M/S Bobst India Pvt Ltd., Pune V. DCIT, Pune

ITA 1464/PUN/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93782 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-04-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 05-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Transfer pricing; Business expenditure; International transaction; Advance ruling; Wholly owned subsidiary; Tangible material; Difference of opinion
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1464/PN/2012 (ASSESSMENT YEAR : 2002-03) M/S. BOBST INDIA PRIVATE LIMITED, PLOT NO.82, 126-132, VILLAGE KASAR AMBOLI, POST : AMBADVET, GHOTAVADE ROAD, TAL : MULSHI, DIST : PUNE 412 108 .. APPELLANT PAN NO.AAACB7295F VS. DCIT, CIRCLE-1(1), PUNE .. RESPONDENT APPELLANT BY : SHRI RAJENDRA AGIWAL DEPARTMENT BY : SHRI B.C. MALAKAR DATE OF HEARING : 29-04-2015 DATE OF PRONOUNCEMENT : 29-05-2015 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 23-12-2011 OF THE CIT(A)-I, PUNE RELATING TO ASSE SSMENT YEAR 2002-03. 2. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, BOBST INDIA PRIVATE LIMITED ('APPELLANT')RESPECTFULLY CRAVES LEAVE TO PRE FER AN APPEAL AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME T AX APPEALS -1 [CIT(A)] UNDER SECTION 250 OF INCOME-TAX ACT, 196 1 ('THE ACT') DATED 23 DECEMBER 2011 RECEIVED BY BOBST INDIA ON 10 MAY 2012 ON THE FOLLOWING GROUNDS: ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LA W, THE HON'BLE CIT(A): 1. GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT OF RS 35,44,063 ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT M ADE BY THE LEARNED ASSESSING OFFICER ('AO') AND THE LEARNED TRANSFE R PRICING OFFICER ('TPO') TO THE INTERNATIONAL TRANSACTIONS OF THE APPE LLANT. 2 2. ERRED IN CONSIDERING THE ARM'S LENGTH PRICE OF RECOVERY MADE BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISE TOW ARDS RENDERING MARKETING SUPPORT SERVICES AS RS 1,11,02, 491 INSTEAD OF RS 1,01,33,420 ERRED BY NOT ACCEPTING THE ARM'S LENGTH PRICE OF THE RECOVERY MADE BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISES TOWARDS MA RKETING SUPPORT SERVICES AMOUNTING TO RS 1,01,33,420 AND CONSEQU ENTLY INCREASING THE SAME BY AN AMOUNT OF RS 9,69,071. 3. ERRED IN APPLYING A MARK-UP OF 8% ON THE INDIRE CT EXPENSES AMOUNTING TO RS 8,97,289 EVEN THOUGH THE SAME DID NOT PERTAIN TO THE AGENCY BUSINESS OF THE APPELLANT ERRED IN HOLDING THAT INDIRECT EXPENSES AMOUNTING TO RS 8,97,289 INCURRED BY THE APPELLANT ARE ATTRIBUTABLE TO THE A GENCY BUSINESS AND HENCE THE APPELLANT SHOULD HAVE RECOVERED SAID EXPENSE S ALONG WITH A MARK-UP OF 8% FROM ITS ASSOCIATED ENTERPRISE. 4. ERRED IN CONSIDERING THE ARM'S LENGTH PRICE OF TECHNICIAN FEES PAID BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE AS NIL INSTEAD OF RS 25,74,992 ERRED BY NOT ACCEPTING THE ARM'S LENGTH PRICE OF TEC HNICIAN FEES PAID BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE AND CONSID ERING THE SAME TO BE NIL AS AGAINST RS 25,74,992 5. NON CONSIDERATION OF THE INVOICES/OTHER DETAILS SUBMITTED BY THE APPELLANT AND SUBMISSION FILED BY THE APPELLANT DATED 8 DECEMBER 2011 IN RESPONSE TO THE REMAND REPORT ERRED IN NOT CONSIDERING THE INVOICES, FIELD SERVICES R EPORTS, MINUTES OF DISCUSSIONS AND THE SUBMISSION DATED 8 DECEMBER 2011 FILE D BY THE APPELLANT IN RESPONSE TO THE REMAND REPORT PREPARED A ND SUBMITTED BY THE TPO (HANDED OVER BY THE CIT(A) TO THE APPELL ANT). 6. PENALTY PROCEEDINGS INITIATED UNDER SECTION 271( 1)(C) OF THE ACT BASED ON THE TRANSFER PRICING ADJUSTMENT TO THE INCOME OF APPELLANT NOT DROPPED. ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE BY NOT DROPPING THE PENALTY PROCEEDINGS INITIATED BY THE LEARNED AO U/S. 271(1)(C) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT, ADJUSTMEN T TO TRANSFER PRICE IS JUST ON ACCOUNT OF DIFFERENCE OF OPINION AS TO THE COMPUTATION OF ARMS LENGTH PRICE DETERMINED BY THE LEARNED TPO VIS --VIS ARMS LENGTH PRICE DETERMINED BY THE APPELLANT. 3. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSES SEE DID NOT PRESS GROUNDS OF APPEAL NO.2, 3, & 6 FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDING LY, THE ABOVE GROUNDS ARE DISMISSED AS NOT PRESSED. GROUNDS OF APPEAL NO.1 BEING GENERAL IN NATURE IS DISMISSED. 3 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE C OMPANY FILED ITS RETURN OF INCOME ON 31-10-2002 DISCLOSING TOTAL INC OME OF RS.67,87,770/-. THE ASSESSING OFFICER NOTED THAT THE ASSES SEE COMPANY WAS ORIGINALLY INCORPORATED AS BOBST (INDIA) SALES AND SERVICES PRIVATE LIMITED ON 14-08-1995 UNDER THE PROVISIO NS OF THE COMPANIES ACT, 1956 AND IT CHANGED ITS NAME TO BOBST IN DIA PRIVATE LIMITED ON 10-05-2000. THE ASSESSEE COMPANY IS P ART OF THE MULTINATIONAL GROUP KNOWN BY THE NAME 'BOBST' WORLD OVER. IT'S HEADQUARTER IS SITUATED IN SWITZERLAND AND ARE FOREMOST S UPPLIER OF PRODUCTS AND SERVICES FOR THE FOLDING CARTON, CORRUGATED BOARD AND FLEXIBLE PACKAGING INDUSTRIES. BOBST SA MANUFACTURES MAINLY PRODUCTION LINES FOR THE PRINTING AND CONVERTING OF HOLDING C ARTON AND THE CORRUGATED BOARD FOR PACKAGING PRODUCTS, TOGE THER WITH ELECTRONIC EQUIPMENT FOR PRINT TO PRINT REGISTER CONTROL AN D OTHER PRODUCTS OF QUALITY ASSURANCE. THE GROUP COMPRISES OF MO RE THAN 30 AFFILIATED COMPANIES AROUND THE GLOBE. THE INDIAN SUBSIDIARY I.E. THE ASSESSEE IS ENGAGED IN MARKETING THE BOBST MACHINES AND SPARE PARTS FOR COMMISSION AS WELL AS TRADING OF BOBST MAC HINES IN INDIA, SRI LANKA AND NEPAL. BOBST INDIA PROVIDES A WIDE RA NGE OF SUPPORT SERVICES E.G. INSTALLATION, BREAKDOWN (CUSTOMER SUPP ORT SERVICES) TO CUSTOMERS ON BEHALF OF GROUP THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF BOBST' GROUP SA, ('BOBST SA'). 5. THE ASSESSING OFFICER REFERRED THE MATTER TO THE TPO U/S.92CA(1) TO DETERMINE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. 6. DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS THE TPO NOTED THAT THE COMPANY HAS PAID AN AMOUNT OF RS.25,74,99 2/- TO BOBST AS PAYMENT OF TECHNICAL FEES. ON BEING QUESTIONED B Y HIM, THE ASSESSEE SUBMITTED THAT DURING THE RELEVANT PREVIOU S YEAR THE 4 ASSESSEE HAD PAID AN AMOUNT OF RS.25,74,992/- AS TECHNIC AL FEES TO BOBST. IT WAS SUBMITTED THAT ONE OF THE ACTIVITIES OF THE ASSESSEE IS TO UNDERTAKE INSTALLATION AND COMMISSION OF MACHINES. TH IS ACTIVITY IS INDEPENDENT OF THE ACTIVITY OF AGENCY AS ENVISAG ED IN THE AGENCY AGREEMENT. THE ASSESSEE RECEIVED ITS CHARGES D IRECTLY FROM ITS CUSTOMERS. IN THIS ACTIVITY BOBST HAS NO ROLE TO PLAY . IT WAS SUBMITTED THAT DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESS EE HAD DONE INSTALLATION WORK FOR M/S. BORKAR PACKAGING PVT L TD., IN RESPECT OF MACHINE NO. MEDIA 100-A2 NO.0341 069 02 SOLD TO THEM FOR WHICH THE ASSESSEE HAD RECEIVED CONSIDERATION VIDE IN VOICE NO.BIN/SET/I/DAA DATED 09-12-1999 FOR RS.19,05,000/-. SIN CE THE SAID CUSTOMER WAS EXPERIENCING PROBLEMS IN THE PERFOR MANCE OF THE SAID MACHINE, THE ASSESSEE REFERRED THE MATTER TO BOBST WHO ARE THE SUPPLIER OF THE SAID MACHINES. IT WAS OPINED BY BO BST THAT THE PROBLEMS WERE RELATED TO THE DEFECTS/SHORTCOMINGS IN THE INSTALLATION AND HAD NOTHING TO DO WITH THE MANUFACTURING DEFECTS/SHORTCOMINGS. SINCE THE INSTALLATION WORK WAS DONE BY THE ASSESSEE, IT WAS SUBMITTED THAT IT WAS THE LEGAL DUTY OF T HE ASSESSEE TO RECTIFY THE DEFECTS/SHORTCOMINGS IN THE INST ALLATION JOB. SINCE THE ASSESSEE DID NOT HAVE THE NECESSARY TECHNICA L EXPERTISE, THEREFORE, THE ASSESSEE HAD SOUGHT HELP FROM BOBST IN TH IS REGARD. ACCORDINGLY, BOBST DEPUTED THEIR TECHNICAL EXPERTS WHO V ISITED THE SITE AND RECTIFIED THE DEFECTS IN INSTALLATION FOR WHICH THE AS SESSEE HAS PAID THE TECHNICAL FEES AMOUNTING TO RS.98,211.79. SINCE THE ASSESSEE HAD SOLVED THE PROBLEMS ON ITS OWN COST, THE S AID CUSTOMER WAS VERY HAPPY AND HE PURCHASED ONE MORE M ACHINE FROM THE ASSESSEE AND ALSO ENTRUSTED THE INSTALLATION AND COMMISSION JOB OF THE SAID MACHINE TO THE ASSESSEE WHERE BY THE ASSESSEE EARNED SIZEABLE INCOME. THE ASSESSEE ALSO RECE IVED INSTALLATION CHARGE OF RS.16,50,000/- FROM THE SAID CUSTOMER VIDE 5 INVOICE NO.BIN/01/SER/I/AVE DATED 16-03-2001. SINCE TH IS WAS THE NEW MODEL AND THE ASSESSEE HAD NO EXPERIENCE OF ERECTION, START UP AND TRAINING OF THIS MACHINE, THEREFORE, THE ASSE SSEE SOUGHT HELP FROM BOBST AND PAID CHARGES OF RS.11,56,921.74. SIMILARLY, THE ASSESSEE HAD UNDERTAKEN TO PROVIDE TO ITC LTD. INSTRUCTION AND TRAINING OF GRAVURE PRINTING UNIT WHICH IS A LEMANIC MACHINE AND WHICH WAS A NEW MACHINE IN TERMS OF TECHNOLOGY AND SPEED. THIS WAS THE FIRST MACHINE IN INDIA AND STILL THE ONLY MACHINE IN INDIA. FOR PROVIDING THE SERVICES THE ASSESSEE RECEIVED THE CONSIDERATION OF RS.17,26,460/- UNDER INVOICE NO.BIN- 01/SER/I/AAU DATED 08-01-2001. SINCE THE ASSESSEE D ID NOT HAVE THE FULL EXPERTISE, THEREFORE, THE ASSESSEE AVAILED TH E SERVICES FROM BOBST FOR WHICH BOBST HAD RAISED 3 INVOICES IN ALL AMO UNTING TO RS.13,19,859/-. 7. HOWEVER, THE TPO WAS NOT SATISFIED WITH THE ABOVE EXPLANATION GIVEN BY THE ASSESSEE AND CONSIDERED THE AR MS LENGTH PRICE OF THE TECHNICIANS PAID AT NIL AS AGAINST RS.25,74,992/ - DUE TO THE FOLLOWING REASONS : (I) THE COMPANY DID NOT REQUISITION THE SERVICES OF TE CHNICIANS, BY ISSUE OF ANY REQUEST LETTER/PURCHASE ORDER; (II) BOBST SA HAD SUPPLIED THE MACHINERIES TO THE COMP ANIES, WHOSE SITES THE TECHNICIANS HAD VISITED. (III) THE COMPANY DID NOT SUBMIT THE COPY OF INVOICE S ISSUED BY BOBST SA TO ITC LTD. AND BORKAR PACKAGING, THEREFORE , IT COULD NOT BE VERIFIED THAT WHAT ARE THE TERMS AND CONDITIONS OF TH E SALES; (IV) FROM THE INVOICES OF BOBST SA, FOR TECHNICIAN, IT IS SEEN THAT THE BOBST SA CHARGED BOBST INDIA AT CHF 103 PER HOUR. THI S AMOUNTS TO CHARGE OF RS.2,884/- PER HOUR. THE WORKING HOURS ARE CHARGED AT 100% OF THIS AMOUNT. SOME WORKING HOURS ARE CHARGED AT 12 5% OF THIS AMOUNT. SOME WORKING HOURS ARE CHARGED AT 150% OF TH IS AMOUNT. THE TRAVEL HOURS ARE CHARGED AT 100% OF THIS AMOUNT AND O THER TRAVEL HOURS ARE ALSO CHARGED AT 150% OF THIS AMOUNT PER HOUR . BOBST SA ALSO RECOVERED THE DAILY ALLOWANCE, HOTEL EXPENSES AND OTH ER TRAVELLING EXPENSES. 6 BOBST SA, SELLS THE MACHINES TO THE INDIAN CUSTOMERS DIRE CTLY, THE DETAILS OF SALES MADE BY BOBST SA DURING THE FINANCIAL YEAR ARE NOT SUBMITTED. THE RESPONSIBILITY FOR SERVICING THE WARRANT EE FOR THE MACHINES IS OF BOBST SA, BUT THE SERVICES ARE BEING REND ERED BY BOBST INDIA ON BEHALF OF BOBST SA. BOBST SA IS BEING CHARGE D RS.5,000/- FOR A SINGLE VISIT MADE BY TECHNICIAN OF BOBST INDIA. THE CO NTRAST IN CHARGING IS OBVIOUS, WHEREAS BOBST INDIA IS BEING CHARGED AT RS.2, 884/- PER HOUR, TRAVELLING, HOTEL AND DAILY ALLOWANCE ARE BEI NG CHARGED SEPARATELY, WHEREAS, BOBST SA IS PAYING ONLY RS.5,000/-, WHICH MIGHT INVOLVE VISIT OF TWO DAYS BY THE TECHNICIAN OF BOBST I NDIA. (V) THE COMPANY SUBMITTED THE COPY OF INVOICES OF RA ISED BY BOBST INDIA TO BORKAR PACKAGING AND ITC LTD. THE INVOICE TO BORKAR PACKAGING PVT. LTD., FOR SALES AND SERVICES IS OF RS.1,65 0,000/-. THIS INVOICE IS DATED 16.03.2001. ANOTHER INVOICE TO BORK AR PACKAGING PVT. LTD. IS DATED 01.08.2001, FOR RS.1,321,000/-, THIS IN VOICE IS FOR INSTALLATION OF BOBST MEDIA 45 II MACHINE. FROM THE D ETAILS OF TECHNICAL FEES PAID BY THE COMPANY, IT IS SEEN THAT, THE FOREIGN TECHNICIAN DID NOT VISIT THE BORKAR PACKAGING DURING THE INSTALLATION OF THESE MACHINES, BUT THEY VISITED DURING THE INSTALLATION OF SP102 AND MEDIA 100 MACHINES. DUE TO THIS, THE COMPANY COULD NOT ESTABLISH THAT, THE FOREIGN TECHNICIAN VISITED TO THE SITES, FOR WHICH IT RAISED INVOICES TO BORKAR PACKAGING. SIMILARLY, FOR ITC LTD., THE COMP ANY SUBMITTED THE INVOICE DATED 08.01.2001 FOR SALES AND SERVICES OF RS. 1,726,460/-. FROM THE DETAILS FILED, IT IS SEEN THAT THE FOREIGN TE CHNICIAN VISITED THE SITE OF ITC LTD. DURING MARCH 2001, SEPTEMBER 2001 A ND NOVEMBER 2001, WHICH IS SUBSEQUENT TO THE DATE OF RAISING THE IN VOICE. THEREFORE, THE RECEIPT FROM ITC LTD VIDE INVOICE DATED 08.01.2 001, DOES NOT CORRESPOND TO THE FOREIGN TECHNICIAN VISIT TO ITC LTD . SITE (VI) THE BOBST SA SUPPLIES THE MACHINES DIRECTLY TO C USTOMERS AND CONSIDERING THE CLIENT LIKE ITC LTD. AND BORKAR PACK AGING, THE BOBST SA MIGHT BE SENDING ITS TECHNICIANS TO THE CUSTOMERS, FOR TROUBLE SHOOTING AND WHICH MIGHT BE A PART OF OBLIGATION DURING WARR ANTEE PERIOD OR TO ASSURE THE CLIENT, FOR BOBST SA CONTINUED ASSISTANCE. THE COMPANY HAS FAILED TO DEMONSTRATE THAT THE SERVICE S OF TECHNICIANS OF BOBST SA, WERE REQUISITIONED BY IT FOR ITS BUSINESS AND ALSO COULD NOT PROVE THAT THEIR VISIT HAS RESULTED INTO INCOME TO THE COMPANY, FOR WHICH IT IS REQUIRED TO MAKE THE PAYMEN T. CONSIDERING THE ABOVE, THE ARMS LENGTH PRICE OF THE TECHNICIANS FEES PAID IS COMPUTED AT NIL AS AGAINST RS.2,574,992/-. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER MADE ADDITION OF RS.35,44,063/- AS PER THE ORDER OF T HE TPO WHICH INCLUDED THIS AMOUNT OF RS.25,74,992/- BEING PAYME NT OF TECHNICAL FEES. SINCE THE OTHER ISSUE IN THE ORDER OF TH E TPO RELATING TO REIMBURSEMENT TOWARDS MARKETING SUPPORT SER VICES 7 AMOUNTING TO RS.9,69,071/- IS NOT IN DISPUTE BEFORE US, THE REFORE, WE ARE NOT CONCERNED WITH THE SAME. 9. BEFORE CIT(A) THE ASSESSEE STRONGLY CHALLENGED THE ADJUSTMENT MADE BY THE TPO ON ACCOUNT OF THE TECHNICIA NS FEES. THE ASSESSEE SUBMITTED THE COPIES OF THE AGENCY AGREEM ENT BETWEEN THE ASSESSEE AND BOBST ALONG WITH EXPENDITURE DETAILS AS WELL AS INVOICES AND CORRESPONDENCES. IT WAS ARGUED THA T THE FINDING OF THE ASSESSING OFFICER REGARDING THE DISALLOWANCE OF PAYMENT FOR TECHNICAL SERVICES TO BOBST AMOUNTING TO RS.25,74,992/- WAS INCORRECT. 10. BASED ON THE VARIOUS SUBMISSIONS MADE BY THE ASSES SEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE TPO. AFTER TH E SAID REMAND REPORT HAS RECEIVED A COPY OF THE SAME WAS GIVE N TO THE ASSESSEE FOR ITS COMMENTS. AFTER CONSIDERING THE REMAND REPORT AND THE SUBMISSION OF THE ASSESSEE TO SUCH REMAND REPO RT THE LD.CIT(A) UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER B Y OBSERVING AS UNDER : 5.5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE LAW AS ARE APPARENT FROM RECORDS. IT IS AN UNDISPUTED FACT TH AT THE APPELLANT COMPANY IS THE 100% SUBSIDIARY OF BOBST S.A. SWITZERLA ND WHICH IS THE LEADING MANUFACTURER PROVIDER FOR FOLDING CARTON, C ORRUGATED BOARD AND INDUSTRIES ETC. THE APPELLANT COMPANY WAS INCORPOR ATED IN THIS BACKGROUND IN INDIA ON 14.8.1995 TO PROVIDE SALES AND SUPPORT SERVICES IN AND NEIGHBORING COUNTRIES. HOWEVER, THE ASSE SSING OFFICER/TPO NOTED WHILE EXAMINING THE PAYMENT OF RS. 25,74,992 AS FEE FOR TECHNICAL SERVICES TO THE HOLDING AE COMPANY U/S 92CA(3) THAT THE PAYMENT IS NOT ALLOWABLE AND THE ALP OF THIS CLAI MED SERVICE IS NIL, THE ASSESSING OFFICER AND THE TPO HAS NOTED IN THE RESPEC TIVE ORDERS THAT THE APPELLANT DID NOT PROVIDE THE NECESSARY EVID ENCES DURING THE COURSE OF ASSESSMENT/ TPO ANALYSIS, BY WHICH IT COULD BE H OLD THAT THE CLAIM OF THE APPELLANT FOR THE PAYMENT FOR SERVICES C OULD BE ALLOWED BY TREATING THE SAME AS ALP. THE TPO HAS SPECIFICALLY NOTED THAT THE APPELLANT HAS AGREED AS PER THE AGREEMENT ENTERED IN TO WITH THE BOBST S.A. THAT IT WILL IDENTIFY THIRD CUSTOMERS IN ITS TERR ITORY BUT THE SALES WOULD BE DIRECTLY MADEVIDE THE BOBST S.A. TO THE CU STOMERS. HOWEVER, THE INSTALLATION COMMISSIONING SERVICES ARE TO BE RECEIV ED BY THE APPELLANT COMPANY. IT HAS BEEN CLAIMED BY THE APPEL LANT THAT THE SERVICES OF TECHNICIANS WERE OBTAINED FOR PROVIDING TH E SERVICES FROM BOBST S.A, FOR WHICH THE PAYMENT HAS BEEN MADE. THE A SSESSING 8 OFFICER / TPO CALLED FOR RELEVANT DETAILS LIKE SALES I NVOICE ETC, TO VERIFY THE TERMS OF THE SALE, AS TO WHAT PART OF THE SERVICE IS THE OBLIGATION OF THE BOBST S.A. OR THE APPELLANT COMPANY AND WHAT IS T HE PERIOD OF WARRANTY, NATURE OF WARRANTY ETC. SIMILARLY WHO DEC IDES WHAT WILL BE CHARGEABLE AS INSTALLATION, COMMISSIONING ETC. AS THESE D ETAILS WERE NOT MADE AVAILABLE TO THE AO /TPO, IT WAS HELD THAT THE CLAIM OF TECHNICAL SERVICES CANNOT BE ALLOWED. SIMILARLY, THE ASSESSING OFFICER / TPO ALSO POINTED OUT THE DIFFERENCE IN THE CHARGING OF RATES ON THE APPELLANT COMPANY BY THE BOBST S.A. AND THE APPELLAN T ON THE CLIENT. THE AO /TPO ALSO POINTED OUT THE MISMATCH IN THE PERI OD OF ARRIVAL OF THE FOREIGN TECHNICIAN AND THE SERVICE BILL RAISED BY THE APPELLANT. FOR ALL THE ABOVE REASONS, THE AO /TPO HELD THE ALP FOR T HIS SERVICE AS NIL. IN THE REMAND REPORT ALSO, THE AO /TPO HAS POINTED OU T SPECIFICALLY THAT THE APPELLANT HAS NOT BROUGHT ANY NEW FACT ON R ECORD BASED ON WHICH THE INFERENCE CAN BE ALTERED. THE APPELLANT I N THE REJOINDER SUBMITTED ON THE REMAND REPORT HAS CLAIMED THAT THE F EES HELD PAYABLE BY THE TECHNICIANS OF BOBST S.A, ARE RELATING TO THE SERVICES PROVIDED TO BORKAR PACKAGING, ITC LTD. ETC. IN RESPE CT OF THE MISMATCH OF TIME FOR THE BILLS RAISED BY THE APPELLANT ON THE CLIENT AND WITH THE VISITS OF THE FOREIGN TECHNICIANS, IT HAS BEEN STATED TH AT THE BILLS RAISED ON CLIENTS IS FOR ANNUAL MAINTENANCE CONTRACT AND THE VISITS ARE AS AND WHEN REQUIRED. THE APPELLANT HAS THEREFORE, TRIED TO JUSTIFY THE BUSINESS NEXUS FOR THE ABOVE PAYMENT TO BOBST S.A. AFTE R CAREFULLY CONSIDERING THE MATERIALS AVAILABLE ON RECORD, I FIND THAT THE APPELLANT HAS NOT PROVIDED THE DETAILS NECESSARY FOR THE ISSUE IN H AND. THE ISSUE WAS WHETHER THE SERVICES RENDERED BY THE TECHNICIANS OF THE BOBST S.A, TO THE CLIENTS THE AFTER THE SALE OF THE MACHINES WER E THE OBLIGATION OF THE BOBST S.A. OR THE APPELLANT COMPANY. SIMILARLY T HE PAYMENTS RECEIVED FROM CLIENT AND THE PAYMENTS TO BOBST S.A. A RE AT ARM'S LENGTH OR NOT. THIS IS NOT A CASE, WHERE APPELLANT PUR CHASES GOODS AND SALES AS PER THEIR OWN POLICY AND DECISIONS. IT HAS TO BE UNDERSTOOD THAT THE APPELLANT AND BOBST S.A. ARE ASSOCIATE ENTERP RISES AND BOBST S.A. TO WHOM THE IMPUGNED PAYMENT HAS BEEN MADE IS TH E HOLDING COMPANY HAVING FULL CONTROL ON THE AFFAIRS OF THE AP PELLANT COMPANY. IN THAT CONTEXT, IT IS THE RESPONSIBILITY OF THE APPEL LANT THAT THE ROLES AND RESPONSIBILITIES, PRIVILEGES AND OBLIGATIONS HAVE TO BE EXPLAINED AND DEMONSTRATED TO BE BASED ON THE PRINCIPLE OF INDE PENDENCE OR ARM'S LENGTH. THE DETAILS AND EVIDENCES SUBMITTED BY TH E APPELLANT BEFORE THE AO /TPO ARE FOUND TO BE LACKING ON THIS A CCOUNT. IN VIEW OF THE ABOVE, THE CLAIM CANNOT BE ADMITTED AND THE FIN DING GIVEN BY THE AO /TPO THAT THE ALP FOR THE TECHNICAL SERVICES FEE WILL BE NIL IN THIS REGARD IS UPHELD. GROUND NO. 4 IS TREATED AS DISMISSED. T HE APPELLANT HAS RELIED ON CERTAIN DECISIONS QUOTED SUPRA IN THEIR SU BMISSIONS 8.12.2011. IT IS FOUND THAT THE ABOVE REFERRED CASES R ELATED TO CLAIM OF BUSINESS EXPENSES ON THE BASIS OF COMMERCIAL EXPEDIENCIES. THE COURTS IN THE AFORESAID CASES HAVE ONLY HELD THAT THE C OMMERCIAL DECISIONS OF ASSESSEE CANNOT BE QUESTIONED BY SITTING IN TH E ARMCHAIR OF THE ASSESSEE AS TO HOW THE BUSINESSES ARE TO BE RUN. IN T HE PRESENT CASE, THERE IS NO ISSUE OF THIS NATURE INVOLVED. THE ISSUE INVOLVED IS WHETHER THE PAYMENT MADE TO THE AE HOLDING 100% SHAR ES OF THE ASSESSEE IS AT ARM'S LENGTH OR NOT AND IF THE SAME IS NOT AT ARM'S LENGTH, THEN WHAT IS THE VALUE AT THE ARM'S LENGTH. IN THE PRESENT CASE, THE AO /TPO HAS HELD THE ALP OF THIS SERVICE AT NIL AN D I DO NOT FIND ANY MATERIALS AVAILABLE ASKING FOR ANY INTERFERENCE I N THIS FINDING. GROUND NO. 4 THEREFORE, IS DISMISSED. 9 11. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 12. THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PAGE 70 OF THE APPEAL MEMO WHICH GIVES SUMMARY OF INVOICES RAISED BY BOBST INDIA ON CUSTOMERS AND INVOICES RAISED BY BOBST ON BOBST INDIA, THE DETAILS OF WHICH ARE AS UNDER : BOBST INDIA PRIVATE LIMITED (BOBST INDIA) FOR A.Y. 2002-03 SUMMARY OF INVOICES RAISED BY BOBST INDIA ON CUSTOMERS SUMMARY OF INVOICES RAISED BY BOBST SA ON BOBST INDIA SR NO INVOICE NO INVOICE NAME OF THE PAYEE DESCRIPTION NATURE OF AMOUNT AMOUNT 1 401060 14-MAY-01 BOBST SA MACHINE NO MEDIA 100-A2 NO 0341 069 02 INSTALLATION AND COMMISSIONING OF MACHINE 3,631 98,212 2 401061 14-MAY-01 BOBST SA SP 102-BMA NO 0571 248 06 INSTALLATION AND COMMISSIONING OF MACHINE - ERECTION, START UP AND TRAINING 42,770 1,156,922 3A 334735 17-DEC-01 BOBST SA GRAVURE PRINTING UNIT (LEMANIC MACHINE) INSTRUCTION AND TRAINING IN RELATION TO LEMANIC MACHINE 16,149 1,319,859 3B 334658 17-DEC-01 BOBST SA 20,582 3C 335466 09-JAN-02 BOBST SA 8,600 TOTAL 91,732 2,574,993 SR NO INVOICE NO INVOICE NAME OF THE DESCRIPTION OF MACHINE NATURE OF SERVICE AMOUNT (RS) 1 BIN/SER/I/DAA 09-DEC-99 MS/ BORKAR PACKAGING PVT LTD MACHINE NO MEDIA 100-A2 NO 0341 069 02 INSTALLATION AND COMMISSIONING OF MACHINE 1,905,000 2 BIN-01/SER/1/AVE 16-MAR-01 MS/ BORKAR PACKAGING PVT LTD SP 102-BMA NO 0571 248 06 INSTALLATION AND COMMISSIONING OF MACHINE - ERECTION, START UP AND TRAINING 1,650,000 3 BIN-01/SER/1/AAU 08-JAN-01 ITC LTD GRAVURE PRINTING UNIT (LEMANIC MACHINE) INSTRUCTION AND TRAINING IN RELATION TO LEMANIC MACHINE 1,726,460 TOTAL 5,281,460 10 12.1 THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGES 70 TO 84 OF THE PAPER BOOK DREW THE ATTENTION OF THE BENCH TO T HE COPIES OF THE INVOICES RAISED BY BOBST ON BOBST INDIA. 12.2 HE SUBMITTED THAT THE TPO/ASSESSING OFFICER WITHOUT APPRECIATING THE PROPER FACTS HELD THAT SERVICES OF TECHN ICIANS OF BOBST FOR WHICH BOBST INDIA PAID TECHNICAL FEES WERE NOT R EQUIRED AND ACCORDINGLY CONSIDERED THE ARMS LENGTH PRICE OF TE CHNICAL FEES AT NIL WHICH HAS BEEN UPHELD BY THE CIT(A). HE SUBMITTED THAT THE ASSESSEE BOBST INDIA HAD PROPERLY GIVEN RESPONSE TO THE QUESTIONS OF THE TPO. IT HAD ALSO SUBMITTED THE COPIES OF INVOICES R AISED BY BOBST INDIA ON THIRD PARTY CUSTOMERS, COPIES OF INVOICES R AISED BY BOBST ON BOBST INDIA, FIELD SERVICE REPORT, MINUTES OF DISCUS SION WITH TECHNICIANS ETC., THE DETAILS OF WHICH ARE ENCLOSED AS PER PAGES 70 TO 84 OF THE APPEAL MEMO. WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED THAT THE QUESTIONS ASKED BY THE TP O LIKE FORMAL REQUESTS RAISED BY BOBST INDIA TO BOBST, ITINERARY OF FOREIGN TECHNICIANS WHO VISITED INDIA ETC., ARE IRRELEVANT AND ARE NOT REALLY REQUIRED IN DETERMINING THE ARMS LENGTH PRICE AND THE INTERNATIONAL TRANSACTIONS. 12.3 AS REGARDS THE ALLEGATION OF THE TPO THAT DIFFERENT RA TES PER HOUR ARE CHARGED BY BOBST TO BOBST INDIA AND THE PAY MENT OF DA, HOTEL EXPENSES AND OTHER TRAVELLING EXPENSES OF TECHNICIAN S RECOVERED FROM BOBST INDIA, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT ALL THESE THINGS ARE UNWARRANTED FOR THE TPO TO ASK FOR. HE SUBMITTED THAT ON THE BASIS OF REASONABLE PRESUMPTION AND ASSUMPTION AND IN ABSENCE OF ANY TANGIBLE MATERIAL BROUGHT ON RECORD, THE TPO MADE THE ADJUSTMENT WHICH HAS BEEN UP HELD BY THE CIT(A). SINCE BOBST INDIA WAS ENGAGED BY THIRD PARTY CUSTOMERS FOR INSTALLATION, COMMISSIONING, TRAINING ETC., AND SIN CE 11 BOBST INDIA DID NOT HAVE REQUIRED TECHNICAL EXPERTISE TO SOLVE THE PROBLEMS FACED BY THE CUSTOMER AFTER INSTALLATION OF MACHIN ES IT TOOK ASSISTANCE FROM BOBST. FURTHER, BOBST INDIA EARNED AN AMOUNT OF RS.52,81,460/- FOR RENDERING SAID SERVICES WHICH IT WOULD NOT HAVE BEEN ABLE TO EARN WITHOUT THE ASSISTANCE OF BOBST AND AFTER GIVING THE TECHNICIAN FEES THE ASSESSEE HAS EAR NED SIZEABLE PROFIT OF RS.27.06 LAKHS. 12.4 REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF HONEYWELL TURBO TECHNOLOGIES LTD. FOR A.Y. 200 6-07, A COPY OF WHICH IS PLACED AT PAGES 35 TO 42 OF THE PAPER BOOK HE SUBMITTED THAT UNDER SOMEWHAT SIMILAR CIRCUMSTANCES THE TRIBUNAL HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER/TPO TO THE ARMS LENGTH PRICE WHERE ADJUSTMENT WAS MADE WITH RESPECT TO PAYMENT OF ASSIGNMENT FEES TO THE AE. HE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. ITW INDIA LTD. VS. ACIT ITA NO.521/DEL/2013 (DELHI ITAT). 2. R.A.K. CERAMICS PVT. LTD. VS. DCIT ITA NO.1492/H YD/2014 (HYDERABAD ITAT) 3. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. VS. CIT ITA NO.475/DEL/2012 (HONBLE DELHI HIGH COURT. 13. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE H AVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. AS ME NTIONED EARLIER THE ASSESSEE DURING THE YEAR HAS RECEIVED AN AM OUNT OF RS. 52,81,460/- FROM CUSTOMERS TOWARDS INSTALLATION/COMMISSIONING OF CERTAIN MACHINERIES. SINCE IT DID NOT HAVE THE REQUISITE EXPERTISE 12 FOR INSTALLATION AND COMMISSIONING OF THESE MACHINES IT REQUIRE D THE SERVICES OF BOBST, I.E. AE WHO HAVE RAISED BILL OF RS.25,34 ,992/- ON THE ASSESSEE. IT IS THE CASE OF THE REVENUE THAT S INCE THE ASSESSEE HAS AGREED AS PER THE AGREEMENT ENTERED INT O WITH BOBST THAT IT WILL IDENTIFY THIRD PARTY CUSTOMERS IN ITS TERRITORY BUT THE SALES WOULD BE DIRECTLY MADE BY BOBST AND INSTALL MACHINES , THEREFORE, IN ABSENCE OF ANY SATISFACTORY DETAILS BY THE A SSESSEE THE RESPONSIBILITY FOR SERVICING, WARRANTEE ETC. FOR THE MACHINES IS THAT OF THE ASSESSEE AND NOT THAT OF BOBST. THEREFORE, THE TPO DETERMINED THE PAYMENT OF RS.25,74,992/- BEING FEES FOR TE CHNICAL SERVICES TO THE HOLDING AE COMPANY AS NOT ALLOWABLE. IT I S THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT HAS ALREADY FILED THE NECESSARY DETAILS WHICH SHOWS THAT THE ASSESSEE COMPANY WAS ENGAGED BY THIRD PARTY CUSTOMERS FOR INSTALLATION, COMMISSIONING, TRAINING ETC. AND SINCE IT DID NOT HAVE THE R EQUISITE MAN POWER/EXPERTISE, IT TOOK THE HELP OF BOBST FOR WHICH IT WAS REQUIRED TO PAY THE TECHNICAL FEES TO THE AE AMOUNTING T O RS.25,74,992/-. FURTHER, IT HAS ALSO EARNED SUBSTANTIAL AMO UNT SINCE AS AGAINST THE AMOUNT OF RS.52,81,460/- RECEIVED BY THE ASSESSEE FROM VARIOUS CUSTOMERS TOWARDS INSTALLATION AND COMMISSIONING OF MACHINES. IT HAS PAID ONLY AN AMOUNT OF RS.25,74,993/- TO BOBST AND IN THE PROCESS HAVE EARNED PROFIT OF RS.27,06,467/-, (I.E. RS.52,81,460 - RS.25,74,993). ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE WITHOUT AVAILING OF THE SE RVICES OF THE AE THE ASSESSEE COULD NOT HAVE MET ITS OBLIGATION AN D EARNED THE PROFIT FOR THE IMPUGNED ASSESSMENT YEAR AS WELL AS B RIGHT FUTURE FOR GETTING ORDERS FROM OTHER CUSTOMERS. 13 14.1 WE FIND MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSE L FOR THE ASSESSEE. ONE OF THE ACTIVITY OF THE ASSESSEE COMPA NY IS TO UNDERTAKE INSTALLATION AND COMMISSIONING OF MACHINE IS NOT IN DISPUTE. THE ASSESSEE IN THE INSTANT CASE HAS RECEIVED AN AMOUNT OF RS.52,81,460/- FROM VARIOUS CUSTOMERS ON ACCOUNT OF INSTALLATION AND COMMISSIONING OF MACHINES, TRAINING ETC. THE DETAILS OF WHICH ARE ALREADY GIVEN AT PARA 12 OF THE IMPUGN ED ORDER. SIMILARLY, THE ASSESSEE HAS PAID AN AMOUNT OF RS.25,74,993/- TO BOBST ON THE BASIS OF BILLS RAISED BY THEM FOR INSTALLATION OF THE AFOREMENTIONED MACHINES. THE SUBMISSION O F THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT IT DID NOT HAVE THE NECESSARY EXPERTISE/TECHNICAL PERSONS FOR THE ABOVE INST ALLATIONS HAS NOT BEEN CONTROVERTED BY THE REVENUE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD THE NECESSARY TECHNICA L SUPPORT AND DESPITE HAVING THAT IT HAD AVAILED OF THE SERVICES OF T HE AE AND IN TURN HAS PAID THE AMOUNT TO THE AE. IT IS ALSO NOT T HE CASE OF THE REVENUE THAT NO SERVICES ARE RENDERED BY AE. THE VARIOUS BILLS RAISED BY BOBST ON BOBST INDIA WERE ALREADY THERE BEFOR E THE REVENUE AUTHORITIES WHICH SHOWS THE NATURE OF SERVICES RENDERED . 14.2 WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF HONEYWELL TURBO TECHNOLOGIES LTD. VIDE ITA NO.765/PN/2012 ORDER DATED 31-12-2013 FOR A.Y. 2006-07 WHILE DELETING THE PAYM ENT OF ASSIGNMENT FEES BY HONEYWELL TURBO TECHNOLOGIES LTD. TO H TS HAS OBSERVED AS UNDER : 9. IN THIS CONTEXT, WE HAVE PERUSED THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES LTD. ( SUPRA). IN THE SAID CASE, ASSESSEE HAD ENTERED INTO AN INTERNATIONAL TRA NSACTION BY WAY OF PAYMENT OF BRAND FEE/ROYALTY TO ITS ASSOCIATED ENTERPRISE UNDER AN AGREEMENT. THE REVENUE WAS REQUIRED TO DET ERMINE THE ARMS LENGTH PRICE OF THE TRANSACTION. WHILE DOING SO , THE TPO NOTICED THAT ASSESSEE HAS BEEN INCURRING LOSSES YEAR AFTER YEAR, AN D CONSIDERING SUCH PERPETUAL LOSSES THE TPO HELD THAT THE PAYMENT OF ROYALTY DID NOT APPEAR JUSTIFIED AS THE TECHNICAL KNO WHOW/BRAND FEE 14 AGREEMENT WITH THE ASSOCIATED ENTERPRISE HAD NOT BENEF ITED THE ASSESSEE IN ACHIEVING PROFITS FROM ITS OPERATIONS. FOR TH E SAID REASON, THE TPO HELD THAT THE BRAND FEE PAYMENT MADE BY THE ASSESSEE TO THE ASSOCIATED ENTERPRISE WAS UNJUSTIFIED AND THE ARMS LENGT H PRICE OF THE TRANSACTION SHOULD BE TAKEN AS NIL. THE HONBLE HIG H COURT DISAPPROVED THE ACTION OF THE TPO, AND AFTER REFERRI NG TO THE OECDS TRANSFER PRICING GUIDELINES OBSERVED THAT THE TPO WAS E XPECTED TO EXAMINE THE INTERNATIONAL TRANSACTIONS AS HE ACTUALLY FOUND THEM. IN OUR CONSIDERED OPINION, THE AFORESAID PARITY OF REASON ING LAID DOWN BY THE HONBLE DELHI HIGH COMES INTO PLAY IN THE PRESENT FACT-SITUATION ALSO, AS OUR FOLLOWING DISCUSSION WOULD SHOW. 10. IN THE CASE BEFORE THE HONBLE DELHI HIGH COURT, THE TPO HAD APPLIED THE CUP METHOD WHILE EXAMINING THE PAYMENT OF BRAND FEE/ROYALTY, WHICH ALSO IS THE POSITION IN THE CASE BE FORE US. THE HONBLE HIGH COURT REFERRED TO THE OECDS TRANSFER P RICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMI NISTRATIONS, AND REPRODUCED PARAS 1.36 TO 1.41 OF SUCH GUIDELINES, WHIC H PROVIDE FOR RECOGNITION OF THE ACTUAL TRANSACTIONS UNDERTAKEN . THEREAFTER, THE HONBLE HIGH COURT OPINED AS UNDER :- 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES L IES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRAN SACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMI NATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED O N THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIF ICANCE THAT THE GUIDELINES DISCOURAGE RESTRUCTURING OF LEGITIMATE B USINESS TRANSACTIONS. THE REASON FOR CHARACTERISATION OF SU CH RESTRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXAT ION IF THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS T O HOW THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESAI D PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBST ANCE OF A TRANSACTION DIFFERS FROM ITS FORM; AND (II) WHERE T HE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRAN GEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEI R TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPEN DENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MAN NER. 11. FROM THE AFORESAID, IT FOLLOWS THAT THE EXAMINAT ION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON T HE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY T HE ASSOCIATED ENTERPRISES. THUS, THE TPO SHOULD NOT DISREGARD THE ACT UAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. THE TWO EXC EPTIONS WHICH HAVE BEEN PRESCRIBED ARE (I) WHERE THE ECONOMIC SUBSTA NCE DIFFERS FROM ITS FORM; AND, (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION IS THE SAME BUT ARRANGEMENTS MADE IN RELAT ION TO THE TRANSACTION, VIEWED IN ITS TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. 12. IN THIS BACKGROUND, WE HAVE PERUSED THE ORDER OF TPO DATED 30-010-2009 (SUPRA). THE TPO CONSIDERED THE TRANSACTI ON OF PAYMENT OF ASSIGNMENT FEE BY THE ASSESSEE TO HTS AS CONSIDERATION O F HAVING OBTAINED THE CONTRACT FOR SUPPLY OF TURBO CHARGES TO TATA MOTORS LTD. IN THE COURSE OF DETERMINING ITS ARMS LENGTH PRICE, T HE TPO HAS COME 15 TO A FINDING THAT THE ASSESSEE-COMPANY HAD NO CAPACITY TO PERFORM THE RIGHTS ASSIGNED TO IT IN TERMS OF THE AGREEMENT. THERE FORE, AS PER HIS PERCEPTION, THE TRANSACTION ENTERED INTO BY THE ASSESSE E WITH HTS FOR PAYMENT OF ASSIGNMENT FEE WAS VOID. IN THIS CONTEXT, T HE FOLLOWING DISCUSSION IN THE ORDER OF TPO IS RELEVANT TO PERUSE:- 'IN VIEW OF THE ABOVE, ARM'S LENGTH PRICE OF THE IN TERNATIONAL TRANSACTION RELATING TO PAYMENT OF ASSIGNMENT FEES IS CONSIDERE D AS NIL. THE ASSESSEE COMPANY HAS NO CAPACITY TO PERFORM IN TERM S OF AGREEMENT THE RIGHTS OF WHICH PURPORTEDLY BEEN ASSIGNED TO THE AS SESSEE AND, THEREFORE, IT IS CLEAR THAT THERE ARE NO ASSIGNMENT OF ANY WOR THWHILE RIGHTS WHICH EITHER HAVE BEEN ASSIGNED TO THE ASSESSEE OR WHICH HAVING BEEN ASSIGNED TO IT, THE ASSESSEE HAS THE CAPACITY TO DISCHARGE. FURTHER, FAILURE ON THE PART OF THE ASSESSEE TO BENCHMARK THE SAME LEADS TO THE INEVITABLE CONCLUSION THAT THE ARM'S LENGTH PRICE OF THE INTER NATIONAL TRANSACTION RELATING TO PAYMENT OF ASSIGNMENT FEES CAN ONLY BE TAKEN AS NIL.' 13. OSTENSIBLY, THE TPO HAS DISREGARDED THE ASSIGNMENT AG REEMENT WITH HTS AS ACCORDING TO HIM, THERE WAS NO CAPACITY ON THE PART OF THE ASSESSEE TO HAVE CARRIED OUT ITS SHARE OF FUNCTIONS ENVISAG ED IN THE ASSIGNMENT AGREEMENT. IN OUR CONSIDERED OPINION, THE TPO WAS EXPECTED TO EXAMINE THE INTERNAL TRANSACTION OF PAYM ENT OF ASSIGNMENT FEE AS HE ACTUALLY FOUND IT OR IN OTHER WOR DS, AS IT WAS TRANSACTED BETWEEN THE PARTIES; AND, THEN MAKE SUITABL E ADJUSTMENTS, IF REQUIRED IN ORDER TO DETERMINE ITS ARMS LENGTH PR ICE, BUT IT WAS IMPERMISSIBLE FOR HIM TO TREAT THE AGREEMENT AS VOID B ASED ON HIS OWN UNDERSTANDING OF THE COMMERCIAL FEASIBILITY OF TH E TRANSACTION. 14. THE HONBLE DELHI HIGH COURT HAS ALSO EMPHASISED TH AT THE EXAMINATION OF A CONTROLLED TRANSACTION SHOULD ORDINA RILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES EXCEPT IN TWO EXCEPTIONS WHIC H WE HAVE DISCUSSED ABOVE. IN THE FACTS OF THE PRESENT CASE, WE AR E UNABLE TO APPRECIATE AS TO HOW THE SAME FALLS INTO ANY OF THE AF ORESAID EXCEPTIONS. 15. AT THIS POINT, IT MAY ALSO BE RELEVANT TO OBSERVE THAT IN THE COURSE OF HEARING, IT WAS STATED BY THE APPELLANT THAT THE IMPUGNED ASSIGNMENT AGREEMENT WAS ALSO BEFORE THE AUTHORITY FOR ADVANCE RULINGS (AAR) WITH REGARD TO THE TAXABILITY OF THE A SSIGNMENT FEE IN INDIA, ON BEING APPROACHED BY HTS. THE AAR IN ITS O RDER DATED 07-10- 2005 CONCLUDED THAT NONE OF THE CLAUSES OF THE PROVISO TO SECTION 245R(2) ARE ATTRACTED IN THE PRESENT CASE. NOTABLY, ONE OF THE CLAUSES IN THE PROVISO TO SECTION 245R(2) OF THE ACT STIPULATE THAT THE TRANSACTION SHOULD NOT BE DESIGNED PRIMA-FACIE FOR AVO IDANCE OF INCOME-TAX. WE ARE ONLY POINTING OUT THIS TO SAY THA T SUCH AGREEMENT WAS NOT FOUND TO BE IN-GENUINE OR NON-BONAFIDE OR AS BEING DESIGNATED FOR AVOIDANCE OF THE TAXES BY THE AAR. TH US, THE ACTION OF THE TPO BECOMES UNTENABLE. 16. THEREFORE, CONSIDERED IN THE CONTEXT OF OECD GUI DELINES WHICH HAVE BEEN REFERRED TO BY THE HONBLE DELHI HIGH COU RT IN THE EKL APPLIANCES LTD (SUPRA), THE IMPUGNED ACTION OF THE TP O DOES NOT FIT INTO THE EXCEPTIONS WHICH WOULD EMPOWER HIM TO DISREG ARD THE ACTUAL TRANSACTION AS MANIFESTED BY THE ASSIGNMENT AGREEMENT W ITH HTS. THEREFORE, THE INFERENCE OF THE TPO TO DISREGARD TH E ASSIGNMENT AGREEMENT, IN OUR VIEW, IS BEYOND HIS JURISDICTION, WH EREBY, THE TPO OUGHT NOT TO HAVE VENTURED INTO THE COMMERCIAL RATI ONALE AND VALIDITY OF THE TRANSACTION. QUITE CLEARLY, THE AFORESAID ACT ION OF THE TPO WOULD NOT RENDER THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL 16 TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT IN SO FAR AS IT RELATES TO THE PAYMENT OF THE ASSIGN MENT FEE TO HTS. THE COMMISSIONER, THEREFORE, HAS ERRED IN DIRECTING TH E ASSESSING OFFICER TO MAKE AN ASSESSMENT ON THE SAID BASIS. 14.3 CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCE S OF THE CASE AND RELYING ON THE DECISION OF THE PUNE BENCH OF TH E TRIBUNAL IN THE CASE OF HONEYWELL TURBO TECHNOLOGIES LTD. CITED (SU PRA) WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) WAS NOT J USTIFIED IN NOT ACCEPTING THE ARMS LENGTH PRICE OF TECHNICAL FEES PAID BY THE ASSESSEE TO ITS AE AT RS.25,74,993/-. ACCORDINGLY, THE OR DER OF LD.CIT(A) ON THIS ISSUE IS SET ASIDE AND THE GROUNDS OF APP EAL NO. 4 & 5 BY THE ASSESSEE ARE ALLOWED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29-05-2015. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE DATED: 29 TH MAY, 2015 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I, PUNE 4. CIT-I, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE