DCIT, New Delhi V. M/s Lear Automotive India Pvt. Ltd., New Delhi

ITA 1942/DEL/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69650 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 17-10-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 20-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Additional evidence; Wholly owned subsidiary; Prejudicial to interest; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 143(3); 92D; 244A; 234B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SMT DIVA SINGH, JUDICIAL MEMBER I.T.A .NO.-1942/DEL/20 11 (ASSESSMENT YEAR-2005-06) DCIT, CIRCLE-4(1), ROOM NO-407, 4 TH FLOOR, C.R. BUILDING, I.P.ESTATE, NEW DELHI. (APPELLANT) VS M/S LEAR AUTOMOTIVE INDIA PVT. LTD., 206 & 206A, RECTANGLE-1, D-4, SAKET DIST. CENTRE, SAKET, NEW DELHI. PAN-AAACL1978K (RESPONDENT) I.T.A .NO.-5903/DEL/20 10 (ASSESSMENT YEAR-2006-07) M/S LEAR AUTOMOTIVE INDIA PVT. LTD., E-25, 26, 27, BHOSARI MIDC, BHOSARI, PUNE, MAHARASHTRA-411026 (APPELLANT) VS ACIT, RANGE-4, NEW DELHI. (RESPONDENT) I.T.A .NO.-5955/DEL/20 12 (ASSESSMENT YEAR-2008-09) M/S LEAR AUTOMOTIVE INDIA PVT. LTD., E-25, 26, 27, BHOSARI MIDC, BHOSARI, PUNE, MAHARASHTRA-411026 (APPELLANT) VS DCIT, CIRCLE-4(1), NEW DELHI. (RESPONDENT) APPELLANT BY SH. ROHIT TIWARI, MISS AMISHA RELA N, SH. SANJAY ARORA, CAS RESPONDENT BY SH. PEEYUSH JAIN, CIT DR (T.P.) SH. YOGESH KUMAR VERMA, CIT DR (T.P) ORDER PER DIVA SINGH, JM ALL THESE THREE APPEALS ARE BEING DECIDED BY A COMM ON ORDER FOR THE SAKE OF CONVENIENCE IN VIEW OF THE COMMON STAND OF THE PART IES BEFORE THE BENCH ON MOST OF THE ISSUES. ITA NO-1942/DEL/2011 HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-X, NEW DELHI DATED 22.03.2011 P ERTAINING TO 2005-06 ASSESSMENT YEARS; ITA NO-5903/DEL/2010 HAS BEEN FIL ED BY THE ASSESSEE AGAINST I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 2 THE FINAL ASSESSMENT ORDER DATED 25.10.2010 PASSED BY THE AO CONSEQUENT TO THE DISPUTE RESOLUTION PANELS (HEREINAFTER REFERRED TO AS THE DRP) ORDER DATED 27.09.2010; AND ITA NO-5955/DEL/2012 HAS ALSO BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ORDER PASSED BY THE AO PURSUANT TO THE OR DER DATED 13.08.2012 OF THE DRP. THE APPEALS PERTAIN TO 2005-06, 2006-07 AND 2 008-09 ASSESSMENT YEARS RESPECTIVELY. 2. THE PARTIES BEFORE THE BENCH IN THEIR RESPECTIVE APPEALS HAVE AGITATED THE FOLLOWING GROUNDS BEFORE US: ITA NO-1942/DEL/2011 FILED BY THE REVENUE 01. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRONEOUS & CONTRARY TO FACTS AND LAW. 02. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.1,75,53,297/- MADE BY THE AO ON ACCOUNT OF T.P. ADJUSTMENTS. 2.1. THE LD. CIT(A) HAS IGNORED THE FINDINGS RECORD ED BY THE T.P.O & A.O. AND THE FACT THAT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THESE TRANSACTIONS EITHER DURING THE T.P.O PROCEEDINGS OR DURING ASSESSMENT PROCEEDINGS. 03. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR TO AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. ITA-5903/DEL/2010 FILED BY THE ASSESSEE 1. THE LD. DISPUTE RESOLUTION PANEL (LD DRP) AND THE LD. ADDITIONAL COMMISSIONER OF INCOME-TAX (LD. AO) (FOLLOWING T HE DIRECTIONS OF THE LD. DRP), ERRED ON FACTS AND IN LAW, IN ENHANCING T HE INCOME OF THE APPELLANT BY RS.14,529,430/- ON ACCOUNT OF THE TRAN SFER PRICING (TP) ADJUSTMENT U/S 92CA(3) OF THE INCOME TAX ACT, PRICI NG OFFICER-1(3) (LD. TPO), BY HOLDING THAT THE INTERNATIONAL TRANSACTIO N OF COST ALLOCATION FROM THE ASSOCIATED ENTERPRISE (AE) TO THE APPELLAN T DOES NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. 2. THE LD. DRP AND THE LD. AO (FOLLOWING THE DIRECTION S OF THE LD. DRP), ERRED ON FACTS AND IN LAW, IN UPHOLDING THE LD. TPO S STANCE OF DISREGARDING THE BENCHMARKING APPROACH AND METHODOL OGY FOLLOWED BY THE APPELLANT FOR DETERMINING THE ARMS LENGTH NATU RE OF THE TP ARRANGEMENT WITH REGARD TO COST ALLOCATION FROM OVE RSEAS AES IN ITS TP DOCUMENTATION MAINTAINED U/S 92D OF THE ACT READ WI TH RULE 10D OF THE INCOME TAX RULES, 1962. 3. THE LD. DRP AND THE LD. AO (FOLLOWING THE DIRECTION S OF THE LD. DRP), ERRED ON FACTS AND IN LAW, IN UPHOLDING THE LD. TPO S STANCE OF I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 3 ERRONEOUSLY CONCLUDING THAT THE ARMS LENGTH PRICE OF THE TRANSACTION OF COST ALLOCATION OF EXPENSES SHOULD BE NIL AND IN DO ING SO: 3.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS S ET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRES ENT CASE; 3.2. IGNORING /REJECTING THE COMPARABLE UNCONTROLLED PRI CE (CUP) ANALYSIS UNDERTAKEN BY THE APPELLANT TO SUB STANTIATE THE ARMS LENGTH NATURE OF THE PRICING OF THE TRANSACTI ON OF COST ALLOCATION FROM AE AND BY NOT CONSIDERING THE DETAI LED CONTENTIONS/ARGUMENTS/EVIDENTIARY DATA PUT FORWARD BY THE APPELLANT IN THIS REGARD; 3.3. FAILING TO ACKNOWLEDGE THE BUSINESS EFFICACY O F THE COST ALLOCATION ARRANGEMENT BETWEEN THE APPELLANT AND IT S AE AND THE BENEFITS RECEIVED BY THE APPELLANT FROM THE SAME; 3.4. MAKING VARIOUS ERRONEOUS CONJECTURES/STATEMENT S IN THE TP ORDER TO DISREGARD THE SANCTITY OF THE TRANSACTION OF COST ALLOCATION FROM AE AND BY PROCEEDING TO PASS A JUDGMENT ON THE CASE WITHOUT GOING INTO ITS MERITS AND WITHOUT TAKING INTO PROPE R COGNIZANCE, THE EVIDENTIARY SUPPORTING/BACK-UP INFORMATION/DOCU MENTS FILED IN THIS REGARD: 3.5. DISREGARDING THE CORROBORATIVE TRANSACTIONAL N ET MARGIN METHOD (TNMM) ANALYSIS CARRIED OUT BY THE APPELLA NT IN ITS TRANSFER PRICING (TP) DOCUMENTATION REPORT MAINTA INED U/S 92D OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RUL ES, 1962 (RULES) TO JUSTIFY THE ARMS LENGTH NATURE OF THE PRICING OF THE TRANSACTION OF COST ALLOCATION FROM OVERSEAS AE; AN D 3.6. MAKING AN ADJUSTMENT OF RS.14,529,430/- TO THE TRANSACTION OF COST ALLOCATION FROM AE IN COMPLETE DISREGARD OF THE FACT THAT THE SAID TRANSACTION CONTINUED TO HAVE THE SAME PRI CING BASIS DURING FINANCIAL YEAR (FY) 2005-06 AS DURING FYS 2002-03 AND 2003-04 AND NO ADVERSE INFERENCE WAS DRAWN ON THE P RICING OF THIS TRANSACTION DURING THE TP ASSESSMENT PROCEEDINGS FO R THESE YEARS. 4. THE LD. DRP AND THE LD. AO( FOLLOWING THE DIRECTION S OF THE LD. DRP), ERRED ON FACTS AND IN LAW, IN DISREGARDING THE DETA ILED SUBMISSIONS FILED BY THE APPELLANT DURING THE COURSE OF THE DRP PROCEEDI NGS TO JUSTIFY THE COST ALLOCATION FROM THE OVERSEAS AE. 5. THE LD. DRP AND THE LD. AO(FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED ON FACTS AND IN LAW, IN DISPOSING OFF THE APP ELLANTS DETAILED SUBMISSIONS AND OBJECTIONS AGAINST THE TP ADJUSTMEN T WITHOUT APPROPRIATELY DISCUSSING/APPRECIATING/UNDERSTANDING THE MERITS OF THE CASE. 6. THE LD. AO ALSO ERRED IN FACTS AND IN LAW IN INITIA TING PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. ITA NO-5955/DEL/2012 FILED BY THE ASSESSEE 1. THE LD. DISPUTE RESOLUTION PANEL (LD DRP) AND THE LD. ADDITIONAL COMMISSIONER OF INCOME-TAX (LD. AO) (FOLLOWING T HE DIRECTIONS OF THE LD. DRP), ERRED ON FACTS AND IN LAW, IN ENHANCING THE I NCOME OF THE APPELLANT BY RS4, 97,45,614/- ON ACCOUNT OF THE TRANSFER PRICING (TP) ADJUSTMENT U/S I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 4 92CA(3) OF THE INCOME TAX ACT,1961 (ACT) MADE BY THE LD. ADDITIONAL COMMISSIONER OF INCOME-TAX, TRANSFER PRICING OFFICE R-1(2) (LD. TPO). 2. THE LD. DRP AND CONSEQUENTLY THE LD. AO (FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED ON FACTS AND IN LAW 2.1.1. IN ENHANCING THE INCOME OF THE APPELLANT BY RS.1,17,09,474, BY HOLDING THAT THE INTERNATIONAL TRANSACTION OF COST ALLOCATION FROM THE ASSOCIATED ENTERPRISE (AE) TO THE APPELLANT DOES NO T SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO H AVE GROSSLY ERRED: 2.1.2. BY IGNORING AND REJECTING THE COMPARABLE UN CONTROLLED PRICE (CUP) ANALYSIS UNDERTAKEN BY THE APPELLANT TO SUB STANTIATE THE ARMS LENGTH NATURE OF THE PRICING OF THE TRANSACTION OF COST AL LOCATION FROM AE AND BY NOT CONSIDERING THE DETAILED CONTENTIONS AND ARGUMENTS DATA PUT FORWARD BY THE APPELLANT IN THIS REGARD; 2.1.3. BY FAILING TO ACKNOWLEDGE THE BUSINESS EFFICACY OF THE COST ALLOCATION ARRANGEMENT BETWEEN THE APPELLANT AND ITS AE AND TH E BENEFITS RECEIVED BY THE APPELLANT FROM THE SAME. 2.1.4. BY DISREGARDING THE CORROBORATIVE TRANSACTIO NAL NET MARGIN METHOD (TNMM) ANALYSIS CARRIED OUT BY THE APPELLA NT IN ITS TRANSFER PRICING (TP) DOCUMENTATION REPORT MAINTAINED U/S 92D OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RULES, 1962 (RULES) TO JUSTIFY THE ARMS LENGTH NATURE OF THE PRICING OF THE TRANSACTION OF COST AL LOCATION FROM OVERSEAS AE; AND 2.2. THE LD. TPO/LD.AO ERRED IN ENHANCING THE INCOM E OF THE APPELLANT BY RS.38,036,140 HOLDING THAT THE INTERNATIONAL TRANSA CTION PERTAINING TO ITS COST RECHARGES DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO HAVE GROSSLY ERRED: 2.2.1. BY IGNORING AND REJECTING THE COMPARABLE UNC ONTROLLED PRICE (CUP) ANALYSIS UNDERTAKEN BY THE APPELLANT TO SUB STANTIATE THE ARMS LENGTH NATURE OF THE PRICING OF THE TRANSACTION OF COST RE CHARGES FROM AE AND BY NOT CONSIDERING THE DETAILED CONTENTIONS AND ARGUMENTS PUT FORWARD BY THE APPELLANT. ALSO, FAILING TO ACKNOWLEDGE THE BUSINE SS EFFICACY OF THE ARRANGEMENT AND THE BENEFITS RECEIVED BY THE APPELL ANT FROM THE SAME IN THIS REGARD; 2.2.2. BY DISREGARDING THE CORROBORATIVE TRANSACTIO NAL NET MARGIN METHOD (TNMM) ANALYSIS CARRIED OUT BY THE APPELLA NT IN ITS TP DOCUMENTATION REPORT MAINTAINED U/S 92D OF THE ACT READ WITH RULE 10D OF THE RULES TO JUSTIFY THE ARMS LENGTH NATURE OF THE PRICING OF THE TRANSACTION OF COST ALLOCATION FROM OVERSEAS AE; AND 2.2.3. IN COMPLETELY DISREGARDING OF THE FACT THAT THE SAID TRANSACTION CONTINUED TO HAVE THE SAME PRICING BASIS DURING FY 2007-08 AS DURING THE PRIOR YEARS WHEN THE APPELLANT HAS FACED TP ASSESSM ENT PROCEEDINGS FOR THOSE YEARS AND NO ADVERSE INFERENCE WAS DRAWN ON THE PRI CING OF THIS TRANSACTION. 3. THE LD. DRP AND LD. AO IN DISALLOWING AN AMOUNT OF RS.17,80,906/- BY TREATING THE CONSULTANCY CHARGES PAID FOR ASSISTANC E IN ASSESSING THE FEASIBILITY/VIABILITY OF OPENING ANOTHER UNIT IN RE LATION TO PROPOSED EXTENSION PROGRAMME OF THE COMPANY AS CAPITAL IN NATURE. I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 5 4. THE LD. AO ERRED IN LEVYING INTEREST U/S 234D OF TH E ACT AND WITHDRAWING INTEREST U/S 244A OF THE ACT. 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LD. AO ERRED IN LEVYING INTEREST U/S 234B OF THE ACT. 6. THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO EACH OTHER. 2.1. ADDRESSING THE TRANSFER PRICING ISSUE AGITATED BY THE REVENUE AND THE ASSESSEE IN THEIR RESPECTIVE APPEALS, IT IS SEEN TH AT QUA THE DEPARTMENTAL APPEAL IN 2005-06 ASSESSMENT YEAR THE RECORD SHOWS THAT THE T RANSFER PRICING OFFICER (HEREINAFTER REFERRED TO AS THE TPO) VIDE HIS ORD ER U/S 92CA(3) ADDRESSING IN PAGE 2 PARA 2 TO 4 OF HIS ORDER OBSERVES THAT THE A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING ASSEMBLING OF AUTOMOTIVE SEATING S YSTEMS AND INTERIOR, AND IN THE DESIGN AND DEVELOPMENT OF AUTOMOTIVE SEATING SYSTEM S AND INTERIORS. HE ALSO TAKES NOTE OF THE FACT THAT LEAR SEATING PRIVATE LI MITED IS A WHOLLY OWNED SUBSIDIARY OF LEAR CORPORATION USA WHICH HOLDS THE ENTIRE SHARE CAPITAL OF THE COMPANY THROUGH ITS AFFILIATE LEAR CORPORATION (MAU RITIUS) LTD (FORMERLY KNOWN AS RAMCO INVESTMENT LTD., MAURITIUS). THE TPO NOTED TH AT DURING THE YEAR, THE ASSESSEE HAD UNDERTAKEN THE FOLLOWING INTERNATIONAL TRANSACTIONS :- S.NO. INTERNATIONAL TRANSACTION VALUE (IN RS.) 1 IMPORT OF RAW MATERIALS/COMPONENTS 3,58,36,976/- 2. RECEIPT OF SERVICES 2,14,525/- 3. IMPORT OF SEAT SAMPLES 1,13,509/- 4. PROVISION SUPPORT SERVICES 21,58,31,917/- 5. ROYALTY 12,02,326/- 6. COST ALLOCATION FROM ASSOCIATED ENTERPRISES 1,73 ,53,297/- 7. COST RECHARGES FROM ASSOCIATED ENTERPRISES 1,84, 31,276/- 8. COST RECHARGES TO ASSOCIATED ENTERPRISES 1,73,19 ,458/- 2.2. DISCUSSING THE TRANSFER PRICING APPROACH OF TH E ASSESSEE, THE TPO OBSERVED THAT THE ASSESSEE HAD SELECTED TNMM AS THE MOST APP ROPRIATE METHOD FOR BENCH- MARKING OF THE INTERNATIONAL TRANSACTIONS RELATING TO IMPORT OF RAW-MATERIAL, RECEIPT OF SERVICES, IMPORT OF SEAT SAMPLES, PROVISION FOR SUPPORT SERVICES WITH OP/SALES AS I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 6 A PROFIT LEVEL INDICATOR. THE OTHER INTERNATIONAL TRANSACTION RELATING TO COST ALLOCATION FROM ASSOCIATED ENTERPRISES AND COST CHA RGES FROM AES AND COST CHARGES TO AES HAD BEEN CLAIMED TO BE BENCH-MARKED USING CU P METHOD. IN THE FACTS OF THE PRESENT CASE FOR THE YEAR UNDER CONSIDERATION W E ARE CONCERNED ONLY WITH COST ALLOCATIONS. 2.3. CONSIDERING THE SUBMISSIONS ADVANCED IN SUPPOR T OF THE COST ALLOCATIONS QUESTIONED BY THE TPO HE WAS OF THE VIEW THAT NO BA SIS FOR APPORTIONMENT OF COSTS WAS GIVEN AND CONSIDERING THE ALLOCATIONS HE NOTICE D THAT SOME OF IT PERTAINED TO COSTS OF PRE-LOADED DESKTOP SOFTWARES, COST OF MAIN TENANCE OF PRE-LOADED DESKTOP SOFTWARES AND THE REMAINING COST WAS RELATED TO MAI NTENANCE COST OF USING CAD/CAE SOFTWARES. HE ALSO FOUND THAT SOME OF THE EXPENSES ALSO RELATED TO PENSION, DENTAL EXPENSES, HARDSHIP ALLOWANCE, BONUS PAID, HOLIDAY PAY EXPENSES ETC. APART FROM THAT IT WAS ALSO OBSERVED THAT THE CLAIM PERTAINED TO SOME OF THE EXPENSES WHICH WERE INCURRED BY THE SOUTHFIELD AND NOT BY THE ASSESSEE AND NO EXPLANATION OF ALLOCATION OF EACH AND EVERY EXPENSE WAS EXPLAINED. 2.4. IN THESE PECULIAR CIRCUMSTANCES, HE HELD THAT IN THE ABSENCE OF ANY EVIDENCE THAT THE BENEFIT OF EXPENDITURE HAS ACCRUED TO THE ASSESSEE OR PERTAINED TO IT, THE CLAIM WAS NOT TO BE ALLOWED. HE WAS ALSO OF THE VI EW THAT IT WAS DIFFICULT TO UNDERSTAND HOW THE EXPENSES HAVE BEEN ALLOCATED. H E TOOK NOTE OF THE FACT THAT ALTHOUGH THE ASSESSEE HAS STATED THAT IT HAD BENCH- MARKED THE TRANSACTION ON THE BASIS OF CUP HOWEVER NO CUP WAS FURNISHED. ON ACCO UNT OF THESE ARGUMENTS THE SUBMISSIONS WERE CONSIDERED TO BE VAGUE. THE ADJUS TMENT OF RS.1,73,19,297/- WAS ACCORDINGLY PROPOSED AS UNDER :- 6.7. FROM THE ABOVE GUIDELINES IT IS SEEN THAT THE ALLOCATION OF COST CAN BE MADE BY A GROUP COMPANY ONLY WHEN THE SPECIFIC SERV ICES HAVE BEEN PROVIDED. WHEN THE USE OF A SERVICE IS INCIDENTAL THEN THE AS SOCIATED ENTERPRISES SHOULD NOT CHARGE. IN THE CASE OF COST CONTRIBUTION ALSO THE ALLOCATION MADE SHOULD BE ON THE BASIS OF CERTAIN ALLOCATION KEYS AMONG THE M EMBER OF THE MULTINATIONAL GROUP COMPANY. IN THIS CASE T6HE ASSESSEE HAD NEIT HER FURNISHED AN EVIDENCE TO SUPPORT THE CLAIM THAT THE AE HAD PROVIDED SPECIFIC SERVICES TO THE ASSESSEE AND I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 7 THAT THESE ALLEGED SERVICES WERE NOT INCIDENTAL NO R HAD DISCLOSED BASIS FOR SUCH COST ALLOCATION. THE DETAILS OF EXPENSES AS NOTED IN THE INVOICES SUBMITTED BY THE ASSESSEE DID NOT STIPULATE THAT A BENEFIT HAD A CCRUED TO THE ASSESSEE. FURTHER THE BENEFIT FROM SUCH TRANSACTIONS FOR THE YEAR OR FOR FURTHER YEAR COULD NOT BE ESTABLISHED ON THE BASIS OF SUBMISSIONS MADE BY THE ASSESSEE. THEREFORE IN THE ABSENCE OF EVIDENCE ADVANCED BY THE ASSESSEE FOR THE ALLOCATION OF EXPENSES AMOUNTING TO RS.1,73,53,297/-, I AM CONCLU DING THAT THE ARMS LENGTH PRICE OF THIS INTERNATIONAL TRANSACTION IS ZERO. 3. IN 2006-07 ASSESSMENT YEARS, THE BUSINESS PROFIL E OF THE ASSESSEE WAS CONSIDERED BY THE TPO VIDE HIS ORDER U/S 92CA(3) DA TED 01.09.2009 IN THE FOLLOWING MANNER:- 2. NATURE OF BUSINESS: LAIPL WAS INCORPORATED IN INDIA AS A PRIVATE LIMITE D COMPANY IN 1996. LAIPL IS A WHOLLY OWNED SUBSIDIARY OF LEAR CORPORATION, U SA, WHICH HOLDS THE ENTIRE SHARE CAPITAL OF THE COMPANY, THROUGH ITS AFFILIATE VIZ LEAR CORPORATION (MAURITIUS) LIMITED. THE COMPANY IS PRIMARILY ENGAGED IN THE MANUFACTURE /ASSEMBLY OF AUTOMOTIVE SEATING SYSTEMS (I.E. SEATS AND SEAT TRIMS) AND INT ERIOR PARTS (HEREINAFTER ALSO REFERRED TO AS INTERIORS). IN RESPECT OF AUTOMOT IVE SEATING SYSTEMS AND INTERIORS, THE COMPANY ALSO PROVIDES DESIGN AND ENG INEERING SUPPORT SERVICES AND EMBEDDED SOFTWARE DEVELOPMENT SUPPORT SERVICES TO GROUP COMPANIES, AND DESIGN AND ENGINEERING SERVICES TO AUTOMOTIVE INDUS TRY CUSTOMERS. LAIPLS KEY CUSTOMERS IN INDIA INCLUDE GENERAL MOTO RS INDIA AND MAHINDRA AND MAHINDRA (M&M) 3. OVERVIEW OF COMPANY LEAR IS THE ULTIMATE PARENT COMPANY OF THE LEAR GRO UP OF COMPANIES (LEAR GROUP OR THE GROUP) THAT CONSISTS OF APPROXIMATE LY 100 CORPORATIONS WITH MORE THAN 300 FACILITIES, OPERATING IN 34 COUNTRIES . ITS CLIENTELE INCLUDES MAJOR AUTOMOTIVE MANUFACTURERS IN THE WORLD VIZ, GENERAL MOTORS, FORD, DAILER CHRYSLER, BMW, FIAT, VOLKSWAGEN, PSA, RENAULT-NISSA N, TOYOTA, HYUNDAI, AND SUBARU. 3.1. THE FOLLOWING INTERNATIONAL TRANSACTIONS WERE DISCLOSED BY THE ASSESSEE:- S.NO. INTERNATIONAL TRANSACTION VALUE (IN RS.) 1. IMPORT OF RAW MATERIALS/COMPONENTS 25,467,421 2. IMPORT OF SEAT SAMPLES 26,623 3. IMPORT OF SOFTWARE 492,184 4. ROYALTY 1,377,875 5. RECEIPT OF SERVICES 15,196,252 6. PROVISION OF SUPPORT SERVICES 191,960,011 7. COST ALLOCATION 14,529,429 8. COST RECHARGES FROM ASSOCIATED ENTERPRISES 14,44 5,502 9. COST RECHARGES TO ASSOCIATED ENTERPRISES 11,838, 478 I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 8 3.2. HEREIN ALSO THE ASSESSEE WAS REQUIRED TO EXPLA IN BY THE TPO THE ALLOCATED COST OF RS.1,45,29,429/-. CONSIDERING THE REPLY O F THE ASSESSEE THE TPO HEREIN ALSO OBSERVED THAT ALTHOUGH THE TRANSFER PRICING RE PORT MENTIONS THAT THE TRANSACTION HAS BEEN BENCH-MARKED USING CUP METHOD BUT NO COMPARABLE UN- CONTROLLED PRICE WAS DISCLOSED BY THE ASSESSEE. HE ALSO OBSERVED THAT IN THE TRANSFER PRICING REPORT DRAWN UNDER RULE 10D AND TH ERE WAS ALSO NO EVIDENCE OF ANY INDEPENDENT PARTY CUP AVAILABLE ON RECORD MAINT AINED BY THE ASSESSEE. CONSIDERING THE FACTS THAT SUFFICIENT OPPORTUNITY H AD BEEN GIVEN TO EXPLAIN, THE TPO HEREIN ALSO PROPOSE THE ADDITION OF RS.1,45,29, 430/- IN THE FOLLOWING MANNER:- 9.WHETHER COST ALLOCATION OF RS.1,45,29,429 MADE T O THE ASSESSEE IS AT ARMS LENGTH? I HAVE REACHED TO FOLLOWING CONCLUSION ON THE BASIS OF CAREFUL PERUSAL OF FINDINGS AS DISCUSSED IN PROCEEDINGS PARAGRAPHS OF THIS ORDER: 9.1. IT IS EVIDENT FROM FACTS OF THE CASE THAT THE ASSESSEE HAS FAILED TO FURNISH DETAILS OF EXACT NATURE OF SERVICES RECEIVED BY IT AND BENEFIT ACCRUED TO IF FROM THESE ALLEGED SERVICES. SINCE THE ASSESSEE HAS FAI LED TO FURNISH DETAILS OF SPECIFIC SERVICES IT IS NOT KNOWN IF THESE COST AL LOCATION OF ALLEGED UNKNOWN SERVICE IS A PART OF SHAREHOLDER ACTIVITY OR INCIDE NTAL SERVICE IN NATURE. IT IS ALSO NOT EXPLAINED IF THE ASSESSEE DID NEED THIS AL LEGED SERVICES. IN CERTAIN CIRCUMSTANCES A AE MAY PERFORM ACTIVITIES IN RELATI ON TO I6TS AFFILIATE WHICH AFFILIATE DO NOT NEED AND WOULD NOT HAVE BEEN PREPA RED TO PAY FOR HAD THEY BEEN INDEPENDENT BUSINESS. SUCH ACTIVITIES ARE REFERRED TO IN THE OECD GUIDELINES AS SHAREHOLDERS ACTIVITIES AND THEY DO NOT MEET CRITER IA FOR INTRA-GROUP SERVICES AND THEY DO NOT WARRANT A CHARGE UNDER TRANSFER PRI CING PRINCIPLES. EVEN IN CASE OF INCIDENTAL SERVICES LIKE CENTRALIZED GROUP IT, INFRASTRUCTURE WITHIN PARENT COMPANY MAY BENEFIT ITS SUBSIDIARY BUT NO CH ARGE COULD BE LEVIED. IN THIS CASE MOST OF INVOICES FILED BY THE AR VIDE LET TER DATED 03.08.2009 PERTAIN TO IT FUNCTIONS OF THE AE TO INCREASE ITS EFFICIENCY A ND IT IS LIKELY THAT INCIDENTAL BENEFIT WHICH MIGHT BE OBTAINED BY THE ASSESSEE BEI NG A MEMBER OF A GROUP AND NO COST ALLOCATION IN SUCH CASE ARE REQUIRED TO BE MADE. SINCE IN THIS CASE THE ASSESSEE HAS FAILED TO FURNISH DETAILS OF NATURE, N EED AND BENEFIT SERVICES IN MY VIEW FOLLOWING OECD GUIDELINES THE AE WAS NOT REQUI RED TO ALLOCATE COST TO THE ASSESSEE AND THE SAME WAS NOT AT ARMS LENGTH. 9.2. THE ASSESSEE HAS FAILED TO FURNISH TOTAL COST OF THE AE AND ALLOCATION KEYS ON THE BASIS OF WHICH THE COST WAS ALLOCATED T O THE ASSESSEE. IN ABSENCE OF THESE RELEVANT DETAILS ARMS LENGTH PRICE IS NOT PR OVED AND ONUS TO PROVE ARMS LENGTH PRICE UNDER INDIAN TRANSFER PRICING PROVISIO N IS ON THE ASSESSEE. 9.3. THE CLAIM OF THE ASSESSEE THAT THE COST ALLOCA TION WAS PROVED AT ARMS LENGTH PRICE USING CUP METHOD IN TRANSFER PRIC ING REPORT IS FOUND FALSE. IT IS I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 9 MATTER OF RECORD THAT INSPITE OF SEVERAL OPPORTUNIT IES ALLOWED TO THE ASSESSEE, IT COULD NOT FURNISH DETAILS OF COMPARABLES THIRD PART Y TRANSACTIONS. IN VIEW OF ABOVE DISCUSSION AND IN ABSENCE OF ANY E VIDENCE LED BY THE ASSESSEE FOR ALLOCATION OF EXPENSES AMOUNTING TO RS.1,45,29, 430. I AM OF CONSIDERED VIEW THAT THE AE WAS NOT REQUIRED TO CHARGE COST ON THE ASSESSEE AND ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS IS Z ERO. 10. THE ASSESSING OFFICER SHALL INCREASE THE INCOME OF THE ASSESSEE FOR THE AY 2006-07 BY RS.14,529,430/- FOR THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE DURING THE FY 2005-06. THE OTHER INTE RNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE ARE HELD TO BE AT ARMS LENGTH PRICE AND NO ADVERSE INFERENCE IS DRAWN FOR THE FY 2005-06. 4. IN 2008-09 ASSESSMENT YEAR, THE TPO VIDE HIS ORD ER U/S 92CA(3) OF THE ACT PROPOSED AN ADDITION QUA THE INTERNATIONAL TRANSACT IONS DISCLOSED BY THE ASSESSEE NOT ONLY ON ACCOUNT OF COST ALLOCATION OF RS.11,79, 474/- AS IN EARLIER YEARS BUT ALSO ON ACCOUNT OF COST RECHARGES OF RS.3,80,36,140/-. FOR THE RECORD THE FOLLOWING INTERNATIONAL TRANSACTIONS WERE DISCLOSED BY THE AS SESSEE IN ITS 92CE REPORTS:- IMPORT OF RAW MATERIALS, COMPONENTS 174,580,242 EXPORT OF SEAT COMPONENTS AND SAMPLES 2,480,397 PROVISION OF DEVELOPMENT SUPPORT SERVICES 7,836,010 PROVISION OF SUPPORT SERVICES 238,054,629 RECEIPT OF SERVICES 13,800,750 COST ALLOCATIONS FROM ASSOCIATED ENTERPRISES 11,709 ,474 COST RECHARGES FROM ASSOCIATED ENTERPRISES 38,036,1 40 COST RECHARGES TO ASSOCIATED ENTERPRISES 17,797,316 4.1. HEREIN ALSO THE TPO REQUIRE THE ASSESSEE TO JU STIFY THE ARMS LENGTH PRICE FOR THE COST ALLOCATIONS. APART FROM THAT HE ALSO REQU IRED THE ASSESSEE TO EXPLAIN COST RECHARGES WITH WHICH WE SHALL DEAL SUBSEQUENTLY. 4.2. QUA COST ALLOCATION THE FACTS ARE FOUND DISCUS SED AT PAGE 144 TO 153 OF THE TPOS ORDER. FOR READY-REFERENCE WE REPRODUCE THE RELEVANT EXTRACTS FROM HIS ORDER:- 5. COST ALLOCATION FROM ASSOCIATED ENTERPRISES CLAIM OF THE ASSESSEE THE ASSESSEE HAS CLAIMED THAT THE COST ALLOCATION R ECEIVED FROM THE AE IS NOT IN THE NATURE OF ANY SERVICE FEE PAYMENT BUT ON ACCOUN T OF SOFTWARE LICENSES, MAINTENANCE COSTS OF SOFTWARE FOR CAD/CAE ETC. WHIC H ARE OWNED BY THE GROUP COMPANY. OF THE TOTAL LICENSES WHICH THEY OWN, GRO UP COMPANIES HAVE SET ASIDE A FIXED NUMBER OF LICENSES AS PER THE REQUEST OF TH E COMPANY FOR ITS USE. GROUP COMPANIES PAY ANNUAL MAINTENANCE CHARGES FOR THESE SOFTWARES TO THIRD PARTY I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 10 SOFTWARE VENDORS ON A PER LICENSE BASIS. THESE ANN UAL MAINTENANCE COSTS ARE THEREAFTER, ALLOCATED BY THE GROUP COMPANIES PROPOR TIONATELY TO THE COMPANY BASED ON THE NUMBER OF LICENSES SET ASIDE FOR ITS USE. FURTHER, THE ASSESSEE HAS MENTIONED THAT THE COMPANY HAS DERIVED SUBSTANTIAL BENEFITS OUT OF PURCHASING THESE SOFTWARES THROUGH GROUP ENTITIES. THESE SOFT WARES ARE ESSENTIAL OPERATING TOOLS FOR THE COMPANY THAT ARE REQUIRED BY IT TO CA RRY OUT ITS BUSINESS OPERATIONS. AS A RESULT OF PURCHASING THESE SOFTWA RES THROUGH GROUP ENTITIES, THE COMPANY AVAILED OF SUBSTANTIAL DISCOUNTS ON THE ACTUAL COSTS/PURCHASE PRICES OF THESE SOFTWARES. HAD THE COMPANY PURCHAS ED THESE SOFTWARES DIRECTLY FROM INDEPENDENT THIRD PARTIES, THE COSTS WOULD HAV E BEEN SIGNIFICANTLY HIGHER. GROUP ENTITIES ARE ABLE TO NEGOTIATE FAVORABLE PRIC ING TERMS WITH THE THIRD PARTY VENDORS BECAUSE OF THEIR BETTER MARKET STANDING AND ALSO BECAUSE THEY PURCHASE THESE SOFTWARES JOINTLY FOR A NUMBER OF OTHER GROUP ENTITIES WHO REQUIRE THEM, INCLUDING THE COMPANY. 6. OBSERVATION ON THE ABOVE CLAIM THE BUSINESS LEADERS OF THE ASSESSEE SAW THE INCREA SING NEED FOR A PROPER INFRASTRUCTURE TO MANAGE THE NEEDS OF A FAST EXPAND ING BUSINESS, CUSTOMERS, EMPLOYEES, VENDORS, SUPPLIERS, INFORMATION, DATA, E TC. THESE INCLUDE THE USE OF COMPUTERS AND SOFTWARE TO MANAGE INFORMATION, STORE INFORMATION, PROTECT INFORMATION, PROCESS THE INFORMATION, TRANSMIT THE INFORMATION AS NECESSARY, AND LATER RETRIEVE INFORMATION AS NECESSARY. THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY PROOF AS TO WHAT ARE THE COMPLEX PROBLEMS THAT THE AE HAS SOLVED, WHICH THE ASSESSEE WOULD HAVE BEEN UNABLE TO DO. THE ONLY BENEFIT WHICH THE ASSESSEE HAS MENTIO NED IS OBTAINING DISCOUNTS. THE GREATEST FLAW IN THE ASSESSEES CASE IS THAT IT IS UNABLE TO GIVE DETAILS OF THE COST INCURRED BY THE AE ON THESE SERVICES. IF THE AE IS PURCHASING SOFTWARE FOR ITS OPERATING ENTITIES, WHAT IS THE PROBLEM IN DETE RMINING THE COST? IF THE AE IS MAINTAINING A TEAM FOR TROUBLE SHOOTING/MAINTENANCE IT SHOULD BE ABLE TO ARRIVE AT ITS COST. THAT WOULD HAVE FORMED A RATIONAL BAS IS FOR PLACING A CHARGE ON THE ASSESSEE. IT HAS ALREADY BEEN BROUGHT OUT THAT ANY ARRANGEMENT WILL HAVE TO ANSWER THE ARMS LENGTH PRINCIPLE. NO INDEPENDENT ENTERPRISE WOULD BE ABLE TO PAY OUT A PORTION OF ITS PROFITS, BIG OR SMALL, BEF ORE IT KNOWS WHAT IS THE COST INCURRED BY THE SERVICE PROVIDER. THE ASSESSEE HAS FAILED TO FOLLOW THIS BASIC TENET OF INDEPENDENT BEHAVIOR. IN ANY CASE, WHILE INDIA IS THE HUB OF THE GLOBAL IT-ITES, IT IS NOT BELIEVABLE WHEN THE ASSESSEE STA TES THAT THERE ARE CERTAIN PROBLEMS THAT THE AE SOLVES AND IT WOULD NOT HAVE B EEN ABLE TO DO SO. IT IS TRUE THAT IF IT HAD DONE SO IT WOULD HAVE DONE SO ON ITS OWN, IT WOULD HAVE INCURRED A COST. HOWEVER, NOW THE ASSESSEE HAS NO IDEA ABOUT THE ACTUAL COST INCURRED BY THE ASSESSEE. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO CONVINCINGLY ANSWER THE POINT THAT THE COST OF DEVELOPING A SOFTWARE IS ONE THING AND THE COST OF MAINTAINING IT WOULD BE MUCH LOWER. HENCE, THE ASS ESSEE NEED NOT HAVE MADE ANY PAYMENT ON ACCOUNT OF THIS SERVICE. 4.3. ACCORDINGLY THE TPO PROCEEDED TO REFER TO THE OECD GUIDELINES WITH REGARD TO INTRA-GROUP SERVICES SPECIFIC PARA 7.1 TO 7.6 AND THEN AFTER DISCUSSING I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 11 CERTAIN INTERNATIONAL JURISPRUDENCE BY WAY OF CASE LAWS PROCEEDED TO DISCUSS THE POSITION OF THE ISSUE IN DIFFERENT TAX JURISDICTIO NS OF THE WORLD. FOR THE SAKE OF COMPLETENESS WE PROPOSE TO ADDRESS THESE ISSUES BRI EFLY. 4.4. A PERUSAL OF THE OECD GUIDELINES EXTRACTED IN THE TPOS ORDER SHOWS THAT AS PER THE GUIDELINES IN ORDER TO ANALYZE TRANSFER PRICING FOR INTRA GROUP SERVICES TWO ISSUES NEED TO BE CONSIDERED. ONE ISSUE TO BE ANALYZED IS WHETHER INTRA GROUP SERVICES HAVE BEEN PROVIDED. THE OTHER ISSUE WOULD BE WHAT THE INTRA GROUP CHARGE FOR SUCH SERVICES FOR TAX PURPOSES SHOULD BE IN ACC ORDANCE WITH ARMS LENGTH. IT ADDRESSES THE POSITION THAT UNDER THE ARMS LENGTH PRINCIPLE THE QUESTION TO BE CONSIDERED NAMELY WHETHER INTRA GROUP SERVICES HAS BEEN RENDERED WHEN AN ACTIVITY IS PERFORMED FOR ONE OR MORE GROUP MEMBER BY ANOTHER GROUP MEMBER SHOULD DEPEND ON WHETHER THE ACTIVITY PROVIDES A RE SPECTIVE GROUP MEMBER WITH ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERC IAL POSITION. IN ORDER TO DETERMINE THIS FACT IT CAN BE CONSIDERED WHETHER AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED FOR IT BY AN INDEPENDENT ENTERPRISE OR WO ULD HAVE PERFORMED THE ACTIVITY IN HOUSE FOR ITSELF. THE GUIDELINES ELABORATE THAT A TAX ADMINISTRATION IN ORDER TO IDENTIFY THE AMOUNT IF ANY HAS ACTUALLY BEEN CHARGE D FOR SERVICE WOULD NEED TO IDENTIFY WHAT ARRANGEMENTS IF ANY HAVE ACTUALLY BEE N PUT IN PLACE BETWEEN THE ASSOCIATED ENTERPRISE TO FACILITATE CHARGES BEING M ADE FOR THE PROVISIONS OF SERVICES BETWEEN THEM. THE ARRANGEMENTS IF A DIREC T CHARGE CAN BE READILY IDENTIFIED WHICH IS OF GREAT PRACTICAL CONVENIENCE TO TAX ADMINISTRATION. THEY ALSO CONSIDER THE POSSIBILITY THAT (MNES) MULTI- NATIONA L ENTERPRISE MAY ALSO USE COST ALLOCATION AND APPORTIONMENT METHOD WHICH OFTEN NEC ESSITATE SOME DEGREE OF ESTIMATION OR APPROXIMATION, AS A BASIS OF CALCULA TING AN ARMS LENGTH CHARGE. THESE METHODS ARE GENERALLY REFERRED TO AS INDIRECT CHARGE METHOD AND AS PER OECD GUIDELINES SHOULD BE ALLOWED PROVIDED SUFFICIE NT REGARD HAS BEEN GIVEN TO I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 12 THE VALUE OF THE SERVICES TO THE RECIPIENT AND THE EXTENT TO WHICH THE COMPARABLE SERVICES ARE PROVIDED BETWEEN INDEPENDENT ENTERPRIS ES. INDIRECT CHARGE METHOD AS PER OECD GUIDELINES SHOULD BE SENSITIVE TO COMMERCI AL FEATURES OF THE INDIVIDUAL CASE FOR EXAMPLE THE ALLOCATION KEY IT HAS BEEN OBS ERVED MAKES SENSE UNDER THE CIRCUMSTANCES. THE METHOD SHOULD ALSO CONTAINS SAF EGUARDS AGAINST MANIPULATION AND FOLLOW SOUND ACCOUNTING PRINCIPLES, AND BE CAP ABLE OF PRODUCING CHARGES OR ALLOCATION OF COSTS THAT COMMENSURATE TO THE ACTUAL OR REASONABLY ACCEPTED BENEFITS TO THE RECIPIENT OF THE SERVICE. IT HAS ALSO BEEN ADDRESSED THAT THE DETERMINATION OF ARMS LENGTH PRINCIPLE SHOULD BE CONSIDERED BOTH FR OM THE PERSPECTIVE OF THE SERVICE PROVIDER AND FROM THE PERSPECTIVE OF THE RE CIPIENT OF THE SERVICE. FOR THE SAID PURPOSE THE RELEVANT CONSIDERATION INCLUDE THE VALUE OF THE SERVICE TO THE RECIPIENT AND HOW MUCH A COMPARABLE INDEPENDENT ENT ERPRISE WOULD BE PREPARED TO PAY FOR THAT SERVICE INCOMPARABLE CIRCUMSTANCES AS WELL AS COSTS TO THE SERVICE PROVIDER. THE GUIDELINES ALSO CONSIDER THAT OFTEN THE APPLICATION OF THESE GUIDELINES WILL LEAD TO THE USE OF CUP OR COST PLUS METHOD FOR PRICING INTRA GROUP SERVICES. THE CUP METHOD IT CONSIDERS IS LIKELY T O BE USED WHERE THERE IS COMPARABLE SERVICES PROVIDED BETWEEN INDEPENDENT EN TERPRISES IN THE RECIPIENT MARKET OR BY THE ASSOCIATED ENTERPRISE PROVIDING TH E SERVICES TO AN INDEPENDENT ENTERPRISE INCOMPARABLE CIRCUMSTANCES AS AN ILLUSTR ATION IT IS CONSIDERED IF ACCOUNTING, AUDITING, LEGAL OR COMPUTER SERVICES AR E BEING PROVIDED. HOWEVER COST PLUS METHOD IS CONSIDERED TO BE APPROPRIATE IN THE ABSENCE OF CUP WHERE THE NATURE OF THE ACTIVITIES INVOLVED, ASSETS USED AND RISKS ASSUME ARE COMPARABLE TO THOSE UNDERTAKEN TO BE INDEPENDENT ENTERPRISES. TH EY ALSO CONSIDER THE POSSIBILITY WHERE IT MAY BE DIFFICULT TO APPLY THE CUP METHOD O R THE COST PLUS METHOD IN THOSE CIRCUMSTANCES IT MAY BE HELPFUL TO TAKE ACCOUNT OF MORE THAN ONE METHOD AND IN REACHING A SATISFACTORY DETERMINATION OF ARMS LENG TH PRICING, TRANSACTIONAL PROFIT METHODS MAY HAVE TO BE USED AS A LAST RESORT. I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 13 4.5. ACCORDINGLY THE TPO SUMMED UP THE POSITION AS UNDER:- ON THE BASIS OF ABOVE IT CAN BE SEEN THAT IN ORDER TO EXAMINE THE ARMS LENGTH PRICE OF INTRA GROUP SERVICES RECEIVED BY ONE OF TH E ASSOCIATED ENTERPRISES FOLLOWING ESSENTIAL INFORMATION SHOULD BE AVAILABLE:- 1. WHETHER THE AE HAS RECEIVED INTRA GROUP SERVICES? 2. WHAT ARE THE ECONOMIC AND COMMERCIAL BENEFITS DERIV ED BY THE RECIPIENT OF INTRA GROUP SERVICES? 3. IN ORDER TO IDENTIFY THE CHARGES RELATING TO SERVIC ES, THERE SHOULD BE A MECHANISM IN PLACE WHICH CAN IDENTIFY (I) THE COST INCURRED BY THE AE IN PROVIDING THE INTRA GROUP SERVICES AND (II) THE BAS IS OF ALLOCATION OF COST TO VARIOUS AES. 4. WHETHER A COMPARABLE INDEPENDENT ENTERPRISE WOULD H AVE PAID FOR THE SERVICES IN COMPARABLE CIRCUMSTANCES? FROM THE DETAILS AVAILABLE IT IS CLEAR THAT THE ASS ESSEE HAS NOT BEEN ABLE TO PROVE THAT HE HAS ACTUALLY RECEIVED SERVICES OF SOM E VALUE THAT CALL FOR SUCH A HUGE PAYMENT. NO INDEPENDENT PARTY WOULD HAVE PAID FOR SUCH SERVICES IN AN UNCONTROLLED ENVIRONMENT. THE ASSESSEE HAS NOT EVE N SUBMITTED THE BASIS OF QUANTIFICATIONS OF THESE CHARGES. NO INVOICES HAVE EITHER BEEN SUBMITTED OR PRODUCED FOR VERIFICATION DURING THE TP AUDIT HEARI NG PROCEEDINGS. FOLLOWING THE DISCUSSION IN THE PRECEDING PARAS, IT IS ALSO SEEN THAT THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT ANY TANGIBL E BENEFIT HAS PASSED TO IT FOLLOWING THE PAYMENT OF THESE CHARGES. AS STATED EARLIER, THOUGH FASHIONED AS A COST ALLOCATION, THE PAYMENT IS ACTUALLY A PAYMEN T FOR SERVICES SAID TO HAVE BEEN RECEIVED. LET US KOW REVISIT THE QUESTIONS TH AT WERE PUT TO THE ASSESSEE IN THE COURSE OF THESE PROCEEDING AND EVALUATE THE ASS ESSEES REPLIES: (A) THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY BASIS OF THIS PAYMENT MADE TO THE AE. (B) THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY SEPAR ATE BENCHMARKING FOR THE PAYMENTS OF THESE CHARGES. THE ASSESSEE SH OULD HAVE BEEN ABLE TO DEMONSTRATE THAT ANY INDEPENDENT PARTY WOULD ALS O HAVE MADE THIS PAYMENT IN SIMILAR CIRCUMSTANCES, IT HAS NOT BEEN A BLE TO DO SO. (C) THE ASSESSEE HAS NOT BEEN ABLE TO GIVE THE DETAILS OF COST INCURRED BY AE ON ACCOUNTS OF VARIOUS SERVICES. BECAUSE OF THIS T HE AE AND THE ASSESSEE HAS ADOPTED THE DEVICE OF COST ALLOCATION. (D) THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY DOCUM ENTARY PROOF OF TANGIBLE BENEFIT RECEIVED ON ACCOUNT OF THESE SERVI CES. 4.6. IN VIEW OF THE ABOVE HE WAS OF THE VIEW THAT N ONE OF THE BENEFITS WERE TANGIBLE. FOR READY REFERENCE THE RELEVANT PORTION IS EXTRACTED FROM THE ORDER:- AS PER THE COMMENTS ABOVE IT CAN BE SEEN THAT NONE OF THE BENEFITS ARE TANGIBLE OR REAL. A MERE FAADE HAS BEEN RAISED TO GIVE AN IMPRESSION THAT SOME VITAL BENEFIT HAS PASSED TO THE ASSESSEE, WHICH IS ACTUAL LY NOT THE CASE. RELATED PARTIES ARE QUITE LIKELY TO GIVE A FORM THAT WILL G IVE AN IMPRESSION THAT A REAL SERVICE IS BEING RENDERED BY ONE TO ANOTHER. BUT T HE NECESSITY TO LOOK BEYOND THE VEIL IS RECOGNIZED ACROSS TAX JURISDICTIONS. I N THE ABOVE CIRCUMSTANCES THE I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 14 PAYMENT OF SERVICE FEE IS ONLY AN ARRANGEMENT TO CH ANGE TAX BASE WITHOUT ANY ECONOMIC SUBSTANCE IN THE TRANSACTION. 4.7. HE FURTHER FOUND SUPPORT FROM THE FOLLOWING INTERNA TIONAL DECISIONS :- IN SAVIANO VS COMMISSIONER 765F. 2D 643, 654 (7 TH CIR. 1985) IT WAS OBSERVED, THE FREEDOM TO ARRANGE ONES AFFAIRS TO MINIMIZE TAXES DOES NOT INCLUDE THE RIGHT TO ENGAGE IN FINANCIAL FANTASIES WITH THE EXPECTATION THAT THE INTERNAL REVENUE SERVICE AND THE COURTS WILL PLAY A LONG. IN FRANK LYON CO. VS US 435, US 561, 573 (1978) THE HONBLE US SUPREME COURT OBSERVED, IN APPLYING THE DOCTRINE OF SUBSTA NCE OVER FORM, THE COURT HAS LOOKED TO THE OBJECTIVE ECONOMIC REALITIES OF A TRA NSACTION RATHER THAN TO THE PARTICULAR FORM THE PARTIES EMPLOYS. IN THE FIELD OF TAXATION ADMINISTRATORS OF LAW AND THE COURTS ARE CONCERNED WITH SUBSTANCE, RELATIONS AND FORMAL WRITTEN DOCUMENTS A RE NOT RIGIDLY BINDING. {HELVERY VS LAZANUS & CO. 308 US (252)]. 4.8. THE RELEVANCE OF CONTRACTS AND ARRANGEMENTS TO BE CONSIDERED FOR DECIDING THE ISSUE WAS ALSO SUMMED UP BY THE TPO. THE SAME IS EXTRACTED HEREUNDER :- 1.67. ASSOCIATED ENTERPRISES ARE ABLE TO MAKE A MU CH GREATER VARIETY OF CONTRACTS AND ARRANGEMENTS THAN CAN INDEPENDENT ENT ERPRISES BECAUSE THE NORMAL CONFLICT OF INTEREST WHICH WOULD EXIST BETWE EN INDEPENDENT PARTIES IS OFTEN ABSENT. ASSOCIATED ENTERPRISES MAY AND FREQU ENTLY DO CONCLUDE ARRANGEMENTS OF A SPECIFIC NATURE THAT ARE NOT OR A RE VERY RARELY ENCOUNTERED BETWEEN INDEPENDENT PARTIES. THIS MAY BE DONE FOR VARIOUS ECONOMIC, LEGAL OR FISCAL REASONS DEPENDENT ON THE CIRCUMSTANCES IN A PARTICULAR CASE. MOREOVER, CONTRACTS WITHIN AN MNE COULD BE QUITE EASILY ALTE RED, SUSPENDED, EXTENDED, OR TERMINATED ACCORDINGLY TO THE OVERALL STRATEGIES OF THE MNE AS A WHOLE, AND SUCH ALTERATIONS MAY EVEN BE MADE RETROACTIVELY BEH IND A CONTRACTUAL ARRANGEMENT IN APPLYING THE ARMS LENGTH PRINCIPLE. 1.68. IN ADDITION, TAX ADMINISTRATIONS MAY FIND IT USEFUL TO REFER TO ALTERNATIVELY STRUCTURED TRANSACTIONS BETWEEN INDEP ENDENT ENTERPRISES TO DETERMINE WHETHER THE CONTROLLED TRANSACTION AS STR UCTURED SATISFIED THE ARMS LENGTH PRINCIPLE. WHETHER EVIDENCE FROM A PARTICUL AR ALTERNATIVE CAN BE CONSIDERED WILL DEPEND ON THE FACTS AND CIRCUMSTANC ES OF THE PARTICULAR CASE, INCLUDING THE NUMBER AND ACCURACY OF THE ADJUSTMENT S NECESSARY TO ACCOUNT FOR DIFFERENCES BETWEEN THE CONTROLLED TRANSACTION AND THE ALTERNATIVE AND THE QUALITY OF ANY OTHER EVIDENCE THAT MAY BE AVAILABLE . 4.9. HOW DIFFERENT INTERNATIONAL TAX JURISDICTIONS CONSIDERED THE ISSUE OF INTRA GROUP SERVICES IN TRANSFER PRICING WAS ALSO CONSIDE RED BY HIM. THE SAME IS EXTRACTED HEREUNDER :- I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 15 6.1. AUSTRALIA IN JANUARY 199, THE ATO (AUSTRALIAN TAX OFFICE) ISS UED ITS TAXATION RULING ON SERVICES; INCOME TAX: INTERNATIONAL TRANS FER PRICING FOR INTRA- GROUP SERVICES (TR1999/1). IN IT, THE ATO OUTLINED ITS POSITION IN RELATION TO CHARGING FOR SERVICES WITHIN A MULTINAT IONAL GROUP. IN GENERAL, THE RULING FOLLOWS THE INTERNATIONAL CONSE NSUS ON THE ARMS LENGTH PRINCIPLE AND ITS APPLICATION, EXPRESSED IN CHAP. VII; SPECIAL CONSIDERATIONS FOR INTRA-GROUP SERVICES OF THE OECD GUIDELINES. THE RULING IS DISCUSSED IN FURTHER DETAIL BELOW. THE BENEFIT TEST TO CONFORM WITH THE ARMS LENGTH PRINCIPLE, THE COS TS OF INTRA-GROUP SERVICES CAN ONLY BE CHARGED FOR WHERE THE RECIPIEN T OF THE SERVICES EXPECTED, AT THE TIME THE RELEVANT ACTIVITIES WERE UNDERTAKEN, TO DERIVE A BENEFIT FROM THOSE ACTIVITIES. THE EXPECTED BENEFI T MUST BE SUFFICIENTLY DIRECT AND SUBSTANTIAL SO THAT AN INDEPENDENT RECIP IENT, IN SIMILAR CIRCUMSTANCES, WOULD BE PREPARED TO PAY FOR IT. IF NO BENEFIT HAS BEEN PROVIDED (OR WAS EXPECTED TO BE PROVIDED), THEN THE SERVICE CANNOT BE CHARGED FOR. IT FOLLOWS THAT FUNCTIONS UNDERTAKEN BY ONE MEMBER OF AN MNE GROUP EXCLUSIVELY FOR ITS OWN BENEFIT CANNOT BE CHARGED F OR. THIS CATEGORY OF FUNCTIONS INCLUDES SHAREHOLDER ACTIVITIES, WHICH AR E TASKS UNDERTAKEN BY A GROUP COMPANY THAT RELATE SOLELY TO ITS OWN BUSIN ESS ACTIVITIES AS A SHAREHOLDER, OR ULTIMATE SHAREHOLDER. SUCH FUNCTION S, WOULD INCLUDE THE PREPARATION OF CONSOLIDATED ACCOUNTS AND THE ORGAN IZATION OF ANNUAL GENERAL MEETINGS. DETERMINING THE AMOUNT OF CHARGES TO DETERMINE THE AMOUNT OF CHARGES FOR INTRA-GROUP SERVICES, THE ARM'S LENGTH PRINCIPLE REQUIRES THE THAT THE CONSIDERATIO N SHOULD BE DETERMINED FROM THE PERSPECTIVE OF BOTH THE-SERVICE PROVIDER AND THE SERVICE RECIPIENT. THE CONSIDERATION INCLUDES: -HOW MUCH A COMPARABLE INDEPENDENT- SERVICE RECIPIE NT, UNDER COMPARABLE CIRCUMSTANCES, WOULD BE WILLING TO PAY F OR THAT SERVICE; AND - WHETHER AN INDEPENDENT SERVICE PROVIDER WOULD BE WILLING TO SUPPLY THE SERVICE AT THAT PRICE. THE AMOUNT CHARGED TO THE INDIVIDUAL GROUP MEMBERS SHOULD HE IN THE SAME PROPORTION TO THE BENEFITS OR EXPECTED BENEFIT S TO THE RESPECTIVE MEMBERS. 6.2 CANADA CANADA NORMALLY FOLLOWS THE OECD GUIDELINES IN THIS REGARD. THE OECD GUIDELINES ON PROVIDING INTRA-GROUP SERVIC ES INCLUDE A FRAMEWORK TO DETERMINE: WHETHER A CHARGE FOR A PARTICULAR SERVICE IS JUSTIFIED; AND, IF SO, - HOW TO DETERMINE THE AMOUNT OF THE CHARGE. THEREFORE; IN APPLYING THE ARM'S LENGTH PRINCIPLE T O INTRA-GROUP SERVICES; A TAXPAYER MUST FIRST DETERMINE WHETHER A SPECIFIC ACTIVITY PERFORMED BY A MEMBER OF THE GROUP FOR ANOTHER MEMB ER IS A SERVICE FAR WHICH A CHARGE IS JUSTIFIED. AN AR M'S LENGTH ENTITY WOULD I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 16 BE WILLING TO PAY FOR AN ACTIVITY ONLY TO THE EXTEN T THAT THE ACTIVITY CONFERS ON IT A BENEFIT OF ECONOMIC OR COMMERCIAL V ALUE. THE TEST TO DETERMINE IF A CHARGE FOR AN ACTIVITY I S JUSTIFIED, WOULD INVOLVE THE FOLLOWING QUESTION: WOULD THE ENTITY FO R WHOM THE ACTIVITY IS BEING PERFORMED EITHER HAVE BEEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED BY AN ARM'S LENGTH ENTITY OR HAVE PERFORMED THE ACTIVITY ITSELF? WHERE IT WOULD NOT H AVE BEEN REASONABLE TO EXPECT THE ENTITY TO EITHER PAY AN ARM'S LENGTH ENTITY FOR THE ACTIVITY OR TO PERFORM IT ITSELF, IT IS UNLIKELY THAT ANY CHARG E FOR THE ACTIVITY WOULD BE JUSTIFIED. CERTAIN COSTS ARE INCURRED FOR THE SOLE BENEFIT OF SHAREHOLDERS AND, THEREFORE, SHOULD NOT BE CHARGED TO OTHER MEMBERS O F THE GROUP. COSTS RELATING TO THE LEGAL STRUCTURE OR THE GENERA L FINANCIAL REPORTING REQUIREMENTS OF A PARTICULAR GROUP MEMBER SHOULD NO T BE CHARGED TO ANOTHER MEMBER. CERTAIN OTHER COSTS, SUCH AS THOSE INVOLVED IN RAISING FUNDS FOR THE ACQUISITION OF AN INTEREST IN A BUSIN ESS; WOULD GENERALLY NOT BE ATTRIBUTABLE TO ANOTHER MEMBER OF THE GROUP. HOWEVER, AS SUGGESTED IN PARAGRAPH 7.10 OF THE OECD GUIDELINES, IF THE FUNDS WERE RAISED ON BEHALF OF ANOTHER MEMBER OF THE GROU P THAT USED THEM TO ACQUIRE A NEW COMPANY, IT MAY BE APPROPRIATE TO ATT RIBUTE THE COSTS TO THAT OTHER GROUP MEMBER. IT WOULD BE UNUSUAL FOR A GROUP MEMBER TO INCUR A C HARGE FOR A SERVICE PERFORMED BY ANOTHER MEMBER OF THE GROUP IF THAT AC TIVITY IS PERFORMED BY THE MEMBER ITSELF OR BY AN ARM'S LENGTH PARTY O N THE MEMBERS BEHALF. IN SOME CASES, HOWEVER THERE MAY BE A VALI D BUSINESS REASON FOR DUPLICATING A SERVICE. WHERE A CHARGE FOR A SERVICE IS JUSTIFIED, THE AMO UNT CHARGED SHOULD BE DETERMINED IN ACCORDANCE WITH THE ARMS LENGTH PRIN CIPLE. THE OECD GUIDELINES STATE THAT THE ISSUE MUST BE CONSIDERED FROM THE POINTED OF VIEW OF BOTH THE SUPPLIER AND THE RECIPIENT OF THE SERVICE. THE ARMS LENGTH CHARGE IS NOT ONLY A FUNCTION OF THE PRICE A T WHICH A SUPPLIER IS PREPARED TO PERFORM THE SERVICE (OR THE COST OF PRO VIDING THE SERVICE), BUT ALSO A FUNCTION OF THE VALUE TO THE RECIPIENT O F THE SERVICE. THEREFORE, THE DETERMINATION OF AN ARMS LENGTH CHARGE MUST TA KE INTO CONSIDERATION THE AMOUNT THAT AN ARMS LENGTH ENTIT Y IS PREPARED TO PAY FOR SUCH A SERVICE IN COMPARABLE CIRCUMSTANCES. 6.3. FRANCE UNDER THE FRENCH REGULATIONS THE COMPENSATION PAID FOR THE SERVICES IS DEDUCTIBLE FOR FRENCH CORPORATE TAX PUR POSES PROVIDED THE FRENCH COMPANY CAN ADDUCE PROOF (A) THAT SUCH COMPA NY ACTUALLY BENEFITS FROM THE SERVICES RENDERED AND (B)THAT THE AMOUNT OF THE COMPENSATION PAID IS NOT EXCESSIVE. IN THE ABSENCE OF FULFILLMENT OF THESE TWO CONDITIONS SERVICE CHARGES PAID TO AN AE ARE DI SALLOWED UNDER THE FRENCH REGULATIONS. 6.4. GERMANY UNDER THE GERMAN REGULATIONS THERE ARE TWO ISSUES T HAT MUST BE KEPT IN MIND WHEN CHARGING FOR SERVICES. FIRST, THE PARTIES MUST I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 17 DETERMINE WHO IS RECEIVING THE BENEFIT OF A SERVICE } THAT IS, IT MUST FOR INSTANCE BE DETERMINED WHETHER THE SERVICES ARE REN DERED IN THE INTEREST OF THE SHAREHOLDER. THESE EXPENSES CANNOT BE CHARGE D TO THE GROUP COMPANIES, BUT ONLY TO THE SHAREHOLDER, GIVEN THAT THOSE COSTS WERE INCURRED O N ITS BEHALF. BECAUSE THE GERMAN TAX AUTHORITIES OFTEN ADOPT A VERY BROAD INTERPRETATION OF THESE COSTS, THIS ISSUE IS A MAIN SOURCE OF DISAGRE EMENT BETWEEN TAXPAYERS AND THE GERMAN TAX ADMINISTRATION. SECOND , ONCE IT IS DETERMINED WHO BENEFITS FROM THE SERVICES, THE ARM' S LENGTH COMPENSATION FOR THE TRANSACTION MUST BE DETERMINED . A SEPARATE TRANSFER PRICE CAN BE CHARGED IF INDEPEN DENTLY OF THE CORPORATE OR OTHER LEGAL RELATIONSHIP AN UNRELATED PARTY WOULD HAVE PAID REMUNERATION FOR THE SERVICES IN QUESTION. THE TRANSFER PRICE MUST BE AGREED IN ADVANCE BY THE PAYING CORPORATION AND PROOF MUST BE PROVIDED. NO SEPARATE TRANSFER PRICE CAN BE CHARGED IF THE SERVICES PROVIDED OR COSTS INCURRED BY THE MANAGEMENT ENTITY ARE RECHARGED TO THE RECEIVING CORPORATION IN SOME OTHER FORM, E.G. BY INTRA-GROUP TRANSFERS OF GOODS OR SERVICES AT AR M'S LENGTH PRICES WHICH THEMSELVES TAKE ACCOUNT OF THE ADMINISTRATIVE SERVICES OR COSTS. REMUNERATION FOR SUCH SERVICES WOULD ONLY BE PAID B ETWEEN UNRELATED PARTIES IF THE SERVICES - CAN BE CLEARLY DISTINGUISHED AND QUANTIFIED AND - ARE RENDERED IN THE RECIPIENT'S OWN INTEREST (I.E . PROVIDE AN EXPECTED BENEFIT AND REDUCE THE RECIPIENT'S COSTS). NO TRANSFER PRICE CAN BE CHARGED IF A SUBSIDIARY CO RPORATION UTILIZES SERVICES TAKING INTO CONSIDERATION ONLY THE CIRCUMS TANCES OF THE PARENT CORPORATION, AND IF THE SUBSIDIARY CORPORATION, CON SIDERING ONLY ITS OWN CIRCUMSTANCES, WOULD NOT HAVE UTILIZED THE SERVICES HAD IT BEEN AN INDEPENDENT ENTERPRISE . THE SERVICES MUST ACTUALLY BE PERFORMED. THE MERE A VAILABILITY OF SERVICES WITHIN A GROUP IS NOT SUFFICIENT SINCE, AS A GENERAL RULE, UNRELATED PARTIES ONLY PAY FOR SERVICES WHICH HAVE ACTUALLY BEEN RENDERED, HOWEVER, WHERE THE VOLUME OF SERVICES FLU CTUATES THERE IS NO OBJECTION IF AN AVERAGE AMOUNT OF REMUNERATION IS CHARGED WHICH COR RESPONDS TO THE SERVICES ACTUALLY RENDERED OVER A PERIOD OF YEARS. . APPLYING THESE PRINCIPLES REMUNERATION IS CHARGEABL E E.G .FOR: - THE TAKING OVER OF BOOKKEEPING FUNCTIONS AND SIMI LAR SERVICES E.G. SPECIFIC CONSULTANCY SERVICES CONCERNING-THE RELATE D ENTERPRISE'S OWN ECONOMIC AND LEGAL AFFAIRS; - THE TEMPORARY TRANSFER OF PERSONNEL INCLUDING TRA NSFERS INVOLVING THE TOP MANAGEMENT OF THE RELATED ENTERPRISE; - THE TRAINING AND CONTINUED EDUCATION, AS WELL AS PAYMENTS MADE FOR THE SOCIAL SECURITY, OF PERSONNEL EMPLOYED WITH A RELAT ED ENTERPRISE IN ITS OWN INTEREST; - SERVICES PROVIDED BY THE PARENT CORPORATION FOR THE PROCUREMENT OF GOODS AND SERVICES WHICH THE, RESPECTIVE SUBSIDIARI ES HAVE OBTAINED. OR I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 18 UTILIZED DIRECTLY; - THE PROVISION OF SERVICES ON CALL IF THIS IS A US UAL FEATURE OF THE MARKET, AND TO THE EXTENT THAT IT IS SHOWN THAT THE SUBSIDI ARY NEEDS SUCH SERVICES AND HAS ACTUALLY MADE USE OF THE SERVICES TO AN APP ROPRIATE EXTENT. ON THE OTHER HAND, A PARENT CORPORATION CANNOT CHAR GE REMUNERATION E.G. FOR: - SO-CALLED GROUP SUPPORT, INCLUDING THE RIGHT TO U SE THE GROUP NAME AND BENEFITS DERIVED FROM THE MERE FACT OF LEGAL, FINAN CIAL AND ORGANIZATIONAL INTEGRATION IN THE GROUP; THE ACTIVITIES OF ITS OWN BOARD OF DIRECTORS AND SU PERVISORY BOARD AS SUCH, AND FOR ITS SHAREHOLDERS' MEETINGS; - THE LEGAL ORGANIZATION OF THE GROUP AS A WHOLE, A S WELL AS PRODUCTION AND INVESTMENT PLANNING FOR THE ENTIRE GROUP; - ACTIVITIES WHICH REFLECT ITS POSITION AS SHAREHOLDE R, INCLUDING GENERAL ORGANIZATION AS WELL AS CONTROL AND GROUP AUDIT IN SUPPORT OF THE GROUP'S HEADQUARTERS; - THE PROTECTION AND ADMINISTRATION OF INVESTMENTS; 6.5 UNITED STATES OF AMERICA THE SEC. 482 REGULATIONS REQUIRE THAT SERVICES PERF ORMED FOR CONTROLLED ENTITIES BE CHARGED TO THE RECEIVING ENT ITIES IF THEY ARE FOR THE JOINT BENEFIT OF THE MEMBERS OF A GROUP OF CONTROLL ED ENTITIES OR IF THEY ARE PERFORMED BY ONE MEMBER OF THE GROUP EXCLUSIVEL Y FOR THE BENEFIT OF ANOTHER MEMBER OF THE GROUP. TREAS. REG. 1.482-2(B)(2)(I). IF THE BENEFITS TO THOSE ENTITIES ARE SO INDIRECT O R REMOTE THAT UNRELATED PARTIES WOULD NOT HAVE CHARGED FOR SUCH SERVICES, T HEN A SERVICE FEE IS NOT WARRANTED. IN ADDITION, SERVICE FEES ARE NOT RE QUIRED FOR SO- CALLED STEWARDSHIP SERVICES OR FOR SERVICES THAT ME RELY DUPLICATE SERVICES THE RELATED PARTY INDEPENDENTLY PERFORMS. AS IS THE CASE IN MOST COUNTRIES, STEWARDSHIP SERVI CES ARE TREATED AS A COST OF THE PARENT COMPANY AND CANNOT BE CHARGED TO SUBSIDIARIES OF MULTINATIONAL COMPANIES. IN IRS TECHNICAL ADVISE ME MORANDUM 8806002 (24 SEPTEMBER 1987) THE IURS DEFINED STEWAR DSHIP SERVICES TO INCLUDE PERIODIC REVIEWS AND VISITATIONS BY MANAGEM ENT, THE COST OF MEETING REPORTING REQUIREMENTS OR OTHER LEGAL OBLIG ATIONS AND THE COST ASSOCIATED WITH FINANCING THE PARENTS OWNERSHIP IN THE AFFILIATE. EXPENSES RELATING TO THE INVESTIGATION OF NEW BUSIN ESS OPPORTUNITIES, INSTALLATION OF CORPORATE TRACKING SYSTEMS AND OTHE R CORPORATE ACTIONS ARE GENERALLY CONSIDERED COSTS OF THE PARENT COMPAN Y AND ARE NOT CHARGED TO AFFILIATES. 4.10. THE POSITION WAS CONSEQUENTLY SUMMED UP BY HI M IN THE FOLLOWING MANNER AT PAGE 153 OF HIS ORDER :- UNIVERSALLY, SUCH PAYMENTS ARE BEING TREATED AT AR MS LENGTH ONLY WHEN IT IS PROVED SUBSTANTIALLY BY THE TAX PAYER THAT SUCH SER VICES WERE ACTUALLY RECEIVED AND FURTHER PROVING THAT SUCH RECEIVED SERVICES HAV E BENEFITED IT. IN MOST OF THE I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 19 COUNTRIES LIKE UK, USA, GERMANY, ETC IT IS AN ESTAB LISHED POSITION THAT A SUBSIDIARY DOES NOT TO HAVE TO PAY FOR THE AUDITING , ACCOUNTING AND SUCH OTHER FUNCTIONS PERFORMED BY THE PARENT COMPANY AS OWNER OF THE SUBSIDIARY COMPANY. IF THE SUBSIDIARY WERE AN INDEPENDENT COM PANY IT WOULD NEITHER REQUIRE SUCH SERVICES NOR WOULD IT PAY FOR THE SAME . IN SUPPORT OF ITS CONTENTION, THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ALL THE DETAILS OF INVOICES, AND OTHER BACK-UP DOCUMENTS TO SHOW THAT THE AFORESAID EXPENSES WERE ACTUALLY INCURRED BY THE OVERSEAS GRO UP COMPANIES ON BEHALF OF THE ASSESSEE. IT IS TO BE NOTED HERE THAT NO THIRD PARTY WOULD BE WILLING TO PAY WITHOUT ANY EVIDENCE/ BACK UP DOCUMENTS. ACCORDING LY, THE PAYMENT MADE BY THE ASSESSEE WITH RESPECT TO COST ALLOCATION IS UNJ USTIFIED. 4.11. IT IS FURTHER SEEN THAT APART FROM COST ALLOC ATION AS OBSERVED COST RECHARGES WAS ALSO CONSIDERABLY BY THE TPO WHO CONSIDERING TH E REPLY GIVEN, PROPOSED AN ADDITION IN THE FOLLOWING MANNER:- 8. OBSERVATIONS ON THE ABOVE CLAIM WITH RESPECT TO THE COST RECHARGES FROM GROUP COMPA NIES, THE ASSESSEE HAS REIMBURSED THE SALARY COST OF AN EXPATRIATE, WHO IS AN EMPLOYEE OF THE AE. THE ASSESSEE HAS ALSO REIMBURSED RENT AND OTHER MISCELL ANEOUS EXPENSES. THE ASSESSEE HAS CLAIMED THAT THE EXPENSES ARE A ME RE REIMBURSEMENT AND THUS DO NOT CLASSIFY AS A SERVICE. ACCORDINGLY, NO BENE FIT IS DRAWN BY THE ASSESSEE BY INCURRING SUCH EXPENSES. IT IS TO BE NOTED HERE THAT ANY INDEPENDENT ENTITY WOULD NOT INCUR ANY EXPENSES WITHOUT DERIVING ANY BENEFIT. THE ASSESSEE HAS NOT BEEN ABLE TO QUANTIFY ANY BENEFIT THAT ACCRUES TO IT. HOWEVER, THE EXPENDITU RE IS INCURRED BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS NOT BEEN ABLE TO SUBMIT A LL DEBIT NOTES RAISED BY AES ON THE ASSESSEE, COPIES OF LEDGER ACCOUNTS SHOWING THE BOOKING OF RELEVANT EXPENSES/INVOICES IN THE ASSESSEES BOOKS OF ACCOUN TS AND OTHER BACK-UP DOCUMENTS TO SHOW THAT THE AFORESAID EXPENSES WERE ACTUALLY INCURRED BY THE OVERSEAS GROUP COMPANIES ON BEHALF OF THE ASSESSEE. THIS IS ITSELF CREATES DOUBT OVER THE JUSTIFICATION/APPROPRIATENESS OF THE EXPEN SES. IN VIEW OF THE LACK OF JUSTIFICATION, BENEFIT DERIV ED AND LACK OF SUFFICIENT EVIDENCE, THE ABOVE MENTIONED PAYMENT OF COSTS IS H ELD TO BE UNJUSTIFIED. 9. DETERMINATION OF ARMS LENGTH PRICE: FOLLOWING THE DISCUSSION IN THE PRECEDING PARAS OF THIS ORDER, IT IS CONCLUDED THAT THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THAT AN INDEPENDENT PARTY WOULD HAVE MADE A PAYMENT OF RS.11,709,474 ON ACCOU NT OF COST ALLOCATION AND RS.38,036,140 ON ACCOUNT OF COST REIMBURSEMENTS AS THE ASSESSEE HAS DONE. THEREFORE, BY THE APPLICATION OF CUP, THE ARMS LEN GTH PRICE IN RESPECT OF THIS TRANSACTION IS DETERMINED AT NIL. THE ASSESSING OFFICER SHALL ACCORDINGLY ENHANCE THE INCOME OF THE ASSESSEE BY RS.49,745,614 . THE ASSESSING OFFICER MAY EXAMINE THE FEASIBILITY OF INITIATING PENALTY P ROCEEDINGS U/S 271(1)(C) OF THE ACT IN ACCORDANCE WITH EXPLANATION 7 OF THE SAME. I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 20 5. IN THE SAID BACKGROUND QUA THE DEPARTMENTAL APPE AL IN 2005-06 ASSESSMENT YEARS, THE STAND OF THE ASSESSEE HAS BEEN THAT IT H AS PRIMARILY BENCH-MARKED ITS INTERNATIONAL TRANSACTION PERTAINING TO COST ALLOCA TION ON CUP BASIS AND TNMM HAS BEEN USED ONLY AS A CORROBORATIVE ANALYSIS. REFERR ING TO THE CHART OF ISSUES FILED IT WAS SUBMITTED THAT BEFORE THE TPO IT WAS SUBMITTED THAT THE ASSESSEE HAD ADVANCED SUBMISSIONS DATED 21.11.2007 PLACED AT PAGES 210-23 7 OF THE PAPER BOOK OF THE SAID YEAR WHEREIN THE NATURE OF THE COST HAS BEEN E XPLAINED AT PAPER BOOK PAGE 214. ATTENTION WAS ALSO INVITED TO PAPER BOOK PAGES-6, 7 & 8 WHICH CONTAIN THE SPECIFIC PAGES OF THE TP STUDY REPORT OF THE ASSESSEE. IT W AS HIS STAND THAT THE ALLEGATION OF THE TPO HAS BEEN FULLY MET BY THE DETAILED SUBMI SSIONS ADVANCED BEFORE THE TPO BY THE ASSESSEE AND AGGRIEVED BY THIS THE ASSES SEE HAD FILED AN APPEAL BEFORE THE CIT(A) WHEREIN ALSO DETAILED SUBMISSIONS WERE A DVANCED WHICH ARE FOUND AT PAGES 154-184 OF THE PAPER BOOK WHICH ARE DATED 04. 11.2010. SPECIFIC ATTENTION WAS INVITED TO PAGE 173 PARA 5.23 5.25 SO AS TO E XPLAIN THAT THE TRANSACTIONS OF COST ALLOCATIONS TO THE ASSESSEE BY THE AE IS NOT A N INTRA GROUP SERVICE AND THE CIT(A) HAS DELETED THE ADDITION CONSIDERING THE MAT ERIAL AVAILABLE ON RECORD WHICH CONSISTED OF INVOICES JUSTIFYING THE CLAIM AN D ALSO THE SUBMISSIONS ADVANCED. 5.1. QUA THE FACTS PERTAINING TO 2006-07 ASSESSMENT YEARS ON COST ALLOCATION IT WAS POINTED OUT BY THE LD. AR THAT THE ASSESSEE WHI LE AGITATING AGAINST THE PROPOSED ADDITION MADE BY THE TPO BEFORE THE DRP HA D PLACED RELIANCE UPON THE SUBMISSIONS MADE BEFORE THE TPO DATED 28.01.2009 PL ACED AT PAGES 148-252 OF THE PAPER BOOK FOR THE SAID YEAR. PAGE 151 PARA 3 OF T HE SAME IT WAS SUBMITTED EXPLAINED, THE NATURE OF THE COST. THE TRANSFER PR ICING STUDY REPORT IT WAS SUBMITTED EXPLAINED THESE FACTS AT PAPER BOOK PAGE- 6, 7-8 & 8-9 OF THE PAPER BOOK. IT WAS SUBMITTED THAT THE SUBMISSIONS ADVANCED BEFO RE THE TPO DATED 25.03.2009 WHICH CONTAINS THE SUMMARY OF INVOICES ALONGWITH CO PIES OF INVOICES WERE RELIED I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 21 UPON, THEREAFTER SUBMISSIONS DATED 03.08.2009 ALONG WITH SAMPLE COPIES OF INDEPENDENT PARTIES INVOICES RAISED ON THE AE PLACE D AT PAGES 398-410 WERE RELIED UPON. DETAILED SUBMISSIONS REITERATING THIS POSITI ON IT WAS STATED WERE ADVANCED BEFORE THE DRP VIDE LETTER DATED 04.08.2010 (COPY P LACED AT PAGES 141-147 OF THE PAPER BOOK). THE SUBMISSIONS IT WAS STATED WERE R EJECTED BY THE DRP. IN VIEW OF THE SAME REFERRING TO THE MATERIAL AVAILABLE ON REC ORD IT WAS SUBMITTED THAT THE ASSESSEE HAS MOVED AN APPLICATION DATED 10.01.2010 UNDER RULE 29 OF THE ITAT RULES 1963 SEEKING PERMISSION TO FILE ADDITIONAL EV IDENCE FOR CONSIDERATION. IT WAS SUBMITTED THAT THE EVIDENCE SOUGHT TO BE RELIED UPO N IS CRUCIAL FOR DETERMINING THE ISSUE AS THE ASSESSEES CASE HAS BEEN REJECTED FOR WANT OF INDEPENDENT AUTHORITY CERTIFICATE. THE CERTIFICATION SOUGHT TO BE RELIED UPON IT WAS SUBMITTED IS A NECESSARY EVIDENCE AND COULD NOT BE PLACED BY THE A SSESSEE ON RECORD AS APPRECIATION OF THE TRANSFER PRICING ISSUES AND THE KNOWLEDGE AND UNDERSTANDING IS CONSTANTLY GROWING AS SUCH THE SAME COULD NOT BE PL ACED BEFORE THE AUTHORITIES BEFORE. IT WAS ACCORDINGLY SUBMITTED THAT ACCEPTING THE FRESH EVIDENCE THE BENCH MAY RESTORE THE ISSUE TO THE TPO SO AS TO CONSIDER THE ADDITIONAL EVIDENCES. 5.2. IT WAS HIS SUBMISSION THAT SIMILAR PRAYER WOUL D BE WARRANTED IN 2008-09 ASSESSMENT YEAR ALSO AS HEREIN ALSO THE ASSESSEE Q UA THE COST ALLOCATION WHICH IS ALSO AN ISSUE ARISING EVEN IN THE EARLIER YEAR THE FRESH EVIDENCE WILL NEED TO BE CONSIDERED. 5.3. APART FROM THAT ISSUE IT WAS HIS SUBMISSION TH AT IN 2008-09 ASSESSMENT YEAR THERE IS AN ADDITIONAL TRANSFER PRICING ISSUE I.E C OST RECHARGES CLAIMED WHICH HAVE BEEN DISALLOWED BY THE TPO. THE SAID ISSUE IT WAS SUBMITTED IS ARISING FOR THE FIRST TIME IN 2007-08 ASSESSMENT YEAR. THE SAID APPEAL T HE RECORD SHOWS IS A STAY GRANTED APPEAL HAVING CERTAIN OTHER ISSUES AND HAS NOT BEEN HEARD ALONGWITH THE PRESENT GROUP OF APPEALS AND KEPT SEPARATELY FOR AN INDEPENDENT HEARING. AS SUCH SINCE THE ISSUE OF COST RECHARGES HAS ARISEN, FOR T HE FIRST TIME IN 2007-08 ASSESSMENT I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 22 YEAR IT WAS HIS PRAYER THAT HEREIN ALSO FRESH EVID ENCES WILL HAVE TO BE LED BY THE ASSESSEE, ACCORDINGLY, IT WAS HIS PRAYER THAT IT MA Y ALSO BE RESTORED TO THE TPO. 5.4. IN THE LIGHT OF THESE FACTS IT WAS HIS SUBMISS ION THAT QUA THE DEPARTMENTAL APPEAL IN 2005-06 ASSESSMENT YEAR WHEREIN THE ADDIT ION OF RS.1.73 CRORE ODD WHICH HAS BEEN DELETED BY THE CIT(A) SINCE IDENTICA L VIEW QUA THE COST ALLOCATION FOR THE THREE YEARS UNDER CONSIDERATION NEEDS TO B E TAKEN WHEREIN IN 2006-07 ASSESSMENT YEAR, THE ASSESSEE SEEKS PERMISSION TO P LACE FRESH EVIDENCE ON RECORD AND IN 2008-09 ASSESSMENT YEARS, IT PLEADS LACK OF OPPORTUNITY FOR PLACING EVIDENCE ON RECORD ACCORDINGLY IT WAS HIS SUBMISSION THAT TH E ISSUE MAY BE RESTORED BY SETTING ASIDE THE RELIEF GRANTED TO THE ASSESSEE AN D ALLOWING THE DEPARTMENTAL APPEAL IN 2005-06 ASSESSMENT YEAR ALSO. IT WAS SUBMITTED THAT THE TRANSFER PRICING ISSUES WERE NEW AT THE TIME OF HEARING AND PASSING OF THE ORDERS NOT ONLY FOR THE ASSESSEE BUT ALSO FOR THE DEPARTMENT AS SUCH IN THESE INITIA L YEARS THE QUALITY OF THE REPRESENTATION AND THE ORDERS WITH HINDSIGHT MAY BR ING OUT SOME SHORTCOMINGS ACCORDINGLY IN ORDER TO DO JUSTICE TO THE ISSUE AS WELL AS THE PARTIES CONCERNED, IT WAS HIS HUMBLE PRAYER THAT THE COST ALLOCATION IN THE THREE YEARS AND THE COST RECHARGES ISSUES IN 2008-09 ASSESSMENT YEARS MAY BE RESTORED TO THE TPO FOR FRESH ADJUDICATION. 6. THE SAID STAND OF THE ASSESSEE WAS NOT SERIOUSLY DISPUTED BY THE LD. CIT DR. THE LD. CIT DR PLACED RELIANCE ON THE FACTS AVAILAB LE ON RECORD. ADDRESSING THE NATURE OF EVIDENCE PLACED BEFORE THE TPO IN 2005-06 ASSESSMENT YEAR WHERE ADMITTEDLY THE EVIDENCE DID NOT PERTAIN TO THE ISSU E AT HAND AS DENTAL EXPENSES, MEDICAL EXPENSES, HOLIDAY EXPENSES ETC. WERE ALSO P LACED BY THE ASSESSEE BEFORE THE TPO TO JUSTIFY ITS CLAIM. ACCORDINGLY IN SUPPO RT OF THE GROUND FILED RELIANCE WAS PLACED THEREON AND AGGRIEVED BY THE FINDINGS CO NTRARY TO THE FINDING ON FACTS BY THE TPO, THE DEPARTMENT IS IN APPEAL. HOWEVER I N THE FACE OF THE CATEGORIC STAND OF THE ASSESSEE THAT THE ASSESSEE IS READY AN D WILLING TO GO BACK AND PLACE HIS I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 23 FACTS AFRESH BEFORE THE TPO, HE HAD NO OBJECTION IF THE DEPARTMENTAL APPEAL IS ALLOWED IN 2005-06 ASSESSMENT YEAR AND THE ISSUE IS RESTORED. SINCE THE ISSUE IN 2006-07 AND 2008-09 ASSESSMENT YEARS WILL DEPEND NO T ONLY ON THE OUTCOME OF 2005-06 ASSESSMENT YEARS AND ALSO ON THE FACTS AND EVIDENCES FOR THAT YEAR THE REQUEST THAT THE COST ALLOCATION ISSUE MAY GO BACK FOR THESE TWO YEARS WAS ALSO NOT OBJECTED TO BY THE CIT DR. HOWEVER HIS OBJECTION WA S POSED TO THE ARGUMENTS THAT THE NATURE OF FRESH EVIDENCE SOUGHT TO BE ADMITTED IN 2006-07 ASSESSMENT YEAR WOULD NECESSARILY WARRANT IN GRANTING RELIEF TO THE ASSESSEE. ADDRESSING THE SAME, THOUGH NOT OPPOSING THE ADMISSION THEREOF, IT WAS HIS SUBMISSION THAT THE EVIDENCE IS NOT A RELEVANT EVIDENCE AND HE WOULD WANT THAT H IS OPPOSITION BE RECORDED IN CASE THE BENCH SO DESIRES TO DIRECT THE TPO TO GRA NT RELIEF CONSIDERING THE SAME. IT WAS HIS STAND THAT THE TPO SHOULD BE LEFT FREE TO CONSIDER THE RELEVANCE IF ANY OF THAT EVIDENCE. 6.1. ON COST RECHARGE ISSUE IT WAS HIS SUBMISSION T HAT THE FIRST YEAR IS 2007-08 ASSESSMENT YEAR WHICH HAS BEEN SEGREGATED FROM THE GROUP OF APPEALS BEING HEARD AS SUCH IN THE CIRCUMSTANCES THE ONLY DIRECTION WHI CH THE BENCH MAY GIVE TO WHICH THE DEPARTMENT WOULD HAVE NO OBJECTION IS THAT THE TPO BE DIRECTED TO DECIDE THE ISSUE IN THE LIGHT OF THE CONCLUSION OF THE BASE YE AR I.E 2007-08 ASSESSMENT YEAR AND OF COURSE THE FACTS OF THE YEAR UNDER CONSIDERA TION. HOWEVER THE PLEA OF PERMITTING LIBERTY TO THE ASSESSEE TO PLACE FRESH E VIDENCE QUA THE SAME WAS STRONGLY OPPOSED AS THE EVIDENCE IF ANY WOULD HAVE ALREADY B EEN CONSIDERED IN 2007-08 ASSESSMENT YEAR. 7. IT IS A MATTER OF RECORD THAT THE HEARING IN THE FACTS OF THE PRESENT APPEALS FOR THE THREE YEARS TOOK PLACE ON DIFFERENT DATES AND T HE PARTIES SUBMISSION ADVANCED HAD FINALLY BEEN SUMMED UP QUA THE ASSESSEE IN ITS CHART OF ISSUES FINALLY FILED WHICH WAS EXCHANGED BY THE PARTIES AND ADDRESSED BY THEM AT THE TIME OF HEARING. I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 24 8. IN THE LIGHT OF THE ABOVE BACKGROUND AND THE MAT ERIAL AVAILABLE ON RECORD, WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MAT ERIAL ON RECORD. BEFORE PROCEEDING TO ADDRESS THE SAME, WE FIRST DEEM IT AP PROPRIATE TO SET OUT THE RELEVANT EXTRACTS FROM THE ASSESSEES PETITION DATED 10.01.2 012 UNDER RULE 29 OF THE ITAT RULES 1963 MOVED IN 2006-07 ASSESSMENT YEAR :- 1.IN THE CAPTIONED APPEAL PREFERRED BY APPELLANT, A GAINST THE ORDER DATED OCTOBER 25, 2010 PASSED BY THE LEARNED (LD) ASSES SING OFFICER (AO) UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961, THE APP ELLANT HAS RAISED GROUNDS CHALLENGING THE LD. TRANSFER PRICING TRANSACTION OF COST ALLOCATION OF EXPENSES BY OVERSEAS ASSOCIATED ENTERPRISES (AES) SHOULD B E NIL. ALSO, THE APPELLANT HAS RAISED A GROUND CHALLENGING THAT THE LD. TPO DI SREGARDED VARIOUS SUBMISSIONS AND DOCUMENTARY EVIDENCES FILED BY THE APPELLANT TO ESTABLISH THE BONAFIDE OF THE TRANSACTION, ON THE BASIS OF PRE-CO NCEIVED NOTIONS, SURMISES AND CONJECTURES AND WITHOUT PROVIDING ANY COGENT EVIDEN CE, FACTS OR REASONS WHATSOEVER. 2. IN THIS REGARD, IN ADDITION TO VARIOUS DOCUMENTA RY EVIDENCES FILED BY THE APPELLANT BEFORE THE LD. TPO/DRP, THE APPELLANT WOU LD LIKE TO BRING ON RECORD, A CERTIFICATE FROM AN INDEPENDENT AUTHOR, CERTIFYIN G THAT LEAR US INCURRED CERTAIN EXPENSES ON BEHALF OF VARIOUS LEAR ENTITIES AND ALLOCATE THESE EXPENSES BASED ON SOUND ALLOCATION MECHANISM TO VARIOUS LEAR GROUP ENTITIES INCLUDING THE APPELLANT ON A COST-TO-COST BASIS I.E WITHOUT C HARGING ANY MARK-UP THEREON. HOWEVER, THE CERTIFICATE CLEARLY SUPPORTS THE BONA FIED OF THE TRANSACTION IN QUESTION. 3. IN VIEW OF THE ABOVE, THE APPELLANT, BY WAY OF T HIS APPLICATION, SEEKS PERMISSION TO BRING THE SAID INFORMATION/DOCUMENTS ON RECORD AS AN ADDITIONAL EVIDENCE TO SUBSTANTIATE ITS CLAIM IT IS ALSO SUBMI TTED THAT THIS PARTICULAR CERTIFICATE WAS NOT AVAILABLE WITH EITHER THE LD. T PO OR THE LD. DRP DURING THE RESPECTIVE PROCEEDINGS. 4. IT MAY APPRECIATED THE SAID ADDITIONAL EVIDENCE IS RELEVANT AND NECESSARY FOR THE PROPER DISPOSAL OF THE ABOVE-REFE RRED GROUND OF APPEAL, AND HENCE THE APPELLANT, HUMBLY REQUESTS THE HONBLE BE NCH TO KINDLY CONSIDER THEM IN THE INTEREST OF SUBSTANTIAL JUSTICE. 5. ACCORDINGLY, THE SAID CERTIFICATE IS ATTACHED HE REWITH (REFER PAGES 1 TO 5) 8.1. CONSIDERING THE ABOVE ADDITIONAL EVIDENCE IN T HE LIGHT OF THE SUBMISSIONS ADVANCED BY THE PARTIES BEFORE THE BENCH WHICH WE H AVE DISCUSSED ABOVE IN SIGNIFICANT DETAIL, WE CONSIDERING THE RESPECTIVE S TAND AND THE MATERIAL AVAILABLE ON RECORD QUA THE COST ALLOCATION ISSUE WHICH IS THE O NLY ISSUE IN 2005-06 AND 2006-07 ASSESSMENT YEAR SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) IN 2005-06 ASSESSMENT I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 25 YEAR AND ALLOW THE DEPARTMENTAL GROUND. THE ISSUE AS SUCH IS RESTORED BACK TO THE TPO WITH THE DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. WHILE DOING SO WE FIND MERIT IN THE ARGUMENTS ADVANCED TH AT THE TRANSFER PRICING ISSUES BEING STILL NEW AS SUCH NOT ONLY QUA THE REPRESENTA TION BUT EVEN QUA THE ORDERS THERE IS SCOPE OF TREMENDOUS IMPROVEMENT. THE ISSU E WHICH IS A CONTINUOUS ISSUE ARISING IN EVERY YEAR BECAUSE OF THE NATURE OF THE TRANSACTION TO OUR MINDS CANNOT BE ALLOWED TO BE GLOSSED OVER FOR WANT OF REPRESENT ATION. BEING A CONTINUOUS ISSUE OVER THE YEARS FULL AND CORRECT FACTS NEED TO BE TA KEN INTO CONSIDERATION. THE IMPUGNED ORDER AS ADDRESSED HAS IGNORED SIGNIFICAN T MATERIAL FINDINGS OF THE TPO AND CONSIDERING THE STAND OF THE PARTIES AND THE MA TERIAL AVAILABLE ON RECORD, THE DEPARTMENTAL APPEAL IS ALLOWED. 8.2. FOR 2006-07 AND 2008-009 ASSESSMENT YEAR ON TH E COST ALLOCATION ISSUE WHICH IS THE ONLY ISSUE IN 2006-07 ASSESSMENT YEAR, CONSIDERING THE ARGUMENTS OF THE CIT DR, WE WHILE ADMITTING THE FRESH EVIDENCE S OUGHT TO BE RELIED UPON BEFORE US LEAVE THE ISSUE OF MERIT OF THE EVIDENCE SOUGHT TO BE PLACED ON RECORD OPEN TO THE TPO FOR HIS CONSIDERATION. ACCORDINGLY THE ISS UE AS SUCH IS RESTORED TO THE TPO SETTING ASIDE THE IMPUGNED ORDER AND ADMITTING THE FRESH EVIDENCE AS IT IS NECESSARY TO CONSIDER THE RELEVANCE AND IMPACT OF T HE SAME FOR DECIDING THE ISSUE. THE TPO IS DIRECTED TO CONSIDER THE SAME BEFORE PA SSING HIS ORDER WHILE, DOING SO THE TPO SHALL PASS A SPEAKING ORDER IN ACCORDANCE W ITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 8.3. IN 2008-09 ASSESSMENT YEAR THE ISSUE OF COST A LLOCATION WHICH IS A CONTINUOUS ISSUE OVER THE YEARS IS ALSO NECESSARILY RESTORED TO THE TPO WITH SIMILAR DIRECTIONS AS IN EARLIER YEARS AS IT IS DEPENDENT ON THE EARLIER YEARS LEGAL POSITION WHICH FOR CONSIDERATION ON FACTS HAS BEEN RESTORED TO THE TPO. ACCORDINGLY HEREIN ALSO THE COST ALLOCATION ISSUE IS RESTORED TO THE T PO WITH SIMILAR DIRECTION BY I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 26 SETTING ASIDE THE IMPUGNED ORDER AND ALLOWING THE A SSESSEES GROUNDS TO THAT EXTENT. 8.4. THE COST RECHARGES ISSUE WHICH IS AN ISSUE ARI SING ONLY IN 2008-09 ASSESSMENT YEAR AMONGST THE PRESENT GROUP OF APPEAL S BEING HEARD WHICH DOES NOT ARISE IN THE OTHER TWO YEARS CONSIDERED, AS ADDRESS ED EARLIER ARISES FOR THE FIRST TIME IN 2007-08 ASSESSMENT YEAR. THE APPEAL FOR THE SAI D YEAR AS OBSERVED HAS BEEN SEGREGATED AS IT IS STAY GRANTED APPEAL ACCORDINGLY PAYING HEED TO THE STAND OF THE CIT DR THE ISSUE IS RESTORED TO THE TPO WITH THE DI RECTION TO DECIDE THE SAME IN ACCORDANCE WITH THE VIEW TAKEN IN 2007-08 ASSESSMEN T YEAR, THE YEAR IN WHICH THE ISSUE ARISES FOR THE FIRST TIME AS IT IS THE VERY S AME AGREEMENTS, CONTRACTS AND ARRANGEMENTS, OF THE PARTIES WHICH NEEDS TO BE CON SIDERED IN THE BASE YEAR WHICH IS 2007-08 FOR THE COST-RECHARGE ISSUE. THE PLEA O F THE ASSESSEE SEEKING PERMISSION FOR FILING FRESH EVIDENCE CANNOT BE ACCEPTED AS NOT HING HAS BEEN PLACED ON RECORD TO SHOW WHAT IS THE NATURE OF THE EVIDENCE WHICH TH E ASSESSEE NOW SEEKS TO ADDRESS THAT TOO IN 2008-09 WHICH COULD NOT BE PLACED ON RE CORD IN 2007-08 ASSESSMENT YEAR AND WOULD BE DIFFERENT AND DISTINGUISHABLE FRO M THE EVIDENCE OF 2007-08 ASSESSMENT YEAR. 9. IN ITA 5955/DEL/2012, APART FROM THE ABOVE ISSUE S, THE ASSESSEE VIDE GROUND NO. 3 HAS ASSAILED THE ACTION OF THE AO AND THE DRP IN DISALLOWING THE AMOUNT 17,18,906/-CLAIM BY THE ASSESSEE AS A REVENU E EXPENDITURE. THE RELEVANT FACTS AVAILABLE QUA THE SAME ON THE ISSUE ARE FOUND DISCUSSED AT PAGES 3 & 4 OF THE ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTIO N 144 C OF THE INCOME TAX ACT. THE RELEVANT EXTRACT IS REPRODUCED HEREUNDER F OR READY REFERENCE:- 4. DURING THE COURSE OF ASSESSMENT, IT CAME TO THE NOTICE THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS.42,58,542/- TO BIZSOLINDIA SERVICES PVT. LTD. FOR OBTAINING ITS SPECIALIZED MANAGEMENT/CONSULTANCY SE RVICES. OUT OF TOTAL PAYMENT OF RS.42,58,542/- AN AMOUNT OF RS.17,80,906 /- WAS PAID TOWARDS CONSULTANCY CHARGES AND FEE FOR ASSISTANCE PROVIDED BY BIZOLINDIA IN ASSESSING THE FEASIBILITY/VIABILITY OF OPENING ANOTHER UNIT I N PUNE IN RELATION TO THE PROPOSED EXTENSION PROGRAMME OF THE COMPANY. THE A SSESSEE VIDE ORDER SHEET I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 27 QUERY DATED 2/12/2011 WAS ASKED TO SOW CAUSE AS TO WHY THE AMOUNT OF RS.17,80,906/- PAID FOR SETTING UP A NEW UNIT MAY N OT BE DISALLOWED BEING AN EXPENDITURE OF CAPITAL IN NATURE. THE ASSESSEE VID E REPLY DATED 14/12/2011 HAS ADMITTED THAT THE SAID EXPENDITURE OF RS.17,80,906/ - PAID FOR SETTING UP A NEW UNIT MAY NOT BE DISALLOWED BEING AN EXPENDITURE OF CAPITAL IN NATURE. THE ASSESSEE VIDE REPLY DATED 14/12/2011 HAS ADMITTED T HAT THE SAID EXPENDITURE OF RS.17,80,906/- WAS MADE FOR SETTING UP OF THE NEW U NIT IN PUNE. HOWEVER, THE ASSESSEE HAS CLAIMED THAT THE SAID EXPENDITURE SHOU LD BE ALLOWED AS REVENUE EXPENDITURE U/S 37 OF THE ACT. THE SUBMISSIONS OF THE ASSESSEE WERE EXAMINED, CONSIDERED AND HOWEVER, NOT FOUND ACCEPTABLE. THE EXPENDITURE IS MADE FOR SETTING UP OF THE NEW UNIT ON WHICH THE PRODUCTION HAS NOT YET STARTED. THUS, IT IS NOT TRUE THAT THE EXPENDITURE IS A REVENUE EXPEN DITURE. THUS, IT IS NOT ALLOWABLE U/S 37 OF THE INCOME TAX ACT, 1961. IN V IEW OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASES, THE SAID AMOUNT OF RS.1 7,80,906/- IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. I AM SATISFIED THAT THE ASSESSEE FILED INACCURATE P ARTICULARS OF THE ITS INCOME AND THEREBY CONCEALED ITS INCOME TO THE TUNE OF RS.17,8 0,906/-. PENALTY PROCEEDINGS U/S 271(1) (C) ARE INITIATED SEPARATELY FOR FURNISH ING INACCURATE PARTICULARS OF INCOME. (ADDITION OF RS.1 7,80,906/-) 9.1. THE ISSUE WAS AGITATED BY THE ASSESSEE BEFORE THE DRP AND THE DRP DECIDED THE SAME IN THE FOLLOWING MANNER:- 6. THE LD. AO HAS ERRED IN PROPOSING TO DISALLOW AN AMOUNT OF RS.17,80,906/- BY TREATING THE CONSULTANCY CHARGE P AID FOR ASSISTANCE IN ASSESSING THE FEASIBILITY/VIABILITY OF OPENING ANOT HER UNIT IN RELATION TO PROPOSED EXTENSION PROGRAMME OF THE COMPANY, AS CAPITAL IN N ATURE. THE ASSESSEE CRAVES LEAVE ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUND OF OBJECTIONS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY AND TO SUBMIT SUCH STATEMENT, DOCUMENTS AND PAPERS ASS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING HEARING. WE HAVE HEARD THE SUBMISSIONS AND AUGMENTS OF THE L D. AR AND HAVE CONSIDERED THE FACTS OF THE ISSUE CAREFULLY IN OUR OPINION, THE PROPOSED DISALLOWANCE HAS TO BE UPHELD. THE COMPANY IS PRIMARILY ENGAGED IN THE MANUFACTURE /ASSEMBLY OF AUTOMOTIVE SEATING SYSTEMS (I.E SEATS AND SEAT TRIMS) AND INTE RIOR PARTS, AND IN THE DESIGN AND DEVELOPMENT OF AUTOMOTIVE SEATING SYSTEMS AND I NTERIORS, FOR AUTOMOTIVE INDUSTRY CUSTOMERS AND/OR ITS GROUP COMPANIES. DURI NG THE YER, LEAR INDIA HAD TWO FACTORIES IN NASIK, ONE IN HALOL AND ONE IN CHE NNAI FOR CARRYING ON THE MANUFACTURING/ASSEMBLY TO AUTOMOTIVE SEATING SYSTEM S AND INTERIOR PARTS. IN ADDITION TO THIS, IT HAS ONE ENGINEERING CENTRE IN THANE. ASSESSEE PAID A SUM OF RS.17,80,906/- TOWARDS CONSULTANCY CHARGES TO M/S B IZSOLINDIA FOR A FEASIBILITY/VIABILITY REPORT FOR OPENING OF ANOTHER MANUFACTURING UNIT IN PUNE IN RELATION TO THE PROPOSED EXPANSION PROGRAMME OF THE COMPANY. IN THE CASE OF M/S SAURASHTRA CEMENTS AND CHEMICALS INDUSTRY LTD. 196ITR 237 (GUJ), IT HAS BEEN HELD THAT EXPANSION OF BUSINESS MEAN ACQUISITION OF NEW SET I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 28 AND THE EXPENDITURE ON FEASIBILITY REPORT FOR SETTI NG UP A NEW SODA ASH WAS HELD TO BE CAPITAL IN NATURE. IN THE CASE OF M/S AMBIKA MILLS 236 ITR 921 (GUJ), THE GUJARAT HIGH COURT HELD THAT THE EXPENDITURE ON FEASIBILITY REPORT FOR SETTING UP A NEW STEEL PALNT WHICH DID NOT MATERIALIZE IS CAPITAL EXPENDITURE. IN THE CASE OF M/S ASAM ASBESTORS LTD 263 ITR 357 ( GUW), THE ASSESSEE, WHO WAS RUNNING A CEMENT FACTORY, WITH A VIEW TO SET UP A NEW ASBESTOS SHEETS UNIT INCURRED EXPENDITURE ON OBTAINING A FEASIBILITY REP ORT FOR SETTING UP THE NEW ASBESTOS UNIT, FOR WHICH EVENTUALLY THE GOVERNMENT DID NOT GRANT PERMISSION. THE GAUA HIGH COURT HELD THAT THE EXPENDITURE WAS C APITAL IN NATURE. SIMILARLY IN THE CASE OF M/S GUJARAT ALKALI LTD 82 ITD 135 (AHD.) THE ITAT HELD THAT THE EXPENDITURE ON FEASIBILITY REPORT FOR SETT ING UP A CAPTIVE POWER PLANT IS CAPITAL IN NATURE. IN VIEW OF THE ABOVE LEGAL POSITION, IT IS HELD THA T THE AO HAS CORRECTLY PROPOSED TO HOLD THE EXPENDITURE ON OBTAINING FEASIBILITY RE PORT FOR SETTING UP A NEW PLANT, WHICH THOUGH HAS NOT BEEN SET UP SO FAR AS C APITAL IN NATURE. THE OBJECTION IS ACCORDINGLY REJECTED. 10. AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BE FORE THE TRIBUNAL. 11. LD. AR RELYING UPON THE JUDGMENT OF THE JURISDI CTION HIGH COURT IN CASE OF CIT VS. PRIYA VILLAGE ROAD SHOW LTD (2011) 332 ITR5 94 (DELHI) SUBMITTED THAT THE CLAIM OF THE ASSESSEE SHOULD HAVE BEEN ALLOWED. THE FOLLOWING QUOTE FROM THE SAID DECISION WAS HEAVILY RELIED UPON. WHEN WE KEEP IN MIND THE AFORESAID FINE DISTINCTION , THE CONCLUSION ON THE FACTS OF THIS CASE BECOMES OBVIOUS. THE EXPENDITURE WAS INC URRED IN RESPECT OF SAME BUSINESS WHICH IS ALREADY CARRIED ON BY THE ASSESSEE. TWO P ROJECTS WHICH WERE UNDERTAKEN WERE FOR THE EXPANSION OF SAME BUSINESS, NAMELY, ON E FOR TAKING OVER SAVITRI CINEMA FOR CONVERSION INTO MULTIPLEX AND OPERATION AND MAN AGEMENT THEREOF AND OTHER FOR CONVERSION OF PRIYA CINEMA INTO FOUR-SCREEN MULTIPL EX. PAYMENTS WERE MADE TO THE CONSULTANTS FOR PREPARING FEASIBILITY REPORTS RESPE CT OF BOTH THE PROJECTS. HOWEVER, ULTIMATELY PROJECTS WERE NOT FOUND TO BE FINANCIALL Y AND TECHNICALLY VIABLE AND WERE SHELVED. THUS, WE FIND THAT NO NEW ASSET CAME INTO EXISTENCE, WHICH WAS THE BASIS ADOPTED BY THE ASSESSING OFFICER FOR TREATING THE E XPENDITURE AS CAPITAL EXPENDITURE BUT WRONGLY. 11.1 IT WAS FURTHER SUBMITTED THAT THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT HAS TAKEN INTO CONSIDERATION THE JUDGEMENT OF THE GAUHATI HIGH COURT RELIED UPON BY THE DRP. THE FOLLOWING EXTRACTED WA S RELIED UPON:- 13. WE NOTE TWO JUDGMENTS OF OTHER HIGH COURTS TAKING T HIS VIEW IN IDENTICAL CIRCUMSTANCES. ONE CASE IS DECIDED BY GAUHATI HIGH COURT WHICH IS REPORTED AS DY. CIT VS. ASSAM ASBESTOS LTD.[2003] 263 ITR 35 7. IN THAT CASE THE I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 29 ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING ASBES TOS SHEETS. CONTEMPLATING TO SET UP A MINI CEMENT PLANT, WHICH WAS THE SAME L INE OF BUSINESS ACTIVITY OF THE ASSESSEE, A FEASIBILITY REPORT WAS PREPARED. HOWEV ER, THE PROJECT WOULD NOT BE UNDERTAKEN AS GOVERNMENT REFUSED TO GRANT REQUIRED PERMISSION. THE COURT OPINED THAT NO NEW CAPITAL ASSET CAME INTO EXISTENC E AND THE EXPENSES INCURRED ON PREPARATION OF THE FEASIBILITY REPORT, SAME LINE OF BUSINESS, WERE IN THE NATURE OF REVENUE EXPENDITURE. RAJASTHAN HIGH COURT HAD A LSO OCCASION TO DEAL WITH THIS ISSUE IN THE CASE OF MAHARAJA SHRI UMAID MILLS LTD VS. CIT [1989] 175 ITR 73. THERE ALSO THE EXPENDITURE INCURRED IN OBTAINI NG SURVEY AND FEASIBILITY REPORT FOR SETTING UP POLYETHYLENE PLANT FOR MANUFA CTURING PACKING MATERIAL WAS TREATED AS REVENUE EXPENDITURE AS THE NEW VENTURE W AS INTER-CONNECTED AND FORMED PART OF EXISTING BUSINESS. 11.2. IN SUPPORT OF THE CLAIM MADE APART ADDRESSIN G THE JURISDICTIONAL HIGH COURT FOLLOWING AVERMENTS WERE ALSO MADE:- IN ANOTHER DECISION OF HONBLE HIGH COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD. VS. COMMISSIONER OF INCOME-TAX 185 TAXMAN 277 SIMILAR VIEW IS ONCE AGAIN EXPRESSES IN THE FOLLOWING WORDS :- ......9. IN THE PRESENT CASE ALSO, AS ALREADY POIN TED OUT ABOVE, THE EXPENDITURE INCURRED WAS IN THE NATURE OF SALARY, WAGES, REPAIR S, MAINTENANCE, DESIGN AND ENGINEERING FEE, TRAVELING AND OTHER EXPENSES OF AD MINISTRATIVE NATURE. INDUBITABLY, IN NORMAL COURSE, THESE EXPENSES WOULD BE TREATED AS REVENUE EXPENDITURE. THE UNIT, WHICH THE APPELLANT PROPOSE D TO SET UP HAD INEXTRICABLE LINKAGE WITH THE EXISTING BUSINESS OF THE APPELLANT . THE PROPOSED BUSINESS WAS NOT AN INDIVIDUAL BUSINESS BUT VERTICAL EXPANSION O F THE PRESENT BUSINESS. THUS, TEST OF EXISTING BUSINESS WITH COMMON ADMINISTRATIO N AND COMMON FUND IS CLEARLY MET. SINCE THE PROJECT WAS ABANDONED, NO N EW ASSET ALSO CAME TO BE CREATED. 10. WE MAY POINT OUT AT THIS STAGE THAT THIS COURT IN CIT VS. MONNET INDUSTRIES LTD.[2009] 176 TAXMAN 81 TREATED THE INT EREST BORROWED ON CAPITAL AS BUSINESS EXPENDITURE WHEN THE AMOUNT WAS BORROWE D FOR SETTING UP A NEW PLANT. THAT WAS A CASE WHERE THE ASSESSEE WAS ALRE ADY IN THE BUSINESS OF FERRO ALLOYS PLANT AND IT HAD SET UP SUGAR PLANT. STILL, THE INTEREST PAID ON BORROWED CAPITAL WAS TREATED AS REVENUE EXPENDITURE BY APPLY ING THE TEST OF COMMON MANAGEMENT AND COMMON FUNDS, IN AS MUCH AS, THERE W AS A COMMON BOARD OF DIRECTORS CONTROLLING THE TWO PLANTS, WHICH OPERATE D FROM THE HEAD OFFICE LOCATED AT NEW DELHI AND FUNDS OF THE TWO PLANTS WE RE COMMON. ON THIS BASIS, IT WAS OPINED THAT THERE WAS INTERMINGLING AND INTE RLACING OF FUNDS. THE FACT THAT THE TWO DIVISIONS ARE LOCATED, AT DIFFERENT SI TES DID NOT AFFECT THE OUTCOME SINCE MARKETING OF THE FINAL PRODUCTS OF BOTH DIVIS IONS WAS CARRIED OUT UNDER THE SUPERVISION AND CONTROL OF THE SAME SET OF EXECUTIV ES AT THE HEAD OFFICE. IN VIEW OF THE ABOVE AUTHORITIES OF JURISDICTIONAL HIGH COURT, WE MOST RESPECTFULLY PRAYS THAT THE LEGAL AND PROFESSIONAL EXPENSES OF INR 17,80,906/- INCURRED IN CONNECTION WITH EXPANSION OF THE EXISTI NG BUSINESS OBTAINED TECHNO I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 30 COMMERCIAL REPORT MAY KINDLY BE ALLOWED AS REVENUE EXPENDITURE AND THE GROUND NO. 3 BE ALLOWED IN FAVOUR OF THE APPELLANT. 11.3. IN VIEW THEREOF IT WAS HIS SUBMISSION THAT TH E CLAIM SHOULD HAVE BEEN ALLOWED AS REVENUE EXPENDITURE. 12. THE LD. CIT DR ON THE OTHER HAND CONTENDED THAT IT IS A FACTUAL ISSUE AND THE DECISION OF THE AO AND THE DRP WERE HEAVILY RELIED UPON. 13. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME LOO KING AT THE MATERIAL AVAILABLE ON RECORD AS HAS BEEN AS DISCUSSION IN THE ORDERS OF T HE AO AND THE DRP WE ARE OF THE VIEW THAT THE DRP WITHOUT DISCUSSING THE FACTS HAS DECIDED THE ISSUE RELYING UPON JUDGMENTS WHICH PROCEED ON A SPECIFIC SET OF FACTS. TO OUR MINDS THE APPROACH FOLLOWED BY THE DRP CANNOT BE UPHELD. BEFORE APPLY ING THE CASE LAW IT IS FIRST PRIMARILY AND NECESSARILY IMPORTANT TO SET OUT THE FULL AND CORRECT FACTS WHICH NECESSARILY REQUIRE THE MARSHALLING OF RELEVANT FAC TS. FROM THE FACTS ON RECORD IT IS NECESSARY TO ADDRESS WHETHER THE PROJECT ULTIMATELY TRANSLATED INTO A UNIT BEING SET- UP OR WAS THE PROJECT ABANDONED. ON THIS ASPECT TH ERE IS NO DISCUSSION IN THE ORDERS NOR HAS THE ASSESSEE CONSIDERED IT NECESSARY TO ADDRESS THIS ASPECT. IT IS A SETTLED LEGAL POSITION THAT THE RATIO OF JUDGEMENTS APPLIES TO A GIVEN SET OF FACTS AND WITHOUT SETTING OUT THE MATERIAL FACTS THE PRINCIPL ES LAID DOWN ON THE ISSUE BY VARIOUS COURTS WOULD HAVE NO MEANING OR RELEVANCE. AS EACH JUDGEMENTS OPERATES ON THE FACTS OF ITS CASE. ACCORDINGLY WE DEEM IT A PPROPRIATE TO SET ASIDE THE ISSUE BACK TO THE FILE OF THE A.O WITH THE DIRECTION TO R E-ADJUDICATE THE ISSUE AFTER SETTING OUT AND MARSHALLING THE FACTS AND THEN APPLYING THE CASE LAW WHICH MAY BE APPLICABLE TO THOSE SETS OF FACTS. NEEDLESS TO SAY THAT THE ASSESSEE SHALL BE GRANTED A REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDIN GLY GROUND NO. 3 IN ITA NO. 5955/DEL/2012 IS ALLOWED FOR STATISTICAL PURPOSES. I.T.AS .NO.-1942/DEL/2011, 5903/DEL/2010 & 5955/DEL/2012 31 14. GROUNDS NO. 4 & 5 IN ITA NO-5955/DEL/2012 ARE C ONSEQUENTIAL AS SUCH REQUIRE NO ADJUDICATION. GROUND NO. 6 IS PREMATURE AND IT DOES NOT ARISE IN THE PRESENT PROCEEDING CONSEQUENTLY DISMISSED. 15. IN RESULT ITA NO-1942/DEL/2011 OF THE REVENUE A ND ITA NO-5903/DEL/2010 AND IN ITA 5955/DEL/2012 OF THE ASSESSEE ARE ALLOWE D FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2013. SD/- SD/- (S.V.MEHROTRA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18/12/2013 *AMIT KUMAR & RESHMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI