CWT INDIA P.LTD, MUMBAI V. DCIT (OSD) RG 8(1), MUMBAI

ITA 1588/MUM/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9817 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 16-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence; Wholly owned subsidiary; Bad and doubtful debts; Commercial expediency; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 271(1)(c); 92C; 143(3); 92D; 234B; 115JB; 10B; 201; 144C; 292BB; 274; 37; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K , MUMBAI BEFORE SHRI R.C. SHARMA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 1588/MUM/2014 ASSESSMENT Y EAR: 2009 - 10 ITA NO. 23/MUM/2015 ASSESSMENT Y EAR: 2010 - 11 ITA NO. 1484/MUM/2016 ASSESSMENT Y EAR: 2 011 - 12 & ITA NO. 1404/MUM/2017 ASSESSMENT Y EAR: 2012 - 13 M/S CWT INDIA PRIVATE LIMITED, UNIT NO. 2, RAHEJA CENTRE, GROUND FLOOR, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI 400021 PAN : AAACI7084H VS. THE ASSISTANT COMMISSIONER OF INCOME TAX - 9(2) (2), AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MUKESH BUTANI/ SHREYASH SHAH (A R S ) REVENUE BY : SHRI JAYANT KUMAR (CIT - DR)/ SAURABH DESHPANDE / ARUN KUMAR SINGH (D R) DATE OF HEARING: 01 /0 2 /201 9 DATE OF PRONOUNCEMENT: 01 / 0 5 /201 9 / O R D E R PER RAM LAL NEGI, JM THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER S PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) READ WITH SECTION 144C(1) OF THE INCOME TAX ACT. (FOR SHORT THE ACT) PURSUANT TO THE DIREC TIONS 2 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 DATED 31.10.2013, 24.09.2014, 09.12.2015 AND 25.11.2016 PASSED BY THE LD. DISPUTE RESOLUTION PANEL - I (DRP), MUMBAI, PERTAINING TO THE ASSESSMENT YEARS 2009 - 10, 2010 - 11, 2011 - 12 AND 2012 - 13 RESPECTIVELY . ITA NO. 1588/MUM/2014 (ASSESSMENT YEAR: 2009 - 10) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 2,25,97,199/ - . SINCE T HE CASE WAS SELECTED FOR SCRUTINY, THE AO ISSUED NOTICE U/S 143 (2) AND 142 (1) OF THE ACT. IN RESPONSE THEREOF THE AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE APPEARED BEFORE THE AO AND FURNISHED THE DETAILS AND DISCUSSED THE CASE. IT WAS NOTICED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS A SSOCIATE ENTERPRISES (AES) , THE AO REFERRED THE TRANSACTIONS MENTIONED IN THE AUDIT REPORT IN THE FORM NO. 3CEB TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE. THE LD. TPO PASSED ORDER U/S 92CA (3) OF THE ACT MAKING UPWARD ADJ USTMENT OF RS. 15,36,55,898/ - . ACCORDINGLY, THE AO PASSED DRAFT ASSESSMENT ORDER U/S 143(3) READ WITH SECTION 144C ( 1) OF THE ACT DETER MINING THE TOTAL INCOME OF THE ASSESSEE COMPANY TO RS. 17,66,17,220/ - AFTER MAKING INTER ALIA ADDITION OF RS. 15,36,55,89 8/ - ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT, RS. 3,48,598/ - TREATING THE SOFTWARE EXPENDITURE AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE. 3. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE LD . DISPUTE RESOLUTION PANEL - I (DRP) CHALLENGING THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN TERMS OF ORDER PASSED BY THE LD. TPO AND THE ADDITION MADE BY AO BY TREATING THE SOFTWARE EXPENDITURE AS CAPITAL EXPENDITURE REJECTING THE CLAIM O F THE ASSESSEE. THE LD. DRP AFTER HEARING THE ASSESSEE REJECTED THE CONTENTIONS/CLAIMS OF THE ASSESSEE AND UPHELD BOTH THE ADDITIONS VIDE ORDER DATED 31.10.2013 PASSED U/S 144C(5) OF THE ACT. PURSUANT TO THE SAID ORDER, THE AO PASSED ASSESSMENT ORDER U/S 1 43(3) READ WITH SECTION 3 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 144C (13) OF THE ACT , DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 17,61,51,890/ - . 4 . THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING E F FECTIVE GROUND S : - . 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE AO HAS ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER NORMAL PROVISIONS OF THE ACT AT INR 17,61,51,890 AS AGAINST THE RETURNED INCOME OF INR 2,25,97,199, COMPUTED UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. 2. THAT ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO ERRED IN MAKING AND THE DRP FURTHER ERRED IN UPHOLDING AN ADJUSTMENT OF RS. 15,36,55,898, IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDERTAKEN DURING YEAR, ALLEGING THAT THE SAME WERE NOT AT ARMS LENGTH IN TERM S OF THE PROVISIONS OF SECTIONS 92C(1) AND 92C(2) OF THE ACT READ WITH THE RULE 10B OF THE INCOME - TAX RULES, 1962 (THE RULES). 3. TRANSFER PRICING (TP) ADJUSTMENT IN RESPECT OF PAYMENT OF FEE FOR OBTAINING TECHNICAL ASSISTANCE AMOUNTING TO INR 15,36,55,89 8. 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAVE ERRED IN MAKING AN ARBITRARY ADJUSTMENT OF INR 15,36,55,898 IN RESPECT OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENTS MADE TO ASSOCIATED ENTERPRISE (AE) FOR RECEIPT O F TECHNICAL ASSISTANCE, ALLEGING THAT THE SAME WERE NOT AT ARMS LENGTH AND DETERMINING THE ARMS LENGTH PRICE (ALP) TO BE NIL. 3.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAVE ERRED IN ARBITRARILY REJECTING THE ECONOMIC A NALYSIS AND METHODOLOGY ADOPTED BY THE APPELLANT, BEING TRANSACTIONAL NET MARGIN METHOD (TNMM), BEING THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENTS TO AE FOR RECEIPT OF TECHNICAL ASSISTANCE AND FURTHER ERRED IN NOT 4 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 APPLYING ANY OF THE METHODS PRESCRIBED UNDER THE ACT READ WITH RULE 10B OF THE RULES. 4. TRANSFER PRICING (TP) ADJUSTMENT IN RESPECT OF PROVISION OF CUSTOMER SUPPORT, DATA UPDATION AND TRAVEL RELATED SERVICES AMOUNTING TO INR 12,47,94,537 4.1 TH AT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO ERRED IN PROPOSING AND THE DRP FURTHER ERRED IN UPHOLDING AN ADJUSTMENT OF INR 12,47,94,537, ON PROTECTIVE BASIS, IN RESPECT OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF CUS TOMER SUPPORT, DATA UPDATION AND TRAVEL RELATED SERVICES ALLEGING THE SAME TO BE NOT AT ARMS LENGTH. 4.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN ARBITRARILY REJECTING CERTAIN COMPARABLE COMPANIES SELECTED BY THE AP PELLANT, WHICH WERE FUNCTIONALLY COMPARABLE AND FURTHER ERRED IN SELECTING CE RTAIN COMPANIES AS COMPARABLES, WHICH WERE FUNCTIONALLY NOT COMPARABLE WITH THE APPELLANT. 4.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP ERRED IN NOT REJECTI NG THE COMPARABLES AS SELECTED BY THE TPO, BEING THOMAS COOK AND CROWN TOURS LIMITED, ON THE GROUND THAT NO SPECIFIC GROUND OF OBJECTIONS WAS RAISED BY THE APPELLANT IN ITS OBJECTIONS FILED BEFORE THE DRP IN THIS REGARD. 4.4 THAT ON THE FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW, THE TPO ERRED IN NOT FOLLOWING THE BINDING DIRECTIONS OF DRP TO RECOMP UTE THE QUANTUM OF ADJUSTMENT AT TRANSACTION LEVEL RATHER THAN AT THE ENTITY LEVEL AS PER RULE 10B OF THE RULES, IN RESPECT OF PROVISION OF CUSTOMER SUPPORT, D ATA UPDATION AND TRAVEL RELATED SERVICES. 5 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN NOT GRANTING THE BENEFIT OF ECONOMIC/RISK ADJUSTMENTS. 6. THAT THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/T PO ERRED IN IGNORING THE PROVISIONS OF RULE 10B(4) OF THE RULES AND JUDICIAL PRONOUNCEMENTS, WHICH ADVOCATE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ARMS LENGTH PRICE. OTHER GROUNDS: 7. THAT ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN TREATING THE SOFTWARE EXPENDITURE, INCURRED DURING THE YEAR, AMOUNTING TO INR 8,71,494, AS CAPITAL IN NATURE. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/AO/DRP ERRED IN NOT GRANTING THE APPELLANT THE BENEFIT OF +/ - 5% AS ENVISAGED UNDER THE EXTANT PROVISO TO SECTION 92C(2) OF THE ACT. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN WRONGLY COMPUTING THE AMOUNT OF TDS AND THE AMOUNT REFUNDED TO THE APPELLANT FOR THE PURPOSE OF DETERMINING THE TAX LIABILITY OF THE APPELLANT FOR ASSESSMENT YEAR 2009 - 10. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234D OF THE ACT. 5. GROUND NO. 1 AND 2 OF THE APPEAL ARE OF GENERAL NATURE, HENCE WE DO NOT CONSIDER IT NECESSARY TO ADJUDICATE THE SAID GROUNDS SEPARATELY. VIDE GROUND NO. 3 TO 6, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 15,36,55,898/ - MADE ON ACCOUNT OF TRANSFER PRICING ADJUST MENT IN PURSUANCE 6 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 OF DIRECTION ISSUED BY THE LD. DRP U/S 144C(5) OF THE ACT. BEFORE US , THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COM PANY WAS A JOINT VENTURE OF CA RL SON WAGONLIT TRAVELS (CWT) AND AFL LIMITED, WHEREIN CWT AND AFL LTD. WE RE HOLDING 76% AND 24% SHARES RESPECTIVELY. IN MAY, 2008 THE ASSESSEE COMPANY SEIZED TO BE A JOINT VENTURE AND BECAME A WHOLLY OWNED SUBSIDIARY OF CWT HOLDINGS N . V. THE ASSESSEE COMPANY CWT INDIA S OPERATIONS IN INDIA COMPRISE OF THE LEGACY TRAVEL MANAGEME NT SOLUTIONS AND THE REGIONAL BUSINESS TRAVEL CENTRE (RBTC) SERVICES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTION S WITH ITS AES IN RESPECT OF PROVISION OF CUSTOMER SUPPORT, DATA UPDATIN G AND TRAVEL RELATED SERVI CES . 6. THE LD. COUNSEL SUBMITTED THAT ASSESSEE COMPANY PROVIDES CALL REGISTRATION, RESERVAT ION AND BOOKING SERVICES TO HEW L E TT PACKARD (HP), ITS SUBSIDIARIES AND AFFILIATES RESIDING IN SINGAPORE, AUSTRALIA, INDIA AND NEW ZEALAND. R EGISTRATION SERVICES EN TAIL HP EMPL OYEES MAKING REQUEST FOR TRAVEL BOOK INGS AND HOTELS RESERVATIONS VIA CALLS, EMAILS AND SELF BOOKING TOOLS. THE REQUEST IS REGISTERED WITH THE ASSESSEE AND PROCESSED BY THE ASSESSEE. A FTER RECEIVING REQUEST FOR RESERVATIONS, CWT INDIA PROVIDES O PTIONS FOR DOMESTIC , INTERNATIONAL AIRLINES AND HOTELS BASED ON HP S TRAVEL POLICIES . THE BOOKINGS ARE MADE AS PER THE LOWEST POSSIBLE FARES RENTALS THAT HP WORLDWIDE IS ENTITLED TO. ONCE THE BOOKING DETAILS ARE CONFIRMED THE TICKETS ARE ISSUED BY GROUP EN TITIES IN RESPECTIVE COUNTRIES. THE MODE OF DELIVERY OF TICKETS IS GENERALLY ELECTRONIC EXCEPT IN EXCEPTIONAL CASES. HENCE, THE OVERSEAS ENTERPRISES ARE RESPONSIBLE FOR ISSUING THE TICKETS FOR HP IN ASIA PACIFIC REGION. I N THE PROCESS OF INVOIC ING, THE ASS ESSEE GENERATES INVOICES TO THE OVERSEAS ENTITIES FOR RESERVATION SERVICES RENDERED TO HP. HENCE, CWT INDIA DOES NOT RAISE ANY INVOICES ON THE HP CLIENT BUT HELPS IN GENERATING SUCH INVOICES OF THE OVERSEAS ASSOCIATE ENTERPRISES. T HE LD. COUNSEL FURTHER S UBMITTED THAT THE ASSESSEE COMPANY ALSO ENTERED INTO A SUPPORT SERVICE AGREEMENT WITH CWT INC (USA) FOR PROVISION OF NORAM 7 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 SERVICE WHICH INCLUDES P ROCESSING OF DOMESTIC AND INTERNATIONAL REFUNDS, ISSUING AIRLINE TICKETS THAT REQUIRE MANUAL INTERVENTION AND ISSUING AIRLINE TICKET EXCHANGES. THE ASSESSEE IS ENGAGED IN PROVIDING DATA UPDATING SERVICES TO ITS ASSOCIATE D ENTERPRISES ENTERED INTO SERVICES LEGAL AGREEMENT WITH INTERNATIONAL ORGANIZATIONS AND COMPANIES SUCH AS INTERNATIONAL TRADE CENTRE (ITC), WORL D HEALTH ORGANIZATION (WHO) ETC. UNDER THE AGREEMENT , THE AES ARE RESPONSIBLE FOR PROVIDING TICKET FROM ANYWHERE IN THE WORLD VIA CWT GROUP NETWORK. CWT INDIA ISSUE S TICKET TO EMPLOYEES OF THE SAID COMPANIES AND INTERNATIONAL ORGANIZATIONS TRAVELLING IN IN DIA. THE COMPANY IS REMUNERATED BY THE ASSOCIATED ENTERPRISES FOR PROVIDING SUCH SERVICES. 7. THE LD. COUNSEL FURTHER CONTENDED THAT T HERE ARE TWO TYPES OF SERVICE S DELIVERY RISK ONE PERTAINING TO NON CONFORMITY OF SERVICES WITH REGARD TO THE STANDARDS SE T BY THE OVERSEAS ASSOCIATED ENTERPRISES AND SECOND RELATED TO THE RISK ARISING IN PROVIDING SUCH SERVICES TO THE CLIENT. THEREFORE, IN RELATION TO CUSTOMER SUPPORT, DATA UPDATION AND TRAVEL RELATED SERVICES, BOTH CWT INDIA AND OVERSEAS ASSOCIATED ENTERPRI SES BEAR SERVICE DELIVERY RISK . A LTHOUGH CWT INDIA DOES NOT DIRECTLY ENTER INTO CONTRACT WITH THE CUSTOMER BUT ANY DECLINE IN THE BUSINESS OF THE GROUP WOULD HAVE AN ADVERSE IMPACT ON CWT INDIA. THE LD. COUNSEL FURTHER SUBMITTED THAT THE C APACITY UTILIZATI ON RISK ARISES DUE TO INADEQUATE UTILIZATION OF RESOURCES BY THE COMPANY PROVISIONS OF SERVICES REQUIRES SIZEABLE INVESTMENT IN INFRASTRUCTURE, IN TERMS OF PREMISES, EQUIPMENT, CONNECTIVITY, PERSONNEL ETC. GENERALLY, THE RISK IS TO BE BORNE BY THE ENTITY M AKING INVESTMENT. HOWEVER, I N THE PRESENT CASE THE CWT INDIA IS LIABLE TO BEAR THE CAPACITY UTILIZATION RISK. ANY COST PERTAINING TO THE INEFFICIENCIES OF CWT INDIA WILL BE EXCLUDED FOR THE PURPOSES OF ARRIVING AT THE COST BASE ON WHICH A MARK - UP IS TO BE PAID BY THE ASSOCIATED ENTERPRISES. APART FROM THAT , THE RISK DUE TO FOREIGN EXCHANGE FLUCTUATION IS BORNE BY CWT INDIA. SIMILARLY, T HE GOVERNMENT POLICY RISK I.E., ADVERSE CHANGES IN POLICIES OF THE INDIAN GOVERNMENT WITH RESPECT TO TAX RATES, TAX HOLIDAY S, SUBSIDIES OR ANY LEGISLATIVE 8 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 OR DOCUMENTATION REQUIREMENTS MAY DIRECTLY OR INDIRECTLY AFFECT THE PROJECTED PROFITABILITY OF CWT INDIA AND CWT GLOBAL. THUS, BOTH CWT INDIA AND ASSOCIATED ENTERPRISES WERE MARKET RISK. THE LD . COUNSEL FURTHER SUBMITTED TH AT CWT INDIA IS BEING REMUNERATED BY ITS ASSOCIATED ENTERPRISES WHICH BELONG TO THE SAME GROUP ARE NOT LIKELY TO DEFAULT ON PAYMENTS. ON THE OTHER HAND, SINCE THE AES WILL BE EARNING THEIR REVENUES FROM THIRD PARTIES, THEY ARE SUBJECT TO CREDIT RISK. 8. T O ENABLE THE PROVISION S OF THE AFORESAID SERVICES TO ITS AE , THE ASSESSEE AVAILED TECHNICAL SERVICES FROM AE CWT SINGAPORE PVT. LTD., CWT HONGKONG, CWT THAILAND , CWT NEW ZEA LAND AND OTHERS. THESE SERVICES WERE PROVIDED UNDER DIFFERENT AGREEMENTS ENTERED WI TH AES FOR AVAILING MANAGEMENT, SALE AND MARKETING, FINANCIAL TREASURY, GENERAL MANAGEMENTS, INFORMATION TECHNOLOGY, HUMAN RESOURCES, INDUSTRIAL RELATION AND OTHER RELATED SERVICES. FOR THE SERVICES AVAILED BY THE ASSESSEE , THE AES RAISED INVOICES AMOUNTIN G TO RS. 15,36,55,898/ - AND THE AMOUNTS TO THE AES WERE PAID THROUGH BANKING CHANNELS. THE ASSESSEE INCLUDED THE EXPENSES INCURRED IN RELATION TO THE SAID SERVICES IN ITS OPERATIONAL EXPENSES FOR THE PURPOSE OF BENCHMARKING. THE LD. COUNSEL FOR THE ASSESSE E INVITED OUR ATTENTION TO THE TRANSFER PRICING REPORT SUBMITTED BEFORE THE LD. TPO AND THE LD. DRP. AS PER THE SAID REPORT THE ASSESSEE AVAILED REGIONAL ACCOUNT MANAGEMENT SERVICES, REGIONAL SALE AND MARKETING SERVICES, INFORMATION TECHNOLOGY AND HUMAN RE SOURCES RELATED SERVICES FROM CWT SINGAPORE . T HE ASSESSEE AVAILED SOLUTION RELATED SERVICES FROM THE SOLUTIONS GROUP CWT SINGAPORE . SIMILARLY, THE ASSESSEE ALSO AVAILED SIMILAR SERVICES FROM CWT AUSTRALIA, HONGKONG, THAILAND , NEW ZEA LAND AND OTHER AES. 9. THE LD. COUNSEL FURTHER SUBMITTED THAT I N THE LIGHT OF THE AFORESAID FACTS, THE LD. TPO HAS WRONGLY HELD THAT THERE ARE DISCREPANCIES IN THE TP REPORT SUBMITTED BY THE ASSESSEE A ND SOME OF THE COMPARABLES SELECTED BY THE ASSESSEE ARE FOUND TO BE NON COMPA RABLE. FEW OF THE COMPANIES WHICH WERE 9 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 REJECTED BY THE ASSESSEE IN ITS ACCEPT REJECT MATRIX ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE COMPANY AND THEY SHOULD HAVE BEEN SELECTED AS COMPARABLE S . IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE TPO , T HE ASSE SSEE SUBMITTED THE DETAILED REPLY AND EXPLAINED THAT HOW THE INFORMATION OR DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS RELIABLE . 10. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD. DRP HAS WRONGLY UPHELD THE TRANSFER PRICING ADJUSTMENT MADE BY T HE LD. TPO IN VIOLATION OF THE PROVISIONS OF THE INCOME TAX AC T AND THE RULES . SINCE, THE LD. TPO HAD WRONGLY REJECTING THE TP STUDY REPORT TREATED THE ARMS LENGTH PRICE OF FEE PAID FOR TECHNICAL SERVICES AS NIL, LD. DRP OUGHT TO HAVE ALLOWED THE OBJECTIO N S FILED BY THE ASSESSEE. THE LD. COUNSEL FURTHER POINTED OUT THAT TPO HAS NOT USED ANY METHOD PRESCRIBED AND DETERMINED THE ARMS LENGTH PRICE OF FEE PAID FOR TECHNICAL SERVICES AS NIL ON THE GROUND THAT THE ASSESSEE HAS FAILED TO ESTABL ISH THAT THE PAYME NTS W ERE ACTUALLY MADE FOR TECHNICAL SERVICES. THE LD. COUNSEL RELYING ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MERCK LIMITED 389 ITR 70 (BOM), CIT VS. LEVER INDIA EXPORTS LTD. 78 TAXMANN.COM 88 (BOMBAY HIGH COURT) SUBMITTED THAT NOT ADOPTING OF ONE OF THE PRESCRIBED METHODS BY THE LD. TPO FOR DETERMIN ING ALP IN RESPECT OF FEES OF TECHNICAL SERVICES PAYABLE BY THE ASSESSEE TO ITS AE S MAKES THE ENTIRE TRANSFER PRICING AGREEMENT U NSUSTAINABLE IN LAW. IN THE LIGHT OF THE PRINCIPL ES OF LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT THE AD HOC DETERMINATION OF ALP BY THE TPO IN CONTRAVENTION OF THE PROVISIONS OF THE ACT CANNOT BE SUSTAINED. THE LD. COUNSEL FURTHER RELYING ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JOHNSON AND JOHNSON LTD. 80 TAXMAN. COM 337 (BOM) SUBMITTED THAT THE TPO WAS REQUIRED TO DETERMINE THE ALP BY FOLLOWING ONE OF THE METHODS PRESCRIBED U/S 92C R.WS. RULE 10B OF THE INCOME TAX RULES. THE LD. COUNSEL FURTHER SUBMITTED THAT IN VIEW OF THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT DISCUSSED ABOVE, THE ENTIRE ADDITION IS LIABLE TO BE DELETED. 10 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 11. T HE ASSESSEE HAS FILED AN APPLICATION FOR ADMITTING ADDITIONAL EVIDENCE UNDER RULE 29 OF THE INCOME TAX APPELLATE TRIBUNAL RULES. IN THE LIGHT OF SAID APPLICATION THE LD. COUNSEL SUBMITTED THAT SINCE THE LD. TPO AND THE LD. DRP HAVE COMPUTED THE ARMS LENGTH PRICE OF THE FEES PAID BY THE ASSESSEE AT NIL AND TREATED THE ENTIRE AMOUNT AS ADJUSTMENT, THE ADDITIONAL EVIDENCE WHICH IS COST A LLOCATION WORKING, IS RELEVANT FOR DECIDING THE ISSUE INVOLVED IN THE ASSESSMENT YEAR 2009 - 10 AS THE SAME IS RELEVANT TO DEMONSTRATE THE BENEFIT RECEIVED BY THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT THE SAID DOCUMENT COULD NOT BE PRODUCED BEFORE THE AUTHORITIES BELOW AS IT TOOK A LOT OF TIME FOR RETRIEVING THE DATA AND COLLATING THE SAME. THE LD. COUNSEL RELYING ON THE JUDGMENT OF THE HONBLE M.P. HIGH COURT IN THE CASE OF CIT VS. KUM. SATYA SETIA 143 ITR 486 (MP) AND THE ASSESSEE THE HONBLE DEL HI HIGH COURT IN THE CASE OF TEX T HUNDRED INDIA PVT. LTD.ITA NO 2077, 2061 AND 2065 OF 2010 SUBMITTED THAT THE TRIBUNAL HAS JURISDICTION TO ALLOW THE PRODUCTION OF ADDITIONAL EVIDENCE EVEN IF THE ASSESSEE HAS FAILED TO PRODUCE THE SAME BEFORE THE AO OR THE FIRST APPELLATE AUTHORITY. THE LD. COUNSEL FURTHER SUBMITTED THAT IN VIEW OF THE JUDGMENTS AFORESAID, THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE MA Y BE ALLOWED AND THE DOCUMENTS SUBMITTED ALONG WITH THE APPLICATION MAY BE ADMITTED AS ADDITIONAL EVIDENCE IN THE INTEREST OF JUSTICE AND FAIR PLAY AND THE ISSUE MAY BE DECIDED TAKING INTO CONSIDERATION THE ADDITIONAL EVIDENCE. 12. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ORDER UNDER CHALLENGE, SUBMITTED THAT SINCE THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE COST BENEFIT OF THE PAYMENTS MADE TO AES , THE LD. TPO RIGHTLY PROCEE DE D TO DETERMINE THE ARMS LENGTH PRICE AT NIL IN RELATION TO THE INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SECTION 92C(1) AND 92C(2) ON THE BAS IS OF SUCH MATERIAL AND INFORMATION AVAILABLE WITH HIM. ACCORDINGLY, THE TPO PROPOSED CHANGES IN THE WORKING OF ARMS LENGTH PRICE IN RESPECT OF ASSESSEES INTERNATIONAL TRANSACTION OF PROVISION OF CUSTOMER SUPPORT, DATA 11 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 UPDATION AND TRAVEL RELATED SERVICE S. THE LD. DR FURTHER SUBMITTED THAT THE DOCUMENTS SUBMITTED BY THE ASSESSEE ARE OF GENERAL NATURE IN THE FORM OF E - MAIL COMMUNICATION, TEMPLATES AND PRESENTATIONS, WHICH HAVE NO EVIDENTIARY VALUE. THE EVIDENCE ADDUCED BY THE ASSESSEE ONLY PROVE THE INCIDE NTAL AND PASSIVE ASSOCIATION BENEFITS AND DO NOT PROVE THE NEED FOR THE SERVICES IN QUESTION AND EXPENDITURE ON SUCH SERVICES. 13. THE LD. DR FURTHER POINTED OUT THAT T HE ASSESSEE HAS CONDUCTED THE TP STUDY USING MULTIPLE DATA WHEREAS AS PER THE RULE 10B (4) USE OF CURRENT YEAR DATA IS MANDATORY. THE LD. TPO HELD RIGHTLY HELD THAT AS PER THE PROVISION TO SECTION 10B(4), EARLIER YEAR DATA CAN BE USED IN ADDITION TO THE CURRENT YEAR DATA ONLY IN EXCEPTIONAL CIRCUMSTANCES THEREFORE, JUSTIFICATION GIVEN IN TH E SUBMISSION FOR USE OF EARLIER YEAR DATA IS ONLY HYPOTHETICAL. THE ASSESSEE HAS NOT EXPLAINED AS TO HOW MARKET CYCLE HAS AFFECTED THE RESULT OF ANY COMPARABLE AND HOW EARLIER YEAR DATA WAS NECESSARY TO BE USED INSTEAD OF CURRENT YEAR DATA. 14. THE LD. DR OPPOSED THE APPLICATION FILED BY THE ASSESSEE FOR ADMITTING ADDITIONAL DOCUMENTS AT THIS STAGE ON THE GROUND THAT SINCE THE ASSESSEE HAS FAILED TO FAILED TO PRODUCE THE SAID DOCUMENTS BEFORE THE AUTHORITIES BELOW, THE ASSESSEE HAS NO RIGHT TO PRODUCE THE SAME BEFORE THE TRIBUNAL. 15. WE HAVE HE ARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD INCLUDING THE ORDERS PASSED BY THE AUTHORITIES BELOW IN THE LIGHT OF THE RIVAL CONTENTIONS. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSES SEE, DURING THE FINANCIAL YEAR 2008 - 09, CWT INDIA AVAILED TECHNICAL ASSISTANCE FROM ITS ASSOCIATED ENTERPRISES SINGAPORE WHICH WERE IN THE NATURE OF SALES AND MARKETING, FINANCE AND TREASURY, GENERAL MANAGEMENT OF INFORMATION TECHNOLOGY AND INFORMATION DEL IVERY. CWT SINGAPORE CHARGED A MARK - UP OF 10% FOR RENDERING ACCOUNT MANAGEMENT AND SOLUTION SERVICES AND 12 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 7.5% FOR RENDERING FINANCE AND TREASURY GENERAL MANAGEMENT, HUMAN RESOURCES SERVICES IN ITS OPERATION AND INFORMATION TECHNOLOGY AND INFORMATION DELIVE RY. THE ASSESSEE SUBMITTED THE DETAIL COST BENEFIT ANALYSIS OF PAYMENT TO SINGAPORE BASED AE FOR AVAILING TECHNICAL SERVICES. THE CONTENTION OF THE ASSESSEE IS T HAT IT HAS BENCHMARKED THE TRANSACTION ON WHOLE ENTITY BASIS. THE ASSESSES MARGIN S ARE COMPARA BLE WITH THE MARGINS EARNED BY THE COMPARABLE COMPANIES. THEREFORE, THE PAYMENT FEES FOR AVAILING TECHNICAL ASSISTANCE CAN BE SAID TO BE AT ARM S LENGTH. THE ASSESSEE HAS SUBMITTED THE COPY OF SERVICE AGREEMENT IN WHICH IT IS MENTION ED THAT THE SEGMENT IS MADE EFFECTIVE FROM 1 ST APRIL, 2008. AS PER THE AGREEMENT , APART FROM THE OPERATIONS AND INFORMATION TECHNOLOGY AND INFORMATION DELIVERY (MIS), SERVICES SHALL INCLUDE ACCOUNT MANAGEMENT, SOLUTIONS, SALES AND MARKETING, FINANCE AND TREASURY, GENERAL MANAGEM ENT, HUMAN RESOURCES SERVICES, INDUSTRIAL RELATIONS AND OTHER SERVICES AS THE PARTIES MAY AGREE. A S PER THE COMPENSATION CLAUSE FEE IS TO BE PAID TO CWS - HQ WHICH SHOULD BE CALCULATED BY REFERENCE TO THE COST INCURRED BY CWS - HQ. IT IS ALSO MENTIONED THEREIN THAT AN INITIAL MARK - UP OF 10% WILL BE CHARGED ON THESE COSTS. THE ADDITIONAL EVIDENCE PRODUCED BEFORE THE TRIBUNAL EXPLAINS AS TO HOW COSTS WERE A LLOCATED TO VARIOUS ENTITIES OF THE GROUP AND HOW THE PERCENTAGE WAS APPLIED TO THE ASSESSEE. 16. WE NOTICE THAT THE LD. TPO HAS REJECTED THE CLAIM OF THE ASSESSEE INTER ALIA ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE AES RENDERED SERVICES FOR WHICH PAYMENTS IN QUESTION WERE MADE AND THE ASSESSEE HAS FAILED TO QUANTIFY THE SERVICES IN TERMS OF ACTUAL EXPENDITURE INCURRED AND BENEFITS DERIVED THERE FROM. THE RELEVANT PARAS OF THE TPOS ORDER READ AS UNDER: TO CONCLUDE , FIRSTLY THE TAXPAYER HAS TO PROVE THAT THE SERVICES ARE RENDERED. THE TEXTURE DID NOT PROVE IT SUBSTANTIALLY. THE SECOND ASPEC T OF INTERGROUP SERVICES IS THE QUANTIFICATION OF SUCH SERVICES IN TERMS OF ACTUAL EXPENDITURE INCURRED AND COMMENSURATE BENEFITS DERIVED THERE FROM. THE SUSPECT IS ALSO NOT PROVE BY THE TAXPAYER. EVEN IF WE ASSUME THAT THE ABOVE 13 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 SERVICES ARE INCURRED THE QUANTUM OF SUCH SERVICES WOULD NOT BE TO THE EXTENT OF RS. 15,36,55,898/ - . THE ASSESSEE IN ITS REPLY TO SHOW CAUSE NOTICE HAS SUBMITTED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE IN ITS OWN RIGHTS TO FURTHER ITS BUSINESS INTEREST AND IT IS FREE TO DETE RMINED THE MANNER IN WHICH IT SHOULD CARRY OUT ITS BUSINESS. FURTHER, IT IS SUBMITTED THAT IT IS NOT THE PREROGATIVE OF THE TPO TO QUESTION THE COMMERCIAL WISDOM OF THE TAXPAYER IN INCURRING THESE EXPENSES AND QUESTION THE BUSINESS JUDGMENT OF THE TAXPAYER . ON THIS ISSUE IT IS CLARIFIED THAT THE TPO IS NOT QUESTIONING ASSESSEES COMMERCIAL WISDOM OR BUSINESS JUDGMENT BUT HES DUTY - BOUND TO FIND THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF RECEIPT OF TECHNICAL SERVICES BY THE ASSESSEE IT IS THE TPO PREROGATIVE AND DUTY TO DETERMINE THE BENEFITS DERIVED BY THE ASSESSEE IN A CONTROLLED REJECTION AND THE PRICE WHICH COULD HAVE BEEN PAID BY THE ASSESSEE IF IT HAD TAKEN SUCH SERVICES FROM A THIRD - PARTY. HENCE, IN THE LIGHT OF THE DISCUSSION, THE ARMS LENGTH PRICE OF THE FEE PAID FOR TECHNICAL SERVICES IS TREATED AS RS NIL DUE TO INADEQUACY OF THE TAXPAYERS ARGUMENT AND THE ENTIRE PAYMENT OF FEE PAID FOR TECHNICAL SERVICES OF RS. 15, 36,55,898/ - I S TREATED AS AN ADJUSTMENT U/S 92 CA . 17. WE FURTHER NO TICE THAT THE LD. DRP HAS AFFIRMED THE ACTION OF THE LD. TPO HOLDING THAT THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THE SERVICES WERE IN FACT AVAILED AND THE ASSESSEE RECEIVED COMMENSURATE BENEFITS AGAINST THE PAYMENTS OF SERVICE CHARGES. UNDER THESE CIR CUMSTANCES , WE ARE OF THE CONSIDERED VIEW THAT T HE ADDITIONAL EVIDENCE PRODUCED BEFORE THE TRIBUNAL IS NECESSARY TO DECIDE THE ISSUE RAISED BY THE APPELLANT/ ASSESSEE. WE THEREFORE, ALLOW THE APPLICATION FOR ADMISSION OF THE ADDITIONAL EVIDENCE MOVED BY TH E ASSESSEE IN THE INTEREST OF J USTICE AND SET ASIDE THE ISSUE TO THE FILE OF AO TO DETERMINE THE SAME TAKING INTO CONSIDERATION THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE BEFORE THE TRIBUNAL . HENCE WE ALLOW GROUND NO. 3 TO 6 O F THE ASSESSEES APPEAL FOR STATISTICAL PURPOSES. 14 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 18. VIDE GROUND NO. 7, THE ASSESSEE HAS CHALLENGED THE FINDINGS OF THE LD. DRP IN HOLDING THE SOFTWARE EXPENDITURE OF RS. 8,71,494/ - REJECTING THE CLAIM OF THE ASSESSEE THAT THE SAME IS REVENUE EXPENDITURE. DURING THE ASSESSMENT YEAR 2009 - 10, THE ASSESSEE ACQUIRED LICENSE FOR USE OF CERTAIN SOFTWARE AND CLAIMED FULL AMOUNT AS REVENUE EXPENDITURE IN THE COMPUTATION OF INCOME. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT SINCE THE SOFTWARE BECOMES REDUNDANT WITH THE ADV ENT OF NEW TECHNOLOGY, THE SAME REQUIRES UP - GRADATION FROM TIME TO TIME. HENCE THE EXPENDITURE ON SOFTWARE IS REVENUE EXPENDITURE AND THERE IS NO BENEFIT OF AN ENDURING NATURE , THEREFORE THE SAME IS ALLOWABLE EXPENDITURE UNDER SECTION 37 (1) OF THE A CT. TH E LD. COUNSEL FURTHER SUBMITTED THAT THE DELHI SPECIAL B ENCH OF THE ITAT IN THE CASE OF AMWAY INDIA ENTERPRISE 111 ITD 112 (DELHI) HAS HELD THAT FOR DECIDING THE NATURE OF EXPENDITURE INCURRED ON ACCOUNT OF COMPUTER SOFTWARE THE OWNERSHIP TEST, ENDURING BE NEFITS TEST AND FUNCTIONAL TEST HAVE TO BE EVALUATED. THE LD. COUNSEL FURTHER RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE RAYCHEM RPG LTD. 346 ITR 138 AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASAHI S AFETY GLA SS LTD 346 ITR 329 , SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE SAID DECISIONS. 19. ON THE OTHER HAND, THE LD. DR RELYING ON THE ASSESSMENT ORDER PASSED IN TERMS OF THE DIRECTIONS ISSUED UNDER SECTION 144C (5) OF THE A CT BY THE LD. DRP , SUBMITTED THAT THE LD. DRP HAS RIGHTLY CONFIRMED THE ACTION OF AO IN HOLDING THE SOFTWARE EXPENDITURE AS CAPITAL IN NATURE ON THE GROUND THAT IT HAS GIVEN ENDURING BENEFIT TO THE ASSESSEE COMPANY. 20 . WE HAVE GONE THROUGH THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE CASES RELIED UPON BY THE ASSESSEE. AS POINTED OUT BY THE L D. COUNSEL FOR THE ASSESSEE , THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VERSUS RAYCHEM RPG LTD (SUPRA) HAS UPHELD THE FINDINGS OF THE T RIBUNAL THAT THE SOFTWARE EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE . I N THE SAID CASE , THE QUESTION 15 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 BEFORE THE HON BLE HIGH COURT WAS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ITAT WAS JUSTIFIED IN DELETING THE ADDITION IN RESPECT OF DISALLOWANC E OF SOFTWARE EXPENDITURE AS CAPITAL. IN THE SAID CASE , THE T RIBUNAL HA D HELD THAT THE SOFTWARE EXPENDITURE IS REVENUE EXPENDITURE. SIMILARLY , IN THE CASE OF CIT V. ASAHI INDIA S AFETY GLASS LTD. ( SUPRA) , THE QUESTION BEFORE THE HON BLE DELHI HIGH COURT WAS THAT WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF SOFTWARE AND OFFICIAL EXPENSES WAS THE REVENUE EXPENDITURE. THE HON BLE HIGH COURT AFTER HEARING THE RIVAL CONTENTIONS OF THE PARTIES DECIDED THIS ISS UE IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 2 1 . IN THE PRESENT CASE THE ASSESSEE HAS ACQUIRED LICENSE TO USE THE SOFTWARE , THEREFORE THERE IS NO TRANSFER OF OWNERSHIP OF THE SOFTWARE TO THE ASSESSEE . THE LICENSE FEE WAS NOT PAID FOR OBTAINING ANY RIGH T FOR COPING THE SOFTWARE OR RIGHT TO SELL / TRANSFER OR OTHERWISE DEAL IN SUCH SOFTWARE. SO FAR AS THE TEST OF ENDURING BENEFIT IS CONCERNED THE ASSESSEE HAS PURCHASED VARIOUS SOFTWARE APPLICATIONS FOR USING DAY - TO - DAY OPERATIONS OF THE BUSINESS. WITH THE ADVANCEMENT OF TECHNOLOGY INNOVATION , THE SOFTWARE BECOMES OUTDATED AND ACCORDINGLY SAME ARE UPDATED FROM TIME TO TIME . SO FAR AS THE FUNCTIONAL TEST IS CONCERNED , THE ADVANTAGE DERIVED BY THE ASSESSEE IS NOT IN THE CAPITAL FIELD OF REVENUE SO AS TO T REAT THE SAME AS CAPITAL EXPENDITURE . T HE ADVANTAGE CONSIST S MERELY IN FACILITATING THE APPELLANTS TRADING OPERATIONS IN CARRYING OUT THE BUSINESS MORE EFFECTIVELY AND HAS NOT RESULTED IN CREATING A PROFIT EARNING APPARATUS FOR THE ASSESSEE. MOREOVER, T HERE IS NO CHANGE IN THE FIXED CAPITAL BASE OF THE BUSINESS BY PURCHASES OF LICENSE TO USE THE SOFTWARE. 2 2 . IN VIEW OF THE AFORESAID FACTS OF THE CASE AND THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT AND THE HONBLE DELHI HIGH COURT, WE FIND MERIT IN THE ARGUMENT S OF THE LD. COUNSEL FOR THE ASSESSEE THAT TREATMENT OF SOFTWARE EXPENDITURE INCURRED DURING THE PREVIOUS YEAR AS CAPITAL GAIN BY THE 16 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 AUTHORITIES BELOW IS CONTRARY TO THE PRINCIPLES OF LAW LAID DOWN IN THE AFORESAID CASES. HENCE FOLLOWING T HE RATIO OF LAW LAID DOWN BY THE HONBLE HIGH COURT S IN THE AFORESAID CASE, WE SET - ASIDE THE FINDINGS OF THE AO BASED ON THE DIRECTIONS ISSUED BY THE LD. DRP AND ALLOW THIS GROUND OF APPEAL. ACCORDINGLY WE DI RECT THE AO TO DELETE THE ADDITION BY TREATING T HE SAME AS REVENUE EXPENDITURE. 2 3 . V IDE GROUND NUMBER 8, THE ASSESSEE HAS CHALLENGED THE ACTION OF AO TPO AND DRP IN NOT GRANTING THE ASSESSEE THE BENEFIT OF +/ - 5% AS ENVISAGED UN DER THE PROVISIONS OF SECTION 9 2 C(2 ) OF THE A CT. SINCE WE HAVE SET ASIDE T HE ISSUE RELATING TO TRANSFER PRICING ADJUSTMENT TO THE FILE OF THE AO FOR DETERMINING THE SAME AFRESH IN THE LIGHT OF THE ADDITIONAL EVIDENCE ADMITTED BY THE TERMINAL, THIS ISSUE IS NOT REQUIRED TO BE ADJUDICATED AT THE STAGE. 2 4 . VIDE GROUND NUMBER 9, T HE ASSESSEE HAS CHALLENGED THE ACTION OF AO IN WRONGLY COMPUTING THE AMOUNT OF TDS AND THE AMOUNT REFUNDED TO THE APPELLANT FOR THE PURPOSE OF DETERMINING THE TAX PAYABLE BY THE APPELLANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED COUNSEL SUB MITTED BEFORE US THAT THE AO HAS WRONGLY COMPUTED THE AMOUNT OF TDS AND AMOUNT REFUNDED TO THE APPELLANT . T HEREFORE THE ISSUE MAY BE SENT BACK TO THE AO FOR VERIFICATION. THE LD. DR DID NOT OPPOSE THE SUBMISSIONS MADE BY THE LEARNED COUNSEL. I N THE LIGHT O F THE SUBMISSIONS MADE BY THE LEARNED COUNSEL, WE RESTORE THIS ISSUE TO THE FILE OF AO FOR DETERMINING THE SAME AFRESH AFTER PROPER VERIFICATION. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 2 5 . GROUND NUMBER 10 IS OF CO NSEQUENTIAL NATURE. HENCE WE DO NOT DEEM IT NECESSARY TO ADJUDICATE THIS GROUND OF APPEAL. 17 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 ITA NO. 23/MUM/2015 (ASSESSMENT YEAR: 2010 - 11 ) THE FACTS AND THE ISSUES INVOLVED IN THE PRESENT CASE ARE IDENTICAL TO THE FACTS AND THE ISSUES INVOLVED IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 DISCUSSED ABOVE EXCEPT THE AMOUNT OF EXPENDITURE ON ACCOUNT OF INTERNATIONAL TRANSACTION CLAIMED BY THE ASSESSEE AND THE EXPENDITURE INCURRED BY THE ASSESSEE ON SOFTWARE DURING THE PREVIO US YEAR. 2. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUNDS: - . 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER NORMAL PROVISIONS OF THE ACT AT INR 15,59,91,270 AS AGAINST THE RETURNED INCOME OF IN R 1,59,40,712. TRANSFER PRICING ADJUSTMENT 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN MAKING AN ADJUSTMENT OF INR 13,96,21,226 IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDERTAKEN DURING YEAR, ALLEGING THAT THE SAME WERE NOT AT ARMS LENGTH IN TERMS OF THE PROVISIONS OF SECTIONS 92C(1) AND 92C(2) OF THE ACT READ WITH THE RULE 10B OF THE INCOME - TAX RULES, 1962 (THE RULES). FURTHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAVE ERRED IN THE FOLLOWING: 2.1 REJECTING THE ECONOMIC ANALYSIS AND METHODOLOGY ADOPTED BY THE APPELLANT, BEING TRANSACTIONAL NET MARGIN METHOD (TNMM), BEING THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRA NSACTION PERTAINING TO PAYMENTS TO AE FOR RECEIPT OF TECHNICAL ASSISTANCE AND FURTHER ERRED IN NOT 18 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 APPLYING ANY OF THE METHODS PRESCRIBED UNDER THE ACT READ WITH RULE 10B OF THE RULES. 2.2 MAKING AN ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTION BY DETERM INING THE ARMS LENGTH PRICE (ALP) TO BE NIL AND DECIDING THE DEDUCTION OF THE EXPENSE. 2.3 IGNORING THE PROVISIONS OF RULE 10B WHILE APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) METHODOLOGY IN DETERMINING ALP FOR RECEIPT OF SERVICES. 2.4 NOT SHARING THE REL EVANT MATERIAL/INFORMATION RELIED UPON WHILE APPLYING CUP AS MOST APPROPRIATE METHOD. 2.5 QUESTIONING THE COMMERCIAL EXPEDIENCY/WISDOM OF THE APPELLANT. 2.6 NOT CONSIDERING THE BENEFIT DERIVED BY THE APPELLANT FROM RECEIPT OF TECHNICAL SERVICES AND DISREGARDING THE DOCUMENTATION SUBMITTED BY THE APPELLANT. 2.7 CONSIDERING TRAVEL RELATED EXPENSES IN THE VALUE OF INTERNATIONAL TRANSACTIONS OF TECHNICAL SERVICES WHILE DETERMINING THE ADJUSTMENT. IT IS PRAYED THAT IT BE HELD THAT THE AFORESAID INTERNATIONAL TRANSACTION IS AT ARMS LENGTH AND ACCORDINGLY, THE AO BE DIRECTED TO DELETE THE ADJUSTMENT. OTHER GROUNDS: 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN TREATING THE SOFTWARE EXPENDITURE AFTER DEPRECIATION, AMOUNTING TO INR 8,70,546 AS CAPITAL IN NATURE. 19 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN CHARGING INTEREST UNDER SECTIONS 234A, 234B AND 234D OF THE ACT. IT IS PRAYED THAT IT BE HELD THAT THE AFORESAID ADJUSTMENTS ARE BAD IN LAW AND THE AO BE DIRECT ED TO DELETE THE ADJUSTMENT. 3. THE AO ASSESSED THE INCOME OF THE ASSESSEE UNDER THE NORMAL PROVISION OF ACT AT RS. 15,59,91,270/ - AS AGAINST THE RETURNED INCOME OF RS. 1,59,40,712/ - AFTER INTER ALIA MAKING ADDITION OF RS. 13,96,21,226/ - ON ACCOUNT OF ADJUSTMENT TO ARMS LENGTH PRICE AND SOFTWARE EXPENSES OF RS. 8,70,446/ - TREATING THE SAME AS CAPITAL EXPENDITURE. 4. GROUND NO. 1 OF THIS APPEAL IS OF GENERAL NATURE, THEREFORE, WE DO NOT DEEM IT NECESSARY TO ADJUDICATE THE SAID GROUND SEPARATELY. 5. GR OUND NO. 2 TO 2.7 ARE IDENTICAL TO GROUND NO. 3 TO 6 OF THE ASSESSEES APPEAL FOR THE A.Y. 2009 - 10 DISCUSSED ABOVE. T HE FACTS WHICH GAVE RISE TO THIS ISSUE AND THE ISSUE INVOLVED IN THE PRESENT CASE ARE SIMILAR TO THE FACTS AND THE ISSUE INVOLVED IN THE SA ID CASE . T HE ASSESSEE HAS FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL EV IDENCE IN THE PRESENT CASE ALSO. SINCE, WE HAVE SET ASIDE THE ISSUE PERTAINING TO TRANSFER PRICING ADJUSTMENT TO THE FILE OF AO FOR DECIDING THE SAME AFRESH IN THE LIGHT OF THE A DDITIONAL EVIDENCE ALLOWED BY THE TRIBUNAL, CONSISTENT WITH OUR FINDINGS, WE SET ASIDE THE FINDINGS OF THE LD. TPO AND THE LD. DRP AND RESTORE THIS ISSUE TO THE FILE OF AO /TPO FOR DECIDING THE ISSUE AFRESH IN THE LIGHT OF THE ADDITIONAL EVIDENCE ADDUCED BY THE ASSESSEE AFTER HEARING THE ASSESSEE . HENCE , GROUND NO. 2 TO 2.7 OF THE ASSESSEES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 3 OF THE PRESENT APPEAL IS IDENTICAL TO THE GROUND NO. 7 OF THE ASSESSEES APPEAL FOR THE A.Y. 2009 - 10 (SUPRA ). SINCE, THERE IS NO CHANGE OF MATERIAL FACTS IN THE PRESENT ASSESSMENT YEAR AND SINCE WE HAVE ALLOWED THIS GROUND OF APPEAL OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009 - 20 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 10 AFORESAID, CONSISTENT WITH OUR FINDINGS, WE ALLOW THIS GROUND OF A PPEAL OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 8,70,546/ - MADE BY TREATING THE SOFTWARE EXPENDITURE AS CAPITAL EXPENDITURE. HENCE, THIS GROUND OF APPEAL IS ALLOWED. 