Emerson Climate Technologies (India) Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 211/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6903 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 02-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Rectification of order; International transaction; Wholly owned subsidiary; Difference of opinion; Commercial expediency; Revenue expenditure
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI , AM . / ITA NO. 2182 /P U N/20 1 3 / ASSESSMENT YEAR : 200 9 - 1 0 EMERSON CLIMATE TECHNOLOGIES (INDIA) LIMITED, PLOT NO.23, RAJIV GANDHI INFOTECH PARK, PHASE II, HINJEWADI, PUNE 411 057. . /APPELLANT PAN NO.AAACK7291C V S. THE DY.COMMISSIONER OF INCOME TAX, CIRCLE - 1(2), PUNE. . / RESPONDENT . / ITA NO. 211 /P U N/20 15 / ASSESSMENT YEAR : 2010 - 11 EMERSON CLIMATE TECHNOLOGIES (INDIA) LIMITED, PLOT NO.23, RAJIV GANDHI INFOTECH PARK, PHASE II, HINJEWADI, PUNE 411 057. . /APPELLANT PAN NO.AAACK7291C VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1(2), PUNE. . / RESPONDENT / APPELLANT BY : SHRI DANESH BA F NA , MS . CHANDNI SHAH, SHRI ANUJ ZHUNZHUNWALA, / RESPONDENT BY : MS. NIRUPAMA KOTRU SHRI SUBHASH CHANDRA , SHRI HITENDRA NINAWA, SHRI VIVEK AGGARWAL, 2 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 / DATE OF HEARING : 09 . 1 0. 201 7 / DATE OF PRONOUNCEMENT: 29 . 1 2 . 201 7 / ORDER PER SUSHMA CHOWLA, JM: BOTH THE APPEAL S FILED BY THE ASSESSEE ARE AGAINST SEPARATE ORDER S OF D C IT , CIRCLE1 - 2, PUNE, DATED 14.10.2013 AND ACIT, CIRCLE 1(2), PUNE, DATED 15.01.2015 RELATING TO ASSES SMENT YEAR S 20 0 8 - 0 9 AND 2009 - 10 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. BOTH THE APPEALS RELATING TO THE SAME ASSESSEE ON SIMILAR ISSUES WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE. IN ORDER TO ADJUDICATE THE ISSUE, WE MAKE REFERENCE TO THE FACTS AND ISSUES RAISED IN ITA NO.2182/PUN/2013, RELATING TO ASSESSMENT YEAR 2009 - 10. 3 . THE ASSESSEE IN ITA NO.2182/PUN/2013 HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL: - TRANSFER PRICING GROUNDS 1 . ON THE FACT AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD ASSESSING OFFICER (AO') UNDER THE DIRECTIONS OF LD DISPUTE RESOLUTION PANEL (DRP') ERRED IN CONFIRMING THE ADDITION OF RS.10,83,09,022/ - TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF THE TRANSFER PRICING ('TP') ADJUSTMENT UNDER SECTION 92CA(3) OF THE INCOME - TAX ACT, 1961 (THE ACT') BY REJECTING THE TRANSFER PRICING ANALYSIS CONDUCTED BY THE APPELLANT. THE APPELLANT PRAYS THAT THE TRANSFER PR ICING ANALYSIS CONDUCTED BY THE APPELLANT BE ACCEPTED AND CONSEQUENTLY THE TP ADJUSTMENT OF RS.10,83,09,022/ - BE DELETED. 2 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD DRP AND LD AO (FOLLOWING THE DIRECTIONS OF THE LD DRP) ERRED IN DETERMI NING THE ARM'S LENGTH PRICE OF THE TRANSACTION PERTAINING TO 3 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES ('AES') AS 'NIL' AS AGAINST RS.10,27,42,744 DETERMINED BY THE APPELLANT AND THEREBY MAKING A TP ADJU STMENT OF RS . 10,27,42,744. THE APPELLANT PRAYS THAT THE BOOK VALUE OF THE INTERNATIONAL TRANSACTION BE ACCEPTED TO BE THE ARM'S LENGTH PRICE OF THE SAID TRANSACTION AND THE TP ADJUSTMENT MADE BY THE LD DRP / LD AO BE DELETED. 3 . ON THE FACTS AND CIRCUMSTANCE S OF THE CASE, AND IN LAW, THE LD DRP AND LD AO (FOLLOWING THE DIRECTIONS OF THE LD DRP) ERRED IN MAKING A TP ADJUSTMENT OF RS . 55,66,278 TO THE INCOME OF THE APPELLANT WITH RESPECT TO INTERNATIONAL TRANSACTION OF PAYMENT OF FEES FOR DESIGNING AND CONSULTAN CY FEES WITHOUT APPRECIATING THAT NO DISALLOWANCE OUGHT TO BE MADE SINCE THE APPELLANT HAD SUO MOTO DISALLOWED THE PAYMENT UNDER SECTION 40(A)(IA) OF THE ACT. THE APPELLANT PRAYS THAT THE LD AO BE DIRECTED NOT TO MAKE ANY DISALLOWANCE FOR RS . 55,66,278, SI NCE THE SAID AMOUNT HAS ALREADY BEEN DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT WHILE COMPUTING THE TAXABLE INCOME. 4 . DURING THE YEAR THE APPELLANT HAS PAID COMMISSION OF RS.10,78,51,033 TO ITS AES OUT OF WHICH AN AMOUNT OF RS . 1,80,44,460 HAS BEEN REVERSE D IN THE SUBSEQUENT FINANCIAL YEAR. THE LD TPO HAS CONSIDERED THE ARM'S LENGTH PRICE OF THE AFORESAID TRANSACTION AS RS . 8,98,06,573 (RS . 10,78,51,033 LESS RS.1,80,44,460) WITH A DIRECTION THAT THE LD AO MAY GIVE CREDIT FOR THIS AMOUNT IN SUBSEQUENT FINANCIA L YEAR IF THE SAME IS OFFERED TO INCOME IN THAT YEAR. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD AO HAS ERRED IN NOT INCLUDING THE AFORESAID DIRECTION OF THE LD TPO IN THE FINAL ASSESSMENT ORDER. THE APPELLANT PRAYS THAT THE LD AO BE DIRECTED TO INCLUDE THE DIRECTION OF THE LD TPO IN ASSESSMENT ORDER. CORPORATE TAX GROUNDS 5 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD DRP AND LD AO ERRED IN NOT ALLOWING THE DEDUCTION OF RELOCATION EXPENSES OF RS . 6,27,41,624 ON PAYMENT BASIS IN A Y 2009 - 10. THE APPELLANT PRAYS THAT THE LD AO BE DIRECTED TO ALLOW THE APPELLANT THE DEDUCTION OF RELOCATION EXPENSES ON PAYMENT BASIS IN A Y 2009 - 10. 4. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND THE SAME IS DISMISSED. 4 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 5 . THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AGAINST DETERMINATION OF ARM'S LENGTH PRICE OF TRANSACTIONS PERTAINING TO PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE HAD DECLARED THAT N O ADJUSTMENTS HAVE TO BE MADE. HOWEVER, THE TRANSFER PRICING OFFICER (TPO) WORKED OUT AN UPWARD ADJUSTMENT OF RS.10,27,42,744/ - WHICH HAS BEEN ASSESSED IN THE HANDS OF ASSESSEE BY THE ASSESSING OFFICER AFTER DISMISSAL OF OBJECTIONS RAISED BEFORE THE D ISPU TE RESOLUTION PANEL (DRP). 6. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.43,99,42,521/ - . THE ASSESSEE COMPANY WAS INCORPORATED UNDER THE COMPANIES ACT, WAS 51:49 JOINT VENTURE BETWEEN KIRLOSKAR BROTHER LIMITED (KBL) AND COPELAND CORPORATION. THE ASSESSEE WAS FORMED AS A RESULT OF TECHNICAL CUM FINANCIAL COLLABORATION BETWEEN THE TWO COMPANIES, TO CARRY ON THE ACTIVITIES OF PLANNING, DEVELOPING, MANUFACTURING , ASSEMBLING, MARKETING AND SELLING COMPRESSORS AND PARTS OF VARIOUS TYPES, MODELS AND VARIETIES. SUBSEQUENTLY, ON 26.07.2006, COPELAND CORPORATION, USA BOUGHT OVER STAKE OF KBL. COPELAND CORPORATION WAS WHOLLY OWNED SUBSIDIARY OF EMERSON ELECTRIC CO., U SA. THE SAID COMPANY WAS ENGAGED IN THE MANUFACTURE AND SALE OF COMPRESSORS AND RELATED COMPONENTS IN THE DOMESTIC AND EXPORT MARKETS AND TRADING IN THE DOMESTIC MARKET OF GOODS PROCURED FROM ITS GROUP COMPANIES. THE MAIN BUSINESS ACTIVITIES OF THE ASSES SEE DURING THE YEAR UNDER CONSIDERATION W ERE MANUFACTURE, SALE AND SERVICING OF HERMATICALLY SEALED / SEMI - HERMATIC RECIPROCATING GAS COMPRESSORS AND CONDENSING UNITS. THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED EN TERPRISES WHICH ARE ENLISTED UNDER PARA 4 AT PAGE 3 OF THE ORDER OF TPO. THE TPO 5 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 CONSIDERED EACH OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. HOWEVER, THE ISSUE RAISED VIDE GROUND OF APPEAL NO.2 BEFORE U S IS AGAINST THE FEES FOR ADVISORY AND OTHER SERVICES PAID AT RS.10,27,42,744/ - . HENCE, WE RESTRICT OUR DECISION IN RESPECT OF THE SAID SEGMENT. IN THIS REGARD, THE TPO NOTED THAT THE ASSESSEE HAD SHOWN SAID SUM OF RS.10.27 CRORES IN THE NATURE OF MANAGE MENT SERVICE AS COST ALLOCATION TO ASSOCIATED ENTERPRISES VIS - - VIS EMERSON ELECTRIC (ASIA) LTD., HONG KONG AND EMERSON ELECTRIC (THAILAND) LTD. AS PER AGREEMENTS DATED 01.10.2007 AND 29.08.2007 RESPECTIVELY , COST ALLOCATION WAS MADE FOR MANAGEMENT SERVIC ES. THE AMOUNT WHICH WAS ALLOCATED TO ASSESSEE COMPRISED OF RS.68,48,65,712/ - FOR ASSESSMENT YEAR 2009 - 10 AND RS.3,42,76,972/ - FOR ASSESSMENT YEAR 2008 - 09. THE PLI CHOSEN BY THE ASSESSEE WAS RETURN ON TOTAL COST AND THE ASSOCIATED ENTERPRISE WAS SELECTED AS TESTED PARTY. THE ASSESSEE HAD SELECTED SIX COMPARABLES WHOSE MEAN PLI WAS COMPUTED AT 7.02% AS AGAINST 5.8% IN THE CASE OF TESTED PARTY. THE ASSESSEE CLAIMED THE TRANSACTION TO BE AT ARM'S LENGTH PRICE. THE TPO NOTED THAT NO SUCH TRANSACTION WAS RE PORTED IN FORM NO.3CEB AND IN THE TP STUDY REPORT. THE TPO FURTHER NOTED THAT NO REASONS WERE AVAILABLE HOW AND WHY THESE WERE NOT SHOWN DURING THE LAST YEAR, IF ANY SERVICES WERE REALLY RENDERED. THE TPO ALSO QUESTIONED THE ASSESSEE WHY IT HAD TREATED A SSOCIATED ENTERPRISE AS TESTED PARTY. FURTHER , THE COPY OF COMPLETE SET OF AUDITED ACCOUNTS OF THE CONCERNED ASSOCIATED ENTERPRISE WAS NOT AVAILABLE AND THE TP STUDY REPORT IN THE CASE OF ASSOCIATED ENTERPRISE WAS NOT SUBMITTED DESPITE BEING ASKED FOR. T HE TPO THUS, SHOW CAUSED AS TO WHY THE SELECTION OF ASSOCIATED ENTERPRISE AS TESTED PARTY SHOULD NOT BE REJECTED, SINCE THE RELATABLE INFORMATION IN THE SET OF COMPLETE AUDITED ACCOUNTS INCLUDING NOTES TO ACCOUNTS AND DIRECTORS REPORT WAS NOT AVAILABLE FOR TH E TESTED PARTY AND ALSO DETAILS OF COMPARABLES CONSIDERED BY THE ASSESSEE IN TP STUDY REPORT. AS REGARDS 6 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 SERVICES RECEIVED, THE ASSESSEE HAD CLAIMED THAT IT HAD RECEIVED SERVICES IN THE FIELD OF HUMAN RESOURCES, MARKETING AND PRODUCT, FINANCE , BUSINESS DEVELOPMENT AND MANAGEMENT AND OTHER SERVICES. THE TPO NOTED THAT AS REGARDS EVIDENCE OF SERVICES RENDERED, COPIES OF CERTAIN DOCUMENTS WERE SUBMITTED, PERUSAL OF WHICH SHOW THAT THEY WERE E - MAILS AND COPIES OF SOME PRESENTATIONS. THE TPO FURTHER NOTED THAT SOME OF COMMUNICATIONS WERE QUARTERLY OPERATIONS REVIEW AND SOME OTHERS RELATED TO FINANCIAL REPORTING AND COMPLIANCE WITH GROUP HP POLICIES. THE TPO WAS OF THE VIEW THAT THE REPLY GIVEN BY THE ASSESSEE WAS GENERAL AND THE ASSESSEE HAD NOT SHOWN ANY EVIDENCE AS TO QUANTIFICATION OF BENEFITS. 7. THE NEXT ISSUE RAISED BY THE TPO WAS THE BASIS FOR CHARGING OF COST ALLOCATION, UNDER WHICH CERTAIN WORKING WAS GIVEN BY THE ASSESSEE, WHERE S A ME EXPENSES WERE ALLOCATED TO DIFFERENT GROUP ENTITIES. THE TPO NOTED THAT THE SAME WAS BASED ON EXTRACT FROM ACCOUNTS OF EMERSON ELECTRIC (ASIA) LTD. HOWEVER, THE DETAILS OF EXPENSES INCURRED AND PURPOSE OF EXPENSES WERE NOT VERIFIABLE IN THE ABSENCE OF RELEVANT DETAILS. THE TPO OBSERVED THAT ONCE QUESTIONED THE BA SIS FOR ALLOCATION, THE ASSESSEE STATED THAT THE SAME WERE BASED ON ESTIMATES MADE BY THE PERSONNEL OF ASSOCIATED ENTERPRISES / GROUP ENTITIES. THE TPO OBSERVED THAT THERE WAS NO LINK TO QUANTUM OR VALUE OF SERVICES RECEIVED, IF ANY, AND HENCE, ASCERTAINI NG THE ACTUAL COST OF RENDERING SERVICES WAS NOT POSSIBLE. THE ASSESSEE CLAIMS THAT IT HAD RECEIVED SERVICES IN THE FIELD OF HUMAN RESOURCES, WHEREIN TRAINING MATERIAL WAS PROVIDED AND ADVI C E O N PERSONNEL POLICIES W ERE RECEIVED ; THEN IN THE FIELD OF MARKE TING AND PRODUCT, WHERE PRESENTATION OF PRESENT TRENDS IN ASIA PACIFIC REGION WERE RECEIVED AND TECHNICAL MATERIAL ON SUPPORT PRODUCTS WERE PROVIDED IN THE FIELD OF FINANCE. THE ASSOCIATED ENTERPRISES PROVIDED FINANCE REPORTING PACKAGES, 7 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 BUSINESS REVIEW A ND STANDARD OF ACCOUNTING PRACTICES IN THE FIELD OF BUSINESS DEVELOPMENT AND MANAGEMENT BY USING BUSINESS LEADS TO APEC REGION TO GET BUSINESS OF ASSESSEE COMPANY. FURTHER, OTHER SERVICES WERE ALSO PROVIDED FOR GIVING SUPPORT FOR NEW PRODUCTS, MARKETING M ATERIAL, TRAINING MATERIAL AND TECHNICAL SUPPORT. THE TPO ALSO QUESTIONED THE ASSESSEE AS TO THE ANALYSIS DONE TO ARRIVE AT THE COST FOR AVAILING SUCH SERVICES FROM OTHER THAN ASSOCIATED ENTERPRISES, AGAINST WHICH THE ASSESSEE HAD REPLIED THAT NO SUCH ANA LYSIS WAS DONE. THE TPO IN THIS REGARD OBSERVED THAT THE CLAIM OF SIMILAR ARRANGEMENTS HAVING BEEN ENTERED INTO WITH OTHER ASSOCIATED ENTERPRISES IN THE GROUP, WOULD NOT JUSTIFY THE ARM'S LENGTH PRICE OF TRANSACTIONS. 8. ANOTHER ISSUE WHICH WAS RAISED BY THE TPO WAS THAT FOR EXPORTS, SEPARATE COMMISSION WAS BEING PAID AND SINCE THE ASSESSEE WAS PROVIDING MARKETING SERVICES FOR ASSOCIATED ENTERPRISES PRODUCTS IN INDIA, THEN IT WAS EXPECTED THAT THE ASSESSEE WOULD RECEIVE MARKETING AND TECHNICAL INFORMAT ION FOR THESE SERVICES IN ROUTINE COURSE. THE TPO THUS, QUESTIONED EXACT NATURE AND NEED OF SERVICES AVAILED, NATURE OF VALUE ADDITION AND QUANTIFICATION OF DEMONSTRATED BENEFITS FOR AVAILING SUCH SERVICES. THE TPO WAS OF THE VIEW THAT SINCE NO CONCRETE EVIDENCE FOR RECEIPT OF SUCH VALUABLE SERVICES WAS PROVIDED BY THE ASSESSEE AND EVEN THE CALCULATION OF PAYMENT MADE TO THE ASSOCIATED ENTERPRISES , RELATED TO ANY SERVICES RECEIVED , OR NOT HAD NOT BEEN EXPLAINED / FURNISHED WITH ANY COGENT EVIDENCE AND THE RE WAS NO EXPLICIT COST ALLOCATION FORM ULA TO LINK IT TO THE ACTUAL SERVICES OR VALUE / VOLUME OF SERVICES RECEIVED AND IN THE ABSENCE OF THE SAME, THE TPO QUESTIONED THE PAYMENT MADE TO ASSOCIATED ENTERPRISES. THE ASSESSEE WAS THUS, SHOW CAUSED AS TO WHY T HE ARM'S LENGTH PRICE BE TAKEN AT NIL AND ACCORDINGLY, ADJUSTMENT OF RS.10,27,42,744/ - BE MADE. 8 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 9. THE ASSESSEE FILED WRITTEN SUBMISSIONS AND EXPLAINED THAT WHEN THE ASSESSEE WAS JOINT VENTURE BETWEEN KBL AND COPELAND CORPORATION, OPERATIONAL RESPONSIBILIT IES WERE PRIMARILY TAKEN CARE OF BY KBL I.E. INDIAN PARTNER IN THE JOINT VENTURE. HOWEVER, POST JUNE, 2006, WHEN KBL EXITED JOINT VENTURE AND THE ASSESSEE COMPANY BECAME WHOLLY OWNED SUBSIDIARY OF COPELAND CORPORATION, THERE WAS NEED TO PROVIDE OPERATIONA L, STRATEGIC AND ADVISORY SUPPORT TO THE ASSESSEE TO ENSURE THAT IT BENEFITS FROM THE BEST IN CLASS MANUFACTURING AND OPERATIONAL PROCESSES FOLLOWED BY EMERSON GROUP OF COMPANIES WORLDWIDE. IN ORDER TO ACHIEVE THE OBJECTIVES , OPERATIONAL, STRATEGIC AND AD VISORY SERVICES WERE PROVIDED TO THE ASSESSEE BY EMERSON ELECTRIC (ASIA) LTD. (EMERSON HK) AND EMERSON ELECTRIC (THAILAND) LTD. (EMERSON TH). PRIOR TO OCTOBER, 2007, THOUGH SOME SERVICES WERE PROVIDED BY ASSOCIATED ENTERPRISES BUT NO CHARGES WERE LEVI ED BY THE GROUP ENTITIES. BUT POST OCTOBER, 2007, CONSISTENT WITH INTERNATIONAL TP PRINCIPLES, IT WAS DECIDED THAT EMERSON HK AND EMERSON TH SHOULD CHARGE THE ASSESSEE COMPANY FOR OPERATIONAL, STRATEGIC AND ADVISORY SERVICES AND SUCH CHARGE WAS ALSO CONSI STENT WITH THE POLICY ADOPTED BY THE SAID TWO CONCERNS FOR OTHER EMERSON GROUP ENTITIES. THE ASSESSEE IN SUPPORT FILED THE COPIES OF SERVICES AGREEMENT WHICH HAVE BEEN ENTERED INTO BETWEEN EMERSON HK AND OTHER EMERSON GROUP ENTITIES I.E. EMERSON US, EMERS ON SUZHOU, EMERSON SHENYANG, EMERSON JAPAN, EMERSON AUSTRALIA AND EMERSON THAILAND. THE ASSESSEE ENTERED INTO AGREEMENT WITH EMERSON HK ON 01.10.2007 AND ON 29.08.2007 WITH EMERSON TH ; THE ASSESSEE CLAIMED THAT INVOICES FOR SERVICES CHARGED WERE RAISED BY ASSOCIATED ENTERPRISES ONLY IN THE MONTH OF SEPTEMBER, 2009 I.E. AFTER CLOSURE OF BOOKS OF ACCOUNT OF ASSESSEE FOR FINANCIAL YEAR 2007 - 08. ACCORDINGLY, THE SAID TRANSACTION HAS BEEN REFLECTED IN THE BOOKS OF ACCOUNT OF ASSESSEE IN ASSESSMENT YEAR 2009 - 10 . THE ASSESSEE ALSO FILED THE DETAILS OF NATURE OF SERVICES AND IDENTIFICATION OF BENEFITS RECEIVED FROM THE ASSOCIATED 9 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 ENTERPRISES AND ALSO NEED FOR SERVICES IN DIFFERENT FIELDS OF OPERATIONAL ACTIVITIES. THE ASSESSEE FURTHER CLAIMED THAT WITHOUT PREJUD ICE TO ABOVE SAID , IT WAS MENTIONED THAT NOWHERE THE LAW REQUIRES THE ASSESSEE TO DEMONSTRATE THE NEED FOR AVAILING SUCH SERVICES. THE LAW ONLY REQUIRES THE TPO TO ASCERTAIN AS TO WHETHER PRICE PAID FOR SUCH SERVICES WAS AT ARM'S LENGTH PRICE OR NOT. IN VIEW THEREOF, WHERE THE ASSESSEE HAD EXPLAINED THE NEED FOR SERVICES THOUGH SUCH NEED FOR SERVICES WA S NOT REQUIRED TO BE DEMONSTRATED BY THE ASSESSEE, THE PAYMENT MADE FOR AVAILING SERVICES WA S TO BE BENCHMARKED AT ARM'S LENGTH PRICE. 10 . WITH REGARD TO QUANTIFICATION OF BENEFITS, THE ASSESSEE CLAIMED THAT IN SEVERAL RULINGS IN THE PAST, WHEREIN SEVERAL COURTS AND THE TRIBUNALS HAD REITERATED THE PRINCIPLE OF COMMERCIAL EXPEDIENCY; HENCE IT WAS NOT OPEN TO THE REVENUE AUTHORITIES TO QUESTION THE COMMERCI AL WISDOM OF SAID TRANSACTION OR TO LOOK INTO THE BENEFITS ACCRUING TO THE ASSESSEE ON ACCOUNT OF INCURRING PARTICULAR EXPENDITURE. THE ASSESSEE FURTHER STRESSED THAT COST INCURRED BY THE ASSOCIATED ENTERPRISES FOR PROVIDING SERVICES HAVE BEEN ALLOCATED T O ALL GROUP ENTITIES AVAILING SUCH SERVICES BY APPLYING ALLOCATION KEY, WHICH WA S BASED ON THE ESTIMATE OF ACTUAL TIME SPENT BY THE PERSONNEL OF ASSOCIATED ENTERPRISES FOR VARIOUS GROUP ENTITIES. SINCE THE BILLING WAS BASED ON TIME COST BASIS, THEN CHARGI NG OF FEES FOR SERVICES WOULD BE BASED ON ESTIMATED TIME SPENT ENTITY - WISE. THE ASSESSEE ALSO REFERRED TO THE COST ALLOCATION WORKING FOR EMERSON HK AND EMERSON TH, WHICH WAS FILED EARLIER AND POINTED OUT THAT ALLOCATION OF COST ON THE BASIS OF TIME SPENT HAD BEEN CONSISTENTLY APPL IED TO ALL THE GROUP ENTITIES AVAILING SERVICES AND WAS NOT SPECIFIC TO THE ASSESSEE. FURTHER, RELIANCE WAS PLACED ON OECD GUIDELINES WHICH ALSO RECOMMENDED INDIRECT CHARGE APPROACH FOR INTRA GROUP SERVICES UNDER CERTAIN CIRCUMS TANCES. REFERENCE WAS ALSO MADE 10 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 TO THE CONCEPT OF COST ALLOCATION RECOGNIZED BY SECTION 92(2) OF THE ACT, WHEREIN IT WAS STATED THAT IF REASONABLE ALLOCATION KEY HAS BEEN APPLIED, THEN THE SAME SHOULD BE ACCEPTED. IT WAS STRESSED BY THE ASSESSEE BEFORE T HE TPO THAT EXPENSES INCURRED COULD NOT BE QUESTIONED AND MERE ABSENCE OF DIRECT CORRELATION OF COST WITH SERVICES AVAILED COULD NOT BE THE BASIS FOR DETERMINING ARM'S LENGTH PRICE AT NIL. FURTHER SUBMISSION MADE IN THIS REGARD W AS THAT THE FACT THAT COST COULD NOT BE IDENTIFIED ON DIRECT BASIS DID NOT INFER THAT THE SAID TRANSACTION WAS NOT IN ACCORDANCE WITH THE ARM'S LENGTH PRICE. IT WAS STRESSED BY THE ASSESSEE THAT ANY DIFFERENCE OF OPINION ON THE ALLOCATION BASIS WOULD NOT TANTAMOUNT THAT THE ENTIRE SERVICE CHARGES WERE INAPPROPRIATE AND THE APPROACH OF TPO IN TREATING THE ARM'S LENGTH PRICE AT NIL WAS NOT IN ACCORDANCE WITH LAW. THE ASSESSEE FURTHER REFERRED TO THE AUDITED FINANCIAL STATEMENTS OF ASSOCIATED ENTERPRISES AND TP STUDY REPORT AND POINT ED OUT THAT MERE ABSENCE OF STUDY REPORT OF ASSOCIATED ENTERPRISES SHOULD NOT BE CONSIDERED IN A MANNER THAT THE ARM'S LENGTH PRICE OF TRANSACTION WAS TAKEN AT NIL. THE MARK UP CHARGED BY THE ASSOCIATED ENTERPRISES WAS CONSISTENT WITH THE MARK UP AGREED B Y THE ASSESSEE AND IN VIEW THEREOF, WHERE ROLE AND RESPONSIBILITY OF EACH ENTITIES WAS SPECIFIED IN THE SERVICE AGREEMENT AND THE MARK UP CHARGE AT 5.8% WAS VERIFIABLE FROM THE COST ALLOCATION WORKING, THE ARM'S LENGTH PRICE OF SAID TRANSACTION COULD NOT B E DETERMINED AT NIL. 11. THE TPO AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE NOTED THAT THOUGH IT WAS STATED THAT OPERATIONAL, STRATEGIC AND ADVISORY SUPPORTS WERE REQUESTED FROM EMERSON HK AND EMERSON TH BUT NO CONTEMPORANEOUS RECORDS WERE PRODUCED T O INDICATE THAT SUCH NEED WAS IDENTIFIED, WHICH PRECEDES THE ENTERING INTO AGREEMENT FOR SUCH SERVICES. THE MERE FACT THAT OTHER EMERSON GROUP ENTITIES ENTERED INTO SIMILAR AGREEMENTS, AS PER THE TPO, WOULD NOT PROVE THAT 11 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 SUCH SERVICES WERE NEEDED, THE NA TURE OF SERVICES RECEIVED, THE VALUE TO THE RECIPIENT AND COST OF PROVIDING OF SUCH SERVICES IN THE ABSENCE OF EVEN AUDITED ACCOUNTS OF TWO ASSOCIATED ENTERPRISES WHICH WERE NEVER FURNISHED . A S PER THE TPO, IT WAS NOT CLEAR AS TO WHETHER THEY WERE INDEED CAPABLE OF PROVIDING ANY VALUABLE SERVICES. THE TPO NOTED THAT THE PARENT COMPANY WAS IN USA AND THE CAPABILITIES OF ASIAN ENTITIES WERE NOT CLEAR. HE FURTHER MADE REFERENCES TO VARIOUS E - MAILS RECEIVED BY THE ASSESSEE AND PASSED HIS COMMENTS ON THE DOCU MENTS WHICH ARE ENLISTED AT PAGES 20 AND 21 OF THE TPOS ORDER. THE PLEA OF ASSESSEE THAT IT HAD BENCHMARKED THE TRANSACTION UNDER TNMM METHOD BY SELECTING ASSOCIATED ENTERPRISE AS TESTED ENTITY AND HOLDING THE TRANSACTION TO BE AT ARM'S LENGTH PRICE WAS REJECTED BY THE TPO, IN THE ABSENCE OF COMPLETE DETAILS OF TESTED PARTY NOR THE COMPARABLE S BEING FURNISHED. THE TPO NOTED THAT SINCE RELIABLE INFORMATION COULD NOT BE MADE AVAILABLE IN RESPECT OF ASSOCIATED ENTERPRISES AND THE COMPARABLES SELECTED, THE A SSOCIATED ENTERPRISES COULD NOT BE CONSIDERED TO BE A PROPER TESTED ENTITY IN THE CASE. ACCORDINGLY, THE ASSESSEE WAS SELECTED AS TESTED PARTY. IT WAS FURTHER POINTED OUT BY THE TPO THAT THE TRANSACTION WAS NOT CLOSELY AND INTRINSICALLY LINKED WITH ANY O THER INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE YEAR. HENCE, IT IS NOT TO BE AGGREGATED WITH THE OTHER TRANSACTIONS FOR EVALUATING ARM'S LENGTH PRICE. THE TPO THUS, CONCLUDED HOLDING THAT THIS TRANSACTION COULD NOT BE AGGREGATED AND BENCHMARKED UNDER THE UMBRELLA OF TNMM METHOD . M OST APPROPRIATE METHOD FOR DETERMINATION OF TRANSACTION, AS PER THE TPO, WAS CUP METHOD. THE TPO THEN, REFERRED TO THE SERVICES AGREEMENT ENTERED INTO BY THE ASSESSEE AND POINTED OUT THAT REMUNERATION WAS ON COST PLUS AND APPROPRIATE MARK UP ; AND EVEN THE MARK UP WAS NOT SPECIFIED IN THE AGREEMENT. FURTHER, REFERENCE WAS MADE TO DIFFERENT CLAUSES OF AGREEMENT AND THE TPO WAS OF THE VIEW THAT NO DETAILS WERE PROVIDED AS TO THE BASIS FOR INVOICE RAISED . F UR THER, THE 12 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 ASSESSEE HAD NOT EVEN ASKED FOR ANY CLEAR IDENTIFICATION OF ALLOCATION KEYS OR DOCUMENTATION THAT WOULD ESTABLISH THE COST. HENCE, IT WAS HELD THAT IN THE ABSENCE OF ANY EVIDENCE BEING FILED AS TO ANY EXPENDITURE THAT WAS LINKED TO ANY SERVICES RECEIVED AND THE ASSESSEE HAD FAILED TO DEMONSTRATE THE VALUE OF SERVICES RECEIVED ; IN SUCH CASES, IT WAS HELD THAT IN VIEW OF THE GUIDELINES FROM OECD AND TRANSFER PRICING GUIDELINES, IT WAS APPARENT THAT IT SUPPORTS THE VIEW THAT IN THE TRANSFER PRICING CONTEXT, BOTH FOR SERVICES AND BENEFIT , PRINCIPLES HAVE TO BE APPLIED IN DETERMINING THE ARM'S LENGTH PRICE OF TRANSACTION. THE TPO REITERATED THAT IT NEEDS TO BE SEEN WHETHER ANY SERVICES HAD ACTUALLY BEEN PROVIDED AND ALSO THAT COST HAD BEEN INCURRED FOR PROVIDING SUCH SERVICES AND WHETHER THE CHARGE WAS BASED ON RELIABLE BASIS AND HAD NEXUS TO THE SERVICES AND COMMENSURATE D TO THE BENEFITS RECEIVED. THE TPO HELD THAT IT WAS INCUMBENT UPON THE ASSESSEE TO ESTABLISH BEFORE THE TPO THAT THE PAYMENTS WERE M ADE COMMENSURATE TO THE VOLUME AND QUALITY OF SERVICES AND SUCH COST WAS COMPARABLE ; WHEREAS IN THE CASE OF ASSESSEE, AS PER TERMS OF AGREEMENT, SAME WERE INDEPENDENT OF THE NATURE OR VOLUME OF SERVICES. RELYING ON SERIES OF DECISION AND IN THE ABSENCE OF AUDITED ACCOUNTS OF ASSOCIATED ENTERPRISES, THE TPO HELD THAT IT WAS NOT POSSIBLE TO KNOW WHAT ACTIVITIES WERE CARRIED ON BY THE ASSOCIATED ENTERPRISES AND WHETHER EXPENDITURE WERE IN RESPECT OF SERVICES CLAIMED TO BE PROVIDED. IN THE ABSENCE OF DETAILS, THE TPO HELD THAT IT WAS NOT POSSIBLE TO CONCLUDE THAT ANY EXPENSES WERE INCURRED FOR SERVICES CLAIMED TO BE RECEIVED. HE WAS OF THE VIEW THAT ALLOCATION OF COST ON ANY BASIS WAS MERELY A N ALLOCATION , BUT COULD NOT AUTOMATICALLY IMPLY THAT IT WAS IN RESP ECT OF SERVICES PROVIDED OR THAT IT COMMENSURATE WITH THE SERVICES PROVIDED. SO, THE TPO IN THIS REGARD CONCLUDED THAT NONE OF THE SUBMISSIONS CLEARLY INDICATE ANY NEED FOR SERVICE, ACTUAL RECEIPT OF ANY SERVICE WHICH ANY INDEPENDENT ENTITY WOULD BE WILLI NG TO PAY, QUANTIFICATION OF BENEFITS OF SERVICES AND EVIDENCE THAT ANY COST 13 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 WAS INCURRED IN PROVIDING ANY RELEVANT SERVICES TO THE ASSESSEE. THE EVIDENCE SUBMITTED BY THE ASSESSEE COMPRISING OF VARIOUS PRINT OUTS AND SOME E - MAILS WERE HELD TO BE PLEASANT RIES BETWEEN THE GROUP COMPANIES AND WERE NOT THE EVIDENCE OF SPECIFIC SERVICES PROVIDED AS PER THE TERMS OF MANAGEMENT SERVICE AGREEMENT. THE TPO ALSO NOTED THAT THE ASSESSEE HAD FAILED TO LINK ANY SUCH E - MAILS OR VISIT OF THE GROUP PERSONNEL WITH ANY CO ST THAT WAS INCLUDED BY THE ASSOCIATED ENTERPRISES IN THE BILLING FOR MANAGEMENT FEES TO THE ASSESSEE. THOUGH CERTAIN STRATEGIC INFORMATION WAS SOUGHT FOR BUT THESE WERE HELD TO BE NOT IN RESPECT OF NEW PRODUCTS LAUNCHED IN INDIA. SIMILARLY, FOR EXPORTS, THE ASSESSEE HAD SEPARATELY PAID THE COMMISSION AND IT WAS ALSO CLAIMED THAT NO ROYALTY OR TECHNICAL FEES WERE PAID BY THE ASSESSEE COMPANY. OUT OF TOTAL RS.10.27 CRORES CLAIMED AS FEES FOR MANAGERIAL SERVICES FOR THE FIRST TIME, THE TPO HELD THAT IT COM PRISED OF RS.6.84 CORES FOR ASSESSMENT YEAR 2009 - 10 AND RS.3.42 CRORES FOR ASSESSMENT YEAR 2008 - 09, WHEREIN THE ASSESSEE HAD SHOWN SUM OF RS.80,35,788/ - AS PAYABLE TO EMERSON TH AND RS.9.47 CRORES AS PAYABLE TO EMERSON HK. THE TPO CONCLUDED HOLDING THAT I N THE ABSENCE OF ANY EVIDENCE AVAILABLE AS TO EXPERTISE OF THE TWO CONCERNS IN RESPECT OF SERVICES CLAIMED TO BE RECEIVED FROM THEM AND SINCE NO REASONS WERE FURNISHED AS TO WHY THE AMOUNTS CLAIMED TO BE PERTAINING TO THE PRECEDING YEAR WERE NOT REPORTED A S INTERNATIONAL TRANSACTIONS IN ASSESSMENT YEAR 2008 - 09, IN CASE THE AGREEMENTS WERE ALREADY ENTERED INTO , THERE WAS NO BASIS FOR THE SAID CLAIM . IN THE ABOVE FACTS AND CIRCUMSTANCES, THE TPO HELD THAT NO SERVICES WERE RECEIVED AND ON CUP METHOD, ARM'S LE NGTH PRICE OF TRANSACTION WAS HELD TO BE AT NIL. THUS, THE TPO MADE AN ADJUSTMENT OF RS. 10,27,42,744/ - AND HELD THAT THE INCOME OF ASSESSEE W OULD BE INCREASED BY SUCH SUM. 14 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 1 2 . THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER WITH PROPOSAL TO MAKE THE SAID ADDITION. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP AND THE DRP FOUND NO VALID REASON TO INTERFERE WITH THE DRAFT PROPOSED ORDER OF THE ASSESSING OFFICER / TPO. ACCORDINGLY, THE ASSESSING OFFICER IN THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 14 4C(13) OF THE ACT MADE AN UPWARD ADJUSTMENT OF RS.10.27 CRORES. 1 3 . THE ASSESSEE IS IN APPEAL AGAINST THE UPWARD ADJUSTMENT OF RS.10.27 CRORES AGAINST PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES. O THER ADJUSTMENTS WERE ALSO MADE ON ACCOUNT OF OTHER I NTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE, WHICH WE SHALL DEAL WITH AT THE APPROPRIATE TIME. REFERRING TO THE SYNOPSIS , IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ADVISORY SERVICES WERE PROVIDED BY E MERSON HK AND EMERSON TH, WHICH SERVICES WERE PROVIDED NOT ONLY TO THE ASSESSEE BUT TO OTHER GROUP CONCERN S . THE SAID ENTIT IES INCURRED COST AND THEN ALLOCATE D THE SAME BY USING ALLOCATION KEY AND CHARGE D COST PLUS 5.8%. REFERENCE WAS MADE TO THE AGREEME NT ENTERED INTO BY THE ASSESSEE WITH THE SAID CONCERNS. HE REFERRED TO THE ORDERS OF ASSESSING OFFICER AND TPO, WHERE ALLEGATION WAS THAT THE ASSESSEE HA D FAILED TO PROVE THE ACTUAL RENDITION OF SERVICES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASS ESSEE REFERRED TO THE DOCUMENTS FILED BEFORE THE ASSESSING OFFICER / TPO IN RESPECT OF SERVICES AVAILED WHICH ARE PLACED IN THE PAPER BOOK AND STRESSED THAT THERE WAS NO DISPUTE THAT SERVICES WERE GIVEN TO ASSESSEE AND OTHER ENTITIES. HE POINTED OUT THAT MORE THAN 100 E - MAILS AND ABOUT 600 PAPERS WERE FILED BEFORE THE TPO. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE OBSERVATIONS OF THE TPO AT PAGE 19 IN THIS REGARD. HE STRESSED THAT EARLIER , THE SUPPORT SERVICES WERE GIVEN BY K BL WHICH WAS ONE OF THE CONCERNS, WHO WAS 15 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 PART OF JOINT VENTURE ; BUT LATER ON IT EXITED JOINT VENTURE AND HENCE, THERE WAS NEED FOR SUPPORT SERVICES. HE REFERRED TO THE ORDER OF TPO, WHEREIN HE SAYS THAT THERE WAS NO NEED TO ENTER AN AGREEMENT AND SECOND ISSUE WHICH HA D BEEN RAISED BY THE TPO WAS WHETHER THE ASSOCIATED ENTERPRISES WAS CAPABLE OF PROVIDING SERVICES, THEN THE TPO GOES ON TO REFER TO VARIOUS E - MAILS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE DOCUMENTS / E - MAILS P LACED AT PAGES 333 AND 334 OF THE PAPER BOOK AND POINTED OUT THAT THE ADVI C E WAS TOO TECHNICAL IN RESPECT OF PARTICULAR PROJECT. THE SAME ADVI C E WAS SHARED WITH COPELAND CORPORATION IN NORTH AMERICA. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HERE QUESTIONED THAT HOW COULD THE TPO IN VALIDATE THE SERVICES WHICH WERE HYPER TECHNICAL? HE FURTHER STATED THAT IN ANY CASE THE OBSERVATIONS OF THE TPO WERE NOT RELEVANT WHERE THE MERE FACT THAT THE SERVICES WERE GIVEN WAS ESTABLISHED, THEN THE ARM'S L ENGTH PRICE OF SAID TRANSACTIONS HAD TO BE BENCHMARKED. HE FURTHER REFERRED TO THE MINUTES OF MEETING RECORDED, WHICH W ERE ALSO ABOUT THE TECHNICAL ISSUE. HOWEVER, THE TPO IN THREE PAGES SAY THAT NO SERVICES WERE RECEIVED BY ASSESSEE . IN THIS REGARD, IT WAS EMPHASIZED THAT THE TPO HAS FAILED TO CONSIDER THE EVIDENCE WHICH WAS FILED AND FURTHER EVIDENCE WHICH WAS AVAILABLE WITH THE ASSESSEE. HE STRESSED THAT THERE WAS NO BASIS FOR MAKING THE AFORESAID OBSERVATION . THE LEARNED AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE FURTHER POINTED OUT THAT THE LAW DOES NOT REQUIRE THE ASSESSEE TO PROVE THAT IT HAD RECEIVED BENEFITS FROM THE SERVICES BUT THE LAW REQUIRES THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE FOR BUSINESS PURPOSE . RELIANCE WAS PLACED ON THE RA TIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN MCCANN ERICKSON INDIA PVT. LTD. VS. ADDL.CIT IN ITA NO.5871/DEL/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 08.06.2012 AND THE HYDERABAD BENCH OF TRIBUNAL IN TNS INDIA PVT. LTD. VS. ACIT (2014) 39 CCH 032 (HYD - TRIB) . THE ASSESSEE IN THIS REGARD AFTER REFERRING TO THE 16 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 AGREEMENT BETWEEN THE ASSESSEE AND ASSOCIATED ENTERPRISES AND EXPLAINING THE NEED OF SERVICES AND FILE D ABOUT 550 PAGES TO PROVE WHAT KIND OF SERVICES WERE RECEIVED FROM THE TWO CONCER NS. HE REFERRED TO THE AGREEMENT PLACED AT PAGES 243 TO 250 OF THE PAPER BOOK WITH EMERSON HK AND EMERSON TH AT PAGES 251 TO 258 OF THE PAPER BOOK. HE FURTHER REFERRED TO THE AGREEMENT OF EMERSON HK WITH US, WHICH IS PLACED AT PAGE 943 OF THE PAPER BOOK AND WITH THE AUSTRALIAN COMPANY AT PAGE 947 OF THE PAPER BOOK. HE FURTHER POINTED OUT THAT THE TERMS OF AGREEMENT WOULD SHOW THAT THE REMUNERATION WAS CONSISTENT I.E. WITH ALL CONCERNS IT WAS COST PLUS 5 .8 %. HE REFERRED TO ANOTHER AGREEMENT PLACED AT PAG E 951 OF THE PAPER BOOK WITH CHINA CORPORATION AND WITH ANOTHER CHINA CONCERN AT PAGE 955 OF THE PAPER BOOK. AFTER REFERRING TO THE DOCUMENTS FILED AT PAGES 322 TO 898 OF THE PAPER BOOK I.E. WITH REGARD TO SERVICES AVAILED BY THE ASSESSEE, THE LEARNED AUT HORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSOCIATED ENTERPRISES WERE ADVISING IN DAY - TO - DAY OPERATIONS AND FURTHER OPERATIONS FOR WHICH E - MAIL COMMUNICATIONS WERE MADE. HE REFERRED TO THE ORDER OF TPO AT PAGE 19 AND POINTED OUT THAT TH E TPO DOUBTS THE RENDERING OF ACTIVITIES AS AGAINST WHICH THE ASSESSEE HAD GIVEN ALL DOCUMENTATION TO SHOW SERVICES WERE RENDERED ; THEN THE TPO IS NOT SUPPOSED TO STEP INTO THE SHOES OF BUSINESSMAN TO DECIDE AVAILMENT OF SERVICES. HE STRESSED THAT WHAT BE NEFITS THE ASSESSEE HAD DERIVED , THAT THE ASSESSEE ONLY KNOWS. THE BENEFITS MAY ACCRUE TODAY, TOMORROW OR NOT AT ALL BUT IT WAS FOR THE ASSESSEE TO DECIDE WHETHER IT WANTS TO AVAIL THE SERVICES AND IT IS NOT THE DOMAIN OF TPO TO DECIDE THE SAME. 1 4 . ANOT HER POINT WHICH WAS RAISED BY THE TPO WAS THAT NO PAYMENT FOR THE INITIAL PERIOD WAS SHOWN IN THE PRECEDING YEAR. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE AMOUNT FOR EARLIER YEARS WAS CHARGED FOR THE FIRS T TIME DURING THE YEAR UNDER CONSIDERATION; 17 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 HENCE THERE WAS NO OPPORTUNITY TO DISCLOSE THE PAYMENTS DUE FOR THE INITIAL YEAR IN THE PRECEDING YEAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT SIMILAR ISSUE AROSE BEFORE THE MUMBAI BENCH OF TRIBUNAL IN DRESSER - RAND INDIA (P) LTD. VS. ADDL.CIT (2011) 141 TTJ (MUMBAI) 385 AND THE BANGALORE BENCH OF TRIBUNAL IN INGERSOLL RAND (INDIA) LTD. VS. DCIT (2016) 67 TAXMANN.COM 328 (BANGALORE - TRIB.). HE REFERRED TO THE FACTS B EFORE THE HYDERABAD BENCH OF TRIBUNAL IN TNS INDIA PVT. LTD. VS. ACIT (SUPRA) AND POINTED OUT THAT SIMILAR AS IN THE CASE OF ASSESSEE ON IDENTICAL FACTS , THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE FURTHER REFERRED TO THE ORDER OF TPO IN APPLYING CUP METHOD BY TAKING TRANSACTIONAL VALUE AT NIL. IN THIS REGARD, IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT TNMM METHOD WAS APPLIED AS MOST APPROPRIATE METHOD AS TH E FOREIGN COMPANY I.E. ASSOCIATED ENTERPRISES ALLOCATED COST TO ALL THE COMPANIES, TO WHICH IT WAS RENDERING SERVICES. HE FURTHER STATED THAT IT WAS INCUMBENT UPON THE ASSESSEE TO SHOW THAT WHETHER MARGINAL SUPPORT SERVICES WERE AT ARM'S LENGTH. THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD STRESSED THAT CUP METHOD CANNOT BE APPLIED AS MOST APPROPRIATE METHOD. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN AWB INDIA PVT. LTD. VS. DCIT I N ITA NO.6480/DEL/2012, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 13.10.2014 AND THE MUMBAI BENCH OF TRIBUNAL IN MERCK LTD. VS. DCIT (2014) 148 ITD 513 (MUM). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT AT PAGES 939 AND 940 OF PAPER BOOK , BAS IS FOR COST ALLOCATIONS I.E. EXPENSES INCURRED AND ITS ALLOCATION , IS PROVIDED. AT PAGE 941 OF PAPER BOOK IS ALLOCATION OF C O ST FOR EMERSON HK AND PERUSAL OF THE SAME WOULD REFLECT THAT THE COST HAS BEEN ALLOCATED CENTRE - WISE ON THE BASIS OF TIME SPENT ON PARTICULAR PROJECT ; SUCH COST ALLOCATED TO DIFFERENT COUNTRIES , IF AT ARM'S 18 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 LENGTH PRICE, HA D TO BE ACCEPTED. HE FURTHER REFERRED TO PAGE 1017 OF THE PAPER BOOK AND POINTED OUT THAT FOR EMERSON TH, COST ALLOCATION WAS BEFORE THE TPO. HOWEVER, THE TPO SAYS THAT NO SUCH DETAILS WERE FILED. THE BASIS FOR REJECTION BY THE TPO WAS THAT COMPLETE FINANCIALS OF WHOLE OPERATIONS OF EMERSON HK WERE NOT GIVEN. HOWEVER, THE ASSESSEE HAD FILED CERTIFIED DETAILS OF RELEVANT SERVICES REN DERED / GIVEN, WHEREIN THE SAID EMERSON HK COMPANY WAS ENGAGED IN OTHER BUSINESS ACTIVITIES, WHICH WERE NOT RELEVANT TO THE OPERATIONS IN INDIA AND HENCE, THE INFORMATION WAS NOT RECEIVED BY THE ASSESSEE. COUNTERING THE OBSERVATIONS OF TPO THAT FINANCIALS OF COMPARABLES NOT GIVEN, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO PAGES 1012 AND 1046 OF THE PAPER BOOK AND POINTED OUT THAT IT HAD FILED THE DETAILS INCLUDING DESCRIPTION OF SERVICES PROVIDED BY COMPARABLES. THE ASSESSEE STRES SED THAT WHERE IT HAD GIVEN ALL THE DETAILS BEFORE THE TPO AND THE COST WAS BENCHMARKED ON TRANSACTI O N WISE BY TAKING FOREIGN ENTITY AS TESTED PARTY AND BENCHMARK ING, IF ANY , HA D TO BE CARRIED OUT FROM THE RELEVANT EXTRACT AND NOT THE ENTIRE FINANCIALS WHI CH WERE OF NO RELEVANCE TO THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. REFERRING TO PAGE 239 OF PAPER BOOK I.E. TP STUDY REPORT, WHEREIN THE AUDITOR HAD APPLIED TNMM METHOD BY TAKING FOREIGN COMPANY AS TESTED PARTY AND ANALYZED THE TRANSACTION AND COMPAR ED THE SAME WITH SIX EXTERNAL CONCERNS. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SINCE THE ASSOCIATED ENTERPRISE WAS GIVING MANAGERIAL SERVICES TO THE ASSESSEE, IT HAD SELECTED SIMILAR CONCERNS PROVIDING MANA GERIAL SERVICES. THE TPO HOWEVER, LOOKED INTO THE SAME BUT REJECTED AS ACCORDING TO HIM, COMPLETE DETAILS WERE NOT FILED. THE ASSESSEE STRESSED THAT THE ASSESSEE HAD FILED THE DETAILS WHICH WERE RELEVANT TO DETERMINE THE ARM'S LENGTH PRICE, HENCE NO MERI T IN THE ACTION OF TPO IN THIS REGARD. IN RESPECT OF EMERSON HK COMPANY, IT WAS POINTED OUT THAT THE SAID ASSOCIATED ENTERPRISE WAS PROVIDING SERVICES ONLY TO 19 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 GROUP COMPANIES AND BECAUSE OF CONFIDENTIAL DETAILS, THE SAME CANNOT BE SHARED WITH THIRD PARTY. HENCE, HE STRESSED THAT THERE WAS NO BASIS FOR APPLYING CUP METHOD. IN RESPECT OF CLAIMING EXPENDITURE FOR EARLIER YEAR, HE POINTED OUT THAT SINCE THE INVOICE WAS RECEIVED IN THE MONTH OF SEPTEMBER, 2008, THEN THE ENTIRE EXPENDITURE WAS CLAIMED IN THIS YEAR. FOR THIS, HE PLACED RELIANCE ON RATIO LAID DOWN BY THE BANGALORE BENCH OF TRIBUNAL IN INGERSOLL RAND (INDIA) LTD. VS. DCIT (SUPRA). 1 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FURNISHED WRITTEN SUBMISSIONS AND POINTED OUT THAT THE F ACTS AND ISSUES AND THE ARGUMENTS OF ASSESSEE HAVE BEEN CONSIDERED BY THE TPO IN DETAIL. HE ALSO POINTED OUT THAT THE BILLS WERE NOT RAISED AND EVEN TDS WAS NOT PAID. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE BASIS OF C OST WORKED OUT WAS NOT AVAILABLE AS TO HOW IT WAS ARRIVED AT TO JUSTIFY THE COST CHARGED. THE ASSESSEE ADMITTEDLY, HAD PAID COST PLUS 5.78% BUT WHERE THE ASSESSEE HAD NOT GIVEN THE BREAKUP OF COST, THEN THERE WAS NO MERIT IN MAKING ANY SUCH PAYMENTS TO AS SOCIATED ENTERPRISES. 1 6 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT ASSOCIATED ENTERPRISE HAD USED SCIENTIFIC METHOD OF ALLOCATING THE COST AND THE SAME CANNOT BE DISTURBED ON SUCH BASIS. HE THUS, POINTED OUT TH AT THERE IS NO MERIT IN THE ORDER OF TPO. BEFORE PARTING, HE ALSO POINTED OUT THAT THE TPO HAD RELIED ON THE RATIO LAID DOWN IN THE CASE OF GEMPLUS INDIA PVT. LTD. IN ITA NO.352/BANG/2009, RELATING TO ASSESSMENT YEAR 2003 - 04 , WHERE THE FINDING WAS THAT NO SERVICES WERE RENDERED. HOWEVER, IN THE FACTS OF THE PRESENT CASE THAT WAS NOT THE POSITION. 20 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 1 7 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS 100% SUBSIDIARY OF COPELAND CORPORATION, USA. THE ASSESSEE WAS EARLIER A COMP ANY INCORPORATED UNDER THE COMPANIES ACT AND WAS JOINT VENTURE OF 51:49 BETWEEN KIRLOSKAR BROTHER LTD. (KBL) AND COPELAND CORPORATION. M/S. KBL EXITED THE JOINT VENTURE IN JUNE, 2006 AND THE ASSESSEE BECAME WHOLLY OWNED SUBSIDIARY OF COPELAND CORPORATION . POST - EXIT OF KBL, THERE WAS NEED TO PROVIDE OPERATIONAL, STRATEGIC AND ADVISORY SUPPORT TO THE ASSESSEE COMPANY TO ENSURE THAT ASSESSEE BENEFIT FROM THE MANUFACTURING AND OPERATIONAL PROCESSES FOLLOWED BY EMERSON GROUP OF COMPANIES WORLDWIDE. THE SAID S UPPORT SERVICES WERE PROVIDED BY EMERSON HK AND EMERSON TH, FOR WHICH THE ASSESSEE ENTERED INTO AGREEMENT /S WITH BOTH THE PARTIES SEPARATELY. THE AIM OF PROVIDING SUPPORT SERVICES TO THE ASSESSEE WAS TO ACHIEVE THE FOLLOWING OBJECTIVES: - DEVELOPMENT OF NE W PRODUCTS FOR THE INDIAN MARKET; IMPLEMENTATION OF COST EFFECTIVE AND ADVANCED MANUFACTURING PROCESSES; IMPROVEMENT OF THE FINANCIAL PERFORMANCE AND ACCOUNTING PROCESSES; ESTABLISHING ROBUST CONTROL AND GOVERNANCE PROCESSES; ESTABLISH BEST IN CLASS HR PRA CTICES FOLLOWED THROUGHOUT THE GLOBE; DEVELOP STRONG GLOBAL CUSTOMER BUSINESS; AND DIFFERENTIATE ITSELF IN THE INDIAN MARKET. 1 8 . IN ORDER TO ACHIEVE THE SAID OBJECTIVES, THE ASSESSEE AVAILED SERVICES FROM ITS ASSOCIATED ENTERPRISES. IN THIS REGARD, THE ASSESSEE HAD FURNISHED VARIOUS DOCUMENTARY EVIDENCES BEFORE THE TPO, WHICH WERE IN THE FORM OF E - MAILS/PRESENTATION , DETAILS OF VISIT OF PERSONNEL OF ASSOCIATED ENTERPRISES TO INDIA, PURPOSES OF VISIT , ETC . THE ASSESSEE HAS PLACED ON RECORD THE SAID EVIDE NCES AT PAGES 323 TO 898 OF THE PAPER BOOK I.E. COPIES OF E - MAILS / PRESENTATIONS AND SUMMARY CONTAINING DETAILED EXPLANATION OF THE SAME AT PAGES 911 TO 938 OF THE PAPER BOOK. THE ASSESSEE HAD SUMMARIZED ABOUT 100 E - MAILS JUSTIFYING THE RECEIPT AND BENEF IT OF SERVICES FROM ASSOCIATED ENTERPRISES AND FILED THE SAME SEPARATELY WITH REFERENCE TO THE PAGE NOS . OF PAPER BOOK , WHERE THESE WERE 21 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 ENCLOSED . IN ADDITION TO THE SAME, THE ASSESSEE HAD ENLISTED CERTAIN KEY BENEFITS, WHICH WERE DERIVED BY IT ON ACCOUNT OF PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES IN SUPPORT OF WHICH DOCUMENTARY EVIDENCE WAS FILED , WHICH ARE AS UNDER: - KEY BENEFITS DERIVED PAGE NO. DEVELOPMENT OF NEW PRODUCTS ALUMINIUM MOTOR, PRODUCT SR. NO.CR 72 333 336 ACCESS TO WEB PORTAL S ENABLING SIGNIFICANT COST REDUCTION SUCH AS E - SOURCING ETC. 551 564 ASSISTANCE IN NEGOTIATING A BENEFICIAL PURCHASING RATE WITH SUPPLIERS VIZ. BAO STEEL 487 490 COST REDUCTION TARGETS ACHIEVED DUE TO E - BIDDING PLATFORMS IMPLEMENTED 533 534 ID ENTIFYING LEAD FOR NEW BUSINESS OPPORTUNITIES FOR ECT INDIA EXAMPLES OF SUPPORT/INPUTS RECEIVED FOR WHIRLPOOL FOR INDIAN MARKETS 587 588 IDENTIFYING LEAD FOR NEW BUSINESS OPPORTUNITIES FOR ECT INDIA EXAMPLES OF SUPPORT/INPUTS RECEIVED FOR BLUE STAR FOR ITS MIDDLE EAST MARKETS 597 598 SHARING OF KEY DATA RELATED TO COMPETITORS SUCH AS MITSUBISHI 565 566 SHARING OF KEY DATA RELATED TO COMPETITORS SUCH AS SANYO 583 584 ASSISTANCE IN IMPLEMENTATION OF PERFORMANCE MANAGEMENT SYSTEM FOR EMPLOYEES OF ECT INDIA, IDENTIFYING THE TRAINING NEEDS, ETC 621 622 ACCESS TO REGIONAL / GLOBAL INFORMATION IN RESPECT OF SUPPLIERS, COMMODITIES UPDATES ETC 539 546 SOLUTIONS OBTAINED FOR CRITICAL ISSUES SUCH AS UNIONIZATIONS ISSUES WITH LABOUR, LEGAL CASES PENDING IN COURT, UNION WAGES PROPOSALS, HIGH ATTRITION RATES, E - HIRING DEPLOYMENT, ETC. 613 628 1 9 . THE ASSESSEE THUS, FILED DOCUMENTARY EVIDENCE TO DEMONSTRATE THAT IT HAD AVAILED SERVICES IN THE FIELD OF HUMAN RESOURCES, MARKING AND PRODUCT, FINANC E, BUSINESS DEVELOPMENT AND MANAGEMENT AND OTHER SERVICES I.E. SUPPORT FOR NEW PRODUCT , MARKETING MATERIAL, TRAINING MATERIAL AND TECHNICAL SUPPORT. THE ASSESSEE HAS ALSO EXPLAINED THE NEED FOR SERVICES BEING IN FIELD OF OPERATIONAL, STRATEGIC AND ADVISOR Y SUPPORT SERVICES. THE FIRST ASPECT WHICH ARISES IN THE PRESENT APPEAL IS WHETHER THE TPO WHILE ASCERTAINING WHETHER PRICE PAID FOR THE SERVICES IS AT ARM'S LENGTH PRICE OR NOT , CAN ENTER THE FIELD OF BUSINESSMAN , WHO IS THE BEST JUDGE AS TO WHETHER IT N EEDS TO AVAIL THE SAID SERVICES. THE ANSWER TO THE SAME IS NO. EACH BUSINESSMAN IS THE BEST JUDGE TO COME TO DECISION AS TO WHETHER IT NEEDS THE SAID SUPPORT SERVICES OR NOT. SECONDLY, ONCE SUCH A DECISION HAS BEEN TAKEN BY THE BUSINESSMAN AND IT PROV IDES THE EVIDENCE OF 22 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 SERVICES RECEIVED BY IT FROM ITS ASSOCIATED ENTERPRISES, THEN THE TPO CANNOT QUESTION THE SAME BY COMMENTING UPON THE NATURE OF SERVICES PROVIDED , WHERE IN ANY CASE, INFORMATION IS HYPER TECHNICAL . FIRST OF ALL, WHERE THE TPO HAS REFE RRED TO THE SERVICES PROVIDED AND POINTED OUT DEFECTS IN THE SERVICES PROVIDED, THE FIRST STEP THAT SERVICES HAVE BEEN PROVIDED STANDS ESTABLISHED. ONCE THE SAME IS ESTABLISHED BY WAY OF ASSESSEE PRODUCING SEVERAL EVIDENCES BEFORE THE TPO, WHICH WERE IN T HE FORM OF CONTEMPORANEOUS DATA, THEN THE TPO IS PRECLUDED FROM COMMENTING UPON THE SAME AND HOLDING THAT THE ASSESSEE HAD NOT RECEIVED ANY SERVICES AND ALSO THERE WAS NO NEED FOR MAKING ANY PAYMENTS FOR SUCH SERVICES , AS THE SERVICES PROVIDED WERE NOT UPT O THE MARK. IN ANY CASE, THE PERUSAL OF VARIOUS EVIDENCES FILED BY THE ASSESSEE I.E. CONTEMPORANEOUS DATA AVAILABLE ON RECORD SHOWS THAT IT IS HIGHLY TECHNICAL AND THE SAME HAS BEEN USED BY THE ASSESSEE FOR CARRYING ON ITS BUSINESS ACTIVITIES , SUCH EVIDEN CE CANNOT BE BRUSHED ASIDE BEING NOT UPTO THE MARK. THE TPO HAD REFERRED TO PART OF THE DATA AND DR E W CONCLUSION, WHICH IS NOT WARRANTED IN ANY CASE. 20 . ANOTHER ASPECT OF THE ISSUE WHICH NEEDS TO BE KEPT IN MIND IS THE DEVELOPING SCENARIO OF CARRYIN G ON THE BUSINESS IN THE COUNTRY. THE SAID BUSINESS IS CARRIED ON BY THE ENTITIES WHICH HAVE PRESEN CE OUTSIDE INDIA AND HAVE CERTAIN STANDARDS, WHICH ARE ATTACHED TO ITS BRAND NAME. IN ORDER TO MAINTAIN ITS BRAND VALUE, ARRANGEMENTS ARE MADE WITH DIFFERE NT ENTITIES ACROSS THE GLOBE BY HOLDING COMPANIES , SO THAT DIFFERENT ENTITIES OPERATING IN DIFFERENT PARTS OF THE WORLD ADHER E TO SPECIFIC RULES AND REGULATIONS WHILE CARRYING ON BUSINESS UNDER THE SAID BRAND. THE ASSESSEE IS 100% SUBSIDIARY OF COPELAND C ORPORATION, WHICH ADMITTEDLY, HAS PRESENCE IN VARIOUS COUNTRIES . THE ASSESSEE HAS PLACED ON RECORD THAT BESIDES THE ASSESSEE ENTERING INTO AGREEMENT WITH EMERSON HK, EMERSON TH, VARIOUS ENTITIES OF OTHER COUNTRIES 23 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 HAD ENTERED INTO SUCH AGREEMENTS. THE TE RMS OF THE AGREEMENT ARE SIMILAR FOR PROVIDING SERVICES , WHEREIN A PARTICULAR FORMULA IS DESIGNED BY THE PERSON PROVIDING THE SERVICES I.E. THE BASIS FOR REMUNERATION IS THE COST INCURRED BY WAY OF MAN HOURS CHARGED TO THE ENTITY WITH MARK UP OF 5.8%. SUC H METHOD OF CHARGING AND REMUNERATING WAS IDENTICAL IN THE CASE OF ALL THE ENTITIES WHICH WERE AVAILING THE SERVICES FROM COPELAND CORPORATION THROUGH EMERSON HK AND EMERSON TH. THE ASSESSEE HA D ALSO FURNISHED ON RECORD THE BASIS FOR CHARGING COST BY THE TWO ENTITIES FROM THE ASSESSEE. NO DOUBT, THE COMPLETE DETAILS OF OPERATION S OF THE SAID CONCERN S WORLDWIDE HAD NOT BEEN FILED , BUT THAT HA D NO RELEVANCE TO THE ACTIVITIES OR SERVICES AVAILED BY THE ASSESSEE. THERE IS NO MERIT IN THE ORDER OF TPO IN REJE CTING THE SEGMENTAL DETAILS OF AES FILED BY THE ASSESSEE VIS - - VIS SERVICES AVAILED BY IT. WHAT IS TO BE CONSIDERED IN THE HANDS OF ASSESSEE IS THE SERVICES IT HA D AVAILED FROM EMERSON HK AND EMERSON TH AND NOT THE WHOLE ACTIVITIES UNDERTAKEN BY THE SAID TWO CONCERNS WORLDWIDE. THE ASSESSEE HA D PUT ON RECORD THAT NOT ONLY THE ASSESSEE BUT MANY OTHER CONCERNS WERE AVAILING SAME SERVICES FROM THE TWO ENTITIES AND EVEN THE BASIS FOR REMUNERATION TO THE SAID CONCERNS WAS THE SAME IN RESPECT OF ALL THE COUNTRI ES. IN SUCH CIRCUMSTANCES, THERE IS NO MERIT IN THE ORDER OF TPO IN HOLDING THAT AS TO WHETHER THE SAID CONCERNS HAVE GIVEN SERVICES OR WHETHER THEY ARE QUALIFIED TO GIVE THE SERVICES AND THE COST INCURRED BY AES . FIRST OF ALL, THIS IS OUTSIDE THE DOMAIN OF TPO. UNDER THE TRANSFER PRICING REGULATIONS WHAT THE TPO HAS TO DETERMINE IS WHETHER THE SERVICES WHICH HAVE BEEN PROVIDED BY ASSOCIATED ENTERPRISES ARE AT ARM'S LENGTH PRICE. ACCORDINGLY, WE FIND NO MERIT IN THIS PART OF THE ORDER OF TPO. 21. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN HIVE COMMUNICATION PVT. LTD. IN INCOME TAX APPEAL 24 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 NO.306/2011, WHEREIN IT HAS BEEN HELD THAT THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY MUST BE JUDGED FROM THE VI EW POINT OF THE COMPANY ITSELF AND MUST BE VIEWED FROM THE POINT OF VIEW OF A PRUDENT BUSINESSMAN. IT WAS FURTHER HELD BY THE HONBLE HIGH COURT THAT IT WAS NOT FOR THE ASSESSING OFFICER TO DICTATE WHAT THE BUSINESS NEEDS OF THE COMPANY SHOULD BE ; IT IS B USINESSMAN WHO CAN ONLY JUDGE THE LEGITIMACY OF THE BUSINESS NEEDS OF THE COMPANY FROM THE POINT OF VIEW OF PRUDENT BUSINESSMAN. HENCE, THE BENEFIT DERIVED AND ACCRUING TO THE COMPANY MUST ALSO BE CONSIDERED FROM THE ANGLE OF PRUDENT BUSINESSMAN. THE HON BLE HIGH COURT CLEARLY HELD THAT THE TERM BENEFIT TO A COMPANY IN RELATION TO ITS BUSINESS HAS A VERY WIDE CONNOTATION AND IT WAS DIFFICULT TO ACCURATELY MEASURE THESE BENEFITS IN TERMS OF MONEY SEPARATELY. THE SAID PRINCIPLE LAID DOWN BY THE HONBLE H IGH COURT HAS BEEN APPLIED BY THE DELHI BENCH OF TRIBUNAL IN MCCANN ERICKSON INDIA P. LTD. VS. ADDL.CIT (SUPRA) TO HOLD WHETHER THE BENEFITS DERIVED BY THE ASSESSEE, IN VIEW OF THE EVIDENCES IN RESPECT OF MANAGEMENT SERVICE CHARGES AND CLIENT COORDINATION FEES, CANNOT BE FOUND FAULT WITH. 22 . SI MILAR PROPOSITION HAS BEEN LAID DOWN BY THE HYDERABAD BENCH OF TRIBUNAL IN TNS INDIA PVT. LTD. VS. ACIT (SUPRA), WHEREIN THE ASSESSING OFFICER HAD NOT BELIEVED THE WRITE - UP FOR THE SERVICES PROVIDED AND THE BENEFI T OBTAINED. THE TRIBUNAL HELD THAT UNLESS THE ASSESSING OFFICER STEPS INTO ASSESSEES BUSINESS PREMISES AND OBSERVES THE ROLE OF THE SAID COMPANY OR THE ASSESSEES BUSINESS TRANSACTIONS, IT WOULD BE DIFFICULT TO PLACE ON RECORD THE SORT OF ADVIC E GIVEN IN DAY - TO - DAY OPERATIONS. THEREFORE, THE ORDER OF ASSESSING OFFICER/TPO THAT SERVICES WERE NOT RENDERED BY THE GROUP COMPANIES TO ASSESSEE WAS NEGATED BY THE TRIBUNAL. 25 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 2 3 . THE NEXT STAND OF THE TPO IS TWO - FOLD ; AS TO WHAT BENEFITS HAVE BEEN RECEIVED BY THE ASSESSEE AGAINST THE SAID SUPPORT SERVICES AND INTRICACY VALUE OF SERVICES GIVEN BY THE ASSOCIATED ENTERPRISES. THE SAID ASPECT IS LINKED TO THE ISSUE OF WHETHER THERE IS ANY NEED FOR SERVICES AND IN THE ABSENCE OF ITS ESTABLISHING THE SAME, WHETHER THE TPO / ASSESSING OFFICER IS CORRECT IN DETERMINING THE ARM'S LENGTH PRICE OF TRANSACTIONS AT NIL. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ITS ASSOCIATED ENTERPRISES FOR AVAILING THE SERVICES BECAUSE OF BUSINESS BENEFITS ARISING FROM SUCH AN UNDERST ANDING. L AW DOES NOT REQUIRE THE ASSESSEE TO DEMONSTRATE THE NEED FOR AVAILING THE SERVICES. THE ASSESSEE IS BEST PERSON TO ARRANGE ITS AFFAIRS TO CONDUCT THE BUSINESS IN THE MANNER IT WANTS AND REVENUE CANNOT STEP INTO THE SHOES OF BUSINESSMAN TO DECIDE WHAT IS NECESSARY FOR THE BUSINESSMAN AND WHAT IS NOT. THE TPO IS NOT EMPOWERED TO QUESTION THE DECISION OF ASSESSEE TO AVAIL SUPPORT SERVICES FROM THE ASSOCIATED ENTERPRISES. THE DECISION TAKEN BY THE ASSESSEE IN THE COURSE OF CARRYING ON ITS BUSINESS IS COMMERCIAL DECISION AND THE TPO CANNOT QUESTION SUCH COMMERCIAL WISDOM OF ASSESSEES DECISION. THE SECOND LINKED ISSUE WHICH HAS BEEN RAISED IS THAT THE ASSESSEE DID NOT BENEFIT FROM SUCH SUPPORT SERVICES WHERE THE ASSESSEE HAS SHOWN LOSS ES DURING THE YEAR. 2 4 . THE MUMBAI BENCH OF TRIBUNAL IN DRESSER - RAND INDIA (P) LTD. VS. ADDL.CIT (SUPRA) HAD HELD THAT WE HAVE FURTHER NOTICED THAT THE TPO HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, AS EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSE SSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALYSIS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FO R ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY SO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN 26 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 DETERMINING ALP OF THAT SERVICE. WHEN EVALUATING THE ALP OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. 25. ACCORDINGLY, WE HOLD THAT THE TPO WHILE BENCHMARKING THE TRANSACTIONS HAS TO DETERMI NE WHETHER THE PRICE PAID BY THE ASSESSEE FOR THE SERVICES AVAILED IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME SERVICES. THE ANALYSIS DONE BY THE TPO OF THE NATURE OF SERVICES AND BENEFITS ARISING TO THE ASSESSEE ON AVAILING SUCH SERVIC ES WAS BEYOND THE SCOPE OF TRANSFER PRICING PROVISIONS AND HENCE, WE FIND NO MERIT IN THE SAME. 2 6 . ANOTHER ASPECT WHICH NEEDS TO BE KEPT IN MIND IS THAT IT WAS NOT ONLY THE ASSESSEE BUT OTHER ENTITIES IN DIFFERENT PARTS OF THE WORLD WHICH WERE AVAILING S IMILAR SERVICES FROM THE SAID TWO ENTITIES. THE ASSESSEE HA D FILED ON RECORD THE COPIES OF AGREEMENT WITH THE SAID CONCERNS AND WHEN COMPARED WITH TERMS OF AGREEMENT WITH THE ASSESSEE, THE SAME WERE AT PAR. IN SUCH SCENARIO, WHERE THE BENEFIT OF SERVICES WAS AVAILED BY DIFFERENT ENTITIES WHICH IN TURN, WERE REMUNERATED BY DIFFERENT ENTITIES ON THE BASIS OF COST WORKED OUT ON MAN HOURS BASIS PLUS MARK UP, WHICH WAS AT SAME LEVEL, THEN THE SAME CANNOT BE QUESTIONED. THE ALLOCATION KEY APPLIED BY AE TO ALLO CATE COST OF SERVICES PROVIDED TO DIFFERENT ENTITIES I.E. ON MAN HOUR BASIS IS ONE OF THE ACCEPTED METHODS AND THE SAME COULD NOT BE BRUSHED ASIDE WITHOUT BRINGING ON RECORD ANY ADVERSE EVIDENCE. NOW COMING TO THE ISSUE OF BENCH WORKING THE SAID TRANSACTI ON. THE ASSESSEE IN THE PRESENT CASE HAD TAKEN THE ASSOCIATED ENTERPRISE AS TESTED PARTY AND HAD POINTED OUT THAT THE REMUNERATION OF SUPPORT SERVICES WAS AT ARM'S LENGTH PRICE BY APPLYING THE TNMM METHOD, WHERE THE 27 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 CONCERNS PROVIDING SIMILAR SERVICES , WE RE TAKEN AS COMPARABLE. UNDER THE TRANSFER PRICING PROVISIONS, IT IS INCUMBENT UPON BOTH THE ASSESSEE AND THE AUTHORITIES TO SELECT THE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. THE INDIAN TAX PROVISIONS PROVIDED VARIOUS METHOD S FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS BUT IT IS THE MOST APPROPRIATE METHOD , WHICH HAS TO BE SELECTED FOR BENCHMARKING INTERNATIONAL TRANSACTIONS. THE ASSESSEE HAD PICKED UP THE TNMM METHOD AS MOST APPROPRIATE METHOD SINCE IN THE PRESENT CASE, THE FOREIGN ASSOCIATED ENTERPRISE WAS PROVIDING SIMILAR SERVICES TO DIFFERENT ENTITIES AND WAS TAKEN AS TESTED PARTY . THE SAID ASSOCIATED ENTERPRISE WAS ALLOCATING COST TO ALL ENTITIES TO WHICH IT WAS RENDERING SERVICES. THE ROLE OF ASSESSEE IN SUCH SCE NARIO WAS TO SHOW WHETHER THE MARGINAL SUPPORT SERVICES PROVIDED TO IT WERE AT ARM'S LENGTH PRICE. THE ROLE OF THE TPO IN THIS REGARD WA S ALSO TO DETERMINE THAT THE PRICE PAID BY THE ASSESSEE FOR AVAILING SUPPORT SERVICES WAS AT ARM'S LENGTH PRICE. SECON DLY, THE ASSESSEE HAS REFERRED TO THE INFORMATION FILED BEFORE THE TPO/ASSESSING OFFICER UNDER WHICH THE ALLOCATION OF COST ON THE BASIS OF TIME SPENT ON A PARTICULAR PROJECT HA D BEEN WORKED OUT AND COST ALLOCATED TO DIFFERENT COUNTRIES. THE SAID DETAILS FOR EMERSON HK CONCERN ARE AT PAGE 941 AND FOR EMERSON TH AT PAGE 1017 OF THE PAPER BOOK. THE SAID DETAILS WERE FILED BY THE ASSESSEE BEFORE THE TPO. HOWEVER, HE REJECTED THE SAME AS COMPLETE FINANCIALS OF TOTAL OPERATIONS OF SAID ENTITIES WERE NOT FILED . THE ASSESSEE POINTED OUT THAT CERTIFIED DETAILS OF RELEVANT SERVICES RENDERED WERE GIVEN, WHEREIN BOTH THE ENTITIES WERE ENGAGED IN OTHER BUSINESS OPERATIONS , WHICH WERE NOT RELEVANT FOR DECIDING THE ISSUE OF SUPPORT SERVICES RECEIVED BY THE ASSESSEE , H ENCE COMPLETE DETAILS WERE NOT RELEVANT . HOWEVER, THE TPO BRUSHED ASIDE THE SAME ON THE GROUND THAT COMPLETE DETAILS HA D NOT BEEN GIVEN. 28 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 27. THE ASSESSEE ALSO POINTED OUT THAT THE COMPANIES WERE PROVIDING INFORMATION OF COMPLEX NATURE TO THE ASSESSEE F OR CARRYING ON THE BUSINESS AND WHEN THERE IS CERTAIN AMOUNT OF CONFIDENTIALITY IN THE SAME, THE SAME CANNOT BE SHARED WITH THE THIRD PARTY , AS THE BUSINESS MODEL OF THE ASSESSEE WAS AT STAKE. IN SUCH SCENARIO, WHERE THE ENTITY IS PROVIDING SIMILAR SERVIC ES TO VARIOUS ENTITIES AND FOLLOWING SCIENTIFIC METHOD OF ALLOCATING COST AND CHARGING THE SAME WITH MARK UP, THEN THERE IS NO MERIT IN THE ORDER OF ASSESSING OFFICER / TPO IN REJECTING THE CALCULATION AND SUBMISSIONS FILED BY THE ASSESSEE IN THIS REGARD. THE DETAILS RELEVANT TO COMPUTE THE COST ALLOCATION ON ACCOUNT OF SERVICES HAS BEEN CERTIFIED AND FILED BEFORE THE ASSESSING OFFICER ; THE SAME CANNOT BE BRUSHED ASIDE ON THE GROUND THAT COMPLETE DETAILS HAVE NOT BEEN FILED WHEN THE BALANCE DETAILS WERE NO T RELEVANT FOR DECIDING THE ISSUE ; WHERE THE ENTITIES ARE ENGAGED IN DIFFERENT LINES OF BUSINESS, THEN THERE IS NO MERIT IN THE STAND OF TPO IN THIS REGARD. WE THUS HOLD THAT THE AE IN SUCH CIRCUMSTANCES IS TO BE TAKEN AS TESTED PARTY, FOR BENCHMARKING TH E ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION. THE ASSESSEE FURTHER POINTED OUT THAT IT HAD ALSO FURNISHED COMPLETE FINANCIALS OF COMPARABLES WHICH WERE SELECTED BY IT TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS. THE SAID DETAILS ARE AVAILABLE AT PAG ES 1019 TO 1046 OF THE PAPER BOOK ALONG WITH DESCRIPTION OF SERVICES. THE SAID CONCERNS WERE SELECTED BY SEARCH ON FOREIGN DATA BASE OSIRIS AND COMPARABLE COMPANIES WERE IDENTIFIED AND THE FINANCIAL INFORMATION STATEMENTS ALONG WITH DESCRIPTION OF SERVICE S EXTRACTED FROM THE SAID DATA BASE WERE PROVIDED . I N SUCH SCENARIO, WHERE THE TNMM METHOD IS TO BE APPLIED, THEN INTERNATIONAL TRANSACTION IS TO BE COMPARED WITH INDEPENDENT COMPARABLES AND ONCE SUCH EXERCISE HAS BEEN UNDERTAKEN BY THE ASSESSEE, THE SAME CANNOT BE BRUSHED ASIDE. ACCORDINGLY, WE HOLD THAT THE APPROACH OF TPO/ASSESSING OFFICER IN APPLYING CUP METHOD TO DETERMINE THE ARM'S LENGTH PRICE OF SAID INTERNATIONAL TRANSACTIONS WAS IN - 29 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 APPROPRIATE, WHERE THE TPO HAS FAILED TO IDENTIFY THE COMPARISON OF CONTROLLED TRANSACTIONS WITH COMPARABLE UNCONTROLLED TRANSACTIONS. THE TPO ON THE OTHER HAND, HAD DETERMINED THE ARM'S LENGTH PRICE ON THE BASIS OF NEED AND BENEFITS OF SERVICES TO THE ASSESSEE AND NOT BY BENCHMARKING ON ANY UNCONTROLLED TRANSACTIONS WHICH WERE COMPARABLE TO THE ASSESSEE. SUCH A METHODOLOGY ADOPTED BY THE TPO UNDER THE GARB OF CUP IS NOT PERMISSIBLE IN LAW. ACCORDINGLY, WE HOLD THAT DETERMINATION OF ARM'S LENGTH PRICE BY THE TPO AT NIL IS BAD IN LAW. 2 8 . WE FIND SUPPORT FROM THE RAT IO LAID DOWN IN AWB INDIA PVT. LTD. VS. DCIT (SUPRA), WHEREIN IT WAS HELD THAT ONE OF THE VERY BASIC PRE - CONDITION FOR USE OF CUP METHOD IS AVAILABILITY OF THE PRICE OF THE SAME PRODUCT AND SERVICE IN UNCONTROLLED CONDITIONS. IT IS ON THIS BASIS THAT ALP OF THE PRODUCT OR SERVICE CAN BE ASCERTAINED. IT CANNOT BE A HYPOTHETICAL OR IMAGINARY VALUE BUT A REAL VALUE ON WHICH SIMILAR TRANSACTIONS HAVE TAKEN PLACE. THE ASSESSEE HAS APPLIED TNMM METHOD AND MADE COMPARISON WITH THE MARGINS OF CONCERNS SELECTED FROM FOREIGN DATA BASE AND HAD SHOWN THAT THE MARGINS SHOWN BY THE ASSESSEE WERE HIGHER THAN THE MARGINS SHOWN BY COMPARABLE COMPANIES. IN SUCH SCENARIO, WE FIND NO MERIT IN THE ORDER OF THE TPO IN APPLYING CUP METHOD AS THE MOST APPROPRIATE METHOD. THE FINDINGS OF TPO IN THIS REGARD ARE THUS, REVERSED. ACCORDINGLY, WE HOLD THAT THE TNMM METHOD IS MOST APPROPRIATE METHOD APPROPRIATE METHOD TO BE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE . THE ASSESSEE HAD SELECTED THE FOREIGN AES AS THE TESTED PART Y AND THE SAME MAY BE TAKEN AS THE TESTED PART Y. THE INTERNATIONAL TRANSACTIONS OF FEES PAID FOR ADVISORY AND ANOTHER SERVICES IS THUS TO BE BENCHMARKED BY COMPARING THE MARGINS OF THE TESTED PART Y I.E. THE FOREIGN AE WITH T HE MARGINS OF EXTERNAL COMPARABLES SELECTED BY THE ASSESSEE. 30 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 THE ASSESSEE POINTS OUT THAT THE SAID FOREIGN COMPARABLES WERE ALSO ENGAGED IN PROVIDING SIMILAR ADVISORY AND RELATED SERVICES TO ITS ENTITIES AND THE FINANCIAL DETAILS WERE FILED BEFORE TPO . A CCORDINGLY, WE ARE IN CO NF O RMITY WITH THE EXERCISE UNDERTAKEN BY THE ASSESSEE IN THIS REGARD. HOWEVER, FOR THE LIMITED PURPOSE OF VERIFICATION THAT THE MARGINS SHOWN BY THE TESTED PART Y I.E. THE FOREIGN AE IS AT ARMS LENGTH TO THE MARGINS SHOWN BY THE CO MPARABLES, WHICH WERE SELECTED BY THE ASSESSEE, THE AO/TPO IS DIRECTED TO VERIFY THE CLAIM OF ASSESSEE IN THIS REGARD AND DECIDE THE ISSUE, ACCORDINGLY. REASONABLE OPPORTUNITY OF HEARING SHALL BE GIVEN TO ASSESSEE BY THE AO/TPO. 29. BEFORE PARTING, WE MAY ALSO MAKE REFERENCE TO THE WRITTEN SUBMISSIONS FILED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, WHEREIN AGAINST EACH OF THE GROUND OF APPEAL, HE HAS REPRODUCED THE COMMENTS OF THE TPO AND THE DRP, WHICH WE HAVE ALREADY REFERRED TO WHILE D ECIDING EACH OF THE ISSUES. FURTHER, THE TPO HAD RELIED ON THE RATIO LAID DOWN IN THE CASE OF IN THE CASE OF GEMPLUS INDIA PVT. LTD. (SUPRA), WHERE ADMITTEDLY, NO SERVICES WERE RENDERED AND HENCE, ADDITION. ON THE OTHER HAND, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS FILED DOCUMENTARY EVIDENCE TO SUPPORT ITS CASE OF RECEIPT OF SERVICES FROM ITS ASSOCIATED ENTERPRISES WHICH HAS BEEN LOOKED INTO BY US. THE ASSESSEE HAS ALSO FILED TABULATED DETAILS OF SUMMARY OF DOCUMENTARY EVIDENCES FURNISHED BEFO RE THE TPO DURING THE COURSE OF PROCEEDINGS TO SUPPORT ITS CASE OF RECEIPT OF SERVICES FROM ITS ASSOCIATED ENTERPRISES IN THE FIELD OF OPERATIONS, PROCUREMENT, MARKETING, HUMAN RESOURCES AND FINANCE. REFERENCE IS MADE TO 105 E - MAILS, COPIES OF WHICH ARE P LACED AT PAGES 323 TO 838 OF THE PAPER BOOK, WHEREIN THE ASSESSEE HAS ALSO ENLISTED THE BENEFITS DERIVED BY IT ON THE BASIS OF SUCH ADVICE. IN VIEW OF SUCH CONTEMPORANEOUS DATA BEING FILED BY THE ASSESSEE, WE FIND NO MERIT IN THE ORDER OF TPO IN BRUSHING ASIDE THE CLAIM OF 31 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 ASSESSEE AND HOLDING THAT THE ASSESSEE HAS FAILED TO ESTABLISH ITS CASE OF RECEIVING BENEFITS FROM ASSOCIATED ENTERPRISES, AGAINST WHICH IT HAS PAID THE SAID FEES. 30. THE NEXT ISSUE ON WHICH THE ARM'S LENGTH PRICE OF INTERNATIONAL TRAN SACTIONS WAS ADOPTED AT NIL WAS THE OBSERVATIONS OF ASSESSING OFFICER THAT NO PAYMENT FOR INITIAL YEAR WAS SHOWN AS PART OF INTERNATIONAL TRANSACTIONS DECLARED BY THE ASSESSEE , IN THE SAID YEAR . THE ASSESSEE EXPLAINED THAT IT HAD RECEIVED INVOICE S AFTER C LOSE OF THE YEAR IN SEPTEMBER, 2008 WHICH WAS FOR EARLIER YEAR AND ALSO FOR THE YEAR UNDER CONSIDERATION . S INCE THE INVOICE WAS RECEIVED IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD BOOK THE EXPENDITURE DURING THE YEAR. IN VIEW THEREOF, WHERE THE IN VOICES FOR SERVICES CHARGED WERE RAISED BY THE ASSOCIATED ENTERPRISES IN THE MONTH OF SEPTEMBER, 2008 AND WHERE THE BOOKS OF ACCOUNT OF ASSESSEE FOR THE FINANCIAL YEAR 2007 - 08 HAD ALREADY BEEN CLOSED, THEN THE TRANSACTION FOR EARLIER YEAR COULD NOT BE ACCO UNTED FOR OR BE REPORTED DURING THE EARLIER YEAR. ACCORDINGLY, THERE IS NO MERIT IN THE CONTENTION OF AO/ TPO IN THIS REGARD . THUS, THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 3 1 . THE ISSUE WHICH IS RAISED VIDE GROUND OF APPEAL NO.3 IS A GAINST TRANSFER PRICING ADJUSTMENT MADE BY THE TPO/ASSESSING OFFICER OF RS.55,66,278/ - WITH RESPECT TO INTERNATIONAL TRANSACTIONS OF PAYMENT OF FEES FOR DESIGNING AND CONSULTANCY SERVICES. THE ASSESSEE CLAIMS THAT NO DISALLOWANCE WAS TO BE MADE AS IT HAD SUO MOTU DISALLOWED THE PAYMENT UNDER SECTION 40(A)(IA) OF THE ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US POINTED OUT THAT LIMITED DIRECTIONS WERE NEEDED FROM THE TRIBUNAL TO ALLOW DISCOUNT OF 32 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 RS.55,66,278/ - OUT OF TOTAL OF RS.1 .16 CRORES IN THE SUCCEEDING YEAR AS THE TAX WAS WITHH E LD ON THE SAID PAYMENT IN THE NEXT YEAR. 32. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD COMMENCED NEW ACTIVITY, WHEREIN IT PROVIDED COOLING SOLUTIO NS TO THIRD PARTY CUSTOMERS IN INDIA. SINCE THE ASSESSEE DID NOT HAVE NECESSARY EXPERTISE IN THIS LINE OF BUSINESS, THE ASSESSEE APPROACHED ONE OF ITS ASSOCIATED ENTERPRISES CLIVE SAMUELS & ASSOCIATES INC FOR RELEVANT CONSULTANCY SERVICES. THE ASSESSEE F OR AVAILING THE SAID SERVICES HAD TO PAY SUM OF RS.1,16,25,233/ - TO ITS ASSOCIATED ENTERPRISES. IN THE DIVISION OF CONSULTANCY SERVICES, BECAUSE OF THIS BEING INITIAL YEAR OF OPERATIONS AND NEW LINE OF BUSINESS, THE ASSESSEE NEGOTIATED FOR DISCOUNT WITH I TS ASSOCIATED ENTERPRISES AND IT WAS AGREED TO PROVIDE LUMP SUM DISCOUNT OF RS.55,66,278/ - . THUS, IN EFFECT, THE ASSESSEE HAD TO PAY SUM OF RS.60,58,995/ - FOR SUCH SERVICES. THE DISCOUNT RECEIVED WAS ACCOUNTED FOR AS INCOME IN THE SUBSEQUENT ASSESSMENT Y EAR I.E. 2010 - 11. THE TPO MADE AN ADJUSTMENT OF RS.55,66,278/ - ON THIS COUNT IN THE YEAR UNDER CONSIDERATION. 3 3 . THE ASSESSEE BEFORE US PLEADED THAT EVEN IF THE ARM'S LENGTH PRICE OF SAID TRANSAC TION IS TAKEN AT RS.60,58,955/ - AND ADDITION OF RS.55,66,2 78/ - IS MADE, THERE WOULD BE NO IMPACT ON THE TAXABLE INCOME SINCE THE ENTIRE PAYMENT OF RS.1.16 CRORES HAS BEEN DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. HE FURTHER POINTED OUT THAT THE SAID AMOUNT OF RS.55,66,278/ - WAS OFFERED TO TAX IN THE SUBSEQU ENT YEAR, HENCE NO ADJUSTMENT IS TO BE MADE. HOWEVER, ON WITHOUT PREJUDICE BASIS, THE ASSESSEE PLEADED THAT SINCE THE AMOUNT HAS BEEN OFFERED TO TAX IN THE SUBSEQUENT YEAR EVEN IF THE ADJUSTMENT IS MADE IN CURRENT YEAR, THEN THE ASSESSING OFFICER SHOULD G RANT RELIEF IN THE SUBSEQUENT FINANCIAL YEAR I.E. ASSESSMENT YEAR 2010 - 11 IN ORDER TO AVOID DOUBLE TAXATION OF THE SAID AMOUNT. 33 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 3 4 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ACCEPTED THE PROPOSAL MADE BY THE ASSESSEE, IN CASE THE SAID AMOU NT IS ADDED IN THE YEAR UNDER CONSIDERATION. 3 5 . ON CONSIDERATION OF VARIOUS FACTS AND ISSUE RAISED VIDE GROUND OF APPEAL NO.3, ONCE SUM OF RS.1.16 CRORE HAS BEEN ADDED AS INCOME OF THE ASSESSEE BY WAY OF DISALLOWANCE MADE BY THE ASSESSEE IN ITS COMPUTAT ION OF INCOME FOR VIOLATION OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WE HOLD THAT ONCE THE ADDITION HAS BEEN MADE IN THE YEAR UNDER CONSIDERATION, THEN THE OFFER OF INCOME IN THE SUBSEQUENT YEAR BY THE ASSESSEE OF RS.55,66,278/ - , WHICH IS DISCOUNT AL LOWED TO THE ASSESSEE NEEDS TO BE REDUCED FROM THE INCOME OF SUCCEEDING YEAR. THE APPEAL FOR SUCCEEDING YEAR IS ALSO FIXED BEFORE US AND ACCORDINGLY, WE HOLD THAT DIRECTION OF EXCLUSION OF RS.55,66,278/ - IS RELATABLE TO ASSESSMENT YEAR 2010 - 11 AND THE ASS ESSING OFFICER IS THUS, DIRECTED TO REDUCE THE INCOME OF ASSESSEE IN ASSESSMENT YEAR 2010 - 11. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, DECIDED AS JUDICATED ABOVE. 3 6 . THE ISSUE IN GROUND OF APPEAL NO.4 IS IN RESPECT OF PAYMENT OF COMMI SSION TO ASSOCIATED ENTERPRISES. THE ASSESSEE POINTED OUT THAT THE LIMITED ISSUE WHICH ARISES IS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PAID COMMISSION OF RS.10,78,51,033/ - TO ITS ASSOCIATED ENTERPRISES, OUT OF WHICH SUM OF RS. 1,80,44, 460/ - HAS BEEN REVERSED IN THE SUBSEQUENT FINANCIAL YEAR. THE ASSESSEE POINTED OUT THAT THE TPO IN THIS REGARD HAD CONSIDERED THE ARM'S LENGTH PRICE OF THE AFORESAID TRANSACTION AT RS.8,98,06,573/ - WITH DIRECTION THAT THE ASSESSING OFFICER MAY GIVE CREDIT FOR THE SAID AMOUNT IN SUBSEQUENT FINANCIAL YEAR IF THE SAME IS OFFERED TO TAX IN THAT YEAR. 34 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 3 7 . THE ASSESSEE IS AGGRIEVED BY THE ORDER OF ASSESSING OFFICER IN NOT INCLUDING THE SAID DIRECTION OF THE TPO IN THE FINAL ASSESSMENT ORDER. 3 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAME MAY BE REDUCED IN THIS YEAR BUT THE SAME CANNOT BE TAXED IN NEXT YEAR. 3 9 . WE FIND MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO REDUCE SUM OF RS.1.80 CRORES FROM THE TOTAL INCOME OF ASSESSEE IN ASSESSMENT YEAR 2010 - 11 SINCE THE SAID ISSUE IS CONSEQUENTIAL TO THE DIRECTIONS OF THE TPO IN THIS REGARD, WHICH THE ASSESSING OFFICER HAS FAILED TO FOLLOW IN THE FINAL ASSESSMENT ORDER. 40 . THE LAST ISSUE RAI SED VIDE GROUND OF APPEAL NO.5 IS AGAINST CORPORATE GROUND OF ASSESSING OFFICER AND THE DRP IN NOT ALLOWING DEDUCTION OF RE - ALLOCATION EXPENSES OF RS.6,27,41,624/ - ON PAYMENT BASIS. 4 1 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID AMOUNTS WERE PAID DURING THE YEAR AND SINCE IT WAS PAID IN THE YEAR UNDER CONSIDERATION, THE SAME MERITS TO BE ALLOWED. HE FURTHER POINTED OUT THAT THE DETAILS WERE FILED BEFORE THE ASSESSING OFFICER WHICH HAVE NOT VERIFIED BY HIM. 4 2 . BRIE F FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE DURING THE ASSESSMENT YEAR 2008 - 09 HAD TERMINATED ITS TRADING RELATIONSHIP WITH ITS SUPPLIER I.E. HEMATIC MOTORS PVT. LTD. AND PRESSMATIC ELECTRO STAMPINGS PVT. LTD. THE ASSESSEE ENTERED INTO AN AGREEMEN T WITH THEM AND THE PARTIES AGREED TO RE - 35 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 ALLOCATE ITS BUSINESS ASSETS TO ANOTHER LOCATION, THEREBY MAKING AVAILABLE THE LAND BELONGING TO THE ASSESSEE FOR BUSINESS OPERATIONS OF ASSESSEE. IT WAS AGREED THAT THE ASSESSEE WOULD REIMBURSE TO THE SAID PARTIES RELOCATION EXPENSES INCURRED BY THEM UP TO THE MAXIMUM LIMIT OF RS.14,66,36,000/ - . THE PAYMENT OF RELOCATION COST HAD TO BE MADE TO THE PARTIES ON RECEIPT OF SUPPORTING DOCUMENTATION. THE ASSESSEE MADE A PROVISION OF THIS AMOUNT IN THE BOOKS OF ACCOUNT AND CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. OUT OF RS.14.66 CRORES, SUM OF RS.8,38,94,367/ - WAS USED IN THE YEAR AND THE BALANCE PROVISION OF RS.6,27,41,624/ - WAS CARRIED FORWARD IN THE NEXT YEAR. THE ASSESSING OFFICER ALLOWED THE EXPENDITURE OF RS .8.38 CRORES, HOWEVER , DISALLOWED BALANCE PROVISION OF RS.6.27 CRORES AS CONTINGENT IN NATURE. THE DRP DID NOT INTERFERE WITH THE ORDER OF ASSESSING OFFICER AND THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER HELD THE PROVISION OF RS.6.27 CRORES TO BE CAPITAL IN NATURE. THE ASSESSEE FILED RECTIFICATION APPLICATION UNDER SECTION 154 OF THE ACT TO CONSIDER THE DISALLOWANCE OF RS.6.27 CRORES DUE TO CONTINGENT NATURE OF EXPENDITURE. THE ASSESSING OFFICER PASSED THE RECTIFICATION ORDER AND SUSTAINED THE D ISALLOWANCE ON ACCOUNT OF CONTINGENT NATURE OF EXPENDITURE. 4 3 . HOWEVER, IN THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2009 - 10, THE ASSESSEE RECEIVED SUPPORTING DOCUMENTATION IN RESPECT OF RS.6.27 CRORES THAT THE AMOUNT HAS BEEN PAID TO THE CONCERN ED PARTY AND THE SAME WAS CLAIMED AS DEDUCTION IN ASSESSMENT YEAR 2009 - 10. THE ASSESSEE CLAIMS THAT IT HAD FILED DETAILS BEFORE THE ASSESSING OFFICER DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE CLAIM OF ASSESSEE WAS REJECTED BEING CONTINGENT AND CA PITAL IN NATURE. THE ASSESSING OFFICER HAD FAILED TO CONSIDER THE RECTIFICATION ORDER PASSED UNDER SECTION 154 OF THE ACT. 36 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 4 4 . IN THE TOTALITY OF THE ABO VE SAID FACTS AND CIRCUMSTANCES AND IN VIEW OF RECTIFICATION ORDER, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO CONSIDER THE CASE OF ASSESSEE AFTER GOING THROUGH THE DETAILS IN THIS REGARD AND DECIDE THE ISSUE ON VERIFICATION OF SAID DOCUMENTS. THE ASSESSEE IS DIRECTED TO FILE THE REQUISITE EVIDENCE BEFORE THE ASSESSING OFFICER IN RESP ECT OF ITS CLAIM. IN CASE THE ASSESSEE HAS REIMBU8RSED THE AMOUNT OF RELOCATION, THUS THE SAME IS NEITHER CONTINGENT NOR CAPITAL AND IS TO BE ALLOWED AS REVENUE EXPENDITURE. ACCORDINGLY, THE GROUND OF APPEAL NO.5 IS ALLOWED FOR STATISTICAL PURPOSES. 4 5 . NOW, COMING TO THE APPEAL FOR ASSESSMENT YEAR 20 10 - 11 , WHEREIN GROUNDS OF APPEAL NO.1 TO 4 ARE IN RESPECT OF TRANSFER PRICING ADJUSTMENT MADE AGAINST FEES FOR ADVISORY AND OTHER SERVICES. BOTH THE LEARNED AUTHORIZED REPRESENTATIVES POINTED OUT THAT THE F ACTS AND ISSUES ARE IDENTICAL TO THE FACTS AND ISSUES IN ASSESSMENT YEAR 2009 - 10 AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT INTERNATIONAL TRANSACTIONS IN RESPECT OF FEES FOR ADVISORY AND OTHER SERVICES IS TO BE BENCHMARKED APPLYING TNM METHOD . THE ASSESSING OFFICER IS DIRECTED TO TAKE THE FOREIGN AE AS TESTED PARTY AND COMPARE THE MARGINS WITH MARGIN OF COMPARABLES SELECTED BY ASSESSEE AND BENCHMARK THE SAME. 4 6 . THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS LINKED TO THE GROUND OF A PPEAL NO.4 RAISED IN ASSESSMENT YEAR 2009 - 10 I.E. SUM OF RS.1.80 CRORES ON ACCOUNT OF COMMISSION IS NOT TO BE TAXED IN SUBSEQUENT YEARS ONCE IT HAS ALREADY BEEN OFFERED TO TAX BY THE ASSESSEE. FOLLOWING THE SAME PARITY OF REASONING AS IN GROUND OF APPEAL NO.4, WE DIRECT THE ASSESSING OFFICER/TPO NOT TO TAX SUM OF RS.1.80 CRORES IN THE HANDS OF ASSESSEE IN ASSESSMENT YEAR 2010 - 11. 37 ITA NO. 2182 /P U N/201 3 ITA NO.211/PUN/2015 47. THE ISSUE IN GROUND OF APPEAL NO.6 IS LINKED TO GROUND OF APPEAL NO.3 IN ASSESSMENT YEAR 2009 - 10, WHEREIN WE HAVE DIRECTED THAT SUM OF RS.55,66,278/ - OFFERED BY THE ASSESSEE AS INCOME FOR THAT YEAR IS NOT TO BE TAXED IN THE HANDS OF ASSESSEE SINCE THE SAID AMOUNT HAS ALREADY BEEN DISALLOWED IN ASSESSMENT YEAR 2009 - 10. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE SAID AMOUNT IS NOT TO BE TAXED IN THE HANDS OF ASSESSEE IN ASSESSMENT YEAR 2010 - 11. 4 8 . IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF DECEMBER, 201 7 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH DECEMBER, 201 7 . GCVSR / COPY OF THE O RDER IS FORWARDED TO : 1. THE APPELLANT ; 2 . THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE