT MANUFACTURER AND ALSO ACCEPTED THE PLI CONSIDERED BY THE ASSESSEE. SIMIL ARLY IN 2005-06 AND 2006- 07 THE OP / TC MINUS RAW MATERIAL WAS CONSIDERED A S THE APPROPRIATE PLI IN THE TRANSFER PRICING STUDY. THE TPO MENTIONED THAT ASSESSEE IS A CONTRACT MANUFACTURER AND ALSO ACCEPTED THE PLI CONSIDERED B Y THE ASSESSEE. LD. AR SUBMITTED THAT IN VIEW OF VARIOUS DECISIONS ON THE RULE OF CONSISTENCY BY FOLLOWING THE PRINCIPLES OF RES JUDICATA THE PLI A S WORKED OUT BY THE ASSESSEE MUST HAVE BEEN ACCEPTED. FOR THIS HE RELIED ON TH E FOLLOWING CASE LAWS :- 1. H.A SHAH & CO. VS. COMMISSIONER OF INCOME TAX & EXCESS PROFITS TAX BOMBAY CITY - [1956 -(3) -ITR -0618 - BOM] 2. COMMISSIONER OF INCOME-TAX PUNJAB VS. DALMIA D ADRI CEMENT LTD. - [1970-(077)-ITR -0410 -P&H] 3. RUSSELL PROPERTIES PVT. LTD. VS. A. CHOWDHURY ADDL. COMMISSIONER OF INCOME-TAX WEST BENGAL AND OTHE RS - [1977-(109)-ITR -0229-CAL] 4. SARDAR KEHAR SINGH VS. COMMISSIONER OF INCOME-TA X AND OTHERS - [1992-(195)-ITR -0769 RAJ.] ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 15 5. COMMISSIONER OF INCOME-TAX VS. GODAVARI CORPOR ATION LTD [1985-(156)-ITR -0835 -MP] 6. RADHASOAMI SATSANG VS. COMMISSIONER OF INCOME T AX - [1992-(193)-ITR-321 -SC] 7. DIRECTOR OF INCOME TAX (EXEMPTION) & ANR. VS. A PPAREL EXPORT PROMOTION COUNCIL [2000 -(244) -ITR -0734 - DEL] 8. COMMISSIONER OF INCOME TAX VS. NEO POLY PACK (P ) LTD. [2000 -(245) -ITR -0492 -DEL] 9. COMMISSIONER OF INCOME TAX VS. A.R.J. SECURITY PRINTERS - [2003 -(264) -ITR-0276-DEL] 10. COMMISSIONER OF INCOME TAX VS. DALMIA PROMOTER S DEVELOPERS (P) LTD. [2006 -(281) -ITR -0346 -DEL] 11. COMMISSIONER OF INCOME-TAX VS. HANG CRANK SHAF TS LTD. - [2008-(173)-TAXMAN -0152 -DEL] 12. DIRECTOR OF INCOME-TAX (EXEMPTIONS) VS. ESCORT S CARDIAC DISEASES HOSPITAL SOCIETY - [2008-(300)-ITR -0075 -DEL] 13. COMMISSIONER OF INCOME-TAX VS. HARYANA STATE I NDUSTRIAL DEVELOPMENT CORPORATION LTD. - [2010 -(326) -ITR - 640 - P&H] 14. COMMISSIONER OF INCOME TAX -25 VS. GOPAL PUROH IT - [2010 -(188) -TAXMAN -0140 -BOM] 15. MANAGEMENT STRUCTURE & SYSTEMS PVT. LTD. VS. I NCOME TAX OFFICER MUMBAI - [2010-(ID1)-GJX -0046 - TBOM] ITA NO. 6966/ MUM/ 2007 16. ASSISTANT COMMISSIONER OF INCOME TAX VS. M/S. L OREAL INDIA PVT. LTD. [ITA NO.6745/M/2008) 8. ON THIS ISSUE THE LEARNED DR SUBMITTED THAT IT IS A GENERAL RULE THAT PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE DECISIONS OF INCOME-TAX ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 16 PROCEEDINGS. IN ASSESSMENT FOR A PARTICULAR YEAR I S FINAL AND CONCLUSIVE BETWEEN THE PARTIES ONLY IN RELATION TO THAT PARTIC ULAR YEAR. THE DECISION GAVE IN ANY PARTICULAR ASSESSMENT YEAR IS NOT BINDING ON EITHER SIDE IN THE SUBSEQUENT YEARS. HE ALSO SUBMITTED THAT THESE PRI NCIPLES OF RES JUDICATA AND ESTOPPEL BY RECORD APPLIES TO DECISIONS OF CIVIL CO URTS AND HAS NO APPLICATION TO THE DECISIONS OF INCOME-TAX AUTHORITIES. THE TA X AUTHORITIES ARE NOT PRECLUDED FOR DETERMINATION OF A QUESTION IN A SUBS EQUENT YEAR. SUCH PROPOSITION HAS BEEN HELD BY THE HON'BLE SUPREME CO URT IN THE CASE OF NEW JEHANGIR VAKIL MILLS CO. LTD. VS. CIT (1963) 49 I TR (SC) 137 AND ALSO IN OTHER CASE NAMELY ITO VS. MURLIDHAR BHAGWAN DAS (1964) 52 ITR 335 (SC). HE RELIED ON THE ORDER OF THE CIT (A). 9. WE HAVE HEARD BOTH THE SIDES IN DETAIL. WE HAVE ALSO CONSIDERED THE CASE LAWS RELIED UPON BY BOTH THE SIDES. IN OUR CO NSIDERED VIEW THE PRINCIPLE OF RES JUDICATA CANNOT BE APPLIED IN THE CASES WHER E THE ASSESSMENTS OF DIFFERENT YEARS ARE INVOLVED. THE CONCEPT OF TRANS FER PRICING IS DIRECTLY LINKED TO THE COMPUTATION OF INCOME ON YEAR TO YEAR BASIS AND IT CANNOT BE AN ISSUE WHICH IS SETTLED ONCE FOREVER. EVERY YEAR THE TRA NSACTIONS VARY AND THE FACTS OF THE CASE ALSO VARY FOR CALCULATING THE TAXABLE I NCOME. THE CHART SUBMITTED BY THE ASSESSEE WHICH ITSELF SHOWS THAT THE ASSESSE E HAS HIMSELF CHANGED THE METHOD TO WORK OUR APPROPRIATE PLI. IN 2002-03 AND IN THE YEAR UNDER CONSIDERATION THE ASSESSEE TOOK THE PLI ON RETURN ON CAPITAL EMPLOYED WHILE ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 17 IN THE SUBSEQUENT YEARS 2004-05 TO 2006-07 THE ASS ESSEE HAS CONSIDERED THE OP / TC MINUS RAW MATERIAL AS THE MOST APPROPRIATE METHOD FOR WORK OUT THE PLI. THEREFORE IN OUR CONSIDERED VIEW IT WAS OPE N TO THE TAXING AUTHORITIES TO CONSIDER THE POSITION ON YEAR TO YEAR BASIS FOR WORKING OUT THE APPROPRIATE PLI IN THE TRANSFER PRICING. THE SELECTION OF PLI DEPENDS ON NUMBER OF ECONOMIC FACTORS. THE SELECTION OF THE PLI ALSO DE PENDS ON THE FACTUAL POSITION OF THE CASE ON COMPARABLE COMPANIES AND F AR ANALYSIS WHICH MAY VARY YEAR TO YEAR BASIS. THE HON'BLE ITAT DELHI I N THE CASE OF CARRARO INDIA LTD. 2008-TOIL-519-ITAT-DEL HAS HELD THAT THERE C AN BE NO PRESUMPTION THAT IF IN ONE YEAR INTERNATIONAL TRANSACTIONS ARE CARRIED AT ARMS LENGTH PRICE THEN IT IS CARRIED AT ARMS LENGTH IN ALL THE OTHER ASSESSMENT YEARS. CONSIDERING ALL THESE FACTS AND CASE LAWS WE HOLD THAT THE PRINCIPLE OF CONSISTENCY OR SAY THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. 10. WE HAVE ALSO HEARD BOTH THE SIDES ON THE ISSUE OF PROFIT LEVEL INDICATOR (PLI). AFTER HEARING BOTH THE SIDES WE ARE OF THE VIEW THAT PLI ARE THE RATIOS THAT MEASURE RELATIONSHIP BETWEEN PROFITS WITH COST S OR RESOURCES. THE USE OF A PARTICULAR PLI DEPENDS ON A NUMBER FACTORS INCLUD ING NATURE OF ACTIVITIES OF TESTED PARTY THE RELIABILITY OF AVAILABLE DATA WIT H RESPECT TO UNCONTROLLED COMPARABLES AND THE EXTENT OF WHICH THE PLI IS LIKE LY TO PRODUCE AVAILABLE MEASURE OF INCOME. THE PLI IS SELECTED WITH ITS AP PROPRIATENESS FOR THE ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 18 TRANSACTION UNDER VIEW. THE PLI REPRESENT A LOGICA L FINANCIAL RELATIONSHIP BETWEEN THE TWO COMPONENTS / VARIABLES. IN THE ASSE SSEES CASE THE ASSESSEE HAS APPLIED RETURN ON CAPITAL EMPLOYED AS PLI IN TH E TRANSFER PRICING DOCUMENTATION. SINCE THE ASSESSEE IS ENGAGED IN TH E MANUFACTURING OF AUTOMOBILE EXHAUST CATALYSTS AND MAKING IMPORT OF R AW MATERIAL FROM ITS AE THE RETURN ON CAPITAL EMPLOYED IS NOT AN APPROPRIAT E PLI. FURTHER THE OPERATING PROFIT AS A PERCENTAGE OF TOTAL COST HAS TO BE THE BASIS INSTEAD OF OPERATING PROFIT AS A PERCENTAGE OF THE TOTAL COST MINUS RAW MATERIAL COST WHICH THE ASSESSEE CLAIMS. THE ASSESSEES EXPLANAT ION TO JUSTIFY THE SAME BY EXPLAINING THE BUSINESS MODEL AND PRICING ARRANGEME NT WITH THE CUSTOMER CANNOT BE ACCEPTED. THE ASSESSEES CLAIM THAT THE ASSESSEE HAS NO ROLE TO PLAY IN SELECTING EITHER THE SUPPLIER OF RAW MATERIAL OR DETERMINING THE TERMS OF PRICING OF THE RAW MATERIAL AND DETERMINING THE CUS TOMER. IT IS ALSO CLAIMED THAT THE COST OF RAW MATERIAL DOES NOT AFFECT THE P ROFITABILITY HENCE IT CANNOT BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PLI AS OPERATING PROFIT. THIS VIEW OF THE ASSESSEE CANNOT BE ACCEPTED. IT IS A F ACT THAT ITS RAW MATERIAL SUPPLIED BY THE AE IS NOT EXACTLY IN THE SAME CONDI TION WHICH HAS BEEN PURCHASED ON THE INSTRUCTIONS OF CUSTOMER (MARUTI U DYOG LIMITED). FURTHER AFTER THE MANUFACTURING OF AUTOMOBILE CATALYST THE SAME ARE NOT DIRECTLY SOLD AND SUPPLIED TO MARUTI UDYOG LIMITED BUT THE SAME ARE SOLD/SUPPLIED TO VENDORS OF MARUTI UDYOG LIMITED. IT IS AN UNDISPU TED FACT THAT PURCHASE OF ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 19 RAW MATERIAL IS AS PER ADVICE OF MARUTI UDYOG LIMIT ED BUT THE SAME IS NOT SUPPLIED TO ASSESSEE BY AE IN SAME FORM OR CONDITIO N. ASSESSEE HAD ALSO FAILED TO JUSTIFY ITS CLAIM BY WAY OF FILING AGREEM ENTS WITH VENDORS OF MARUTI UDYOG LIMITED TO WHOM THE SUPPLY IS MADE. IN VIEW OF THESE FACTS THE PURCHASE COST OF THE RAW MATERIAL CANNOT BE SAID TO BE A PASS THROUGH COST. IT CANNOT BE REDUCED TO WORKING OUT THE PLI. SOME TEC HNICAL PROCESSES ARE CONDUCTED BY THE AE ON THE RAW MATERIAL PURCHASED A ND THEN ONLY IT IS SUPPLIED TO THE ASSESSEE COMPANY WHICH AFTER MANUFA CTURING AUTOMOBILE CATALYST SUPPLIES TO THE VENDORS OF MARUTI UDYOG LI MITED. THE ASSESSEES AGREEMENT WITH THE MARUTI UDYOG LIMITED UNDER WHICH ASSESSEE IS OBLIGED TO PURCHASE THE PRECIOUS METAL RAW MATERIAL ON THE BAS IS OF PRICE QUOTES ADVISED BY MARUTI UDYOG LIMITED BUT IT CANNOT BE A BASIS ON WHICH THE COST CAN BE CONSIDERED AS PASS THROUGH COST. SUCH ARRANGEMENTS ONLY INSULATE THE ASSESSEE AS WELL AS THE MARUTI UDYOG LIMITED IN RES PECT OF THE HEAVY FLUCTUATIONS IN THE PRICE OF PRECIOUS METAL RAW MAT ERIAL. THIS IS WHAT ASSESSEE IS EXACTLY DOING. ASSESSEE PURCHASES THE RAW MATER IAL WHEN THE MARUTI UDYOG LIMITED ADVISES AND PLACED A CONFIRMED ORDER FOR THE PURCHASE OF THE END PRODUCT IN WHICH THESE PRECIOUS METALS RAW MATE RIAL ARE USED. MARUTI UDYOG LIMITED DOES NOT GUARANTEE THE RECOVERABILITY OF THE COST OF RAW MATERIAL. AE DO SOME TECHNICAL PROCESS ON THIS RAW MATERIAL. THE END PRODUCT MANUFACTURED BY THE ASSESSEE IS NOT SOLD DI RECTLY TO THE MARUTI UDYOG ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 20 LIMITED BUT THESE ARE SUPPLIED TO THE THIRD PARTY V ENDORS OF MARUTI UDYOG LIMITED WHO IN TURN FURTHER SELL TO MARUTI UDYOG LI MITED. WE WOULD ALSO LIKE TO NOTE THAT THE ACCOUNTING ENTRIES MADE BY TH E ASSESSEE IN RESPECT OF THE TRANSACTIONS ENTERED INTO WITH AE SHOW THAT THE PUR CHASES OF THE RAW MATERIAL IS A PART OF THE TURNOVER OF THE ASSESSEE. THE MAT ERIAL IS PROCESSED AND THEN SENT TO VENDORS OF MARUTI UDYOG LIMITED AND TOTAL S ALE VALUE IS TAKEN AS TURNOVER OF THE ASSESSEE. THESE ACCOUNTING ENTRIES DO INDICATE THE INTENTION OF THE TRANSACTING PARTIES. THE ACCOUNTING OF THE ASS ESSEE SHOWS THAT THE COST OF RAW MATERIAL IS A VALUE ADDED COST AND NOT AS A PAS S THROUGH COST. EVEN THE AE WHICH ARE USING THE PRECIOUS PRECISION METAL FOR MANUFACTURING CATALYST RAW MATERIAL AND THEY ARE ALSO ACCOUNTING THE PRECI OUS PRECISION METAL IN THE SAME MANNER AS THE ASSESSEE IS DOING. AE ALSO DO N OT TREAT IT AS A PASS THROUGH COST. ALL THESE FACTS SHOW THAT THE ASSESS EES CLAIM TO TREAT THE COST OF PURCHASE OF PRECIOUS METAL AS A PASS THROUGH COST H AS NO BASIS. IN VIEW OF THIS WE ARE UNABLE TO AGREE WITH THE ASSESSEES CO NTENTION THAT COST OF PURCHASE OF PRECIOUS METAL SHOULD NOT BE ADDED TO T HE COST. IN OUR CONSIDERED VIEW IT MUST BE A PART OF THE COST BASE FOR COMPUT ING THE PROFIT ELEMENT. 11. ON THE ISSUE OF ALLOWING ADJUSTMENT OF 5% FOR DETERMINING THE ALP AS PROVIDED IN THE PROVISIONS OF SECTION 92C(2) OF INCOME-TAX ACT THE CIT (A) HAS DECIDED THE ISSUE AS UNDER :- 12.3.1 I HAVE GONE THROUGH THE ABOVE SUBMISSION OF THE APPELLANT WHERE THE APPELLANT CLAIMS THE BENEFIT O F 5% AS A ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 21 STANDARD DEDUCTION. THE APPELLANT CLAIMS THE BENEFI T OF ADJUSTMENT UNDER PROVISO TO SECTION 92C (2) WHICH R EAD AS UNDER:- 'PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMI NED BY THE MOST APPROPRIATE METHOD THE ARM'S LENGTH PR ICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION OF THE ASSESSEE A PRICE WHICH MA Y VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDI NG FIVE PER CENT OF SUCH ARITHMETICAL MEAN. 12.3.2 IT IS PERTINENT TO HIGHLIGHT HERE THAT THE T PO DID NOT ALLOW ANY BENEFIT AS IN HIS VIEW ABOVE PROVISION W AS NOT APPLICABLE IN THIS CASE. THE PROVISION WOULD BE APP LICABLE ONLY IF ARM'S LENGTH PRICE SHOWN BY THE TAXPAYER FALLS W ITHIN 5% OF ARITHMETIC MEAN OF MORE THAN ONE PRICE DETERMINED B Y THE MOST APPROPRIATE METHOD. AS THE TAXPAYER WAS NOT FALLING IN ABOVE RANGE IT WAS NOT ENTITLED TO ANY BENEFIT. SECONDLY THE OPTION IS SURELY AVAILABLE TO THE APP ELLANT BUT IT IS AVAILABLE ONLY WHEN HE IS COMPUTING THE ALP AND NOT WHEN: AO /TPO IS COMPUTING THE ALP. 12.3.3 SECTION 92(1) OF THE INCOME TAX ACT PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTIO N SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. S ECTION 92C(2) OF THE ACT PROVIDES FOR DETERMINATION OF THE ARM'S LENGTH PRICE BY APPLYING THE MOST APPROPRIATE METHOD IN TH E PRESCRIBED MANNER. THE PROVISO TO THE SAID SECTION 92C(2) AS IT STOOD ORIGINALLY BEFORE ITS AMENDMENT BY THE FINANCE ACT 2002 PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMIN ED BY THE MOST APPROPRIATE METHOD THE ARM'S LENGTH PRICE SHA LL BE TAKEN TO BE ARITHMETICAL MEAN OF SUCH PRICES. THIS WOULD HAV E RESULTED INTO ADDITION TO THE TOTAL INCOME ON ACCOUNT OF TRA NSFER PRICING ADJUSTMENTS IN ALL CASES WHEREVER THERE WAS ANY VAR IATION BETWEEN THE ARITHMETICAL MEAN ARM'S LENGTH PRICE (I .E. MEAN ALP) DETERMINED BY THE AO / TPO AND THE TRANSFER PR ICE AS SHOWN BY THE TAXPAYERS. 12.3.4 THE TRANSFER PRICING PROVISIONS WERE BROUGHT ON THE STATUTE BY THE FINANCE ACT 2001 W.E.F. 01.04.2001. WITH A VIEW TO AVOID HARDSHIP TO THE TAXPAYERS IN THE INITIAL Y EARS OF ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 22 IMPLEMENTATION OF THESE PROVISIONS THE GOVT. OF IN DIA THROUGH A PRESS NOTE ISSUED BY THE MINISTRY OF FINANCE (DEPAR TMENT OF REVENUE) ON 22.8.2001 EXPRESSED ITS INTENTION OF N OT MAKING ANY ADJUSTMENT IF THE PRICE ADOPTED BY THE TAXPAYER WAS UPTO 5% LESS OR UP TO 5% MORE THAN THE ARM'S LENGTH PRICE D ETERMINED BY THE AO. IMMEDIATELY THEREAFTER THE BOARD ISSUED TH E CIRCULAR NO. 12 DATED 23.8.2001 SPECIFYING THAT THE AO SHALL NOT MAKE ANY ADJUSTMENT TO THE PRICE SHOWN BY THE TAXPAYER I F SUCH PRICE WAS UP TO 5% LESS OR UP TO 5% MORE THAN THE ARM'S L ENGTH PRICE DETERMINED BY THE AO AND IN SUCH CASES THE PRICE D ECLARED BY THE TAXPAYER MAY BE ACCEPTED. 12.3.5 IN EFFECT THE TRANSFER PRICE SHOWN BY THE T AXPAYER WAS NOT TO BE DISTURBED IF IT WAS WITHIN 5% MEAN A LP RANGE I.E. UPTO 5% LESS (I.E. IN CASE OF RECEIPTS) OR UP TO 5% MORE (I.E. IN CASE OF OUTGOINGS) THAN THE ARM'S LENGTH PRICE D ETERMINED BY THE AO BASED ON THE ARITHMETICAL MEAN OF THE PRICES . IF THE TRANSFER PRICE SHOWN BY THE TAXPAYER WAS LESS THAN 5% (IN CASE OF RECEIPTS) OR MORE THAN 5% (IN CASE OF OUTGOINGS) OF THE ARITHMETICAL MEAN ARM'S LENGTH PRICE (I:E. MEAN ALP ) DETERMINED BY THE AO THEN THE TRANSFER PRICE DECLARED BY THE TAXPAYER WAS NOT TO BE ACCEPTED AND THE ADJUSTMENT.) WAS REQUIRE D TO BE MADE FOR THE DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE D ETERMINED BY THE AO BASED ON THE ARITHMETICAL MEAN OF THE PRICES (I.E. MEAN ALP) AND THE TRANSFER PRICE SHOWN BY THE TAXPAYER. 12.3.6 THE RELAXATION IN TRANSFER PRICING ADJUSTMEN TS PROVIDED BY THE BOARD'S CIRCULAR NO.12 DATED 23.8.2 001 REFERRED TO IN THE PROCEEDINGS PARAGRAPH WAS CLEAR LY INTENDED TO REMOVE HARDSHIP TO THE TAXPAYERS IN WHOSE CASES THE VARIATION BETWEEN THE DECLARED TRANSFER PRICE AND THE DETERMI NED MEAN ALP WAS ONLY MARGINAL I.E. WITHIN 5% OF THE MEAN A LP. THIS RELAXATION WAS NOT INTENDED TO BE PROVIDED TO THE T AXPAYERS IN WHOSE CASES THE VARIATION BETWEEN THE DECLARED TRAN SFER PRICE AND THE DETERMINED MEAN ALP WAS SUBSTANTIAL AND EXC EEDED THE PERMISSIBLE +5% RANGE. SUBSEQUENTLY THE RELAXATION EXTENDED BY THE ABOV E CIRCULAR WAS IN SUBSTANCE BROUGHT ON THE STATUTE BY THE FINANCE ACT 2002 BY AMENDING THE PROVISO TO SECTION 92C(2) OF THE ACT WITH RETROSPECTIVE EFFECT FROM 01.04.2002 SO AS TO PROVIDE THAT BESIDES THE ARITHMETICAL MEAN OF THE PRICES THE AR M'S LENGTH ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 23 PRICE SHALL BE A PRICE WHICH VARIES FROM THE ARITHM ETICAL MEAN UP TO 5%. 12.3.7 IT IS THUS EVIDENT THAT THE LEGISLATIVE IN TENT OF THE AMENDED PROVISO TO SECTION 92C(2) OF THE ACT IS TO REMOVE HARDSHIP IN CASES OF MARGINAL VARIATION UP TO 5% B ETWEEN THE TRANSFER PRICE DECLARED BY THE TAXPAYER AND THE MEA N ALP DETERMINED BY THE TPO. THIS IS SOUGHT TO BE ACHIEVE D BY TAKING THE ARITHMETICAL MEAN PRICE AFTER ADJUSTMENT OF VAR IATION UP TO 5% (I.E. ADJUSTED MEAN ALP) AS THE ARM'S LENGTH P RICE SO THAT IN CASES OF MARGINAL VARIATION UP TO 5% THERE WOU LD BE NO DIFFERENCE BETWEEN THE TRANSFER PRICE DECLARED BY T HE TAXPAYER AND THE ALP DETERMINED BY THE TPO. CONSEQUENTLY TH ERE WOULD BE NO ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUS TMENT IN CASES OF MARGINAL VARIATION UPTO 5% BETWEEN THE TRANSFER PRICE DECLARED BY THE TAXPAYER AND THE MEAN ALP DETERMINE D BY THE TPO. 12.3.8 THE BENEFIT OF ADOPTING THE ADJUSTED MEAN AL P AS THE ARM'S LENGTH PRICE IS NOT INTENDED TO THE AVAIL ABLE TO A CASE WHERE THE VARIATION BETWEEN THE TRANSFER PRICE SHOW N BY THE TAXPAYER AND THE MEAN ALP DETERMINED BY THE TPO EXC EEDS 5% OF MEAN ALP. IN CASE THE VARIATION BETWEEN THE TRANSFER PRICE DECLARED BY THE TAXPAYER AND THE MEAN ALP DET ERMINED BY THE TPO EXCEEDS 5% OF MEAN ALP THEN THE ARM'S LEN GTH PRICE SHALL BE TAKEN TO BE MEAN ALP AND NOT THE ADJUSTED MEAN ALP. CONSEQUENTLY THE TRANSFER PRICING ADJUSTMENT WOULD BE MADE FOR THE DIFFERENCE BETWEEN THE TRANSFER PRICE SHOWN BY THE TAXPAYER AND THE MEAN ALP DETERMINED BY THE TPO. 12.3.9 THUS IT IS CLEAR FROM THE ABOVE DISCUSSIONS THAT THE 5 PERCENT RANGE WAS PROVIDED IN SECTION 92C(2) IN LIEU OF CIRCULAR 12 TO AVOID UNNECESSARY HARDSHIP TO COMPAN IES WHERE THE ADJUSTMENT FROM THE ARM'S LENGTH PRICE WAS WITH THE RANGE PRESCRIBED. HOWEVER SUCH BENEFIT CANNOT BE CONSIDERED TO BE A STANDARD / UNIVERSAL DEDUCTION ALLOWED IN EACH AND EVERY CASE WHERE THE ASSESSEE EXCEEDS THE PERMISSIBLE LIMIT AN D FALLS OUTSIDE THE ARM'S LENGTH RANGE. IF IT IS CONSIDERED AS A STANDARD DEDUCTION THEN IT WOULD BE AN INCORRECT INTERPRETA TION OF THE LAW WHOSE INTENTION WAS IN SUBSTANCE TO PROVIDE RELIEF TO ASSES SEES ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 24 WHO FALL WITHIN THE PRESCRIBED RANGE. THE PRINCIPLE OF SUBSTANCE OVER FORM CANNOT BE OVERLOOKED AS CLAIMED BY THE AP PELLANT BY STATING THE RULING OF SONY INDIA PRIVATE LIMITED. 12.3.10 FURTHER THE PROVISO ONLY PROVIDES A RELIEF TO THE TAX PAYER AT THE TIME OF DETERMINING THE ALP. THE HON' BLE ITAT HAS OBSERVED THAT THE TP PROVISIONS ARE NOT AN EXAC T SCIENCE AND THIS IS THE REASON AS TO WHY THE ASSESSEE HAS BEEN PROVIDED THE SHELTER OF VARIATION OF 5% BY THE PROVISO. THE SHEL TER IS AVAILABLE TO ENSURE THAT THE ASSESSEE NEED NOT MAKE ANY CHANG ES IN ITS TRANSACTIONAL PRICE IF THE VARIATION W.R.T. THE ALP IS WITHIN A RANGE OF 5%. THE PROVISO ENSURES THAT NEITHER THE A SSESSEE IS BURDENED AT THE TIME OF CONDUCTING THE TP ANALYSIS NOR IS THE ASSESSEE BURDENED WITH SMALL AMOUNTS OF ADDITIONS M ADE BY THE REVENUE. HOWEVER THE PROVISO IS TOTALLY SILENT AS TO WHAT SHOULD BE DONE IF THE ALP IS NOT WITH THE RANGE OF 5% OF THE TRANSACTION PRICE. THIS IS EXPLAINED BY THE ORIGINA L CIRCULAR ISSUED BY THE GOVERNMENT. IN CASES WHERE THE VARIAT ION IS IN EXCESS OF 5% NO RELIEF IS TO BE PROVIDED TO THE AS SESSEE. IT IS FOR THIS REASON THAT THE ORIGINAL CIRCULAR HAS STILL NO T BEEN WITHDRAWN BY THE DEPARTMENT. THERE IS NO DOUBT THAT THE LAW H AS BEEN AMENDED SUBSEQUENTLY AND A LARGE PART OF THE CIRCUL AR HAS BEEN CONVERTED INTO LEGISLATION BUT STILL THE CIRCULAR R EMAINS THE ONLY DIRECTIVE ISSUED BY THE GOVERNMENT TO THE AO / TPO EXPLAINING THEM HOW THEY SHOULD DEAL WITH CASES WHERE THE VARI ATION BETWEEN THE ALP AND TRANSACTION PRICE IS IN EXCESS OF 5%. HENCE IT IS VERY DIFFICULT TO DISREGARD THE CIRCULAR WHIC H EXPLAINS THE INTENTION OF THE CONCEPT OF 5%. 12.3.11 THEREFORE IN MY HUMBLE VIEW KEEPING THE LEGISLATIVE INTENT OF THE PROVISO TO SECTION 92C(2) OF THE ACT THE ADJUSTMENT FOR 5% IN ALP DETERMINATION CANNOT BE T AKEN AS A STANDARD DEDUCTION. 12.3.12 THE APPELLANT IN HIS SUBMISSIONS HAS REFERR ED TO THE DECISION OF VARIOUS TRIBUNALS AND HAS ASSERTED THAT THEY SHOULD BE FOLLOWED FOR ALLOWING THE BENEFIT OF 5%. IN THIS REGARD IT IS VERY HUMBLY SUBMITTED THAT E VEN THOUGH AN ITAT RULING NEEDS TO BE GIVEN HIGHEST RES PECT AND ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 25 APPLIED IN LETTER AND SPIRIT BUT IN CONTEXT OF ARE A OF TRANSFER PRICING WHICH IS AT NASCENT STAGE AND GIVEN THE B ACKGROUND WHERE THERE IS NO MUCH JURISPRUDENCE EITHER FROM IT AT BENCHES AND MUCH LESS (ABSOLUTELY NEGLIGIBLE AND THAT TOO O N CERTAIN ISSUES HAVING DIVERGENT VIEWS/OPINION) FROM HIGH COURTS/SUPREME COURTS THE CIT-A BEING AN APPELLATE AUTHORITY IN ORDER TO ENABLE THE DEVELOPMENT OF WHOLESOME LAW ON A COMPLEX SUBJECT IN MY UNDERSTANDING MAY RESPECTFUL LY DEVIATE FROM UNDERSTANDING GIVEN BY THE HON'BLE ITAT. 12.3.13 FOR AFORESAID PROPOSITION I RESPECTFULLY P LACE RELIANCE ON THE PRINCIPLE ARTICULATED IN SPECIAL BE NCH ITAT RULING IN THE CASE OF GOLD MINE REPORTED AT 113 ITD 209: ' ... 53. REFERRING TO THE CASE BEFORE THE RAJASTHA N HIGH COURT IN CIT V. MEWAR OIL & GENERAL MILLS LTD. (SUP RA) IT IS EMPHATICALLY SUBMITTED BY MR. VORA THAT THE AFORESAID DECISION OF THE RAJASTHAN HIGH COURT BEI NG THE ONLY HIGH COURT DECISION DIRECTLY ON THE POINT IT IS WELL SETTLED IS BINDING ON THE BENCH AS HAS BEEN HELD IN CIT V. AKSHAY KUMAR JAIN 281 ITR 431(MP); SAE HEAD OFFICE MONTHLY PAID EMPLOYEES WELFARE TRUST: 271 IT R 159 (DEL); CIT V. SARABHAI SONS LTD. 143 ITR 473 4 86 (GUJ); AND THAT THE DECISION DOES NOT LOSE ITS BIND ING FORCE MERELY BECAUSE SUB-SECTION (6) OF SECTION 801 HAS N OT BEEN SPECIFICALLY REPRODUCED/ INCORPORATED IN THE JUDGMENT SINCE: (A) SECTION 801 HAS BEEN SPECIFICAL LY REFERRED AND CONSIDERED BY THE COURT; AND (B) ARGUM ENTS BASED ON THE LANGUAGE OF SUB-SECTION (6) SIMILAR T O THE ONE ADDRESSED BEFORE THIS BENCH WERE ALSO VERY MUC H RAISED AND CONSIDERED BY THE COURT. REFERENCE IN T HIS REGARD WAS MADE TO BALLABHDAS MATHURADAS LAKHANI A IR 1970 SC 1002 1003 WHEREIN THEIR LORDSHIPS OBSERVED IN THE CONTEXT OF BINDING EFFECT OF DECISION OF SUPREM E COURT ON THE HIGH COURT THAT: 4 .... THE DECISION WAS BINDING ON THE HIGH COURT A ND THE HIGH COURT COULD NOT IGNORE IT BECAUSE THEY THOUGHT THAT RELEVANT PROVISIONS WERE NOT BROUGHT TO THE NOTICE OF THE COURT. FOLLOWING THE AFORESAID DECISION THE SUPREM E COURT IN DIRECTOR OF SETTLEMENTS AP V. M.R. APPARA O OBSERVED: ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 26 7. . .. THE DECISION IN A JUDGMENT OF THE SUPREME C OURT CANNOT BE ASSAILED ON THE GROUND THAT CERTAIN ASPEC TS WERE; NOT CONSIDERED THE RELEVANT PROVISIONS WERE N OT BROUGHT TO THE NOTICE OF THE COURT (SEE AND AIR 197 3 SC 794) .... 54. WE DO NOT FIND ANY MERITS IN THESE SUBMISSIONS OF MR. VORA. FIRSTLY THE SUPREME COURT WAS DEALING WITH T HE BINDING NATURE OF THE SUPREME COURT DECISION ON THE HIGH COURT WHEREAS WE ARE DEALING WITH THE DECISION OF A HIGH COURT AND THAT TOO OF A HIGH COURT HAVING NO JURISD ICTION OVER THE CASE ARISING FROM A DIFFERENT STATE WHICH THOUGH HAS A HIGH PERSUASIVE VALUE IS NOT BINDING IN OTHER JURISDICTION. SECONDLY THE DECISION OF RAJASTHAN H IGH COURT HAS NOT DEALT WITH AND WAS ALSO NOT ADDRESSED TO DEAL WITH. THE CONTROVERSY BY NOTICING THE NON OBST ANTE PROVISIONS OF SECTION B01(6)/ BOIA(5) AFORESAID. THIRDLY IN ANY CASE THE ISSUE BEFORE RAJASTHAN HIG H COURT WAS WHETHER ASSESSING OFFICER COULD BE SAID T O BE JUSTIFIED TO INVOKE SECTION 154 TO RECTIFY THE MIST AKE WHICH ON A CONTENTIOUS MATTER IS NOT PERMITTED. FOU RTHLY A DECISION WITHOUT NOTICING AN EXISTING PROVISION O F LAW GOVERNING THE VERY ISSUE IN DISPUTE CANNOT SHUT THE DOORS OF THE TRIBUNAL IN CONSIDERING AND APPLYING THE PRO VISIONS OF LAW DE HORS THE CONTRARY DECISION OF A HIGH COUR T. THIS IS BECAUSE A STATUTORY PROVISION SUPERSEDES THE CON TRARY DECISION OF ANY COURT INCLUDING THAT OF A HIGH COUR T OR EVEN SUPREME COURT AND HAS AN ULTIMATE FORCE OF LAW HAVING GREATER FORCE. FIFTHLY IN THE FIRST CASE IT WAS NOT AN ACTUAL NON CONSIDERATION OF A PROVISION BUT AS THE SUPREME COURT ITSELF SAYS IN THE UNDERLINED PORTION BY THE INTERVENER ITSELF 'BECAUSE THEY THOUGHT THAT 'RELEV ANT PROVISIONS WERE NOT BROUGHT TO THE NOTICE OF THE CO URT''. 55. IT IS TRUE THAT IN THE CASE OF DIRECTOR OF SETT LEMENT AP VS. M.R. APPARAO (SUPRA) THE SUPREME COURT OBSERVED IN PARA -7 OF ITS JUDGMENT THAT DECISION I N THE JUDGMENT OF THE SUPREME COURT CANNOT BE ASSAILED ON THE GROUND THAT CERTAIN ASPECTS ARE NOT CONSIDERED OR T HE RELEVANT PROVISIONS OF THE ACT IS NOT BROUGHT TO TH E NOTICE OF THE COURT BUT THESE OBSERVATIONS WERE BASED ON THE DECISION OF THE SUPREME COURT IN AIR 1970 IN THE CA SE OF ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 27 BALLABHDAS MATHURADAS LAKHANI (SUPRA) WHEREIN THE SUPREME COURT AS STATED ABOVE HAS MADE OBSERVATIO N THAT HIGH COURT COULD NOT IGNORE THE DECISION OF TH E SUPREME COURT BECAUSE 'THEY THOUGHT' THAT THE RELE VANT PROVISIONS WERE NOT BROUGHT TO THE NOTICE OF THE CO URT. THERE WAS ACTUALLY NO IGNORANCE. WE HOWEVER FIND IN PARAGRAPH-12 OF THE JUDGMENT OF THE SUPREME COURT'S OBSERVATION IN APPARAO' CASE AS UNDER: MR. RAO THEN PLACED. RELIANCE ON YET ANOTHER DECISI ON OF THIS COURT IN THE CASE OF A-ONE GRANITES V. STATE O F U.P. AND ORS. (2001) 2 SCC 537 TO WHICH ONE OF US (PATTA NAIK J.) WAS A PARTY. IN THAT PARTICULAR CASE THE APPLIC ABILITY OF RULE 72 OF THE U.P. MINOR MINERALS (CONCESSION) RUL ES 1963 WAS ONE OF THE BONE OF THE CONTENTION BEFORE T HIS COURT AND WHEN THE EARLIER DECISION OF THE COURT I N PREM NATH SHARMA V. STATE OF U.P. WAS PRESSED INTO SER VICE. IT WAS FOUND THAT IN PREM NATH SHARMA'S CASE THE APPLICABILITY OF RULE 72 HAD NEVER BEEN CANVASSED A ND THE ONLY QUESTION THAT HAD BEEN CANVASSED WAS THE VIOLA TION OF THE SAID RULES. IT IS IN THIS CONTEXT IT WAS HE LD BY THIS COURT IN GRANITE'S CASE 'AS THE QUESTION REGARDING APPLICABILITY OF RULE 72 OF THE RUES HAVING NOT BEE N EVEN REFERRED TO MUCH LESS CONSIDERED BY SUPREME COURT IN THE EARLIER APPEALS IT CANNOT BE SAID THAT THE POINT I S CONCLUDED BY THE SAME AND NO LONGER RES INTEGRA'. T HIS DICTUM WILL HAVE NO APPLICATION TO THE CASE IN HAND ON THE QUESTION WHETHER THE JUDGMENT OF THIS COURT IN CIVI L APPEAL.NO. 398 OF 1972 CAN BE HELD TO BE A LAW DECL ARED UNDER ARTICLE 141. 56. IN VIEW OF THE ABOVE IT GETS CRYSTALISED THAT WHEN A PROVISION OF A STATUTE IS NOT CONSIDERED IT CANNOT BE SAID THAT POINT IS CONCLUDED BY THE SUPREME COURT DECISI ON AND THE SAME WAS NO LONGER RES INTEGRA. THESE DECI SIONS THEREFORE ARE OF NO HELP IN RESOLVING THE ISSUE. THE DECISION OF RAJASTHAN HIGH COURT WHEREIN PROVISIONS OF SECTION 80I (6) WERE NOT SPECIFICALLY DISCUSSED NOR BROUGHT TO THE NOTICE OF THE HIGH COURT CANNOT THE REFORE BE SAID TO HAVE CONCLUDED THE ISSUE AND CONSEQUENT LY THE SAME CANNOT BE SAID TO BE A BINDING DECISION. ' ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 28 12.4 IN VIEW OF THE ABOVE DISCUSSION AND IN VIEW O F THE AMENDED PROVISION OF FINANCE NO. 2 (ACT) OF 2009 W HICH IN MY HUMBLE OPINION HAS A RETROSPECTIVE OPERATION THERE FORE IT IS HELD THAT THE BENEFIT OF 5% IS NOT AVAILABLE TO THE APP ELLANT AS A STANDARD DEDUCTION. 12. THE LEARNED AR SUBMITTED THAT WITHOUT PREJUDICE TO THE CONTENTION OF THE OTHER ISSUES RAISED IN APPEAL IN RESPECT OF THE INTERNATIONAL TAXATION DONE BY THE ASSESSEE WITH THE AE THE ASSESSEE DESERVES TO A BENEFIT OF VARIATION OF 5%. THE LEARNED AR FURTHER SUBMITTED THAT PROVI SIONS OF SECTION 92C(2) OF THE INCOME-TAX ACT STIPULATES THAT MORE THAN ONE PR ICE IS DETERMINED BY THE MOST APPROPRIATE METHOD THE ARMS LENGTH PRICE SHA LL 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 BY AN AMO UNT NOT EXCEEDING FIVE PER CENT OF SUCH ARITHMETICAL MEAN. THE LD. AR ALS O SUBMITTED THAT THE PROVISIONS OF SECTION 92C(2) RECOGNIZES THE METHOD OF COMPUTING ALP MANDATE THE VARIATION OF 5%. LD. AR SUBMITTED THA T THE VARIATION OF 5% IS REQUIRED TO BE ALLOWED AND THE ALP IS TO BE DETERMI NED AT 5% LESS THAN COMPUTED BY THE ASSESSING OFFICER. LD. AR ALSO PLE ADED THAT THIS POSITION HAS BEEN CLEARLY EXPLAINED BY EXPLANATORY MEMORANDU M TO THE FINANCE ACT 2002 WHICH STATES THAT A PRICE WHICH DIFFERS FROM THE ARITHMETICAL MEAN UP TO 5% AN AMOUNT NOT EXCEEDING OF 5% OF SUCH AMOUNT M AY BE TAKEN TO THE ALP AT THE OPTION OF THE ASSESSEE. HE PLEADED THAT THE BENEFIT OF 5% MUST ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 29 BE GRANTED WHILE COMPUTING THE ALP. IT IS CLAIMED THAT IT SHOULD BE ALLOWED AS STANDARD DEDUCTION. 13. ON THE OTHER HAND THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 14. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. VAR IOUS BENCHES OF ITAT HAD DECIDED THE ISSUE. IN THE CASE OF DCIT VS. DEL OITTE CONSULTING INDIA PVT. LTD. THE ITAT HYDERABAD BENCH A IN ITA NO.1082/ HYD./2010 HAS DECIDED THIS ISSUE AS UNDER :- 31. NEXT WE DEAL WITH THE ISSUE WITH REGARD TO THE ALLOWANCE OF 5% DEDUCTION BEFORE COMPUTING THE ALP. IT IS CON TENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ARITH METICAL MEAN OF THE COMPARABLE PRICE SHOULD BE REDUCED BY 5% FOR DETERMINING THE ALP. WE HAVE GONE THROUGH THE SUBMI SSIONS AND ALSO THE CASE LAW RELIED UPON BY HIM. HE POINTE D OUT THAT THE AMENDMENT MADE UNDER SECTION 92C OF THE ACT WOU LD BE APPLICABLE PROSPECTIVELY AND NOT RETROSPECTIVELY. W HEREAS THE LEARNED DEPARTMENTAL REPRESENTATIVE OBJECTED TO THE ABOVE PROPOSITION AND SUBMITTED THAT UNDER THE PROVISO N O STANDARD DEDUCTION HAS BEEN PROVIDED TO THE ASSESSEE COMPANY . IN OUR CONSIDERED VIEW THE TOLERANCE BAND PROVIDED IN THE AFORESAID PROVISION IS NOT TO BE TAKEN AS A STANDARD DEDUCTIO N. IF THE ARITHMETIC MEAN FALLS WITHIN THE TOLERANCE BAND TH EN THERE SHOULD NOT BE ANY ALP ADJUSTMENT. IF IT EXCEEDS THE SAID TOLERANCE BAND THEN ALP ADJUSTMENT IS NOT REQUIRED TO BE COMPUTED AFTER ALLOWING THE DEDUCTION AT 5%. THAT M EANS ACTUAL WORKING IS TO BE TAKEN FOR DETERMINING THE A LP WITHOUT GIVING DEDUCTION OF 5%. OUR VIEW IS SUPPORTED BY TH E RECENT DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ST MICROELECTRONICS PRIVATE LIMITED VS. CIT (A) XX NEW DELHI AND OTHERS (SUPRA). WE ALSO FIND THAT THE ISS UE IS COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF CO-ORDI NATE BENCH IN THE CASE OF ADP PRIVATE LIMITED HYDERABAD VS. D CIT HYDERABAD (ITA NO.106/HYD/2009 AND ITA NO.155/HYD/2 009 DATED 25-2-2011 TO WHICH ONE OF US WAS A PARTY OF THAT ORDER AND THE SAME IS BINDING ON US. SINCE THE DECISION O F CO- ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 30 ORDINATE BENCH IS BINDING ON US WE ARE NOT INCLINE D TO FOLLOW THE DECISIONS RENDERED BY OTHER BENCHES OF THIS TRI BUNAL WHICH ARE RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESS EE. WE ARE ALSO IN AGREEMENT WITH THE ELABORATE FINDINGS OF TH E FIRST APPELLATE AUTHORITY IN DEALING WITH THIS ISSUE AND ACCORDINGLY WE DO NOT SEE ANY INFIRMITY IN HIS ORDER. HENCE TH E GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE REJECTED. IN THE CASE OF M/S. ST MICROELECTRONICS PVT. LTD. V S. ADDL. CIT IN ITA NOS.1806 & 1807/DEL.2008 & ORS. THE ITAT DELHI BE NCH G NEW DELHI IN ITS ORDER DATED 03.06.2011 HAS ALSO CONSIDERED T HE SIMILAR ISSUED AND DECIDED AS UNDER :- 44. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES WE HAVE GONE THROUGH THE RECORD CAREFULLY. LEARNED CIT(APPE ALS) IN ASSESSMENT YEAR 2003-04 HAS EXAMINED THIS ISSUE IN DETAIL. HE OBSERVED THAT IN ORDER TO AVOID HARDSHIPS TO THE AS SESSEES IN THE INITIAL YEARS OF IMPLEMENTATION OF THE TP PROVISION S THE GOVERNMENT OF INDIA THROUGH A PRESS NOTE ISSUED BY THE MINISTRY OF FINANCE ON 22ND AUGUST 2001 EXPRESSED I TS INTENTION THAT NO ADJUSTMENT COULD BE MADE IF THE TRANSFER PR ICE ADOPTED BY THE ASSESSEE WAS WITHIN THE BAND OF 5% OF THE ALP DETERMINED BY THE ASSESSING OFFICER. CBDT HAD ISSUED CIRCULAR NO.12 ON 23.8.2001 SPECIFYING THAT ASSESSING OFFICER SHALL N OT MAKE ANY ADJUSTMENT TO THE PRICE SHOWN BY THE ASSESSEE IF IT IS WITHIN THE 5% BAND THE EFFECT OF THE CIRCULAR WAS THAT TRANS FER PRICE SHOWN BY THE ASSESSEE WAS NOT TO BE DISTURBED IF IT WAS UP TO 5% LESS IN CASE OF RECEIPT AND UP TO 5% MORE IN CASE O F OUTGOING. THE RELAXATION EXTENDED BY THIS CIRCULAR WAS IN SUB STANCE BROUGHT ON TO THE STATUTE BY THE FINANCE ACT 2002 B Y AMENDING THE PROVISO TO SEC. 92C(2) WITH RETROSPECTIVE EFFEC T FROM 1.4.2002. IT PROVIDES A TOLERANCE BAND. IT ALSO SUG GESTS THAT THERE WILL BE NO TP ADJUSTMENT IN CASES OF MARGINAL VARIA TION UP TO 5% BUT SUBSTANTIAL VARIATION WOULD RESULT IN APPROP RIATE TP ADJUSTMENT. LEARNED CIT(APPEALS) HAS EXPLAINED THE MEANING OF TOLERANCE BAND WHICH READ AS UNDER : WHETHER THERE IS AN INTERNATIONAL TRANSACTION IN VOLVING SALE OF A PRODUCT OR EXPORT OF SERVICES THERE WOUL D BE A ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 31 CREDIT ENTRY IN THE PROFIT & LOSS ACCOUNT. BY ALLOW ING A MARGIN OF (-) 5% FOR SUCH A TRANSACTION A TAXPAYER IS PERMITTED TO HAVE A CREDIT ENTRY WHICH IS NOT BELOW 95% OF THE ALP SO THAT PROFIT FROM THE TRANSACTION IS N OT UNDERSTATED BEYOND THE TOLERANCE LEVEL OF (-) 5%. WHENEVER THERE IS AN INTERNATIONAL TRANSACTION IN VOLVING PURCHASE OF A PRODUCT OR IMPORT OF SERVICES THERE WOULD BE A DEBIT ENTRY IN THE PROFIT AND LOSS ACCOUNT. BY ALLOWING A MARGIN OF (+) 5% UNDER SUCH A TRANSACTIO N A TAXPAYER IS PERMITTED TO HAVE A DEBIT ENTRY WHICH I S NOT ABOVE 105% OF THE ALP SO THAT PROFIT FROM THE TRANSACTION IS NOT UNDERSTATED BEYOND THE TOLERANCE LEVEL OF (+) 5%. 11.18.3 THE DECISION RULE CONTAINED IN THE PROVISO TO THE SEC. 92C(2) OF THE ACT CONTAINING A TOLERANCE B AND IS AKIN TO A SIMILAR DECISION RULE OF CONFIDENCE INTER VAL USED IN THE THEORY OF STATISTICAL INFERENCE. UNDER THAT THEORY A 5% LEVEL OF SIGNIFICANCE WOULD PROVIDE FOR A TOLERA NCE BAND CONSISTING OF 95% & 105% OF THE ARITHMETICAL M EAN AND THESE POINTS ARE KNOWN AS CRITICAL VALUES. TH E RULE IS ONE OF ALL OR NOTHING KIND OF A SITUATION. I F A COMPUTED VALUE FALLS WITHIN THE TOLERANCE BAND A FAVORABLE INFERENCE IS DRAWN. THE DECISION RULE CON TAINED IN THE PROVISO TO SECTION 92C(2) OF THE ACT THUS IS A ALL OR NOTHING KIND OF RULE. AFTER ALL IN THE TRANSFE R PRICING ANALYSIS A SAMPLE SET OF COMPARABLES ALONG WITH TH E DISTRIBUTION OF PROFITABILITY OF THIS SET IS EXAMIN ED AND AN INFERENCE IS SOUGHT TO BE DRAWN ABOUT THE APPROPRIA TENESS OF PROFITABILITY SHOWN BY A TAXPAYER. THEREFORE ST ATISTICAL INFERENCE THEORY BASED ON SAMPLING IS DIRECTLY APPL ICABLE TO THE BENCHMARKING ANALYSIS CARRIED OUT IN THE TRA NSFER PRICING ANALYSIS WITH THE HELP OF A SAMPLE SET OF COMPARABLES. THERE IS NO SCOPE FOR ANY STANDARD DEDUCTION UNDER THIS RULE. IN OTHER WORDS IF THE ALP FALLS OUTSIDE THE TOLERANCE BAND TP ADJUSTMENT WOU LD HAVE TO BE MADE FOR THE DIFFERENCE BETWEEN THE ALP DETERMINED BY THE A.O. BASED ON THE ARITHMETICAL ME AN OF THE PRICES AND THE PRICE SHOWN BY THE ASSESSEE. ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 32 45. THE CONTENTION OF THE LEARNED COUNSEL FOR THE A SSESSEE WAS THAT ARITHMETIC MEAN OF THE COMPARABLE PRICE SHOULD BE REDUCED BY 5% FOR DETERMINING THE ALP. HE POINTED OUT THAT IN 2009 THE PROVISO APPENDED TO SECTION 92C HAS BEEN AMENDED BU T THIS AMENDMENT WOULD BE APPLICABLE PROSPECTIVELY BECAUS E THE BASIS OF DETERMINATION OF ALP IN RESPECT OF INTERNATIONAL TRANSACTION GET CHANGED. THIS AMENDMENT EFFECTS IMPOSING A NEW LIABILITY BY TAKING THE OPTION AWAY FROM THE TAXPAYERS. THUS ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE AMENDE D PROVISO IS NOT APPLICABLE. ON THE OTHER HAND LEARNED DR HAS S UBMITTED THAT UNDER THE PROVISO NO STANDARD DEDUCTION HAS BE EN PROVIDED TO THE ASSESSEE. 46. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES AND PERUSAL OF THE PROVISO INTRODUCED IN 2002 AS WELL A S IN 2009 WE ARE OF THE VIEW THAT THIS TOLERANCE BAND PROVIDED I N THE PROVISO IS NOT TO BE CONSTRUED AS A STANDARD DEDUCTION. IN THE PRESENT APPEALS LEARNED TPO HAS ADOPTED THE ARITHMETIC MEA N OF SEVERAL COMPARABLES FOR TAKING OUT A PLI WHICH WOULD BE TES TED WITH THE PLI OF THE ASSESSEE. IF THAT ARITHMETIC MEAN FALLS WITHIN THE RANGE OF ALLEGED TOLERANCE BAND THEN THERE MAY NOT BE ANY ADJUSTMENT BUT IF IT EXCEEDS THEN ULTIMATE ADJUSTMENT IS NOT R EQUIRED TO BE COMPUTED AFTER REDUCING THE ARITHMETIC MEAN BY 5%. THE ACTUAL WORKING IS TO BE TAKEN. LEARNED FIRST APPELLATE AUT HORITY HAS CONSIDERED THIS ASPECT ELABORATELY IN ASSESSMENT YE AR 2003-04 AND AFTER GOING THROUGH HIS ORDER WE DO NOT SEE AN Y MERIT IN THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN ALL THES E THREE ASSESSMENT YEARS. CONSIDERING ALL THESE DECISIONS OF ITAT BENCHES AND PLEADINGS ON BOTH THE SIDES WE ARE OF THE VIEW THAT THIS TOLERANCE BAND PROVIDED IN THE PROVISO IS NOT TO BE CONSTRUED AS A STANDARD DEDUCTION. IN TH IS CASE THE TPO HAS ADOPTED THE ARITHMETIC MEAN OF SEVERAL COMPARABLES FOR TAKI NG OUT A PLI WHICH WOULD BE TESTED WITH THE PLI OF THE ASSESSEE. IF THAT AR ITHMETIC MEAN FALLS WITHIN THE RANGE OF TOLERANCE BAND THEN THERE MAY NOT BE ANY A DJUSTMENT BUT IF IT EXCEEDS THEN ULTIMATE ADJUSTMENT IS NOT REQUIRED TO BE COMP UTED AFTER REDUCING THE ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 33 ARITHMETIC MEAN BY 5%. THE ACTUAL WORKING IS TO BE TAKEN INTO CONSIDERATION. CONSIDERING ALL THESE FACTS THE APPEAL OF THE ASSE SSEE IS ALSO DISMISSED ON THIS GROUND. 15. IN THE GROUND NO.2 & 2.1 THE REVENUE HAS RAISE D THE ISSUE REGARDING RESTRICTING THE ADDITION TO RS.7 03 05 000/- INSTEA D OF RS.8 33 86 859/- MADE BY THE ASSESSING OFFICER. 16. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND W E FIND THAT THE CIT (A) HAS RIGHTLY ACCEPTED THE WORKING OF THE DETERMINATI ON OF ALP. WHEN THE OPERATING PROFIT ON COST IS TO BE TAKEN AS 16.85% W HICH IS TO BE EARNED BY THE ASSESSEE THEN THE TOTAL REVENUE EARNED MUST BE 116. 85%. THEREFORE THE CIT (A) WAS JUSTIFIED FOR COMPUTATION OF OPERATING MARG IN WHICH HAS BEEN DONE AS UNDER :- (RS.IN 000) (A) TOTAL REVENUE 88 49 97 000 (B) THE AVERAGE OPERATING MARGIN ON COST THE APPELLANT SHOULD HAVE EARNED AS DISCUSSED IN PARA 11.4.5 ABOVE 16.79% (C) THE TOTAL COST THE APPELLANT SHOULD HAVE INCURRED (A/100 + B X 100) 75 77 67 000 (D) TOTAL COST THE APPELLANT ACTUALLY INCURRED ON DISCUSSED IN PARA 11.4.5 ABOVE 82 80 72 000 (E) QUANTUM OF ADJUSTMENT (D-C) 7 03 05 000 IN VIEW OF THESE FACTS WE DISMISS THESE GROUNDS OF REVENUES APPEAL. 15. IN THE GROUND NOS.3 & 3.1 OF THE REVENUES APPE AL THE ISSUE INVOLVED IS INCLUSION OF THE INTEREST INCOME AS THE BUSINESS IN COME FOR QUALIFIED FOR ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 34 DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT. THE REV ENUE HAS PRAYED THAT THE INTEREST INCOME IS TO BE ASSESSED AS INCOME FROM OT HER SOURCES AND NOT AS BUSINESS INCOME THEREFORE IT CANNOT FORM THE PART OF THE BUSINESS INCOME WHICH QUALIFIED FOR DEDUCTION U/S 80HHC OF THE ACT. 16. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHC FO R THE FINANCIAL YEAR 2002-03 RELEVANT TO ASSESSMENT YEAR 2003-04 AMOUNTI NG TO RS.17 89 177/-. THE ASSESSING OFFICER RECOMPUTED THE DEDUCTION U/S 80HHC AFTER INCLUDING THE INTEREST OF RS.30 76 000/- AND OTHER INCOME OF RS.69 09 000/- FROM THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION U/S 80HHC. THE CIT (A) HAS GRANTED THE RELIEF ON THE BASIS OF DECISION OF ITAT IN ASSE SSEES OWN CASE IN THE ASSESSMENT YEAR 2002-03 AND 2004-05 ON THE SAME GRO UND. SINCE THE REVENUE HAS NOT BROUGHT ANYTHING ON RECORD REGARDING THE RE VERSAL OF THE ORDER OF ITAT FOR ASSESSMENT YEARS 2002-03 AND 2004-05 OF AN Y HIGHER COURTS THEREFORE WE HAVE NO ALTERNATIVE BUT TO FOLLOW THE ORDERS OF ITAT IN THE EARLIER YEARS ON THE SAME ISSUE. THESE GROUNDS OF REVENUES APPEAL ARE DISMISSED. 17. IN THE RESULT APPEAL OF THE ASSESSEE AS WELL A S THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF MARCH 2012. SD/- SD/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 29 TH DAY OF MARCH 2012/TS ITA NO.4767/DEL./2009 ITA NO.344/DEL./2010 35 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXI NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.