M/s. Cummins Inc., Pune V. Assistant Director of Income-tax,

ITA 2181/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1472 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-06-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 17-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Keywords: Reopening of assessment; Transfer pricing; International transaction; Question of law; Initiation of penalty proceedings
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 2181 /PN/201 3 / ASSESSMENT YEAR : 20 0 5 - 0 6 CUMMINS INC 5 TH FLOOR, C/O CUMMINS INDIA OFFICE CAMPUS, SURVEY NO.21, BALEWADI, PUNE 4110 4 5 . / APPELLANT PAN: AA BCC6225D VS. THE ASST . DIRECTOR OF INCOME TAX, INTERNA TIONAL TAXATION - I, P UNE . / RESPONDENT / APPELLANT BY : S HRI RAJAN R. VORA / RESPONDENT BY : S HRI ANIL CHAWARE / DATE OF HEARING : 12 . 07 .201 6 / DATE OF PRONO UNCEMENT: 29 . 0 7 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) - IT/TP , PUNE , DATED 10 . 1 0 .20 1 3 RELATING TO ASSESSMENT YEAR 20 0 5 - 0 6 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TA X ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. INCORRECT ADDITION OF RS . 5,16,20,766 / - TO TAXABLE INCOME OF THE APPELLANT AS 'ROYALTY' FOR PROVIDING USER RIGHTS IN OFF - THE - SHELF SOFTWARE (PART OF TOTAL ADD ITION OF RS . 5,38,88,099) ITA NO. 2181 /PN/20 1 3 CUMMINS INC 2 THE HON'BLE CIT(A) HAS ERRED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, IN CONFIRMING THAT THE CONSIDERATION FOR FACILITATING GRANT OF USER RIGHTS IN OFF - THE - SHELF SOFTWARE AND PROVISION OF RELATED SUPPORT SERV ICES AMOUNTING TO RS . 5,16,20,766 / - RECEIVED BY THE APPELLANT IS TAXABLE AS 'ROYALTY' UNDER ARTICLE 12 OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND USA; 2. INCORRECT ADDITION OF RS . 22,67,333 / - TO THE TRANSFER PRICE OF THE INTERNATION AL TRANSACTION OF PROVIDING USER RIGHTS IN SOFTWARE AND RELATED SERVICES (PART OF TOTAL ADDITION OF RS . 5,38,88,099) THE HON'BLE CIT(A) HAS ERRED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT OF RS . 22,67,333 / - TO THE A RM 'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF RECEIPT OF FEES FOR PROVIDING USER RIGHTS IN SOFTWARE AND RELATED SUPPORT SERVICES. 3. ADJUDICATION OF THE TRANSFER PRICING GROUND BY PASSING A NON - SPEAKING ORDER THE HON'BLE C IT(A) HAS ERRED IN LAW BY DISPOSING OFF THE ABOVE MENTIONED TRANSFER PRICING GROUND OF APPEAL OF THE APPELLANT BY PASSING A NON - SPEAKING ORDER. 4. TRANSFER PRICING ADJUSTMENT EVEN WHEN THE ADJUSTMENT VARIATION IN THE TRANSACTION VALUE IS LESS THAN 5% OF T HE TOTAL QUANTUM OF TRANSACTION. THE HON'BLE CIT(A) HAS ERRED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT MADE BY THE LEARNED A O DISREGARDING THE FACT THAT THE NET VARIATION (AFTER AGGREGATION OF UNDER RECOVERY AND OVER RECOVERY OF COSTS) BETWEEN THE ACTUAL TRANSACTION VALUE AND THE ADJUSTED TRANSACTION VALUE WAS LESS ACTUAL TRANSACTION VALUE AND THE ADJUSTED TRANSACTION VALUE WAS LESS THAN 5%. 5. IGNORING THE BASE EROSION PRINCIPLE THE HON'BLE CIT(A) HAS ERRED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW IN IGNORING THE PRINCIPLE THAT IF THE ARM'S LENGTH PRICE RESULTS IN REDUCTION OF OVERALL TAX BASE OF INDIA, NO ADJUSTMENT IS REQUIRED TO THE VALUE OF THE INTERNATIONAL TRANSACTION AS PER THE VIEW ENDORSED IN SECTION 92(3) OF THE ACT AND NOT C ONSIDERING THE RELIEF GRANTED BY HON'BLE DISPUTE RESOLUTION PANEL FOR AY 2007 - 08. 6. EXCLUSION OF INTERNET MAIL IN COST ALLOCATION THE HONBLE CIT(A) HAS ERRED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW IN NOT AGGREGATING THE DIFFERENT IAL RESULTS OF THE COST ALLOCATION OF DESKTOP/LAPTOP AND INTERNET MAIL FOR MAKING THE TRANSFER PRICING ADJUSTMENT AND CONSIDERING ONLY THE RESULTS OF COST ALLOCATION BASED ON ACTUAL COSTS FOR DESKTOP/LAPTOP SOFTWARE FOR THE PURPOSE OF COMPUTING THE TRANSFE R PRICING. 7. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT THE HONBLE CIT(A) HAS ERRED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW IN DISPOSING OF THE GROUND OF INITIATION OF PENALTY PROCEEDINGS WITHOUT ADJUDIC ATION ON THE SAME, ASSERTING THAT THE SAME IS PREMATURE AND DOES NOT CALL FOR INTERFERENCE. ITA NO. 2181 /PN/20 1 3 CUMMINS INC 3 3. THE ASSESSEE VIDE GROUND OF APPEAL NO.1 HAS RAISED THE ISSUE AGAINST TAXABILITY OF CONSIDERATION FOR FACILITATING GRANT OF USER RIGHTS IN OFF - THE - SHELF SOFTWARE AND PROVISION OF RELATED SUPPORT SERVICES AMOUNTING TO RS.5,16,20,766/ - . 4. THE ASSESSEE HAD RECEIVED THE SAID CHARGES FROM THE INDIAN ENTITIES AND HAD CLAIMED THE SAME TO BE EXEMPT FROM TAX IN INDIA, IN THE RETURN OF INCOME FILED. BOTH THE ASSESSING OFFICER AND CIT(A) TREATED THE SAID RECEIPTS AS TAXABLE AS ROYALTY UNDER ARTICLE 12 OF THE INDIA - US TAX TREATY AND ALSO UNDER THE PROVISIONS OF THE ACT. 5. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE AROSE BEFORE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2004 - 05 , 2006 - 07 AND 2007 - 08 . IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE ISSUE RELATING TO THE TAXABILITY IN INDIA OF POINT BETWEEN THE PARTIES THAT THE ISSUE RELATING TO THE TAXABILITY IN INDIA OF CONSIDERATION RECEIVED FOR FACILITATING GRANT OF U SER RIGHTS IN SOFTWARE TO INDIAN ENTITIES WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ITA NO.73/PUN/2011 RELATING TO ASSESSMENT YEAR 2004 - 05 , ITA NO.74/PUN/2011 RELATING TO ASSESSMENT YEAR 2006 - 07, VIDE ORDER DATED 08.08.2013 AND ITA NO.1663/PN/201 1, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 20.02.2015 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT IN THE APPEAL FILED BY THE ASSESSEE BEFORE THE HONBLE BOMBAY HIGH COURT AGAINST THE SAID ORDER OF TRIBUNAL DAT ED 08.08.2013, A SUBSTANTIAL QUESTION OF LAW HAS BEEN FRAMED, BUT THE DECISION OF THE TRIBUNAL DATED 08.08.2013 HAS NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. THE HONBLE BOMBAY HIGH COURT IN ITA(L) NO.267 OF 2014 RELATING TO ASSESSMENT YEAR 2004 - 05 AND IN ITA(L) NO.268 OF 2014 RELATING TO ASSESSMENT YEAR 2006 - 07, VIDE JUDGMENT ITA NO. 2181 /PN/20 1 3 CUMMINS INC 4 DATED 29.01.2014 HAD ADMITTED THE APPEAL OF THE ASSESSEE AND FRAMED THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: - A. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE INCOME EARNED BY THE APPELLANT WAS TAXABLE AS ROYALTY UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND THE UNITED STATES OF AMERICA? B. WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNA L WAS RIGHT IN NOT DISPOSING OFF THE WITHOUT PREJUDICE ARGUMENT CONSIDERED BY THE APPELLANT THAT THE RELATED SUPPORT SERVICES ARE NOT TAXABLE IN INDIA AS FEES FOR INCLUDED SERVICES UNDER THE INDIA - US TAX TREATY? 6 . THE COPY OF THE ORDER OF THE HONBLE B OMBAY HIGH COURT DATED 29.01.2014 ADMITTING THE AFORESAID QUESTION OF LAW HAS BEEN FILED ON RECORD. FURTHER, IT IS A COMMON POINT BETWEEN BOTH THE AUTHORIZED REPRESENTATIVES THAT IN ASSESSMENT YEAR 2004 - 05, THE ISSUE OF REOPENING OF ASSESSMENT HAS ALSO BE EN ADMITTED FOR ADJUDICATION AND QUESTION OF LAW FRAMED, BUT THE SAID ISSUE DOES NOT ARISE IN THE PRESENT APPEAL. IN VIEW OF THE ADMISSION OF QUESTION OF LAW ON THE ISSUE OF TAXABILITY OF CONSIDERATION RECEIVED BY THE ASSESSEE FOR FACILITATING GRANT OF US ER RIGHTS IN SOFTWARE TO INDIAN ENTITIES, THE ASSESSEE FILED AN APPLICATION UNDER SECTION 158A(1) OF THE ACT POINTING OUT THAT IDENTICAL QUESTION OF LAW IS PENDING BEFORE THE HONBLE BOMBAY HIGH COURT AND THE FINAL DECISION ON THE SAID ISSUE BE APPLIED, AG AINST WHICH, THE ASSESSEE WOULD NOT RAISE ANY QUESTION OF LAW BEFORE THE HONBLE BOMBAY HIGH COURT AND / OR HONBLE SUPREME COURT OF INDIA, IN THE CAPTIONED ASSESSMENT YEAR. THE APPLICATION MADE BY THE ASSESSEE IN FORM NO.8 IS AVAILABLE ON RECORD AND COPI ES OF THE SAME WERE FORWARDED TO THE DEPARTMENT. THE ASSESSING OFFICER VIDE LETTER DATED 22.12.2014 HAS ON VERIFICATION OF RECORDS, ADMITTED THAT THE QUESTION OF LAW INVOLVED IN THE APPEAL FILED BEFORE THE HONBLE BOMBAY HIGH COURT FOR ASSESSMENT YEARS 20 04 - 05 AND 2006 - 07 WERE PENDING FOR DECISION AND THE ASSESSEES CLAIM WAS CORRECT. ITA NO. 2181 /PN/20 1 3 CUMMINS INC 5 7 . IN VIEW THEREOF, THE ISSUES RAISED BY THE ASSESSEE VIDE GROUND OF APPEAL NO.1 IS DECIDED AGAINST THE ASSESSEE FOLLOWING THE DECISION OF TRIBUNAL (SUPRA), DATED 08.08.201 3 IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2004 - 05 AND 2006 - 07, SINCE THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES. HOWEVER, IN VIEW OF THE DECLARATION MADE BY THE ASSESSEE IN PRESCRIBED FORM NO.8 IN TERMS OF SECTION 158A(1) OF THE ACT, TH E ASSESSING OFFICER IS DIRECTED TO APPLY THE DECISION OF THE HONBLE BOMBAY HIGH COURT AND / OR HONBLE SUPREME COURT OF INDIA, ON THE SAID ISSUES BEING DECIDED IN ASSESSEES OWN CASE, RELATING TO ASSESSMENT YEARS 2004 - 05 AND 2006 - 07. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS ACCORDINGLY, DISMISSED. 8. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 9. NOW, COMING TO THE SECOND ISSUE RAISED BY THE ASSESSEE BY WAY OF 9. NOW, COMING TO THE SECOND ISSUE RAISED BY THE ASSESSEE BY WAY OF GROUNDS OF APP EAL NO.2, 4 TO 6 IS AGAINST THE ADDITION OF RS. 22,67,333/ - MADE TO THE TRANSFER PRICE OF INTERNATIONAL TRANSACTION PROVIDING USER RIGHT IN SOFTWARE AND RELATED SERVICES. 10. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS A FOREIGN COMPANY AND WAS R ENDERING SERVICES TO THE INDIAN COMPANIES, AGAINST WHICH IT HAD RECEIVED CHARGES FOR USE OF FACILITIES PROVIDED TO THE INDIAN CONCERNS. THE ASSESSEE HAD ENTERED INTO THE TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES I.E. RECEIPT OF ROYALTY FOR USE OF TECHNO LOGY FROM CIL, RECEIPT OF DIVIDEND FROM CIL, RECEIPT OF LICENCE FEES FROM CIL AND FROM CSSL FOR PROVIDING USER RIGHTS IN SOFTWARE AND PROVISION OF RELATED SUPPORT SERVICES. THE TRANSFER PRICING OFFICER (TPO) DETERMINED THE TRANSACTION OF PROVIDING USER RI GHT IN SOFTWARE AND PROVISION OF RELATED SUPPORT SERVICES TO BE AT ARMS LENGTH BASED ON THE METHOD ITA NO. 2181 /PN/20 1 3 CUMMINS INC 6 OF COST ALLOCATION USING COST ESTIMATES. THE TPO ASKED THE ASSESSEE TO FURNISH THE ACTUAL DETAILS OF COST IN RESPECT OF INTERNET MAIL, DESKTOP / LAPTOP SOF TWARE, WHICH IS TABULATED AT PAGE 4 OF THE TPOS ORDER. THE PLEA OF THE ASSESSEE BEFORE THE TPO WAS THAT THE COST ALLOCATION BASED ON COST ESTIMATES WAS AN ACCEPTED METHOD FOR THE PURPOSE OF DETERMINATION OF ARM'S LENGTH PRICE. REFERENCE WAS MADE TO PARA 7.23 OF OECD GUIDELINES. THE ASSESSEE FURTHER POINTED OUT THAT THE PERCENTAGE VARIATION IN ACTUAL RESULTS OVER ESTIMATE S IN RESPECT OF DESKTOP/LAPTOP SOFTWARE WAS AT GLOBAL LEVEL IN THE HANDS OF ASSESSEE WAS NOT MATERIAL AND PERCENTAGE VARIATION OVER COS T ALLOCATION ESTIMATE WAS 3.8%, WHICH WAS LESS THAN 5% AS PROVIDED UNDER SECTION 92C OF THE ACT. THE LAST PLEA RAISED BY THE ASSESSEE WAS THAT WHERE THE APPLICATION OF ARM'S LENGTH PRICE PRINCIPLE RESULTS IN REDUCTION OF OVERALL TAX BASE OF INDIA, NO ADJU STMENT IS REQUIRED TO BE MADE TO THE VALUE OF INTERNATIONAL TRANSACTION. THE CASE OF THE ASSESSEE BEFORE THE TPO WAS THAT IN CASE OF ADJUSTMENTS IN THE HANDS OF ASSESSEE, THERE WOULD BE CORRESPONDING DECREASE IN THE INCOME IN THE HANDS ITS ASSOCIATE ENTER PRISES I.E. CIL AND CSSL, WHICH WERE BOTH INDIAN ENTITIES. THE CALCULATION WAS CLAIMED BY THE ASSESSEE TO HAVE ARRIVED AT ON THE PRESUMPTION THAT THE RECEIPT OF IT CHARGES IN THE HANDS OF ASSESSEE WAS NOT CHARGEABLE TO TAX IN INDIA. ANOTHER POINT RAISED BY THE ASSESSEE WAS THAT THE INDIAN TRANSFER PRICING REGULATIONS CONTAINED IN CHAPTER X OF THE ACT WERE APPLICABLE TO INTERNATIONAL TRANSACTION LIABLE TO INDIAN TAX AND WHERE THE INTERNATIONAL TRANSACTION OF PROVISION OF IT CHARGES WAS NOT LIABLE TO INDIAN TAX, THE TRANSFER PRICING REGULATIONS WERE NOT APPLICABLE. THE LAST PLEA RAISED IN THIS REGARD WAS THAT AT BEST, THE ADJUSTMENT SHOULD BE AFTER REDUCTION OF EXCESS RECOVERY OF INTERNET MAIL AND ACCORDINGLY, NET AMOUNT OF USD 44,726 SHOULD BE THE SUBJECT MATTER OF ADJUSTMENT. ITA NO. 2181 /PN/20 1 3 CUMMINS INC 7 11. THE TPO WAS OF THE VIEW THAT ACTUAL COST ALLOCATED ON THE BASIS OF COST FOR THE CALENDAR YEAR 2004 WAS TO BE ADOPTED FOR THE ANALYSIS, SINCE THE ASSESSEE WAS MAINTAINING ITS ACCOUNTS ON THE BASIS OF CALENDAR YEAR AND THE FIGURE S GIVE BEST APPROXIMATION EVEN WHEN CONSIDERED FOR THE FINANCIAL YEAR 2004 - 05. WITH REGARD TO THE CONTENTION OF ASSESSEE THAT THE COST ALLOCATION BASED ON COST ESTIMATES WAS AN ACCEPTED METHOD ON THE BASIS OF DETERMINATION OF ARM'S LENGTH PRICE, WAS NOT A CCEPTED BY THE TPO AND IT WAS HELD THAT THE SAME WAS ACCEPTABLE ONLY UNDER CIRCUMSTANCES WHEN ACTUAL COST ALLOCATION MAY NOT BE POSSIBLE. THE TPO OBSERVED THAT WHERE THE ASSESSEE WAS MAINTAINING ITS ACCOUNTS ON THE BASIS OF CALENDAR YEAR, IT COULD NOT BE CLOSED IN DECEMBER AND CONSEQUENTLY, THE ACTUAL COST INCURRED WAS ADOPTED AND THE PLEA OF ASSESSEE TO ADOPT COST ALLOCATION ON THE COST ESTIMATE METHOD WAS REJECTED. THE TPO FURTHER WAS OF THE VIEW THAT THE PERCENTAGE VARIATION IN ACTUAL RESULTS OVER ESTI MATES IN RESPECT OF DESKTOP OVER LAPTOP SOFTWARE AT GLOBAL LEVEL IN THE HANDS OF ASSESSEE WAS NOT MATERIAL AND PERCENTAGE VARIATION OVER COST ALLOCATION ESTIMATE WAS 3.8% WHICH WAS LESS THAN 5%. THE PLEA OF THE ASSESSEE THAT THE CONTENTION IN RESPECT OF B ASE EROSION WAS ACCEPTED IN THE PAST, WAS REJECTED SINCE THE PRINCIPLES OF RES JUDICATA WERE NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THE SECOND CONTENTION OF THE ASSESSEE THAT THE INDIAN TRANSFER PRICING REGULATIONS WERE APPLICABLE TO INTERNATIONAL TRANSACTION WAS HELD TO BE ALSO NOT CORRECT AS THE ASSESSEE HAD REPORTED TRANSACTIONS IN THE FORM 3CEB AND ALSO THE TRANSACTIONS RELATING TO RECEIPT OF IT CHARGES WAS AN INTERNATIONAL TRANSACTION AND HENCE, THE TRANSFER PRICING PROVISIONS WERE HELD TO BE A PPLICABLE. THE NEXT PLEA OF THE ASSESSEE THAT THE ASSESSMENT SHOULD BE AFTER REDUCTION OF EXCESS RECOVERY FOR INTERNET MAIL AND NET AMOUNT OF USD 44,726 SHOULD BE THE SUBJECT MATTER OF ADJUSTMENT, WAS ALSO NOT ACCEPTED AS THE CLAIM OF AGGREGATION OF TRANS ACTIONS WAS NOT ACCEPTED BY THE TPO. IN VIEW ITA NO. 2181 /PN/20 1 3 CUMMINS INC 8 THEREOF, AN ADJUSTMENT WAS PROPOSED OF USD 52015 CORRESPONDING VALUE OF RS. 22,67,333/ - WAS DIRECTED TO BE MADE TO THE INTERNATIONAL TRANSACTIONS RELATING TO RECEIPT OF IT CHARGES FROM ASSOCIATE ENTERPRISES. TH E ASSESSING OFFICER IN THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT INCLUDED THE SAID ADJUSTMENT OF RS.22,67,333/ - AS INCOME OF THE ASSESSEE. 1 2 . THE CIT(A) AFTER GOING THROUGH THE ORDER OF ASSESSING OFFICER AND SUBMISSIONS OF ASSESSEE OBSERVED THAT T HE ASSESSEE HAS RAISED ONLY IRRELEVANT ARGUMENTS WHICH ARE NOT WORTH REBUTTAL AND HE CONFIRMED THE TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER. 1 3 . THE ASSESSEE IS IN APPEAL AGAINST THE AFORESAID ORDER OF CIT(A). 1 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WHERE THE ASSESSEE WAS PROVIDING SERVICES TO INDIAN COMPANIES AND WAS RECEIVING CHARGES FOR USER OF FACILITIES, THEN AS PER THE ORDER OF ASSESSING OFFICER, THE DICTATE WAS TO RECOVER MORE FROM INDIAN CONCERN S. HE POINTED OUT THAT UNDER THE INDIAN TRANSFER PRICING PROVISIONS, THE EXERCISE CANNOT RESULT IN TAX EROSION IN INDIA. IN CASE THE FOREIGN ENTITY I.E. THE ASSESSEE HAD RECOVERED MORE CHARGES FOR USER OF SOFTWARE FROM THE INDIAN ENTITIES, THEN THERE WOU LD BE REDUCTION OF OVERALL TAX BASE OF INDIA AND NO ADJUSTMENT ON THIS ACCOUNT IS WARRANTED. FURTHER, HE PLACED RELIANCE ON THE ORDER PASSED BY DISPUTE RESOLUTION PANEL (DRP) RELATING TO ASSESSMENT YEAR 2007 - 08, WHICH IS PLACED AT PAGE 129 OF THE PAPER BO OK AND ALSO THE ORDER OF TPO IN ASSESSMENT YEAR 2010 - 11, COPY OF WHICH IS PLACED AT PAGE 199 OF THE PAPER BOOK, WHEREIN NO ADJUSTMENT ON THIS ACCOUNT WAS MADE BY EITHER DRP OR TPO HIMSELF. HE FURTHER STATED THAT THIS WAS ISOLATED YEAR OF ADJUSTMENT. ITA NO. 2181 /PN/20 1 3 CUMMINS INC 9 1 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 1 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US IS IN RELATION TO THE RECEIPT OF IT CHARGES BY THE ASSESSEE FROM CIL AND CSSL DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE IN THE YEAR CONSIDERATION HAD PROVIDED SERVICES TO THE INDIAN ENTITIES AND HAD RECEIVED CHARGES IN RESPECT OF DESKTOP / LAPTOP SOFTWARE LICENCE AND INTERNET MA IL AND HAD DETERMINED THE VALUE OF TRANSACTIONS BY ALLOCATING COST BASED ON COST ESTIMATES. HOWEVER, THE TPO ADOPTED THE ACTUAL COST INCURRED BY THE ASSESSEE IN ORDER TO DETERMINE THE ADJUSTMENT, IF ANY, TO BE MADE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS . THE MAIN PLEA OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT COST ALLOCATION BASED ON COST ESTIMATES WAS AN ACCEPTED METHOD FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE AND IF THE ACTUAL COST ALLOCATION RESULTS IN ANY EROSION OF OVERALL BASE OF INDIA, THEN NO THE ACTUAL COST ALLOCATION RESULTS IN ANY EROSION OF OVERALL BASE OF INDIA, THEN NO ADJUSTMENT IS REQUIRED TO BE MADE TO THE VALUE OF INTERNATIONAL TRANSACTION. THIS HAS TO BE SEEN FROM THE ANGLE THAT WHERE THE ASSESSEE IS A FOREIGN COMPANY AND IS RECIPIENT OF INTERNET MAIL CHARGES AND DESKTOP / LAPTOP SERVICE CHAR GES FROM THE INDIAN ENTITIES, THEN IN CASES WHERE IT IS HELD THAT THE ASSESSEE SHOULD HAVE BEEN CHARGED HIGHER AMOUNTS FROM THE INDIAN ENTITIES, THEN THE SAME WOULD RESULT IN REDUCTION OF OVERALL TAX BASE OF INDIA. IN SUCH CIRCUMSTANCES, THE INDIAN TRANSF ER PRICING PROVISIONS ARE NOT TO BE APPLIED. WE FURTHER FIND THAT THE DRP IN ASSESSMENT YEAR 2007 - 08 AND THE ASSESSING OFFICER IN ASSESSMENT YEAR 2009 - 10 HAS NOT MADE ANY ADJUSTMENT IN THE HANDS OF ASSESSEE ON ACCOUNT OF INTERNET MAIL SERVICE CHARGES AND DESKTOP / LAPTOP SERVICE CHARGES THOUGH IDENTICAL INTERNATIONAL TRANSACTIONS WERE CARRIED OUT IN THE LATER YEARS ALSO. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES OF THE CASE, WE REVERSE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER T O ITA NO. 2181 /PN/20 1 3 CUMMINS INC 10 DELETE THE ADDITION OF RS.22,67,333/ - . SINCE THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE, WE ARE NOT ADJUDICATING THE ISSUE RAISED BY WAY OF GROUND OF APPEAL NO.6 HENCE, THE GROUNDS OF APPEAL NO.2, 4 TO 6 ARE ALLOWED. 1 7 . THE ISSUE IN GROUND OF APPEAL NO.7 AGAINST INITIATION OF PENALTY PROCEEDINGS IS PREMATURE AND HENCE, THE SAME IS DISMISSED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 1 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY , 201 6 . SD/ - SD/ - ( R.K. PANDA ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH JULY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE CIT(A) - IT/TP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE