TWILIGHT JEWELLERY P. LTD, MUMBAI v. DCIT 9(3), MUMBAI

ITA 7281/MUM/2012 | 2008-2009
Pronouncement Date: 23-10-2013 | Result: Allowed

Appeal Details

RSA Number 728119914 RSA 2012
Assessee PAN AABCT9660R
Bench Mumbai
Appeal Number ITA 7281/MUM/2012
Duration Of Justice 10 month(s) 16 day(s)
Appellant TWILIGHT JEWELLERY P. LTD, MUMBAI
Respondent DCIT 9(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted K
Tribunal Order Date 23-10-2013
Date Of Final Hearing 28-08-2013
Next Hearing Date 28-08-2013
Assessment Year 2008-2009
Appeal Filed On 07-12-2012
Judgment Text
M/S TWILIGHT JEWELLERY PVT. LTD - 1 - VK;DJ VIHYH; VF/KDJ.K DS U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH MUM BAI JH IH E TXRKI YS[KK LNL; OA JH VFER 'KQDYK] U;KF;D LNL; DS L E{K JH IH E TXRKI YS[KK LNL; OA JH VFER 'KQDYK] U;KF;D LNL; DS L E{K JH IH E TXRKI YS[KK LNL; OA JH VFER 'KQDYK] U;KF;D LNL; DS L E{K JH IH E TXRKI YS[KK LNL; OA JH VFER 'KQDYK] U;KF;D LNL; DS L E{K BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 7281/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 M/S TWILIGHT JEWELLERY PVT. LTD. PLOT NO. M/3 2 ND FLOOR CAMA MUNI IND. ESTATE WALBHAT ROAD GOREGAON (E) MUMBAI 400 063. CUKE@ VS. DY. COMMISSIONER OF INCOME TAX- 9(3) PAN:- AABCT9660R VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KKZFJRH DH VKSJ LS @ ASSESSEE BY SHRI VIJAY MEHTA JKTLP DH VKSJ LS @ REVENUE BY SHRI AJEET KUMAR JAIN VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER AMIT SHUKLA JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST FINAL ASSESSMENT ORDER DATED 30.10.2012 PASSED IN PURSUANCE OF DIRECTION U/S 144 C (5) GIVEN BY THE DISPUTE RESOLUTION PANEL (HEREIN AFTER REFERRED TO AS DRP) FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S 144C(13) FOR THE ASSESSMENT YEAR 2008-09. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WITH REGA RD TO TRANSFER PRICING ADJUSTMENT OF RS. 9 07 50 472/- ON THE TRANSACTIONS WITH ASSOCIATED ENTERPRISE (AE). IN THE ORIGINAL GROUNDS OF APPEAL THE ASSESS EE HAS RAISED SEVERAL GROUNDS LQUOKBZ DH RKJH[K @ DATE OF HEARING 28-08-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 23-10-2013 M/S TWILIGHT JEWELLERY PVT. LTD - 2 - WITH VARIOUS SUB GROUNDS HOWEVER THESE GROUND HAVE BEEN CONCISED NOW AND ONLY FOLLOWING GROUNDS OF APPEAL HAS BEEN RAISED:- 1. THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSES SING OFFICER U/S 143(3) R.W.S 144C(13) PURSUANT TO THE DIRECTIONS OF LEARNED DRP IS BAD IN LAW. 2. THE LEARNED DRP ERRED ON FACTS AND IN LAW IN CON FIRMING THE ADDITION OF RS. 9 07 50 742/- ON ACCOUNT OF TRANSFER PRICING AD JUSTMENT. 3. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEN D THE GROUNDS OF APPEAL. 2. BESIDES AFORESAID GROUNDS THE ASSESSEE HAS ALSO RAISED TWO SETS OF ADDITIONAL GROUNDS ONE FILED ON 19-6-2013 AND ANO THER SET OF ADDITIONAL GROUND FILED ON 28-8-2013. HOWEVER AT THE TIME OF H EARING THE LEARNED COUNSEL SHRI VIJAY MEHTA SUBMITTED THAT ONLY THE S ECOND SET OF ADDITIONAL GROUNDS WHICH HAS BEEN RAISED VIDE PETITION DATED 27 TH AUGUST 2013 ( FILED ON 28 TH AUGUST 2013) SHOULD ONLY BE TAKEN FOR CONSIDERATI ON AND THE EARLIER SET OF ADDITIONAL GROUNDS FILED VIDE PETITION DATED 19-6-2 013 ARE BEING NOT PRESSED. THE LEARNED COUNSEL HAS ALSO FILED A PETITION DATED 28-8-2013 FOR ADMISSION OF ADDITIONAL EVIDENCE WHEREIN THE TRANSFER PRICING S TUDY REPORT HAS BEEN FILED WHICH HAS BEEN STATED THAT SAME COULD NOT BE FILED AT THE STAGE OF TPO OR BEFORE THE DRP. 2.1 THE FACTS OF THE CASE IN BRIEF ARE THAT THE A SSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DIAMONDS AND PR ECIOUS STONE STUDDED JEWELLERY FROM ITS MANUFACTURING UNIT SET UP AT SEE PZ MUMBAI AND IT IS A M/S TWILIGHT JEWELLERY PVT. LTD - 3 - 100% EXPORT ORIENT UNIT. IT HAS BEEN SUBMITTED BEF ORE THE TPO AS WELL AS BEFORE THE DRP THAT ITS MAIN ACTIVITY IS EXPORT OF JEWELLERY WHICH IS MADE AS PER DESIGNS GIVEN BY ITS ASSOCIATED ENTERPRISES ( AE) AND IS MAINLY SOLD BACK TO AE. THE PRINCIPAL RAW MATERIAL FOR MANUFACTURIN G THESE JEWELLERIES LIKE DIAMONDS COLOUR STONES PEARLS AND PRECIOUS METALS ETC. ARE IMPORTED FROM AE ONLY. THE VALUE OF THE EXPORTED PRODUCTS ARE THE N COMPUTED BY ADDING MARK UP ON THE PURCHASE COST OF DIAMONDS COLOUR ST ONES PEARLS AND PRECIOUS METALS IN THE FORM OF JOB WORK. SINCE THE ASSESSEE HAD MAJOR INTERNATIONAL TRANSACTION WITH ITS AE THE MATTER WAS REFERRED TO THE TPO IN A REFERENCE MADE U/S 92CA (1) BY THE AO. DURING THE RELEVANT FI NANCIAL YEAR THE OPERATING INCOME OF THE ASSESSEE WAS DISCLOSED AT R S. 74.44 CRORES AND OPERATING PROFIT WAS RS. 0.5 CRORE ( I.E. RS. 50 00 000/-). 2.2` THE TPO NOTED THAT THE ASSESSEE HAS PURCHASED THE CUT AND POLISHED DIAMONDS COLOUR STONES PEARLS ETC FROM ITS AE FOR SUMS AGGREGATING TO RS. 62.02 CRORES AND SALE OF JEWELLERY WAS MADE TO THE TUNE OF RS. 65.12 CRORES TO ITS AE. AS PER THE OBSERVATION OF THE TPO THE ASSES SEE HAS NOT SUBMITTED ANY TP STUDY REPORT DURING THE COURSE OF THE TRANSFER P RICING PROCEEDINGS FOR BENCH MARKING THE INTERNATIONAL TRANSACTION WITH THE AE. THIS ASPECT WAS SPECIFICALLY BROUGHT TO THE NOTICE OF THE ASSESSEE. HOWEVER THE ASSESSEE SUBMITTED VIDE LETTER DATED 16.9.2011 THAT IT HAD ALREADY SUBMITTE D THE TRANSFER PRICING STUDY REPORT WHICH FACT HAS BEEN FOUND TO WRONG AND HAS ALSO BEEN REBUTTED BY THE TPO BY CATEGORICALLY STATING THAT NO SUCH REPORT H AS BEEN FILED AND ONLY FORM 3CEB WAS FILED. HE HAS ALSO OBSERVED THAT ASSESSEE HAS FAILED TO SUBMIT THE MOST APPROPRIATE METHOD SELECTED BY IT FOR BENCH MA RKING THE TRANSACTION OF PURCHASE AND SALE FROM AE AND HAS ALSO FAILED TO JU STIFY HOW THE MARK UP RATES HAS BEEN CHARGED FROM THE AE. THE ECONOMIC ANALYSIS AND FAR TEST HAS NOT BEEN UNDER TAKEN BY THE ASSESSEE AND THEREFORE IT IS VERY DIFFICULT TO BENCH M/S TWILIGHT JEWELLERY PVT. LTD - 4 - MARK ITS TRANSACTION. SINCE NO METHOD HAS BEEN SELE CTED BY THE ASSESSEE THE TPO SUGGESTED THE TNMM (TRANSACTIONAL NET MARGIN ME THOD) AS A METHOD OF LAST RESORT AND ACCORDINGLY GAVE NINE SET OF COMPAR ABLES TO THE ASSESSEE TO SUBMIT ITS OBJECTIONS. THE ASSESSEES MAIN CONTENTI ON BEFORE THE TPO FOR REJECTION OF SOME OF THE COMPARABLES WAS THAT THE T URNOVER OF THESE COMPANIES WERE NOT COMPARABLE WITH THAT OF THE ASSESSEE AND T HE BUSINESS FUNCTION WAS ALSO DIFFERENT. THE TPO REJECTED THESE OBJECTIONS FIRSTLY THE TURNOVER CRITERIA FOR REJECTING THE COMPARABLES CANNOT BE ADOPTED AS THE ASSESSEE ITSELF HAD NOT CARRIED OUT ANY FAR ANALYSIS AND SECONDLY OTHER MI NOR OBJECTIONS RAISED BY THE ASSESSEE HAVE NO BASIS. ALL THIS HAVE BEEN DEAL T BY THE TPO AT PAGE 3 OF HIS ORDER. THE TPO ALSO NOTED THAT THE ASSESSEES HAS CONTENDED THAT IT IS A MANUFACTURER OF JEWELLERY IN SEEPZ AND SEZ FOR WHI CH IT IS ENTITLED FOR DEDUCTION U/S 10B; BECAUSE IT IS REGISTERED AS A MA NUFACTURER OF JEWELLERY HOWEVER AT THE SAME TIME ASSESSEE HAS CLAIMED ITS P ROFITABILITY MERELY AS A JOB WORKER AND IS ALSO CLAIMING BENEFIT U/S 10B. THUS THE ASSESSEE IS CLAIMING TO BE MANUFACTURER FOR THE PURPOSE OF DEDUCTION U/S 10 B BUT WHEN FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE THE ASSESSEE HAS OBJECTED THE COMPARABLES ON THE GROUND THAT IT IS ONLY A JOB WOR KER AND OTHER COMPARABLES ARE JEWELLERY MANUFACTURER. ACCORDINGLY HE REJECTED ALL THE OBJECTIONS OF THE ASSESSEE. ULTIMATELY THE ASSESSEES PBIT/COST WORKE D OUT AT THE RATE OF (-) 1.2477% AND AFTER APPLYING AVERAGE PLI MARGINS OF C OMPARABLES AT 10.95% THE TPO COMPUTED THE ARMS LENGTH PRICE IN THE FOLL OWING MANNER:- IN RS. OPERATING COST A 743997977.00 ARMS LENGTH PROFIT MARGIN ON COST B 0.1095 ARMS LENGTH PROFIT C=A*B 81467778 ARMS LENGTH VALUE SALES D=A+C 825465755 M/S TWILIGHT JEWELLERY PVT. LTD - 5 - LESS VALUE OF NON-AE SALES E 83520357 ARMS LENGTH VALUE OF SALES (ADJUSTED) AE F=D=E 741945398 ACTUAL VALUE OF AE SALES H 651194656 105% OF TRANSACTION VALUE 683754389 95% OF THE TRANSACTION VALUE 618634923 ADJUSTMENT I=F-H 90750742 AND ACCORDINGLY UPWARD ADJUSTMENT OF RS. 9 07 50 74 2/- WAS MADE IN THE ARMS LENGTH PRICE. 3. BEFORE THE DRP ALSO ASSESSEES OBJECTION TO THE ADOPTION OF TNMM METHOD BY THE TPO AND ALSO THE SELECTION OF NINE CO MPARABLES HAS BEEN REJECTED BY THE DRP AFTER DETAILED DISCUSSION WHI CH HAS BEEN DEALT BY THE DRP FROM PAGES 1 TO 15 OF THE DRPS DIRECTION WHICH ARE NOT BEING DISCUSSED BY US AT PRESENT. 4. BEFORE US THE LEARNED COUNSEL SHRI VIJAY MEHTA SUBMITTED THAT THOUGH THE ASSESSEE HAS NOT FILED ANY TP STUDY REPORT BEFO RE TPO BUT IN FORM 3CEB WHICH WAS FILED BEFORE HIM IT HAS BEEN CLEARLY STAT ED THAT MOST APPROPRIATE METHOD FOR BENCH MARKING THE TRANSACTION WITH ITS A E WAS COST PLUS METHOD (CPM). HE FURTHER SUBMITTED THAT LOOKING TO THE OV ERALL FUNCTIONS PERFORMED AND TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH IT S AE NEITHER THE COMPARABLES CHOSEN BY THE TPO CAN BE ADOPTED FOR BE NCH MARKING THE TRANSACTION NOR THE TNMM METHOD CAN BE HELD TO BE THE MOST APPROPRIATE METHOD IN THE INSTANT CASE. THE REASON BEING THAT T HE RAW MATERIALS ARE MOSTLY SUPPLIED BY THE FOREIGN AE WHICH IS AS PER THE COS T ONLY AND THE ASSESSEE IS MANUFACTURING THE JEWELLERY AS PER THE DESIGNS GIVE N BY ITS AE ONLY. WHAT THE M/S TWILIGHT JEWELLERY PVT. LTD - 6 - ASSESSEE IS RECEIVING IS ONLY THE JOB WORK CHARGES AND THE MARGIN OF THE JOB WORK CHARGES RECEIVED BY THE ASSESSEE IS FAR BETTER THAN THOSE COMPARED TO OTHER SUCH COMPARABLES ENGAGED IN THE SIMILAR KIND OF ACTIVITIES. AS AN EXAMPLE HE SUBMITTED THAT IF THE CUT AND POLISHED DIAMONDS OF PARTICULAR QUANTITY ARE RECEIVED BY THE AE AT 100 DOLLAR THEN THE SAME QUANTITY IS SENT BACK ON 100 DOLLAR ONLY AND TO ILLUSTRATE THIS CONT ENTION THAT ASSESSEES PURCHASE OF RAW MATERIAL IS AT COST AND SOLD ON SA ME COST ONLY HE REFERRED TO VARIOUS INVOICES IN THE PAPER BOOK. IT IS ONLY FOR THE PURPOSE OF CUSTOM LAW THAT THE ASSESSEE HAD TO PAY THE CUSTOM DUTY ON SUC H PURCHASES AS PER THE REQUIREMENT OF CUSTOM AND EXCISE LAW. HOWEVER THE P URCHASE AND SALE IS ONLY NOTIONAL AND WHAT THE ASSESSEE HAS BEEN REMUNERATED ; IS ONLY THE LABOUR CHARGES ALONG WITH THE MARK UP. THE TPO AS WELL AS THE DRP HAS FAILED TO UNDERSTAND THE BUSINESS MODULE OF THE ASSESSEE AND IN SUCH A SITUATION NOT ONLY THE COMPARABLES BUT ALSO THE METHOD APPLIED BY THE TPO CANNOT BE ACCEPTED. SINCE THE ASSESSEE IS NOT ENGAGED IN THE FUNCTION O F PURCHASES THEREFORE THE COMPARISON CANNOT BE MADE WITH THE COMPANIES WHO AR E DOING PURCHASES FROM THE THIRD PARTIES. IN SUPPORT OF HIS CONTENTION THA T PURCHASES HAS BEEN MADE FROM THE AE ON SAME QUANTITY AND VALUE ON WHICH IT HAS BEEN SENT BACK TO THE AE IN THE FORM OF JEWELLERY HE RELIED UPON VARIOUS DOCUMENTS PLACED IN THE PAPER BOOK IN THE FORM OF INVOICES. THUS THE ASSESS EE HAS NOT MADE ANY PROFIT ON THE PURCHASE PRICE. 4.1 HE ALSO SUBMITTED THAT IN THIS CASE THERE WERE TRANSACTIONS WITH NON AE ALSO AND NO PROFIT HAS BEEN CHARGED ON PURCHASE AND SALE FROM NON AES AS THE ASSESSEES MARGIN IS ONLY ON ACCOUNT OF LABOUR CHAR GES. UNDER THESE CIRCUMSTANCES HE SUBMITTED THAT EVEN THE COST PLUS METHOD AS ADOPTED BY THE ASSESSEE CANNOT BE ACCEPTED AND SO ALSO THE TNMM. M OST APPROPRIATE METHOD IN THIS CASE COULD BE THE CUP AS THERE WAS AN INTE RNAL CUP WITH THE NON AES M/S TWILIGHT JEWELLERY PVT. LTD - 7 - AND BENCH MARKING CAN BE DONE WITH THE INTERNAL COM PARABLE IF THAT IS CARRIED OUT THEN THE ASSESSEES MARGIN WOULD BE AT ARMS L ENGTH. HE ALSO SUBMITTED A CHART SHOWING THE COMPARISON BETWEEN THE PRICE CHAR GED TO AE AND NON AE IF COST PLUS METHOD IS APPLIED AND ALSO THE SIMILAR CO MPARISON IF THE CUP METHOD IS APPLIED. HOWEVER HE SUBMITTED THAT THE FI RST CHART GIVING THE COMPARISON BY ADOPTING COST PLUS METHOD WOULD NOT B E CORRECT METHOD IN THE PRESENT CASE AND ONLY CUP METHOD CAN BE HELD TO BE APPLICABLE. HE SUBMITTED THAT THE DETAILS OF INTERNAL COMPARABILITY IS CLEAR LY EVIDENT FROM THE INVOICES WHICH WERE THERE IN THE RECORD. FOR THE PROPOSITION THAT THE ASSESSEE CAN CONTEND BEFORE THE TRIBUNAL FOR APPLYING THE MOST A PPROPRIATE METHOD IF IT IS DEMONSTRATED THAT SUCH A METHOD CAN LEAD TO MOST AP PROPRIATE DETERMINATION OF ALP HE RELIED UPON THE DECISION OF CO-ORDINATE BEN CH OF THE TRIBUNAL IN THE CASE OF MATTLE TOYS INDIA PVT. LTD. VS. DCIT IN IT A 2476 AND 2801/MUM 2008 REPORTED IN (2013) 34 TAXMANN. COM 203. REGARD ING INTERNAL COMPARABILITY HE RELIED UPON THE THIRD MEMBERS DE CISION IN THE CASE OF M/S TECHNIMONT ICB PVT. LTD. IN ITA 4608/MUM/2010 AND 5 085/MUM/2010. HE THUS SUBMITTED THAT SINCE ALL THESE ASPECTS HAVE NO T BEEN EXAMINED PROPERLY BY THE TPO AS WELL AS THE DRP THEREFORE THE MATTER C AN BE SET ASIDE TO THE FILE OF TPO FOR ADOPTING THE CUP AS THE MOST APPROPRIATE ME THOD AS ALL THE RELEVANT MATERIAL FOR INTERNAL COMPARABILITY IS ALREADY AVAI LABLE ON RECORD. 5. THE LEARNED CIT DR SHRI AJIT JAIN ON THE OTHER HAND SUBMITTED THAT FIRST OF ALL THE TRANSFER PRICING REPORT WHICH IS THE PRIMARY DOCUMENT TO BE SUBMITTED BY THE ASSESSEE BEFORE THE TPO HAS NOT BE EN FILED AND THE SAME IS BEING FILED BEFORE THE TRIBUNAL AS AN ADDITIONAL EV IDENCE WHICH COULD NOT BE CONSIDERED AT THIS STAGE. IN ANY CASE IF THE SAME I S TO BE ADMITTED THEN THE MATTER SHOULD BE SENT BACK TO THE TPO FOR EXAMINING THE SAME AFRESH. HE ALSO SUBMITTED THAT TPO ONLY AFTER GIVING VARIOUS OPPO RTUNITIES TO THE ASSESSEE HAS M/S TWILIGHT JEWELLERY PVT. LTD - 8 - ADOPTED THE TNMM AS MOST APPROPRIATE METHOD AND HAS ALSO GIVEN THE LIST OF COMPARABLES TO THE ASSESSEE. AFTER CALLING FOR ASSE SSEES OBJECTION AND DISCUSSING THEM IN DETAIL HE HAS FINALLY CHOSEN TH E COMPARABLES AND HAS BENCH MARKED THE ASSESSEES PLI WITH THAT OF THE COMPARAB LES. THUS THERE IS NO AMBIGUITY OR IRREGULARITY IN THE ORDER OF TPO. HE F URTHER SUBMITTED THAT THE ASSESSEE HAS BEEN CHANGING ITS STAND AND THERE IS N O CONSISTENCY IN ITS APPROACH FIRSTLY BEFORE THE AUTHORITIES BELOW IT HAS BEEN CONTENDED THAT COST PLUS METHOD SHOULD BE ADOPTED HOWEVER NO SUCH BENC H MARKING OR FAR ANALYSIS WAS GIVEN VIS--VIS ANY COMPARABLES. NOW A T THIS STAGE THE ASSESSEE HAS TAKEN ALTOGETHER NEW STAND BY SUBMITTING THAT C UP IS THE MOST APPROPRIATE METHOD AND THERE ARE INTERNAL COMPARABLES IN THE FO RM OF NON AE. ALL THESE PLEA ARE COMPLETELY NEW WHICH IS BEING TAKEN BEFORE THE TRIBUNAL FOR THE FIRST TIME AND THEREFORE THE SAME CANNOT BE ENTERTAINED . IN ANY CASE WITHOUT PREJUDICE IF SUCH A PLEA IS BEING ENTERTAINED NOW THEN THE ENTIRE MATTER NEEDS TO BE RESTORED TO THE FILE OF TPO TO EXAMINE THE CO NTENTION OF THE ASSESSEE AFRESH AND IN ACCORDANCE WITH THE FACTS AND MATERIA LS PLACED ON RECORD AND ALSO IN ACCORDANCE WITH THE LAW. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE RELEVANT FINDING OF THE TPO AS WELL AS THE DIRECTIO N GIVEN BY THE DRP AND ALSO THE MATERIAL REFERRED TO BEFORE US. IT HAS BEE N STATED BEFORE US THAT THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF MANUF ACTURING OF DIAMONDS AND PRECIOUS STONE STUDDED JEWELLERY FROM ITS MANUFACTU RING UNIT WHICH HAS BEEN REGISTERED AS 100% EOU BEING THE SEZ UNIT SET UP AT SEEP MUMBAI. THE ASSESSEE HAS UNDERTAKEN PURCHASE OF CUT AND POLISHE D DIAMONDS COLOUR STONES ETC. FROM ITS AE AT RS. 62.02 CRORES AND HAS ALSO SOLD JEWELLERY AS PER DESIGNS SUPPLIED BY THE AES TO THE AE ITSELF FOR A SUMS AG GREGATING TO RS. 65.02 CRORES. THE MAIN CONTENTION OF THE ASSESSEE REGARDI NG HIS BUSINESS MODULE IS M/S TWILIGHT JEWELLERY PVT. LTD - 9 - THAT IT IS MAINLY ENGAGED AS CONTRACT MANUFACTURER OR JOB WORKER FOR ITS AE ON WHOSE BEHALF IT HAS BEEN MANUFACTURING JEWELLERY AS PER THE DESIGNS AND ALSO THE RAW MATERIALS SUPPLIED BY ITS AE. THE PURCHASES WHICH HAS BEEN MADE BY THE AE ARE ON COST BASIS AND THERE IS NO MARGIN SO FAR AS THE PURCHASES ARE CONCERNED. THE ONLY MARGIN RECEIVED BY THE ASSESSE E IS ON ACCOUNT OF JOB WORK I.E. MANUFACTURING THE JEWELLERY AS PER THE DE SIGNS AND RAW MATERIALS SUPPLIED BY THE AE. AS PER THE OBSERVATIONS OF THE TPO THE ASSESSEE HAS FAILED TO CARRY OUT ANY COMPARABILITY ANALYSIS BY FOLLOWIN G ANY OF THE PRESCRIBED METHOD UNDER THE ACT AND THEREFORE ITS INTERNATIO NAL TRANSACTIONS WITH ITS AE HAS NOT BEEN BENCH MARKED BY THE ASSESSEE. THUS TH E TPO HAS RESORTED TO APPLY TNMM AS THE MOST APPROPRIATE METHOD AND HAS A LSO GIVEN SET OF NINE COMPARABLES TO THE ASSESSEE. AFTER CALLING FOR THE OBJECTIONS BY THE ASSESSEE HE HAS FINALLY DETERMINED THE PLI MARGIN OF THE COM PARABLES AT 10.95% WHICH WAS MUCH HIGHER THAN ASSESSEES PLI WHICH WAS AT (- ) 1.25% AND THUS MADE THE TOTAL ADJUSTMENT OF RS. 9 07 50 742/-. 7. FIRST OF ALL IN THIS CASE IT IS NOTICED THAT TH IS APPEAL WAS HEARD EARLIER ON 9.5.2013 WHICH WAS LATER ON RELEASED VIDE ORDER-SH EET ENTRY DATED 23.5.2013 AFTER OBSERVING AS UNDER:- AFTER GOING THROUGH THE RECORD IT IS SEEN THAT AS SESSEE HAS NOT SELECTED ANY METHOD FOR BENCH MARKING ITS ALP IN RELATION TO TRA NSACTIONS WITH ITS AE AND NO TP STUDY REPORT WAS ALSO FURNISHED. LATER ON AT THE STAGE OF TPO ONE REPORT N FORM 3CEB WAS FILED BY ADOPTING COST PLUS METHOD. HOWEVER IN THE SAID REPORT NO COMPARABLES WERE SELECTED TO EVALUAT E THE CONTROLLED AND UNCONTROLLED TRANSACTION THEREFORE IN SUCH A SITU ATION CPM FAILED. THE TPO HAS SELECTED 9 COMPARABLES WITH AVERAGE MEAN MARGIN OF 10.95% AS AGAINST ASSESSEES MARGIN OF (-)1.25% BY ADOPTING TNMM AS MOST APPROPRIATE M/S TWILIGHT JEWELLERY PVT. LTD - 10 - METHOD. THE LD. AR ARGUED ONLY TO JUSTIFY THE NET P ROFIT AND MARGIN EARNED BY THE ASSESSEE. HE HAS NOT ADDRESSED US ON THE TRANSF ER PRICING ISSUE AS TO HOW THE ALP IS JUSTIFIED AFTER COMPARING THE CONTROLLE D TRANSACTION WITH THE RELATED PARTY WITH THAT OF THE UNCONTROLLED TRANSAC TION WITH THE INDEPENDENT PARTY. UNDER THE TRANSFER PRICING MECHANISM ALP CAN BE DETERMINED ONLY BY FOLLOWING ANY OF THE PRESCRIBED METHODS AND BY CARR YING OUT COMPARABILITY ANALYSIS VIS--VIS COMPARABLES. THUS WE FEEL THAT THIS MATTER SHOULD BE RELEASED AND SHOULD BE HEARD A FRESH ON THE AFORESA ID ASPECT AND ALSO ABOUT THE SELECTION OF COMPARABLES. ACCORDINGLY THE CASE IS RELEASED. SD/- SD/- (AMIT SHUKLA) (RAJEDNRA SINGH) J.M. A.M. 8. NOW AT THE SECOND TIME OF FRESH HEARING BEFORE U S AN ADDITIONAL GROUND HAS BEEN RAISED WHEREIN IT HAS BEEN CONTENDED THAT TNMM IS NOT THE APPROPRIATE METHOD IN THIS CASE AND INFACT CUP MET HOD SHOULD HAVE BEEN FOLLOWED AS MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE ASSESSEES TRANSACTION WITH ITS AE. FROM THE RECORD S IT IS SEEN THE ASSESSEE HAS VEHEMENTLY CONTENDED THAT COST PLUS METHOD SHOULD BE THE MAM FOR BENCH MARKING THE INTERNATIONAL TRANSACTION WITH THE AE HOWEVER NO SUCH COMPARABILITY ANALYSIS AS FAR ANALYSIS WITH THE COM PARABLES WAS DONE TO ARRIVE AT ARMS LENGTH PRICE WITH ITS TRANSACTION W ITH THE AE. THE COMPARABILITY ANALYSIS HAS TO BE CARRIED OUT FOR COMPARING THE CO NTROLLED TRANSACTIONS WITH AN UNCONTROLLED TRANSACTIONS AFTER FOLLOWING THE MAM PRESCRIBED UNDER THE ACT. THUS EVEN THOUGH COST PLUS METHOD WAS STATED TO HA VE BEEN ADOPTED HOWEVER NO FAR ANALYSIS WAS CARRIED OUT. IN SUCH A SITUATION THE TPO WAS FULLY JUSTIFIED IN ADOPTING THE MAM ON ITS OWN FOR BENCH MARKING THE TRANSACTIONS. AT THIS STAGE NOW THE LD COUNSEL FOR THE ASSESSEE HAS STATED THAT M/S TWILIGHT JEWELLERY PVT. LTD - 11 - COST PLUS METHOD CANNOT BE CONSIDERED AS MAM BECAU SE THERE IS AN INTERNAL CUP AVAILABLE FOR BENCH MARKING THE TRANSACTION. T HUS THERE IS AN INCONSISTENCY IN THE APPROACH BY THE ASSESSEE RIGH T FROM THE STAGE OF TPO TO THE STAGE OF THE TRIBUNAL. EVEN THE TP STUDY REPORT WHICH IS A PRIMARY DOCUMENT FOR ANALYZING AND BENCH MARKING THE INTERN ATIONAL TRANSACTION AND ALSO THE FIRST ONUS OF THE ASSESSEE HAS NOT BEEN FI LED BEFORE THE TPO. IN THE PAPER-BOOK FILED EARLIER THE ASSESSEE HAS GIVEN A CERTIFICATE THAT THE TP STUDY REPORT WAS FILED BEFORE THE TPO/AO WHICH HAS BEEN F OUND TO BE FACTUALLY INCORRECT. THIS HAS NOW BEEN RECTIFIED BY THE LD. C OUNSEL AT THE SECOND TIME OF HEARING BEFORE US BY PROVIDING A CORRECT CERTIFICA TE THAT TP STUDY REPORT IS AN ADDITIONAL EVIDENCE. IN PURSUANCE THEREOF THE PETI TION FOR ADMISSION OF ADDITIONAL EVIDENCE HAS ALSO BEEN FILED WHEREIN TH E TP STUDY REPORT HAS BEEN ANNEXED. IN THE TP STUDY REPORT ALSO THE ASSESSEE HAD STATED THAT CPM IS THE MAM FOR DETERMINING THE ARMS LENGTH PRICE OF THE A SSESSEE WITH ITS TRANSACTION WITH THE AE AND THERE IS NO WHISPER ABO UT APPLICABILITY OF INTERNAL CUP. 9. UNDER THESE CIRCUMSTANCES IT BECOMES VERY DIFFIC ULT TO ADJUDICATE AS TO FIRSTLY WHAT IS THE STAND OF THE ASSESSEE AND SECO NDLY WHAT COULD BE THE MOST APPROPRIATE METHOD WHICH HAS TO BE ADOPTED FOR DETE RMINING THE ALP. CONSIDERING SUCH A CALLOUS ATTITUDE OF THE ASSESSEE AND ALSO FURNISHING OF FALSE CERTIFICATE IN THE PAPER BOOK WHICH WAS THERE IN T HE RECORD WHEN THE CASE AS HEARD FINALLY AND LATER ON RELEASED ON THIS GROUND ONLY WE THINK THAT SOME COST SHOULD BE IMPOSED UPON THE ASSESSEE TO DETER T HE ASSESSEE IN FUTURE FOR RESORTING TO SUCH KIND OF MAKING FALSE REPRESENTATI ON BEFORE THE COURT. ACCORDINGLY WE IMPOSE A COST OF RS. 10 000/- TO TH E ASSESSEE WHICH SHALL BE DEPOSITED BY WAY OF CHALLAN BEFORE THE AO. M/S TWILIGHT JEWELLERY PVT. LTD - 12 - 10. NOW COMING TO THE MAIN ISSUE IN THE PRESENT CAS E AS TO WHAT COULD BE THE MAM TO DETERMINE THE ALP FOR THE TRANSACTIONS C ARRIED OUT WITH THE AE. IT HAS BEEN STATED THAT ALL THE PURCHASES HAVE BEEN MA DE BY THE ASSESSEE FROM ITS AE AT COST ON THE SAME VALUE WHICH HAS BEEN EXPORT ED BACK TO AE AFTER MANUFACTURING THE JEWELLERY AS PER DESIGNS. THE ASS ESSEE IS ONLY A JOB WORKER OR A CONTRACT MANUFACTURER WHO IS ENTITLED FOR MAKI NG CHARGES BASED ON ITS COST INCURRED AND NOT BASED ON THE VALUE OF MATERIAL SUP PLIED BY ITS AE. IN SUCH A SITUATION THE COMPARABLES CHOSEN BY THE TPO WHO A RE FULL FLEDGED INDEPENDENT MANUFACTURERS CANNOT BE PRIMA FACIE CONSIDERED FOR THE PURPOSE OF COMPARABILITY ANALYSIS AS IN ALL THE CASES OF C OMPARABLES THERE IS A VALUE ADDITION AND A MARK UP ON COST AT THE TIME OF SALE. HOWEVER THE ASSESSEE HAS ALSO NOT GIVEN ANY EXTERNAL COMPARABLES WHO ARE CAR RYING OUT SIMILAR KIND OF JOB WORK FOR UNRELATED PARTIES. BEFORE US THE LEAR NED COUNSEL SRI VIJAY MEHTA HAD SUBMITTED THAT THERE ARE INTERNAL CUP AVAILABLE WITH THE SIMILAR TRANSACTION CARRIED OUT BY THE THIRD PARTIES ON SIMILAR NEGOTIA TED PRICE WHICH IS EVIDENT FROM THE INVOICES RAISED BY THEM (WHICH HAS ALSO BE EN PLACED IN THE PAPERBOOK BEFORE US) AND ONCE THERE IS A DIRECT METHOD OF CUP AVAILABLE THEN THERE IS NO REQUIREMENT OF RESORTING TO TNMM. PRIMA FACIE WE AGREE WITH THE CONTENTION OF LEARNED COUNSEL THAT IF ANY OF THE DIRECT METHO DS LIKE CUP RPM OR CPM CAN BE ADOPTED FOR BENCH MARKING THE TRANSACTIONS THEN THEY SHOULD BE GIVEN PREFERENCE AND ONCE THESE TRADITIONAL METHODS ARE R ENDERED INAPPLICABLE THEN ONLY THE TNMM SHOULD BE RESORTED TO AS A LAST MEASU RE. SINCE THIS ARGUMENT OF APPLICABILITY OF INTERNAL CUP HAS NOT BEEN TAKEN UP EITHER BEFORE THE TPO OR BEFORE THE DRP THEREFORE WE SET ASIDE THE ORDER O F THE TPO/AO AND THE ENTIRE MATTER IS REMANDED BACK TO THE FILE OF THE AO/TPO TO EXAMINE WHETHER THE CUP CAN BE CONSIDERED AS THE MOST APPROPRIATE METHO D OR NOT. EVEN THE COST PLUS METHOD CAN ALSO BE EXAMINED WITH SOME EXTERNAL COMPARABILITIES BY CARRYING OUT FAR ANALYSIS IF CUP METHOD FAILS IN T HIS CASE. M/S TWILIGHT JEWELLERY PVT. LTD - 13 - 11. THUS LOOKING TO THE ENTIRE GAMUT OF FACTS AND C IRCUMSTANCES OF THE CASE WE REMAND BACK THE ENTIRE MATTER OF TRANSFER PRICIN G ADJUSTMENT TO THE FILE OF TPO/AO TO CONSIDER THE ASSESSEES PLEA FOR APPLICAB ILITY OF INTERNAL CUP AND CARRY OUT COMPARABILITY ANALYSIS AFRESH WITH THE UN RELATED PARTIES. IF THE CUP METHOD FAILS THE COST PLUS METHOD COULD ALSO BE EX AMINED AFTER CALLING FOR FRESH COMPARABLES WHICH ARE ENGAGED IN THE SIMILAR LINE OF BUSINESS. THE ASSESSEE WILL PROVIDE ALL THE NECESSARY INFORMATION AND MATERIAL IN SUPPORT OF ITS CONTENTION FIRSTLY AS TO WHAT WOULD BE THE MO ST APPROPRIATE METHOD AND SECONDLY WILL ALSO PROVIDE THE INTERNAL OR EXTERNA L COMPARABLES FOR BENCH MARKING ITS TRANSACTION WITH THE AE. THE TPO/AO WIL L ALSO PROVIDE DUE AND EFFECTIVE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN IT S CASE WITH ANY SUCH EVIDENCE OR MATERIAL AS IT MAY DEEM FIT AND TPO/AO SHALL EXA MINE THE SAME AFRESH. THUS THE ENTIRE ASSESSMENT IS SET ASIDE FOR FRESH A DJUDICATION IN THE LIGHT OF OBSERVATION MADE IN THIS ORDER. THE AO WILL ALSO RE COVER THE COST OF RS. 10 000/- FROM THE ASSESSEE WHICH HAS BEEN IMPOSED B Y US AS PER THE OBSERVATION GIVEN IN THE FOREGOING PARAGRAPH. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23-10-2013 SD/- SD/- (P.M. JAGTAP) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER SKS SR. P.S MUMBAI DATED 23.10.2013 M/S TWILIGHT JEWELLERY PVT. LTD - 14 - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR K BENCH ITAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI