AT & S INDIA PVT. LTD.,KARNATAKA vs. DCIT, CIR-11(1), KOLKATA, KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the assessee is directed against the order of Dispute Resolution Panel-2 (DRP for short), New Delhi dated 21.12.2015. Assessment was framed by DCIT, Circle-11(1) Kolkata u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 27.01.2016 for assessment year 2011-12. 2. The revised grounds raised by the assessee per its appeal are as under:-

TRANSFER PRICING 1. That on the facts and in the circumstances of the case and in law. the Dispute Resolution Panel ('DRP') 1 Assessing Officer (,AO,) erred in making

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 2 an adjustment of INR 69,30,53,397/- to the total income of tile appellant, manufacturer of printed circuit boards, in respect of exports amounting to INR 197,55.19.0001- made by the appellant to AT &8 AG for further sale to independent customers at same prices.

CORPORATE TAX (OTHER THAN TRANSFER PRICING)

6 That all the facts and in the circumstances of the case and In law, the AO / DRP erred In not deleting the inadvertent error committed by the appellant by making an addition to the returned income for a sum of INR 7,53,519/- representing the negative balance of the opening and closing provision made for diminution in the value of inventories, by mechanically relying upon the decision of the Hon'ble Apex Court in. the case of Goetz India Ltd vs. CIT.

7 That on the facts and in the circumstances of the case and in law, the AO /DRP erred in not allowing the claim made by the appellant during the course of assessment for a sum of INR 753519/- representing the negative balance of the opening and closing provision made tor diminution in the value 01 Inventories, by mechanically relying upon the decision of the Hon'ble Apex Court in the case of Goetz India Ltd vs. CIT.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 3 8. That the appellant craves leave to add to and / or amend, alter, modify or rescind the wounds hereinabove before or at the time of hearing of the appeal.

Shri Soumitra Choudhury and Mrs Rituparna Sinh, Ld. Authorized Representatives appeared on behalf assessee and Shri G. Mallikarjula, Ld. Departmental Representative appeared on behalf of Revenue.

The assessee is performing various functions such as production & manufacturing, Logistics, warranty support, Sales & marketing for Indian

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 4 Customers, Information technology and outsourcing of some activities. However certain functions such as corporate strategy, finance, accounting, treasury, legal and human resource management are performed by the assessee under the guidance of the AE. On the other hand the AE is performing distribution function of products manufactured by the assessee. So the sales network of AE is used for the sale of the goods manufactured by the assessee. The AE places order to the assessee on the basis of the requirement of end customers on principal to principal basis. The margin for the AE is 6% as per the agreement with the assessee. Thus the function of the AE in the instant case is limited to distribution of the products manufactured by the assessee. Hence the assessee in the present case has selected the AE as TESTED PARY as it is having less functions.

4.1 The assessee owns all the tangible assets and technology involved in manufacturing of PCB. On the other hand the AE owns all the significant intangibles and undertakes research and development work.

The assessee and its AE bear the market risk but the AE risk is limited to the extent of guaranteed commission granted. The credit/ bad debt risk to the assessee is lower as major sale of the assessee is to the group company. The assessee bears the foreign exchange risk, inventory risks, man-power risks, price risk, legal & statutory risk, environmental risk, and warranty risk.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 5 which are engaged in distribution activity in European Region is @ 2.79%. On the other hand the AE earns return on sales @ 2.57% in the year 2010-11. From the above it was concluded that AE does not earn excessive profit from the transactions with the assessee. Therefore the transaction between the assessee and AE is at Arm Length Price.

5.1 However during the assessment proceedings, TPO observed that only 9 companies are mentioned in the TP report though the assessee claimed to have selected 25 companies. The companies selected by the assessee are in different activity such as computer, fax, printer, toner, telecommunication products, PC hardware, software, peripherals, projectors, cartridges, scanner, USB, TVs etc. but not the PCB. The Annual report, FAR analysis of the companies selected as comparables has not been submitted to ascertain the functional comparability. The annual report and financial statement of the tested party was also not submitted to ascertain the functional comparability. In view of above, the TPO issued the show cause notice for rejecting the TP study of the assessee with regard to the determination of ALP for the export of PCB. The TPO proceeded to determine the ALP by selecting the assessee as tested party i.e. AT& S India with TNMM method and PLI as operating profit on sales. Accordingly the TPO searched for suitable comparables from different data base of public domain on certain criteria as mentioned on page 58 of the TPO order. Accordingly, the TPO worked out the average mean of PLI at 8.75% as operating profit / operating Revenue but in case of assessee operating profit / operating revenue of the entity was worked out at -27.04%. The PLI of the comparables selected is quite higher than the operating margin of the assessee. In view of above, the TPO proposed to determine the ALP of the international transactions entered into by the assessee with regard to the export of PCB of ₹197,55,19,000/-.

In compliance to the above show cause notice it was submitted that the assessee has provided the detailed search process carried out in Amadeus database along with the filters applied for selecting the quantity and qualitative companies. The necessary details with regard to the selected 25 companies were furnished. There was absolutely

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 6 no reason to furnish the accepted and rejected matrix and therefore it should not be considered. PCB is electronic product and as per the notification of Department of Electronics & information technology of the Government of India has mandated the 15 items for the compulsory registration which are as below:- � Electronic Games � Laptop/Notebook/Tablet � Plasma/LCD/LED television � Optical Disc Player � Microwave oven � Visual display unit and video monitor � Printers and plotters � Scanners � Wireless Keyboards � Telephone Answering Machine � Amplifiers � Electronic musical system � Electronic clocks � Set Top Box � Automatic Data Processing Machine.

5.2 In view of above the companies selected for the comparables are within the category of electronic product and besides this it is within the OECD guidelines. The assessee further submitted that the comparables were selected from the following industry codes:- o Wholesale of computer, computer peripheral equipment and software o Wholesale of electronic and telecommunication equipment and parts o Wholesale of circuit, switchboard, motherboard, chip, electronic components, parts or IC. It was submitted that the aforesaid selection of comparable companies in the same line was accepted by the then Ld. TPO during the course of hearing in the assessment year 2009-10. Accordingly the assessee prayed for the principal of consistency.

5.3 The assessee during assessment proceedings has also submitted the current year annual reports of 20 comparable companies for the purpose of functional analysis. The assessee from the 20 comparable companies worked out the arithmetic mean @ 2.95%

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 7 and the return on sales of AE for the year under consideration is 2.6% as certified by PWC. The assessee has also submitted audited standalone financial statements of the tested party for the year 2009-10 and the consolidated financial statements of the tested party for the year 2010-11 for the purpose of making the functional analysis. As per the OECD guidelines the tested party should be the one that has less complex functional analysis. In the instant case the assessee is a full fledged manufacturer and therefore it has more complex functions rather than the AE as it has less risks and its function is limited to distribution activity. The AO in the AY 2009-10 and 2010-11 has accepted the AE as tested party for carrying out foreign bench marking in relation to the aforesaid international transactions.

Thus, the benchmarking approach proposed by you in the aforesaid notice considering assessee as tested party leads to absurd result involving benchmarking of third party sale which is not required under the Indian Transfer Pricing Regulation. In view of our submissions, as we beg to differ in the selection of tested party, se have not offered any comment on the Indian comparable companies selected by you and computation of margin by you.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 8 However the TPO rejected the submission of the assessee by observing as under : 1. The assessee failed to submit the total invoice wise sale and schedule of production of finished materials which was routed through AE but the assessee submitted month-wise schedule. 2. The assessee failed to recover the direct cost associated with the production of PCB. There was gross loss @ 17.08%. 3. The assessee in the present case is acting more a contract manufacturer as its activities are majorly controlled by its AE as per cost allocation agreement. 4. The question why the assessee is selling at a price which is sufficient enough to recover the direct cost. It is also not known under what conditions the AE is selling the goods to its customers. However it not the concern of Indian transfer pricing regulation but it has concern with the supplying of the products at ALP to AE. As per the general market trend in the PCB industry the transaction with the AE is not at ALP. 5. The back to back invoices were submitted in CD Rom but could not be found reliable. More over the operations of the AE cannot be verified and relied.

Besides the above the TP study was not acceptable as the AE was treated the tested and FAR analysis of the comparable companies selected are not available.

6.1 The TPO has also not accepted the financial of the distribution segment of AE as it was not the part of annual report of the AE and it was prepared for the management only for the purpose of tax audit in India. The TPO also observed with certain defects in the financial information submitted by the assessee which are enumerated on page 73 of the assessment order.

The TPO also not accepted the plea of the assessee for treating the AE as tested party in view of the Hon’ble Mumbai ITAT order in the case of Onward Technologies Limited Vs. DCIT 35 taxmann.com 584 and Cyber tech System & Software Limited Vs. ACIT 33 taxmann.com 371 where it was decided that only Indian entity can be held as tested party.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 9 In the instant case the financial prepared of the AE are based on the GAAP which are different with India GAAP. Besides the foreign companies selected for comparables are not following Indian Accounting standards so those companies cannot be compared. With regard to the consistency of the assessee method accepted in the earlier years, the TPO held that the in case of income tax proceedings res judicata does not apply and these are year specific. The approach in the current year is better than the erroneous approach in the earlier year therefore it cannot act as estoppel on carrying out the correct analysis.

Finally the TPO has rejected the AE as tested party and treated the assessee as tested party. The TPO treated the TNMM as most appropriate method and PLI as operating profit on sales. An upward adjustment was made by the TPO for the export of PCB to its PE for Rs. 68,97,22,939/-

7.1 The assessee further submitted that benchmarking analysis and computation of PLI of foreign comparable companies performed by the assessee was accepted and accordingly the AE was also accepted as tested party in respect of the aforesaid international transaction for the AY 2009- 10 and AY 2010-11. There was no adjustment made in respect of this controlled transaction for AY 2009-10 and 2010-

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 10 11. There was no change in the facts and circumstances of the case for the AY 2011- 12. Hence, TPO violated the principle of consistency enunciated by the Hon'ble Supreme Court in the matter of Radhasoami Satsang v. CIT reported in 193 ITR 321. It was also submitted that AE had borne all risks of non-payment by customers who purchased the PCBs manufactured by the assessee. The assessee had borne all risks associated with the marketability of the PCBs and all the risks associated with product defects or non-conformities that existed at the time of delivery by the assessee to the warehouse of A T&S Austria. Hence, the TPO was not justified in describing the assessee as a contract manufacturer.

7.2 However the DRP has disregarded the claim of the assessee and upheld the order of the AO after making some changes and by observing as under : “The panel has examined FAR analysis of the assessee and its foreign AE. It is seen that foreign AE is gathering' business by obtaining orders from potential customers abroad. It is negotiating sale price with customers and is liable to customer regarding product quality and warranty. All credit risk lies with foreign AE. It is responsible for getting the product manufactured from its group company having right kind of technology for the product under consideration. The foreign AE is having substantial intangibles. On the other hand, the assessee is responsible for manufacturing the product as asked for by its foreign AE. It is assured of pre-determined sale price and is not liable to end customer [or warranty etc. Though the assessee may not be in a position of contract' manufacture in strict sense, yet it is not even full-fledged manufacturer. Considering function and risk analysis as above, it can be said that the assessee is more close to contract manufacturer. In no way, it can be inferred that foreign AE is doing less complex activities. The assessee is just manufacturing the product as guided/directed by its foreign AE. The assessee is not holding any significant intangibles. Therefore, the panel does not find fault with approach of TPO of taking the assessee as tested party. Various decisions of higher appellate authorities are fact specific and lay down that tested party should be such that which could be benchmarked in a more reasoned manner. The functional and risk analysis of the assessee as discussed supra is such that it not difficult to find suitable comparables from Indian database. Therefore, approach of the TPO cannot be said to be perverse or prejudicial to the assessee, The panel therefore holds that the assessee should be taken as tested party. It is relevant here to mention that the assessee has not furnished complete annual reports of its foreign AE and other comparables taken by it in its TP study report, in the absence of which benchmarking foreign shall not be practical. The distribution segmental data of AT &S Austria as furnished by the assessee is not audited one. TPO has also worked out on page 71 Para 25 of his order that the been able to recover its direct cost of manufacturing which clearly indicates that something is wrong with sale price. It is also to be noted that about 89% of sales of the assessee is to the foreign AE and there is almost full capacity utilization. Why the foreign AE is selling the product at such cost which does not cover even the cost of production of the assessee. TPO is not required to examine the deal between

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 11 foreign AE and foreign customers. The mandate of PO is examine international transaction which is between the assessee and its foreign AE. Here in this case, it is admitted fact that international transaction is sale by the assessee to its foreign AE. DRP has also gone through various submissions made against comparables taken by TPO. The assessee has not challenged the comparability of comparables before TPO during TP audit. The assessee has submitted that Akasaka Electronics Ltd., BLG Electronics Ltd., Calcom Electronics Ltd., Circuit System Ltd., Deki Electronics Ltd., Naina Semiconductors Ltd., Rurtonsa International Rectifier Ltd. and Tiberwal Electronics Ltd. operate mainly in domestic market which is not comparable to European market where the assessee operates. The panel is of the view that TPO should have applied export income filter so as to enhance comparability analysis. The panel considers 50% export income filter to be appropriate and therefore these companies shall not be good comparables. Regarding Centrum Electronics Ltd., the assessee submitted that it has two segments, product and service. Further, a scheme of amalgamation has been approved by Hon'ble HC which indicates exceptional economic event. DRP is of the view that since TPO has used only product segment for comparability analysis and the assessee could not establish whether amalgamation has impacted the profitability of the company, it is a good comparable. Regarding Essae Electronics Pvt. Ltd., the assessee submitted that its financials are not available on public domain. DRP is of the view that sufficient guidance is available from various judicial decisions that information collected by TPO cannot be used at back of the assessee. Therefore, this comparable is to be dropped. Regarding Fineline Circuit (L) Ltd., the assessee submitted that it operates in a bigger market. This objection of the assessee does not sound good as the assessee is also not a small player. Hence, this comparable is to be retained. Regarding Hind Rectifier Ltd., the assessee submitted that it deals in diverse products and hence functionally different. The panel is of the view that due to product diversity, it is not a good comparable. Regarding SPEL Semiconductor Ltd, the assessee submitted that this company is operating in USA which is different market from Europe. The panel is of the view that the assessee could not establish how economically these are two different markets, hence, it is to be retained as comparable.”

The ld. AR filed paper books which are running from pages 1 to 982. The ld. AR before us submitted that the assessee functioned as manufacturer and supplier of printed circuit boards (hereinafter referred to as 'PCBs) during the year ended 31st March, 2011. This fact is recorded in Form No. 3CEB (page no. 778 of the paper book) for the previous year relevant to the assessment year 2011-12. The assessee

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 12 exported finished goods valued INR 197,55,19,000/- to AT&S AG (Austria, Europe) during the financial year ended 31st March, 2011 for further sale in Europe as a distributor. The DRP inter alia held in paragraph no. 6.2 of the order that the aforesaid international transaction constituted sale by the appellant to AT&S AG.

It is an undisputed fact that AT&S AG sold the PCBs imported from the assessee to independent customers within Europe at the same prices at which the PCBs were exported by the appellant to AT&S AG. It is also an undisputed fact that AT&S AG remitted to the appellant the sales prices charged by the assessee to AT&S AG for export of PCBs after deduction there from distribution commission and preliminary warranty guarantee payable by the assessee to AT&S AG at agreed rates under the Distribution Agreement (agreement being enclosed in page no. 728 of the paper book). As per the Distribution Agreement entered into by the appellant with AT&S AG, distribution commission @ 6% of gross distributor's price was payable by the appellant to AT&S AG for receiving distribution services in different European countries. For administrative convenience, AT&S AG deducted the aforesaid distribution commission out of the sale proceeds payable by AT&S AG to the appellant in respect of export of PCBs by the appellant to AT&S AG. It is also important to note that AT&S AG further deducted preliminary warranty guarantee @ 2% of gross distributor's price out of the aforesaid sale proceeds for the purpose of incurring warranty expenses arising from further sale of PCBs of the appellant by AT&S AG to independent customers. It was also submitted that the total amount of deduction made by AT&S AG for preliminary warranty guarantee exceeded the actual warranty expenses incurred by AT&S AG during the relevant financial year and the excess deduction was returned by AT&S AG to the appellant as recorded in Form No. 3CEB. The distribution commission and preliminary warranty guarantee were thus netted off against sales in the books of the appellant and duly demonstrated before the DRP/AO. In order to substantiate the above facts, the assessee submitted copies of back-to-back invoices (i.e. invoices issued by the appellant to AT&S AG for sale of PCBs and the

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 13 corresponding invoices issued by AT &S AG to independent customers in Europe for further sale of the PCBs imported from the appellant) on sample basis to the TPO [enclosed in page no. 347, 349 and 348 (computation) and 527 to 553 (copies of back- to-back invoices on sample basis) of the paper book] and subsequently to the DRP [enclosed in page no. 243 to 246 (computation) and 201 to 231 (copies of back-to- back invoices on sample basis) of the paper book] during the course of respective proceedings. Your Honors may please note that neither the DRP nor the TPO disputed the aforesaid facts in their respective orders.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 14 As mentioned in paragraph no. 5.5(c) of the Distribution Agreement (please refer to page no. 730 of the paper book), the appellant was exposed to risk associated with product defect and non- conformities that existed at the time of delivery by the appellant to the warehouses of AT&S AG. In view of this, AT&S AG retained preliminary warranty guarantee @2% of gross distributor's price out of the acn.ai warranty expenses as recorded in Form No. 3CEB. • Credit Risk: Since the international transaction involving export of PCBs by the appellant to AT&S AG constituted 'Sales' and title of the PCBs was passed on to AT&S AG from the appellant when the PCBs were delivered by the appellant to the warehouses of AT&S AG, AT&S AG was exposed to credit risk in relation to further sale by AT&S AG to independent customers in the open market as mentioned in paragraph no. S.S(a) of the Distribution Agreement.

9.1 In view of the ld. AR submitted that in the instant case, the prices at which PCBs were sold by the appellant to AT&S AG having been equal to the prices at which PCBs were sold by AT&S AG to independent customers. Therefore the international transaction involving sale of finished goods by the appellant to AT&S AG is at the arm's length principle as per the Indian Transfer Pricing Regulation under the CUP Method. In the instant case, AT&S AG earned income from the international transaction involving payment of distribution commission by the appellant to AT&S AG in return for distribution services received by the appellant from AT&S AG under the 'Distribution Agreement' during the relevant financial year. In view of the above it can be concluded that the income actually realized by AT&S AG in return for distribution services rendered to the appellant need to be compared with those of the comparables. There could be no question of substituting the distribution income realized by AT&S AG from distribution of PCBs with the profit realized entity level from manufacture and sale of PCBs to the ultimate customers because the 'FAR' (i.e. Function-Asset-Risk) of the distribution function was absolutely different from the 'FAR' of full-fledged manufacture and supply of PCBs. It may please be noted that for the assessment year 2011-12, the TPO raised the issues which had already been

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 15 approved and settled at rest by the Income Tax Department in respect of the assessment year 2009-10 and 2010-11. In this connection, attention may please be invited to the decision given by the Hon'ble Supreme Court of India in the matter of Radhasoami Satsang v Commissioner of Income Tax reported in 193 ITR 321 (SC) wherein the Hon'ble Supreme Court has inter alia held as under: "We are aware of the fact that, strictly speaking, res judi cata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken.

"Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted ...”

In view of above submissions, it was prayed that the adjustment of INR 69,30,53,3971/- directed by the DRP and made by the AO in the final assessment order has no valid basis in view of various decisions rendered by the Hon'ble Tribunals of our country, wherein the Hon'ble Tribunals have Honoured the 'principle of consistency' enunciated by the Hon'ble Supreme Court of India and directed bench marking of an international transaction on 'transaction-by-transaction' basis. The Hon'ble Tribunals in various decisions have accepted the selection of foreign tested party in appropriate cases and further accepted selection of foreign comparable companies available in foreign database where tested party is a foreign entity. Though the relevant decisions were submitted before the DRP during the course of proceedings, the same were disregarded by the DRP and the appellant did not get justice from the DRP. Finally the ld. AR prayed that the AE should be treated as tested

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 16 party and its transfer pricing report should be accepted. Alternatively the AR also submitted that in case the assessee is treated as the tested party then CUP method should be applied for the determination of ALP. As the price charged by the assessee is same as the price charged by the AE from its customers then the same price should be taken as ALP in the instant case. Finally it was humbly prayed to delete the aforesaid adjustment and to provide full relief to the assessee.

10.1 The ld. DR also relied in the order of Hon’ble Delhi High Court in the case of Sony Ericsson & others [TS-96-HC-2015(DEL)-TP] Therefore, it is highly imperative that while applying relevant methodologies in selection of ‘most appropriate method’, undertaking aggregate v. transaction-by-transaction analysis’, claiming adjustments and other areas one needs to closely evaluate the facts and circumstances as they exist in that particular case. Further, it is equally if not more important to maintain and appropriately present evidence including but not limited to agreements, correspondence and other documents that bring out the actual contributions,

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 17 capabilities, and other features of the concerned parties, ex-ante negotiations / studies, business strategies adopted by the management in the attendant circumstances, risk management strategies, data on comparables and the market (in terms of the geographic location; the size of the markets; the extent of competition in the markets and the relative competitive positions of the buyers and sellers, etc.) and other economic conditions, at the time of audit to substantiate the various claims / averments and pass the ‘litmus test’. Such an approach would go a long way to avert protracted litigation and gain certainty in an ever-evolving field of transfer pricing. Ld. DR further relied in the case law in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. v. CIT (ITA No. 16/2014) – Taxsutra.com, wherein the Hon’ble High Court held that distribution and marketing are intertwined and may be examined as bundled/inter-connected transactions Clubbing of closely linked transactions, which includes continuous transactions is permissible under law. However, close linkage of transactions is a pre-condition for aggregation. For example, transaction for import of raw material for manufacturing may not be aggregated with distribution activity due to absence of the close linkage. The High Court held that it would be inappropriate to proceed with Arm’s Length Price determination with a pre-conceived supposition that each transaction must be analysed separately. The High Court also observed that in case the tested party is engaged in single line of business, there is no prohibition in applying Transactional Net Margin Method (TNMM) on an entity wide basis. The ld. DR has made the following submission against the submission of the assessee which reads as under : 1. Application of CUP method for the purpose of determining arm's length prices of international transactions involving export of PCBs by the appellant to AT&S AG. 2. Adoption of transaction by transaction approached involving payment of commission and warranty by the appellant to AT&AG. 3. Selection of foreign A.E as tested party. 4. Rule of consistency. 5. Selection of independent companies under the TNMM at the entity level.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 18 In this regard, counter arguments against the above submissions of the appellant are given as under :- 1. Application of CUP method: At the outset, it is brought to the notice of the Hon'ble Bench that the appellant itself has adopted TNNM method in its transfer pricing study. The appellant has come up for the first time before the Hon'ble ITAT to apply CUP method for determining the arm's length price for distribution of commission that constituted income in the hands of AT&S AG. The appellant has adopted TNMM method in its transfer pricing study report because it has chosen AT&S AG has tested party. When TPO has rejected the selection of AT&S AG (foreign AE) as tested party, the appellant now prefers CUP method to TNMM method, for determining ALP of its international transaction with AE. In view of the identification of the export of PCBs to AT &S AG by the appellant as a separate transaction (Sale) by the TPO as well as DRP, the appellant now, before the Hon'ble Tribunal pleaded to bench mark the export transaction separately under the CUP method. 1.1 In this regard the appellant has relied on the decision of the Hon'ble Mumbai Tribunal in the matter of Mattel Toys (I) (P) Ltd. vs. Deputy Commissioner of Income Tax, Circle-6(3) reported in [20131 34 taxmann.com 203 (Mumbai Trib.) .Further, the appellant has relied on various judicial decisions in its written submission which are reproduced as under: 2.7.75 Attention is further invited to the decision of the Hon 'ble Delhi Tribunal in the matter of Hughes Systique India (P) Ltd. vs. ACIT reported in [2073] 36 taxmann.com 47 (Delhi-Trib), wherein the Hon'ble Tribunal inter alia held that: " 6.5 The CUP method provides the most direct comparison for the purpose of determining the arm's length price of international transactions and is to be preferred over the other profit based methods. Reliance is placed in this regard on the following decisions: - Aztec Software & Technologies Services Ltd. vs. Asstt. CIT [2009] 107 ITO 141/162 Taxman 179 (Bang.)(SB) - UCB India (P) Ltd. v. Asstt CIT [2009130 SOT 95 (Mum.) - Gharda Chemicals Ltd. v. Dy. CIT [2070135 SOT 406(Mum.) - Intervet India (P) Ltd. v. Asstt CIT [2070139 SOT 93 (Mum.) - Asstt. CIT v. Dufon Laboratories [2070139 SOT 59 (Mum.)

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 19 2.7.76. Reliance in this regard is also placed on the decision of Hon 'ble Mumbai Tribunal in the case of Serdia Pharmaceuticals (India) (P) Ltd v. Asstt. CIT reported in [2011] 44SOT 391/9 taxmann.com 13, wherein the Hon'ble Tribunal while dealing with the priority of application of methods, has held as under: "64 ... as long as CUP method can be reasonably applied in determining the arm's length price of an international transaction in a particular fact situation, and unless another method is proven to be more reliable a method vis-a-vis the fact situation of that particular case, the CUP method is to be preferred. The reason is simple. When associated enterprises enter into a transaction at such conditions in commercial and financial terms, which are different from commercial and financial terms imposed in comparable transaction between independent enterprises, the differences in these two sets of conditions in financial and commercial terms are attributed to inter relationship between the associated enterprises, and it is this impact of interrelationship between the associated enterprises that is sought to be neutralized by the transfer pricing regulations. As long as CUP method can be reliably applied on the facts of a case, it does offer most direct method of neutralizing the impact of inter relationship between AEs on the price at which the transactions have been entered into by such AEs. "

2.1.17. Relying on the decision of Serdia Pnornvaceutlcots India (P) Ltd. (supra). the Hon'ble Delhi Tribunal in the case of Clear Plus India (P) Ltd. v. Dy. CIT reported in [20 IlJ 10 taxmann.com 249, inter alia held that: "7. In the case of Serdia Pharmaceuticals India (P) Limited, it has been held that CUP method is a preferred method and it leads to more reliable results vis-a-vis the results obtained by applying transaction profit method. In the case of SNF (Australia) Pty. Limited, it has been held that the "focus is on the market in which products are acquired." The ratio of this case is applicable mutatis-mutandis to the facts of the case as the focus is "on the market in which products are sold".

2.1.18. In the case of Gharda Chemicals Ltd. (supra), the Hon'ble Income Tax Appellate Tribunal held that internal comparable should be preferred over external comparables. The relevant extract of the judgment is furnished herein below: "Internal CUP method envisages comparing the uncontrolled transactions of the appellant itself with other unrelated parties so as to determine the ALP with the AE. However, the external CUP method disregards the price charged or paid by the appellant to or from its unrelated parties and contemplates the

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 20 comparison of the price so charged from or paid to its AE with some external dependent reliable price data under similar circumstances of transactions with AE. Ordinarily the Internal CUP method should be preferred over external Cup method as it neutralizes several distinguishing factors, such as the local factors and the economies available or unavailable to the appellant in particular, having bearing over the comparison of price charged from unrelated parties and AE".

1.2. The CUP method is followed to determine the price of the goods or services transacted whereas profit of international transaction between related parties is determined under TNMM method. In determining arm's length price, there are, two aspects viz. FAR an analysis and economic analysis. In the FAR analysis, after selection of most appropriate method, the comparison has to be made with respect to product, function, risks and identical circumstances, market conditions and contractual terms. The foremost requirement under CUP method is high degree of comparability between products. 1.3 It is important to consider the relevant portion of Rule 10B(1), 10B(2) and Rule 10B(3) of the Rules in harmonious manner which states that for application of the CUP method it is essential to follow the following steps: - i. Identify price charged under uncontrolled transactions ii. Evaluate the comparability on the basis of characteristics of the product sold / purchased, the functions performed, the contractual terms, conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.

iii. Adjust the price charged under uncontrolled transactions for difference on account of above referred comparability parameters. The above would be essential as the uncontrolled transaction will be akin to international transaction only if reasonably accurate adjustments can be made to eliminate the material effects of such differences.

iv. Finally, if it is not possible to make reasonably accurate adjustments to eliminate the material effects of such differences or there exist differences, which are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 21 open market, then the uncontrolled transactions could not be considered as comparable to international transactions resulting into failure in application of cup method

1.4 Based on above, if CUP is to be considered as the most appropriate method, the following factors should be considered:

i. Geographical difference The price at which a product is sold in one country cannot be compared with the price at which the same product is sold in another country because of the impact on account of geographical differences i.e. country specific demand/ supply factors, market conditions, regulations and government orders in force, level of competition, availability of substitute products, consumer purchasing power, etc. which have a bearing on the price.

ii. Difference in Credit risk The Appellant faces minimal credit risk on sale of finished products to its AEs, because the risk of default on account of non-realization of sales proceeds is very negligible. Whereas, the Appellant bears the credit risk when it sells the finished goods to third parties, and would have to bear the loss on account of bad debts if it fails to realize the sales proceeds.

iii. Difference in credit period The credit period offered by the Appellant to its AEs differs from the credit period offered by the Appellant to third parties. The Appellant has a policy of offering 30 days credit on sales made to its AEs, from the date of the airway bill. Whereas, the credit period offered to third parties is 45 days from the date of airway bill invoice. The aforesaid differences also have an impact on the pricing at which the products are sold by the Appellant to its AEs/ third parties.

iv. Difference in Sales volume Quantity sold to the AE is almost 88 percent of total sales and the quantity sold to the third party constitute minimal.

v. Marketing function It is important to note that with respect to sale of finished products to AEs, the Appellant is not required to undertake any significant sales and marketing efforts, whereas, the appellant is necessitated to undertake sales and marketing efforts with respect to its third party business.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 22 The fact that similar products were sold by the Appellant to its AEs as well as third parties was also evaluated at the time of doing the TP analysis. However, it was determined that it is not possible to make reliable and accurate adjustments to iron out the differences between the two transactions (i.e. sales to AEs and sales to third parties), and hence the CUP method was not considered as the most appropriate method by the appellant.

1.5 Further, the Hon'ble Pune Bench of ITAT in the case of Amphenol Interconnect India Private Limited v. DCIT (ITA No. 1548/PN/2011) has upheld that- CUP cannot be considered as the most appropriate method where there are differences, and reliable and accurate adjustments cannot be made to iron out such differences and make the transactions comparable. When 95% of the exports to the AEs are considered to be at ALP by applying TNMM as the most appropriate method, there is no reason to apply CUP method for bench marking part of the export transaction.

1.6 In the Appellant's case also since reliable and accurate adjustments cannot be made to make the transactions of export of finished goods to third parties comparable to the transaction of export of finished goods to AEs, such a comparison cannot be made at all. Further, in Appellant's case also, 88% of the transaction has been accepted at ALP by choosing TNMM as the most appropriate method and hence, there is no reason to apply CUP method for bench marking part of the export transaction.

1.7 The decisive factor, on the basis of which comparability is to be judged, is the state of 'conditions prevailing in the markets in which the respective transactions to the parties operate I. Unless market conditions, in which uncontrolled transactions have taken place, are materially different vis-a-vis conditions in which international transaction has taken place, and such a difference is on account of geographical location of the market, geographical location of the market is of no consequence in judging comparability of an uncontrolled transaction for the purpose of applying CUP method. These market conditions could be affected by a number of factors, as true sub-rule itself suggests, including (a) geographical location and size of market (b) overall economic development and level of competition in the market; and (c) whether the market are wholesale or retail. The true test, therefore, is whether the market in which uncontrolled transactions have taken place are materially different than the market in which controlled transactions have taken place. In a situation in which there are indeed material differences, including, of course, for the reason of geographical location and size of markets, those uncontrolled transactions cannot constitute valid comparables for benchmarking similar transactions between the AEs".

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 23 Given the above, it is submitted that the CUP method cannot be considered as the most appropriate method to demonstrate the arm's length nature of international transaction pertaining to export of finished goods.

1.8 Now, it is better to appreciate the relevance TNMM method over the CUP method. 1.8.1 Meaning

• Examines the net profit margin relative to an appropriate base that a taxpayer realizes from a controlled transaction -

Costs - Sales - Assets - other relevant base • Most frequently used method - In India, due to lack of availability of comparable uncontrolled prices and gross margin data required for application of the comparable uncontrolled price method / cost plus method / resale price method

• Level of Comparability - Broad level of product comparability - High level of functional comparability

1.8.2 The UN TP manual offers the following guidance on the use of TNMM: • TNMM is usually applied with respect to board comparable functions rather than controlled transactions. • TNMM is mostly applied to the party performing route manufacturing, distribution or other functions that do not involve control over intangibles. • TNM may be more attractive if the data on gross margins are less reliable due to according differences between the tested party and the comparable companies. 1.8.3 Certain features of TNMM: TNMM compares net margins by using certain ratios (PIs) to express, new profit as a % of a given base which commonly includes operating cost, operating income, total assets, operating income, total assets, operating expenses, etc.

TNMM is similar to RPM and CPM to the extent that it involves a comparison of margins earned in a controlled situation with margins earned from comparable uncontrolled situations.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 24 However, TNMM differs from RPM and CPM to the extent that it involves comparison of margins at net profit level as against at gross profit level.

1.8.4 Strengths of TNMM : TNMM has certain strengths which are as follows: a. TNMM requires comparability at a broad functional level and product differences are acceptable provided it does not materially affect the net profit margin. b. Operating profit margins are less affected by transactional differences as is the case with price while applying CUP method. c. It is necessary to examine the financial indicator of only one of the AEs (i.e. the tested party.) d. It is not necessary to restate the books and records for all participants on a common basis or to allocate costs as is the case with PSM. e. The differences in functions performed between enterprises are often reflected in variation in operating expenses. Consequently, enterprises may have wide range of gross profit margins but it may still earn broadly similar level of net pro-its, f. Because TNMM is applied to the less complex party, it can be used even though one of the related parties hold intangible assets for which comparable return cannot be determined. g. TNMM is applicable to either side of the controlled transaction (i.e. related party manufacturer or the distributor). 1.8.5 In view of above, the application of TNNM method is most ideal when compared to CUP method. The assessee itself has applied TNMM in its transfer pricing study report. Just because the TPO rejected foreign AEs as tested party, the assessee claimed application of CUP method. As stated above TNMM is applicable to either side of the controlled transaction (i.e. related party manufacturer or the distributor). The case laws relied upon by the appellant also state that the ultimate aim of the transfer pricing is to examine whether the price or margin arising from international transaction with related party is at ALP or not. The various judicial decisions relied upon by the appellant hold that the most appropriate method shall be adopted. In the instant case, since, profit derived by the appellant out of the sale of PCBs to the foreign AEs is at ALP or has to be ascertained. The moot point is to determine whether the profit is at ALP or not and not the prices at which the goods are

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 25 sold to foreign AE. Therefore, the most appropriate method would be TNMM method and not the CUP method. Therefore, it is humbly prayed that the appellant's claim of selection of CUP method may be rejected.

1.8.6 The appellant reliance on the case of Gharda Chemicals Ltd. V. DCIT (Mum) (2009-TIOL-790-ITAT-MUM) is misplaced. In the case of Gharda Chemicals Ltd. V. DCIT (Mum) (2009-TIOL-790-ITAT-MUM) the issue was application of international CUP or external CUP method in determining the price of the goods and not the profit or margin on the exports of goods Foreign AE. 2. Transactions by Transactions approach: It is better to appreciate the concept by the transaction by transaction basis or bundled approach. Section 92C(1) of the Income Tax Act, 1961 (the Act) requires that arm's length price (ALP) should be determined in relation to an international transaction. The term 'international transaction' has been defined in Section 92B to mean "a transaction between two or more AEs... ". Therefore, from Section 92B it can be interpreted that definition of international transaction refers to 'a transaction'. The terms 'transaction' has also been defined in section 92F(v) and Rule 10A(d) of the Income Tax Rules, 1962 (the Rules). Rule 10A(d) defines 'transaction' to include a number of "closely linked transactions".

2.1. Therefore, on combined reading of the aforementioned provision, it is discernible that ALP is essentially to be determined on transaction-by- transaction approach for each international transaction; and for that purpose, a transaction in singular may also include plural for closely linked transactions.

2.2 In this regard the Indian Courts and Tribunal and analyzed and discussed the concept of the bundled approach. 2.2.1 Whether transactions are closely linked or continuous can be examined on the touchstone of the principles laid down by Mumbai Tribunal in the case of Godrej Sara Lee Ltd. [TS-125-ITAT-2015(Mum)-TP). One transaction is to be a follow on of the earlier transaction and each subsequent transaction carried out is dependent wholly or

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 26 substantially on the earlier transaction. In such a case, the transactions are considered to be closely linked or continuous. Therefore, for the purpose of evaluation these have to be aggregated. 2.2.2 .The aggregation and clubbing of closely linked transactions is permitted under Indian transfer pricing legislation. Section 92C(1) of the Income Tax Act, 1961 speaks about "nature of transaction or class of transaction". Further the terms "transaction" itself is defined in Rule 10A(d) of the Income Tax Rules, 1962 to include a number of "closely linked transactions". 2.2.3 The OECD transfer pricing guidelines .Para 3.9 and 3.11 also highlight that in certain situations it is difficult to evaluate transactions separately and need to be evaluated by bundling them. 2.2.4. Recent landmark ruling of Delhi High Court in case of Sony Ericsson Mobile communication Pvt. Ltd(TS96-HC-2015 ( DEL)- TP) while deciding on the issue of AMP has also discussed in detail about the aggregation of transactions while using the Transaction Net Margin Method ( 'TNMM'). It has considered the OECD guidelines linking the same with the Indian regulation. The High Court observed that expression "class of transaction", "functions performed by the parties" under section 92C( 1) of the Act, illustrate that the word "transaction" includes a bundle or group of connected transactions. Clubbing of closely linked, which include continuous transactions, may be permissible under the Act and the taxpayer can aggregate the controlled transactions if the transactions meet the specified common portfolio or package parameter. 2.2.5. The Mumbai Tribunal in case of Melstar Information Technologies Ltd. [TS- 74-ITAT -2015(Mum)- TP] held that a service provider charging its AEs at hourly rates will benchmark its transactions on an aggregate basis. The services provided by the software development service provider is a composite work of development of software by the team and the work of one member of team cannot be separated for the purpose of charging the price but it is only the basis of charging the price of the final product. Therefore, the transaction between the service provider and its clients is to provide software development services and is not to provide man hour services. This transaction involves number of transactions which are so closely linked or continuous

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 27 in nature and arising from the continuous transaction of supply of services that the price of one transaction cannot be determined independently without having been influenced on the price of the other closely linked transaction of being influenced by the price of other closely linked transaction. Therefore, the portfolio approach is to be taken into account in the comparability analysis. Accordingly, the overall price charged for a particular service being the final price of a service has to be compared with overall price charged for the same services provided to an unrelated party. 2.2.6. Further, the Mumbai Tribunal in case of Godrej Sara Lee Ltd.(TS-125-ITAT- 2015(Mum)- TP) held that the concept of clubbing and aggregating the transaction is based on the premise that such transactions influenced by each other and particularly determining the price and profit involved in the transactions then such transactions can safely by regarded as closely linked transactions. The OECD guidelines have referred a portfolio approach as business strategy consisting of tax payers bundling certain transaction for the purpose of earning an appropriate return across portfolio rather than a single product. The tribunal further held that if all products are failing under same category and are used as complimentary to each other then these products may be priced by taking portfolio approach by the assessee and not considering the profit motive from each and every single product within the portfolio. The products within the portfolio may be priced differently for marketing strategy to promote certain products or penetrate in a particular market. 2.2.7 In the present case, the appellant has treated commission and warranty payments in connection with export of PCBs to AE as distinct transactions and would like to determine the price by transaction by transaction basis. It is pertinent to mention here that the appellant has to pay commission and warranty to AE purely on account of export transaction without the goods being exported the appellant has no occasion to make payment of commission and warranty. The payments of commission and warranty are inextricably related to export transaction. In other words the payments of commission and warranty germinate from the export transaction. The above payments do not have independent existence. Therefore, as held in the above judicial decisions, the export of PCBs to AE and the payments of commission and warranty are closely

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 28 linked transactions. Hence the action of TPO in treating them together and arriving at ALP is in order. 3. Selection of tested party: In this regard in its submission the appellant has relied upon on the following decisions: (i) Tata Motors European Technical Centre Plc. V. Assistant Director of Income Tax reported in (2014) 52 Taxman. Com 411 (Mumbai - Tribunal). (ii) General Motors Indian (P) Ltd. Vs. Deputy Commission of Income Tax / Assistant Commissioner of Income Tax reported in [2013] 37 Taxman . Com. 403 (Ahmedabad - Tribunal) (iii) Development Consultants (P) Ltd. Vs. Deputy Commissioner of Income Tax reported in [2008] 23 SOT 455 (KOL). 3.1. In Tata Motors case services for rendered by UK (Foreign AE to Indian Company). In General Motors case also Foreign AE sold GM cars to the Indian Company. Thus, it is seen that both cases relied upon of the appellant, the Foreign AEs are the manufacturers and the Indian Companies are the distributors, whereas in the instant case, the scenario is exactly opposite to the above two cases. In more clear terms, the appellant Indian company is the manufacturer and the Foreign AE is the distributor. Therefore the ratio of the above decisions is not applicable to the case of the appellant. In the above judicial decisions, it has been held that (i) 'The tested party may be a local or foreign entity i.e. one party to the controlled transaction. (ii) 'The selection of tested party has to be consistent with the functional analysis of the controlled transaction (i.e. transaction-by-transaction approach.) (iii) The tested party is the least complex party to the controlled transaction in respect of which relevant data for comparison are available in public domain. (iv) The Hon'ble Tribunals accepted the selection of foreign comparable companies in the event the tested party is foreign associated enterprise. 3.2. It is clear from the above decisions that Foreign AE being manufacturer has been selected as tested party. If the same analogy is applied the tested party should be the

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 29 manufacturer/whether it is Indian or Foreign AE. So in the context of the role played by the AE the above decisions has been rendered. 3.4 In this regard the recent decision of Mumbai Tribunal in the case by onward technologies Ltd (2013)35 taxman.com 584 (Mum) is more relevant to the facts of the present case. For the convenience of understanding the brief facts or above case are reproduced as under: 1. Assessee is parent company 0; Onward Technologies Inc., USA and Onward Technologies Gmbh, Germany. 2. Onward group is global provider of Engineering software Development services and solutions to end users. 3. During the relevant previous year, assessee rendered IT enables services to its AE in USA and Germany for Rs. 22 Cr. 4. Assessee subsidiaries in USA and Germany were responsible for carrying out primarily sales and marketing activity along with sales and site support services to clients in respective countries and remunerate subsidiaries at cost plus 5% mark up. Further sale price received by foreign AE from services ultimately sold to customers is equal to that charged by the assessee firm its AE. 5. Assessee choose its foreign AE as tested party, adopted TNMM as appropriate method and did TP study by comparing NP profit margin of foreign AE with six foreign companies doing similar activities. 6. TPO held that price determined by assessee in providing IT enables services is not in accordance with 92C( 1) & 92C(2) and rejected assessee TP study. The issue before Tribunal was can Foreign AE be taken as Tested party for TP study held Foreign AE cannot be taken as tested party by explaining TP law in India as under: (a) Section 92( 1) provides that any income from international transactions shall be determined having regard to the Arm's length price. (b) Section 92B defines international transaction to be transaction between two or more associated enterprise. (c) Section 92C read with rule 10B (1)( e) specified TNMM as one of method for determining ALP, which method provides that net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 30 is computed in relation to cost incurred or sale effected or assets employed or having regard to any other relevant base. (d) The modus operandi of determining ALP of an international transaction under this method is that firstly, the profit rate earned by the assessee from a transaction with its AE is determined (say, profit A), which is then compared with the rate of profit of comparable cases (say, profit B) for ascertaining as to whether profit A is at arm I s length vis-a-vis the profit. (e) However, in so far as calculation of profit A is concerned, there cannot be any dispute as the same has to necessarily result only from the transaction between two or more associated enterprises, as in the mandate of sections 92 read with 92B in juxtaposition to rule 10B. The natural corollary which, thus, follows is that under no situation can the calculation of 'profit A' be substituted with anything other than from the international transaction, that is, a transaction between the associated enterprises. So, it is the profit actually realized by the Indian assessee from the transaction with its foreign AE which is compared with that of the comparables. There can be no question of substituting the profit realized by the Indian enterprise from its foreign AE with the profit realized by the foreign AE from the ultimate customers for the purposes of determining the ALP of the international transaction of the Indian enterprise with its foreign AE. 2.3. Further in the following case also the tribunals have held that foreign AEs cannot be the tested parties. • Cybertech Systems & Software Ltd. Vs. Assistant Commissioner of Income Tax reported in (2013) 33 Taxman.com 371 (Mumbai- Tribunal) • Aurionpro Solutions Pvt. Ltd. Vs. Assistant Commissioner of Income Tax, Range- 4(3), Mumbai ITA No. 7872 (Mumbai) of 2011. • Delhi Bench in the case of GE Money Financial Services Pvt Ltd [TS- 457-ITAT-20 16(DEL)-TP]. explicitly discarded assessee's selection of foreign AE as tested party. While arriving at its conclusion, IT AT categorically held that under transactional net margin method ("TNMM"), it is the net margin earned by the Indian assessee and not it's foreign AE which is compared with that of the comparable companies. The IT AT interpreted the meaning of word 'enterprise' used in Rule 1 OB( 1 )(e) of the Income

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 31 tax rules, 1962 ("Rules") (which describes the manner of application of TNMM) as 'Indian entity'. The Hon'ble ITAT also held that adoption of foreign AE as tested party has no legal sanctity under the Indian transfer pricing regulations. Furthermore, the ITAT also mentioned that the data used by the assessee with respect to the comparable companies does not conform to the comparability standard laid down under Rule 10B of the Rules. In view of the above the decision of onward technologies is directly applicable to the facts of the case. Hence the action of TPO in rejection of Foreign AE as tested party may be sustained. Further as observed by the DRP in its order at page No. 9 Para 6.2, the findings of the DRP are reproduced as under. 6.2. The panel has examined FAR analysis of the assessee and its foreign AE. It is seen that foreign AE is gathering business by obtaining orders from potential customers abroad. It is negotiating sale pride with customers and is liable to customer regarding product quality and warranty. All credit risk lies with foreign AE. It is responsible for getting the product manufactured from its group company having right kind of technology for the product under consideration. The foreign AE is having substantial intangibles. On the other hand, the assessee is responsible for manufacturing the product has asked for by its foreign AE. It is assured of pre-determined sale price and is not liable to end customer for warranty etc. Though the assessee may not be in a position of contract manufacture in strict sense, yet it is not even full fledged manufacturer. Considering function and risk analysis as above, it can be said that the assessee is more close to contract manufacturer. In no way, it can be inferred that foreign AE is doing less complex activities. The assessee is just manufacturing the product as guided / directed by its foreign AE. The assessee is not holding any significant intangibles. Therefore, the panel does not find fault with approach of TPO of taking the assessee as tested party. Various decisions of higher appellate authorities are fact specific and lay down that tested party should be such that which could be benchmarked in a more reasoned manner. The functional and risk analysis of the assessee as discussed supra is such that it not difficult to find suitable comparables from Indian database. Therefore, approach of the TPO cannot be said to be perverse or prejudicial to the assessee. The panel therefore holds that the assessee should be taken as tested party. It is relevant here to mention that the assessee has not furnished complete annual reports of its foreign AE and other comparables taken by it in its TP study report in the absence of which benchmarking foreign shall not be practical. The distribution segmental data of AT&S Austria as

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 32 furnished by the assessee is not audited one. TPO has also worked out on page 71 para 25 of his order that the assessee had not been able to recover its direct cost of manufacturing which clearly indicates that something is wrong with sale price. It is also to be noted that about 89% of sales of the assessee is to the foreign AE and there is almost full capacity utilization. Why the foreign AE is selling the product at such cost which does not cover even the cost of production of the assessee. TPO is not required to examine the deal between foreign AE and foreign customers. The mandate of TPO is to examine international transaction which is between the assessee and its foreign AE. Here in this case, it is admitted fact that international transaction is sale by the assessee to its foreign AE.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 33 6. Conclusion: 1. The most appropriate method for determining ALP of international transaction entered into by the appellant with AE is TNMM method in view of the reasons mentioned above. 2. As per the facts of the case the TPO rightly selected the appellant as tested party as against Foreign AE and applied TNNM method. The above view of the TPO is supported by the decision of Mumbai Tribunal in the case of onward technologies. 3. The commission and the warranty paid by appellant to AE are closely linked to the international transaction with AE. The TPO has correctly applied TNNM method at the entity level. This view of the TPO is also supported by various decisions mentioned above on this issue. 4. Rule of consistency is always not applicable income tax cases, especially in the field of Transfer Pricing where the Law is evolving in India. The TPO has also discussed in his order on non applicability of rule of consistency. 5. On the issue of comparables .the order of DRP has considered the arguments of the appellant and the directions of DRP hold good. Finally, The ld. DR supported the order the lower authorities.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 34 “A conjoint reading of the above provisions indicates that firstly, a transaction between two or more associated enterprises is called an international transaction; secondly, any income from such international transaction is required to be determined at ALP; thirdly, the ALP in respect of such international transaction should be determined by one of the prescribed methods, which also include the TNMM. Under this method, the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base, which is then compared with the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction. The modus operandi of determining ALP of an international transaction under this method is that firstly, the profit rate earned by the assessee from a transaction with its AE is determined (say, profit A), which is then compared with the rate of profit of comparable cases (say, profit B) for ascertaining as to whether profit A is at arm's length vis-à-vis the profit B. If it is not, then the transfer pricing adjustment is made having regard to the difference between the rates of profit A and profit B. The rate of profit of comparable cases (profit B) may be computed from internally or externally comparable cases, depending upon the FAR analysis and the facts and circumstances of each case. Thus the calculation of profit B may undergo change with the varying set of comparable cases. However, in so far as calculation of profit A is concerned, there cannot be any dispute as the same has to necessarily result only from the transaction between two or more associated enterprises, as is the mandate of sections 92 read with 92B in juxtaposition to rule 10B. The natural corollary which, thus, follows is that under no situation can the calculation of 'profit A' be substituted with anything other than from the international transaction, that is, a transaction between the associated enterprises. So, it is the profit actually realized by the Indian assessee from the transaction with its foreign AE which is compared with that of the comparables. There can be no question of substituting the profit realized by the Indian enterprise from its foreign AE with the profit realized by the foreign AE from the ultimate customers for the purposes of determining the ALP of the international transaction of the Indian enterprise with its foreign AE. The scope of TP adjustment under the Indian taxation law is limited to transaction between the assessee and its foreign AE. It can neither call for also roping in and taxing in India the margin from the activities undertaken by the foreign AE nor can it curtail the profit arising out of transaction between the Indian and foreign AE at arm's length. The contention of the ld. AR in considering the profit of the foreign AE as 'profit A' for the purposes of comparison with profit of comparables, being 'profit B', to determine the ALP of transaction between the assessee and its foreign AE, misses the wood from the tree by making the substantive section 92 otiose and the definition of 'internal transaction' u/s 92B and rule 10B redundant. This is patently an unacceptable position having no sanction of the Indian transfer pricing law. Borrowing a contrary mandate of the TP provisions of other countries and reading it into our provisions is not permissible. The requirement under our law is to compute the income from an international transaction between two AEs having regard to its ALP and the same is required to be strictly adhered to as prescribed. This contention, is therefore, repelled.” Reliance is also placed in another decision of Hon’ble Mumbai Bench in the case of Cybertech Systems & software limited Vs. ACIT (33 taxmann.com 371) wherein the

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 35 assessee had tried to justify the arm’s length value of the transaction on the ground that the overseas AE had been incurring losses on the margin retained from the assessee. On appeal, the Tribunal rejected the assessee’s argument that such transactions have to be considered at arm’s length on ground that there is no shifting of profits. The Tribunal categorically held that the assessee i.e., the Indian party has to be taken as the tested party and the TNMM method is to be followed. Recently the Delhi Bench of ITAT in the case of Ranbaxy Lab Ltd. vs. Addl CIT (AY 2004-05) rejected the assessee’s case since it had taken the foreign AEs as ‘tested parties’ and calculated its ALP. The ITAT agreed with the AO’s contention that such benchmarking is not in consonance with the Income Tax rules.

Besides the above the AE cannot be treated as tested party because its accounts are based on Austria GAAP which is different from Indian GAAP. Accordingly the method of accounting, allocation of costs, recognition of revenue etc. differ for making the comparison. In the instant case we need to determine the ALP of the transaction between the assessee and AE for the export of the PCB. Therefore the tested party will be the Indian Party. In view of above we find no reason to interfere in the order of DRP. Hence the assessee has rightly been treated as tested party. With regard to the TNMM method adopted by the lower authorities for the computation of ALP we find that the various courts have held to adopt the CUP method in the aforesaid facts and circumstances. At this juncture it is important to understand the CUP method as per the provisions of clause (a) of sub-rule (1) of rule 10B of the Income-tax Rules (hereinafter referred to as the 'Rules'), which inter alia reads as follows: "10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) comparable uncontrolled price method, by which,-

(i) The price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified;

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 36 (ii) Such price is adjusted to account for differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market;

(iii) The adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction 558 [or the specified domestic transaction] ;"

The term ‘comparable uncontrolled transaction’ has not been defined in the Act and the Rule. As per clause of rule 10A of the Rules, an uncontrolled transaction means a transaction between enterprises other than associated enterprises, whether resident or non-resident. The term 'comparable uncontrolled transaction' has been defined in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration, July 2010 (hereinafter referred to as the 'OECD Guidelines), which inter-alia reads as under: "Comparable uncontrolled transaction

A comparable uncontrolled transaction is a transaction between two independent parties that is comparable to the controlled transaction under examination. It can be either a comparable transaction between one party to the controlled transaction and an independent party ("internal comparable") or between two independent parties, neither of which is a party to the controlled transaction ("external comparable').

The OECD Guidelines inter alia defines the CUP Method as follows:

“Comparable uncontrolled price (CUP) method

A transfer pricing method that compares the price for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. "

11.1 We also find support from the decision of the Hon'ble Mumbai Tribunal in the matter of DCIT vs. Isagro (Asia) Agrochemicals (P.) Ltd reported in [2013] 31 taxmann.com 388 (Mumbai - Trib.), wherein the Hon'ble Tribunal interalia held that : "various benches of the Tribunal including Asstt. CIT v. MSS India (P.) Ltd. [2009J 32 SOT 132 (Pune) and Philips Software Centre (P.) Ltd. v. Asstt. CIT

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 37 [2008] 26 SOT 226 (Bang.) have preferred the following of CUP method. It is obvious that when the price of similar goods or services as sold or provided to the non-AEs is available, such a price constitutes the best guide to find out whether the price charged or paid to the AEs is at ALP or not It is more so when such comparable uncontrolled transactions is internal. When similar goods as traded with AEs constituting international transactions are traded with Non-AEs, it always proper to consider the price of goods traded with non- AEs, for benchmarking price of good traded with AEs. In our considered opinion the Id. CIT(A) was justified in upholding the preference of CUP method over TNMM. "

In the instant case, the transactions involving sale of PCBs by the appellant to AE during the financial year 2010-11 stood as controlled transactions, whereas the transactions involving sale of exactly the same PCBs in the same quantity as those transacted between the appellant and AE and by AE (i.e. one of the parties to the controlled transaction) to independent customers in Europe during the relevant financial year stood as comparable uncontrolled transactions. The prices at which PCBs were sold by the Assessee to AE are equal to the prices at which PCBs were sold by AE to independent customers. Thus the international transaction involving sale of finished goods by the assessee to AE adheres to the arm's length principle embodied in the Indian Transfer Pricing Regulation under the CUP Method. Besides the above the assessee has submitted back to back invoices and on which no adverse comment has been passed by the lower authorities on its genuineness. It was also observed that the financial distribution segment report of AE submitted by the assessee was rejected by the TPO without assigning any specific reasons and defects in the report. We therefore inclined to treat the price charged by the assessee of the goods exported to AE as ALP as the same price was charged by the AE from the other customers.

11.2 We also find that in Form No. 3CEB for the previous year under consideration the assessee mentioned the method of determining arm's length price as 'TNMM' in respect of export of PCBs valued INR 197,55,10,0001- with regard to the commission and preliminary warranty guarantee. Transfer Pricing Study was silent about the method for benchmarking the gross prices receivable by the appellant from AE for export of PCBs. But the DRP identified the aforesaid export as a separate transaction

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 38 ('Sale') and confirmed the application of the TNMM at the entity level. However, we find that the DRP should have applied the method which is the most appropriate and in the instant we have already held that the CUP method as the most appropriate method.

11.3 In this connection, we rely in the decision of the Hon'ble Mumbai Tribunal in the matter of Mattel Toys (I) (P.) Ltd vs. Deputy Commissioner of Income-tax, Circle - 6(3) reported in [2013] 34 taxmann.com 203 (Mumbai - Trib.), wherein the Hon'ble Tribunal inter alia held that: “41. Now coming to the argument of the learned Departmental Representative that once the assessee itself has chosen TNMM as most appropriate method in TPR, then it cannot resort to change its method at an assessment or appellate stage. In our opinion, such a contention cannot be upheld because if it is found on the facts of the case that a particular method will not result into proper determination of the ALP, the TPO or the appellate authorities can very well hold that why a particular method can be applied for getting proper determination of ALP or the assessee can demonstrate a particular method to justify its ALP. Thus, even if the assessee had adopted TNMM as the most appropriate method in the transfer pricing report, then also it is not precluded from raising the contentions/objections before the TPO or the appellate Courts that such a method was not an appropriate method and is not resulting into proper determination of ALP and some other method should be resorted. The ultimate aim of the transfer pricing is to examine whether the price or the margin arising from an international transactions with the related party is at ALP or not. The determination of approximate ALP is the key factor for which most appropriate method is to be followed. Therefore, if at any stage of the proceedings, it is found that by adopting one of the prescribed methods other than chosen earlier, the most appropriate ALP can be determined, the assessment authorities as well as the appellate Courts should take into consideration such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate ALP on the facts of the case. Accordingly, we reject the contentions of the learned Departmental Representative and also the observations of the Assessing Officer and the learned Commissioner (Appeals) that the assessee cannot resort to adoption of RPM method instead of TNMM."

From the above we find that the Hon'ble Mumbai Tribunal has inter alia held that the ultimate aim of transfer pricing is to examine whether the price or the margin arising from an international transactions with the related party is at arm's length price (in short, 'ALP) or not. Accordingly, even if an assessee has adopted TNMM as the most

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 39 appropriate method in the transfer pricing report, then also it is not precluded from raising the contentions/objections before the assessment authorities and the appellant Courts that such a method was not an appropriate method and is not resulting into proper determination of ALP and some other method should be resorted. In view of the principle enunciated by the Hon'ble Mumbai Tribunal in the aforesaid case, we apply the CUP Method in respect of the international transaction involving export of printed circuit boards and accordingly delete the adjustment of INR 69,30,53,397/- made in the assessment order.

11.4 We also find that various Hon’ble Court have held that the CUP Method being preferred over the profit based methods. In this connection we rely in the decision of the Hon'ble Delhi Tribunal in the matter of Hughes Systique India (P.) Ltd vs. ACIT reported in [2013] 36 taxmann.com 41 (Delhi - Trib.), wherein the Hon'ble Tribunal inter alia held that: “6.5 The CUP method provides the most direct comparison for the purpose of determining the arm's length price of international transactions and is to be preferred over the other profit based methods. Reliance is placed in this regard on the following decisions: - Aztec Software & Technologies Services Ltd. v. Asstt. CIT [2007] 107 ITD 141/162 Taxman 119 (Bang.) (SB) - UCB India (P.) Ltd. v. Asstt. CIT [2009] 30 SOT 95 (Mum.) - Gharda Chemicals Ltd. v. Oy. CIT [2010] 35 SOT 406 (Mum.) - Intervet India (P.) Ltd. v. Asstt. CIT [2010] 39 SOT 93 (Mum.) - Asstt. CIT v. Dufon Laboratories [2010] 39 SOT 59 (Mum.) 11

Reliance in this regard is also placed on the decision of Hon'ble Mumbai Tribunal in the case of Serdia Pharmaceuticals (India) (P.) Ltd. v. Asstt. CIT reported in [2011] 44 SOT 391/9 taxmann.com 13 wherein the Hon'ble Tribunal while dealing with the priority of applications of methods for the determination of ALP, has held as under: "64... as long as CUP method can be reasonably applied in determining the arm's length price of an international transaction in a particular fact situation, and unless another method is proven to be more reliable a method vis-a-vis the fact situation of that particular case, the CUP method is to be preferred. The reason is simple. When associated enterprises enter into a transaction at such conditions in commercial and financial terms, which are different from

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 40 commercial and financial terms imposed in comparable transaction between independent enterprises, the difference in these two sets of conditions in financial and commercial terms re attributed to inter relationship between the associated enterprises that is sought to be neutralized by the transfer pricing regulations. As long as CUP method can be reliably applied on the facts of a case, it does offer most direct method of neutralizing the impact of inter- relationship between AEs on the price at which the transactions have been entered into by such AEs. "

Relying on the decision of Serdia Pharmaceuticals India (P.) Ltd. (supra), the Hon'ble Delhi Tribunal in the case of Clear Plus India (P.) Ltd. v. Dy. CIT reported in [2011] 10 taxmann.com 249, interalia held that: "7 .... In the case of Serdia Pharmaceuticals India (P) Limited, it has been held that CUP method is a preferred method and it leads to more reliable results vis-a-vis the results obtained by applying transaction profit method. In the case of SNF (Australia) Pty. Limited, it has been held that the focus is on the market in which products are acquired. The ratio of this case is applicable mutatis- mutandis to the facts of the case as the focus is on the market in which products are sold.”

In the case of Gharda Chemicals Ltd. (supra), the Hon'ble Income Tax Appellate Tribunal held that internal comparable should be preferred over external comparables. The relevant extract of the judgment is furnished here in below: "Internal CUP method envisages comparing the uncontrolled transactions of the appellant itself with other unrelated parties so as to determine the ALP with the AE. However the External CUP method disregards the price charged or paid by the appellant to or from its unrelated parties and contemplates the comparison of the price so charged from or paid to its AE with some external independent reliable price data under similar circumstances of transactions with AE. Ordinarily the Internal CUP method should be preferred over the External CUP method as it neutralizes several distinguishing factors, such as the local factors and the economies available or unavailable to the appellant in particular, having bearing over the comparison of price charged from unrelated parties and AE."

11.5 In view of the above judicial precedents, we find that the CUP method provides the most direct comparison for the purpose of determining the arm's length price of international transactions and is to be preferred over the other profit based methods. Accordingly in the instant case internal CUP method should be preferred over the external CUP method. Hence, we hold that in the instant case, the CUP Method

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 41 (internal) is the most appropriate method in determining the arm's length price of the international transaction involving export of PCBs by the assessee to AE and accordingly, delete the adjustment of INR 69,30,53,3971- made in the assessment order.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 42 Hon'ble Supreme Court in the case of Goetz India Ltd., the panel is not inclined to interfere with action of the AO. The objection is dismissed.”

15.1 Aggrieved by the order of DRP, the assessee is in second appeal before us . The ld. AR before us submitted that the appellant follows a consistent accounting policy of adding back the excess provision while computing taxable income in case the closing balance exceeds the opening balance and deducting the extra provision created in case the opening balance exceeds the closing balance of the provision. The said principles have been accepted by the AD in all the prior years.

In the assessment year under consideration, Your Honors may please note that the opening balance of the provision for diminution in the value of inventories was INR 6,60,23,0001/- while the closing balance of the provisions was INR 6,52,75,0001/- thereby leading to an excess provision of INR 7,53,519/- being created during the year which was otherwise entitled to deduction from the computation of income but was inadvertently added back in the computation of total taxable income.

In view of our above submissions, that the above amount representing the excess provisions is not taxable in the hands of the appellant. It was an inadvertent mistake committed by the appellant while filing the return of income which should have been otherwise not added to the total income of the appellant.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 43 the revised return the same could not be entertained even after accepting the fact that the appellant should have been allowed with the claim. Now the question before us arises whether the deduction can be allowed without filing the revised return. In this connection, we rely in the decision of the Hon'ble Calcutta High Court rendered in the case of CIT vs. Bhaskar Mitter reported in 73 Taxman 437 (Cal) wherein the Hon'ble Court has held as under: "The revenue authorities in our view cannot be heard to say that merely because the assessee has returned a figure which is higher that the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed. An assessee is liable to pay tax upon such income as can be in law included in the total income and which can be lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee according to law and determine the tax payable thereon. In doing so he cannot assess an assessee on an amount, which is not taxable in law, even if the same is shown by an assessee. There is no estoppels by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of income, is not taxable in law. "

We also rely in the decision of the Hon'ble Supreme Court in the case of CIT vs. Shelly Products and Another reported in 261 ITR 367, wherein the Hon'ble Supreme Court has inter-alia held that if an assessee by mistake or inadvertence or on account of ignorance of law included in its income any amount which is exempt from payment of income tax or is not income within the contemplation of law, he may bring to the notice of the assessing authority which, if satisfied, may grant him relief and refund the tax paid in excess, if any.

17.1 In this connection, we also find that the issue on similar facts has been decided in favour of assessee by the Hon'ble Kolkata Tribunal rendered in the case of DC IT vs. Justice Oilip Kumar Seth reported in 98 ITO 241 (Ko I) wherein the Hon'ble Tribunal has held that the Assessing Officer is well competent to rectify any mistake which is brought to its notice by the assessee also and therefore, the observation of Assessing Officer and the Ld OR that such mistake committed by the assessee could be rectified vide revised return only, does not stand at all.

ITA No.179/Kol/2016 A.Y 2011-12 AT & S India Pvt. Ltd. vs. DCIT Cir-11(1), Kol Page 44 17.2 In view of the above we are inclined to reverse the order of authorities below and delete the disallowance made by the Assessing Officer / DRP amounting to INR 7,53,519/- in respect of the negative provisions for diminution in the value of inventories.

By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता