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M/s Panasonic Consumer India Pvt. Ltd. (formerly known as Panasonic India Pvt. Ltd.) K-39, Connaught Circus, New Delhi. Vs Asstt. Commissioner of Income Tax, Circle 14(1), New Delhi.
November, 19th 2014
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

               IN THE INCOME TAX APPELLATE TRIBUNAL
                    DELHI BENCHES `I'BENCH DELHI

       BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER
                            AND
         SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

              ITA No.2329/DEL/2010, ITA No.2330/DEL/2010
              ITA No. 1418/D/2008, 1419/DEL/2008
                Assessment Years : 2003-04, 2004-05

M/s Panasonic Consumer India            vs Asstt. Commissioner of Income Tax,
Pvt. Ltd. (formerly known as               Circle 14(1), New Delhi.
Panasonic India Pvt. Ltd.)
K-39, Connaught Circus,
New Delhi.


                ITA No. 1374/Del/2008 & ITA No. 1375/Del/2008
                 Assessment Years : 2003-04, 2004-05

Dy.Commissioner of Income Tax, vs M/s Panasonic Consumer India
Circle 14(1), New Delhi.          Pvt. Ltd., New Delhi.
(Appellant)                                      (Respondent)
                                     Appellant by: Shri Pradeep Dinodia, Adv.
                                     Respondent by : Shri Yogesh Verma, CIT, DR

                                     ORDER


PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

       The aforementioned ITA No. 1418, 1419/Del/2008 have been preferred

by the assessee whereas ITA No. 1374 and 1375/D/2008 have been preferred by

the revenue against the separate two orders of the CIT(A)-XX, New Delhi both

dated 31.1.2008 in Appeal No. 180 & 181/2007-08/CIT(A)-XX for AYs 2003-

04 and 2004-05 respectively. For the sake of brevity, clarity and convenience in
                                                                                  1
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

the proper adjudication, these appeals have been clubbed and are being

adjudicated by this consolidated order.


Asseessee's appeal in ITA No. 1418 & 1419/Del/2008

2.     From careful perusal of the grounds raised by the assessee in both these

appeals, we note that except amount, grounds raised in these appeals are similar.

For the sake of clarity and transparency in our findings, the grounds raised by

the assessee in AY 2003-04 read as under:-


             "1.0 That the Ld. CIT (A) has grossly erred in law and
        on the facts and in the circumstances of the appellant's case in
        holding that the segregation of trading functions pertaining to
        the CPD and SPD divisions of the assessee were properly
        done by TPO although :
        i) Functions performed, risk assumed and assets employed
        by both the divisions were identical.
              ii) Method employed for determining the arm's length
        i.e. TNMM was proper.
              iii)   The PLI of the comparables was alright.
              2.0 That the order passed by the CIT (A) is bad in law
        and on the facts & in the circumstances of the appellant's case
        on the aspect of transfer pricing in which addition of
        Rs.l,15,03,254/- has been confirmed by CIT (A) u/s 92CA (3)
        of the I.T. Act.
              3.0 That the CIT (A) has grossly erred in holding that
        segregation of CPD and SPD division of the assessee, which
        are two trading divisions was proper, merely on the ground
        that the target customers of these two divisions were different.
             4.0 The CIT (A) ought to have held that under the
        TNMM method it is the broad functions which are required to
        be compared and if most of the functions performed by the

                                                                               2
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

        assessee and the comparable cases are identical, the same
        cannot be rejected on an isolated reason that the target
        customers and product lines of CPD & SPD are different.
              5.0 The CIT (A) has grossly erred in law in mis-
        interpreting the OECD guidelines pertaining to aggregation
        vs. Segregation of the functions.
             6.0 The CIT CA) has grossly erred on the facts of the
        appellant's case in holding that there exist a distinct difference
        between the dynamics of the two divisions of the assessee i.e.
        CPD and SPD.
        7.0 The CIT CA) ought to have held that once having
        accepted the TNMM method, having accepted the comparables
        and the PLI of the comparable, the CIT (A) should not have
        rejected assessee's trading functions on merely conjectures,
        surmises, and erroneous considerations.
        8.0 The order of the ,CIT CA) is full of contradictions in as
        much as that on the one hand he has accepted the comparables
        found by the assessee in its Transfer Pricing study and on the
        other hand he has partially rejected the same when it comes to
        aggregation and segregation of the two trading divisions of the
        assessee.
        9.0 The CIT CA) has grossly erred in holding that appellant's
        reliance on the Special Valuation Cell of the custom's
        department was not proper and he has further erred in
        rejecting the same.
        10.0 The CIT CA) has erred on law and on the facts of the
        circumstances in the appellant's case in confirming the view of
        the A.O./TPO for treating the reimbursement of advertisement
        expenses by assessee's A.E. as a non-operating revenue
        receipt.
        11.0 The CIT CA) has grossly erred in holding that the
        reimbursement of expenses cannot be considered either as a
        revenue receipt or in holding that the same are not to be
        "netted" off against the expenditure incurred on the
        advertisement by the assessee.
        12.0 That the CIT CA) has failed to take a holistic view of the
        matter pertaining to the reimbursement of advertisement

                                                                             3
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

        expenses in as much as that the pure reimbursement could not
        fall within the purview of transfer pricing.
        13.0 The CIT CA) has grossly erred in law and on the facts of
        the appellant's case in not entertaining the plea of the assessee
        for allowing an adjustment on account of huge advertisement
        cost incurred by the assessee whereas the comparable cases
        had not incurred the similar amount of advertisement costs for
        determining the NPM.
        14.0 The CIT (A) has grossly erred in holding that allocation
        of the unallocated expenses and income to the ISD division of
        the assessee was proper by the TPO
        15.0 That the aforesaid grounds of appeal are without
        prejudice to one another. "
3.     The grounds raised in AY 2004-05 are similar, therefore, these are being




adjudicated by this consolidated order.


Ground no. 1 to 8 of the assessee in both the apepals

4.     We have heard arguments of both the sides and carefully perused the

material placed on record. Ld. AR submitted a written synopsis and has drawn

our attention towards decision of ITAT `F' Bench New Delhi in assessee's own

case i.e. ITA No. 1417/D/2008 for AY 2002-03 dated 24.9.2010 reported as

2010-TII-47-ITAT-DEL-TP and submitted that the issue of segregation vs

aggregation of the CPD and SPD divisions and the acceptance with same

comparables for both the divisions has been decided in favour of the assessee

and the present appeals of the assessee are squarely covered in favour of the

assessee by this order of the Tribunal in assessee's own case. Ld. DR submitted

that the department is intending to challenge this order in the higher forum. At

                                                                               4
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

the same time, the DR fairly accepted that the Tribunal has decided the issue in

favour of the assessee for AY 2002-03 by the order dated 24.9.2010 (supra) but

there is nothing in his hand to controvert the conclusion of the Tribunal or to

show that the decision of the Tribunal (supra) has been either set aside or

modified by any competent or higher forum.


5.     On careful consideration of above submissions, we note that on similar

issues and grounds of the assessee raised as ground no. 1 to 8 in AY 2002-03

before `F' Bench of the Tribunal, the Tribunal has decided the issue in favour of

the assessee with the following conclusion:-


        "14. These details are also given at pages 89-90 of the Paper
        Book of the Transfer Pricing Report submitted by the assessee
        on this issue submitting that the functions performed, risks
        assumed, and the assets deployed are absolutely the same in
        all its trading functions which clearly indicate the fact that
        segregation for any other reason is not permitted as per
        Statutory Rule 10B(2)(b) of the Rules which are part of the
        Transfer Pricing Regulations contained in Chapter X of the
        Income Tax Act and the Rules made thereunder. Therefore, the
        test for finding whether segregation is required is provided in
        the Rules themselves and as is borne out from the facts of the
        case, Rule 10B(2(b) clearly is in favour of the proposition that
        segregation should not be done. In addition, the comparables
        used are also the same for both the Divisions. It also lends
        weight to returning the finding that segregation was not called
        for. We have given our careful consideration to the issue and
        the order of the authorities below and the reconciliation for all
        segments and the audited balance sheet was also made
        available to him at pages 428-435 of the Paper Book. The
        segment-wise details of sales and purchase at GP level were
        also made available to him at page 485. All these were also
        pointed out to us by the AR during the course of hearing and
        the Senior DR could not rebut any factual aspects thereof. On
                                                                               5
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

        a careful consideration thereof, no discrepancy is found in the
        figures as reported by the assessee. In any case, TPO, as well
        as, the CIT(A) have re-drawn the accounts as has been
        categorically found by CIT(A) at pages 13 and 14, para 5.3. of
        his order as reproduced above. We, therefore hold that on the
        facts and circumstances of the case and as per the provisions
        laid down in the Transfer Pricing Regulations in India, the
        assessee succeeds on these grounds. The segregation was
        totally artificial and uncalled for and the authorities below
        were not justified in segregating them. The trading functions
        having the same FAR and having closely linked transactions
        were to be taken as a whole and not separately, thereby
        creating artificial loss in one segment and profit in the other.
        Both have to be taken as a whole and the additions made by
        TPO and confirmed by CIT(A) for doing this segregation are
        required to be deleted."
6.     In view of above order of the Tribunal in assessee's own case (supra), we

are inclined to hold that the facts and circumstances of the extant case and as

per provisions of transfer pricing regulations in India, the issue has been

decided in favour of the assessee for AY 2002-03. Therefore, we further hold

that the issue is squarely covered in favour of the assessee and the assessee

succeeds on these grounds as the segregation emanated by the authorities below

was totally artificial and uncalled for and the impugned segregation was not

justified under the factual matrix of the case. We are also in agreement with the

findings of the Tribunal that the trading functions having the same FAR and

having closely linked transactions were to be taken as a whole and not

separately, therefore, creation of artificial loss in one segment and creation of

artificial profit in the other segment is not permissible. We are of the fortified

view that both segments have to be taken as a whole and additions confirmed by

                                                                                 6
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

the CIT(A) on the basis of alleged segregation deserve to be deleted and we

delete the same. Accordingly ground no. 1 to 8 of the assessee in AY 2003-04

and 2004-05 are allowed.


Ground no. 9 of the assessee in both the appeals

7.     Apropos ground no. 9, ld. AR has further drawn our attention towards

decision of ITAT `F' Bench in assessee's own case for AY 2002-03 at para 37

page 45 and fairly accepted that the issue has been decided against the assessee

and in favour of the revenue pertaining to the valuation of the Special Valuation

Cell of the Customs department. Ld. AR submitted that without prejudice to the

right of the assessee to agitate this issue before the Hon'ble higher forum, the

assessee fairly accepts that the Tribunal for AY 2002-03 has decided the issue

against the assessee and in favour of the revenue. Ld. DR supported the

impugned orders and submitted that the order of the Tribunal in favour of the

revenue and against the assessee holds field.


8.     On careful consideration of above submissions, we note that `F' Bench of

the Tribunal in assessee's own case for AY 2002-03 (supra) has decided the

issue against the assessee and in favour of the revenue with following

conclusion:-


        "37. Learned AR's contention was that all its imports from
        AEs are based on valuation accepted by the Customs
        Department of the Ministry of Finance, Government of India,

                                                                               7
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

        and in one particular case where a charge was levied of
        under-invoicing on the assessee, the Special Valuation Bench
        of the Customs Department exonerated the assessee, therefore
        the valuation made by custom authorities should be guiding
        factor for TPO while making adjustment on account of arm's
        length price. We do not find any force in this ground and are
        of the view that where specific rules of law exist in the Statute
        on a particular subject, then they would hold the field. Chapter
        X and Rules made thereunder are a self contained code and
        answers to all questions must be found in the written law
        contained in the Act and Statute. Here we are inclined to agree
        with ld CIT DR that that Customs valuation is for different
        contained in the Act and Statute. Here we are inclined to
        agree with ld. CIT DR that the Customs valuation is for
        different purposes and Chapter X of the Income Tax Act is for
        different purposes and different criteria are being used.
        38. In the result ground no. 9 of assessee's appeal is
        dismissed."





9.     Accordingly, we concluded that ground no. 9 of the assessee in both the

appeals is squarely covered in favour of the assessee and against the revenue.

Thus, ground no. 9 in both the appeals is dismissed.


Ground no. 10, 11, 12 & 13 of the assessee in both the appeals

10.    Apropos these grounds, ld. AR has drawn our attention towards the

decision of the Tribunal for AY 2002-03 (supra) para 23 at page 37 and

submitted that the issue has been decided in favour of the assessee and against

the revenue by holding that the TPO and the CIT(A) were wrong in excluding

the reimbursement of advertisement expenditure while calculating the PLI of the

assessee. Ld. AR has drawn our attention towards para 23 at page 37 and para


                                                                             8
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

26 at page 40 of the order of the Tribunal for AY 2002-03 (supra) and submitted

that ground no. 10 to 13 in both the appeals are squarely covered in favour of the

assessee. The relevant operative paras viz. Para 23 (at page 37) and para 26 (at

page 40) read thus:-

        "23. Rule 10B(2)(c) states "the contractual terms (whether or
        not such terms are formal or in writing) of the transactions
        which lay down explicitly or implicitly how the
        responsibilities, risks and benefits are to be divided between
        the respective parties to the transactions." . The transfer
        pricing rule itself states that the contractual terms may be
        formal or may not be formal, may be in writing, may not be in
        writing and may be implicit or explicit. Now here the assessee
        has demonstrated by fact that it was in reasonable expectation
        of reimbursement of expenditure by the past conduct of its
        mother companies, i.e. AEs of receiving at least 2/3rd of its
        expenditure in reimbursement. Therefore as per the Rule itself,
        this has to be taken cognizance of and could not be ignored
        arbitrarily. Once Rule 10B(2)(c) is seen and invoked, then the
        objections both of the TPO and CIT(A) would not hold ground
        and the conduct of the assessee is based on facts and figures
        from the AY 1998-99 on record, the order of the Tribunal on
        record accepted by the Revenue, it can be concluded that the
        receipt of advertisement reimbursement would form a part of
        operating profit either by way of by adding to income or by
        way of reduction of advertising expenditure to the extent of
        reimbursement. Both have the same effect of increasing
        operating profits to this extent. We therefore hold that the TPO
        and the CIT(A) wrong in excluding reimbursement of
        advertisement expenses while calculating the PLI of the
        appellant."

        "26. We, therefore, hold that in view of the correct analysis
        and working as given above on the comparison between the
        assessee and the comparables and by correcting the two errors
        committed by the TPO and CIT(A) and confining the financials
        to one year only and not to multiple years for the trading
        functioning of assessee, the PLI of the assessee comes to

                                                                                9
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

        8.43% and that of the comparables 3.58%. As the PLI of the
        assessee is higher of the two, the international trading
        transactions entered into by the assessee are held to be at
        arm's length price as per transfer pricing regulations in India.
        Accordingly the addition made by the TPO and upheld by
        CIT(A) amounting to Rs.1,23,48,509/- is ordered to be
        deleted."

11.    Ld DR submitted that the department is taking up the issue of treatment of

advertisement subsidy received as non-operating and the issue of adjustment on

account of advertisement expenses to level the field between the comparables

and the assessee to the Hon'ble higher forum. At the same time, the DR fairly

accepted that till date, he is unable to show any contrary decision on this issue

which may take us to accept any different view on this issue of advertisement

subsidy, adjustment of advertisement expenses and reimbursement of

advertisement expenses by the assessee's associated enterprises as a non-

operating revenue receipt.


12.    In view of above and on careful perusal of the order of the Tribunal for

AY 2002-03 (supra), we note that ground no. 10 to 13 in both the appeals are

squarely covered in favour of the assessee and against the revenue by the order

of the Tribunal for AY 2002-03 (supra). We are of the considered opinion that

under factual matrix of the instant case, we are in agreement with the conclusion

of the Tribunal that Rule 10B(2)(c) states that "the contractual terms (whether or

not such terms are formal or in writing) of the transaction which lay down

explicitly or implicitly how the responsibility, risks and benefits are to be

                                                                               10
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

divided between the respective parties to the transactions." On careful perusal

of the material placed on record and the order of the Tribunal, we find that the

assessee has demonstrated by substantiating the fact that it was in reasonable

expectation of reimbursement of expenditure by the past conduct of its mother

companies i.e. AEs of receiving at least 2/3rd of its expenditure in

reimbursement. In this situation, Rule 10B(2)(c) is invokable and then the

objection of the TPO and the CIT(A) would not hold the field, especially when

the conduct of the assessee is based on the facts and figures emanating from

record of AY 1998-99.


13.    Under these facts and circumstances, it can safely be held that the receipt

of advertisement expenditure would form a part of operating profit either by way

of adding to income or otherwise expenditure has to be reduced from total

advertisement expenditure to the extent of reimbursement; either way we look at

it, the result will be the same. This is a well-established accounting proposition

that both ways, it is having the same effect on operating profits up to this extent,

thus, we are inclined to hold that the TPO and the CIT(A) were not justified in

excluding the advertisement expenditure while calculating the PLI of the

assessee.


14.    On the issue of adjustment on account of huge advertisement cost

incurred by the assessee during the financial year under consideration, where

comparable cases had not given a similar amount of expenditure cost for
                                                                                 11
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

determining the Net profit margin (NPM) as per para 11 of the Tribunal for AY

2002-03 as reproduced hereinabove, we are in agreement with the observations

and conclusion of the Tribunal that if the TPO and the CIT(A) were of the

opinion that these two divisions viz. CPD and SPD were separate divisions and

required a different criteria for determining the ALP, then they could not have

compared both the divisions results, as has been done by them, with the same set

of comparable; there is obviously a contradiction between the two.


15.    We further note that if for the sake of argument, it is accepted that the

two divisions have separate characteristics, then obviously, different

comparables should have been used. If in the situation where two divisions are

to be treated separately, the department ought not to be used the same set of

comparables which were used by the TPO and the CIT(A) for both the divisions,

then the PLI of comparables for the CPD Division would have to be adjusted as

per provisions of Rule 10B(1)(e)(iii) of the Income Tax Rules, 1962.


16.    The Tribunal in assessee's own case for AY 2002-03 concluded that the

trading transactions of the assessee are at arm's length and no adjustment is

required. On specific query from the Bench, ld. DR seems to be unable to

submit any fact or material before us which may compel us to take a different

view on the issue of adjustment on account of huge advertisement cost incurred

by the assessee, specially in the peculiar facts and circumstances of the present

case whereas the comparable cases had not incurred similar huge amount of
                                                                              12
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

advertisement cost for determining the NPM. From the order of the Tribunal for

AY 2002-03 (supra), in para 26 at page 40, it has been held that in view of the

correct analysis and working as given by the assessee on the comparison

between comparable used by the assessee and the accepted comparables by

correcting the two errors committed by the authorities below and confining the

financial results to one year only and not to the multiple years for the trading

function of the assessee, the PLI of the assessee was calculated at 8.43% and the

PLI of the comparables was calculated at 3.58%.

17.    In this situation, we respectfully follow the observations of the coordinate

bench of the Tribunal in assessee's own case for AY 2002-03 (supra) and hold

that as the PLI of the assessee is higher of the two (here it is 8.43% which is

more than 3.58%), international trading transactions entered into by the assessee

are held to be ALP as per transfer pricing regulations in India. Accordingly, we

conclude that ground no. 10, 11, 12 and 13 of the assessee are squarely covered

in favour of the assessee by the order of the Tribunal in AY 2002-03. We order

accordingly to follow the earlier order for AY 2003-04 and 2004-05.


Ground no. 14 of the assessee in both the appeals

18.    Apropos ground no. 14, ld. AR also submitted that the issue of allocation

of the unallocated expenses and income to the ISD Division of the assessee was

erroneous and unjustified. Ld. AR has drawn our attention towards para no. 32


                                                                                13
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

to 34 at page 44 of the order of the Tribunal in assessee's own case for AY

2002-03(supra) and submitted that ground no. 14 of the assessee in both the

appeals is also squarely covered in favour of the assessee by the order of the

Tribunal (supra). Ld. DR submitted that the revenue has not accepted the order

of the Tribunal and we are taking up the issue to the higher forum but at the

same time, ld. AR fairly accepted that the Tribunal has decided the issue in

favour of the assessee and till date, he does not have any order in hand which

can show us that the order of Tribunal (supra) has been set aside or modified by

any competent authority or Hon'ble higher forum which may compel us to take

or accept a different view.


19.    The relevant operative part of the order of the Tribunal for AY 2002-03

reads as under:-


        "32. Therefore, the PLI of the test party of 33.27% when
        compared to the PLI of the comparables at page 40 of
        CIT(A)'s order ­ Table 15 ­ of 2.95% clearly show that the
        assessee's transaction in the ISD Division were done at arm's
        length and addition of Rs. 74,92,166/- is deleted.
        33. Next issue is with regard to allocation of expenses. The
        CIT(A) has dealt with this issue on page 36 para 9.6 of his
        order. The TPO has allocated non--allcoated expenses of
        Rs.6.05 crores to the three Divisions ­ CPD, SPD and ISD
        whereas the assessee has allocated this entire expenditure to
        its trading functions, i.e. to CPD and SPD. The ld. AR
        contended that allocation of Rs.20,59,661 to ISD is not correct
        as this expenditure has nothing to do with the sales
        commission and the service part of the assessee. The assessee
        submitted vide its letter dated 25th January 2005 on page 425
        PB Vol. II that ISD is an independent Division and no part of

                                                                             14
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

        head office expenditure could be allocated to it as it does not
        need head office support. In our view there is substance in the
        submissions of the learned AR that out of a total business of
        Rs.361 cores, the ISD service and commission income is only
        Rs.12,28,831/-. It is unreasonable to allocate Rs.20,59,669/-
        as expenditure on such a meager gross receipt. In any case in
        view of the fact that three years average is being taken on the
        ISD Division on the basic facts of the case following the
        Proviso to Rule 10B(a) even if it is taken to the basis of ISD
        Division, it will not make any difference."





20.    On careful reading and perusal of the above order of the Tribunal on the

above issue, we are compelled to hold that the issue of allocation of unallocated

expenses and income to the ISD Division of the assessee is squarely covered in

favour of the assessee in the immediately preceding year to the assessment year

under consideration. In the light of above decision of the Tribunal, we are of the

considered opinion that the addition cannot be made in the overall facts and

circumstances of the present case on the issue of allocation of unallocated

expenses and income to the ISD Division following the proviso to Rule 10B(a)

of Income Tax Rules 1962. Thus, ground no. 14 of the assessee in both the

appeals is also allowed in consonance with the earlier order of the Tribunal for

AY 2002-03 (supra).


21.    Ground no. 15 and 16 of the assessee in both the appeals are general in

nature which require no adjudication and we dismiss the same.



Revenue Appeal in ITA No. 1374, 1375/D/2008 for AY 2003-04 and 2004-05

                                                                               15
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

22.    The revenue has raised sole similar ground in both the appeals which

reads as under:-


             "Ld. CIT(A) has erred in law and on facts and
        circumstances of the case in holding that only current year
        data for 2003-04 is to be used for computation of the Arm's
        Length Price."
23.    Apropos above ground of the revenue, ld. DR submitted that the CIT(A)

has erred in law and on facts and circumstances of the case in holding that only

current year data for 2003-04 is to be used for computation of the Arm's Length

Price. Ld. DR has drawn our attention towards findings of the CIT(A) in para

9.2.8 and 9.2.9 at page 19 of the order of the CIT(A) for AY 2004-05 and

submitted that the CIT(A) was not justified in holding that the relevant data to

be used for determination of ALP in AY 2003-04 is the data of financial year

2002-03 and for AY 2004-05 the data of financial year 2003-04 is relevant. Ld.

DR further submitted that the data of earlier and subsequent year should also be

considered for computation of ALP and the conclusion of the CIT(A) is not

sustainable on this issue.

24.    Replying to the above, ld. AR has drawn our attention towards findings of

the Tribunal in assessee's own case for AY 2003-04 (supra) in para 35 at page

44 and submitted that the data to be used in analysing the comparability of an

uncontrolled transaction with an international transaction shall be the data

relating to the relevant year in which the international transaction has been


                                                                             16
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

entered into. Ld. AR supported the impugned orders and submitted that the

conclusion of the CIT(A) has been upheld by the Tribunal in AY 2002-03

(supra) and the issue is squarely covered in favour of the assessee.


25.      On careful and vigilant reading of the order of the Tribunal for AY 2002-

03 (supra), we note that the issue of data to be used for computation of ALP has

been decided in para 35 by holding that the data to be used for comparability of

an uncontrolled transaction with an international transaction of the assessee shall

be the data of relevant year in which the international transaction has been

entered into. The operative para 35 at page 44 of the order of the Tribunal reads

thus:-

          "35. In the appeal of the Revenue the only ground raised is
          that "Ld. CITCA) has erred in law and in facts and
          circumstances of the case in holding that only current year
          data for 2003-04 is to be used for computation of the Arm's
          Length Price. The ground raised by the revenue has already
          been discussed by us while disposing of the assessee's appeal
          in which we have reproduced Rule 10B(4) and Proviso thereto
          referred to in para 41-43. The CIT(A) is right in holding that
          the data to be used in analyzing the comparability of an
          uncontrolled transaction with an international transaction
          shall be, the data relating to the relevant year in which the
          international transaction has been entered into. The Sr. DR
          who appeared on behalf of the Department has not disputed
          this proposition of law, neither anything has been brought to
          our notice by the Sr. DR to take a contrary view. Therefore, as
          far as the trading operations are concerned, use of single year
          data is correct and this has been the stand before us by both
          the parties. To this extent the Revenue's appeal is dismissed."




                                                                                17
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

26.    In view of above and on careful perusal of the order of the CIT(A) and the

order of the Tribunal for AY 2002-03 (in assessee's own case), we are unable to

see any cogent reason to take a different view because the CIT(A) was right in

holding that the financial data to be used in analysing the comparability of an

uncontrolled transaction with an international transaction shall be the data

relating to the financial year in which the impugned uncontrolled transaction and

the comparable international transaction have been entered into. Respectfully

following the decision of the coordinate bench in assessee's own case for AY

2002-03(supra), we are inclined to go with the earlier order of the Tribunal and

hold that the CIT(A) was right in holding that only the current year data for the

relevant financial year pertaining to respective assessment year deserve to be

used for computation of ALP an international transaction with the uncontrolled

transaction of the assessee. Accordingly, sole ground of the revenue in both the

appeals being devoid of merits is dismissed.


Assessee's appeals in ITA NO. 2329, 2330/Del/2010 for AY 2003-04 and
2004-05 respectively
27.    These appeals of the assessee have been directed against the order of the

CIT(A)-XVII, New Delhi, both dated 23.03.2010 in Appeal no. 05, 06/CIT-

XVII/09-10 for AY 2003-04 and AY 2004-05 respectively by which the penalty

levied by the AO u/s 271(1)(c) of the Act has been upheld and confirmed. Since

the controversy and ground of the assessee are similar, therefore, for the sake of



                                                                               18
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

brevity, clarity and convenience, these have been clubbed and we are disposing

them by this consolidated order.


28.    Although the assessee has taken as many as nine grounds in both the

appeals but except ground no. 1, other grounds of the assessee are argumentative

and supportive to the main ground no. 1 in both the appeals which reads as

under:-


                "That the CIT(A) has grossly erred in law and on facts
          and in the circumstances of the appellant case in upholding
          the action of the AO in levying the penalty u/s 271(1)( c) of the
          Income Tax Act."
29.    Brief facts giving rise to these appeals are that the assessee is a subsidiary

company of M/s Matsushita Electric Industrial Co. Ltd. The main object of the

appellant company vide the object clause was given as selling and distributing in

domestic as well as in export market the products having the Matsushita Brand

names of "National Panasonic" manufactured by the Matsushita Group and its

various collaboration companies. The assessment was completed u/s 143(3) of

the Act for AY 2003-04 on total income of Rs.38,91,49,470/- as against returned

negative income (loss) of Rs.16,41,87,090/-.           The AO made addition of

Rs.1,79,83,544/- on account of Transfer Pricing adjustment. The CIT(A) vide

its order dated 31.1.2008 confirmed the addition to the extent of

Rs.1,15,03,854/-. Assessment was also completed u/s 143(3) for AY 2004-05 on

total income of Rs.22,16,14,720/- as against returned loss of Rs. 7,24,54,710/-.


                                                                                  19
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

The AO made addition of Rs.29,40,69,430/- on account of transfer pricing. On

the appeal filed by the assessee, the Id. CIT(A) XX, New Delhi vide his order

dated 31.01.2008 confirmed the addition to the extent of Rs.8,15,01,718/- and

allowed a relief of Rs.21,25,67,712/-. The AO, after giving the assessee an

opportunity of being heard, levied penalty of Rs. 48,27,446/- in AY 2003-04 and

penalty of Rs. 2,92,38,741/- in AY 2004-05.


30.    The assessee preferred an appeal before the CIT(A) which was dismissed

upholding the penalty. The relevant operative para of the CIT(A)'s order for

AY 2004-05 reads as under:-





                "4.9. In the case under consideration, the transfer
        pricing adopted by the appellant was found to be incorrect.
        Therefore, the AO had made addition on account of transfer
        pricing. The Id. CIT(A) had confirmed the addition made by
        the AO to the extent of Rs.8, 15,01,718/-. The appellant has not
        been able to satisfactorily explain as to how they had adopted
        the rate of transfer pricing. Therefore, the case would be
        covered by Explanation 7 to Section 271 (1)(c). In view of the-
        facts of the case discussed above and legal position on the
        issue, the contentions of ld. AR are rejected. The AO was fully
        justified in levying the penalty. I, therefore, confirm the
        penalty levied by the AO."
31.    In AY 2003-04, the CIT(A) dismissed the appeal with the same

conclusion as above. Now, the aggrieved assessee is before this Tribunal with

the sole similar ground in both the appeals as reproduced hereinabove.


32.    We have heard arguments of both the parties and carefully perused the

relevant material placed on record. Ld. AR, at the outset, submitted that the

                                                                            20
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

assessee has challenged similar addition made on the basis of recommendations

of the TPO in ITA No. 1418, 1419/Del/2008 on the strength of the decision of

the Tribunal in assessee's own case for AY 2002-03 (supra). Ld. AR further

submitted that the quantum appeals of the assessee for AY 2003-04 and 2004-05

deserve to be allowed and, in this situation, penalty imposed by the AO and

upheld by the CIT(A) is not sustainable. Ld. AR further pointed out that,

without prejudice to the above submissions and the result of the appeal of the

assessee, it is further submitted that on the issue where two views are possible,

penalty is not imposable and in every case where the claim of the assessee was

not accepted or was not found to be acceptable by the revenue authorities, does

not automatically attract penalty. The AR finally prayed that the penalty order

passed by the AO and confirmed by the CIT(A) may kindly be set aside. He

placed reliance on the decision of Hon'ble Apex Court in the case of Reliance

Petroproducts Pvt. Ltd.


33.    Ld. DR replied that the result of the assessee's appeal for AY 2003-04 and

AY 2004-05 cannot be noticed or considered at this stage and if the assessee is

providing incorrect data and irrelevant comparables, then the addition made on

the direction of the TPO attracts penalty. Ld. DR supported the orders of the

authorities below.

34.    We have considered rival submissions and contentions of both the parties

and gone through the relevant material placed on record. From a careful perusal
                                                                              21
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

of the penalty order, specially operative part as reproduced hereinabove, we

observe that the AO has imposed penalty on the issue of addition to the extent of

Rs.1,15,03,254 on account of ALP in the year 2003-04 and on the addition to the

extent of Rs.8,15,01,718 in AY 2004-05. Since by the earlier part of this order,

we have held that the additions made by the TPO and confirmed by the CIT(A)

by segregating the CPD and SPD divisions are not sustainable and following the

decision of the Tribunal in assessee's own case for AY 2002-03 (supra), we

have directed to delete the entire addition in this regard in both the AYs i.e.

2003-04 and 2004-05. Under these circumstances, once impugned addition has

been deleted, the act of imposition of penalty is rudimentary because there

cannot be any tax sought to be evaded on which penalty could be computed and

levied, therefore, no penalty on the assessee is imposable in both the assessment

years on account of additions made by the AO to the extent of Rs.1,15,03,265/-

in AY 2003-04 and to the extent of Rs.8,15,01,718/- in AY 2004-05.

Accordingly, we are inclined to allow both the appeals of the assessee and we

allow the same and AO is directed to delete the impugned penalty in both the

years.


35.      In the result, appeals of the assessee ITA No. 1418 & 1419/Del/2008 on

ground no. 9 are dismissed and on ground no. 1 to 8 and 10 to 14 are partly

allowed. The appeals of the Revenue ITA No. 1374 & 1375/Del/2008 are



                                                                              22
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05

dismissed. The appeals of the assessee ITA No. 2329 & 2330/Del/2009 are

allowed.


        Order pronounced in the open court on 18.11.2014.

    Sd/-                                             Sd/-

(PRAMOD KUMAR)                              (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER                              JUDICIAL MEMBER

DT. 18th NOVEMBER, 2014
`GS'
Copy forwarded to:-
   1.   Appellant
   2.   Respondent
   3.   C.I.T.(A)
   4.   C.I.T. 5. DR                                        By Order

                                                       Asstt. Registrar




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