M/s. Chryso India Private Limited (previously known as "The Structural Waterproofing Company Private Limited"), Kolkata V. A.C.I.T., Circle - 10(2), Kolkata , Kolkata

ITA 2363/KOL/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2110 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 21-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY PAUL; ROBIN CHOUDHUR Y
• Keywords: Transfer pricing; International transaction; Rule of consistency; Fair market value; Corroborative evidences; Valuation report; Commercial expediency
• Section: 92C; 37; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NO.2363/KOL/2017 ( / ASSESSMENT YEAR:2013-14) M/S CHRYSO INDIA PVT. LTD. (PREVISOUSLY KNOWN AS THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD. ) PLOT 38/1, BLOCK-GN, SECTOR-V, SALT LAKE CITY, KOLKATA-700091 VS. ACIT, CIRCLE-10(2), KOLKATA ./ ./PAN/GIR NO.: AABCT0878 M (ASSESSEE) .. (REVENUE) ASSESSEEBY:SHRI AKHILESH GUPTA, ADVOCATE RESPONDENT BY :SHRI ROBIN CHOUDHURY, ADDL. CIT & SH RI SANJAY PAUL, ADDL. CIT DR / DATE OF HEARING : 24/04/2019 /DATE OF PRONOUNCEMENT : 19/06/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO ASSESSMENT YEAR 2013-14, IS DIRECTED AGAINST THE FAIR ASSESSMENT OR DER PASSED BY THE ASSESSING OFFICER U/S 143(3), READ WITH SECTION144COF THE INC OME TAX ACT, 1961 (IN SHORT THE ACT) WHICH INCORPORATES THE DIRECTION GIVEN BY THE DISPUTE RESOLUTION PANEL U/S 144C(5) OF THE ACT, KOLKATA, VIDE ORDER, DATED 17.08.2017. 2. GROUND NOS.1& 2 RAISED BY THE ASSESSEEARE GENERA L IN NATURE AND HENCE DONOT REQUIRE ANYADJUDICATION. 3. GROUND NO. 3 RAISED BY THE ASSESSEE RELATES TO D ISALLOWANCE OF ADVERTISEMENT AND SALES PROMOTION EXPENSES OF RS. 36,48,606/- M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 2 22 2 5. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 05.04.2017 , PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NOS. 127 & 309/KOL/20 16, FOR ASSESSMENT YEAR 2011-12, WHEREBY THE ISSUE OF ADVERTISEMENT AND SAL ES PROMOTION EXPENSES HAS BEEN DISCUSSED AND ADJUDICATED IN FAVOUR OF THE ASS ESSEE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT ISSUE IS SQUARE LY COVERED BY THE ABOVE SAID ORDER OF THE TRIBUNAL, A COPY OF WHICH IS ALSO PLAC ED BEFORE THE BENCH. 6. THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORI TIES BELOW. 7. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEES O WN CASE VIDE ORDER DATED 05.04.2017. IN THIS ORDER, THE TRIBUNAL HAS INTER A LIA OBSERVED AS FOLLOWS: 18. THE FIRST ISSUE TO BE DECIDED IN THE APPEAL OF THE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MAD E IN THE SUM OF RS. 29,33,729/- TOWARDS ADVERTISING AND SALES PROMOTION EXPENSES. 18.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE DEBITED A SUM OF RS. 1,32,97,395/- ON ACCOUNT OF ADVERTISING AND SALES P ROMOTION IN ITS PROFIT AND LOSS ACCOUNT. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSEE FILED THE DETAILS OF SUCH EXPENSES. THE LD AO OBSERVED FROM THE DETA ILS FILED BY THE ASSESSEE THAT ASSESSEE HAD INCLUDED EXPENSES TO THE EXTENT OF RS 4,34,531/- ON ACCOUNT OF ADVERTISEMENT FOR PUJA AND OTHER PURPOSE IN SOUVENI R. THE LD AO OBSERVED THAT EXPENDITURE INCURRED TOWARDS ADVERTISING FOR PUJA C ANNOT BE SAID TO BE INCIDENTAL TO THE BUSINESS ACTIVITIES OF THE ASSESSEE AND ACCORDI NGLY DISALLOWED THE SAME. WITH REGARD TO ADVERTISEMENT AND SALES PROMOTION EXPENSE S OF RS. 24,98,748/- ON ACCOUNT OF SEMINARS, THE LD AO TREATED THE SAME AS NOT INCU RRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND ACCORDINGLY DISALLOWED THE SAME . THEREFORE, TOTAL DISALLOWANCE MADE ON THIS ACCOUNT WORKED OUT TO RS 29,33,729/- ( 24,98,748 + 4,34,531). THE LD DRP DELETED THE SAID DISALLOWANCE ON THE GROUND THE LD AO CANNOT STEP INTO THE SHOES OF THE ASSESSEE TO DECIDE THE RATIONALE OF EX PENSES. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP HAS ERRED ON FACT BY DELETING THE ADDITION OF RS.29,33,729/- ON ACCOUNT OF ADVERTISING AND SALES PROMOTION EXPENSES. 18.2. THE LD DR VEHEMENTLY RELIED ON THE ORDER OF T HE LD AO. IN RESPONSE TO THIS, THE LD AR STATED THE EXPENDITURE WAS INCURRED ONLY FOR THE PURPOSE OF BUSINESS AND THE ENTIRE DETAILS TOGETHER WITH SUPPORTING EVIDENCES W ERE DULY FILED BY THE ASSESSEE BEFORE THE LD AO AND THERE WAS NO REASON FOR THE LD AO TO TAKE A CONTRARY STAND ON THE SAME. HE PLACED RELIANCE ON THE DECISION OF T HE CO-ORDINATE BENCH OF CHENNAI M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 3 33 3 TRIBUNAL IN THE CASE OF THE KARURVYSYA BANK LTD VS ACIT IN ITA NOS. 902, 903,904 AND 907/MDS/2010 & 929,930 AND 931/MDS/2011 DATED 1 7.1.2013 IN SUPPORT OF HIS CONTENTIONS. 18.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LD AO HAD DISALLOWED THE IMPUGNED EXPENDITURE WITHOUT ASSIGNING ANY REAS ONS AS TO HOW THE SAME WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASS ESSEE WHEN THE ENTIRE DETAILS OF EXPENSES WERE VERY MUCH AVAILABLE BEFORE THE LD AO. THE FACT OF FILING OF SUCH DETAILS WERE ALSO CONCEDED BY THE LD AO IN HIS ASSE SSMENT ORDER. IT IS WELL SETTLED THAT THE COMMERCIAL EXPEDIENCY OF THE TRANSACTION H AD TO BE LOOKED INTO FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT FROM THE P OINT OF VIEW OF THE REVENUE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD DRP WITH REGARD TO DELETION OF DISALLOWANCE OF SALES PROMOTION EXPENSES IN THE SUM OF RS. 24,98,748/-. WITH REGARD TO THE DISALLOWANCE OF PUJA EXPENSES, THE RE LIANCE PLACED ON THE DECISION OF CHENNAI TRIBUNAL SUPRA BY THE LD AR IS WELL FOUNDED WHEREIN THE TRIBUNAL BY PLACING RELIANCE ON THE DECISION OF HONBLE MADRAS HIGH COU RT IN THE CASE OF CIT VSARUNA SUGARS LTD REPORTED IN 132 ITR 718 (MAD) ALLOWED TH E DEDUCTION TOWARDS PUJA EXPENSES. HENCE RESPECTFULLY FOLLOWING THE SAME, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD DRP IN DELETING THE DISALLOWANCE ON ACCOUNT OF PUJA EXPENSES IN THE SUM OF RS. 4,34,531/-. HENCE THE GROUND NO. 1 RAIS ED BY THE REVENUE IS DISMISSED. 8. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF CO- ORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA) IN I. T.A. NOS. 127&309/KOL/2016FORA.Y2011-12, AND THERE IS NO CHAN GE IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTRO VERT THE ABOVE SAID FINDINGS OF THE CO-ORDINATE BENCH. THEREFORE, RESPECTFULLY FOLL OWING THE DECISION OF CO- ORDINATE BENCH WE ALLOW GROUND NO. 3RAISED BY THE A SSESSEE. 9. GROUND NO. 4 RAISED BY THE ASSESSEE RELATES TO D ISALLOWANCE OF MISCELLANEOUS EXPENSES, THAT IS, AD HOC DISALLOWANCE OF MISCELLAN EOUS EXPENSES OF RS.45,41,101/- 10. WHEN THIS ISSUE WAS CALLED OUT FOR HEARING THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 05.04.2017 , PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NOS. 127 & 309/KOL/20 16, FOR ASSESSMENT YEAR 2011-12, WHEREBY THE ISSUE OF DISALLOWANCE OF MISCE LLANEOUS EXPENSES HAS BEEN DISCUSSED AND ADJUDICATED IN FAVOUR OF THE ASSESSEE . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT ISSUE IS SQUARE LY COVERED BY THE ABOVE SAID ORDER OF THE TRIBUNAL, A COPY OF WHICH IS ALSO PLAC ED BEFORE THE BENCH. M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 4 44 4 11. THE LD. DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 12. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE VIDE ORDER DATED 05.04.2017. IN THIS ORDER, THE TRIBUNAL HAS INTER A LIA OBSERVED AS FOLLOWS: 19. THE LAST GROUND TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 1,74, 38,629/- ON ACCOUNT OF MISCELLANEOUS EXPENSES IN THE FACTS AND CIRCUMSTANC ES OF THE CASE. 19.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE DEBITED A SUM OF RS. 1,74,38,629/- ON ACCOUNT OF MISCELLANEOUS EXPENSES IN ITS PROFIT AND LOSS ACCOUNT. THE BREAKUP OF MISCELLANEOUS EXPENSES WAS FURNISHED BEFORE THE LD AO. THE LD AO HELD THAT THE SAID EXPENDITURE IS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, WHICH WAS DELETED BY THE LD DRP ON THE GR OUND THAT THE LD AO CANNOT STEP INTO THE SHOES OF THE ASSESSEE TO DECIDE THE RATION ALE OF EXPENSES. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GRO UND:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP HAS ERRED ON FACT BY DELETING THE ADDITION OF RS.1,74,38,629/- O N ACCOUNT OF MISCELLANEOUS EXPENSES. 19.2. THE LD DR VEHEMENTLY RELIED ON THE ORDER OF T HE LD AO. IN RESPONSE TO THIS, THE LD AR VEHEMENTLY RELIED ON THE ORDER OF THE LD DRP. 19.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LD AO HAD DISALLOWED THE IMPUGNED EXPENDITURE WITHOUT ASSIGNING ANY REAS ONS AS TO HOW THE SAME WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E WHEN THE BREAK UP DETAILS OF EXPENSES WERE VERY MUCH AVAILABLE BEFORE THE LD AO. THE FACT OF FILING OF SUCH DETAILS WERE ALSO CONCEDED BY THE LD AO IN HIS ASSE SSMENT ORDER. IT IS WELL SETTLED THAT THE COMMERCIAL EXPEDIENCY OF THE TRANSACTION H AD TO BE LOOKED INTO FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT FROM THE P OINT OF VIEW OF THE REVENUE. HENCE WE HOLD THAT THE LD CITA HAD RIGHTLY DELETED THE DISALLOWANCE OF MISCELLANEOUS EXPENSES IN THE SUM OF RS 1,74,38,629 /-. ACCORDINGLY, THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 13. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA) IN I.T.A. NOS. 127 & 309/KOL/2016 FOR ASSESSMENT YEAR 2011-12, AND THER E IS NO CHANGE IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERI AL TO CONTROVERT THE ABOVE MENTIONED FINDINGS OF THE CO-ORDINATE BENCH. WE FIN D NO REASON TO INTERFERE IN THE SAID ORDER OF THE CO-ORDINATE BENCH AND THE SAME IS HEREBY UPHELD. THEREFORE, M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 5 55 5 RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH WE ALLOW GROUND NO. 4 RAISED BY THE ASSESSEE. 14. GROUND NO. 5 RAISED BY THE ASSESSEE RELATES TO AD HOC 20%DISALLOWANCE OF TRAVELLING EXPENSES OF RS.59,37,080/-. 15. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE TRAVELLING EXPENSES HAS BEEN ALLOWED BY THE ASSESSI NG OFFICER AT THE ASSESSMENT STAGE ITSELF DURING THE ASSESSMENT YEAR 2011-12. IN ASSESSMENT YEAR 2012-13 ALSO, THE ASSESSING OFFICER HAS ALLOWED THE TRAVELLING EX PENSES AT THE ASSESSMENT STAGE ITSELF (VIDE PB 1203 AND 1204). THE LD COUNSEL SUBM ITTED THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE`S BU SINESS THEREFORE BASED ON THE PRINCIPLE OF CONSISTENCY THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. THE LD DR FOR THE REVENUE HAS FAIRLY AGREED WITH THE SUBMISSI ONS OF THE LD COUNSEL. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2011-12 (VIDE PB1125) THE ASSESSING OFFICER HAS NOT MADE ANY DISALLOWANCE ON ACCOUNT OF TRAVELLING EXPENSES. WE ALSO NOTE THAT IN ASSESSMENT YEAR 2012 -13 ALSO, THE ASSESSING OFFICER HAS ALLOWED THE TRAVELLING EXPENSES AT THE ASSESSMENT STAGE ITSELF (VIDE PB 1203 AND 1204). WE NOTE THAT THE AO/DRP COULD HAVE VENTURED INTO ES TIMATION AND ADHOC DISALLOWANCE ONLY AFTER REJECTING THE BOOKS OF ACCO UNTS OF THE ASSESSEE U/S 145(3) OF THE ACT AND THEREAFTER BY BEST JUDGMENT ASSESSME NT U/S 144 OF THE ACT. HERE IN THIS CASE, THE AO/DRP HAS NOT PASSED ANY ORDER U/S 144 OF THE ACT. THE AO/DRP THUS WITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS GONE FOR ESTIMATION AND MADE AD HOC DISALLOWANCE ON SUSPICION AND CONJE CTURES THAT THE ASSESSEE MAY BE INFLATING ITS EXPENSES, IS NOT ACCEPTABLE. THEREFORE, WE NOTE THAT SINCE THESE EXPENSES HAVE A LREADY BEEN ALLOWED BY THE ASSESSING OFFICER IN THE PREVIOUS YEARS AND THERE I S NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE ASSESSEES BUSINESS THEREFORE, BASED ON THE PRINCIPLE OF CONSISTENCY, THESE EXPENSES SHOULD BE ALLOWED IN TH E YEAR UNDER CONSIDERATION. FOR M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 6 66 6 THAT WE RELY ON THE ORDER OF THE HONBLE SUPREME CO URT IN RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC), WHEREIN IT WAS HELD AS FOLLOW S: 'WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ON THESE REASONING , IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DI FFERENT VIEW OF THE MATTER - AND, IF THERE WAS NO CHANGE, IT WAS IN SUPPORT OF THE AS SESSEE WE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER OF INCOME-TAX IN THE EARLIER PROCE EDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN.' WE ARE OF THE VIEW THAT THE ABOVE CITED PRECEDENTS ON PRINCIPLE OF CONSISTENCY ARE SQUARELY APPLICABLE TO THE ASSESSEE UNDER CONSIDERA TION. THEREFORE, WE DELETE THE ADDITION OF RS.59,37,080/-. 17. GROUND NO. 6 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS AMOUNTING TO RS. 1,55,65, 867/-. 18. AT THE OUTSET ITSELF, THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED BEFORE THAT THE ASSESSING OFFICER HAS ALLOWED FOREIGN EXCHANGE FLUC TUATION LOSS AT THE ASSESSMENT STAGE ITSELF IN A.Y.2011-12 (VIDE PB 1125). THE COU NSEL ALSO SUBMITTED THAT IN ASSESSMENT YEAR 2012-13 ALSO THE ASSESSING OFFICER HAS ALLOWED FOREIGN EXCHANGE FLUCTUATION LOSS AT THE ASSESSMENT STAGE ITSELF (VI DE PB 1203 AND 1204). THE LD COUNSEL SUBMITTED THAT THERE IS NO CHANGE IN THE FA CTS AND CIRCUMSTANCES OF THE ASSESSEE`S BUSINESS THEREFORE BASED ON THE PRINCIPL E OF CONSISTENCY THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. THE LD DR FOR THE REVEN UE HAS FAIRLY AGREED WITH THE SUBMISSIONS OF THE LD COUNSEL. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT ASSESSEE COMPANY IMPORTS RAW MATERIALS FROM OUTSIDE INDIA AND EXPORTS FINISHED PRODUCTS/ GOODS OUTSIDE INDIA TO C HRYSO SAS ( PARENT COMPANY). THE FOREIGN EXCHANGE FLUCTUATION LOSS DEBITED TO TH E PROFIT AND LOSS ACCOUNT IS ON ACCOUNT OF FLUCTUATION OF FOREIGN CURRENCY WHILE MA KING PAYMENT FOR SUCH IMPORTS M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 7 77 7 AND WHILE RECEIVING PAYMENTS FOR SUCH EXPORTS AS WE LL AS ON ACCOUNT OF RESTATEMENT OF THE FOREIGN TRADE CREDITORS/TRADE DE BTORS ON THE BALANCE SHEET DATE. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO THE SU BMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. COUNSEL, WE FIND THAT THIS ISSUE INVOLVED IN THE PRESENT APPEAL IS NO LONGER R ES INTEGRA. WE NOTE THAT THE LOSS PERTAINING TO FOREIGN EXCHANGE FLUCTUATION IS AN AL LOWABLE EXPENDITURE FOR THAT WE RELY ON THE JUDGMENT OF HONBLE SUPREME COURT IN TH E CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. 179 TAXMAN 326 (SC). THEREFORE RESPECTFULLY FOLLOWING THE JUDGMENT OF HO NBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. ( SUPRA), WE ALLOW THE CLAIM OF THE ASSESSEE. 20. GROUND NO. 7 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE U/S 56(2)(VIIB) OF THE ACT AT RS.92,63,192/-. 21. BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSESSEE COMPANY ISSUED 99,905 SHARES OF FACE VALUE OF RS.100 AT A PREMIUM OF RS. 500 TO CHR YSO SAS (PARENT COMPANY). SHARES WERE ISSUED IN FY 2011-12 AND FINALLY ALLOTT ED IN THE FY 2012-13. VALUATION REPORT BY A CHARTERED ACCOUNTANT DETERMIN ING THE FAIR VALUE OF RS. 579.54 PER SHARE WAS SUBMITTED. THE ASSESSING OFFI CER COMPUTED FAIR MARKET VALUE OFRS.507.28 PER SHARE, AS PER RULE 11(UA)(2) OF THE RULES AND THE CONSIDERATION RECEIVED BY ASSESSEE WAS RS. 600 PER SHARE. ASSESSING OFFICER MADE ADJUSTMENT BY MULTIPLYING THE DIFFERENCE BETWEEN TH E TWO AT RS. 92.72 (RS.600 RS.507.28), WITH 99,905 SHARES AND THUS THE ADJUSTM ENT AMOUNTING TO RS. 92,63,192( 99,905 X RS.92.72), MADE BY THE ASSESSIN G OFFICER. 22. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE FILED THE OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP ). THE HONBLE DRP CONSIDERED THE ISSUE AND OBSERVED THAT SECTION 56( 2)(VIIB) OF THE ACT DEALS WITH THE SHARE VALUE RECEIVED IN EXCESS OF FAIR MARKET V ALUE BY THE ASSESSEE THOUGH THE SHARE APPLICATION MONEY WAS RECEIVED IN 2011-12, IT WAS LYING IN THE BALANCE SHEET OF THE ASSESSEE AND WAS CONVERTED INTO SHARES ONLY IN FY 2012-13. THUS, THE M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 8 88 8 CONSIDERATION WAS ACTUALLY RECEIVED IN THE SHARE AC COUNT IN FY 2012-13 I.E. A.Y. 2013-14. THE SECTION 56(2)(VIIB) WILL THEREFORE APP LY IN THE ASSESSEES CASE. THE DRP NOTICED THAT ASSESSING OFFICER IN HIS ORDER DID NOT SATISFY WITH THE VALUATION REPORT AND THE SUBMISSION OF THE ASSESSEE WAS FOUND UNACCEPTABLE. THE ASSESSEE WAS NOT SUBMITTED ANY ARGUMENTS IN THIS REGARD BEFO RE THE LD DRP. THEREFORE, THE OBJECTION OF THE ASSESSEE WAS DISMISSED BY THE LD D RP. 23. AGGRIEVED, BY THE ORDER OF THE LD DRP/AO, THE A SSESSEE IS IN APPEAL BEFORE US. AT THE OUTSET ITSELF, THE LD COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE APPLICATION MONEY WAS RECEIVED IN F.Y. 2011-12 AND SHARES GOT A LLOTTED IN F.Y. 2012- 13,THEREFORE, THE PROVISION OF SECTION 56(2)(VIIB ) DOES NOT APPLY. IN THE INSTANT CASE, SHARE APPLICATION MONEY WAS RECEIVED BY THE C OMPANY FROM ITS PARENT COMPANY, CHRYSO SAS, A NON-RESIDENT COMPANY. THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT DOES NOT APPLY TO THE NON-RE SIDENT, HENCE ADDITION MADE BY AO SHOULD BE DELETED. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT, DOES NOT APPLY TO CONSIDERATION RECEIVED FROM A NON-RESIDENT. THE PRO VISIONS OF SECTION 56(2)(VIIB) OF THE ACT, IS REPRODUCED BELOW FOR READY REFERENCE AS FOLLOWS: SECTION 56:INCOME FROM OTHER SOURCES. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDE D FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FRO M OTHER SOURCES, IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECT ION 14, ITEMS A TO E. (2) IN PARTICULAR AND WITHOUT PREJUDICE TO THE GENE RALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, NAMELY: (VIIB) WHERE A COMPANY, NOT BEING A COMPANY IN WHIC H THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM AN Y PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY WHERE THE CONSIDE RATION FOR ISSUE OF SHARES IS RECEIVED (I) BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND; OR (II) BY A COMPANY FROM A CLASS OR CLASSES OF PERSON S AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF. M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 9 99 9 EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE TH E VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH ME THOD AS MAY BE PRESCRIBED; OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES, OF ITS A SSETS, INCLUDING INTANGIBLE ASSETS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHTS, TRAD EMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE, WHICHEVER IS HIGHER; (B) VENTURE CAPITAL COMPANY, VENTURE CAPITAL FUND AND VENTURE CAPITAL UNDERTAKING SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN CLAUS E (A), CLAUSE (B) AND CLAUSE (C) OF[EXPLANATION] TO CLAUSE (23FB) OF SECTION 10;] THEREFORE, IT IS ABUNDANTLY CLEAR THAT SECTION 56(2 )(VIIB) OF THE ACT DOES NOT APPLY TO NON RESIDENT. HENCE, THE DISALLOWANCE MADE BY TH E AO UNDER SECTION 56(2)(VIIB) OF THE ACT, SHOULD BE DELETED. WE NOTE THAT HON`BLE DRP ALSO DID NOT CONSIDER THE AFORESAID FACTS BEFORE PASSING THE ORD ER. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE SUBMITTED BEFORE US THE FOLLOWING DOCUMENT S: I) VALUATION CERTIFICATE-PG NO. 252 TO 271 OF PAPER BOOK PART I II) CS CERTIFICATE- PG NO. 272 OF PAPER BOOK PART 1 III) PG 275- LETTER MENTIONING ABOUT NON-APPLICABIL ITY OF 56(2)(VIIB) OF PAPER BOOK PART 1 IV) DRP SUBMISSION-PG NO. 338 TO 340 OF PAPER BOOK PART 1 HENCE, CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCE S, WE DELETE THE ADDITION OF RS.92,63,192/- 25. GROUND NO. 8 RAISED BY THE ASSESSEE RELATES TO DETERMINATION OF ARMS LENGTH PRICE BY TPO / A.O. FOR MANAGEMENT AND OTHER ADMINI STRATIVE SERVICES RECEIVED BY THE ASSESSEE BY CONSIDERING THE ALP AS NIL. 26. WHEN THIS ISSUE WAS CALLED OUT FOR HEARING, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 05.04.2017 , PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NOS. 127 & 309/KOL/20 16, FOR ASSESSMENT YEAR 2011-12, WHEREBY THE ISSUE OF ARMS LENGTH PRICE FO R MANAGEMENT SERVICES AND ADMINISTRATIVE SERVICES RECEIVED BY THE ASSESSEE HA VE BEEN DISCUSSED AND M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 ADJUDICATED IN FAVOUR OF THE ASSESSEE. THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE O RDER OF THIS TRIBUNAL, A COPY OF WHICH IS ALSO PLACED BEFORE THE BENCH. 27. THE LD. DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 28. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE VIDE ORDER DATED 05.04.2017. IN THIS ORDER, THE TRIBUNAL HAS INTER A LIA OBSERVED AS UNDER: 7. AGGRIEVED BY THE ORDER OF THE DRP/ASSESSING OFFI CER, THE ASSESSEE IS IN APPEAL BEFORE US. AT THE OUTSET, THE LD. COUNSEL FOR THE A SSESSEE VEHEMENTLY SUBMITTED BEFORE US THAT MANAGEMENT SERVICES HAVE RESULTED IN EFFECTIVE COST SAVINGS BY WAY OF AN EFFECTIVE PURCHASE FUNCTION, TECHNICAL ASSISTANC E IN RELATION TO CERTAIN PRODUCTS BEING PROVIDED BY AE (THE EXPERTISE OF WHICH WAS NO T AVAILABLE WITH ASSESSEE) AND OTHER ANCILLARY FUNCTIONS LIKE IT MANAGEMENT FOR WH ICH THE ASSESSEE DID NOT HAVE REQUISITE STAFF TO PERFORM FUNCTIONS. THESE MANAGEM ENT SERVICES WERE NECESSARY FOR THE ASSESSEE TO FUNCTION EFFICIENTLY AND STAY RELEV ANT IN TERMS OF COST COMPETENCY, FIX DAY TO DAY IT RELATED ISSUES, ETC. THE LD. COUNSEL POINTED OUT THAT THE LD. TPO HAD NOT GONE INTO THE DETAILS OF EACH ACTIVITY RECEIVED BY THE ASSESSEE AND TRIED TO FIGURE OUT THE SPECIFIC BENEFIT TO THE ASSESSEE. THE LD. T PO HAD NOT MADE ANY ATTEMPT TO SHOW HOW THE ACTIVITIES RECEIVED BY THE ASSESSEE AR E FOR THE DIRECT AND PROXIMATE BENEFIT OF THE PARENT COMPANY. BY WAY OF REDUCTION IN COST, ASSESSEE WAS ABLE TO REMAIN COST EFFECTIVE AND COMPETE IN THE MARKET PLA CE. THE ASSESSEE DERIVED THE ADVANTAGE OF THE SPECIALIZED SKILL OF THE PURCHASE DEPARTMENT OF CHRYSO SAS SINCE THEY HAVE LONG STANDING RELATIONSHIPS AND EXPERIENC E WITH THE SUPPLIERS OF RAW MATERIALS. WITH THIS BACKGROUND, THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED BEFORE US THAT THE SAID ISSUE IS SQUARELY COVERED BY THE H ONBLE ITAT KOLKATA IN THE ASSESSEES OWN CASE, IN ITA NO.127/KOL/2016 ASSESSM ENT YEAR 2011-12 DATED 05.04.2017 WHEREIN IT WAS HELD AS FOLLOWS: 16. WITH REGARD TO THE PAYMENT OF MANAGEMENT SERVIC E CHARGES TO AE BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAD CLEARLY DEM ONSTRATED THAT MANAGEMENT SERVICES HAVE RESULTED IN EFFECTIVE COST SAVINGS BY WAY OF AN EFFECTIVE PURCHASE FUNCTION, TECHNICAL ASSISTANCE IN RELATION TO CERTA IN PRODUCTS BEING PROVIDED BY AE (THE EXPERTISE OF WHICH WAS NOT AVAILABLE WITH ASSE SSEE) AND OTHER ANCILLARY FUNCTIONS LIKE IT MANAGEMENT FOR WHICH THE ASSESSEE DID NOT HAVE REQUISITE STAFF TO PERFORM FUNCTIONS. THE SERVICES WERE NECESSARY FOR THE ASSESSEE TO FUNCTION EFFICIENTLY AND STAY RELEVANT IN TERMS OF COST COMP ETENCY, FIX DAY TO DAY IT RELATED ISSUES, ETC. THE ASSESSEE MADE DETAILED SUBMISSION S REGARDING MANAGEMENT SERVICES TO SUBSTANTIATE THE BENEFIT RECEIVED FROM IT VIDE ITS SUBMISSIONS DATED 13.1.2015. THE ASSESSEE EVEN DEMONSTRATED THE COST INCURRED FOR RENDERING MANAGEMENT SERVICES BY THE AE AND THE LOSSES INCURR ED BY AE FOR THE YEARS ENDING 2010 AND 2011 THEREON, THEREBY PROVING THAT DESPITE THE RECOVERY OF MANAGEMENT FEES FROM THE ASSESSEE, THE AE HAD ONLY INCURRED LO SSES. WE FIND THAT THE ASSESSEE HAD CLEARLY DEMONSTRATED THE NECESSITY OF PAYING TH E MANAGEMENT FEES TO ITS AE IN DETAIL TOGETHER WITH THE VARIOUS BENEFITS DERIVED B Y IT AND FOR THIS PURPOSE, IT HAD M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 11 11 1 ALSO PRODUCED THE ENTIRE EXCHANGE OF EMAILS ON THE IMPUGNED ISSUE. WE ALSO FIND THAT THE ASSESSEE HAD MET EACH AND EVERY ASPECT OF THE OBJECTIONS RAISED IN THE SAID EMAILS BY THE LD TPO. THE LD TPO SIMPLY BRUSHED ASIDE THE REPLIES GIVEN BY THE ASSESSEE IN THIS REGARD AND SIMPLY CONCLUDED THAT T HE SERVICES RENDERED ARE IN THE NATURE OF CONTROL AND MONITORING ACTIVITY AND HENCE THEY ARE ONLY STEWARDSHIP SERVICES, FOR WHICH NO CHARGE IS REQUIRED TO BE PAI D BY THE ASSESSEE. ACCORDINGLY THE LD TPO DETERMINED THE ALP OF THE MANAGEMENT CHA RGES ATRS NIL. THE LD DRP AGREED THAT THE ASSESSEE HAD RECEIVED SERVICES FROM AE AND HAD ALSO RECEIVED SOME BENEFITS OUT OF IT. WE FIND FROM THE DETAILS OF SE RVICES RENDERED BY THE AE TO THE ASSESSEE AS ENUMERATED ELSEWHERE IN THIS ORDER, THE SERVICES HAVE BEEN RECEIVED FROM THE AE FOR DAY TO DAY MANAGERIAL FUNCTIONS IN THE COURSE OF NORMAL BUSINESS ACTIVITIES AND WHICH IS PRACTICED BY MANY GLOBAL OR GANISATIONS FOR SMOOTH AND EFFICIENT FUNCTIONING. THE SERVICES WERE FOR THE D IRECT AND PROXIMATE BENEFIT OF THE ASSESSEE AND CANNOT BE REGARDED AS A SHAREHOLDER AC TIVITY. THE RELIANCE PLACED IN THIS REGARD ON THE CO-ORDINATE BENCH DECISION OF MU MBAI TRIBUNAL IN THE CASE OF DRESSER RAND INDIA PVT LTD VS. ADDL CIT REPORTED I N (2011) 13 TAXMANN.COM 82 (MUM TRIB) IS WELL FOUNDED. WE FIND THAT THE ASSESS EE HAD APPLIED TNMM AS THE MOST APPROPRIATE METHOD AND NO EFFORTS WERE MADE BY THE LD TPO TO SHOW AS TO HOW TNMM IS NOT APPROPRIATE FOR BENCHMARKING THE MA NAGEMENT SERVICES. THE ASSESSEE HAD ALREADY MADE OUT A CASE THAT IT DID NO T HAVE ANY REQUISITE STAFF TO PERFORM THE FUNCTIONS PERFORMED BY ITS AE AND HENCE THE LD TPOS CONTENTION OF QUESTIONING THE COMMERCIAL JUSTIFICATION FOR THE SE RVICES IS TOTALLY UNCALLED FOR. THE LD AR ALSO SUBMITTED THAT IT IS A GROUP PRACTICE TO MAINTAIN UNIFORM STANDARDS BY THE AE. IT IS THE KEY TO RENDERING OF SERVICES BY THE AE SO AS TO MAINTAIN UNIFORMITY, OPERATIONAL SUPREMACY AND CONTROL ON THE VARIED GRO UP ENTITIES. THE PRACTICE OF SUCH SERVICES IS PRIMA FACIE ON ACCOUNT OF NEED TO SHEPHERD THE GROUP ENTITIES TO A STANDARDIZED APPROACH TO ALL THE ISSUES, PROCESSES ETC. SO AS TO CONVEY IDENTICAL IMPRESSION AND GENERATE IDENTICAL SOLUTIONS ALSO. WE FIND LOT OF FORCE IN THIS ARGUMENT OF THE LD AR THAT THE SERVICES RENDERED BY THE AE TO THE ASSESSEE IN THE FORM OF UNIFORM POLICIES AND PRACTICES AND STANDARD IZED APPROACH TO ALL THE ISSUES BY HAVING COMMON ATTESTATION FUNCTIONS ACROSS THE G LOBE WOULD GREATLY ASSIST IN THE CONSOLIDATION AT GLOBAL LEVEL AND HENCE TO THAT EXT ENT THE NECESSITY OF AE RENDERING THE MANAGERIAL SERVICES TO THE ASSESSEE AND ITS GRO UP COMPANIES IS JUSTIFIED. ONCE THE SAME IS JUSTIFIED, THERE IS NO HARM IN MAKING P AYMENT FOR THOSE SERVICES. WE HOLD THAT THE LD TPO OUGHT NOT TO HAVE DETERMINED T HE ALP OF THE MANAGEMENT CHARGES AT RS NIL BY STATING THAT THE SAME NEED NOT BE INCURRED BY THE ASSESSEE ON THE GROUNDS OF COMMERCIAL EXPEDIENCY. THIS, IN OU R CONSIDERED OPINION, WOULD BE BEYOND THE JURISDICTIONAL POWERS OF THE LD TPO. THE DUTY OF THE LD TPO WOULD BE TO DETERMINE THE ALP OF A PARTICULAR TRANSACTION AND H E CANNOT GET INTO THE PROPRIETY OF THE TRANSACTION WHILE DETERMINING THE ALP. WE F IND THAT THE LD DRP OBSERVED THAT THOUGH THE DIRECT AND OSTENSIBLE VISIBLE BENEF IT TO THE ASSESSEE BY AVAILING SUCH SERVICES IS NOT CLEAR FROM THE DATA FURNISHED, YET, IT MAY BE REASONABLY ASSUMED THAT THE ASSESSEE DID GARNER SOME NOMINAL BENEFITS BY AV AILING SUCH SERVICES IN THE FORM OF TROUBLE SHOOTING AT TIMES TO RESOLVE CERTAIN ISS UES. THIS GOES TO PROVE THAT THE LD DRP HAD ALSO AGREED TO THE BENEFITS DERIVED BY THE ASSESSEE OUT OF THE SERVICES RENDERED BY THE AE FOR WHICH MANAGEMENT FEES IS PAI D BY THE ASSESSEE. WE FIND THAT THE ASSESSEE HAD SPECIFICALLY REPLIED THAT IT WAS BENEFITTED BY SUBSTANTIAL COST REDUCTION ON AN OVERALL BASIS BY UTILIZING THE SERV ICES RENDERED BY ITS AE PURSUANT TO THE MANAGEMENT SERVICES AGREEMENT. WE FIND THA T THE DECISION RELIED UPON BY THE LD AR ON THE HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS CUSHMAN AND WAKEFIELD (INDIA) (P) LTD REPORTED IN (2014) 367 IT R 730 (DEL) IS WELL FOUNDED WHEREIN IT WAS HELD THAT :- M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 12 22 2 '35. THE TRANSFER PRICING OFFICER'S REPORT IS, SUBS EQUENT TO THE FINANCE ACT, 2007, BINDING ON THE ASSESSING OFFICER. THUS, IT BECOMES ALL THE MORE IMPORTANT TO CLARIFY THE EXTENT OF THE TRANSFER PRICING OFFICER'S AUTHORITY IN THIS CASE, WHICH IS TO DETERMINING THE ARM'S LENGTH PRICE FOR INTERNATIONAL TRANSACTIONS REFERRED TO HI M OR HER BY THE ASSESSING OFFICER, RATHER THAN DETERMINING WHETHER SUCH SERVICES EXIST OR BEN EFITS HAVE ACCRUED. THAT EXERCISE - OF FACTUAL VERIFICATION IS RETAINED BY THE ASSESSING O FFICER UNDER SECTION 37 IN THIS CASE. INDEED, THIS IS NOT TO SAY THAT THE TRANSFER PRICIN G OFFICER CANNOT -AFTER A CONSIDERATION OF THE FACTS - STATE THAT THE ARM'S LENGTH PRICE IS 'N IL' GIVEN THAT AN INDEPENDENT ENTITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HO WEVER, THIS IS DIFFERENT FROM THE TRANSFER PRICING OFFICER STATING THAT THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPENDITURE. THAT DECISION I S OUTSIDE THE AUTHORITY OF THE TRANSFER PRICING OFFICER. 36. IN THIS CASE, THE ISSUE IS WHETHER AN INDEPENDE NT ENTITY WOULD HAVE PAID FOR SUCH SERVICES. IMPORTANTLY, IN REACHING THIS CONCLUSION, NEITHER THE REVENUE, NOR THIS COURT, MUST QUESTION THE COMMERCIAL WISDOM OF THE ASSESSEE, OR REPLACE ITS OWN ASSESSMENT OF THE COMMERCIAL VIABILITY OF THE TRANSACTION. THE SERVIC ES RENDERED BY CWS AND CWHK IN THIS CASE CONCERN LIAISING AND CLIENT INTERACTION WITH I BM ON BEHALF OF THE ASSESSEE-ACTIVITIES FOR WHICH, ACCORDING TO THE ASSESSEE'S CLAIM-INTERACTIO N WITH IBM'S REGIONAL OFFICES IN SINGAPORE AND THE UNITED STATES WAS NECESSARY. THES E SERVICES CANNOT - AS THE INCOME-TAX APPELLATE TRIBUNAL CORRECTLY SURMISED-BE DUPLICATED IN INDIA INSOFAR AS THEY REQUIRE INTERACTION ABROAD. WHETHER IT IS COMMERCIALLY PRUD ENT OR NOT TO EMPLOY OUTSIDERS TO CONDUCT THIS ACTIVITY IS A MATTER THAT LIES WITHIN THE ASSESSEE'S EXCLUSIVE DOMAIN, AND CANNOT BE SECOND- GUESSED BY THE REVENUE.' [BRACKETS PROVI DED BY US] 16.1. WE ALSO FIND THAT THE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF DCIT VS BATA INDIA LTD REPORTED IN (2016) 69 TAXMANN.COM 12 0 (KOLKATA TRIB) DATED 6.4.2016 HAD CONSIDERED THE DECISIONS OF HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS EKL APPLIANCES LTD (2012) 345 ITR 241 (DEL) ; CIT VS CUSHMAN & WAKEFIELD (INDIA) (P) LTD (2014) 367 ITR 730 (DEL) AND CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DRESSER RAND INDIA ( P) LTD VS. ADDL CIT (2011) 47 SOT 423 (MUM) AND APPLIED THE PRINCIPLES EMANATING OUT OF THOSE JUDGEMENTS AND APPLIED THE SAME TO THE FACTS OF THE CASE IN BATA I NDIA LTD. IN THE SAID CASE (I.E BATA INDIA LTD SUPRA) IT WAS OBSERVED AS UNDER:- 27. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT V. EKL APPLIANCES LTD. [2012] 345 ITR 241/24 TAXMANN.COM 199/209 TAXMAN 200 AS WELL AS CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.)LTD. [2014] 367 ITR 730/46 TAXMANN.COM 317 (DELHI) , RENDERED SIMILAR RULING AS WAS RENDERED IN THE CASE OF DRESSER-RAND INDIA (P.) LTD. (SUPRA).IN THE CASE OF CUSHMAN & WAKEFIELD INDIA (P.) LTD. (SUPRA), THE HON'BLE DELH I HIGH COURT OBSERVED THAT WHETHER A THIRD PARTY - IN AN UNCONTROLLED TRANSACTION WITH T HE TAXPAYER WOULD HAVE CHARGED AMOUNTS LOWER, EQUAL TO OR GREATER THAN THE AMOUNTS CLAIMED BY THE AES, HAS TO PERFORCE BE TESTED UNDER THE VARIOUS METHODS PRESCRIBED UNDER THE INDI AN TP PROVISIONS. IN THE CONTEXT OF COST SHARING ARRANGEMENT, THE HON'BLE HIGH COURT OPINED THAT CONCEPT OF BASE EROSION IS NOT A LOGICAL INFERENCE FROM THE FACT THAT THE AES HAVE O NLY ASKED FOR REIMBURSEMENT OF COST. THIS BEING A TRANSACTION BETWEEN RELATED PARTIES, WHETHE R THAT COST ITSELF IS INFLATED OR NOT ONLY IS A MATTER TO BE TESTED UNDER A COMPREHENSIVE TRANSFE R PRICING ANALYSIS. THE BASIS FOR THE COSTS INCURRED, THE ACTIVITIES FOR WHICH THEY WERE INCURRED, AND THE BENEFIT ACCRUING TO THE TAXPAYER FROM THOSE ACTIVITIES MUST ALL BE PROVED T O DETERMINE FIRST, WHETHER, AND HOW MUCH, OF SUCH EXPENDITURE WAS FOR THE PURPOSE OF BE NEFIT OF THE TAXPAYER, AND SECONDLY, WHETHER THAT AMOUNT MEETS ALP CRITERION. IN THE PRE SENT CASE HOWEVER, THE ARRANGEMENT BETWEEN THE AE AND THE ASSESSEE IS NOT A COST SHARI NG ARRANGEMENT BUT A PAYMENT FOR SPECIFIC SERVICES RENDERED. TO THIS EXTENT THE ABOV E OBSERVATIONS OF THE HON'BLE HIGH COURT MAY NOT BE RELEVANT TO THE PRESENT CASE. M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 13 33 3 28. THE FOLLOWING ASPECTS WOULD REQUIRE CONSIDERATION IN ORDER TO IDENTIFY INTRAGROUP SERVICES REQUIRING ARM'S LENGTH REMUNERATION: - WHETHER SERVICES WERE RECEIVED FROM RELATED PARTY . - NATURE OF SERVICES INCLUDING QUANTUM OF SERVICES RECEIVED BY THE RELATED PARTY. - SERVICES WERE PROVIDED IN ORDER TO MEET SPECIFIC NEED OF RECIPIENT OF THE SERVICES. - THE ECONOMIC AND COMMERCIAL BENEFITS DERIVED BY T HE RECIPIENT OF INTRAGROUP SERVICES. - IN COMPARABLE CIRCUMSTANCES AN INDEPENDENT ENTERP RISE WOULD BE WILLING TO PAY THE PRICE FOR SUCH SERVICES? - AN INDEPENDENT THIRD PARTY WOULD BE WILLING AND A BLE TO PROVIDE SUCH SERVICES? WHETHER PAYMENT MADE TO AE MEETS ALP CRITERION WILL BE DETERMINED, KEEPING IN MIND ALL THE ABOVE FACTORS, AS WELL. 29. KEEPING IN MIND THE PRINCIPLES EMANATING FROM THE AFORESAID DECISIONS, WE SHALL NOW PROCEED TO EXAMINE THE MATERIAL ON RECORD TO SEE TH E NATURE OF SERVICES RECEIVED BY THE ASSESSEE AND AS TO WHETHER THE SAME WERE AT ARM'S L ENGTH. 47. IN THE LIGHT OF THE DISCUSSION IN PARAGRAPHS 30 TO 46, WE HOLD THAT THE ASSESSEE HAS ESTABLISHED THE NATURE OF SERVICES INCLUDING QUANTU M OF SERVICES RECEIVED BY THE RELATED PARTY, THAT SERVICES WERE PROVIDED IN ORDER TO MEET SPECIFIC NEED OF THE ASSESSEE FOR SUCH SERVICES, THE ECONOMIC AND COMMERCIAL BENEFITS DERI VED BY THE ASSESSEE OF INTRAGROUP SERVICES. 16.2. WE ALSO FIND THAT IN THE RECENT DECISION OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF KNORR-BREMSE INDIA (P) LTD VS ACIT REPORTED IN (2016) 380 ITR 307 (DEL) WHEREIN THE RELEVANT HEAD NOTES IS REPRODUCED HEREI NBELOW :- SECTION 92C OF THE INCOME-TAX ACT, 1961 - TRANSFER PRICING - COMPUTATION OF ARMS LENGTH PRICE (COMPARABLES AND ADJUSTMENTS/ADJUSTMENTS - GE NERAL) - ASSESSMENT YEAR 2007-08 - WHETHER ANSWER TO ISSUE WHETHER A TRANSACTION IS AT AN ARM'S LENGTH PRICE OR NOT IS NOT DEPENDENT ON WHETHER TRANSACTION RESULTS IN AN INCR EASE IN ASSESSEE'S PROFIT; MERE FAILURE TO ESTABLISH THAT TRANSACTIONS RESULTED IN A PROFIT DO ES NOT INDICATE THAT THEY WERE NOT AT AN ARM'S LENGTH PRICE AND EVEN IF PROFIT IS ESTABLISHE D, IT DOES NOT NECESSARILY FOLLOW THAT TRANSACTION WAS AT AN ARM'S LENGTH PRICE - HELD, YE S [PARA 21] WE FIND THAT THIS JUDGEMENT HAD APPROVED THE EARLIE R DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CUSHMAN AND WAKEFIELD (IN DIA) (P) LTD SUPRA AND ALSO THE DECISION OF EKL APPLIANCES SUPRA. 16.3. IN VIEW OF THE AFORESAID FINDINGS AND RESPEC TFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT TH E DETERMINATION OF ALP FOR MANAGEMENT SUPPORT SERVICES AT RS NIL IS UNWARRANTE D AND ACCORDINGLY THE ADJUSTMENT MADE BY THE LD TPO IN THE SUM OF RS. 52, 26,683/- IS DELETED. ACCORDINGLY, THE GROUND NOS 7 TO 7.6 RAISED BY THE ASSESSEEARE ALLOWED. 8. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT AS THE I SSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE B ENCH (STATED SUPRA) IN ASSESSEESOWN CASE AND THERE IS NO CHANGE IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AF ORESAID FINDINGS. THEREFORE, WE M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTURAL WATERPROOFING COMPANY PVT. LTD.) ITA NO.2363/KOL/2017 ASSESSMENT YEAR:2013-14 P PP PA AA AG GG GE EE E | || | 1 11 14 44 4 ARE OF THE VIEW THAT ARMS LENGTH PRICE ADJUSTMENT MADE BY THE DRP/ASSESSING OFFICER IN RESPECT OF MANAGEMENT SERVICES TO THE TU NE OF RS.68,81,619/- NEEDS TO BE DELETED. ACCORDINGLY, WE DELETE THE ARMS LENGTH PR ICE ADJUSTMENT IN RELATION TO MANAGEMENT SERVICES TO THE TUNE OF RS.68,81,619/-. 29. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA) IN I.T.A. NOS. 127 & 309/KOL/2016 FOR AY 2011-12, AND THERE IS NO CHANGE IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTRO VERT THE ABOVE SAID FINDINGS OF THE CO-ORDINATE BENCH. WE FIND NO REASON TO INTERFE RE IN THE SAID ORDER OF THE CO- ORDINATE BENCH AND THE SAME IS HEREBY UPHELD AND WE ALLOW THE GROUND NO.8 RAISED BY THE ASSESSEE. 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 19.06.2019 SD/- ( S.S. GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 19/06/2019 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. M/S CHRYSO INDIA PVT. LTD. (FORMERLY THE STRUCTU RAL WATERPROOFING COMPANY PVT. LTD.) 2. ACIT,CIRCLE-10(2), KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES