M/s. Mars International India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 160/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6369 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 23-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDER KUMAR
• Assessee Lawyers: RAKESH GUPTA SH RONIT TIWARI
• Keywords: Transfer pricing; Business expenditure; International transaction; Non passing of speaking order; Commercial expediency
• Section: 143(3); 92D; 10B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A .NO. 160/DEL/2011 (ASSESSMENT YEAR-2006-07) APPELLANT BY SH. RAKESH GUPTA, SH. RONIT TIWARI, CA RESPONDENT BY SH. AMRENDER KUMAR, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER UNDER SECTION 143(3)/ 154 READ WITH SECTION 144C OF THE INCOME TA X ACT, 1961. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTI ONS ISSUED BY THE LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP) IS A V ITIATED ORDER AS THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E ADDITION MADE BY THE LD. ASSESSING OFFICER ('AO') TO THE APPELLANTS INC OME; 2. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, WHILE UPHOLDING THE ADDITION OF RS. 9,20,98,565/- THE LD. DRP HAS GROSSLY ERRED IN CONSIDERING THE ARMS LENGTH PRICE ('ALP), OF CERT AIN PAYMENTS IN THE NATURE OF COST CONTRIBUTIONS/ REIMBURSEMENTS (OF RS 9,20,98,5 65 PAID BY THE APPELLANT) MARS INTERNATIONAL INDIA PVT. LTD. C/O. PRICEWATER HOUSE COOPERS PVT. LTD. SUCHETA BHAWAN, 1 ST FLOOR, 11-A, VISHNU DIGAMBER MARG NEW DELHI AAACE6794J (APPELLANT) VS DCIT CIRCLE 6(1), C. R. BUILDING NEW DELHI (RESPONDENT) DATE OF HEARING 23.02.2017 DATE OF PRONOUNCEMENT 29. 03.2017 AS NIL; 3. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. DRP HAS GROSSLY ERRED IN UPHOLDING ENHANCEMENT OF THE A PPELLANTS RETURNED INCOME BY RS.2,68,61,146 BY CONSIDERING THE ALP OF CONSULTANCY CHARGES (OF RS.2,68,61,146 REIMBURSED BY THE APPELLANT) AS NIL, THEREBY FAILING TO APPRECIATE THAT THE APPELLANT HAD NOT CLAIMED A DED UCTION IN RESPECT OF THE SAID CHARGES IN ITS RETURN OF INCOME (ROI) AND CO NSEQUENTLY TAXING THE SAME AMOUNT TWICE IN THE HANDS OF THE APPELLANT; 4. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW, WHILE CONFIRMING THE ADDITION OF BALANCE RS. 6,52,37,419 /- THE LD. DRP HAS GROSSLY ERRED IN: 4.1 DISREGARDING THE ALP, AS DETERMINED BY THE APPE LLANT IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES, 1962 (RULES ); 4.2. NOT TAKING INTO COGNIZANCE THE APPELLANTS NOT IFICATION SUBMITTED BEFORE THE HONBLE DRP THAT TAX HAS ALREADY BEEN DEDUCTED AND DEPOSITED BY THE APPELLANT ON THE SALARIES OF SECONDED EMPLOYEES TO INDIA ON AN AMOUNT OF RS.3,89,52,783 AND THE INCOME HAS BEEN OF FERED TO TAX IN INDIA; 4.3. CONSIDERING THE ALP OF REIMBURSEMENT OF EXPATR IATE SALARIES (OF RS.3,89,52,783 PAID BY THE APPELLANT) AS NIL ON THE BASIS OF AN ALLEGED ARBITRARY/ FRIVOLOUS GROUND THAT THE SALARY PAID TO EXPATRIATES WAS NOT AT PAR WITH THE SALARY PAID BY THE APPELLANT TO ITS SENIOR MANAGEMENT PERSONNEL; 4.4. HOLDING THAT COST CONTRIBUTIONS/ REIMBURSEMEN T PAID BY APPELLANT HAVE NOT RESULTED IN ANY 'ECONOMIC AND COMMERCIAL BENEFI T TO THE APPELLANT; 4.5. NOT TAKING INTO COGNIZANCE THE CONTENTIONS/ AR GUMENTS/ EVIDENTIARY DATA PUT FORTH BY THE APPELLANT IN SUPPORT OF THE F ACT THAT THE COST CONTRIBUTIONS/ REIMBURSEMENT PAID BY THE APPELLANT ARE VALID BUSINESS EXPENSES AND GENUINELY PERTAIN TO THE APPELLANTS B USINESS OPERATIONS; 4.6. NOT TAKING INTO COGNIZANCE THE ADDITIONAL EVID ENCE THAT WAS SUBMITTED BEFORE THE HONBLE DRP TO DEMONSTRATE THAT INTRA - GROUP SERVICES WERE ACTUALLY RECEIVED BY THE APPELLANT WHICH WERE COMME NSURATE WITH THE PAYMENTS MADE IN THAT ASPECT; 4.7. NOT APPRECIATING THE FUNCTIONAL ANALYSIS CONDU CTED BY THE APPELLANT AND HOLDING THAT THE APPELLANT HAS NOT BENCHMARKED THE INTERNATIONAL TRANSACTIONS IN THE NATURE OF COST CONTRIBUTIONS/ R EIMBURSEMENTS; 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP HAS ERRED IN CONFIRMING INITIATION OF PENALTY PROCE EDINGS U/S 271(1)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY ADEQ UATE REASONS FOR SUCH INITIATION. 3. THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SAL E OF PET FOODS IN INDIA. IT ALSO IMPORTS SNACK FOODS CONFECTIONARY AND CERTA IN PET FOODS BRANDS FOR RESALE. THE ASSESSEE IS A SUBSIDIARY OF WORLDWIDE MARS GROUP BASED IN USA. ON A REFERENCE BY THE A.O, THE TPO HAS MADE AN UPWA RD ADJUSTMENT OF RS. 9,20,98,565/- IN RESPECT OF THE ARMS PRICE OF ASSE SSEES INTERNATIONAL TRANSACTIONS. THE ADJUSTMENT MADE WAS IN RESPECT OF COST CONTRIBUTION/REIMBURSEMENT PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES (AES). THE TPO ASKED THE ASSESSEE TO EXPLAIN THE N ATURE OF THE SERVICES RECEIVED BY THE ASSESSEE AND BENEFITS ACCRUED TO IT FROM THE AMOUNT OF COST CONTRIBUTION AND REIMBURSEMENT OF EXPENSES, OF RS.9 ,20,98,565/- (1,72,63,160/- + 7,48,35,405/-), PAID TO THE AES. T HE TPO OBSERVED IN HIS TRANSFER PRICING ANALYSIS THAT THE ASSESSEE DID NOT PROVE THE DETAILS OF THE SERVICES RECEIVED BY IT AND THE BENEFITS IT HAD OBT AINED FROM THE INTRA GROUP SERVICES. IT DID NOT PROVE WHETHER THE SERVICES FO R WHICH THE COST CONTRIBUTION WERE MADE CONSTITUTED INTRA GROUP SERVICES AND THAT THE ASSESSEE EVEN FAILED TO FURNISH THE BASIC CRITICAL DATA LIKE TOTAL COST INC URRED BY THE AES AND THE DETAILS OF ALLOCATION KEYS USED FOR ALLOCATION UNCO NTROLLED CUP, ITS CLAIM IN TRANSFER PRICING REPORT THAT COST ALLOCATION WAS BE NCHMARKED ON THE BASIS OF THE CUP METHOD WAS A FALSE STATEMENT. THE TPO SPEC IFICALLY DETERMINED THE ASSESSEES CLAIM WITH RESPECT OF EACH ITEM OF THE S ERVICES RECEIVED FROM AES AND FOUND THAT IN THE ABSENCE OF ANY EVIDENCE LAID BY T HE ASSESSEE FOR ALLOCATION OF EXPENSES AMOUNTING TO RS.1,72,63,160/- THE AES WERE NOT REQUIRED TO CHARGE COST TO THE ASSESSEE AND THE ARMS LENGTH PRICE OF THIS INTERNATIONAL TRANSACTION WAS TAKEN AT ZERO. THEREAFTER, THE TPO PROCEEDED TO EXAMINE THE ASSESSEES CLAIM FOR REIMBURSEMENT OF EXPENSES OF RS.7,48,35,4 05/- ON ACCOUNT OF REIMBURSEMENT OF SALARY, CONSULTANCY CHARGES AND CR OSS CHARGES CLAIMED BY THE ASSESSEE. THE TPO EXAMINED THE ASSESSEES CLAI M IN RESPECT OF THE EVERY ITEM OF THE REIMBURSEMENT. THE TPO CAME TO THE CON CLUSION THAT IN THE ABSENCE OF ANY EVIDENCE WITH RESPECT TO ANY BENEFIT RECEIVED BY THE ASSESSEE FROM RENDERING OF VARIOUS ALLEGED SERVICES AND IN T HE ABSENCE OF THESE SERVICES BEING BENCHMARKED BY THE ASSESSEE, THE ARMS LENGTH PRICE OF THE ITEMS FOR WHICH REIMBURSEMENT OF EXPENSES HAS BEEN MADE WAS T AKEN BY THE TPO AT NIL. THUS THE ARMS LENGTH PRICE OF THE COST CONTRIBUTIO N AND REIMBURSEMENT EXPENSE CLAIMED BY THE ASSESSEE AT RS.9,20,98,565/- WAS TAKEN BY THE TPO AT NIL. 4. THE ASSESSEE FILED ITS OBJECTIONS BEFORE DRP. T HE NECESSARY DETAILS FOR WRITING OFF THE OBSOLETE STOCK WERE FURNISHED BY TH E ASSESSEE. THE DRP FOUND THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM THAT THE SERVICES WERE ACTUALLY REQUIRED BY THE ASSESSEE. THE DRP OBSERVE D THAT IN MOST OF THE CASES, THE ASSESSEE DID NOT FILE ANY EVIDENCE TO SHOW IF T HESE SERVICES WERE ACTUALLY RENDERED AT ALL BY THE AES TO IT. THE DRP FURTHER OBSERVED THAT IN NONE OF THE CASES, THE ASSESSEE FURNISHED ANY EVIDENCE TO PROVE THAT THE ASSESSEE HAS DERIVED ANY ECONOMIC OR COMMERCIAL BENEFIT FROM THE SE ALLEGED SERVICES. THUS THE DRP HELD THAT THE ASSESSEE FAILED TO FURNISH TH E TOTAL QUANTUM OF THE COST INCURRED BY THE AES AND THE USE OF ANY RELIABLE KEY S FOR ALLOCATING THE EXPENSES TO THE ASSESSEE. THE TPO HAS FOUND THAT THE ASSESS EE HAD SUFFICIENTLY STRONG INFRASTRUCTURE OF EMPLOYEES FOR PROJECT AND PLANT O PERATION, MARKETING AND COMMERCIAL OPERATION, LOGISTIC RESEARCH AND DEVELOP MENT AND HUMAN RESOURCES DEVELOPMENT. IN THE ABSENCE OF ANY COMPLETE FAILUR E ON THE PART OF THE ASSESSEE TO PROVE THAT THE AES HAS ACTUALLY REFERRE D ANY SERVICES AND THE ASSESSEE HAS DRAWN ANY BENEFIT FOR THE SAME AND THA T ANY RELIABLE AND CREDIBLE ALLOCATION KEYS HAS BEEN USED FOR ALLOCATION OF THE EXPENSES TO THE ASSESSEE FOR WHICH THE ASSESSEE HAS REIMBURSED ITS AES AND THE C OST OF WHICH THE ASSESSEE HAS SHARED WITH ITS AES THE TPO WAS FULLY JUSTIFIED IN ARRIVING AT THE ARMS LENGTH PRICE OF THESE TRANSACTION AT NIL. 5. THE ASSESSEE IS BEFORE US. THE LD. AR SUBMITTED THAT THE ONLY EFFECTIVE ISSUE IN THE PRESENT APPEAL IS AGAINST THE TP ADJUS TMENT/DISALLOWANCE AGGREGATING TO RS. 9,20,98,565 MADE BY TPO AND APPR OVED BY DRP. IT COMPRISES OF 2 AMOUNTS RS. 7,48,35,405 ON ACCOUNT O F REIMBURSEMENT OF ACTUAL EXPENSES AND RS. 1,72,63,160 ON ACCOUNT OF C OST CONTRIBUTION SHARE PAID TO AES WHICH WERE NOT HELD AT ARMS LENGTH BY TPO/AO/DRP. 6. THE LD. AR SUBMITTED THAT R EIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY AES FOR ON AND ON BEHALF OF ASSESSEE TOWARDS THI RD PARTIES WAS ON COST TO COST BASIS WITHOUT ANY MARK UP AND THESE REIMBURSEM ENTS ARE IN NATURE OF SALARY COST OF TWO KEY EMPLOYEE SECONDED BY AES TO THE ASSESSE, INSURANCE PREMIUM, HOTEL, TRAVEL EXPENSES, FREIGHT AND CLEARI NG & FORWARDING CHARGES. THE LD. AR REFERRED PAGES 181-184 FROM THE PAPER BO OK WHEREIN EXPLANATION TO THE NATURE OF REIMBURSEMENT WAS GIVEN TO TPO BY THE ASSESSEE. FROM PAGES 200-201 OF THE PAPER BOOK ARE FURTHER EXPLANATION T O LD. TPO EXPLAINING THE NATURE OF REIMBURSEMENTS. THE LD. AR FURTHER POINTE D OUT PAGE NO. 104-106 OF APPEAL SET AND PAGE NO. 187-191 OF THE PAPER BOOK WHICH ARE THE DE TAILS OF REIMBURSEMENT PAID WITH NARRATIONS EXPLAINING THE N ATURE. 7. THE LD. AR SUBMITTED THAT CONSULTANCY CHARGES RE IMBURSEMENT AGGREGATING TO RS. 2,68,61,146 (1,86,54,494+82,08,6 52) WHICH IS PART OF RS. 7,48,35,405, IN FACT STOOD DISALLOWED BY THE ASSESS EE IN THE COMPUTATION AND THEREFORE THE PRESENT DISALLOWANCE IS NOTHING BUT D UPLICATE DISALLOWANCE. PAGE NO. 104-106 OF APPEAL SET AND PAGE NO. 187-191 OF T HE PAPER BOOK INDICATES THE REIMBURSEMENT OF CONSULTANCY CHARGES BEING PART OF RS. 7,48,35,405. PAGE NO. 205-206 OF THE PAPER BOOK IS COMPUTATION O F INCOME TAX AUDIT REPORT SHOWING THAT THE AMOUNT OF RS. 2,68,61,146 H AS ALREADY BEEN DISALLOWED BY THE ASSESSE AND IS PART OF RS. 2,71,3 4,982 (2,68,61,146 +2,54,800). PAGE NO. 203-204 IS SUBMISSION TO AO REQUESTING FOR REMOVING THE DOUBLE DISALLOWANCE OF RS.2,68,61,146 IN RESPEC T OF CONSULTANCY CHARGES. PAGE NO. 113-114 OF APPEAL SET IS THE SUBMISSION BE FORE DRP MAKING THE SIMILAR PRAYER. 8. THE LD. AR FURTHER SUBMITTED THAT ASSESSEE EMPLO YED TWO EXPATRIATES EMPLOYEES SECONDED TO IT BY ITS AES AND SALARIES TO SUCH EXPATRIATES EMPLOYEES WERE PAID BY AES OUTSIDE INDIA FOR 'ADMIN ISTRATIVE CONVENIENCE AND SUCH EXPENSES WERE SUBSEQUENTLY REIMBURSED BY THE A SSESSEE. THUS SALARY EXPENSES OF TWO EXPATRIATE EMPLOYEES AMOUNT TO RS 3,89,52,783 I.E. ( 70,71,703+ 3,18,81,080). THE REIMBURSEMENT AGREEMEN T IS AT PAGE NO. 151- 159 OF THE PAPER BOOK. PAGE NO. 164-172 AND 173-180 OF THE PAPER BOOK ARE THE COPIES OF AGREEMENT FOR EXPATRIATES SALARY REIM BURSEMENT. PAGE NO. 212- 223 OF THE PAPER BOOK ARE THE COPIES OF COMPUTATION OF INCOME OF MR. GUY AND MR. JOHN VILLIAMS- EXPAT EMPLOYEES- SHOWING THAT TH E SALARIES REIMBURSED WERE OFFERED BY THEM TO TAX IN INDIA. PAGE NO. 224- 228 OF THE PAPER BOOK ARE THE COPIES OF ASSIGNMENT, ARRANGEMENT LETTERS ISSUE D TO THESE TWO EMPLOYEES CONTAINING DETAILS OF THEIR ROLE AND REMUNERATION P AYABLE. PAGE NO. 229 OF THE PAPER BOOK IS THE BRIEF PROFILE OF MR. GUY AND MR. JOHN SHOWING THEIR LEVEL OF KNOWLEDGE AND EXPERIENCE IN MARS GROUP GLOBALLY DUE TO WHICH THEY WERE SECONDED TO INDIA WITH VALUABLE EXPERTISE AND EXPER IENCE. PAGE NO. 23 OF THE PAPER BOOK IS PART OF AUDITED FINAL ACCOUNT WHERE - MR. GUY HAS BEEN SHOWN KEY MANAGERIAL PERSONNEL. PAGE NO. 231-350 OF THE P APER BOOK ARE THE COPIES OF DEBIT NOTES RECEIVED FROM AE IN RESPECT OF SALAR IES OF THESE TWO PERSONS. PAGE NO. 212-223 OF THE PAPER BOOK WHICH ARE THE COPIES OF FORM 16 ETC OF THESE EMPLOYEES WOULD SHOW THAT THE AMOUNT ACTUALLY PAID TO THE EMPLOYEES HAS BEEN CHARGED AS REIMBURSEMENT BY THE AE TO THE ASSESSEE THEREBY ESTABLISHING THE ALP AND WHICH FURTHER SHOWS THAT T HERE IS NO TAX BASE EROSION IN INDIA. PAGE NO. 108-109 OF THE PAPER BOOK WHICH IS PART OF TP REPORT IN WHICH REIMBURSEMENT OF SALARY WAS DEMONST RATED TO BE AT ARMS LENGTH BY APPLYING CUP. PAGE NO. 111-112, 118-119 O F APPEAL SET ARE DETAILED SUBMISSIONS TO DRP EXPLAINING ABOUT THE SALARY PAID TO EXPATRIATES AND THAT NO SERVICE HAS BEEN RECEIVED FROM AES IN THIS REGAR D. 9. THE LD. AR POINTED OUT THE COMMENTS OF THE TPO W HILE DISALLOWING THE REIMBURSEMENT OF SALARY. THE TPO COMMENTED THAT IN ABSENCE OF ANY EVIDENCE WITH RESPECT OF ANY BENEFIT RECEIVED BY TH E ASSESSEE FROM THE RENDERING OF ABOVE SERVICES, AND ALSO IN THE ABSENC E OF THE SERVICES GETTING BENCHMARKED, IT IS HELD THAT THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS RELATING TO PAYMENT OF SALARY TO EXPAT RIATE EMPLOYEES IS NIL. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE IN ITS T P REPORT HAS BENCHMARKED THE REIMBURSEMENT BY APPLYING CUP METHOD AND THEREF ORE, THE STATEMENT MADE BY THE TPO IS WITHOUT ANY BASIS. THE LD. AR EM PHASIZED THAT IN RESPECT OF THE SALARY EXPENSES PAID TO THE AES, THE ASSESSE E HAS NOT RECEIVED ANY SERVICE FROM ITS AES. THE SERVICES HAVE BEEN RECEIV ED FROM THE EMPLOYEES BASED IN INDIA AND IT IS ONLY FOR ADMINISTRATIVE CO NVENIENCE THAT THEIR SALARIES WERE PAID OUTSIDE INDIA BY THE AES, WHICH WERE SUBS EQUENTLY REIMBURSED BY THE ASSESSEE. THEREFORE THE QUESTION OF RECEIVING B ENEFITS AS ALLEGED BY TPO DOES NOT ARISE AT ALL. FURTHER IN THE TP ORDER THE LD. TPO HAS ALSO DISALLOWED THE SALARY EXPENSE PAID TO EXPATRIATE EMPLOYEES ON THE GROUND THAT MARS INDIA WAS NOT ABLE TO DEMONSTRATE THAT THE SALARY P AID TO THE EXPATRIATES WAS IN LINE WITH THE SALARY PAID TO ITS OWN SENIOR MANA GEMENT PERSONNEL. THE ASSESSEE SUBMITS THAT THE QUANTUM OF EMOLUMENTS PAI D TO ANY EMPLOYEE IS A SUBJECTIVE MATTER DEPENDING ON A HOST OF FACTORS, S UCH AS ONES EDUCATIONAL QUALIFICATIONS, WORK EXPERIENCE, LAST SALARY DRAWN ETC. THE LD. AR FURTHER SUBMITS THAT THE EXPATRIATE EMPLOYEES WERE ORIGINAL LY BASED OVERSEAS AND WERE PAID SALARIES/EMOLUMENTS BASED ON THE ABOVE-ME NTIONED VARIABLE FACTORS. THUS WHILE THE EMPLOYEES WERE SENT TO INDI A FOR A CERTAIN PERIOD OF TIME, THE EMPLOYEES WERE STILL RIGHTFULLY ENTITLED TO THE SAME LEVEL OF SALARY AS THEY WERE EARNING IN THEIR COUNTRY ORIGIN. ACCORDIN GLY, THE LD. AR SUBMITTED THAT IT IS HIGHLY INAPPROPRIATE AND COMPLETELY INCO RRECT TO COMPARE THE SALARY LEVELS OF THE EXPATRIATE EMPLOYEES WITH THE SALARY LEVEL OF ASSESSEES OTHER INDIAN SENIOR MANAGEMENT PERSONNEL. FURTHER THE LD. AR POINTED OUT THAT BOTH THE EMPLOYEES BROUGHT WITH THEM THE VALUABLE E XPERTISE AND EXPERIENCE FOR THE ASSESSEE COMPANY. 10. IN THIS REGARD THE LD. AR ALSO RELIED ON THE JU DGMENT OF HONBLE KARNATAKA HC IN THE CASE OF CIT VS. MOTOR INDUSTRIE S CO. LTD. (1997) (223 ITR 112) (KAR) WHEREIN THE HONBLE COURT HELD THAT THE COMMERCIAL EXPEDIENCY OF A BUSINESSMANS DECISION TO INCUR EXPENDITURE CANNO T BE TESTED ON THE TOUCH STONE OF STRICT LIABILITY TO INCUR SUCH EXPENDITURE . SUCH DECISIONS IN THE VERY NATURE OF THINGS HAVE TO BE TAKEN FROM BUSINESS POI NT OF VIEW AND HAVE TO RESPECTED BY THE AUTHORITIES NO MATTER THAT IT MAY APPEAR TO THE LATTER THAT THE EXPENDITURE INCURRED WAS UNNECESSARY OR AVOIDAB LE. FURTHER EVEN IN CASE OF SASSOON J DAVID AND CO.(P) LTD. VS CIT (1979) 11 8 ITR 261 (SC), THE HONBLE APEX COURT HAS OBSERVED THAT ORDINARILY IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED I N THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTAR ILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE B USINESS AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION UNDER SECTION 10(2 )(XV) OF THE ACT EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR S UCH EXPENDITURE. IN THIS REGARD, THE LD. AR SUBMITTED THE RECENT JUDGMENT OF DRESSER- RAND INDIA PVT. LTD. VS ACIT [ITA NO.8753/MUM/2010]. IN THE SAID JU DGMENT, THE ITAT HELD THAT IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEES WISDOM IN DOING SO. THE TPO WAS ONLY GOING MUCH BEYOND HIS POWERS I N QUESTIONING COMMERCIAL WISDOM OF ASSESSEES DECISION TO TAKE BEN EFIT OF EXPERTISE OF DRESSER RAND US, BUT ALSO BEYOND THE POWERS OF THE AO. 11. THE LD. AR FURTHER SUBMITTED ORDER OF EKL APPLI ANCES LTD. (I.T.A. NOS. 1068/2011 & I.T.A. NOS. 1070/2011) THE HONBLE HC O F DELHI WHICH CLEARLY LAID DOWN THIS PRINCIPLE: THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPEND ITURE INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY EXPENDITURE BY HIM FOR TH E PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT O R INCOME EITHER IN THE SAME YEAR OR IN AND OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOTHING MORE. 12. THE LD. AR SUBMITTED THAT FROM THE ABOVE JUDGME NTS IT IS EVIDENT THAT WHILE ANALYZING ANY EXPENDITURE UNDERTAKEN BY THE T AXPAYER, THE REVENUE OFFICERS ARE REQUIRED TO LOOK AT THE EXPENSES FROM THE POINT OF VIEW OF THE TAXPAYER GIVING DUE REGARD TO THE BUSINESS AND COMM ERCIAL EXPEDIENCY OF THE SAME. THE ASSESSEE ALSO PAID THE AES FOR THE REIMBU RSEMENT OF THE EMPLOYEE (GUY) IN THE IMMEDIATELY PRECEDING YEAR (AY 2005-06 ) WHICH WAS ASSESSED UNDER SECTION 143(3) AND NO DISALLOWANCE IN RESPECT OF SUCH REIMBURSEMENT WAS MADE BY THE AO. IN THE INSTANT CASE, THE REMUNE RATION HAS BEEN AGREED UPON BETWEEN TWO INDEPENDENT PARTIES, I.E., THE ASS ESSEE AND EXPATRIATE EMPLOYEES, AND THE SAME HAS ACTUALLY BEEN PAID TO T HE EMPLOYEES (INITIALLY BY THE AES WHICH WERE SUBSEQUENTLY REIMBURSED BY MARS INDIA). ACCORDINGLY, IN LIGHT OF THE ABOVE JUDICIAL GUIDANCE, THE LD. AR SU BMITTED THAT THE PAYMENT MADE BY THE ASSESSEE TOWARDS REIMBURSEMENT OF SALAR Y OF SECONDED EMPLOYEES SHOULD BE ACCEPTED TO BE AT ARMS LENGTH. 13. AS RELATES TO THE ISSUE OF TESTING CHARGES AMOU NTING TO RS 60,15,359 I.E. (1,39,809+58,75,550), THE LD. AR SUB MITTED THAT THE A SSESSEE AS PART OF ITS BUSINESS OPERATIONS SENT SAM PLE RAW MATERIAL AND FINISHED GOODS FOR TESTING OF NUTRITION, QUALITY TO ITS AES WHICH HAVE BEEN REIMBURSED ON COST TO COST BASIS. THE SAME WAS AT P AGE 105 OF APPEAL SET WHICH WAS SHOWS THE NATURE OF TESTING CHARGES. PAGE NO. 351-354 OF THE PAPER BOOK ARE THE COPIES OF E-MAILS CORRESPONDENCE WHICH EXPL AIN THE FUNCTIONS UNDERTAKEN BY MASTER FOODS CP REGARDING TESTING OF GOODS. PAGE NO. 355-371 OF THE PAPER BOOK ARE THE TESTING COST CHARGED TO D IFFERENT MARS UNITS BIFURCATED INTO INTERNAL COST AND EXTERNAL COST ACR OSS THE WORLD WHICH HAD SENT SAMPLES FOR TESTING TO MASTER FOODS CP FOR THE MONT H OF AUGUST WHICH CLEARLY SHOW THAT MARS UNIT REGULARLY SENT SAMPLES TO THE A ES. PAGE NO. 593-650 OF THE PAPER BOOK ARE THE E-MAIL CORRESPONDENCE BETWEEN MARS INDIA (MANUFACTURING UNIT AT HYDERABAD) WHICH HAD SENT SA MPLES FOR TESTING TO MASTER FOODS CP ON A SAMPLE BASIS. PAGE NO. 594,597 -602,603-606 OF THE PAPER BOOK ARE THE CORRESPONDENCE INCLUDING LAB REP ORTS SENT BY LABORATORIES TO HYDERABAD SHOWING RESULTS OF TESTING CARRIED OUT WHICH CLEARLY BRING OUT THAT MARS INDIA REGULARLY SENDS SAMPLES TO THE AES AND RECEIVED ANALYSIS REPORT. PAGE NO. 372-384 OF THE PAPER BOOK ARE THE COPIES OF INVOICES/DEBIT NOTES FROM EFFEM THAILAND AND MASTER FOODS CP SHOWI NG THIS CHARGE ON COST TO COST BASIS. 14. AS RELATES TO THE ISSUE OF MAINTENANCE OF NIR E QUIPMENT AMOUNTING TO RS 10,77,931, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD INSTALLED NEAR INFRA-RED (NIR) EQUIPMENT IN ITS MANUFACTURING FACI LITY WHICH IS SPECIALIZED EQUIPMENT USED BY THE FOOD INDUSTRY TO ASSESS THE Q UALITY OF RAW MATERIAL OF FINISHED GOOD AND SUCH EQUIPMENT IS FOR COST OPTIMI ZATION AND MAINTENANCE OF SAME QUALITY STANDARD OF THE MANUFACTURED PRODUCTS. THIS CHARGE REPRESENTS THE NOMINAL CHARGE IN RESPECT OF REMOTE TECHNICAL S UPPORT. FURTHER EXPLANATION IN RESPECT OF GLOBAL NIR SUPPORT GROUP IS PROVIDED BELOW. NIR SUPPORT ACTIVITIES FOR MARS INDIA PLANT COVERED BY CROSS CH ARGES: (I) COMMISSIONING OF INSTRUMENT AT THE SITE. (II) REQUIRED RE-TRAINING VISIT(S) (III) ACCESS TO THE DEVELOPED ROUTINE OPERATOR TRAINING TOOLS (IV) RINA &ISI SCAN LICENSES (V) NIR SERVER SUPPORT ACTIVITIES (VI) ALL REQUIRED SOFTWARE UPDATES (VII) NIR LAMPS( 2 PER YEAR) (VIII) DEVELOPMENT OF IDENTIFICATION LIBRARIES FOR RAW MATERIALS AND FINISHED PRODUCTS (IX) DEVELOPMENT OF ALL HYD NIR CALIBRATIONS BY NIR SPECIALIST WET CHEMISTRY ON HYD SAMPLES (MOISTURE, FAT, PR OTEIN, ASH, FIBRE, STARCH, GEL STARCH) (XI) NIR TROUBLE SHOOT HELPDESK FOR I MMEDIATE SUPPORT DURING POSSIBLE ISSUES (XII) MAKE USE OD THE NIR DEVELOPMENT GROUP ( E.G. NIR MELAMINE DETECTION PROJECT) (XII) PART OF THE COMMERCIAL CONTRACT BETWEEN MARS AND FOSS (E.G. EXTENDED WARRANTEE, DISCOUNT INSTRUME NTS & SPARE PARTS) CALCULATION OF GLOBAL NIR CROSS CHARGES: THE COSTS THAT ARE CROSS CHARGED CAN BE SPLIT INTO GENERAL MAINTENANCE COSTS AND CAL IBRATION COSTS. THE GENERAL MAINTENANCE COSTS: IT COVERS ALL ROUTINE INSTRUMENT SUPPORT COSTS SUCH AS EFFICIENCY DEVELOPMENTS, SOFTWARE LIC ENSES, CENTRAL SERVER COSTS, REQUIRED SITE VISITS, SOFTWARE UPDATES, INSTRUMENT LAMPS AND TROUBLESHOOTING. THE CALIBRATION COSTS: IT COVERS ALL ACTIVITIES REQUIRED TO DEVELOP AND MAINTAIN THE ACTUAL CALIBRATIONS, INCLUDING WET CHE MISTRY REFERENCE ANALYSIS, AND RESOURCES FROM THE CENTRAL TEAM. THE LD. AR SUBMITTED THAT THE DEBIT NOTES FROM MARS NETHERLANDS ON A YEAR TO YEAR BASIS HAVE BEEN ATTACHED FROM PAGE NO. 393 TO 416 OF THE PAPER-BOOK. THE LD. AR SUBMITTED THAT THESE ARE THE EVIDENCE TH AT THE EMPLOYEES CAME TO INDIA FOR NIR COMMISSIONING PROJECT. PAGE 106 OF AP PEAL SET ALSO EXPLAINS THE NATURE OF NIR CHARGES. 15. THE LD. AR FURTHER SUBMITTED THAT THE COST CONT RIBUTION ALLOCATION WHICH REPRESENTS COMMON SHARED/POOLED COST INCURRED BY THE AES FOR O N AND BEHALF OF GROUP ENTITIES AND REIMBURSED ON COST TO COST BASIS. PAGE NO. 194-197 OF THE PAPER BOOK IS LETTER TO TPO EXPLAINI NG AS TO HOW CCA IS NOT INTRA GROUP SERVICES. PAGE NO.198-199,200-201,202 O F THE PAPER BOOK ARE LETTERS TO TPO EXPLAINING KEY OF ALLOCATION BEING S ALES AND EXPLAINING THE DETAILS OF COST BASED OF SERVICES STREAM FLOWING FR OM AE AND THAT THERE IS NO MARK UP CHARGED BY AES. THE SHARE OF REGIONAL PRESIDENT EXPENSES AMOUNTING TO RS. 75,46,250/-, T HESE COST CONTRIBUTIONS PERTAIN TO THE OFFICE OF REGIONAL PRESIDENT WHO IS RESPONSIBLE FOR THE OV ERALL STRATEGY AND PERFORMANCE OF THE RELEVANT MARS GROUP ENTITIES AND FOR RENDERING SUPPORT SERVICES IN AREAS INCLUDING STRATEGIC SUPPORT, BUDG ETARY CONTROL, HR CONSULTANCY, MARKETING AND SALES ADVICE AND INFORMA TION SYSTEMS DIRECTION. IN THIS REGARD, ATTENTION IS DRAWN TOWARDS THE SAMP LE MAIL CORRESPONDENCES CARRIED OUT BETWEEN PERSONNEL OF MARS INDIA AND THE OFFICE OF THE REGIONAL PRESIDENTS AS PER WHICH IT IS EVIDENT THAT THE STRA TEGY BASED SUPPORT WAS RECEIVED BY MARS INDIA OVER THE YEARS. IT DEMONSTRA TES THAT MR. PETER BRUEHL (REGIONAL PRESIDENT) HAS BEEN A REGULAR SUPPORTER F OR THE MARS INDIAN SUBCONTINENT AND TAKES PART IN MEETINGS REGULARLY. THE LD. AR REFERRED PAGES 472-475 OF THE PAPER BOOK. THE LD. AR FURTHER POINT ED OUT THAT THIS PAYMENT WAS MADE IN PURSUANCE OF THE COST SHARING AGREEMENT ENTERED INTO BY THE ASSESSEE, WHICH SPECIFIES THE RELEVANT COSTS TO BE ALLOCATED AND THE ALLOCATION BASIS FOR THE SAME. THE LD. AR FURTHER SUBMITTED TH AT THE COST BASE FOR THIS CHARGE INCLUDES ALL THE RELEVANT COSTS INCURRED IN THE PROVISIONS OF THESE SERVICES, E.G., SW&B (SALARY, WAGES AND BENEFITS), TRAVEL EXPENSES, OFFICE SUNDRIES, MEETINGS AND CONFERENCES, CONSULTANCY FEE S AND OTHER EXPENSES. AS PER THE REQUIREMENTS OF THE AGREEMENT, ONLY A PART OF THE COSTS INCURRED IN RESPECT OF THIS ACTIVITY WAS ALLOCATED TO MARS INDI A, BASED ON THE PROPORTION OF SALES VALUE OF ALL PRODUCTS SOLD BY MARS INDIA DURI NG THE YEAR. SAMPLE DEBIT NOTES WHICH HAVE BEEN ISSUED BY THE AE ON A PERIODI CAL BASIS WAS ATTACHED AND THE SAME WAS REFERRED FROM PAGES 476-490 OF PAP ER BOOK. THE LD. AR FURTHER SUBMITTED THAT ASSESSEE ALSO PAID THE AES F OR REGIONAL PRESIDENT CROSS CHARGE IN THE IMMEDIATELY PRECEDING YEAR (AY2005-06 ) WHICH WAS ASSESSED UNDER SECTION 143(3) AND NO DISALLOWANCE IN RESPECT OF SUCH REIMBURSEMENT WAS MADE BY THE AO. 16. THE LD. AR SUBMITTED THAT IN RESPECT OF SHARE O F CORPORATE SERVICES FEES AMOUNTING TO RS. 52,42,865, A S A PART OF ITS GLOBAL OPERATIONS, MARS INC. PROVIDES EXPERTISE IN VARIOUS DOMAINS, EITHER DIRECTLY (THROUGH ITS MCLEAN LOCATION) OR THROUGH ITS OTHER ENTITIES PERSONNEL P OSSESSING TECHNICAL, MANUFACTURING, PURCHASING, FINANCIAL MANAGEMENT, MA RKETING AND OTHER INFORMATION AND EXPERTISE BENEFICIAL TO THE OPERATI ONS OF GROUP ENTITIES WORLDWIDE. MARS INDIA RECEIVES SUPPORT ON AN ONGOIN G BASIS FROM MCLEAN ON ALL STRATEGIC ISSUES. THIS COST CONTRIBUTION WAS PA ID IN PURSUANCE OF THE COST SHARING AGREEMENT ENTERED INTO BY THE ASSESSEE. THE LD. AR REFER PAGE 240 OF THE PAPER-BOOK AND ALSO ATTACHED COPY OF THE AGREEM ENT WHICH IS AT PAGE 651- 660 OF THE PAPER-BOOK. THE LD. AR SUBMITTED THAT TH E COST ALLOCATED UNDER THIS HEAD INCLUDES INTER ALIA SALARIES, WAGES, ETC. IN LINE WITH THE AGREEMENT, MARS INDIA CONTRIBUTES ITS SHARE IN THE CORPORATE C OSTS INCURRED BY MARS INC. ON THE BASIS OF THE SALES REVENUE. IT IS PERTINENT TO MENTION THAT MARS INDIA WAS ALLOCATED LESS THAN 0.1% OF GLOBAL COST). THE L D. AR ALSO POINTED OUT THE CERTIFICATE(S) ISSUED BY AN INDEPENDENT AUDITORS IN MCLEAN WHEREIN IT HAS BEEN CERTIFIED THAT THE BASIS OF ALLOCATION OF THE CORPORATE SERVICES COSTS INCURRED BY MARS INC. WAS CARRIED OUT ON A PRUDENT BASIS AND IS IN LINE WITH THE PROVISIONS OF THE AGREEMENT. THE SAME ARE REFER RED AT PAGES 547-562 OF THE PAPER-BOOK . FURTHER, DEBIT NOTES WHICH WAS ISSUED BY MARS INC. FOR THE ALLOCATION ARE ATTACHED AT PAGE 563-568 OF THE PAPE R-BOOK. 17. AS RELATES TO I NFORMATION TECHNOLOGY COSTS AMOUNTING TO RS. 2,57,195, THE LD. AR SUBMITTED THAT T HIS CHARGE REPRESENTS COST ALLOCATION RECEIVED BY MARS INDIA IN RESPECT OF A GLOBAL IT IN ITIATIVE UNDERTAKEN BY THE MARS GROUP. INFORMATION SERVICES INTERNATIONAL (ISI ) IS THE GLOBAL DIVISION OF MARS GROUP RESPONSIBLE FOR DEVELOPING, IMPLEMENTING AND CONTINUOUSLY IMPROVING IT SYSTEMS WHICH SUPPORT THE GROUPS BUSI NESS PROCESSES GLOBALLY. DEBIT NOTES WHICH WERE ISSUED BY ISI UK AND FRANCE FOR THE ALLOCATION OF EXPENSES ATTACHED AT PAGES 569-586 OF THE PAPER-BOO K. THE BALANCE AMOUNT (WHICH REPRESENT LESS THAN 7% OF TOTAL RECHARGES) A RE TOWARDS REIMBURSEMENTS OF TRAVEL EXPENSE, TRAINING EXPENSES, PAYMENT TOWAR DS RESEARCH EXPENSES, EMPLOYEE COMPENSATION AND BENEFIT SURVEY EXPENSES R ELATED CROSS CHARGES ETC. THE SAME ARE REFERRED AT PAGES 187 TO 191 OF T HE PAPER-BOOK. THUS THE LD. AR SUBMITTED THAT THE RECHARGES PAID BY THE ASS ESSEE ARE COMMENSURATE WITH THE BENEFITS RECEIVED BY THE ASSESSEE, CONSIDE RING THE NATURE OF THE FUNCTIONS PERFORMED BY THE AE AND COSTS ALLOCATIONS CHARGED TO THE ASSESSEE IN LIEU THEREOF. THE LD. AR ALSO POINTED OUT THE CO MMENTS OF THE TPO WHILE DISALLOWING THE COST RECHARGES PAID BY THE ASSESSEE . THE TPO COMMENTED THAT THE ALLEGED SERVICES HAVE NOT BEEN BENCHMARKED UNDE R ANY OF THE FIVE METHODS IN THE TP REPORT. HOWEVER, AS STATED ABOVE, THE ASSESSEE IN ITS TP REPORT HAS BENCHMARKED THE COST RECHARGES BY APPLYI NG COMPARABLE UNCONTROLLED PRICE METHOD AND THEREFORE, THE STATEM ENT MADE BY THE TPO IS WITHOUT ANY BASIS. THE LD. AR SUBMITTED THAT HOWEVE R, THE TPO FAILED TO APPRECIATE TO ABOVE AND IGNORED THE ARGUMENTS/DOCUM ENTS SUBMITTED BY THE ASSESSEE WHILE DETERMINING THE ARMS LENGTH PRICE O F SUCH PAYMENT. THE ASSESSEE WOULD ALSO LIKE TO STATE THAT THE COMMERCI AL WISDOM OF AN ASSESSEE IN MAKING PAYMENTS TO THEIR AES UNDER AN AGREEMENT FOR AVAILING SERVICES, CANNOT BE QUESTIONED BY THE REVENUE AUTHORITIES AND IT IS NOT FOR THE TAX AUTHORITIES TO DICTATE THE LEGITIMATE NEEDS IF A BU SINESS. IT IS ONLY THE BUSINESSMEN WHO CAN JUDGE THE LEGITIMACY OF BUSINES S NEEDS AND THAT THE BUSINESS MANS POINT OF VIEW MUST BE SEEN. THE SAME HAS ALSO BEEN HELD IN VARIOUS JUDGMENTS THAT THE COMMERCIAL WISDOM OF AN ASSESSEE IN ENTERING INTO A TRANSACTION CANNOT BE QUESTIONED BY THE REVE NUE AUTHORITIES, SOME OF WHICH ARE MENTIONED BELOW: DRESSER-RAND INDIA PVT. LTD. VS. ACIT (ITA NO. 8753/MUM/2010) CUSHMAN & WAKEFIELD INDIA PVT. LTD. VS. ACIT (ITA NO.3933/DEL/2010 ) MCCANN ERICKSON INDIA PVT. LTD. (ITA NO. 5871/DEL./ 2011) EKL APPLIANCES LTD.(TS-206-HC-2012(DEL) ) ERICSSON INDIA PRIVATE LTD. (TS-319-ITAT-2012(DEL) ) THEREFORE, THE LD. AR SUBMITTED THAT THE ADJUSTMENT UNDERTAKEN BY THE TPO/AO IS MERELY BASED ON PRESUMPTIONS. ACCORDINGLY , THE ADDITION MADE BY THE TPO/AO OUGHT TO BE DELETED AS PER THE LD. AR. 18. AS RELATES TO PROVISION OF INTEREST FREE LOAN, THE LD. AR SUBMITTED THAT IT HAS RECEIVED CONTINUED SUPPORT FROM THE GROUP FOR C ARRYING ON BUSINESS IN INDIA. THE MARS GROUP HAS GIVEN HUGE SUBSIDIES TO M ARS INDIA BY PROVIDING AN INTEREST FREE LOAN OF INR 98 CRORES. THE LD. AR SUBMITTED THAT IN CASE THE GROUP COMPANIES WISHED TO CHARGE MARS INDIA, THEY COULD H AVE EASILY CHARGED THE SAME IN FORM OF INTEREST. HOWEVER, THE INTENT OF TH E GROUP IS TO SUPPORT THE COMPANY AND NOT TO TAKE THE MONEY (OUT OF INDIA) FR OM ILLEGAL MEANS AS ALLEGED. THE TPO HAS BY APPLICATION OF CUP METHOD, DERIVED T HE ARMS LENGTH PRICE OF THE TRANSACTION RELATING TO MANAGEMENT CROSS CHARGE S TO BE NIL. THE LD. AR POINTED OUT RULE 10B(1) OF THE RULES AND THE OECD G UIDELINES WHERE IT IS CLEARLY LAID DOWN THAT FOR THE APPLICATION OF THE C UP METHOD A COMPARABLE UNCONTROLLED TRANSACTION IN COMPARABLE CIRCUMSTANCE S IS A NECESSARY CONDITION. THUS, THE LD. AR SUBMITTED THAT BASED ON THE ABOVE, THE TPO WAS DUTY BOUND TO PROVIDE DETAILS OF COMPARABLE UNCONTR OLLED TRANSACTION BASED ON WHICH THE ARMS LENGTH PRICE HAS BEEN ARRIVED. HOWE VER, THE TPO IN HIS ORDER HAS NOT PROVIDED DETAILS OF ANY COMPARABLE UNCONTRO LLED TRANSACTION WHILE APPLYING THE CUP METHOD. THE TPO HAS NOT EVEN CONSI DERED THE AVAILABILITY OF ANY POSSIBLE INTERNAL CUP FOR THE TRANSACTION NOR P ROVIDED COMPARABLE UNCONTROLLED PRICES AND AGREEMENTS RELYING ON WHICH , THE IPO DETERMINED THE ARMS LENGTH PRICE AS NIL. NO ENTERPRISE WOULD PERF ORM SUCH FUNCTIONS WITHOUT CHARGING A PRICE FOR THE SAME. THEREFORE, THE LD. A R SUBMITTED THAT THE ADJUSTMENTS UNDERTAKEN BY THE TPO BASED ON APPLICAT ION OF CUP AS DETERMINED BY THE TPO SUFFERS FROM NON-COMPLIANCE O F THE PROVISIONS OF RULE 10B AND THE ARMSS LENGTH PRICE HAS BEEN DETERMINED MERELY BASED ON PRESUMPTIONS. ACCORDINGLY, THE ADDITION MADE BY THE TPO/AO IN CONTRAVENTION OF THE PROVISIONS OF RULE 1 OB OUGHT TO BE DELETED AS PER THE LD. AR. 19. FROM THE ABOVE SUBMISSIONS THE LD. AR SUBMITTED THAT THE AO BE DIRECTED TO GRANT RELIEF TO THE ASSESSEE AS THROUGH ITS DOCUMENTATION AND DETAILS/INFORMATION PROVIDED IN ASSESSMENT PROCEEDI NGS, IT HAS AMPLY DEMONSTRATED THAT IT IS COMPLIANT WITH THE ARMS LE NGTH PRINCIPLES AS EMBODIED IN THE INDIAN TP REGULATIONS. 20. DURING THE HEARING WHILE DEMONSTRATING ALL THE EVIDENCES BY THE LD. AR, THE LD. DR POINTED OUT THAT THESE EVIDENCES SUBMITT ED IN PAPER BOOK FROM PAGE NO. 201 ONWARDS WERE NOT BEFORE THE TRANSFER P RICING OFFICER. THEREFORE, THERE WAS NO OCCASION TO EXAMINE THE SAME BY THE TP O. THUS, THE LD. DR SUBMITTED THAT THE MATTER BE REMANDED BACK TO THE T PO FOR EXAMINING THESE CRUCIAL EVIDENCES WHILE ARRIVING AT THE CORRECT FIN DING. 21. THE LD. AR SUBMITTED THAT THE SAME WAS NOT BEFO RE THE TPO BUT WAS THERE BEFORE THE DRP. THE LD. AR SUBMITTED THAT THE DRP HAS NOT CONSIDERED THE SAME. 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED RECO RDS. THERE ARE TWO ISSUES RELATING TO SALARY EXPENSES OF TWO EXPATRIAT E EMPLOYEES AND REIMBURSEMENT OF ACTUAL EXPENSES. ON THE FIRST ISS UE, IT IS NOTICED THAT THE ASSESSEE PAID THE AES FOR THE REIMBURSEMENT OF THE EMPLOYEE (GUY) IN THE IMMEDIATELY PRECEDING YEAR (AY 2005-06) WHICH WAS A SSESSED UNDER SECTION 143(3) AND NO DISALLOWANCE IN RESPECT OF SUCH REIMB URSEMENT WAS MADE BY THE AO. IN THE INSTANT CASE, THE REMUNERATION HAS BEEN AGREED UPON BETWEEN TWO INDEPENDENT PARTIES, I.E., THE ASSESSEE AND EXPATRI ATE EMPLOYEES, AND THE SAME HAS ACTUALLY BEEN PAID TO THE EMPLOYEES (INITIALLY BY THE AES WHICH WERE SUBSEQUENTLY REIMBURSED BY MARS INDIA). THE PAYMENT MADE BY THE ASSESSEE TOWARDS REIMBURSEMENT OF SALARY OF SECONDED EMPLOYE ES HAS TO BE ACCEPTED TO BE AT ARMS LENGTH. THE ASSESSEE IN ITS TP REPORT H AS BENCHMARKED THE REIMBURSEMENT BY APPLYING CUP METHOD AND THEREFORE, THE STATEMENT MADE BY THE TPO IS WITHOUT ANY BASIS. THE LD. AR HAS MADE O UT THE CASE THAT FOR THE SALARY EXPENSES PAID TO THE AES, THE ASSESSEE HAS N OT RECEIVED ANY SERVICE FROM ITS AES. THE SUBMISSIONS MADE BY THE LD. AR SE RVICES WERE RECEIVED FROM THE EMPLOYEES BASED IN INDIA AND IT IS ONLY FOR ADM INISTRATIVE CONVENIENCE THAT THEIR SALARIES WERE PAID OUTSIDE INDIA BY THE AES, WHICH WERE SUBSEQUENTLY REIMBURSED BY THE ASSESSEE. THEREFORE THE QUESTION OF RECEIVING BENEFITS AS STATED BY TPO DOES NOT ARISE AT ALL. THESE FACTS H AS TO BE VERIFIED BY THE TPO IN CONSONANCE WITH THE EVIDENCE GIVEN BY THE ASSESS EE BEFORE THE DRP. FURTHER IN THE TP ORDER THE TPO HAS ALSO DISALLOWED THE SAL ARY EXPENSE PAID TO EXPATRIATE EMPLOYEES ON THE GROUND THAT MARS INDIA WAS NOT ABLE TO DEMONSTRATE THAT THE SALARY PAID TO THE EXPATRIATES WAS IN LINE WITH THE SALARY PAID TO ITS OWN SENIOR MANAGEMENT PERSONNEL. THE AS SESSEE SUBMITS THAT THE QUANTUM OF EMOLUMENTS PAID TO ANY EMPLOYEE IS A SUB JECTIVE MATTER DEPENDING ON A HOST OF FACTORS, SUCH AS ONES EDUCAT IONAL QUALIFICATIONS, WORK EXPERIENCE, LAST SALARY DRAWN ETC. THE EXPATRIATE E MPLOYEES WERE ORIGINALLY BASED OVERSEAS AND WERE PAID SALARIES/EMOLUMENTS BA SED ON THE ABOVE- MENTIONED VARIABLE FACTORS. THUS WHILE THE EMPLOYEE S WERE SENT TO INDIA FOR A CERTAIN PERIOD OF TIME, THE EMPLOYEES WERE STILL RI GHTFULLY ENTITLED TO THE SAME LEVEL OF SALARY AS THEY WERE EARNING IN THEIR COUNT RY ORIGIN. THIS FACT HAS TO BE VERIFIED BY THE TPO. FURTHER THE LD. AR POINTED OU T THAT BOTH THE EMPLOYEES BROUGHT WITH THEM THE VALUABLE EXPERTISE AND EXPERI ENCE FOR THE ASSESSEE COMPANY. THE LD. AR DEMONSTRATED THE SAME WITH THE RELEVANT DOCUMENTS WHICH WAS BEFORE THE DRP, BUT THE DRP HAS NOT TAKEN COGNIZANCE OF THE SAME. DURING THE HEARING, THE LD. DR POINTED OUT THAT ALL THE RELEVANT DOCUMENTS IN SUPPORT OF LD. ARS SUBMISSIONS RELATED TO SALARY E XPENSES OF TWO EXPATRIATE EMPLOYEES, THE SAME WAS NOT TENDERED BEFORE THE TPO IN THE AFOREMENTIONED. THERE IS NO FINDING TO THAT EFFECT IN TPOS ORDER B UT THOUGH IT WAS SUBMITTED BEFORE THE DRP, THE DRP ALSO FAILED TO LOOK INTO TH IS CRUCIAL EVIDENCE. THEREFORE, THIS ISSUE NEEDS TO BE LOOKED INTO AND T HESE DOCUMENTS HAVE TO BE VERIFIED. THE DRP ORDER IS NON SPEAKING ORDER. TH EREFORE, THIS ISSUE IS REMANDED BACK TO THE TPO/A.O. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING. 23. AS RELATES TO REIMBURSEMENT OF ACTUAL EXPENSES THE TPO HAS DISALLOWED THIS EXPENSES BY MAKING ADJUSTMENT WITH RESPECT TO CONSULTANCY CHARGES OF RS.2.68 CRORES WHICH WAS TOTALLY IGNORED BY THE ASS ESSING OFFICER WHILE GIVING EFFECT TO ITS ORDER DATED 15/11/2010. THE A.O IS D IRECTED TO MAKE PROPER ADJUSTMENT AS RELATES TO CONSULTANCY CHARGES AND TH EN QUANTIFY THE ADDITION. WE ORDER ACCORDINGLY. 24. IN RESULT, THIS APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 29TH OF MARCH, 2017. SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 29/03/2017 *R.NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 23/02/2017 SR. PS 2. DRAFT PLACED BEFORE AUTHOR 27/02/2017 SR. PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 30.03.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 30.03.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.