7. VIDE GROUND NO. 4, THE ASSESSEE HAS CHALLENGED THE ACTION OF AO OF CHAR G ING INTEREST U/S 234A, 234B AND 234D OF THE ACT. SINCE, THIS GROUND OF APPEAL IS OF CONSEQUENTIAL NATURE, WE DO NOT CONSIDER IT NECESSARY TO DECIDE THE SAID GROUND AT THIS STAGE. ITA NO. 1404/MUM/2017 (ASSESSMENT YEAR: 2012 - 13 ) THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE ASSESSEES CASE FOR THE A.Y. 2009 - 10 AND 2010 - 11 AFORESAID EXCEPT THE AMOUNT OF TRANSFER PRICING ADJUSTMENT INVOLVED AND THE AMOUNT OF EXPENDITURE INCURRED ON PURCHASE OF SOFTWARE LICENSE. SINCE, WE HAVE DIS CUSSED THE FACTS OF THE CASE IN THE ASSESSEES APPEAL FOR THE A.Y. 2009 - 10 AFORESAID, WE DO NOT CONSIDER IT NECESSARY TO REPEAT THE SAME HERE ONCE AGAIN. IN THE PRESENT CASE, THE AO DETERMINED THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSID ERATION AT RS. 49,73,70,470/ - AS AGAINST THE RETURN INCOME OF RS. 21,48,52,460/ - AFTER INTER ALIA MAKING ADDITION OF RS. 28,25,18,009/ - ON ACCOUNT OF ARMS LENGTH PRICE ADJUSTMENT IN PURSUANCE OF ORDER U/S 92CA (3) PASSED BY THE LD. TPO AND FURTHER CONFI RMED BY THE LD. DRP. AGGRIEVED BY THE IMPUGNED ORDER PASSED BY THE AO, THE ASSESSEE FILED OBJECTION AGAINST THE SAID ORDER BEFORE THE LD. DRP. THE LD. DRP AFTER HEARING THE ASSESSEE REJECTED THE OBJECTIONS AND CONFIRMED THE ADDITIONS OF RS. 28,25,18,009/ - . THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE FINDINGS OF THE AUTHORITIES BELOW. 2. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUNDS: - . 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDERS PAS SED BY THE AO/TRANSFER PRICING 21 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 OFFICER (TPO) AND DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) ARE NOT IN ACCORDANCE WITH LAW AND IS CONTRARY THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND IN VIOLATION OF THE PRINCIPLES OF EQUITY AND NATUR AL JUSTICE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DIRECTIONS ISSUED BY THE DRP DATED NOVEMBER 25, 2016 IS BAD IN LAW AND ARE IN VIOLATION OF SECTION 144C(6) OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER NORMAL PROVISIONS OF THE ACT AT INR 497,370,470 AS AGAINST THE RETURNED INCOME OF INR 214,852,460. TRANSFER PRICING ADJUSTMENT 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO/DRP WHILE MAKING AN ADJUSTMENT OF INR 282,518,009 IN RESPECT OF INTERNATIONAL TRANSACTIONS OF RECEIPT OF TECHNICAL ASSISTANCE FROM THE ASSOCIATED ENTERPRISE (AE) DURING THE RELEVANT ASSESSMENT YEAR ERRED IN FOLLOWING 4.1 REJECTING THE ECONOMIC ANALYSIS AND METHODOLOG Y ADOPTED BY THE APPELLANT, BEING TRANSACTIONAL NET MARGIN METHOD (TNMM), AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENTS TO AE FOR RECEIPT OF TECHNICAL ASSISTANCE AT ENTITY LEVEL. 4.2 D ETERMINING THE ARM S LENGTH PRICE (ALP) AS NIL WITHOUT PROPER APPLICATION OF ANY TRANSFER PRICING METHOD PRESCRIBED UNDER SECTION 92C OF THE ACT READ WITH RULE 10B OF THE RULE OF THE INCOME TAX RULES, 1962 (THE RULES) . 4.3 NOT SHARING THE RELEVANT MATERIAL/INFORMATION RELI ED UPON WHILE DETERMINING THE ARMS LENGTH PRICE. 22 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 4.4 QUESTIONING THE COMMERCIAL EXPEDIENCY/WISDOM OF THE APPELLANT FOR INCURRING OF EXPENDITURE IN RESPECT OF RECEIPT OF TECHNICAL ASSISTANCE. 4.5 NOT ACKNOWLEDGING THE FACT THAT THE SERVICE WERE ACTUALLY RECEIVE D BY THE APPELLANT. 4.6 NOT APPRECIATING AND DISREGARDING THE BACK - UP DOCUMENTARY EVIDENCE/INFORMATION PROVIDED TO SUBSTANTIATE THE NEED AND BENEFITS DERIVED FROM RECEIPT OF TECHNICAL ASSISTANCE FROM AE BY THE APPELLANT DURING THE COURSE OF THE PROCEEDINGS. 4.7 ARBITRARILY RELYING ON THE DRP DIRECTIONS OF AY 2011 - 12 IN APPELLANTS OWN CASE, WITHOUT PROPER EXAMINATION OF THE FACTS AND CIRCUMSTANCES OF AY 2012 - 13 AND CONCLUDING THAT THE MATERIAL PLACED ON THE RECORD BY THE APPELLANT IN THE INSTANT AY IS SIMILAR TO THE DOCUMENTARY EVIDENCES SUBMITTED IN THE PREVIOUS AY WITHOUT PROPER EXAMINATION. OTHER GROUNDS: 5. THAT THE LEARNED AO HAS ERRED O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IN LEVYING THE INTEREST UNDER SECTION 234B OF THE ACT MECHANICALLY AND W ITHOUT RECORDING ANY SATISFACTORY REASONS FOR THE SAME . 6. THAT AO/DRP HAS GROSSLY ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY INITIATING THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) READ WITH SECTION 274 OF THE ACT AND STATING THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME LEADING TO CONCEALMENT OF INCOME. 3. D URING PENDENCY OF THE PRESENT APPEAL THE ASSESSEE REVISED GROUND NO. 1 OF THE APPEAL AND RAISED THE LEGAL ISSUE CONTENDING THAT SINCE THE LD. TPO IN HAS NOT SERVED ANY SHOW CAUSE N OTICE AS PER THE PROVISIONS OF PROVISO TO SUB SECTION 3 OF SECTION 92C OF THE ACT OR NOT PROVID ED A REASONABLE OPPORTUNITY OF 23 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 BEING HEARD TO THE ASSESSEE T O REBUT THE ARGUMENTS/EVIDENCE RELIED UPON , THE TRANSFER PRICING ADJUSTMENT I S BAD IN LAW. THE REVISED GROUND READS AS UNDER: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDERS PASSED BY THE AO/TRANSFER PRICING OFFICER (TPO) AND DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) ARE NOT IN ACCORDANCE WIT H LAW AND IS CONTRARY THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND IN VIOLATION OF THE PRINCIPLES OF EQUITY AND NATURAL JUSTICE. A) IN GENERAL AND B) IN SPECIFIC, THE LD. TPO GROSSLY WAS VIO LATED THE PRINCIPLE OF NATURAL JUSTICE BY FAILING TO GIVE SHOW C AUSE NOTICE UNDER THE PROVISO TO SECTION 92C(3) OF THE ACT AND OR PROVIDE ANY REASONABLE OPPORTUNITY TO THE APPELLANT TO REBUT THE ARGUMENTS EVIDENCE RELIED UPON AND OR OTHER GROUNDS TAKEN FOR MAKING ADJUSTMENT IN ARMS LENGTH PRINCIPLE. 4. SINCE, TH E ISSUE RAISED BY THE ASSESSEE IS OF LEGAL NATURE , WE ALLOWED THE REVISED GROUND FILED BY THE ASSESSEE AFTER HEARING THE LD. DR AND PERMITTED THE LD. COUNSEL FOR THE ASSESSEE TO ARGUE THE CASE OF THE ASSESSEE ON THE REVISED GROUND APART FROM THE GROUND ALR EADY RAISED . 5. BEFORE US, THE LD. COUNSEL SUBMITTED THAT T HE LD. TPO HAS GROSSLY VIOLATED THE PRINCIPLES OF NATURAL JUSTICE BY FAILING TO GIVE SHOW CAUSE NOTICE U/S 92C( 3 ) OF THE ACT , THEREBY DEPRIVING THE ASSESSEE FROM GIVING A REASONABLE OPPORTU NITY TO REBUT THE EVIDENCE RELIED UPON BY HIM . THE LD. COUNSEL INVITED OUR ATTENTION TO PROVISO TO SUB SECTION 3 OF SECTION 92C OF THE ACT. THE LD. COUNSEL FURTHER ARGUED THAT SINCE THE TPO WAS BOUND TO SERVE NOTICE UPON THE ASSESSEE TO SHOW CAUSE AS TO WH Y THE ARMS LENGTH PRICE SHOULD NOT BE DETERMINED ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN THE POSSESSION OF THE AO/TPO. THE LD. COUNSEL RELYING ON THE JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF HOTEL BLUE MOON 321 ITR 362 (SC) SUB MITTED THAT THE ACTION OF THE TPO 24 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 IS ARBITRARY AND CONTRARY TO THE LAW LAID DOWN BY THE HONBLE SUPREME COURT. THE LD. COUNSEL FURTHER SUBMITTED THAT SINCE THE LD. TPO HAS FAILED TO COMPLY WITH THE STATUTORY PROVISIONS, THE TRANSFER PRICING ADJUSTMENT MADE BY HIM IS LIABLE TO BE SET ASIDE. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT SINCE THE ASSESSEE HAS PARTICIPATED IN THE ENTIRE TP PROCEEDINGS BEFORE THE LD. TPO , THE ASSESSEE CANNOT RAISE THIS ISSUE AND EVEN IF THE LD. TPO HAS NOT SERVED THE NOTICE IN TERMS OF THE AFORESAID PROVISO, THE PROCEEDING WILL NOT BE VITIATED AS THIS IRREGU LARITY IS COVERED BY SECTION 292 BB OF THE ACT, WHICH SAYS THAT WHERE THE ASSESSEE HAS APPEARED IN ANY PROCEEDINGS IN ANY ENQUIRY RELATING TO ASSESSMENT OR REASSESSMENT WH ICH SHALL BE DEEMED THAT ANY NOTICE UNDER ANY PROVISIONS OF THE ACT WHICH IS REQUIRED TO BE SERVED UPON HIM HAS BEEN DULY SERVED UPON HIM IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 7. IN REBUTTAL THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PR OVISIONS OF SECTION 292BB DO NOT APPLY IN THE PRESENT CASE AS THE PRESUMPTION U/S 292BB IS REGARDING SERVICE OF NOTICE AND NOT REGARDING ISSUANCE OF THE NOTICE. IN THE PRESENT CASE SINCE THE LD. TPO HAD NOT ISSUED ANY NOTICE IN COMPLIANCE OF THE AFORESAID PROVISION NO QUESTION OF ITS SERVICE DOES ARISE. THE LD. COUNSEL FURTHER RELIED ON THE JUDGMENT OF THE MUMBAI ITAT IN THE CASE OF SURESH EXPORT (2017) 88 TAXMANN.COM 374 IN WHICH THE TRIBUNAL , RELYING ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GENO PHARMACEUTICALS LTD. (2013) 32 TAXMAN.COM 162 HAS HELD THAT ISSUANCE OF SERVICE OF JURISDICTIONAL NOTICE U/S 143 (2) IS MANDATORY AND IN THE ABSENCE OF THE SAME, THE ASSESSMENT FRAMED WOULD BE VOID - AB - INITIO . IN THE LIGHT OF THE AFORE SAID JUDGMENT , THE LD. COUNSEL SUBMITTED THAT SECTION 292BB IS APPLICABLE IN CASE WHERE THE SERVICE OF NOTICE IS IN QUESTION. SINCE, IN THIS THE LD. TPO HAS NOT ISSUED BY THE AUTHORITY CONCERN , THIS SECTION WILL NOT APPLY. 25 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 8. WE HAVE CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD IN THE LIGHT OF THE RIVAL CONTENTIONS OF THE PARTIES. PROVISO TO SUB SECTION 3 OF SECTION 92C OF THE ACT READS AS UNDER: PROVIDED THAT AN OPPORTUNITY SHALL BE GIVEN BY THE ASSESSING OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SHOW CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY THE ARMS LENGTH PRICE SHOULD NOT BE SO DETERMINED ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN THE POSSESSION OF THE ASSESSING OFFICER. 9. SECTION (3) SAYS TH AT WHERE DURING THE COURSE OF ANY PROCEEDING FOR THE ASSESSMENT OF INCOME THE AO IS OF THE OPINION ON THE BASIS OF MATERIAL OR INFORMATION IN HIS POSITION THAT THE PRICE CHARGED OF PAID IN AN INTERNATIONAL TRANSACTION HAS NOT BE DETERMINED IN ACCORDANCE WI TH SUBSECTION 1 AND 2 FOR ANY INFORMATION AND DOCUMENTS RELATING TO AN INTERNATIONAL PROJECTION HAVE NOT BEEN KEPT AND MAINTAINED BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTENDING SUBSECTION 1 OF SECTION 92D AND THE RULES MADE IN THIS BEHALF OR THE INFORMATION ORDER THE USED IN COMPUTATION OF THE ARMS - LENGTH PRICE IS NOT RELIABLE ARE CORRECT OR THE ASSESSEE HAS FAILED TO FURNISH WITHIN THE SPECIFIED TIME ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FURNISH BY A NOTICE ISSUED UNDER SUBSEC TION 3 OF SECTION 9 2D, THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS - LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SUBSECTION 1 AND ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. FROM A PLAIN READING OF THE SAID SECTION , IT IS CLEAR THAT THE NOTICE IN TERMS OF PROVISIONS OF SUBSECTION 3 IS MANDATORY ONLY IF THE ASSESSEES CASE FALL UNDER ANY OF THE CONDITIONS STIPULATE D IN SUB SECTION 3 OF SECTION 92 C OF THE ACT. HERE IN THE PRESENT CASE , SINCE THE AO HAS NOT SERVED ANY NOTICE IT CAN BE INFERRED THAT THE AO IS OF THE OPINION THAT THE ASSESSEES CASE DOES NOT FALL IN ANY OR ALL THE CONDITIONS STIPULATED UNDER THE SAID SUB SECTION . MOREOVER, SINCE THE ASSESSEE HAS PRESENTED ITS CASE T HROUGH ITS AUTHORIZED REPRESENTATIVE, NO PREJUDICE HAS BEEN CAUSED TO 26 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 THE ASSESSEE. THE CASES RELIED UPON BY THE ASSESSEE ARE ON DIFFERENT POINTS. HENCE WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE. WE ACCORDINGLY DISMISS THIS GROUND OF APPEA L OF THE ASSESSEE. 10. GROUND NO. 2 AND 3 ARE GENERAL IN NATURE, HENCE, WE DO NOT DEEM IT NECESSARY TO ADJUDICATE THE SAME SEPARATELY. 11. VIDE GROUND NO. 4 TO 4.7 THE ASSESSEE HAS CHALLENGED THE ACTION OF AO IN MAKING ADDITION OF RS. 28,25,18,009/ - O N ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN PURSUANCE OF DIRECTION DATED 25.11.2016 PASSED BY THE LD. DRP U/S 144C(5) OF THE ACT. THE GENERAL CONTENTION OF THE PARTIES IN THE PRESENT APPEAL ARE SIMILAR TO THE CONTENTIONS OF THE PARTIES RAISED IN THE ASSESS EES APPEAL FOR THE A.Y. 20 0 9 - 1 0 AND 2010 - 11 DISCUSSED ABOVE. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE ENTERED INTO DIFFERENT AGREEMENT WITH ITS AES FOR AVAILING THE SERVICES RELATING TO ACCOUNT MANAGEMENT, SOLUTIONS, SALES AND MARKETING, FINANCE AND TREASURY, HUMAN RESOURCE SERVICES, INDUSTRIAL RELATION AND OTHER SERVICES AS THE PARTY MAY AGREE. DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE AVAILED THE AFORESAI D SERVICES F ROM CWT, SINGAPORE I N TERMS OF THE AGREEMENT ENTERED WITH THE CWT, SINGAPORE. 12. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE RELEVANT YEAR, THE ASSESSEE HAD PAID RS. 28,25,18,009/ - TO CWT, SINGAPORE. THE LD. COUNSEL FURTHER S UBMITTED THAT IT IS NOT THE CASE OF THE REVENUE THAT THIS AMOUNT WAS NOT PAID BY THE ASSESSEE TO ITS AE. THE LD. COUNSEL FURTHER POINTED OUT THAT THE ASSESSEE HAS FILED THE DETAILS OF NATURE OF SERVICE AND DETAILS OF BENEFITS RECEIVED FROM THE AE AND ALSO NEED FOR SERVICES IN DIFFERENT FIELDS OF OPERATIONAL ACTIVITIES I N ORDER TO DEMONSTRATE THE ARMS LENGTH PRICE . THE ASSESSEE HAS ALSO FURNISHED THE TP STUDY REPORT BENCHMARKING THE TRANSACTION BY USING TRANSACTION NET MARGIN METHOD (TNMM) AND SELECTING THE AE AS A TESTED PARTY. AS PER THE TP REPORT, THE MARGIN OF THE TESTED PARTY IS 7.5 10%, WHEREAS THE ARMS LENGTH MARGIN OF THE COMPARABLES SELECTED BY THE 27 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 ASSESSEE IS 24.83 %. SINCE, THE MARGIN OF TESTED PARTY IS LESS THAN THE MARGIN OF THE COMPARABLE COM PANIES, THE ASSESSEE HAS BENCHMARKED THE TRANSACTION AS ARMS LENGTH. THE LD. COUNSEL FURTHER POINTED OUT THAT THE ASSESSEE HAS ESTABLISHED THE GENUINENESS OF THE EXPENDITURE AND ITS ALLOCATION AMONG VARIOUS GROUP ENTITIES BY FURNISHING CPA CERTIFICATE DUL Y ISSUED BY THE COMPETENT PERSON. THE LD. COUNSEL FURTHER ARGUED THAT THE ANALYSIS OF THE TPO IS NOT BASED ON EVIDENCE ON RECORD AND IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE LD. TPO HAS WRONGLY COMPUTED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION AT NIL. IN THE PRESENT CASE, SINCE THE LD. TPO HAS WRONGLY APPLIED CUP METHOD THE LD. DRP OUGHT TO HAVE SET ASIDE THE ORDER PASSED BY THE LD. TPO. THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF EMERSON CLIMATE TECHNOLOGIES (INDIA) LTD. VS. DCIT 2018 90 TAXMAN.COM 125 SUBMITTED THAT IN THE PRESENT CASE THE CUP METHOD CANNOT BE APPLIED AS MOST APPROPRIATE METHODS BECAUSE THE TRANSACTION IS INTRA GROUP I.E. BETWEEN THE AES. THE LD TPO HAS N OT BROUGHT ON RECORD ANY COMPARABLE FOR APPLYING CUP METHODS FOR BENCHMARKING THE TRANSACTION. THE LD. COUNSEL FURTHER POINTED OUT THAT THE ASSESSEE HAS FURNISHED APART FROM OTHER DETAILS, THE FINANCIAL OF THE COMPARABLES INCLUDING THE DESCRIPTION OF SERVI CES PROVIDED BY THE SEVEN COMPARABLES SELECTED BY THE ASSESSEE IN ITS TP STUDY REPORT AVAILABLE AT PAGE N O. 805 TO 807 OF THE PAPER BOOK. 1 3 . ON THE OTHER HAND, THE LD. DR RELYING ON THE ORDER PASSED BY THE AO IN TERMS OF THE DIRECTIONS ISSUED BY TH E L D. DRP SUBMITTED THAT THE LD. TPO BY APPLYING CUP RIGHTLY CONSIDERED THE ARMS LENGTH PRICE AT NIL AS THE SERVICES RENDERED BY THE AE HAS NOT SUBSTANTIALLY BENEFITTED TO THE ASSESSEE BEING THE AE. THE LD. DR PLACING RELIANCE ON THE ORDER OF THE ITAT, MUMB AI IN THE CASE OF DELOITTE CONSULTING INDIA PVT . LTD. 22 TAXMAN N .COM 107, HELD THAT AN UNCONTROLLED COMPARABLE COMPANY WOULD NOT INCUR SUCH EXPENDITURE, THEREFORE THE ARMS LENGTH PRICE IS RIGHTLY DETERMINED AT N IL. THE LD. DR FURTHER POINTED 28 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 OUT THAT THE T P STUDY OF THE ASSESSEE HAS ONLY ESTABLISHED THE ARMS LENGTH PRICE OF THE MARKUP CHARGE BY THE AE WITHOUT DEMONSTRATING THE NEED OF SUCH SERVICES. THE LD. DR FURTHER POINTED OUT THAT THE TP STUDY REPORT HAS BEEN PR EPARED BY USING MULTI PLE YEAR DATA, HENCE THE ARMS LENGTH PRICE DETERMINED BY THE ASSESSEE IS NOT ACCEPTABLE. THE LD. DR FURTHER POINTED OUT THAT THE RANGE S OF THE SEVEN COMPARABLES ARE FROM 4.56% TO 44.98% , A VERAGE OF WHICH COMES TO 24.83%. SINCE, THE ASSESSEE HAS NOT PROVIDED THE MARGIN OF THE COMPARABLE PERTAINING TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE LD. TPO HAS RIGHTLY REJECTED THE ARMS LENGTH PRICE DETERMINED BY THE ASSESSEE. THE LD. DR FURTHER SUBMITTED THAT THE COPY OF EMAILS, PRESENTATION AND TEMPLATES SUBMITTED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW HAVE NO EVIDENTIARY VALUE. T HE LD. DR FURTHER SUBMITTED THAT SINCE THE TPO HAS RIGHTLY HELD THE ARMS LENGTH PRICE AT NIL BY FOLLOWING THE APPROPRIATE METHOD, THE LD. DRP HAS RIGHTLY AFFIRMED THE FINDINGS OF THE LD. TPO. THEREF ORE, THERE IS NO INFIRMITY IN THE IMPUGNED ORDER TO INTERFERE WITH. 1 4 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE PARTIES IN THE LIGHT OF THE RIVAL CONTENTIONS OF THE PA RTIES. THE ASSESSEE COMPANY WAS A JOINT VENT URE OF 76:24 BETWEEN CARLSON WA GONLIT TRAVELS (CWT) AND AFL LTD. IN THE YEAR 2008, THE ASSESSEE COMPANY SEIZED TO BE A JOINT VENTURE AND BECAME 100% SUBSIDIARY OF CWT HOLDINGS N V. POST EXIT OF AFL , THERE WAS NEE D TO PROVIDE OPERATIONAL STRATEGIC AND ADVISORY SUPPORT TO THE ASSESSEE COMPANY TO ENSURE THAT THE ASSESSEE IS BENEFITTED BY THE PROCESSES FOLLOWED BY CWT GROUP OF COMPANY WORLDWIDE. THE SAID SERVICES WERE PROVIDED BY THE AES FOR WHICH THE ASSESEEE ENTERED INTO AGREEMENT WITH ITS AE CWT, SINGAPORE . THE AIM OF PROVIDING SERVICES TO THE ASSESSEE WAS TO ACHIEVE THE OBJECTIVE OF DEVELOPMENT OF ITS BUSINESS IN THE IN DIAN MARKET, IMPLEMENTATION OF COST EFFECTIVE PROCESS, IMPROVEMENT OF FINANCIAL PERFORMANCE, ESTA BLISHING ROBUST CONTROL, ESTABLISHING 29 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 BEST IN CLASS HR PRACTICES, DEVELOP STRONG GLOBAL CUSTOMER BUSINESS AND ESTABLISHED IT S IDENTITY IN THE INDIAN MARKET. 1 5 . IN ORDER TO DEMONSTRATE THE JUSTIFICATION OF BENEFITS DERIVED BY THE ASSESSEE FROM THE SERVI CES RENDERED BY ITS AE, THE ASSESSEE HAS PLACED ON RECORD, THE DETAILS OF THE SERVICES AVAILED, DETAILS OF BENEFIT DERIVED AND THE FUNCTIONS PERFORMED BY THE ASSESSEE. AS PER THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSEE PLACED ON RECORD THE COPIES O F E - MAIL, CORRESPONDENCES, TEMPLATES AND PRESENTATION TO ESTABLISH THAT BY AVAILING THE SERVICES FROM THE AES THE ASSESSEE COULD PERFORM ITS FUNCTION EFFECTIVELY IN THE FIELDS OF REGIONAL SALES AND MARKETING, OPERATION MANAGEMENT, FINANCE AND TREASURY, HUM AN RESOURCES, INFORMATION TECHNOLOGY AND INFORMATION DELIVERY SYSTEM. THE ASSESSEE HAS FURTHER SUBMITTED THAT DETAILS OF BENEFIT DERIVED FROM THE AE WHICH INCLUDES : A) REGIONAL SALES AND MARKETING AS PER THE DETAILS FURNISHED BY THE ASSESSEE, CWT INDIA WA S BENEFITTED FROM THE SUPPORT PROVIDED BY CWT SINGAPORE IN GENERATING NEW BUSINESS OPPORTUNITIES AND OTHER ENGAGEMENTS WITH ITS NEW CLIENTS . FURTHER, CWT INDIA RECEIVED REGULAR ASSISTANCE FROM ITS AE ON MAKING PRICING INSTRUCTIONS TO THE PROSPECT IVE CLIENT S. B) OPERATION MANAGEMENT THE SERVICES RENDERED BY THE AE BENEFITTED THE ASSESSEE IN I MPLEMENTATION OF NEW SYSTEM MODULES AND SOLUTIONS IN INDIA IMPROVING BUSINESS EFFICIENCY IN TERMS OF WEB SECURITY, FLEXIBLE CENTRAL MANAGEMENT AND POWERFUL LOGGING. C) FINA NCE AND TREASURY CWT INDIA RECEIVED ASSISTANCE IN PREPARING ANNUAL BUDGETS, KEY PERFORMANCE INDICATORS,, MEASURES TO REDUCE COST , UPDATION OF TEMPLATES SUCH AS INVOICE ENSURING CONSISTENCY WITH GROUP STANDARDS. D) HUMAN RESOURCES CWT INDIA ALSO RECEIVED ACCESS TO THE NEWLY LAUNCHED POLICY APP LICATION FOR ALL THE EMPLOYEES ENABLING CONDUCIVE WORKING 30 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 CULTURE. FURTHER, ASSISTANCE WAS RECEIVED IN RELATION TO THE COMPENSATION SETTING AS PER MARKET STANDARDS AND ON REPLACEMENT OF VARIOUS POSITIONS. E) INFORMATION TECHNOLOGY AND INFORMATION DELIVERY SYSTEM CWT INDIA FURTHER RECEIVED BENEFITS FROM THE SUPPORT PROVIDED BY AE IN RELATION TO MIGRATION ON A NEW SOFTWARE PLATFORM ALONG WITH SPECIFIC INSTRUCTIONS ON THE INSTALLATION . 1 6 . THUS, THE ASSESSEE HAS PRODUCED THE DOCUMENTARY EVIDENCE TO DEMONSTRATE THAT IT HAS AVAILED SERVICES IN THE AFORESAID FIELDS. THE ASSESSEE HAS FURTHER ESTABLISHED THE NEEDS FOR SERVICES IN THE DIFFERENT FIELDS DISCUSSED ABOVE. AS PER THE SETTLED LAW, IT IS THE ASSESSEE, WHO HAS TO DECIDE AS TO HOW THE BUSINESS AFFAIRS ARE TO BE ARRANGED. ACCORDINGLY, THE TPO CANNOT QUESTION ON THE COMMERCIAL EXPEDIENCY OF THE ASSESSEE. THE EVIDENCE ON RECORD PRIMA FACIE SHOWS THAT THE ASSESSEE HAS AVAILED THE SERVICES AFORESAID IN ORDER TO CARRY ON ITS OP ERATIONS WHICH ARE HIGHLY TECHNICAL IN NATURE. THE CASE LAW RELIED UPON BY THE LD. DR IS DISTINGUISHABLE ON THE FACTS. HENCE, I N THE LIGHT OF THE AFORESAID DISCUSSION , WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. DR. 1 7 . IN THE CASE OF AWB INDIA P VT. LTD. (2014) 50 TAXMAN.COM 323 (DEL), THE DELHI TRIBUNAL OF ITAT HAS HELD THAT IN THE ABSENCE OF PRE - REQUISITES FOR APPLICATION OF CUP METHOD IT IS NOT OPEN FOR THE TPO TO REJECT THE TNMM ADOPTED BY THE ASSESSEE. THE RELEVANT PARAS OF THE ORDER READ A S UNDER: - 15. ONE OF THE VERY BASIC PRE CONDITION FOR USE OF CUP METHOD IS AVAILABILITY OF THE PRICE OF THE SAME PRODUCT AND SERVICE IN UNCONTROLLED CONDITIONS. IT IS ON THIS BASIS THAT ALP OF THE PRODUCT OR SERVICE CAN BE ASCERTAINED. IT CANNOT BE A HY POTHETICAL OR IMAGINARY VALUE BUT A REAL VALUE ON WHICH SIMILAR TRANSACTIONS HAVE TAKEN PLACE. COMING TO THE FACTS OF THIS CASE, THE APPLICATION OF CUP IS DEPENDENT ON THE MARKET VALUE OF THE ARRANGEMENTS UNDER WHICH THE PRESENT PAYMENTS HAVE BEEN MADE. UN LESS THE TPO CAN IDENTIFY A COMPARABLE UNCONTROLLED CASE IN WHICH SUCH 31 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 SERVICES, HOWSOEVER TOKEN OR IRRELEVANT SERVICES AS HE MAY CONSIDER THESE SERVICES TO BE, ARE RENDERED AND FIND OUT CONSIDERATION FOR THE SAME, THE CUP METHOD CANNOT HAVE ANY APPLICATIO N. HIS PERCEPTION THAT THESE SERVICES ARE WORTHLESS IS OF NO RELEVANCE. IT IS NOT HIS JOB TO DECIDE WHETHER A BUSINESS ENTERPRISE SHOULD HAVE INCURRED A PARTICULAR EXPENSE OR NOT. A BUSINESS ENTERPRISE INCURS THE EXPENDITURE ON THE BASIS OF WHAT IS COMMERC IALLY EXPEDIENT AND WHAT IS NOT COMMERCIALLY EXPEDIENT. AS HELD BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. EKL APPLIANCES LTD. [2012] 345 ITR 241/209 TAXMAN 200/24 TAXMANN.COM 199 (DELHI), 'EVEN RULE 10B(1)(A) DOES NOT AUTHORIZE DISALLOWANC E OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME'. 16. THE VERY FOUNDATION OF THE ACTION OF THE TPO IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. THERE IS NO DISPUTE THAT THE IMPUGNED PAYMEN TS ARE MADE UNDER AN ARRANGEMENT WITH THE AE TO PROVIDE CERTAIN SERVICES. IT IS NOT EVEN THE TPO'S CASE THAT THE PAYMENTS FOR THESE SERVICES WERE NOT MADE FOR SPECIFIC SERVICES UNDER THE CONTRACT BUT HE IS OF THE VIEW THAT EITHER THE SERVICES WERE USELESS OR THERE WAS NO EVIDENCE OF ACTUAL SERVICES HAVING BEEN RENDERED. AS FOR THE SERVICES BEING USELESS, AS WE HAVE NOTED ABOVE, IT IS A CALL TAKEN BY THE ASSESSEE WHETHER THE SERVICES ARE COMMERCIALLY EXPEDIENT OR NOT AND ALL THAT THE TPO CAN SEE IS AT WHAT P RICE SIMILAR SERVICES, WHATEVER BE THE WORTH OF SUCH SERVICES, ARE ACTUALLY RENDERED IN THE UNCONTROLLED CONDITIONS. 17. AS FOR THE EVIDENCE FOR EACH OF THE SERVICE STATED IN THE AGREEMENT, IT IS NOT EVEN NECESSARY THAT EACH OF THE SERVICE, WHICH IS SPECIF ICALLY STATED IN THE AGREEMENT, IS RENDERED IN EVERY FINANCIAL PERIOD. THE ACTUAL USE OF SERVICES DEPENDS ON WHETHER OR NOT USE OF SUCH SERVICES WAS WARRANTED BY THE BUSINESS SITUATIONS WHEREAS PAYMENTS UNDER CONTRACTS ARE MADE FOR ALL SUCH SERVICES AS THE USER MAY REQUIRE DURING THE PERIOD COVERED. AS LONG AS AGREEMENT IS NOT FOUND TO BE A SHAM AGREEMENT, THE VALUE OF THE SERVICES COVERED UNDER THE AGREEMENT CANNOT BE TAKEN AS 'NIL' JUST BECAUSE THESE SERVICES WERE NOT ACTUALLY REQUIRED BY THE ASSESSEE. IN ANY CASE, HAVING PERUSED THE MATERIAL ON RECORD, WE ARE SATISFIED THAT THE SERVICES WERE 32 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 ACTUALLY RENDERED UNDER THE AGREEMENT AND THESE SERVICES DID JUSTIFY THE IMPUGNED PAYMENTS. 18. WE ARE ALSO OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF PREREQUISITE S FOR APPLICATION OF CUP METHOD BEING ABSENT IN THE PRESENT CASE, IT WAS NOT OPEN TO THE TPO TO DISREGARD THE TNMM EMPLOYED BY THE ASSESSEE. NO DEFECTS HAVE BEEN POINTED OUT IN APPLICATION OR RELEVANCE OF TNMM IN THIS CASE. UNDER THESE CIRCUMSTANCES, THE T PO'S IMPUGNED ACTION CANNOT MEET OUR JUDICIAL APPROVAL. 1 8 . THE ASSESSEE HAS SUBMITTED THE COPIES OF THE AGREEMENTS ENTERED WITH CWT, SINGAPORE. THE ALLOCATION KEY APPLIED BY THE AE TO ALLOCATE COST OF SERVICES PROVIDED BY THE AE IS ONE OF THE ACCEPTED M ETHODS AND THE SAME CANNOT BE REJECTED WITHOUT REBUTTING THE SAME. THE ASSESSEE HAS TAKEN CWT, SINGAPORE (AE) AS TESTED PARTY AND POINTED OUT THAT THE COST OF SERVICES IS AT ARM S LENGTH PRICE DETERMINED BY ADOPTING TNMM. THE ASSESSEE HAS FURTHER TAKEN THE COMPARABLES KEEPING IN VIEW THE SIMILAR BUSINESS MODELS. 1 9 . IN THE CASE OF EMERSON CLIMATE TECHNOLOGY INDIA LTD. VS. DCIT (2018) 90 TAXMAN.COM 125 (PUNE TRIBUNAL), THE PUNE BENCH OF THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF AO/TPO FOR A LIMI TED PURPOSE OF VERIFYING THAT WHETHER THE MARGIN SHOWN BY THE TESTED PARTY IS AT ARM S LENGTH TO THE MARGIN OF THE COMPARABLES SELECTED BY THE ASSESSEE. IN THE SAID CASE, THE TPO REJECTED THE FINANCIALS OF THE COMPARABLE ON THE GROUND THAT THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THE AES WERE CAPABLE OF PROVIDING ANY VALUABLE SERVICES AND DETERMINED THE ARMS LENGTH AT NIL. IN THE PRESENT CASE, THE ASSESSEE HAS FILED THE DETAILS RELEVANT TO CO MPUTE THE COST ALLOCATION DULY CERTIFIED THE CPA, SINGAPORE. T HE SAID DETAILS CANNOT BE REJECTED SUMMARILY WITHOUT POINTING OUT ANY INFIRMITY. SINCE, THE AE HAS PROVIDED THE SERVICES AFORESAID TO THE ASSESSEE . THE ASSESSEE HAS SELECTED AS TESTED PARTY WHICH IS IN CONSONANCE WITH OECD GUIDELINES AND UNITED NATIONS PR ACTICAL MANUAL. THE ASSESSEE HAS FURTHER DEMONSTRATED THAT THE FUNCTIONAL ANALYSIS OF THE CONTROLLED TRANSACTION IS IN 33 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 ACCORDANCE WITH RULE 10B OF THE INCOME TAX RULES. THE ASSESSEE HAS ALSO DEMONSTRATED AS TO WHY THE FOREIGN AE SHOULD BE SELECTED AS TES TED PARTY IN ITS TP STUDY. UNDER THESE CIRCUMSTANCES, WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS RIGHTLY SELECTED ITS AE AS TESTED PARTY FOR BENCHMARKING THE TRANSACTION. THE ASSESSEE HAS SUBMITTED THAT IT HAS SUBMITTED THE COMPLETE FINANCIALS OF COMPARABLE SELECTED FOR BENCHMARKING THE TRANSACTIONS. TO IDENTIFY THE COMPANIES COMPARABLE TO CWT SINGAPORE, THE ASSESSEE HAS USED ONE SOURCE ONE SOURCE GLOBAL BUSINESS BROWSER ( INTERNATIONAL DATA BASE) CONTAINING B USINESS INFORMATION ON 20 MILLION LARGE AND MEDIUM SIZE COMPANIES IN THE WORLD. IN THE AFORESAID BACKDROP, THERE IS NO JUSTIFICATION OF REJECTING TNMM METHOD ADOPTED BY THE ASSESSEE. WE THEREFORE , HOLD THAT THE ASSESSEE HAS RIGHTLY APPLIED TNMM AS THE MOST APPROPRIATE METHODS WITHIN THE ME ANING OF RULE 10B OF THE RULES . IN OUR CONSIDERED VIEW, THE LD. TPO HAS WRONGLY APPLIED CUP METHOD AND DETERMINED THE ARMS LENGTH PRICE AT NIL . AS HAS BEEN HELD IN THE CASE OF AWB INDIA PVT. LTD. (SUPRA) THE BASIC CONDITI ON FOR APPLYING CUP METHOD IS THE AVAILABILITY OF PRICE OF THE SIMILAR PRODUCT AND SERVICE IN UNCONTROLLED CONDITIONS ON THE BASIS OF WHICH ARMS LENGTH PRICE UNDER CUP METHOD CAN BE DETERMINED. HENCE, IN THE LIGHT OF THE FACTS OF THE CASE AND THE FINDINGS OF THE DELHI BENCH OF THE TRIBUNAL, WE DO NOT FIND ANY INFIRMITY IN THE SELECTION OF TNMM BY THE ASSESSEE FOR BENCHMARKING THE TRANSACTIONS. WE HAVE ALREADY HELD THAT THE ASSESSEE HAS RIGHTLY SELECTED THE AE AS TESTED PARTY. THUS, THE INTERNATIONAL TRANSA CTIONS OF PAYMENT OF FEES FOR TECHNICAL ASSISTANCE SERVICES IS TO BE BENCHMARKED BY COMPARING THE MARGINS OF THE CWT, SINGAPORE (TESTED PARTY) WITH THE MARGINS OF SEVEN ENTITIES SELECTED BY THE ASSESSEE AS COMPARABLES. THE LD. COUNSEL HAS FURTHER POINTED O UT THAT THE COMPARABLE COMPANIES ARE ENGAGED IN THE SIMILAR KIND OF SERVICES. 20 . HENCE, WE FIND SUBSTANCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SINCE THE TPO HAS NOT VERIFIED THE MARGINS SHOWN BY THE 34 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 ASSESSEE VIS - - VIS THE COM PANIES SELECTED BY THE ASSESSEE AS COMPARABLES, WE RESPECTFULLY FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF EMERSON CLIMATE TECHNOLOGIES (INDIA) LTD (SUPRA), RESTORE THIS ISSUE TO THE FILE OF AO/TPO FOR A LIMITED PURPOSE OF VER IFICATION AS TO WHETHER THE MARGIN OF THE TESTED PARTY IS AT ARMS LENGTH TO THE MARGINS OF THE COMPARABLE COMPANIES . NEEDLESS TO SAY, THAT THE AUTHORITIES SHALL GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE DECIDING THE SAID ISSUE. ITA NO. 1 484/MUM/2016 (ASSESSMENT YEAR: 2011 - 12 ) THE FACTS AND THE ISSUES INVOLVED RELATING TO TRANSFER PRICING ARE IDENTICAL TO THE FACTS OF THE CASE AND THE TRANSFER PRICING ISSUE INVOLVED IN THE PRESENT CASE EXCEPT THE QUANTUM OF AMOUNT INVOLVED. HENC E, WE DO NOT CONSIDER IT NECESSARY TO REP RODUCE THE FACTS OF THE CASE AT THE COST OF REPETITION. IN THE PRESENT CASE, THE AO MADE ADJUSTMENT OF RS. 19,09,35,751/ - ON ACCOUNT OF TRANSFER PRICING ISSUE IN CONNECTION WITH TECHNICAL ASSISTANCE SERVICES PURSUAN T TO THE DRP DIRECTIONS ISSUE U/S 144C(5) OF THE ACT. 2. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUNDS: - . 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDERS PASSED BY THE AO/TRANSFER PRICING OFFICER (TPO) AND DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) ARE NOT IN ACCORDANCE WITH LAW AND IS CONTRARY THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND IN VIOLATION OF THE PRINCIPLES OF EQUITY AND NATURAL JUSTICE. 2. ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) DATED DECEMBER 09, 2015 IS WITHOUT JURISDICTION AND IS BAD IN LAW. THE DIRECTIONS PASSED 35 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 BY THE DRP ARE IN VIOLATION OF SECTION 144C(8) OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER NORMAL PROVISIONS OF THE ACT AT INR 28,61,45,690 AS AGAINST THE RETURNED INCOME OF INR 7,28,47,809. TRANSFER PRICING ADJUSTMENT 4. ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE TRANSFER PRICING ADJUSTMENT OF INR 19,09,35,751. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO WHILE MAKING AN ADJUSTMENT OF INR 19,09,35,751 IN RESPECT OF INTERNATIONAL TRANSACTIONS OF PAYMENT FOR RECEIPT OF TECHNICAL ASSISTANCE BY THE APPELLANT TO THE ASSOCIATED ENTERPRISE (AE) DURING THE RELEVANT ASSESSMENT YEAR ERRED IN FOLLOWING 5.1 REJECTING THE ECONOMIC ANALYSIS AND METHODOLOGY ADOPTED BY THE APPELLANT, BEING TRANSACTIONAL NET MARGIN METHOD ( TNMM), AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENTS TO AE FOR RECEIPT OF TECHNICAL ASSISTANCE AT ENTITY LEVEL. 5.2 ARBITRARILY DETERMINING THE ARMS LENGTH PRICE WITHOUT PROPER APPLICATION OF THE TRANSF ER PRICING METHOD PRESCRIBED UNDER SECTION 92C OF THE ACT READ WITH RULE 10B OF THE RULES. 5.3 DETERMINING THE ARM/S LENGTH PRICE (ALP) TO BE NIL. 5.4 NOT SHARING THE RELEVANT MATERIAL/INFORMATION RELIED UPON WHILE DETERMINING THE ARMS LENGTH PRICE. 36 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 5.5 QUESTION ING THE COMMERCIAL EXPEDIENCY/WISDOM OF THE APPELLANT AND DISREGARDING THE ROBUST VOLUMINOUS DATA AS SUBMITTED BY THE APPELLANT. 5.6 NOT CONSIDERING THE BENEFIT DERIVED BY THE APPELLANT FROM RECEIPT OF TECHNICAL SERVICES. IT IS PRAYED THAT IT BE HELD THAT TH E AFORESAID INTERNATIONAL TRANSACTION IS AT ARMS LENGTH AND ACCORDINGLY, THE AO BE DIRECTED TO DELETE THE ADJUSTMENT. OTHER GROUNDS: 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP HAS ERRED IN DISALLOWING THE CLAIM OF CREDIT CARD RECEI VABLE WRITTEN OFF AMOUNTING TO INR 2,35,20,834 AND TREATING IT AS THE INCOME OF THE APPELLANT. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN LEVYING INTEREST UNDER SECTIONS 234B. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN COMPUTING AND LEVYING INTEREST UNDER SECTION 234D. IT IS PRAYED AND RELIEF CLAIMED BY THE APPELLANT THAT IT BEHELD THAT THE AFORESAID ADJUSTMENTS ARE BAD IN LAW AND THE AO BE DIRECTED TO DELETE THE ADJUSTMENT. 3. IN THIS CASE ALSO THE ASSESSEE REVISED THE FIRST GROUND OF APPEAL AND RAISED THE LEGAL ISSUE CHALLENGING THE ACTION OF THE LD. TPO IN DETERMINING THE ARMS LENGTH PRICE WITHOUT ISSUING ANY SHOW CAUSE NOTICE UNDER PROVISO TO SUB SECTION 3 OF SECTION 92C . SINCE, WE HAVE DISMISSED THIS GROU ND OF APPEAL OF THE ASSESSEE IN THE ASSESSEES CASE FOR THE A.Y. 2012 - 13 DISCUSSED ABOVE, FOR THE SAME REASONS, WE DISMISS THIS GROUND OF APPEAL IN THE PRESENT CASE ALSO. 37 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 4. GROUND NO . 2 AND 3 ARE OF GENERAL NATURE, HENCE, WE DO NO T DEEM IT NECESSARY TO ADJUDICATE THE SAID GROUNDS SEPARATELY. 5. GROUND NO. 4 TO 5.6 PERTAINING TO THE TRANSFER PRICING ISSUE ARE IDENTICAL TO GROUND NO. 4 TO 4.7 OF THE ASSESSEES APPEAL FOR THE A.Y . 2012 - 13 AFORESAID. SINCE, THE ISSUE INVOLVED IN TH E PRESENT CASE ARE IDENTICAL AND THERE IS NO MATERIAL CHANGE IN THE FACTS OF THE PRESENT CASE, CONSISTENT WITH OUR FINDINGS IN THE ASSESSEES CASE FOR THE A.Y. 2012 - 13 DISCUSSED ABOVE, WE RESTORE THE ISSUE FOR A LIMITED PURPOSE OF VERIFICATION OF MARGIN OF THE TESTED PARTY VIS - - VIS MARGINS OF THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE AS TO WHETHER THE MARGIN OF THE TESTED PARTY IS AT ARM S LENGTH. 6. VIDE GROUND NO. 6 THE ASSESSEE HAS CHALLENGED THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS. 2,35,20,834/ - CLAIMED BY THE ASSESSEE ON ACCOUNT OF CREDIT CARD RECEIVABLE WRITTEN OFF DURING THE PREVIOUS YEAR. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. DRP HAS WRONGLY UPHELD THE FINDINGS OF THE AO IN MAKING DISALLOWANCE O F THE AMOUNT AFORESAID. IN THE BUSINESS OF THE ASSESSEE , CREDIT CARD IS GENERALLY USED FOR PURCHASING TICKETS. THE LD. COUNSEL SUBMITTED THAT IN THE PROCESS OF PREPARING STATEMENT FOR PAYMENT TO CREDIT CARD IS PREPARED MANUALLY AND SENT TO THE CREDIT CARD BANK. IN SUCH PROCESS, THERE ARE CHANCES OF MISMATCH. SUCH MISMATCH CAN HAPPEN BECAUSE OF INADVERTENT MISTAKE IN PUNCHING THE DATA OR CHANGE OR UPDATION OF DATA IN ONE OF THE TWO PLACES I.E. DATA IS UPDATED/CHANGED BY THE CREDIT CARD BANK BUT NOT BY APPELL ANT OR VICE - VERSA. SUCH UN - RECONCILE D AMOUNT IS THEN MANUA LLY RECONCILED WITH THE PARTIES. AS PER THE DETAILS SUBMITTED BY THE ASSESSEE THE TOTAL TRANSACTION DURING THE PAST THREE YEARS I.E. A.Y. 2009 - 10 TO A.Y. 2011 - 12, RS. 578, 48,23,567/ - OUT OF WHICH T HE ASSESSEE WRITTEN OFF RS. 23,520,834/ - FOR THE YEAR ENDING MARCH 31, 2011. THE LD. COUNSEL FURTHER POINTED OUT THAT THIS AMOUNT IS AROUND 2% OF THE TOTAL TRANSACTION. AT THE TIME OF RAISING OF THE BILL THE AMOUNT WAS SHOWN AS RECEIVABLE FROM THE CREDIT C ARD AND WHEN THE AMOUNT WAS NOT RECEIVED FROM THE 38 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 CREDIT CARD BANKS, THE ASSESSEE TOOK A DECISION TO RIGHT OF THE SAID AMOUNT AS BAD DEBTS. THE LD. COUNSEL RELYING ON THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 ITR 297 IN WHICH IT HAS BEEN HELD THAT THE ASSESSEE IS NOT REQUIRED TO PROVE THAT DEBT HAS BECOME IRRECOVERABLE AND MERELY WRITING OF F THE SAME IN THE BOOKS OF ACCOUNT IS SUFFICIENT. THE LD. COUNSEL FURTHER RELYING ON THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHREYAS MORAKHIA 342 ITR 285 (BOM ) SUBMITTED THAT THE AO HAS WRONGLY REJECTED THE CLAIM OF THE ASSESSEE. 8. ON THE OTHER HAND, THE LD. DR RELYING ON THE ASSESSMENT ORDER SUPPORTED THE ACTION OF THE AO AND SUBMITTED THAT SINCE THE ASSES SE E HAS FAILED TO SATISFY THE CONDITION MENTIONED IN SECTION 36(2) OF THE ACT , THE AO HAS RIGHTLY REJECTED THE CONTENTION OF THE ASSESSEE. 9. WE HAVE GONE THROUGH THE ENTIRE MATERIAL ON RECORD IN THE LIGHT OF THE RIVAL CONTENTIONS OF THE PARTIES. WE NOT ICE THAT THE LD. DRP , BY FOLLOWING THE RATIO OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD . (SUPRA) HAS DIRECTED THE AO TO EXAMINE AS TO WHETHER THE CONDITION U/S 36(2) OF THE ACT ARE SATISFIED IN THE CASE OF THE ASSESSEE. WE FURTHE R NOTICE THAT THE AO HAS REJECTED THE CONTENTION OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING DETAILS OR PROOF TO SUBSTANTIATE ITS CLAIM THAT THE INCOME FROM THE CLIENTS OFFERED FOR TAXATION IN THE RESPECTIVE YEARS. AS POINTE D OUT BY THE LD. COUNSEL FOR THE ASSESSEE HAS REFLECTED THE ENTIRE TRANSACTION IN ITS BOOKS OF ACCOUNT AND SINCE THE ASSESSEE HAS BEEN FOLLOWING THE ACCRUAL SYSTEM OF ACCOUNTING THE INCOME FOR THE RESPECTIVE YEARS WERE OFFERED TO TAX BY THE ASSESSEE. HOWE VER, THE AO HAS REJECTED THE CONTENTION OF THE ASSESSEE WITHOUT ASSIGNING ANY REASON . IN THE CASE OF THE CIT VS. SHREYAS MORAKHYA (SUPRA), THE QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS WHETHER THE ASSESSEE WHO WAS A SHARE BROKER WAS ENTITLED TO DED UCTION BY WAY OF BAD DEBTS U/S 36(1) (VII) R.W.S. 36(2) OF THE ACT IN RESPECT OF THE AMOUNT WHICH COULD NOT BE RECOVERED FROM ITS CLIENTS IN RESPECT OF TRANSACTION EFFECTED BY HIM ON BEHALF 39 ITA NO S 1588/M/14, 23/M/15,1484 /M/2016 & 1404 /M /201 7 ASSESSMENT YEAR S : 20 09 - 10 2010 - 11, 2011 - 12 & 2012 - 13 OF HIS CLIENT. THE HONBLE BOMBAY HIGH COURT DECIDED THE ISSUE IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. KEEPING IN VIEW THE CONTENTION OF THE ASSESSEE, WE DEEM IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF AO FOR VERIFYING THAT WHETHER THE CONDITIONS OF SECTION 36(2) ARE FULFILLED IN THE PRESENT CASE. WE FUR THER DIRECT THE AO TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT DISCUSSED ABOVE . AO IS FURTHER DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, APPEAL S FILED BY THE ASSESSEE FOR ASSESSMENT YEAR S 2009 - 10, 2010 - 11, 2011 - 12 AND 2012 - 13 ARE PARTLY ALLOWED. ORDER PRONOUNCED BY LISTING ON THE NOTICE BOARD OF THE BENCH UNDER RULE 34(4) OF THE APPELLATE TRIBUNAL RULES, 1963. SD/ - SD/ - ( R.C. SHAR MA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 01 / 0 5 / 201 9 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI