M/s. Waters (India) Private Limited, Bengaluru V. Deputy Commissioner Of Income Tax, Circle- 12(5), Bengaluru

ITA 2349/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2501 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-09-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 13-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNDAR RAJAN
• Keywords: Transfer pricing; Double taxation relief; International transaction; Commercial expediency; TDS; Set aside
• Section: 234B; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2349/BANG/2019 ASSESSMENT YEAR : 2009 10 M/S WATERS (INDIA) PVT. LTD., NO.36A, 2 ND PHASE, PEENYA INDUSTRIAL AREA, BENGALURU-560 058. PAN AAACW 1411 C VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-12(5), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI SHARATH RAO, ADVOCATE RESPONDENT BY : SHRI SUNDAR RAJAN, ADDL. CIT (DR) DATE OF HEARING : 30-09-2020 DATE OF PRONOUNCEMENT : 25-11-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AG AINST ORDER DATED 11/09/2019 PASSED BY LD.CIT(A)-7, BANGALORE F OR ASSESSMENT YEAR 2009-10 ON FOLLOWING GROUNDS OF APP EAL: 1. TRANSFER PRICING GROUND 1.1. THE LEARNED ASSESSING OFFICER ('LEARNED AO'), LEARNED TRANSFER PRICING OFFICER ('LEARNED TPO') AND THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) ['HON'BLE CIT(A)'] HAVE GROSSL Y ERRED IN LAW AND FACTS OF THE CASE IN DETERMINING THE ARM'S LENGTH P RICE ('ALP') OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT AND THER EBY MAKING AN ADJUSTMENT OF [MR 3,03,22,402 WITH RESPECT TO PAYME NTS MADE FOR INTRA- GROUP SERVICES RECEIVED BY THE APPELLANT. 1.2. THE LEARNED AO / LEARNED TPO/ HON'BLE CIT(A) H AVE NOT TAKEN COGNIZANCE OF THE FACTS SUBMITTED BY THE APPELLANT WITH REGARD TO THE PAGE 2 OF 13 IT(TP)A NO.2349/BANG/2019 PAYMENT FOR INTRA-GROUP SERVICES AND DISALLOWED THE SAME STATING THAT THE ARM'S LENGTH PRICE FOR SUCH SERVICES IS NIL. 1.3. THE LEARNED AO / LEARNED TPO / HON'BLE CIT(A) HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS PERFORMED BY THE AP PELLANT IN THE TRANSFER PRICING DOCUMENTATION WHEREIN THE PAYMENT FOR INTRA-GROUP SERVICES WERE AGGREGATED WITH THE MANUFACTURING, AN D TRADING ACTIVITY PERFORMED BY THE APPELLANT GIVEN THAT THE ACTIVITIE S ARE CLOSELY CONNECTED, AND BENCHMARKED BY APPLYING TRANSACTIONA L NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD TO J USTIFY THE ARM'S LENGTH NATURE OF THE ARRANGEMENT. 1.4. THE LEARNED AO / LEARNED TPO/ HON'BLE CIT(A) H AVES ERRED IN NOT APPRECIATING THE FACT THAT THE MARGINS EARNED BY TH E APPELLANT IN THE MANUFACTURING AND TRADING SEGMENT POST CONSIDERING PAYMENT FOR INTRA- GROUP SERVICES ARE SUBSTANTIALLY ABOVE THE ARM'S LE NGTH MARGIN COMPUTED BY THE LEARNED TPO IN THE TRANSFER PRICING ORDER FO R THESE SEGMENTS. 1.5. THE LEARNED AO / LEARNED TPO/ HON'BLE CIT(A) H AVE ERRED IN NOT CONSIDERING THE FACT THAT THE SERVICES ARE ACTUALLY REQUIRED BY THE APPELLANT AND BENEFIT HAS BEEN DERIVED BY THE APPEL LANT FROM SUCH SERVICES. 1.6. THE LEARNED AO / LEARNED TPO/ HON'BLE CJT(A) H AVE ERRED IN NOT ACKNOWLEDGING THE DOCUMENTARY EVIDENCES PRODUCED BY THE APPELLANT TO DEMONSTRATE THE RECEIPT OF THE SERVICES AND BENEFIT S DERIVED BY THE APPELLANT. 1.7. THE LEARNED AO / LEARNED TPO/ HON'BLE CIT(A) H AVE ERRED IN NOT APPRECIATING THE FACT THE COMMERCIAL EXPEDIENCY OF THE APPELLANT CANNOT BE QUESTIONED. 1.8. THE HON'BLE CIT(A) HAS ERRED IN REFERRING TO A RTICLE 3 OF THE INTER- COMPANY SERVICES AGREEMENT ENTERED INTO BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISES AND CONCLUDING THAT THE SERV ICE AGREEMENT ENTERED INTO BY THE APPELLANT IS A MUTUAL AGREEMENT OR UNDERSTANDING AND THAT FOR SPECIFIC SERVICES A SEPARATE CONTRACT BETWEEN THE PARTIES IS NECESSARY. 1.9. THE LEARNED AO / LEARNED TPO/ HON'BLE CIT(A) H AVE ERRED IN CONSIDERING COMPARABLE UNCONTROLLED PRICE ('CUP') M ETHOD FOR BENCHMARKING THE INTRA-GROUP SERVICES FOR DETERMINA TION OF ALP WITHOUT PROVIDING THE DETAILED BENCHMARKING AND BASIS FOR A PPLICATION OF CUP AS THE MOST APPROPRIATE METHOD 1.10. THE HON'BLE CIT(A) HAS ERRED IN NOT ACCEPTING THE EVIDENCES FILED TO SUBSTANTIATE THE RECEIPT OF SERVICES WITHOUT APPREC IATING THE FACT THAT THE EVIDENCES FURTHER SUPPLEMENT THE EXISTING EVIDENCES FILED BEFORE THE LEARNED TPO. 2. CORPORATE TAX GROUND 2.1. THE LEARNED AO / HON'BLE CIT(A) HAVE ERRED IN RE-CHARACTERIZING THE PAYMENT TOWARDS MANAGERIAL SERVICES AS FEES FOR TEC HNICAL SERVICES PAGE 3 OF 13 IT(TP)A NO.2349/BANG/2019 UNDER EXPLANATION 2 TO SECTION 9(1 )(VII) AND ALSO UNDER ARTICLE 13 OF THE INDIA-FRANCE DOUBLE TAX AVOIDANCE AGREEMENT. 2.2. THE LEARNED AO / HON'BLE CIT(A) HAVE ERRED IN DISALLOWING THE PAYMENT FOR INTRA-GROUP SERVICES OF INR 3,03,22,402 UNDER SECTION 40A(I) OF THE INCOME TAX ACT, 1961 ('THE ACT') 2.3. THE LEARNED AO / HON'BLE CIT(A) HAVE ERRED IN UPHOLDING THE DISALLOWANCE OF INR 18,98,952 ON WHICH THE APPELLAN T HAD DEDUCTED TAX AT SOURCE. 2.4. THE LEARNED AO / HON'BLE CIT(A) HAVE ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND A ND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AN D EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RA ISED AT THE TIME OF HEARING, IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE FILED ITS RETURN OF INCOME ON 30/09/200 9 FOR YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME OF RS.7, 16,91,820/-. THE RETURN WAS PROCESSED UNDER SECTION 143 (1) OF T HE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY, A ND NOTICES UNDER SECTION 143 (2) OF THE ACT WAS ISSUED. IN RES PONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEA RED BEFORE LD. AO AND FILED REQUISITE DETAILS AS CALLED FOR. 3. LD. AO NOTED THAT, FOR YEAR UNDER CONSIDERATION , ASSESSEE HAD INTERNATIONAL TRANSACTIONS EXCEEDING RS.5 CRORE S AND ACCORDINGLY, THE ISSUE WAS REFERRED TO TRANSFER PRI CING OFFICER TO DETERMINED ARMS LENGTH PRICE OF SUCH INTERNATIONAL TRANSACTION. UPON RECEIPT OF REFERENCE, UNDER SECTION 92CA, LD.T PO CALLED UPON ASSESSEE TO FILE ECONOMIC DETAILS OF THE INTER NATIONAL TRANSACTION BETWEEN ASSESSEE AND ITS AE IN FORM 3CE B. 4. LD.TPO OBSERVED THAT, ASSESSEE HAD FOLLOWING TRA NSACTION WITH ITS ASSOCIATED ENTERPRISES REPORTED IN FORM 3 CEB: PAGE 4 OF 13 IT(TP)A NO.2349/BANG/2019 DESCRIPTION AMOUNT PAID (RS.) AMOUNT RECEIVED (RS.) IMPORT OF COMPONENTS 1,61,32,151 IMPORT OF TRADED OF FINISHED GOODS 18,83,54,793 IMPORT OF CAPITAL GOODS 1,15,71,244 COMMISSION SERVICE AND CONSULTANCY 24,23,79,878 E-COMMERCE AND CUSTOMER RELATIONSHIP MANAGEMENT SERVICES 41,10,488 MANAGEMENT CHARGES PAID 3,03,22,402 CROSS CHARGES OF EXPENSES RECEIVED 58,44,426 5. AMONGST THE ABOVE INTERNATIONAL TRANSACTION LD.T PO DISPUTED PAYMENTS MADE TOWARDS MANAGEMENT FEES AMOU NTING TO RS.3,03,22,402/-. IT WAS NOTED THAT, ASSESSEE J USTIFIED THE PAYMENTS MADE TOWARDS MANAGEMENT SERVICES ALONG WIT H OTHER INTERNATIONAL TRANSACTIONS UNDER TNMM METHOD. LD. T PO THUS REJECTED AGGREGATION OF MANAGEMENT SERVICES WITH O THER SERVICES. HE THUS CALLED UPON ASSESSEE TO JUSTIFY THE MANAGEM ENT PAYMENT TO BE BENCHMARKED BY USING CUP. 6. SUBMISSIONS WERE MADE BY ASSESSEE IN SUPPORT OF ITS CONTENTION, HOWEVER LD.TPO ANALYSED THAT, MANAGEMEN T FEE TRANSACTION IS A CLASS OF ITS OWN AND THE SAME HAS TO BE EXAMINED AS INTRAGROUP SERVICES UNDER CUP AS THE MOST APPROP RIATE METHOD. HE WAS THUS OF THE OPINION THAT THIS TRANSA CTION HAS TO BE ANALYSED SEPARATELY. 7. ON ANALYSING THE VARIOUS SERVICES RENDERED, LD.T PO WAS OF THE OPINION THAT, THE PAYMENT MADE BY ASSESSEE IS B ASED ON THE ALLOCATION OF GROUP SERVICES AND NO AMOUNT IS CHARG ED FOR ANY SPECIFIC BENEFIT RECEIVED BY ASSESSEE FROM ITS AE. HE THUS PAGE 5 OF 13 IT(TP)A NO.2349/BANG/2019 DETERMINED THE ARMS LENGTH PRICE OF MANAGEMENT FEE S AT NIL DUE TO INADEQUACIES OF EVIDENCES IN RENDITION OF SERVIC ES BY AE. LD.TPO THUS PROPOSED THE ADJUSTMENT OF RS.3,03,22, 402/-IN THE HANDS OF ASSESSEE IN RESPECT OF MANAGEMENT SERVICES . 8. BASED ON PROPOSED ADJUSTMENT, LD.AO PASSED DRAFT ASSESSMENT ORDER. IN THE DRAFT ASSESSMENT ORDER, LD .AO CALLED UPON ASSESSEE TO JUSTIFY WHY THE SAID SUM OF MANAGE MENT FEES SHOULD NOT BE DISALLOWED FOR NON-DEDUCTION OF TDS U NDER SECTION 40 (A) (I) OF THE ACT. ASSESSEE IN RESPONSE, FILED VARIOUS DETAILS, WHEREIN IN TDS DEDUCTED IN WHICH A SUM OF RS.18,98, 952/-. IT WAS SUBMITTED THAT, THE BALANCE PAYMENTS RELATED TO GENERAL MANAGERIAL ACTIVITIES WHICH DO NOT INVOLVE ANY TRA NSMISSION OF TECHNICAL KNOWLEDGE/SKILL ETC., AND THEREFORE WAS N OT LIABLE FOR TDS. 9. LD. AO AFTER CONSIDERING THE SUBMISSIONS OF ASSE SSEE MADE AN ADDITION OF RS. 2,84,23,450/-UNDER SECTION 40 (A ) (I) OF THE ACT ON THE BALANCE AMOUNT FOR NON-DEDUCTION OF TDS. 10. AGGRIEVED BY PROPOSED ADDITIONS, ASSESSEE PREF ERRED APPEAL BEFORE LD.CIT(A) 11. ASSESSEE FILED VARIOUS SUBMISSIONS INCLUDING AD DITIONAL EVIDENCES TO JUSTIFY THE RENDITION OF SERVICES BY A E IN VIEW OF WHICH PAYMENTS WERE MADE TO AE. ON CONSIDERING AL L THE SUBMISSIONS, LD.CIT(A) UPHELD ACTION OF LD.TPO. 12. ON THE ISSUE OF DISALLOWANCE MADE UNDER SECTION 40 (A) (I) OF THE ACT, LD.CIT (A) WAS OF THE OPINION THAT, THE MA NAGEMENT FEE PAID BY ASSESSEE COMES UNDER THE DEFINITION OF FEE FOR TECHNICAL PAGE 6 OF 13 IT(TP)A NO.2349/BANG/2019 SERVICES UNDER THE ACT AS DEFINED IN EXPLANATION 2 TO CLAUS (VII) OF SECTION 9 (1) OF THE ACT. LD.CIT(A) WAS OF THE O PINION THAT, THE MANAGERIAL FEE PAID BY ASSESSEE WAS ALSO TAXABLE IN THE HANDS OF THE RECIPIENT IN INDIA AS PER ARTICLE 13 OF INDIA-F RANCE DTAA. LD.CIT(A) HELD THAT AS THERE IS NO MAKE AVAILABLE C LAUSE FOR FTS IN DTAA BETWEEN INDIA AND FRANCE, THE ARGUMENT OF ASSESSEE THAT MANAGERIAL FEE WAS NOT MADE AVAILABLE WAS REJE CTED. LD.CIT(A) ACCORDINGLY UPHELD DISALLOWANCE FOR NON- DEDUCTION OF TDS U/S 40(A)(I) OF THE ACT. 13. AGGRIEVED BY ADDITION MADE BY LD.AO, ASSESSEE I S IN APPEAL BEFORE US NOW. 14. AT THE OUTSET, LD.AR IS NOT DISPUTING SEGREGATI ON OF THE MANAGEMENT SERVICES TO BE BENCH MARKED SEPARATELY. HOWEVER HE SUBMITTED THAT LD.TPO HAS NOT ANALYSED THE SERVICES RENDERED BY AE TO ASSESSEE IN THE LIGHT OF EVIDENCES FILED BY A SSESSEE. HE SUBMITTED THAT, EVEN LD.CIT(A) SUMMARILY REJECTED SUBMISSIONS OF ASSESSEE WITHOUT VERIFYING VARIOUS EVIDENCE FILE D. 15. LD.CIT.DR AT THIS STAGE SUBMITTED THAT, THE ISS UE MAY BE REMANDED TO LD.TPO FOR READJUDICATION ON THIS ISSUE IN THE LIGHT OF EVIDENCES FILED BY ASSESSEE BEFORE LD.CIT (A). 16. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 17. IT IS OBSERVED THAT LD.TPO DETERMINED ALP AT NI L BY APPLYING CUP, VIS--VIS , ALP DETERMINED BY ASSESSEE AT AGGREGATE LEVEL BY USING TNMM. LD.TPO HELD THAT ASSESSEE DID NOT OBTAIN ANY BENEFIT OUT OF SUCH SERVICES AND THAT SUCH SERV ICES PROVIDED PAGE 7 OF 13 IT(TP)A NO.2349/BANG/2019 BY AE WERE NOT REQUIRED, AS, ASSESSEE FAILED TO PRO VIDE EVIDENCE REGARDING RECEIPT OF SERVICES, ALLEGED TO BE RENDER ED BY AE, NECESSITATING ANY PAYMENT. IT IS OBSERVED THAT, LD. TPO THUS HELD THAT, AS THERE IS NO BENEFIT FROM SERVICES FOR WHIC H PAYMENTS HAS BEEN MADE, HE DETERMINED ALP OF INTERNATIONAL TRANS ACTION AT NIL, WITHOUT CARRYING OUT ANY FAR ANALYSIS OF INTRA-GRO UP SERVICES. THIS APPROACH OF LD.TPO IS NOT ACCEPTABLE, AS ONCE A TRANSACTION HAS BEEN CATEGORISED AS INDEPENDENT INTERNATIONAL T RANSACTION, IT IS NECESSARY TO DETERMINED ALP OF SUCH TRANSACTION. LD.TPO CANNOT CONSIDER ALP AT NIL AND VALUE OF TRANSACTI ON HAS TO BE COMPUTED AS PER LAW. 18. THE INCOME TAX ACT PROVIDES COMPUTATION OF ARMS LENGTH PRICE OF ANY INTERNATIONAL TRANSACTION AS UNDER: COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIO N HAVING REGARD TO ARM'S LENGTH PRICE. 92. (1) ANY INCOME ARISING FROM AN INTERNATIONAL TR ANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y CLARIFIED THAT THE ALLOWANCE FOR ANY EXPENSE OR INTEREST ARIS ING FROM AN INTERNATIONAL TRANSACTION SHALL ALSO BE DETERMINED HAVING REGARD TO THE ARM'S LENGTH PRICE. (2) WHERE IN AN INTERNATIONAL TRANSACTION [OR SPECI FIED DOMESTIC TRANSACTION], TWO OR MORE ASSOCIATED ENTER PRISES ENTER INTO A MUTUAL AGREEMENT OR ARRANGEMENT FOR TH E ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNE CTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PR OVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES, THE COST OR EXPENS E ALLOCATED OR APPORTIONED TO, OR, AS THE CASE MAY BE, CONTRIBU TED BY, ANY SUCH ENTERPRISE SHALL BE DETERMINED HAVING REGARD T O THE PAGE 8 OF 13 IT(TP)A NO.2349/BANG/2019 ARM'S LENGTH PRICE OF SUCH BENEFIT, SERVICE OR FACI LITY, AS THE CASE MAY BE. 19. ACCORDING TO ABOVE PROVISIONS FOLLOWING PRINCIP LES EMERGE:- AN INTERNATIONAL TRANSACTION IS ENTERED IN TO BETWE EN TWO OR MORE ASSOCIATED ENTERPRISES FOR JOINTLY ACQUIRING O R DEVELOPING SOME PROPERTY OR FOR OBTAINING SERVICES. THE PARTIES TO TRANSACTION ENTER IN TO MUTUAL AGREE MENT OR ARRANGEMENT TO SHARE COST OR EXPENSES INCURRED OR T O BE INCURRED IN RESPECT OF JOINT PROPERTY. THE COST OR EXPENSES INCURRED SHOULD BE IN CONNECTI ON WITH A BENEFIT OR SERVICES OF FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISE. THE EXPECTATION OF MUTUAL BENEFIT IS IMPORTANT CONSIDERATION FOR THE ACCEPTANCE OF ARRANGEMENT FOR POOLING OF RESOURCES BY THE ENTERPRISES. THE ENTERPRISES WOULD REQUIRE THAT EACH PARTICIPANT S PROPORTIONATE SHARE OF THE CONTRIBUTION IS CONSISTE NT WITH THE PROPORTIONATE SHARE OF OVERALL BENEFITS EXPECTE D TO BE RECEIVED FROM THE ARRANGEMENT. TRANSFER PRICE OF COST OR EXPENSES ALLOCATED OR APP ORTIONED TO SUCH ENTERPRISE OR CONTRIBUTED BY SUCH ENTERPRIS E SHALL BE DETERMINED HAVING REGARD TO ARM S LENGTH PRICE OF SUCH BENEFIT, SERVICE OR FACILITY RECEIVED BY THE ENTERP RISE. IN ORDER TO SATISFY ARMS LENGTH PRICE PARTICIPANTS CONTRIB UTIONS MUST BE CONSISTENT WITH WHAT AN INDEPENDENT ENTERPR ISE WOULD HAVE AGREED TO CONTRIBUTE UNDER COMPARABLE PAGE 9 OF 13 IT(TP)A NO.2349/BANG/2019 CIRCUMSTANCES CONSIDERING THE BENEFITS IT EXPECTS T O DERIVE FROM THE AGREEMENT. 20. WE DIRECT LD.TPO TO JUDGE THE REQUIREMENT OF SE RVICES FROM VIEWPOINT OF ASSESSEE AS A BUSINESSMAN. THEREFORE I N THIS REGARD WE ARE OF VIEW THAT ASSESSEE HAS TO SUBSTANTIATE TH AT THESE SERVICES ARE REQUIRED BY IT. WE NOTE THAT ASSESSEE HAS ENTERED INTO INTRA GROUP SERVICE AGREEMENT WITH AE, WHICH I S PLACED AT PAGE 467 OF PAPER BOOK VOLUME II. THIS GOES TO PROV E THAT SERVICES WERE REQUIRED BY ASSESSEE. 21 . HONBLE DELHI HIGH COURT IN CASE OF CUSHMAN WAKEFIELD LIMITED REPORTED IN 46 TAXMANN.COM 317 HAS HELD THAT: 34. THE COURT FIRST NOTES THAT THE AUTHORITY OF T HE TPO IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE TH E ALP AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FROM WHICH THE ASSESSEE BENEFITS. THAT ASPECT OF THE EXERCISE IS LEFT TO THE AO. THIS DISTINCTION WAS MADE CLEAR BY THE ITAT IN DRESSER- RAND INDIA (P.) LTD. V. ADDL. CIT [2011] 47 SOT 423 /13 TAXMANN.COM 82 (MUM.): '8. WE FIND THAT THE BASIC REASON OF THE TRANSFER PRICING OFFICER'S DETERMINATION OF ALP OF THE SERVI CES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NI L' IS HIS PERCEPTION THAT THE ASSESSEE DID NOT NEED THESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIENT EXP ERTS OF HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINT ED OUT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAF F WHICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FEES TO EXTERNAL F IRM. SIMILARLY, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD MANAGEMENT EXPERTS ON ITS ROL LS, AND, THEREFORE, GLOBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LES S APPROVE, THIS LINE OF REASONING. IT IS ONLY ELEMENT ARY PAGE 10 OF 13 IT(TP)A NO.2349/BANG/2019 THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIR ELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHO RITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHA T IS NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIE D ACCOUNTANTS AND MANAGEMENT EXPERTS ON HIS ROLLS, AN D YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXP ERTS FOR AUDITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEE'S WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WAS NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERCIAL WISDOM OF ASSESSEE'S DECISION TO TAKE BENEFIT OF EXPERTISE OF DRESSER RAND US, BUT ALSO BEYOND THE POWERS OF THE ASSESSING OFFICER. WE DO N OT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. W E HAVE FURTHER NOTICED THAT THE TRANSFER PRICING OFFI CER HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, A S EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RES ULTS, FROM THESE SERVICES. THIS ANALYSIS IS ALSO COMPLETE LY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AN D, BY NO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN DETERMINING ARM'S LENGTH PRICE OF THAT SERVICE. WHE N EVALUATING THE ARM'S LENGTH PRICE OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFI TS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF TH IS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAV E PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE T HE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEAR S WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT . THE AE MAY HAVE GIVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMINING THE ARM'S LENGTH PRICE OF TH E PAGE 11 OF 13 IT(TP)A NO.2349/BANG/2019 COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED THAT THE STAND OF T HE REVENUE AUTHORITIES IN THIS CASE IS THAT NO SERVICE S WERE RENDERED BY THE AE AT ALL, AND THAT SINCE THERE IS NO. EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL, T HE ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'.' 22. ANOTHER ASPECT THAT WAS MADE CLEAR BY COORDINAT E BENCH OF THIS TRIBUNAL IN DELLOITE CONSULTING INDIA (P.) LTD. V. DY. CIT/ITO REPORTED IN [2012] 137 ITD 21/22 TAXMANN.COM 107 (MUM) IS THAT: '37. ON THE ISSUE AS TO WHETHER THE TRANSFER PRICIN G OFFICER IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE AT 'N IL', WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN GEMPLUS INDIA (P.) LTD. V. ASSTT. CIT [IT APPEAL NO. 352 (BANG.) OF 20 09, DATED 20- 10- 2010] HELD THAT THE ASSESSEE HAS TO ESTABLISH B EFORE THE TRANSFER PRICING OFFICER THAT THE PAYMENTS MADE WER E COMMENSURATE TO THE VOLUME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARABLE. WHEN COMMENSURATE BENEFIT AGA INST THE PAYMENT OF SERVICES IS NOT DERIVED, THEN THE TRANSF ER PRICING OFFICER IS JUSTIFIED IN MAKING AN ADJUSTMENT UNDER THE ARM'S LENGTH PRICE. 23. PLACING RELIANCE UPON AFORESTATED DECISIONS, WE ARE OF CONSIDERED OPINION THAT FOR THESE SERVICES, ASSESS EE HAS TO DEMONSTRATE AND SATISFY EVIDENCE TEST OR RENDITION TEST AND BENEFIT TEST, AS ENVISAGED U/S 92(2) OF THE ACT, AN D THAT, SERVICES PROVIDED BY AE ARE NEITHER DUPLICATIVE NOR SHAREHO LDERS ACTIVITY. LD.AO/TPO IS THEN DIRECTED TO DETERMINE ARMS LENGT H PRICE OF THESE SERVICES BASED ON DOCUMENTS SUBMITTED BY ASSE SSEE BY DETERMINING MOST APPROPRIATE METHOD AND COMPARABILITY ANALYSIS. 24. IN RESPECT OF CORPORATE TAX ISSUES RAISED BY AS SESSEE, WE NOTE THAT, LD.AO MADE PROTECTIVE ASSESSMENT U/S 40( A)(I) FOR NON DEDUCTION OF TDS ON PAYMENT MADE TOWARDS MANAGERIAL SERVICES. PAGE 12 OF 13 IT(TP)A NO.2349/BANG/2019 WE NOTE THAT LD.TPO HAS MADE ADJUSTMENT IN RESPECT OF PAYMENTS MADE TOWARDS MANAGERIAL SERVICES , WHICH H AS BEEN REMANDED FOR DENOVO CONSIDERATION BASED ON EVIDENCES/DOCUMENTS FILED BY ASSESSEE. 25. WE NOTE THAT ASSESSEE HAS DEDUCTED TDS ON CERTA IN PAYMENTS MADE TO AE. IT IS THE SUBMISSION OF LD.AR THAT BALANCE AMOUNT, PERTAINS TO OTHER SERVICES. LD.AR S UBMITS THAT SUCH OTHER PAYMENTS CANNOT BE TERMED AS TECHNICAL I N NATURE. AS WE HAVE REMITTED THE TRANSFER PRICING ADJUSTMENT ON SAME ISSUES TO LD.TPO FOR DENOVO CONSIDERATION, THIS ISSUE BECOMES ACADEMIC AT THIS STAGE. ACCORDINGLY, WE SET ASIDE THE ISSUES TO LD.AO/TPO. IN THE RESULT, APPAL FILED BY ASSESEE STANDS ALLOWE D FOR STATISTICAL PRUPOES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH NOV, 2020 SD/- SD/- (B.R BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 25 TH NOV, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 13 OF 13 IT(TP)A NO.2349/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -11-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -11-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -11-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -11-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -11-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -11-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -11-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS