IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.112/PN/2013 (ASSESSMENT YEAR : 2006-07) HONEYWELL TURBO INDIA PVT. LTD., PLOT NO.4A, RAISON INDUSTRIAL ESTATE, NEAR HINJEWADI, PHASE-II, MANN, TAL : MULSHI, DIST : PUNE -411057 .. APPELLANT PAN NO. AABCH 5865J VS. DY.CIT, CIRCLE-1(2), PUNE .. RESPONDENT ASSESSEE BY : SHRI RAJAN R. VORA REVENUE BY : SMT. M.S. VERMA, CIT DATE OF HEARING : 04-04-2014 DATE OF PRONOUNCEMENT : 10-04-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 22-11-2012 PASSED BY THE DCIT, CIRCLE-1(2), PUNE U/ S.143(3) R.W.S.144C(3) AND R.W.S. 263 OF THE INCOME TAX ACT FOR THE ASSESS MENT YEAR 2006-07. 2. GROUNDS OF APPEAL NO.1 TO 12 RAISED BY THE ASSES SEE RELATE TO THE ORDER OF THE ASSESSING OFFICER IN MAKING UPWARD TP ADJUST MENT OF RS.40,41,75,000/- TO THE INTERNATIONAL TRANSACTIONS PERTAINING TO ASSIGNMENT FEES ARISING FROM DIRECTIONS ISSUED BY THE CIT U/S. 263 OF THE INCOME TAX ACT. 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND IS PRIMARILY ENGAGED IN THE BUSINESS OF MANUFACTURING TURBO CHAR GERS, PROVIDING APPLICATION FOR ENGINEERING AND SUPPLY BASE DEVELOP MENT SERVICES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT FILED THE R ETURN OF INCOME U/S 139(1) OF THE ACT ON 30-11-2006 DECLARING TOTAL LOSS OF RS . 10,25,71,955/-. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SUBJECT TO SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT WHEREIN THE RETURNED LOSS WAS ACC EPTED AND THE FINAL LOSS WAS DETERMINED AT RS.10,25,71,955/-. SUBSEQUENTLY, THE COMMISSIONER ISSUED NOTICE U/S 263 OF THE ACT DATED 14-9-2010 SH OW CAUSING THE ASSESSEE AS TO WHY THE ASSESSMENT ORDER DATED 4-12-2008 (SUP RA) BE NOT CONSIDERED ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE IN TERESTS OF REVENUE WITHIN THE MEANING OF SECTION 263(1) OF THE ACT ON THE GRO UND THAT THE ASSESSING OFFICER HAD PASSED AN ORDER U/S 143(3) OF THE ACT O N 4-12-2008 WITHOUT AWAITING A REPORT OF THE TRANSFER PRICING OFFICER ( IN SHORT TPO) U/S 92CA(3) OF THE ACT WITH REGARD TO COMPUTATION OF AR MS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSES SEE WITH ITS ASSOCIATED ENTERPRISES. AFTER CONSIDERING THE OBJECTIONS RAIS ED BY THE ASSESSEE, THE COMMISSIONER HELD THAT THE ASSESSMENT ORDER DATED 4 -12-2008 (SUPRA) WITHOUT COMPUTING TOTAL INCOME OF THE ASSESSEE IN C ONFORMITY WITH THE ARMS LENGTH PRICE DETERMINED BY THE TPO AS REQUIRED BY S EC. 92C(4) OF THE ACT WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO TH E INTERESTS OF THE REVENUE, INASMUCH AS THE REFERENCE MADE TO THE TPO AND THE A DJUSTMENT DETERMINED U/S 92CA(3) OF THE ACT BY THE TPO WAS NOT INCORPORA TED IN THE ASSESSMENT ORDER DATED 4-12-2008 (SUPRA), AS REQUIRED BY CBDT INSTRUCTION NO.3 DATED 25-5-2003. HE ACCORDINGLY RESTORED THE MATTER TO T HE FILE OF THE ASSESSING 3 OFFICER WITH A DIRECTION TO PASS THE ORDER AFRESH A ND IN CONFORMITY WITH THE ORDER PASSED U/S.92CA(3) BY THE TPO. SUBSEQUENTLY, THE ASSESSING OFFICER PASSED ORDER ON 22-11-2012 DETERMINING THE TOTAL IN COME AT RS.38,64,85,640/- BY MAKING ADDITION OF RS.40,41,75 ,000/- ON ACCOUNT OF TP ADJUSTMENT PERTAINING TO ASSIGNMENT FEES AND RS.9,7 4,540/- ON ACCOUNT OF APPLICATION ENGINEERING FEES. 3.1 AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFI CER THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E ORDER OF THE TRIBUNAL VIDE ITA NO.765/PN/2012 ORDER DATED 31-12-2013 FOR A.Y. 2006-07 SUBMITTED THAT THE TRIBUNAL HAS DELETED THE ASSIGNM ENT FEES AMOUNTING TO RS.40,41,75,000/- AND UPHELD THE ADJUSTMENT OF RS.9 ,77,998/- TOWARDS PROVISION OF APPLICATION ENGINEERING SERVICES. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE ORDER OF THE TRIBUNAL THE ADDIT ION OF RS.40,41,75,000/- MADE BY THE ASSESSING OFFICER PERTAINING TO THE DIR ECTION OF THE CIT U/S.263 HAS TO BE DELETED AND THE GROUNDS RAISED BY THE ASS ESSEE SHOULD BE UPHELD. 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND FAIRLY CONCEDED THAT THE TRIBUNAL HAS DELETED THE T.P. ADJ USTMENT WITH RESPECT TO THE ASSIGNMENT FEES OF RS.40,41,75,000/- IN THE APP EAL FILED AGAINST THE ORDER OF THE CIT PASSED U/S.263. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE ORDER OF LD. CIT PASSED U/S.263 AND THE PAPER BOOK FILED ON BEHALF OF THE A SSESSEE. WE FIND THE 4 TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 VI DE ITA NO.765/PN/2012 ORDER DATED 31-12-2013 HAS OBSERVED AS UNDER : 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IT IS AN UNDISPUTABLE FACT THAT IN THIS YEAR, ASSESSEE HAS ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE S WHICH FALL WITHIN THE MEANING OF SECTION 92B OF THE ACT. IN THE COURSE OF ASSESSMENT PROCEEDINGS COMPLETED U/S 143(3) OF THE ACT, THE ASSESSIN G OFFICER HAS IMPLIEDLY ACCEPTED THE TRANSFER PRICING IN RESPECT OF THE STATED INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE ON THE BASIS OF T HE DECLARATION MADE BY THE ASSESSEE. THE COMMISSIONER IN EXERCISE OF HIS POWER S CONTAINED IN SECTION 263 OF THE ACT HAS SET ASIDE THE ASSESSMENT ORDER MAINLY ON THE GROUND THAT FINALIZATION OF INCOME WITH RESPECT OF I NTERNATIONAL TRANSACTIONS MADE IN THE ASSESSMENT ORDER DATED 4-12-2008 (SUPRA) WA S NOT IN CONFORMITY WITH THE REPORT OF THE TPO AS MANDATED BY CBDT INSTRUCTION NO.3 DATED 25-5-2003. ON THIS ASPECT, IN OUR CONSIDERED OP INION, THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF RANBAXY LABO RATORIES LTD. VS. CIT (2011) 16 TAXMANN.COM 418 (DELHI), COVERS THE CONTRO VERSY AGAINST THE ASSESSEE. AS PER THE HONBLE HIGH COURT, IN VIEW OF INST RUCTION NO.3 DATED 25-5-2003 ISSUED BY THE CBDT IT IS MANDATORY ON THE P ART OF THE ASSESSING OFFICER TO MAKE A REFERENCE TO THE TPO FOR DETERMIN ATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS AND TO THEREA FTER COMPLETE THE ASSESSMENT IN CONFORMITY WITH THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS DETERMINED BY THE TPO. IN THE PRESENT CA SE, IT IS QUITE EVIDENT THAT THE ASSESSMENT HAS BEEN FINALIZED BY THE ASSESSING OFF ICER ON 4-12-2008 IN A MANNER CONTRARY TO THE INSTRUCTIONS OF CBDT DATE D 25-5-2003 (SUPRA) AND SECTION 92C(4) R.W.S. 92CA(4) OF THE ACT. THEREF ORE, IN PRINCIPLE, WE FIND NO REASON TO INTERFERE WITH INVOKING OF SECTION 263 O F THE ACT BY THE COMMISSIONER IN THE PRESENT CASE. 7. SO HOWEVER, THE ASSESSEE HAS RAISED A PLEA TO THE EFF ECT THAT IN THE PRESENT CASE, THE COMMISSIONER HAS DIRECTED THE ASSESSING OFFICER T O MAKE AN ASSESSMENT OF INCOME BASED ON AN ACTION OF THE TPO, WHIC H IS PATENTLY ILLEGAL AND BEYOND HIS JURISDICTION QUA THE INTERNATIONAL TRANSACTION RELATING TO THE PAYMENT OF ASSIGNMENT FEE TO HTS. ACCORDING TO THE A PPELLANT, IT IS A PATENT ANOMALY AND THE COMMISSIONER OUGHT TO HAVE CORRECTED IT WHEN THE ISSUE WAS RAISED BEFORE HIM. 8. IN THIS CONTEXT, WE MAY BRING OUT THE PLEA OF THE ASSESSEE WHICH IS ON THE FOLLOWING LINES. AS NOTICED EARLIER, ASSESSEE HAD PAID A SSIGNMENT FEE AMOUNTING TO RS.40,41,75,000/- TO ITS ASSOCIATED ENTERP RISE VIZ. HTS AS CONSIDERATION FOR HTS HAVING ASSIGNED TO THE ASSESSEE A CO NTRACT FOR SUPPLY OF TURBO CHARGERS TO TATA MOTORS FOR A PERIOD OF 48 M ONTHS. THE ASSESSEE CLAIMED DEDUCTION OF SUCH ASSIGNMENT FEE AS A REVENUE EXPENDITURE SPREAD OVER THE UNEXPIRED PERIOD OF THE UNDERLINING CONTRA CT WITH TATA MOTORS LTD. THUS, FOR THE YEAR UNDER CONSIDERATION, ASSESSEE HAD ONLY CLAIMED DEDUCTION FOR AN EXPENDITURE OF RS.83,64,805/- ONLY TOWARDS ASSIG NMENT FEE. THE TPO IN HIS ORDER HAS SOUGHT TO MAKE OUT A CASE THAT THE TR ANSACTION WITH ASSOCIATED ENTERPRISE ENCOMPASSING THE ASSIGNMENT OF CONTR ACT WAS VOID AND THEREFORE, HE HAS SOUGHT TO MAKE AN UPWARD ADJUSTMENT OF THE ENTIRE ASSIGNMENT FEE OF RS.40,41,75,000/-, BY INFERRING THAT THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF ASSIGNM ENT FEE TO HTS WAS NIL. THE FUNDAMENTAL PLEA RAISED BY THE ASSESSEE IS THAT THE TPO CAN ONLY EXAMINE THE QUANTUM OF EXPENDITURE AND CANNOT JUDGE THE COMMERCIAL RATIONALE AND VALIDITY OF THE TRANSACTION RELATING T O PAYMENT OF ASSIGNMENT 5 FEE. IN SUPPORT, THE ASSESSEE HAS RELIED UPON THE JUDGMEN T OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD. (ITA NO. 1068/2011 AND ITA NO. 1070/2011 DATED 29-3-2012, WHEREIN SIMIL AR PROPOSITION HAS BEEN UPHELD. 9. IN THIS CONTEXT, WE HAVE PERUSED THE JUDGMENT OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES LTD. (SUPRA) . IN THE SAID CASE, ASSESSEE HAD ENTERED INTO AN INTERNATIONAL TRANSACTION B Y WAY OF PAYMENT OF BRAND FEE/ROYALTY TO ITS ASSOCIATED ENTERPRISE UNDER A N AGREEMENT. THE REVENUE WAS REQUIRED TO DETERMINE THE ARMS LENGTH PR ICE OF THE TRANSACTION. WHILE DOING SO, THE TPO NOTICED THAT ASSESSEE HAS BEEN IN CURRING LOSSES YEAR AFTER YEAR, AND CONSIDERING SUCH PERPETUAL LOSSES THE TP O HELD THAT THE PAYMENT OF ROYALTY DID NOT APPEAR JUSTIFIED AS THE TE CHNICAL KNOWHOW/BRAND FEE AGREEMENT WITH THE ASSOCIATED ENTERPRISE HAD NOT B ENEFITED THE ASSESSEE IN ACHIEVING PROFITS FROM ITS OPERATIONS. FOR THE SAI D REASON, THE TPO HELD THAT THE BRAND FEE PAYMENT MADE BY THE ASSESSEE TO THE ASSOCIATED ENTERPRISE WAS UNJUSTIFIED AND THE ARMS LENGTH PRICE OF THE TRAN SACTION SHOULD BE TAKEN AS NIL. THE HONBLE HIGH COURT DISAPPROVED THE ACT ION OF THE TPO, AND AFTER REFERRING TO THE OECDS TRANSFER PRICING GUIDELINES OB SERVED THAT THE TPO WAS EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTIONS AS HE ACTUALLY FOUND THEM. IN OUR CONSIDERED OPINION, THE AFORESAID PARITY OF RE ASONING LAID DOWN BY THE HONBLE DELHI HIGH COMES INTO PLAY IN THE PRESENT FAC T-SITUATION ALSO, AS OUR FOLLOWING DISCUSSION WOULD SHOW. 10. IN THE CASE BEFORE THE HONBLE DELHI HIGH COURT, THE TPO HAD APPLIED THE CUP METHOD WHILE EXAMINING THE PAYMENT OF BRAND FEE/ROYALTY, WHICH ALSO IS THE POSITION IN THE CASE BEFORE US. THE HONBLE HIGH COURT REFERRED TO THE OECDS TRANSFER PRICING GUIDELINES FOR MULTINATI ONAL ENTERPRISES AND TAX ADMINISTRATIONS, AND REPRODUCED PARAS 1.36 TO 1.41 OF SUCH GUIDELINES, WHICH PROVIDE FOR RECOGNITION OF THE ACTUAL TRANSACTIONS UNDERTAKEN . THEREAFTER, THE HONBLE HIGH COURT OPINED AS UNDER :- 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES L IES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE T AX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBS TITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMINATION OF A CONT ROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPR ISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES DISCOURAGE RESTRUC TURING OF LEGITIMATE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERISAT ION OF SUCH RESTRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXATION IF TH E OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS TO H OW THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESAI D PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRAN SACTION DIFFERS FROM ITS FORM; AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE T RANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HA VE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. 11. FROM THE AFORESAID, IT FOLLOWS THAT THE EXAMINATI ON OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANSACT ION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED E NTERPRISES. THUS, THE TPO SHOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBST ITUTE OTHER 6 TRANSACTIONS FOR THEM. THE TWO EXCEPTIONS WHICH HAVE BEEN PRESCRIBED ARE (I) WHERE THE ECONOMIC SUBSTANCE DIFFERS FROM ITS FORM; AND, (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION IS THE SAME BUT AR RANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN ITS TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BE HAVING IN A COMMERCIALLY RATIONAL MANNER. 12. IN THIS BACKGROUND, WE HAVE PERUSED THE ORDER OF TPO DATED 30-010- 2009 (SUPRA). THE TPO CONSIDERED THE TRANSACTION OF P AYMENT OF ASSIGNMENT FEE BY THE ASSESSEE TO HTS AS CONSIDERATION OF HAVING OB TAINED THE CONTRACT FOR SUPPLY OF TURBO CHARGES TO TATA MOTORS LTD. IN TH E COURSE OF DETERMINING ITS ARMS LENGTH PRICE, THE TPO HAS COME TO A FINDING THAT THE ASSESSEE- COMPANY HAD NO CAPACITY TO PERFORM THE RIGHTS ASSIGNE D TO IT IN TERMS OF THE AGREEMENT. THEREFORE, AS PER HIS PERCEPTION, THE TRA NSACTION ENTERED INTO BY THE ASSESSEE WITH HTS FOR PAYMENT OF ASSIGNMENT FEE WAS VO ID. IN THIS CONTEXT, THE FOLLOWING DISCUSSION IN THE ORDER OF TPO IS RELEVANT TO PERUSE:- 'IN VIEW OF THE ABOVE, ARM'S LENGTH PRICE OF THE IN TERNATIONAL TRANSACTION RELATING TO PAYMENT OF ASSIGNMENT FEES IS CONSIDERE D AS NIL. THE ASSESSEE COMPANY HAS NO CAPACITY TO PERFORM IN TERMS OF AGRE EMENT THE RIGHTS OF WHICH PURPORTEDLY BEEN ASSIGNED TO THE ASSESSEE AND, THER EFORE, IT IS CLEAR THAT THERE ARE NO ASSIGNMENT OF ANY WORTHWHILE RIGHTS WHICH EI THER HAVE BEEN ASSIGNED TO THE ASSESSEE OR WHICH HAVING BEEN ASSIGNED TO IT, T HE ASSESSEE HAS THE CAPACITY TO DISCHARGE. FURTHER, FAILURE ON THE PART OF THE A SSESSEE TO BENCHMARK THE SAME LEADS TO THE INEVITABLE CONCLUSION THAT THE ARM'S L ENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATING TO PAYMENT OF AS SIGNMENT FEES CAN ONLY BE TAKEN AS NIL.' 13. OSTENSIBLY, THE TPO HAS DISREGARDED THE ASSIGNMENT AG REEMENT WITH HTS AS ACCORDING TO HIM, THERE WAS NO CAPACITY ON THE PART OF THE ASSESSEE TO HAVE CARRIED OUT ITS SHARE OF FUNCTIONS ENVISAGED IN TH E ASSIGNMENT AGREEMENT. IN OUR CONSIDERED OPINION, THE TPO WAS E XPECTED TO EXAMINE THE INTERNAL TRANSACTION OF PAYMENT OF ASSIGNMENT FEE AS HE ACTUALLY FOUND IT OR IN OTHER WORDS, AS IT WAS TRANSACTED BETWEEN THE PARTIES; A ND, THEN MAKE SUITABLE ADJUSTMENTS, IF REQUIRED IN ORDER TO DETERMIN E ITS ARMS LENGTH PRICE, BUT IT WAS IMPERMISSIBLE FOR HIM TO TREAT THE AGREEMEN T AS VOID BASED ON HIS OWN UNDERSTANDING OF THE COMMERCIAL FEASIBILITY OF TH E TRANSACTION. 14. THE HONBLE DELHI HIGH COURT HAS ALSO EMPHASISED TH AT THE EXAMINATION OF A CONTROLLED TRANSACTION SHOULD ORDINA RILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STR UCTURED BY THE ASSOCIATED ENTERPRISES EXCEPT IN TWO EXCEPTIONS WHICH W E HAVE DISCUSSED ABOVE. IN THE FACTS OF THE PRESENT CASE, WE ARE UNABL E TO APPRECIATE AS TO HOW THE SAME FALLS INTO ANY OF THE AFORESAID EXCEPTIONS. 15. AT THIS POINT, IT MAY ALSO BE RELEVANT TO OBSERVE THAT IN THE COURSE OF HEARING, IT WAS STATED BY THE APPELLANT THAT THE IMPU GNED ASSIGNMENT AGREEMENT WAS ALSO BEFORE THE AUTHORITY FOR ADVANCE R ULINGS (AAR) WITH REGARD TO THE TAXABILITY OF THE ASSIGNMENT FEE IN IND IA, ON BEING APPROACHED BY HTS. THE AAR IN ITS ORDER DATED 07-10-2005 CONCL UDED THAT NONE OF THE CLAUSES OF THE PROVISO TO SECTION 245R(2) ARE ATTRACTED IN THE PRESENT CASE. NOTABLY, ONE OF THE CLAUSES IN THE PROVISO TO SECTION 2 45R(2) OF THE ACT STIPULATE THAT THE TRANSACTION SHOULD NOT BE DESIGNED P RIMA-FACIE FOR AVOIDANCE OF INCOME-TAX. WE ARE ONLY POINTING OUT THIS TO SAY THAT SUCH AGREEMENT WAS NOT FOUND TO BE IN-GENUINE OR NON-BONA FIDE OR AS BEING 7 DESIGNATED FOR AVOIDANCE OF THE TAXES BY THE AAR. TH US, THE ACTION OF THE TPO BECOMES UNTENABLE. 16. THEREFORE, CONSIDERED IN THE CONTEXT OF OECD GUI DELINES WHICH HAVE BEEN REFERRED TO BY THE HONBLE DELHI HIGH COURT IN THE EKL APPLIANCES LTD (SUPRA), THE IMPUGNED ACTION OF THE TPO DOES NOT FIT INTO THE EXCEPTIONS WHICH WOULD EMPOWER HIM TO DISREGARD THE ACTUAL TRAN SACTION AS MANIFESTED BY THE ASSIGNMENT AGREEMENT WITH HTS. THEREFORE, THE INFERENCE OF THE TPO TO DISREGARD THE ASSIGNMENT AGREEMENT, IN OUR VIEW, IS BEYOND HIS JURISDICTION, WHEREBY, THE TPO OUGHT NOT TO HAVE VEN TURED INTO THE COMMERCIAL RATIONALE AND VALIDITY OF THE TRANSACTION . QUITE CLEARLY, THE AFORESAID ACTION OF THE TPO WOULD NOT RENDER THE ASSESSM ENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT IN SO FAR AS IT RELATES TO THE PAYMENT OF THE ASSIGNMENT FEE TO HTS. THE COMMISSIONER, THEREFORE , HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO MAKE AN ASSESSMENT ON TH E SAID BASIS. 17. IN THIS BACKGROUND, WE MAY NOW CONSIDER THE ULTIM ATE DIRECTIONS OF THE COMMISSIONER TO THE ASSESSING OFFICER WHICH WE HAVE ALREADY REPRODUCED IN THE EARLIER PART OF THIS ORDER. IN OU R VIEW, THE SAME WOULD REQUIRE MODIFICATION ON THE BASIS OF AFORESAID DISCUSSIO N WITH RESPECT TO THE INTERNATIONAL TRANSACTION OF PAYMENT OF ASSIGNMENT FE E. 18. THEREFORE, WHILE UPHOLDING IN PRINCIPLE, THE IN VOKING OF SECTION 263 BY THE COMMISSIONER, WE MODIFY HIS DIRECTIONS TO THE ASSESSING OFFICER TO THE EXTENT THAT HIS DIRECTIONS WOULD CONFINE TO THAT PORT ION OF THE ORDER OF TPO U/S 92CA(3) OF THE ACT WHICH RELATES TO ADJUSTMENT PR OPOSED IN RELATION TO THE INCOME BY WAY OF PROVISION OF APPLICATION ENGINE ERING SERVICES AMOUNTING TO RS.9,77,998/-. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO PASS THE ENSUING ASSESSMENT ORDER IN THE LIGHT OF THE AFO RESAID DIRECTIONS. 19. THUS, IN FINAL ANALYSIS, THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED. 6.1 SINCE THE TRIBUNAL IN ITS DECISION AGAINST THE ORDER PASSED U/S.263 BY THE LD. CIT HAS DELETED THE ADJUSTMENT WITH RESPECT TO ASSIGNMENT FEES OF RS.40,41,75,000/-, THEREFORE, RESPECTFULLY FOLLOWIN G THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRA RY MATERIAL BROUGHT TO OUR NOTICE, WE DIRECT THE ASSESSING OFFICER TO DELE TE THE ADJUSTMENT OF RS.40,41,75,000/- MADE IN THE ORDER PASSED U/S.143( 3) R.W.S. 144C AND SECTION 263. GROUNDS RAISED BY THE ASSESSEE ON THI S ISSUE ARE ACCORDINGLY ALLOWED. 8 7. SO FAR AS THE GROUND RELATING TO CHARGING OF INT EREST U/S.234B AND 234C OF THE ACT ARE CONCERNED, THESE ARE MANDATORY AND CONSEQUENTIAL IN NATURE. THEREFORE, THIS GROUND IS DISMISSED. 8. AS REGARDS THE GROUND RELATING TO INITIATION OF PENALTY U/S.271(1)(C) IS CONCERNED, THE SAME IS PREMATURE IN NATURE AT THIS STAGE. THEREFORE, THE SAME IS ALSO DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 10-04-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE, DATED 10 TH APRIL, 2014 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE DRP, PUNE 4. D.R. A BENCH, PUNE 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE