DCIT, New Delhi V. M/s. MSD Pharmaceuticals Pvt. Ltd., New Delhi

ITA 1563/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7199 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I1
• Next Hearing Date: 28-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Additional evidence; Capital receipt
• Section: 143(3); 144C; 13; 22

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI SUDHANSHU SRIVASTAVA, JUDI CIAL MEMBER ITA NO. 1382/DEL/2016 [ASSESSMENT YEAR: 2011-12] & ITA NO. 1909/DEL/2016 [ASSESSMENT YEAR: 2012-13] MSD PHARMACEUTICALS PVT. LTD VS. THE DY. C.I.T. 1544, LEVEL 15, EROS CORPORATE TOWERS CENTRAL CIR CLE17(1) NEHRU PLACE, NEW DELHI NEW DELHI PAN: AAECM 1106 C ITA NO. 1563/DEL/2016 [ASSESSMENT YEAR: 2011-12] THE DY. C.I.T. VS. MSD PHARMACEUTICALS PVT. LTD CENTRAL CIRCLE17(1) 1544, LEVEL 15, ERO S CORPORATE TOWERS NEW DELHI NEHRU PLACE, NEW DELHI PAN: AAECM 1106 C [APPELLANT] [RESPONDENT] DATE OF HEARING : 13.01.2020 DATE OF PRONOUNCEMENT : 15.01.2020 ASSESSEE BY : MS. RASHMI CHOPRA, ADV REVENUE BY : SHRI SURENDRA PAL, CIT - DR 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THE ABOVE CROSS APPEALS BY THE ASSESSEE AND REVENUE IN ITA NO. 1382/DEL/2016 AND ITA NO. 1563/DEL/2016 ARE PREFERR ED AGAINST THE ORDER U/S 143(3) R.W.S 144C OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] DATED 28.01.2016 PERTAINI NG TO ASSESSMENT YEAR 2011-12. THE ASSESSEE HAS ALSO PREFERRED APPE AL IN ITA NO. 1909/DEL/2017 AGAINST THE ORDER DATED 30.01.2017 FR AMED U/S 143(3) R.W.S 144C OF THE ACT PERTAINING TO A.Y 2012-13. S INCE ALL THESE APPEALS PERTAIN TO SAME ASSESSEE INVOLVING COMMON I SSUES AND WERE HEARD TOGETHER, WE ARE DISPOSING THEM OFF BY THIS C OMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE QUARREL CAN BE SUMMARISED AS UNDER: (A) APPLICABILITY OF MOST APPROPRIATE METHOD. THE REVENUE HAS APPLIED TRANSACTIONAL NET MARGIN ME THOD [TNMM] WHEREAS THE ASSESSEE ALLEGES RESALE PRICE ME THOD [RPM] IS THE MOST APPROPRIATE METHOD AND WHETHER SUBVENTI ON REVENUE IS PART OF OPERATING PROFIT THEREBY AFFECTING PLI. 3 (B) ADJUSTMENTS ON ACCOUNT OF ADVERTISING, MARKETIN G PROMOTION [AMP] SPENT. (C) ADDITIONS ON ACCOUNT OF CORPORATE ISSUES. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE STATED THAT ALL THE ISSUES HAVE BEEN DECIDED BY THE CO-ORDINATE BEN CH IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11 IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. THE ORDER OF THE TRIBUNAL HAS BEEN FURNISHED ON RECORD. 4. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF TH E ASSESSING OFFICER AND FILED WRITTEN SUBMISSIONS IN SUPPORT OF HIS CONTENTIONS. 5. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE OR DERS OF THE AUTHORITIES BELOW. THE PRESENT APPEALS HAVE BEEN S ET ASIDE TO THE FILE OF THE TRIBUNAL BY ORDER OF THE HON'BLE HIGH COURT OF DELHI IN ITA NOS. 971 & 972/2012 JUDGEMENT DATED 13.11.2017 TO DECIDE THE ISSUES DE NOVO ON MERITS. 6. SIMILAR WAS THE FATE IN ASSESSMENT YEAR 2010-11 AND THE CO- ORDINATE BENCH HAS CONSIDERED THE CONTENTIOUS ISSUE S IN ITA NO. 1423/DEL/2015 VIDE ORDER DATED 23.12.2019. 4 7. IN SO FAR AS APPLICABILITY OF MAM IS CONCERNED, THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER: 34. NOW COMING TO THE NEXT ISSUE RAISED, WHICH IS WITH REGARD TO DISTRIBUTION SEGMENT. THE LD.AR FOR THE ASSESSEE BEFORE US HAS PRESSED GROUND OF APPEAL NO. 6 AND POINTED OUT THAT OTHER TRANSFER PRICING ISSUES WOULD BECOME ACADEMIC IN NA TURE EXCEPT GROUND OF APPEAL NO.7 ON THE ISSUE OF SUBVENTION IN COME WHETHER OPERATING REVENUE OR NOT, IF DECIDED IN FAV OUR OF THE ASSESSEE. SO, WE PROCEED TO LOOK AT THE SAID GROUND OF APPEAL. THE ASSESSEE IS AGGRIEVED BY THE ORDERS OF THE AUTH ORITIES BELOW IN HOLDING THAT THE TRANSACTIONAL NET MARGIN METHOD WAS MOST APPROPRIATE METHOD TO BE APPLIED AS AGAINST RP M SELECTED BY THE ASSESSEE TO BE THE MOST APPROPRIATE METHOD. THE CASE OF THE ASSESSEE WAS THAT IT WAS NOT ADDING ANY VALUE T O THE GOODS IMPORTED AS IT WAS ONLY UNDERTAKING DISTRIBUTION AC TIVITIES AND HENCE, RPM WAS THE MOST APPROPRIATE METHOD TO BE AP PLIED. HOWEVER, TPO WAS OF THE VIEW THAT ON ACCOUNT OF PRO MOTION OF DRUGS, EXPENSES WERE INCURRED WHICH RESULTED IN VAL UE ADDITION AND BECAUSE OF THE SAME, RPM COULD NOT BE HELD TO B E CORRECT METHOD. THE LD.AR FOR THE ASSESSEE BEFORE US HAS RE LIED ON THE FOLLOWING DECISIONS:- (I) ACIT VS KOBELCO CONSTRUCTION EQUIPMENT INDIA LT D. [2017] 81 TAXAMNN.COM 31 (DELHI-TRIB.); (II) M/S. CELIO FUTURE FASHION PVT.LTD. VS ACIT ITA NO.1928/MUM/2016(MUM.-TRIB.) ORDER DATED 15.03.2019 5 35. THE LD. DR FOR THE REVENUE ON THE OTHER HAND PL ACED STRONG RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND POINTED OUT THAT UNDER RPM, THERE WAS REQUIREMENT OF HIGH LEVEL COMPARABILITY, WHEREAS UNDER THE TRANSACTIONAL NET MARGIN METHOD THERE WAS TOLERANCE RANGE. 36. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. FOR DECIDING THE AFORESAID ISSUE RAISED BY THE ASSE SSEE UNDER THE DISTRIBUTION SEGMENT, WE MAY REFER TO OUR DECIS ION IN THE PARAS ABOVE, WHEREIN WE HAVE HELD THAT THE EXPENDIT URE INCURRED ON PROMOTION, ADVERTISEMENT AND MARKETING BY THE AS SESSEE IS NOT AN INTERNATIONAL TRANSACTION TO BE BENCHMARKED IN THE HANDS OF THE ASSESSEE. THE CASE OF THE ASSESSING OFFICER/ TPO IN THIS REGARD WAS THAT SINCE THE ASSESSEE WHILE UNDERTAKIN G THE ACTIVITIES OF THE DISTRIBUTION HAD ALSO INCURRED EX PENSES WHICH RESULTED IN VALUE ADDITIONS AND HENCE, RPM COULD NO T BE APPLIED. AS WE HAVE ALREADY HELD THAT NO ADJUSTMENT IS TO BE MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF AMP EXPEN SES IN THE HANDS OF THE ASSESSEE, THE CASE OF THE ASSESSING OF FICER/TPO FALLS IN THE ABSENCE OF ANY VALUE ADDITION. ACCORDI NGLY, WE HOLD THAT IN THE CASE OF THE ASSESSEE, RPM IS THE MOST A PPROPRIATE METHOD TO BE APPLIED. IN THIS REGARD, WE FIND SUPPO RT FROM THE RATIO LAID DOWN BY THE M/S. CELIO FUTURE FASHION PV T. LTD. (SUPRA) AND KOBELCO CONSTRUCTION EQUIPMENT INDIA LTD. (SUPR A). THE RPM METHOD IDENTIFIES THE PRICE AT WHICH PRODUCT PURCHA SED FROM THE AE IS RESOLD TO UNRELATED PARTY; THEN IN THE CA SE OF RESELLERS, WHO DO NOT ALTER THE TANGIBLE GOODS AND SERVICES OR 6 USE ANY INTANGIBLE ASSETS TO ADD SUBSTANTIAL VALUE TO THE PROPERTY OR SERVICES I.E. RESALE IS MADE WITHOUT AN Y VALUE ADDITION, THEN IN SUCH FACTS AND CIRCUMSTANCES, RPM METHOD IS TO BE APPLIED AS METHOD TO BENCHMARK THE INTERNATIO NAL TRANSACTION UNDERTAKEN. WE HOLD SO AND ALLOW THE GR OUND RAISED BY THE ASSESSEE ON THIS ISSUE. THE ASSESSING OFFICE R IS DIRECTED TO APPLY THE RPM METHOD IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSE E IN THE DISTRIBUTION SEGMENT, AFTER ALLOWING REASONABLE OPP ORTUNITY OF HEARING TO THE ASSESSEE. WE ONLY ADJUDICATING GROUN D NO.6 AND ALL OTHER GROUNDS RAISED BY THE ASSESSEE IN THIS RE GARD, ARE NOT ADJUDICATED, ON THE GROUND THAT THE ASSESSEE ITSELF HAD PLEADED THAT THE BALANCE GROUNDS OF APPEAL WOULD BECOME ACA DEMIC IN CASE GROUND NO.6 AND THE ISSUE ON AMP EXPENSES IS A LLOWED IN THE CASE OF THE ASSESSEE. 8. IN SO FAR AS SUBVENTION INCOME IS CONCERNED AND WHETHER THE SAME IS PART OF OPERATING MARGIN, THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER: 37. NOW, COMING TO THE LAST ISSUE WHICH IS RAISED R EGARDING SUBVENTION INCOME RECEIVED BY ITS AE. WHILE COMPUTI NG THE OPERATION MARGIN OF THE ASSESSEE, THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE HAD RECEIVED SUBVENTION INCOME FR OM ITS AE. REFERRING TO THE RECITALS IN THE SALES AGREEMENT EN TERED INTO BY THE ASSESSEE WITH MSD BV AT PAGES 22 & 23 OF THE TP OS ORDER, 7 IT WAS CONCLUDED BY THE TPO THAT THE SUBVENTION PAY MENT, WAS IN THE NATURE OF COMPENSATION, WAS CLEARLY AN EXTRAORD INARY ITEM OF INCOME AND SHOULD BE EXCLUDED FROM THE COMPUTATION OF OPERATING INCOME OF THE ASSESSEE. IN THIS REGARD, R EFERENCE WAS MADE TO THE SAFE HARBOUR RULES INTRODUCED BY INCOME TAX 16TH AMENDMENT RULES, 2013. HE THUS CONSIDERED THE SUBVE NTION INCOME AS NON-OPERATING INCOME, FOR THE PURPOSE OF COMPUTATION OF PLI. IT WAS ALSO OBSERVED BY THE ASSESSING OFFIC ER VIDE PARA 5.35 AT PAGE 26 OF THE TPOS ORDER THAT IF THE SHOR TFALL IN THE REVENUE OF THE ASSESSEE IS COMPARED VIS--VIS THE S UBVENTION PAYMENT OF RS.77.12 CRORES, THERE WAS STILL SHORTFA LL OF RS.1.14 CRORES. ACCORDINGLY, HE PROPOSED TO ENHANCE THE INC OME OF THE ASSESSEE BY RS.19.27 CRORES. THE SAID ADJUSTMENT WA S MADE BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER AND OBJECTIONS WERE REJECTED BY THE DRP AND FINAL ASSES SMENT ORDER WAS PASSED AGAINST THE ASSESSEE. THE ASSESSEE HAS R AISED GROUND OF APPEAL NO.7 WITH REGARD TO NON-INCLUSION OF SUBVENTION INCOME AS PART OF OPERATING INCOME. 38. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS VIS--VIS THE DECISION OF THE ASSESSING OFFICER/TPO ON RELIANCE O F SAFE HARBOUR RULES. 39. WE HAVE HEARD THE RIVAL CONTENTIONS AND BOTH T HE AUTHORIZED REPRESENTATIVES. FIRST OF ALL THE ISSUE RELATES TO THE SUBVENTION INCOME RECEIVED BY THE ASSESSEE AMOUNTIN G TO RS.77.12 CRORES. AS PER THE UNDERSTANDING BETWEEN T HE PARTIES VIDE CLAUSE 5 TO SCHEDULE (A) OF THE SALES AGREEMEN T BETWEEN 8 MSD INDIA AND MSD BV, IT WAS AGREED UPON THAT SINCE IN THE INITIAL YEARS OF OPERATION, IT WAS ANTICIPATED THAT THE ASSESSEE WOULD INCUR SIGNIFICANT START UP OPERATING COST AND WOULD INCUR LOSSES IN THESE YEARS, SO IN ORDER TO ASSIST THE AS SESSEE IN ITS INITIALS YEARS OF OPERATION, FOR TRANSFER PRICING P URPOSES, MSD BV WOULD MAKE SUBVENTION PAYMENTS TO THE ASSESSEE T O REIMBURSE PART OF OPERATING EXPENSES. THE AMOUNT OF THE SUBVENTION PAYMENTS WERE TO BE MUTUALLY AGREED UPON BETWEEN THE PARTIES. IT WAS FURTHER PROVIDED THAT THE TRAN SFER PRICING SUBVENTION PAYMENTS/REIMBURSEMENT OF OPERATING EXPE NSES UNDER THE AGREEMENT, SHALL BE PAYABLE AS PER THE GR OUPS NORMAL INTER COMPANY PAYMENT PROCEDURES. THE LD.AR FOR TH E ASSESSEE REFERRED TO PAGE 60 & 65 OF THE PAPER BOOK TO POINT OUT THAT SUBVENTION INCOME RECEIVED BY THE ASSESSEE HAS BEEN OFFERED AS OTHER INCOME AND HAS BEEN BROUGHT TO TAX. THIS ASPE CT IS NOT DISTURBED BY THE AUTHORITIES BELOW AS THE TPO HAD N OT DISTURBED THE BENCHMARKING OF DISTRIBUTION SEGMENT. THE ASSESSEE FURTHER POINTS OUT THAT THE SUBVENTION PAY MENT WAS INEXTRICABLY LINKED TO THE DISTRIBUTION ACTIVITY CA RRIED ON BY THE ASSESSEE. IN THE INITIAL YEARS, THE ASSESSEE HAD IN CURRED LOSSES AS THESE WERE ITS INITIAL YEARS OF OPERATIONS. SO T O REIMBURSE PART OF THE OPERATING EXPENSES, THE AE MADE SUBVENT ION PAYMENTS TO THE ASSESSEE WHICH MAY BE CONSIDERED AS OPERATING RECEIPT OF THE ASSESSEE. 9 40. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE PUN E BENCH OF THE TRIBUNAL IN NALCO WATER INDIA LTD. VS ACIT IN I TA NO.742/PUN/2017, RELATING TO ASSESSMENT YEAR 2012-1 3 ORDER DATED 06.09.2019 WHEREIN INTENTION TO PAY SUBVENTIO N AMOUNT WAS FOR LIMITED PERIOD SO AS TO ENSURE THAT THE ASS ESSEE THEREIN DID NOT BECOME SICK COMPANY. THE ASSESSEE THEREIN H AD ALSO OFFERED THE SAID SUBSIDY AS TAXABLE IN ITS HANDS AS NOTED BY PARA 9 OF ORDER. COMING TO THE TREATMENT OF THE SUBVENTI ON /SUBSIDY RECEIVED BY THE ASSESSEE FROM ITS PARENT COMPANY AN D WHETHER THE SAID SUBVENTION AMOUNT WAS OPERATING IN NATURE AND THE SAME HAD TO BE INCLUDED AS RECEIPT IN THE HANDS OF THE A SSESSEE, WHILE COMPUTING THE PLI FOR THE YEAR UNDER CONSIDERATION, IT WAS HELD AS UNDER:- 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE ARISING BY WAY OF GROUND OF APPEA L NO.2 IS AGAINST TREATMENT OF SUBVENTION / SUBSIDY RECEIV ED BY ASSESSEE FROM ITS PARENT COMPANY NALCO, USA. THE SE COND ISSUE WHICH IS RAISED ON WITHOUT PREJUDICE BASIS VI DE GROUND OF APPEAL NO.11 IS WHETHER THE SAID SUBVENTI ON AMOUNT IS OPERATING IN NATURE AND THE SAME HAS TO B E INCLUDABLE AS RECEIPT IN THE HANDS OF ASSESSEE WHIL E COMPUTING PLI FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS A SUBSIDIARY OF NALCO, USA AND SINCE I T WAS INCURRING LOSSES, THE PARENT COMPANY ALLOWED PROMOT IONAL ALLOWANCE TO PREVENT THE ASSESSEE FROM BECOMING SIC K COMPANY. THIS IS EVIDENT FROM THE MEMO PLACED AT PA GE 10 139 OF PAPER BOOK AND ALSO FROM CONSEQUENTIAL MEMO FOR APPROVAL OF SUBVENTION AND RELEVANT E-MAILS AND REL EVANT DOCUMENTS THERETO. THE ASSESSEE RECEIVED SUM OF RS.65,19,47,000/- TOWARDS SUBVENTION. THE ASSESSEE HAD OFFERED THE SAID AMOUNT AS TAXABLE IN ITS HANDS INI TIALLY BUT BEFORE THE DRP, IT WAS PLEADED THAT THE SAME WA S NOT TAXABLE IN ITS HANDS. THE ISSUE VIS--VIS ITS TAXAB ILITY I.E. RECEIPT OF SUBVENTION FROM PARENT COMPANY NOW STAND S SETTLED BY RECENT DECISION OF HON'BLE SUPREME COURT IN SIEMENS PUBLIC COMMUNICATION NETWORK (P.) LTD. VS. CIT (SUPRA). THE HON'BLE SUPREME COURT HAD HELD THAT VOLUNTARY PAYMENTS MADE BY PARENT COMPANY TO ITS LO SS MAKING INDIAN COMPANY CAN ALSO BE UNDERSTOOD TO BE PAYMENTS MADE IN ORDER TO PROTECT THE CAPITAL INVES TMENT OF ASSESSEE COMPANY. IT WAS FURTHER HELD THAT IF TH AT IS SO, THEN THE PAYMENT IN QUESTION COULD NOT BE HELD TO BE REVENUE RECEIPTS, HENCE THEY WERE CAPITAL RECEIPTS IN THE HANDS OF ASSESSEE. SIMILAR PROPOSITION HAS BEEN LAI D DOWN BY THE HONBLE HIGH COURT OF KOLKATA AND HONBLE DE LHI HIGH COURT IN DIFFERENT DECISIONS. 16. APPLYING THE SAID PROPOSITION TO THE FACTS OF P RESENT CASE, WHERE THE ASSESSEE HAD RECEIVED THE ALLEGED SUBVENTION AMOUNT OR THE SUBSIDY AS REFERRED TO BY THE ASSESSING OFFICER / TPO / DRP, THE AMOUNT RECEIVED BY ASSESSEE FROM ITS PARENT COMPANY NALCO, USA WAS A 11 CAPITAL RECEIPT IN THE HANDS OF ASSESSEE AND HENCE, WAS NOT TAXABLE IN ITS HANDS. 17. COMING TO THE NEXT ASPECT OF TREATMENT OF SAID AMOUNT WHILE DETERMINING THE PLI OF ASSESSEE, THE ASSESSEE CLAIMS THAT THE AMOUNT IS TO BE TAKEN AS OPERATING INCOME SINCE THE SAID RECEIPT WAS TO MAKE GOOD LOSSES INCU RRED BY ASSESSEE IN EARLIER YEARS AND ALSO CURRENT YEAR. TH E ASSESSEE HAS TIME AND AGAIN STRESSED THAT TAXABILIT Y OF RECEIPT UNDER THE INCOME TAX ACT CANNOT AFFECT THE CALCULATION OF OPERATING MARGINS OF ASSESSEE, AS TH E AMOUNT WHICH HAD BEEN RECEIVED WAS DURING THE COURS E OF ITS BUSINESS I.E. PREVENTING THE ASSESSEE FROM GOIN G INTO LOSSES, HENCE THE RECOMPUTATION OF PLI IN THE HANDS OF ASSESSEE. 18. THE FIRST QUESTION WHICH ARISES IS WHETHER THE CAPITAL RECEIPT IN THE HANDS OF ASSESSEE CAN BE HELD TO BE OPERATING IN NATURE. WHILE DECIDING THE SAID ASPECT AS TO WHETHER NALCO, USA HAD GRANTED THE ASSESSEE A ONETI ME PROMOTIONAL ALLOWANCE IN ORDER TO SAVE IT FROM BECO MING SICK, THIS ASPECT IS TO BE SEEN FROM THE FACT THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD BOOKE D LOSSES OF RS.63.16 CRORES IN ITS PROFIT AND LOSS AC COUNT. ONCE THE SUBSIDY OF RS.65.19 CRORES WAS CREDITED, T HERE WAS PROFIT OF RS.2.03 CRORES. IN OTHER WORDS, PROFI T DURING THE YEAR WAS ATTRIBUTABLE TO SUBVENTION AMOUNT OF RS.65.19 CRORES AND HENCE, IT CANNOT BE HELD THAT T HE 12 AMOUNT WAS NOT OPERATIONAL IN NATURE. THE ITEM OF R ECEIPT WAS UNDOUBTEDLY, AN EXCEPTIONAL ITEM OF INCOME BUT WAS NOT AN EXTRAORDINARY ITEM OF INCOME. THE ASSESSEE W AS ALSO COMPENSATED FOR ADDITIONAL REVENUE EXPENSES INCURRED BY IT FOR TRANSFERRING ITS ESTABLISHMENT F ROM KOLKATA TO PUNE AND THEN RUNNING THE SAME AT PUNE. SUCH ONETIME PAYMENT RECEIVED BY ASSESSEE IS THUS, OPERA TING IN NATURE. THE LEARNED AUTHORIZED REPRESENTATIVE FO R THE ASSESSEE HAD POINTED OUT THAT THE SUBVENTION AMOUNT RELATED TO TWO YEARS. WE HOLD THAT AMOUNT RELATABLE TO THE YEAR, NEED TO BE CONSIDERED FOR COMPUTING PLI O F THE ASSESSEE. WE DIRECT THE ASSESSING OFFICER TO CARRY OUT THE SAID EXERCISE. AS FAR AS RELIANCE ON THE DECISI ON OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF UPS JETAIR EXPRESS PVT. LTD. (SUPRA) IS CONCERNED, WHEREIN THE PROPOSITION LAID DOWN WAS SINCE THE SUBVENTION INCO ME HAD BEEN OFFERED TO TAX, THEN THE SAME WOULD BE AVAILAB LE TO THE ASSESSEE FOR SET OFF AGAINST TP ADJUSTMENT PROP OSED BY TPO. THE SAID PROPOSITION WILL NOT BE APPLICABLE TO THE ISSUE RAISED BEFORE US SINCE THE HONBLE APEX COURT HAS DECIDED THE TAXABILITY OF SUBVENTION INCOME TO BE C APITAL IN NATURE AND HENCE, THE SAID INCOME IS NOT TAXABLE IN THE HANDS OF ASSESSEE AND SAME WOULD NOT BE AVAILABLE A S SET OFF AS AGAINST TP ADJUSTMENT MADE BY ASSESSING OFFICER/TPO. ACCORDINGLY, THERE IS NO MERIT IN THE DIRECTIONS OF DRP IN THIS REGARD. WE IN THE FINAL A NALYSIS HOLD THAT SUBVENTION INCOME IS CAPITAL RECEIPT IN T HE HANDS 13 OF ASSESSEE, HENCE NOT TAXABLE. FURTHER, WE HOLD TH AT THE SAID SUBVENTION AMOUNT IS OPERATING IN NATURE AND H AS TO BE INCLUDED AS OPERATING INCOME WHILE COMPUTING PLI IN THE HANDS OF ASSESSEE RESTRICTED TO THE AMOUNT RELATABL E TO THE INSTANT ASSESSMENT YEAR. THUS, GROUND OF APPEAL NO.2 RAISED BY ASSESSEE AGAINST TAXABILITY OF SUBVENTION INCOME IS ALLOWED AND GROUND OF APPEAL NO.11 ALSO STANDS A LLOWED IN FAVOUR OF ASSESSEE. 41. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE SUBVENTION AMOUNT RECEIVED BY THE ASSESSEE BEFO RE US IS OPERATING IN NATURE AND THE SAME HAS TO BE INCLU DED AS OPERATING INCOME, WHILE COMPUTING PLI IN THE HANDS OF THE ASSESSEE. THE ASSESSEE IN THE PRESENT APPEAL HAS NO T RAISED ANY ISSUE ABOUT ITS TAXABILITY AND HENCE, TH E SAID STATUS IS NOT DISTURBED. THIS GROUND OF APPEAL NO.7 IS ALLOWED. 9. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-OR DINATE BENCH [SUPRA], WE HOLD ACCORDINGLY. GROUND NO. 6 WITH AL L ITS SUB-GROUNDS ARE ALLOWED. 10. COMING TO THE ADJUSTMENT ON ACCOUNT OF AMP SPEN T IS CONCERNED, THE CO-ORDINATE BENCH IN ITS ORDER [SUPRA] CONSIDER ED THE ISSUE AT LENGTH AND HELD AS UNDER: 14 32. IN THE FACTS OF THE PRESENT CASE, THE ASSESSIN G OFFICER/DRP/TPO HAVE GIVEN A FINDING THAT THERE WAS NO ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AE, AS FAR AS INCURRING OF AMP EXPENDITURE WAS CONCERNED. HOWEVER , THE ASSESSING OFFICER/DRP/TPO OBSERVED THAT THE AMP EXPENDITURE WAS AN INTERNATIONAL TRANSACTION WHICH HAD NOT BEEN BENCHMARKED BY THE ASSESSEE, WHICH NEEDED TO BE BEN CHMARKED AND HE GOES ON TO DETERMINE THE PRICE OF THE SAID T RANSACTION BY APPLYING BLT. IN THE FACTS BEFORE US, WE HOLD THAT THE EXPENSES WHICH WERE BOOKED BY THE ASSESSEE WERE FOR PROMOTIO N OF DRUGS, WHICH UNDOUBTEDLY HAVE BEEN IMPORTED BY THE ASSESSEE FROM ITS AE, BUT WHILE SPREADING AWARENESS TO PROMO TE ITS SALES, IT CANNOT BE SAID, IN THE ABSENCE OF ANY AGREEMENT OR ARRANGEMENT TO THE CONTRARY, THAT THE ASSESSEE WAS PROMOTING THE BRANDS OF ITS AE. SINCE THE EXPENDITURE INCURRE D BY THE ASSESSEE WAS NEITHER INCURRED AT THE INSTANCE OR BE HEST OF ITS AE NOR THERE WAS ANY UNDERSTANDING OR ARRANGEMENT B ETWEEN THE PARTIES TO ALLOCATE OR CONTRIBUTE ANY PART OF T HE EXPENDITURE OR TOWARDS REIMBURSEMENT OF ANY PART OF AMP EXPENDI TURE, THEN NO TRANSACTION OR INTERNATIONAL TRANSACTION COULD B E SAID TO BE INVOLVED BETWEEN THE ASSESSEE AND ITS AE. IN THE AB SENCE OF THE SAME, THE INCURRING OF THE EXPENDITURE BY THE ASSES SEE FOR ITS NEEDS OF THE BUSINESS IS PURELY A DOMESTIC TRANSACT ION AND NOT GOVERNED BY ANY OF THE TRANSFER PRICING REGULATIONS . THE COURTS UPHELD THAT THE ONUS IS UPON THE REVENUE TO DEMONST RATE THAT THERE EXISTED AN ARRANGEMENT BETWEEN THE ASSESSEE A ND ITS AE UNDER WHICH THE ASSESSEE WAS OBLIGED TO INCUR EXCES S AMOUNT OF 15 AMP EXPENSES TO PROMOTE THE BRANDS OWNED BY THE AE. IN THE CASE OF THE ASSESSEE, THERE IS CLEAR FINDING OF THE REVENUE THAT THERE WAS NO SUCH ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AE. 33. THERE IS NO PROVISION EITHER IN THE ACT OR IN T HE RULES TO JUSTIFY THE APPLICATION OF BLT FOR COMPUTING THE AR MS LENGTH PRICE AND ALSO IN THE ABSENCE OF BLT, THE EXISTENCE OF AN INTERNATIONAL TRANSACTION VIS-VIS THE AMP EXPENDIT URE CANNOT EXIST. FURTHER, WE HOLD THAT THERE CANNOT BE A QUAN TIFICATION OF ADJUSTMENT FOR DETERMINING THE AMP EXPENSES INCURRE D BY THE ASSESSEE AFTER APPLYING THE BLT, TO HOLD THE SAME T O BE EXCESSIVE AND THEREBY AN EXISTENCE OF INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS AE. WE FIND NO MERIT I N EXERCISE CARRYING OF ASSESSING OFFICER/DRP/TPO IN THIS REGAR D AND DELETE THE TRANSFER PRICING ADJUSTMENT MADE ON ACCO UNT OF AMP EXPENDITURE. ACCORDINGLY, WE DELETE THE ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING ANALYSIS OF AMP EXPENDITURE. 11. AS MENTIONED ELSEWHERE, THE LD. DR HAS STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES AND THROUGH HIS W RITTEN SUBMISSIONS, HIGHLIGHTED THE OECD GUIDELINES ALONGWITH BEPS REPO RT ON INTANGIBLES. THE BEPS REPORT CAN BE SUMMARISED AS FOLLOWS: C.6 THE SALIENT POINTS OF BEPS REPORT ON INTANGIBL ES CAN BE SUMMARIZED AS FOLLOWS: 16 'IN SUMMARY, THE GUIDANCE CONTAINED IN THIS CHAPTER ENSURES THAT: LEGAL OWNERSHIP OF INTANGIBLES BY AN ASSOCIATED EN TERPRISE ALONE DOES NOT DETERMINE ENTITLEMENT TO RETURNS FROM THE EXPLOITATION OF INTANGIBLES; ASSOCIATED ENTERPRISES PERFORMING IMPORTANT VALUE- CREATING FUNCTIONS RELATED TO THE DEVELOPMENT, MAINTENANCE, ENHANCEMENT, PROTECTION AND EXPLOITATION OF THE INT ANGIBLES SHOULD BE APPROPRIATELY REMUNERATED; AN ASSOCIATED ENTERPRISES ASSUMING RISK IN RELATIO N TO THE DEVELOPMENT, MAINTENANCE, ENHANCEMENT, PROTECTION A ND EXPLOITATION OF THE INTANGIBLES MUST EXERCISE CONTR OL OVER THE RISKS AND HAVE THE FINANCIAL CAPACITY TO ASSUME THE RISKS, IN ACCORDANCE WITH THE GUIDANCE ON RISKS IN SECTION D. 1.2 OF THE CHAPTER 'GUIDANCE ON APPLYING THE ARM'S LENGTH PRIN CIPLE', INCLUDING THE VERY SPECIFIC AND MEANINGFUL CONTROL ENTITLEMENT OF ANY MEMBER OF THE MNE GROUP TO PROF IT OR LOSS RELATING TO DIFFERENCES BETWEEN ACTUAL AND EXPECTED PROFITS WILL DEPEND ON WHICH ENTITY OR ENTITIES THE RISKS THAT C AUSED THESE DIFFERENCES AND WHETHER THE ENTITY OR ENTITIES ARE PERFORMING THE IMPORTANT FUNCTIONS IN RELATION TO THE DEVELOPM ENT, ENHANCEMENT, MAINTENANCE, PROTECTION OR EXPLOITATIO N OF THE INTANGIBLES OR CONTRIBUTING TO THE CONTROL OVER THE ECONOMICALLY SIGNIFICANT RISKS AND IT IS DETERMINED THAT ARM'S L ENGTH REMUNERATION OF THESE FUNCTIONS WOULD INCLUDE A PRO FIT SHARING ELEMENT. 17 AN ASSOCIATED ENTERPRISE PROVIDING FUNDING AND ASSU MING THE RELATED FINANCIAL RISKS, BUT NOT PERFORMING ANY FUN CTIONS RELATING TO INTANGIBLE, COULD GENERALLY ONLY EXPECT A RISK-A DJUSTED RETURN ON ITS FINDING. IF THE ASSOCIATED ENTERPRISE PROVIDING FUNDING DOES NOT EXERCISE CONTROL OVER THE FINANCIAL RISKS ASSOCIATED WITH TH E FUNDING, THEN IT IS ENTITLED TO NO MORE THAN A RISK -FREE RETURN. THE GUIDANCE ON THE SITUATIONS IN WHICH VALUATION T ECHNIQUES CAN APPROPRIATELY BE USED IS EXPANDED. A RIGOROUS TRANSFER PRICING ANALYSIS BY TAXPAYER IS REQUIRED TO ENSURE THAT TRANSFERS OF HARD- TO-VALUE INTANGIBLES ARE PRICED AT ARM'S LENGTH.' C.7 TO SUM UP, THE BEPS REPORT CLEARLY ENDORSES AD JUSTMENTS ON ACCOUNT OF DEMPE OF INTANGIBLES CARRIED OUT WHEN IT STATES IN PARAGRAPH 6.75 THAT 'A KEY CONSIDERATION IN EACH CA SE IS THAT ASSOCIATED ENTERPRISES THAT CONTRIBUTE TO THE DEVEL OPMENT, ENHANCEMENT, MAINTENANCE, PROTECTION, OR EXPLOITATI ON (DEMPE) OF INTANGIBLES LEGALLY OWNED BY ANOTHER MEMBER OF T HE GROUP MUST RECEIVE ARM'S LENGTH COMPENSATION FOR THE FUNC TIONS THEY PERFORM, THE RISKS THEY ASSUME, AND THE ASSETS THEY USE. IN EVALUATING WHETHER ASSOCIATED ENTERPRISES THAT PERF ORM FUNCTIONS OR ASSUME RISKS RELATED TO THE DEMPE HAVE BEEN COMPENSATED ON AN ARM'S LENGTH BASIS, IT IS NECESSA RY TO CONSIDER (I) THE LEVEL AND NATURE OF ACTIVITY UNDER TAKEN; AND (II) THE AMOUNT AND FORM OF COMPENSATION PAID.' THIS REC OGNITION OF THE NEED FOR THE COMPENSATION LAYS DOWN A SOUND BAS IS FOR JUSTIFYING A TRANSFER PRICING ADJUSTMENT IN A CASE WHERE DEMPE 18 FUNCTIONS ARE PERFORMED THAT BENEFIT THE ASSOCIATED ENTERPRISE. THE BEPS REPORT AND THE ILLUSTRATIVE EXAMPLES INCLU DED THEREIN, RECOGNIZE THAT PERFORMING FUNCTIONS AND INCURRING M ARKETING EXPENDITURE SUBSTANTIALLY IN EXCESS OF THE LEVELS O F FUNCTION AND EXPENDITURE THAT AN INDEPENDENT ENTERPRISES IN COMP ARABLE TRANSACTIONS INCURS RESULTS IN BENEFITS TO THE ASSO CIATED ENTERPRISE FOR WHICH HE ASSESSEE REQUIRES TO BE COM PENSATED AT ARM'S LENGTH C.8 IF THE INDIAN ENTITY IS PERFORMING FUNCTIONS AN D INCURRING MARKETING EXPENDITURE, THEREBY PROVIDING BENEFITS T O THE ASSOCIATED ENTERPRISE WHICH IS SUBSTANTIALLY IN EXC ESS OF THE LEVELS OF FUNCTION AND EXPENDITURE OF INDEPENDENT E NTERPRISES IN COMPARABLE TRANSACTIONS, IT IS REQUIRED TO BE COMPE NSATED AT ARM'S LENGTH BY ITS AE. C.9 THE ABOVE CLEARLY CONFIRMS THAT EXPENDITURE ON ADVERTISEMENT, MARKETING AND PROMOTION LEADS TO BUI LD-UP OF INTANGIBLES AND SUCH SPEND SHOULD BE CAPITALIZED FO R PROPER REFLECTION IN THE BALANCE SHEET. FAILURE TO DO SO, AS BY THE ASSESSEE IN THE INSTANT CASE, CALLS FOR IMMEDIATE C OMPENSATION BY THE AE FOR THE SIGNIFICANT ECONOMIC VALUE CREATE D FOR THE AE'S BRAND BY SUCH ADVERTISEMENT SPEND. THE OECD HA S ALSO RECOGNIZED THAT CHARACTERIZATION OF AN INTANGIBLE F OR GENERAL TAX PURPOSES MAY NOT HAMPER OR DISTORT ITS TRUE CHARACTERIZATION OF BEING AN INTANGIBLE. THUS, OECD HAS REINFORCED THE VIEW THAT ADVERTISEMENT SPEND BY THE ASSESSEE LEADS TO CREATION OF AN INTANGIBLE AND WHATEVER CHA RACTERIZATION 19 HAS BEEN GIVEN BY THE ASSESSEE FOR SUCH ADVERTISEME NT SPEND FOR GENERAL TAX PURPOSES WON'T IMPACT THE CREATION OF AN INTANGIBLE BY THE ASSESSEE FOR ITS AE, FOR WHICH TH E FORMER NEEDS TO BE COMMENSURATELY COMPENSATED WITH A MARK- UP. C.10 FROM THE ABOVE DISCUSSION, WHILE IT CAN BE INF ERRED THAT THE TPOS ARE BESTOWED WITH THE LEGAL MANDATE FOR BENCHM ARKING OF DEMPE FUNCTIONS. THE AMP EXPENSE IS AN IMPLICIT TRA NSACTION IN THE FORM OF DEVELOPMENT, ENHANCEMENT, MAINTENANCE, PROTECTION AND EXPLOITATION (DEMPE) FUNCTIONS PERFORMED BY THE ASSESSEE WHICH RESULTS IN THE CREATION AND ENHANCEMENT OF MA RKETING INTANGIBLES WHICH IS ELABORATELY DISCUSSED IN THE B EPS REPORT DISCUSSED IN PRECEDING PARAGRAPHS. IN VIEW OF THE A BOVE DISCUSSION, THE ADDITIONAL EVIDENCES FILED BY THE T AXPAYER SHOULD NOT BE ACCEPTED AND ARE LIABLE TO REJECT. 12. THE OECD GUIDELINES HIGHLIGHTED BY THE LD. DR R EAD AS UNDER: B. 6 THIS JUNCTURE, IT IS ALSO RELEVANT TO NOTE TH E FOLLOWING PORTION OF THE OECD GUIDELINES, WHERE THE DISCUSSIO N IS MADE, ABOUT THE SELECTION OF THE COMPARABLES. '3.43IN PRACTICE, BOTH QUANTITATIVE AND QUALITATIVE CRITERIA ARE USED TO INCLUDE OR REJECT POTENTIAL COMPARABLES. EXAMPLES OF QUALITATIVE CRITERIA ARE F OUND PRODUCT PORTFOLIOS AND BUSINESS STRATEGIES. THE MOST COMMON LY OBSERVED QUANTITATIVE CRITERIA ARE: 20 SIZE CRITERIA IN TERMS OF SALES, ASSETS OR NUMBER OF EMPLOYEES. THE SIZE OF THE TRANSACTION ABSOLUTE VAL UE OR IN PROPORTION TO THE ACTIVITIES OF THE PARTIES MIGHT A FFECT THE RELATIVE COMPETITIVE POSITIONS OF THE BUYER AND SEL LER AND THEREFORE COMPARABILITY. INTANGIBLE-RELATED CRITERIA SUCH AS RATIO OF NET V ALUE OF INTANGIBLES/TOTAL NET ASSETS VALUE, OR RATIO OF RES EARCH AND DEVELOPMENT ('R&D')/SALESWHERE AVAILABLE: THEY MAY BE USED FOR INSTANCE TO EXCLUDE COMPANIES WITH VALUABLE INT ANGIBLES OR SIGNIFICANT R&D ACTIVITIES WHEN THE TESTED PARTY DO ES NOT USE VALUABLE INTANGIBLE ASSETS NOR PARTICIPATE IN SIGNI FICANT RSCD ACTIVITIES. CRITERIA RELATED TO THE IMPORTANCE OF EXPORT SALES (FOREIGN SALES/TOTAL SALES), WHERE RELEVANT. CRITERIA RELATED TO INVENTORIES IN ABSOLUTE OR REL ATIVE VALUE, WHERE RELEVANT. OTHER CRITERIA TO EXCLUDE THIRD PARTIES THAT ARE I N PARTICULAR SPECIAL SITUATIONS SUCH AS START-UP COMP ANIES, BANKRUPTED COMPANIES, ETC. WHEN SUCH PECULIAR SITUA TIONS ARE OBVIOUSLY NOT APPROPRIATE COMPARISONS. THE CHOICE AND APPLICATION OF SELECTION CRITENA DEP ENDS ON THE FACTS AND CIRCUMSTANCES OF EAC H PARTICULAR CASE AND THE ABOVE LIST IS NEITHER LIMITATIVE NOR PRESCRIPTIVE.' 21 B.7 THE ABOVE PARAGRAPH OF THE OCED GUIDELINES CLEA RLY EMPHASIZES THE IMPORTANCE OF RELEVANT COSTS/SALES A ND THE USE OF INTENSITY OF SUCH COST/SALES AS A FACTOR OF COMP ARABILITY FOR THE PURPOSE OF IDENTIFICATION OF COMPARABLES. ACCOR DINGLY, IT IS ABSOLUTELY CLEAR THAT INTENSITY OF FUNCTIONS, WHICH IS CAPTURED IN THE FINANCIAL STATEMENTS THROUGH LINE ITEM OF THE C OST DEBITED IN THE PSTL A/C IS A RELEVANT AND IMPORTANT COMPARABIL ITY CRITERION. IN THE PRESENT CASE, IF THERE ARE DIFFERENCES IN FU NCTIONS, (RELATED TO AMP OR ANY OTHER FUNCTION), ITS MANIFES TATIONS ARE IN THE INDIRECT EXPENSES OF THE TAXPAYER AND THE COMPA RABLES. THIS OFFICE HAVING FOUND THAT SUCH DIFFERENCES DO EXIST IN THE LEVEL OF INDIRECT EXPENSES (AS A PERCENTAGE OF SALES) LED TO THE CONCLUSION THAT THERE ARE OBVIOUS DIFFERENCES IN FU NCTIONS BETWEEN THE TAXPAYER AND THE COMPARABLES. HENCE IT BECOMES NECESSARY FOR THIS OFFICE TO APPLY RULE 10B(2) IF A PROPER BENCHMARKING EXERCISE MUST BE CARRIED OUT. B.8 THE CLAIM OF THE TAXPAYER THAT INTENSITY OF FUN CTION NEED NOT BE ADJUSTED WHILE COMPUTING ARM'S LENGTH IS ALS O OPPOSED TO JUDICIAL GUIDANCE. THE HON'BLE ITAT DELHI HAS HELD IN THE CASE OF CASIO INDIA PVT. LTD (ITA 4726/DEL/2010) AS FOLL OWS. IT IS DISCERNIBLE THAT THE PRESCRIPTION OF RULE I OB I S IN COMPLETE HARMONY WITH THE RATIO OF THE JUDGMENT IN THE CASE OF SONY ERICSON MOBILE (SUPRA), TO THE EFFECT THAT THE AMR FUNCTIONS CARRIED OUT BY THE TAXPAYER ARE REQUIRED TO BE NECESSARILY COMPARED WITH THE AMP FUNCTIONS CARRIED OUT BY A COMPARABLE ENTITY IN DETERMINING THE AMP OF ALP EXP ENSES. DIFFERENCE BETWEEN THE FUNCTIONS, IF CAPABLE OF ADJ USTMENT, 22 SHOULD BE GIVEN EFFECT TO IN THE PROFIT RATE OF THE COMPARABLE SUCH DIFFERENCE CANNOT BE GIVEN EFFECT TO, THEN, TH E PROBABLE COMPARABLE SHOULD BE ELIMINATED FROM THE LIST OF CO MPARABLES. A BARE READING OF THE ABOVE JUDGMENTS, RENDERED SUBSEQUENT TO AND BASED ON THE JUDGMENT OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF SONY ERICSSON CLEARLY POINT TO THE CONCLUSION THAT FOR THE PURPOSE OF COMPARABILITY WI TH THE ENTITIES CARRYING OUT DISTRIBUTION AND' MARKETING, ONLY SUCH COMPARABLES ARE REQUIRED TO BE IDENTIFIED WHICH ARE ALSO CARRYING OUT BOTH DISTRIBUTION AND MARKETING FUNCTI ONS. IT IS FURTHER HELD BY THE HON'BLE TRIBUNAL THAT IF NO SUC H COMPARABLES ARE IDENTIFIED WHICH ARE CARRYING OUT B OTH THE FUNCTIONS IN A SIMILAR MANNER, SUITABLE COMPARABILI TY ADJUSTMENT SHOULD BE CARRIED OUT TO BRING THE COMPARABLES AT P AR TO THE TAXPAYER IT IS ALSO RELEVANT TO NOTE THAT THE TYPE OF COMPAR ABILITY ADJUSTMENT MENTIONED IN THE OECD GUIDELINES AS AN E XAMPLE IS THE SEGMENTATION OF FINANCIAL DATA TO ELIMINATE SIG NIFICANT NON COMPARABLE TRANSACTIONS, AS REPRODUCED BELOW: A. 6.1 DIFFERENT TYPES OF COMPARABILITY ADJUSTMENTS '3.48 EXAMPLES OF COMPARABILITY ADJUSTMENTS INCLUDE ADJUSTMENTS FOR ACCOUNTING CONSISTENCY DESIGNED TO ELIMINATE DIFFERENCES THAT MAY ARISE FROM DIFFERING ACCOUNTIN G PRACTICES BETWEEN THE CONTROLLED AND UNCONTROLLED TRANSACTION S; SEGMENTATION OF FINANCIAL DATA TO ELIMINATE SIGNIFI CANT 23 COMPARABLE TRANSACTIONS; ADJUSTMENTS FOR DIFFERENCE S IN CAPITAL, FUNCTIONS, ASSETS, RISKS.' IF REMOVAL OF FINANCIAL DATA TO ELIMINATE SIGNIFICA NT NON COMPARABLE TRANSACTION IS A RELEVANT COMPARABILITY ADJUSTMENT, MATCHING THE INTENSITIES OF COSTS RELEVANT TO A FUN CTION AND ATTRIBUTION OF COSTS SIGNIFYING THE CARRYING OUT OF FUNCTION SHOULD ALSO BE CONSIDERED AS A TYPE OF COMPARABILIT Y ADJUSTMENT ONLY. B. 9 THE CONCEPT OF COMPARABILITY ADJUSTMENT IS RECOGN IZED EVEN BY INTERNATIONAL GUIDANCE ON TRANSFER PRICING. THE UNITED NATIONS PRACTICAL MANUAL ON TRANSFER PRICING FOR DE VELOPING COUNTRIES, 2013 (UN TP MANUAL) MAKES THE FOLLOWING REMARKS ON THE PROBLEM: '5.1.5. A CONTROLLED AND AN UNCONTROLLED TRANSACTIO N ARE REGARDED AS COMPARABLE IF THE ECONOMICALLY RELEVANT CHARACTE RISTICS OF THE TWO TRANSACTIONS AND THE CIRCUMSTANCES SURROUNDING THEM ARE SUFFICIENTLY SIMILAR TO PROVIDE A RELIABLE MEAS URE OF AN ARM'S LENGTH RESULT. IT IS RECOGNIZED THAT IN REALITY TWO TRANSACTIONS ARE SELDOM COMPLETELY ALIKE AND IN THIS IMPERFECT W ORLD, PERFECT COMPARABLES ARE OFT EN NOT AVAILABLE. IT IS THEREFO RE NECESSARY TO USE A PRACTICAL APPROACH TO ESTABLISH THE DEGREE OF COMPARABILITY BETWEEN CONTROLLED AND UNCONTROLLE D TRANSACTIONS. TO BE COMPARABLE DOES NOT MEAN THAT T HE TWO TRANSACTIONS ARE NECESSARILY IDENTICAL, BUT INSTEAD MEANS THAT EITHER NONE OF THE DIFFERENCES BETWEEN THEM COULD M ATERIALLY 24 AFFECT THE ARM'S LENGTH PRICE OR PROFIT OR, WHERE S UCH MATERIAL DIFFERENCES EXIST, THAT REASONABLY ACCURATE ADJUSTM ENTS CAN BE MADE TO ELIMINATE THEIR EFFECT. THUS, IN DETERMININ G A REASONABLE DEGREE OF COMPARABILITY, ADJUSTMENTS MAY NEED TO BE MADE TO ACCOUNT FOR CERTAIN MATERIAL DIFFERENCES BE TWEEN THE CONTROLLED AND UNCONTROLLED TRANSACTIONS. THESE ADJ USTMENTS (WHICH ARE REFERRED TO AS 'COMPARABILITY ADJUSTMENT S') ARE TO BE MADE ONLY IF THE EFFECT OF THE MATERIAL DIFFEREN CES ON PRICE OR PROFITS CAN BE ASCERTAINED WITH SUFFICIENT ACCUR ACY TO IMPROVE THE RELIABILITY OF THE RESULTS.' THUS, IN LIGHT OF DISCUSSION ABOVE, THE SUBMISSION OF THE ASSESSEE IS BASELESS AND NEEDS TO BE REJECTED. 13. AFTER CONSIDERING THE W/S BY THE LD. DR, WE ARE OF THE CONSIDERED VIEW THAT THE CO-ORDINATE BENCH HAS CONSIDERED ALL THE CONTENTIONS AND HAS DECIDED THE ISSUE. THEREFORE, RESPECTFULLY FOL LOWING THE DECISION OF THE CO-ORDINATE BENCH, GROUND NO. 7 WITH ALL ITS SUB-GROUNDS IS ALLOWED. 14. COMING TO THE CORPORATE ISSUE IN ASSESSMENT YEA R 2011-12, WE FIND THAT EVEN BEFORE US, THE LD. COUNSEL FOR THE A SSESSEE COULD NOT FURNISH ANY DETAILS/EVIDENCES. THEREFORE, WE DO NO T FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LOWER AUTHORITIE S. GROUND NOS. 2 AND 3 ARE ACCORDINGLY DISMISSED. 25 15. GRIEVANCE RAISED BY THE REVENUE IN ITS CROSS A PPEAL IS CONSEQUENTIAL TO THE FINDINGS GIVEN BY US IN ASSESS EES APPEAL AND ACCORDINGLY, THE REVENUES APPEAL IS DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. 17. COMING TO THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2012-13, THE QUARREL IS TWO-FOLD ONE RELATING TO THE APPLI CABILITY OF MAM AND SECOND,D IN RESPECT OF ADJUSTMENT MADE TO AMP SPENT . 18. BOTH THESE ISSUES HAVE BEEN DECIDED BY US IN IT A NO. 1382/DEL/2016 [SUPRA]. FOR OUR DETAILED DISCUSSION AND FINDINGS GIVEN THEREIN, BOTH THE ISSUES ARE ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 26 20. TO SUM UP, IN THE RESULT: ITA NO. 1382/DEL/2016 ALLOWED ITA NO. 1909/DEL/2016 PARTLY ALLOWED ITA NO. 1563/DEL/2016 DISMISSED THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15.01 .2020. SD/- SD/- [SUDHANSHU SRIVASTAVA ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 15 TH JANUARY, 2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR 27 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER