M/s. AT Kearney Ltd., New Delhi V. ADIT, New Delhi

CO 75/DEL/2013

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4109 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 21-03-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 18-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A M GOVIL
• Assessee Lawyers: S K AGGARWAL
• Keywords: Rejection of books of accounts; Depreciation; Transfer pricing; International transaction; Additional evidence; Bad and doubtful debts; TDS
• Section: 92C; 143(3); 92E; 234B; 139(5); 195; 250; 154; 92

Judgement Text

1 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 : NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5574/DEL/2012 (ASSESSMENT YEAR: 2004 - 05 ) ADIT, CIRCLE - I(I), INTL. TAXATION, ROOM NO. 204 , DRUM SHAPE BUILDING, I. P. ESTATE, NEW DELHI VS. AT KEARNEY LTD, 357, H - 9, VARDHMAN CORPORATE PLAZA, NETAJI SUBHASH MARG, PITAMPURA, NEW DELHI PAN:AADCA0861H (APPELLANT) (RESPONDENT) C.O. NO. 74/DEL/2013 (IN ITA NO. 5574/DEL/2012) (ASSESSMENT YEAR: 2004 - 05) AT KEARNEY LTD, 357, H - 9, VARDHMAN CORPORATE PLAZA, NETAJI SUBHASH MARG, PITAMPURA, NEW DELHI PAN:AADCA0861H VS. ADIT, CIRCLE - I(I), INTL. TAXATION, ROOM NO. 204 , DRUM SHAPE BUILDING, I. P. ESTATE, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 5575/DEL/2012 (ASSESSMENT YEAR: 2005 - 06) 2 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 ADIT, CIRCLE - I(I), INTL. TAXATION, ROOM NO. 204 , DRUM SHAPE BUILDING, I. P. ESTATE, NEW DELHI VS. AT KEARNEY LTD, 357, H - 9, VARDHMAN CORPORATE PLAZA, NETAJI SUBHASH MARG, PITAMPURA, NEW DELHI PAN:AADCA0861H (APPELLANT) (RESPONDENT) C.O. NO. 75/DEL/2013 (IN ITA NO. 5575 /DEL/2012) (ASSESSMENT YEAR: 2005 - 06 ) AT KEARNEY LTD, 357, H - 9, VARDHMAN CORPORATE PLAZA, NETAJI SUBHASH MARG, PITAMPURA, NEW DELHI PAN:AADCA0861H VS. ADIT, CIRCLE - I(I), INTL. TAXATION, ROOM NO. 204 , DRUM SHAPE BUILDING, I. P. ESTATE, NEW DELHI (APPELLANT) (RESPONDENT) REVENUE BY : SH. A. M. GOVIL, CIT DR ASSESSEE BY: SH. S. K. AGGARWAL, CA DATE OF HEARING 21/03/ 2016 DATE OF PRONOUNCEMENT 2 0 / 06 /2016 O R D E R PER BENCH 1. TH ESE ARE CROSS APPEALS FILED BY REVENUE AS WELL AS THE ASSESSEE AGAINST THE ORDER OF THE LD CIT ( A) - XX, NEW DELHI DATED 23.08.2012 FOR THE ASSESSMENT YEARS 2004 - 05 AND 2005 - 06. 3 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 2004 - 05: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ADMITTING ADDITIONAL EVIDENCE IN CONTRAVENTION OF RULE 46A OF THE IT RULES, 1962, ALTHOUGH THE ASSESSEE DID NOT MADE ANY CASE UNDER CASE UNDER A NY OF THE FOUR CLAUSES OF RULE 46A AND EVEN WHEN THE ASSESSEE COULD PRODUCE ONLY 6 OUT OF NUMEROUS VOUCHERS WERE FURNISHED MERELY 2 DAYS BEFORE THE COMPLETION OF ASSESSMENT. 2. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS, 1,29,66,567/ - ON ACCOUNT O F DISALLOWANCE OUT OF BUSINESS PROMOTION AND ADVERTISEMENT EXPENSES, MERELY ON THE BASIS OF DOCUMENTS PRODUCED AT APPELLATE STAGE, WHICH DOCUMENTS WERE NOT SUBJECT VERIFICATION AND PRIMA FACIE, THE EXPENSES HAD INCREASED BY 65% AGAINST 14% DECREASE IN RECE IPTS, WHICH WAS DULY POINTED OUT IN THE REMAND REPORT. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 5,29,43,436/ - ON ACCOUNT OF DISALLOWANCE OUT OF BAD DEBTS ALTHOUGH THE ASSESSEE HAD FAILED TO PROVE ITS CLAIM AND ALL ALLEGED DEBTORS WERE BLU E CHIP COMPANIES OF SOUND REPUTE AND THERE IS NO MENTION IN THE ORDER ABOUT THE ASSESSEE HAVING PRODUCED ANY EVIDENCE TO SHOW THAT THE CONDITIONS U/S 36(1) (VII) READ WITH SECTION 36(2) WERE FULFILLED. 4. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,87,59,612/ - ON ACCOUNT OF DISALLOWANCE OUT OF SALARY, EVEN WHEN THE ASSESSEE FAILED TO PROVE ITS CLAIM. 5. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 19,24,85293/ - OF ACCOUNT OF TRANSFER PRICING ADJUSTMENT, WITHOUT GIVING ANY COGENT REASONS AND BY MERLEY RELYING ON THE SUBMISSION BY THE AR OF THE ASSESSEE. 6. THE LD. CIT ( A) ERRED IN LAW IN HOLDING THAT INTEREST U/S 234B WAS NOT CHARGEABLE IN THE ASSESSEE'S CASE, BY RELYING UPON THE DECISION OF DELHI HIGH COURT IN THE CASE OF JACOB CIVIL INCORPORATED WITHOUT APPRECIATING THAT LEVY OF INTEREST U/S 234B IS MANDATORY AS HELD IN THE CASE OF ANJUM M.H. GHASWALA & OTHER 252 ITR1 (SC). 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THE CROSS OBJECTION FILED FOR THE ASSESSMENT YEAR 2004 - 05: - 4 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 1. THAT THE LEARNED COMMISSIONER OF INCOME - TAX [APPEALS] - XX: NEW DELHI ('LEARNED CIT - A') HAS ERRED ON THE FACTS AND IN LAW IN ALLOWING A PARTIAL RELIEF TO THE RESPONDENT IN RESPECT OF THE TRANSFER PRICING ADDITION MADE BY THE LEARNED ASSISTANT DIRECTOR OF INCOME - TAX, CIRCLE 1(1), NEW DELHI ('LEARNED AO') AND PROPOSING A TRANSFER PRICING ADDITION OF RS. 3526787/ - TO THE INCOME OF THE RESPONDENT. WHILE DOING SO, THE LEARNED CIT - A HAS ERRED, IN LAW AND ON FACTS, ON ACCOUNT OF THE FOLLOWING: A. BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE RESPONDENT TO DETERMINE BY THE ARM'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTIONS, WHICH WAS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92 - 92E OF THE INCOME - TAX ACT, 1961 ('THE ACT') READ WITH INCOME T AX RULES, 1962 ('THE RULES') B. BY NOT ACCEPTING THE SEPARATE SEGMENTAL ANALYSIS UNDERTAKEN BY THE RESPONDENT TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION RELATED TO PROVISION OF MANAGEMENT CONSULTANCY SERVICES AND PROCUREMENT OF MANAGEMENT CON SULTANCY SERVICES USING TRANSACTIONAL NET MARGIN METHOD (TNMM') AND ERRONEOUSLY ACCEPTING THE APPROACH FOLLOWED BY THE LEARNED AO OF COMPANYWIDE ANALYSIS USING TNMM METHOD TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE RESPONDENT. C. BY N OT ACCEPTING THE USE OF MULTIPLE YEAR DATA USED BY THE RESPONDENT TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS USING TNMM METHOD AND INSTEAD ACCEPTING THE APPROACH FOLLOWED BY THE LEARNED AP OF USING A SINGLE YEAR DATA OF COMPARABLE COMPANIES TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE RESPONDENT. D. BY NOT APPRECIATING THE ARM'S LENGTH CHARACTER OF THE TRANSFER PRICING METHODOLOGY OF THE RESPONDENT AND THE ENSURES AN ARM'S LENGTH RETURN OF THE SERVICES TRANSACTIONS RESOURCES BETWEEN THE RESPONDENT AND ITS ASSOCIATED CONSULTANCY SERVICES. E. BY NOT APPLYING THE PROVISO TO SECTION 92C OF THE ACT AND THE BENEFIT OF DOWNWARD VARIATION OF 5 PERCENT IN DETERMINING THE ALF OF THE INTERNATIONAL TRANSACTIONS OF THE RESPONDENT. 5 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 4. TH E REVENUE HAS RAISED THE FOLLOWING GROUNDS FOR THE ASSESSMENT YEAR 2005 - 06: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELEING THE DISALLOWANCES OF RS.1928500/ - MADE BY THE AO, ON ACCOUNT OF FOREX LOSS RELATED TO 'MANAGEMENT FEE', WHICH IT SELF WAS DISALLOWED, BY MERELY RELYMG ON ASSESSEE'S SUBMISSIONS, A/ID WHEN THERE IS NO MENTION IN THE ORDER THE ASSESSEE HAVING PRODUCED ANY EVIDENCE TO SHOW THAT FOREX LOSS WAS ACTUALLY NOT RELATED TO MANAGEMENT FEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF RS. 1,28,17,622/ - ON ACCOUNT OF DISALLOWANCE OUT OF BAD DEBTS ALTHOUGH HE ASSESSEE HAD FAILED TO PROVE ITS CLAIM AND CONDITIONS UNDER SECTION 36(1) (VI I) READ WITH SECTION 36(2) WERE NOT FULFILLED, AS THE ASSESSEE DID NOT BRING ON RECORD THAT THE RESPECTIVE INCOME WAS DECLARED IN ANY ASSESSMENT YEAR. 5. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THE CROSS OBJECTION FILED FOR THE ASSESSMENT YEAR 200 5 - 06: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - XX ['LEARNED CIT(A)'] HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED ASSISTANT DIRECTOR OF INCOME - TAX, INTERNATIONAL TAXATION, CIRCLE 1(1), NEW DELHI ('LEARNED AO') IN DISALLOWING MANAGEMENT FEE EXPENSES OF RS. 21,668,771 INCURRED BY THE RESPONDENT DURING THE FINANCIAL YEAR RELEVANT TO THE SUBJECT YEAR UNDER SECTION 40(A)(I) OF THE INCOME - TAX ACT, 1961 ('ACT'). ITA NO. 5574 /DEL/2012 ( ASSESSMENT YEAR: 2004 - 05) 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY , INCORPORATED IN UNITED KINGDOM AS LIMITED LIABILITY COMPANY, IS ENGAGED IN BUSINESS OF PROVIDING MANAGEMENT CONSULTATION SERVICES AS A SUBSIDIARY OF EDS, WHICH IS A GLOBAL INFORMATION 6 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 SERVICE LEADER. THE SERVICES ARE PROVIDED IN THE MANUFACTURING SECTOR. IN THE YEAR 1997, IT OPEN ED A BRANCH OFFICE IN INDIA FOR CARRYING ON BUSINESS OF THOSE SERVICES I.E. PROVIDING MANAGEMENT CONSULTANCY SERVICES. 7. IT FILED ITS R ETURN OF INCOME SHOWING LOSS OF RS. 136496240/ - ON 01.11.2004. SUBSEQUENTLY ON 07.09.2006 ASSESSEE SUBMITTED A LETTER SUBMITTING A REVISED COMPUTATION OF TOTAL INCOME IN WHICH IT ADDED BACK FOREIGN EXCHANGE LOSS OF RS. 71185887/ - . AS THE REVISION WAS MADE BEYOND TIME ALLOWED U/S 139(5) OF THE ACT IT WAS NOT TREATED AS VALID RETURN AND THEREFORE FOREIGN EXCHANGE LOSS OF RS. 71185887/ - WAS DISALLOWED. FURTHER, LD ASSESSING OFFICER AGAINST THE RETURN ED LOSS OF RS. 136496240/ - ASSESSED THE APPELLANT A T AN INCOM E OF RS. 221844556/ - MAKING A T OTAL ADDITION OF RS. 358340796/ . SUBSEQUENTLY, AN APPLICATION U/S 154 WAS FILED IN JANUARY 2007 ON SEVERAL COUNTS. THE LD ASSESSING OFFICER REJECTED RECTIFICATION APPLICATION OF THE ASSESSEE EXCEPT ON ISSUE OF APPLICATION OF TAX RATE. THE REASON FOR RECTIFICATION WAS THAT ASSESSEE HAS FILED AN APPEAL BEFORE LD CIT ( A ) ON THOSE ISSUES. 8. AGAINST THE ORDER OF AO U/S 143(3) OF THE INCOME TAX ACT DATED 26.09.2008 ASSESSEE PREFERRED APPEAL BEFORE LD CIT ( A) . BEFORE LD CIT (A), CERTAIN ADDITIONAL EVIDENCES WERE SUBMITTED FOR WHICH REMAND REPORT WAS SOUGHT FOR, HOWEVER, LD ASSESSING OFFICER REQUESTED ADDITIONAL EVIDENCES SHOULD NOT BE ADMITTED AND SUBMITTED COMMENTS ON THE DETAILS SUBMITTED. R EJOINDER WAS ALSO SUBMITTED ON 27.03. 2012 ON REMAND REPORT. LD CIT(A) DELETED THE DISALLOWANCE ON ACCOUNT OF EXPENSES OF RS. 12966567/ - AS BUSINESS PROMOTION EXPENDITURE, DELETED THE 7 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 DISALLOWANCE OF BAD DEBTS WRITTEN OFF , DELETED THE DISALLOWANCE ON ACCOUNT OF SALARY TO EXPAT EMPLOYEES. HE F URTHER CONFIRM ED ADDITION MADE BY LD AO ON UPWARD ADJUSTMENT OF INTERNATIONAL TRANSACTIONS TO SOME EXTENT AND ADJUSTMENT IN PLI WAS RESTRICTED TO RS. 3526787/ - . HE ALSO GRANTED THE BENEFIT OF CARRY FORWARD LOSSES AND CREDIT FOR TDS AFTER VERIFICATION. AGAI NST THIS , REVENUE IS IN APPEAL BEFORE US AND ASSESSEE HAS FILED CROSS OBJECTION . 9. FIRST, WE TAKE UP THE APPEAL OF THE REVENUE. 10. THE FIRST AND SECOND GROUND OF THE APPEAL IS AGAINST ADMISSION OF ADDITIONAL EVIDENCES AS WELL AS DELETION OF DISALLOWANCE OF RS. 12966567 ON ACCOUNT OF BUSINESS PROMOTION AND ADVERTISEMENT EXPENSES. 11. THE LD DR SUBMITTED THAT DURING THE APPELLATE PROCEEDINGS THE APPELLANT PRODUCED TWO PAPER BOOKS, W HICH WERE SENT TO ASSESSING OFFICER AND LD, CIT (A) ASKED FOR THE REMAND REPORT. THE LD ASSESSING OFFICER SUBMITTED REMAND REPORT ON 20.03.2012 OBJECTING ADMISSION OF ADDITIONAL EVIDENCE AS BEFORE HIM APPELLANT DID NOT SUBMIT ADEQUATE DETAILS AND THUS ASSE SSING OFFICER HAS MADE THE DISALLOWANCE. HE FURTHER STATED THAT THOUGH THERE IS A STEEP INCREASE IN THE EXPENDITURE, IT HAS BEEN ALLOWED BY THE LD CIT ( A) ON VERIFICATION OF SAMPLE BILLS/ VOUCHERS ETC. 12. AGAINST THIS LD AR SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE HAS SUBMITTED SUFFICIENT DETAILS, WHICH IS EVIDENT FROM ASSESSMENT ORDER ITSELF . HE FURTHER SUBMITTED THAT DURING REMAND PROCEEDINGS TWO PAPER BOOKS WERE SENT TO LD AO W HO EXAMINED DETAILS CONTAINED THEREIN BUT COULD NOT POINT OUT ANY DEFECT OR ANY INFIRMITY EXCEPT ALLEGED DISPROPORTIONATE INCREASE IN EXPENSES. 8 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. WE HAVE ALSO PERUSED THE TWO PAPER BOOKS SUBMITTED BY THE APPELLANT BEFORE LD CIT ( A) AS ADDITIONAL EVIDENCE, WHICH WERE ADMITTED BY HIM AND THEREAFTER DELETED THE ADDITION. THE TWO PAPER BOOKS ARE CONTAI NING PAGE S 1 TO 314 AND PAGE 315 TO 722 CONTAINING DETAILS OF VARIOUS EXPENSES PERTAINING TO BUSINESS PROMOTION AND ADVERTISEMENT EXPENSES IN FORM OF BILLS ETC . LD CIT(A) HAS DELETED THE DISALLOWANCE VIDE PARA NO. 5.6 AS UNDER: - 5 .6. I HAVE CONSIDERED TH E SUBMISSION OF THE APPELLANT AS WELL AS THE REMAND REPORT OF THE AO. IN THE ASSESSMENT ORDER, THE AO HAD STATED THAT ONLY 6 INVOICES WERE GIVEN AS EVIDENCE FOR THE EXPENSES DEBITED UNDER THE HEAD 'MARKETING AND BUSINESS PROMOTION'. ON THE OTHER HAND, AS Q UOTED BY THE AO HIMSELF IN HIS ORDER, THE ASSESSEE WANTED THE AO TO SEEK FURTHER INVOICES IN ORDER TO SUPPLY THE SAME. THE AO HAS NOT ASKED FOR FURTHER EVIDENCE AND ASSESSEE DID NOT GO BEYOND THE SAMPLE INVOICES SUBMITTED BEFORE THE AO. AS A RESULT, THE DE CISION OF THE AO IS SOLELY BASED ON THE 6 INVOICES WHICH WERE GIVEN TO THE AO DURING ASSESSMENT PROCEEDINGS. UNDER THE FACTS AND CIRCUMSTANCES OF THIS CASE, I AM OF THE OPINION THAT IF THE AO WANTED 100% OF THE INVOICES AND VOUCHERS IN SUPPORT OF THE CLAIM OF DEDUCTION HE SHOULD HAVE EXPRESSED AS SUCH. NORMALLY, THESE KIND OF DEDUCTION ARE VERIFIED BASED ON SAMPLE INVOICES OR ON A 'TEST CHECK BASIS'. IT IS IMPORTANT TO REMEMBER THAT THE BOOKS OF ACCOUNTS OF ASSESSEE ARE AUDITED AND CERTIFIED BY INDEPENDENT AUDITORS. THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THEREFORE I HOLD THAT THE ASSESSEE IS JUSTIFIED IN PROVIDING ADDITIONAL EVIDENCE AT THE APPELLATE PROCEEDINGS. IN VIEW OF THE 9 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 ABOVE, THE ADDITIONAL EVIDENCE SUPPLIED AT THIS STAGE IS ACCEPTED. I HAVE PERUSED THE ADDITIONAL EVIDENCE SUPPLIED BY THE APPELLANT. THERE APPEARS TO BE A CONFUSION IN THE MIND OF THE AO REGARDING THE NATURE OF THESE EXPENSES. AS PER THE AUDITED ACCOUNTS, THERE IS A SEPARATE HEAD FOR TRAVELLING AND CONVEYANCE' WHEREIN THE AMOUNT DEBITED IS RS. 46,71,31S/ - . UNDER THE HEAD 'BUSINESS PROMOTION AND ADVERTISEMENT' AN AMOUNT OF RS. 1,29,66,567/ - HAS BEEN DEBITED. BUSINESS PROMOTION AND ADVERTISEMENT EXPENSES ALSO INCLUDE TRAVEL EXPENSES WHICH IS SEPARATE FROM WHAT IS D EBITED UNDER THE SEPARATE HEAD TRAVELLING AND CONVEYANCE'. THEREFORE, THE OBSERVATION OF THE AO THAT 'TRAVELLING AND CONVEYANCE EXPENSES ARE CLAIMED SEPARATELY' AND BY IMPLICATION TO HOLD THAT THERE WAS NO NEED TO INCUR THEM ONCE AGAIN IS NOT ACCURATE. THE AO HAS TOTALLY DISALLOWED THE EXPENSES INCURRED TOWARDS BUSINESS PROMOTION. IT IS INCONCEIVABLE IN A MODERN DAY BUSINESS ENVIRONMENT A COMPANY CAN SURVIVE AND GET BUSINESS WITHOUT INCURRING ANY EXPENSES TOWARDS SALES PROMOTION. THEREFORE, THE TOTAL DENIAL OF THESE EXPENSES IN ITSELF IS ARBITRARY. THE ADDITIONAL EVIDENCE FILED IS ALSO NOT COVERING 100% OF THE EXPENSES DEBITED UNDER THE HEAD 'BUSINESS PROMOTION AND ADVERTISING'. HOWEVER, IT COVERS SUBSTANTIAL AMOUNT OF TRANSACTIONS INVOLVED AS IT IS EVIDENT FROM THE TWO PAPER BOOKS. I HAVE GONE THROUGH THE EVIDENCE SUBMITTED BY THE APPELLANT. THEY ARE INVOICES RAISED BY THE THIRD PARTIES ON THE APPELLANT DURING THE FY 2003 - 04. SOME OF THE EXAMPLES OF THE ADDITIONAL EVIDENCE IS GIVEN BELOW (WHICH IS EXTRACTED RANDOMLY FROM THE PAPER BOOKS): 1. IN THE PAPER BOOK - I PAGE NO. 1 TO 4 IS A SUMMARY SHEET SUBMITTED BY AN EMPLOYEE BY NAME SHERENIK KHASGIWALA WHO IS WORKING IN NEW DELHI CONSULTING CENTRE. THIS SUMMARY SHEET IS SUBMITTED IN THE MONTH OF JUNE, 2003 WHICH IS SUPPORTED BY VARIOUS INVOICES LIKE FLIGHT BILLS 10 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 RAISED BY THIRD PARTY BY NAME FRIENDS GLOBE TRAVELS LTD. ON AT KEARNEY LTD. FOR THE EMPLOYEE SHERENIK KHASGIWALA. 2. IN THE PAPER BOOK - I PAGE NO. 190 CONTAINS EXPENSE REPORT FOR THE MONTH OF MAY AND JU NE, 2003 SUBMITTED BY AN EMPLOYEE BY NAME DEVENDRA CHAWLA WHICH IS ALSO SUPPORTED BY VARIOUS INVOICES LIKE THE TRAVEL INVOICES BY TRAVEL AGENTS, HOTELS BILLS. 3. IN THE PAPER BOOK - I PAGE NO. 250 MR. SATYAJIT LAHARI AN EMPLOYEE OF THE COMPANY HAS SUBMITT ED THE EXPENSE REPORT INCLUDING VARIOUS VOUCHERS FOR THE MONTH OF JUNE, 2003. 4. IN THE PAPER BOOK - II PAGE NO. 90 TO 202 ARE THE MOBILE BILLS SUBMITTED BY VARIOUS EMPLOYEES ARE PLACED. AS PER THE SUBMISSION OF THE APPELLANT THESE EXPENSES ARE PRIMARILY INCURRED FOR THE MARKETING AND BUSINESS PROMOTION ACTIVITY. 5. IN THE PAPER BOOK - II PAGE NO. 341 MR. RAVINDRA PARANKUSHAN, AN EMPLOYEE OF THE COMPANY HAS GIVEN THE EXPENSE REPORT FOR THE MONTH OF MAY, 2003 WHICH CONSISTS OF EXPENSES INCURRED TOWARDS TRAV EL, TELEPHONE AND HOTEL/ FOOD BILLS. PAPER BOOKS CONTAIN SIMILAR COPIES OF SUCH EXPENSES. THE ACTIVITY OF THE COMPANY IS MANAGEMENT CONSULTANCY SERVICES. THIS ACTIVITY OBVIOUSLY INVOLVES EXPENSIVE TRAVEL BY THE EMPLOYEES OF THE COMPANY IN ORDER TO GENERATE BUSINESS. ON THE VERIFICATION OF THE INVOICES, I AM OF THE OPINION THAT THESE ARE INCURRE D FOR THE PURPOSE OF BUSINESS AND THEY ARE ALLOWABLE AS DEDUCTION IN THE HANDS OF THE ASSESSEE WHILE COMPUTING ITS TOTAL INCOME. THEREFORE, THE ADDITION MADE IN THIS REGARD BY THE AO SHOULD BE DELETED. 14. THE LD CIT(A) HAS HELD THAT THE DETAILS ASKED BY THE ASSESSING OFFICER WERE SUBMITTED BY THE APPELLANT HOWEVER, IT SEEMS THAT INSTEAD OF VERIFYING THE DETAILS ON TEST CHECK BASIS LD AO WANTED 11 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 TO VERIFY THE COMPLETE 100 % DETAILS OF SUCH EXPENSES BUT LD AO HAS NEVER ASKED FOR IT CATEGORICALLY. IN VIEW OF ABO VE LD CIT ( A) HAS RIGHTLY ADMITTED THE ADDITIONAL EVIDENCES. FURTHERMORE, MERELY BECAUSE THERE IS A N INCREASE IN THE EXPENDITURE COMPARED TO PREVIOUS YEAR, WHICH MAY NOT CORRESPOND TO INCREASE, OR DECREASE IN THE REVENUE CANNOT BE THE SOLE REASON FOR DISAL LOWANCE OF ANY EXPENDITURE. THE LAW DOES NOT PROVIDE SANCTION FOR DISALLOWING EXPENDITURE IN SUCH A MANNER. FURTHER, DURING THE REMAND PROCEEDINGS LD AO HAS VERIFIED ALL THE EXPENDITURE BUT HAS NOT POINTED OUT SINGLE INSTANCE OF EXPENDITURE, WHICH IS NOT W HOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS. IN ABSENCE OF ANY SUCH INSTANCE AND LD. CIT (A) , AFTER EXAMINATION OF THOSE DETAILS ALLOWING THOSE EXPENDITURE AS DEDUCTIBLE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD CIT ( A) IN DELETING THE DISALLOWANCE OF RS. 12966567/ - ON ACCOUNT OF BUSINESS PROMOTION AND ADVERTISEMENT EXPENSES. IN THE RESULT GROUND NO. 1 AND 2 OF THE APPEAL ARE DISMISSED . 15. THE GROUND NO. 3 OF THE APPEAL IS AGAINST DELETING THE DISALLOWANCE OF RS. 52943436/ - ON ACCOUNT OF BAD DEBTS. 16. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE HAS CLAIMED BAD DEBTS OF RS. 52943436/ - ON ACCOUNT OF SERVICES PROVIDED TO AIR INDIA, NTPC, TELCO AND TATA TELE SERVICES. LD ASSESSING OFFICER DISALLOWED THIS ON THE GROUND THAT WHETHER SU CH DEBT HAS BECOME BAD OR NOT IS NOT ESTABLISHED AS AMOUNT WRITTEN OFF IS PERTAINING TO BLUE - CHIP COMPANIES. ON APPEAL THE LD CIT(A) DELETED THIS ADDITION AND THEREFORE REVENUE HAS RAISED THIS GROUND BEFORE US. 12 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 17. LD DR RELIED ON THE ORDER OF THE LD ASSESSIN G OFFICER AND LD AR RELIED ON THE ORDER OF THE LD CIT ( A). 18. WE HAVE CONSIDERED THE RIVAL CONTENTION. THE AMOUNT OF BAD DEBTS HAS BEEN WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT AND ASSESSEE HAS GIVEN DETAILS OF SUCH BAD DEBTS SHOWING NAMES OF THE PARTIES. LD CIT ( A) HAS NOTED THAT THERE IS NO REQUIREMENT IN THE LAW THAT SUCH DEBTS SHOULD HAVE BEEN ESTABLISHED TO BECOME BAD BEFORE ITS ALLOWANCE. WE DO NOT FIND ANY SUCH CONDITION IN THE SECTION. FURTHERMORE, THE LATEST CIRCULAR NO. 12/2006 DATED 30.05.2016 IS SUED BY THE CBDT ALSO SUPPORT THE ABOVE VIEW WHEREIN IT IS STATED THAT THE CLAIM OF BAD DEBT IS ALLOWABLE IF IT IS WRITTEN OFF AS RECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THERE IS NO REQUIREMENT FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HA S IN FACT BECOME IRRECOVERABLE. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT ( A) IN DELETING THE ADDITION OF RS. 52943436/ - ON ACCOUNT OF BAD DEBT WRITTEN OFF. IN THE RESULT THE GROUND NO. 3 OF THE APPEAL IS DISMISSED. 19. GROUND NO. 4 OF THE APPEAL IS AGAINST DISALLOWANCE OF RS. 28759612/ - DELETED BY THE LD CIT ( A) OUT OF SALARY EXPENSES. LD AO DISALLOWED THE ABOVE SUM BECAUSE OUT OF TOTAL SALARY DEBITED BY THE ASSESSEE TO EXPATRIATE EMPLOYEES OF RS. 56771896/ - . ASSESSEE SUBMITTED FORM NO. 1 6 WITH RESPECT TO ONLY THREE EMPLOYEES. A SSESSEE SUBMITTED EMPLOYEE - WISE DETAIL AND STATED THAT AS THESE EMPLOYEES INCOME TAX RETURNS ARE NOT AVAILABLE WITH THE ASSESSEE AND SOME ARE NOT FURNISHED. THEREFORE, THE LD ASSESSING OFFICER ALLOWED THE SAL ARY PAID TO EMPLOYEES AS PER FORM NO. 16 SUBMITTED BY ASSESSEE . 13 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 20. LD DR RELIED ON THE ORDER OF THE LD ASSESSING OFFICER. LD AR RELIED ON THE ORDER OF THE LD CIT ( A). 21. WE HAVE CAREFULLY PERUSED THE ORDER OF THE LD CIT ( A) WHEREIN THE DISALLOWANCE IS DELETED. IN FACT, ASSESSEE HAS PAID SALARY OF RS. 56771896/ - TO ONLY THREE EMPLOYEES WHOSE FORM NO. 16 WAS SUBMITTED . IN THAT FORM TAXABLE SALARY WAS RS. 28012284/ - AND TAXABLE PERQUISITES WERE RS. 13160469/ - . TO THESE EMPLO YEES NON - TAXABLE PERQUISITES WERE ALSO PAID AMOUNTING TO RS. 15599143/ - WHICH WAS NOT THEREIN IN FORM NO. 16. THEREFORE DESPITE COMPLETE DETAILS PRODUCED BEFORE THE ASSESSING OFFICER DISALLOWANCE IS MADE. HENCE , WE FIND NO INFIRMITY IN DELETING THE DISAL LOWANCE BY LD CIT ( A). IN VIEW OF THIS GROUND NO. 4 OF THE APPEAL IS DISMISSED. 22. GROUND NO. 5 OF THE APPEAL IS AGAINST THE DELETION OF UPWARD ADJUSTMENT OF RS. 192485293/ - . THE BRIEF FACTS OF THE ISSUE ARE THAT DURING THE YEAR APPELLANT HAS ENTERED INTO IN TERNATIONAL TRANSACTIONS OF PROVISION OF MANAGEMENT CONSULTANCY SERVICES AMOUNTING TO RS. 20612706/ - AND PROCUREMENT OF MANAGEMENT CONSULTANCY SERVICES OF RS. 17490020/ - . THE MOST APPROPRIATE METHOD APPLIED BY THE ASSESSEE WAS TNMM AND ASSESSEES MARGIN O F 12.57% AND 6.67% CONSIDERING 12 COMPARABLES WHEREIN COMPARABLE MARGIN WAS 4.6% , IT WAS SUBMITTED THAT INTERNATIONAL TRANSACTIONS WITH ITS AE ARE AT ARMS LENGTH. IN ITS COMPUTATION OF MARGIN ASSESSEE HAS CONSIDERED SEGMENTAL INFORMATION AND STATED THAT E XCHANGE RATE FLUCTUATION OF RS. 71185887/ - AND MISCELLANEOUS EXPENSES OF RS. 67754267/ - WERE NON - OPERATING EXPENSES AND THEREFORE THEY WERE NOT CONSIDERED IN WORKING OPERATING PROFIT OF THE ASSESSEE. DURING THE 14 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 ASSESSMENT PROCEEDINGS, THERE WAS NO DISPUTE O N THE MOST APPROPRIATE METHOD AS TNMM AS WELL AS THE PROFIT LEVEL INDICATOR OF OPERATING PROFIT BY TOTAL COST (OP/TC). HOWEVER, LD TRANSFER PRICING OFFICER REJECTED THE USE OF MULTIPLE YEAR DATA AND HENCE REJECTED NINE COMPARABLES OUT OF 12 AS WELL AS ALS O REJECTED TRANSACTION BY TRANSACTION BENCHMARKING APPROACH OF THE ASSESSEE. FURTHER, WHILE WORKING THE TOTAL COST OF THE ASSESSEE THE PROVISION FOR WORK IN PROGRESS WRITTEN BACK AND PROVISION FOR DOUBTFUL DEBTS WERE CONSIDERED AS NON - OPERATING INCOME. F URTHER, THE LD TPO CONSIDERED THE MISCELLANEOUS EXPENSES AS OPERATING EXPENSES. THE FINAL SET UP OF COMPARABLES TAKEN BY TPO WERE THREE AND THEIR AVERAGE PLI WAS 17.41% AND THEN PROPOSED AN ADJUSTMENT OF RS. 192485293/ - . ON APPEAL BEFORE LD CIT (A), HE UPH ELD THE APPROACH OF LD . TPO IN CONSIDERING ENTITY LEVEL MARGIN. FURTHER, THE ADJUSTMENT IN THE TOTAL COST BASE WITH RESPECT TO WRITE BACK OF WIP , WRITE BACK OF PROVISION FOR BAD IN DOUBTFUL DEBTS AND MISCELLANEOUS EXPENDITURE WAS ACCEPTED. BASED ON THIS HE COMPUTED THE PLI OF THE ASSESSEE AT 7.36% AND RESTRICTED THE ADJUSTMENT TO RS. 3526787/ - . 23. BEFORE US, THE LD DR SUBMITTED THAT ONLY DISPUTE IN THE CASE IS REGARDING THE WORKING OF TOTAL COST AND THE LD CIT ( A) HAS REDUCED THE TOTAL COST OF THE ASSESSEE WITHOUT VERIFYING THE FACTS WITH RESPECT TO PROVISION FOR WORK IN PROGRESS AND WRITE BACK OF PROVISION FOR DOUBTFUL DEBTS. HE THEREFORE STATED THAT SUCH AN ADJUSTMENT IS MADE INCORRECTLY. AGAINST THIS, THE LD AR SUBMITTED THAT ADJUSTMENT WITH RESPECT TO TH ESE TWO ITEMS IS INCORRECT READING OF THE FINANCIAL STATEMENT BY LD. AO THAT IS APPRECIATED BY LD CIT (A) AND ADJUSTMENT IS GRANTED. 15 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 24. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE LD TPO HAS WORKED OUT THE TOTAL COST OF THE ASSESSEE AS UNDER: - PARTICULARS AMOUNT ( IN RS. ) AMOUNT IN (RS.) BALANCE AS PER SCHEDULE - VI(1) 305548967 LESS: LOSS ON SALE OF ASSETS (2) 35308 EXCHANGE RATE FLUCTUATION (3) 71185887 71221195 ADD: PROVISION FOR WORK IN PROGRESS (4) 44919716 PROVISION FOR BAD & DOUBTFUL DEBTS (5) 36672464 DEPRECIATION (6) 3898142 85490322 TOTAL COST (7) 919818134 25. HOWEVER, IN ITS T P DOCUMENTATION, ASSESSEE HAS TAKEN THE OPERATING REVENUE AND OPERATING COST AS UNDER: - PARTICULARS PROVISIONS OF SERVICE OF NON AE PROVISION OF SERVICES TO AE NON - OPERATING ITEMS PER AUDITED ACCOUNTS OPERATING REVENUE 162400472 20612706 183013178 NON OPERATING INCOME 915835 915835 TOTAL REVENUE 162400472 20612706 915835 183929013 EXPENDITURE OTHER OFFICE AND ADMINISTRATION EXPENSES 223992721 17701997 247694718 LOSS ON SALE OF GOODS 31331 3977 35308 EXCHANGE RATE FLUCTUATION (921838) 71185887 70264049 MISCELLANEOUS EXPENSE 1235934 156871 67754267 69147072 PROVISION FOR BAD & DOUBTFUL DEBTS WRITTEN BACK (36672464) (36672464) 16 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 PROVISION FOR WIP (44919716) (44919716) ROC FILING 72514 9204 81718 DEPRECIATION 3459096 429046 3898142 TOTAL COST 152277578 18311095 138940154 309528827 OPERATING PROFIT 10122894 2301611 (138024319) (125599814) NCP 6.65% 12.57% (40.58%) 26. THE ABOVE TWO ITEMS I.E. PROVISION FOR BAD IN DOUBTFUL DEBTS AND PROVISION FOR WORK IN PROGRESS WHICH ARE IN ( ) I.E. THESE ITEMS ARE IN BRACKETS AND ARE NEGATIVE FIGURES. FIRSTLY, IT IS NOT THE ARGUMENT OF THE LD. TPO THAT PROVISION FOR BAD AND DOUBT FULL DEBTS IS NOT A PART OF TOTAL COST OF THE APPELLANT. THEN IF EXPENDITURE OF PROVISION FOR BAD IN DOUBTFUL DEBTS IS AN OPERATING COST , NATURALLY WHEN THIS EXPENDITURE HAVE BEEN REVERSED BY CREDIT TO THE PROFIT AND LOSS ACCOUNT THEN THEY SHOULD BE CONSIDERED PART OF THE OPERATING COST WORKING FOR THE PURPOSE OF DERIVING THE PLI. IN THIS CASE, THERE IS PROVISION OF RS. 36672464/ - WRITTEN BACK BY THE ASSESSEE AND ASSESSEE HAS CLAIMED IT AS REDUCTION IN TOTAL COST OF THE ASSESSEE. LD ASSESSING OFFICER HAS NOT CONSIDERED THIS ADJUSTMENT AND TOOK TOTAL COST BY FURTHER ADDING THE NEGATIVE FIGURE OF THIS ITEM. THE ADJUSTMENT MADE BY THE AO IS APPARENTLY INCORRECT. S ECONDLY IN CASE OF PROVISION FOR WORK IN PROGRESS WHICH IS THE CREDIT TO THE PROFIT AND LOSS ACCOUNT IT WAS ALSO ADDED TO THE TOTAL COST AS IT WAS MENTIONED IN BRACKETS . THE PROVISION FOR WORK IN PROGRESS IS THE OPERATING REVENUE OF THE ASSESSEE AND THIS H AS BEEN RIGHTLY REDUCED BY THE ASSESSEE FROM THE TOTAL COST AND HAS NOT BEEN INCLUDED AS THE OPERATING REVENUE. IN THE PRESENT CASE, WORKING 17 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 PLACED BEFORE US DOES NOT SHOW THAT IT HAS BEEN CONSIDERED IN OPERATING REVENUE . T HEREFORE, THE ADJUSTMENT MADE BY THE LD AO OF FURTHER INCREASING THE COST BY THIS SUM IS INCORRECT. WE FULLY AGREE WITH THE VIEW OF THE LD CIT ( A) IN WORKING OUT THE CORRECT PLI ON THIS COUNT. FURTHER, THE MISCELLANEOUS EXPENSES OF RS. 67754267/ - WHICH IS PART OF THE TOTAL COST OF THE ASS ESSEE BUT IN THE COMPUTATION OF THE TOTAL INCOME IT HAS NOT BEEN CLAIMED AS EXPENDITURE AND THEREFORE IT HAS RIGHTLY BEEN EXCLUDED FROM THE WORKING OF THE TOTAL COST BY THE ASSESSEE . WE DRAW SUPPORT FROM THE DECISION OF COORDINATE BENCH IN HAWORTH (INDIA ) ( P ) LIMITED V DY CIT 11 TAXMANN.COM 76 [131 ITD 215] ( DELHI) WHICH HELD THAT AMOUNTS SUO - MOTO DISALLOWED BY THE ASSESSEE CANNOT FORM PART OF PLI WHILE DETERMINING ALP. HENCE, WE CONFIRM THE FINDINGS OF LD CIT ( A). I N VIEW OF ABOVE WE HOLD THAT THE LD AO HAS INCORRECTLY INCREASE D THE TOTAL COST BY MAKING ADJUSTMENT ON ACCOUNT OF WRITE BACK OF PROVISION FOR BAD & DOUBTFUL DEBTS OF RS. 36672464/ - AND ALSO CREDIT OF PROVISION FOR WORK IN PROGRESS OF RS. 44919716/ - . LD ASSESSING OFFICER FURTHER WAS I NCORRECT IN CONSIDERING THE MISCELLANEOUS EXPENSES OF RS. 67754267/ - WHICH WAS NOT CLAIMED BY THE ASSESSEE AS EXPENDITURE AS PART OF TOTAL COST. IN THE RESULT AS THERE ARE NO OTHER ISSUES OF DISPUTE WITH RESPECT TO TRANSFER PRICING ADJUSTMENT OTHER THAN AD JUDICATED BY US ABOVE, WE DISMISS GROUND NO. 5 OF THE APPEAL OF THE REVENUE. 27. GROUND NO. 6 OF THE APPEAL IS AGAINST DELETION OF INTEREST U/S 234B OF THE INCOME TAX ACT. THE CONTENTION OF THE REVENUE SUBMITTED BY LD DR WAS THAT THE INTEREST U/S 234 B OF TH E ACT IS MANDATORY AND THEREFORE LD CIT(A) HAS INCORRECTLY DELETED THE INTEREST LEVIED U/S 234B. AGAINST THIS LD DR RELIED UPON THE ORDER 18 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 OF THE HONBLE DELHI HIGH COURT IN CASE OF DIT VS. GE PACKAGE POWER INCORPORATION 56 TAXMANN.COM 190 (DEL). 28. WE HAVE CA REFULLY CONSIDERED THE RIVAL CONTENTIONS. WE HAVE ALSO CAREFULLY CONSIDERED THE DECISION OF HONBLE DELHI HIGH COURT AND WE ARE AWARE THAT HONBLE SUPREME COURT HAS ALSO DISMISSED SLP AGAINST THE ABOVE DECISION. THEREFORE RESPECTFULLY FOLLOWING THE DECISIO N OF HONBLE DELHI HIGH COURT IN CASE OF DIT VS. GE PACKAGED POWER (SUPRA ) WE HOLD THAT ON THE PAYMENTS RECEIVED BY THE ASSESSEE THE PAYER WERE REQUIRED TO DEDUCT TAX AT SOURCES U/S 195 OF THE ACT. AS THE TAX WAS DEDUCTIBLE U/S 195 OF THE ACT, THERE IS N O FAILURE ON PART OF THE ASSESSEE IN TERMS OF SECTION 209(1 ) ( D) OF THE ACT IN PAYMENT OF ADVANCE TAX. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT ( A) IN HOLDING THAT 234B INTEREST IN THE CASE OF THE ASSESSEE IS NOT CHARGEABLE. IN VIEW OF THIS, THE APPEAL OF REVENUE ON THIS GROUND IS DISMISSED. 29. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 30. NOW WE COME TO THE CROSS OBJECTION OF ASSESSEE BEING CO NO. 74/DEL/2013 WHEREIN FIVE GROUNDS OF THE APPEAL ARE RAISED ON TRANSFER PRICING ADDITION OF RS. 3526787/ - UPHELD BY THE LD CIT ( A). 31. THE FIRST GROUND OF APPEAL IS AGAINST NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT BY THE LD AO AND CONFIRMED BY LD CIT ( A). IT WAS NOT DEMONSTRATED BEFORE US THAT HOW THE ECONOMIC ANALYSIS REJECTED BY THE LD AO IS INCORRECT. IN VIEW OF THIS GROUND NO. 1(A) OF APPEAL IS DISMISSED. 32. GROUND NO. 1(B) WAS AGAINST THE SEGREGATION OF THE TRANSACTION OF TWO SERVICES BY THE LD ASSESSING O FFICER AND CONFIRMED BY THE LD CIT (A). NO SPECIFIC ARGUMENTS WERE RAISED BEFORE US. THE LD CIT 19 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 (A) HAS DEALT WITH THIS ISSUE AND HELD THAT BOTH THE SERVICES RENDERED ARE SIMILAR IN NATURE. THE SIMILARITY OF THE ACTIVITIES, FUNCTIONS AND RISK PROFILE IS EV IDENT BY THE FACT THAT APPELLANT HAS SELECTED THE COMPARABLES COMMON TO BOTH THE SEGMENTS. THE APPELLANT ADVANCED NO SPECIFIC REASONS. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN CREATING TWO SEGMENTS ONLY BECAUSE OF COST BASE WHEN FAR ANALYSIS FOR BOTH TH E ACTIVITIES IS SIMILAR. THIS GROUND OF APPEAL IS , THEREFORE , REJECTED . 33. GROUND NO.1 (C) OF THE APPEAL IS AGAINST THE MULTIPLE YEAR DATA VERSUS SINGLE YEAR DATA. THIS GROUND WAS NOT PRESSED BEFORE US AND HENCE DISMISSED. 34. GROUND NO. 1(D) AND 1(E) ARE ALSO NOT PRESSED BEFORE US AND HENCE THEY ARE DISMISSED. 35. IN THE RESULT APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ITA NO. 5575/DEL/2012 (ASSESSMENT YEAR: 2005 - 06) 36. GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS AG AINST DECISION OF LD CIT ( A) IN DELETING THE DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS INCURRED BY THE APPELLANT. THE BRIEF FACT OF THE ISSUE IS THAT DURING THE YEAR ASSESSEE HAS SUFFERED FOREIGN EXCHANGE LOSS OF RS. 1938560/ - . THE ABOVE LOSS HAS BEEN DISALLOWED BY THE LD AO BECAUSE ACCORDING TO HIM, SUCH GAIN OR LOSS IN ANY FOREIGN EXCHANGE TRANSACTION IS ONLY NOTIONAL AND FURTHER IT WAS NOT KNOWN THAT IN CASE OF GAIN WHETHER ASSESSEE WOULD HAVE OFFERED THAT AS INCOME. ON APPEAL BEFORE THE LD CIT (A), THE DISALLOWANCE WAS DELETED RELYING ON THE DECISION OF THE 20 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 HONBLE S UPREME COURT IN CASE OF WOODWARD GOVERNOR VS. CIT 312 ITR 254 (SC). BEFORE US, IT WAS SUBMITTED BY LD D R THAT IT WAS A NOTIONAL LOSS. LD AR RELIED ON THE ORDER OF THE LD CIT ( A) . 37. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE LD AO HAS DISALLOWED THIS SUM WITHOUT GIVING PROPER REASON WHEREAS HE HAS SIMPLY STATED THAT CLAIM OF FOREIGN EXCHANGE LOSS OF RS. 1928500/ - IS NOT ALLOWABLE, AS IT HAS BEEN REALIZED TOWARDS MANAGEMENT FEES CHARGES. IN FACT, LD CIT ( A) HAS NOTED THAT THESE EXPENSES ARE MANAGEM ENT CONSULTANCY SERVICES, WHICH IS THE CORE FUNCTION OF ASSESSEE. THE AMOUNT OF FOREIGN EXCHANGE FLUCTUATION IS ALSO NOT A NOTIONAL LOSS BUT IS A DETERMINED LOSS AND IS GOVERNED BY THE ICAI. LD CIT ( A) HAS FURTHER HELD THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN CASE OF WOODWARD GOVERNOR VS. CIT (SUPRA) WHEREIN IT IS HELD THAT FOREX LOSS IS NOT A NOTIONAL LOSS. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT ( A) IN DELETING THE DISALLOWANCE OF RS. 1928500/ - ON ACCOUNT OF FOREX LOSS RELATING TO MANAGEMENT CONSULTANCY SERVICES. IN THE RESULT GROUND NO. 1 OF THE APPEAL IS DISMISSED. 38. GROUND NO. 2 OF THE APPEAL IS AGAINST THE DISALLOWANCE OF RS . 12817622/ - DELETED BY LD CIT ( A) ON ACCOUNT OF BAD DEBTS. BOTH THE PARTIES CONFIRMED THAT THIS GROUND OF APPEAL IS IDENTICAL TO GROUND NO. 3 OF THE APPEAL OF THE REVENUE FOR AY 2004 - 05 AND THE FACTS AND CIRCUMSTANCES ARE SIMILAR. 39. WE HAVE CAREFULLY PERUS ED THE GROUND OF APPEAL NO. 3 OF THE APPEAL OF THE REVENUE FOR AY 2004 - 05 WHICH HAS BEEN DECIDED BY US IN THIS ORDER AS UNDER: - WE HAVE CONSIDERED THE RIVAL CONTENTION. THE AMOUNT OF BAD DEBTS HAVE BEEN WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT AND ASSESS EE 21 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 HAS GIVEN DETAILS OF SUCH BAD DEBTS SHOWING NAMES OF THE PARTIES. LD CIT(A) HAS NOTED THAT THERE IS NO REQUIREMENT IN THE LAW THAT SUCH DEBTS SHOULD HAVE BEEN ESTABLISHED TO BECOME BAD BEFORE ITS ALLOWANCE. WE DO NOT FIND ANY SUCH CONDITION IN THE SECT ION. FURTHERMORE, THE LATEST CIRCULAR NO. 12/2006 DATED 30.05.2016 ISSUED BY THE CBDT ALSO SUPPORT THE ABOVE VIEW WHEREIN IT IS STATED THAT THE CLAIM OF BAD DEBT IS ALLOWABLE IF IT IS WRITTEN OFF AS RECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THERE IS NO REQUIREMENT FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A) IN DELETING THE ADDITION OF RS. 52943436/ - ON ACCOUNT OF BAD DEBT WRITTEN OFF. IN T HE RESULT THE GROUND NO. 3 OF THE APPEAL IS DISMISSED. 40. THEREFORE , SIMILARLY WE DISMISS GROUND NO. 2 OF THE APPEAL OF THE REVENUE. 41. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. C.O. NO. 75/DEL/2013 (IN ITA NO. 5575/DEL/2012) (ASSESSMENT YEAR: 200 5 - 06 ) 42. NOW WE COME TO CO NO. 75/DEL/2013 FOR AY 2005 - 06 WHERE THE SOLITARY GROUND TAKEN BY THE ASSESSEE IS ABOUT DISALLOWANCE OF RS. 21668771/ - INCURRED BY THE ASSESSEE AS MANAGEMENT FEES WHICH WAS SUBJECT TO TDS AND THEREFORE DISALLOWED U/S 40A(1) OF T HE ACT. 43. BEFORE US NO SPECIFIC ARGUMENTS WERE RAISED AND FINDINGS OF THE LD CIT ( A) AND ASSESSING OFFICER ARE VERY CATEGORICAL AND CLEAR THAT ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THIS SUM AND THEREFORE DISALLOWANCE IS MADE. WE FIND NO INFIRMITY IN TH E 22 ADIT V A T KEARNEY LIMITED ITA NO 5574 & 5575/DEL/2012 A T KEARNEY LTD. V ADIT CO NO 74 & 75/DEL/2013 A Y 2004 - 05 & 2005 - 06 FINDING OF LOWER AUTHORITIES. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 44. IN THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 45. IN THE RESULT APPEAL FILED BY THE REVENUE AND CO FILED BY THE ASSESSEE FOR AY 2005 - 06 ARE HEREBY DISMISSED. ORDER P R ONO UNCED IN THE OPEN COURT ON 2 0 / 06 /2016. - S D / - - S D / - ( SUDHANSHU SRIVASTAVA ) ( PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 / 06 /2016 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI