SOCIETE GENERALE, MUMBAI V. DCIT (IT) RG 4(2)(2), MUMBAI

ITA 1854/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0968 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 30-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAHESH KUMARCIT
• Assessee Lawyers: BRIJMOHAN P AGARWAL
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMB AI , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND PAWAN SINGH,JUDICIAL MEMBER / ITA NO.1854/MUM/2015 : /ASSESSMENT YEAR-2010-11 M/S. SOCIETE GENERALE, 1901/1902 TOWER A, PENINSULA BUSINESS PARK, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. PAN : AABCS 7484C VS. DY. COMMISSIONER OF INCOME TAX (IT), RANGE: 4(2)(2), ROOM NO. 120, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI- 400 038. (APPELLANT) (RESPONDENT) / REVENUE BY: SHRI MAHESH KUMAR-CIT / ASSESSEE BY: SHRI BRIJMOHAN P. AGARWAL / DATE OF HEARING: 08.03.2017 / DATE OF PRONOUNCEMENT: 19.04.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DT.29.01.2015 OF ASSESSING OF FICER(AO),PASSED U/S.143(3) R.W.S.144C OF THE ACT,IN PURSUANCE OF THE DIRECTIONS OF THE DISPU TE RESOLUTION PANEL-IV(DRP),MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE IS A FOREIGN COMPANY AND IS ENGAGED IN BUSINESS OF BANKING.IT FILED ITS RETURN OF INCOME ON 30/09/2010,DECLARING INCOME OF RS. 10.72 CRORES.THE AO COMPLETED THE ASSESSMENT,DETERMINING ITS INCOME AT RS.11.39 CRORES. 2 .FIRST GROUND OF APPEAL ABOUT ADDITION OF RS. 26.56 LAKHS,BEING REIMBURSEMENT OF EXPENSES TO THE HEAD OFFICE(HO)FOR EXPENSES INCURRED ON BEHALF OF THE ASSESSEE BY THE HO.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND EXPENSES TO THE TUNE OF RS.26.56 LAKHS HAD BEEN ALLOCATED TO THE ASSESSEE BY S.G.SINGAPORE(SGS), I.E.OTHER BR ANCH OF THE ASSESSEE.IT WAS CLAIMED THAT THE PAYMENTS REPRESENTED REIMBURSEMENT MADE TO SGS AND SAME WERE MADE FOR SERVICES ON LEASE LINE EXPENSES ON REIMBURSEMENT BASIS,THAT THE PAYME NT DID NOT CONTAIN ANY MARKED UP,THAT THE REIMBURSEMENT WERE FOR DATA COMMUNICATION CHARGES A ND ANNUAL MICROSOFT ENTERPRISES PRODUCTS BILLING,THAT THE SINGAPORE ENTITY HAD INCURRED THE TRUE-UP CHARGES ON BEHALF OF THE ASSESSEE,THAT TDS U/S.195 OF THE ACT WAS REQUIRED TO BE MADE ONLY IF THE INCOME WAS CHARGEABLE TO TAX,THAT THE INCOME WAS NOT CHARGEABLE,THAT QUESTION OF MAKING T DS WOULD NOT ARISE. HOWEVER, THE AO DID 1854/M/15(10-11) M/S. SOCIETE GENERALE 2 NOT AGREE WITH THE ASSESSEE AND HELD THAT THE HO OF THE ASSESSEE HAD BEEN PROVIDING SERVICES TO AN INDIAN ASSESSEE,THAT THE SERVICES WERE IN THE NA TURE OF ROYALTY/FEES FOR TECHNICAL SERVICES(FFTS).HE RELIED ON THE EXPLANATION (2)TO S UB CLAUSES (IV)(VI) AS WELL AS EXPLANATION 3 TO SECTION 9 (1)(VI) FOR THE MEANING OF THE TERM ROYAL TY AND HELD THE PAYMENTS IN QUESTION WERE COVERED BY THE DEFINITION OF THE ROYALTY AS PER THE PROVISIONS OF ARTICLE 13(3) AND 13(4) OF THE INDIA FRANCE DTAA.ACCORDINGLY, HE PROPOSED TO TAX T HE AMOUNT AT THE RATE OF 10%. 2.1. AGGRIEVED BY THE PROPOSED ADDITION,THE ASSESSEE FIL ED OBJECTIONS BEFORE THE DRP AND MADE SUBMISSIONS.AFTER CONSIDERING THE AVAILABLE MATERIA L,THE PANEL HELD INVOICES HAD BEEN RAISED BY SINGAPORE TELECOMMUNICATION LIMITED AND PACNET GLOB AL (SINGAPORE) PTE LTD. ON SGS, THAT THE IMPUGNED AMOUNT HAD BEEN ALLOCATED TO VARIOUS ENTIT IES INCLUDING THE ASSESSEE, THAT SINGAPORE TELECOMMUNICATION LIMITED HAS CHARGED THE ASSESSEE GROUP FOR DATA COMMUNICATION LINES, THAT THE RECOVERY ALSO INCLUDED SOFTWARE MAINTENANCE CHA RGES,THAT IT WAS NOT CLEAR AS TO WHETHER ANY THIRD PARTY HAD MAINTAINED THE SOFTWARE OR IT WAS T HE SGS ITSELF WHO HAD PROVIDED THE SERVICES, THAT NO APPLICATION UNDER SECTION 195(2)WAS MADE BE FORE THE AUTHORISED OFFICER FOR NOT COMPLY - ING WITH THE PROVISIONS OF SECTION 195 (1) READ WIT H EXPLANATION 2,THAT AS PER THE PROVISIONS OF SECTION 9 PAYMENTS IN QUESTION WOULD FALL UNDER THE DEFINITION OF ROYALTY / FTS, THAT SAME WAS THE POSITION UNDER THE DTAA,THAT THE DISPUTED AMOUN T HAD BEEN RIGHTLY TAXED BY THE AO, THAT FOR NON-DEDUCTION OF TDS THE ENTIRE EXPENSES CLAIMED BY THE ASSESSEE WOULD BE DISALLOWABLE UNDER SECTION 40(A)(I) OF THE ACT. FINALLY,THE PANEL DISM ISSED THE APPEAL FILED BY THE ASSESSEE. 2.2. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR)STATED THAT PAYMENTS WERE MADE BY THE SINGAPORE BRANCH TO THE S INGAPORE TELECOMMUNICATION, THAT THE ASSESSEE HAD NOW MADE DIRECT PAYMENT TO SINGAPORE T ELECOMMUNICATION,THAT IT WAS NEITHER ROYALTY NOR FFTS. HE REFERRED TO THE CASE OF STERIA (INDIA LTD.) (386 ITR 390) AND WNS GLOBAL SERVICES LTD. [(52)(I) ITCL 0513].HE ALSO REFERRED TO PROTOCOL 7 OF THE TREATY AND ARGUED THAT THE ASSESSEE WAS NOT A REPRESENTATIVE ASSESSEE.THE DEPA RTMENTAL REPRESENTATIVE(DR)ARGUED THAT THERE WAS DIFFERENCE BETWEEN THE PAYMENT AND REIMBU RSEMENT,THAT THERE WAS NO EVIDENCE ABOUT RENDERING OF SERVICES BY SINGAPORE TELECOMMUNICATIO N, THAT IT WAS NOT KNOWN AS TO WHAT WAS THE EXACT AMOUNT, THAT INCOME WAS EMBEDDED IN THE PAYME NT WAS ALSO NOT KNOWN. 2.3. WE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATTE R BEFORE US.WE FIND THAT THE ASSESSEE HAD MADE PAYMENT ITS SISTER CONCERN LOCATED IN SINGAPOR E FOR THE SERVICES RENDERED BY THAT ENTITY, THAT 1854/M/15(10-11) M/S. SOCIETE GENERALE 3 IT HAD CLAIMED THE PAYMENTS WERE REIMBURSEMENTS ONL Y WITHOUT ANY MARK UP, THAT THE AO AND THE PANEL REJECTED CLAIM MADE BY THE ASSESSEE,THAT BOTH THE AUTHORITIES HELD THAT THE PAYMENT MADE BY IT WERE ROYALTY/FFTS. WE FIND THAT THE ASSESSEE HAD PRODUCED THE DEBIT NOTE RAISED BY THE FOREIGN ENTITY.THE INVOICES ISSUED BY THE SGS TALK ABOUT REIMBURSEMENT,SOFTWARE MAINTENANCE CHARGES,DATA COMMUNICATION CHARGES, EDP CONSUMABLES AND OTHERS.IF THE DRP HAD SOME DOUBT ABOUT MAINTENANCE OF SOFTWARE,IT SHOULD HAVE CALLED FOR EXPLANATION FROM THE ASSESSEE.BUT,DOUBT CANNOT TAKE PLACE OF EVIDENCE TO CONFIRM ANY ADDITI ON.PAGE 24 OF THE PAPER BOOK CONTAINS DETAIL OF VARIOUS CHARGES PAID BY THE ASSESSEE TO THE FORE IGN ENTITY.THE PANEL HAS NOT BROUGHT ANYTHING ON RECORD TO CONTROVERT THE ENTRIES APPEARING IN IT .BESIDES,PROTOCOL 7 TO THE DTAA ALSO SUPPORTS THE STAND TAKEN BY THE ASSESSEE.WE WOULD LIKE TO RE PRODUCE THE RELEVANT PORTION OF THE JUDGMENT OF STERIA (SUPRA) AND SAME IS AS UNDER : THE PROTOCOL TO THE DOUBLE TAXATION AVOIDANCE AGREE MENT BETWEEN INDIA AND FRANCE (SEE [1994] 209 ITR (ST.) 130, 157) PROVIDES THAT IF UND ER ANY CONVENTION, AGREEMENT OR PROTOCOL SIGNED AFTER SEPTEMBER 1, 1989, BETWEEN INDIA AND A THIRD STATE WHICH IS A MEMBER OF THE OECD, INDIA LIMITS ITS TAXATION AT SOURCE, INTER ALIA, ON FEES FOR TECHNICAL SERVICES TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OF SCOPE PROVID ED FOR IN THIS CONVENTION, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION AGREEMENT OR PROTOCOL SHALL ALSO APPLY UNDER THIS CONVENTION. THERE IS NO WARRANT FOR THE RESTRICTIVE INTERPRETATION PLACED ON CLAUSE 7 OF THE PROTOCOL TO THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND FRANCE IN SUCH A MANNER THAT THAT IF A REFERENCE IS MADE TO ONE CONV ENTION SIGNED AFTER SEPTEMBER 1, 1989 BETWEEN INDIA AND ANOTHER OECD MEMBER STATE FOR THE PURPOSES OF ASCERTAINING IF IT HAD A MORE RESTRICTIVE SCOPE OR A LOWER RATE OF TAX, THEN THAT CONVENTION ALONE HAS TO BE REFERRED TO FOR BOTH PURPOSES OR THAT IT IS NOT PERMISSIBLE FOR THE ASSE SSEE, IN TERMS OF CLAUSE 7 OF THE PROTOCOL, TO RELY UPON ONE CONVENTION BETWEEN INDIA AND AN OECD MEMBE R STATE FOR THE PURPOSES OF TAKING ADVANTAGE OF A LOWER RATE OF TAX AND THEN REFER TO ANOTHER CONVENTION BETWEEN INDIA AND ANOTHER OECD MEMBER STATE TO TAKE ADVANTAGE OF A MORE RESTR ICTED SCOPE. THE WORDS A RATE LOWER OR A SCOPE MORE RESTRICTED OCCURRING THEREIN ENVISAGE T HAT THERE COULD BE A BENEFIT ON EITHER SCORE, I.E., A LOWER RATE OR A MORE RESTRICTED SCOPE. ONE DID NOT EXCLUDE THE OTHER. THE PURPOSE OF CLAUSE 7 OF THE PROTOCOL IS TO AFFORD TO A PARTY TO THE IN DIA-FRANCE CONVENTION THE MOST BENEFICIAL OF THE PROVISIONS THAT MAY BE AVAILABLE IN ANOTHER CONVENT ION BETWEEN INDIA AND ANOTHER OECD COUNTRY. THE WORDING OF CLAUSE 7 OF THE PROTOCOL MAKES IT SE LF-OPERATIONAL. ONCE THE DOUBLE TAXATION AVOIDANCE AGREEMENT HAS ITSELF BEEN NOTIFIED, AND C ONTAINS THE PROTOCOL INCLUDING CLAUSE 7 THEREOF, THERE IS NO NEED FOR THE PROTOCOL ITSELF T O BE SEPARATELY NOTIFIED OR FOR THE BENEFICIAL PROVISIONS IN SOME OTHER CONVENTION BETWEEN INDIA A ND ANOTHER OECD COUNTRY TO BE SEPARATELY NOTIFIED TO FORM PART OF THE INDO-FRANCE DOUBLE TAX ATION AVOIDANCE AGREEMENT. CLAUSE 7 OF THE PROTOCOL, WHICH FORMS PART OF THE DOUBLE TAXATION A VOIDANCE AGREEMENT BETWEEN INDIA AND FRANCE, AUTOMATICALLY BECOMES APPLICABLE. . THAT T HE DEFINITION OF FEE FOR TECHNICAL SERVICES OCCURRING IN ARTICLE 13(4) OF THE DOUBLE TAXATION A VOIDANCE AGREEMENT BETWEEN INDIA AND THE UNITED KINGDOM CLEARLY EXCLUDES MANAGERIAL SERVICES . WHAT WAS BEING PROVIDED BY SF TO THE ASSESSEE IN TERMS OF THE MANAGEMENT SERVICES AGREEM ENT WERE MANAGERIAL SERVICES. IT WAS PLAIN THAT ONCE THE EXPRESSION MANAGERIAL SERVICES WAS OUTSIDE THE AMBIT OF FEE FOR TECHNICAL SERVICES, THE QUESTION OF THE ASSESSEE HAVING TO D EDUCT TAX AT SOURCE FROM PAYMENTS FOR THE MANAGERIAL SERVICES, WOULD NOT ARISE. THE PAYMENT M ADE BY THE ASSESSEE TO SF FOR THE 1854/M/15(10-11) M/S. SOCIETE GENERALE 4 MANAGERIAL SERVICES PROVIDED BY THE LATTER COULD NO T BE TAXED AS FEES FOR TECHNICAL SERVICES AND THE PAYMENTS WERE NOT LIABLE TO WITHHOLDING OF TAX UNDER SECTION 195 OF THE ACT. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WNS GL OBAL SERVICES HAS ALSO DEALT WITH THE ISSUE OF INTERNATIONAL TELECOM OPERATORS LEASE LINE S. CONSIDERING THE ABOVE,WE ARE OF THE OPINION PAYMENT MADE BY THE ASSESSEE WAS NEITHER ROYALTY NOR FFTS.IT WAS CASE OF PURE AND SIMPLE REIMBURSEME NT.SECONDLY, THE ASSESSEE HAD NOT MADE ANY PAYMENT TO SINGAPORE TELECOMMUNICATION.THEREFOR E,FOLLOWING JUDGMENT OF STERIA (SUPRA) WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 3. SECOND GROUND DEALS WITH NOT ALLOWING THE TDS CREDI T OF RS.1.58 LAKHS ON INTEREST INCOME PAID TO HO OF RS.15,86,609/-IN COMPUTATION OF TOTAL INCOME.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD PAID AN AMOUNT O F RS.15.86 LAKHS AS INTEREST TO HO /OVERSEAS BRANCHES ON BORROWINGS,THAT IT HAD DEDUCTED THE TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 195 OF THE ACT.IT WAS STATED BEFORE THE AO THAT AS PER PROVISIONS OF INDO FRANCE TAX TREATY INTEREST TO HO WAS ALLOWABLE EXPENDITURE, THAT IT HAD DEDUCT ED TAX ON PAYMENT OF INTEREST MADE TO HO FOLLOWING A CONSERVATIVE APPROACH,THAT IT SHOULD BE ALLOWED TDS CREDIT FOR THE SAME.HOWEVER, THE AO HELD THE CONTENTION OF THE ASSESSEE TO THE E FFECT THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT WERE NOT APPLICABLE TO THE PAYMENTS WAS UNACCEP TABLE,THAT IT HAD DEDUCTED TAX OF RS.1.58 LAKHS. 3.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP.AFTER CONSIDERING THE PROPOSED DRAFT ORDER AND SUBMISSION OF THE ASSESSEE THE PANEL HELD THAT UNDER THE DTAA THE INCOME OF THE NON-RESIDENT WAS CHARACTERIS ED UNDER VARIOUS HEADS,THAT IN CASE OF BUSINESS PROFITS INCOME WOULD BE TAXED ONLY IF THE NON-RESIDENT HAD A PERMANENT ESTABLISHMENT (PE)IN INDIA AND THE INCOME ATTRIBUTABLE TO SUCH PE WAS TAXABLE IN INDIA, THAT IN CASE OF BANKING COMPANIES INTEREST PAYMENT WAS ALLOWABLE, THAT INTE REST RECEIVED BY THE HO FROM THE PE WOULD BE TAXABLE UNDER ARTICLE 12 OF THE TREATY AT A LOWE R RATE OF TAXATION.REFERRING TO THE CBDT CIRCULAR NO.740 ISSUED ON 17/04/1996 AND COMMENTARY OF K.VOGEL THE PANEL HELD THAT IN THE COMPUTATION OF INCOME OF THE BRANCH,AS PER THE DOME STIC LAWS,INTEREST HAS TO ALLOWED AS PER THE PROVISION OF SECTION 40(A)(I). 3.2. DURING THE COURSE OF HEARING BEFORE US, THE AR STAT ED THE ASSESSEE HAD PAID INTEREST TO THE HO FOR WHICH TDS WAS PAID, THAT THE DEPARTMENTAL AU THORITIES HAD DENIED TO GIVE CREDIT FOR THE 1854/M/15(10-11) M/S. SOCIETE GENERALE 5 TAXES PAID,THAT AO SHOULD BE DIRECTED TO GIVE THE C REDIT FOR THE TAX PAID BY IT, THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT MATTER SHOULD BE SENT BACK TO THE FILE OF AO.HE IS DIRECTED TO GIVE CREDIT FOR THE TA XES PAID AFTER VERIFICATION. SECOND GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. 4. LAST GROUND OF APPEAL IS ABOUT ADJUSTMENT OF RS.67. 28 LAKHS TO THE SALES CREDIT COMMISSION EARNED ON SALE OF TREASURY PRODUCTS ON BEHALF OF TH E AE.DURING THE COURSE OF HEARING BEFORE US,IT WAS BROUGHT TO OUR NOTICE,BY THE REPRESENTATIVES OF BOTH THE SIDES,THAT IDENTICAL ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL FOR THE AY.2008-09 (ITA / 7658/ MUM/2012,DATED 22/11/2013).WE FIND THAT THE TRIBUNA L HAS DEALT WITH THE ISSUE AS UNDER: 10. THE ISSUE RAISED IN GROUND NO. 3 RELATES TO TH E ADDITION OF RS. 66,80,02,000/- MADE BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE BY WAY OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF INCOME EARNED BY THE ASSESSEE FROM THE MARKETING OF DERIVATIVE PRODUCTS ON BEHALF OF ITS ASSOCIATED ENTERPRISE. 11. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD RECEIVED COMMISSION OF RS. 21.49 CRORES ON ACCOUNT OF SALE OF FIXED INCOME AND DERIV ATIVE PRODUCTS MADE IN INDIA ON BEHALF OF ITS ASSOCIATED ENTERPRISE (AE) SOCIETE GENERALE (SG), P ARIS. IT WAS SUBMITTED THAT THE ASSESSEE WAS COMPENSATED IN TERMS OF THE AGREEMENT WITH THE SG, PARIS FOR ITS PERFORMANCE ACTIVITY WHEREBY SALES CREDIT WAS PAID TO THE ASSESSEE BY SG, PARIS AS GROSS SALES LESS COUNTERPART RISK LESS COST OF CAPITAL. IT WAS SUBMITTED THAT THE SAME FORMULA HAD BEEN CONSISTENTLY APPLIED BY THE ASSESSEE IN THE EARLIER YEARS AND SINCE THE SAME WAS ACCEPTED I N THE EARLIER ASSESSMENTS BEING AT ARMS LENGTH, THE TRANSACTION SHOULD BE ACCEPTED AS AT AR MS LENGTH IN THE YEAR UNDER CONSIDERATION. IT WAS ALSO POINTED OUT THAT THE COMMISSION RECEIVED B Y THE ASSESSEE AS NET SALES CREDIT WAS 64% OF THE TOTAL INCOME BOOKED IN INDIA FOR SG, PARIS AS A GAINST 66%, 43% AND 61% IN ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 RESPECTIVELY. WHEN A R EFERENCE WAS MADE BY THE A.O. TO THE TPO FOR DETERMINING THE ALP OF THESE INTERNATIONAL TRAN SACTIONS OF THE ASSESSEE WITH ITS AES IN RESPECT OF COMMISSION RECEIVED ON ACCOUNT OF SALE OF ITS FI XED INCOME AND DERIVATIVE PRODUCTS, THE TPO FOUND THAT THE COMMISSION OF 64% CLAIMED TO BE RECE IVED BY THE ASSESSEE ON THE INCOME BOOKED IN INDIA BY SG, PARIS WAS NOT THE NET PROFIT OF THE AS SESSEE AND IT WAS THE TOTAL VALUE AGAINST WHICH VARIOUS EXPENSES WERE STANDING. HE, THEREFORE, PROC EEDED TO DETERMINE THE ALP OF THE TRANSACTIONS OF THE ASSESSEE WITH ITS AES BY FOLLOW ING TNMM TAKING OP/TC AS THE PRICE LEVEL INDICATOR TO BENCHMARK THE SAID TRANSACTION. IN THI S REGARD, HE SELECTED 25 COMPARABLES AND FOUND THAT THEIR AVERAGE OP/TC WAS 59.95% AS AGAINS T THE OP/TC OF 16.38% SHOWN BY THE ASSESSEE. ACCORDINGLY, APPLYING THE OP/TC OF 59.95% TO THE TOTAL OPERATING COST OF THE ASSESSEE AT RS. 153.30 CRORES, HE WORKED OUT THE ARMS LENGT H PROFIT AT RS. 91.91 CRORES AND SINCE THE NET PROFIT SHOWN BY THE ASSESSEE WAS ONLY RS. 25.11 CRO RES, ADJUSTMENT OF RS. 66.80 CRORES WAS PROPOSED BY THE TPO. THE ADDITION ON ACCOUNT OF TRA NSFER PRICING ADJUSTMENT AS PER THE ORDER OF THE TPO WAS MADE BY THE A.O. IN DRAFT ASSESSMENT IS SUED ON 15-10-2011. AGAINST THE SAID DRAFT ORDER, OBJECTIONS WERE FILED BY THE ASSESSEE BEFORE THE DRP AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE IN SUPPORT AS WELL AS THE MATE RIAL AVAILABLE ON RECORD, THE DRP DIRECTED THE TPO TO RECOMPUTE THE ALP ON THE BASIS OF CERTAIN DI RECTIONS. THE CORE DIRECTION GIVEN BY THE DRP WAS PERTAINING TO THE VALUE OF TOTAL REVENUES F ROM DERIVATIVE CONTRACTS AND VERIFICATION OF CORRECTNESS OF PROFITS CALCULATION/ALLOCATIONS AS M ADE BY THE ASSESSEE AND DETERMINATION OF ALP 1854/M/15(10-11) M/S. SOCIETE GENERALE 6 ON THE BASIS OF COMPARABLE MARGINS. ACCORDING TO TH E DIRECTION OF DRP, THE TPO CONSIDERED THE ISSUE OF DETERMINATION OF ALP AFRESH AND HELD THAT THERE WAS NO CASE OF ANY RELIEF TO THE ASSESSEE. ACCORDINGLY, THE ADDITION OF RS. 66.80 CRORES WAS M ADE BY THE A.O. BY WAY OF TP ADJUSTMENT IN THE FINAL ASSESSMENT ORDER PASSED U/S 14393) R.W.S. 144-C(13) OF THE ACT. 12. THE LD. COUNSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE RAISED VERY LIMITED AND SPECIFIC CONTENTIONS. HE SUBMITTED THAT THE ASSESSEE IS NOT DISPUTING EITHER THE TNMM FOLLOWED BY THE TPO AS MOST APPROPRIATE METHOD OR T HE OP/TC TAKEN BY HIM AS PLI FOR THIS PURPOSE. HE SUBMITTED THAT THE ASSESSEE IS ALSO NOT DISPUTING ITS OP/TC WORKED OUT BY THE TPO AT 16.38%. HE SUBMITTED THAT WHAT THE ASSESSEE IS DISP UTING IS THE COMPARABLES SELECTED BY THE TPO FOR THE PURPOSE OF CALCULATING THE AVERAGE MARGIN A T 59.95%. HE INVITED OUR ATTENTION TO THE SPECIFIC OBJECTIONS RAISED BY THE ASSESSEE IN THIS REGARD IN THE WRITTEN SUBMISSION FILED BEFORE THE DRP PLACED AT PAGE 111 AND 113 OF HIS PAPER BOOK AN D SUBMITTED THAT THE SAME HAVE NOT BEEN CONSIDERED EITHER BY THE DRP AND EVEN BY THE TPO DU RING THE COURSE OF REMAND PROCEEDINGS. HE CONTENDED THAT THE AVERAGE MARGIN OF THE COMPARABLE S THUS IS REQUIRED TO BE RECOMPUTED AFTER TAKING INTO CONSIDERATION THE SAID OBJECTIONS SPECI FICALLY RAISED BY THE ASSESSEE. HE FURTHER CONTENDED THAT THE AVERAGE MARGIN OF THE COMPARABLE S AS RECOMPUTED AFTER TAKING INTO CONSIDERATION THE OBJECTION OF THE ASSESSEE IS REQU IRED TO BE APPLIED ONLY TO THE TOTAL COST OF THE ASSESSEE RELATING TO ITS INTERNATIONAL TRANSACTIONS WITH ITS AES AND NOT TO THE ENTIRE COST OF THE ASSESSEE AS DONE BY THE TPO. HE SUBMITTED THAT THE COMMISSION RECEIVED BY THE ASSESSEE ON ACCOUNT OF SALE OF FIXED INCOME AND DERIVATIVE PROD UCTS TO SG, PARIS IS ONLY RS. 21.49 CRORES AND THE RELEVANT COST THEREOF ONLY SHOULD BE CONSIDERED FOR APPLYING THE AVERAGE MARGIN OF THE COMPARABLES AS RECOMPUTED. 13. THE LD. D.R., ON THE OTHER HAND, DID NOT DISPUT E THE POSITION THAT THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE DRP AS REGARDS THE COMPARABLES SELECTED BY THE TPO AND THEIR MARGINS TAKEN TO COMPUTE THE AVERAGE MARGIN AT 59.95% HAVE NOT BEEN CONSIDERED EITHER BY THE DRP OR EVEN BY THE TPO IN THE REMAND PROCEEDINGS. HE ALSO DID NOT DISPUTE THE POSITION THAT SUCH AVERAGE MARGIN OF COMPARABLES IS REQUIRED TO BE APP LIED ONLY TO THE TOTAL COST PERTAINING TO THE RELEVANT INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES TO WORK OUT THE ALP OF THE SAID TRANSACTIONS. HE, HOWEVER, CONTENDED THAT THIS MATT ER SHOULD BE REMANDED TO THE A.O./TPO TO CONSIDER THE OBJECTIONS OF THE ASSESSEE IN RESPECT OF COMPARABLES IN ORDER TO RECOMPUTE THE AVERAGE MARGIN OF THE SAID COMPARABLES AS WELL AS T O QUANTIFY THE TP ADJUSTMENT. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE TP ADJUSTMENT IN QU ESTION HAS BEEN MADE BY THE A.O./TPO BY FOLLOWING TNMM AND TAKING OP/TC AS PRICE LEVEL INDI CATOR. THE AVERAGE OP/TC OF THE TWENTY FIVE COMPARABLES TAKEN BY THE TPO IS WORKED OUT AT 59.95% AND THE SAME BEING HIGHER THAN 16.38% OP/TC OF THE ASSESSEE AS WORKED OUT BY THE T PO, THE TP ADJUSTMENT OF RS. 66.80 CRORES HAS BEEN MADE BY APPLYING THE AVERAGE OP/TC AT 59.9 5% OF THE COMPARABLES TO THE TOTAL OPERATING COST OF RS. 153.31 CRORES TO THE ASSESSEE . AS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE AND ACCEPTED EVEN BY THE LD. DR, THE AVERA GE MARGIN OF COMPARABLES IS REQUIRED TO BE APPLIED TO THE TOTAL COST OF THE ASSESSEE RELATING TO ITS RELEVANT TRANSACTIONS WITH ITS AES IN ORDER TO DETERMINE THE ALP OF THE SAID TRANSACTIONS AS WE LL AS TP ADJUSTMENT AND NOT TO THE ENTIRE OPERATING COST OF THE ASSESSEE AS DONE BY THE TPO. THE ASSESSEE HAS NOT DISPUTED THE TNMM FOLLOWED BY THE TPO AS MOST APPROPRIATE METHOD AS W ELL AS THE OP/TC TAKEN AS PLI. HE HAS ALSO NOT DISPUTED THE OP/TC AS WORKED OUT BY THE TPO AT 16.38%. THE TWENTY FIVE COMPARABLES SELECTED BY THE TPO AS WELL AS THEIR OP/TC TAKEN BY THE TPO, HOWEVER, WERE SPECIFICALLY DISPUTED BY THE ASSESSEE BY RAISING SPECIFIC OBJECT IONS BEFORE THE DRP, WHICH WERE AS UNDER:- XXXXXX 15. A PERUSAL OF THE ORDER OF THE DRP AS WELL AS TH AT OF THE TPO PASSED IN THE REMAND PROCEEDINGS, HOWEVER, SHOWS THAT THESE OBJECTIONS S PECIFICALLY RAISED BY THE ASSESSEE HAVE NOT BEEN CONSIDERED AND THIS POSITION IS NOT DISPUTED E VEN BY THE LD. DR AT THE TIME OF HEARING BEFORE US. WE, THEREFORE, CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO SET ASIDE THIS MATTER 1854/M/15(10-11) M/S. SOCIETE GENERALE 7 TO THE A.O./TPO WITH A DIRECTION TO CONSIDER THE SA ID OBJECTIONS OF THE ASSESSEE AND RECOMPUTE THE AVERAGE MARGIN OF THE COMPARABLES AFTER TAKING INTO CONSIDERATION THE SAID OBJECTIONS. WE ALSO DIRECT THE A.O./TPO TO APPLY THE AVERAGE MARGI N OF COMPARABLES SO RECOMPUTED TO THE OPERATING COST OF THE ASSESSEE RELATING TO ITS RELE VANT TRANSACTIONS WITH ITS AES IN ORDER TO DETERMINE THE ALP OF THE SAID TRANSACTION AS WELL A S THE TP ADJUSTMENT TO BE MADE IN RESPECT OF SUCH TRANSACTIONS.NEEDLESS TO OBSERVE THAT THE A.O. SHALL OFFER PROPER AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEARD ON THIS MATTER.GROUN D NO. 3 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSE. RESPECTFULLY,FOLLOWING THE ABOVE LAST GROUND IS DEC IDED IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL, 2017. 19 2017 SD/- SD/- ( /PAWAN SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 19.04.2017. JV.SR.PS. /COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4.THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.