IN INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI R.C SHARMA, AM AND SHRI. AMIT SHUKLA, JM ITA No. 7592/MUM-2012 (ASSESSMENT YEAR : 2009-10) Suresh Brothers Addl. CIT, RG 16(3) 511 Panchratna Mama Parmanand Vs. R.BNo. 211, Marg 2nd Floor, Matru Opera House, Mandir, Mumbai-400004 Tardeo, Mumbai PAN : AAAFS3651F Appellant .. Respondent Appellant by Shri. Apurva Shah Respondent by Shri. N.K Chand Date of Hearing : 16.06.2016 Date of Pronouncement :15.09.2016 ORDER PER R.C SHARMA, AM This is appeal filed by assessee against assessment order dt. 29.10.2012 passed u/s 143(3) r.w Section 144C(3) of Income tax act, 1961 (hereinafter referred to as Act ). assessee firm challenging assessment order framed by A.O under directions of Dispute Resolution Panel (DRP) had raised following grounds of appeal :- 1. On facts and circumstances of case, final assessment order passed by Assessing Officer ( AO ) /Transfer Pricing Officer ( TPO ) under directions of Hon ble Dispute Resolution Panel ( DRP ) is bad in law. 2. Transfer Pricing Adjustment made on Export Sales to Associated Enterprises ( AE ) learned AO/TPO has erred in law and on facts in making transfer pricing adjustment to international transaction of Export 2 Sales of assesses to AE on basis of various presumptions and surmises. a. learned AO/TPO has erred in applying difference of 1.61 percent [7.32 percent (ROCE of comparable companies as selected by learned TPO) less 5.71 percent (ROCE of Assessee as recomputed by TPO)], to entire sales of Assessee instead of restricting same to export sales made to AE as international transactions during previous year. b. learned AO/TPO has erred in considering non-operating expenses of Bad debts and Finance Charge as operating expenses while computing Net Profit of Assessee for calculation of ROCE. c. learned AO/TPO has erred in including Goenka Diamond and Jewels Limited and SB & T International Limited in list of comparable companies selected by TPO for benchmarking of international transaction with AE. d. assesses value of export sales falls within plus-minus 5 percent of arm s length price determined by restricting adjustment to International transaction of export sales and humbly prays Hon ble Tribunal to delete Transfer Pricing Adjustment. 3. Transfer Pricing Restriction of adjustment to International Transactions. learned AO/TPO has erred in law and on facts in not restricting adjustment to value of International transactions between Assessee and its AE s. 4. Transfer pricing Grant of Plus-minus 5% Benefit Under Section 92C. assessee humbly prays for application of plus-minus 5% variation while computing arm s length price under section 92C. 5. Transfer Pricing Computation of Assesse s Profitability. assessee humbly prays that for purpose of transfer pricing, assessee profitability be computed after considering effect of various allowances/disallowances made by learned AO and contested by assessee in this appeal. 3 6. Interest Income of SBI AO erred in making addition for interest income merely based on AIR reporting without adequately considering facts in matter and without appreciating that same income had been reported twice by State Bank of India. 7. above grounds are distinct and separate, and without prejudice to each other. Appellant craves leave to add, modify, alter withdraw or forego any of grounds at time of hearing. (A) FACTS OF CASE: 2. assessee is partnership firm engaged in business of Import, Manufacturing and Export of cut and polished diamonds. Return of income was electronically filed by assessee firm on 30.09.2008, declaring total income at Rs. 5,85,90,152/-. return of income filed by assessee firm was thereafter selected for scrutiny assessment. During course of assessment proceedings A.O after perusing Audit report filed by assessee firm in Form 3CEB which revealed International transactions of assessee firm with its Associate enterprises ( AE s) in excess of amount of Rs. 15 crore during year under consideration, therein considering it necessary and expedient so to do, with previous approval of CIT-XVI, Mumbai, referred computation of arms length price (ALP) in relation to said International transactions to Transfer Pricing Officer (TPO) u/s 92CA(1) of Act , wherein latter passed order u/s 92CA(3), dt. 25.10.2011, making adjustment of Rs. 5,06,84,790/- to International transactions of assessee firm. Thereafter Draft assessment order u/s 143(3) of Act was passed on 30.12.2011, wherein A.O proposed to assess income of assessee firm at amount of Rs. 11,15,68,660/-, pursuant whereto objections were raised by assessee firm u/s 144C(2) before Dispute Resolution Panel (DRP), who vide his order dt. 22.08.2012 issued directions u/s 144C(5), considering which A.O framed assessment u/ss. 143(3) r.w 144C of Act and assessed income of assessee firm at amount of Rs.9,40,59,730/-. 4 2.1 That during year under consideration assessee firm had entered into following International transactions with its AEs:- S.No. Name of AEs Nature of transaction Amount in INR 1. Diamstar B.V.B.A Import of Rough 26,93,03,737 diamonds 2. Diamstar B.V.B.A Export of Rough 2,12,00,879 diamonds 3. Diamstar B.V.B.A Export of cut and 37,43,731 polished diamonds 4. Suresh Brothers (HK) Limited Export of cut and 16,64,11,870 polished diamonds 5. Suresh Brothers DMCC Export of cut and 13,16,62,424 polished diamonds 6. Suresh Brothers (HK) Limited Loan 2,20,42,500 7. Suresh Brothers (HK) Limited Interest on loan 4,90,438 8. Suresh Brothers DMCC Loan 26,74,195 9. Suresh Brothers DMCC Interest on loan 1,48,611 Auditor of assessee firm in his audit report in Form 3CEB , dt. 30.09.2008, claiming that aforesaid International transactions entered into by assessee firm with its AE s were at arms length, therein taking 4 comparables, namely, Saushish Diamonds, Sun-raj Diamonds, Su-raj Diamonds and Asian Star, worked out their average margin (OP/Sales) at 4.26%, against which margin of assessee firm (OP/Sales) was shown at 5.83%. (B). BEFORE TPO : 2.2 assessee firm further during course of Transfer Pricing Proceedings, in its TP study report filed vide submission dated: 03.01.2011 with TPO, benchmarked its International transactions listed as S.No. 1 to 6 above, by using Transactional Net Margin Method ( TNMM ) at entity 5 level. As per report, assessee firm had referred to set of four comparables, which were dealt with by TPO, as under:- S.No. Assesses Comparables Comments of TPO 1. Shrenuj & Co. Ltd. (Diamond division) RPT more than 25%. Hence, rejected as comparable 2. Classic Diamonds Ltd. (Diamonds division) RPT more than 25%. Hence, rejected as comparable 3. Su-raj Diamonds Ltd. Accepted as comparable. 4. Asian Star Co. Ltd. Accepted as comparable. TPO thereafter taking cognizance of comparables prepared by Department for Diamond Cuting and Polishing, wherein calculation of Operating Profit (OP) in departmental comparables had been done having regard to EBIDTA margin, therein computed assessee s margin, as under: Sales Rs. 325,60,68,789 Other Income Not considered Cogs Rs. 296,63,55,115 Admin & other Rs. 9,31,34,342 Less non op. exp. - Exchange diff. On loan revaluation -2,13,694 Bank charges 2,08,53,831 Interest Not considered Depreciation Not considered OC 308,01,29,594 OP 17,59,39,195 OP/OC 5.71% OP/NS 5.40% and rejecting some of comparables selected by assessee firm in its documentation, proceeded with and selected 11 comparables, as under:- S.No. Company Source Net Sales OP OP/OC% OP/NS% Name 6 1. Asian Star Co. C Line 1305.11 73.47 5.97% 5.63% Ltd. 2. C. Mahendra C Line 1366.45 108.7 8.64% 7.96% Exports. 3. Dimexon BB 1658.71 105 6.76% 6.33% Diamond Ltd. 4. Goenka C Line 200.56 17.07 9.30% 8.51% Diamond & Jewels Ltd. 5. Laser C Line 1.59 0.18 12.77% 11.32% Diamonds Ltd. 6. Mohit BB 215.08 13.48 6.69% 6.27% Diamonds Pvt. Ltd. 7. SB & T C Line 94.49 6.3 7.14% 6.67% International Ltd. 8. Suashish C Line 1222.97 83.57 7.33% 6.83% Diamonds Ltd. 9. Sunraj Diamond C Line 12.75 0.48 3.91% 3.76% Exports Ltd. 10. Su-raj Diamond C Line 246.71 9.67 4.08% 3.92% Industries Ltd. 11. Zodiac JRD- C Line 11.88 0.87 7.90% 7.32% MKJ-Ltd. Average 7.32% 6.77% 2.5 assessee firm on being confronted by TPO with fact that as its margin were found to be less as in comparison to that of comparables, and thus on being called upon to Show cause as to why adjustments should not be made to its transactions, therein objected to use of comparables mentioned at Sr. No. 4, 5, 7 and 11 hereinabove, however said objections raised by assessee firm were dismissed by TPO, who 7 therein adopting comparables, as such, therein proceeded with and made adjustments to assesses transactions, as under:- (I). FOR EXPORT TRANSACTIONS OF ASSESSEE WITH ITS AE S: S.No. Particulars 1. TPO adopted average OP/OC of Comparables, i.e 7.32% as Profit Level Indicator (PLI). 2. TPO in course of computing ALP Profit, therein applied ALP Profit margin of 7.32% to total OC of Rs. 308,01,29,594/-, and thus computed same at Rs. 22,54,65,486/-. 3. TPO taking cognizance of ALP of Rs. 22,54,65,486/- computed shortfall in profit of assessee at Rs. 4,95,26,291/-, as under:- Shortfall in profit = ALP profit (minus) assesses actual profit = Rs.22,54,65,486/-(minus)Rs. 17,59,39,195/- = Rs. 4,95,26,291/- 4. TPO computed ALP Sale price at Rs. 37,25,45,195/-, as under:- ALP Sale price =Assesses Sale price to AEs + Short fall in profit = Rs. 32,30,18,904 + Rs. 4,95,26,291/- = Rs. 37,25,45,195/- 5. TPO thereafter computed 95% of ALP sale price to AEs at Rs. 35,39,17,936/-, as under: = 95% X Rs. 37,25,45,195/- = Rs. 35,39,17,936/- 6. TPO observing that assesses sale price to AEs at Rs. 32,30,18,904/- was found to be even below -5% limit of Rs. 35,39,17,936/-(i.e 95% of ALP Sale price), therefore no benefit of being within allowable parameters contemplated under of Sec. 92C(2) could be allowed to assessee firm. (II). FOR IMPORT TRANSACTIONS OF ASSESSEE WITH ITS AE S: S.No. Particulars 8 1. TPO adopted average OP/OC of Comparables, i.e 6.77% as Profit Level Indicator (PLI). 2. TPO in course of computing ALP Profit, therein applied ALP Profit margin of 6.77% to Net Sales of Rs. 325,60,68,789/-, and thus computed same at Rs. 22,04,35,857/-. 3. TPO taking cognizance of ALP of Rs. 22,04,35,857/-, thereafter computed shortfall in profit of assessee at Rs. 4,44,96,662/-, as under:- Shortfall in profit = ALP profit (minus) assesses actual profit = Rs. 26,93,03,739/- (minus) Rs. 4,44,96,662/- = Rs. 22,48,07,077/- 4. TPO computed 105% of ALP import price to AEs at Rs. 23,60,47,431/-, as under: = 105% X Rs. 22,48,07,077/- = Rs. 23,60,47,431/- 5. TPO thereafter observing that assesses import price to AEs at Rs. 26,93,03,739/- was found to be costlier then 105% of ALP Import price of Rs. 23,60,47,431/-, therefore no benefit of allowable parameters contemplated under of Sec. 92C(2) could be allowed to assessee firm. Thus TPO therein observing that as transactions of assessee firm on both export and import side were found to be tainted, as result whereof adjustments to prices paid and prices taken stood computed at Rs. 4.45 Crore (aprox) and Rs. 4.95 Crore (aprox), respectively, therefore carried out adjustment of Rs. 4,95,26,291/- as regards export-import transactions of assessee firm. (III). FOR LOANS GIVEN BY ASSESSEE FIRM TO ITS AE S: 9 S.No. Particulars Treatment by TPO 1. (i). Loan of US$ 5 Lakh was given (i). TPO called upon to AE in Hongkong in assessee firm to justify January, 2006, which loan adoption of US PLR was repaid by AE in full to rate of 7.25% as assessee firm on benchmark for receivable 23.10.2007. rate of interest, in light of fact that loan was (ii).The TP auditor of given to AE in Hong assessee firm in his TP report Kong. in Form 3CEB , referring to US-PLR rate of 7.25% in (ii).That in absence of any January, 2006, computed explanation from Interest for period assessee firm, coupled 01.04.2007 to 23.10.2007 at with absence of details US$ 20,391, to which he w.r.t cost of finance applied closing rate of US involved in giving $ of Rs. 39.38 and computed aforesaid loan by the Interest receivable for assessee firm to AE, aforesaid period at Rs. TPO therefore 8,02,998/-. proceeded with and referring to financials of (iii).The TP auditor of the assessee firm, therein assessee firm, thereafter computed applicable referring to Interest received Arms length ROI for of Rs. 4,90,438/- as stood lending of loan to AE at reflected in Books of 10.6%, and accordingly on accounts of assessee basis of rate differential firm, therein worked out of by adopting said ROI shortfall of Interest received of 10.6%, therein carried at Rs. 3,12,560/-, which was out further adjustment of reflected as such in TP Rs. 6,90,501/- on account report in Form 3CEB , dt of under remunerated 30.09.2008 of assessee interest receivable/interest firm. received. 2. (i). Loan of AED 2,18,054 was (i). TPO in absence of any given by assessee firm to explanation from its AE in Dubai on assessee firm to justify 01.04.2005, 30.04.2005, adoption of US PLR 06.06.2005 and 29.10.2005. rate of 7.25% as benchmark for receivable (ii). TP auditor of rate of interest, in light of assessee firm in his TP report fact that loan was in Form 3CEB , referring to given to AE in Dubai , 10 US-PLR rates on coupled with absence of respective lending dates, details w.r.t cost of computed Interest income finance involved in giving at AED 13634, to which he aforesaid loan by applied closing rate of 1 assessee firm to AE, AED = Rs. 10.9, and therefore proceeded with computed Interest and referring to receivable at Rs. 1,48,611/-. financials of assessee firm, computed applicable Arms length ROI for lending of loan to AE at 10.6%, and accordingly on basis of rate differential of by adopting said ROI of 10.6%, therein carried out further adjustment of Rs. 4,67,998/- on account of under remunerated interest receivable/interest received w.r.t aforesaid transaction of assessee firm. Thus in light of aforesaid facts, TPO vide his order dt. 25.10.2011 passed u/s 92CA(3) of Act , therein carried out aggregate adjustment of Rs. 5,06,84,790/- to International transactions carried out by assessee firm. (C). DRAFT ASSESSMENT ORDER : 3. A.O on receipt of report of TPO passed Draft assessment order u/s 143(3) of Act , dt. 30.12.2011, therein making adjustments of Rs. 5,06,84,790/- u/s 92C(4) r.w.s 92CA(4) of Act to value of International transactions of assessee firm with its AE s during year under consideration, coupled with certain other disallowances/additions in hands of assessee firm, as under: Income from Business Rs. 5,85,90,151/- (As per Computation of 11 income filed by assessee) Additions: 1. Transfer Pricing Rs. 5,06,84,790/- additions 2. Disallowance of Rs. 3,90,000/- Software expenses 3. Disallowances of Rs. 30,568/- Expenses u/s 14A 4. Addition of Interest Rs. 18,73,150/- Rs. 5,29,78,508/- income Rs. 11,15,68,660/- Total Income (D). BEFORE DRP : assessee firm filed objections to variations proposed in draft assessment order before Dispute Resolution Panel-II, Mumbai (DRP). DRP vide its order dt. 22.08.2012, issued directions u/s 144C(5), which are briefly culled as under:- S.No. GROUNDS OF OBJECTIONS RAISED DIRECTIONS OF DRP BY ASSESSEE 1. TPO instead of restricting difference No directions on issue between PLI of assessee firm given by DRP. and PLI of comparables to sales made to AE s, had erroneously applied same to total sales of assessee (including sales made to non- AE s). 2. TPO had erred in not adjusting The claim of assessee entire financing costs while arriving at firm was rejected by the Operating Profit/Total Cost as DRP, as under:- Profit level indicator (PLI) of 12 assessee firm, due to which PLI of (i).That as bill discounting assessee firm as computed by & other financial costs TPO is found to be suppressed. related to obtaining finance capital, therefore same not being directly incurred in process of manufacture and sales, were thus rightly included under head Administrative or financial costs. (ii).That as Bad debts were purely administrative cost and not operating expenditure, which all more pertained to debt of earlier year which is written off in subsequent year and therefore did not even relate to sales of year for which ratios were being worked out, same in absence of any details furnished by assessee firm to prove otherwise, was therefore rejected. TPO had wrongly included following DRP dealt with 3. 4 comparables, for reasons assigned contention of assessee as under: firm as regards exclusion of 4 comparables, as Party Name Reason (as under:- per assessee) (i). Laser Diamonds Ltd: (i).Laser Diamonds DRP agreed with claim Ltd. company of assessee firm and was into observing that trading company was not business. comparable to (ii).Goenka Diamond assessee firm, therein & Jewels Ltd. company directed A.O/TPO to 13 was into exclude said company trading from set of business. comparables and (iii).SB&T RPT are recompute adjustments International more than accordingly. ltd. 20% of total (ii).Goenka Diamond & sales. Jewels: (iv). Zodiac JRD-KJ DRP rebutting company contention of assessee was into firm, therein observed that trading sale of diamond business. studded jewellery of company was in start up stage and not dominant business, wherein sales of jewellery was Rs. 40 crore (aprox), as in comparison to sales of diamond cut & polished of Rs. 158 Crores. Still further DRP observing that as company during year had incurred substantial expenditure in promoting its jewellery brand, setting up shops in different places, therefore said costs/expenditure would offset advantage it might have over assessee firm in its total profit ratios due to its being in jewellery business. (iii). S B & T International Ltd: That as RPT of company was less than 25%, DRP therefore holding that in number of cases threshold of 25% had been held as acceptable limit to filter out comparables, therefore rejected objection of assessee firm. 14 (iv). Zodiac JRD-KJ No directions as regards aforesaid comparable company was given by TPO. 5. TPO had wrongly adopted domestic No directions on issue borrowing rate for arriving at ALP given by DRP. interest rate on loans given to AE s during year. 5. A.O has erred in not granting DRP directed A.O to deduction of Exchange Difference verify claim of Loss on Revaluation of foreign currency assessee firm and make Loans aggregating to Rs. 5,68,129/- necessary amendment while computing income for year in order, if necessary. under consideration. 7. A.O had erred in making addition of Rs. DRP directed A.O/TPO 18,73,150/- on account of interest to verify contention of income from State Bank Of India. the assessee firm in light of assessee firm claimed that as per the evidence available on AIR information received by A.O, record and decide the Interest received from SBI was same. reflected twice. assessee firm explaining reason for aforesaid discrepancy therein leading to twice reporting of Interest received , therein submitted before DRP that SBI which was required to deduct TDS @11.33% on Interest income of Rs. 31,04,124/-, however erred and initially deducted at rate less than 11.33%, and subsequent thereto in order to make up for shortfall/deficit in TDS, carried out deduction on said Interest income as regards balance shortfall amount of TDS, pursuant whereto said Interest income was reported at amount of Rs. 49,77,274/- in AIR information received by A.O. assessee firm in order to substantiate its contention 15 that it was in receipt of Interest income of Rs. 31,04,124/-, therein furnished certificate of interest dated: 16.09.2008 issued by SBI, wherein bank had certified that interest of Rs. 31,04,124/- was paid to assessee firm during F.Y. 2007-08. (E). ASSESSMENT FRAMED BY A.O : 4. That A.O thereafter proceeded with and framed assessment vide his order dated. 29.10.2012, passed u/s 143(3) r.w Sec. 144C of Act and assessed income of assessee firm at Rs. 9,40,59,730/-, as against latters returned income of Rs. 5,85,90,151, as under:- Particulars Amount Income returned by assessee firm : Rs. 5,85,90,151/- Additions: (A). For Export transactions of assessee : A.O going by directions of DRP excluded M/s Laser Diamonds from set of comparables and adopting recasted PLI of 6.77%, recomputed adjustment of Rs. 3,25,85,579/- as regards export transactions of assessee firm. (B). For Import transactions of assessee : A.O going by directions of DRP excluded M/s Laser Diamonds from set of comparables and adopting recasted PLI of 6.32% recomputed adjustment of Rs. 2,98,44,352/- as regards import transactions of assessee firm. A.O in light of aforesaid facts, observing that Assesses transactions on both export and import side were tainted, therein adopted higher of aforesaid adjustments, i.e Rs. 3,25,85,579/- , and making further addition of Rs. 11,58,499/- as : Rs.3,37,44,078/- regards TP adjustments which had remained 16 unchanged, therein made aggregate addition of Rs. 3,37,44,078/- in hands of assessee firm. Excess amount of deduction towards Software : Rs. 3,90,000/- expenditure. Disallowance of expenses attributable for earning : Rs. 30,568/- exempt income U/s 14A r.w Rule 8D. Difference in Interest income received from SBI. Rs. 18,73,150/- Total Income : Rs. 9,40,59,730/- SUBMISSIONS OF ASSESSEE: 5. assessee firm aggrieved with aforesaid assessment framed by A.O in light of directions of DRP , had therein assailed aforesaid additions/disallowance before Tribunal. However Ld. AR has mostly confined his argument stating that, even if margin of TPO is applied only to international transaction with AE, then no adjustment would be required to be made as they would fall within tolerance range of ALP. GROUND OF APPEAL 2(a) & (d), 3 AND 4: 5.1 That as issue involved in GROUND OF APPEAL 2(a) & (d), 3 AND 4 is same, therefore same are being taken up and disposed of together. A.R for assessee firm at very outset had challenged action of TPO by claiming therein that difference of 1.61 percent between PLI of assessee firm and PLI of comparables though was liable to be restricted to only transactions with AE s, but however TPO had most arbitrarily applied same to total sales of assessee firm (including sales made to non-AE s). A.R had fortified aforesaid logical reasoning, by placing reliance on judgment of ITAT in case of M/s Ratilal Becharlal & Sons, ITA No.7876/Mum/2011 order dated 07.11.2012, which now has been confirmed by Hon ble High Court of Bombay in case of 17 CIT-16, Mumbai Vs. M/s Ratilal Becharlal & Sons (ITA No. 1906 of 2013; Dt. 24/11/2015) , wherein Hon ble High Court clarifying scope and gamut of Chapter X of Act , and concluding that that Special provisions contemplated therein are strictly to be restricted as regards domestic and International transactions of assessee concern with its Associated Enterprises and cannot be extended to entire sales of assessee, held as under:- (d). Chapter X of Act inter alia deals with computation of income from international transactions having regard to ALP. Section 92 thereof specifically brings to charge income arising from International transactions with Associated Enterprise to tax on computation of income having regard to ALP of transactions entered into between Associated Enterprises, as heading of Chapter X itself indicates that these are special provisions relating to avoidance of tax and mandate is to ensure adjustment in respect of International transactions with Associated Enterprises or specified domestic transactions on determination of ALP. It does not allow adjustment of income on basis of determining of ALP in respect of Assesses transactions. If contention of Revenue is to be accepted, it would result in taxing non-existing income/profits of transactions entered into between Respondent assessee and Independent third parties. This in present fact, even in absence of allegation that transactions with parties other than Associated Enterprise is not at ALP. transactions with parties other than International Transactions with Associated Enterprise or in respect of specified domestic transactions are not within ambit of Chapter X of Act. Ld. D.R on other hand though conceded to settled position of law that TP adjustment, if any, is to be made only as regards International transactions of assessee with its AEs, but it was averred by him that assessee firm in course of proceedings before lower authorities had failed to provide segmental accounts for AE and non AE transactions, and as such had failed to discharge Onus as was cast upon it, therefore latter could not be allowed to take benefit of its own failure. Ld. D.R further supporting TP adjustments carried out by TPO, therein submitted that as Department in absence of AE/non-AE segments is 18 regularly working out cost of non-AE transaction by applying average PLI of external comparables, therefore no infirmity could be attributed to working carried out by TPO. We have perused report of TPO and are of prima facie view that latter vide his working at Page 4 -5 of his report had ostensibly failed to restrict application of difference of 1.61 percent between PLI of assessee firm and PLI of comparables w.r.t transactions of assessee firm with AE s, and rather had applied same to total sales of assessee firm (including sales made to non-AE s). Thus in interest of justice and fairness, we restore issue to file of TPO, with direction to verify genuineness and veracity of aforesaid contention of assessee, and keeping in view scope of applicability of Special provisions contemplated under Chapter X of Act , as had been looked into by Hon ble High Court of Jurisdiction in case of : M/s Ratilal Becharlal & Sons (supra), therein restrict adjustments in hands of assessee firm only as regards latter International transactions with its Associated Enterprises, and thereafter adjudicate upon said issue after verifying as to whether PLI of assessee firm as in comparison with PLI of comparables falls within +/- 5% limit of Safe Harbour, as contemplated u/s 92C of Act . However, before parting, it is directed that TPO before adjudicating on aforesaid issue in light of directions given hereinabove, shall afford reasonable opportunity of being heard to assessee firm to substantiate its aforesaid contention. It has been admitted that, if above issue is decided in favour then, issues raised in ground no. 2(b) & 2(c) will become purely academic and need not be adjudicated, as there would be no adjustment required to be made. Accordingly, we are keeping issues raised in ground no. 2(b) & 2(c) open and are treated as dismissed as in-fructuous. 19 GROUND OF APPEAL 5 6. A.R of assessee firm had submitted before Tribunal that profitability of assessee firm be computed after considering effect of various allowances/disallowances made by A.O and contested by assessee firm in this appeal. We find force in submissions of A.R and herein direct A.O that profitability of assessee firm for purpose of transfer pricing be computed after giving effect to and considering modifications carried out in light of allowances/adjustments made in hands of assessee firm. GROUND OF APPEAL NO. 6 7. A.R of assessee firm had averred that A.O had erred in making addition for interest income merely on basis of AIR reporting, without adequately considering claim of assessee firm that said income was reported twice by State Bank of India (SBI). It was submitted by A.R that Interest income which was stated to have been paid/credited as per AIR information received by A.O from SBI, was factually incorrect and inconsistent as against actual Interest income , as under:- Name of Bank As per AIR Actual Interest Difference information income received from bank received/credited (as claimed by assessee firm) State Bank Of Rs. 49,77,274/- Rs. 31,04,124/- Rs.18,73,150/ India - A.R of assessee firm submitted that though explanation demonstrating factum as regards discrepancy as had crept in AIR reporting of bank was furnished with A.O, wherein it was submitted that certain entries of interest were shown twice in Bank statement , however latter vide his Draft assessment order passed U/ss. 143(3) r.w 144C of Act , without verifying genuineness and veracity of claim of assessee firm, most arbitrarily made addition of Rs. 18,73,150/- 20 (supra) in hands of assessee firm. It was further submitted by A.R that assessee firm in its objections filed against Draft order passed by A.O U/ss. 143(3) r.w 144C of Act , therein demonstrated at length before DRP fact that interest entries had been shown twice in AIR information received by A.O from bank, pursuant whereto DRP vide his order passed U/s 144(5) of Act , in all fairness though directed A.O/TPO to verify contention of assessee firm in light of evidence on record and then decide claim, however A.O vide his order passed U/ss. 143(3) r.w. 144C of Act , dt. 29.10.2012, instead of following specific directions of DRP, rather proceeded with in callous manner and without making any verification, as directed by DRP, therein proceeded with and made addition of impugned Interest income of Rs. 18,73,150/-(supra) in hands of assessee firm. A.R of assessee firm further challenging adoption of interest income by A.O merely on basis of AIR reporting, without adequately considering claim of assessee firm that said income was reported twice by State Bank of India (SBI), had relied on recent order of co-ordinate bench of Tribunal, passed in case of: M/s Kroner Investments Limited, Mumbai vs. DCIT-5(2), Mumbai (ITA No. 5125/M/2013; Dt. 10.04.2015), wherein Tribunal held as under:- 4. We find that addition in this case has been made solely on basis of AIR information and without any corroborative evidence regarding receipt of any interest by assessee from said M/s Essar Oil Limited. assessee has specifically denied receipt of such interest income. Revenue has not made any enquiries to find out whether AIR information was correct or not. It has been held time and again by this Tribunal that additions made solely on basis of AIR information are not sustainable in eyes of law. If assessee denies that it is in receipt of income from particular source, it is for AO to prove that assessee has received 21 income as assessee cannot prove negative. Reliance can be placed on decision of Tribunal in case of DCIT vs. Shree G. Selva Kumar in ITA No. 868/Bang/2009 decided on 22.10.10 and another case in case of Aarti Raman vs. DCIT in ITA No. 245/Bang/2012 decided 0n 05.10.12. We have considered rival submissions and relevant materials on record, including orders of authorities below, and therein find that despite there being specific direction by DRP to A.O to verify contention of assessee firm in light of evidence on record , A.O had proceeded with most arbitrarily and except for taking cognizance of directions of DRP ostensibly for academic purposes only, had rather blatantly failed to follow and effect compliance to same in right spirit, which act on part of A.O is deprecated. Ld. Representatives of both parties have agreed before us that in light of factual position as it so remains, issue be restored to file of A.O for considering afresh. Thus we accordingly restore this issue to file of A.O to consider and verify contention of assessee firm and pass speaking order as regards same. 8. In result, appeal of assessee firm is partly allowed. Order pronounced in open court on this 15/09/2016. Sd/- Sd/- (AMIT SHUKLA) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 15/09/2016 pkm, PS 22 Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY //True Copy// ORDER, (Asstt. Registrar) ITAT, Mumbai Suresh Brothers v. Addl. CIT, RG 16(3), Mumbai