TMI Blog2013 (9) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of bad debt - Held that:- It is settled legal position as held by Hon ble Supreme Court in case of TRF Ltd.(2010 (2) TMI 211 - SUPREME COURT) that after amendment of provisions from assessment year 1998-99, burden is no longer on assessee to establish that debt has actually become irrecoverable. only conditions which are required to be fulfilled for allowance of bad debt is that debt should have been taken into account in computation on inomce of earlier year and should have been written off in books of accounts. There is no dispute that bad debt had actually been written off in books of accounts. CIT (A) has held that assessee had not produced any detail and evidence to show that such debts had been taken into account in computating income of ealier year. Issue is restored to file of AO for fresh decision after allowing opportunity of hearing to assessee to show that debt had been taken into account in computation of income of earlier year - Decided in favour of assessee. Disallowance of discount and commission expenses - Held that:- assessee could not submit complete details along with names and addresses of parties with supporting evidence which was specifically requisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence produced before lower authorities to show superior quality of assessee s product. assessee vide letter has filed an additional evidence before Tribunal in form of quality certificate from Bee PharmLabs (Pvt.) Ltd. an independent accredited third party and also comparative selling rate of same product produced by Torrent Pharmand Unichem Laboratories Ltd has been filed and it has been requested that additional evidence may be submitted. It was argued that assessee was made aware of these additional evidence only after passing of order by CIT (A) and accordinlgy it has been requested for admission of same. In our view an independent evidence regarding quality of products and comparative prices will be useful in deciding issue - Decided in favour of assessee. Import of pigments - Held that:- assessee had placed sufficient material on record in support of its plethat low margin in case of pigment was not because of high import price but because of low selling price in domestic market which was highly competitive. comparison made by AO of pigment segment with non AE trading which had no pigment, in our view is not justified on facts of case. best comparison would have been with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l grounds relating to domestic as well as international issues. 2. The dispute raised in ground no. 1(a) is general in nature and, therefore, does not require any adjudication. 3. The ground no. 1 (b) is regarding addition of ₹ 8332055/- on account on unutilised modvat credit in the value of closing stock. The AO had made the said addition as the assessee had not included the unutilised modvat credit in the closing stock u/s 145A of the IT Act. 3.1 The assessee disputed the decision of AO and submitted before CIT (A) that similar addition made in the earlier year has been deleted. It was also submitted that in case addition was required to be made into the closing stock, adjustment has also to be made in the purchases as well as in the opening stock. CIT(A) after considering the submissions of the assessee observed that similar issue had been considered in assessment year 2002-03 in which the CIT(A) had held that full effect of provision of section 145A were required to be given by including tax duty etc., in the opening stock/purchases also and not only in the closing stock. CIT (A) thereafter held that addition made by AO in the closing stock was confirmed and dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been paid. CIT (A), on examination of the record, noted that the tax have been deducted on 25.4.2003 i.e in the subsequent year. Therefore, it was not a case of tax being deducted in this year and payment made within a period of two months. CIT (A), therefore, held that deduction had to be allowed in assessment year 2004-05 after necessary verfication. Aggrieved by the said decision, the assessee is in appeal before Tribunal. 4.2 We have heard both the parties. The learned senior Counsel appearing for the assessee pointed out that the direction of CIT (A) for allowing the claim in the next year has not been given effect to by the AO. It was also submitted that the assessee will be satisfied if the claim was allowed in the next year. We have considered the matter carefully, we do not see any difficulty in allowing the claim in next year as the CIT(A) has given a clear finding that deduction was made in the next year and the amount was also paid next year. The order of CIT (A) holding that the claim has to be allowed next year is, therefore upheld. The AO will thus allow the deduction in assessment year 2004-05. 5. The dispute raised in ground no.1(d) is regarding disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been taken into account in the computation on inomce of earlier year and should have been written off in the books of accounts. There is no dispute that the bad debt had actually been written off in the books of accounts. The dispute is only whether the debt had been taken into account in the computation of income of earlier year. CIT (A) has held that the assessee had not produced any detail and evidence to show that such debts had been taken into account in computating the income of ealier year. This aspect in our view requires verification to which the assessee has no objection. We, therefore, restore the issue to the file of AO for a fresh decision after allowing opportunity of hearing to the assessee to show that the debt had been taken into account in computation of income of the earlier year. 6. The dispute raised in ground no. 1 (e) is reagarding disallowance of ₹ 5,32,69,000/-. The AO on examination of quantitative details of trading goods and manufacturing goods noted that there was under statement of closing stock. The assesse explained that the lower stock was because of shortage, free samples and giveaways under the company s bonus scheme. It was also sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the said decision, the assessee is in appeal before Tribunal. 6.2 Before us the learned senior Counsel submitted that at the time of assessment, the assessee had file the call report of doctors before the AO which contained the names of the doctors. It was also submitted that the AO had not specifically called for the addresses of the doctors. It was pointed out that the assessee was a multinational company which was distributing free samples throughout India and details of the doctors were voluminous. It was also submitted that the assessee could provide such details if required. He also filed the details for the month of March giving names and addresses of the doctors which ran into several pages. It was argued that it was a common practice to distribute free samples and such claims have also been allowed in the past. The disallowance has been made only from this assessment year. The claim should, therefore, be allowed considering the past histroy. Learned DR on the other hand submitted that the burden was on the assessee to establish that the expenditure on account of samples was genuine and had been actually incurred which cannot be discharged without giving full deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in this year has to be given a logical conclusion by examining the necessary details. Giving free samples is a normal business practice in pharmaceutical business and, therefore, disallowance of entire expenditure is prima facie unjustified. The matter in our view requires fresh examination after verification of details about names and addresses of doctors before the AO. We, therefore, set aside the order of CIT (A) on this point and restore the issue to the file of AO for passing a fresh order after necessary examination of the details filed by the assessee and after allowing opportunity of hearing to the assessee 7. Ground no. 1(f) relates to transfer pricing issue and will be taken up later. 8. The dispute raised in ground no. 1(g) is regarding deduction of ₹ 91,55,000/- in respect of contribution to LIC Group Insurance Scheme. The learned Senior Counsel at the time of hearing of the apeal did not press this ground. The ground is, therefore, dismissed as not prressed. 9. The ground no. 1 (h) is regarding disallowance of ₹ 5,00,000/- out of discount and commission expenditure claimed by the assessee. The AO noted that the assessee had claimed discount a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es could not be submitted as the same were voluminous. It was also submitted that no disallowance had been made either in the earlier year or in the subsequent year even in the scrutiny assessments made u/s 143 (3) of the IT Act. He also referred to the comparative details filed at page 835 of the paperbook as per which the commission and discount as percentage of sales this year was .55% compared to .43% in assessment year 2002-03. The difference being not big it was submitted that no disallowance should be made. The learned DR on the other hand strongly supported the orders of authorities below and placed reliance on the finding given in the respective orders. 9.3 We have perused the records and considered the the rival contentions carefully. The dispute raised is regarding estimated disallowance of ₹ 5,00,000/- out of discount and commission expenses of ₹ 1,89,87,006/- claimed by the assessee. The assessee could not submit complete details along with names and addresses of the parties with supporting evidence which was specifically requisitioned by the AO. Such details were also not been filed before CIT(A), and, therefore, he upheld the disallowance. It has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the estimated disallowance of ₹ 20,00,000/- made by the AO. Aggreived by the said decision, the assessee is in appeal before Tribunal. 10.1 Before us, learned Senior Counsel advanced similar arguments as in case of discount and commission. He also referred to the comparative details given at page 835 of the paperbook to point out that expenditure on account of sales promotion as percentage of sales was lower this year compared to expenditure in the assessment year 2002-03. It was also submitted that no disallowance had been made either in the earlier year or in the subsequent years even in the scrutiny assessment. It was, therefore, urged that the addition made may be deleted. The learned DR on the other hand supported the order of CIT(A) and placed reliance on the findings given in his order. 10.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding estimated disallowance out of sales promotion expenses. The assessee has claimed sales promotion expenses of ₹ 5,45,77,106/-. Estimated disallowance of 20,00,000/- had been made by AO as the assessee could not file full details relating to the claim. CIT(A) reduced th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar even in the scrutiny assessments. He also referred to the comparative details given at page 835 of the paperbook to point out that the claim this year as a percentage of sales was lower compared to in the immediate preceding year. It was further submitted that the assessee being a company no disallowance could also be made on account of personal issues. Reliance was placed on the judgment of Hon ble High Court of Gujarat in case of Sayaji Iron Engineering Co. (253 ITR 749). It was, therefore, urged that no disallowance should be made. The learned DR on the other hand supported the order of CIT(A) and placed reliance on the findings given in his order. 11.3 We have perused the records and considered the matter carefully. The dispute is regarding estimated disallowance of ₹ 10,00,000/- out of travelling, conveyance and vehicle expenses of ₹ 11,21,56,760/-. The AO had made estimated disallowance on the ground that full details of expenses with names and addresses of the parties had not been given. CIT (A) has confirmed the disallowance. We find that the issue is similar to the disallowance of sales promotion expenses which we have dealt with earlier. In the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. The AO has however not given effect to the order of CIT(A). In our view such verification of details is not possible before the AO without giving opportunity to the assessee which was not possible at the level of CIT (A) as he had no power to set aside the assessment. We, therefore, set aside the order of CIT (A) on this point and restore the matter to the file of AO for fresh order on this issue after necessary verification of details filed by the assessee and after allowing opportunity of hearing to the assessee. 13. The ground no. 1(l) is regarding allowability of claim of deduction u/s 80-IB in respect of DEPB income of ₹ 22,76,670/-. 13.1 The AO noted that the assessee had claimed deduction of ₹ 2,48,57,018/- u/s 80-IB of the IT Act., which also included deduction in respect of DEPB income. The AO disallowed the claim in respect of DEPB income on the ground that DEPB income was not derived from the business of the undertaking following the judgment of Hon ble Supreme Court in case of Sterling Foods Ltd. Vs. CIT ( 237 ITR 579) and some other judgments. In appeal CIT (A) confirmed the disallowance made by AO, aggrieved by which the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. He, therefore, excluded 90% of such receipts from the profit of business as per Explanation (baa) while computing deduction u/s 80HHC. 15.2 The assessee disputed the decision of AO and submitted before CIT (A) that the deposits on which the interest had been earned had been made as margin money or security deposits made for the purpose of business. Similarly interest on delayed payment was from customers, for late payment of sale bills and, therefore, it was an integral part of business income. Similarly insurance claim was on account of loss of goods, damages etc., which was a part and parcel of business. The indenting commission had been received in the course of business for acting as indenting agents for certain parties in India. Therefore, the same arose from the business activity. The income from instruments service contracts had arisen from services rendered in connection with maintenance contracts and other services in respect of imports and sale of medical instruments. The same, therefore, arose from the business operation. It was also submitted that the miscellaneious income included scrap sales, sundry sales etc,. which should be excluded as the same went to reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een assessed by AO as income under the head profit from business and profession about which there is no dispute. Dispute is only as to whether 90% of such receipts should be reduced from the profit of business as per Explanation (baa). As regards the interest on on deposits and other export incentive and indenting commission, the learned senior Counsel fairly agreed that 90% of these items may be reduced from the profit of business but he argued that in view of the judgment of Hon ble Supreme Court in case of ACG Associated Capsules (Supra) 90% of net amount only should be reduced. Since in view of the judgment of Hon ble Supreme Court, only the net receipts mentioned in Explanation (baa) are required to be reduced, we, therefore, set aside the order of CIT(A) on this point and direct the AO to reduced 90% of such net receipts after necessary verification. 