DCIT, Bangalore V. M/s Adcock Ingram Limited, Bangalore

ITA 1039/BANG/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5600 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 06-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VISHNU BAGRI
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Commercial expediency
• Section: 92B; 10B; 37

Judgement Text

IT(TP)A.1039 & 1078/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.1039 & 1078/BANG/2015 (ASSESSMENT YEARS : 2009-10 & 2010-11) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -11(1), BENGALURU .. APPELLANT VS. M/S. ADCOCK INGRAM LTD, 49C & D, BOMMASANDRA INDUSTRIAL AREA, ANEKAL TALUK, BENGALURU 560 009 .. RESPONDENT PAN : AAGCA4343M ASSESSEE BY : SHRI. VISHNU BAGRI, CA REVENUE BY : SHRI. HARINDER KUMAR, CIT - DR HEARD ON : 12.12.2017 PRONOUNCED ON : 31.01.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST THE ORDERS OF THE CIT (A)-1, BENGALURU, DT.27.04.2015 & 22.05.201 5, FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 RESPECTIVELY. IT(TP)A.1039 & 1078/BANG/2015 PAGE - 2 02. THE GROUNDS OF APPEAL RAISED BY THE REVENUE FOR AY. 2009-10 ARE AS UNDER : IT(TP)A.1039 & 1078/BANG/2015 PAGE - 3 03. THE GROUNDS OF APPEAL RAISED BY THE REVENUE FOR THE AY 2010-11 ARE AS UNDER : IT(TP)A.1039 & 1078/BANG/2015 PAGE - 4 IT(TP)A NO.1039/BANG/2015 : 04. GROUND NOS.1, 2, 8 AND 9 ARE GENERAL IN NATURE. GROUND NOS.3, 4, 5 & 6 DEAL WITH THE ISSUE OF LIC ENCE FEE AND MANAGEMENT FEES. BRIEF FACTS RELEVANT TO DECIDE TH E PRESENT APPEAL ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY INCORPORATED IN INDIA AND IS ENGAGED IN MANUFACTURE OF PHARMACEUTICAL FORMULATIO NS FOR ADCOCK INGRAM HEALTH CARE (PTY)LTD, SOUTH AFRICA (AIHPL) A ND PROVIDING OUTSOURCED FORMULATION MANUFACTURING SERVICES TO DO MESTIC PHARMACEUTICAL COMPANIES. THE ASSESSEE WAS ESTABLI SHED AS A JOINT VENTURE COMPANY ON 05.02.2007 BETWEEN MEDREICH SA ( INDIAN COMPANY) AND AIHPL (AE) FOR THE PURPOSES MENTIONED IN THE JOINT VENTURE AGREEMENT WITH SHAREHOLDING OF 50.1% AND 4 9.9% OF MEDREICH AND AIHPL RESPECTIVELY. 05. THE ASSESSEE COMPANY (RESIDENT) ENTERED INTO VA RIOUS ARRANGEMENTS WITH AIHPL IN THE FORM OF BUSINESS AGR EEMENT DT.31.08.2007 FOR TECHNICAL KNOWHOW MANUFACTURE OF PHARMACEUTICAL FORMULATIONS. AS PER THE TERMS OF THE AGREEMENT, T HE ASSESSEE WAS REQUIRED TO PAY A LICENCE FEE AT THE RATE OF 8% OF NET SALES. (PAGE 244 OF THE PAPER BOOK). IT(TP)A.1039 & 1078/BANG/2015 PAGE - 5 06. THE ASSESSEE HAD ALSO ENTERED INTO A MANAGEMENT AGREEMENT WITH MEDREICH SA DT.31.07.2008 FOR THE PURPOSES OF LIAISONING AND COORDINATING THE SERVICES AND ALSO TO MANAGE ITS SU PPLY ARRANGEMENT TO AIHPL MORE EFFICIENTLY. AS PER THE MANAGEMENT AGRE EMENT THE ASSESSEE WAS TO COMPENSATE MEDREICH SA AT THE RATE OF 3% OF THE NET SALES (PAGE 240 OF THE PAPER BOOK). 07. THE ASSESSEE HAS FILED THE RETURN OF INCOME AND THE CASE WAS SELECTED FOR SCRUTINY. AS THERE WAS INTERNATIONAL TRANSACTION, THE AO REFERRED THE MATTER TO THE TPO U/S.92B OF THE ACT F OR DETERMINING THE ALP. THE ASSESSEE IN THE FINANCIALS FOR AY 2008-09 HAS GIVEN THE SEGMENTAL ALLOCATION OF COST AND REVENUE BETWEEN TH E AE AND NON-AE, AS UNDER : IT(TP)A.1039 & 1078/BANG/2015 PAGE - 6 IT(TP)A.1039 & 1078/BANG/2015 PAGE - 7 ON THE BASIS OF THE ABOVE, IT WAS SUBMITTED BY THE ASSESSEE THAT OPERATING PROFIT / OPERATING COST AT THE ENTITY LEV EL WAS 25.49% AS AGAINST THE NON-AE IT WAS 5.26 %. THUS IT WAS SUBM ITTED THAT THE INTERNATIONAL TRANSACTIONS AT THE ENTITY LEVEL FOR THE MANUFACTURE AND EXPORT OF DRUG FORMULATIONS, WAS AS UNDER : 08. THE TPO WAS NOT SATISFIED WITH THE MAM ADOPTED BY THE ASSESSEE AS TNMM AND HAS PROPOSED THE BENCH MARK TW O TRANSACTIONS, NAMELY, LICENCE FEE AND MANAGEMENT FE ES BY ADOPTING THE CUP METHOD AS THE MAM HENCE REJECTED TP STUDY OF THE ASSESSEE AND ISSUED SHOW-CAUSE NOTICE DT.09.08.2012, BY WHI CH THE ASSESSEE WAS CALLED UPON TO PROVE AS TO WHY THE MANAGEMENT F EES AND LICENCE FEES SHOULD NOT BE TREATED AS NIL. THE ASSESSEE FILED ITS REPLY TO THE IT(TP)A.1039 & 1078/BANG/2015 PAGE - 8 SHOW-CAUSE NOTICE VIDE ITS COMMUNICATION DT.26.12.2 013. IT WAS MENTIONED AS UNDER : PAYMENT OF LICENSE FEE IS AT ARM'S LENGTH : - THE COMPANY IS AN INDEPENDENT ENTITY AND NOT A CAPT IVE MANUFACTURER. - PAYMENT OF LICENSE FEE BY A CAPTIVE MANUFACTURER IS WARRANTED SINCE A LICENSE OF THE TECHNICAL KNOW-HOW IS REQUIRED TO MA NUFACTURE THE REQUISITE PRODUCTS. SINCE A LICENSE IS SO PROVIDED, A CONSEQUENTIAL REMUNERATION WOULD ALSO BE MANDATED SO THAT THE ARR ANGEMENT CONFORMS WITH THE ARM'S LENGTH STANDARD. - THE FINANCIAL POSITION OF THE COMPANY WOULD BE IND IFFERENT TO THE PAYMENT OR NON-OF THE LICENSE FEE. - WHETHER OR NOT THE COMPANY IS A CAPTIVE MANUFACTURE R UNDERTAKING CONTRACT MANUFACTURING ACTIVITIES IS NOT A RELEVANT FACTOR IN DETERMINING WHETHER OR NOT A LICENCE FEE PAYMENT IS JUSTIFIED. - DESPITE PAYING THE IMPUGNED LICENSE FEE TO THE AE, THE OPERATING PROFIT MARGIN OF THE COMPANY ON THE PRINCIPAL TRAN SACTION IS AT ARM'S LENGTH. - PAYMENT OF LICENSE FEE BY THE COMPANY MEETS MARKET CONDITIONS SINCE INTER ALIA, THE SAME IS DETERMINED AS A PERCENTAGE OF THE NET SALES PRICE (AS DEFINED IN.THE INTER-COMPANY AGREEMENT). - ARM'S LENGTH PRICE OF THE TRANSACTION SHOULD NOT BE CONSIDERED AS 'NIL' SINCE AS PER THE ACT, THE ALP IS REQUIRED TO BE DET ERMINED IN LIGHT OF THE ANY OF THE FIVE PRESCRIBED METHODS (AS THEN EXI STING) IN THE MANNER PRESCRIBED IN RULE 103. YOUR GOODSELF HAS NOT MENTI ONED AS TO WHICH METHOD IS PROPOSED TO BE APPLIED TO DETERMINE AS 'N IL' THE ALP OF THE LICENSE FEE PAID BY THE COMPANY. IT(TP)A.1039 & 1078/BANG/2015 PAGE - 9 1.6 PAYMENT OF MANAGEMENT FEE IS AT ARM'S LENGTH: - ARM'S LENGTH PRICE OF THE TRANSACTION SHOULD NOT BE CONSIDERED AS 'NIL' SINCE AS PER THE ACT, THE ALP IS REQUIRED TO BE DET ERMINED IN LIGHT OF THE ANY OF THE FIVE PRESCRIBED METHODS (AS THEN EXI STING) IN THE MANNER PRESCRIBED IN RULE 10B. YOUR GOODSELF HAS NOT MENTI ONED AS TO WHICH METHOD IS PROPOSED TO BE APPLIED TO DETERMINE AS 'N IL' THE ALP OF THE LICENSE FEE PAID BY THE COMPANY. - THERE IS COMMERCIAL NEED FOR THE PAYMENT OF THE MAN AGEMENT FEE SINCE THE PAYMENTS DIRECTLY BENEFIT THE COMPANY BY ENABLING IT TO CARRY OUT ITS BUSINESS OPERATIONS MORE EFFICIENTLY. - YOUR APPROACH OF ENQUIRING ON COMMERCIAL EXPEDIENCY OF THE IMPUGNED PAYMENT IS INCORRECT IN LAW. - IN THE PHARMACEUTICAL INDUSTRY IT IS COMMON TO PROC URE THE SERVICES FOR WHICH THE MANAGEMENT FEE PAYOUT IS MADE. 1.7 TRANSACTIONS RELATING TO LICENSE FEE AND MANAGE MENT FEE ARE CLOSELY LINKED TO THE PRINCIPAL TRANSACTION OF MANUFACTURE AND EXPORT OF DRUG_ FORMULATIONS. IN THIS REGARD, YOUR GOODSELF SHOULD NOTE THAT THE LICENSE FEE AND MANAGEMENT FEE PAYMENTS ARE ON ACCOUNT OF T HE PRINCIPAL TRANSACTION. IT(TP)A.1039 & 1078/BANG/2015 PAGE - 10 LICENSE FEE TRANSACTION IS AT ARMS LENGTH SINCE TH E PRINCIPAL TRANSACTION TO WHICH THE PAYMENT RELATES TO IS AT A RMS LENGTH 2.11 IN ADDITION TO THE ABOVE, IT IS SUBMITTED THA T SINCE THE PRINCIPAL TRANSACTION TO WHICH THE LICENSE FEE IS CLOSELY LIN KED IS AT ARMS LENGTH (WITH AN OPERATING PROFIT MARGIN ON OPERATING COST OF 19.24% VIS--VIS 8.57% BEING THE OPERATING PROFIT MARGIN OF THE COMP ARABLE COMPANIES), THE LICENSE FEE TRANSACTION WOULD ALSO BE AT ARM'S LENGTH. WE REQUEST YOU TO TAKE COGNIZANCE OF THIS ASPECT. T HE SUBMISSIONS OF THE COMPANY THAT THE LICENSE FEE PAYMENT SHOULD BE REGARDED AS CLOSELY LINKED TO THE PRINCIPAL TRANSACTION OF MANU FACTURE AND EXPORT OF DRUG FORMULATIONS IS CONTAINED IN PARA 4. 2.12 THE COMPANY ALSO SUBMITS THAT THE ABOVE MARGI N OF 19.24% HAS BEEN EARNED BY IT DESPITE THE CHARGE OF LICENSE FEE BY A IHPL. IN OTHER WORDS, DESPITE PAYING THE IMPUGNED LICENSE FEE TO T HE AE, THE OPERATING PROFIT MARGIN OF THE COMPANY ON THE PRINC IPAL TRANSACTION IS AT ARM'S LENGTH. 2.13 WITHOUT PREJUDICE TO THE ABOVE, THE COMPANY S UBMITS THAT HAD THE PAYMENT OF LICENSE FEE NOT BEEN MADE, THE COMPANY W OULD HAVE REALIZED A LOWER SALE PRICE. SUCH PRINCIPLE WAS UPH ELD IN THE RULING OF THE DELHI ITAT IN ACIT V. SONA OKEGAWA PRECISION FO RGINGS LIMITED (2010-TH-41-ITAT-DEL-TP), WHERE THE DELHI ITAT HELD THAT: THERE WAS NO MATERIAL BROUGHT ON RECORD BY THE TPO TO DEMONSTRATE THAT THE PRICE ON SALES MADE TO THE AE WAS NOT AT A RM'S LENGTH. THAT BEING SO, IT WAS AT MARKET DETERMINED PRICES THAT T HE SALES WERE MADE BY THE ASSESSEE. MOREOVER, IT GOES UNCHALLENGED THA T THE FEES PAID UNDER THE TECHNOLOGY AGREEMENT COMPRISE AN INTEGRAL PART OF THE COST OF PRODUCTION, WHICH WAS RECOVERED FROM THE SALES P RICE. IT WAS THUS THAT SO FAR AS REGARDS THE SALES MADE TO THE AE, TH E AMOUNT OF FEES PAID UNDER THE TECHNOLOGY AGREEMENT WAS RECOVERED B Y THE ASSESSEE FROM THE AE AS PART OF SALES PRICE. THIS BEING SO, SUCH FEE PAID BECOMES REVENUE NEUTRAL, THAT IS TO SAY, IN CASE TH E ASSESSEE DID NOT PAY THE FEES ON THE SALES MADE TO THE AE, A CORRESP ONDING REDUCTION IN THE PRICE CHARGED TO THE AE WOULD HAVE TO BE GIVEN BY THE ASSESSEE, LEST THE COST FOR THE SALE COMES DOWN. SUCH LATTER METHODOLOGY WAS NOT ADVISABLE FOR IT WOULD CREATE PROBLEMS IN THE ACCOU NTING. ALSO, THE IMPACT ON THE TAXABLE PROFITS WOULD BE NIL.' PAYMENT OF LICENSE FEE BY THE COMPANY MEETS MARKET CONDITIONS IT(TP)A.1039 & 1078/BANG/2015 PAGE - 11 2.14 YOUR GOODSELF HAS MENTIONED THAT THE LICENSE FEE PAYMENT DOES NOT MEET THE MARKET CONDITIONS SINCE THE SCOPE OF PROCU REMENT OF AN ALTERNATIVE COST EFFECTIVE KNOW-HOW IS RESTRICTED W HICH COULD BE AVAILABLE TO THE ASSESSEE. YOUR GOODSELF HAS ALSO M ENTIONED THAT EVEN IF IT IS A SITUATION THAT NO ALTERNATIVE KNOW-HOW I S AVAILABLE, THE CONDITIONS CANNOT BE PROHIBITORY IN NATURE. 2.15 THE COMPANY SUBMITS THAT THE ABOVE CONTENTION S ARE INCORRECT. WE REQUEST YOU TO NOTE THAT THE LICENSE FEE PAID BY TH E COMPANY IS DETERMINED AS A PERCENTAGE OF THE NET SALES PRICE A S DEFINED IN THE AGREEMENT (AND THUS, VARIABLE) AND IS NOT A FIXED L UMP SUM. SUCH AN APPROACH FOR DETERMINING LICENSE FEE PAYMENTS IS TY PICALLY ADOPTED IN INDEPENDENT MARKET CONDITIONS. THIS WOULD HAVE BEEN THE SCENARIO EVEN WHERE THE KNOW-HOW HAD BEEN OBTAINED BY THE CO MPANY FROM AN ALTERNATIVE SOURCE (SUBJECT TO SUCH ALTERNATIVE SOU RCE BEING AVAILABLE FOR THE NATURE OF PRODUCTS THAT ARE MANUFACTURED BY THE COMPANY). 2.16 IT IS ALSO SUBMITTED THAT HAD AN ALTERNATIVE K NOW-HOW SOURCE BEEN AVAILABLE FROM A COMPARABLE UNRELATED PARTY, SIMILA R RESTRICTIVE CONDITIONS ON THE EXPLOITATION OF THE KNOW-HOW WOUL D TYPICALLY BE IMPOSED BY THE UNRELATED PARTY ON THE COMPANY TO PR OTECT THE NATURE AND QUALITY OF ITS RIGHTS IN SUCH KNOW-HOW. SUCH RE STRICTIONS COULD RELATE TO THE GEOGRAPHY IN WHICH THE FINISHED PRODU CTS ARE SOLD, THE NATURE OF CUSTOMERS TO WHOM THE PRODUCTS ARE SOLD, THE PRICE AT WHICH IT IS TO BE SOLD ETC. IN LIGHT OF THE ABOVE, THE CO MPANY SUBMITS THAT YOUR CONTENTION THAT THE LICENSE FEE PAYMENT DOES N OT MEET THE MARKET CONDITIONS IS INCORRECT. TRANSACTIONS RELATING TO LICENSE FEE AND MANAGEMENT FEE ARE CLOSELY LINKED TO THE PRINCIPAL TRANSACTION OF MANUFACTURE AND EXPORT OF DRUG FORMULATIONS 4.1 THE COMPANY HAD CONSIDERED THE PAYMENT TOWARDS LICE NSE FEE AND MANAGEMENT FEE AS BEING CLOSELY LINKED WITH THE PRI NCIPAL TRANSACTION OF MANUFACTURE AND EXPORT OF DRUG FORMULATIONS TO A IHPL. BASED ON THE APPROACH ADOPTED BY YOUR GOODSELF IN THE NOTICE , IT APPEARS THAT YOU HAVE REJECTED SUCH AN APPROACH OF THE COMPANY. IN THIS REGARD, THE COMPANY WISHES TO PLACE BEFORE YOU THE FACTUAL MATRIX UNDERLYING THE LICENSE FEE AND MANAGEMENT FEE PAYOUT. 4.2 THE INTERNATIONAL TRANSACTION OF AIL_ BEING MANUFA CTURE AND EXPORT OF DRUG FORMULATIONS TO AIHPL INVOLVES THE FOLLOWIN G: IT(TP)A.1039 & 1078/BANG/2015 PAGE - 12 - AIHPL IDENTIFIES THE TYPE AND COMPOSITION OF THE DRUG FORMULATIONS REQUIRED BY IT; - THE COMPANY PLANS AND SCHEDULES THE MANUFACTURING ACTIVITIES BASED ON AIHPL REQUIREMENTS AND WITH THE ASSISTANCE OF MS PL. THE COMPANY ALSO DETERMINES THE NATURE AND QUALITY OF T HE RAW MATERIALS REQUIRED FOR PRODUCTION, IDENTIFIES THE VENDORS BAS ED ON INPUTS FROM AIHPL AND PURCHASES THE RAW MATERIALS; - THE COMPANY IS REQUIRED TO MANUFACTURE THE PRODUCT BASED ON SPECIFICATIONS UNDER THE SOUTH AFRICAN PHARMA REGUL ATIONS. FOR THIS PURPOSE, IT RECEIVES INPUTS FROM MSPL; - THE COMPANY USES THE INTELLECTUAL PROPERTY LICENS ED BY AIHPL TO MANUFACTURE THE DRUG FORMULATIONS; - THE MANUFACTURED DRUG FORMULATIONS ARE THEN EXPOR TED TO AIHPL; ALL THE DOCUMENTS THAT ARE REQUIRED TO BE EXECUTED TO E XPORT THE FINISHED GOODS ARE PREPARED BY AIL. - WITH THE ASSISTANCE OF MSPL, THE COMPANY TRACKS T HE SHIPMENTS AND ENSURES THAT THE SAME IS RECEIVED BY AIHPL; - THE COMPANY, WITH THE ASSISTANCE OF MSPL, ENSURES COLLECTION OF RECEIVABLES FROM AIHPL. 4.3 FROM THE ABOVE, IT CAN BE SEEN THAT THE INTERNA TIONAL TRANSACTION WITH AIHPL COMPRISES OF TWO KEY ELEMENTS: (A) OBTAINING AND USING KNOW- HOW AND TECHNOLOGY REQUIRED TO MANUFACTURE THE DRUG FORMULATIONS; AND (B) AWARENESS OF THE DYNAMICS OF THE SOUTH AFRI CAN PHARMA MARKET, THE SOUTH AFRICAN PHARMA REGULATORY ENVIRON MENT AND LIAISONING WITH AIHPL, ITS CUSTOMER, FOR PRODUCTION SCHEDULING, BUDGETING, DELIVERY AND TIMELY COLLECTION OF DUES F ROM AIHPL. 4.4 THE COMPANY PAYS A LICENSE FEE TO ITS AIHPL FOR A NON-EXCLUSIVE USE OF THE KNOW-HOW REQUIRED TO MANUFACTURE THE PRODUCT S REQUISITIONED BY AIHPL. THE LICENSE FEE IS PAID AT THE RATE OF 8% OF THE NET SALES PRICE (AS DEFINED IN THE INTER-COMPANY AGREEMENT). IT CAN BE SEEN THAT THE ROYALTY IS COMPUTED HAVING REGARD TO THE SALE P RICE THAT RELATES TO IT(TP)A.1039 & 1078/BANG/2015 PAGE - 13 THE PRINCIPAL TRANSACTION RELATING TO MANUFACTURE A ND EXPORT OF DRUG FORMULATIONS TO AIHPL. IT CAN ALSO BE SEEN THAT THE ROYALTY IS PAID TO A COMMON SOURCE, THAT IS, AIHPL. 4.5 THE COMPANY PAYS MANAGEMENT FEES TO MSPL TO LIA ISE WITH AIHPL AND KEEPING THE COMPANY INFORMED OF DEVELOPMENTS WI THIN THE SOUTH AFRICAN PHARMA INDUSTRY. THE MANAGEMENT FEE PAYABLE IS DETERMINED AT 3% OF THE NET SALES. IT CAN BE SEEN THAT THE REM UNERATION IS COMPUTED HAVING REGARD TO THE PRINCIPAL TRANSACTION . 4.6 IN LIGHT OF THE ABOVE, THE COMPANY HAD SUBMITT ED THAT THE LICENSE FEE AND MANAGEMENT FEE TRANSACTION ARE CLOSELY LINKED T O THE PRINCIPAL TRANSACTION OF MANUFACTURE AND EXPORT OF DRUG FORMU LATIONS. TWO TRANSACTIONS ARE SAID TO BE CLOSELY LINKED WHEN, IN TER ALIA, ONE TRANSACTION ARISES ON ACCOUNT OF THE MAIN TRANSACTI ON AND SUCH TRANSACTION HAS ITS SOURCE IN THE MAIN TRANSACTION. THIS PRINCIPLE WAS APPLIED BY THE PUNE INCOME-TAX APPELLATE TRIBUNAL ( ITAT) IN DEMAG CRANES & COMPONENTS (INDIA) PVT. LTD. V. DCIT (30 TAXMANN.COM 364). 09. THE SUM AND SUBSTANCE OF THE SUBMISSIONS MADE B Y THE ASSESSEE BEFORE THE TPO WAS THAT THE LICENCE FEE AND MANAGEM ENT FEES PAID BY THE ASSESSEE ARE INTRINSIC, INTERDEPENDENT AND INT ERLINKED WITH THE MAIN TRANSACTION AND THEREFORE THEY ARE INSEPARABLE FROM THE MAIN TRANSACTION AND HENCE THEY CANNOT BE BENCH-MARKED S EPARATELY , BESIDE THIS THE ASSESSEE ALSO MADE VARIOUS SUBMISSIONS MEN TIONED HEREIN ABOVE . 10. HOWEVER THE TPO WAS NOT CONVINCED WITH THE SUBM ISSION MADE BY THE ASSESSEE AND ACCORDINGLY PASSED AN ORDER U/S .92CA(3) ON 02.01.2013 BY REJECTING THE ECONOMIC ANALYSIS UNDER TAKEN BY THE ASSESSEE AND PROPOSED TO MAKE TP ADJUSTMENT TO THE TUNE OF RS.326,92,899/-, WITH THE FOLLOWING BREAK UP : IT(TP)A.1039 & 1078/BANG/2015 PAGE - 14 INTERNATIONAL TRANSACTIONS VALUE AS PER BOOKS OF ACCOUNT ALP AS DETERMINED BY TPO TP ADJUSTMENT LICENSE FEES PAID 1,61,00,000 NIL 1,61,00,000 MANAGEMENT FEE PAID 1,65,92,899 NIL 3,26,92,899 TOTAL TP ADJUSTMENT 3,26,92,899 THE AO AGREED WITH THE VIEW EXPRESSED BY THE TPO AN D PASSED A FINAL ASSESSMENT ORDER ON 30.04.2013 AND APPROVED THE DIS ALLOWANCES SUGGESTED BY THE TPO. FEELING AGGRIEVED, THE ASSES SEE FILED AN APPEAL BEFORE THE CIT (A). 11. THE CIT (A) AFTER GOING THROUGH THE RECORD HAD DELETED THE ADDITION PROPOSED BY THE AO / TPO AND FOR THAT PURP OSES HAS COME TO THE CONCLUSION IN PARA 15 AND 16 AS UNDER : .......I FIND THAT THE APPELLANTS APPROACH OF AGG REGATING THE TRANSACTIONS OF ROYALTY AND MANAGEMENT FEE FOR THE PURPOSE OF TP STUDY ARE IN LINE WITH TRANSFER PRICING PRINCIPL ES AS ENUNCIATED IN COMMENTARY AND GUIDANCE. THE APPELLA NT HAS SUBMITTED THAT WHEN THESE TRANSACTIONS ARE CONSIDER ED AS CLOSELY LINKED, THE OPERATING PROFIT MARGIN DERIVED BY IT ON ACCOUNT OF THE EXPORT OF PHARMACEUTICAL PRODUCTS IS 25.49% WHICH ARE HIGHER THAN THE MARGINS OF THE COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT AT 9.05%. TH E COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT HA VE NOT BEEN CHALLENGED BY THE TPO AND THE TRANSACTION OF E XPORT OF PHARMACEUTICAL PRODUCTS HAS BEEN FOUND TO BE AT ARM S LENGTH. 16. IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT TH E LICENSE FEE AND MANAGEMENT FEE PAID ARE CLOSELY INT ERLINKED IT(TP)A.1039 & 1078/BANG/2015 PAGE - 15 TO THE APPELLANTS ACTIVITY OF MANUFACTURE AND EXPO RT OF DRUG FORMULATIONS TO THE AE. THE SAME BEING CLOSELY LIN KED TO THE EXPORT ACTIVITY, THE IMPUGNED TRANSACTIONS CANNOT B E CONSIDERED AS SEPARATE CLASS OF TRANSACTIONS FOR TH E PURPOSE OF TRANSFER PRICING ANALYSIS. AS SUCH, THE GROUND NO.2 RAISED BY THE APPELLANT IS ALLOWED. SIMILARLY, HAVING REG ARD TO THE ABOVE DISCUSSION WHICH COVERS THE GROUND NOS.4.1,4. 2,5.1 AND5.2,THE SAID GROUNDS ARE ALSO ALLOWED. THEREAFTER THE APPEALS OF THE ASSESSEE WERE ALLOWED BY THE CIT (A). FEELING AGGRIEVED BY THE ORDER PASSED BY THE CIT (A ), THE REVENUE IS IN APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. 12. THE LD. DR POINTED OUT THAT IN THE SHOW-CAUSE NOTICE (PAGE 5), THE TPO HAS MENTIONED GIVING THE SHOW-CAUSE NOTICE TO THE ASSESSEE, AS TO WHY THE ALP OF THE LICENCE FEE SHOULD BE TREA TED AS NIL. SIMILARLY AT PAGE 14 OF THE SHOW-CAUSE NOTICE, IT W AS MENTIONED THAT THE MANAGEMENT FEE IS A CLASS OF ITS OWN AND IS THE REFORE REQUIRED TO BE SEPARATELY ANALYSED AND THEREFORE MENTIONED THAT THE MANAGEMENT FEES IS ANALYSED SEPARATELY UNDER THE CUP METHOD. 13. THE ARGUMENT OF THE LEARNED DR WAS THAT THE ASS ESSEE BEING A CONTRACTUAL MANUFACTURE OF ITS AE AND THEREFORE IT IS INCONCEIVABLE FOR THIRD PARTY WHO IS CONTRACTUAL MANUFACTURER TO PAY THE LICENCE FEE TO THE PRINCIPAL FOR WHICH IT IS MANUFACTURING THE PHA RMACEUTICAL PRODUCTS. FOR THAT PURPOSE, THE TPO RELIES UPON TH E DEFINITION OF LICENCE FEES AND IT WAS ALSO THE CONCLUSION THAT THERE IS A HUGE DIFFERENCE IN THE PROFIT MARGINS OF THE RELATED PAR TY SALES AND CONTRACT MANUFACTURING AND IT WAS THE CASE OF THE REVENUE TH AT THE LICENCE FEES WAS ONLY CHARGEABLE IN THE CASE OF THE AE AND NOT W ITH RESPECT OF THE IT(TP)A.1039 & 1078/BANG/2015 PAGE - 16 OTHER NON AE PARTIES IT WAS ALSO THE CASE OF THE REVENUE THAT THE ASSESSEE COMPANY IS REQUIRED TO BE COMPENSATED FOR THE LICENCE FEES PAID BY IT UNDER THE AGREEMENT, TO AIHPL. IT WAS A LSO THE CASE THAT IN THE CASE OF AES MANAGEMENT FEES HAS BEEN PAID TO MS PL OF RS.16592899 AND TO MEDREICH LTD OF RS.04335467. (P ARA 3.2.2 OF TP ORDER). THUS THE TPO HAS AFTER ANALYSING THE REPLY HAS CONCLUDED THAT THERE WAS DUPLICATION OF MANAGEMENT SERVICES LIES A ND FURTHER IT WAS MENTIONED THAT THERE IS NO EVIDENCE OF RENDERING OF SERVICES. 14. THE LD. DR RELIED UPON THE FOLLOWING CASE LAWS : I) VOLVO INDIA P LTD V. CIT [(2017) 77 TAXMANN.207; II) HERBAL LIFE [ITA NO.1406/BANG/2010, DT.17.04.2 017] ON THE BASIS OF THE ABOVE, IT WAS SUBMITTED THAT TH E CIT (A) ERRED IN DELETING THE ADDITION MADE FOR THE PURPOSE OF BENCH MARKING THE ALP OF LICENCE FEES AND MANAGEMENT FEES AS NIL. FURTHE R IT WAS THE CASE OF THE REVENUE THAT NO BENEFIT HAS BEEN ACCRUED TO THE ASSESSEE ON THE BASIS OF THE SO-CALLED LICENCE FEE AND MANAGEMENT F EES PAID TO THE ASSESSEE. 15. ON THE OTHER HAND, THE LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE TRANSACTIONS WERE INTER-LINKED WITH THE PR IMARY ACTIVITY OF THE ASSESSEE AND THEREFORE THEY CANNOT BE SEPARATELY BE NCH MARKED. THE LD. AR RELIED UPON THE ORDER PASSED BY THE CIT (A) AND ALSO LD. AR RELIES UPON THE FOLLOWING JUDGMENTS : IT(TP)A.1039 & 1078/BANG/2015 PAGE - 17 16. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E RECORDS AS ALSO THE CASE LAWS CITED BY BOTH THE PARTIES. FROM A RE ADING OF THE EFFECTIVE GROUNDS RAISED BY THE REVENUE, IT IS CLEAR THAT THE FINDING OF FACT RECORDED BY THE CIT (A) IN PARAS 15 AND 16 (REPRODU CED ABOVE) HAVE NOT BEEN REFUTED BY THE REVENUE BY WAY OF CHALLENGI NG THAT THE MANAGEMENT FEES AND LICENCE FEES PAID BY THE ASSESS EE WERE NOT INTER LINKED, INTERRELATED OR INTER CONNECTED WITH THE PR IMARY ACTIVITY OF THE ASSESSEE I.E THE APPROACH OF ASSESSEE AS WELL AS CI T(A) IN AGGREGATING THE TRANSACTIONS WERE WRONG . IN OUR VIEW, AGGREGA TION OF TRANSACTION IS PERMISSIBLE UNDER INCOME TAX ACT AND RULES FRAME D THERE UNDER . IN THIS REGARD, WE MAY CONVENIENTLY RELY UPON THE RECENT JUDGMENT OF HONBLE DELHI HIGH COURT IN SONY ERICSSON MOBILE COMMUNICATION INDIA (P.) LTD. V. CIT [2015] 374 ITR 118/231 TAXMAN 113/55 TAXMANN.COM 240 WHERE IN IT WAS HELD THAT AGGREGATION OF SUCH TRANSACTION IS PERMISSIBLE AND RELIED UPON THE OECD COMMENTARY IN THIS REGARD. 80 . THE USE OF EXPRESSION 'CLASS OF TRANSACTION', 'FU NCTIONS PERFORMED BY THE PARTIES' IN SECTION 92C(1) ILLUSTRATES TO THE CONTR ARY, THAT THE WORD 'TRANSACTION' IT(TP)A.1039 & 1078/BANG/2015 PAGE - 18 CAN NEVER INCLUDE AND WOULD EXCLUDE BUNDLE OR GROUP OF CONNECTED TRANSACTIONS. MORE IMPORTANT WOULD BE REFERENCE TO MEANING OF THE TERM 'TRANSACTION' IN SECTION 92F, CLAUSE (V), WHICH AS PER THE SAID DEFI NITION INCLUDES AN ARRANGEMENT OR UNDERSTANDING OR ACTION IN CONCERT WHETHER OR NO T THE SAME IS FORMAL OR IN WRITING, WHETHER OR NOT IT IS INTENDED TO BE ENFORC EABLE BY LEGAL PROCEEDINGS. RULE 10A IN CLAUSE (D) STATES THAT 'FOR THE PURPOSE OF THIS RULE AND RULES 10AB AND 10E', THE TERM 'TRANSACTION' WOULD 'INCLUDE A N UMBER OF CLOSELY LINKED TRANSACTIONS'. THIS RULE IN POSITIVE TERMS DECLARES THAT THE LEGISLATIVE INTENT IS NOT TO DEVIATE FROM THE GENERIC RULE THAT SINGULAR INCLUDES PLURAL. THE MEANING OR DEFINITION OF THE EXPRESSION 'TRANSACTION' IN CLAUS E (D) TO RULE 10A READ WITH SUB- SECTION (1) TO SECTION 92C, THEREFORE, DOES NOT BAR OR PROHIBIT CLUBBING OF CLOSELY CONNECTED OR INTERTWINED OR CONTINUOUS TRANSACTIONS . THIS IS DISCERNIBLE ALSO FROM SUB-RULE (2) TO RULE 10B QUOTED ABOVE. THE SUB -RULE REFERS TO 'SERVICES PROVIDED', 'FUNCTIONS PERFORMED', 'CONTRACTUAL TERM S (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS' WHIC H LAY DOWN EXPLICITLY OR IMPLIEDLY THE RESPONSIBILITIES, RISKS AND BENEFITS TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS. USE OF PLUR ALITY BY WAY OF NECESSITY AND LEGISLATIVE MANDATE IS EVIDENT IN THE SAID RULE. 81 . SIMILARLY, SUB-RULE (3) TO RULE 10B REFERS TO TRA NSACTIONS BEING COMPARED OR COMPARISON OF THE ENTERPRISES ENTERING INTO SUCH TR ANSACTIONS LIKELY TO AFFECT THE PRICE OR COST CHARGED ETC. A READING OF RULE 10C RE ASSURES AND AFFIRMS THAT THE GENERAL PRINCIPLE OF PLURALITY IS NOT ABANDONED OR DISCARDED. AND COORDINATE BENCH DECISION IN THE MATTER OF GU LBRANDSEN CHEMICALS (P.) LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX * [2017] 79 TAXMANN.COM 105 (AHMEDABAD - TRIB.) HAD HELD AS UN DER 8 . WE FIND THAT, IN THE CASE OF KNORR-BREMSE INDIA (P.) LTD. V. ASSTT. CIT [2016] 380 ITR 307/236 TAXMAN 318/[2015] 63 TAXMANN.COM 186 (PUNJ. & HAR.) , HON'BLE PUNJAB & HARYANA HIGH COURT HAS OBSERVED THAT 'THE DOUBT, IF ANY, IN THIS REGARD IS SET AT REST BY RULE 10A( D ), WHICH PROVIDES THAT FOR THE PURPOSE OF RULE 10A AND RULES 10 B TO 10E, 'TRANSACTION' INCLUDES A NUMBER OF CLOSELY RELATED TRANSACTIONS' AND THAT 'THUS, THE CLOSELY LINKED TRANSACTIONS CAN, IN A GIVEN SIT UATION, BE COMPONENTS OF SINGLE COMPOSITE TRANSACTION'. THEIR LORDSHIPS HAVE THEN A DDED THAT 'THE ASSESSEE WOULD, HOWEVER, HAVE TO PROVE THAT ALTHOUGH EACH SA LE AND EACH PROVISION OF SERVICE IS PRICED SEPARATELY, THEY WERE ALL PROVIDE D UNDER ONE COMPOSITE AGREEMENT WHICH CONSTITUTES ONE INTERNATIONAL TRANS ACTION'. SIMILARLY, IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. V. CIT [2015] 374 ITR 118/231 TAXMAN 113/55 TAXMANN.COM 240 (DELHI) , HON'BLE DELHI HIGH COURT HAS OBSERVED THAT, 'THERE IS CONSIDERABLE TAX LITER ATURE AND TEXT THAT CUP METHOD, I.E. COMPARABLE UNCONTROLLED PRICE METHOD, RP METHOD, I.E. RESALE PRICE METHOD, AND CP METHOD (I.E. COST PLUS METHOD) CAN B E APPLIED TO A TRANSACTION OR A CLOSELY LINKED OR CONTINUOUS TRANSACTIONS'. THEIR LORDSHIPS HAVE, IN THIS BACKDROP, PUT IN A WORD OF CAUTION THAT 'THUS, IT W OULD BE INAPPROPRIATE TO IT(TP)A.1039 & 1078/BANG/2015 PAGE - 19 PROCEED WITH THE ARM'S LENGTH PRICE COMPUTATION MET HODS WITH A PRECONCEIVED NOTION OF SINGULARITY AS A STATUTORY MANDATE' AND T HAT 'CLUBBING OF CLOSELY LINKED, WHICH COULD INCLUDE CONTINUOUS TRANSACTIONS , MAY BE PERMISSIBLE AND NOT OSTRACISED'. CLEARLY, THEREFORE, IN CERTAIN SITUATI ONS, SUCH AGGREGATION OF TRANSACTIONS IS PERMISSIBLE FOR BENCHMARKING EVEN W HEN THE PRICES AT WHICH TRANSACTIONS ARE ENTERED INTO ARE DIFFERENT. IN PRI NCIPLE THUS AGGREGATION OF TRANSACTIONS CAN BE DONE AND IS PERMISSIBLE .. AND COORDINATE NECH DECISION IN THE MATTER OF CUMMI NS INDIA LTD. [2015] 53 TAXMANN.COM 53 (PUNE - TRIB.) WHEREIN IT WAS HE LD AS UNDER 24 . THE FIRST ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER IN VIEW OF THE OECD GUIDELINES AND THE INDIAN TRANSFER PRICING PROVISIO NS, AGGREGATION OF TRANSACTIONS COULD BE MADE OR NOT. WE FIND THAT PUNE BENCH OF TH E TRIBUNAL IN DEMAG CRANES & COMPONENTS (INDIA) (P.) LTD. ( SUPRA ) HAD ELABORATELY CONSIDERED THE OECD GUIDELINES UNDER CHAPTER III AND ALSO THE GUIDANC E NOTES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON TRANSFER PRICI NG IN PARA 13.7 AND HAD HELD AS UNDER: '30. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. SECTION 92B OF THE ACT PROVIDES THE MEANING OF EXPRESSION 'INTERNATIONAL T RANSACTION' AS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES. RULE 10 A(D) OF THE RULES EXPLAINS THE MEANING OF THE EXPRESSION 'TRANSACTION' FOR THE PUR POSES OF COMPUTATION OF ALP AS TO INCLUDE A NUMBER OF CLOSELY LINKED TRANSACTIONS. RULE 10B OF THE RULES PRESCRIBES THE MANNER IN WHICH THE ALP IN RELATION TO AN INTERNATIONAL TRANSACTION IS TO BE DETERMINED BY FOLLOWING ANY OF THE METHODS PR ESCRIBED. SHORN OF OTHER DETAILS, IT WOULD SUFFICE TO OBSERVE THAT ON A COMB INED READING OF RULE 10A(D) AND 10B OF THE RULES, A NUMBER OF TRANSACTIONS CAN BE A GGREGATED AND CONSTRUED AS A SINGLE 'TRANSACTION' FOR THE PURPOSES OF DETERMININ G THE ALP, PROVIDED OF COURSE THAT SUCH TRANSACTIONS ARE 'CLOSELY LINKED'. OSTENS IBLY THE RATIONALE OF AGGREGATING 'CLOSELY LINKED' TRANSACTIONS TO FACILITATE DETERMI NATION OF ALP ENVISAGED A SITUATION WHERE IT WOULD BE INAPPROPRIATE TO ANALYSE THE TRAN SACTIONS INDIVIDUALLY. THE PROPOSITION THAT A NUMBER OF INDIVIDUAL TRANSACTION S CAN BE AGGREGATED AND CONSTRUED AS A COMPOSITE TRANSACTION IN ORDER TO CO MPUTE ALP ALSO FINDS AN ECHO IN THE OECD GUIDELINES UNDER CHAPTER III WHEREIN THE F OLLOWING EXTRACT IS RELEVANT:- 'IDEALLY, IN ORDER TO ARRIVE AT THE MOST PRECISE AP PROXIMATION OF ARM'S LENGTH CONDITIONS, THE ARM'S LENGTH PRINCIPLE SHOULD BE AP PLIED ON A TRANSACTION-BY- TRANSACTION BASIS. HOWEVER, THERE ARE OFTEN SITUATI ONS WHERE SEPARATE TRANSACTIONS ARE SO CLOSELY LINKED OR CONTINUOUS THAT THEY CANNO T BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. EXAMPLES MAY INCLUDE 1. SOME LONG T ERM CONTRACTS FOR THE SUPPLY OF IT(TP)A.1039 & 1078/BANG/2015 PAGE - 20 COMMODITIES OR SERVICES; 2. RIGHTS TO USE INTANGIBL E PROPERTY; AND 3. PRICING A RANGE OF CLOSELY LINKED PRODUCTS (E.G. IN A PRODUCT LINE) WHEN IT IS IMPRACTICAL TO DETERMINE PRICING FOR EACH INDIVIDUAL PRODUCT OR TR ANSACTION. ANOTHER EXAMPLE WOULD BE THE LICENSING OF MANUFACTURING KNOW-HOW AN D THE SUPPLY OF VITAL COMPONENTS TO AN ASSOCIATED MANUFACTURER; IT MAY BE MORE REASONABLE TO ACCESS THE ARM'S LENGTH TERMS FOR THE TWO ITEMS TOGETHER RATHE R THAN INDIVIDUALLY. SUCH TRANSACTIONS SHOULD BE EVALUATED TOGETHER USING THE MOST APPROPRIATE ARM'S LENGTH METHOD. A FURTHER EXAMPLE WOULD BE THE ROUTING OF A TRANSACTION THROUGH ANOTHER ASSOCIATED ENTERPRISE; IT MAY BE MORE APPROPRIATE T O CONSIDER THE TRANSACTION OF WHICH THE ROUTING IS A PART IN ITS ENTIRETY, RATHER THAN CONSIDER THE INDIVIDUAL TRANSACTIONS ON A SEPARATE BASIS.' 31. IN THIS BACKGROUND, CONSIDERING THE LEGISLATIVE INTENT MANIFESTED BY WAY OF RULE 10A(D) READ WITH RULE 10B OF THE RULES, IT CLE ARLY EMERGES THAT IN APPROPRIATE CIRCUMSTANCES WHERE CLOSELY LINKED TRANSACTIONS EXI ST, THE SAME SHOULD BE TREATED AS ONE COMPOSITE TRANSACTION AND A COMMON TRANSFER PRI CING ANALYSIS BE PERFORMED FOR SUCH TRANSACTIONS BY ADOPTING THE MOST APPROPRIATE METHOD. IN OTHER WORDS, IN A GIVEN CASE WHERE A NUMBER OF CLOSELY LINKED TRANSAC TIONS ARE SOUGHT TO BE AGGREGATED FOR THE PURPOSES OF BENCH MARKING WITH C OMPARABLE UNCONTROLLED TRANSACTIONS, SUCH AN APPROACH CAN BE SAID TO BE WE LL ESTABLISHED IN THE TRANSFER PRICING REGULATION HAVING REGARD TO RULE 10A(D) OF THE RULES. THOUGH IT IS NOT FEASIBLE TO DEFINE THE PARAMETERS IN A WATER TIGHT COMPARTMENT AS TO WHAT TRANSACTIONS CAN BE CONSIDERED AS 'CLOSELY LINKED', SINCE THE SAME WOULD DEPEND ON FACTS AND CIRCUMSTANCES OF EACH CASE. SO HOWEVER, A S PER AN EXAMPLE NOTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IN SHO RT THE 'ICAI') IN ITS GUIDANCE NOTES ON TRANSFER PRICING IN PARA 13.7, IT IS STATE D THAT TWO OR MORE TRANSACTIONS CAN BE SAID TO BE 'CLOSELY LINKED', IF THEY EMANATE FRO M A COMMON SOURCE, BEING AN ORDER OR CONTRACT OR AN AGREEMENT OR AN ARRANGEMENT , AND THE NATURE, CHARACTERISTIC AND TERMS OF SUCH TRANSACTIONS SUBSTANTIALLY FLOW F ROM THE SAID COMMON SOURCE. THE FOLLOWING EXTRACT FROM THE SAID GUIDANCE NOTES IS WORTHY OF NOTICE:- '13.7 THE FACTORS REFERRED TO ABOVE ARE TO BE APPLI ED CUMULATIVELY IN SELECTING THE MOST APPROPRIATE METHOD. THE REFERENCE THEREIN TO T HE TERMS 'BEST SUITED' AND 'MOST RELIABLE MEASURE' INDICATES THAT THE MOST APPROPRIA TE METHOD WILL HAVE TO BE SELECTED AFTER A METICULOUS APPRAISAL OF THE FACTS AND CIRCUMSTANCES OF THE INTERNATIONAL TRANSACTION. FURTHER, THE SELECTION O F THE MOST APPROPRIATE METHOD SHALL BE FOR EACH PARTICULAR INTERNATIONAL TRANSACT ION. THE TERM 'TRANSACTION' ITSELF IS DEFINED IN RULE 10A(D) TO INCLUDE A NUMBER OF CLOSE LY LINKED TRANSACTIONS. THEREFORE, THOUGH THE REFERENCE IS TO APPLY THE MOS T APPROPRIATE METHOD TO EACH PARTICULAR TRANSACTION, KEEPING IN VIEW, THE DEFINITION OF THE TERM 'TRANSA CTION', THE MOST APPROPRIATE METHOD MAY BE CHOSEN FOR A GROUP O F CLOSELY LINKED TRANSACTIONS TWO OR MORE TRANSACTIONS CAN BE SAID TO BE LINKED W HEN THESE TRANSACTIONS IT(TP)A.1039 & 1078/BANG/2015 PAGE - 21 EMANATE FROM A COMMON SOURCE BEING AN ORDER OR A CO NTRACT OR AN AGREEMENT OR AN ARRANGEMENT AND THE NATURE, CHARACTERISTICS AND TERMS OF THESE TRANSACTIONS ARE SUBSTANTIALLY FLOWING FROM THE SAID COMMON SOURCE. FOR EXAMPLE, A MASTER PURCHASE ORDER IS ISSUED STATING THE VARIOUS TERMS AND CONDITIONS AND SUBSEQUENTLY INDIVIDUALS ORDERS ARE RELEASED FOR SPECIFIC QUANTI TIES. THE VARIOUS PURCHASE TRANSACTIONS ARE CLOSELY LINKED TRANSACTIONS . 13.8 IT MAY BE NOTED THAT IN ORDER TO BE CLOSELY LINKED TRANSACTIONS, IT IS NOT NECESSARY THAT THE TRANSACTIONS NEED BE IDENTICAL O R EVEN SIMILAR . FOR EXAMPLE, A COLLABORATION AGREEMENT MAY PROVIDE FOR IMPORT OF R AW MATERIALS, SALE OF FINISHED GOODS, PROVISION OF TECHNICAL SERVICES AND PAYMENT OF ROYALTY. DIFFERENT METHODS MAY BE CHOSEN AS THE MOST APPROPRIATE METHODS FOR E ACH OF THE ABOVE TRANSACTIONS WHEN CONSIDERED ON A STANDALONE BASIS. HOWEVER, UND ER PARTICULAR CIRCUMSTANCES, ONE SINGLE METHOD MAYBE CHOSEN AS THE MOST APPROPRI ATE METHOD COVERING ALL THE ABOVE TRANSACTIONS AS THE SAME ARE CLOSELY LINKED.' (UNDERLINED FOR EMPHASIS BY US). 17. IN VIEW OF THE ABOVE WE HOLD THAT THE AGGREGAT ION OF TRANSACTIONS AS DONE BY THE ASSESSEE AND AS UPHELD BY THE CIT(A) WERE IN ACCORDANCE WITH LAW FURTHER THERE IS NO SPECIFIC CH ALLENGE BY THE REVENUE BEFORE US CHALLENGING THIS FINDING OF FACT THAT BUNDLE APPROACH OF ASSESSEE AND CIT(A) WERE INCORRECT . 18. HAVING HELD SO NOW WE ARE DUTY BOUND TO DECIDE THE GROUNDS RAISED BEFORE US IN THE LIGHT OF THE ADMITTED POSIT ION THAT AGGREGATIONS OF TRANSACTIONS AS DONE BY THE ASSESSEE AND UPHELD BY THE CIT(A) WERE IN ACCORDANCE WITH LAW . LICENCE FEE IT(TP)A.1039 & 1078/BANG/2015 PAGE - 22 19. WE MAY MENTION THAT INDIAN TP PROVISIONS DO NO T CONTAIN ANY SPECIFIC GUIDELINES ON INTRA-GROUP SERVICE PAYMENTS (MANAGEMENT FEES AND LICENCE FEE ETC). IN MANY CASES THE TPO HAS ARR IVED AT AN ALP AS NIL, BY ARRIVING AT A CONCLUSION THAT NO BENEFIT HA S BEEN OBTAINED BY THE ASSESSEE FROM SUCH INTRA-GROUP SERVICE PAYMENTS . WHILE OECD GUIDELINES SEEM TO INDICATE THE BENEFIT TEST TO B E ACTUAL RENDITION OF SERVICES WHICH PROVIDES ECONOMIC OR COMMERCIAL VALU E, THE INDIAN TPOS INSIST ON POSITIVE DEMONSTRATION OF ACTUAL BEN EFIT ACCRUING TO THE SERVICE RECIPIENT FROM THE SERVICES RENDERED. IN O UR CONSIDERED OPINION THE REVENUE COULD NOT DECIDE WHAT WAS NECES SARY FOR A TAXPAYER AND WHAT WAS NOT. THE REQUIREMENT OF SERVI CES SHOULD HAVE BEEN JUDGED FROM THE VIEW POINT OF THE TAXPAYER AS A BUSINESSMAN; AS PER SECTION 92(2) OF THE ACT, THE ALP OF TRANSAC TIONS ARE IN THE NATURE OF COST OR EXPENSES ALLOCATION, OR APPOR TIONED TO AN ENTERPRISE OR CONTRIBUTED BY AN ENTERPRISE, SHALL B E DETERMINED HAVING REGARD TO THE ARMS LENGTH PRICE OF SUCH BENEFITS, SERVICE AND FACILITY. THIS SECTION ALSO COVERS INTRA-GROUP SERVICE TRANSA CTIONS, AS OFTEN THE CHARGE FOR THE SERVICES WERE BASED ON COST ALLOCATI ON/ APPORTIONMENT. THEREFORE, THE BENEFIT TEST WAS A NECESSARY PART OF DETERMINING THE IT(TP)A.1039 & 1078/BANG/2015 PAGE - 23 ARMS LENGTH PRICE OF ANY INTRA GROUP SERVICES; TH E BENEFIT NEEDED TO BE IDENTIFIED FROM THE TAXPAYERS VIEWPOINT, WHICH COULD BE POTENTIAL, REASONABLE, FORESEEABLE, MAY NOT BE QUANTIFIABLE IN MONEY ALONE, AND MAY BE STRATEGIC, BUT COULD NOT BE INCIDENTAL. THE BENEFIT ALSO COULD NOT HAVE QUALIFICATIONS SUCH AS SUBSTANTIAL, DIR ECT AND TANGIBLE BECAUSE THESE QUALIFICATIONS WERE NOT GIVEN IN SECT ION 92(2) OF THE ACT. THERE ARE SEVERAL NON-MONETARY TERMS OTHER THA N PROFITABILITY, LIKE USEFULNESS, ENHANCEMENT IN VALUE, SUSTAINABILI TY AND ENHANCEMENT OF BUSINESS INTEREST, WHICH WERE REQUIRED TO BE SEE N WHILE JUDGING THE BENEFIT TEST. LIKE IN THE PRESENT CASE , THE LICENC E IS REQUIRED FOR LONG TERM MANUFACTURING OF DRUGS AND FORMULATION WITHIN KNOW HOW OF THE AE FURTHER THE ASSESSEE IS JOINT VENTURE COMPANY TH EREFORE TPO CANNOT LOSE SIGHT OF VARIOUS BENEFIT WHICH MAY FLOW TO INDIAN PARTNER IN THE ABSENCE OF PROVISION FOR MAKING THE PAYMENT FOR THE USE OF LICENSE IN THE CASE IN HAND TPO HAS CONCLUDED THAT NO LICEN CE FEE SHOULD HAVE BEEN CHARGED BY AIHPL AS ALL THE MANUF ACTURED DRUGS FORMULATIONS ARE EXPORTED TO AIHPL WHICH IS AN ASS OCIATE ENTITY OF THE ASSESSEE COMPANY AND ON MANUFACTURED DRUG FORMU LATION WAS IT(TP)A.1039 & 1078/BANG/2015 PAGE - 24 SOUGHT TO ANY OTHER ENTITY THEREFORE AE, TO NOT HAV E CHARGED ANY AMOUNT FROM ASSESSEE IN THE NATURE OF LICENCE FEE AS THE ENTIRE MANUFACTURED DRUG FORMULATION HAVE BEEN EXPORTED TO IT AND THEREAFTER TPO HAD RECORDED THAT THERE IS A HUGE DIFFERENCE IN PROFIT MARGIN OF A RELATED PARTY SALES AND THE CONTRACT MANUFACTURE . IN OUR VIE THE APPROACH OF TPO WAS NOT CORRECT AS IT IS CONTRARY TO LAW LAID IN THE CASE OF EKL APPLIANCES, DELHI HIGH COURT, 345 ITR 241 AND DRESSER RAND , MUMBAI TRIBUNAL, 13 TAXMANN.COM 82 ( MUMBAI) WHERE HONBLE COURT AND TRIBUNAL HAD HELD I) NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEG ITIMATE EXPENDITURE WAS ALSO INCURRED OUT OF NECESSITY II) NOT NECESSARY TO SHOW THAT ANY EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS HAS ACTUALLY RESULTED IN PROFIT OR INCOME, EITHER IN THAT YEAR OR SUBSEQUENT YEARS III) THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD H AVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS I) TPO IS EXPECTED TO EXAMINE THE INTERNATIONAL TRANSA CTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT. W HOLESALE DISALLOWANCE IS NOT AUTHORISED AND FURTHER IN DRESSER RAND, MUMBAI TRIBUNAL, 13 TAXMANN.COM 82 (MUMBAI) IT WAS HELD AS (1) TPO/AO CANNOT QUESTION THE COMMERCIAL WISDOM OF THE TAXPAYER (2) HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS HIS PREROG ATIVE AND IT IS NOT FOR REVENUE AUTHORITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT IS NOT IT(TP)A.1039 & 1078/BANG/2015 PAGE - 25 (3) WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED A CTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT, EVEN A CONSIDERA TION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AN D BY NO STRETCH OF LOGIC, IT CAN HAVE A ROLE IN DETERMINING THE ALP OF THAT SERVICE. (4) WHEN EVALUATING THE ALP OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT. THE REAL QUES TION IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERP RISE WOULD HAVE PAID FOR THE SAME 20. IN VIEW OF THE ABOVE AND AS WELL AS IN VIEW OF FIN DING RECORDED HEREIN ABOVE THAT ALL THESE INTERNATIONAL TRANSACTI ONS ARE LINKED TO THE MAIN BUSINESS BEING CARRIED ON BY THE ASSESSEE AND SUCH CLOSELY LINKED TRANSACTIONS ARE TO BE ANALYSED IN AGGREGATE TO DET ERMINE THE ARM'S LENGTH PRICE. MOREOVER IT IS DIFFICULT TO COMPREHEN D THE MANUFACTURING OF DRUGS IN INDIA WITHOUT THERE BEING ANY OPERATION IN LICENCE TO MANUFACTURE THE DRUGS FROM THE STATUTORY AUTHORITIE S AND FOR THAT TO HAVE THE ACCESS ON THE FORMULATION WHICH IS THE TEC HNICAL KNOWLEDGE AND DOMAIN OF AE. THE PRICES CHARGED BY THE ASSESSE E AND THE AMOUNT OF LICENCE FEES PAID TO AE CANNOT BE EXAMINED ON ST AND-ALONE BASIS, BECAUSE IT WILL HAVE EFFECT OF DETERMINATION THE NE T PRIZES RECEIVED BY THE ASSESSEE. FURTHER THE CHARGES PAID BY THE ASSES SEE ( JV) TO AE FOR ACQUIRING THE TECHNICAL KNOW-HOW AND IS A VALUABLE ASSETS. IN THE PRESENT CASE, TPO HAS NOT BROUGHT ON RECORD ANY COM PARABLE UNCONTROLLED PARTY( JV OR OTHERWISE ) WHICH IS MANU FACTURING THE DRUGS WITH THE SAME PRICES OR LESS PRICES AS THAT O F THE ASSESSEE WITHOUT SEPARATELY CHARGING THE LICENSE FEE, THEREF ORE THE APPROACH OF THE TRANSFER PRICING OFFICER TO COMPUTE NIL CHARGES FOR THE LICENSE IT(TP)A.1039 & 1078/BANG/2015 PAGE - 26 FEE CANNOT BE UPHOLD AS TRANSFER PRICES ADJUSTMENT CAN BE MADE IN ACCORDANCE WITH THE ONE OF THE METHOD PROVIDED UNDE R THE RULES FRAMED UNDER THE INCOME TAX ACT. IN VIEW THEREOF, WE FIND NO MERIT IN THE ANALYSIS CARRIED OUT BY THE TPO BY BENCHMARKING THE LICENCE FEE. IN FACT ASSESSEE BY AGGREGATION OF TRANSACTIONS IN THE TP STUDY HAD BENCHMARKED THE ARM'S LENGTH PRICE OF ALL THE TRANS ACTIONS BY COMPARING OPERATING PROFIT / OPERATING COST AT THE ENTITY LEVEL WAS 25.49% AS AGAINST THE NON-AE IT WAS 5.26 % .HOWEVER , WE OBSERVE THAT THE COMPARABILITY ANALYSIS IN THE TP STUDY CAR RIED OUT BY THE ASSESSEE BY AGGREGATION OF TRANSACTIONS ADOPTING TN MM AS THE MOST APPROPRIATE METHOD HAS NOT BEEN EXAMINED BY EITHER OF THE AUTHORITIES BELOW WHO HAVE MERELY CONCENTRATED MERELY ON THE IS SUE OF AGGREGATION / SEGREGATION OF TRANSACTIONS. THE CIT (A) HAS MECHANICALLY ACCEPTED THE RESULTS OF THE ASSESSEE T O BE AT ARMS LENGTH BY ACCEPTING THE OPERATING PROFIT / OPERATING COST OF THE ASSESSEE AS 25.49% AS AGAINST NON-AE AT 5.26%. IN THAT VIEW OF THE MATTER, WE DEEM IT APPROPRIATE TO REMAND THE ISSUE TO THE FILE OF THE CIT (A) FOR EXAMINING THE CORRECTNESS OF THE ALP AT THE ENTITY LEVEL BY APPLYING THE TNMM AS THE MOST APPROPRIATE METHOD BY AGGREGAT ING THE TRANSACTIONS. THE CIT (A) IS DIRECTED TO TAKE THE R EMAND REPORT FROM THE TPO IN THIS REGARD AND AFFORD THE ASSESSEE ADEQ UATE OPPORTUNITY OF BEING HEARD IN THE MATTER. MANAGEMENT FEES 21. SIMILARLY THE ASSESSING OFFICER / TPO HAD MADE THE ADDITION FOR RS 165592899/- ON THE PROTEST THAT THERE IS NO REQUIRE MENT FOR THE ASSESSEE TO IT(TP)A.1039 & 1078/BANG/2015 PAGE - 27 PAY FOR THE MANAGEMENT FEES AND FURTHER IT WAS MENT IONED THAT NO EVIDENCE / PROOF FOR A) COMMERCIALLY NEED/ EXPEDIENCY OF TH E REQUIREMENT OF SERVICE SUCH SERVICES B) WHETHER IT IS A NORMAL MARKET BUSI NESS PRACTICE TO INVOLVE PARTIES AS IN THE PRESENT CASE . THE ASSESSEE HAS F URNISHED THE DETAILS OF THE SERVICES AVAILABLE BY THE ASSESSEE FROM MEDREICH TO THE ASSESSING OFFICER AS MENTIONED AT PAGE 22-23 OF THE TRANSFER PRICING ORD ER . THE TPO HAD MENTIONED THE REPLY PURSUANT TO THE SHOW CAUSE NOTI CE IN HIS ORDER AND THE ASSESSEE HAS CONCLUDED IT IS FURTHER SUBMITTED THAT AFTER FACTORING IN COST OF ALL RELATED PARTY TRANSACTION THE COMPAN Y HAS EARNED AND OPERATING MARGIN OF 22.53% WHICH IS SIGNIFICANT LY HIGHER THAN 9.05% EARNED BY THE COMPARABLE COMPANIES THUS ESTAB LISHING ALL THE UNDERLYING TRANSACTION INCLUDING THE TRANSACTIO N FOR PAYMENT OF LICENCE FEE AND MANAGEMENT FEE ARE AT ARMS LENG TH ................. ( PAGE 40 OF TPO ORDER ). TPO HAD THE RECORDED THE CONTRADICTION FINDINGS INASMUCH AS IT WAS MENTIONED THAT THAT THE RE WAS DUPLICATION OF SERVICES AS ALLEGED THERE WAS NO EVIDENCE OF REN DERING THE SERVICES FOR THE MANAGEMENT . IN OUR VIEW TAXPAYER COULD ONLY BE ASKED TO MAINTAIN AND PRODUCE THE EVIDENCE OF RECEIPT OF SER VICE WHICH A BUSINESSMAN KEEPS AND MAINTAINS REGARDING SERVICES RECEIVED FROM A THIRD PARTY. THE BURDEN OF MAINTENANCE OF DO CUMENTS/ EVIDENCES COULD NOT BE HIGHER ON THE TAXPAYER MEREL Y DUE TO THE REASON THAT IT WAS RECEIVING SERVICES FROM ITS AES FURTHER TPO HAS NOT HELD THAT THE SIMILAR KIND OF SERVICES WAS ALRE ADY AVAILABLE WITH THE TAXPAYER WITH ANY CONCRETE EVIDENCE. IN THE ABS ENCE OF ANY INSTANCES OF SERVICES PROVIDED BY THE AE AND FROM T HE FACT THAT IT(TP)A.1039 & 1078/BANG/2015 PAGE - 28 SERVICES AVAILED BY THE TAXPAYER FROM THE THIRD PAR TIES WERE SIMILAR IN NATURE, THE TPOS VIEWPOINT ON DUPLICATION TEST WAS NOT ACCEPTABLE. IN ALL . WE FIND THAT IN A MATERIALLY IDENTICAL SITUATION I N THE CASE OF MERCK LTD. V. DY. CIT [2016] 69 TAXMANN.COM 45 (MUM.) , A COORDINATE BENCH, HAS OBSERVED, INTER ALIA, AS FOLL OWS: '9. WE FIND THAT THERE IS A CLEAR CONTRADICTION IN THE FINDINGS OF THE AUTHORITIES BELOW. ON ONE HAND, THE STAND OF THE AUTHORITIES BE LOW IS THAT NO SERVICES ARE RENDERED, AND, ON THE OTHER HAND, THERE ARE CATEGOR ICAL FINDINGS THAT THE SERVICES RENDERED ARE SO GENERAL IN NATURE THAT EVEN AN EMPL OYEE OF THE ASSESSEE COULD HAVE RENDERED THE SAME. IN THE EVENT OF NO SERVICES ACTU ALLY HAVING BEEN RENDERED, THERE CANNOT BE ANY OCCASION FOR THE SAME SERVICES BEING RENDERED BY A PERSON WITHOUT SPECIALIZED KNOWLEDGE. ON THE ONE HAND, IT IS HELD THAT ARM'S LENGTH PRICE OF THESE SERVICES IS ZERO VALUE, AND, IN THE SAME BREATH, IT IS HELD THAT 'THERE WOULD HARDLY BE ANY SUBSTANTIAL PAYMENT' FOR THESE SERVICES. CLEARL Y, SERVICES ARE RENDERED ON THE FACTS OF THE PRESENT CASE. THERE IS SUFFICIENT MATE RIAL ON RECORD TO SHOW THAT THE ASSESSEE WAS, UNDER THE AGREEMENT, ENTITLED TO RECE IVE A PACKAGE OF SERVICES ON AS AND WHEN REQUIRED BASIS. THE EMAILS AND OTHER DOCUM ENTARY EVIDENCES SHOW THAT THE ASSESSEE WAS IN RECEIPT OF THESE SERVICES. JUST BECAUSE THESE SERVICES WERE TOO GENERAL, IN THE PERCEPTION OF THE AUTHORITIES BELOW , OR JUST BECAUSE THE ASSESSEE DID NOT NEED THESE SERVICES FROM THE OUTSIDE AGENCIES, CANNOT BE REASON ENOUGH TO HOLD THAT THE SERVICES WERE NOT RENDERED AT ALL. WE HAVE PERUSED THE MATERIAL BEFORE US, AND, IN OUR CONSIDERED VIEW, THE ASSESSEE HAS REASO NABLY ESTABLISHED RENDITION OF SERVICES. THE ASSESSEE MAY NOT HAVE RECEIVED ALL TH E SERVICES UNDER THE AGREEMENT BUT ESSENTIALLY THE ASSESSEE HAD RIGHT TO RECEIVE A LL THESE SERVICES, AS AND WHEN REQUIRED, UNDER THE AGREEMENT. THE PAYMENT IS MADE FOR THE RIGHTS ACCRUING TO THE ASSESSEE FOR THE BUNDLED SERVICES UNDER THE CONTRAC T AND NOT FOR EACH SERVICE ON ALA CARTE BASIS. THE REASON THAT THE ASSESSEE DID NOT U SE A PARTICULAR SERVICE CANNOT JUSTIFY HOLDING THAT NO PAYMENT WAS WARRANTED FOR S UCH SERVICES. TO GIVE AN EXAMPLE FROM DAY TO DAY LIFE, IF AN ASSESSEE IS PAY ING FOR HAVING RIGHT TO VIEW A BOUQUET OF TELEVISION CHANNELS, WHICH COME AS A PAC KAGE, HE DOES NOT DECLINE TO PAY THE CONSIDERATION FOR THE BOUQUET OF TELEVISION CHANNELS BECAUSE HE DID NOT VIEW A PARTICULAR TELEVISION CHANNEL. THE EXAMPLE M AY SEEM TO BE A BIT TOO SIMPLISTIC BUT IT DOES HAMMER THE MASSAGE, AS WE WO ULD LIKE TO, THAT NOT AVAILING A PARTICULAR SERVICE UNDER A CONTRACT DOES NOT MEAN T HAT NO PAYMENTS ARE REQUIRED TO BE MADE FOR ALL THE SERVICES BUNDLED UNDER THE CONT RACT. THE OTHER THING IS THE BENEFIT TEST. WE DO NOT THINK BENEFIT TEST HAS TOO MUCH RELEVANCE IN THE ARM'S LENGTH PRICE ASCERTAINMENT. WHEN EVALUATING THE ALP OF A S ERVICE, IT IS WHOLLY IRRELEVANT IT(TP)A.1039 & 1078/BANG/2015 PAGE - 29 AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF TH IS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. IN CASE TP O CAN DEMONSTRATE THAT THE CONSIDERATION FOR SIMILAR SERVICES, UNDER THE CUP M ETHOD, IS NIL, HE CAN VERY WELL DO SO. THAT'S NOT, HOWEVER, HIS CASE. HE ONLY STATE S THAT THESE SERVICES ARE NOT WORTH THE AMOUNT PAID BY THE ASSESSEE. SUCH BAND STATEMEN TS AND SWEEPING GENERALIZATIONS CANNOT HELP THE CASE OF THE REVENUE AUTHORITIES. THE ASSESSEE HAS BENCHMARKED THE TRANSACTION ON TNMM BASIS, AND UNLE SS THE REVENUE AUTHORITIES CAN DEMONSTRATE THAT SOME OTHER METHOD OF ASCERTAIN ING THE ARM'S LENGTH PRICE ON THE FACTS OF THIS CASE WILL BE MORE APPROPRIATE A M ETHOD OF ASCERTAINING THE ARM'S LENGTH PRICE, THE TNMM CANNOT BE DISCARDED. DEALING WITH ALMOST A SIMILAR SITUATION, AS WE ARE IN SEISIN OF, A COORDINATE BEN CH OF THIS TRIBUNAL, IN THE CASE OF AWB INDIA (P.) LTD. V. DY. CIT [2015] 152 ITD 770 , HAS OBSERVED AS FOLLOWS: '11. IN GROUND NOS. 5 TO 9, WHICH WE WILL TAKE UP T OGETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 5. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE FAILED TO APPRECIATE THE BUSINESS MODEL AND BUSINES S REALITIES OF THE APPELLANT AND ROLE OF ITS AE, WHILE CONDUCTING THE ECONOMIC ANALY SIS, AND CONCLUDING THAT NO SERVICE IS RECEIVED OR NO BENEFIT, AND/OR SERVICES RECEIVED ARE DUPLICATIVE IN NATURE. 6. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO ERRED IN PRESUMPTIVELY HOLDING THAT THE REVENUE AUTHORITIES ARE EMPOWERED TO QUESTION THE COMMERCIAL DECISION OF THE APPELLANT AND IN NOT APP RECIATING THE JURISPRUDENCE THAT THE DRP AND THE AO/TPO CANNOT GO BEYOND THEIR POWER S TO QUESTION THE BUSINESS DECISION OF THE COMPANY. 7. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP HAS ERRED IN CONFIRMING THAT THE TPO HAS DISCHARGED HIS STATUTOR Y ONUS BY ESTABLISHING THE CONDITIONS SPECIFIED IN (A) TO (D) OF SECTION 92C(3 ) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREGARDING THE ARM'S LENGTH PRICE DETERMIN ED BY THE APPELLANT AND PROCEEDING TO DECIDE THE ARM'S LENGTH PRICE HIMSELF . 8. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE ERRED IN CONDUCTING ECONOMIC ANALYSIS OF THE INTERN ATIONAL TRANSACTIONS WITHOUT RELYING ON ANY COMPARABLE TRANSACTION/COMPANIES USI NG INAPPROPRIATE METHOD. 9. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE ERRED IN DETERMINING THE ARM'S LENGTH PRICE OF INTE RNATIONAL TRANSACTIONS CONSISTING OF COST AND PROFIT MARGIN AT 'NIL'. 12. SO FAR AS THESE GRIEVANCES OF THE ASSESSEE ARE CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF TRADING IN FOOD IT(TP)A.1039 & 1078/BANG/2015 PAGE - 30 GRAINS. IT IS A PART OF AWB GROUP AUSTRALIA AND ITS 99.999% EQUITY IS HELD BY AWB AUSTRALIA LIMITED AND THE BALANCE. 001% EQUITY IS H ELD BY ANOTHER GROUP COMPANY, NAMELY AWB INVESTMENTS LIMITED. ONE OF THE INTERNAT IONAL TRANSACTIONS THAT THE ASSESSEE ENTERED INTO WITH ITS AES WAS PAYMENT OF R S. 58,20,571 TOWARDS 'MANAGEMENT SERVICES'. ON AN ANALYSIS OF THE DETAIL S OF THE PAYMENTS MADE UNDER THIS HEAD, THE TPO WAS OF THE VIEW THAT THE BENEFIT OF SOME OF THE SERVICES AVAILED UNDER THE HEAD 'MANAGEMENT SERVICES' WAS NOT COMMEN SURATE WITH THE PAYMENTS MADE FOR THE SAME. HE WAS ALSO OF THE VIEW THAT AS AGAINST THE USE OF TNMM BY THE ASSESSEE IN BENCHMARKING, THE RIGHT COURSE OF A CTION WILL BE TO FOLLOW CUP METHOD BECAUSE THE VALUE UNDER CUP METHOD WILL BE B EST INDICATOR OF THE VALUE OF THESE SERVICES. IT WAS IN THIS BACKGROUND THAT THE TPO MADE CERTAIN ADVERSE INFERENCES AGAINST THE ASSESSEE. THE TPO WAS OF THE VIEW THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS. 20,35,907 TOWARDS FINANCI AL MANAGEMENT AND REPORTING SERVICES, 'BUT THE SERVICES RENDERED ARE NEGLIGIBLE COMPARED TO THE COST INCURRED'. THE TPO WAS ALSO OF THE VIEW THAT 'A MINOR CLARIFIC ATION OR SEEKING OF CERTAIN GUIDANCE ON VERIFY BASIC ISSUE DOES NOT CALL FOR A PAYMENT OF RS. 20 LAKHS. THEREFORE, THE ALP OF THESE SERVICES WAS TAKEN AS ' NIL'. HE FURTHER NOTED THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS. 1,23,4 76 TOWARDS HUMAN RESOURCES SERVICES, THE ASSESSEE HAS 'NOT FURNISHED ANY SPECI FIC INPUT ON TRAINING AND DEVELOPMENT OF HUMAN RESOURCES AND IT IS ALSO NOTIC ED THAT THESE SERVICES ARE OF ROUTINE NATURE AND DUPLICATE AT BEST'. ACCORDINGLY, THE TPO ALSO TREATED ALP OF THESE SERVICES AS 'NIL'. AS REGARDS THE PAYMENT OF RS. 96,355 TOWARDS 'LEGAL SERVICES', THE TPO DID TAKE NOTE OF THE SERVICES TH AT THE ASSESSEE WAS ENTITLED TO UNDER THESE ARRANGEMENTS BUT AS THERE IS NO EVIDENC E OF ANY SERVICES HAVING BEEN ACTUALLY RENDERED BY THE AE, THE TPO CONCLUDED THAT IT DOES NOT HAVE ANY VALUE IN AN ARM'S LENGTH SITUATION. THE VALUE OF THIS SERVIC E WAS ALSO TAKEN AS NIL. THE SAME WAS THE CASE WITH RESPECT TO THE PAYMENTS FOR OTHER SERVICES. ACCORDINGLY, NO ARM'S LENGTH VALUE WAS ASSIGNED TO THESE SERVICES ALSO. I N RESPECT OF THESE CASES TNMM WAS REJECTED AND CUP WAS APPLIED THOUGH, EVEN UNDER CUP METHOD, VALUE ASSIGNED WAS NIL AS, IN THE OPINION OF THE TPO, THE SE SERVICES WERE WORTHLESS. 13. WHEN ASSESSING OFFICER PROPOSED TO MAKE DISALLO WANCE IN RESPECT OF PAYMENTS FOR THE ABOVE SERVICES, ARM'S LENGTH VALUE OF WHICH WAS TAK EN AT 'ZERO', AGGREGATING TO RS. 31,23,325, AS AGAINST TOTAL MANAGEMENT FEES OF RS. 58,20,571 PAID BY THE ASSESSEE, ASSESSEE CARRIED THE MATTER BEFORE THE DRP BUT WITH OUT ANY SUCCESS. THE DRP CONFIRMED THE STAND SO TAKEN BY THE TPO, ACCORDINGLY, AN ALP ADJUSTMENT OF RS. 31,23,325 WAS MADE BY THE ASSESSING OFFICER. THE ASSESSEE IS AGGR IEVED AND IS IN APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 15. ONE OF THE VERY BASIC PRE-CONDITION FOR USE OF CUP METHOD IS AVAILABILITY OF THE PRICE OF THE SAME PRODUCT AND SERVICE IN UNCONTROLL ED CONDITIONS. IT IS ON THIS BASIS IT(TP)A.1039 & 1078/BANG/2015 PAGE - 31 THAT ALP OF THE PRODUCT OR SERVICE CAN BE ASCERTAIN ED. IT CANNOT BE A HYPOTHETICAL OR IMAGINARY VALUE BUT A REAL VALUE ON WHICH SIMILAR T RANSACTIONS HAVE TAKEN PLACE. COMING TO THE FACTS OF THIS CASE, THE APPLICATION O F CUP IS DEPENDENT ON THE MARKET VALUE OF THE ARRANGEMENTS UNDER WHICH THE PRESENT P AYMENTS HAVE BEEN MADE. UNLESS THE TPO CAN IDENTIFY A COMPARABLE UNCONTROLL ED CASE IN WHICH SUCH SERVICES, HOWSOEVER TOKEN OR IRRELEVANT SERVICES AS HE MAY CONSIDER THESE SERVICES TO BE, ARE RENDERED AND FIND OUT CONSIDERATION FOR THE SAME, THE CUP METHOD CANNOT HAVE ANY APPLICATION. HIS PERCEPTION THAT THESE SER VICES ARE WORTHLESS IS OF NO RELEVANCE. IT IS NOT HIS JOB TO DECIDE WHETHER A BU SINESS ENTERPRISE SHOULD HAVE INCURRED A PARTICULAR EXPENSE OR NOT. A BUSINESS EN TERPRISE INCURS THE EXPENDITURE ON THE BASIS OF WHAT IS COMMERCIALLY EXPEDIENT AND WHAT IS NOT COMMERCIALLY EXPEDIENT. AS HELD BY HON'BLE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT V. EKL APPLIANCES LIMITED ( 345 ITR 241 ), 'EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME'. 16. THE VERY FOUNDATION OF THE ACTION OF THE TPO IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. THERE IS NO DISPUTE THAT THE IM PUGNED PAYMENTS ARE MADE UNDER AN ARRANGEMENT WITH THE AE TO PROVIDE CERTAIN SERVI CES. IT IS NOT EVEN THE TPO'S CASE THAT THE PAYMENTS FOR THESE SERVICES WERE NOT MADE FOR SPECIFIC SERVICES UNDER THE CONTRACT BUT HE IS OF THE VIEW THAT EITHER THE SERVICES WERE USELESS OR THERE WAS NO EVIDENCE OF ACTUAL SERVICES HAVING BEEN RENDERED . AS FOR THE SERVICES BEING USELESS, AS WE HAVE NOTED ABOVE, IT IS A CALL TAKEN BY THE ASSESSEE WHETHER THE SERVICES ARE COMMERCIALLY EXPEDIENT OR NOT AND ALL THAT THE TPO CAN SEE IS AT WHAT PRICE SIMILAR SERVICES, WHATEVER BE THE WORTH OF SU CH SERVICES, ARE ACTUALLY RENDERED IN THE UNCONTROLLED CONDITIONS. 17. AS FOR THE EVIDENCE FOR EACH OF THE SERVICE STA TED IN THE AGREEMENT, IT IS NOT EVEN NECESSARY THAT EACH OF THE SERVICE, WHICH IS S PECIFICALLY STATED IN THE AGREEMENT, IS RENDERED IN EVERY FINANCIAL PERIOD. T HE ACTUAL USE OF SERVICES DEPENDS ON WHETHER OR NOT USE OF SUCH SERVICES WAS WARRANTE D BY THE BUSINESS SITUATIONS WHEREAS PAYMENTS UNDER CONTRACTS ARE MADE FOR ALL S UCH SERVICES AS THE USER MAY REQUIRE DURING THE PERIOD COVERED. AS LONG AS AGREE MENT IS NOT FOUND TO BE A SHAM AGREEMENT, THE VALUE OF THE SERVICES COVERED UNDER THE AGREEMENT CANNOT BE TAKEN AS 'NIL' JUST BECAUSE THESE SERVICES WERE NOT ACTUA LLY REQUIRED BY THE ASSESSEE. IN ANY CASE, HAVING PERUSED THE MATERIAL ON RECORD, WE ARE SATISFIED THAT THE SERVICES WERE ACTUALLY RENDERED UNDER THE AGREEMENT AND THESE SER VICES DID JUSTIFY THE IMPUGNED PAYMENTS. 18. WE ARE ALSO OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF PREREQUISITES FOR APPLICATION OF CUP METHODS BEING ABSENT IN THE PRES ENT CASE, IT WAS NOT OPEN TO THE TPO TO DISREGARD THE TNMM EMPLOYED BY THE ASSESSEE. NO DEFECTS HAVE BEEN IT(TP)A.1039 & 1078/BANG/2015 PAGE - 32 POINTED OUT IN APPLICATION OR RELEVANCE OF TNMM IN THIS CASE. UNDER THESE CIRCUMSTANCES, THE TPO'S IMPUGNED ACTION CANNOT MEE T OUR JUDICIAL APPROVAL. 19. FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHO LD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE IMPUGNED ALP ADJUST MENT OF RS. 31,23,325. THE ASSESSEE GETS THE RELIEF ACCORDINGLY.' 25. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. 26. IN THE PRESENT CASE, THOUGH A FINDING IS GIVEN TO THE EFFECT THAT NO SERVICES ARE RENDERED, IN THE LIGHT OF THE CONTRADICTIONS IN THI S FINDING AND THE OBSERVATIONS ABOVE, IT IS CLEAR THAT IN EFFECT COMMERCIAL EXPEDI ENCY OF THIS PAYMENT IS QUESTIONED. THAT EXERCISE, IN OUR CONSIDERED VIEW- PARTICULARLY IN THE LIGHT OF HON'BLE DELHI HIGH COURT'S JUDGMENT IN THE CASE OF CIT V. EKL APPLIANCES LTD. [2012] 345 ITR 241 , CANNOT BE CONDUCTED IN THE COURSE OF ASCERTAINING THE ARM'S LENGTH PRICE. 27. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARI NG IN MIND ENTIRETY OF THE CIRCUMSTANCE, IT IS CLEAR THAT THE IMPUGNED ALP ADJ USTMENT IS CONTRARY TO THE SCHEME OF THE ACT. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH WERE NOT GERMANE TO THE ISSUE. WE, THEREFORE, UPHOLD THE GRIEVANCES OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ALP ADJUSTMENTS IN RESPECT OF THE PAYMENT OF FEES FOR TECHNICAL SERVICES. THE ASSESSEE GETS THE RELIEF ACCORD.' 22 . WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO E XPRESSED BY THE COORDINATE BENCH AND THE IMPUGNED ADDITION MUST STAND DELETED FOR THIS SHORT REASON ALONE. IN OUR CONSIDERED VIEW , THE FACTS OF THE CASE BEFORE US ARE MATERIALLY SIMILAR INASMUCH AS T HE SERVICES ARE INDEED RENDERED BY THE AE, AS EVIDENT FROM THE DOCU MENTARY EVIDENCES ON RECORD AND YET ITS ARM'S LENGTH VALUE IS HELD TO BE NIL ONLY BECAUSE, ACCORDING TO THE AUTHORITIES BELOW, T HESE SERVICES WERE WORTHLESS, THESE SERVICES WERE NOT REQUIRED BY THE ASSESSEE, THE ASSESSEE COULD HAVE PERFORMED THESE SERVICES ON ITS OWN AND THE SERVICES WERE NOT RENDERED BY THE GROUP ENTITY. THE TPO HAS REJECTED IT(TP)A.1039 & 1078/BANG/2015 PAGE - 33 THE DETERMINATION OF ARM'S LENGTH PRICE ON THE BASI S OF TNMM, AT ENTITY LEVEL, BUT THEN HE HAS NOT ADOPTED ANY OTHER PERMISSIBLE METHOD FOR DETERMINATION OF ARM'S LENGTH PRICE. SUCH A COU RSE OF ACTION, AS NOTED ABOVE, IS NOT PERMISSIBLE IN LAW. JUST BECAUS E THESE SERVICES ARE WORTHLESS IN THE EYES OF THE REVENUE AUTHORITIES, T HE ARM'S LENGTH PRICE OF THESE SERVICES CANNOT BE HELD TO BE NIL. SIMILA RLY, THE FINDINGS THAT NO SERVICES WERE RENDERED AND THAT THE ASSESSEE COU LD HAVE PERFORMED THESE SERVICES ON ITS OWN ARE CONTRADICTORY. IF NO SERVICES WERE RENDERED, WHICH SERVICES THE AUTHORITIES BELOW HOLD THAT THE ASSESSEE COULD HAVE PERFORMED ON ITS OWN. EVEN THE AGREEMENT FOR MANAGEMENT SERVICES PROVIDED FOR COST ALLOCATION BA SED ON TURNOVER AT THE RATE OF 3 PERCENT. FOR THE SAKE OF REPETITIO N APPROACH OF THE ASSESSEE AS WELL AS THE COMMISSIONER HAS NOT BEEN C HALLENGED BY THE REVENUE BEFORE US WHEREBY BY THE AGGREGATION OF TRA NSACTIONS HAS BEEN DONE. THE COMPUTATION OF NIL FOR MANAGEMENT SERVIC ES BY THE TPO WAS DONE ON THE BASIS OF METHOD NOT PERMISSIBLE UND ER THE LAWS BY BRINGING IN THE COMPARABLE UNCONTROLLED TRANSACTION BY THE TPO. THESE ARE AT HAS TO BE DONE ON THE BASIS OF A PERMI SSIBLE METHOD OF ASCERTAINING THE ARM'S LENGTH PRICE. IT CANNOT BE O PEN TO THE TPO TO REJECT A METHOD OF ASCERTAINING THE ARM'S LENGTH PR ICE WITHOUT APPLYING A LEGALLY PERMISSIBLE METHOD TO SUBSTITUTE FOR THE METHOD OF ASCERTAINING ALP AS ADOPTED BY THE ASSESSEE. TO HOL D THAT THE ARM'S LENGTH PRICE OF THESE SERVICES WAS NIL UNDER THE CU P METHOD, THE TPO HAD TO NECESSARILY DEMONSTRATE THAT THE SAME SE RVICES, WHATEVER BE ITS INTRINSIC WORTH, WERE AVAILABLE FOR NIL CONS IDERATION IN AN IT(TP)A.1039 & 1078/BANG/2015 PAGE - 34 UNCONTROLLED SITUATION; THAT IS NOT, AND THAT CANNO T BE, THE CASE. IT IS ALSO NOT THE CASE OF THE AUTHORITIES BELOW THAT THE ARM'S LENGTH PRICE OF THESE SERVICES, UNDER ANY OTHER LEGALLY PERMISSIBLE METHOD IS, NIL THERE IS THUS NO LEGALLY SUSTAINABLE FOUNDATION FOR THE IMPUGNED ALP ADJUSTMENT. HOWEVER, WE OBSERVE THAT THE COMPARABI LITY ANALYSIS IN THE TP STUDY CARRIED OUT BY THE ASSESSEE BY AGGREGA TION OF TRANSACTIONS ADOPTING TNMM AS THE MOST APPROPRIATE METHOD HAS NO T BEEN EXAMINED BY EITHER OF THE AUTHORITIES BELOW WHO HAV E MERELY CONCENTRATED MERELY ON THE ISSUE OF AGGREGATION / S EGREGATION OF TRANSACTIONS. THE CIT (A) HAS MECHANICALLY ACCEPTE D THE RESULTS OF THE ASSESSEE TO BE AT ARMS LENGTH BY ACCEPTING THE OPERATING PROFIT / OPERATING COST OF THE ASSESSEE AS 25.49% AS AGAINST NON-AE AT 5.26%. IN THAT VIEW OF THE MATTER, WE DEEM IT APPROPRIATE TO REMAND THE ISSUE TO THE FILE OF THE CIT (A) FOR EXAMINING THE CORREC TNESS OF THE ALP AT THE ENTITY LEVEL BY APPLYING THE TNMM AS THE MOST A PPROPRIATE METHOD BY AGGREGATING THE TRANSACTIONS. THE CIT (A) IS DIRECTED TO TAKE THE REMAND REPORT FROM THE TPO IN THIS REGARD AND AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER. .THUS GROUND NOS.3, 4, 5 & 6 OF REVENUE APPEAL ARE ALLOW ED FOR STATISTICAL PURPOSES. 23 WITH RESPECT TO THE ALTERNATIVE GROUND I.E NO 7 WE MAY RECORD , THAT THE AUTHORITY OF THE TPO IS TO CONDUCT A TRANS FER PRICING ANALYSIS TO DETERMINE THE ALP AND NOT TO DETERMINE WHETHER T HERE IS A SERVICE OR NOT FROM WHICH THE ASSESSEE BENEFITS. THAT ASPEC T OF THE EXERCISE IS IT(TP)A.1039 & 1078/BANG/2015 PAGE - 35 LEFT TO THE AO. THIS DISTINCTION WAS MADE CLEAR BY THE ITAT IN DRESSER-RAND INDIA PVT. LTD. V. ADDITIONAL COMMISSI ONER OF INCOME TAX, 2012 (13) ITR (TRIB) 422: WHEN EVALUATING THE ARM'S LENGTH PRICE OF A SERVIC E, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE R EAL QUESTION WHICH IS TO BE DETERMINED IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEAR S WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT. THE AE MAY HAVE GIVEN TH E SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THUS, IT BECOMES IMPORTANT TO CLARIFY THE EXTENT OF THE TPO'S AUTHORITY IN THIS CASE, WHICH IS TO DETERMINING THE ALP FOR INTERNATI ONAL TRANSACTIONS REFERRED TO HIM OR HER BY THE AO, RATHER THAN DETERMINING WHETH ER SUCH SERVICES EXIST OR BENEFITS HAVE ACCRUED. THAT EXERCISE - OF FACTUAL V ERIFICATION IS RETAINED BY THE AO UNDER SECTION 37 IN THIS CASE. INDEED, THIS IS N OT TO SAY THAT THE TPO CANNOT - AFTER A CONSIDERATION OF THE FACTS - STATE THAT THE ALP IS 'NIL' GIVEN THAT AN INDEPENDENT ENTITY IN A COMPARABLE TRANSACTION WOUL D NOT PAY ANY AMOUNT. HOWEVER, THIS IS DIFFERENT FROM THE TPO STATING THA T THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISAL LOWING EXPENDITURE. THAT DECISION IS OUTSIDE THE AUTHORITY OF THE TPO. WHILST THE REPORT OF THE TPO IN THIS CASE ULTIMATEL Y NOTED THAT THE ALP WAS 'NIL', SINCE A COMPARABLE ENTITY WOULD PAY 'NIL' AMOUNT FO R THESE SERVICES, THIS COURT NOTED THAT REMARKS CONCERNING, AND THE FINAL DECISI ON RELATING TO, BENEFIT ARISING FROM THESE SERVICES ARE PROPERLY RESERVED F OR THE AO. IT(TP)A.1039 & 1078/BANG/2015 PAGE - 36 THE AO CAN, THEREFORE, DETERMINE UNDER SECTION 37 T HAT THE EXPENDITURE CLAIMED (IN THIS CASE, THE REFERRAL FEES) WAS NOT F OR THE BENEFIT OF THE BUSINESS, AND THUS, DISALLOW THAT AMOUNT. THIS DOES NOT RESTR ICT OR IN ANY WAY BYPASS THE FUNCTIONS OF THE TPO. QUITE TO THE CONTRARY, IT REP RESENTS THE CORRECT DIVISION OF JURISDICTION BETWEEN THE TWO ENTITIES. 24 IN VIEW OF THE ABOVE THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 25 AS ALL THE FACTS AND CIRCUMSTANCES OF THE APPEA L NUMBER 1078/2015 ARE SIMILAR TO THE FACTS AND CIRCUMSTANCE OF THE AP PEAL BEARING NO 1039/2015, THEREFORE RESPECTFULLY FOLLOWING THE FIN DING RECORDED IN THE SAID APPEAL NO 1039/2015 WE HEREBY ALSO ALLOW THE APPEAL BEARING NO 1078/2015 FOR STATISTICAL PURPOSES. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF JANUARY , 2018. SD/- SD/- (JASON P. BOAZ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 31.01.2018. MCN* IT(TP)A.1039 & 1078/BANG/2015 PAGE - 37 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY