ITAT, DELHI'G' BENCH

ITA No. 1842/Del/2009; Asst. yr. 2002-03

I. C. Sudhir, J.M. & Shamim Yahya, A.M

G.C. Srivastava, for the Appellant:
Dinesh Vyas with S.K. Sharma, Taru Arora & Shashant Burman, for the Respondent

In its ground (revised) the Revenue has questioned first appellate order as under:

"1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 24,03,22,94.0 made by the AO on account of ALP.
1.1 On the facts and circumstances of the case and_ in law, the learned CIT(A) erred in applying current year's data for the comparability analysis when the use of the multiple year data both by the assessee and TPO was not under challenge before him.
1.2 Without prejudice to the ground No. 1.1 on the facts and circumstances of the case and in law, the learned CIT(A) erred in not following a consistent approach in applying single year data to only one set of transactions.
2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 11,92,75,955,made by the AO on account of royalty paid to SEC I5orea.
3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the addition of Rs. 68,68, 216 made by the AO on account of provision for warranty/after sale service compensation.
4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 4,56,75,050 made by the AO on account of advertisement and sale promotion expenses (brand promotion) .
5. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 4,56,75,050 made by the AO on account of advertisement and sale promotion expenses (being capital in nature).
6. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 35,36,485 made by the AO on account of purchase of computer software.
7. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 4,40,92,460 made by the AO on account of deemed dividend tinder s. 2(22){e).
8. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 12,40,743 made by the AO on account of recruitment and training expenses."

2. We have heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.

3. The relevant facts are that the assessee company is engaged in the business of manufacturing and trading of consumer electronics and home appliances as in the earlier years. The assessee company jointly promoted by Samsung Electronics Company (SEC), Korea and its Indian Associates. SEC, Korea is registered owner of brand name and logo of Samsung and produces consumerable durables and other white colour goods under this brand. M/ s Samsung Electronics Company, Korea owns/controlled 74 percent of the equity of the assessee company. The remaining 26 per cent of the equity is held and controlled by its Indian partner and associates. There is another 100 per cent subsidiary company of SEC,. Korea in India, named and styled as M( s Samsung Electronics - India Information and Telecommunications Ltd. (SEITL) which deals in computer and telecommunications products in India.

4. The assessee company filed its return declaring income of Rs. 37,36,90,025 which was processed under s. 143(1) of the Act accepting the same income. Subsequently the case was selected for scrutiny and assessment has been framed under s. 143(3) of the Act. Receipts by way of sale and service for the year under' consideration are shown at Rs. 1,068.21 crores as against Rs. 986.02 crores in the immediately preceding year. Other income for the year as per Sch. 8 of the balance sheet is shown at Rs. 17.32 crores as against Rs. 12.17 crores in the earlier year.

5. During the year the assessee had made purchases from its foreign associated enterprises (AE). Therefore the AO after taking the prior approval of CIT referred the matter to the TPO to determine the ALP of the transactions entered into by the assessee company with its foreign AEs as in the earlier years additions under s. 40A(2)(b) of the Act was made on this account in the case of assessee. The TPO vide its order dt. 1st March, 2005 determined the ALP in respect of the transactions entered into by the assessee company with its foreign AE. In the first appeal the assessee raised (1) General grounds (il) Corporate tax issue (ili) Transfer pricing issues (transfer pricing issues). Qn the relief given by the learned CIT(A), the Revenue is in appeal before us. '"

Ground Nos. 1, 1.1, 1.2, 2 and 3 to 5

6. The relevant facts are that AO noticed the following international transactions entered into by the assessee with its AE during the year:

7. The assessee has segregated its two separate and distinct lines of business namely :

(a) manufacturing activities-classified as class I activity (b) trading activity-classified as class II activity.

8. The assessee adopted the transactional net margin method (TNMM) as the most appropriate method in its transfer pricing documentation for the year in class I and class II transactions. Operating profit/total cost (OP /TC) was chosen as the relevant profit level indicator (PLI) for class I transactions and operating profit/sales (OP/Sales) was chosen as the relevant profit level indicator for class II transactions.

9. The following table summarizes the results of the comparable search and the financial and economic analysis carried out for the class I transactions by the assessee in its transfer pricing documentation:

10. The arithmetic mean of the OP/TC of the comparable companies finally selected under Class I transactions worked out to 4.75 per cent. On the other hand, the assessee earned an OP /TC of 5:36 per cent during the year. Since the profit margin earned by the assessee under Class I transactions was higher than the mean margin of comparable companies, the assessee concluded that the prices of these transactions met the arm's length standard prescribed under the IT Act, 1961. The TPO after going through the transfer pricing documentation and other details filed by the assessee during the proceedings under s. 92CA adjusted the transfer prices of the Class I international transactions of the assesee and accepted the ALP in respect of other transactions.

11. The TPO determined the ALP of, Class I transactions at Rs. 1,05,62,97,960 as against their book value of Rs. 1,29,66,23,647. TPO thus proposed an adjustment of Rs. 24,03,22,940 to the purchase of.raw material and purchase of spares transactions with the AEs. The basIs of adjustment to Class I transaction by the TPO remained allocation of advertisement expenses, rejection of Kirloskar Airtec Ltd. as a comparable etc. This action of the TPO was questioned by the assessee before the learned CIT(A) on several grounds. The learned CIT(A) after discussing the issue in detail has, deleted the addition of I Rs. 24,03,22,940 made by the AO on account of ALP which has been questioned by the Revenue with this contention that the learned CIT(A) has erred in applying current year's data for the comparability analysis when the issue of the multiple data both by the assesee and TPO was not under challenge before him. It has been further contended that the learned CIT(A) has erred in not following a consistent approach while preferring a,pplication of single year data to only one set of transactions.

12. In support of the grounds the learned Departmental Representative submitted that the learned CIT(A) was not justified in selectively altering the. very basis of functional and economic comparability carried out by the TPO and while doing so he has destroyed the uniformity and consistency of approach adopted by the TPO, while applying current year's data to one set of transactions and leaving the other set of transactions with multiple year data. He submitted that in the same order of assessment, two different kinds of data cannot be used-multiple year for one transaction and the current year for the other transaction unless one or the other set falls in the exceptions provided under Rules. Learned Departmental Representative submitted that there is irrationality in the approach of the learned CIT(A) on transfer pricing. He pointed out that the TPO had made the addition of Rs. 24.03 crores in respect of class I activity and no adjustment was made in respect of Class II activity. Before the learned CIT(A) the assessee had raised three grounds with respect to transfer pricing adjustment. Firstly. the rejection of Kirloskar Airtech Ltd. as comparable, secondly, reimbursement of AMP expenses treated as non-operating income like treating such marketing expenses as operating expenses, and thirdly, +/ - 5 adjustment not allowed. In para No. 10 of the order learned CIT(A) has dealt with the issue in respect of treatment of reimbursement of AMP expenses at length and in the light of the decision of Tribunal in the case of Sony India (P) Ltd. us. Dy. eIT (2008) 118 ITJ (Del) 865 : (2008) 14 DTR (Del)(Trib) 228: (2008) 114 ITD 448 (Del) adjudicated that exclusion of Rs. 19.17 crores from the operating profit was not justified. Thereafter the learned ClnA) has been suddenly turned to altogether new issue in para No. 11 of his order and dealt with the use of CUrrent year/multiple year data and adjudicated that both the assessment aod transfer pricing have used the PLI of OP /TC for economic analysis, however since almost all the transactions of the assessee with its AEs are on cost side, hence in better comparability OP / sales is to be used as the PLI. He held further that the relevant data be used for determination of ALP has to be data for current financial year Le. 2001-02 in the present case. On the basis of these findings the learned CIT(A) has recalculated the profit margin of the assessee at 5.09 per cent and airthmetic mean of profit margin of comparabie companies at 0.83 per cent by using single year data and OP/sales as profit level indicator for class I activity. Accordingly he adjudicated that no adjustment is warranted on account of transfer pricing.

13. Learned Departmental Representative contended that during the course of oral arguments, a chart was filed by the assessee showing that no adjustment could arise in class II transaction if the current year data is applied. The learned Departmental Representative submitted that the application of current year or multiple data is not only about margins earned by the comparable companies. The data is chosen to make a comparability analysis to find out whether the companies would be comparable on the basis of functions performed, assets used and the risks undertaken (FAR) and it is only after this primary exercise that the profit margins are obtained to find out the ALP. The learned CIT(A) could not have simply substituted the profit margins of comparable companies from the current year data without doing this exercise. He contended that it would not be legally valid to start with a presumption that if a company is comparable on the basis of earlier year's financials, it would ipso Jacto be comparable on the basis of next year financials as well. There may be several extraordinary receipts/expenses, there could be related party transaction, there could be new set of wholly uncomparable activities in the current year which may render the comparables as wholly uncomparable. He submitted that the use of separate set of data would make it absolutely necessary to go for a fresh search of comparables as many new companies would have entered the database which would render the earlier search as wholly eschewed. It would, therefore, not be possible for the Revenue to make any comment on the chart so filed unless the comparability is examined afresh by making a search on the basis of current year's data. The learned Departmental Representative pointed out that it is precisely for this reason that Revenue is aggrieved with the approach adopteo by the learned CIT(A). If he decided to apply the current year's data on his end he should have gone for a fresh search of comparables from the database of the current year instead of simply substituting the profit margins of the comparable companies based on the multiple data by that based on the current year's data. The learned Departmental Representative accordingly submitted in the interest of justice to restore the matter to the AO /TPO for redetermining the ALP for both set of transactions by applying the current year's data.

14. Learned Authorised Representative, on the other hand tried to justify the first appellate order on the issue. He submitted that before the learned CIT(A) data based application was requested by the assessee in its submission made before. him, copies of which' have been made available at page Nos. 39 to 119 of the paper book filed by the assessee. On this submission learned CIT(A) had given opportunity to the TPO to react and after considering these submissions the learned CIT(A) agreed with the contention of the assessee. Learned Authorised Representative referred page No. 66 of the paper book to support his contention that detailed margin calculation for some companies were made available to the learned CIT(A), He submitted further that Class I and II transactions are not same but the common issue between the two was reimbursement of advertisement expenses. The learned Authorised Representative submitted that CIT(A) was fully justified to use current year data in place of multiple year/past two years average data used by assessee and TPO, even when it was not challenged by assessee in its grounds of appeal. It is a settled position in law that powers of CIT(A) are not confined to the subject-matter of appeal but er~end to subject-matter of assessment [CIT us, Ahmedabad. Crucible Co. (1995) 124 CTR (Guj) 104 : (1994) 206ITR 574 (Guj) and CIT us. Ranicherra Tea Co. Ltd. (1995) 124 CTR (Cal) 113 : (1994) 207 ITR 979 (Cal)]. Further, the Supreme Court has held in Jute Corporation of India us. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (8C) and CIT us. Nirbherarn Daluram (1997) 139 CTR (8(;) 484 : (19£)7) 224 ITR 610 (SC) that appellate authority's powers are co-terminus with that of AO, and there is no reason as to why he cannot modify the assessment order on just basis even if not raised before the' ITO, He further submitted that no fault can be found with regard to the process followed by CIT(A) in deciding to use current year's data, since he had put assessee as well as TPO on notice of his intention of doing so by seeking an explanation from both of them. Assessee strongly refutes unsubstantiated proposition that assessee and TPO were not given a chance to explain their position on use of current year data. The order of the CIT(A) in para 11.2 clearly records that "the appdlant as well, as the TPO were asked to explain· why only current year data should not be used for ALP determina.tion keeping in view the provisions of r. 10B(4)." It may be noted that r. 10B(4) (as reproduced in para 11.6 of his.Order). statutorily requires that the data to be used shall be the data relating to the relevant financial year. Thus both, the appellant and the TPO were given a reasonable opportunity of being heard and actually both availed o( this opportunity by filing their written submissions. The appellant furnished its written submissions dt. 18th Nov., 2008 which was duly considered by the CIT(A) in para 11.3. Similarly, the TPO .offered its written submissions on 25th Feb., 2009 which was duly considered by the CIT(A) in para 11.4. of his Order. It is important to note that the TPO did not express any objection on using current year data and made no grievance whatsoever of any other nature. He was satisfied with the opportunity afforded to him and, therefore, it is not permissible in the appellate proceedings before the Tribunal to go into this settled factual position. Similarly, if the TPO wanted, he could have mentioned to the CIT(A) to also use current year data for Class II transactions. Since the TPO did not make such request, there was no need for the CIT(A) to mention in his Order about the benchmarking of Class II transactions using current year data. Since the lower authorities themselves have not made any grievance about this aspect of the matter, the representative of the Department cannot in his arguments raise this issue which is otherwise not in dispute. The learned Authorised Representative submits that benchmarking of Class II transaction using current year data (Annex. I) reveal that the assessee's margin of 4.44 per cent is much higher than that of comparables (at loss of 5.24 per cent). Even if Procal Electronics were to be excluded, comparables margin will only increase to 1.63 per cent, which will still be less than the margins made by assessee, He also cited following decisions copies of whi9h have been made available in paper book Vol. II filed on behalf of the assessee:

1. Sony India (P) Ltd. us. Dy. CIT (supra);
2. Aztec Software & Technology Services Ltd. us. Asstt. CIT (2007) 109TTJ (Bang)(SB) 892 : (2007) 107 ITD 141 (Bang)(SB);
3. Mentor Graphic (Noida) (P) Ltd. us. Dy. CIT (2007) 111 TTJ (Del)(TM) 556 ; (2007) 109 ITD 101 (Del)(TM);
4. Honeywell Automatlon India Ltd. us. Dy. CIT(2011) 138 TTJ (Pune) 373; (2011) 54 DTR (Pune)(Trib) 263; 2009-TIOL-104-ITAT-Pune;
5. Nestle India Ltd. us. Dy. CIT (2007) 111 TTJ (Del) 498;
6. Amway India Enterprises us. Dy. CIT (2008) 114 TTJ (Del)(SB) 476 ; (2008) 4 DTR (Del)(SB)(Trib) 1 ; (2008) 111 ITD 112 (Del)(SB);
7. CIT us. G.E. Capital Services Ltd. (2008) 214 CTR (Del) 551 ; (2008) 300 ITR 420 (Del);
8. Asstt. CIT us. Bhaumik Colour (P) Ltd. (2009) 120 TTJ (Mumbai)(SB) 865 ; (2009) 18 DTR (Mumbai)(SB)(Trib) 451;
9. CIT us. Hotel Hilltop (2008) 217 CTR (Raj) 527 ; (2008) 5 DTR (Raj) 46 ; (2009) 313 ITR 116 (Raj);
10. Daimler Chrysler India (P) Ltd. us. Dy. CIT (2008) 18 DTR (Pune)(Trib) 312; (2009) 120 TTJ (Pune) 803 : (2009)-TIOL-68-ITAT-Pune.

15. Having gone through the orders of the authorities below and the decisions relied upon in view of the above submissions by the parties. we find that the TPO had made allocation of advertisement expenses and rejection of Kirloskar Airtech Ltd. as a comparable as a basis of adjustment to class I transaction. He had desired the ALP of Class I transactions at Rs. 1,05,62,97,960 as against their book value of Rs. 1,29,66,23,647. The TPO. thus proposed an adjustment of Rs. 24,03,22,940 to the transfer prices of class I transactions of the purchase of raw material and purchase of the spares parts with the AEs. Class II transactions were accepted to be at arm's length. So far as allocation of advertisement expenses for adjustment is concerned. the assessee had incurred Rs. 87.86 crores as expenditure on advertisement, marketing and sales promotion etc. Out of this expenditure. the assessee had received Rs. 19.17 crores on reimbursement from its overseas AEs. In its books of accounts the assessee reduced the amount received as reimbursement from the total expenditure incurred on account of advertisement. marketing. sales promotion and after sales service. Thus, net expenditure of Rs. 67.69 crores was shown in the assesssee's P&L alc for the year. The TPO while computing the ALP of the international transactions did not consider reimbursement of Rs. 19.17 crores received from its AE as part of operating income while treating such marketing expenses to be part of operating expenses. The TPO allocated advertisement expenditure reimbursed by AEs of Rs. 19.17 crores to Class I and Class II transactions in proportion. of the sales of these segments and recasted the segmental P&L sic of the assessee as under:

The assessee had in the relevant previous year incurred expenditure of Rs. 45,67,50,504 on advertisement and sales promotion. The AO observed that the brand name of 'Samsung' is the registered property of SEC. Korea and it has only permitted the appellant to sell its goods in India and no rights whatsoever have been assigned in respect of the brand 'Samsung' to the appellant. The AO in the assessment order alleged that the said expenses were incurred in promoting the brand 'Samsung' in India. the benefit of which was ultimately to be derived by, the foreign joint venture partner. SEC. The AO also held that there were several 'Samsung' products which were being dealt by persons other than assessee and benefit of such expenditure on advertisement and brand prom1jtion is to be derived by such products being dealt by the other persons. The AO on the basis of the aforesaid allegation made ad hoc disallowance of Rs. 4,56,75,050 being 10 per cent of the expenditure on advertisement and sales promotion allegedly relatable to the promotion of 'Samsung' brand in India. The AO while making the above disallowance did not appreciate that the assessee was the exclusive dealer for Samsung consumer electronic products and home appliances in India and entire expenditure on advertisements and sales promotion was incurred for promoting the sales of such products of the appellant in India. benefit of which was derived entirely by the assessee. The AO made further disallowance of Rs. 4,56,75,050 being 10 per cent of the total expenditure on advertisement and sales promotion holding the same to be capital expenditure resulting in an enduring benefit.

16. The learned CIT(A) following the decision of Delhi Bench of the Tribunal in the case of Sony India (P) Ltd. (supra) and having regard to purpose of the expenditure and to the extent expenses were for the benefit of AEs held that the reimbursement received from the AEs are to be treated as part of operating profits of the taxpayer. He accordingly held that exclusion of Rs. 19.17 crores from the operating profits of the taxpayers based on the given facts and circumstances of the case is not justified. The learned Departmental Representative pointed out that issue of marketing and advertisement expenses has been recently decided by the Special Bench of the Tribunal in the case of L.G. Electronics India (P) Ltd. & Ors. us. Asstt. CIT, ITA No. 5190/Delj2011 (asst. yr. 2007-08) vide order dt. 23rd Jan., 2013 [reported at (2013) 152 TTJ (Del)(SB) 273 : (2013) 83 DTR (Del)(SB)(Trib) I-Ed.]. The learned Authorised Representative, on the other hand submitted that the issue raised before the Special Bench in the case of L.G. Electronics India (P) Ltd. & Ors. is different, hence it is not helpful in the present case. He pointed out that the issue of brand promotion in advertisement and sales promotion is fully covered in the assessee's own case for the asst. yr. 1998-99 by the Tribunal which has been reaffirmed by the Tribunal in subsequent order for asst. yrs. 2000-01 and 2001-02'. He submitted that the Hon'ble Delhi High Court has not admitted appeal of the Revenue on this issue for asst. yrs. 2000-01 and 2001-02 vide its order dt. 11th Jan., 2010. The learned Authorised Representative submitted further that the issue is also covered in favour of t11e assessee by the decision of the Tribunal in the case of Nestle India Ltd. (supra) affirmed by the Hon'ble High Court of Delhi and Hon'ble Supreme Court. He submitted that advertisement expenses were incurred only in India and only for the products sold in India. On the issue that advertisement and sales promotion expenses are capital in nature as held by the AO or not, the learned Authorised Representative pointed out that the Revenue has accepted the order of the Tribunal (Delhi) in favour of the assessee for the asst. yrs. 2000-01 and 2001-02 as they did not prefer appeal before the Hon'ble High Court against this order. Cited decisions of the Tribunal in the case of the assessee are referred as under :

(i) Samsung India Electronics Ltd. us. Jt. CIT & Ors. ITA No. 3164/ Delj2000 (asst. yrs. 1996-97 to 1996-99) order dt. 28th Nov., 2008;
(ii) Samsung India Electronics Ltd. us. Dy. CIT & Ors. ITA Nos. 4085/Delj2003 (asst. yrs. 1999-2000) order dt.19th Dec" 2008;
(iii) Samsung India Electronics Ltd. us. Asstt. CIT ITA No. 532/Delj2004 (asst. yr. 2001-02) order dt, 17th April, 2009.

17. We find that in its recent decision dt. 23rd Jan., 2013 the special Bench of the Tribunal in the case of L.G. Electronics India (P) Ltd. & Ors. us. Asstt. CIT (supra) vide para No. 21.6 of the order have held that when there are different unrelated international transactions, the application of TNMM on entity level for examining one of such transactions, is itself an incorrect approach. Notwithstanding that the Special Bench deemed it fit' to deal with the arguments of the learned Authorised Representative that if rate of net profit of the assessee is better than other comparables, then no adjustment can be done under Chapter X in para No. 21.8 of the decision, the Special Bench has held that there is no bar on the power of the TPO in processing the international transactions under the transfer pricing provision when the overall net profit earned by the assessee is greater than others. It has been held that earning overall higher profit rate in comparison to other comparable cases cannot be considered as a licence to the assessee to record other expenses in international transactions without considering the benefit, service or facilities out of such expenses at arm's length. All the transactions are to be separately viewed. The issue before the Special Bench was as to whether on the facts and in circumstances of the case, the AO was justified in making transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee? And secondly as to whether the AO was justified in holding that the assessee should have earned a mark up from the AE in respect of AMP expenses alleged to have been incurred for and on behalf of AE ? In para No. 9.10 the Special Bench has held that there can be no impediment on the power of the assessee to spend as much as he likes on advertisement. The fact that the assessee has spent proportionately more on advertisement can, at best be a cause of doubt for the AO to trigger examination and satisfy himself that no benefit etc. in the shape of brand building has been provided to the foreign AE, There can be no scope for inferring any brand building without there being any advertisement for the brand or logo of the foreign AE either separately or with the products and name of the assessee. The AO/TPO can satisfy himself by verifying if the advertisement expenses are confined to advertising the products to be sold in India along with the assessee's own name. If it is so, the matter ends. The AO will have to allow deduction for the entire AMP expenses whether or not these are proportionately higher, But if it is found that apart from advertising the products and the assessee's name, it has also simultaneously or independently advertised the brand or logo of the foreign AE, then the initial doubt gets converted into the direct inference about some tacit understanding between the assessee and the foreign AE on this score. As in the case of an express agreement, the incurring of AMP expenses for brand building draws strength from such express agreement, in the like manner, the incurring of proportionately more AMP expenses coupled with the advertisement of brand or logo of the foreign AE gives' strength to the inference of some informal or implied agreement in this regard, held the Special Bench. In para No. 9.10 of its decision the Special Bench did not agree with the contention of the learned Departmental Representative that the mere fact of the assessee having spent proportionately higher amount on advertisement in comparison that similarly placed independent entities be considered as conclusive to infer that some part of the advertisement expenses were incurred towards brand formation for the foreign AE. In para No. 9.12 the Special Bench has noted further that what is relevant to consider is as to whether an independent enterprise behaving in a commercially rational manner would incur the expenses to the extent the assessee has incurred. If the answer to this question is affirmative, then the transaction cannot be recharacterized. If, however, the answer is in negative, then the transaction needs to be probed further for determining as to whether its recharacterisation is required. Such recharacterisation can be done with the help of the ratio decidendi of the said judgment itself, being making a comparison with what "independent enterprises behaving in a commercially rational manner" would do tied with the fact of the assessee also simultaneously advertising the brand of its foreign AE. The Special Bench reverting to the context of AMP expenses has observed further that one needs to find out as to how much AMP expenses would an independent enterprise behaving in a commercially rational manner, incur. Once by making such a comparison, the result follows that the Indian AE, prominently displaying brand of its foreign AE in its advertisement has incurred expenses proportionately more than that incurred by independent enterprises behaving in a commercial rational manner then it becomes eminent to recharacterise the transaction of total AMP expenses with a view to separate the transaction of brand building for the foreign AE. The Special Bench has referred United Nations Transfer Pricing Manual which provides for the allocation of such cost between the MNE and its subsidiaries. The Special Bench accordingly held that in that case in the facts and circumstances of that case before it that there was a transaction between the assessee and the foreign AE under which the assessee incurred AMP expenses towards promotion of brand which was legally owned by the foreign entity.

18. The matter was thus set aside to the file of TPO for fresh consideration of the issue as per guidelines set by the Special Bench.

19. We thus find that the Special Bench has come to the conclusion that the advertisement done by the assessee also carrying the brand/logo of its foreign AE coupled with the fact that it spent proportionally higher amount on AMP expenses, gives clear inference of a 'transaction' between the assessee and its AE of building and promoting the foreign brand. In view of this decision of Special Bench when we examine facts of the present case we note that there is no such allegation by the TPO in this case that it had spent proportionately higher amount on AMP expenses to draw an inference of a transaction between the assessee and its AE of building and promoting the foreign brand. The assessee in the relevant previous year had incurred expenditure of Rs. 45,67,50,504 on advertisement and sales promotion. The AO observed that the brand name of 'Samsung' is the registered property of SEC, Korea and it has only permitted the assessee to sell its goods in India and 110 rights whatsoever have been assigned to other persons. The AO on the basis of the aforesaid allegation made ad hoc disallowance of Rs. 4,56,75,050 being 10 per cent of the expenditure on advertisement and sales promotion allegedly relatable to the promotion of 'Samsung' brand in India. The AO made further disallowance of Rs. 4,56,75,050 being 10 per cent of the total expenditure on advertisement and sales promotion holding the same to be capital expenditure resulting in an enduring benefit. We thus find that without alleging that the assessee had spent proportionately higher amount on AMP expenses, the AO presumed that it had spent 10 per cent of expenditure on advertisement and sale promotion allegedly relatable to the promotiorr of 'Samsung' brand in India. As discussed above the decision of Special Bench in the case of LG Electronics India (P) Ltd. (supra) is not relevant in the facts and circumstances of the present case.

20. It is pertinent to note over here that the TPO / AO have equated the .reimbursement of expenses with equity or windfall gain or subsidy or some ad hoc payment whereas the learned CIT(A) has accepted the claim of the assessee on the basis that the assessee had entered into prior agreements for reimbursement of expenses with its AE and the genuineness or bona fide of the agreement was not doubted or disputed at any stage of proceedings by the TPO/AO. The TPO has also accepted in the transfer pricing order that the reimbursement receipt was spent by the assessee to wholly and exclusively for its business operations. In this regard the learned CIT(A) has taken strength from the decision of Delhi Bench of the Tribunal in the case of Sony India (P) Ltd. (supra) holding that the reimbursement should be included as part of operating income of the taxpayer. The learned CIT(A) has accordingly held that exclusion of Rs. 19.17 crores from the operating profit of the taxpayer based on given facts and circumstances of the case is not justified. The TPO has held as to whether an expenditure is operating or non-operating does not depend on the source of its funding, the source of an expenditure may be traced back to equity, debt or windfall gain but the source does not characterise the nature of such expenditure. We thus find that the TPO has discussed the very principle for verification of the nature of the claimed AMP expenses to which there is no dispute. besides the issue raised in ground Nos. 4 and 5 is fully covered by the decision of the Tribunal in favour of. the assessee in its own case for the asst. yrs. 1998-99, 2000-01 and 2001-02 (supra). It has been stated by the learned Authorised Representative that against the order of the Tribunal for the asst. yrs. 2000-01 and 2001-02 on the issue of brand promotion, the Revenue had preferred appeal before the Hon'ble High Court, which has been rejected by order dt. 11th Jan., 2010. He has informed further that the Revenue has not preferred appeal before the Hon'ble High Court against the order of the Tribunal for asst. yrs. 2000-01 and 2001-02 on the issue of expenditure being capital in nature. The relevant para Nos. 4.3 and 12 of the order of the Tribunal for asst. yrs. 2000-01 and 2001-02 are being reproduced hereunder:

"4.3 We have considered the facts of the case and rival submissions. We find that the issue stands covered by the order of the Tribunal in the case of the assessee for asst. yr. 1998-99. Paras 26, 27 and 28 deal with the issue. The issue was decided in favour of the assessee by following the decision in the case of Sasoon.J. David & Co. (P) Ltd. (supra). For the sake of ready reference, these paras are reproduced below:

'26. From the records, we found that assessee in addition to its activities in consumer durables, had its own manufacturing facilities. The expenditure was incurred to promote the brand and to increase its presence in the market so as to sale its entire production. The total expenditure incurred on advertisement and sales promotion was Rs. 29.4 crores. In terms of its agreement with the parent company, the expenditure on advertisement amounting to Rs. 13 crores was reimbursed by the parent company, since part of such expenditure resulted in benefit to them. There is no dispute to the fact the expenditure on advertisement is being laid out for competing in the trade. for promoting its products having direct nexus with the sales of the products in India. We also found that due to incurring of such expenses, the sales of the assessee company had increased substantially as demonstrated below:

27. The genuineness of the expenditure has not been doubted, the reasonableness of the expenditure is to be seen from the point of a businessman as held by Hon'ble Supreme Court in case of CIT us. Walchand & Co. (1967) 65 ITR 381 (SC) and Delhi High Court in case of CIT us. Dalmia Cements (P) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del). However, disallowance under s. 40A(2) can be made on account of expenditure being unreasonable or excessive, in the instant case it is nobody's case that persons to whom payments has been made on account of advertisement expenses, were covered by the provisions of s. 40A(2). Presumption of the AO that by incurring the expenditure,. incidental advantage to the parent company will be obtained which owned Samsung brand. that it alone would not seek to distract from the deductibility of expenditure in the hands of the assessee company. Since the expenditure was incurred by the assessee company wholly and exclusively for the purpose of its business. in view of the decision of Honble Supreme Court in case of Sassoon J. Dauid & Co. (P) Ltd. us. CIT (1979) 10 CTR (SC) 383 : (1979) 118 ITR 261 (SC), the same is to be allowed.

28. In view of above discussion, we do not find any merit in the action of the AO for disallowing the expenditure of advertisement incurred by the assessee company and claimed, revenue expenditure."
"12. Ground No.4 is against allowance of 10 per cent of advertisement expenses, which was disallowed by the AO to the total income by holding that the expenditure was either for non-business purposes or an expenditure of capital nature. It was the admitted position of both the parties that this issue also stands covered in favour of the assessee in ITA No. 532/Del/2004 (supra). Relying on our order in that appeal, this ground is dismissed."

We thus do not find infirmity in the first appellate order on the issue as it is also covered by' the earlier decision of the Tribunal for asst. yrs. 1998-99, 2000-01 and 2001-02 and there is no allegation by the TPO / AO that assessee has spent proportionately high expenditure on promoting the foreign brand to follow the Special Bench decision in the case of L.G. Electronics. The action of learned CIT(A) in this regard is thus upheld;)~= . the result ground Nos. 4 and 5 are rejected.

21. No such dispute like promotiop of brand owned by foreign AE involved in the claimed reimbursement of warranty and service expenses is there. A three year agreement was entered into by the assessee before incurring such expenses and thus the assessee was aware of the reimbursement before it incurred such expenses. Provision of Rs. 68,68,216 was made on account of warranty/after sale service. Like in the case of reimbursement of AMP expenses, the TPO neither disputed the bona .fides of the agreement nor that it was meant for business purposes. He had made addition of Rs. 68,68,216 in this regard on equating it with windfall gain or some ad hoc payment. The learned CIT(A) has deleted the addition on the basis that the reimbursement received from the overseas AEs was under' prior agreement and was directly connected with the corresponding expenditure incurred and the assessee would not have incurred the expenditure but for the initial understanding/mandate from overseas AEs to this effect. The assessee had also made no claim for deduction and no debit to P&L a/ c was made in this year. Under these circumstances, we are of the view that the learned CIT(A) was justified in deleting the addition treating the same as part of operating profit of the taxpayer. The same is upheld. The ground No.3 is thus rejected. -

Ground No. 2
22. During the year the assess see had incurred an expense of Rs.l1.92 crores on account of royalty payable to M/ s Samsung Electronics Company, Korea (SEC) in terms of agreement signed with them. The AO asked the assessee to clarify why whole of the royalty payment should not be disallowed as royalty is ordinarily incurred not for the purpose of business but for procuring a right and inherent ability to do business, and ability to do business by procuring certain rights/assets/know-how information etc. is a capital asset and not a revenue expenditure. The AO was not satisfied with the reply furnished by the assessee to him. The AO was of the view that royalty agreement is meant to be for indefinite period of time. Technical know-how which assists in manufacture of goods is a capital asset under s. 32 (i)(ii) and the assessee can be regarded as the beneficiary owner of the technology help. The AO while relying on the decisions in the cases of Pingle Industries Ltd. vs. CIT (1960) 40 ITR 67 (SC) and K. T.M. T.M. Abdul Kayoom & Anr. VS. CIT (1962) 44 ITR 689 (SC) treated the claimed expenses on royalty as capital expenditure. The learned CIT(A) has however accepted the claimed payment as revenue expenditure, which has been questioned by the Revenue.

23. In support of the ground the learned Departmental Representative has placed reliance on the assessment order. The learned Authorised Representative on the other hand tried to justify the first appellate order in this regard. He also pointed out that the issue raised is fully covered in favour of the assesee by following decisions :

(i) CIT vs. CIBA of India Ltd. (1968) 69 ITR 692 (SC);
(ii) Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) LT7ITR 377 (SC);
(iii) CIT vs. J.K. Synthetics Ltd. (2009) 222 CTR (Del) 339 : (2009) 17 DTR (Del) 134: (2009) 309 ITR 371 (Del);
(iv) Sriram 177 Taxman 87 (Del)(sic).

24. The learned Authorised Representative also referred page Nos. 18 to 38 of the paper book filed on behalf of the assessee where the copy of royalty agreement dt. 12th Sept., 1995 has been made available.

25. Having gone through the orders of the authorities below, material available on record and the decisions relied upon, we find that learned CIT(A) has accepted the claimed royalty payment as revenue in nature on the basis that running royalty payment linked to sale price for technical assistance provided in the course of production is a revenue expenditure incurred for the purpose of business and that in the asst. yrs. 1999­2000, 2000-01 and 2001-02 the first appellate authority has allowed this deduction. It appeared from the orders of the authorities below that right from commencement of commercial production in the asst. yr. 1998-99 the assessee is paying running royalty @ 5 per cent of ex-factory price of production under technology licence agreement with SEC. In the asst. yr. 1998-99 this running royalty was allowed by the AO as revenue expenditure but he has been disallowing the same from the asst. yr. 1999-2000. In the above stated three years the learned CIT(A) has allowed the payment with this observation that royally payment in this case is directly linked to sales on revenue account and is for providing technical assistance in the course of production of 1V after setting up of manufacturing plant in India. Undisputedly the technology was licensed to the assessee by SEC and thus the assessee is not owner of it. From the terms and conditions of the agreement it appears that the agreement can be terminated by giving 6 days notice on which the assessee is required to stop using the technical know-how and was to return the technical information to SEC. As per the agreement the assessee was required to maintain secrecy of the technical information etc. and was not permitted to sub-license, the right under the agreement. The agreement did not vest in the assessee proprietary rights in the technology of SEC. Even during the currency of agreement SEC would continue to remain the owner of the technology and the assessee would at no stage acquire propriety rights therein. The ratio that running royalty payment linked to sale price for technical assistance provided in the course of production is revenue in nature now is an established proposition of law by the above-cited decisions of Hon'ble Supreme Court and Hon'ble High Courts. Taking strength from these decisions the learned CIT(A), in our view, has rightly held that the claimed royalty payment was deductible as revenue expenditure. The same is upheld. Ground No.2 is accordingly rejected.

26. Till now we have already discussed the basis of adjustment made by the TPO Le. credit for reimbursement of advertising, marketing sales promotion and after sales service expenses etc. and now _ we have to discuss the issue of use of current year versus multiple year· data for an economic analysis. The contention of the learned Departmental Representative remained that the learned CIT(A) has adjudicated the issue of current year versus multiple year data which was not raised before him. He was thus not justified in altering the very basis of functional and economic comparability carried out by the TPO. In the process he has destroyed the uniformity and consistency of approach adopted by the TPO while applying current year data to one set of transactions and leaving the other set of transactions with multiple year data. His further contention remained that in the same year of assessment, two different kinds of data cannot be used-multiple year for one transaction and the current year for the other transaction unless one or other set falls in the exception provided in the Rules. The learned Authorised Representative on the other hand tried to justify the first appellate order in this regard. He submitted that the issue is fully covered by the decisions cited below which has been followed by the learned CIT(A) :

(i) Aztec Software & Technology Services Ltd. VS. Asstt. CIT (supra);
(ii) Mentor Graphic (Noida) (P) Ltd. VS. Dy. CIT (supra);
(iii) Honeywell Automation India Ltd. us. Dy. CIT (supra).

27. The learned Authorised Representative submitted further that it is a settled position of law that powers of CIT(A) are not confined to the subject-matter of appeal but extend to subject-matter of assessment. His further submission also remained that learned CIT(A) in deciding to use current year's data had put assessee as well as TPO on notice of his intention of doing so. The TPO did not express any objection on using current year data. It was further submitted that benchmarking of class II transactions using current year data reveals that the assessee's margin of 4.4 per cent is much higher than that of comparal?les (at loss of 5.24 per cent). Even if Procal Electronics were to be excluded, comparables' margin will only increase to 1.63 per cent which will still be less than the margins made by assessee.

28. On having gone through the orders of the lower authorities, we find that both the assessee and TPO have used the PLI of OP /TC for economic 'analysis. The learned CIT(A) noted that almost all of the transactions of the assessee with its AEs are on the cost side, the cost base of the assessee includes controlled transactions with AEs for compapability analysis. Hence the learned CIT(A) was of the view that the PLI to be used • should have its base which should not be controlled. Therefore, for better comparability analysis OP /Sales is to be used as the PLI. While examining the issue of the data to be used for ALP determination, the learned CIT(A) noted that both the assessee and TPO have used past two years' average data. He accordingly asked both the assessee as well as TPO to explain why only current year data should not be used for ALP determination, keeping in view the provisions of r. 10B(4). In response the assessee submitted that it has prepared the transfer pricing documentation for the financial year 2001-02 thereby applying contemporaneous documentation requirements prescribed by r. lOD(4) which requires the documentation should exist latest by the due date of filing the assessee's tax return Le. 31st Oct:, 2002. It was submitted that it is apparent from the transfer pricing report that the assessee's search for uncontrolled comparables relied primarily on an electronic database named Prowess. It was pointed out that most current year's company accounts will not have been entered on the database before the target taxpayer has filed their tax return. It was submitted that OECD Guidelines also acknowledge that there are timing issue in comparability with respect to the documentation concerning the comparability factors and comparable uncontrolled transactions that are used in the comparability analysis. Referring para No.5. 9 of the guidelines provided for tax administration it was submitted that the guidelines to limit the request for documents to those that are likely to contain relevant information based on multiple year data or information about facts that existed at the time the pricing was determined. Rule 10B(4) has also been quoted. It  was Submitted by the assessee that the law provides for the use of the latest available information and use of prior year data unless it can be shown that the years for which the data are available are unlikely to be representative. Further, since transfer pricing policies are often determined based on historical data the same has an influence on the transfer prices of the transactions being compared. Therefore if the issue is of fixation of price during the relevant period the data necessarily has to be that of the prior period and cannot be the one running parallel in time. It was accordingly submitted by the assessee that in the international transactions of the assessee, financial data of comparable companies for the years 2000, 2001 and for 2002 to the maximum extent possible, was used for the purposes of the benchmarking analysis. This was done in order to eliminate to the maximum extent possible any variance in results caused by extraneous factors such as short-term differences in business cycles, product life cycles etc. and/or business strategies of the individual companies.

29. It was submitted before the learned CIT(A) that the results of anyone year may be distorted by differences in economic or market conditions. Further, enterprises may not be uniformly affected by business and product cycles and therefore differences between dealings may reflect differences in circumstances. Therefore a reasonable conclusion as regards to arm's length dealing between controlled parties could ,be obtained by using multiple year data of comparables. It was submitted that use of multiple year data for the purpose of computation of ALP is permitted under the Indian Regulations. Through use of multiple year data of comparables difference due to factors such as business or product cycles can be effectively taken into account and comparability can be reliably determined.

30. It was submitted further that a taxpayer would generally always have regard to the past year's data before actually determining the transfer prices for a particular year. Past year's data would include evaluating the Information on several aspects internal as well as external. It was accordingly submitted that reference of past two years' data for the purpose of comparability analysis [as per proviso to r. 10B(4)] should be an automatic, adequate and sufficient compliance of the provisions of r. IOB(4).

31. Para Nos. 1.49 and 1.50 of OECD, Guidelines were quoted to say that the multiple year data is also useful in providing information about the relevant business and product life cycles of the comparables. It was submitted that difference in business or product life cycle may have material effect on transfer pricing conditions that need to be assessed in determining comparability. It was also submitted before the learned CIT(A) that in view of the contemporaneous documentation requirements in the Rules, lack of information available at· the time of preparing the transfer pricing documentation, flexibility granted by the law and for appropriate determination of transfer pricing Policies, it is prudent to select multiple year data for a true. and fair comparability analysis.

32. It was, however, emphasized by the assessee that benchmarking/ economic analysis is the most significant/focal part of the transfer pricing documentation that a taxpayer is required to maintain as per r. 10D and it is the crux of any transfer pricing analysis. If data for the current year which is now available in the databases, is not used to determine the ALP of international transactions it will render the maintenance of transfer pricing documentation by the taxpayer a redundant and unnecessary exercise which is surely not the intent of the Indian transfer pricing legislation.

33. Referring ss. 92C and 92D r/w r. 10D, the assessee submitted that this provision clearly indicates that documentation including the benchmarking/ economic analysis) is required to be maintained by. a taxpayer to establish and support the arm's length nature of its international transactions. Further transfer pricing documentation is required to be maintained contemporaneously and should exist latest by 31st October of the relevant financial year. This makes It evident that legislature prevents the "determination" of "arm's length" beyond. this date Le. data used in determination of arm's length should be available latest by 31st October and not beyond. Therefore, the use of current year data would be nothing but a hardship to the taxpayer and m contradiction to the intent of the legislature. Reference to CBDT Circular No. 12 of 2001 [(2001) 169 CTR (St) 45] was also made in support of the submission that use of comparable company data for the year ended 31st March, 2002 which is currently available but was not available at the time of determining the ALP/creation of transfer pricing documentation is not the intent of the legislation and is outside the scope of the documentation required to be maintained by they assessee under' s. 92D of the Act r /w r. lOD .. "

34. The reaction of TPO in his remand report dt. 25th Feb., 2009 remained that in his order the TPO has relied on the transfer pricing report submitted by the· assessee for using the data for comparability analysis. It was reported that this was the first year of transfer pricing assessment where the issues had not crystallized. Based on the availability of the data the comparables were selected or the weighted average financial data was used for benchmarkingpurpose.

35. Considering the above reactions of the parties''U1e learned CIT(A) has come to the following conclusion :

"Findings
11.5 The appellant in its comparability analysis had used the financial year data for the period 1999-2000 and 2000-01 to compute OP/TC for the comparables and used the current financial year data of 2001-02 for computing OP/TC for the appellant. The TPO/AO also used the current year data for computing the OP /TC of the appellant and used weighted average of financial years 2000-01 and 2001-02 for computation of OP /TC for comparables. This issue is discussed in the light of the provisions ofr. 10B(4) of the Rules.

11.6 Rule 10B(4) of the Rules specifies the requirement regarding data to be used for analyzing the comparability of an uncontrolled transaction with an international transaction reads as under:

Rule 1 OB(4).- The data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into:

Provided that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared.'

11.7 The use of the word "shall" in the main provision of the Rules makes it abundantly clear that the use of current financial year data (Le. the financial year in which international transaotion was actually entered Into) is a mandatory requirement of law in the comparability analysis under the Indian transfer pricing regulations. The proviso to the said rule makes it an exception in allowing the use of data for the preceding two years, if and only if, it is proved that such data reveals facts, which could have an influence on the determination of transfer price. Therefore, the exception comes into play only when proof of such influence is brought on record.

11.8 Contemporaneous transactions reflect similar economic conditions. Therefore, the use of current financial year data is more relevant and appropriate for ensuring a higher degree of comparability of uncontrolled transactions for arriving at reliable ALP in respect of the international transaction. The importance of contemporary economic and market conditions on price setting mechanisms is also reflected in the provisions of r. 10B(3) of the Rules. The setting up of a price is after all a business decision. In an open market transaction, prices are set by contemporary economic realities of demand, supply, market structure and other relevant factors .

Therefore, ex ante documentation using contemporaneous data used at the time of setting the price is the most appropriate way of supporting the transfer prices between the AEs. However, :the transfer pricing regulations also allow for documentation on the basis of ex post analysis to supplement the ex ante documentation. for justifying the prices already set at the time of the transaction. Nonetheless. ex ante documentation is primary and ex post documentation is supplemenlary in nature.

11.9 The OECD Guidelines in paras 1.49 to 1.51 have acknowledged the . use of multiple year data under special circumstances. Use of multiple year data is . considered useful to smooth out the fluctuations caused by business/economic/product life cycle. However, the mere claim that there exists a cycle is not sufficient. Whenever a claim is put forward regarding existence of a cycle and thereby justifying the use of multiple year data, the taxpayer would be expected to explain why it believes that there is a cycle, what type of cycle it is, duration of a cycle and to what extent the cycle is expected to impact the data to be used.

Thus multiple year data should be used only when it adds ualue to the transfer pricing analysis.

11.10 Under s. 92D(l) of the Act, every person entering into an international transaction, is required to keep and maintain such information and document, in respect thereof, as being prescribed under the Rules. Rule lOD(l) of the Rules, requires maintenance of a record of the analysis performed to evaluate comparability as well as a record of the actual working carried out for determining the ALP. Rule 10D(4) of the Rules, requires that the information and documentations to be maintained under r. 10D(l). should pe contemporaneous as far as possible and should exist latest by the due date of filing of the IT return. The primacy given to ex ante documentation based on contemporaneous data is evident from the provisions in cl. (0 of r. 10D(1) of the Rules. It is to be noted that the requirement of existence of information and documentation by the due date of filing of return, does not override the provisions of r. 10B(4) of the Rules regarding mandatory use of current fmancial year data for conducting comparability analysis.

11.11 The mandatory and absolute requirement of law for use bf the current financial year data cannot be dispensed with even if the relevant data was not available with the appellant in the electronic database at the time of preparation of the transfer pricing report. In any case, the transfer pricing provisions do not mandate the use of data from any particular source. In any ,case, the appellant was not prohibited from procuring the current financial year data from sources other than the electronic database. Non-availability of information in the public database may at best be relevant to explain the discharge of the appellant's obligation of maintaining the prescribed documentation under s. 92D(l) of the Act r/w r. 10D of the Rules.

11.12 The TPO is empowered to determine the ALP by using the current financial year data available at the lime of transfer pricing proceedings and to conduct the comparability analysis by using such data if the situation so demands. As it is mandatory and absolute requirement of law to use the current financial year data, the TPO not only has the power but is also duty-bound to determine ALP by using the current firlancial year data in the comparability analysis, even if such data was not available to the appellant in the public database at the time of preparation of the transfer pricing report.

The observations made by the Hon'ble Supreme Court in the case of CIT vs.BritishPaints IndiaLtd (1991) 91 CTR (SC) 108: (1991) 188 ITR 44 (SC) that it is not only the right but the duty of the AO, to act in exercise of his statutory power, for determining, what in his opinion, is the correct taxable income, are relevant under the current factual situation as well.

I 1. 13 The appellant has not brought on record any cogent, relevant and reliable evidence to prove that the data for preceding two years revealed facts, which could have an influence on the determination of ALP. The existence of any product/economic/business cycle affecting the performance of the appellant and those of the comparables has not been documented for by the appellant.',

11.14 The issue relating to use of current year data is well-settled now in view of the decision of Bangalore Tribunal in the case of Aztec Software & Technology Services Ltd. and reaffirmed in the case of Mentor Graphic (Noida) (P) Ltd. Even in the recent order dt. lOth Feb., 2009 in the case of Honeywell Automation India Ltd. us. Dy. CIT 2009-TIOL-104-ITAT-Pune has also reaffirmed this issue. Therefore" I hold that unless specific reasons are brought on record, the comparability analysis is to be conducted on the basis of current year data.

11.15 In view of the foregoing discussions, ex post analysis carried out by the appellant for justifying its transfer prices relying on prior year data is not acceptable. Therefore, I am of the considered view in the light of discussions in the preceding sub-paras that both the appellant and the TPO committed errors in relying on prior years' data for computation of OP /TC of the comparable companies. The relevant data be used for determination of ALP is the current financial year of 2001-02."

36. We find that the above finding of the learned CIT(A) on the issue of "use of current year versus multiple year data" for computation of OP /TC of comparable companies for the purpose of determination of ALP is based on the above cited decisions of Special Bench of the Tribunal (Bangalore) in the case of Aztec Software & Technology Services Ltd. us. CIT (supra). of Delhi Bench of the Tribunal in the case of Mentor Graphis (Noida) (P) Ltd. us. Dy. CIT (supra) and of Pune Bench of the Tribunal in the case of Honeywell Automation India Ltd. us. Dy. CIT (supra) after considering the submissions of the assessee and the TPO. The learned CIT(A) in our view has rightly come to the conclusion that both the assessee and TPO have committed errors in relying on prior years' data for computation of OP /TC of the comparable companies and that the relevant data be used for determination of ALP is the data of current financial year of 2001-02. As discussed the assessee in its comparability analysis had used the financial year data for the period 1999-2000 and 2000-01 to compute OP /TC for the comparable and used the current financial year data of 2001-02 for computing OP /TC of the assessee and used weighted average of financial years 2000-01 and 2001-02 for computation of OP /TC for comparables. The learned CIT(A) after inviting comments of both the· parties and discussing the provisions laid down in· rr. 10B(4). 100(4), OECD Guidelines in para Nos. 1.49 to 1.51. ss. 920(1) of the IT Act as well as aforecited decisions of Aztec Software & Technology Services Ltd. (supra), Mentor Graphic (P) Ltd. (supra) and Honeywell Automation India Ltd. (supra) has held that unless specific reasons are brought on record, the comparability analysis is to be conducted on the basis of current year data. He has held that ex post analysis carried out by the assesee for justifying its transfer prices relying on prior year data is not acceptable and that both the parties I.e. assessee and TPO have committed errors in relying on prior years' data for computation of OP /TC of the comparable companies. In conclusion he held that relevant data be used for determination of ALP is the current financial year of 2001-02. The action of the learned CIT(A) can be appreciated in view of the decision of Hon'ble Supreme Court in the case of CIT us. British Paints India Ltd (1991) 91 CTR (SC) 108 wherein the Hon'ble Court has been pleased to hold that it is not only the right but the duty of the AO. to act' in exercise of his statutory power, for determining what in his opinion, is the correct taxable income. There is no dispute that the first appellate authority has got co-terminus power with that of the AO to achieve the just assessment, the very and ultimate object of the IT Act, 1961. He thus do not find substance on the issue raised in ground Nos. I, 1.1 and 1.2 of the appeal. The same are thus ,rejected.

37. The next basis of adjustment made by the TPO remained the comparable company analysis. The TPO rejected Kirloskar Airtech Ltd. (KAL) as a comparable' for the assessee under Class I, giving reasons such as operating loss, negative net worth, meager turnover and expenditure. limited production and market share, possible expenses of related party transactions and that the company ceased to exist after the year 2000-01. After rejecting KAL, the TPO computed the arithmetic mean OP/TC of the remaining seven comparable companies at 7.25 per cent (using average data of preceding two years). On the basis of the above a transfer pricing adjustment of Rs. 24,03,22,940 was made to account for the difference between assessee's OP j'fC (3.43 per cent) and the mean arm's length OP/TC (7.25 per cent) computed by the TPO. The. AO upheld the adjustment made by the TPO in his order. In making the adjustment, the 5 per cent range, as per proviso to s. 92C(2) was not allowed to the assessee by both the TPO and the AO. Against the action of the TPO in rejecting KAL, the contention of the assessee remained that KAL as a manufacturer of air conditioners which constituted 94 per cent of its turnover during 2000-01. Its products after sale services are very well appreciated of its customers. Given the' extent of functional/asset/product comparables required under the TNMM. KAL is a valid comparable for the assessee. It was contended by the assessee that rejection of KAL on ground of being a loss-making company is erroneous and unjustfied. Placing reliance on the decision of the Tribunal In the case of Sony India (P) Ltd. us. Dy. CIT (supra), The learned CIT(A) has lreld that selection of Videocon International Ltd. by the TPO should be rejected for the reason that the Videocon International is one of the largest Indian manufacturers of glass shells funnels (all key components) used in manufacture of color television. Videocon enjoys considerable cost benefits due to backward integr.ation and. indigenous manufacturing of components as reflected in the company's relevant annual report with the captive manufacturing of C1V shells the company enjoys cost advantage vis-a-vis the competitiors. It was also noted. that the total turnover of Videocon International during 2001-02 was Rs. 4.970 crores as against the assesee's turnover of about Rs. 648 crores (under class I). The learned CIT(A) held that Carrier Aircon, Hitaxhi. Life Solutions and Whirlpool of India are valid comparables and should be included for ALP determination. He also observed that these companies manufacture consumer electronics and home appliance similar to assessee and percentage of related party transactions of these companies is less than 10-15 per cent of their respective total revenues which is acceptable as per the decision of Tribunal in the case of Sony India (P) Ltd. us. Dy. CIT (supra). We find that the first appellate order in this regard is reasoned one and there is no reason to interfere therewith. The same is upheld.

Determination of ALP
In view of adoption of use of current year data and taking reimbursement of expenses as part of operating profit, the OP/sales calculation of the assessee has ultimately been arrived by the learned CIT(A) as under :

12.2 Using current year data of comparables, the mean OP /Sales of the comparables used by the TPO in the transfer pricing order is as follows :

12.3 The mean OP/Sales of comparable companies as above is 0.83 per cent the appellant earned an OP /Sales of 5.09 per cent in class I during FY 2001-02. Even if we analyse the above results after excluding the high loss making company viz. Polar Industries, the mean OP /Sales of comparables works out to 0.84 per cent. Even in such a scenario the OP /Sales of 5.09 per cent earned by the appellant falls within the 5 per cent range allowed by proviso to s. 92C(2). Accordingly, I hold that the appellant's international transaction with AEs during the year meet the arm's length test."

38. We find that the first appellate order on the issues is comprehensive and reasoned one, It is based on the relevant provisions of law and the decisions relied upon. So far as the issue of variation of 5 per cent is concerned it is allowable under proviso to s. 92C(2) of the Act and is well covered in favour of the assessee by the decision of the Tribunal in the case of Sony India (P) Ltd. us. Dy. CIT (supra). The TPO held the expenses amounting to Rs. 19.17 crores reimbursement by the AES as operating expenses. However he did not consider the reiplbursement of Rs. 19.17 crores received from AEs as operational income of the assessee. The TPO thus recomputed the OP/TC of the assessee in class I at 3.43 per cent. After rejecting KAL the TPO computed the airthmatic mean OP /TC of the remaining 7 comparable companies at 7.25 per cent (using average data of preceding two years). A transfer pricing adjustment of Rs. 24,03,22,940 was made by the TPO to account for the difference between assessee's OP/TC (3.43 per cent) and the mean arm's length OP/TC (7.~5 per cent). In making the adjustment, 5 per cent range, as per proviso to s. 92C(2) was not allowed to the assessee by both the TPO and the AO.

The learned CIT(A) has deleted the entire transfer pricing adjustment made by the AO /TPO giving his finding on reimbursement of certain expenses, use of current year data, comparable companies etc. which we have discussed in detail hereinabove and we did not find reason to interfere with the first appellate order on any of the issues related to determination of ALP in the present case.

Grounds Nos. 1, 1.1, 1.2, 3, 4 and 5 are accordingly rejected.

Ground No.6
39. During the year assessee had incurred expenses aggregating to Rs. 40,41,697 on purchase of various computer software as shown in para No. 12.1 of the assessment order. In response to 'query raised by the AO in this regard, it was submitted by the assessee that the expenditure did not result in an enduring benefit in capital field and therefore is riot in the nature of capital expenditure. Relying on the decision in the case of CIT us. Arauali Construction Co. (P) Ltd. (2002) 177 CTR (Rqj) 79 : (2003) 259 ITR 30 (Raj) and others the AO held it to be an asset and after allowing 25 per cent depreciation he made a net addition of Rs. 35,36,485. Being satisfied with the submission of the assessee the learned CIT(A) has deleted the addition.

40. In support of the grounds the learned Departmental Representative has placed reliance on the assessment order. The learned Authorised Representative on the other hand tried to justify the first appellate order on the issue.

41. Having gone through the orders of the authority below we find that the details of the software under consideration furnished are as follows :

42. The assessee claimed that it is merely a licence user of these packaged software for a limited period of time and these products are not owned by it. Owing to frequent technical advancement in the field of IT, these licences are replaced in a short period of time by more advanced versions products hence have very short utility shelf life. It was thus argued that the expenditure did not result in acquisition of capital asset of enduring benefit of capital nature. In the above cited decisions by the Hon'ble Delhi High Court in the case of CIT us. GE Capital Services Ltd. (supra) and the Special Bench of the Tribunal in the case of Amway India Enterprises us. Dy. CIT (supra) it has been held that such computer software does not have utility for long duration and hence do not result in enduring benefit. It has been held that such software does not constitute a profit-earning and merely enable the assessee to efficiently conduct its business. Following the ratio of the decisions on the issue we are of the view that learned CIT(A) has rightly accepted the claimed expenditure as revenue in nature. The same is upheld. Ground No. 6 is accordingly rejected.

Ground No. 7
During the year the assessee had taken certain inter corporate deposits from its associate concern M/ s Samsung Electronics India Information & Telecommunications Ltd. (SEIITL). Invoking the provisions of s. 2(22)(e) of the Act, the AO made an addition of Rs. 4,40,92,460. Being satisfied with the submission of the assessee the learned CIT(A) has deleted the addition.

43. The learned Departmental Representative has relied on the assessment order in this regard. The learned Authorised Representative on the other hand referred the contents of the first appellate order and with this submission that the issue raised is fully covered in favour of the assessee by the decisions in the cases of Asstt. CIT us. Bhawmik Color (P) Ltd. (supra) and CIT us. Hotel Hilltop (supra). He submitted further that provisions of s. 2(22)(e) of the Act are not app'licable in the present case as assessee is not a shareholder of SEIIT Le. lending company. A lender is to be treated as company in which it is substantially interested, being 100 per cent a subsidiary of SEC Korea which is listed at Korean Stock Exchange. He also placed reliance on the decision of Pune Bench of the Tribunal in the case of Daimler Chrysler India (P) Ltd. (supra).

44. Having gone through the orders of the authorities below and the decisions relied upon we find that in the case of Bhaumik Color (P) Ltd. (supra) it has been held that deemed dividend under s. 2(22)(e) of the Act can be assessed only in the hands of the shareholder of the lender company and not in the hands of a person other than a shareholder. The contention of the assessee before the authorities below in this regard has not been rebutted that the depositor of intere corporate deposits Le. SEIIT is not a limited company since it is a subsidiary company of SEC, South Korea which is a widely-held quoted company listed at recognised stock exchange in Korea. It was submitted that by virtue of art. 25(4) of the India Korea Treaty titled 'non-discrimination' it should be treated as widely-held company under s. 2(18) of the Act. The Pune Bench of the Tribunal in the case of Daimler Chrysler India (P) Ltd. us. Dy. CIT (supra) in which the Indian company being a subsidiary of a German listed company was held to be a widely held company under s. 2(18) has also decided the issue in favour of the assessee. Under these circumstances we are of the view the learned CIT(A) has rightly held that receipt of money from SEIIT cannot be taxed in the hands of the assessee under s. 2 (22)(e) of the Act, as the assessee is not a shareholder of SEIIT and it will be violation of art. 25(4) of Korean Treaty if assessee is treated as a non-so 2(18) company. Thus the learned CIT(A) was justified in holding that the payment of sum paid by SEIIT to the assessee does not fall within the ambit of provisions of s. 2 (22)(e) of the Act. His action in deleting the addition made in this regard is upheld. The ground No. 7 is accordingly rejected.

Ground No.8
45. During the year the assessee had incurred an expense of Rs. 14,88,892 on recruitment and training of employees. Being not satisfied with the explanation of the assessee, the AO held that these expenses provide benefit of enduring nature. Hence the same should be amortized. He allowed only 1/6th of the expenditure in the year. In the result addition of Rs. 12,40,743 was made. The learned CIT(A) has deleted the addition.

46. In support of the ground learned Departmental Representative has placed reliance. on the assessment order. The learned Authorised Representative has reiterated the submissions made before the authorities below with this further submission that the issue raised is ,-,vered in favour of the assessee by the order of the Tribunal in the case of assessee itself for the asst. yrs. 1998-99, 1999-2000 and 2000-01. He pointed out further that the Hon'ble jurisdictional High Court of Delhi vide its order dt. 11th Jan., 2000 has been pleased to dismiss the appeal of the Revenue preferred against the order of the Tribunal for the asst. yr. 2001-02.

47. Having gone through the orders of the authorities below we find that Delhi Bench of the Tribunal in the case of assessee itself for the asst. yr. 1998-99 in ITA No. 3360/Del/2002 has decided the issue in favour of the assessee on the similar expenses incurred on training of employees as allowable deduction in full. Following the same the first appellate authority in the asst. yrs. 1999-2000 to 2001-02 has decided the issue in favour of the assessee.' The same action of the learned CIT(A) in those assessment years has also been approved by the Tribunal. It has been informed by the learned Authorised Representative that in the asst. yr. 2001-02 the Revenue had preferred appeal against the order of the Tribunal on the issue before the Hon'ble Delhi High Court which has been dismissed vide its order dt. 11th Jan., 2010. In view of these facts and circumstances we are of the view that the learned CIT(A) following the order of the Tribunal in this regard has rightly accepted the contention of the assessee that there is no enduring benefit in incurring expenditure on recruitment and training of employees. It is an ongoing expenses, fully deductible in the year of jncurring such expenditure. The action of the first appellate authority in this regard is upheld. Ground No. 8 is accordingly rejected. Consequently appeal is dismissed.