ITO 10(3)(2), MUMBAI V. JARDINE LLOYED THOMPSON P.LTD, MUMBAI

ITA 2181/MUM/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1736 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 25-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER IT A NO. 2181/MUM./2014 ( ASSESSMENT YEAR : 20 09 1 0 ) INCOME TAX OFFICER WARD 10(3) 2, MUMBAI . APP ELL ANT V/S JA RDINE LLOYED THOMPSON PVT. LTD. 1103, 11 TH FLOOR, KENSINGSTON SEZ HIRANANDANI BUSINESS PARK POWAI, MUMBAI 400 076 PAN AABCJ8288K . RESPONDENT ASSESSEE BY : SHRI NISHANT THAKKAR A/W MS. JASMIN AMALSADWALA REVENUE BY : SHRI ANAND MOHAN DATE OF HEARING 0 3 .0 4 .2019 DATE OF ORDER 12.06.2019 O R D E R PER SAKTIJIT DEY. J.M. A FORESAID APPEAL AT THE INSTANCE OF THE REVENUE IS DIRECTED AGAINST THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL III (DRP) , MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2009 10. 2 . IN GROUNDS NO.1, 2 AND 3, THE REVENUE HAS CHALLENGED THE EXCLUSION OF THE FOLLOWING COMPARABLES: 2 JORDINE LLOYED THOMPSON PVT. LTD. I ) CG VAK SOFTWARE AND EXPORTS LTD. II ) GENESIS INTERNATIONAL CORPORATION LTD. AND III ) COSMIC GLOBAL LTD. 3 . BRIEF FACTS RELAT ING TO THIS ISSUE ARE, THE ASSESSEE , AN INDIAN COMPANY , IS ENGAGED IN THE BUSINESS OF PROVIDING BACK OFFICE SUPPORT SERVICE S WHICH CAN BE CLASSIFIED AS INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EN TERED INTO VARIOUS INTERNATIONAL TRANSACTION S WITH ITS OVERSEAS ASSOCIATED ENTERPRISES (AE). INSOFAR AS THE PROVISION OF BACK OFFICE SUPPORT SERVICE (BPO) IS CONCERNED, THE ASSESSEE HAS EARNED REVENUE OF ` 16,45,35,639, FROM ITS A E. IN THE TRANSFER PRICING ANALYSIS, ASSESSEE BENCH MARKED THE AFORESAID TRANSACTION BY SELECTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT TO TOTAL COST RATIO AS THE PROFIT LEVEL INDICATOR (PLI). IN THE COU RSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER CALLED UPON THE ASSESSEE TO SHOW CAUSE WHY THE COMPARABLES SELECTED BY HIM IN THE ASSESSMENT YEAR 2008 09, CANNOT BE SELECTED FOR THE CURRENT YEAR BY APPLYING THE SAME FILTER S . IN RESPONSE, THE AS SESSEE OBJECTED TO THE APPLICATION OF FILTERS AND COMPARABLES OF ASSESSMENT YEAR 2008 09. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE TRANSFER PRICING OFFICER ULTIMATE LY REJECTED THE TRANSFER PRICING ANALYSIS OF THE ASSESSEE BY POINTING OUT VARI OUS DEFECTS / DEFICIENCIES. HAVING DONE SO, THE TRANSFER PRICING 3 JORDINE LLOYED THOMPSON PVT. LTD. OFFICER PROCEEDED TO SELECT COMPARABLES INDEPENDENTLY BY APPLYING SOME OF THE FILTERS APPLIED BY THE ASSESSEE ALONG WITH SOME ADDITIONAL FILTERS. IN THE PROCESS, HE REJECTED SOME OF THE COMPA RABLES SELECTED BY THE ASSESSEE AND INCLUDED SO ME NEW COMPARABLES. THUS , THE TRANSFER PRICING OFFICER FINALLY SELECTED A SET OF 11 COMPARABLES HAVING AVERAGE MARGIN OF 31.70% . B Y APPLYING THE AVERAGE MARGIN OF COMPARABLES TO THE OPERATING COST, HE DETERMIN ED THE ARM'S LENGTH PRICE OF THE SERVICES RENDERED TO THE AE AT ` 18,99,71,214. AS AGAINST THE PRICE RECEIVED BY THE ASSESSEE OF ` 16,87,34,581. THE RESULTANT SHORT FALL OF ` 2,12,36,633, WAS SUGGESTED TOWARDS UPWARD ADJUSTMEN T TO THE PRICE CHARGED TO THE AE . THE ADJUSTMENT SUGGESTED BY THE TRANSFER PRICING OFFICER WAS ADDED BACK TO THE INCOME OF THE ASSESSEE WHILE FRAMING THE DRAFT ASSESSMENT ORDER. THE ASSESSEE CHALLENGED THE AFORESAID ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER BY RAISING OBJECTIONS BEFORE LEARNED DRP. 4 . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED DRP DIRECTED THE ASSESSING OFFI CER TO INCLUDE CG VAK SOFTWARE A ND EXPORTS LTD. AS A COMPARABLE AND EXCLUDE GENESIS INTERNATIONAL CORPORATION LTD. AND COSMIC GLOBAL LTD. FROM TH E LIST OF COMPARABLES. HEREIN AFTER WE WILL DEAL WITH EACH OF THE COMPARABLE DISPUTED BEFORE US BY THE REVENUE. I) CG VAK SOFTWARE AND EXPORTS LTD. 4 JORDINE LLOYED THOMPSON PVT. LTD. 5 . THIS IS ONE OF THE COMPARABLES SELECTE D BY THE ASSESSEE IN ITS TRANSFER PRICING ANALYSIS. THE TRANSFER PRICING OFFICER HAS REJECTED THIS COMPANY ON THE GROUND THAT IT HAS INCURRED LOSS IN THE PRECEDING TWO YEARS. 6 . LEARNED DRP WHILE CONSIDERING THE OBJECTIONS OF THE ASSESSEE NOTED THAT AS PER ASSESSEES CONTENTION, SEGMENTAL FINANCIALS OF T HE COMPANY WITH RE FERENCE TO ITES SEGMENT IS AVAILABLE AND AS PER THE SEGMENTAL DETAILS AVAILABLE , THE COMPANY HAD AN OPERATING MARGIN OF 3.84% FOR THE YEAR UNDER CONSIDERATION. THEREFORE, HE DIRECTED THE ASSESSING OFFICER TO VERIFY THE FINANCIALS OF THE COMPANY AND IF THE SEGMENTAL OPERATING MARGIN CAN BE RELIABLY COMPUTED, THE COMPANY SHOULD BE ACCEPTED AS A COMPARABLE. 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED BEFORE US THAT THE COMPANY IS A CONSISTENT LOSS MAKING COMPANY, HENCE, CANNOT BE SELECTE D AS A COMPARABLE. FURTHER, HE SUBMITTED , WHILE SELECTING / REJECTING COMPARABLES, THE TRANSFER PRICING OFFICER HAS APPLIED LESS THAN ` 1 CRORE ITE S REVENUE FILTER AND HAS EXCLUDED ALL THE COMPANIES WHOSE REVENUE FROM ITES SEGMENT WAS BELOW ` 1 CRORE. HE S UBMITTED , SINCE , THE REVENUE FROM ITE S SEGMENT OF THE COMPANY IS LESS THAN ` 1 CRORE, IT CANNOT BE SELECTED AS A COMPARABLE. 5 JORDINE LLOYED THOMPSON PVT. LTD. 8 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE ASSESSEE HAD NEVER APPLIED LESS THAN ` 1 CRORE ITE S REVENUE FILTER. HE SUBMIT TED , NOR HAS THE TRANSFER PRICING OFFICER APPLIED THE AFORESAID FILTER. THEREFORE, HE SUBMITTED , THE DEPARTMENT CANNOT INTRODUCE A FRESH ARGUMENT WHICH WAS NEITHER THE CASE OF THE TRANSFER PRICING OFFICER NOR LEARNED DRP. HE SUBMITTED , THE DRP HAS SIMPLY D IRECTED THE ASSESSING OFFICER TO VERI FY THE MARGIN OF THE COMPARABLE AND ON VERIFYING THE MARGIN OF THE COMPARABLE, THE ASSESSING OFFICER HAVING FOUND THAT IT HAS A PROFIT MARGIN OF 3.84% INCLUDED IT AS A COMPARABLE IN THE FINAL ASSESSMENT ORDER. 9 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY GROUND ON WHICH THE TRANSFER PRICING OFFICER HAS REJECTED THIS COMPANY AS A COMPARABLE IS , IT HAS MADE LOSS IN THE PRECEDING TWO ASSESSMENT YEARS. HOWEVER, BEFORE LEARNED DRP, IT WA S ARGUED BY THE ASSESSEE THAT IN THE CURRENT YEAR, THE COMPANY HAS A MARGIN OF 3.4% . C ONSIDERING TH E AFORESAID SUBMISSION OF THE ASSESSEE, LEARNED DRP HAD DIRECTED THE ASSESSING OFFICER / TRANSFER PRICING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE AND , IN CASE IT WAS FOUND TO BE CORRECT , TO INCLUDE THE COMPANY AS A COMPARABLE. NOTABLY, WHILE IMPLEMENTING TH E AFORESAID DIRECTION OF LEARNED DRP, THE TRANSFER PRICING OFFICER HAS EXAMINED THE FINANCIALS OF THE AFORESAID COMPANY AND HAS FOUND THAT IT HAD A MARG IN OF 3.4% FROM ITE S SEGMENT. 6 JORDINE LLOYED THOMPSON PVT. LTD. THEREFORE, IT WAS ACCEPTED AS A COMPARABLE. INSOFAR AS T HE OTHER CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE COMPANY DOES NOT QUALIFY MORE THAN ` 1 CRORE ITE S REVENUE FILTER, I T IS FOUND FROM RECORD , NEITHER THE ASSESSEE NOR THE TRANSFER PRICING OFFICER HAVE APPLIED THE AFORESAID FILTER TO SELECT/ REJECT COMPARABLES. THAT BEING THE CASE, THE REVENUE CANNOT INTRODUCE A FRESH ARGUMENT AT THIS STAGE TO JUSTIFY THE REJECTION OF THE COMPANY AS A COMPARABLE. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED DRP ON THE ISSUE. II) GENESIS INTERNATIONAL CORPORATION LTD. 10 . THIS COMPANY WAS SELECTED BY THE TRANSFER PRICING OFFICER DESPITE OBJECTIONS OF THE ASSESSEE. 11 . BEFORE LEARNED DRP, IT WAS SUBMITTED BY THE ASSESSEE THAT THE COMPANY IS ENGAGED IN VARIOUS BUSINESS ACTIVITIES INCLUDING GEOPHYSICAL INFORMATION SERVICES (GIS) , THEREFORE, IT IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. 12 . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED DRP HAVING FOUND THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE , DIRECTED THE ASSESSING OFFICER TO EXCLUDE IT FROM THE LIST OF COMPARABLES. 7 JORDINE LLOYED THOMPSON PVT. LTD. 13 . LEARNED DEPARTMENTAL REPRESENTATIVE, THOU GH , RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER, HOWEVER, HE FAIRLY SUBMITTED THAT IN ASSESSMENT YEAR 2008 09, THE DRP HAS REJECTED THIS COMPANY AS A COMPARABLE., 14 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THIS COMPANY IS IN NO WAY COMPARABLE TO THE ASSESSEE DUE TO DIVERGENT ACTIVITIES CARRIED ON BY IT. HE SUBMITTED , IN A NUMBER OF DECISIONS, THE CO ORDINATE BENCH ES AS WELL AS DIFFERENT HIGH COURTS HAVE HELD THAT THIS COMPANY CANNOT BE A COMPARABLE TO A BPO SERVICE PROVIDER DUE TO FU NCTIONAL DIFFERENCE. HE SUBMITTED , IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 09, THE TRIBUNAL HAS REJECTED THIS COMPANY AS A COMPARABLE. IN SUPPORT OF HIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) CI T V/S MERCER CONSULTING INDIA PVT. LTD., [2017] 390 ITR 615 (P&H); II ) WNS GLOBAL SERVICE PVT. LTD. V/S ITO, [2019 ] 103 TAXMANN.COM 75 (MUM.); III ) EXCELLENCE DATA RESEARCH PVT. LTD. V/S ITO, [ 2014] 49 TAXMANN.COM 409 (HYD.); AND IV ) CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD. V/S ADIT, [2014] 49 TAXMANN.COM 313 (HYD.). 15 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. ON A PERUSAL OF THE ANNUAL REPORT OF THE COMPANY PLACED IN THE PAPER 8 JORDINE LLOYED THOMPSON PVT. LTD. BOOK, IT IS NOTICED THAT THE COMPANY IS ENGAGED IN RENDERING GEOGRAPHICAL INFORMATION SERVICES, PHOTOGRAMME TRY , REMOTE SENSING , CARTOGRAPHY, DATA CONVERSION RELATED COMPUTER BASED SERVICES, ETC. THUS, FROM THE AFORESAID FACTS, IT IS EVIDENT THAT THE COMPANY IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AS IT IS PROVIDING KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICE S . CONSIDERING THE AFORESAID FACTUAL POSITION, HONBLE HIGH COURTS AND DIFFERENT BENCHES OF THE TRIBUNAL HAVE HELD THAT THIS COMPANY CANNOT B E CONSIDERED AS A COMP ARABLE TO A ROUTINE BPO SERVICE PROVIDER. IN THIS CONTEXT, WE MAY REFER TO THE DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE WHICH ARE FOR THE VERY SAME ASSESSMENT YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE AFORESAID DECISION S , WE UPHOLD THE REJECTION OF THIS COMPANY AS A COMPARABLE. III) COSMIC GLOBAL LIMITED 16 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICING ANALYSIS AND WAS ACCEPTED BY THE TRANSFER PRICING OFFICER. HE SUBMITTED , THE DRP HAS REJECTED IT BY ACCEPTING THE SUBMISSIONS OF THE ASSESSEE THAT 90% OF THE REVENUE OF THE COMPANY IS FROM TRANSLATION CHARGES WHICH IS FUNCTIONALLY INCOMPARABLE TO THE ASSES SEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , IN THE PRECEDING YEAR ALSO, ASSESSEE HAD SELECTED IT AS A COMPARABLE , WHICH WAS ACCEPTED BY 9 JORDINE LLOYED THOMPSON PVT. LTD. THE T RANSFER PRICING OFFICER . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , WHEN THE COMPANY WAS INCLUD ED AS FUNCTIONALLY COMPARABLE IN THE PRECEDING YEAR , IN THE ABSENCE OF ANY CHANGE IN FUNCTIONAL COMPARABILITY, IT CANNOT BE REJECTED IN THE IMPUGNED ASSESSMENT YEAR. FOR SUCH PROPOSITION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) SCHLUMBERGER INDIA TECHNOL OGY CENTRE PVT. LTD. V/S DCIT, [2018] 90 TAXMANN.COM 19 (PUNE TRIB.); HONDA MOTORCYCLE & SCOOTERS INDIA PVT. LTD. V/S ACIT, [2015] 56 TAXMANN.COM 237 (DEL. TRIB.); II ) ACIT V/S SCHLAFHORST MARKETING CO. LTD. [2011] 13 TAXMANN.COM 104 (MUM.); AND III ) TNT INDIA PVT. LTD. V/S ACIT, 2011 TII 39 ITAT BANG TP. 17 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE COMPANY IS NOT AT ALL COMPARABLE TO THE ASSESSEE AS 95% OF ITS REVENUE IS EARNED FROM TRANSLATION SERVICES WHICH ARE NOT COMPARABLE TO BPO SERVICE. THUS, H E SUBMITTED , THAT THE COMPANY WAS RIGHTLY REJECTED AS COMPARABLE. IN SUPPORT OF HIS CONTENTION, LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) VFS GLOBAL SERVICES PVT. LTD. V/S DCIT, [2017] 82 TAXMANN.COM 110 (MUM.); AND II ) XCHANGI NG TECHNOLOGIES SERVICES INDIA PVT. LTD. V/S DCIT, ITA NO.1897/DEL./2014, DATED 24 TH APRIL 2015. 10 JORDINE LLOYED THOMPSON PVT. LTD. 18 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. NO DOUBT, FROM THE FACTS ON RECORD IT IS EVIDENT THAT THE AFORESAID COMPANY WAS SELECTED AS A COMPARABLE BY THE ASSESSEE AND RETAINED BY THE TRANSFER PRICING OFFICER. HOWEVER, BEFORE LEARNED DRP THE ASSESSEE HAD PLEADED THAT 95% OF THE REVENUE EARNED BY THE COMP ANY IS FROM TRANSLATION SERV ICE, HENCE, IT IS NOT COMPARABLE TO THE ASSESSEE. FROM THE ANNUAL REPORT OF THE COMPANY PLACED IN THE PAPER BOOK, IT APPEARS THAT THE COMPANY IS PREDOMINANTLY INTO THE BUSINESS OF PROVIDING TRANSLATION SERVICE. THE REVENUE EARNED FROM THE BPO SEGMENT IS MI NISCULE . CONSIDERING THE AFORESAID ASPECT, THE TRIBUNAL IN THE DECISIONS CITED BEFORE US BY THE LEARNED AUTHORISED REPRESENTATIVE , WHICH ARE FOR THE VERY SAME ASSESSMENT YEAR, HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES. THOUGH, IT MAY BE A FACT THAT THE COMPANY FOUND A PLACE AS A COMPARABLE IN THE PRECEDING ASSESSMENT YEAR AS WELL AS IN THE TRANSFER PRICING ANALYSIS OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR, HOWEVER, IF SUBSEQUENTLY, THE ASSESSEE BRINGS CONTEMPORANEOUS DATA ON RECORD TO P ROVE THAT THE COMPANY IS FUNCTIONALLY DIFFERENT, ASSESSEES CLAIM CANNOT BE REJECTED MERELY BECAUSE IT WAS SELECTED BY IT AS A COMPARABLE IN THE TRANSFER PRICING ANALYSIS. FOR THE AFORESAID REASON, WE UPHOLD THE DECISION OF LEARNED DRP ON THE ISSUE. IN VIE W OF THE AFORESAID, GROUNDS NO.1, 2 AND 3, ARE DISMISSED. 11 JORDINE LLOYED THOMPSON PVT. LTD. 19 . IN G ROUND NO.4, THE REVENUE HAS CHALLENGED THE DECISION OF LEARNED DRP IN DELETING THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER ON ACCOUNT OF COST ALLO CATION TO THE ASSESSEE BY THE A E. 20 . BRIEF FACTS A RE, IN THE COURSE OF PROCEEDING BEFORE HIM, THE TRANSFER PRICING OFFICER NOTICED THAT THE ASSESSEE HAS PAID AN AMOUNT OF ` 38,68,83 2, TO THE A ES TOWARDS CORPORATE COST ALLOCATION. FROM THE TRANSFER PRICING OFFICER ANALYSIS OF THE ASSESSEE, HE OBSERVED THAT THE ASSESSEE HAS STATED THAT ITS AE IN UK HAS PROVIDED CERTAIN OFFICE ACCOMMODATION, STAFF AND OTHER ANCILLARY SERVICE S TO THE ASSESSEE. IT WAS STATED BY THE ASSESSEE THAT ALLOCATION OF COST IS BASED ON TIME SPENT BY EMPLOYEE IN UK ON INDIA R ELATED ACTIVITIES. AFTER PERUSING THE TRANSFER PRICING STUDY REPORT, THE TRANSFER PRICING OFFICER CALLED UPON THE ASSESSEE TO JUSTIFY THE COST ALLOCATION. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THA T ONE OF THE EMPLOYEES OF THE AE WAS RENDERING SERVI CES FOR THE ASSESSEE AND THE COST ALLOCATION CHARGES REPRESENTS THE SALARY CHARGE OF THE CONCERNED EMPLOYEE WITHOUT ANY MARK UP. IN THIS CONTEXT, THE ASSESSEE ALSO FUR NISHED THE AGREEMENT WITH THE A E. THE TRANSFER PRICING OFFICER, HOWEVER, DID NOT ACCEPT T HE CLAIM OF THE ASSESSEE. HE OBSERVED , THE ASSESSEE COULD NOT PROVE THE PURPOSE AND BENEFIT OF C OST ALLOCATION CHARGED BY THE A E. ACCORDINGLY, HE DETERMINED THE ARM'S LENGTH PRICE OF THE COST ALLOCATION AT ` NIL, THEREBY , TREATING THE ENTIRE PAYMENT OF ` 3 8,68,832, TOWARDS COST 12 JORDINE LLOYED THOMPSON PVT. LTD. ALLOCATION AS ADJUSTMENT UNDER SECTION 92CA OF THE ACT. IN THE DRAFT ASSESSMENT ORDER, THE ASSESSING OFFICER ADDED BACK THE AFORESAID AMOUNT. 21 . WHILE CONSIDERING ASSESSEES OBJECTIONS AGAINST THE AFORESAID ADDITION, LEARNED DRP OBSER VED THAT THE PAYMENT MADE TOWARDS COST ALLOCATION WITHOUT ANY MARK UP FORMS PART OF THE COST BASE OF THE ASSESSEE AND HAS BEEN RECHARG ED TO THE AE WITH A MARK UP OF 15%. LEARNED DRP OBSERVED , SINCE THE BUSINESS MODEL OF THE ASSESSEE IS STRUCTURED ON A COST PLUS BASIS OF INVOICING FO R THE SERVICE PROVIDED TO THE AE AND THE ASSESSEE BEING A CAPTIVE SERVICE PROVIDER , THERE CANNOT BE ANY SCOPE FOR TRANSFER OF P ROFIT TO THE COUNTRY OF RESIDENCE OF THE A E. ACCORDINGLY, LEARNED DRP DIRECTED THE ASSESSING OFFICER T O DELETE THE ADDITION. 22 . LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , BEFORE T HE TRANSFER PRICING OFFICER ASSESSEE FAILED TO FURNISH ADEQUATE DOCUMENTARY EVIDENCE TO JUSTIFY THAT THE PAYMENT MADE TOWARDS COST ALLOCATION IS AT ARM'S LENGTH. HE SUBMITTED , NEITHER THE TRANSFER PRICING OFFICER NOR THE ASSESSEE HAD MADE PROPER BENCH MARKING TO ASCERTAIN WHETHER THE PAYMENT MADE TOWARDS COST ALLOCATION IS AT ARM'S LENGTH. HE SUBMITTED , THE DRP HAS ALSO NOT EXAMINED THE BASIS OF ALLOCATION OF COST. THEREFORE, HE SUBMITTED , THE ISSUE MAY BE RESTORED BACK EITHER TO LEARNED DRP OR THE ASSESSING OFFICER FOR DETERMINING THE ARM'S 13 JORDINE LLOYED THOMPSON PVT. LTD. LENGTH PRICE MADE TOWARDS COST ALLOCATION AS PER THE TRANSFER PRICING PROVISIONS. 23 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , ONE OF T HE EMPLOYEES OF THE OVERSEAS AE WAS SECONDED TO THE ASSESSEE WHO EXCLUSIVELY WORKED FOR THE ASSESSEE. HE SUBMITTED , THIS ARRANGEMENT BETWEEN THE ASSE SSEE AND THE AE WAS MADE BY WAY OF A WRITTEN AGREEMENT EXECUTED IN THE ASSESSMENT YEAR 2008 09. HE SUBMITTE D , THE SAME AGREEMENT CONTINUED IN THE IMPUGNED ASSESSMENT YEAR AS WELL. HE SUBMITTED , THE AE CHARGED THE SALARY COST OF THE CONCERNED EMPLOYEE WITHOUT ANY MARK UP. WHEREAS, THE SALARY COST PAID BY THE ASSESSEE FORMS THE COST B ASE WHICH ARE INVOICED TO THE AE ALONG WITH MARK UP OF 15%. THUS, HE SUBMITTED , NO BENEFI T HAS BEEN TRANSFERRED TO THE AE ON ACCOUNT OF COST ALLOCATION . R ATHER , HE SUBMITTED , THE ASSESSEE HAS BENEFIT TED NOT ONLY FROM THE SERVICES RENDERED BY THE AE BUT BY AGA IN RECHARGING THE COST TO THE AE WITH A MARK UP OF 15%. HE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSMENT YEAR 2008 09, THE TRIBUNAL HAS ACCEPTED THE PAYMENT MADE TOWARDS COST ALLOCATION TO BE AT ARM'S LENGTH. HE SUBMITTED , IN THE SUBSEQUENT ASSESSMENT YEARS, SIMILAR PAYME NT MADE TOWARDS COST ALLOCATION HAVE BEEN ACCEPTED BY THE TRANSFER PRICING OFFICER. THUS, HE SUBMITTED , THERE IS NO REASON TO INTERFERE WITH THE DECISION OF THE DRP. 14 JORDINE LLOYED THOMPSON PVT. LTD. 24 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTUAL MATRIX, IT IS EVIDENT , THE ASSESSEE AND ITS AE IN UK HAVE ENTERED INTO AN AGREEMENT UNDER WHICH THE AE PROVIDED CERTAIN OFFICE ACCOMMODATION, STAFF AND OTHER ANCILLA RY SERVICES TO THE ASSESSEES UK BASED BRANCH. EXPENDITURE INCURRED IN RELATION TO SUCH SE RVICES WAS ALLOCATED AT COST WITHOUT ANY MARK UP. THIS ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE CONTINUED FROM THE YEAR 2008 09. IN THE YEAR UNDER CONSIDERATION, THE AE ALLOCATED SALARY GBP 50,000, EQUIVALENT TO ` 38,68,832, WITHOUT MARK UP TOWARDS SALA RY COST OF ONE OF ITS EMPLOYEES. IT IS ALSO A FACT THAT THE ASSESSEE IS A CAPTIVE S ERVICE PROVIDER TO ITS AE AND IS REMUNERATED AT COST PLUS 15% MARK UP. THUS, THE SALARY COST OF THE EMPLOYEE ALLOCATED TO THE ASSESSEE ALSO FORMS PART OF ASSESSEES COST BAS E AND IN THE INVOICE RAISED , THE ASSESSEE RECHARGED THE AFORESAID COST WITH MARK UP OF 15%. THEREFORE, IF THE PAYMENT MADE TOWARDS COST ALLOCATION IS TO BE DISALLOWED THEN SIMILAR ADJUSTMENT HAS TO BE MADE TO ASSESSEES INCOME , WHICH MAY NOT BE FAVOURABLE TO THE REVENUE. 25 . AS REGARDS THE CONTENTION OF LEARNED DEPARTMENTAL REPRESENTATIVE THAT NEITHER THE ASSESSEE NOR THE TRANSFER PRIC ING OFFICER HAVE PROPERLY BENCH MARKED THE COST ALLOCATION DUE TO LACK OF EVIDENCE, WE MUST OBSERVE , THE TRANSFER PRICING OFFICER HIMSELF IN HIS ORDER HAS SPECIFICALLY MENTIONED THAT THE ASSESSEE HAD FURNISHED NOT ONLY THE COPIES OF AGREEMENT AND DEBIT NOTE S RAISED BY THE AE AS WELL 15 JORDINE LLOYED THOMPSON PVT. LTD. AS THE ASSESSEE , BUT , IT HAS ALSO FURNISHED DETAILED WORKING OF COST AL LOCATION. THE ALLEGATION MADE BY THE TRANSFER PRICING OFFICER IS TO THE EFFECT THAT THE ASSESSEE DID NOT FURNISH ANY PRIMARY EVIDENCE TO SHOW THAT THE PAYMENT MADE IS ONLY TO THE EXTENT OF BENEFIT RECEIVED BY IT. IN OUR VIEW, THE AFORESAID OBSERVATION MADE BY THE TRANSFER PRICING OFFICER IS VAGUE AND AMBIGUOUS AND CONTR ARY TO HIS OWN FINDING . WHEN THE ASSESSEE HAD FURNISHED ALL THE DETAILS INCLUDING THE WORKING OF COST OF ALLOCATION, WE ARE UNABLE TO UNDERSTAND WHAT DOES THE TRANSFER PRICING OFFICER MEANS B Y MENTIONING PRIMARY EVIDENCE . 26 . IN ANY CASE OF THE MATTER, THE TRANSFER PRICING OFFICER HAS NOT FOLLOWED ANY ONE OF THE PRESCRIBED METHODS TO BENCHMARK THE TRANSACTION AND HAS DETERMINED IT AT NIL ON A PRESUMPTIVE BASIS. THIS, IN OUR VIEW, IS N OT PERMISS IBLE UNDER THE STATUTORY PROVISIONS. MOREOVER, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 09, VIDE ITA NO.779/MUM./2013, THE TRIBUNAL HAS NOT ON LY DISAPPROVE SIMILAR APPROACH ADOPTED BY THE TRANSFER PRICING OFFICER I N DETERMINING THE ARM'S LENGTH PRICE OF COST ALLOCATION AT NIL BUT HELD THAT NO TRANSFER PRICING ADJUSTMENT SHOULD HAVE BEEN MADE BY THE TRANSFER PRICING OFFICER. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LEARNED DRP ON THE ISSUE. GROUND NO.4, IS DISMISSED. 16 JORDINE LLOYED THOMPSON PVT. LTD. 27 . IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.06.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 12.06.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (ASSISTANT REGISTRAR) ITAT, MUMBAI