Durovalves [I] P.Ltd., Aurangabad V. ACIT, Aurangabad

ITA 2483/PUN/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1140 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K RASTOGI
• Keywords: Business income; Depreciation; Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 2483/PN/2012 $& ' !(' / ASSESSMENT YEAR : 2008-09 DUROVALVES INDIA PVT. LTD., F-57/58, MIDC INDUSTRIAL AREA, WALUJ, AURANGABAD-431136 PAN : AAACD8064E ....... / APPELLANT )& / V/S. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-I, AURANGABAD / RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE REVENUE BY : SHRI S.K. RASTOGI / DATE OF HEARING : 20-07-2015 / DATE OF PRONOUNCEMENT : 16-09-2015 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSE SSMENT ORDER DATED 11-10-2012 PASSED U/S. 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2008-09. IN APPEAL THE ASSESSEE HAS CHALLENGED T HE ASSESSMENT ORDER AND THE DIRECTIONS OF DISPUTE RESOLUTION PANEL (DRP)- I, MUMBAI ON THE FOLLOWING TWO GROUNDS: 2 ITA NO. 2483/PN/2012, A.Y. 2008-09 1. THE LEARNED AO AND LEARNED DRP ERRED IN LAW AND ON FACTS IN DETERMINING ARMS LENGTH PRICE OF SALES COMMISSION TRANSACTION OF THE APPELLANT AT RS. NIL INSTEAD OF RS.2,118,199/-. 2. THE LEARNED AO AND LEARNED DRP ERRED IN LAW AND ON FACTS IN DISALLOWING LATE PAYMENT OF THE ESIC AMOUNTING TO RS.111,519/-. THE THIRD GROUND RAISED IN THE APPEAL IS GENERAL. 2. THE BRIEF FACTS OF THE CASE ARE : THE ASSESSEE IS A C OMPANY REGISTERED UNDER THE PROVISIONS OF COMPANIES ACT AND IS E NGAGED IN MANUFACTURING OF INTERNAL COMBUSTION ENGINE VALVES USED IN FOUR STROKES ENGINES OF TWO WHEELER, THREE WHEELER AND FOUR WH EELER VEHICLES AND ALSO IN FOUR STROKE GENERATOR ENGINES. THE ASSESSEE COMPANY IS A JOINT VENTURE BETWEEN VARROC GROUP AND SCARPA & COLOM BO OF ITALY. VARROC GROUP IS HOLDING 74% STAKE IN THE ASSESSEE COMP ANY AND REMAINING 26% STAKE IS HELD BY ITALIAN COMPANY. THE ASSES SEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 3 0-09-2008 DECLARING LOSS OF RS.48,93,720/-. DURING THE IMPUGNED ASSES SMENT YEAR, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSA CTIONS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCO RDINGLY, NOTICE U/S. 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 17 -08-2009. IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTERED INTO WITH A SSOCIATED ENTERPRISES (AE) THE MATTER WAS REFERRED TO THE TRANSFE R PRICING OFFICER (TPO) FOR DETERMINING ARMS LENGTH PRICE (ALP). ONE OF THE ISSUES REFERRED TO THE TPO WAS WITH RESPECT TO PAYMENT OF SALES COMMIS SION BY ASSESSEE TO THE AE FOR PROCURING EXPORT ORDERS FROM FIA T AND GENERAL MOTORS. THE ASSESSEE HAD PAID COMMISSION OF RS.21,18,200/- @ 2% OF THE SALES. THE TPO AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE CONCLUDED THAT THE ASSESSEE HAS NOT EXPLAINED THE NEED OF THE SERVICES AND HAS ALSO NOT DEMONSTRATED AS TO HOW THE SERVICES WERE ACTUALLY 3 ITA NO. 2483/PN/2012, A.Y. 2008-09 RENDERED BY THE AE. THE TPO PROPOSED TO TAKE THE VA LUE OF INTERNATIONAL TRANSACTION WITH RESPECT TO COMMISSION PAID AS NIL. AGGRIEVED BY THE FINDINGS OF TPO INTER ALIA ON THE PAYMENT OF SALES COMMISSION, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE ASSESSEE ALSO FILED OBJECTIONS WITH REGARD TO DISALLOWANCE O N DELAYED PAYMENT OF THE ESIC AMOUNTING TO RS.1,11,519/- WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER DA TED 07-12- 2011. THE DRP UPHELD THE FINDINGS OF TPO FOR CONSIDERING T HE SALES COMMISSION AS NIL. AS REGARDS DELAY IN PAYMENT OF ESIC, TH E DRP HELD THAT THE AMOUNT WAS NOT DEPOSITED WITHIN THE DUE DATE SPECIFIED UNDER THE RELEVANT STATUTE, THEREFORE, IS NOT ALLOWABLE AS DEDUCT ION. THUS, THE DRP CONFIRMED THE FINDINGS OF TPO AS WELL AS THE ASSESSING OFFICER ON BOTH THE ISSUES. BASED ON THE DIRECTIONS OF DRP THE ASS ESSING OFFICER VIDE IMPUGNED ORDER MADE ADDITION IN RESPECT OF BOTH THE ABOVE COUNT S. 3. SHRI KISHORE PHADKE APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED, THAT THE ASSESSEE HAS BEEN CLAIMING PAYMENT OF COMMISSION IN THE PRECEDING AND THE SUBSEQUENT ASSESSMENT YEARS. NO DISALLOWANCE HAS BEEN MADE BY THE DEPARTMENT IN ASSESSM ENT PROCEEDINGS U/S. 143(3) IN THE PAST. IT IS FOR THE FIRST TIME IN THE ASSESSMENT YEAR UNDER APPEAL THAT THE OBJECTIONS HAVE BEEN RAISED BY THE DEPARTMENT ON PAYMENT OF SALES COMMISSION. THE TPO HAS ERRED IN HOLDING THAT THE ASSESSEE HAS NOT DERIVED ANY EXPORT BENEFIT FOR WHICH COMMISSION OF RS.21,18,200/- IS PAID TO AE. THE DRP HA S ALSO NOT CONSIDERED THE OBJECTIONS OF THE ASSESSEE AND HAVE REJECTED THE SAME IN A MECHANICAL MANNER WITHOUT PROPER APPLICATION OF M IND. THE LD. AR OF THE ASSESSEE PLACED ON RECORD THE DETAILS OF EX PORTS MADE THROUGH AE AND THE DETAILS OF THE SALES COMMISSION PAID O N SUCH 4 ITA NO. 2483/PN/2012, A.Y. 2008-09 EXPORTS FOR THE ASSESSMENT YEARS 2006-07 TO 2010-11. IN SUPPORT OF HIS CONTENTIONS THAT NO DISALLOWANCE ON THE PAYMENT OF C OMMISSION WERE MADE IN THE PRECEDING ASSESSMENT YEAR AND IMMEDIAT ELY SUCCEEDING ASSESSMENT YEAR, THE LD. AR PLACED ON RECORD A COPY OF ASSESSMENT ORDER DATED 29-12-2009 FOR ASSESSMENT YEA R 2007-08 AND ASSESSMENT ORDER DATED 19-12-2011 FOR ASSESSMENT YEA R 2009-10. THE LD. AR FURTHER CONTENDED THAT THE DEPARTMENT CANNOT DE CIDE FOR THE ASSESSEE, WHETHER COMMISSION IS TO BE PAID OR NOT? OR AT WHAT RATE COMMISSION IS TO BE PAID. IT IS THE PREROGATIVE OF ASSESSE E TO DECIDE THE MANNER IN WHICH BUSINESS IS TO BE CONDUCTED. IN SUPPOR T OF HIS CONTENTIONS, THE LD. AR PLACED RELIANCE ON THE DECISION OF HO N'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. CUSHMAN AND WAKEFIELD (IN DIA) PVT. LTD. REPORTED AS 89 CCH 76 (DELHI) AND THE DECISION OF HYDE RABAD BENCHES OF THE TRIBUNAL IN THE CASE OF TNS INDIA PVT. LTD . VS. ACIT REPORTED AS 32 ITR (TRIB) 44 (HYDERABAD). 3.1 WITH REGARD TO SECOND GROUND RAISED IN THE APPEAL, TH E LD. AR CONTENDED THAT THERE WAS MINOR DELAY IN DEPOSITING IN THE EMPLOYEE CONTRIBUTION TOWARDS ESIC. HOWEVER, THE SAID AMOUNT WAS DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE PROVISIONS OF THE ACT. THE LD. AR SUBMITTED THAT IT IS A WELL SETTLED LAW THAT IF THE AMOUNT HAS BEEN DEPOSITED BEFORE THE DUE DATE OF FILING RETURN UNDER THE ACT, THE SAME IS ALLOWABLE. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR P LACED RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. GHATGE PATIL TRANSPORTS LTD. REPORTED AS 368 ITR 749 (BOM). 4. SHRI S.K. RASTOGI REPRESENTING THE DEPARTMENT SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SHOW TH AT THE AE HAS RENDERED ANY SERVICES FOR WHICH THE COMMISSION WAS BEING PAID. YEAR 5 ITA NO. 2483/PN/2012, A.Y. 2008-09 AFTER YEAR THE ASSESSEE IS PAYING COMMISSION TO ITS AE WH EREAS NO NEW CUSTOMER IS ADDED. THE ASSESSEE HAS NOT BROUGHT ON R ECORD ANY DOCUMENT TO JUSTIFY THE SERVICES RENDERED BY THE AE. THE LD. DR PLACED RELIANCE ON THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF CRANES SOFTWARE INTERNATIONAL LTD. VS. DCIT REPORTED A S 52 TAXMANN.COM 19 (BANGALORE-TRIB.) TO EXERT THAT WHERE THE ASSESSEE HAS NOT BEEN ABLE TO BRING ANYTHING ON RECORD TO PROVE TH AT SERVICES HAS BEEN ACTUALLY RENDERED BY AE TO IT, THE AUTHORITIES WERE JUSTIFIED IN CONSIDERING ALP TO BE NIL. THE LD. DR VEHEMENTLY SUPPOR TED THE FINDINGS OF AUTHORITIES BELOW ON BOTH THE ISSUES AGITATED B Y THE ASSESSEE IN APPEAL AND PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH BOTH THE SIDE S HAVE PLACED RELIANCE. THE TPO HAS DISALLOWED THE PAYMENT OF SALES COMM ISSION TO AE ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE NEED OF SERVICES. FURTHER, THE ASSESSEE HAS NOT BEEN A BLE TO DEMONSTRATE AS TO HOW THE SERVICES WERE ACTUALLY REND ERED BY THE AE. THE LD. AR OF THE ASSESSEE HAS PLACED ON RECORD A COPY OF AGREEMENT WITH SCARPA & COLOMBO OF ITALY. THE LD. AR OF THE ASSESSE E HAS SUBMITTED THAT IT WAS WITH THE EFFORTS OF AE THAT THE ASS ESSEE COULD GET EXPORT ORDERS FROM FIAT AND GENERAL MOTORS. THE COMMISS ION TO AE IS PAID ON THE EXPORTS MADE TO THE AFORESAID TWO COMPANIES . THE LD. AR HAS ALSO POINTED OUT THAT THE COMMISSION IS PAID TO AE O N RECEIPT OF PAYMENT OF THE RESPECTIVE CONSIGNMENT. THE LD. AR HAS FUR NISHED THE DETAILS OF EXPORT SALES, TOTAL SALES AND THE PAYMENT OF COM MISSION TO AE. THE SAME ARE REPRODUCED HERE-IN-UNDER: 6 ITA NO. 2483/PN/2012, A.Y. 2008-09 AMOUNT IN INR THOUSANDS PARTICULARS F.Y. 05 - 06 F.Y. 06 - 07 F.Y. 07 - 08 F.Y. 08 - 09 AE EXPORT SALES NON AE EXPORT 34,246 17,604 60,980 60,172 66,067 110,522 93,750 211,504 TOTAL EXPORT 51,850 121,152 176,590 305,254 DOMESTIC 362,355 336,395 262,482 283,082 TOTAL SALES 364,009 411,345 439,072 588,336 SALES COMMISSION AMOUNT PAID TO AE - 987 2,118 4,440 % COMPARED WITH NON AE SALES - 2% 2% 2% A PERUSAL OF EXPORTS TURNOVER STARING FROM F.Y. 2005-06 T O F.Y. 2008-09 SHOWS THAT THERE HAS BEEN STEADY INCREASE IN THE EXPOR T SALES. 6. THE LD. AR HAS PLACED RELIANCE ON THE JUDGMENT OF HON' BLE DELHI HIGH COURT IN THE CASE OF CIT VS. CUSHMAN AND WAKEFIELD (IN DIA) PVT. LTD. (SUPRA). IN THE SAID CASE THE HON'BLE HIGH COURT H AS HELD THAT THE JURISDICTION OF TPO IS TO CONDUCT A TRANSFER PRICING ANALY SIS TO DETERMINE ALP AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FORM WHICH ASSESSEE BENEFITS. THAT ASPECT OF EXERCISE IS LE FT TO THE ASSESSING OFFICER. THE TPO CANNOT DETERMINE ALP OF PAYME NTS MADE BY ASSESSEE TO ITS AE AT NIL TAKING A VIEW THE ASSESS EE DID NOT DERIVE ANY BENEFIT FROM SERVICES RENDERED BY AE. 7. THE LD. AR ALSO PLACED RELIANCE ON THE DECISION IN THE CA SE OF TNS INDIA PVT. LTD. VS. ACIT (SUPRA). IN THE SAID CASE THE CO-ORDINATE BENCH WHILE ADJUDICATING THE JURISDICTION OF TPO HELD THAT THE ROLE OF TPO IS LIMITED IN DETERMINING ALP. THE TPO CANNOT QUESTION THE B USINESS DECISION OF PAYMENT AND DETERMINE THAT NO SERVICES WERE RENDER ED. THE TRIBUNAL HELD THAT THE ACTION OF THE TPO IN DETERMINING THE ALP AT NIL 7 ITA NO. 2483/PN/2012, A.Y. 2008-09 IS NOT IN ACCORDANCE WITH THE PROVISIONS OF LAW AND ALSO ON FACTS. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL READS AS UNDER: 22. WE HAVE CONSIDERED THE ISSUE. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSING OFFICER/TRANSFER PRICIN G OFFICER WITH REFERENCE TO THE SERVICES PROVIDED BY ASSOCIATED EN TERPRISES. THE ASSESSEE HAS PROVIDED THE AGREEMENTS WHICH WERE ENT ERED NOT DURING THE YEAR BUT IN THE EARLIER YEAR AND HAS BEEN PAYIN G THE SERVICE FEE TERMED AS MANAGEMENT FEE ACCORDINGLY. THIS CLAIM IS NOT ARISING FOR THE FIRST TIME IN THIS YEAR BUT, IS ALSO THERE IN THE E ARLIER YEARS AND LATER YEARS. THE ASSESSEE IS PART OF A WORLDWIDE GROUP AN D THEY HAVE PLACED SOME CORPORATE CENTERS FOR GUIDANCE OF VARIOUS UNIT S RUN BY THEM ACROSS THE GLOBE. IT WAS SUBMITTED THAT THE COSTS BEING IN CURRED BY THE CENTERS ARE BEING SHARED BY VARIOUS UNITS AND THE ASSESSEE' S SHARE IN THIS YEAR HAS COME TO 5 PER CENT. OF THE RECEIPTS PAYABLE TO NFO WORLDWIDE INC., USA AND AT 4 PER CENT. TO NFO ASIA PACIFIC LTD. HON GKONG ON THE NET REVENUES. THESE AMOUNTS ARE WITHIN THE NORMS PRESCR IBED FOR PAYMENT OF FEES TO VARIOUS GROUP COMPANIES OF SIMILAR NATURE. THERE IS NO DISPUTE WITH REFERENCE TO SERVICES BEING PROVIDED BY THE GR OUP COMPANIES TO THE ASSESSEE AND THE ASSESSEE ALSO PAID VARIOUS OTHER A MOUNTS INCLUDING ROYALTY. AS SUBMITTED BY THE ASSESSEE, EVEN THOUGH SOME CORRESPONDENCE WAS PLACED ON RECORD WITH REFERENCE TO THE ADVISE GIVEN TO THE ASSESSEE, PROVIDING A CONCRETE EVIDENCE WITH REFERENCE TO THE SERVICES IN THE NATURE OF SPECIFIC ACTIVITIES IS DI FFICULT, LIKE PROVING THE ROLE OF AN ANESTHESIAN IN AN OPERATION CONDUCTED BY A SU RGEON. THERE MAY BE AN EVIDENCE OF OPERATION BEING PERFORMED BY THE DOC TOR IN THE FORM OF SUTURES OR SCARS ETC, WHICH CAN BE PROVED LATER BUT THE ROLE OF AN ANESTHESIAN BEFORE OPERATION AND AFTER GAINING CONS CIOUSNESS IS DIFFICULT TO PROVE AS THAT IS NOT TANGIBLE IN NATURE. LIKEWIS E, FOR THE ADVISE GIVEN BY VARIOUS GROUP CENTERS TO THE GROUP COMPANIES IN DAY-TO-DAY MANNER IS DIFFICULT TO PLACE ON RECORD BY WAY OF CONCRETE EVI DENCE BUT THE WAY BUSINESS IS CONDUCTED, ONE CAN PERCEIVE THE SAME. T HE ASSESSEE HAS GIVEN A DETAILED WRITE-UP AS WELL AS THE SERVICES P ROVIDED AND BENEFIT OBTAINED WHICH WERE NOT CONTRADICTED. THE ASSESSING OFFICER DID NOT BELIEVE THE SAME IN THE ABSENCE OF CONCRETE EVIDENC E. UNLESS THE ASSESSING OFFICER STEPS INTO THE ASSESSEE'S BUSINES S PREMISES AND OBSERVES THE ROLE OF THESE COMPANIES/THE ASSESSEE'S BUSINESS TRANSACTIONS, IT WILL BE DIFFICULT TO PLACE ON RECO RD THE SORT OF ADVICE GIVEN IN DAY-TO-DAY OPERATIONS. WHAT SORT OF EVIDENCE SAT ISFIES THE ASSESSING OFFICER IS ALSO NOT SPECIFIED. THE ASSESSEE HAS ALR EADY PLACED LOT OF EVIDENCE IN SUPPORT OF CLAIMS. THEREFORE, ON THAT C OUNT, WE ARE NOT IN 8 ITA NO. 2483/PN/2012, A.Y. 2008-09 AGREEMENT WITH THE ASSESSING OFFICER AND THE TRANSF ER PRICING OFFICER THAT SERVICES WERE NOT RENDERED BY THE GROUP COMPAN IES TO THE ASSESSEE. 23. EVEN OTHERWISE, THE ROLE OF THE TRANSFER PRICIN G OFFICER IS TO DETERMINE THE ARM'S LENGTH PRICE OF A TRANSACTION. HE CANNOT REJECT THE ENTIRE PAYMENT UNDER THE PROVISIONS OF SECTION 92CA AS HEL D BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES LTD. LTD. [2012] 345 ITR 241 (DELHI) WHEREIN THE HON'BLE DELHI HIGH COURT, ON SIMILAR F ACTS WHERE THE TRANSFER PRICING OFFICER ALSO DETERMINED THE AR M'S LENGTH PRICE AT NIL, HAS HELD AS UNDER (PAGE 254) : '21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIM ATE EXPENDITURE INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY EXPENDI TURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM H AS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN A NY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE S HOULD HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE O F BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THAT, INTER ALIA, FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORIZE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE V IEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TRANSFER PRICING OF FICER AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXP ENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A P ART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LO SSES. THE FINANCIAL HEALTH OF THE ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE ; THERE IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TRANSFER PRICING OFFICER HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAV E BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CON CERN OF THE TRANSFER PRICING OFFICER TO DISALLOW THE SAME ON ANY EXTRANE OUS REASONING . AS PROVIDED IN THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPENDITURE, 9 ITA NO. 2483/PN/2012, A.Y. 2008-09 PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN B Y THE TRANSFER PRICING OFFICER IS NOT CONTEMPLATED OR AUTHORIZED. 23. APART FROM THE LEGAL POSITION STATED ABOVE, EVE N ON THE MERITS THE DISALLOWANCE OF THE ENTIRE BRAND FEE/ROYALTY PAYMEN T WAS NOT WARRANTED. THE ASSESSEE HAS FURNISHED COPIOUS MATER IAL AND VALID REASONS AS TO WHY IT WAS SUFFERING LOSSES CONTINUOU SLY AND THESE HAVE BEEN REFERRED TO BY US EARLIER. FULL JUSTIFICATION SUPPORTED BY FACTS AND FIGURES HAVE BEEN GIVEN TO DEMONSTRATE THAT THE INC REASE IN THE EMPLOYEES' COST, FINANCE CHARGES, ADMINISTRATIVE EX PENSES, DEPRECIATION COST AND CAPACITY INCREASE HAVE CONTRIBUTED TO THE CONTINUOUS LOSSES. THE COMPARATIVE POSITION OVER A PERIOD OF FIVE YEAR S FROM 1998 TO 2003 WITH RELEVANT FIGURES HAVE BEEN GIVEN BEFORE THE CO MMISSIONER OF INCOME-TAX (APPEALS) AND THEY ARE REFERRED TO IN A TABULAR FORM IN HIS ORDER IN PARAGRAPH 5.5.1. IN FACT THERE ARE FOUR TA BULAR STATEMENTS FURNISHED BY THE ASSESSEE BEFORE THE COMMISSIONER O F INCOME-TAX (APPEALS) IN SUPPORT OF THE REASONS FOR THE CONTINU OUS LOSSES. THERE IS NO MATERIAL BROUGHT BY THE REVENUE EITHER BEFORE THE C OMMISSIONER OF INCOME-TAX (APPEALS) OR BEFORE THE TRIBUNAL OR EVEN BEFORE US TO SHOW THAT THESE ARE INCORRECT FIGURES OR THAT EVEN ON TH E MERITS THE REASONS FOR THE LOSSES ARE NOT GENUINE. 24. WE ARE, THEREFORE, UNABLE TO HOLD THAT THE TRIB UNAL COMMITTED ANY ERROR IN CONFIRMING THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS) FOR BOTH THE YEARS DELETING THE DISALLOWANCE OF THE BRAND FEE/ROYALTY PAYMENT WHILE DETERMINING THE ARM'S LENGTH PRICE. A CCORDINGLY, THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED IN THE AF FIRMATIVE AND IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE APPEALS ARE ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS.' 24. RESPECTFULLY FOLLOWING THE ABOVE, WE ARE OF THE OPINION THAT THE TRANSFER PRICING OFFICER WENT BEYOND HIS JURISDICTI ON IN DENYING THE PAYMENT OUTRIGHTLY, WHEREAS, HIS ROLE IS LIMITED TO DETERMINING THE ARM'S LENGTH PRICE. IN THE GUISE OF DETERMINATION OF THE ARM'S LENGTH PRICE, THE TRANSFER PRICING OFFICER CANNOT QUESTION THE BUSINE SS DECISION OF PAYMENT AND DETERMINE THAT NO SERVICES WERE RENDERED. IN TH AT VIEW OF THE MATTER, THE DIRECTION OF THE TRANSFER PRICING OFFICER CANNO T BE UPHELD AT ALL. 8. IN VIEW OF THE AFORESAID DECISIONS AND THE FACTS OF THE CASE WE ARE OF THE OPINION THAT IN THE PRESENT CASE, THE TPO HAS GO NE BEYOND HIS JURISDICTION IN QUESTIONING NECESSITY TO PAY SALES COMMISSION AND IN DETERMINING THE VALUE OF COMMISSION PAID AS NIL. THE ASSES SEE HAS 10 ITA NO. 2483/PN/2012, A.Y. 2008-09 PLACED ON RECORD THE AGREEMENT ACCORDING TO WHICH THE COMMISSION IS PAID. THE FINANCIAL RECORDS OF THE ASSESSEE COMPANY TO SH OW THAT THERE HAS BEEN INCREASE IN THE EXPORT SALES SINCE THE TIME TH E ASSESSEE HAS ENGAGED THE SERVICES OF AE. THE REVENUE HAS NOT DISPUTE D THE FINANCIAL RESULTS AND THE FIGURE OF EXPORT SALES FURNISHED BY THE ASSESSEE. 8.1 THE LD. DR IN SUPPORT OF HIS SUBMISSIONS HAS PLACED RELIA NCE ON THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF CRANES SOFTWARE INTERNATIONAL LTD. VS. DCIT (SUPRA). IN THE SAID CASE THE CO-ORDINATE BENCH HAS HELD THAT WHEN THE ASSESSEE IS N OT ABLE TO BRING ON RECORD ANY EVIDENCE TO PROVE THAT SERVICES HAVE BE EN ACTUALLY RENDERED BY AE, THE AUTHORITIES BELOW WERE JUSTIFIED IN CON SIDERING THE ALP TO BE NIL. IN OUR CONSIDERED VIEW THE DECISION REN DERED BY THE CO-ORDINATE BENCH IN THE SAID CASE IS NOT APPLICABLE HERE. IN THE PRESENT CASE, THE ASSESSEE HAS BEEN ABLE TO SUBSTANT IATE ITS CLAIM FROM THE AGREEMENT IN ACCORDANCE WITH WHICH THE COMMISSION W AS PAID AND COMPARATIVE STUDY OF INCREASE IN EXPORT SALES OVER THE Y EARS. THUS, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW WERE NOT JUST IFIED IN DENYING THE PAYMENT OF SALES COMMISSION BY THE ASSESSEE TO AE. ACCORDINGLY, THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 9. THE SECOND ISSUE RAISED IN THE APPEAL IS WITH RESPECT TO DISALLOWANCE OF EMPLOYEES SHARE OF CONTRIBUTION TOWARDS E SIC. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS DEPOSITED EMPLOYE ES SHARE OF CONTRIBUTION TOWARDS ESIC BEFORE THE DUE DATE OF FILING RE TURN UNDER THE ACT. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GHATGE PATIL TRANSPORTS LTD. (SUPRA) BY PLACING RELIANCE ON THE D ECISION OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. REPORTED AS 319 ITR 306 (SC) HAS HELD THAT THE AS SESSEE WOULD BE 11 ITA NO. 2483/PN/2012, A.Y. 2008-09 ENTITLED TO DEDUCTION OF CONTRIBUTION OF EMPLOYEES WELFARE F UNDS WHERE THE AMOUNT HAS BEEN DEPOSITED BEFORE THE DUE DATE OF FILIN G OF RETURN UNDER THE PROVISIONS OF INCOME TAX ACT. THUS, IN VIEW OF THE LAW LAID DOWN BY THE HON'BLE APEX COURT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 16 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 16 TH SEPTEMBER, 2015 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE ACIT, CIRCLE-I, AURANGABAD 4. THE DRP-I, MUMBAI 5. !'( %%)* , )* , + ,-. , / DR, ITAT, A BENCH, PUNE. 6. ( / 01 / GUARD FILE. // ! % // TRUE COPY// #2 / BY ORDER, %3 ). / PRIVATE SECRETARY, )* , / ITAT, PUNE