The order of the Bench was delivered by
GEORGE GEORGE K. (Judicial Member).-This appeal of the assesseecompany is directed against the order of the Assessing Officer under section 143(3) read with section 92CA read with section 254 of the Act dated January 11, 2013. The Assessing Officer incorporated in the assessment order the revised adjustment made by the Transfer Pricing Officer under section 92CA read with section 254 of the Act. The Transfer Pricing Officer's order under section 92C read with section 254 of the Act dated November 7, 2012 is an order giving effect to the Tribunal's order in the assessee's case in ITA No. 1235/B/2010 dated September 26, 2011 (since reported in Tally Solutions P. Ltd. v. Deputy CIT [2012] 13 TIR (Trib) 245 (Bang». The relevant assessment year is 2006-07.
To a query from the Bench as to the maintainability of this appeal before us, both the learned authorised representative and the learned Departmental representative relied on the judgment of the hon'ble Punjab and Haryana High Court in the case of Paras Rice Mills v. CIT [2009] 18 DTR (P&H) 149 dated September 16, 2008 and submitted that as per the ratio laid down by the hon'ble High Court (supra), this appeal lies before the Tribunal.
We have, with due regards, perused the ruling of the hon'ble court (supra) wherein the hon'ble court had categorically ruled that :
"6 .... We are of the opinion that the reasoning of the learned Tribunal that since the Assessing Officer had merely given effect to the order of the Tribunal, an appeal against the said order would lie only before the Tribunal and not before the Commissioner of Income-tax (Appeals) is correct."
In view of the judgment of the hon'ble Punjab and Haryana High Court (supra) and the submissions of both parties, we proceed to dispose of the appeal on merits.
The assessee has raised seven grounds in its memorandum of appeal.
The relevant issues agitated by the assessee are listed out as below : (1) The lower authorities have erred in-
(a) adopting flawed methodology in computing the value of the intellectual property ;
(b) adopting a method of valuation different from that followed in the original order while computing future cash flows ;
(c) estimating future expenses by introducing a new concept called "CAGR of cost" without appreciating that this concept was not used in the original order and thereby exceeding jurisdiction ;
(d) reducing the marketing expenses from the operating cost while determining the "CAGR of cost" and thereby artificially increasing the estimated cash flows ;
(e) with prejudice, inappropriately computing the "CAGR of cost" by considering cost of only 10 months for the financial year 2005-06 whereas as considering revenue of 12 months for the financial year 2005-06 while computing "CAGR of revenue" ;
(f) passing an order deviating from the method adopted for valuation of intellectual property rights in the original order approved by the Dispute Resolution Panel and the Tribunal ;
(g) passing an order under section 143(3) read with section 92CA read with section 254 of the Act without giving an opportunity to the assessee to appeal before the Dispute Resolution Panel;
(h) passing an order ignoring the fact as per section 144C(10) of the Act, the directions of the Dispute Resolution Panel are binding on the Assessing Officer and, therefore, there could not have any deviation while giving effect to the order of the Tribunal beyond its directions ;
(i) not reducing the sale return of Rs. 111.04 crores from the turnover of the financial year 2004-05 while calculating estimated cost of improvement, estimated return on fixed assets, estimated return on working capital and estimated return on human capital; and
Q) inappropriately computing the return on working capital by not including the inter-corporate deposits and dues receivable from subsidiary company in current assets;
(2) levying of interest under section 234B, section 234D and section 220(2) of the Act.
6 The levy of interest under section 234D, under section 234B and section 220(2) of the Act are concerned, the charging of interest is mandatory and consequential in nature. Hence, the grounds relating to levy of interest under sections 234B, 234D and 220(2) are dismissed.
7 We shall now proceed to address to the grievances of the assessee in the following paragraphs.
8 Briefly stated, the sequence of events which took place in the intervening period is as under :
9 Aggrieved by the stand of the Assessing Officer in his initial order under section 143(3) read with section 144C of.the Act dated October 20,2010 in making an adjustment of Rs. 222.13 crores (Rs. 260.63 crores-arm's length price oiRs. 38.5 crores) on the basis of the directions of the Dispute Resolution Panel dated September 30, 2010 in respect of sale of intellectual property rights to the assessee's associated enterprise at Dubai, the assessee-company had approached the earlier Bench of this Tnbunal for relief. After due consideration ofthe rival submissions and for the elaborate reasons recorded in its findings, the earlier Bench in its order dated September 26, 2011 (since reported in Tally Solutions P. Ltd. v. Deputy CIT [2012] 13 ITR (Trib) 245 (Bang» had directed the Transfer Pricing Officer to recalculate the arm's length price, keeping in view, the specific directions containedin its findings. '
10 The Transfer Pricing Officer had vide her order under section 92A read with section 254" of the Act dated November 7, 2012, worked out the revised adjustient, ,consE7q¥ert to the directions of the earlier Bench, at Rs.167.57,38;965 for the reasorts recorded in the said order. Based on the Transfer Pricing Officeis conclusion of ,the revised adjustment under section 92CA of the, Act,' the Assessing Officer, in his order under section 143(3) read with section 92GA read with section 254 of the Act dated January 11, 2013,tevisM the assessee's total income at Rs. 167.87 crores as against the assessed income ofRs. 222.43 crores as per the original assessment order dated October 20, 2010.
11 Aggrieved with the stand of the Assessing Officer, the assessee-company has come up before us with its present appeal.
12 During the course of hearing, the submissions made by the learned authorised representative are, summarised as under :
-that in pursuance of the directions of the earlier Bench, the assessee was called upon by the Transfer Pricing Officer's letter dated October 1, 2012 to furnish objection(s), if any, to the proposed'draft assessment order;
-that disregarding the assessee's strong objections/contentions, the Transfer Pricing Officer had passed the impugned order giving effect to the Tribunal's order;
-that the comparison between the directions of the earlier Bench and the order of the Transfer Pricing Officer are listed out as under :
| Step No. |
Description |
(Rs. in crores) |
Remarks |
Value as per TPO |
Value as per Tribunal's decision |
Difference |
2 |
Estimation of future cash flows |
615.76 |
707.77 |
(85.01) |
(i) A new method has been followed in the order;
(ii) A new concept called "CAGR of cost" has been introduced to estimate future expenses;
(iii) Marketing expenses which constitute a significant portion of total expenses have been ignored in computing "CAGR of cost" thereby artifidal1y increasing estimated cash flows;
(iv) while calculating CAGR of cost, the cost of FY 2005-06 is considered only for 10 months without appredating that. for other years cost of 12 months. On a parity of reasotling, for financial year 200506, cost of 12 months should be taken; and
(v) For making changes as above, the TPO has placed reliance on exposure draft issued by International Valuation Standards Council placed in public domain in January 2009' for inviting public comments on valuation of intangible assets and not finqlised guidelines issued subsequently in 2010. |
4. |
Estimating cost of improvement |
20.13 |
09.52 |
10.61 |
Sales return of Rs. 111.04 crares has not been reduced from the turnover of financial year 2004-05 for the reason that the TPO was of the view that the ITAT directed to reduce sales return only while calculating CAGR and debtors without appreciating that ITAT had clearly held that these sales did not materialise and should be reduced from sales and thus, the spirit of the ITAT's decision is disregarded. |
5 |
Estimation
of
discounted
cash flow |
297.96 |
(127.82) |
425.78 |
Cumulative effect of mistakes committed in step Nos. 2 and 4. |
6 |
Estimation of
return
on
capital
fixed
assets |
27.25 |
72.13 |
(44.88) |
(i) original method has been abandoned; and
(ii) sales return of Rs.111.04 crores
has not been reduced from the
turnover of financial year 2004-05
for the reasons stated in 4 above. |
7 |
Estimation
of
return
on
working
capital |
59.58 |
250.50 |
(190.92) |
(i) sales return of Rs. 111.04 crores has not been reduced from the turnover of financial year 2004-05 for the reasons stated in 4 above ;
and
(ii) Inter-corporate deposits and dues receivable from subsidiary company have not
been included in current assets despite the direction of ITAT |
8 |
Estimation of return on
capital |
05.06 |
06.88 |
(1.83) |
(i) sales return of Rs. 111.04 crores has not been reduced from the turnover of financial year 2004-05 for the reasons stated in 4 above. |
-that the above chart would reveal the following :
(a) the. sale consideration received by the assessee on the transfer of intellectual property rights was Rs. 38.5 aares ;
(b) the final assessment order of the Transfer Pricing Officer dated September 23, 2010, pursuant to the directions of the Dispute Resolution Panel enhanced the value of intellectual property rights to Rs. 260.64 aares ;
(c) the direction of the Income-tax Appellate Tribunal, if implemented, would result in a value which is far less than the consideration actually received by the assessee ;
(d) that the present order of the Transfer Pricing Officer has enhanced the value of Rs. 38.5 crores to Rs. 206.08 crores ; and that this enhancement was because of failure to give deductions of the sales return of Rs. 111.04 crores at every step, abandoning the methodology originally resorted to and upheld by the Tribunal and resorting to an entirely a new methodology, introducing a new concept called "CAGR of cost" unilaterally excluding marketing expenses, thus artificially increasing the estimated cash flows, exclusion of inter-corporate deposits and dues receivable from subsidiary companies from the current assets, etc.
In conclusion, it was argued that based on the conclusion arrived at by the Transfer Pricing Officer in her order under section 92CA read with section 254 of the Act (supra), the Assessing Officer had revised the assessee's total income at Rs. 167.87 crores which is, according to the learned authorised representative, at variance for the above reasons. In a nutshell, the essence of the argument of the learned authorised representative was that the Transfer Pricing Officer/Assessing Officer be directed to follow the directions given by the earlier Bench of this Tribunal in its order dated September 26, 2011 (since reported in Tally Solutions P. Ltd. v. Deputy CIT [2012] 13 ITR (Trib) 245 (Bang» with letter and spirit.
On the other hand, the submissions of the learned Departmental representative are summed up as under :
-that in financial year 2005-06 relevant for the assessment year 2006-07 up to January 31, 2006 only M/s. Tally Solution Pvt. Ltd. (TSPL) was the prominent company which developed tally, accounting software, legally owned the brand name "tally" and the logo did marketing itself and incurred lot of expenditure on marketing, traded the business of sale of licenses for the right of its software produces. All these functions TSPL performed under various divisions working under it. However, on January 31, 2006, TSPL carried out restructuring and following restructuring, there was change in function performed, assets owned and risks assumed by TSPL. On January 31, 2006, TSPL transferred the legal ownership in intellectual property rights including patent copyrights and trademarks to Tally Dubai. Likewise TSPL transferred the sales and marketing functions to TIPL (Tally India Pvt. Limited). TSPL accordingly retained only the software development function which it carried out in respect to intellectual property rights legally owned after restructuring on January 31, 2006 by Tally Dubai. Thus, after restructuring-
(i) TIPL purchased licenses from Tally Dubai and sold them to customer. TIPL also did marketing to promote its sale of Tally licenses for customers;
(ii) TSPL only provided software services to Tally Dubai and other functions were performed either by Tally Dubai or TIPL ;
(iii) Tally Dubai legally owned the intellectual property rights which are purchased from TSPL. It sold software licenses to TIPL ;
-that when restructuring took place, TSPL transferred intellectual property rights to Tally Dubai. TSPL also transferred "marketing division" to TIPL. Therefore, while making projection of future cash flows on the basis of historical data in the case of TSPL, we cannot make projections making necessary adjustment in this regard. Adjustment is required due to very important event that took place on January 30, 2006 that has its bearing on future cash flow. This event is transfer of marketing division by TSPL to TIPL. Due to this transfer on January 30, 2006, in projected cash flows, there should be no expenditure on account of marketing which was existing up to January 30, 2006, when marketing was the division of TSPL and marketing expenditure was appearing as part of costs in historical data. Therefore, the Transfer Pricing Officer on page 8 of the transfer pricing draft order dated September 7, 2012 has written that since the marketing division has been transferred to TIPL, in projection of future cash flows marketing division has not been taken into consideration as it has been transferred to TIPL and this expenditure does not exist on the date of valuation. The reading of the relevant paragraphs of the order would make it clear that once marketing division is out on its transfer to TIPL, projected cash flow would increase as compared to historical cash flow. In this process, directions of the Tribunal have been followed properly and also there is no violation and it has been mentioned in the order on page 9 that excess earnings method (EEM) has been applied by the Transfer Pricing Officer on the basis of guidance Note issued by the International Valuation Standards Board. In para 4.37 of the guidance Note, it is given that the forecast cash flows one reflected in projection only to the extent that it is expected to arise from the assets in existence at the valuations date. On January 31, 2006 TSPL transferred intangible properties to TSFP (Tally Dubai) and its marketing division to TIPL. Therefore, in assessment year 2007-08 to assessment year 2012-13, while making projection of net cash flow, expenditure on account of sales and marketing has not been taken into consideration while calculating the net cash flow as the' marketing division has been transferred with effect from January 31, 2006 to TIPL and it is not existing on the date of valuation ;
-that what have been transferred by TSPL to TIPL were the intellectual property rights. The intellectual property rights had acquired potential due to marketing efforts of TSPL up to January 31, 2006. Due to acquired potential, intellectual property rights would ensure super profit to the purchases. That is why potential of intellectual property rights to earn super profit has been assumed for five years in absence of marketing efforts. Marketing efforts will increase the sustainability of intellectual property rights to earned super profit for a longer period. Therefore, for the purpose of projected total net cash flow expenditure of demerged marketing division will neither be existing for the purpose of projected total net cash flow nor for calculating excess earning of cash due to use of intellectual property rights for the purpose of calculating net present value of these intellectual property rights. If the Transfer Pricing Officer in the absence of marketing division after January 31, 2006 still considers the expenditure related to marketing division in calculation of projected cash flow, it will be artificially suppressing the net cash flow generated by various assets including the intellectual property rights at first stage and net cash flow generated by intellectual property rights calculated by deducting cash flow due to other assets at second stage ;
-that the Transfer Pricing Officer had followed all the directions given by the honourable Tribunal and had not overstepped in any manner as alleged by the assessee while giving effect to the order of the hon'ble Tribunal ;
-that the allegation of the assessee that the Transfer Pricing Officer had adopted other method in her order dated November 7, 2012 byabandoning the method adopted in the original order is total wrong. The Transfer Pricing Officer had made GAGR of revenues and CAGR of costs and difference of two represents compounded annual, growth of net cash flow. This is not a new concept. Separate consideration of GAGR ofrevenue and cost had become necessary to' give effect to the' directions of the Tribunal. Marketing expenses have not been jgnored. As discussed in detail, marketing expenses did not exist after January 31, 2006 as marketing division had been demerged and transferred by TSPLto TIPL. The Transfer Pricing Officer has not considered marketing expenditure after January 31,2006 as they do not exist and not simply due to reliance placed on' draft guidelines issued by ISC ;
-that with regard to the assessee's objection for exclusion of intercorporate loan from current assets while calculating contribution of networking capital in cash flow, it was the case ofthe Revenue that though working capital contributes to the growth of business and contributes in cash flow, but, infer-'corporate loan to related party as they do not contribute to grow of business and cash flow of the assessee; and that using excess earning method, the Transfer Pricing Officer had reduced the contribution made by different asset:; owned by the assessee in overall cash flow and find out the residual cash flow attributed to intellectual property rights. It was the opinion of the Revenue that the inter-corporate loans do not fall in this category and, hence, excluded.
15 We have carefully considered the rival submissions, perused the specific directions of the earlier Bench in its findings dated September 26, 2011 (since reported in Tally Solutions P. Ltd. v. Deputy CIT [2012] 13 ITR (Trib) 245 (Bang)) which are the bone of contentions of the assessee that the Transfer Pricing Officer/Assessing Officer have not implemented the same with letter and spirit in their orders while giving effect to the Tribunal's earlier order, etc.
16 For appreciation of facts and for ready reference, we shall reproduce hereunder the relevant portions of the directions of the earlier Bench to the Transfer Pricing Officer to recalculate the arm's length price (page 287 of 13 ITR (Trib) :
"I. Method of valuation of arm's length price:
(i) considering the nature of transaction and in the absence of uncontrolled independent comparable companies, we are of the considered view that the excess earnings method (EEM) adopted by the Transfer Pricing Officer in the present circumstance is reasonable and, therefore, he is directed to adopt the same excess earnings method while recalculating the arm's length price;
(ii) The reason for adopting excess earnings method that it is only an internal comparable uncontrolled price method, wherein, it is seen what is the price for which the same product would have been sold by the assessee to an independent entity. This price also reflects the price at which the assessee would have sold in an uncontrolled condition, but, as there were no comparable prices available in the public domain for sale of intellectual property rights produce similar to that of the assessee, this excess earnings method is used to determine the price that would have been arrived at, if the assessee sold the intellectual property rights to an independent entity.
While calculating the arm's length price under excess earnings method, the Transfer Pricing Officer is directed to adhere the following steps, namely :
II. Estimating future turnover based on the past performance :
(i) With reference to the actual operating revenue from the assessment years 1999-2000 to 2006-07, the sale return of Rs. 111.04 crores for the assessment year 2005-06 has to be reduced from the operating revenue and only the net has to be taken as this is the correct accounting standard to be followed for arriving at compounded annual growth rate. As can be seen from the records, the revenue for the assessment year 2005-06 looks abnormal compared to other assessment years and there was also revenue to the extent of Rs.111.04 crores which did not materialise due to distributors being not able to sell the stocks which was forced on them in a greater quantity with an anticipation of good revenues due to introduction of value added tax. In the same callwation, the revenue for the year 2006-07 has to be adc;pted. As the date of valuation of intellectual property rights was on January 31, 2006 the actual revenues up to January, 2006 has to be taken and the next two months will have to be projected based on the performance of the previous ten months. As the assessee had sold only intellectual property rights and the calculation of revenues are from Tally licenses which were sold to thiFd parties, the sale of intellectual property rights to a related party transaction has no relevance for this sale of Tally license. Hence, the current year data, i.e., assessment year 2006-07 has to be included as they relate to third party transactions and the projections have to be made for the future years based on the revenues of assessment year 2006-07 which is also in accordance with the provisions of rule 10B(iv) which mandate the use of current year data. The projection has to be made for next six years which has rightly been adopted by the Transfer Pricing Officer. Further, the assessee's contention to adopt the actual revenues for the future years which are available now cannot be accepted now for a simple reason that the arm's length ?rice was calculated on the date of sale which was in January, 2006 Itself and also under excess earnings method future revenues will be projected based on the previous year data keeping the current year's data as the base which has got no relevance on the actual revenues during the future years. We also make it clear that the actual compounded annual growth rate shall be adopted by the Transfer Pricing Officer without any discount.
(ii) Estimation of future cash flows: We are in agreement with the method adopted by the Transfer Pricing Officer in estimating the cash flows except that the revenues for the assessment year 2006-07 has to be considered and is to be taken as the base year for future projection of revenue for the reasons recorded (supra) (para (i))
(iii) Estimation of discounted future cash flows : We are in total agreement with the Transfer Pricing Officer in estimating the discounted future cash flows except in calculation of BETA where the Transfer Pricing Officer, even after having considered three companies as comparable to the assessee's segment of distribution of products, had wrongly took only one company's BETA which, in our considered view, was not reasonable. Therefore, an average of three companies' BETA has to be taken for calculation.
(iv) Present value of improvement: We agree with the Transfer Pricing Officer on this score.
(v) Future cash flows: We agree with the Transfer Pricing Officer on this point.
(vi) Return on fixed assets: We agree with the stand of the Transfer Pricing Officer on this issue.
(vii) Return on working capital: We do agree with the Transfer Pricing Officer's working except that the sale return of Rs. 111.04 crores has to be reduced from sundry debtors for the assessment year 2005-06 and the cash, bank balances and other current assets have to be considered for calculation of 'current assets' for all the years.
(viii) Return on human capital: We are in agreement with the Transfer Pricing Officer's working.
After following the above formulae, the Transfer Pricing Officer should calculate the arm's length price accordingly. If the amount so arrived at were to be higher than the total actual consideration (Rs.38.50 crores) received, the Transfer Pricing Officer should adopt the higher price arrived at."
17 However, on a careful perusal' of the order of the Transfer Pricing Officer giving effect to the diiections contained in the earlier order of this Bench, asrightry highlighted by the learned authorised representative, it is observed that there were variations and total inconsistencies while implementing the directions of the· earlier Bench. To illustrate further, for instance, the following inconsistencies are observed :
(1) Estimation' of future cash flows :
(i) the method adopted in the original order has since been abandoned; instead, a new method called "CAGR of cost" has been adopted to estimate the future· expenses i
(ii) marketing expenses which constitute a significant portion of total expenses have been ignored while computing "CAGR of cost" which contributed in increasing estimated cash flows ;
(iii) while calculating CAGR,o£ cost, the Transfer Pricing Officer had considered the cost of financial year 2005-06 only for ten months without appreciating that for other years, the cost of twelve months was taken. For uniformity for financial year 2005-06. costs of twelve months should have been adopted. It appears that the Transfer Pricing Officer had switched over to the new concept by taking cue from exposure draft of the International Valuation Standards Council placed in the public domain in January, 2009 for inviting public suggestion on valuation of intangible assets instead of final guidelines which was issued only in 2010.
(2) Estimating cost of improvement :
The sales return of Rs. 111.04 crores has not been reduced from the turnover of financial year 2004-05, apparently, the Transfer Pricing Officer was in presumption that the earlier Bench had diiected to reduce sale return only while calculating compounded annual growth rate and debtors' without appreciating the fact that the earlier Bench had categorically held that those sales did not materialise and, thus, should be reduced from sales. .
(3) Estimation of discounted cash flow:
Cumulative effect of mistakes committed as pointed out above. (4) Estimation of return on fixed assets :
The method adopted in the original order has since been abandoned and sales return of Rs. 111.04 crores has not been reduced from the turnover of financial year 2004-05 for the reasons recorded supra ;
(5) Estimation of return on working capital:
Sales return of Rs. 111.04 crores has not been reduced from the turnover of financial year 2004-05 for the reasons pointed out above and the inter-corporate deposits and dues receivable from subsidiary company have not been included in current assets in spite. of clear directions .of the earlier Bench ;
(6) Estimation of return on human capital :
For the reasons recorded above, the sales return of Rs. 111.04 crores has not been reduced from the turnover of financial year 2004-05.
Taking into account all the facts and circumstances of the issue as deli- 18 berated upon in the foregoing paragraphs, we deem it fit to issue the fresh set of directions to the Transfer Pricing Officer to recalculate the arm's length price as under :
Step 1 : No comments. Status quo requires to be maintained. Step 2 : Estimation of future cash flows :
(i) The Transfer Pricing Officer has arrived at the operating costs for the previous years following a new method which, in our view, a clear deviation from the original order passed on October 30, 2009 and has adopted a totally different method of calculation of cost by deducting the marketing expenses from the total cost as the marketing division was transferred to TIPL and it does not exist on the date of valuation. The Transfer Pricing Officer has also discussed in the order that the Income-tax Appellate Tribunal has not given any specific directions in this regard. We would like to reproduce step 2 in our order dated September 26, 2011 (since reported in Tally Solutions P. Ltd. v. Deputy CIT [2012] 13 ITR (Trib) 245 (Bang» that "(on page 289) (ii) Estimation of future cash flows :
We are in agreement with the method adopted by the Transfer Pricing Officer in estimating the cash flows except that the revenue for the assessment year 2006-07 has to be considered and is to be taken as the base year for future projection of revenue for the reasons recorded supra (para (i»]" This clearly vindicates that the earlier Bench, had, in fact, in its original order considered the issue wherein calculation of costs for the previous years, the marketing costs have been included and did accept the working of the Transfer Pricing Officer for calculation of costs. Suitable directions have been issued in respect of revenues only and not for the costs. The Transfer Pricing Officer had, thus, erred in mentioning that there were no specific directions given with respect to the costs of the previous years. In the earlier order, the Bench was in agreement with the Transfer Pricing Officer that the total cost has to be taken while arriving at compounded annual growth rate for the previous years. The Transfer Pricing Officer has also erred in mentioning that current year data has to be considered for the projection of future earnings. In fact, specific direction was given, as can be seen from the earlier order that revenues for the current year, i.e., 2006-07 has to be considered and is to be taken as the base year for future projections. The Bench was in agreement with the method adopted by the Transfer Pricing Officer in the earlier order dated October 30, 2009 wherein the total costs were considered for arriving at compounded annual growth rate and, thus, the Transfer Pricing Officer was incorrect, while giving effect to the findings of the earlier Bench, in changing the method of calculation after considering the facts in the original order.
(ii) Further the Transfer Pricing Officer has erred in mentioning that the marketing division was non-existence on the date of valuation. The Transfer Pricing Officer has failed, perhaps, to properly understand that TSPL transferred intangible properties TSFL, Dubai and its marketing division to Tally India P. Ltd. and whole subject matter of this valuation is this transfer and the marketing division was in existence before the date of transfer. The transfer of assets and the marketing division is done simultaneously and together. Therefore at the time of transfer of asset, the marketing division was not transferred and it is wrong to assume that the transfer of marketing division has happened prior to the sale of assets. In the note also the Transfer Pricing Officer is mentioning that the transfer of assets and the marketing division has happened simultaneously on the same date, i.e., January 31, 2006. These facts have been clearly considered by the Transfer Pricing Officer in his original order dated October 30, 2009, in which the earlier Bench was in agreement as mentioned in the order dated September 26, 2011 (since reported in Tally Solutions P. Ltd. v. Deputy CIT [2012] 13 ITR (Trib) 245 (Bang». Thus, the Transfer Pricing Officer cannot change the method of calculation of cost which was accepted by the earlier Bench as mentioned in the original order and also as discussed above, the assumption of Transfer Pricing Officer now as different from the original order of the Transfer Pricing Officer that marketing division was transferred prior to transfer of assets as the fact remains that both the transfers have taken place simultaneously on January 31, 2006.
(iii) The Transfer Pricing Officer has also erred in taking the costs for only 10 months whereas the revenues have been for 12 months. When the revenues are taken for 12 months, the costs have also to be taken for 12 months and not for 10 months. Therefore, the Transfer Pricing Officer is directed to adopt the costs for 12 months for arriving at compounded annual growth rate of the cost for the year 2005-06.
Step 3 : Calculation of discount factor: Status quo needs to be maintained.
Step 4 : Cost of improvement :
The Transfer Pricing Officer has clearly erred in arriving at the revenues for the financial year 2004-05 relates to assessment year 2005-06. As per step 1, the turnover for the financial year 2004-05 relating to financial year 2005-06 is Rs. 72,20,84,213 whereas the Transfer Pricing Officer has arrived at the turnover at Rs. 1,98,15,17,988 which is totally wrong. In the original order passed by the Transfer Pricing Officer, the turnover arrived at step 1 has been taken in step 4 also and no specific directions were given by the earlier Bench for arriving at these revenues in this step. The Transfer Pricing Officer has to reduce sales returns against sales in all the steps and cannot arbitrarily include in some steps. In the earlier order, we had not given specific directions as we found that in the original transfer pricing order the revenue are same in step 1 and step 4. In other words, the revenue is arrived in step 1 has to remains constant in all other steps because revenue determination is only in step 1.
Step 5 : Discounted cash flows :
The Transfer Pricing Officer is directed to rework the calculations in this step after rectifying the mistakes committed in step 2 and step 4 of the order.
Step 6 : Return on fixed assets:
The Transfer Pricing Officer has again erred in taking the revenues which is different from the revenues arrived at step 1 and again we would like to reiterate that in the original order the revenues were the same in all the steps and the Transfer Pricing Officer's contention was accepted about the revenues and, hence, agreed with the original order of the Transfer Pricing Officer. Now in the revised order, the Transfer Pricing Officer cannot take a different view on the revenues which is totally incorrect as the sales returns has to be reduced in all the steps not restricting to only in step 1.
Step 7: Return on working capital :
(i) Sales rerum of Rs; 111.04 crores has to be reduced from the turnover for assessment year 2005-06 for the reasons stated in step 4.
Step 8 : Return on human capital:
Sales returns for the assessment year 2005-06 has to be reduced for the reasons stated in step 4.
19 In substance, the Assessing Officer is directed to adopt the revised! modified transfer pricing adjustment which will be worked out by the Transfer Pricing Officer based on the above directions. It is ordered accordingly.
20 :Before parting with, we would like to record that during the course of hearing of trusappeal, our attention was drawn to the effect that the assessee had simultaneously held (i) miscellaneous petition in M.P. No. 3/B113 dated November 13, 20t2 against the order of the Transfer Pricing Officer under section 92CA read with section 254 of the Act dated November 7, 2.012 giving effect to the order of the earlier Bench in the assessee's' own case; and '(ii) Stay Petition in S.P. No. 19/B/13 dated January 13, 2013 with a prayer, in essence, to grant stay for payment of the entire outstanding demand of Rs. 108.86 crores till the disposal of the assessee's appeal against the Assessing Officers order dated January 11,2013 under dispute.
21 At the 'outset, we would like to reiterate that the assessee's main appeal in L T. (TP) A. No. 101/B113 has since been disposed of (supra), the assessee's miscellaneous petition, in our view becomes infructuous and, accordingly, the same' is dismissed as superfluous without going into the maintainability or otherwise of it. Likewise, the assessee's stay petition is also dismissed, since the assessee's main appeal is already disposed of.
22 In the result :
(i) the assessee's appeal in LT.(TP)A. No. 101/B113 is partly allowed;
(ii) the assessee's miscellaneous petition No. 3/B113 is dismissed as infructuous ; and
(iii) the stay petition of the assessee in S.P. No. 19/B/13 is dismissed.
The order pronounced at the end of the hearing on the 2nd August, 2013.