15.5 The interest on delayed payment had been received from the customers for early payment of sale bills. It had been argued that this is an integral part of business operation and, therefore, should not be covered by the Explanation (baa). We agree with the submissions made as in our view interest on delayed payment has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon ble Supreme Court in case of ACG Associated Capsules (Supra). 16. The dispute raised in ground no. 1 (o) is regarding reduction of 100% of interest on FD with banks at ₹ 55,13,547/- and interest on income tax refund of ₹ 75,257/- from the profit of business while computing deduction u/s 80HHC. 16.1 In appeal CIT (A) confirmed the order of AO excluding the interest on income tax refund and FD with banks at the rate of 100% while computing the deduction u/s 80HHC. Aggreived by the said decision, the assessee is in appeal before Tribunal. 16.2 Before us learned Senior Counsel appearing for the assessee submitted that he had no objection for exclusion of interest on income tax refund at the rate of 100%. It was also submitted that the assessee will be satisfied if the interest on FD is also excluded fully provided netting is allowed to the assessee. In other words it was submitted that only net interest income should be excluded while computing deduction u/s 80HHC. The learne DR on the other hand placed reliance on the orders of authorities below. 16.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be applied. Learned DR on the other hand placed reliance on the order of CIT(A). 17.3 We have perused the records and considered the matter carefully. The assessee in the earlier year had debited the P L account on account of loss arising from revaluation on certain assets. In the current year, the assessee has reversed the entry and credited the P L account by the said amount which has been assessed as business income by the AO. The dispute is as to whether 90% of such income can be considered for reduction from profit of business as per Explanation (baa). The said Explanation applies to any receipts by way of brokerage, commission, interest, rent charges or any other receipts of similar nature included in the business profit. The amount under consideration is not receipt by the assessee during the year. It is only a write back of loss claimed earlier and credited to the P L account without any actual receipt. Therefore, we agree with the submission of the learned Senior Counsel that the provisions of Explanation (baa) cannot be applied to such income. The amount has already been assessed as business income by the AO and, therefore, it would be fully eligible for deduction u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been incurred in assessment year 2002-03 in which it was treated as capital expenditure. The AO however did not allow depreciation in assessment year 2002- 03 on the ground that the project had become operational in assessment year 2003-04. The claim however was not allowed in assessment year 2003-04 as the same had not been made in the return of income for assessment year 2003- 04. The authorities below have disallowed the claim following the judgment of Hon ble Supreme Court in case of Goetze (India) Ltd. vs. CIT (284 ITR 323) as per which any claim before AO has to be made in the return of income. Aggrieved by the decision of CIT(A), the assessee is in appeal before Tribunal. 20.2 Before us the learned Senior Counsel submitted that the same issue had been considered by the Tribunal in assessee s own case in assessment year 2002-03 in ITA no. 2954/Mum/2006 and the Tribunal had restored the matter to the file of AO with certain observations. It was submitted that the claim may be restored to the file of AO this year also to examine afresh in the light of decision of Tribunal in assessment year 2002-03 (Supra). The learned DR placed reliance on the orders of authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The assessee, thereafter, made the claim in assessment year 2003-04 by filing an additional ground before CIT (A). The AO in the remand report called for by the CIT (A) objected to the allowance of claim on the ground that the same had not been made by filing a revised return at the time of assessment. 21.2 The assessee disputed the decision of AO and submitted before CIT (A) that the assessee could not have made the claim by filing the return of income for assessment year 2003-04 as the assessment order for assessment year 2002-03 disallowing the claim had been received on 31.3.2005. CIT (A) however did not accept the contentions raised and observed that the assessee should have made claim at first instance in assessment year 2003-04 itself which was not done. He, therefore, confirmed the order of AO disallowing the claim aggrieved by which the assessee is in appeal before Tribunal. 21.3 Before us, the learned Senior Counsel submitted that the disallowance of claim in assessment year 2002-03 had been considered by the Tribunal who in the para 8 of the said order confirmed the disallowance after observing that the claim was pending in dispute before the Tribunal for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad entered into international transactions with AE, the AO referred the matter for determination of transfer pricing adjustment to the TPO who after necessary examination recommended certain adjustments in respect of three international transactions mentioned above which are disputed in appeal before Tribunal. 22.1 We first take up the issue of adjustment in relation to import of Bisoprolol Fumarate. The assessee had imported 92.27272 kg of the said ingredient for a sum of ₹ 1,30,80,274/- at the rate of ₹ 1,41,750/- per kg. The said ingredient is used for manufacture of product Concor an anti hypertension product. The TPO noted that M/s Unichem Laboratories Ltd was also engaged in manufacturing and sale of similar product i.e. Corpis which was operating in the same segment. The TPO obtained the information from the said party who reported that they had manufactured and sold the same during the year at the rate of ₹ 50,000/- per kg. It was also noted that the assessee during the year had purchased small quantity of Bisoprolol Fumarate at the rate of 70,000/- per kg from M/s Unichem Laboratories. TPO, therefore, asked the assessee to explain as to why the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in different geographical locations and marketing condtions. The AO, therefore, applying the CUP method adopted the rate at which the assessee had purchased the same ingredient from M/s Unichem Laboratories Ltd. The assessee had purchased at the rate of 70,000/- per kg whereas sale to some other party was at ₹ 50,000/- per kg. The TPO, therefore, adopted the average rate of ₹ 60,000/- and thus adjustment was made at ₹ 75,43,911/- which was followed by the AO in the assessment order. 22.4 The assesse disputed the decision of AO and submitted before CIT (A) who after hearing the assessee accepted the approach adopted by the AO and thus upheld the adjustment made at ₹ 75,43,911/-. Aggrieved by the decision of CIT (A), the assessee is in appeal before Tribunal. 22.5 Before us, the learned Senior Counsel appearing for the assessee reiterated the submissions made before lower authorities that TNMM method was appropriate method for bench marking international transactions. It was pointed out that mean margin in case of comparables selected by the assessee was 13.36% whereas the margin of the pharma division in case of the assessee was 15.90%. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The assessee, therefore, submitted that no adjustment was required . TPO however made local enquiries and found that the Unichem Laboratories Ltd. which was manufacturing the same product had sold the same in the market at 50,000/- per kg. The assessee had also purchased small quantity of this product from the said company at ₹ 70,000/- per kg. The TPO, therefore, applied CUP method and adopted the rate of 60,000/- per kg. for the purpose of making TP adjustment. TPO has also held that TNMM was not suitable in this case as the total import of the product by the assessee was only 3.49 crore whereas the turnover of the pharma segment was ₹ 220 crore. Therefore, the impact on price variation in respect of product on such high turnover would be too insginificant. The TPO, therefore, used CUP method and adopted the price charged by Unichem Laboratories Ltd for bench marking the transaction. The argument of the assessee that the AE had sold the same product to other group entities at a higher price had not been accepted. In our view the stand of the revenue authorities to reject such argument is reasonable as the other group entities were operating in different geographic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts directly to thrid parties in India for which the assessee provides marketing and support services. Therefore, in respect of third party sales by the AE the assessee receives commission. The assessee in its transfer pricing study considered the trading activity and agency activity as a single business and used TNMM for bench marking the international transactions. The assessee selected seven comparables for this purpose. The TPO however rejected the comparables selected by assessee for the various reasons mentioned in the table below:- Sr. No. Name of the Company Remarks 1. Origon Commercials ltd. Both these entities are engaged in trading of ferrous and no ferrous chemicals. Further, Anukuran Commercial Enterprises Ltd. is engaged in trading in shares. Segmental information is not available 2. Anukuran Commercial Enterprises Ltd. 3. Daga Petrochemicals Ltd. No information has been provided on the basis of which this company has been regarded as comparable to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of both AE trading and non AE trading was comparable. The AO noted that margin in case of pigments which were purchased from the AE was very low at 5% whereas the margin in respect of non pigment AE trading was 15% and it was 16% in case of non AE trading. 23.3 The TPO, therefore, asked the assessee to explain as to why the adjustment should not be made on the basis of margin in case of non AE trading segment. The assessee submitted that market conditions in the AE segment and non AE segment were different and not comparable. Moreover, the products under the AE segment and non AE segment were also not the same. The assessee further submitted that import price from the AE in case of the assesss was lower than the price at which the AE had sold to other group entities. It was also submitted that lower profit margin in case of pigments was not on account of high import price but on account of low selling price in the local market due to severe competition. To substantiate the claim that the assessee was importing at lower price, the assessee referred to the complaint filed by the Sudarshan Chemicals a local manufacturer of chemicals, pigments and pesticides on the basis of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not proper. It was pointed out tht the assessee had cited independent comparable companies having functions broadly similar to the distributor functions in which margin ranged from .71% to 11.31% with arithematic mean of 3.12% which was much lower than net profit margin of 15% earned by the assessee in the chemical division. Therefore, it was pleaded that no adjustment was called for. 23.6 CIT (A) however did not accept the contentions raised. It was observed by him that the comparables selected by the assessee were not shown to be similar to the case of the assessee as no information was made available to show functional similarity between the assessee and those parties. As regards the argument of the assessee that non AE segment had a different product, CIT (A) observed that under TNMM product similarity was not an essential requirement. CIT (A) also agreed with the TPO that isolated case of Berger Paint was not comparable to the case of the assessee who was distributor in India. He further observed that the e-mail correspendence dated 22.8.2002 submitted by the assessee clearly showed that the assessee was deliberately following the predatory pricing policy in India with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of authorities below. It was submitted that the TPO had selected the internal comparables which are preferable as various conditions such as asset employed risk under taken etc, remained the same. He placed reliance on the decision of Tribunal in case of TECHNIMONT ICB P. LTD. Vs. ACIT in ITA no. 4608/M/2010. It was further submitted that though the non AE segment considered as internal comparable did not include pigment trading, the product similarity was not necessary in case of TNMM and the same was relevant only for CUP method as held by the Mumbai bench of Tribunal in case case of DIAGEO INDIA P.LTD Vs. DCIT in ITA No. 7932/Mum/2011. It was also pointed out that the transaction as defined in rule 10A(d) included closely linked transactions. Since the assessee had grouped pigment and non pigment segment together which clearly showed that the transaction were similar. The argument that price charged by the AE was higher to other group entities was not relevant as those entities were operating in different geogrphical locations and transactions were also with AE s which were controlled transactions. As regards the fall in selling price in the domestic market, it was submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4% pigment turnover. Referring to the details given at page 365 of the paperbook, it was pointed out that in case the profitability of IRI-100 was taken as the one in the year 2002, the net margin of the pigment division would come to 18%. It was thus clear that fall in the margin was because of low selling prices and not because of high cost of import. 23.10 We have perused the records and considered the the rival contentions carefully. The dispute is regarding TP adjustment on account of import of pigments made by assesseee amounting to ₹ 29.66 crore from the associate enterprise. The assessee in its transfer pricing study in relation to the said international transaction adopted the TNMM for bench marking the transaction which has been accepted by the TPO/AO. The assessee selected certain comparables which were functionally similar to distributors as the assessee was also a distributor, which gave arithematic mean margin of 3.12% compared to the 15% margin in case of the assessee. It was therefore requested that no adustment was required to be made. The TPO has not accepted the comparables selected by the assessee. He noted that the assessee had trading operations in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locations and size of the market is also required to be taken into account. The marketing conditions in respect of each product may be different. When the marketing conditions are the same, product s characteristic may not have much importance in TNMM but in case of change in marketing conditions, product characteristics cannot be ignored. Threfore, in our view, comparison of margin of pigment segment with non AE segment which did not deal with pigment is not proper. 23.13 The assessee in this case has also produced evidence to show that Government had levied anti dumping duty in respect of pigments imported by the assessee which shows that the AE was selling the pigment to the assessee at a lower price. The authorities below had not accepted the plea based on anti dumping duty on the ground that the notification had been issue in the year 2005 which was subsequent to the period under consideration and assessee had not given details of the submissions made before anti dumping authorities. It has also been pointed out that anti dumping duty had been levied only in respect of two products i.e. IRI-100 and IRI -111. The authorities below have also pointed out that e-mail correspond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of pigment was not because of high import price but because of low selling price in the domestic market which was highly competitive. The comparison made by AO of the pigment segment with non AE trading which had no pigment, in our view is not justified on the facts of the case. The best comparison would have been with an independent party importing pigments from the same foreign market and trading in the local market but no such comparative case has been placed on record by the TPO. though it was the TPO who separated the pigment segment for the purpose of transfer pricing study. Considering the entirity of facts and circumtances we are unable to sustain the order of CIT(A) upholding the TP adjustment made by AO in this case. The order of CIT (A) is accordingly set aside and the addition made was deleted. 24. The third adjustment made by AO/TPO is regarding the technical know how fees of ₹ 1.57 crore paid by the assesse to its parent company in Germany. The assessee filed copy of technical consultancy agreement from which the AO noted that as per the clause 3 of the agreement the assessee was to receive assistance from the parent in the following fields. (i) Suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es paid of ₹ 1.57crore. 24.2 The assessee disputed the decision of AO/TPO and submitted before CIT (A) that the assessee paid fees for consultancy and related services to parent company for various consultancy and related services in the field of engineering technology, sourcing of supplies, information on engineering and scientific trends, international trends on finance and administration and other related services. The consultancy agreement was in respect of list of services which was an ongoing exercise. The services were being received by way of continuous ineraction between the personnel of the assessee and overseas parent by phone calls, e-mails and personal visits. The agreement did not specify that all services mentioned in the agreement will be rendered during the same year. The agreement was only indicative in nature. The TPO therefore, erred in allocating technical services payment based on the number of heads mentioned in the agreement without appreciating the nature of the services received during the year and the value associated with the same. The assessee during the year had received significant support from the AE for implementation of SAP in India and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds. The Tribunal also observed that it was not for the department to say as to how much should be paid for which service. Moreover it was further pointed out that it was a case of TP adjustment and not normal assessment and, therefore, adjustment can be made only by following the prescribed methods, which has not been done in this case. Therefore, it was urged that the adjustment made should be deleted. 24.4 Learned CIT(DR) on the other hand strongly defended the orders of authorities below. It was argued that there was no evidence for payment of remaining nine services and, therfore, payment to those services had been treated as nil by the TPO as no independent party would be providing any free services. Therefore, it was argued that the TPO had applied the CUP method which was most appropriate on the facts of the case. The learned CIT(DR) also referred to the decision of Bangalore bench of Tribunal in case of Festo Controls (P) Ltd Vs. DCIT in ITA No. 969/BNG/2011 in which in a similar situation where certain services had been provided from the central point to more than one entities, the issue had been restored by the Tribunal to the file of AO. It was thus argued that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per which adjustment on account of any internationl transaction is required to be made as per the method prescribed. The learned CIT (DR) pointed out that the TPO in respect of the nine services not availed by the assessee has treated the payment as nil since no indpendent party would make any payment for services not provided. The TPO thus had applied the CUP method and made adjustment on account of nine services on average basis. 24.7 Such argument in our view is not convincing. The argument would have been valid if fees was fixed in respect of each service, which was compulsorily required tobe provided to the assessee, but it is not so in the present case. The agreement listed certain services on which the assessee requires guidance/assistance from time to time. The assessee was thus entitled to any of the services as and when required. Therefore, applying CUP method to the service not availed by the assessee during the year is not justified. It would have been appropriate if the AO had applied CUP method to the payment made during the year by the assessee for the three services and compared with similar payment for such services by an independent party. No efforts have b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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