M/s. Denso India Ltd., New Delhi V. DCIT, New Delhi

ITA 1128/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2859 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 14-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 37(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1857/DEL/2014 ASSESSMENT YEAR : 2009-10 ITA NO.1128/DEL/2015 ASSESSMENT YEAR : 2010-11 DENSO INDIA LIMITED, B-1/D-4, GROUND FLOOR, MOHAN CO-OPERATIVE INDUSTRIAL AREA, MATHURA ROAD, NEW DELHI. PAN: AAACD4255F VS. DCIT, CIRCLE-10(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA DEPARTMENT BY : SHRI KUMAR PRANAV DATE OF HEARING : 06.03.2018 DATE OF PRONOUNCEMENT : 07.03.2018 ORDER PER R.S. SYAL, VP: THESE TWO APPEALS FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 INVOLVE SOME COMMON ISSUES. WE ARE, THEREFORE, PROC EEDING TO DISPOSE THEM OFF WITH THIS COMMON ORDER FOR THE SAKE OF CON VENIENCE. ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 2 ASSESSMENT YEAR 2009-10 2. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) ON 27.02 .2014 U/S. 143(3) R/W SECTION 144 C OF THE INCOME TAX ACT, 1961 (HEREINAF TER ALSO CALLED `THE ACT) IN RELATION TO THE A.Y. 2009-10. 3. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANS ACTION OF PAYMENT OF APPLICATION COST AT NIL. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, EARLIER KNOWN AS NIPPONDENSO LTD., WAS PROMOTED IN 1985 AS A JOIN T VENTURE BETWEEN SRF GROUP AND NIPPONDENSO OF JAPAN. SRF LATER ON SOLD ITS STOCK IN THE MARKET. THEREAFTER, DENSO JAPAN ALONG WITH ITS AFFILIATES H ELD 52.9% EQUITY IN DENSO INDIA. THIS COMPANY IS A LEADING MANUFACTURE R OF AUTOMOBILE COMPONENTS AND IS ENGAGED IN THE BUSINESS OF MANUFA CTURE AND SALE OF STARTERS, WIPER MOTORS, FAN MOTORS, VENTILATORS, FU EL PUMPS, WINDSHIELD WASH, PRINT MOTORS AND OTHER AUTO ELECTRICAL PARTS. THE ASSESSEE REPORTED 13 INTERNATIONAL TRANSACTIONS IN FORM NO. 3CEB INCLUDI NG PAYMENT OF ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 3 APPLICATION COST OF RS.6,63,24,025/-. THE A.O. RE FERRED THE MATTER OF DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANS ACTIONS TO THE TRANSFER PRICING OFFICER (TPO). THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS APPLIED BY THE ASSESSEE AT ENTITY LEVEL FOR DEM ONSTRATING THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH PRI CE (ALP). THE TPO DID NOT ACCEPT THE APPLICATION OF THE TNMM AS THE MOST APPROPRIATE METHOD, INTER ALIA , FOR THE INTERNATIONAL TRANSACTION OF PAYMENT OF APPLICATION COST. HE ADOPTED COMPARABLE UNCONTROLLED PRICE (CUP) METH OD FOR DETERMINING THE ALP OF THIS INTERNATIONAL TRANSACTION. IN SUPP ORT OF THE PAYMENT, THE ASSESSEE CONTENDED THAT AS A PART OF ITS OPERATIONS , IT DESIGNS THE PRODUCTS TO SUIT LOCAL ENVIRONMENTS AND NEEDS. HOWEVER, FOR CUS TOMIZATION OF SPECIAL PRODUCTS, IT SOUGHT THE HELP OF DENSO JAPAN FOR DES IGNING THE PRODUCTS FOR WHICH SUCH APPLICATION COST WAS PAID. THE TPO OBSE RVED THAT WHEN THE ASSESSEE WAS MAKING PAYMENT OF RUNNING ROYALTY @ 3% ON CONVENTIONAL TYPE OF PRODUCTS AND 4% ON NEW TYPE OF PRODUCTS, TH ERE WAS NO NEED FOR MAKING A SEPARATE PAYMENT ON ACCOUNT OF APPLICATION COST. HE TREATED THE CONSIDERATION FOR PAYMENT OF APPLICATION COST AS CO VERED IN ROYALTY AND HENCE DETERMINED NIL ALP OF SUCH INTERNATIONAL TRAN SACTION. THE DRP ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 4 COUNTENANCED THE ADDITION ON ACCOUNT OF TRANSFER PR ICING ADJUSTMENT FOR `PAYMENT OF APPLICATION COST AT RS.6.63 CRORE, AGA INST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 5. HERE, IT IS IMPORTANT TO MENTION THAT THE ASSESS EE ALSO PAID ROYALTY OF RS.11.48 CRORE IN ADDITION TO TECHNICAL FEES OF RS. 1.42 CRORE TO ITS AE AND BOTH OF THESE TRANSACTIONS WERE REPORTED AS WELL. THE TPO ACCEPTED PAYMENT OF ROYALTY AT ALP. HOWEVER, THE ALP OF PAY MENT OF TECHNICAL FEE AND PAYMENT OF APPLICATION COST WAS DETERMINED AT NIL. THE ASSESSEE CARRIED THE MATTER BEFORE THE DISPUTE RESOLUTION PA NEL (DRP), WHICH ACCEPTED THE ASSESSEES CONTENTION QUA THE PAYMENT OF TECHNICAL FEE AND DELETED THE TRANSFER PRICING ADJUSTMENT ON THAT SCO RE. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. THE ASSESSEE PAID ROYALTY @ 3%/4% TO DENSO JAPAN PURSUANT TO THE AGREEMENT DATED 30.03.2005, WHOSE COPY HAS BEEN PLA CED ON RECORD. THE AGREEMENT PROVIDES THAT DENSO JAPAN, BEING, THE LIC ENSOR OWNS AND MAINTAINS PATENTS RELATING TO VARIOUS KINDS OF ELEC TRICAL EQUIPMENTS FOR AUTOMOTIVE VEHICLES AND SUBSTANTIAL AMOUNT OF TECHN ICAL INFORMATION ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 5 EMBEDDED IN THE DESIGN OF SUCH PRODUCTS. THE LICEN SOR AGREED TO TRANSFER SUCH PATENTS/TECHNICAL INFORMATION TO THE ASSESSEE- LICENSEE FOR COMPENSATION AT 3% FOR CONTRACT PRODUCTS LISTED AS CONVENTIONAL TYPE IN SCHEDULE-I AND 4% FOR PRODUCTS LISTED AS NEW PRODU CTS IN SCHEDULE-I. THE TERM TECHNICAL INFORMATION, AS USED IN THE AG REEMENT, HAS BEEN DEFINED IN ARTICLE 1.1(4) AS UNDER:- (4) TECHNICAL INFORMATION: I) DESIGNS, ENGINEERING DATA, MANUFACTURING AND PRO CESS DATA, BASIC MACHINERY AND FACILITY LAYOUTS, TESTING AND QUALITY CONTROL DATA (INCLUDING SPECIFICATIONS AND MATERIAL STANDARDS TH EREFOR) AND PRODUCTION AND TESTING EQUIPMENT DATA (EXCLUDING DRAWINGS OF DIES AND SPECIAL MACHINES AND EQUIPMENT OF LICENSORS DESIGN, AND DR AWINGS OF GENERAL MACHINES AND EQUIPMENT THAT LICENSOR HAS PU RCHASED FROM THIRD PARTIES) RELEASED IN AND USED BY LICENSOR DUR ING THE TERM OF THIS AGREEMENT IN THE COMMERCIAL PRODUCTION OF CONTRACT PRODUCTS AT LICENSORS FACILITIES, HOWEVER, SPECIFICALLY EXCLUDING : 1) INFORMATION FOR INNOVATIVE TECHNOLOGY OR OUTSTA NDING DEVELOPMENTS DIFFERENT FROM THOSE AVAILABLE AT EFFE CTIVE DATE, 2) SUCH INFORMATION CONCERNING INTEGRAL COMPONENTS AND MATERIALS PER SE WHICH, ALTHOUGH FORMING PART OF OR USED IN T HE MANUFACTURE OF CONTRACT PRODUCTS, INVOLVE TECHNIQUES OR RELATE TO FIELDS OF RESEARCH, DEVELOPMENT DESIGN, ENGINEERING OR MANUFA CTURE SEPARATE AND DISTINCT FROM CONTRACT PRODUCTS (SUCH AS BUT NOT LIMITED TO, SEMICONDUCTOR DEVICES, COMPUTER SOFTWARE IN SOURCE CODE, INTEGRATED CIRCUITS, CUSTOM IC, CAPACITORS, RESISTORS, SEALS, BEARINGS, SPRINGS, WIRES, CABLES, PAINTS, PLASTICS, CHEMICALS, METALS, AND OT HER. COMPONENTS AND ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 6 MATERIALS INCLUDING BOLTS AND NUTS WHICH ARE NOT MA NUFACTURED IN LICENSORS FACILITIES), AND 3) INFORMATION REGARDING THE DESIGN METHOD. II) PURCHASE SPECIFICATIONS AND AVAILABLE MATERIAL STANDARDS FOR THE PURCHASE OF THOSE INTEGRAL COMPONENTS AND MATERIALS EXCLUDED IN THE ABOVE AS NOT BEING MANUFACTURED IN LICENSORS FACI LITIES. (ITALICIZED EMPHASIS SUPPLIED BY US) 7. A CAREFUL PERUSAL OF THE DEFINITION OF `TECHNI CAL INFORMATION, WHOSE SUPPLY NECESSITATED THE PAYMENT OF ROYALTY, DIVULGE S THAT IT INCLUDES DESIGNS, ENGINEERING DATA, MANUFACTURING AND PROCES S DATA, LAY OUTS ETC. FOR THE CONTRACT PRODUCTS AT THE ASSESSEES FACILITY, B UT, DOES NOT INCLUDE SUCH DESIGN ETC. FOR THE MANUFACTURE OF SEPARATE AND DIS TINCT FROM REGULAR CONTRACT PRODUCTS. 8. ARTICLE III OF THE AGREEMENT DEFINES TECHNIC AL INFORMATION AND SERVICES TO LICENSEE. CLAUSE 3.9 OF THE ARTICLE II I, WHICH IS RELEVANT FOR OUR PURPOSE, READS AS UNDER:- 3.9 UPON WRITTEN REQUEST MADE, FROM TIME TO TIME, B Y LICENSEE, LICENSOR WILL MAKE MODIFICATIONS, NEW APPLICATION O R NEW DESIGN WORKS (INCLUDING TRAINING OF LICENSEE) REGARDING PRODUCTS APPLICABLE ONLY TO OR IN PARTICULAR TO ANY VEHICLES MANUFACTURED IN TERRITORY; PLAN MANUFACTURING PROCESSES AND LINES T HEREOF, AND/OR PERFORM OTHER WORK WHICH MAY BE NECESSARY FOR LICEN CEE WITH ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 7 RESPECT TO THE MANUFACTURE OF SUCH PRODUCTS AT LICE NSEE, IF LICENSOR IS IN A POSITION TO DO SO, AT A FEE TO BE BORNE BY LICENSEE WHICH DOES NOT FORM PART OF THE PAYMENTS BEING MADE UNDER ANY PROVISIONS HEREIN AND THEREFORE SHALL BE CHARGED SE PARATELY. DETAILS OF THESE WORKS SHALL BE AGREED UPON BY THE PARTIES HER ETO IN ADVANCE FROM TIME TO TIME. (ITAL ICIZED EMPHASIS SUPPLIED BY US) 9. A BARE PERUSAL OF CLAUSE 3.9 OF THE AGREEMENT DE CIPHERS THAT THE ASSESSEE CAN REQUEST DENSO JAPAN FOR MAKING MODIFIC ATIONS, ALTERATIONS OR NEW DESIGN WORK ETC. REGARDING PRODUCTS, APPLICABLE ONLY TO ANY PARTICULAR VEHICLES MANUFACTURED IN INDIA. HOWEVER, WHEN SUCH A REQUIREMENT IS MADE, THEN IT WILL BE DONE BY DENSO JAPAN AT A FEE TO BE BORNE BY THE ASSESSEE, WHICH DOES NOT FORM PART OF THE ROYALTY P AYMENT MADE UNDER THE AGREEMENT. ON GOING THROUGH THE DEFINITION OF TECH NICAL INFORMATION IN JUXTAPOSITION TO PARA 3.9 OF THE AGREEMENT, IT BECO MES EVIDENT THAT THE TECHNICAL INFORMATION SUPPLIED BY DENSO JAPAN IN NO RMAL COURSE TO DENSO INDIA SHALL BE SUBJECT TO ROYALTY @ 3%/4%. IF, HOW EVER, DENSO INDIA REQUIRES MODIFICATIONS OR NEW DESIGN TO BE CUSTOMIZ ED FOR A PARTICULAR CUSTOMER IN INDIA, IT SHALL HAVE TO PAY A SEPARATE FEE. IN SUCH A SCENARIO, NO ROYALTY PAYMENT WILL BE REQUIRED ON THE GOODS MANUF ACTURED BY THE USE OF ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 8 SUCH CUSTOMIZED TECHNICAL INFORMATION. THIS SEPARAT E FEE IN THE EXTANT CASE HAS BEEN CHARACTERIZED AS APPLICATION COST PAID T O THE TUNE OF RS.6.63 CRORE. THE FACT THAT THE ASSESSEE DID NOT PAY ANY REGULAR ROYALTY @ 3%/4% AS STIPULATED IN THE TECHNICAL ASSISTANCE AGREEMENT ON THE PRODUCTS FOR WHOSE MANUFACTURE `APPLICATION COST WAS PAID, IS F URTHER SUBSTANTIATED FROM THE FACT THAT AS AGAINST THE TOTAL SALE OF RS. 530.64 CRORE, THE ASSESSEE PAID ROYALTY OF RS.11.48 CRORE (SEPARATE FROM THE A PPLICATION COST OF RS.6.63 CRORE), WHICH IS ROUGHLY 2.16% OF THE SALES VALUE AS AGAINST THE STIPULATED ROYALTY AT THE RATE OF 3%/4%. THE ABOVE ANALYSIS OF THE TECHNICAL ASSISTANCE AGREEMENT ALONG WITH THE FIGUR ES FROM THE ANNUAL ACCOUNTS OF THE ASSESSEE MAKES ONE THING CLEAR THAT WHERE THE ASSESSEE PAID APPLICATION COST FOR CUSTOMIZATION OF DESIGNS ETC., IT DID NOT PAY ANY ROYALTY. THIS BELIES THE VIEW POINT CANVASSED BY THE TPO AS WELL AS THE DRP WHO CATEGORICALLY HELD THAT THE PAYMENT OF APPLICATION COST WAS IN ADDITION TO ROYALTY AND, HENCE, ITS ALP IS NIL. 10. THIS BRINGS US TO THE SITUATION THAT THE ASSESS EE, IN FACT, PAID `APPLICATION COST FOR CUSTOMIZATION OF DESIGNS OF PRODUCTS ON WHICH NO ROYALTY WAS PAID. IN VIEW OF THE FACT THAT THE PAY MENT OF APPLICATION COST IS ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 9 A SEPARATE INTERNATIONAL TRANSACTION UNRELATED WITH ROYALTY, THE NEXT QUESTION IS THE DETERMINATION OF ITS ALP. THE TPO AS WELL A S THE DRP HAVE TAKEN NIL ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF `APPLICATION COST UNDER THE CUP METHOD FOR THE REASON ADDUCED IN THEI R RESPECTIVE ORDERS, WHICH HAS BEEN FOUND ABOVE TO BE NOT SUSTAINABLE. I N SUCH A SITUATION, A SEPARATE BENCHMARKING OF THIS INTERNATIONAL TRANSAC TION IS REQUIRED. HOWEVER, WE FIND THAT NO DATA FOR DETERMINING THE A LP OF PAYMENT OF APPLICATION COST IS AVAILABLE, NOR HAS IT BEEN DISC USSED BY THE TPO. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINI ON THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER ON THIS SCORE IS SET ASIDE AND THE MATTER IS REMITTED TO THE FILE OF ASS ESSING OFFICER/TPO FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N OF PAYMENT OF `APPLICATION COST' AFRESH AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. DISCUSSION MADE IN PARA 16 INFRA HOLDS GOOD HERE AS WELL, WHICH JUSTIFIES RESTORATION OF T HE ISSUE. 11. THE NEXT ISSUE RAISED IN THIS APPEAL IS AGAINST THE ADDITION OF RS.1,22,00,104/- FOR RECEIPT OF SERVICES. THE ASSE SSEE PAID RS.1.22 CRORE FOR INTRA GROUP SERVICES. ON BEING CALLED UPON TO E XPLAIN THE NATURE OF ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 10 SERVICES, THE ASSESSEE STATED THAT THE FOLLOWING SE RVICES WERE PROVIDED BY DENSO JAPAN:- (1) CORPORATE, MANAGERIAL, FINANCIAL OR OTHER BUSINESS PLANNING AND COORDINATION AND ADJUSTMENT ASSOCIATED THEREWITH; (2) DEVELOPMENT OR PREPARATION OF THE BUDGET AND CONTRO L OR ADMINISTRATION THEREOF; (3) ACCOUNTING, TAX PAYING OR LEGAL SERVICES; (4) ADMINISTRATION, COLLECTION OR RECOVERY OF THE CREDI T OR FINANCIAL CLAIMS AND PROCUREMENT, OR OPERATION OF THE CORPORA TE FUNDS; (5) OPERATION, MAINTENANCE OR ADMINISTRATION OF THE INF ORMATION SYSTEMS; (6) MANAGEMENT OR ADMINISTRATION OF THE CASH FLOW OR TH E SOLVENCY; (7) RISK MANAGEMENT FOR THE INTEREST RATES OR THE FOREI GN EXCHANGE RATES; (8) ASSISTANCE IN THE PRODUCTION, PURCHASING, DISTRIBUT ION, LOGISTICS, SALES OR INSTALLATION, ADJUSTMENT, USE, REPAIR OR M AINTENANCE OF THE PRODUCTION MACHINES, TOOLS AND DIES, THE PRODUCTION AND QUALITY CONTROL (WHICH DOES NOT INVOLVE THE MANUFACTURING K NOW-HOW), THE ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 11 SAFETY CONTROL, THE COST MANAGEMENT AND BUILDING OR REPAIRING THE FACILITIES; (9) ASSISTANCE IN RECRUITING OR EMPLOYMENT AND THE EMPL OYEE TRAINING; OR (10) OTHER BUSINESS PERFORMED IN BEHALF AND/OR FOR THE B ENEFIT OF THE BENEFICIARY. 12. ON A PERUSAL OF AN AGREEMENT DATED 30 TH JULY, 2004, THROUGH WHICH THE ASSESSEE CLAIMED TO HAVE RECEIVED SERVICES, THE TPO FOUND THAT REQUISITE FORMAT REQUIRED THE REQUEST FOR CONSIGNED WORK FOR SHARED SERVICES TO BE SENT FOR AVAILING THEM. THE ASSESSEE COULD NOT PRO DUCE SUCH FORMS VIDE WHICH THE REQUEST FOR SHARED SERVICES WAS MADE. THE TPO OBSERVED THAT THE ASSESSEE INCURRED LEGAL AND PROFESSIONAL CHARGES TO THE TUNE OF RS.91.6 LAC; FINANCIAL CHARGES OF RS.3.07 LAC; AND SALARY, WAGES AND BONUS AT RS.48.42 CRORE. IN VIEW OF THE ASSESSEE INCURRING THE ABOVE EXPENSES AT A HIGH LEVEL AND NOT FURNISHING THE REQUISITE REQUESTS FOR SHARE D SERVICES, THE TPO DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTION OF `PAYMENT FOR RECEIPT OF SERVICES, WHICH LED TO THE TRANSFER PRICING ADJ USTMENT OF RS.1.22 CRORE. ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 12 THE DRP DID NOT ALLOW ANY RELIEF, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 13. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. THE ASSESSEE RECEIVED THE INTRA GROUP SERV ICES PURSUANT TO A SERVICE AGREEMENT AND THE TRAINING AGREEMENT, A PART OF WHI CH HAS BEEN REFERRED TO BY THE TPO ON PAGE 22 OF HIS ORDER. `SCOPE OF A PPLICATION FROM SUCH AGREEMENT HAS BEEN REPRODUCED BY THE TPO AT PAGES 2 2/23 OF HIS ORDER, WHICH WE HAVE EXTRACTED ABOVE, NAMELY, SERVICES FRO M SR. NO. 1 TO 10. THE ASSESSEE CLAIMED BEFORE THE TPO THAT THE ABOVE SERV ICES WERE RECEIVED PURSUANT TO THE AGREEMENT. A BRIEF DESCRIPTION OF T HE ABOVE SERVICES AMPLY SHOWS THAT THE ASSESSEE PAID FOR AVAILING SUCH SERV ICES. THE TPO HAS SIMPLY BRUSHED ASIDE THE ASSESSEES CONTENTIONS AND DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTION BASICALLY ON THE PREM ISE THAT EITHER NO SERVICES WERE RECEIVED OR IN THE ALTERNATE, THE SERVICES, IF ANY, RECEIVED BY THE ASSESSEE AMOUNTED TO DUPLICATION OF SERVICES. 14. IT IS FOUND THAT THE TPO APPLIED THE `BENEFI T TEST FOR DETERMINING THE ALP OF SUCH SERVICES AT NIL. IN THIS REGARD, IT IS NOTICED THAT THE HONBLE ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 13 PUNJAB & HARYANA HIGH COURT IN KNORR-BREMSE INDIA P. LTD. VS. ACIT (2016)380 ITR 307 (P&H) HAS HELD THAT THE QUESTION WHETHER A TRANSACTION IS AT AN ARMS LENGTH PRICE OR NOT IS NOT DEPENDENT ON WHETHER THE TRANSACTION RESULTS IN AN INCREASE IN THE ASSESSEE S PROFIT. A VIEW TO THE CONTRARY WOULD THEN RAISE A QUESTION AS TO THE EXTE NT OF PROFITABILITY NECESSARY FOR AN ASSESSEE TO ESTABLISH THAT THE TRA NSACTION WAS AT AN ARMS LENGTH PRICE. A FURTHER QUESTION THAT MAY ARISE IS WHETHER THE ARMS LENGTH PRICE IS TO BE DETERMINED IN PROPORTION TO THE EXTE NT OF PROFIT. THUS, WHILE PROFIT MAY REFLECT UPON THE GENUINENESS OF AN ASSES SEES CLAIM, IT IS NOT DETERMINATIVE OF THE SAME. IT WENT ON TO HOLD THAT BUSINESS DECISIONS ARE AT TIMES GOOD AND PROFITABLE AND AT TIMES BAD AND UNPR OFITABLE. BUSINESS DECISIONS MAY AND, IN FACT, OFTEN DO RESULT IN A LO SS. THE QUESTION WHETHER THE DECISION WAS COMMERCIALLY SOUND OR NOT IS NOT R ELEVANT. THE ONLY QUESTION IS WHETHER THE TRANSACTION WAS ENTERED INT O BONA FIDE OR NOT OR WHETHER IT WAS SHAM AND ONLY FOR THE PURPOSE OF DIV ERTING THE PROFITS. REVERTING TO THE FACTS OF THE EXTANT CASE, WE FIND THAT THE ASSESSEE PLACED ON RECORD COPIES OF SEVERAL E-MAILS SHOWING THE FACTU M OF HAVING RECEIVED THE SERVICES, WHICH DECIPHERS THAT THE INTERNATIONAL T RANSACTION ENTERED IN TO BY ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 14 THE ASSESSEE WITH ITS AE WAS GENUINE. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE FAILED TO PRODUCE COPIES OF REQUISITE REQU ESTS FOR THE SHARED SERVICES. 15. IT IS MANIFEST THAT THE TPO APPLIED THE CUP MET HOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. WHILE APP LYING THE CUP METHOD, IT WAS OBLIGATORY UPON HIM TO BRING ON RECORD SOME COMPARABLE UNCONTROLLED INSTANCE AVAILING SIMILAR SERVICES AS PER THE MANDATE OF RULE 10B(1)(A)(I). NOT EVEN A SINGLE COMPARABLE INSTANC E HAS BEEN BROUGHT ON RECORD TO FACILITATE A COMPARISON BETWEEN THE PRICE FOR THE SERVICES AVAILED BY THE ASSESSEE VIS--VIS THAT PAID BY OTHER COMPARABLES IN SIMILAR CIRCUMSTANCES. 16. EVEN OTHERWISE, WE NOTICE THAT THE ACTION OF TH E TPO IN DETERMINING NIL ALP OF THE INTERNATIONAL TRANSACTION ON THE GRO UND THAT NO SUCH SERVICES WERE REQUIRED TO BE AVAILED OR IT WAS A DUPLICATION OF SERVICES AND THEN THE AO MAKING ADDITION SIMPLY ON THE BASIS OF RECOMMEND ATION OF THE TPO, IS NOT IN ACCORDANCE WITH THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 3 67 ITR ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 15 730 (DEL ), IN WHICH IT HAS BEEN HELD THAT THE AUTHORITY OF THE TPO IS LIMITED TO CONDUCTING TRANSFER PRICING ANALYSIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO DECIDE IF S UCH SERVICE EXISTS OR BENEFITS DID ACCRUE TO THE ASSESSEE. SUCH LATER ASP ECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAIN OF THE AO. IN THAT CASE, IT WAS OBSERVED THAT THE E-MAILS CONSIDERED BY TRIBUNAL FROM MR. BRAGANZ A AND MR. CHOUDHARY DEALT WITH SPECIFIC INTERACTION AND RELATED TO BENE FITS OBTAINED BY ASSESSEE, PROVIDING A SUFFICIENT BASIS TO HOLD THAT BENEFIT A CCRUED TO ASSESSEE. AS THE DETAILS OF SPECIFIC ACTIVITIES FOR WHICH COST WAS I NCURRED BY BOTH AES (FOR ACTIVITIES OF MR. BRAGANZA AND MR. CHOUDHARY), AND ATTENDANT BENEFITS TO ASSESSEE WERE NOT CONSIDERED, THE HON'BLE HIGH COUR T REMANDED THE MATTER TO FILE OF CONCERNED AO FOR AN ALP ASSESSMENT BY TP O, FOLLOWED BY AO'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW CONSIDERING THE DEDUCTIBILITY OR OTHERWISE AS PER SECTION 37(1) OF THE ACT. 17. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE , IT TURNS OUT THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT EQUAL TO THE STATED VALUE OF THREE INTERNATIONAL TRANSACTION AT RS.1.22 CRORE AN D ODD BY HOLDING THAT NO BENEFIT WAS RECEIVED BY THE ASSESSEE AS A RESULT OF AVAILING THE SERVICES OR ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 16 THESE AMOUNTED TO DUPLICATION OF SERVICES AND HENCE NO PAYMENT ON THIS SCORE WAS WARRANTED. THE AO IN HIS DRAFT ORDER HAS TAKEN THE ALP OF THE INTERNATIONAL TRANSACTION AT NIL ON THE BASIS OF RE COMMENDATION OF THE TPO WITHOUT CARRYING OUT ANY INDEPENDENT INVESTIGATION IN TERMS OF THE DEDUCTIBILITY OR OTHERWISE OF SUCH PAYMENT IN TERMS OF SECTION 37(1) OF THE ACT. THIS ADDITION HAS BEEN MADE BY THE AO IN HIS F INAL ASSESSMENT ORDER GIVING EFFECT TO THE DIRECTION GIVEN BY THE DRP AND NOT BY INVOKING SECTION 37(1) OF THE ACT. AS PER THE RATIO DECIDENDI OF CUSHMAN & WAKEFIELD INDIA (P.) LTD. (SUPRA) , THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION, UNCONCERNED W ITH THE FACT, IF ANY BENEFIT ACCRUED TO THE ASSESSEE AND THEREAFTER, IT WAS FOR THE AO TO DECIDE THE DEDUCTIBILITY OF THIS AMOUNT U/S 37(1) OF THE A CT. AS THE TPO IN THE INSTANT CASE INITIALLY DETERMINED NIL ALP BY HOLDIN G THAT NO BENEFIT ACCRUED TO THE ASSESSEE ETC. AND THE AO MADE THE ADDITION W ITHOUT EXAMINING THE APPLICABILITY OF SECTION 37(1) OF THE ACT, WE FIND THE ACTIONS OF THE AO/TPO RUNNING IN CONTRADICTION TO THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA) . FOLLOWING THIS DECISION, WE REMIT THE MATTER TO T HE FILE OF AO/TPO FOR DECIDING IT IN CONFORMITY WITH THE LAW LAID DOW N BY THE HON'BLE ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 17 JURISDICTIONAL HIGH COURT IN THIS CASE. NEEDLESS T O SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN SUC H PROCEEDINGS. ASSESSMENT YEAR 2010-11 18. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 20.01.2015 PASSED BY THE AO U/S. 143(3 ) R/W SECTION 144 C OF ACT IN RELATION TO THE A.Y. 2010-11. 19. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINS T THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.6,64 ,44,523/-, BEING, THE ALP OF THE INTERNATIONAL TRANSACTION OF `PAYMENT OF APPLICATION COST TAKEN BY THE AUTHORITIES AT RS. NIL AND RS.84,03,856/-, B EING, THE ALP OF `PAYMENT FOR INTRA GROUP SERVICES TAKEN BY THE AUT HORITIES AT RS. NIL. 20. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF BOTH THE ISSUES ARE MUTATIS MUTANDIS SIMILAR TO THOSE FOR THE ASSESSMENT YEAR 2009-10. FOLLOWING OUR ABOVE ORDER FOR THE ASSESSME NT YEAR 2009-10, THE IMPUGNED ORDER FOR THIS YEAR IS ALSO SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF ASSESSING OFFICER/TPO FOR DETERMINING T HE ALP OF THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF APPLICATIO N COST AND PAYMENT OF ITA NO.1857/DEL/2014 ITA NO.1128/DEL/2015 18 INTRA GROUP SERVICES AFRESH AS PER LAW, AFTER ALLOW ING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 21. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.03.201 8. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 07 TH MARCH, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.