1. The Assessee is a company engaged in the manufacturing and selling of two-wheelers. The assessee maintains regular books of accounts, which are duly audited u/s 44AB. The accounting policies, method of accounting, excepting one instance, are the same as in earlier years. Assessee is assessed to tax since past so many years. There was a joint venture between Hero Group, India and Honda Motor Company, Japan. During the Financial Year ('FY') 2006-07, relevant to Assessment Year ('AY') 2007-08, the assessee had 45.7% share of the motor cycle market and 39.4% share of two wheeler market, in India.

2. For the year under appeal, the assessee filed its return of income on 31.10.2007, declaring an income of Rs. 11,98,61,43,972. The return of income was revised on 05.03.2009, wherein increased amount of TDS was claimed. The return was processed u/s 143(1) of the Income-tax Act, 1961 ('the Act') on 24.03.2010. The case was selected for scrutiny and notice u/s 143(2) was issued. During assessment proceedings the assessing officer referred the case to the Transfer Pricing Officer ('TPO'), as there were certain international transactions with its associate concerns (AEs). The TPO passed an order dated 27.9.2010.

3. Though the accounts were duly audited, the assessing officer was of the view that that there were complexities in the accounts as maintained by the assessee, which involved substantial revenue implications, therefore, a show cause notice u/s 142(2A) of the Act was issued and served upon the assessee on 08.06.2010, proposing special audit u/s 142(2A) of the Act.

3.1 The assessee vide letter dated 23.07.2010, opposed the Special Audit, citing the correctness, completeness and reliability of its account. However, for the detailed reasons given at para 2 of the assessment order, the assessing officer referred the matter for Special Audit. Special Auditor was appointed on 20-12-2010 with set terms of reference and was asked to submit its report within 60 days. This time limit was extended for a further period of 20 days at the request of the special auditor. The assessee had challenged the order of reference for special audit u/s 142(2A) before the Hon'ble Delhi High Court and by order dated 24.12.2010 Hon'ble Delhi High Court directed that any action taken by the special auditors or the assessing officer shall be subject to final decision of the writ petition.

3.2 The Special Auditor submitted their report on 10.03. 2011, pointing out many instances of non compliances with the provisions of the Income tax Act and also pointed out that the assessee was not following various accounting standards.

3.3 After examining the report of the Special Auditor, the assessing officer issued a show cause notice to the assessee u/s 142(1) of the Act on 24-3-2011. In response, the assessee made detailed submissions on various dates raising objections on special auditors recommendation and supporting its own accounts, policies and method of accounts. The assessing officer after considering the same, passed draft assessment order u/s 144C of the Act computing the income at Rs. 4485,91,57,334/-.

3.4 The assessee filed objections before the DRP-I, New Delhi. The DRP vide order dated 29-2-2012 disposed of these objections and issued certain directions to the assessing officer. Thereafter, the assessing officer passed an order u/s 143(3) red with se. 144C on 4-4-2012. Aggrieved, the assessee filed this appeal before us on various grounds, which we would be considering in seriatum.

4. Shri Ajay Vohra, Sr. Advocate, appeared on behalf of the assessee and Mr. Piyush Jain CIT (DR) appeared on behalf of the Revenue.

5. The assessee moved an application under Rule 11 of the ITAT Rules 1963 for the admission of following additional grounds of appeal:

"1. That on the facts and circumstances of the case, miscellaneous expenses, aggregating to Rs. 7,15,91,826/-incurred in respect of services availed from vendors during the relevant year, but were claimed as deduction