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ITA 1016/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3353 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 06-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDHARY
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings; Wholly owned subsidiary; Commercial expediency; Revised return
• Section: 143(3); 234B; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1016/DEL./2015 (ASSESSMENT YEAR : 2010-11) AT & T COMMUNICATION SERVICES INDIA VS. ACIT, CIRCL E 3(2), PRIVATE LIMITED, NEW DELHI. VATIKA TRIANGLE, 3 RD FLOOR, SUSHANT LOK 1, BLOCK A, GURGAON 122 002. (PAN : AACCA8033E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KANCHAN KAUSHAL, ADVOCATE REVENUE BY : SHRI H.K. CHAUDHARY, CIT DR DATE OF HEARING : 22.01.2018 DATE OF ORDER : 15.02.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. AT & T COMMUNICATION SERVICES INDIA PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER ) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 29.01.2015, PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO UNDER SECTION 143 (3) REA D WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE AC T) QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA T HAT :- ITA NO.1016/DEL/2015 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DISPUTE RESOLUTION PANEL-I, DELHI ('DRP') H AS, VIDE ORDER PASSED UNDER SECTION 144C(5) OF THE INCOME TA X ACT, 1961 ('ACT'), ERRED IN CONFIRMING THE ADJUSTMENTS PROPOS ED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), NEW DELHI ('DCIT) IN THE DRAFT ASSESSMENT ORDER DATED MARCH 2 4,2014 AND THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3( 2), NEW DELHI ('LEARNED AO') HAS THEREFORE, ERRED IN MAKING ADDITIONS/ DISALLOWANCES IN THE FINAL ASSESSMENT ORDER DATED J ANUARY 29, 2015 PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT. EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER. 1. GROUND NO.1 - DISALLOWANCE OF ADVANCE WRITTEN O FF 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING A DEDU CTION FOR RS.4,590,000, BEING SECURITY DEPOSIT FORFEITED BY T HE VENDOR ON ACCOUNT OF TERMINATION OF CONTRACT BETWEEN THE VEND OR AND THE APPELLANT FOR TAKING NEW OFFICE SPACE ON LEASE. 2. GROUND NO.2 - ADDITION ON ACCOUNT OF NON-CHARGIN G OF MARK-UP ON SUPPORT SERVICE CHARGES BILLED TO AT&T G LOBAL NETWORK SERVICES INDIA PRIVATE LIMITED ('AGNSI') 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED IN MAKING AN ADDITION OF RS.18,414,784 ON ACCOUNT OF NON-CHARGING OF MARK-UP ON SUPPORT SERVICE CHARGES BILLED TO AGNSI, AN INDIAN AFFILIATE OF THE APPELLANT. 3. GROUND NO.3 - DISALLOWANCE OF YEAR-END ACCRUALS 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED IN MAKING DISALLOWANC E OF EXPENSES AMOUNTING TO RS 5,615,035 (REPRESENTED BY YEAR-END ACCRUALS) ON ACCOUNT OF NON-SUBMISSION OF SUPPORTIN G DOCUMENTS. 3.2 WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A O HAS ERRED IN NOT HOLDING THAT SINCE SUCH YEAR-END ACCRUALS HA VE BEEN REVERSED IN THE SUBSEQUENT FINANCIAL YEARS, THE SAM E SHOULD BE ALLOWED AS TAX DEDUCTIBLE EXPENDITURE FOR THE SUBSE QUENT FINANCIAL YEARS. 3.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN NOT ALLOWING CLAIM MADE BY THE ITA NO.1016/DEL/2015 3 APPELLANT FOR DEDUCTION OF YEAR-END ACCRUALS AMOUNT ING TO RS. 51,594,924 PROPOSED FOR DISALLOWANCE IN THE PRECEDI NG ASSESSMENT YEAR (I.E. A Y 2009-10). GROUND NO.4 - GROUNDS RELATING TO TRANSFER PRICING MATTERS: THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW: 4.1 THE LEARNED TRANSFER PRICING OFFICER ('TPO')/ AO/ DRP HAVE ERRED IN MAKING AN ADDITION OF INR 91,602,187 TO THE TOTAL INCOME OF THE APPELLANT IN RESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF NETWORK SUPPORT SERVICES BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES ('AES') AND IMPUTED INTEREST ON INTER-COMPANY RECEIVABLES OUTSTANDING F ROM AES (HEREINAFTER REFERRED TO AS 'IMPUGNED TRANSACTIONS' ). 4.2 THE LEARNED TPO/ AO/ DRP HAS ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, BY NOT ACCEPTI NG THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE IN ACC ORDANCE WITH THE ACT READ WITH THE INCOME-TAX RULES, 1962 ('THE RULES'), AND MODIFYING THE SAME FOR DETERMINATION OF ARM'S LENGT H PRICES (ALP') OF THE IMPUGNED TRANSACTIONS TO HOLD THAT T HE SAME ARE NOT AT ARM'S LENGTH. 4.3 THE LEARNED TPO / AO / DRP HAVE ERRED IN: A. NOT ACCEPTING THE USE OF MULTIPLE YEAR DATA, AS ADOPTED BY THE APPELLANT IN ITS TRANSFER PRICING ('TP') DOCUME NTATION; AND B. DETERMINING THE ARM'S LENGTH MARGINS I PRICES US ING DATA PERTAINING ONLY TO FINANCIAL YEAR ('FY') 2009-10 WH ICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE INDIAN TP DOCUMENTATION REQUIREMENTS. 4.4 THE LEARNED TPOI AOI DRP HAVE ERRED IN REJECTI NG CERTAIN COMPARABLE COMPANIES SELECTED BY THE APPELL ANT BY APPLYING INAPPROPRIATE COMPARABILITY CRITERIA SUCH AS : A. TURNOVER LESS THAN INR 5 CRORE; B. DIMINISHING REVENUE; AND C. DIFFERENT ACCOUNTING YEAR. 4.5 THE LEARNED TPO AO DRP HAVE ERRED IN ERRONEOUS LY REJECTING CERTAIN COMPANIES SELECTED BY THE APPELLA NT AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF COMPARABLES O N AN AD-HOC BASIS, THEREBY RESORTING TO CHERRY PICKING OF COMPA RABLES FOR DETERMINATION OF ALP. ITA NO.1016/DEL/2015 4 4.6 THE LEARNED TPO/ AO/ DRP HAVE ERRED IN SELECTI NG CERTAIN COMPANIES (WHICH ARE EARNING SUPERNORMAL PR OFITS) AS COMPARABLE TO THE APPELLANT. 4.7 THE LEARNED TPO/ AO/ DRP HAVE ERRED IN NOT CON SIDERING GAINS / LOSSES ARISING OUT OF FOREIGN EXCHANGE FLUC TUATIONS WHILE COMPUTING THE OPERATING MARGINS OF THE APPELLANT AS WELL AS COMPARABLE COMPANIES. 4.8 THE LEARNED TPO/ AO/ DRP HAVE ERRED IN NOT MAK ING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES . 4.9 THE LEARNED TPO / AO / DRP HAVE ERRED IN HOLDI NG INTER- COMPANY RECEIVABLES ARISING FROM THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF INTER-COMPANY SERVICES T O CONSTITUTE A SEPARATE INTERNATIONAL TRANSACTION AND PROCEEDING T O BENCHMARK THE SAME BY APPLICATION OF COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD. 4.10 THE CUP ANALYSIS UNDERTAKEN BY THE TPO AND UP HELD BY DRP IS FLAWED AND DOES NOT REPRESENT AN UNCONTROLLE D TRANSACTION. 4.11 THE LEARNED TPO / AO / DRP FAILED TO APPRECIAT E THAT ONCE WORKING CAPITAL ADJUSTMENT IS GRANTED, NO SEPARATE ADJUSTMENT IS REQUIRED ON ACCOUNT OF INTEREST ON OUTSTANDING RECE IVABLES. 4.12 THE LEARNED TPO / AO / DRP FAILED TO APPRECIAT E THAT IN SIMILAR UNCONTROLLED TRANSACTIONS, THE APPELLANT DO ES NOT CHARGE INTEREST ON DELAYED PAYMENTS 5. GROUND NO.5 - SHORT CREDIT IN RESPECT OF TAXES DEDUCTED AT SOURCE ('TDS') 5.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO HAS ERRED IN GRANTING CREDIT FO R TDS OF RS 65,489,076 , AS AGAINST RS 65,784,537 CLAIMED BY TH E APPELLANT IN ITS REVISED RETURN OF INCOME FILED FOR THE SUBJECT AY. 6. GROUND NO.6 - LEVY OF EXCESS INTEREST UNDER SEC TION 234B AND 234C OF THE ACT 6.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN CHARGING EXCESS INTEREST UN DER SECTION 234B AND 234C OF THE ACT AT RS 1,05,91,198 AND RS 3 ,575,578, RESPECTIVELY, INSTEAD OF RS 3,259,684 AND RS 2,317, 879 COMPUTED BY THE APPELLANT IN ITS REVISED RETURN OF INCOME FI LED FOR THE SUBJECT A Y. ITA NO.1016/DEL/2015 5 7. GROUND NO.7 - INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) 7.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDI NGS UNDER SECTION 271 (1)( C) OF THE ACT AGAINST THE APPELLAN T ON ACCOUNT OF THE ABOVE ADJUSTMENTS MADE IN THE ASSESSMENT ORDER. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY OF AT&T COMMUNICATIONS SERVICES INTERNAT IONAL INC. USA, ENGAGED IN THE PROVISION OF SUPPORT SERVICES T O OVERSEAS AT&T GROUP COMPANIES AND CUSTOMER SUPPORT SERVICES, TELECOMMUNICATIONS NETWORK PLANNING AND MANAGEMENT SERVICES TO CUSTOMERS IN INDIA. THE SERVICES RENDERED BY THE T AXPAYER IS CONSISTING OF THREE SEGMENTS VIZ., (I) MARKET RESEA RCH, ADMINISTRATIVE SUPPORT & LIAISON SERVICES; (II) NET WORK OUTSOURCING SERVICES; AND (III) NETWORK SUPPORT SERVICES. DURI NG THE YEAR UNDER ASSESSMENT, THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) AS UNDER :- S.NO. INTERNATIONAL TRANSACTION METHOD AMOUNT IN INR 1 PROVISION OF MARKET RESEARCH, ADMINISTRATIVE & LIAISON SERVICES (MSA) TNMM 53,04,45,952 2 PROVISION OF NETWORK OUTSOURCING SERVICES (NOS) TNMM 14,29,966 3 PROVISION OF NETWORK SUPPORT SERVICES TNMM 56,33,79,984 4 REIMBURSEMENT OF EXPENSES TNMM 15,05,70,738 TOTAL 124,58,26,640 ITA NO.1016/DEL/2015 6 3. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS IN ITS TP STUDY APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) BY USING MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FO UND ALL ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. 4. HOWEVER, THE LD. TPO CONSIDERED INTERNATIONAL TR ANSACTIONS ENTERED INTO BY THE TAXPAYER WITH ITS AE QUA PROVIS IONS OF SERVICES UNDER NETWORK OUTSOURCING SUPPORT SERVICES AT ARMS LENGTH AND INTERNATIONAL TRANSACTION QUA REIMBURSEMENT OF AE A T ARMS LENGTH AND MADE ALP ADJUSTMENT QUA THE REMAINING TWO TRANS ACTIONS ALONG WITH INTEREST ON RECEIVABLES AS UNDER :- S. NO. NATURE OF INTERNATIONAL TRANSACTION ALP DETERMINED BY ASSESSEE (INR ALP DETERMINED BY THIS OFFICE (INR) ADJUSTMENT U/S 92CA (INR) 1 PROVISION OF NETWORK SUPPORT SERVICES 68,04,86,952 79,96,89,494 11,92,02,542 2 PROVISION OF MARKET RESEARCH, ADMINISTRATIVE SUPPORT & LIAISON SERVICES 53,04,45,952 56,67,24,667 3,62,78,715 3 INTEREST ON RECEIVABLES NIL 5,34,100 5,34,100 TOTAL 15,60,15,357 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY FILING OBJECTIONS WHO HAS TREATED THE INTERNATIONAL TRANSA CTIONS QUA PROVISION OF MARKET RESEARCH, ADMINISTRATIVE SUPPOR T AND LIAISON SERVICES (MRA) AT ARMS LENGTH AND PROVIDED PART RE LIEF QUA ITA NO.1016/DEL/2015 7 INTERNATIONAL TRANSACTIONS OF NETWORK SUPPORT SERVI CES (NSS). FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 7. THE TAXPAYER DEPOSITED AN AMOUNT OF RS.45,90,000 /- WITH M/S. IN TIME PROPERTIES PVT. LTD. (IN TIME) FOR GET TING ON LEASE NEW OFFICE SPACE IN HYDERABAD VIDE AGREEMENT DATED 06.10.2009. SUBSEQUENTLY, THE TAXPAYER DECIDED NOT TO TAKE OFFI CE SPACE ON LEASE AND CONSEQUENTLY IN TIME FORFEITED 50% OF T HE SECURITY DEPOSIT. AO/DRP DISALLOWED THE AMOUNT OF RS.45,90, 000/- CLAIMED AS DEDUCTIBLE EXPENSES ON THE GROUND THAT T HE SAID AMOUNT WAS FORFEITED DUE TO BREACH OF CONTRACT BY THE TAXP AYER. 8. THE LD. AR FOR THE TAXPAYER CONTENDED THAT SINCE THE CONTRACT WITH IN TIME WAS TERMINATED BEFORE COMMENCEMENT O F THE LEASE PERIOD, 50% OF THE SECURITY DEPOSIT FORFEITED BY IN TIME WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT IN THE FINANCIA L YEAR 2009-10; THAT SINCE THE LOSS ON ACCOUNT OF FORFEITURE OF THE DEPOSIT IS ITA NO.1016/DEL/2015 8 OCCURRED IN THE COURSE OF BUSINESS, IT IS REVENUE I N NATURE AND THAT THE TAXPAYER HAS BEEN REGULARLY CARRYING OUT ITS BU SINESS ACTIVITIES FROM VARIOUS PREMISES THROUGH-OUT THE COMPANY AND T HE SAID AGREEMENT WAS TERMINATED DUE TO GENUINE BUSINESS CO NSIDERATION AND RELIED UPON THE DECISION RENDERED BY THE COORDI NATE BENCH OF THE TRIBUNAL IN CASE OF FABINDIA OVERSEAS PVT. LTD. IN ITA NO.199/DEL/2012 ORDER DATED 28.06.2013 . THE COORDINATE BENCH OF THE TRIBUNAL BY RELYING UPON THE DECISION RENDER ED BY THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. KHAITAN CHEMICALS & FERTILIZERS LD. 326 ITR 114 HELD THE LOSS OF SECURITY DEPOSIT AS A BUSINESS LOSS IN THE REVENUE FIELD U/S 37(1) OF THE ACT. FOR FACILITY OF REFERENCE, OPERATIVE PART OF THE ORDER RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN FABINDIA OVERSEAS PVT. LTD. (SUPRA) IS REPRODUCED AS UNDER :- 18. ON THIS FACTUAL MATRIX THE ISSUE BEFORE US IS WHETHER THE LOSS OF SECURITY DEPOSIT IN QUESTION IS A BUSINESS LOSS IN THE REVENUE FIELD. IN OUR CONSIDERED OPINION THE ABOV E LOSS IS A BUSINESS LOSS FOR THE REASON THAT THE ASSESSEE HAS TAKEN ON LEASE MANY PREMISES SPREAD OVER MANY PARTS OF THE COUNTRY , AND THIS ACT OF TAKING THIS SHOW ROOM ON LEASE IS IN THE NOR MAL COURSE OF BUSINESS. IN FACT 84 SHOW ROOMS ARE TAKEN ON LEASE AT VARIOUS PLACES. SIX MONTHS RENT WAS GIVEN AS SECURITY DEPO SIT. THIS WAS GIVEN IN THE COURSE OF BUSINESS. THE TRANSACTION I S INTIMATELY CONNECTED WITH THE BUSINESS OF THE ASSESSEE. THE A SSESSING OFFICER HAS NOT DISPUTED THE GENUINENESS OF THE CLA IM. THE CIT(A) HAS DISALLOWED THE AMOUNT ON THE GROUND THAT THE LOSS WAS IN THE CAPITAL FIELD. WE DO NOT AGREE WITH THI S FINDING. THERE IS NO ENDURING BENEFIT TO THE ASSESSEE. IN OUR VIE W THE LOSS IN QUESTION IS IN THE REVENUE FIELD AND HAS BEEN RIGHT LY CLAIMED U/S 28. THIS IS NOT A BAD DEBT. IT IS NOT A CASE WHER E LEASE PREMIUM IS PAID FOR A LONG TERM LEASE AS IN THE CA SE OF KRIBCO ITA NO.1016/DEL/2015 9 (SUPRA). IT IS A DEPOSIT IN THE USUAL COURSE OF TA KING SHOW ROOMS ON LEASE. 19. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. KHAITAN CHEMICALS & FERTILIZERS LTD. 326 ITR 114 HA S HELD AS FOLLOWS. WE AGREE WITH THE LD.COUNSEL FOR THE APPELLANT/REV ENUE THAT THE ASSESSEE HAD WRONGLY CLAIMED IT AS A BAD DEBT U /S 36(1)(VII) OF THE SAID ACT. HOWEVER, WE FIND THAT THE TRIBUNAL H AS EXAMINED THE MATTER IN THE CORRECT LIGHT AND ALLOWED THE SAM E AS AN EXPENDITURE U/S 37(1) OF THE SAID ACT. A PLEA WAS RAISED BY THE LD.COUNSEL FOR THE REVENUE THAT THE TRIBUNAL OUGHT NOT TO HAVE DONE THIS AND OUGHT TO HAVE REMANDED THE MATTER TO THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE CL AIM WAS ALLOWABLE U/S 37(1) OF THE SAID ACT OR NOT. HOWEVE R, WE FIND THAT THE DECISIONS CITED BY THE LD.COUNSEL FOR THE ASSES SEE, NAMELY, CIT VS. MAHALAKSHMI TEXTILE MILLS LTD. (1967) 66 IT R 710 (SC) AND CIT VS. ROSE SERVICES APARTMENTS INDIA P.LTD. ( 2010) 326 ITR 100 (DELHI) (ITA NO.777 OF 2008 DECIDED ON FE BRUARY 20,2009), GIVE A CLEAR INDICATION THAT THE TRIBUNAL WAS EMPOWERED TO DEAL WITH THE ISSUE OF ALLOWABILITY OF THE SAID AMOUNT OF RS.14.79 LAKHS AND AS TO WHETHER THE ASSE SSEE WAS ENTITLED TO CLAIM IT AS A BAD DEBT OR AS AN EXPENDI TURE U/S 37(1) 20. APPLYING THE PROPOSITIONS LAID DOWN IN THIS C ASE LAW TO THE FACTS OF THE CASE WE UPHOLD THE CONTENTIONS OF THE ASSESSEE THAT THE EXPENDITURE IN QUESTION CAN BE ALLOWED AS A BUSINESS LOSS BY THE TRIBUNAL, THOUGH ORIGINALLY IT WAS CLAIMED AS A BAD DEBT. THE AMOUNT IN QUESTION WAS GIVEN, NOT FOR ACQUIRING OF ANY ASSET GIVING ENDURING BENEFIT AND WAS INCURRED IN THE CO URSE OF TRADE AND HENCE IS IN THE REVENUE FILED. 9. SO, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE ARE OF THE CONSIDERED VIEW THAT DEPOSITING THE SECURITY DEPOSIT FOR TAKING THE OFFICE SPACE ON LEASE BY THE TAXPAYER AN D SUBSEQUENTLY TERMINATING THE AGREEMENT DUE TO BUSINESS CONSIDERA TION IS A BUSINESS DECISION WHICH CANNOT BE QUESTIONED BY THE REVENUE. SO, FOLLOWING THE DECISION RENDERED BY THE COORDINATE B ENCH OF THE TRIBUNAL IN FABINDIA OVERSEAS PVT. LTD. (SUPRA) IN AN IDENTICAL ITA NO.1016/DEL/2015 10 ISSUE, THE ADDITION MADE BY THE AO OF RS.45,90,000/ - ON ACCOUNT OF ADVANCES AND SERVICE TAX WRITTEN OFF IS ORDERED TO BE DELETED. GROUNDS NO.2 & 2.1 10. THE AO MADE ADDITION OF RS.1,84,14,784/- ON ACC OUNT OF NON-CHARGING OF MARK-UP ON SUPPORT SERVICE CHARGES BILLED TO AT&T GLOBAL NETWORK SERVICES INDIA PVT. LTD. (AGNSI ), A GROUP COMPANY OF THE TAXPAYER WHICH HAS STARTED ITS OPERA TION FROM AY 2008-09 ON THE GROUND THAT WITHOUT ANY PROFIT MOTIV E, NO SUCH SERVICES CAN BE PROVIDED IN A BUSINESS SET UP. THE AO NOTICED THAT THE TAXPAYER HAS CHARGED MARK UP OF 8% FROM AGNSI I N AY 2008- 09 AND FIRST THREE MONTHS OF AY 2009-10 AND THEREAF TER UNILATERALLY REVERSED THE SAME ON THE PLEA THAT IT WAS MANAGEMEN T DECISION AND AO CONSIDERED IT AN AFTER-THOUGHT DUE TO LACK OF CO MPLETE DOCUMENTATION IN THIS REGARD. THE LD. DRP HELD THE DECISION OF AO TO THE EXTENT THAT THE AO SHOULD RESTRICT THE MARK- UP AS FINALLY DETERMINED BY THE TPO PURSUANT TO THE DIRECTIONS IS SUED BY THIS ORDER ON TP MATTERS. 11. CHALLENGING THE IMPUGNED ORDER PASSED BY AO/DRP , THE LD. AR FOR THE TAXPAYER CONTENDED THAT THERE IS NO PROV ISION UNDER THE ACT TO IMPUTE NOTIONAL INCOME FOR DOMESTIC TRANSACT IONS AND MOREOVER TRANSFER PRICING PROVISION AS HAS BEEN AME NDED BY THE ITA NO.1016/DEL/2015 11 FINANCE ACT, 2012 SPECIFICALLY TO COVER THE DOMESTI C TRANSACTIONS, HOWEVER W.E.F. APRIL 1,2013, AND WOULD NOT BE APPLI CABLE TO THE TRANSACTION PRIOR TO APRIL 1, 2013; THAT NO MARK UP IS APPLICABLE AND REQUIRED TO BE CHARGED ON THE SUPPORT SERVICES CHAR GES PAID BY AGNSI TO ACSI AS IS DULY EXPLAINED IN THE AGREEMENT BETWEEN ACSI AND AGNS; THAT IT WAS DECIDED BETWEEN THE PART IES THAT NO MARK UP IS CHARGED BY ACSI ON THE SUPPORT SERVICE C HARGES BILLED TO AGNS AND RECOVERY SHOULD BE MADE ON COST TO COST BASIS AS PER AGREEMENT; THAT COMMERCIAL EXPEDIENCY OF A PARTICUL AR TRANSACTION WOULD BE EXAMINED FROM THE PERSPECTIVE OF A BUSINES SMAN; THAT BOTH AGNSI AND THE TAXPAYER ARE PROFIT MAKING ENTIT IES AND THERE WAS NO TAX INCENTIVES FOR THE PURPOSE TO DEFLATE TH E REVENUES EARNED BY THE TAXPAYER AND RELIED UPON THE JUDGMENT OF HON BLE APEX COURT IN CIT VS. A. RAMAN & COMPANY (1968 AIR 49) AND THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN SMT. SUMANLATA DIDWANIA VS. ITO (1986) 17 ITD 830 (ALL.) . 12. HOWEVER, ON THE OTHER HAND, THE LD. DR FOR THE REVENUE CONTENDED THAT IF SOMETHING IS CHARGED BY A COMPANY , THERE MUST BE SOME AGREEMENT THAT THERE IS NO MARK UP AND IN T HIS CASE, NO SUCH AGREEMENT HAS BEEN PRODUCED AND RELIED UPON TH E ORDER PASSED BY THE AO/DRP. ITA NO.1016/DEL/2015 12 13. UNDISPUTEDLY, THE TAXPAYER AS WELL AS AGNSI, IT S GROUP COMPANY ARE PROFIT MAKING ENTITY AND THERE IS NO TA X INCENTIVE FOR THE PURPOSE TO DEFLATE THE REVENUES EARNED BY THE T AXPAYER. EVEN IN CASE HIGHER AMOUNT HAVE BEEN CHARGED BY THE TAXPAYE R FROM AGNSI, NO ADDED TAX ADVANTAGE IS BEING AVAILED BY T HE TAXPAYER BY CHARGING SUPPORT SERVICES COST FROM AGNSI AT COS T TO COST BASIS WITHOUT ANY MARK UP. 14. ISSUE OF NON-CHARGING OF MARK UP ON SUPPORT SER VICES BEING BUILT UP TO AGNSI HAS COME UP IN THE APPEAL FOR AGN SI FOR AY 2008-09 TO AY 2011-12 WHEREIN THE REVENUE HAS RAISE D A GROUND THAT SUCH SUPPORT SERVICES EXPENDITURE SHOULD BE DI SALLOWED IN THE BOOKS OF ACCOUNT OF AGNSI. 15. THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF AGNSI FOR AY 2009-10 IN ITA NO.2538/DEL/2014 UPHELD THE DECISION RENDERED BY THE LD. DRP IN FAVOUR OF THE ASSESSEE O N IDENTICAL ISSUE BY RETURNING THE FOLLOWING FINDINGS :- 75. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND PERUSED THE FACTS OF THE CASE. THE FACTS OF THE CAS E AS EXPLAINED BY THE APPELLANT ARE THAT, ACSI, A GROUP COMPANY OF APPELLANT AND AN ENTITY IN OPERATIONS FOR MORE THAN 10 YEARS BY THEN, WAS HAVING DEVELOPED SUPPORT SERVICES FUNCTIONS. ACCORD INGLY, SINCE SUCH FUNCTIONS WERE ALREADY HOUSED IN ACSI, APPELLA NT ENTERED INTO A SUPPORT SERVICES AGREEMENT WITH ACSI FOR PRO VISION OF THE AFORESAID SUPPORT SERVICES TO APPELLANT. WE HAVE GO NE THROUGH THE SUBMISSION OF THE ASSESSEE AND FIND THAT NECESS ARY EVIDENCES IN THE FORM OF THE SUPPORT SERVICE AGREEMENT, INVOI CES, THE DETAILS OF PAYMENTS MADE AND THE BANK STATEMENTS EVIDENCING THE PAYMENT THEREOF HAVE BEEN FURNISHED BY THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENSES. WE FIND THAT NO EVIDEN CE HAS BEEN ITA NO.1016/DEL/2015 13 BROUGHT ON RECORD BY THE DEPARTMENT TO DISPUTE THE SAID CLAIM. RATHER, THE DEPARTMENTS CLAIM IS MERELY BASED ON S USPICION AS ALSO NOTED BY THE DRP WHILE DELETING THE ABOVE DISA LLOWANCE. WE ALSO FIND THAT EVEN OTHERWISE, BOTH ACSI AND APPELL ANT ARE PROFIT MAKING ENTITIES AND HENCE, THERE WAS NO TAX INCENTI VE FOR THE PARTIES TO DEFLATE THE REVENUES EARNED BY APPELLANT . THE DECISION WAS TOTALLY BASED ON COMMERCIAL CONSIDERATIONS. BY TRANSFERRING THE COST FROM ACSI TO APPELLANT NO ADDED TAX ADVANT AGE IS BEING AVAILED BY APPELLANT. WE ARE ALSO OF THE VIEW THAT COMMERCIAL EXPEDIENCY OF A PARTICULAR EXPENDITURE INCURRED BY A BUSINESSMAN SHOULD BE EXAMINED FROM THE PERSPECTIVE OF THE BUSINESS PERSON AND NO THIRD PARTY, INCLUDING THE T AX AUTHORITIES, IS ENTITLED TO QUESTION THE COMMERCIAL REASONING/ J USTIFICATION OF THE EXPENDITURE SO INCURRED. RELIANCE IN THIS REGAR D IS PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS FURNISHED BY THE ASSESSEE: I. CIT V. PANIPAT WOOLLEN & GENERAL MILLS CO LTD (103 ITR 66) (SUPREME COURT) II. CIT V. SALES MAGNESITE (P) LTD [1995) 214 ITR 1 III. BINODIRAM BALCHAND VS. COMMISSIONER OF INCOME TAX (48 1TR 548) IV. CALCUTTA LANDING AND SHIPPING CO LTD VS. CIT (65 IT R 1) (CAL HIGH COURT) V. CIT VS B DALMIA CEMENT LTD (254 ITR 377) 76. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOW N IN THE AFORESAID JUDICIAL PRECEDENTS, WE FIND THAT WHERE T HE APPELLANT HAS ACTUALLY INCURRED THE AFORESAID SUPPORT SERVICE S COST AND NO EVIDENCE HAS BEEN BROUGHT BY THE DEPARTMENT TO CONT ROVERT THE SAME, SUCH EXPENDITURE CANNOT BE DISALLOWED MERELY ON SUSPICION. WE AFFIRM THE FINDING OF THE LD DRP ON T HIS ISSUE. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE ON THI S GROUND IS DISMISSED. 16. SO, IN THE INSTANT CASE ALSO, THE REVENUE HAS F AILED TO CONTROVERT THE INVOICES, THE DETAILS OF PAYMENT MAD E AND EVIDENCING THE PAYMENTS THEREOF TO DISPUTE THE GENU INENESS OF THE EXPENSES AND THE FACT THAT THE TAXPAYER AS WELL AS AGNSI ARE PROFIT MAKING ENTITIES AND THERE WAS NO TAX INCENTIVES FOR THE PURPOSE TO DEFLATE THE REVENUES EARNED BY THE TAXPAYER, THE RE VENUE HAS BASED ITS DECISION ON COMMERCIAL CONSIDERATION. MOREOVER , IN CASE OF ITA NO.1016/DEL/2015 14 BOTH THE RESIDENT PARTIES, TERMS AND CONDITIONS OF THE ARRANGEMENT CANNOT BE QUESTIONED BY THE REVENUE UNLESS SPECIFIC ALLY PROVIDED UNDER THE ACT. IN CASE OF A CONTRACT BY BOTH THE P ARTIES WHO ARE ADMITTEDLY RESIDENT INDIAN ENTITIES, THEY MAKE THE LAW FOR THEMSELVES WHICH CANNOT BE INTERFERED UNLESS CONTRA CT IS UNLAWFUL OR SPECIALLY BARRED BY THE LAW OF THE LAND. MOREOV ER BY SUCH A DECISION OF NOT CHARGING MARK UP BY THE TAXPAYER ON SUPPORT SERVICES CHARGES BILLED TO AGNSI, NO LOSS OF TAX HA S BEEN CAUSED TO REVENUE. SO, THE FINDINGS OF THE TPO/DRP THAT THE TAXPAYER IS NOT ONLY TO CUT CHARGES BUT MARK UP ALSO IS NOT SUSTAIN ABLE IN THE EYES OF LAW. SO, WE ORDER TO DELETE THE ADDITION ON ACC OUNT OF NOT CHARGING OF MARK UP ON SUPPORT SERVICES CHARGES BIL LED TO AGNSI. GROUNDS NO.3 TO 3.3 17. AO DISALLOWED AN AMOUNT OF RS.56,15,035/- AND A DDED BACK THE SAME TO THE INCOME OF THE TAXPAYER ON THE GROUN D THAT THE TAXPAYER DOES NOT HAVE THE BASIS OF RECORDING YEAR END ACCRUAL. THE LD. DRP APPROVED THE PROPOSED ADDITION ON THIS ACCOUNT. 18. UNDISPUTEDLY, THE DETAIL OF YEAR END ACCRUAL OU TSTANDING AS ON MARCH 31, 2010 ARE AS UNDER :- ITA NO.1016/DEL/2015 15 PARTICULARS ACCRUALS AS ON MARCH 31, 2010 ACCRUAL CONTROL ACCUNT 11,25,51,600 SALARY PAYABLE 50,26,782 IPA ACCRUALS 24,21,901 SIP ACCRUALS 51,00,353 INTERNAL LSP LIABILITY 25,24,592 TOTAL 12,76,25,228 19. IT IS ALSO NOT IN DISPUTE THAT OUT OF THE AFORE SAID AMOUNT OF RS.12.76 CRORES, INVOICES OF RS.10.69 CRORES WERE S UBMITTED AND ACCEPTED BY THE AO. IT IS ALSO NOT IN DISPUTE THAT REVERSAL ENTRIES OF RS.1.50 CRORES WERE MADE IN THE SUCCEEDING YEARS BY GIVING BENEFIT OF THE SAME TO THE TAXPAYER. IT IS ALSO NOT IN DIS PUTE THAT RS.5.02 CRORES FOR THE DISALLOWANCE MADE IN THE PRECEDING A SSESSMENT YEAR HAS BEEN ALLOWED TO THE TAXPAYER AGAINST THE ABOVE DISALLOWANCE RESULTING IN CREDIT OF RS.4.46 CRORES. IT IS ALSO NOT IN DISPUTE THAT TAXPAYER IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND HAS PRODUCED DOCUMENTARY EVIDENCE SUPPORTING PAYMENT / REVERSAL OF MORE THAN 95% OF THE EXPENSES REPRESENTED BY THE YE AR END ACCRUAL. 20. THE LD. AR FOR THE TAXPAYER CONTENDED THAT YEAR END ACCRUALS BEING PROVISIONS MADE TOWARDS ROUTINE BUSINESS EXPE NDITURE INCURRED ARE BASED ON PAST TRENDS AS WELL AS SCIENT IFIC AND REASONABLE BASIS AND ARE LIABLE TO BE ALLOWED AS DE DUCTION IN VIEW ITA NO.1016/DEL/2015 16 OF THE DECISIONS RENDERED BY HONBLE APEX COURT IN ROTORK CONTROLS INDIA (P) LTD. 314 ITR 62 . 21. THE LD. AR FOR THE TAXPAYER FURTHER CONTENDED T HAT THE ISSUE IS ALSO COVERED BY THE DECISION OF THE COORDINATE B ENCH OF THE TRIBUNAL IN CASE OF AGNSI IN ITA NO.1059/DEL/2015 FOR AY 2010-11 . 22. LD. DR FOR THE REVENUE CONTENDED THAT BEFORE TH E LD. DRP, THE TAXPAYER HAS NOT PRODUCED ANY DOCUMENTARY EVIDE NCE NOR PRESSED THE ADDITION AND MOREOVER AO HAS ALREADY BE EN DIRECTED TO VERIFY AND PROCEED ACCORDINGLY. 23. SO FAR AS QUESTION OF NOT PRESSING THE ISSUE BE FORE THE LD. DRP, AS CONTENDED BY THE LD. DR FOR THE REVENUE, IS CONCERNED, WHEN WE SEE THE ENTIRE DISCUSSION ON THIS ISSUE IN PARA 8.1, IT GOES TO PROVE THAT THE ISSUE WAS PRESSED AND DISPOSED OF BY THE LD. DRP ON MERITS AND MERELY ON THE BASIS OF ONE SENTENCE I T CANNOT BE SAID THAT THE ISSUE HAS NOT BEEN PRESSED. 24. HONBLE SUPREME COURT IN CASE CITED AS ROTORK CONTROLS INDIA (P) LTD. (SUPRA) DECIDED THE IDENTICAL ISSUE IN FAVOUR OF TH E TAXPAYER BY RETURNING THE FOLLOWING FINDINGS :- HELD, REVERSING THE DECISION OF THE HIGH COURT, THA T THE VALVE ACTUATORS, MANUFACTURED BY THE ASSESSEE, WERE SOPHISTICATED GOODS AND STATISTICAL DATA INDICATED THAT EVERY YEA R SOME OF THESE WERE FOUND DEFECTIVE ; THAT VALVE ACTUATOR BEING A SOPHISTICATED ITEM NO CUSTOMER WAS PREPARED TO BUY A VALVE ACTUAT OR WITHOUT A WARRANTY. THEREFORE, THE WARRANTY BECAME AN INTEGRA L PART OF THE ITA NO.1016/DEL/2015 17 SALE PRICE; IN OTHER WORDS, THE WARRANTY STOOD ATTA CHED TO THE SALE PRICE OF THE PRODUCT. IN THIS CASE THE WARRANTY PRO VISIONS HAD TO BE RECOGNIZED BECAUSE THE ASSESSEE HAD A PRESENT OB LIGATION AS A RESULT OF PAST EVENTS RESULTING IN AN OUTFLOW OF RE SOURCES AND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF TH E OBLIGATION. THEREFORE, THE ASSESSEE HAD INCURRED A LIABILITY DU RING THE ASSESSMENT YEAR WHICH WAS ENTITLED TO DEDUCTION UND ER SECTION 37 OF THE INCOME-TAX ACT, 1961. THE PRESENT VALUE OF A CONTINGENT LIABILITY, LIKE T HE WARRANTY EXPENSE, IF PROPERLY ASCERTAINED AND DISCO UNTED ON ACCRUAL BASIS CAN BE AN ITEM OF DEDUCTION UNDER SEC TION 37. THE PRINCIPLE OF ESTIMATION OF THE CONTINGENT LIABILITY IS NOT THE NORMAL RULE. IT WOULD DEPEND ON THE NATURE OF THE B USINESS, THE NATURE OF SALES, THE NATURE OF THE PRODUCT MANUFACT URED AND SOLD AND THE SCIENTIFIC METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. IT WOULD ALSO DEPEND UPON THE HISTORICAL TREND AND UPON THE NUMBER OF ARTICLES PRODUCED. A PROVISION IS A LIABILITY WHICH CAN BE MEASURED ON LY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISI ON IS RECOGNIZED WHEN: (A) AN ENTERPRISE HAS A PRESENT OB LIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION , AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT ME, NO PROVISION CAN BE RE COGNIZED. THE PRINCIPLE IS THAT IF THE HISTORICAL TREND INDIC ATES THAT A LARGE NUMBER OF SOPHISTICATED GOODS WERE BEING MANU FACTURED IN THE PAST AND THE FACTS SHOW THAT DEFECTS EXISTED IN SOME OF THE ITEMS MANUFACTURED AND SOLD, THEN PROVISION MADE FO R WARRANTY IN RESPECT OF SUCH SOPHISTICATED GOODS WOULD BE ENT ITLED TO DEDUCTION FROM THE GROSS RECEIPTS UNDER SECTION 37. 25. WHEN UNDISPUTEDLY NO MISTAKE HAS BEEN POINTED O UT BY THE AO IN THE CALCULATION NOR IT IS THE CASE OF THE AO THAT THE TAXPAYER HAD NOT PAID CERTAIN BILLS AND THE TAXPAYER IS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING AND THE EXPENSES ARE HAVING EL EMENT OF ESTIMATION AS WELL AS SCIENTIFIC BASIS, KEEPING IN VIEW THE PAST TREND, THE EXPENSES ARE REQUIRED TO BE ALLOWED IN T HE YEAR OF ITA NO.1016/DEL/2015 18 CREATION ITSELF, PARTICULARLY, WHEN THE REVENUE AUT HORITIES HAS ALLOWED THE ENTIRE CLAIM OF EXPENDITURE IN THE SUBS EQUENT YEARS. 26. SO, FOLLOWING THE LAW LAID DOWN BY THE HONBLE APEX COURT IN ROTORK CONTROLS INDIA (P) LTD. (SUPRA) AND THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN AGNSI IN ITA NO.1059/DEL/2015 FOR AY 2010-11 , WE ARE OF THE CONSIDERED VIEW THAT WHEN THE TAXPAYER HAS WORKED OUT THE LIABILITY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION BY PROVING 95% OF THE INVOICES ON THE BASIS OF HISTORICAL TREND, NO DISALLOWANCE CAN BE MADE. SO, WE ORDER TO DELETE THIS ADDITION. GROUNDS NO.4 TO 4.12 27. UNDISPUTEDLY, THE TPO HAS NOT DISPUTED THE FUNC TION AND METHOD OF BENCHMARKING THE INTERNATIONAL TRANSACTIO NS APPLIED BY THE TAXPAYER. IT IS ALSO NOT IN DISPUTE THAT THE T AXPAYER IS OPERATING LOW RISK NETWORK SUPPORT SERVICES PROVIDER TO IBM C ORP., THE CUSTOMER OF ITS AE. IT IS ALSO NOT IN DISPUTE THAT THE NSS ARE IN THE NATURE OF FAULT MONITORING, INCIDENT MANAGEMENT, TR OUBLESHOOTING, CHARGE MANAGEMENT, CONFIGURATION OF NETWORK DEVICES , SECURITY COMPLIANCE AND ANY OTHER SERVICES REQUIRED BY THE A E FROM TIME TO TIME. IT IS ALSO NOT IN DISPUTE THAT THE TAXPAYER IS REMUNERATED AT COST PLUS 16% MARK UP AS PER SERVICE AGREEMENT WITH AT&T CORP. ITA NO.1016/DEL/2015 19 IT IS ALSO NOT IN DISPUTE THAT AT&T CORP. HAS ENTER ED INTO MASTER SERVICE AGREEMENT TO OUTSOURCE IMBS WORLDWIDE NET WORK SERVICE DELIVERY BUSINESS FUNCTIONS. 28. POST DIRECTIONS OF DRP, THE TPO SELECTED 12 COM PARABLES WITH OP/OC AS PROFIT LEVEL INDICATOR (PLI) WHICH AR E AS UNDER :- S. NO. COMPANY NAME COMPAR- ABLES AS PER TP STUDY COMPAR- ABLES INTRODUCED BY TPO OP/TC (AS PER TPO ORDER) WORKING CAPITAL ADJUSTED OP/TC (AS PER FINAL ASSESSMENT ORDER) 1 TELECOMMUNICATIONS CONSULTANTS INDIA LTD. (SEG.) - - 10.73% 5.61% 2 CADES DIGITECH PVT. LTD. - - 8.80% 5.55% 3 CERTIFICATION ENGINEERS INTERNATIONAL LTD. - - 78.63% 70.24% 4 ENGINEERS INDIA - - 62.94% 59.99% 5 HSCC (INDIA) - - 18.32% 3.89% 6 IBI CHEMATUR - - 52.66% 51.62% 7 KIRLOSKAR CONSULTANTS LTD. - - 15.64% 9.06% 8 KITCO LTD. - - 14.01% 13.69% 9 MAHINDRA CONSULTING ENGINEERS LTD. - - 23.50% 23.37% 10 NTPC ELECTRIC SUPPLY CO LTD. - - 74.70% 71.27% 11 RITES LTD. - - 50.05% 42.88% 12 TCE CONSULTING ENGINEERS LTD. - - 25.88% 24.33% AVERAGE 36.32% 31.79% 29. THE LD. AR FOR THE TAXPAYER IN ORDER TO CUT SHO RT HIS ARGUMENTS CONTENDED THAT THE TAXPAYER GRIEVANCE IS TO THE EXTENT OF EXCLUDING GOVERNMENT OWNED UNDERTAKING FROM THE FIN AL SET OF COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRAN SACTIONS QUA ITA NO.1016/DEL/2015 20 NETWORK SUPPORT SERVICES (NSS) AND RELIED UPON THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN BECHTEL INDIA PRIVATE LIMITED IN ITA NO.1478/DEL/3025 (AVAILABLE ON PAGES 46 & 47 OF CASE LAW COMPENDIUM-II) AND DECISION RENDER ED BY HONBLE BOMBAY HIGH COURT IN THYSEEN KRUPP INDUSTRIES INDIA (P.) LTD. IN ITA NO.2218 OF 2013 (AVAILABLE ON PAGE 36 OF CASE LAW COMPENDIUM-II). 30. THE COORDINATE BENCH OF THE TRIBUNAL IN BECHTEL INDIA PRIVATE LIMITED (SUPRA) ORDERED TO EXCLUDE GOVERNMENT UNDERTAKINGS AS COMPARABLE ON THE GROUND THAT, THE MAJORITY REVENUE (AND PROFITABILITY) OF THIS COMPANY COMES F ROM GOVERNMENT (STATE OR CENTER) RUN PROJECTS AND THAT THE COMPANY DERIVES BENEFIT OUT OF ITS PARENTAL RELATION WITH T HE GOVERNMENT IN GETTING CONTRACT WHICH CERTAINLY MAKES THE PROFIT M ARGIN. 31. HONBLE BOMBAY HIGH COURT IN THYSEEN KRUPP INDUSTRIES INDIA (P.) LTD. (SUPRA) HAS ALSO LAY DOWN THE PRINCIPLE THAT, THE ENGINEERS INDIA LTD. COULD NOT BE CONSIDERED TO BE COMPARABLE FOR THE REASON THAT CONTRACTS BETWEEN PUBLIC SECTOR UND ERTAKINGS ARE NOT DRIVEN BY PROFIT MOTIVE ALONG BUT OTHER CONSIDE RATION ALSO WEIGH IN SUCH AS DISCHARGE OF SOCIAL OBLIGATIONS ET C. 32. BY APPLYING THE DECISION RENDERED BY THE COORDI NATE BENCH OF THE TRIBUNAL IN BECHTEL INDIA PRIVATE LIMITED (SUPRA) AND ITA NO.1016/DEL/2015 21 HONBLE BOMBAY HIGH COURT IN THYSEEN KRUPP INDUSTRIES INDIA (P.) LTD. (SUPRA), THE COORDINATE BENCH OF THE TRIBUNAL IN CA SE OF WSP CONSULTANTS INDIA PVT. LTD. IN ITA NO.344/DEL/2 016 ORDERED TO EXCLUDE KITCO, A 100% GOVERNMENT UNDERTAKING. 33. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT GOVERNMENT UNDERTAKINGS/COMPANIES ARE NOT THE SUITA BLE COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRAN SACTION. SO, THE AO IS DIRECTED TO VERIFY ALL THE GOVERNMENT UND ERTAKINGS / COMPANIES FROM THE FINAL SET OF COMPARABLES WHICH A RE TAKING PREFERENTIAL TREATMENT FROM GOVERNMENT IN GETTING C ONTRACT ETC. AND ARE NOT DRIVEN BY PROFIT MOTIVE ALONE IMPACTING THE PROFIT MARGIN AND TO EXCLUDE THE SAME AND THEN BENCHMARK THE INTE RNATIONAL TRANSACTIONS QUA NETWORK SUPPORT SERVICES. CONSEQU ENTLY, GROUNDS NO.4 TO 4.12 ARE DETERMINED IN FAVOUR OF TH E TAXPAYER. GROUNDS NO.5 & 5.1 34. THE AO ALLOWED CREDIT OF TDS 6,54,89,076/- AS A GAINST THE CLAIM OF RS.6,57,84,537/- CLAIMED BY THE TAXPAYER I N ITS REVISED RETURN OF INCOME FILED FOR THE YEAR UNDER ASSESSMEN T. WHEN THE TAXPAYER HAS BROUGHT ON RECORD THE COMPLETE DETAIL OF TDS TO THE TUNE OF RS.6,57,84,537/- BY FILING REVISED RETURN O F INCOME, THE AO HAS ERRED IN GRANTING SHORT CREDIT THEREOF. SO, WE DIRECT THE AO TO ITA NO.1016/DEL/2015 22 PROVIDE FULL CREDIT OF TDS OF RS.6,57,84,537/- AFTE R DULY VERIFYING THE FACTS. GROUNDS NO.6 & 6.1 35. GROUNDS NO.6 & 6.1 QUA LEVY OF INTEREST U/S 234 B AND 234C OF THE ACT NEED NO SPECIFIC FINDING BEING CONSEQUEN TIAL IN NATURE. GROUNDS NO.7 & 7.1 36. GROUNDS NO.7 & 7.1 ARE PREMATURE, HENCE DO NOT REQUIRE ANY ADJUDICATION. 37. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF FEBRUARY, 2018. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 15 TH DAY OF FEBRUARY, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.