DCIT 10(2), MUMBAI vs. KODAK POLYCHROME GRAPHICS INDIA P.TLD, MUMBAI

आदेश / O R D E R

PER RAVISH SOOD, JUDICIAL MEMBER:

1. The learned Commissioner (Appeals) erred in confirming a Transfer Pricing adjustment in respect of the trading activity of purchase of plates to the tune of Rs.1,60,93,460/-.

2. The learned Commissioner (Appeals) erred in holding that the Transfer Pricing Officer had applied the Resale Price Method for benchmarking the trading segment.

3. Both the lower authorities failed to consider that benchmarking a trading activity with the margins earned in the manufacturing activity of the appellant is an absurdity.

4. The learned Commissioner (Appeals) erred in rejecting the CUP method applied by the Appellant for benchmarking purchase of plates.

5. The learned Commissioner (Appeals) erred in rejecting the contention of the Appellant as regards its market penetration strategy.

6. Having regard to the facts and circumstances of the case and the provisions of law, the Appellant submits that the Transfer Pricing adjustment of Rs. 1,60,93,460/- be cancelled.

7. Without prejudice to Ground No.6 above, the appellant submits that the Transfer Pricing adjustment is highly excessive and arbitrary, and requires to be reduced substantially.

P a g e | 3 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax 8. Without prejudice to Ground Nos. 6 & 7 above, the appellant submits that, in any event, both the lower authorities erred in not allowing the benefit of the proviso below Section 92C(2) while computing the Transfer Pricing adjustment.

as and when advised.

2. Briefly stated, the assessee company which is a wholly owned subsidiary company of Kodak Polychrome Graphics BV, Netherland, is engaged in the business of dealing in graphic art films, graphics art chemicals and plates and other allied products. Return of income was filed by the assessee for A.Y 2005-06 on 29.10.2005, declaring total income at Rs.2,02,13,390/-. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2).

Sr. No. Name of the AE Nature of transaction Amount (Rs.) Method

P a g e | 4 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax 1. Kodak Polychrome Wide rolls of graphic art 21,40,83,876/- TNMM Graphics Mfg. BV, films The Netherlands 2. Different AEs Finished goods plates 7,64,65,741/- Resale Price 3. Kodak Polychrome Finished graphics arts film 2,43,404,90/- Resale Price Graphics Mfg. BV, The Netherlands 4. Kodak Polychrome Finished goods paper 55,418/- Resale price Graphics Ltd. Singapore 5. Kodak Polychrome Cannon Server software 3,57,676/- At cost Graphics LLC 6. Kodak Polychrome Match composer software 1,50,000/- At cost Graphics Mfg. BV, The Netherlands 7. Kodak Polychrome Indenting agency fees 36,75,949/- TNMM Graphics Asia Export Received Pte Ltd. Singapore 8. Kodak Polychrome Technical expertise & 65,77,500/- TNMM Graphics Pte Ltd., support from product Singapore managers 9. -do- Reimbursement of IT 12,39,055/- At cost related expenses 10. Kodak Polychrome Payment of Computer 11,152/- At cost Graphics Ltd. Software expenses Australia Pty Ltd.

Sr. No. Name of the AE Nature of transaction Amount Rs. Method 1. Kodak Polychrome Wide rolls of graphic art 21,40,83,876/- TNMM Graphics Mfg. BV, films. The Netherlands 2. Different AEs Finished goods plates. 7,64,65,741/- Resale Price

(A) Purchase of wide rolls of Graphic Art films:

It was observed by the TPO that the assessee during the year under consideration had purchased wide rolls of graphic art films from its AE viz.

P a g e | 5 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax Kodak Polychrome Graphics Manufacturing BV, Netherland, for an amount of Rs.21,40,83,876/-. The assessee as per its Transfer Pricing Study Report (for short „TPSR‟) had benchmarked the transaction using TNMM method as the most appropriate method (for short „MAM‟). The assessee had selected one comparable viz. M/s Stovec Industries Ltd.(Graphic segment). On the basis of the operating margin of 3.4% of the aforesaid comparable viz. M/s Stovec Industries Ltd, it was the claim of the assessee that its operating margin of 5.32% was within arm‟s length. The TPO being of the view that as the business of the aforementioned comparable viz. M/s Stovec Industries Ltd.(Graphic segment) comprised of pre-senstised off-set plates and press room chemicals, which was different from the area of operation of the assessee which was mainly dealing in graphic art films, graphic art chemicals and others allied products, thus holding the said comparable as functionally different, rejected the same. Still further, the TPO on the basis of search conducted on Prowess database selected two comparables on the ground that they were broadly functionally comparable to the assessee, as under :

Sr. No. Name of comparable Operating margin 1. M/s Jindal Photo Ltd. 10.36% 2. Computer Graphics Ltd. 8.44% Arithmetic Mean Margin 9.4% The assessee further after making necessary adjustments in respect of expenses on MD recruitment cost and Forex loss of Rs.27,00,000/-, considering them as non-recurring and exceptional expenditure, recasted its operative margin at 6.44%. However, the submissions of the assessee before the TPO that the comparable M/s Stovec Industries Ltd. (Graphic Segment) being functionally comparable was not liable to be excluded, did not find favour with him. Still further, the objection filed by the assessee with the TPO that the parties taken by him as comparable viz. (i) M/s Jindal Photo Ltd; and (ii) M/s Computer Graphics Ltd, could not be selected as a comparable, was also rejected by the TPO. The TPO was also not persuaded to subscribe to the recasting of the PLI by the assessee at 6.44% by considering the MD recruitment cost and Forex loss of Rs.27,00,000/- as a P a g e | 6 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax non-recurring and exceptional expenditure. On the basis of the aforesaid deliberations, the TPO adopting the average margin of 9.40% of the new set of comparables selected by him viz. (i). M/s Jindal Phota Ltd (10.36%); and (ii) M/s Computer Graphics Ltd. (8.44%), therein worked out the ALP in the hands of the assessee as under:

PBIT 2.44 cr Sale turnover 45.81 cr OP/sales of assessee 5.32% Arm‟s length OP/TC 9.40% Profit margin @ 9.4% 4,30,61.400/- Difference between arm‟s length profit 1,86,61,400/- and profit shown by the assessee Purchase of Graphics films from AEs 23,84,24,366/- ALP value 21,97,62,966/- 5% margin 1,09,88,148/- Upper limit 23,07,51,114/- The TPO observing that the assessee had paid an amount of Rs. 23,84,24,366/- for the purchase of graphic art films from its AE as against the arm‟s length value of purchase of the same at Rs.21,97,62,966/- ,therefore, made an upward adjustment of Rs.1,86,61,400/- in the hands of the assessee.

(B) Purchase of Plates and Plate Chemicals:

The TPO during the course of the proceedings observed that the assessee had purchased plates and related items from its AE‟s for Rs.7,68,78,700/-. It was noticed by the TPO that as per Form 3CEB the assessee had benchmarked the aforesaid purchase transactions using Resale Price Method (for short „RPM‟). However, despite specific directions the assessee failed to furnish the requisite details as regards benchmarking of the aforesaid purchase transactions using RPM. During the course of the proceedings, the assessee using custom data compared the price at which the plates were imported by it, as against the price at which import of plates was made by other importers. The TPO observing that a perusal of the data furnished by the assessee revealed that there was difference in the various parameters of the plates being imported, thus called upon the assessee to P a g e | 7 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax explain that as the CUP method was very sensitive to difference in the products being compared, therefore, why the same as sought to be applied by the assessee may not be rejected. The assessee in its reply tried to justify the CUP method on the ground viz. (i). the price compared was the average of the prices of various import consignment of the assessee, as also of the other importers; and (ii). the different dimensions of the same product would not make them different products. It was further observed by the TPO that even the terms and conditions at which the other entities had bought the goods from the third parties were also not available on record. On the basis of the aforesaid deliberations the TPO rejected the CUP method which was sought by the assessee to be applied for benchmarking its aforesaid international transactions of purchase of plates and plate chemicals from its AEs. Still further, the assessee despite specific directions failed to produce before the TPO the global price list of the AEs. The TPO observed that the assessee had failed to furnish the transfer pricing analysis for the RPM and there was also no comparable against which the international transactions of the assessee relating to purchase of plates from its AEs could be benchmarked. In the backdrop of the aforesaid facts, the TPO being left with no other alternative, thus after making necessary adjustments applied the gross margin (on cost) earned by the assessee in the graphics segment, to the import of plates and other related items of Rs. 7,68,78,700/- made from its AEs. The TPO after considering the adjustment made in the graphic film segment, worked out the gross margin (on cost) in the graphic film segment at 22.53%. On the basis of his aforesaid deliberations the TPO worked out an upward adjustment of Rs.2,10,11,000/- to the ALP of the international transactions relating to purchase of plates and other items by the assessee from its AEs. The TPO on the basis of his aforesaid benchmarking of the international transactions entered into by the assessee with its AEs made an upward adjustment of Rs.3,96,72,400/- to the value of the international transactions.

P a g e | 9 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax companies could safely be taken as comparable as regards the segment of graphics films comprising of import of wide rolls of graphic art films by the assessee from its AEs. The CIT(A) being of the view that the comparability criteria in respect of characteristics of the property, functional analysis, contractual terms and economic situations were less stringent in TNMM, as compared to other methods, and as per the said method the net margins are less effected by the product difference, thus adopted the aforesaid three companies as comparable for benchmarking the international transaction pertaining to purchase of wide rolls of graphic art films by the assessee from its AEs. However, the CIT(A) was not persuaded to subscribe to the claim of the assessee that the AO/TPO had erred in declining to accept the claim of the assessee that adjustment in respect of the MDs recruitment cost and Forex loss of Rs.27,00,000/- was liable to be carried out by considering the same as a non-recurring and an exceptional expenditure. The CIT(A) while rejecting the aforesaid claim of the assessee, observed that whether it be the recruitment cost of the MD or any senior or other employee, the same was a very general kind of expenditure which the companies normally incurred in their business. It was further observed by the CIT(A) that expenditure of the said kind was not in the nature of a non-recurring expenditure. On the basis of his aforesaid deliberations, the CIT(A) adopting the average margin of 7.40% of the aforesaid three comparables viz. (i) M/s Stovec Industries Ltd; (ii) M/s Jindal Photo Ltd; and (iii) M/s Computer Graphic Ltd, worked out the ALP of the international transactions pertaining to purchase of wide rolls of graphic art films in the hands of the assessee, as under:

Jindal +Stovac + Computer Jindal + Stoval + Computer graphics graphics 7.40% 7.40%

Rs.(crores) Rs.(crores) PBIT 25,700,000 24,800,000 Sales T/o 458,100,000 458,100,000 Margin of assessee 5.61 (If considered revised) 5.32% (As taken in the T.P. report) Profit margin @ 7.40% 33,899,400 33,899,400 Diff b/w ALP & KPG Profit 8,199,400 9,09,9400 Purchase price 238,424,366 238,424,366

P a g e | 10 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax ALP Value 230,224,966 229,324,966 5% margin 11,511,248 11,466,248 Upper limit 241,736,214 240,791,214 The CIT(A) further being of the view that as the assessee was entitled to the benefit of the pre-amended proviso to Sec.92C(2), thus allowed the benefit of -5% as claimed by the assessee for working the ALP in respect of the international transactions pertaining to purchase of wide rolls of graphic art films from its AEs. On the basis of the aforesaid deliberations, it was observed by the CIT(A) that the purchase price of the wide rolls of graphic art films by the assessee from its AEs during the year under consideration was well within the 5% margin. In the backdrop of the aforesaid facts as had so emerged, the CIT(A) observing that the purchase of wide rolls of graphic art films by the assessee from its AEs was as per the arms length price, therefore, deleted the upward adjustment of Rs.1,86,61,400/- made by the AO/TPO.

9. The CIT(A) further adverting to the upward adjustment of Rs.2,10,11,000/- carried out by the AO/TPO as regards the purchase of plates and plate chemicals of Rs.7,68,78,700/- by the assessee from its AEs, observed that the TPO had adopted the gross profit (on cost) of the assessee in its graphic art film segment, and had applied the same for benchmarking the international transactions of purchase of plates and allied items by the assessee from its AEs. The CIT(A) was of the view that the manufacturing activity of the assessee which constituted of only import and then slitting of wide rolls of graphic art films was a very low value addition activity, thus in the circumstances of no valid benchmarking analysis conducted by the assessee, non submission of its AEs price list for the supplies and failure to benchmark its international transactions properly, the assesses own segment was validly considered as a comparable by the TPO for benchmarking the international transactions of purchase of plates and allied items by the assessee from its AEs. However, the CIT(A) observing that as the upward adjustment made in respect of the graphic segment of the assessee was deleted by him, therefore, concluded that the benchmarking of P a g e | 11 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax the international transactions of purchase of plates and allied items by the assessee from its AEs would be carried out on the basis of the gross profit earned by the assessee in its manufacturing segment, without considering the upward adjustment made by the TPO. Accordingly, the CIT(A) worked out the upward adjustment in respect of the purchase of plates and allied items by the assessee from its AEs at Rs.1,60,93,460/- and allowed a relief of Rs.49,17,540/- to the assessee.

10. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee has assailed before us the sustaining of the upward adjustment of Rs.1,60,93,460/- by the CIT(A) in respect of the purchase of plates and plate chemicals by the assessee from its AEs. It was submitted by the ld. A.R that involving identical facts, an upward adjustment of Rs.3,83,08,000/- as regards the international transactions of import of plates and plate chemicals by the assessee from its various AEs was carried out in the case of the assessee for A.Y 2004-05. It was submitted by the ld. A.R that in the said year to the assessee had in its TPSR adopted RPM for benchmarking the import of finished plates as the most appropriate method. It was further averred by the ld. A.R that similar to the facts for the year under consideration, the assessee in the said year i.e A.Y 2004-05 also had submitted before the TPO that the CUP method should be adopted, based on certain data on which third parties had imported similar kind of plates. The ld. A.R submitted that the Tribunal after deliberating on the facts of the case had restored the matter to the file of the TPO for denovo adjudication. It was averred by the ld. A.R, that the Tribunal while disposing off the appeal of the assessee for A.Y 2004-05, had directed the TPO to adjudicate the issue afresh after taking into consideration as to what would be the most appropriate method, i.e whether the RPM or CUP method for benchmarking the purchase/import of finished plates and allied items by the assessee from its AEs. The ld. A.R taking support of the aforesaid facts, submitted that now when the issue involved in the present case remains the same, therefore, in all fairness the matter be restored to the file of the TPO on the P a g e | 12 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax same terms. It was further submitted by the ld. A.R that the A.O had erred in disallowing the depreciation of Rs.6,92,831/- claimed by the assessee on goodwill. It was submitted by the ld. A.R that the said issue was squarely covered by the order passed by the Tribunal in the assesses own case for A.Y 2004-05 in Kodak Polychrome Graphic (I) P. Ltd. Vs. Addl. CIT (ITA No. 1557/Mum/2009, dated 26.06.2013). It was submitted by the ld. A.R that the Tribunal had in its aforesaid order by relying on the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC), had allowed the claim of the assessee towards depreciation on intangible assets within the meaning of Sec.32(1)(ii) of the Act. Per contra, the ld. Departmental Representative (for short „D.R‟) submitted that in case if the issue pertaining to the benchmarking of the international transactions of purchase of plates and plate chemicals by the assessee from its AEs was to be set aside to the file of the TPO, then a proper direction as regards the method for benchmarking of such transactions may also be given. The ld. D.R in support of his aforesaid contention relied on the order of a coordinate bench of the Tribunal, viz. ITAT “K” bench, Mumbai in the case of ACIT-9(2)(i), Mumbai Vs. Billion Wealth Minerals Pvt. Ltd (ITA No. 1818/Mum/2015, dated 19.01.2018). As regards the claim of the assessee towards depreciation of goodwill, it was fairly conceded by the ld. D.R that the said issue was squarely covered in favour of the assessee.

11. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the issue as regards the upward adjustment of Rs.1,60,93,460/- sustained by the CIT(A) as regards the value of international transactions relating to purchase of plates and plate chemicals by the assessee from its AEs. We find from a perusal of the orders of the lower authorities, that the assessee had in its TPSR claimed to have benchmarked the aforesaid transactions of purchase of plates and plate chemicals from its AEs by applying the Resale price method. However, during the course of the proceedings before the lower authorities, the P a g e | 13 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax assessee failed to place on record the benchmarking analysis for the aforesaid purchase transactions. Still further, during the course of the proceedings before the TPO, the assessee by comparing the aforesaid price of its various import consignments, as against that of the other importers on the basis of custom data, sought that CUP method be applied for benchmarking the said transactions. We find that the lower authorities observing that in the absence of requisite details at which the other entities had purchased the goods from the third parties, as well as the fact that there was difference in the dimensions of the plates imported by the assessee as against those imported by the other importers, thus declined to adopt the CUP method for benchmarking the international transactions of purchase of plates and plate chemicals by the assessee from its AEs. We find that a similar issue had earlier came up before the Tribunal in the assesses own case for A.Y 2004-05, i.e Kodak Graphic (I) P. Ltd. Vs. Addl.- CIT, Circle-10(1), Mumbai (ITA No. 1557/Mum/2009, dated 26.06.2013) (Copy placed on record). We find that the Tribunal while disposing off the aforesaid appeal of the assessee, had after deliberating at length on identical facts as were therein involved, restored the matter to the file of the TPO for fresh adjudication, observing as under: “Therefore, in the interest of justice, we are of the considered opinion that the entire issue needs to be restored back to the file of the TPO for denovo adjudication. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the entire issue back to the file of the TPO for adjudication afresh after taking into consideration firstly, what should be the most appropriate method, that is, whether RPM or CUP method for bench marking the purchase /import of finished plates and the onus would be on the assessee to demonstrate as to why CUP method should be followed and what would be the comparables based on which comparability analysis can be done. The assessee can file before the TPO all the additional evidences which have been filed before us to justify that unrelated parties / third parties were also procuring similar products by and large on the same price range. Secondly, all the relevant details which required for adjudication of this issue can be furnished by the assessee to justify its arm‟s length transactions. Needless to say that the TPO will provide due and effective opportunity of hearing to the assessee to present its case. Accordingly, ground no. 7, is treated as allowed for statistical purposes.”

P a g e | 14 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax We have perused the aforesaid order of the Tribunal passed in the assesses own case for A.Y 2004-05 and are of the considered view that the matter in all fairness, on the same terms, be restored to the file of the TPO for fresh adjudication. We thus, restore the issue as regards benchmarking of the international transactions of purchase of plates and plate chemicals by the assessee from its AEs during the year under consideration to the file of the TPO for denovo adjudication. The TPO shall while adjudicating the aforesaid issue, determine as to what would be the most appropriate method i.e. whether RPM or CUP method for benchmarking the purchase/import of finished plates by the assessee from its AEs. We may herein clarify that the onus would be on the assessee to demonstrate before the TPO as to why CUP method should be followed and what would be the comparables based on which the comparability analysis can be done. Needless to say, the assessee shall remain at a liberty to furnish all the relevant details which would be required to facilitate the benchmarking of the aforesaid transactions under consideration. The Grounds of appeal No. 1 to 8 raised by the assessee are allowed for statistical purposes in terms of our aforesaid observations.

12. We shall now advert to the claim of the assessee that the lower authorities had erred in disallowing the claim of depreciation of Rs.6,92,831/- raised by the assessee on goodwill. The genesis of the issue under consideration is that in financial year 1999-2000 M/s Kodak India Pvt. Ltd. had entered into an agreement dated 29.10.1999 for transfer of its graphic art products business to the assessee, comprising of net tangible assets of Rs.9.32 crore and intangible assets comprising of “Product market, market information, customer information and relations and dealer network” for a consideration of Rs.1.00 crore. The assessee had nomenclatured the aforesaid intangibles as “goodwill” in its books of account. On the aforesaid intangible assets of Rs.1 crore, the assessee had claimed depreciation under Sec.32(1)(ii) of the Act. During the year under consideration, the assessee had claimed depreciation of Rs.6,92,831/- on the Opening block of the intangible assets, which however was denied by the P a g e | 15 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax A.O on the ground that depreciation claimed was on goodwill and not on intangible assets. The CIT(A) on appeal followed the order passed by his predecessor and upheld the disallowance of the claim of of depreciation raised by the assessee. We have deliberated at length on the issue under consideration and find ourselves to be in agreement with the contention advanced by the ld. A.R that the issue as regards the entitlement of the assessee towards claim of depreciation was allowed by the Tribunal in the assesses own case for A.Y 2004-05 in Kodak Polychrome Graphic (I) P. Ltd. Vs. Addl. CIT, Circle-10(1), Mumbai (ITA No. 1557/Mum/2009, dated 26.06.2013). We find that the Tribunal after deliberating on the issue under consideration, had observed that the assets on which depreciation was claimed by the assessee formed part of the block of assets and the written down value on such assets was coming from the earlier years. It was observed by the Tribunal that on such assets depreciation was allowed by the department in the A.Y 2000-01 and A.Y 2002-03 and also the subsequent assessment years. In the backdrop of the aforesaid facts, the Tribunal observing that once the depreciation was allowed by the department on the “Block of assets”, the same thereafter could not be disallowed in the subsequent year on the written down value. We have perused the order of the Tribunal and find ourselves to be in agreement with the view therein taken, that once the depreciation had been allowed by the revenue on the „block of assets‟, the same thereafter could not have been disallowed during the year under consideration on the written down value. We thus, respectfully following the aforesaid order of the Tribunal in the assesses own case for A.Y 2004-05, therefore, conclude that the claim of the assessee towards depreciation on intangible assets purchased, vide agreement dated 29.10.1999 is well in order. The Grounds of appeal No. 9 to11 are allowed in terms of ours aforesaid observations.

1. On the facts and in the circumstances of the case as well as in law, the Learned CIT(A) has erred in deleting the adjustment of Rs. 1,86,61,400/- to the value of International Taxation u/s 92CA of the I.T. Act.

2. On the facts and in the circumstances of the case as well as in law, the Learned CIT(A) has erred in deleting the adjustment of Rs.2,10,11,000/- to the value of International transacting relating to purchase of plates and plate chemical from A.E's.

3. The appellant prays that the order of CIT (A) in the above ground the set aside and that of the assessing officer be restored.

4. The appellant craves leave to amend, or alter any grounds or add new grounds which may be necessary.” 14. We find that the revenue has assailed before us the deletion by the CIT(A) of the upward adjustment of Rs.1,86,61,400/- made by the AO/TPO, as regard the International transactions of purchase of wide rolls of graphic art films by the assessee from its AEs, during the year under consideration. We have perused the order of the CIT(A) in context of the issue under consideration and find that he had after deliberating on the functional profile of the three comparables (one taken by the assessee viz. M/s Stovec Industries Ltd, and the other two adopted by the TPO viz. (i) M/s Jindal Photo Ltd; and (ii) M/s Computer Graphics Ltd), had observed as under:

“1. Stovac Industries Ltd. The Stovac Industries Ltd. (Graphic Segment) comprised of pre-senstised offset plates and press room chemicals and has product mix of plates and other products used in the printing industry.

3. Computer Graphics Ltd. As per the mention in the para 6.1.6 of the order as per the data available in the Prowess Data base this company is broadly into manufacturing of art films colour films, colour papers etc.”

P a g e | 17 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax We find that the CIT(A) observed that keeping in view of the product profiles and the economic activities of the aforesaid three companies, which were broadly into the similar line of business as that of the assessee in the segment constituted of the international transaction under consideration, therefore, all of them could safely be taken as comparable to the segment of graphic films of the assessee, comprising of import of wide rolls of graphic art films from its AEs. We are persuaded to subscribe to the observations of the CIT(A) that the comparability criteria in respect of characteristics of the property, functional analysis, contractual terms and economic circumstances are less stringent in TNMM as compared to other methods, as a result whereof the net margin is less effected by the product difference. Still further, we also find ourselves to be in agreement with the view taken by the CIT(A) that selection of more comparables in TNMM benchmarking reduces the effects of the differences on account of the above said factors to a large extent. We thus, after deliberating at length on the observations of the CIT(A), find ourselves to be in agreement with the view taken by him that all of the aforesaid three companies, viz. (i) M/s Stovec Industries Ltd; (ii). M/s Jindal Photo Ltd; and (ii) M/s Computer Graphics Ltd., could safely be taken as comparable for benchmarking the international transactions pertaining to purchase of wide rolls of graphic art films by the assessee from its AEs. The CIT(A) by adopting the aforesaid three comparables had arrived at an average margin of 7.40%. We find that the CIT(A) by benchmarking the international transactions pertaining to purchase of wide rolls of graphic art films by the assessee from its AEs in the backdrop of the average margin of 7.40% of the aforesaid comparables, had observed that the purchase price of the assessee from its AEs was found within the 5% margin as contemplated under the pre-amended Sec.92C(2) of the Act. The CIT(A) allowing the benefit of -5% as per the pre-amended Sec. 92C(2) of the Act, observed that the international transactions of purchase of wide rolls of graphic art films by the assessee from its AEs was found to be at arm‟s length. We have given a thoughtful consideration to the aforesaid observations of the CIT(A) and are persuaded to be in agreement with the same. We thus, in terms of our

P a g e | 18 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax aforesaid observations, not finding any infirmity in the order of the CIT(A) in context of the issue under consideration, thus uphold the deletion of the upward adjustment of Rs.1,86,61,400/- to the value of international transactions made by the A.O/TPO in respect of the purchase of wide rolls of graphic art films by the assessee from its AEs during the year under consideration. The Ground of appeal

No. 1 is dismissed.

15. We shall now advert to the challenge thrown by the revenue to the scaling down of the upward adjustment of Rs.2,10,11,000/- made by the TPO as regards the international transactions of purchase of plates and plate chemicals by the assessee from its AEs, to an amount of Rs.1,60,93,460/- by the CIT(A), with a consequential relief of Rs.49,17,540/- to the assessee. We may herein observe, that as we have while disposing off the grounds of appeal nos. 1 to 8 raised by the assessee in its appeal viz. ITA No. 5747/Mum/2011 restored the issue as regards benchmarking of import of plates and allied items by the assessee from its AEs during the year, to the file of the TPO for fresh adjudication in terms of our aforesaid observations, therefore, the ground of appeal no. 2 raised by the revenue before us, therein assailing the part relief allowed by the CIT(A) in context of the said issue, is also disposed off in terms of our said observations. The Ground of appeal No. 2 is thus allowed for statistical purposes, in terms of our aforesaid observations.

16. The Grounds of appeal Nos. 3 and 4 raised by the revenue being general in nature are dismissed as not pressed.

17. The appeal of the assessee in ITA No. 5741/Mum/2011 and that of the revenue in , are both partly allowed in terms of our aforesaid observations. Order pronounced in the open court on 06.07.2018 Sd/- Sd/- (SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER भुंफई Mumbai; ददनाुंक 06.07.2018 Ps. Rohit

P a g e | 19 & 6088/Mum/2011 AY. 2005-06 M/s Kodak Polychrome Graphics Vs. Deputy Commissioner of Income Tax