IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I’: NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.1348/Del/2012 (ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

(ASSESSMENT YEAR 2005-06)

O R D E R

PER MANISH AGARWAL, AM:

This appeal is filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals)-XX, New Delhi (‘Ld. CIT(A)’ in short) in Appeal No. 51/2008-09/CIT(A)-XX vide order dated 20.01.2012 passed u/s 250(6) of the Income Tax Act, 1961 (‘the Act’, in short) arising out of the order of AO dated

31.12.2008 passed u/s 143(3) of the Act for Assessment Year 2005-06.

2. Brief facts of the case are that the assessee is 100% subsidiary company of Mobil Petroleum Company Inc. USA and engaged in the business of manufacturing and trading of various range of lubricants in India. The assessee imports different grades of base oil and additives to manufacture lubricants for different applications in automotive industry and marine segments. The imports were made from Exxon Mobil Group entities only. Besides this, assessee received certain administrative, technical, professional and other support services from its associated enterprises (“AEs”). The return of income for the year under appeal was filed on 29.10.2005 declaring total loss of Rs. 20,68,46,690/-. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 27.09.2006. Since the assessee is having international transaction with its AE thus the AO make a reference to TPO for determination of Arm’s Length Price (ALP’) u/s 92CA(3) of the Act of such transactions. The TPO vide its order dated 10.10.2008 proposed total adjustments of Rs.46,57,04,908/- on the value of imports of raw material under manufacturing segment and finished goods under trading segment and payments of services. Thereafter, the AO passed the final order wherein total addition of Rs.46,57,04,908/- as proposed by TPO were made. Besides this, disallowance out of various expenses were also made and, accordingly, total income of the assessee was assessed at Rs.

40,68,88,803/- against the declared loss of Rs. 20,68,46,690/-.

3. Against the said order, an appeal was preferred by the assessee before Ld. CIT(A), who partly allowed the appeal of the assessee and deleted the major addition made on account of transfer pricing adjustments as well as disallowance out of various expenses.

4. Aggrieved by the said order, the Revenue is in appeal before the Tribunal by taking following grounds of appeal:-

1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.46,57,04,908/- made on account of arm’s length price.

2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.5,00,000/- made on account of disallowance of foreign travel expenses.

3. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.14,40,82,192/- made on account of disallowance u/s

40(a)(i) of the Act.

4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.

5. With respect to Ground of appeal No.1 relating to the deletion of addition of Rs. 46,57,04,908/- made by AO towards arm’s length price of international transaction with AE, the Ld. CIT-DR submits that with respect to the benchmarking under manufacturing segment of import of base oils, assessee had taken CUP method as most appropriate method (MAM), however TPO given very specific reasons for not accepting the CUP method. As per ld. CIT DR, TPO observed that out of total 70 transactions related to import of base oil, assessee has not able to provide comparable prices for 31 transactions and with respect to remain