M/s. TNT India Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1403/BANG/2010

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0387 (ITAT-BANGALORE)
• Duration Of Justice: 8 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 08-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Assessee Lawyers: DHANESH BATRA
• Keywords: Business income; Transfer pricing; International transaction; Wholly owned subsidiary; Tangible material; Set aside
• Section: 143(3); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT(TP)A NO.1403/BANG/2010 ASSESSMENT YEAR : 2006-07 IT(TP)A NO.1218/BANG/2011 ASSESSMENT YEAR : 2007-08 TNT INDIA PVT. LTD., NO.82/1, RICHMOND ROAD, BENGALURU-560 025. PAN AAACT 6649 K. VS. THEDY. COMMISSIONER OF INCOME-TAX, CIRCLE-12(4), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI DHANESH BATRA, C.A & MS. CHANDNI SHAH, C.A RESPONDENT BY : SHRI E.S NAGENDRA PRASAD, CIT (DR) DATE OF HEARING : 20.06.2019 DATE OF PRONOUNCEMENT : 09.09.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDERS PASSED BY THE AO U/S 143(3) R.W.S 144C OF TH E ACT PURSUANT TO DIRECTIONS ISSUED BY LD DISPUTE RESOLUTION PANEL (DRP) AND THEY RELATE TO ASST. YEARS 2006-07 AND 2007-08. SINCE T HE ISSUES URGED IN THESE APPEALS ARE IDENTICAL IN NATURE, THEY WERE HEARD TOGETHER IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 2 OF 14 AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. WE SHALL FIRST TAKE UP THE APPEAL RELATING TO AS ST. YEAR 2006- 07. THE ASSESSEE HAS FILED REVISED GROUNDS OF APPEA L AND ADDITIONAL GROUNDS OF APPEAL. THE GROUND NO.1 AND 2 RAISED IN REVISED GROUNDS OF APPEAL ARE GENERAL IN NATURE. THE LD A. R DID NOT PRESS GROUND NOS.3 AND 6.THE LD AR ALSO DID NOT PRESS GRO UND NOS.13 TO 15 DUE TO SMALLNESS OF THE AMOUNT. GROUND NOS.16 T O 19 ARE CONSEQUENTIAL IN NATURE AND HENCE THEY DO NOT REQUI RE ADJUDICATION. THE LD A.R DID NOT PRESS ADDITIONAL GROUNDS DUE TO SMALLNESS OF THE AMOUNT. 3. THE REMAINING GROUNDS ARE:- (A) GROUND NOS.4 AND 5, WHICH RELATE TO TRANSFER P RICING ADJUSTMENT MADE IN RESPECT OF EXPRESS SERVICES TRA NSACTION AND (B) GROUND NOS.7 TO 12, WHICH RELATE TO TRANSFER PR ICING ADJUSTMENT IN RESPECT OF PAYMENT OF MANAGEMENT AND ADMINISTRATION FEE. 4. THE ASSESSEE HEREIN IS A WHOLLY OWNED SUBSIDIARY OF TNT EXPRESS. THE ASSESSEE IS ENGAGED IN THE BUSINESS O F DISTRIBUTION OF FREIGHT, PARCELS AND DOCUMENTS ALL OVER THE WORLD. THE ASSESSEE ENTERS INTO CONTRACT WITH INDIAN CUSTOMERS FOR DELI VERING FREIGHT, PARCELS AND DOCUMENTS TO DESTINATIONS OUTSIDE INDIA . FOR THE PURPOSE OF DELIVERING SUCH PACKAGES OUTSIDE INDIA, THE ASSESSEE UTILIZES THE SERVICES OF TNT NET WORK AVAILABLE ALL OVER THE WORLD AND MAKES PAYMENT FOR THE SAME. THE ACTIVITIES RELATIN G TO DISTRIBUTION IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 3 OF 14 OF FREIGHT, PARCELS AND DOCUMENTSHAVE BEEN TERMED A S EXPRESS SERVICES. THE ASSESSEE HAS ALSO PAID MANAGEMENT A ND ADMINISTRATION FEE TO ITS ASSOCIATED ENTERPRISES. 5. IN RESPECT OF EXPRESS SERVICES AND PAYMENT OF MA NAGEMENT& ADMINISTRATION FEE, THE ASSESSEE SELECTED ITS FORE IGN AE AS TESTED PARTY. IT ADOPTED TNMM METHOD AS MOST APPROPRIATE METHOD. THE CASE OF THE ASSESSEE IS THAT IT HAS DERIVED 96% OF ITS BUSINESS RECEIPTS FROM INTERNATIONAL TRANSACTIONS AND HENCE THE ASSOCIATED ENTERPRISE WAS SELECTED AS TESTED PARTY. THE FORE IGN COMPARABLES SELECTED FOR BENCHMARKING THE EXPRESS SERVICE TRA NSACTIONS GAVE AN ARITHMETIC MEAN OF 9.44%. SINCE THE MARKUP CHAR GED BY AE TO THE ASSESSEE WAS IN THE RANGE OF 3 TO 5%, THE ASSE SSEE SUBMITTED THAT THE TRANSACTIONS ENTERED BY IT UNDER EXPRESS SERVICES DIVISION ARE AT ARMS LENGTH. 6. IN RESPECT OF PAYMENT OF MANAGEMENT & ADMINISTRA TION FEE ALSO, THE ASSESSEE SELECTED ITS ASSOCIATED ENTERPRI SE AS TESTED PARTY. THE OPERATING MARGIN OF FOREIGN COMPARABLES WORKED OUT TO 8.29%, WHILE THE MARK UP MADE BY THE TESTED PARTY TO THE A SSESSSEE WAS IN THE RANGE OF 5 TO 8%. ACCORDINGLY IT WAS CONTENDED THAT THE PAYMENT OF MANAGEMENT AND ADMINISTRATION FEE WAS AL SO AT ARMS LENGTH. 7. THE TPO HOWEVER TOOK THE VIEW THAT THE FOREIGN A SSOCIATED ENTERPRISES CANNOT BE CONSIDERED AS TESTED PARTY. ACCORDINGLY THE TPO REJECTED THE TP STUDY CONDUCTED BY THE ASSESSEE . THE TPO SELECTED HIS OWN COMPARABLES (INDIAN COMPARABLES) A ND MADE IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 4 OF 14 ADJUSTMENT OF 25.15 CRORES ON ACCOUNT OF EXPRESS S ERVICE TRANSACTION. THE TPO DETERMINED THE ARMS LENGTH PR ICE OF MANAGEMENT AND ADMINISTRATION FEE AS NIL, SINCE THE ASSESSEE DID NOT PAY ANY MANAGEMENT FEE IN THE EARLIER YEARS AND FURTHER THE ASSESSEE DID NOT SHOW ANY TANGIBLE MATERIAL IN ORDE R TO DEMONSTRATE THAT IT HAS DERIVED COMMERCIAL BENEFIT ON PAYMENT O F THE MANAGEMENT FEE. THE LD DRP CONFIRMED THE ADDITIONS PROPOSED BY THE TPO. ACCORDINGLY THE AO PASSED THE FINAL ASST. ORDER MAKING THE ADJUSTMENTS CONFIRMED BY LD DRP. 8. THE LD A.R SUBMITTED THAT THE TAX AUTHORITIE S ARE NOT JUSTIFIED IN REJECTING THE SELECTION OF FOREIGN AE AS TESTED PARTY. HE SUBMITTED THAT AN IDENTICAL QUESTION WAS EXAMINED B Y THE CO- ORDINATE BENCH IN THE ASSESSEES OWN CASE IN ITA NO .1443 & 1444/BANG/08 AND THE TRIBUNAL, VIDE ITS ORDER DATED 3-11-2016 HAS HELD AS UNDER:- 13. THE LD DR DID NOT PLACE ANY ARGUMENT AGAINST THE ARGUMENTS OF THE ASSESSEE IN THIS REGARD, THEREFORE , DUE TO LACK OF INDIAN COMPARABLE COMPANIES, THE ASSESSEES ARGUMENTS ARE REQUIRED TO BE CONSIDERED. 14. HENCE, IT IS MORE APPROPRIATE TO SELECT FOREIG N AE AS THE TESTED PARTY AND THE FINANCIAL DATA OF THE FOREIGN COMPANIES AS PROVIDED BY THE ASSESSEE, NEEDS TO BE VERIFIED B Y THE LD TPO. THE LD A.R SUBMITTED THAT THE ASSESSEE HEREIN IS SE RVING MAINLY IN INTERNATIONAL SECTOR, WHILE THE COMPARABLE COMPANIE S SELECTED BY THE LD TPO WERE OPERATING IN DOMESTIC SECTOR AND HE NCE THEY IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 5 OF 14 CANNOT BE CONSIDERED AS COMPARABLE COMPANIES. ACCO RDINGLY HE SUBMITTED THAT THE TAX AUTHORITIES MAY BE DIRECTED TO ACCEPT THE SELECTION OF FOREIGN AE AS TESTED PARTY. 9. THE LD D.R, ON THE CONTRARY, PLACED HIS RELIA NCE ON THE DECISION RENDERED BY KOLKATTA BENCH OF ITAT IN THE CASE OF A T & S INDIA (P) LTD (2016)(72 TAXMANN.COM 324), WHEREIN THE TRIBUNA L HAD HELD THAT THE FOREIGN AE CANNOT BE SELECTED AS TESTED PA RTIES. IN THIS REGARD, THE KOLKATTA BENCH HAD PLACED ITS RELIANCE ON THE DECISION RENDERED BY DELHI BENCH OF TRIBUNAL IN THE CASE OF GE MONEY FINANCIAL SERVICES (P) LTD VS. ACIT (2016)(69 TAXMA NN.COM 420). 10. THE LD A.R SUBMITTED THAT THE DECISION RENDE RED BY DELHI BENCH OF TRIBUNAL IN THE CASE OF GE MONEY FINANCIAL SERVICES (P) LTD (SUPRA) HAS SINCE BEEN REVERSED BY THE HON'BLE DELHI HIGH COURT, VIDE ITS ORDER DATED 31-08-2016 PASSED IN IT A 662/2016 CM NOS.31740 31741/2016 AND THE ISSUE HAS BEEN RESTO RED TO THE FILE OF TPO FOR EXAMINING IT AFRESH WITHOUT BEING I NFLUENCED BY THE OBSERVATIONS OF THE TRIBUNAL. 11. THE LD A.R FURTHER SUBMITTED THAT THE QUESTI ON OF SELECTION OF FOREIGN AE AS TESTED PARTY WAS ALSO EXAMINED BY THE AHMEDABAD BENCH OF ITAT IN THE CASE OF GENERAL MOTORS INDIA ( P) LTD VS. DCIT (2013)(37 TAXMANN.COM 403) AND EXPRESSED ITS VIEW A S UNDER:- 11.4 CONSIDERING THE DIVERGENT VIEWS EXPRESSED BY VARIOUS TRIBUNALS (SUPRA) AND MAJORITY OF THEM WERE IN FAVO UR OF SELECTING THE TESTED PARTY EITHER FROM LOCAL OR F OREIGN PARTY AND THE UNITED NATIONS PRACTICAL MANUAL ON TRANSFE R PRICING IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 6 OF 14 FOR DEVELOPING COUNTRIES HAD OBSERVED THAT IT MAY BE LOCAL OF THE FOREIGN PARTY, WE TEND TO AGREE WITH THE SAME. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE SELECTIO N OF FOREIGN AE AS TESTED PARTY SHOULD BE ACCEPTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 12. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSU E AND PERUSED THE RECORD. THE CO-ORDINATE BENCH OF TRIBUNAL HAS AGREED WITH SELECTION OF FOREIGN AE AS TESTED PARTY IN THE ASSE SSEES OWN CASE (REFERRED SUPRA). THE AHMEDABAD BENCH OF TRIBUNAL HAS ALSO AGREED WITH THE SAID PROPOSITION IN THE CASE OF GENERAL MO TORS INDIA (P) LTD (SUPRA). THE LD D.R PLACED HIS RELIANCE ON THE DEC ISION RENDERED BY KOLKATTA BENCH OF TRIBUNAL IN THE CASE OF AT & S IN DIA (P) LTD (SUPRA) TO SUPPORT HIS CONTENTION THAT FOREIGN AE C ANNOT BE TAKEN AS TESTED PARTY. AS POINTED OUT BY LD A.R, THE KOL KATTA BENCH HAS TAKEN SUCH A VIEW BY PLACING ITS RELIANCE ON THE DE CISION RENDERED BY DELHI BENCH OF TRIBUNAL IN THE CASE OF GE MONEY FINANCIAL SERVICES (P) LTD (SUPRA) AND THE DECISION SO RENDER ED BY DELHI BENCH IN THE ABOVE SAID CASE HAS SINCE BEEN REVERSED BY T HE HON'BLE DELHI HIGH COURT. HENCE THE DECISION RENDERED BY THE CO- ORDINATE BENCH IN THE ASSESSEES OWN CASE (REFERRED SUPRA) AND THE DECISION RENDERED BY AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF GENERAL MOTORS INDIA (P) LTD (SUPRA) NEED TO BE FOLLOWED. ACCORDINGLY WE HOLD THAT THE ASSESSEE WAS JUSTIFIED IN SELECTING F OREIGN AE AS TESTED PARTY. 13. WE HAVE EARLIER NOTICED THAT THE TPO HAD SE LECTED THE ASSESSEE AS TESTED PARTY AND HAS SELECTED HIS OWN C OMPARABLE IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 7 OF 14 INDIAN COMPANIES FOR BENCH MARKING THE ASSESSEES T RANSACTIONS. THE CONTENTION OF THE ASSESSEE IS THAT THE INDIAN C OMPARABLE COMPANIES ARE OPERATING MAINLY IN DOMESTIC FIELD, W HILE THE ASSESSEE HAS GENERATED MAJOR PART OF ITS INCOME, I. E. ABOUT 96% FROM INTERNATIONAL OPERATIONS. ACCORDINGLY, THE AS SESSEE HAS CONTENDED THAT THE INDIAN COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPANIES. IN ANY CASE, WE HAVE HELD TH AT THE FOREIGN AE CAN BE TAKEN AS TESTED PARTY. IN THAT CASE, THE ENTIRE ISSUE RELATING TO DETERMINATION OF ARMS LENGTH PRICE OF T HE TRANSACTIONS UNDER EXPRESS SERVICE SEGMENT NEEDS TO BE EXAMINED AFRESH. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND RESTORE THIS ISSUE TO THE FILE OF AO/TPO FOR EX AMINING THIS ISSUE AFRESH. 14. THE NEXT ISSUE RELATES TO PAYMENTS MADE BY T HE ASSESSEE TO ITS AES TOWARDS MANAGEMENT AND ADMINISTRATION SERVI CES. AS NOTICED EARLIER, THE TPO HAD DETERMINED THE ALP OF THE TRANSACTIONS AS NIL, SINCE THE ASSESSEE COULD NOT DEMONSTRATE TH E BENEFIT DERIVED FROM SUCH SERVICES. 15. WE NOTICE THAT THE ASSESSEE HAD ADOPTED FOREI GN AE AS THE TESTED PARTY IN ORDER TO BENCH MARK THE TRANSACTION S, WHICH WAS NOT ACCEPTED BY TPO. THE ASSESSEE ALSO PLACED ITS RELIANCE ON THE DECISIONS RENDERED BY PUNE BENCH OF TRIBUNAL IN THE CASE OF EMERSON CLIMATE TECHNOLOGIES INDIA LTD (2018)(90 TA XMANN.COM 125) TO SUPPORT ITS SUBMISSION THAT THE BENEFIT TES T IS IRRELEVANT WHILE DETERMINING THE ARMS LENGTH PRICE OF TRANSACT IONS. THE LD A.R ALSO SUBMITTED THAT THE AO HAS HIMSELF HAS OBSE RVED THAT THE IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 8 OF 14 TNT GROUP HAS PROVIDED MANY SERVICES TO THE ASSESSE E. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS PROVIDED MANY DOCUMENTS/EVIDENCES TO DEMONSTRATE THAT IT HAS RECE IVED SERVICES FROM ITS AES. ACCORDINGLY HE SUBMITTED THAT THE TA X AUTHORITIES ARE NOT JUSTIFIED IN DETERMINING THE ALP OF TRANSACTION S AS NIL. 16. ON THE CONTRARY, THE LD D.R PLACED HIS RELI ANCE ON THE DECISION RENDERED BY CO-ORDINATE BENCH IN THE CASE OF TNT EXPRESS WORDWIDE (UK) LTD (IT(TP)A NO.6/BANG/2011 DATED 29- 04-2016), WHEREIN THE DETERMINATION OF ALP OF THE TRANSACTION S RELATING TO PAYMENT FOR SERVICES AS NIL WAS UPHELD BY THE CO-OR DINATE BENCH OF TRIBUNAL. HE FURTHER SUBMITTED THAT AN IDENTICAL V IEW WAS EXPRESSED BY THE CO-ORDINATE BENCH IN THE CASE OF V OLVO INDIA (P) LTD (2018)(89 TAXMANN.COM 79). 17. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE CO-ORDINATE BENCH HAS DECIDED AGAINST THE ASSESSEE IN THE ABOVE CITED TWO CASES ON THE REASONING THAT THE ASSESSEES THEREIN DID NOT PROVIDE ANY MATERIAL TO SUPPORT THE RECEIPT OF SERVICES. HE SU BMITTED THAT THE ASSESSEE HAS FURNISHED VARIOUS MATERIALS AND FURTHE R THE AO HIMSELF HAS OBSERVED THAT THE ASSESSEE HAS RECEIVED THE SERVICES FROM ITS AES. 18. WE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. WITH REGARD TO BENCHMARKING OF PAYMENTS MADE TOWARD S MANAGEMENT AND ADMINISTRATION SERVICES, WE MAY TAKE SUPPORT FROM THE FOLLOWING OBSERVATIONS MADE IN THE DECISIO N RENDERED BY IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 9 OF 14 THE CO-ORDINATE BENCH IN THE CASE OF DMG MORISEIKI INDIA MACHINES AND SERVICES P LTD (IT (TP) A NO.1192/BANG/2011:- 22. THE LAW IN THIS REGARD IS NOW FAIRLY SETTLED. IN THE CASE OF DRESSER RAND INDIA PVT.LTD. VS. ACIT ITA NO.8753/MU M/2010 AY 2006-07 ORDER DATED 7.9.2011, THE HONBLE MUMBAI TR IBUNAL HAD AN OCCASION TO EXAMINE AS TO WHAT IS THE APPROACH THAT HAS TO BE ADOPTED FOR DETERMINING ALP IN THE CASE OF COST CONTRIBUTION AG REEMENT WHICH IS AKIN TO THE ARRANGEMENT IN THE PRESENT CASE BETWEEN THE ASSESSEE AND ITS PARENT COMPANY. THE ASSESSEE IN CASE OF DRESSER RAND (SUPRA) ENTERE D INTO A COST CONTRIBUTION AGREEMENT WITH ITS PARENT COMPANY PURSUANT TO WHICH IT PAID A SUM OF RS. 10.55 CRORES AS ITS SHAR E OF THE COSTS. THE TPO, AO & DRP DISALLOWED THE EXPENDITURE ON THE GRO UND THAT THE ALP WAS NIL AS NO REAL SERVICES HAD BEEN AVAILED BY THE ASSESSEE AND THE ARRANGEMENT WAS NOT GENUINE. ON FURTHER APPEAL BY THE ASSESSEE, THE TRIBUNAL HELD AS FOLLOWS: 8. WE FIND THAT THE BASIC REASON OF THE TRANSFER P RICING OFFICERS DETERMINATION OF ALP OF THE SERVICES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS NIL IS HIS PERCEPTION THAT THE ASSESSEE DID NOT NEED THESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIENT EXPERTS OF HIS OWN WHO WERE COMPETENT EN OUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINTED OUT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAFF WH ICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FEES TO EXTERNAL FIRM. SIMILARLY, THE TRANSFER PRIC ING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD MANAGEMENT EXPERTS O N ITS ROLLS, AND, THEREFORE, GLOBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, THIS LI NE OF REASONING. IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDUCTS HI S BUSINESS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THE REVE NUE AUTHORITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT I S NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUNTAN TS AND IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 10 OF 14 MANAGEMENT EXPERTS ON HIS ROLLS, AND YET HE MAY DEC IDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGE MENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEES WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WA S NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERC IAL WISDOM OF ASSESSEES DECISION TO TAKE BENEFIT OF EXPERTISE OF DRESSER RAND US, BUT ALSO BEYOND THE POWERS OF THE ASSESSING OFF ICER. WE DO NOT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. W E HAVE FURTHER NOTICED THAT THE TRANSFER PRICING OFFICER HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, AS EVIDENT FROM TH E ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT , IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALYS IS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN DETERMINING ARMS LENGTH PRICE OF THAT SERV ICE. WHEN EVALUATING THE ARMS LENGTH PRICE OF A SERVICE, IT IS WHOLLY IRRELEVANT 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 THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAV E PAID FOR THE SAME. 9.. 10. IN CASE THE ASSESSING OFFICER COMES TO THE CON CLUSION THAT THE ASSESSEE HAS INDEED RECEIVED THE SERVICES FROM THE AE THE NEXT QUESTION WHICH WE HAVE TO DECIDE IS AS TO WHAT IS T HE ARMS LENGTH PRICE OF THESE SERVICES RECEIVED UNDER COST CONTRIB UTION AGREEMENT. IT HARDLY NEEDS TO BE EMPHASIZED THAT EVEN COST CON TRIBUTION ARRANGEMENT SHOULD BE CONSISTENT WITH ARMS LENGTH PRINCIPLE, WHICH, IN PLAIN WORDS, REQUIRES THAT ASSESSEES SHA RE OF OVERALL CONTRIBUTION TO THE COSTS IS CONSISTENT WITH BENEFI TS EXPECTED TO BE RECEIVED, AS AN INDEPENDENT ENTERPRISE WOULD HAVE A SSIGNED TO THE CONTRIBUTION IN HYPOTHETICALLY SIMILAR SITUATION. . . 23. THE HONBLE HIGH COURT OF DELHI IN THE CASE OF EKL APPLIANCES LIMITED [(2012) 209 TAXMAN 200] AS WELL AS CUSHMAN & WAKEFIELD IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 11 OF 14 INDIA PRIVATE LIMITED ITA NO.475/2012 DATED 23.5.20 14 367ITR 730 (DEL), RENDERED SIMILAR RULING AS WAS RENDERED IN THE CASE OF DRESSER RAND (SUPRA). IN THE CASE OF CUSHMAN & WAKEFIELD (S UPRA), THE HONBLE DELHI HIGH COURT OBSERVED THAT WHETHER A THIRD PART Y IN AN UNCONTROLLED TRANSACTION WITH THE TAXPAYER WOULD HAVE CHARGED AM OUNTS LOWER, EQUAL TO OR GREATER THAN THE AMOUNTS CLAIMED BY THE AES, HAS TO PERFORCE BE TESTED UNDER THE VARIOUS METHODS PRESCRIBED UNDER T HE INDIAN TP PROVISIONS. IN THE CONTEXT OF COST SHARING ARRANGE MENT, THE HONBLE HIGH COURT OPINED THAT CONCEPT OF BASE EROSION IS NOT A LOGICAL INFERENCE FROM THE FACT THAT THE AES HAVE ONLY ASKED FOR REIMBURSE MENT OF COST. THIS BEING A TRANSACTION BETWEEN RELATED PARTIES, WHETHE R THAT COST ITSELF IS INFLATED OR NOT ONLY IS A MATTER TO BE TESTED UNDER A COMPREHENSIVE TRANSFER PRICING ANALYSIS. THE BASIS FOR THE COSTS INCURRED, THE ACTIVITIES FOR WHICH THEY WERE INCURRED, AND THE BENEFIT ACCRU ING TO THE TAXPAYER FROM THOSE ACTIVITIES MUST ALL BE PROVED TO DETERMI NE FIRST, WHETHER, AND HOW MUCH, OF SUCH EXPENDITURE WAS FOR THE PURPOSE O F BENEFIT OF THE TAXPAYER, AND SECONDLY, WHETHER THAT AMOUNT MEETS A LP CRITERION. 19. ACCORDINGLY, THE TEST TO BE APPLIED IS WHETHER A THIRD PARTY IN AN UNCONTROLLED TRANSACTION WITH THE TAXPAYER WOULD HA VE CHARGED AMOUNTS LOWER, EQUAL TO OR GREATER THAN THE AMOUNTS CLAIMED BY THE AES, HAS TO PERFORCE BE TESTED UNDER THE VARIOUS METHODS PRESCR IBED UNDER THE INDIAN TP PROVISIONS. IN THE INSTANT CASE, IT IS THE CONTENTION OF THE A SSESSEE THAT IT HAS FURNISHED DOCUMENTS/EVIDENCES IN SUPPOR T OF RECEIPT OF SERVICES. IT IS ALSO THE SUBMISSION OF THE ASSESSEE THAT THE AO HIMSELF HAS ACCEPTED THE FACT OF RECEIPT OF SERVICE S. UNDER THESE SET IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 12 OF 14 OF FACTS, WE ARE OF THE VIEW THAT THE TPO/DRP WAS N OT JUSTIFIED IN DETERMINING THE ALP AS NIL WITHOUT EXAMINING THE NA TURE OF SERVICES RECEIVED BY THE ASSESSEE AND WITHOUT FINDI NG THE AMOUNT THAT WOULD HAVE BEEN PAID IN AN UNCONTROLLED TRANSA CTIONS,. HENCE WE ARE OF THE VIEW THAT THIS ISSUE ALSO REQUIRES EX AMINATION AT THE END OF AO/TPO. ACCORDINGLY, WE RESTORE THIS ISSUE ALSO TO THE FILE OF AO/TPO. 20. WE SHALL NOW TAKE UP THE APPEAL FILED BY TH E ASSESSEE FOR AY 2007-08. AS STATED IN AY 2006-07, THE LD A.R DID N OT PRESS MANY GROUNDS ON IDENTICAL REASONS. THE REMAINING GROUND S RELATE TO THE TWO ISSUES DISCUSSED SUPRA IN AY 2006-07. SINCE TH E FACTS ARE IDENTICAL, CONSISTENT WITH THE VIEW TAKEN IN ASSESS MENT YEAR 2006- 07, WE RESTORE BOTH THE ISSUES TO THE FILE OF THE A O IN AY 2007-08 ALSO WITH SIMILAR DIRECTIONS. 21. IN THE RESULT, BOTH THE APPEALS OF THE ASSES SEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER, 2019. SD/ - (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 9TH SEPTEMBER, 2019. / VMS / IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 13 OF 14 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. IT(TP)A NOS.1218 /BANG/2011& 1403/BANG/2010 PAGE 14 OF 14 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DICTATION NOTE ENCLOSED DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED