Alfa laval India Ltd., Pune V. Addl. CIT, Range-8, Pune

ITA 1457/PUN/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2533 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 16-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Depreciation; Transfer pricing; International transaction; Rule of consistency; Additional depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 1 457 /PN/201 0 / ASSESSMENT YEAR : 200 6 - 07 ALFA LAVAL INDIA LTD., MUMBAI - PUNE ROAD, DAPODI, PUNE 4110 12 . / APPELLANT DAPODI, PUNE 4110 12 . / APPELLANT PAN: A AACA5899A VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE . / RESPONDENT / APPELLANT BY : SHRI SUNIL PATHAK / RESPONDENT BY : DR. HARSHWARDHINI BUTY / RESPONDENT BY : DR. HARSHWARDHINI BUTY / DATE OF HEARING : 2 0 .0 1 .201 6 / DATE OF PRONOUNCEMENT: 21 . 03 .201 6 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF DY. CIT, CIRCLE - 8, PUNE , DATED 2 5 . 1 0 .201 0 RELATING TO ASSESSMENT YEAR 200 6 - 07 PASSED U NDER SECTION 143(3) R.W.S. 144C OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1.1 ON THE FACTS OF THE CASE AND IN LAW, THE H'BLE DISPUTE RESOLUTION PANEL , PUNE ERRED IN DIRECTING THE LEARNED ASSESSING OFFICER TO ESTIMATE AFRESH THE DISALLOWABLE EXPENSES U / S.1 4A IN RELATION TO EXEMPT DIVIDEND THE DISALLOWABLE EXPENSES U / S.1 4A IN RELATION TO EXEMPT DIVIDEND RECEIVED OF RS . 1 , 75 , 39,913/ - . ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 2 1.2 THE H'BLE DISPUTE RESOLUTION PANEL, PUNE ERRED IN NOT APPRECIATING THAT THE LEARNED ASSESSING OFFICER IN HIS PROPOSED ORDER U/S.143(3) R.W.S.144C(1) OF THE INCOME TAX ACT, 1961 DATED 14. 12.2009 HAD MADE THE DISALLOWANCE AS PER RULE 8D 'AS THE QUANTIFICATION OF THESE EXPENSES THE DISALLOWANCE AS PER RULE 8D 'AS THE QUANTIFICATION OF THESE EXPENSES IS DIFFICULT' AND THAT THE DISPUTE RESOLUTION PANEL , PUNE HAVING HELD THAT RULE 8D IS NOT APPLICABLE TO ASSESSMENT YEAR 2006 - 07 , OUGHT TO HAVE DELETED DISALLOWANCE U/ S.14A IN ITS ENTIRETY . 1 . 3 THE LEARNED ASSESSING OFFICER IN HIS ORDER U/S. 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 DATED 25 . 10.2010 ERRED IN DISALLOWING AN ADHOC SUM OF RS.3 , 00,000/ - U/S . 14A OF THE INCOME TAX ACT , 1961 IN RELATION TO EXEMPT DIVID END RECEIVED OF RS.1,75,39,913/ - . 2. THE H'BLE DISPUTE RESOLUTION PANEL, PUNE ERRED IN CONFIRMING DISALLOWANCE OF RS.2,94,900/ - BEING ADHOC 0.2% OF WORKMAN & STAFF WELFARE EXPENSES, SALES PROMOTION EXPENSES, ADVERTISEMENT EXPENSES AND TRAVELLING EXPENSES WHICH IN ALL AGGREGATED TO RS . 14,74,50,168/ - TO COVER THE LEAKAGE OF REVENUE . COVER THE LEAKAGE OF REVENUE . 3.1 THE H'BLE DISPUTE RESOLUTION PANEL, PUNE ERRED IN CONFIRMING THAT THE EDP SERVICE CHARGES OF RS.76,05,936/ - REMITTED TO THE APPELLANT COMPANY'S AE UNDER COST SHARING ARRAN GEMENT FOR SHARING INFORMATION TECHNOLOGY RELATED COSTS INCURRED BY THE GROUP FOR MAINTENANCE OF CENTRAL MAIL SERVERS, EVALUATION OF VARIOUS IT SOLUTIONS, INTRANET ETC. IS CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE AS CONTENDED BY THE APPELLANT COMPAN Y ALTHOUGH THE H'BLE DISPUTE RESOLUTION PANEL HAS ITSELF HELD THAT THE EXPENDITURE DID NOT RESULT IN ACQUISITION OF ANY TANGIBLE OR INTANGIBLE ASSET . 3.2 HAVING HELD THAT THE EDP SERVICE CHARGES OF RS.76,05,936/ - IS CAPITAL EXPENDITURE, THE H'BLE DISPUTE RESOLUTION PANEL, PUNE ERRED IN EXPENDITURE, THE H'BLE DISPUTE RESOLUTION PANEL, PUNE ERRED IN ENHANCING THE TOTAL INCOME OF THE APPELLANT COMPANY BY DIRECTING THE LEARNED ASSESSING OFFICER TO WITHDRAW THE DEPRECIATION OF RS.22,81,781/ - ALLOWED BY HIM IN HIS PROPOSED ORDER U/S.143(3) R . W.S. 144C OF THE INCOME TAX ACT , 1961 DATED 14.12 . 2009 ON THE GROUND THAT THE SAID EXPENDITURE DID NOT RESULT IN OWNING OR ACQUIRING OF ANY TANGIBLE OR INTANGIBLE ASSETS FALLING WITHIN THE AMBIT OF SECTION 32(1)(I) OR 32(1)(II) OF THE INCOME TAX ACT, 1961 . 4. THE LEARNED ASSESSING OF FICER IN HIS ORDER U/S.143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 DATED 25.10 . 2010 WITHOUT GIVING ANY REASONING, ERRED IN NOT ALLOWING THE INCREMENTAL DEPRECIATION OF RS.36,20,033/ - ALLOWED BY HIS PREDECESSOR IN HIS PROPOSED ORDER U/S . 143(3) R.W.S. 144 C( 1 ) OF THE INCOME TAX ACT, 1961 DATED 14.12.2009. HE ERRED IN NOT 144 C( 1 ) OF THE INCOME TAX ACT, 1961 DATED 14.12.2009. HE ERRED IN NOT APPRECIATING THAT THE ABOVE INCREMENTAL DEPRECIATION OF RS.36,20,033/ - WAS NOT AT ALL A SUBJECT MATTER OF THE DIRECTIONS U/S.144C(5) OF THE H'BLE DISPUTE RESOLUTION PANEL, PUNE'S ORDER DATE D 28.09.2010. 5. ON THE FACTS OF THE CASE AND IN LAW, THE DISPUTE RESOLUTION PANEL, PUNE ERRED IN : A) CONFIRMING THAT THE ASSESSING OFFICER (AO) / TRANSFER PRICING OFFICER (TPO) WERE JUSTIFIED IN PROPOSING TO ENHANCE THE INCOME OF THE APPELLANT COMPANY BY RS.70,28,235/ - BY REJECTING THE BENCHMARKING ANALYSIS CONDUCTED BY THE APPELLANT COMPANY AND IN HOLDING THAT THE ARM'S LENGTH PRICE FOR INTERNATIONAL TRANSACTION OF PAYMENT OF PURCHASE FEES TO ALFA LAVAL TUMBA FOR ACTING AS A CENTRAL PURCHASING ORGANIS ATION (CPO) WAS RS . NIL . CENTRAL PURCHASING ORGANIS ATION (CPO) WAS RS . NIL . ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 3 B) NOT APPRECIATING THAT THE APPELLANT COMPANY HAD FILED DETAILED SUBMISSIONS BEFORE THE TPO AND THE DRP PUNE REGARDING THE NATURE OF ARRANGEMENT WITH THE AE, THE FUNCTIONS PERFORMED BY THE APPELLANT COMPANY AND ITS AE, THE BENEFI TS RECEIVED BY THE THE APPELLANT COMPANY AND ITS AE, THE BENEFI TS RECEIVED BY THE APPELLANT COMPANY, THE SCHEME AND BASIS OF RECOVERY OF COST OF VENDOR DEVELOPMENT BY AE FROM VARIOUS GROUP COMPANIES AND REGARDING THE NEED FOR MAKING SUCH PAYMENT TO THE AE. C) REJECTING THE AGGREGATION OF PURCHASE FEES TRANSACTION WI TH OTHER CLOSELY LINKED INTERNATIONAL TRANSACTIONS WHICH HAVE BEEN BENCHMARKED BY ADOPTING AGGREGATION APPROACH. D) APPLYING CUP METHOD TO BENCHMARK THE AFORESAID INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT THERE BEING NO COMPARABLE UNCO NTROLLED PRICE AVAILABLE FOR APPLICATION OF THIS METHOD IN ACCORDANCE WITH THE ACT . E) HOLDING THAT THE APPELLANT COMPANY HAD NOT GIVEN THE DETAILS OR E) HOLDING THAT THE APPELLANT COMPANY HAD NOT GIVEN THE DETAILS OR EVIDENCE OF THE SERVICES ACTUALLY RENDERED BY THE AE. THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY AND / DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. 3. THE ISSUE ARISING IN GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS AGAINST ESTIMATE D DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT IN RELATION TO EXEMPT DIVIDEND OF RS. 1,7 5,39,913/ - . 4. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE , THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1.75 CRORES FROM MUTUAL FUNDS OF OTHER COMPANIES AND SHOWED UNDER THE HEAD OTHER INCOME IN THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE HAD EARNED HUGE DIVIDEND INCOME, SOME EXPENSES FOR THE MANAGEMENT OF INVESTMENT PORTFOLIO, ETC. NEEDS TO BE DISALLOWED. IN VIEW THEREOF, THE ASSESSING OFFICER MADE AN ETC. NEEDS TO BE DISALLOWED. IN VIEW THEREOF, THE ASSESSING OFFICER MADE AN ESTIMATE OF SAID EXPENDITURE AS PER RULE 8D OF THE INC OME TAX RULES, 1962 (IN SHORT THE RULES) I.E. HALF PERCENT OF AVERAGE VALUE OF INVESTMENT AS ON 01.04.2005 AND AS ON 31.03.2006 AND DISALLOWED SUM OF RS.21,65,448/ - . THE SAID DISALLOWANCE WAS PROPOSED IN THE DRAFT ASSESSMENT ORDER AND RESTRICTED BY THE DISPUTE RESOLUTION PANEL (IN SHORT DRP) , IN VIEW OF THE RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 4 [2010] 328 ITR 81 (BOM) . THE MATTER WAS SET - ASIDE TO THE FILE OF ASSESSING OFFICER TO DISALLOW EXPENS ES IN VIEW OF THE ORDER OF JURISDICTIONAL HIGH COURT. THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT AFTER DISCUSSION WITH THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DISALLOWED SUM OF RS. 3 LAKHS UNDER SECTION 14A OF THE ACT . 5. THE ASSESSEE IS IN APPEAL AGAINST THE SAID DISALLOWANCE. 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT AS AGAINST DIVIDEND INCOME OF RS.1.75 CRORES, DISALLOWANCE OF RS.3 LAKHS WAS MADE . HOWEVER, IN ASSESSMENT YEAR 2005 - 06, THE TRIBUNAL HAD RESTRICTED DISALLOWANCE TO RS.75,000/ - . 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, SUBMITTED THAT THE DIVIDEND INCOME FOR THE YEAR UNDER CONSIDERATION HAS SUBSTANT IALLY INCREASED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD EARNED DIVIDEND INCOME OF RS.1.75 CRORES, WHICH WAS EXEMPT FROM TAX IN THE HANDS OF ASSESSEE. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT, THE ASSESSING OFFICER AFTER DISCUSSION WITH THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAD DISALLOWED RS.3 LAKHS AS BEING EXPENDITURE RELATABLE TO EARNING OF THE SAID DIVIDEND INCOME. THE ASSESSEE IS IN APPEAL AGAINST T HE SAID DISALLOWANCE AND POINTED OUT THAT IN ASSESSMENT YEAR 2005 - 06, THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 2300/PN/2012 AND ITA NO.2442/PN/2012 , VIDE ORDER DATED 18.03.2015 ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 5 HAD DISALLOWED SUM OF RS.75,000/ - AS AGAINST THE DISALLOWANCE MADE BY ASSE SSING OFFICER AT RS. 20,41,929/ - BEING 10% OF TOTAL EXEMPT INCOME. THE DIVIDEND INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, ACCORDINGLY, HAS INCREASED SUBSTANTIALLY AND IN VIEW THEREOF, WE HOLD THAT DISALLOWANCE OF RS.2 LAKHS BEING C OST OF EXPENSES ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME SHOULD BE DISALLOWED IN THE HANDS OF ASSESSEE. ACCORDINGLY, THOUGH, IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2005 - 06, DISALLOWANCE OF RS.75,000/ - WAS MADE BUT LOOKING AT THE INCREASE IN DIVIDEND INCOME EARNED BY THE ASSESSEE, WHICH MERITS THE DISALLOWANCE MADE OF RS.2 LAKHS IS MERITED. IT MAY ALSO BE POINTED OUT THAT DISALLOWANCE OF RS.2.50 LAKHS UNDER SECTION 14A OF THE ACT HAS BEEN MADE IN ASSESSMENT YEAR 2008 - 09 AGAINST DIVIDEND INCOME OF RS. 1.24 CRORES BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.85/PN/2013 VIDE ORDER DATED 30.08.2013. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, PARTLY ALLOWED. 9. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AGAINST THE DIS ALLOWANCE OF RS.2,94,900/ - BEING ADHOC 0.20% DISALLOWANCE OUT OF WORKMEN AND STAFF WELFARE EXPENSES, SALES PROMOTION EXPENSES, ADVERTISEMENT EXPENSES AND TRAVELLING EXPENSES, WHICH AGGREGATE TO RS.14.74 CRORES. 10. THE ASSESSING OFFICER IN THE DRAFT ASS ESSMENT ORDER HAD EXAMINED THE BILLS OF EXPENDITURE BOOKED UNDER THE HEAD WORKMEN AND STAFF WELFARE AT RS.6.01 CRORES, SALES PROMOTION EXPENSES AT RS.22.2 LAKHS, ADVERTISEMENT EXPENSES AT RS.39.31 LAKHS AND TRAVELLING EXPENSES AT RS.8.11 CRORES. THE NET PROFIT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FALLEN AND ON EXAMINATION OF BILLS, S OME OF PETTY EXPENSES WE RE FOU ND TO BE SUPPORTED BY SELF MADE VOUCHERS ONLY AND CONSEQUENTLY, WERE NOT VERIFIABLE. HE DISALLOWED SUM ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 6 OF RS.7,37,250/ - BEING 0 .50% OF TOTAL EXPENDITURE OF RS.14.74 CRORES IN ORDER TO COVER LEAKAGE OF REVENUE AND LAST YEAR , 0.2 0 % OF TH ESE EXPENSES WERE DISALLOWED IN THE HANDS OF ASSESSEE. THE DRP DIRECTED THE ASSESSING OFFICER TO DIS ALLOW 0.2 0 % OF THE SAID EXPENSES AT RS.2,94,900 / - , WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IN FINAL ASSESSMENT ORDER PASSED. 11. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER. 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT NO DISALLOWANCE OUT OF T HIS HEAD IS MERITED IN VIEW OF THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE I.E. MANUFACTURING OF MACHINERY FOR DAIRY PRODUCTS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE MATTER IN THE EARLIER YEARS HAS BEEN SET - ASIDE BY THE TRIBUNAL. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE OF DISALLOWANCE OF EXPENSES OUT OF EXPENSES TOTALING RS.14.74 CRORES HAS BEEN MADE AT 0.20% OF TOTAL EXPENSES AT RS.2,94,900/ - . THE SAID DISALLOWANCE WAS MADE IN ORDER TO COVER LEAKAGE OF REVENUE WHERE THE ASSESSEE HAD BOOKED THE PART OF SAID EXPENSES ON SELF MADE VOUCHERS. IN THE EAR LIER YEAR, 1% OF EXPENDITURE WAS DISALLOWED ON ADHOC BASIS. HOWEVER, IN THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER HAS MADE DISALLOWANCE AFTER VERIFICATION OF BILLS AND IN VIEW OF THE FACT THAT NET PROFIT OF THE ASSESSEE COMPANY HAS FALLE N DOWN. LOOKING AT THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 7 UPHOLD THE DISALLOWANCE MADE IN THE HANDS OF ASSESSEE AT RS.2,94,900/ - . THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, DISMISSED. 15. THE ISSUE IN GROUND OF APPEAL NO.3 RAI SED BY THE ASSESSEE IS AGAINST DISALLOWANCE OF RS. 76,05,936/ - TOWARDS EDP SERVICE CHARGES WHICH WAS REMITTED BY THE ASSESSEE T O ITS PARENT COMPANY UNDER SHARING ARRANGEMENT. 16. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE ARE THAT , THE ASSESSEE UNDER THE HEAD MISCELLANEOUS EXPENSES HAD DEBITED SUM OF RS. 11,35,02,959/ - . F ROM THE HEAD - WISE DETAILS OF THE SAID EXPENSES, IT WAS NOTED BY THE ASSESSING OFFICER THAT EDP SERVICE CHARGES WERE TO THE TUNE OF RS. 2,18,40,678/ - . THE ASSESSEE WAS ASKED TO GIVE FURTH ER DETAILS OF SAID EXPENSES AND ALSO EXPLAIN THE NATURE OF SAID EXPENSES. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT SUM OF RS. 76,05,936/ - WAS PAID TO ALFA LAVAL LUND SWEDEN ON ACCOUNT OF COST SHARING ARRANGEMENT FOR SHAR ING COMMON RESOURCES SWEDEN ON ACCOUNT OF COST SHARING ARRANGEMENT FOR SHAR ING COMMON RESOURCES LIKE DATA BASE MANAGEMENT , COMMON SOFTWARE, ETC. THE SHARE WAS ALLOCATED TO THE ASSESSEE BY THE CENTRAL IT GROUP ON ACCOUNT OF INFORMATION TECHNOLOGY RELATED COST INCURRED BY THE GROUP AND ALSO INCLUDED PAYMENT ON ACCOUNT OF CERTAIN S OFTWARES. THE ASSESSING OFFICER NOTED THAT THE SAID AMOUNT WAS COST ALLOCATED TO THE ASSESSEE ON THE BASIS OF COST SHARING ARRANGEMENT FOR CERTAIN SOFTWARES AND FACILITIES WHICH WERE PROVIDED TO THE ASSESSEE COMPANY BY CENTRAL UNIT. THE ASSESSING OFFICER FROM THE DETAILS OF EXPENDITURE, WAS OF THE VIEW THAT THE SAME WERE TOWARDS ACQUISITION AND USE OF SOFTWARE WHICH WAS ACQUIRED BY THE ASSESSEE ON SHARING BASIS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE COST SHARING WAS TOWARDS NOT ONLY FOR ACQUISIT ION OF SOFTWARE BUT ALSO TOWARDS SUCH INFRASTRUCTURE RELATING TO COMPUTER SERVICES AND HENCE, WAS CAPITAL IN NATURE. ACCORDINGLY, THE SAME WAS TREATED AS CAPITAL EXPENDITURE AND ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 8 DEPRECIATION @ 30% WAS ALLOWED TO THE ASSESSEE AMOUNTING RS. 22,81,781/ - AND T HE REMAINING AMOUNT OF RS.53,24,155/ - WAS ADDED BACK TO THE INCOME OF ASSESSEE. THE DRP NOTED THAT SIMILAR DISALLOWANCE WAS CONFIRMED BY THE CIT(A) IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 AND HENCE, THE SAME DISALLOWANCE MERITS TO BE MADE DURING THIS YEAR ALSO. THE DRP FURTHER HELD THAT SINCE THE IMPUGNED EXPENDITURE HAD NOT RESULTED IN ANY OWNING OR ACQUIRING OF ANY TANGIBLE OR INTANGIBLE ASSETS, THE DISALLOWANCE OF EDP SERVICE CHARGES WAS TO BE CONFIRMED IN PRINCIPLE AND FURTHER, DEPRECIATION @ 30% WAS ALSO PROPOSED TO BE WITHDRAWN, IN TURN, RESULT ING IN ENHANCEMENT OF ASSESSEE S INCOME. THE ASSESSING OFFICER WHILE PASSING THE ORDER UNDER SECTION 143(3) R.W.S. 144C OF THE ACT, DISALLOWED SUM OF RS. 76,05,931/ - , AGAINST WHICH THE ASSESSEE IS IN APPEAL. 1 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN ASSESSMENT YEAR 2004 - 05, THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL IN ASSESSMENT YEAR 2004 - 05, THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL BECAUSE 60% OF DEPRECIATION WAS ALLOWED ON EDP SERVICE CHARGES. IT WAS FURTHER POINTED OUT BY THE LEARN ED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT ALFA LAVAL LUND SWEDEN WAS MAIN COMPANY AND FOR COMMON REPORTING AND COMMON MANAGEMENT OF COMPANIES UNDER ALFA LAVAL LUND SWEDEN, WERE USING THE SAME SOFTWARE. HE FURTHER EXPLAINED THAT THE PARENT COMPANY ACQUIRED SOFTWARE AND THE COSTS WERE SHARED BY ALL AND THE AMOUNT PAID DURING THE YEAR WAS ON ACCOUNT OF AUTOMATION OF SOFTWARE. HE FURTHER POINTED OUT THAT THE DRP SAYS THAT THE ASSESSEE DOES NOT OWN SOFTWARE. OUR ATTENTION WAS DRAWN TO THE INVOICES PL ACED AT PAGE 9 OF THE PAPER BOOK AND IT WAS POINTED OUT THAT THE ISSUE IS WHETHER THE EXPENDITURE IS OF CAPITAL OR REVENUE IN NATURE AND WHETHER DEPRECIATION @ 60% IS TO BE ALLOWED. OUR ATTENTION FURTHER WAS DRAWN TO THE ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 9 ORDER OF TRIBUNAL IN ASSESSEES OW N CASE RELATING TO ASSESSMENT YEAR 2008 - 09, WHEREIN THIS ISSUE HAS BEEN SENT BACK TO THE FILE OF ASSESSING OFFICER. 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 19. WE HAVE HEARD THE RIVA L CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD BOOKED AN EXPENDITURE TO THE TUNE OF RS.76,05,931 / - AS EDP SERVICE CHARGES PAID TO ALFA LAVAL LUND, SWEDEN. THE SAID CHARGES WERE PAID TO THE PRINCIPAL COMPANY FOR PROVIDING VARIOUS SERVICES RELATING TO INFORMATION TECHNOLOGY TO ALL THE GROUP COMPANIES IN ALFA LAVAL GROUP. THE SHARE WAS ALLOCATED BY THE CENTRAL IT GROUP ON ACCOUNT OF INFORMATION TECHNOLOGY RELATED COST INCURRED BY THE GROUP AND ALSO ON ACCOUNT OF M AINTENANCE OF CENTRAL MAIL SERVERS, MAINTENANCE OF ALFA LAVAL INTERNET AND ALLOCATION COST INCURRED FOR EVALUATING VARIOUS IT SOLUTION TRIALS, IT INITIATES, ETC. ALLOCATION COST INCURRED FOR EVALUATING VARIOUS IT SOLUTION TRIALS, IT INITIATES, ETC. THE ASSESSING OFFICER HAD IN THE DRAFT ASSESSMENT ORDER PROPOSED DISALLOWANCE SINCE AS PER TH E DETAILS, HE WAS OF THE VIEW THAT THE SAME WAS FOR ACQUISITION AND USE OF SOFTWARE. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER PROPOSED TO ALLOW DEPRECIATION @ 30% . HOWEVER, THE DRP HELD THAT THE SAID EXPENDITURE HAD NOT RESULTED IN OWNING OR A CQUIRING OF ANY TANGIBLE OR INTANGIBLE ASSETS, THEN HELD THAT THE SAME EXPENDITURE IS NOT TO BE ALLOWED IN THE HANDS OF ASSESSEE AND THE DEPRECIATION PROPOSED TO BE ALLOWED IN THE DRAFT ASSESSMENT ORDER WAS DIRECTED TO BE WITHDRAWN. THE ASSESSEE HAS FILED AN APPEAL BEFORE US AGAINST THE SAID DIRECTIONS, WHICH HAVE BEEN INCORPORATED BY THE ASSESSING OFFICER. ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 10 20. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09 IN ITA NO. 85/PN/2013 , VIDE ORDER DATED 30.08.2013 WAS ABR EAST OF SIMILAR ISSUE OF PAYMENT OF EDP SERVICE CHARGES AND THE ISSUE WAS SENT BACK TO THE ASSESSING OFFICER TO LOOK INTO THE NATURE OF EXPENDITURE AND WHETHER THE SAME WAS MADE FOR USAGE OF SERVICES OR FOR ACQUISITION OF ANY ASSETS OF ENDURING NATURE. FOLLOW ING THE SAID RATIO, WE REMIT THIS ISSUE ALSO BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL DECIDE WHETHER THE EXPENDITURE HAS BEEN INCURRED FOR USAGE OF SERVICES PROVIDED BY CENTRAL IT GROUP AND NOT FOR ACQUISITION OF ANY ASSET OF ENDURING NATURE AND AF TER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, DECIDE THE SAME IN ACCORDANCE WITH LAW IN LINE WITH THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 . THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 2 1. THE ISSUE VIDE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS AGAINST NO N ALLOWANCE OF INCREMENTAL DEPRECIATION OF RS.36,20,033/ - . NO N ALLOWANCE OF INCREMENTAL DEPRECIATION OF RS.36,20,033/ - . 22. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER WAS OF THE VIEW THAT INCREMENTAL DEPRECIATION OF RS.36,20,033 / - AS PER THE DETAILS TABULATED AT PAGE 9 OF THE DRAFT ASSESSMENT ORDER IS TO BE ALLOWED TO THE ASSESSEE COMPANY NOTWITHSTANDING ANY REMEDIAL MEASURE AVAILABLE TO THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER WHILE PASSING FINAL ASSESSMENT ORDER UNDER SECT ION 143(3) R.W.S. 144C OF THE ACT , DATED 25.10.2010 HAS NOTED THAT THE ASSESSEE HAS CLAIMED INCREMENTAL DEPRECIATION OF RS.36,20,033/ - , BUT FAILED TO DEDUCT THE SAME OUT OF INCOME FROM BUSINESS IN THE FINAL COMPUTATION OF INCOME. 23. THE CLAIM OF THE AS SESSEE BEFORE US WAS THAT DEPRECIATION ON WDV OF EDP , DEPRECIATION ON TECHNICAL KNOW - HOW HAS BEEN ALLOWED IN THE INITIAL YEARS ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 11 BUT ONLY IN THE YEAR UNDER CONSIDERATION, THE SAME HAS BEEN DISALLOWED. THOUGH THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORD ER HAD ALLOWED THE SAID CLAIM OF ASSESSEE, WE FIND MERIT IN THE PLEA OF ASSESSEE AND ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF ASSESSEE IN CASE DEPRECIATION ON WDV OF EDP AND TECHNICAL KNOW - HOW SERVICES IS BEING ALLOWED FROM YEA R TO YEAR, THE SAME IS ALLOWED ON THE WDV OF SAID ASSETS VALUE. THE ASSESSEE SHALL FURNISH THE REQUISITE DETAILS BEFORE THE ASSESSING OFFICER, WHO SHALL VERIFY THE SAME AND ALLOW ADDITIONAL DEPRECIATION IN ACCORDANCE WITH LAW AFTER AFFORDING REASONABLE OP PORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 24. THE ISSUE IN GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS AGAINST TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF AS SESSEE TO THE TUNE OF RS. 70,28,235/ - ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF PAYMENT OF PURCHASE FEES TO ALFA LAVAL TUMBA FOR ACTING AS A CENTRAL PAYMENT OF PURCHASE FEES TO ALFA LAVAL TUMBA FOR ACTING AS A CENTRAL PURCHASING ORGANIZATION (CPO) . 25. BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE THA T, THE ASSESSING OFFICER HAD MADE REFERENCE UNDER SECTION 92CA OF THE ACT FOR COMPUTATION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE TPO NOTED THAT THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS W ITH ITS PARENT COMPANY. THE ASSESSEE FURNISHED DETAILED SUBMISSIONS TO JUSTIFY THE ARM'S LENGTH PRICE IN RESPECT OF VARIOUS INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT. AFTER THE PERUSAL OF DETAILS, DOCUMENTS AND INFORMATION FILED BY THE ASSESSEE, THE TPO NOTED THAT IN RESPECT OF ONE OF THE INTERNATIONAL TRANSACTIONS, WHICH RELATED TO PAYMENT OF PURCHASE FEES, THE CONCLUSION ARRIVED AT BY THE ASSESSEE IN RESPECT OF ARM'S LENGTH PRICE OF THE SAID TRANSACTIONS, WAS NOT ACCEPTED AND ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 12 CONSEQUENTLY, SHOW CAUS E NOTICE WAS ISSUED TO THE ASSESSEE. THE ASSESSEE HAD PAID SUM OF RS. 70,28,235/ - TO ITS PARENT COMPANY TOWARDS PURCHASE FEES. THE ASSESSEE HAD BENCHMARKED THE SAID TRANSACTION BY APPLYING TNMM METHOD. THE ASSESSEE EXPLAINED THAT THE SAID AMOUNT WAS PAID TO ALFA LAVAL TUMBA I.E. THE CENTRAL PURCHASE ORGANIZATION OF ALFA LAVAL TUMBA, SWEDEN , WHO WAS INCHARGE FOR IDENTIFYING AND DEVELOPING VENDORS, WHO W ERE CAPABLE OF SUPPLYING VARIOUS CRITICAL MATERIALS USED FOR PRODUCTION BY VARIOUS ALFA LAVAL COMPANIES GLOBALLY AND ALSO TO NEGOTIATE WITH THE SUPPLIERS AT THE GROUP LEVEL ON P RICES OF SUCH CRITICAL ITEMS. THE RATES WERE CENTRALLY NEGOTIATED AND AGAINST WHICH, THE PURCHASES WERE DONE BY THE CONCERNED ALFA LAVAL COMPANY DIRECTLY FROM THE SUPPLIER AND THE CE NTRAL PURCHASE ORGANIZATION HAD NO ROLE TO PLAY IN THE ACTUAL BUYING PROCESS. HOWEVER, INFORMATION FROM TIME TO TIME WAS DISTRIBUTED ON PRICE TRENDS OF VARIOUS TYPES OF METALS WHICH WERE USED BY THE LOCAL ALFA LAVAL COMPANIES FOR NEGOTIATIONS WITH LOCAL S UPPLIERS. BECAUSE OF THIS, THE METHODOLOGY WAS EVALUATED IN ORDER TO COMPUTE EACH COMPANYS SHARE ON THE METHODOLOGY WAS EVALUATED IN ORDER TO COMPUTE EACH COMPANYS SHARE ON THE BASIS OF RATIO OF ESTIMATED PURCHASES TO BE MADE BY EACH COMPANY TO THE TOTAL ESTIMATED PURCHASE OF THE PURCHASES OF ALL THE GROUP ENTITIES ON A COMBI NED BASIS. THE TPO ASKED THE ASSESSEE TO FURNISH EVIDENCE WITH REGARD TO THE BASIS FOR MAKING PAYMENT AND ALSO THE EVIDENCE OF RECEIPT OF SERVICES BY THE ASSESSEE, ETC. SINCE THE ASSESSEE HAD NOT FURNISHED ANY INFORMATION, THE TPO WAS OF THE VIEW THAT TH E ASSESSEE HAD NOT RECEIVED ANY BENEFIT OF PURCHASE FEES AND HENCE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WAS PROPOSED TO BE TAKEN AT NIL WARRANTING ADJUSTMENT OF RS. 70,28,235/ - . IN REPLY, THE ASSESSEE CLAIMED THAT THE SAID PAYMENT WAS MADE TO T HE PARENT COMPANY IN CONSIDERATI ON OF CERTAIN CRITICAL PURCHASE FUNCTIONS PERFO R MED BY PARENT COMPANY ON BEHALF OF ALFA LAVAL GROUP UNDER THE GLOBAL PURCHASE ARRANGEMENT. THE FEES WAS PAID TO THE SAID COMPANY FOR PERFORMING SUCH FUNCTIONS AND HAD ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 13 BEEN AGG REGATED WITH SEVERAL INTERNATIONAL TRANSACTIONS OF THE RELEVANT SCHEMES FOR THE PURPOSE OF DEMONSTRATING ARM'S LENGTH STANDARD BY APPLYING TNMM METHOD. THE ASSESSEE STATED THAT IT WAS NOT POSSIBLE TO SEPARATELY BENCHMARK THESE PURCHASE FEES TRANSACTIONS I N VIEW OF THE RELEVANT COMPARABLE DATA USED. THE ASSESSEE ALSO FILED COPY OF AGREEMENT ALONG WITH BASIS FOR ALLOCATIO N, QUANTUM OF BENEFIT, ETC. BEFORE THE TPO. HOWEVER, THE TPO REJECTED THE CONTENTION OF ASSESSEE AND STATED THAT THE METHOD ADOPTED WOULD BE CUP. IT WAS FURTHER OBSERVED BY THE TPO THAT HAVING MADE SUCH PAYMENTS TOWARDS PURCHASE FEES, THE ASSESSEE COULD NOT DEMONSTRATE WITH EITHER FACTS OR WITH FIGURES OR ANY OTHER EVIDENCE THAT IT ACTUALLY RECEIVED ANY SERVICES OR BENEFITS. IN THIS BACKG ROUND, THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WAS PROPOSED TO BE DETERMINED AT NIL. THE CLAIM OF ASSESSEE THAT THE TRANSACTIONS SHOULD BE AGGREGATED WITH OTHER INTERNATIONAL TRANSACTIONS AND BENCHMARK UNDER TNMM METHOD, WAS NOT ACCEPTED AND ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS RELATING TO PAYMENT OF PURCHASE FEES WAS DETERMINED AT NIL AND AN TRANSACTIONS RELATING TO PAYMENT OF PURCHASE FEES WAS DETERMINED AT NIL AND AN ADJUSTMENT OF RS.70,28,235/ - WAS MADE TO THE VALUE OF INTERNATIONAL TRANSACTIONS IN ORDER TO ARRIVE AT ARM'S LENGTH PRICE OF INTERNATIONAL TR ANSACTIONS. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER PROPOSED THE SAID ADDITION, OBJECTIONS AGAINST WHICH, WERE DISMISSED BY THE DRP AND THE ASSESSING OFFICER IN THE FINAL ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT MADE AN ADDITIO N OF RS. 70,28,235/ - , AGAINST WHICH THE ASSESSEE IS IN APPEAL. 26. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SOURCING OF COMPONENTS IS UNDER THE SUPERVISION OF PARENT COMPANY AND COSTS ARE INCURRED ON VISITS OF ENGINEERS SOURC ING AT, ETC. AS AGAINST PURCHASE S TO THE TUNE OF RS. 32 CORES , T HE ASSESSEE HAD INCURRED EXPENDITURE OF RS.70,28,235/ - BEING PURCHASE FEES. THE ASSESSEE HAD INCLUDED THE SAME IN INTERNATIONAL ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 14 TRANSACTION IN ITS TP STUDY. THE CLAIM OF THE ASSESSEE WAS NOT ALLOWED IN THE ABSENCE OF ANY WRITTEN AGREEMENT WITH THE PARENT COMPANY. THOUGH THE APPLICATION OF TNMM METHOD HAS BEEN ACCEPTED BY TPO IN THE EARLIER AND SUBSEQUENT YEARS AND NO ADDITION HAS BEEN MADE ON THIS COUNT. HOWEVER, IN THE YEAR UNDER CONSIDERAT ION , THE ARM'S LENGTH PRICE OF SAID INTERNATIONAL TRANSACTIONS IS TAKEN TO BE AT NIL S INCE AS PER THE AUTHORITIES BELOW , AS THERE WA S NO PROOF OF SERVICES RENDERED. OUR ATTENTION WAS DRAWN TO PAGE 25 OF THE PAPER BOOK, WHERE LIST OF COMPANIES FROM WHOM PU RCHASES TO THE TUNE OF RS.75.5 0 CRORES WA S MADE, IS ENLISTED AND ALL THESE COMPANIES ARE NON - ALFA LAVAL COMPANIES. OUT OF WHICH, COMMISSION ON PURCHASES TO THE TUNE OF RS.32 CRORES HAS BEEN MADE. FURTHER, THE LIST OF PERSONNEL OF PARENT COMPANY VISITED I S PLACE AT PAGE 26 OF THE PAPER BOOK. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT ESTIMATED COST OF EXPENDITURE WAS ABOUT RS.2.26 CRORES AS AGAINST THE EXPENDITURE BOOKED AT RS. 70,28,235/ - . OUR ATTENTION WAS DRAWN TO THE COPIES OF AGREEMENT WITH DIFFERENT VENDORS, OUR ATTENTION WAS DRAWN TO THE COPIES OF AGREEMENT WITH DIFFERENT VENDORS, WHICH ARE PLACED AT PAGES 56 TO 81 OF PAPER BOOK. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE COPIES OF ORDERS OF TPO FOR ASSESSMENT YEARS 2005 - 06 A ND 2007 - 08 ARE PLACED ON RECORD, IN WHICH INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES ARE TABULATED, WHICH INCLUD E THE PAYMENT OF PURCHASE FEES AS ONE OF THE TRANSACTIONS AND NO ESTIMATION HAS BEEN MADE ON ACCOUNT OF THE SAID TRANSACTION IN THE HANDS OF ASSESSEE IN ASSESSMENT YEARS 2005 - 06 AND 2007 - 08. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT SIMILAR PAYMENT WAS MADE IN ASSESSMENT YEAR 2008 - 09 , WHICH WAS ACCEPTED BY THE TPO A ND THE TRIBUNAL WHILE DECIDING TP ADJUSTMENT HAD REFERRED TO THE SAID DETAILS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT FOLLOWING THE RULE OF CONSISTENCY, NO ADJUSTMENT IS ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 15 WARRANTED IN THE HANDS OF ASSESSEE. HE FURTHER POINTED OUT THAT THERE IS NO NECESSITY OF AN AGREEMENT BETWEEN THE PARTIES FOR ALLOWING EXPENDITURE AS HELD BY THE HONBLE PATNA HIGH COURT IN JAMSHEDPUR MOTOR ACCESSORIES STORES VS. CIT (1974) 95 ITR 664 (PAT) . OUR ATTENTION WAS FURTHER DRAWN TO E - MAILS EXCHANG ED BETWEEN THE PARTIES, COPIES OF WHICH ARE PLACED AT PAGES 33 TO 49 OF THE PAPER BOOK. 27. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE REFERRING TO THE ORDER OF TPO AND SHOW CAUSE NOTICE ISSUED BY THE TPO POINTED OUT THAT NO DOCUMENTARY EVI DENCE TO ESTABLISH THE BENEFITS ACCRUING TO THE ASSESSEE HAD BEEN FILED AND IN THE ABSENCE OF THE AGREEMENT, VALUE OF SAID EXPENDITURE IS HELD TO BE NIL AND HENCE, NOT AT ARM'S LENGTH PRICE AND ADJUSTMENT HAS BEEN MADE AT RS. 70,28,235/ - . 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS ENGAGED IN MANUFACTURING OF SOPHISTICATED PRODUCTS. THE ASSESSEE CLAIMS THAT IN ORDER TO MANUFACTURE THE SAID SOPHISTICATED PRODUCTS, IT REQUIRES SOPHISTICATED RAW MATERIALS AND COMPONENTS . ALL THE ALFA LAVAL MANUFACTURING ENTITIES IN THE GROUP WERE MANUFACTURING SIMILAR PRODUCTS AND IN ORDER TO ENSURE PERFORMANCE CONSISTENCY OF THE FINAL PRODUCTS MANUFACTURED BY THE GROUP ACROSS THE GLOBE, THE CENTRAL PURCHASING GROUP WAS FORMED. THE FUNCT IONS OF SAID CENTRAL PURCHASING GROUP INCLUDED IDENTIFICATION OF VENDORS, COMMUNICATION OF TECHNICAL INFORMATION TO THE VENDORS , LIAISON WITH THE VENDORS TO DEVELOP THE PRODUCTS AS PER SPECIFIC PARAMETERS, TESTING Q UALITY SPECIFICATIONS OF VENDOR , FINALIZI NG TERMS AND CONDITIONS WITH THE THIRD PARTY VENDORS, CONDUCTING PERIODIC AUDIT AND REVIEW TO ENSURE THAT THE PRODUCTS MET THE QUALITY NORMS OF ALFA LAVAL GROUP, CREATING DATA BASE CONTAINING THE DETAILS OF VENDORS. ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 16 THE GROUP COMPANIES WHO AVAILED SERVICE S FROM THE CENTRAL PURCHASING GROUP BENEFITED FROM THE COLLECTIVE BARGAINING POWER OF GROUP AND THERE WAS NO NEED TO HAVE ANY PURCHASING TEAM FOR OVERSEAS PURCHASES, IN TURN, SAVING THE SALARY COST AND OTHER RELATED OVERHEADS. FURTHER, THE BENEFITS ALSO W ERE IN TERMS OF CUSTOMER S CONFIDENCE FOR THE QUALITY PRODUCTS SUPPLIED BY EACH OF THE ENTITIES OF ALFA LAVAL GROUP. THE SUPPLY OF CRITICAL QUALITY RAW MATERIALS AND COMPONENTS FROM DIFFERENT VENDORS WERE DEVELOP ED BY THE CENTRAL PURCHASING GROUP, WHICH IN TURN, EFFECTED THROUGH THE QUALITY OF FINAL PR ODUCTS BEING MANUFACTURED BY THE COMPANIES OF ALFA LAVAL GROUP. IN THIS REGARD, SERIES OF SERVICES WERE RENDERED BY CENTRAL PURCHASING ORGANIZATION AND ALL THESE SERVICES WERE AGGREGATED AND BENCHMARKED BY TH E ASSESSEE TO BE AT ARM'S LENGTH PRICE BY APPLYING TNMM METHOD. THE TPO WHILE ANALYZING THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS PARENT COMPANY NOTED THAT ALL THE OTHER TRANSACTIONS WERE AT ARM'S LENGTH PRICE EXCEPT INTERNATION AL TRANSACTION OF PAYMENT FOR SERVICES RENDERED TO THE TUNE OF RS.70,28,235/ - . ADMITTEDLY, THERE WAS AN UNDERSTANDING RENDERED TO THE TUNE OF RS.70,28,235/ - . ADMITTEDLY, THERE WAS AN UNDERSTANDING BETWEEN THE ASSESSEE AND ITS GROUP COMPANY AND ALSO BY THE OTHER CONCERNS OF ALFA LAVAL GROUP TO AVAIL THE SERVICES OF THE GROUP COMPANY IN ORDER TO UNIFORMLY IDENTIFY THE VENDORS AND LIAISON WITH THEM AND TEST THE QUALITY, SPECIFICATIONS AND ALSO NEGOTIATE AND FINALIZE THE TERMS AND CONDITIONS WITH SUCH VENDORS AS PER THE REQUIREMENT OF GROUP. FURTHER, PERIOD QUALITY AUDIT WAS ALSO CONDUC TED BY THE GROUP COMPANIES FOR ALL THESE SERVICES PROVIDED . THE GROUP COMPANY I.E. ALFA LAVAL TUMBA HAD QUARTERLY RAISED INVOICES DURING THE YEAR TOTALING RS.70,28,235/ - . THE COPIES OF THE SAID INVOICES HAVE BEEN PLACED ON RECORD. THE ASSESSEE CLAIMS TH AT THE SAID INVOICES WERE RELATABLE TO PURCHASES OF ABOUT RS. 3 2 CRORES AS AGAINST TOTAL PURCHASES OF RS. 72 CRORES . THE STAND OF THE TPO IN HOLDING THE SAID TRANSACTION TO BE AT NIL VALUE WAS THAT THE ASSESSEE HAD ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 17 FAILED TO DEMONSTRATE THAT IT HAD ACTUALLY RECEIVED ANY SERVICES OR BENEFITS FROM THE GROUP COMPANY. 29. THE MANNER IN WHICH A GROUP COMPANY WORKS AND BEARS RESPONSIBILITY OF MAKING CERTAIN PAYMENTS IS TO BE SEEN FROM THE POINT OF VIEW OF THE SAID CONCERN. FIRST OF ALL, FOR EACH AND EVERY EXPE NDITURE TO BE INCURRED BY A CONCERN, THERE IS NO NECESSITY OF AN AGREEMENT BETWEEN THE PARTIES THOUGH THE AGREEMENT, IF ENTERED INTO BETWEEN THE PARTIES ESTABLISHES THE CASE OF PERSON CLAIMING TO BE PARTY TO THE SAID AGREEMENT. HOWEVER, MERELY BE CAUSE NO SUCH AGREEMENT HAS BEEN ENTERED INTO, DOES NOT MERIT THE DISALLOWANCE OF EXPENDITURE PERSE. ADMITTEDLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN SOME SOPHISTICATED TYPE OF EQUIPMENT FOR WHICH, IT WAS MAKING IMPORTS OF RAW MATERIAL FRO M OUTSIDE INDIA. THE ALFA LAVAL GROUP HAD WORLDWIDE BUSINESS AND IN ORDER TO MAINTAIN THE QUALITY OF PRODUCTS MANUFACTURED WORL DWIDE, THERE WAS AN ARRANGEMENT INTERESE THE ALFA LAVAL GROUP, WHERE THE WORL DWIDE, THERE WAS AN ARRANGEMENT INTERESE THE ALFA LAVAL GROUP, WHERE THE GROUP COMPANY WAS ENTRUSTED WITH CERTAIN FUNCTIONS OF I DENTIFYING VENDORS OF CERTAIN PRODUCTS FROM DIFFERENT PERSONS WORLDWIDE. THE REQUIREMENT OF ALFA LAVAL GROUP WAS TAKEN CARE OF BY WAY OF THIS ARRANGEMENT, UNDER WHICH NOT ONLY THE VENDORS WERE IDENTIFIED BUT EVEN THE TECHNICAL QUALIFICATIONS OF PRODUCTS W ERE LIA I S ONED WITH AND THEN THE SAID PRODUCTS WERE TESTED AND THE TERMS AND CONDITIONS WITH THE THIRD PARTY VENDORS WERE FINALIZED. BESIDE THESE FUNCTIONS, THERE WAS AN OVERALL INSPECTION CONDUCTED BY THE GROUP COMPANY PERIODICALLY IN ORDER TO TEST THAT T HE PRODUCTS MANUFACTURED MET THE QUALITY NORMS OF ALFA LAVAL GROUP. IN THIS REGARD, THERE WAS AN UNDERSTANDING OF PAYMENT OF CERTAIN AMOUNT TO THE GROUP COMPANY, WHICH IN THE YEAR UNDER CONSIDERATION WAS TO THE TUNE OF RS.70,28,235/ - . IT MAY BE MENTIONED HEREIN THAT THIS PAYMENT IS BEING MADE BY THE ASSESSEE TO THE SAID GROUP COMPANY FROM YEAR TO YEAR . I N ASSESSMENT YEAR ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 18 2005 - 06 , THE ASSESSEE HAD PAID SUM OF RS.28.75 LAKHS , IN ASSESSMENT YEAR 2007 - 08 RS. 133.54 LAKHS, IN ASSESSMENT YEAR 2008 - 09 RS.141.25 LAKHS . I N ALL THESE YEARS THE INTERNATIONAL TRANSACTION S OF THE ASSESSEE WERE ACCEPTED BY THE TPO TO BE AT ARM'S LENGTH PRICE AND THE COPIES OF ASSESSMENT ORDERS ARE PLACED ON RECORD. HOWEVER, IN THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2006 - 07 , WHERE THE ASSESSEE HAS PAID RS.70.28 LAKHS, THE SAME WAS REJECTED. FOLLOWING THE RULE OF CONSISTENCY, THE SAID AMOUNT MERITS TO BE ALLOWED IN THE HANDS OF ASSESSEE IN THE YEAR UNDER CONSIDERATION ALSO. FURTHER, THE ASSESSEE HAS PLACED ON RECORD EVIDENCE IN THE FORM OF CONTRACTS ENTERED INTO WITH DIFFERENT PARTIES FOR MAKING THE AFORESAID PURCHASES AND HAS ALSO GIVEN EVIDENCE IN THE FORM OF E - MAILS, DETAILS OF VISITS OF PERSONNEL AND OTHER DOCUMENTS TO ESTABLISH THAT THE SERVICES HAVE BEEN RECEIVED FROM T HE PARENT COMPANY AND IN THE FACE OF THIS EVIDENCE, IT IS NOT OPEN TO THE TPO AND DRP TO REJECT THE CLAIM OF ASSESSEE IN A SUMMARY MANNER. THE ASSESSEES SHARE OF CONTRIBUTION IS A CONTRIBUTION AND IS AT ARM'S LENGTH TO THE COST AND THERE IS NO OBJECTIVE WAY IN CONTRIBUTION AND IS AT ARM'S LENGTH TO THE COST AND THERE IS NO OBJECTIVE WAY IN WHICH SUCH SERVICES COULD BE MEASURED. THE SAID PROPOSITION WAS LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN DRESSER - RAND INDIA (P.) LTD. VS. ADDL.CIT (2012) 13 ITR (TRIB) 422 . IT IS PREROGATIVE OF THE ASSESSEE TO ENTER INTO A TRANSACTION OR NOT A ND AS PER LAW, THE QUANTUM OF EXPENDITURE CAN NO DOUBT EXAMINE D BY THE TPO, BUT HE HAS NO AUTHORITY TO STEAL THE ENTIRE EXPENDITURE IN A SUMMARY MANNER . ACCORDINGLY, WE REVERSE THE ORDER OF ASSESSING OFFICER AND HOLD THAT THE INTERNATIONAL TRANSACTION OF PAYMENT OF PURCHASE FEES TO ALFA LAVAL TUMBA, SWEDEN FOR ACTING AS CENTRAL PURCHASING ORGANIZATION IS AS PER THE ARRANGEMENT OF ASSESSEE WITH ITS PARENT COMPANY IN LINE WITH FUNCTIONS PERFORMED BY THE PARENT COMPANY AND BENEFITS RECEIVED BY THE ASSESSEE AN D THERE IS NO MERIT IN THE TRANSFER PRICING ADJUSTMENT MADE IN THIS REGARD. REVERSING THE ORDER OF ASSESSING OFFICER, WE DELETE THE ADDITION OF ITA NO. 1 457 /PN/201 0 ALFA LAVAL INDIA LTD. 19 RS.70,28,235 / - . THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS THUS, ALLOWED. THE GROUNDS OF APPEAL RAIS ED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 30 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 21 ST D AY OF MARCH , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 21 ST MARCH , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - I, PUNE ; 3. ( ) / THE CIT (A) - I, PUNE ; 4. / THE CIT (CENTRAL), PUNE ; 5. , , / DR B , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE