Appeal details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 6626 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 4 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-07-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
I1
Next Hearing Date
30-05-2017
Assessment Year
2010-2011
Appeal Filed On
10-03-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.1408/DEL/2015 ASSESSMENT YEAR : 2010-11 PHILIP MORRIS SERVICES INDIA S.A. (NOW KNOWN AS PHILIP MORRIS SERVICES INDIA SARL), 8 TH FLOOR, DLF CENTRE, PARLIAMENT STREET, NEW DELHI. PAN: AACCP2770K VS. ACIT, CIRCLE-22(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NEERAJ JAIN, ADVOCATE & SHRIRAMIT KATYAL, CA DEPARTMENT BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 18.07.2018 DATE OF PRONOUNCEMENT : 19.07.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER DATED 14.01.2015 PASSED BY THE ASS ESSING OFFICER (A.O.) ITA NO.1408/DEL/2015 2 U/S 143(3) READ WITH SECTION 144C(13) OF THE INCOME -TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010- 11. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE TRANSFER PRICING ADDITION MADE BY THE A.O. FOR A SUM OF RS.86,70,07 8/- IN MARKETING AND AFTER-SALES SUPPORT SERVICES CHARACTERIZED BY THE A SSESSEE AS `SERVICE FEE RECEIVED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT P HILIP MORRIS SERVICES INDIA S.A. IS A COMPANY INCORPORATED IN SWITZERLAND AND IS A WHOLLY OWNED SUBSIDIARY OF FTR HOLDING S.A. (SWISS HOLDING COMPA NY). THE INDIAN OPERATIONS ARE CARRIED ON BY THE INDIAN BRANCH OF P HILIP MORRIS SERVICES WHICH IS PRIMARILY IN IMPORT AND DISTRIBUTION OF MA RLBORO BRAND OF CIGARETTES IN INDIA. IT ALSO PROVIDES MARKET SUPPO RT SERVICES TO ITS ASSOCIATED ENTERPRISE (AE) IN INDIA AND CERTAIN OTHER COUNTRIE S. THE ASSESSEE FILED RETURN DECLARING TOTAL INCOME OF RS.3.15 CRORE AND ODD. THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE SEPARA TELY REPORTED IN FORM NO.3CEB. THE A.O. REFERRED THE DETERMINATION OF TH E ARMS LENGTH PRICE ITA NO.1408/DEL/2015 3 (ALP) OF THE INTERNATIONAL TRANSACTIONS TO THE TRAN SFER PRICING OFFICER (TPO). IN THE INSTANT APPEAL, WE ARE CONCERNED ONL Y WITH THE INTERNATIONAL TRANSACTION OF SERVICE FEES RECEIVED WITH A TRANS ACTED VALUE OF RS.22,81,92,227/-. THE ASSESSEE EMPLOYED THE TRANS ACTIONAL NET MARGIN METHOD (TNMM) WITH THE PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT TO OPERATING COST (OP/OC). THE ASSESSEE COMPUTED I TS OWN ALP AT 10%. CERTAIN COMPARABLES WERE CHOSEN, WHOSE AVERAGE PLI FOR THE YEAR UNDER CONSIDERATION WAS COMPUTED AT 10.20%. IT WAS ON SU CH BASIS THAT THE ASSESSEE CLAIMED ITS INTERNATIONAL TRANSACTION TO B E AT ALP. THE TPO DID NOT APPROVE THE COMPARABLES CHOSEN BY THE ASSESSEE. HE SHORTLISTED NINE COMPANIES AS COMPARABLE WITH THEIR AVERAGE PLI OF 2 4.80%. APPLYING SUCH BENCHMARK ON THE ASSESSEES OPERATING COSTS IN CURRED UNDER THIS SEGMENT, THE TPO RECOMMENDED TRANSFER PRICING ADJUS TMENT AMOUNTING TO RS.1,52,78,270/-. THE ASSESSEE OBJECTED TO THE DRAF T ORDER, INCORPORATING THE TRANSFER PRICING ADDITION RECOMMENDED BY THE TPO, B EFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP CORRECTED THE MARG INS OF THE COMPARABLES, BUT, DID NOT TINKER WITH THE FINAL SET OF COMPANIES CHOSEN BY THE TPO. THIS RESULTED IN THE REDUCTION OF ADDITIO N TO THE EXTENT CHALLENGED ITA NO.1408/DEL/2015 4 IN THE INSTANT APPEAL. THE ASSESSEE IS AGGRIEVED ON LY AGAINST THE INCLUSION OF FOUR COMPANIES IN THE FINAL SET OF COMPARABLES. 4. BEFORE TAKING UP THE COMPARABILITY OR OTHERWISE OF THE COMPANIES ASSAILED BEFORE US, IT IS SINE QUA NON TO CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE UNDER THIS INTERNATIONAL TRANSACTION. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ITS AE ON 01.04.2007 TO BE READ ALO NG WITH AN AMENDMENT AGREEMENT DATED 01.04.2008, UNDER WHICH IT AGREED TO CARRY OUT MARKET SUPPORT SERVICES IN INDIA, NEPAL, BANGLA DESH AND AFGHANISTHAN. THE AE AGREED TO REIMBURSE ALL DIRECT MARKETING EXP ENSES (DME), INCLUDING, EVENTS SPONSORSHIP AND AGENCY COSTS; TR ADE MARKETING EXPENSES (TME), INCLUDING, SALE MATERIALS, TRADE EVENTS, DIS PLAY RENTALS, TRADE AND BRAND SUPPORT EXPENSES; ALLOWANCES AND TRAVEL COSTS TO THE ASSESSEE ON A MARK-UP OF 10%. IN A NUTSHELL, THE ASSESSEE RENDERE D MARKETING SUPPORT SERVICES FOR ITS AE IN CONNECTION WITH SALE OF TOBA CCO PRODUCTS IN INDIA, NEPAL, BANGLADESH AND AFGHANISTHAN. WITH THE ABOVE UNDERSTANDING OF THE NATURE OF FUNCTIONS CARRIED OUT BY THE ASSESSEE UND ER THIS INTERNATIONAL TRANSACTION, WE WILL NOW ESPOUSE FOR DETERMINATION THE FOUR COMPARABLE COMPANIES CHALLENGED BY THE ASSESSEE IN SERIATIM. ITA NO.1408/DEL/2015 5 I. APITCO LIMITED . 5. THE ASSESSEE ARGUED AGAINST THE FUNCTIONAL INCOM PARABILITY OF THIS COMPANY BEFORE THE TPO BY PUTTING FORTH THAT THIS C OMPANY WAS PROVIDING HIGH-END DIVERSIFIED ACTIVITIES. SUCH CONTENTION DI D NOT FIND FAVOUR WITH THE TPO, WHO TREATED THIS COMPANY AS COMPARABLE BY INCL UDING ITS OP/OC AT 40.09%. 6. WE HAVE ANALYZED THE ANNUAL REPORT OF THIS COM PANY WHICH IS AVAILABLE AT PAGE 34 OF THE PAPER BOOK. FROM THIS REPORT, IT CAN BE SEEN THAT ITS `INCOME FROM OPERATIONS STANDS AT RS.15,41,75,273/ -, BREAK-UP OF WHICH HAS BEEN GIVEN AS PER SCHEDULE 11, AS UNDER:- INCOME FROM OPERATIONS MICRO ENTERPRISES DEVELOPMENT SKILL DEVELOPMENT ENTREPRENEURSHIP DEVELOPMENT TOURISM & RESEARCH STUDIES PROJECT RELATED SERVICES, INFRASTRUCTURE PLANNING & DEVELOPMENT ENVIRONMENT MANAGEMENT ENERGY RELATED SERVICES CLUSTER DEVELOPMENT ASSET RECONSTRUCTION & MANAGEMENT SERVICES EMERGING AREAS 5,283,039 27,575,000 10,873,397 14,835,450 32,600,996 3,998,796 4,835,206 47,986,516 5,503,141 683,732 7. A CAREFUL PERUSAL OF THE OPERATIONS CARRIED OUT BY APITCO LIMITED REVEALS THAT THIS COMPANY IS PROVIDING SERVICES IN THE NATURE OF PROJECT ITA NO.1408/DEL/2015 6 REPORT PREPARATION, TECHNICAL AND ECONOMIC STUDIES, FEASIBILITY STUDIES, MICRO ENTERPRISE DEVELOPMENT, SKILL DEVELOPMENT, PR OJECT MANAGEMENT CONSULTING, INDUSTRIAL CLUSTER DEVELOPMENT, ENVIRON MENTAL MANAGEMENT CONSULTING, ENERGY MANAGEMENT CONSULTING, MARKET AN D SOCIAL RESEARCH AND ASSET RECONSTRUCTION MANAGEMENT SERVICES. NO SEGME NT-WISE PROFITABILITY DATA OF THESE SERVICES IS AVAILABLE. THE TPO HAS CO NSIDERED THIS COMPANY AS COMPARABLE ON ENTITY LEVEL. WE FIND THAT THERE IS A TINY RESEMBLANCE OF `MARKET AND SOCIAL RESEARCH FUNCTIONS PERFORMED BY THIS COMPANY WITH THE OVERALL ACTIVITIES UNDERTAKEN BY THE ASSESSEE. ALL OTHER SERVICES ARE ENTIRELY DIFFERENT. WE FAIL TO APPRECIATE AS TO HOW ALL THE ABOVE LISTED SERVICES CAN BE CONSIDERED AS COMPARABLE WITH THE SERVICES PROVI DED BY THE ASSESSEE, WHICH ARE RESTRICTED TO MARKET SUPPORT AS INDICATED ABOVE. 8. THE LD. DR STRENUOUSLY ARGUED THAT ALL THE AC TIVITIES DONE BY THIS COMPANY ARE BASICALLY `BUSINESS SERVICES AND THE A SSESSEE IS ALSO RENDERING BUSINESS SERVICES. HE SUBMITTED THAT DIFF ERENTIATION OF FUNCTIONS IN THE OVERALL `BUSINESS SERVICES UMBRELLA IS TAKE N CARE OF UNDER THE TNMM. HE HARPED ON THE CONTENTION THAT THERE IS NO REQUIREMENT TO HAVE IDENTICAL SERVICES FOR THE PURPOSE OF MAKING COMPAR ISON UNDER THE TNMM. ITA NO.1408/DEL/2015 7 9. WE ARE UNABLE TO ACCEPT THIS ARGUMENT IN VIE W OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMPGREEN SALES PVT. LTD. VS. CIT (2015) 377 ITR 533 (DEL) IN WHICH IT HAS BEEN HELD THAT THE COMPARABLES ARE TO BE SELECTED ON THE BASIS OF SIMI LARITY EVEN UNDER TNMM. THE HONBLE HIGH COURT HAS LAID DOWN THAT SE LECTION OF COMPARABLES DOES NOT DIFFER WITH THE METHOD ADOPTED . EX CONSEQUENTI , IT IS NO MORE OPEN TO ARGUE THAT THE FUNCTIONAL DISSIMILA RITY OF THE COMPANIES UNDER THE OVERALL BROADER CATEGORY CAN BE IGNORED U NDER THE TNMM. 10. IN VIEW OF THE FOREGOING DISCUSSION, WE FIND THAT THE FUNCTIONALLY SIMILARITY OF APITCO LIMITED IS LACKING ON ENTITY L EVEL WITH THE ASSESSEE COMPANY. AS SUCH, WE ORDER FOR ITS EXCLUSION FROM T HE FINAL SET OF COMPARABLES. SIMILAR VIEW HAS BEEN TAKEN BY THE TRI BUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, A COPY OF WHICH HAS BEEN PLACED ON RECORD. II. GLOBAL PROCUREMENT CONSULTANTS LIMITED 11. THE TPO INCLUDED THIS COMPANY IN THE LIST OF CO MPARABLES DESPITE THE ASSESSEES OBJECTION THAT IT IS ENGAGED IN PROVIDIN G CONSULTANCY SERVICES AND ITA NO.1408/DEL/2015 8 REVIEW OF PROCUREMENT PROCESSES FOR VARIOUS PROJECT S FUNDED BY THE WORLD BANK. THE ASSESSEE FAILED TO CONVINCE EVEN THE DRP FOR ITS EXCLUSION. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D PERUSING THE RELEVANT MATERIAL ON RECORD, WE CONSIDER IT EXPEDIENT TO FIR ST DISCUSS THE NATURE OF ACTIVITIES CARRIED OUT BY GLOBAL PROCUREMENT CONSUL TANTS LTD. A COPY OF ANNUAL REPORT OF THIS COMPANY FOR THE RELEVANT YEAR IS AVAILABLE ON RECORD. AS PER THIS REPORT, THIS COMPANY IS PROMOTED BY EXP ORT-IMPORT BANK OF INDIA IN ASSOCIATION WITH LEADING INDIAN PUBLIC SEC TOR AND PRIVATE SECTOR CONSULTANCY ORGANISATIONS ON THE BASIS OF PUBLIC-PR IVATE PARTNERSHIP MODEL THAT OFFERS COLLECTIVE INDIAN EXPERIENCE AND EXPERT ISE THROUGH THE PROVISION OF A RANGE OF ADVISORY SERVICES WITH PARTICULAR FOC US ON `PROCUREMENT. THIS COMPANY PROVIDES TECHNICAL ASSISTANCE IN ENHAN CING QUALITY, TRANSPARENCY, EFFICIENCY AND EFFECTIVENESS OF PROCU REMENT AND IMPLEMENTATION SERVICE TO HELP ATTAIN DESIRED INSTI TUTIONAL AND CORPORATE OBJECTIVES. THE EXPERTISE OF THIS COMPANY IS AVAIL ABLE TO VARIOUS SECTORS INCLUDING POWER, WATER RESOURCES, TRANSPORTATION, I NDUSTRIES, ETC. ITS SERVICES HAVE BEEN OUTLINED IN THE ANNUAL REPORT. FROM SUCH SERVICES RENDERED BY THIS COMPANY, IT CAN BE NOTICED THAT IT IS CONDUCTI NG INDEPENDENT ITA NO.1408/DEL/2015 9 PROCUREMENT REVIEW OF MULTILATERALLY FUNDED PROJECT S SPREAD ACROSS THE GLOBE. IT ALSO UNDERTAKES PROCUREMENT AUDITS. THIS COMPANY IS PROVIDING FULL TIME ADVICE ON PROCUREMENT AND CONTRACT RELATE D ASPECTS TO SEVERAL AGENCIES ACROSS THE GLOBE. FOR EXAMPLE, IN GEORGIA, IT PROVIDED ADVICE ON PROCUREMENT AND CONTRACT RELATED SERVICES TO MUNICI PAL DEVELOPMENT FUND (MDF), REPUBLIC OF GEORGIA. IN IRAN, THIS COMPANY PROVIDED PROCUREMENT ADVISORY SERVICES TO INTERNATIONAL FORUMS, SUCH AS, BAM RECONSTRUCTION OFFICE OF MINISTRY OF HOUSING, TEHRAN. IN GUYANA, THIS COMPANY WAS SELECTED THROUGH AN INTERNATIONAL COMPETITIVE PROCE SS IN ASSISTING THE GOVERNMENT OF GUYANA IN STRENGTHENING OF ITS PROCU REMENT ADMINISTRATION UNDER TECHNICAL ASSISTANCE CREDIT FROM THE WORLD BA NK. IN INDIA, IT PROVIDED PROCUREMENT ADVISORY SERVICES TO IIT, BARA MATHY, PUNE, INDIA IN THE IMPLEMENTATION OF WORLD BANK ADMINISTERED EMPO WERING POOR: A PILOT ICT PROGRAMME FOR RURAL AREAS OF PUNE DISTRIC T FUNDED BY JAPAN SOCIAL DEVELOPMENT FUND GRANT. IT HAS ALSO CARRIED OUT REVIEW OF PROCUREMENT SYSTEMS AND ORGANISATION IN THE STATE O F MADHYA PRADESH, PARTICULARLY, COVERING THE HEALTH, PUBLIC HEALTH, E NGINEERING AND WOMEN AND CHILD DEVELOPMENT DEPARTMENTS. WHEN WE GO THROUGH THE NATURE OF ITA NO.1408/DEL/2015 10 SERVICES PROVIDED BY THIS COMPANY, WHICH BASICALLY AIM AT PROVIDING ADVICE ON PROCUREMENT AND ALSO CARRYING OUT PROCUREMENT AU DIT, IT BECOMES PALPABLE THAT THERE IS AN ABSOLUTE MISMATCH WITH TH E SERVICES PROVIDED BY THE ASSESSEE. THE SERVICES PROVIDED BY GLOBAL PROCU REMENT CONSULTANTS LTD. ARE MILES APART FROM THOSE RENDERED BY THE ASS ESSEE, WHICH, IN TURN, ARE CONFINED TO MARKET SUPPORT. BY NO STANDARD, GL OBAL PROCUREMENT CONSULTANTS LTD., CAN BE CONSIDERED AS COMPARABLE W ITH THE ASSESSEE COMPANY. WE, THEREFORE, ORDER FOR THE ELIMINATION OF THIS COMPANY FROM THE LIST OF COMPARABLES. SIMILAR VIEW HAS BEEN TAK EN BY THE TRIBUNAL IN ITS ORDER FOR THE IMMEDIATELY PRECEDING YEAR IN ASSESSE S OWN CASE. III. TSR DARASHAW LIMITED . 13. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY BY ARGUING THAT THE BUSINESS SEGMENTS OF THIS COMPANY ARE, REGISTRA R AND TRANSFER AGENT ACTIVITY; RECORDS MANAGEMENT ACTIVITY; AND PAYROLL AND TRUST FUND ACTIVITY. NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE TPO TREATED IT AS COMPARABLE ON ENTITY LEVEL, AGAINST WHICH THE ASSES SEE IS BEFORE US. ITA NO.1408/DEL/2015 11 14. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS COMPANY IS A BROKING A ND INVESTMENT BANKING HOUSE WITH ITS THREE SEGMENTS, NAMELY, REGISTRAR AN D TRANSFER AGENT ACTIVITY (R&T); RECORDS MANAGEMENT ACTIVITY (RECORDS); AND PAYROLL AND TRUST FUND ACTIVITY (PAYROLL). UNDER THE REGISTRAR AND TR ANSFER AGENT ACTIVITY, THIS COMPANY UNDERTAKES REGISTRAR AND TRANSFER AGEN T ACTIVITY FUNCTIONS FOR EQUITY AND PREFERENCE SHARES, DEBENTURE INSTRUMENTS AND BONDS, COMMERCIAL PAPER AND PRIVATE PLACEMENTS. IT ALSO U NDERTAKES TRANSFER PROCESSING, CUSTOMER/QUERY HANDLING AND CORRESPONDE NCE, SPLIT/CONSOLIDATION/RENEWAL OF CERTIFICATES, PROCES SING AND DISTRIBUTION OF INTEREST/DIVIDEND WARRANTS, PAYMENTS BY PHYSICAL WA RRANTS/THROUGH ECS/DIRECT CREDIT. UNDER RECORDS MANAGEMENT ACTIV ITY, THIS COMPANY UNDERTAKES STORAGE, RETENTION & RETRIEVAL OF PHYSIC AL AND/OR ELECTRONIC RECORDS. UNDER PAYROLL AND TRUST FUND ACTIVITY, TH IS COMPANY HANDLES THE ACTIVITIES NORMALLY HANDLED BY PAYROLL AND RETIREM ENT FUNDS SECTION IN ANY ORGANIZATION, INCLUDING INTERFACE WITH REGULATO RY AUTHORITIES. WHEN WE COMPARE ALL THE THREE BROADER ACTIVITIES UNDERTAKEN BY THIS COMPANY, NAMELY, R&T, RECORDS AND PAYROLL, WITH THE MARKET SERVICES RENDERED BY ITA NO.1408/DEL/2015 12 THE ASSESSEE TO ITS AE, ON A COST PLUS BASIS, WE FI ND THAT THERE IS A HUGE FUNCTIONAL DISPARITY BETWEEN THE TWO. THAT APART, THE CONSIDERATION OF THIS COMPANY ON AN ENTITY LEVEL BY THE TPO HAS RENDERED THE ENTIRE EXERCISE OF COMPARISON MEANINGLESS. FINDING STRIKING DISSIMILA RITIES BETWEEN THIS COMPANY AND THE ASSESSEE, WE ORDER TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF COMPARABLES. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN ITS ORDER FOR THE IMMEDIATELY PRECEDING YEAR IN ASSESSEES OW N CASE. IV. QUIPPO VALUERS 15. THE TPO PROPOSED TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES WHICH WAS OBJECTED TO BY THE ASSESSEE. SUCH AN OBJ ECTION WAS OVERRULED BY THE TPO. THE ASSESSEE COULD NOT GET ANY RELIEF FRO M THE DRP ON THIS ISSUE. 16. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IT IS AN ADMITTED POSITION THAT THE ANNUAL REPORT OF THIS COMPANY FOR THE RELEVANT YEAR IS NOT AVAILABLE IN PUBLIC DOMAIN . ANNUAL REPORT OF THIS COMPANY FOR THE NEXT YEAR IS AVAILABLE AT PAGE 148 ONWARDS OF THE PAPER BOOK, WHICH ALSO CONTAINS FIGURES FOR THE YEAR UNDE R CONSIDERATION AS PRECEDING YEARS FIGURES. IT IS PALPABLE FROM SUCH REPORT THAT THIS COMPANY ITA NO.1408/DEL/2015 13 IS BASICALLY RENDERING ASSET MANAGEMENT SERVICES. FROM THE OPERATIONAL REVIEW GIVEN IN THE DIRECTORS REPORT, IT IS OVERT THAT THIS COMPANY IS ENGAGED IN SALE OF CONSTRUCTION AND EARTHMOVING EQU IPMENTS THROUGH AUCTIONS AND ALSO BY MEANS OF INNOVATIVE DISPOSAL M ETHODOLOGIES; EXECUTION OF LIVE AUCTIONS FOR FINANCIAL INSTITUTIO NS IN THE EASTERN PART OF THE COUNTRY; AND PROVISION OF VALUATION SERVICES TO A N UMBER OF CLIENTS IN RESPECT OF ASSETS INCLUDING CONSTRUCTION EQUIPMENT, BARGES AND OTHER INDUSTRIAL ASSETS. THE ASSESSEE ALSO RAKED UP SUCH DISSIMILARITIES BEFORE THE TPO, WHO DID NOT CONTROVERT THE FUNCTIONAL PROFILE OF THIS COMPANY. IN VIEW OF THE FACT THAT THIS COMPANY IS MAINLY PROVID ING ASSET MANAGEMENT SERVICES OF THE NATURE DISCUSSED ABOVE, THE SAME CA NNOT BE CONSIDERED AS COMPARABLE WITH THE MARKET SUPPORT SERVICES RENDERE D BY THE ASSESSEE. WE, THEREFORE, DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 17. NO OTHER ISSUE IN RELATION TO THE DETERMINAT ION OF THE ALP OF THIS INTERNATIONAL TRANSACTION WAS RAISED BEFORE US. 18. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON T HE ISSUE OF TRANSFER PRICING ADDITION IN THE INTERNATIONAL TRANSACTION O F MARKETING AND AFTER- ITA NO.1408/DEL/2015 14 SALES SUPPORT SERVICES, CHARACTERIZED BY THE ASSE SSEE AS `SERVICE FEE RECEIVED AND REMIT THE MATTER TO THE FILE OF AO/TP O FOR FRESH DETERMINATION OF ITS ALP IN CONSONANCE WITH OUR AB OVE DIRECTIONS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS 19. THE ONLY OTHER ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF RS.1,97,09,254/- MADE BY THE ASSESS ING OFFICER U/S 40(A)(I) OF THE ACT. 20. SUCCINCTLY, THE FACTS OF THIS GROUND ARE THAT T HE ASSESSEE INCURRED CERTAIN EXPENSES IN FOREIGN CURRENCY ON VARIOUS ACC OUNTS. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICE R OBSERVED THAT THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE FROM PAYMENTS MADE TO CERTAIN PARTIES OUTSIDE INDIA. A LIST OF SUCH PAYMENTS MADE BY THE ASSESSEE TOTALING RS.2.05 CRORE AND ODD HAS BEEN SET OUT ON PAGE 2 OF THE FINAL ASSESSMENT ORDER. ON BEING CALLED UPON TO EXPLAIN AS TO WHY N O TAX WITHHOLDING WAS DONE, THE ASSESSEE SUBMITTED THAT THE SERVICES WERE RENDERED IN BANGLADESH/ITALY/NEPAL AND THE PAYEES DID NOT HAVE ANY BUSINESS ITA NO.1408/DEL/2015 15 CONNECTION IN INDIA. IT WAS THUS CLAIMED THAT THE AMOUNT WAS NOT CHARGEABLE TO TAX IN INDIA, THEREBY OBLITERATING TH E REQUIREMENT OF DEDUCTION OF TAX AT SOURCE. THE ASSESSEE ALSO SUBMITTED THAT SOME OF THE PAYMENTS MADE WERE IN THE NATURE OF REIMBURSEMENT OF EXPENSE S, AGAIN, NOT REQUIRING ANY TAX WITHHOLDING. THE ASSESSING OFFICER NOTICED IN PARA 5.2 OF THE IMPUGNED ORDER THAT THE PAYMENTS WERE MADE FOR ALLE GED PROFESSIONAL SERVICES/OTHER SERVICES IN BANGLADESH/NEPAL. SUCH P AYMENTS WERE HELD BY HIM TO BE IN THE NATURE OF MANAGERIAL, CONSULTANCY OR TECHNICAL SERVICES TO THE NON-RESIDENTS. THE ASSESSING OFFICER FURTHER H ELD THAT SUCH PAYMENTS TO BE ROYALTY FOR IMPARTING OF COMMERCIAL OR INDUSTR IAL KNOWLEDGE AND SKILL. AS THE ASSESSEE FAILED TO FURNISH THE COPIES OF THE AGREEMENTS WITH THE PAYEES, THE ASSESSING OFFICER MADE DISALLOWANCE U/S 40(A) OF THE ACT. THE DRP DIRECTED TO EXCLUDE DISALLOWANCE OF RS.8,65,254 /-, BEING, PAYMENT MADE TO PHILIP MORRIS SERVICES CLAIMED TO BE REIMBU RSEMENT OF EXPENSES AND SUSTAINED THE REMAINING DISALLOWANCE OF RS.1.97 CRORE. THE ASSESSEE HAS COME UP IN APPEAL CHALLENGING SUCH DISALLOWANCE . 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT SIMILAR DIS ALLOWANCE WAS MADE BY THE ITA NO.1408/DEL/2015 16 ASSESSING OFFICER U/S 40(A) FOR THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR. WHEN THE MATTER CAME UP FOR CONSIDERATION BEFORE TH E TRIBUNAL, THE MATTER WAS SENT BACK TO THE AUTHORITIES BELOW FOR RE-ADJUD ICATION IN THE LIGHT OF THE EVIDENCE WHICH THE ASSESSEE PROPOSED TO FILE. THIS VIEW WAS TAKEN BY CONSIDERING THE DECISION OF THE TRIBUNAL FOR THE AS SESSMENT YEAR 2008-09. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE DRP HAS NOT CONSIDERED THE ASSESSEES CLAIM FOR NON-DEDUCTION O F TAX AT SOURCE IN THE LIGHT OF THE RESPECTIVE DOUBLE TAXATION AVOIDANCE A GREEMENTS (DTAA). IT IS FURTHER OBSERVED THAT THE ASSESSEE DID NOT ADDUC E NECESSARY AGREEMENTS WITH THE PAYEES BEFORE THE ASSESSING OFFICER. SINCE THE ORDERS OF THE AUTHORITIES BELOW ARE SILENT ON THESE VITAL ASPECTS HAVING BEARING ON THE APPLICATION OF SECTION 40(A), RESPECTFULLY FOLLOWIN G THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO TH E FILE OF AO FOR DECIDING IT AFRESH AS PER LAW, AFTER ALLOWING A REASONABLE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO.1408/DEL/2015 17 22. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 19.07.201 8. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 19 TH JULY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.
Mehul