SKF Technologies (india) Private Limited, Bangalore V. ACIT, Bangalore

ITA 1481/BANG/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8556 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 21-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; Double taxation relief; International transaction; Additional evidence; Corroborative evidences
• Section: 92C; 27; 37; 2; 92

Judgement Text

IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER 1. I.T(TP).A NO.1481/BANG/2010 (ASSESSMENT YEAR : 2006-07) 2. I.T(TP).A NO.1339/BANG/2011 (ASSESSMENT YEAR : 2007-08) SKF TECHNOLOGIES (INDIA) P. LTD, NO.13/5, SINGASANDRA, 13 TH KM, HOSUR ROAD, BANGALORE 560 068 .. APPELLANT PAN : AAACC4393D V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -12(3), BANGALORE .. RESPONDENT ASSESSEE BY : SHRI. K. R. VASUDEVAN, ADVOCATE REVENUE BY : SHRI. G. R. REDDY, CIT DR -I HEARD ON : 22.03.2016 PRONOUNCED ON : 31.03.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE ASSESSEE DIRECTED A GAINST ORDERS DT.14.10.2010 AND 30.09.2011 PASSED BY THE ACIT, C IRCLE -12(3) AND DCIT, CIRCLE -12(3), BENGALURU, RESPECTIVELY, PURSU ANT TO DIRECTIONS OF DRP IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 2 U/S.144C(5) OF THE INCOME-TAX ACT, 1961('THE ACT' I N SHORT), FOR ASSESSMENT YEARS 2006-07 AND 2007-08 RESPECTIVELY. 02. EXCEPT FOR TWO GROUNDS RELATING TO CLAIM FOR CA RRY FORWARD LOSS AND DISALLOWANCE OF GROUP INFORMATION TECHNOLOGY (IT) E XPENDITURE TWICE, APPEARING IN THE APPEALS FOR A. YS. 2007-08, THE OT HER GROUNDS ARE COMMON FOR BOTH THE YEARS. 03. COMMON GROUNDS ARE DEALT WITH FIRST. VIDE ITS GROUND I ASSESSEE ASSAILS THE TP ADJUSTMENT OF RS.1,13,68,945/- FOR A . Y. 2006-07 AND RS.91,85,559/- FOR A. Y. 2007-08. 04. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING OF OIL SEALS, HAD INTERNATI ONAL TRANSACTIONS REPORTED IN FORM 3 CEB FILED FOR THE IMPUGNED ASSESSMENT YEA RS, AS UNDER : A. Y. 2006-07 : IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 3 A. Y. 2007-08 : 05. OUT OF THE ABOVE INTERNATIONAL TRANSACTIONS, TH E TECHNICAL FEE PAID WAS TO M/S. RFT S.P.A, ITALY, AS PER AN AGREEMENT ENTERED WITH THE LATTER ON 06.04.2005. PAYMENT FOR GROUP IT SERVICES WERE TO M/S. SKF DATA SERVICES, SWEDEN. BOTH WERE ASSOCIATED ENTERPRISES (AE) OF THE ASSESSEE. FINANCIAL RESULTS OF THE ASSESSEE AFTER REDUCING OT HER INCOME FOR THE IMPUGNED ASSESSMENT YEARS REFLECTED A PBIT ON SALES OF 17.65% AND 15.19% RESPECTIVELY. PBIT ON COST CAME TO 21.44% A ND 17.91% RESPECTIVELY. FOR BOTH THE YEARS ASSESSEE USED TNM M FOR JUSTIFYING THE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 4 VALUE OF ITS INTERNATIONAL TRANSACTIONS, AFTER AGGR EGATION. AS PER THE ASSESSEE, TECHNICAL FEES RELATED TO ITS MANUFACTURI NG OPERATIONS AND HENCE HAD TO BE AGGREGATED WITH OTHER COSTS. AS PER ASSE SSEE, APPLICATION OF TNMM METHOD, PROVED THAT THE PAYMENT OF TECHNICAL F EE WAS AT ARMS LENGTH. IN SO FAR AS PAYMENT OF GROUP IT SERVICE C HARGE WAS CONCERNED, ASSESSEE STATED THAT IT WAS ON A COST SHARING BASIS AND WAS ONLY REIMBURSEMENT OF COST. 06. WHEN THE AO REFERRED THE ARMS LENGTH PRICING O F THE INTERNATIONAL TRANSACTIONS TO THE TPO, HE WAS OF THE OPINION THAT AGGREGATION OF TRANSACTIONS WAS PERMISSIBLE ONLY IF THERE WERE CLO SELY LINKED TRANSACTIONS WHICH COULD NOT BE SEPARATELY ANALYSED. AS PER THE TPO ASSESSEE HAD TWO SEGMENTS NAMELY MANUFACTURING AND TRADING AND EVEN THESE WERE AGGREGATED FOR THE TNMM STUDY. TPO ALSO RELIED ON OECD GUIDELINES FOR COMING TO THE OPINION THAT AGGREGATION OF INTERNATI ONAL TRANSACTIONS SHOULD BE DONE ONLY WHERE IT IS NOT POSSIBLE TO APPLY THE ARMS LENGTH PRINCIPLE ON A TRANSACTION TO TRANSACTION BASIS. LD. TPO THEREAFTE R PROCEEDED TO DO A TP ANALYSIS AGGREGATING THE GROUP IT SERVICES CHARGES AND TECHNICAL FEES TOGETHER. WHEN SO AGGREGATED AMOUNT CAME TO RS.1,1 3,68,945/- FOR A. Y. 2006-07 AND RS.91,85,559/- FOR A. Y. 2007-08. TPO REQUIRED THE ASSESSEE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 5 HAD TO ESTABLISH RECEIPT OF ACTUAL SERVICES FROM TH E AE. AS PER THE TPO UNLESS SERVICES WERE PROVED TO HAVE BEEN RECEIVED B Y THE ASSESSEE, NO VALUE COULD BE ATTACHED TO IT. REPLY OF THE ASSESSEE TO THE QUERIES RAISED BY THE TPO AS APPEARING IN THE TP ORDER FOR A. Y. 2006-07 WAS AS UNDER : 07. AS PER THE TPO A NUMBER OF POINTS RAISED BY HIM STOOD UNANSWERED. ACCORDING TO HIM THE FOLLOWING QUERIES RAISED BY HI M DID NOT EVOKE ANY IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 6 RESPONSE FROM THE ASSESSEE : IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 7 08. TPO WAS OF THE OPINION THAT ASSESSEE HAD FAILED TO ANSWER PROPERLY THE QUERIES WHICH WOULD SHOW THAT ANY SERVICES WERE PROVIDED BY AES. AS PER THE TPO ASSESSEE COULD NOT FURNISH A FUNCTIONAL ANALYSIS OF VARIOUS GROUP IT SERVICES PROVIDED BY THE AE NOR FOR THE S ERVICES RECEIVED BY IT NOR COULD IT EXPLAIN HOW THE ALLOCATION KEYS APPLI ED BY THE AES WERE JUSTIFIED. TPO ALSO NOTED THAT ASSESSEE COULD NOT EVEN PRODUCE THE LEDGER ACCOUNTS OF ITS AES REFLECTING THE TOTAL EXPENDITUR E INCURRED BY THEM FOR THE INTRA GROUP SERVICES RENDERED. THOUGH THE ASSESSEE FILED AN AGREEMENT IT HAD ENTERED WITH M/S. RFT S.P.A, AS PER THE TPO, S UCH AGREEMENT AND THE INVOICES RAISED BY THE AES WHICH WERE FURNISHED BY THE ASSESSEE COULD AT THE BEST BE CONSIDERED AS EVIDENCE FOR THE ACCOUNTI NG DONE AND NOT EVIDENCE FOR RENDERING OR RECEIVING ACTUAL SERVICES . AS PER THE TPO IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 8 PRIMARY EVIDENCE IN THE FORM OF VOUCHERS FOR EXPEND ITURE INCURRED BY THE AE FOR PAYMENTS TO THIRD PARTIES IN RELATION TO THE SERVICES RENDERED BY THE AE TO THE ASSESSEE WERE NOT PRODUCED. 09. IN SO FAR AS THE CLAIM OF REIMBURSEMENT OF IT S ERVICE CHARGES WAS CONCERNED, TPO NOTED THAT ASSESSEE HAD NOT MADE AN ANALYSIS BY COMPARING SUCH COSTS WITH THE COST IT WOULD HAVE INCURRED IF SIMILAR SERVICES WERE SOURCED LOCALLY. AS PER THE TPO NO INDEPENDENT PAR TY WOULD HAVE OPTED FOR THE PROCUREMENT OF SUCH SERVICES WITHOUT FIRST ESTIMATING THE COST. THOUGH THE ASSESSEE TOOK AN ARGUMENT THAT BULK PURC HASE BY M/S. SKF DATA SERVICES AB, SWEDEN WOULD RESULT IN A COST BEN EFIT WHEN THE COST WAS SHARED, TPO DID NOT FIND IT CONVINCING SINCE THE SU BMISSIONS WERE NOT SUBSTANTIATED. AFTER VERIFYING ALLOCATION KEYS TPO NOTED THAT SUCH ALLOCATION KEYS EMPLOYED BY THE AE FOR SHARING OF T HE COST WERE BASED ON PARA METERS SUCH AS CAPITAL EMPLOYED, NUMBER OF EMP LOYEES AND SALES. THE SHARING WAS NOT, AS PER THE TPO , BASED ON ACTUAL U SAGE IN TERMS OF TIME AND ACTUAL NUMBER OF COMPUTER LINKS AND PERSONNEL U SING SUCH LINKS. IN EFFECT, HE HELD THAT ASSESSEE WAS NOT ABLE TO SHOW ANY PROOF FOR HAVING RECEIVED ANY SERVICES EITHER IN REGARD TO THE FEE P AID FOR TECHNICAL SERVICES OR ANY IT SERVICES. ACCORDING TO HIM, THE PAYMENTS MADE BY THE ASSESSEE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 9 WERE A TRIBUTE BY A SUBSIDIARY TO A HOLDING COMPANY AND NOT RELATABLE TO ANY TANGIBLE SERVICES RENDERED BY THE HOLDING COMPA NY TO THE ASSESSEE. HE TREATED IT AS AN EX-GRATIA PAYMENT. THE ALP OF THE TECHNICAL SERVICES AND IT FEES WERE TAKEN AT ZERO. RESULT WAS THAT AN ADJ USTMENT EQUALING TO THE TOTAL PAYMENTS ALLEGED TO HAVE BEEN MADE BY THE ASS ESSEE TO ITS AE WAS RECOMMENDED FOR U/S.92CA OF THE ACT. 10. WHEN DRAFT ASSESSMENT ORDERS ON THE ABOVE MENTI ONED LINES WERE ISSUED, ASSESSEE PREFERRED TO MOVE THE DRP. ASSESS EE ASSAILED THE REJECTION OF TNMM APPLIED BY IT ON THE AGGREGATE OF TRANSACTI ONS. ASSESSEE ALSO ASSAILED THE FINDING OF THE TPO THAT NO SERVICES WE RE RENDERED BY THE AE TO THE ASSESSEE. AS PER THE ASSESSEE, TECHNICAL SERVIC E FEE COULD NOT BE TESTED IN ISOLATION SINCE TECHNOLOGY TO MANUFACTURE THE OI L-SEALS WERE PROPRIETARY TO ITS AE AND CLOSELY INTER LINKED TO THE MANUFACTU RING PROCESS. ASSESSEE ONCE AGAIN RELIED ON THE AGREEMENT ENTERED WITH ITS M/S. RFT S. P. A, ITALY. IT ALSO RELIED ON OECD GUIDELINES ON INTRA GROUP SE RVICES. AS PER THE ASSESSEE ITS AES WERE A CENTRALISED SERVICE PROVIDE R AND ACTED AS FACILITATORS. 11. HOWEVER, DRP WAS NOT IMPRESSED BY ANY OF THE AB OVE ARGUMENTS. ACCORDING TO THEM, FEES FOR TECHNICAL SERVICES WAS FIXED AT A SUM OF IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 10 1,65,000 EUROS AND DID NOT DEPEND ON ACTUAL QUANTU M OF ASSISTANCE. AS PER THE DRP, NO UNCONTROLLED PARTY WOULD AGREE TO P AY A FIXED AMOUNT FOR SUCH SERVICES. DRP NOTED THAT ASSESSEE FAILED TO P RODUCE EVIDENCE IN THE FORM OF COPIES OF VOUCHERS RAISED BY THE AE. 12. VIS-A-VIS, CLAIM FOR REIMBURSEMENT OF EXPENDITU RE TO SKF DATA SERVICES, SWEDEN, ARGUMENT OF THE ASSESSEE WAS THAT THERE WAS NO ELEMENT OF INCOME IN IT AND THERE WAS NO TECHNOLOGY WHAT EV ER MADE AVAILABLE TO THE ASSESSEE. ASSESSEE REFERRED TO ARTICLE 12(4) OF DTAA FOR THIS PURPOSE. HOWEVER, DRP WAS NOT IMPRESSED BY THIS LINE OF ARGU MENT ALSO. ACCORDING TO THEM, ASSESSEE COULD NOT SHOW THAT THERE WAS NO ELEMENT OF PROFIT IN SUCH REIMBURSEMENT AND IT WAS NOT IN THE NATURE OF TECHN ICAL SERVICES. PURSUANT TO THIS, ASSESSMENT WAS COMPLETED BY MAKING AN ADDI TION IN ACCORDANCE WITH TPO RECOMMENDATIONS. 13. NOW BEFORE US, LD. AR STRONGLY SUBMITTED THAT N ONE OF THE LOWER AUTHORITIES HAD CAREFULLY GONE THROUGH THE AGREEMEN T AND SUPPORTING RECORDS PRODUCED. AS PER THE LD. AR, VIS-A-VIS REND ERING OF TECHNICAL SERVICES, ASSESSEE HAD PRODUCED AGREEMENT WITH M/S. RFT S.P.A, AND ALSO THE INVOICES RAISED BY THEM. RELYING ON THE OBJECTI ONS RAISED BY THE ASSESSEE BEFORE THE DRP SPECIFICALLY THOSE PLACED A T P.NOS.16 AND 17 OF THE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 11 PAPER BOOK, LD. AR SUBMITTED THAT ASSESSEE HAD USED RFT S.P.A'S TECHNICAL KNOW HOW TO BUILD ITS OWN COMPETENCY IN SEAL DESIGN ING, SEAL MOULDING AND SEAL TESTING. AS PER THE LD. AR, AE HAD RENDE RED SERVICES IN THE FOLLOWING ASPECTS : 14. LD. AR POINTED OUT THAT ASSESSEE FILED A DECLAR ATION FROM AE THAT THERE WAS NO MARK-UP ON THE CHARGES INCURRED BY IT WHILE RAISING THE BILLS ON THE ASSESSEE. VIS-A-VIS REIMBURSEMENT FOR IT RE LATED SERVICES, RENDERED BY TO M/S. SKF DATA SERVICES AB, SWEDEN, LD. AR SUB MITTED THAT M/S. SKF DATA SERVICES AB, SWEDEN ACTED AS A CENTRALISED FACILITATOR FOR EDP SERVICES. LD. AR POINTED OUT THAT SERVICES RENDERE D BY THEM FOR WHICH REIMBURSEMENT WAS MADE ON COST BASIS INTER ALIA INC LUDED THE FOLLOWING : IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 12 15. AS PER THE LD. AR, THE BASIS OF ALLOCATION ADOP TED BY THE AE IN SWEDEN, WAS ALSO CLEARLY MENTIONED BY THE ASSESSEE . AGAIN, AS PER THE LD. AR, ACTUAL COST INCURRED BY THE AE WAS THE BASIS O F BILLING DONE ON THE ASSESSEE. LD. AR SOUGHT PLACING ADDITIONAL EVIDENCE BEFORE THIS TRIBUNAL IN THE NATURE OF VARIOUS COMMUNICATION BETWEEN THE ASS ESSEE AND ITS AES, WHICH ACCORDING TO HIM, WILL PROVE RENDERING SERVIC ES BY THE AES. ACCORDING TO HIM, HE WAS SEEKING LEAVE FOR ADMISSIO N OF EVIDENCE WHICH RELATED TO BOTH TECHNICAL FEE PAYMENT AND GROUP IT FEE PAYMENT TO IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 13 DEMONSTRATE THAT ASSESSEE HAD RECEIVED INTRA GROUP SERVICES FROM ITS AES. SUBMISSION OF THE LD. AR WAS THAT IF THESE WERE CON SIDERED ALONG WITH THE BILLS AND AGREEMENTS IT WOULD AMPLY SHOW THAT ASSES SEE HAD RECEIVED CONSIDERABLE SERVICES FROM THE AES ABROAD. 16. PER CONTRA, LD. DR SUBMITTED THAT ASSESSEE COUL D NOT SHOW ACTUAL BENEFIT, IF ANY, RECEIVED BY IT FROM ITS AES. IN S O FAR AS SHARING OF IT COST WAS CONCERNED, LD. DR SUBMITTED THAT ASSESSEE COULD NOT SHOW HOW IT WAS BENEFITTED BY SHARING SUCH IT COSTS AND COULD NOT P RODUCE ANY COMPARABLE CASE OF UNCONTROLLED TRANSACTIONS. FURTHER AS PER THE LD. DR ONUS WAS ON THE ASSESSEE TO SHOW THAT THE SERVICES RECEIVED BY IT FROM AES WERE AT CHARGES LOWER OR ON PAR WITH COST IF SIMILAR SERVIC ES WERE RENDERED BY UNRELATED PARTIES. AS PER THE LD. DR ASSESSEE ALSO COULD NOT SHOW HOW THE DOCUMENTS NOW SOUGHT TO BE PRODUCED AS ADDITIONAL E VIDENCE WERE LINKED TO THE PAYMENTS MADE FOR THE ALLEGED TECHNICAL SERV ICES AND REIMBURSEMENT OF COST. THUS ACCORDING TO HIM, LOWER AUTHORITIES WERE JUSTIFIED IN CONSIDERING THE ALP OF THESE AT NIL. 17. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CLAIM OF THE ASSESSEE IS THAT IT HAD RECEIVED TECHNICAL S ERVICES RELATING TO ITS MANUFACTURING LINE FROM ITS AE IN ITALY, NAMELY RFT S.P.A. AS PER THE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 14 ASSESSEE PAYMENTS MADE TO THE SAID COMPANY WERE FOR SAID TECHNICAL SERVICES AND TAXES WERE DULY DEDUCTED THEREON . IN SO FAR AS INTRA-GROUP PAYMENTS TO AE IN SWEDEN ARE CONCERNED, CLAIM OF TH E ASSESSEE IS THAT IT WAS ON COST-SHARING BASIS FOR CENTRALISED DTP SERVI CES DONE BY SUCH SUBSIDIARY IN SWEDEN. AS PER THE ASSESSEE, THE FOR MER COULD NOT BE CONSIDERED ON A STAND ALONE BASIS SINCE IT WAS CLOS ELY RELATED TO THE KNOWHOW FOR THE MANUFACTURING OPERATIONS OF THE ASS ESSEE. VIS-A-VIS THE LATTER, CLAIM OF THE ASSESSEE WAS THAT THERE WAS NO PROFIT ELEMENT FOR THE AE SINCE THE ALLOCATIONS WERE DONE ON APPROPRIATE KEYS . ANOTHER ARGUMENT OF THE ASSESSEE IS THAT IN RELATION TO THE LATTER, THE RE WAS NO TECHNOLOGY MADE AVAILABLE BY THE AE. TPO HAD ON THE OTHER HAND AGG REGATED THE TWO SET OF TRANSACTIONS AND CAME TO A CONCLUSION THAT NO SERVI CES WERE RENDERED BY THE AES NAMELY, ONE IN ITALY AND THE OTHER IN SWEDEN. WITH REGARD TO THE ALLEGED PAYMENT OF TECHNICAL SERVICES, ASSESSEE HAD AN AGREEMENT DT.06.04.2005, WITH RFT S.P.A, ITALY. CLAUSES (I) TO (XI) ARE REPRODUCED HEREUNDER : IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 15 IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 16 IT IS NOT DISPUTED THAT PURSUANT TO THE ABOVE AGREE MENT INVOICES WERE RAISED BY THE AE IN SWEDEN. 18. IN RELATION TO THE IT CHARGES TO BE SHARED BY T HE ASSESSEE, THE SWEDISH AE HAS VIDE A CERTIFICATE PLACED AT PAGE 16 0 OF THE PAPER BOOK IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 17 STATED THAT THERE WAS NO PROFIT MARK-UP. THAT PAYM ENTS WERE EFFECTED BY THE ASSESSEE TO BOTH THE ABOVE AES HAS NOT BEEN DIS PUTED BY THE LOWER AUTHORITIES. HOWEVER, TPO WAS OF THE OPINION THAT A SSESSEE COULD NOT PROVE ANY BENEFIT TO HAVE BEEN RECEIVED. AS PER THE TPO ASSESSEE OUGHT TO HAVE SHOWN THAT SUCH SERVICES WOULD HAVE BEEN ACQUIRED B Y AN UNCONTROLLED ENTITY FOR SIMILAR COST FOR JUSTIFYING SUCH PAYMENT S AND TNMM STUDY WOULD NOT SUFFICE. IN OTHER WORDS, TPO WAS OF THE OPINION THAT ASSESSEE COULD NOT PRODUCE EVIDENCE FOR EITHER THE TECHNICAL SERVICES NOR THE SHARING OF COST IN RELATION TO THE IT SERVICES. IN A SIMIL AR SITUATION, HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. CUSHMAN & WAKEFIEL D INDIA P. LTD [(2015) 367 ITR 730] HELD AS UNDER AT PARAS 29 TO 46 OF ITS JUDGMENT AS UNDER : 29. THE ARGUMENT, IN THIS CASE, IS THAT THE ASSESSE E ONLY PAID FOR THE COST INCURRED, WHILE AN UNCONTROLLED TRANSACTION WOULD I NVOLVE AN ADDITIONAL ELEMENT OF PROFIT, THUS LEADING TO A GREATER CLAIM FOR REIMBURSEMENT. IF TRUE, THIS WOULD NO DOUBT PLACE THIS TRANSACTION WITHIN S ECTION 92(3). HOWEVER THIS CANNOT BE THE CASE. UNDOUBTEDLY CERTAIN AMOUNT S WERE CHARGED BY THE ASSOCIATED ENTERPRISES AS REIMBURSEMENT FOR ACTUAL COSTS INCURRED. NEVERTHELESS, WHETHER A THIRD PARTYIN AN UNCONTROL LED TRANSACTION WITH THE ASSESSEE WOULD HAVE CHARGED AMOUNTS LOWER, EQUA L TO OR GREATER THAN THE AMOUNTS CLAIMED BY THE ASSOCIATED ENTERPRISES, CWS AND CWHK HAS TO PERFORCE BE TESTED UNDER THE VARIOUS METHODS PRESCR IBED IN SECTION 92C OF THE ACT. THE QUESTION THUS REQUIRED TO BE ADDRESSED AND DETERMINED, IS WHETHER AN INDEPENDENT ENTITYFOR THE SAME LIAISONI NG AND CLIENT INTERACTION SERVICES AS WERE PROVIDED BY CWS AND CW HKCHARGES AN AMOUNT LESS THAN OR EQUAL TO OR MORE THAN SGD 74,33 0 AND SGD 281,265. AN INDEPENDENT ENTITY WOULD QUITE POSSIBLY INCLUDE A MARK-UP OVER AND ABOVE THE COST, AND THUS, EXCEED THE VALUE CHARGED BY THE ASSOCIATED IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 18 ENTERPRISES IN THIS CASE. THE SEQUITUR CANNOT BE TH AT THE COST INCURRED BY THOSE ENTITIES WOULD BE THE SAME AS THE ASSOCIATED ENTERPRISES IN THIS CASE. IT MAY BE GREATER (IN WHICH CASE SECTION 92(3) WOUL D CLEARLY APPLY) OR LOWER. THIS CANNOT BE A MATTER OF SPECULATION. NOR IS THE APPLICATION OF SECTION 92(3) A LOGICAL INFERENCE FROM THE FACT THA T CWS AND CWHK HAVE ONLY ASKED FOR REIMBURSEMENT OF COST. THIS BEING A TRANSACTION BETWEEN RELATED PARTIES, WHETHER THAT COST ITSELF IS INFLAT ED OR NOT ONLY IS A MATTER TO BE TESTED UNDER A COMPREHENSIVE TRANSFER PRICING AN ALYSIS. THE ASSESSEE DID NOT BENCHMARK THESE COSTS IN ITS TRANSFER PRICING S TUDY. NEITHER WAS ANY TRANSFER PRICING STUDY CONDUCTED BY THE TRANSFER PR ICING OFFICER, WHO, CRUCIALLY, DID NOT SAY THAT THE ARM'S LENGTH PRICE WAS LOWER THAN THE AMOUNT CLAIMED. HE, INSTEAD DISALLOWED THE EXPENDITURE ALT OGETHER ON THE GROUND THAT THERE WERE NO SERVICES RENDERED TO BEGIN WITH. THE INCOME-TAX APPELLATE TRIBUNAL OVERRULED THE TRANSFER PRICING O FFICER ON THAT LIMITED GROUND BUT DID NOT CONCERN ITSELF WITH A TRANSFER P RICING ANALYSIS AS CONTEMPLATED UNDER SECTION 92 ; TO THE CONTRARY, IT ACCEPTED THE ASSESSEE'S STATED RETURN (ABSENT ANY BENCHMARKING) AS THE TRUE AND CORRECT VALUE UNDER AN IMPLICIT (AND INCORRECT) UNDERSTANDING OF SECTION 92(3). 30. AS REGARDS THE COSTS INCURRED BY CWHK, A FURTHE R ISSUE ARISES. WHILST THE COSTS INCURRED BY MR. BRAGANZA, FOR CWS, FOR TH E BENEFIT OF THE ASSESSEE WERE DETAILED, NO SUCH DETAILS WERE PROVIDED FOR TH E SERVICES RENDERED BY CWHK, ACTING AS THE CO-ORDINATING ENTITY FOR THE CL IENT SOLUTIONS GROUP. THE COST ALLOCATION TO THE ASSESSEE IS ON THE BASIS OF A PERCENTAGE OF THE COST RELATABLE TO THE REVENUE GENERATED BY CUSHMAN AND WAKEFIELD ASIA. THIS IS EXPLAINED THROUGH THE FOLLOWING CHART, ON W HICH THE INCOME-TAX APPELLATE TRIBUNAL PLACED RELIANCE : NY REVENUE ESTIMATE C AND W ASIA REVENUE ALLOCATION IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 19 ESTIMATE COUNTRY NET FEE TO LOCAL OFFICE (US$) PER CENT. ALLOCATI ON ASIA REVENUE ALLOCATI ON (US$) $ ALLOCA TION 75 PER CENT. NY REVENUE ALLOCATIO N 25 PER CENT. GROSS REVENUE ALLOCATIO N TOTAL ALLOCATIO N ON US BP PER CENT. ALLOCA -TION BP ALLOCATIO N $ US$ INDIA 3037398 82.44 PER CENT. 1122093 2 42.7 PER CENT. 173990 30031 203931 72.5 150.360 CHINA 369000 10.01 PER CENT. 585961 9 22.3 PER CENT. 21126 15682 36809 13.1 146.243 HONG KONG 120065 3.26 PER CENT. 429285 1 16.3 PER CENT. 6874 11489 18363 6.5 124.770 KOREA 24252 0.66 PER CENT. 324499 2 12.4 PER CENT. 1389 8685 10073 3.6 47.784 SINGAPO RE 133782 3.63 PER CENT. 165523 9 6.3 PER CENT. 7659 4430 12089 4.3 47.926 C& W ASIA 3684497 100 PER CENT. 262736 33 100 PER CENT. 210949 70316 281265 100 PER CENT. 517.083 IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 20 31. AS EXPLAINED, FOR 82.44 PER CENT. SHARE OF THE REVENUE FROM THE SERVICES OF THE CLIENT SOLUTION GROUP, THE RELATABLE COST AL LOCATION WAS 72.5 PER CENT. THE PRECISE ACTIVITIES CONDUCTED BY THE CLIEN T SOLUTIONS GROUP FOR THE BENEFIT OF THE ASSESSEE OUT OF THE ENTIRE RANGE OF ACTIVITIES CONDUCTED BY IT, AND THE COST APPLICABLE TO SUCH ACTIVITIES HAVE NOT BEEN PROVIDED. INSTEAD A BROAD-BRUSH APPROACH AT FLATLY 'EQUATING' THE COSTS RELATABLE TO THE REVENUE GENERATED HAS BEEN PROVIDED. WHILST SEVERAL E-MAILS FROM MR. ARSHPREET CHOUDHARY WERE PLACED ON RECORD, THEY EVIDENCE THE FACT THAT CERTAIN SERVICES WERE RENDERED. THAT CONSTITUTES ONLY THE F IRST PART OF THE EXERCISE THE SECOND ASPECT IS TO RELATE THE COST OF SPECIFIC ACTIVITIES CONDUCTED TO THE BENEFIT INCURRED BY THE ASSESSEE, RATHER THAN ALLOC ATE COST FROM A COMMON POOL OR BASKET OF REVENUE GENERATED THROUGH AN UNEX PLAINED PERCENTAGE RELATION TO THE REVENUE GENERATED. THE BASIS FOR TH E COSTS INCURRED, THE ACTIVITIES FOR WHICH THEY WERE INCURRED AND THE BEN EFIT ACCRUING TO THE ASSESSEE FROM THOSE ACTIVITIES MUST ALL BE PROVED T O DETERMINE FIRST, WHETHER, AND HOW MUCH, OF SUCH EXPENDITURE WAS FOR THE PURPO SE OF BENEFIT OF THE ASSESSEE (DEDUCTIBLE UNDER SECTION 37 OF THE ACT) A ND, SECONDLY, WHETHER THAT AMOUNT PASSED MUSTER UNDER A TRANSFER PRICING ANALYSIS. 32. HAVING MADE THESE OBSERVATIONS, THE COURT ALSO NOTES THAT THE CONTRARY FINDINGS OF THE TRANSFER PRICING OFFICER, THAT NO S ERVICES WERE RENDERED, AND THOSE OF THE INCOME-TAX APPELLATE TRIBUNAL, THAT SE RVICES WERE RENDERED, MUST BE VIEWED IN THIS CONTEXT. THE ULTIMATE ANALYS IS HAS TO DISCLOSE WHETHER THE SERVICE RENDERED HAS A VALUE AND, IF SO , DETERMINE THAT. PARTICULAR RELIANCE HAS BEEN PLACED BY THE TRANSFER PRICING OFFICER AND THE INCOME-TAX APPELLATE TRIBUNAL, ON THE 2009 TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS O F THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ('OECD'), SPE CIFICALLY PARAGRAPHS 7.4-7.6. THESE CONCERN INTRA-GROUP SERVI CES (I.E., SERVICES PROVIDED BY ONE MEMBER OF A GROUP TO ANOTHER, SUCH AS THE CASE PRESENTLY), AND FACTORS RELEVANT TO DETERMINE WHETHER SUCH A SE RVICE EXISTS. THE COURT NOTES, FIRST, THAT THE 2009 OECD GUIDELINES ARE NOT BINDING AND FURTHER, THAT PARAGRAPH 7.4. OF THE GUIDELINES ITSELF RECOGN IZES THAT EACH CASE DEPENDS ON ITS FACTS AND CIRCUMSTANCES. WHILST THE FACTORS ENUMERATED IN PARAGRAPH 7.6 ARE RELEVANT, STRICT ADHERENCE TO THE OECD GUIDELINES, BORDERING ON RIGIDITY, IS ANTITHETICAL. 33. THE TRANSFER PRICING OFFICER, IN THIS CASE, NOT ED THAT THE SERVICES OF THE CLIENT SOLUTIONS GROUP DID NOT CREATE ANY SPECIFIC BENEFIT FOR THE ASSESSEE, IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 21 BUT RATHER, THAT THE RELATIONSHIP BETWEEN CUSHMAN A ND WAKEFIELD, UNITED STATES AND IBM PREDATED THE ASSESSEE'S INVOLVEMENT. THE ASSESSEE THUS RECEIVED ONLY AN INCIDENTAL BENEFIT FROM THAT RELAT IONSHIP. THE TRANSFER PRICING OFFICER FURTHER NOTED THAT NO INDEPENDENT E NTERPRISE WOULD BE WILLING TO ENGAGE A THIRD PARTY FOR SUCH A TRANSACT ION, AND IN ANY CASE, THE ASSOCIATED ENTERPRISES MEANS TO CONDUCT MARKET RESE ARCH VIS- -VIS THE INDIAN MARKET WAS QUESTIONABLE IN THE ABSENCE OF AN Y EVIDENCE TO THE CONTRARY. MOREOVER, THE TRANSFER PRICING OFFICER NO TED THAT THE ASSESSEE ITSELF HAD MANY OFFICES IN INDIA WHICH CONDUCTED MA RKET RESEARCH, AND IN THAT SENSE, THIS WAS MERELY A DUPLICATION OF SERVIC ES. THE INCOME-TAX APPELLATE TRIBUNAL REVERSED THIS FINDING (PAGE 63 O F 17 ITR(TRIB)) : 'THE ASSESSEE HAS BEEN SHOWN TO HAVE EARNED SUBSTAN TIAL REVENUES FROM IBM AND THAT CANNOT BE THE RESULT OF ONLY INCIDENTA L BENEFIT RECEIVED BY THE ASSESSEE FROM OLD BUSINESS RELATIONSHIP BETWEEN THE HOLDING COMPANY OF THE ASSESSEE AND IBM. IF ONE WANTS TO OBTAIN REV ENUE UPON DEALING IN REAL ESTATE, CERTAIN WORK HAS TO BE DONE. ALL THE P RIMARY FACTS WERE SUBMITTED TO THE ASSESSING OFFICER AS WELL AS THE T RANSFER PRICING OFFICER. THE NAMES OF THE PARTIES WERE MENTIONED. WITHOUT EX AMINING ANY SUCH DETAILS, IT CANNOT BE SAID THAT THE REVENUE EARNED BY THE ASSESSEE WAS ONLY ON ACCOUNT OF INCIDENTAL BENEFIT. THERE IS A F ORCE IN THE CLAIM OF THE ASSESSEE THAT TO ENABLE IT TO EARN REVENUE FROM IBM , IT WAS NECESSARY TO PROVIDE SERVICES TO IBM OUTSIDE INDIA. IF SUCH SERV ICES ARE PROVIDED BY THE EMPLOYEES OF THE ASSESSEE- COMPANY, THEN, IT HA S TO INCUR THE COST OF ITS EMPLOYEE WHO HAS TO TRAVEL TO THE DESTINATION A ND THAT WOULD RESULT IN EXTRA EXPENDITURE . . .' 34. THE COURT FIRST NOTES THAT THE AUTHORITY OF THE TRANSFER PRICING OFFICER IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE THE ARM'S LENGTH PRICE AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FROM WHICH THE ASSESSEE BENEFITS. THAT ASPECT OF THE EXERCISE IS L EFT TO THE ASSESSING OFFICER. THIS DISTINCTION WAS MADE CLEAR BY THE INCOME-TAX A PPELLATE TRIBUNAL IN DRESSER-RAND INDIA PVT. LTD. V. ADDL. CIT [2012] 13 ITR (TRIB) 422 (MUMBAI) (PAGE 432) : 'WE FIND THAT THE BASIC REASON OF THE TRANSFER PRIC ING OFFICER'S DETERMINATION OF THE ARM'S LENGTH PRICE OF THE SERV ICES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NIL' IS HIS PERCE PTION THAT THE ASSES SEE DID NOT NEED THESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIENT EXPERTS OF IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 22 HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINTED OUT THAT THE A SSES SEE HAS QUALIFIED ACCOUNTING STAFF WHICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FEES TO EXTERNAL F IRM. SIMILARLY, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE A SSESSEE HAD MANAGEMENT EXPERTS ON ITS ROLLS, AND, THEREFORE, GL OBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERS TAND, MUCH LESS APPROVE, THIS LINE OF REASONING. IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHORITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSE SSEE AND WHAT IS NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUN TANTS AND MANAGEMENT EXPERTS ON HIS ROLLS, AND YET HE MAY DEC IDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGE MENT CONSULTANCY ; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION THE ASS ESSEE'S WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WAS NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERCIAL WISDOM OF THE ASSE SSEE'S DECISION TO TAKE BENEFIT OF EXPERTISE OF DRESSER RAND US, BUT A LSO BEYOND THE POWERS OF THE ASSESSING OFFICER. WE DO NOT APPROVE THIS AP PROACH OF THE REVENUE AUTHORITIES. WE HAVE FURTHER NOTICED THAT THE TRANS FER PRICING OFFICER HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, AS EV IDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENE FIT, IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALYS IS IS ALSO COMPLETELY IRREL EVANT, BECAUSE WHETHER A PARTICULAR EXPENSE O N SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE AN Y ROLE IN DETERMINING THE ARM'S LENGTH PRICE OF THAT SERVICE. WHEN EVALUA TING THE ARM'S LENGTH PRICE OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO W HETHER THE ASSESSEE BENEFITS FROM IT OR NOT ; THE REAL QUESTION WHICH I S TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE ASSOCIATED ENTERPRISES GAVE THE SAME SERVICES TO TH E ASSESSEE IN THE PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT. THE ASSOCIATED ENTERPRISES MAY HAVE GIVEN THE SAME SERV ICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT THE ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE AUTHOR ITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMINING THE ARM'S LENGTH PRICE OF THE COSTS INC URRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED T HAT THE STAND OF THE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 23 REVENUE AUTHORITIES IN THIS CASE IS THAT NO SERVICE S WERE RENDERED BY THE ASSOCIATED ENTERPRISES AT ALL, AND THAT SINCE THERE IS NO EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL, THE ARM'S LEN GTH PRICE OF THESE SERVICES IS 'NIL'.' 35. THE TRANSFER PRICING OFFICER'S REPORT IS, SUBSE QUENT TO THE FINANCE ACT, 2007, BINDING ON THE ASSESSING OFFICER. THUS, IT BE COMES ALL THE MORE IMPORTANT TO CLARIFY THE EXTENT OF THE TRANSFER PRI CING OFFICER'S AUTHORITY IN THIS CASE, WHICH IS TO DETERMINING THE ARM'S LENGTH PRICE FOR INTERNATIONAL TRANSACTIONS REFERRED TO HIM OR HER BY THE ASSESSIN G OFFICER RATHER THAN DETERMINING WHETHER SUCH SERVICES EXIST OR BENEFITS HAVE ACCRUED. THAT EXERCISEOF FACTUAL VERIFICATION IS RETAINED BY THE ASSESSING OFFICER UNDER SECTION 37 IN THIS CASE. INDEED, THIS IS NOT TO SAY THAT THE TRANSFER PRICING OFFICER CANNOTAFTER A CONSIDERATION OF THE FACTSS TATE THAT THE ARM'S LENGTH PRICE IS 'NIL' GIVEN THAT AN INDEPENDENT ENT ITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HOWEVER, THIS IS DIFFERENT FROM THE TRANSFER PRICING OFFICER STATING THAT THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPENDITURE. THAT DECISION IS OUTSIDE THE AUTHORITY OF THE TRANSFER PRICING OFFIC ER. THIS ASPECT WAS MADE CLEAR BY THE INCOME-TAX APPELLATE TRIBUNAL IN DELOI TTE CONSULTING INDIA PVT. LTD. V. DEPUTY CIT/ITO [2012] 19 ITR (TRIB) 378 (MUMBAI) ; [2012] 137 ITD 21 (MUMBAI) (PAGE 402 OF 19 ITR (TRIB)) : 'ON THE ISSUE AS TO WHETHER THE TRANSFER PRICING OF FICER IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE AT 'NIL', WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN GEMPLUS INDIA P. LTD. 2010 -TII- 55-ITAT- BANG-TP, HELD THAT THE ASSESSEE HAS TO ESTABLISH BE FORE THE TRANSFER PRICING OFFICER THAT THE PAYMENTS MADE WERE COMMENS URATE TO THE VOLUME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARABLE. WHEN COMMENSURATE BENEFIT AGAINST THE PAYMENT OF SERVICE S IS NOT DERIVED, THEN THE TRANSFER PRICING OFFICER IS JUSTIFIED IN MAKING AN ADJUSTMENT UNDER THE ARM'S LENGTH PRICE. IN THE CASE ON HAND, THE TRANSFER PRICING OFFICER H AS DETERMINED THE ARM'S LENGTH PRICE AT 'NIL' KEEPING IN VIEW THE FAC TUAL POSITION AS TO WHETHER IN A COMPARABLE CASE, SIMILAR PAYMENTS WOUL D HAVE BEEN MADE OR NOT IN TERMS OF THE AGREEMENTS. THIS IS A CASE W HERE THE ASSESSEE HAS NOT DETERMINED THE ARM'S LENGTH PRICE. THE BURDEN I S INITIALLY ON THE ASSESSEE TO DETERMINE THE ARM'S LENGTH PRICE. THUS, THE ARGUMENT OF THE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 24 ASSESSEE THAT THE TRANSFER PRICING OFFICER HAS EXCE EDED HIS JURISDICTION BY DISALLOWING CERTAIN EXPENDITURE, IS AGAINST THE FACTS. THE TRANSFER PRICING OFFICER HAS NOT DISALLOWED ANY EXPENDITURE. ONLY THE ARM'S LENGTH PRICE WAS DETERMINED. IT WAS THE ASSESSING O FFICER WHO COMPUTED THE INCOME BY ADOPTING THE ARM'S LENGTH PRICE DECID ED BY THE TRANSFER PRICING OFFICER AT 'NIL'.' THIS IS A SLENDER YET THE CRUCIAL DISTINCTION THAT RESTRICTS THE AUTHORITY OF THE TRANSFER PRICING OFFICER. WHILST THE REPORT OF THE TRANSFER PRICING OFFICER IN THIS CASE ULTIMATELY NOTED THAT THE ARM' S LENGTH PRICE WAS 'NIL', SINCE A COM PARABLE ENTITY WOULD PAY 'NIL' AMOUNT F OR THESE SERVICES, THIS COURT NOTED THAT REMARKS CONCERNING AND THE FINAL D ECISION RELATING TO, BENEFIT ARISING FROM THESE SERVICES ARE PROPERLY RE SERVED FOR THE ASSESSING OFFICER. 36. IN THIS CASE, THE ISSUE IS WHETHER AN INDEPENDE NT ENTITY WOULD HAVE PAID FOR SUCH SERVICES. IMPORTANTLY, IN REACHING THIS CO NCLUSION, NEITHER THE REVENUE, NOR THIS COURT, MUST QUESTION THE COMMERCI AL WISDOM OF THE ASSESSEE, OR REPLACE ITS OWN ASSESSMENT OF THE COMM ERCIAL VIABILITY OF THE TRANSACTION. THE SERVICES RENDERED BY CWS AND CWHK IN THIS CASE CONCERN LIAISING AND CLIENT INTERACTION WITH IBM ON BEHALF OF THE ASSESSEE ACTIVITIES FOR WHICH, ACCORDING TO THE ASSESSEE'S C LAIMINTERACTION WITH IBM'S REGIONAL OFFICES IN SINGAPORE AND THE UNITED STATES WAS NECESSARY. THESE SERVICES CANNOTAS THE INCOME-TAX APPELLATE T RIBUNAL CORRECTLY SURMISEDBE DUPLICATED IN INDIA IN SO FAR AS THEY R EQUIRE INTERACTION ABROAD. WHETHER IT IS COMMERCIALLY PRUDENT OR NOT T O EMPLOY OUTSIDERS TO CONDUCT THIS ACTIVITY IS A MATTER THAT LIES WITHIN THE ASSESSEE'S EXCLUSIVE DOMAIN AND CANNOT BE SECOND-GUESSED BY THE REVENUE. 37. AT THIS POINT, IT IS NOTEWORTHY THAT THE CIRCUM STANCE THAT THE ASSESSEE HAD MARKET RESEARCH FACILITIES IN INDIA DOES NOT CO RRESPOND TO THE PERFORMANCE OF SERVICES ABROAD, ESPECIALLY IN RELAT ION TO CLIENT INTERACTION SERVICES LOCATED OUTSIDE INDIAALBEIT FOR ULTIMATEL Y SOURCING THEM INTO THE INDIAN MARKET. THE E-MAILS CONSIDERED BY THE INCOME -TAX APPELLATE TRIBUNAL FROM MR. BRAGANZA AND MR. CHOUDHARY SO FAR AS THEY DEAL WITH SPECIFIC INTERACTION WITH IBM BY THOSE PERSONS AND RELATE IT TO BENEFITS OBTAINED BY THE ASSESSEE, PROVIDE A SUFFICIENT BASI S TO HOLD THAT BENEFIT ACCRUED TO THE ASSESSEE. HOWEVER, THIS DETERMINATIO N REMAINS UNCLEAR AND INCHOATE. THE DEVIL HERE LIES IN THE DETAILS. THE D ETAILS OF THE SPECIFIC IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 25 ACTIVITIES FOR WHICH COST WAS INCURRED BY BOTH CWS AND CWHK (FOR THE ACTIVITIES OF MR. BRAGANZA AND MR. CHOUDHARY) AND T HE ATTENDANT BENEFIT TO THE ASSESSEE, HAVE NOT BEEN CONSIDERED TILL DATE. T HIS MUST BE PROVIDED, IN ADDITION TO A CONSIDERATION OF THE ARM'S LENGTH PRI CE VIS-A -VIS THE TOTAL COST CLAIMED BY THESE ASSOCIATED ENTERPRISES. TO THIS EX TENT, FOR THE CONSIDERATION OF ARM'S LENGTH PRICE IN RESPECT OF T HESE TRANSACTIONS, THE MATTER IS REMANDED BACK TO THE FILE OF THE CONCERNE D ASSESSING OFFICER, FOR AN ARM'S LENGTH PRICE ASSESSMENT BY THE TRANSFER PR ICING OFFICER, FOLLOWED BY THE ASSESSING OFFICER'S ASSESSMENT ORDER IN ACCO RDANCE WITH LAW. 38. THE SECOND ISSUE WHICH ARISES IN THESE PROCEEDI NGS CONCERNED THE DISALLOWANCE OF REFERRAL FEES PAID BY THE ASSESSEE TO VARIOUS ASSOCIATED ENTERPRISES, FOR THE REFERRAL OF CLIENTS IN THE REA L ESTATE BUSINESS TO THE ASSESSEE. THIS WAS REFERRED BY THE ASSESSING OFFICE R TO THE TRANSFER PRICING OFFICER, WHO IN THIS REPORT STATED THAT 'NO ADVERSE INFERENCE IS DRAWN'. THE ASSESSEE HADIN ITS OWN TRANSFER PRICING ANALYSISC ONDUCTED A BENCHMARKING FOR THESE TRANSACTIONS, THROUGH THE CO MPARABLE UNCONTROLLED PRICES ('CUP') METHOD, WITH WHICH THE TRANSFER PRIC ING OFFICER FOUND NO INFIRMITY. THE ASSESSING OFFICER SUBSEQUENTLY, HOWE VER, FOUND THAT NO SERVICES WERE ACTUALLY RENDERED FOR WHICH REFERRAL FEES WAS TO BE PAID. THE FINDINGS OF THE ASSESSING OFFICER ARE EXTRACTED BEL OW : '4.5 REPEATEDLY DURING THE COURSE OF THE HEARINGS, THE ASSESSEE- COMPANY BAD BEEN ASKED TO MATCH EACH TRANSACTION IN THE LIS T TO WORK DONE BY THE GROUP ENTITY SPECIFICALLY IN RELATION TO THE PROPER TY TRANS ACTION DONE BUT THIS HAS NOT BEEN GIVEN BY THE ASSESSEE IN ITS SUBM ISSIONS. THIS MAKES IT CLEAR THAT THE ASSESSEE-COMPANY IS IN NO POSITION T O CLARIFY OR SUBSTANTIATE THE WORK DONE OR SERVICES RENDERED BY THE GROUP CONCERNS TO MEN THIS PAYMENT OF REFERRAL FEE TO THEM AT A HIGH RATE OF 30 PER CENT. 4.6 IN THE SUBMISSIONS GIVEN THE ASSESSEE-COMPANY H AS SIMPLY FILED SOME INVOICES RAISED ON THE GROUP ENTITIES WHERE IT IS W RITTEN THAT THE REFERRAL FEE AT 30 PER CENT. OF THE GROSS FEE EARNED BY C&W INDIA . . . NONE OF THE AGREEMENTS FILED BY THE ASSESSEE-COMPANY SPECIFY TH E EXACT PERCENTAGE OF FEE TO BE RECEIVED BY CWS. NO PRUDENT BUSINESS PERS ON WILL LEAVE THE ISSUE OF PAYMENT OF FEE OPEN. THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THE GENUINENESS OF THE TRANSACTION, THE SERVICES RENDERED BY THE GROUP ENTITIES TO MERIT THIS REFERRAL FEE AT A HIGH RATE NOR THE BUSINESS PURPOSE OF THE SAME. IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 26 4.8 ON CLOSE SCRUTINY OF THE E-MAILS, COPIES OF WHI CH HAVE BEEN GIVEN IN THE SUBMISSIONS, IT IS SEEN THAT MOST OF THEM ARE C RYPTIC MAILS IN THAT MOST OF THEM DO NOT CLEARLY MENTION EITHER THE CLIENT OR THE REQUIREMENTS OF THE CLIENT WHICH IS THE MANDATORY REQUIREMENT FOR ANY E NTITY REFERRING TO ANY OTHER ENTITY. THERE IS NO EVIDENCE SUBMIT TED REGAR DING THE SERVICES PROVIDED BY THE GROUP ENTITIES TO MERIT THE REFERRA L FEE. COPIES OF SOME INVOICES ARE ALSO GIVEN BUT AGAIN RAISING INVOICES DOES NOT SUBSTANTIATE OR GIVES PROOF OF THE WORK DONE BY THE GROUP ENTITI ES. 4.9 THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE A S TO HOW THE INDIAN ENTITIES FROM WHOM INCOME WAS GENERATED ON ACCOUNT OF RENDERING OFF SERVICES, ETC., IS LINKED TO THE ASSOCIATE ENTERPRI SES OF THE ASSESSEE TO WHOM REFERRAL FEE IS PAID. IN SIMPLER WORDS THE LIN K BETWEEN THE CLIENTS BASED IN INDIA AND THE ASSOCIATE ENTERPRISES OF THE ASSESSEE-COMPANY WHICH COULD ENABLE THEIR REFERRAL IN THE FIRST INST ANCE HAS NOT BEEN ESTABLISHED. THE ASSESSEE'S CASE IS A PURE AND SIMP LE CASE OF TAX PLANNING . . .' 39. THE INCOME-TAX APPELLATE TRIBUNAL REVERSED THIS FINDING ON TWO GROUNDS. THE FIRST WAS THAT THE ASSESSING OFFICER, AFTER HAVING REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER, COULD NOT R EOPEN OR RE-EXAMINE THE TRANSACTION, WHICH WAS DONE IN THIS CASE. THIS, IT WAS ARGUED BY THE ASSESSEE, AND HELD BY THE INCOME-TAX APPELLATE TRIB UNAL, AMOUNTS TO DOING SOMETHING INDIRECTLY WHICH CANNOT BE DONE DIRECTLY ; SECONDLY, ON THE MERITS, THE INCOME-TAX APPELLATE TRIBUNAL HELD THAT 'THE ASSESSEE HAS SUBMITTED AMPLE EVIDENCE TO SUPPORT THE EXPENDITURE AND IT WAS SHOWN THAT SUCH EXPENDITURE IS INCURRED WITH RESPECT TO REVENU E EARNED BY THE ASSESSEE ON PROPERTY TRANSACTION REFERRED TO THE ASSESSEE BY ITS ASSOCIATE ENTERPRISES'. 40. ON THE FIRST GROUND, THIS COURT NOTES THAT THE JURISDICTION OF THE ASSESSING OFFICER, UNDER SECTION 37, AND THE TRANSF ER PRICING OFFICER, UNDER SECTION 92CA, ARE DISTINCT. A REFERRAL BY THE ASSES SING OFFICER TO THE TRANSFER PRICING OFFICER IS ONLY FOR THE LIMITED PU RPOSE OF DETERMINING THE ARM'S LENGTH PRICE, BASED ON A PRIMA FACIE VIEW THA T SUCH A REFERRAL IS NECESSARY. IT DOES NOT IMPLY A CONCRETE VIEW AS TO THE EXISTENCE OF SERVICES, OR THE ACCRUAL OF BENEFIT (SUCH THAT ALLOWANCE UNDE R SECTION 37 MUST BE PERMITTED). THIS VERY ARGUMENT WAS CONSIDERED AND R EJECTED BY THE INCOME- TAX APPELLATE TRIBUNAL IN DELOITTE (SUPRA) (PAGE 40 1 OF 19 ITR (TRIB)) : IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 27 'THE SECOND ARGUMENT OF LEARNED COUNSEL THAT THE TR ANSFER PRICING OFFICER IS NOT EMPOWERED TO DISALLOW THE EXPENDITUR E AND THAT THE VERY REFERENCE TO THE TRANSFER PRICING OFFICER BY THE AS SESSING OFFICER PRESUMES THAT THE AMOUNT IN QUESTION IS ALLOWABLE U NDER SECTION 37 OF THE ACT AND CERTAIN CASE LAWS WERE RELIED UPON FOR THIS PROPOSITION. WE ARE UNABLE TO PERSUADE OURSELVES TO AGREE TO THI S PROPOSITION FOR THE REASONS THAT THE CENTRAL BOARD OF DIRECT TAXES, BY WAY OF A CIRCULAR, HAS DIRECTED THE ASSESSING OFFICER TO REFER TO ALL TRAN SACTIONS BEYOND A SPECIFIED LIMIT, TO THE TRANSFER PRICING OFFICER FO R DETERMINING THE ARM'S LENGTH PRICE. WHEN THE ASSESSING OFFICER HAS NO DIS CRETION IN THE MATTER, IN VIEW OF THE BINDING NATURE OF THE CENTRAL BOARD OF DIRECT TAXES INSTRUCTIONS DATED MAY 20, 2003, DIRECTING ALL THE OFFICERS OF THE DEPARTMENT TO REFER THE MATTERS TO THE TRANSFER PRI CING OFFICER FOR DETERMINATION OF THE ARM'S LENGTH PRICE WHERE THE A GGREGATE VALUE OF INTERNATIONAL TRANSACTIONS EXCEEDS RS. 5,00,00,000, THE ASSESSING OFFICER HAS A VERY LIMITED ROLE. HE HAS TO MECHANICALLY FOL LOW THESE INSTRUCTIONS. THERE IS NO APPLICATION OF MIND. THERE IS NO FORMAT ION OF ANY OPINION AT THE STAGE OF REFERENCE. THUS, TO PRESUME THAT HE HA S ALLOWED A PARTICULAR EXPENDITURE UNDER SECTION 37, DOES NOT SEEM TO BE T HE RIGHT VIEW OF THE MATTER. IN ANY EVENT, THIS IS NOT A CASE WHERE THE TRANSFER PRICING OFFICER OR THE ASSESSING OFFICER MADE A DISALLOWANCE UNDER SECTION 37 OF THE ACT. IT IS A CASE WHERE AN ADJUSTMENT HAS BEEN MADE UNDE R SECTION 92C(4) OF THE ACT, AFTER THE TRANSFER PRICING OFFICER DETERMI NED THE ARM'S LENGTH PRICE AT NIL UNDER SECTION 92CA(3). HENCE, THIS ARG UMENT IS DEVOID OF MERIT.' INDEED, A DIVISION BENCH OF THIS COURT, IN SONY IND IA PVT. LTD. V. CBDT [2007] 288 ITR 52 (DELHI) (ALBEIT CONSIDERING THE LAW PRIOR TO THE 2 007 AMENDMENT TO THE ACT), CONCURRED WITH THIS VIEW (PA GES 69 AND 74 OF 288 ITR) : 'A READING OF SECTION 92C AND SECTION 92CA DOES NOT INDICATE THAT THE ASSESSING OFFICER IS REQUIRED TO FORM A PRIOR CONSI DERED OPINION AFTER CONSIDERING ALL THE AVAILABLE MATERIALS EVEN BEFORE MAKING A REFERENCE TO THE TRANSFER PRICING OFFICER. A PRIMA FACIE OPINION WOULD SUFFICE AT THE STAGE OF MAKING THE REFERENCE . . . IT CORRECTLY INTERPRETS THE LAW AS REQUIRING ONLY A FORMATION OF A PRIMA FACIE OPINION BY THE ASSESSING OFFICER AT THE STAGE OF THE REF ERENCE. IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 28 THEREFORE, THE QUESTION OF THE CBDT SUPPLANTING THE JUDICIAL DISCRETION OF THE ASSESSING OFFICER DOES NOT ARISE. IT IS PERFECT LY POS SIBLE THAT, INDEPENDENT OF THE CIRCULAR, THE ASSESSING OFFICER MIGHT STILL 'CONSIDER IT NECESSARY OR EXPEDIENT' TO REFER AN INTERNATIONAL T RANS ACTION OF SUCH VALUE TO THE TRANSFER PRICING OFFICER FOR DETERMINA TION OF THE ARM'S LENGTH PRICE. AT THE SAME TIME IT IS NOT AS IF THE TRANS ACTIONS OF THE VALUE OF LESS THAN RS. 5 CRORES CANNOT BE REFERRED TO THE TRANSFER PRICING OFFICER BY THE ASSESSING OFFICER. ULTIMATELY, ANY E XERCISE OF DISCRETION BY THE ASSESSING OFFICER IS BOUND TO BE JUDICIALLY REV IEWED BY THE STATUTORY APPELLATE AUTHORITIES AS WELL AS BY THE COURTS. THE REFORE, IT IS NOT AS IF THERE IS NO CHECK ON THE EXERCISE OF DISCRETION BY THE ASSESSING OFFICER.' THE ASSESSING OFFICER CAN, THEREFORE, DETERMINE UND ER SECTION 37 THAT THE EXPENDITURE CLAIMED (IN THIS CASE, THE REFERRAL FEE S) WAS NOT FOR THE BENEFIT OF THE BUSINESS, AND THUS, DISALLOW THAT AMOUNT. TH IS DOES NOT RESTRICT OR IN ANY WAY BYPASS THE FUNCTIONS OF THE TRANSFER PRICIN G OFFICER. QUITE TO THE CONTRARY, IT REPRESENTS THE CORRECT DIVISION OF JUR ISDICTION BETWEEN THE TWO ENTITIES. 41. ON THE MERITS, THE COURT NOTES THAT THE REFERRA L FEES WAS PAID ACCORDING TO 'INTERNATIONAL FEE SHARING RULES AND REFERRAL FE ES ON TENANT REPRESENTATION TRANSACTIONS', DETAILS OF WHICH WERE PROVIDED BY THE ASSESSEE. THIS IS EXTRACTED BELOW : TENANT REPRESENTATION TRANSACTIONS THE REFERRING PARTY WILL RECEIVE THE FOLLOWING PERCENTAGE OF THE NET COMMISSION PAID TO THE EXECUTING FOR BUSINESS REFERRED WITH COMPETITION : FOR THE PORTION BETWEEN $0 $20000 0 PER CENT. FOR THE PORTION BETWEEN $20001 $150000 20 PER CENT. FOR THE PORTION BETWEEN $150001 $500000 30 PER CENT. FOR THE PORTION ABOVE $500001 40 PER CENT. FOR BUSINESS REFERRED WITHOUT COMPETITION : FOR THE PORTION BETWEEN $0 $20000 0 PER CENT. FOR THE PORTION BETWEEN $20001 - $150000 30 PER CENT. FOR THE PORTION BETWEEN $150001 $500000 40 PER CENT. FOR THE PORTION ABOVE $500001 50 PER CENT. IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 29 42. WHETHER THESE FIGURES REPRESENTED THE ARM'S LEN GTH PRICE OF SUCH REFERRAL TRANSACTIONS WAS TO BE DECIDED BY THE TRAN SFER PRICING OFFICER, WHO CONCLUDED THAT 'NO ADVERSE INFERENCE IS DRAWN'. THI S DETERMINATION IS BINDING ON THE ASSESSING OFFICER, WHO CANNOT CONSID ER THE QUANTUM OF REFERRAL FEES PAID, BUT ONLY WHETHER SUCH FEES WAS BACKED BY AN ACTUAL REFERRAL BY THE ASSOCIATED ENTERPRISES. IN OTHER WO RDS, THE ASSESSING OFFICER'S JURISDICTION IN SUCH CASE IS TO ONLY VERI FY WHETHER THE CLAIM OF THE ASSESSEE IS BORNE OUT BY THE MATERIALS RELIED ON BY IT AND FINALIZE THE ASSESSMENT ORDER. THISAS DISCUSSEDIS THE DISTINCT ION BETWEEN THE JURISDICTION OF THE ASSESSING OFFICER AND THE TRANS FER PRICING OFFICER ; THE TRANSFER PRICING OFFICER DETERMINES WHETHER THE STA TED TRANSACTION VALUE REPRESENTS THE ARM'S LENGTH PRICE OR NOT (INCLUDING WHETHER THE ARM'S LENGTH PRICE IS NIL), WHILE THE ASSESSING OFFICER MAKES TH E DECISION AS TO THE VALIDITY OF THE DEDUCTION UNDER SECTION 37. THIS ME ANS THE DECISION AS TO WHETHER THE EXPENDITURE WAS 'LAID OUT OR EXPENDED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS' IS A FACT DETERMI NATION OR VERIFICATION TO BE UNDERTAKEN BY THE ASSESSING OFFICER. THIS INCLUD ES WHETHER THE REFERRALS ACTUALLY OCCURRED (AND THUS TOOK PLACE FOR THE 'PUR POSE OF THE BUSINESS'), INDEPENDENT OF THEIR VALUATION WHICH THE TRANSFER P RICING OFFICER DETERMINES. THAT DETERMINATION IS NOT AND CANNOT BE MADE BY THE TRANSFER PRICING OFFICER. NOR IS THE AUTHORITY OF THE ASSESS ING OFFICER UNDER SECTION 37 CURTAILED IN ANY MANNER BY A REFERENCE UNDER SEC TION 92C. THIS DISTINCTION IS CRUCIAL IN ORDER TO MAINTAIN THE STA TUTORY AUTHORITY OF THE ASSESSING OFFICER TO ASSESS THE STATED INCOME AS AG AINST THE PROVISIONS OF THE ACT, RATHER THAN ACCEPT THE ASSESSEE'S ASSERTIO NS BY FORECLOSING THE ENQUIRY. THE FINDING OF THE INCOME- TAX APPELLATE T RIBUNAL THAT THE ASSESSING OFFICER COULD NOT HAVE GONE INTO THE MATT ER OF WHETHER THE REFERRAL ACTUALLY TOOK PLACE (BASED ON EVIDENCE PRO VIDED BY THE ASSESSEE) AFTER REFERRING THE MATTER TO THE TRANSFER PRICING OFFICER IS THUS INCORRECT. THE ASSESSING OFFICER CAN AND INDEED SHOULD CONDUCT THAT EXERCISE, LEST CORRECTLY PRICED DEDUCTIONS BASED ON NON-EXISTENT P APER TRANSACTIONS FUNNEL THROUGH SECTION 37. 43. IN VIEW OF THE ABOVE DISCUSSION AND ANALYSIS OF THE STATUTORY PROVISIONS, TWO ISSUES ON THE MERITS OF THE ASSESSING OFFICER'S ASSESSMENT ASSUME IMPORTANCE. FIRSTLY, HAVING REGARD TO THE TRANSFER PRICING OFFICER'S STAMP OF APPROVAL TO THE FEES CHARGED FOR THE STATED (THO UGH STILL NOT PROVEN) REFERRAL TRANSACTIONS, THE ASSESSING OFFICER WAS BO UND TO ACCEPT THAT FINDING ; IT IS, POST-2007, BINDING. IN THIS CONTEX T, IT WAS INCORRECT FOR THE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 30 ASSESSING OFFICER TO REMARK THAT THE 'ASSESSEE IS IN NO POSITION TO CLARIFY OR SUBSTANTI ATE THE WORK OR SERVICES RENDERED BY THE GROUP CONCERNS TO MERIT THIS PAYMEN T OF REFERRAL FEES TO THEM AT A HIGH RATE OF 30 PER CENT.' (EMPHASIS SUPP LIED) THE QUANTUM OF PAYMENT, I.E., THE VALUE OF TRANSACT ION OR THE PERCENTAGE REFERRAL FEES PAID WAS CONFIRMED BY THE TRANSFER PR ICING OFFICER IN HIS DETERMINATION. THE PAYMENT WAS AT THE ARM'S LENGTH ; THE ASSESSING OFFICER CANNOT REASSESS THAT ISSUE OR DRAW ADVERSE CONCLUSI ONS FROM THE PERCENTAGE VALUE OF THE REFERRAL FEES. THE ASSESSING OFFICER C AN, HOWEVER, IN HIS ASSESSMENT UNDER SECTION 37 DECIDE WHETHER WORK OR SERVICES WERE ACTUALLY RENDERED AS CLAIMED BY THE ASSESSEE. IN OTHER WORDS , THE ASSESSING OFFICER MAY DETERMINE WHETHER THE STATED TRANSACTIONS ARE R EAL AND GENUINE, I.E., THE EXISTENCE OF A REFERRAL FROM THE ASSOCIATED ENT ERPRISES TO THE ASSESSEE. THIS, AS PART OF THE BROADER EXERCISE TO DETERMINE WHETHER THE EXPENDITURE WAS FOR THE PURPOSES OF THE BUSINESS, LIES UNQUESTI ONABLY WITHIN THE DOMAIN OF THE ASSESSING OFFICER. INDEED, THIS IS ALSO PREC ISELY WHAT THE ASSESSING OFFICER DID : '4.5 REPEATEDLY DURING THE COURSE OF THE HEARINGS, THE ASSESSEE- COMPANY HAD BEEN ASKED TO MATCH EACH TRANSACTION IN THE LIS T TO THE WORK DONE BY THE GROUP ENTITY SPECIFICALLY IN RELATION TO THE PR OPERTY TRANSACTION DONE BUT THIS HAS NOT BEEN GIVEN BY THE ASSESSEE IN ITS SUBMISSIONS. THIS MAKES IT CLEAR THAT THE ASSESSEE-COMPANY IS IN NO POSITIO N TO CLARIFY OR SUBSTANTIATE THE WORK DONE OR SERVICES RENDERED BY THE GROUP CONCERNS TO MERIT THIS . . . 4.6 NONE OF THE AGREEMENTS FILED BY THE ASSESSEE-CO MPANY SPECIFY THE EXACT PERCENTAGE OF FEE TO BE RECEIVED BY CWS. NO P RUDENT BUSINESS PERSON WILL LEAVE THE ISSUE OF PAYMENT OF FEE OPEN. THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THE GENUINENESS OF THE TRA NSACTION, THE SERVICES RENDERED BY THE GROUP ENTITIES TO MERIT THIS REFERR AL FEE AT A HIGH RATE NOR THE BUSINESS PURPOSE OF THE SAME. 4.8 ON CLOSE SCRUTINY OF THE E-MAILS, COPIES OF WHI CH HAVE BEEN GIVEN IN THE SUBMISSIONS, IT IS SEEN THAT MOST OF THEM ARE C RYPTIC MAILS IN THAT MOST OF THEM DO NOT CLEARLY MENTION EITHER THE CLIENT OR THE REQUIREMENTS OF THE CLIENT WHICH IS THE MANDATORY REQUIREMENT FOR ANY E NTITY REFERRING TO ANY OTHER ENTITY. THERE IS NO EVIDENCE SUBMITTED REGARD ING THE SERVICES IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 31 PROVIDED BY THE GROUP ENTITIES TO MERIT THE REFERRA L FEE. COPIES OF SOME INVOICES ARE ALSO GIVEN BUT AGAIN RAISING INVOICES DOES NOT SUBSTANTIATE OR GIVES PROOF OF THE WORK DONE BY THE GROUP ENTITI ES. 4.9 THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE A S TO HOW THE INDIAN ENTITIES FROM WHOM INCOME WAS GENERATED ON ACCOUNT OF RENDERING OFF SERVICES, ETC., IS LINKED TO THE ASSOCIATE ENTERPRI SE OF THE ASSESSEE TO WHOM REFERRAL FEE IS PAID. IN SIMPLER WORDS THE LIN K BETWEEN THE CLIENTS BASED IN INDIA AND THE ASSOCIATE ENTERPRISES OF THE ASSESSEE-COMPANY WHICH COULD ENABLE THEIR REFERRAL IN THE FIRST INST ANCE HAS NOT BEEN ESTABLISHED. THE ASSESSEE'S CASE IS A PURE AND SIMP LE CASE OF TAX PLANNING OTHERWISE.' (EMPHASIS SUPPLIED) BASED ON THE EVIDENCE PROVIDED BY THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THERE WAS NO UNDERLYING REFERRAL THAT JU STIFIED THE PAYMENT OF FEES (WHICH, IF THE TRANSACTIONS WERE GENUINE, WOUL D HAVE BEEN AT THE ARM'S LENGTH AS PER THE TRANSFER PRICING OFFICER) AND, TH US, THE EXPENDITURE WAS NOT FOR A BUSINESS PURPOSE. THIS CLEARLY LIES WITHI N THE ASSESSING OFFICER'S JURISDICTION ; A RULING TO THE CONTRARY WOULD MEAN THAT THE EXPENDITURE CANNOT BE TESTED AS AGAINST THE LEGAL STANDARD UNDE R SECTION 37. THE INCOME- TAX APPELLATE TRIBUNAL REASONED THAT THIS A MOUNTS TO DOING SOMETHING INDIRECTLY THAT CANNOT BE DONE DIRECTLY. QUITE TO THE CONTRARY, THIS IS SOMETHING THAT THE ASSESSING OFFICER CAN DO, AND HAS DONE, DIRECTLY. 44. THE OTHER ASPECT IS THAT THE INCOME-TAX APPELLA TE TRIBUNAL DISMISSED THE ASSESSMENT ORDER ON THE MERITS AS WELL. IT HELD THAT THE ASSESSING OFFICER'S ASSESSMENT OF EVIDENCE WAS INCORRECT BECA USE 'THE ASSESSEE HAD SUBMITTED AMPLE EVIDENCE TO SUPPORT THE EXPENDITURE .' HAVING SET ASIDE THE INCOME- TAX APPELLATE TRIBUNAL'S REASONING THAT THE TRANSFER PRICING OFFICER'S REPORT WAS BINDING ON THIS ISSUE, THIS BA RE ASSERTION OF 'AMPLE EVIDENCE' REMAINS THE ONLY REFERENCE TO THE MERITS OF THE ASSESSING OFFICER'S ORDER. THIS COURT NOTES THAT NEITHER THE ASSESSING OFFICER (WHO DID ADMITTEDLY DEAL WITH THE ISSUE AT SOME LENGTH) NOR THE INCOME-TAX APPELLATE TRIBUNAL (WHICH SUMMARILY NOTED THAT PRESENCE OF EV IDENCE) HAVE DISCUSSED WHAT SUCH EVIDENCE IS. DETAILS OF THE E-MAILS, AND WHY THEY DO OR DO NOT DISCLOSE THE EXISTENCE OF REFERRAL TRANSACTIONS OR ANY OTHER MATERIAL CONCERNING THE TRANSACTIONS, HAVE NOT BEEN DISCLOSE D, LET ALONE DISCUSSED IN ANY DETAIL. IN SUCH A CASE, THE COURT IS FACED WITH CONTRARY ASSERTIONS OF THE ASSESSING OFFICER AND THE INCOME-TAX APPELLATE TRIB UNAL, AND NOTHING IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 32 MORE. NO CONCLUSIONS ABOUT THE CORRECTNESS OF EITHE R APPROACH CAN BE TAKEN IN THIS BACKGROUND. 45. THE FINDING OF THE INCOME-TAX APPELLATE TRIBUNA L ON THIS COUNT ARE, THEREFORE, LIABLE TO BE SET ASIDE AND THIS ASPECT O F THE MATTER IS TO BE REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR A DETAILED VERIFICATION OF FACTS AND PROVISION OF REASONED CONCLUSIONS, WITH T HE ASSESSING OFFICER BEING BOUND BY THE TRANSFER PRICING OFFICER'S APPRO VAL OF THE PRICING OF THE REFERRAL FEES. 46. ACCORDINGLY, THE FINDINGS OF THE INCOME-TAX APP ELLATE TRIBUNAL CONCERNING REIMBURSEMENT OF COSTS AND PAYMENT OF RE FERRAL FEES TO THE FOREIGN ASSOCIATED ENTERPRISES ARE SET ASIDE. THE M ATTER IS REMANDED TO THE FILE OF THE ASSESSING OFFICER, IN VIEW OF THE DIREC TIONS IN PARAGRAPHS 37 AND 45 ABOVE. ON THE QUESTION OF REIMBURSEMENT OF COSTS , THE MATTER IS REMANDED TO THE FILE OF THE ASSESSING OFFICER, FOR AN ARM'S LENGTH PRICE ASSESSMENT BY THE TRANSFER PRICING OFFICER, FOLLOWE D BY THE ASSESSING OFFICER'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW. ON THE QUESTION OF REFERRAL FEES, THE REPORT OF THE TRANSFER PRICING O FFICER VALIDATING THE ARM'S LENGTH PRICE OF THE TRANSACTIONS IS BINDING ON THE ASSESSING OFFICER, WHO MAY VERIFY THE TRANSACTIONS AND ASSESS THE DEDUCTIO NS UNDER SECTION 37 OF THE ACT IN ACCORDANCE WITH LAW. FOR THESE REASONS, THE APPEAL IS PARTLY ALLOWED. THERE SHALL BE NO ORDER AS TO COSTS. 19. IN OUR OPINION, THERE IS NO DOUBT THAT ASSESSE E HAS TO ESTABLISH RECEIPT OF BENEFITS ON ACCOUNT OF SERVICES RENDERED BY ITS AES AND THESE WERE COMPENSATED ON A LEVEL COMPARABLE TO PAYMENTS THAT WOULD HAVE BEEN MADE IF SIMILAR SERVICES WERE RECEIVED FROM UNRELAT ED PARTIES OR IN AN UNCONTROLLED TRANSACTION. AT THE SAME TIME, IT IS NOT OPEN FOR THE TPO TO CONSIDER THAT THERE WAS NO BENEFIT WHATEVER RECEIVE D BY THE ASSESSEE WITHOUT VERIFYING THE DOCUMENTATION SUBMITTED BY TH E ASSESSEE. AS PER THE ASSESSEE, IT HAD EVIDENCE TO SHOW THAT THERE WAS CO NSIDERABLE IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 33 CORRESPONDENCE BETWEEN THE AE AND ITSELF WHICH COUL D AMPLY PROVE RENDERING OF SERVICES BY THE AES TO THE ASSESSEE . THE FACTS AND CIRCUMSTANCES OF THE CASE AS DESCRIBED ABOVE SHOW T HAT THE QUESTION OF BENCH-MARKING THE VALUE OF SUCH SERVICES REQUIRES A FRESH LOOK BY THE AO / TPO. WE THEREFORE SET ASIDE THE ORDERS OF THE AO / TPO AND REMIT THE ISSUES RELATING TO ALLEGED PAYMENTS FOR TECHNICAL F EES AND ALLEGED REIMBURSEMENT OF GROUP IT EXPENDITURE TO THE AES BA CK TO THE FILE OF THE AO / TPO FOR CONSIDERATION AFRESH IN ACCORDANCE WIT H LAW. ASSESSEE IS FREE TO PRODUCE ANY EVIDENCE TO SHOW THAT SERVICES WERE INDEED RECEIVED BY IT FROM THE AE. ASSESSEE IS ALSO DUTY BOUND TO BENCH-M ARK SUCH SERVICES BY COMPARING IT WITH UNCONTROLLED TRANSACTIONS BY INDE PENDENT ENTERPRISES WHERE SIMILAR SERVICES ARE RECEIVED. ACCORDINGLY, GROUND I OF THE ASSESSEE FOR BOTH YEARS IS TREATED AS ALLOWED. 20. VIDE ITS GROUND II(1), GRIEVANCE OF THE ASSESSE E IS ON DISALLOWANCE OF REIMBURSEMENT OF IT EXPENDITURE TO SKF DATA SERVICE S, SWEDEN FOR NON- DEDUCTION OF TAX AT SOURCE, APPLYING SECTION 40(A)( IA) OF THE ACT. 21. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THI S WAS ONE OF THE TWO INTERNATIONAL TRANSACTIONS, BENCH-MARKED BY THE TPO WITH AN ALP OF ZERO. AS PER THE LD. AR ASSESSEE, WHAT WAS PAID TO M/S. S KF DATA SERVICES, IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 34 SWEDEN, WAS REIMBURSEMENT OF INFORMATION TECHNOLOGY RELATED SERVICES. LD. AR SUBMITTED THAT SAP SOFTWARE AND RELATED SUPP ORTING SOFTWARE WERE ACQUIRED BY M/S. SKF DATA SERVICES, AND GIVEN FOR U SE TO ALL THE SKF GROUP ENTITIES. AS PER THE LD. AR THOUGH THERE WAS NO AGREEMENT WITH M/S. SKF DATA SERVICES, UNDERSTANDING WAS THAT THE COST INCURRED BY M/S. SKF DATA SERVICES, WOULD BE SHARED BY GROUP ENTITIES AP PLYING APPROPRIATE KEYS. ACCORDING TO HIM, THERE WAS NO PROFIT ELEMEN T IN THE REIMBURSEMENT TO M/S. SKF DATA SERVICES. THUS THERE WAS NO REQUI REMENT OF TDS ON SUCH PAYMENT. AS PER THE LD. AR THERE WAS NO TECHNICAL SERVICES RENDERED BY M/S. SKF DATA SERVICES. TECHNICAL SERVICES EVEN IF IT WAS PRESUMED TO HAVE BEEN RENDERED, AS PER THE LD. AR, UNLESS THE MAKE AVAILABLE CLAUSE WAS SATISFIED, PAYMENTS THEREOF COULD NOT BE TAXED IN INDIA. LD. AR ALSO RELIED ON DTAA BETWEEN INDIA AND SWEDEN AND THE PRO TOCOL INDEXED TO IT WHEREIN IT IS MENTIONED THAT INDIA CANADA DTAA HAD TO BE APPLIED. AS PER THE LD. AR, PROVISIONS OF INDIA CANADA DTAA IF APPL IED WOULD SHOW THAT ASSESSEE WOULD NOT BE REQUIRED TO DEDUCT TAX AT SOU RCE SINCE THERE WAS NO TECHNICAL SERVICES RENDERED BY M/S. SKF DATA SERVIC ES, SWEDEN, TO THE ASSESSEE IN TERMS OF DTAA. 22. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF LOWE R AUTHORITIES. IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 35 23. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. AO HAD IN THE DRAFT ASSESSMENT ORDER NOTED THAT ASSESSEE H AD NOT DEDUCTED TAX AT SOURCE ON PAYMENTS EFFECTED TO SKF DATA SERVICES, S WEDEN. AS PER THE AO NO SUPPORTING EVIDENCE WAS FILED BY THE ASSESSEE TO SHOW THAT THESE WERE REIMBURSEMENT OF EXPENDITURE. AO ALSO NOTED T HAT ASSESSEE WAS SELLING ITS ENTIRE PRODUCT LINE IN INDIA AND THERE COULD NOT BE ANY SERVICES RENDERED BY M/S. SKF DATA SERVICES IN SWEDEN, FOR S UCH BUSINESS OPERATIONS. ACCORDING TO HIM, PAYMENTS WERE UNRELA TED TO BUSINESS OF ASSESSEE IN INDIA. WHAT WE FIND IS THAT NONE OF TH E LOWER AUTHORITIES HAD CAREFULLY LOOKED INTO THE MAKE AVAILABLE CLAUSE I N ARTICLE 12(4) OF THE DTAA BETWEEN INDIA AND CANADA WHICH WAS CALLED INTO OPERATION BY THE ASSESSEE. LOWER AUTHORITIES DID NOT LOOK INTO THE APPLICABILITY OF THE DTAA IN RELATION TO THE ALLEGED COST SHARING PASSED ON B Y M/S. SKF DATA SERVICES, SWEDEN, TO THE ASSESSEE FOR THE IT RELATED SERVICES . QUESTION WHETHER ANY TECHNICAL SERVICES WERE RENDERED BY M/S. SKF DATA S ERVICES, SWEDEN, TO THE ASSESSEE AND HOW FAR THE MAKE AVAILABLE CLAUS E WAS OR WAS NOT SATISFIED WERE NEVER VERIFIED EITHER BY THE TPO OR THE DRP. IN OUR OPINION, THIS ASPECT ALSO REQUIRES A FRESH LOOK BY THE AO. WE SET ASIDE THE ORDERS OF THE AUTHORITIES ON THE ASPECT OF DISALLOW ANCE U/S.40(A)(IA) OF THE ACT ALSO AND REMIT IT BACK TO THE FILE OF THE AO F OR CONSIDERATION IN IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 36 ACCORDANCE WITH LAW. GROUND.II(1) OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSE. 24. THIS LEAVES US WITH TWO OTHER GROUNDS TAKEN BY THE ASSESSEE WHICH APPEARS IN APPEAL FOR A. Y. 2007-08. FIRST ONE REL ATES TO SET OFF OF CARRY FORWARD LOSS. AS PER THE ASSESSEE, CARRY FORWARD L OSS FOR A. Y. 2006-07 WAS RS.41,95,29,825/- AND NOT RS.10,96,29,092/-. LD. A R SUBMITTED THAT IF THE CORRECT FIGURE OF CARRY FORWARD OF LOSS IS CONSIDER ED THEN THERE WOULD BE NO POSITIVE INCOME FOR THE IMPUGNED ASSESSMENT YEAR. 25. SINCE THE QUESTION IS REGARDING WHAT WAS THE AC TUAL CARRY FORWARD LOSS AVAILABLE TO THE ASSESSEE FOR A. Y. 2006-07, W E ARE OF THE OPINION THAT IT IS AN ASPECT WHICH CAN BE VERIFIED BY THE AO. WE T HEREFORE DIRECT THE AO TO VERIFY AND GIVE THE ASSESSEE THE BENEFIT OF ACTU AL CARRY FORWARD OF LOSS AS ASSESSED FOR A. Y. 2006-07, FOR THE IMPUGNED ASSESS MENT YEAR. GROUND II(2) IS ALLOWED FOR STATISTICAL PURPOSE. IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 37 26. VIDE ITS GROUND II(3), GRIEVANCE OF THE ASSESSE E IS THAT DISALLOWANCE OF EXPENDITURE TOWARDS GROUP IT SERVICES WERE CONSI DERED TWICE, ONCE U/S.40(A)(IA) OF THE ACT AND AGAIN U/S.92CA OF THE ACT. WHAT WE FIND IS THAT BENCH MARKING OF THE INTERNATIONAL TRANSACTIONS U/S .92CA OF THE ACT, IS ENTIRELY DIFFERENT FROM ALLOWANCE OF DISALLOWANCE O F AN EXPENDITURE U/S.37 OF THE ACT. WE HAVE ALREADY SET ASIDE THE ISSUE R EGARDING BENCH MARKING OF GROUP IT SERVICES RENDERED BY SKF DATA SERVICES, SW EDEN, TO THE ASSESSEE, BACK TO THE FILE OF THE AO / TPO FOR CONSIDERATION AFRESH. IRRESPECTIVE OF ANY ADDITION MADE, UNDER ALP PRICING PROVISIONS, AP PLICATION OF SECTION 40(A)(IA) OF THE ACT CAN DEFINITELY BE DONE BY THE AO. SINCE THESE TWO PROVISIONS APPLY IN ALTOGETHER DIFFERENT INDEPENDEN T SPHERES, WE DO NOT FIND ANY MERIT IN THIS GROUND TAKEN BY THE ASSESSEE. GR OUND.II(3) OF THE ASSESSEE STANDS DISMISSED. 27. ONLY OTHER GROUND RAISED BY THE ASSESSEE IS ON INTEREST U/S.234C OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. IT(TP)A.1481/B/2010 & IT(TP)A.1339/BANG/2011 PAGE - 38 28. TO SUMMARISE, APPEAL OF THE ASSESSEE FOR A. Y. 2006-07 IS ALLOWED FOR STATISTICAL PURPOSE, WHEREAS ITS APPEAL FOR A. Y.2007-08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF MARCH, 2016. SD/- SD/- (VIJAY PAL RAO) (ABRA HAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR