M/s. Cisco Systems Capital (India) Private Limited, Bangalore V. Assistant Commissioner Of Income Tax,Special Range-2, Bangalore

ITA 2614/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2543 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-02-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 24-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Additional evidence; Fair market value; Revised return
• Section: 143(3); 92; 92B; 201; 13; 22; 92CA; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.2614/BANG/2019 ASSESSMENT YEAR: 2015-16 CISCO SYSTEMS CAPITAL (INDIA) PRIVATE LTD., BRIGADE SOUTH PARADE, NO.10, M.G. ROAD, BENGALURU 560 001. PAN: AACCC 4552A VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, SPECIAL RANGE 2, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI RAJAN VORA, CA RESPONDENT BY : SHRI PRADEEP KUMAR, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 11.02.2021 DATE OF PRONOUNCEMENT : 08.04.2021 O R D E R PER BEENA PILLAI , JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST O RDER DATED 28/10/2019 PASSED BY LD.AO UNDER SECTION 143 (3) FOR ASSESSMENT YEAR 2015-16 ON FOLLOWING GROUNDS OF APPEAL:- IT(TP)A NO.2614/BANG/2019 PAGE 2 OF 24 IT(TP)A NO.2614/BANG/2019 PAGE 3 OF 24 IT(TP)A NO.2614/BANG/2019 PAGE 4 OF 24 BRIEF FACTS OF THE CASE ARE AS UNDER : 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPOR ATED UNDER THE PROVISIONS OF COMPANIES ACT 1956, AND REGISTERED AS A NON-BANKING FINANCIAL COMPANY WITH THE RBI OF INDIA. ASSESSEE IS RESPONSIBLE FOR PROVIDING END TO END FINANCIAL SOLUTIONS TO THE CUSTOMERS OF CISCO I N INDIA BY VARIETY OF FINANCING OPTIONS. PRIMARILY, OPERATI ONS OF ASSESSEE COMPRISES OF PROVIDING FINANCE TO THIRD-PA RTY CUSTOMERS BY WAY OF OPERATING LEASE AGREEMENTS, FIN ANCE LEASE AGREEMENTS AND LOANS TO PURCHASE NETWORKING EQUIPMENT FROM CISCO SI BV/THIRD-PARTY RESELLERS. IT(TP)A NO.2614/BANG/2019 PAGE 5 OF 24 2.1. FOR THE YEAR UNDER CONSIDERATION, ASSESSEE FILED I TS RETURN OF INCOME DECLARING NIL INCOME ON 29/11/20 15 AFTER SETTING OFF BROUGHT FORWARD LOSSES. THE CASE WAS SELECTED FOR SCRUTINY AND RELEVANT STATUTORY NOTICE S WERE ISSUED TO THE ASSESSEE. SUBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN OF INCOME ON 28/03/2017 DECLARING N IL TOTAL INCOME AFTER SETTING OFF BROUGHT FORWARD LOSS ES. THE LD.AO OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRANSACTION OF RS.10 CRORE OR MORE IN EARLIER ASSES SMENT YEAR AND THE ISSUE WAS PENDING IN APPEAL. ACCORDING LY, THE RELEVANT ASSESSMENT YEAR WAS REFERRED TO TRANSF ER PRICING OFFICER FOR COMPUTING THE ARMS LENGTH PRIC E AS PER PROVISIONS OF SECTION 92CA OF THE ACT. 2.2. UPON RECEIPT OF REFERENCE, THE LD.TPO CALLED FOR ECONOMIC DETAILS OF THE INTERNATIONAL TRANSACTION E NTERED INTO BETWEEN ASSESSEE AND ITS AE. THE LD. TPO ON VERIFICATION OF THE DETAILS FILED BY ASSESSEE, DID NOT MAKE ANY ADJUSTMENT TO THE INTERNATIONAL TRANSACTION ENT ERED INTO BY ASSESSEE. HOWEVER, IN RELATION TO THE SPECI FIED DOMESTIC TRANSACTION PERTAINING TO ADMINISTRATION S UPPORT SERVICES AVAILED FROM THE DOMESTIC AE THAT IS CISCO SYSTEMS INDIA PVT. LTD. (HEREINAFTER REFERRED TO AS CISCO INDIA). THE LD. TPO CALLED UPON ASSESSEE TO SHOW C AUSE AS TO WHY THE COMBINED TRANSACTION APPROACH METHOD ADOPTED BY THE ASSESSEE SHOULD NOT BE REJECTED. THE IT(TP)A NO.2614/BANG/2019 PAGE 6 OF 24 LD.TPO RECHARACTERISED THE ADMINISTRATIVE SUPPORT S ERVICE PAYMENT MADE TO CISCO INDIA BY ASSESSEE IS A TRANSA CTION ENTERED INTO, PURSUANT TO AN UNDERSTANDING BETWEEN ASSESSEE, CISCO INDIA AND THE AE. THE LD.TPO REJECT ED THE COMBINED TRANSACTION APPROACH METHOD ADOPTED BY ASSESSEE FOR THE FOLLOWING REASONS:- THE SPECIFIED DOMESTIC TRANSACTION IN RELATION TO PAYMENT BY THE ASSESSEE TOWARDS FEES FOR ADMINISTRATIVE SUPPORT SERVICES TO CISCO INDIA IS O N ACCOUNT OF INDIRECT RENDERING OF MARKETING AND SALE S SUPPORT SERVICES TO THE AE, PURSUANT TO UNDERSTANDING BETWEEN ASSESSEE, CISCO INDIA AND THE AE. THE TRANSACTION IN RELATION TO PAYMENT TOWARDS FEES FOR ADMINISTRATIVE SUPPORT SERVICE TO CISCO INDIA W AS TO BE ANALYSED SEPARATELY BUT THE SAME WAS NOT CARRIED OUT AND WAS AGGREGATED WITH LEASING SERVICE S. THE MARGINS OF THE SAME WERE NOT COMPUTED AND AS SUCH THE TPO PROPOSED 6 COMPANIES AS COMPARABLES WITH OP/OC AS THE PLI WITH MEDIAN OF 10.21%. 2.3. THE COMPARABLES SELECTED BY THE LD.TPO ARE AS UNDER:- SL. NO. NAME OF THE COMPARABLE AVERAGE % 1 ASIAN BUSINESS CONFERENCES LTD. - 48.11 IT(TP)A NO.2614/BANG/2019 PAGE 7 OF 24 EXHIBITIONS 2 GOLDMINE ADVERTISING LTD. 4.89 3 CONCEPT PUBLIC RELATIONS INDIA LTD. 7 4 PRESSMAN ADVERTISING LTD. 13.42 5 SCARECROW COMMUNICATIONS LTD. 23.53 6 KILLICK AGENCIES AND MARKETING LTD. 24.17 35 TH PERCENTILE 7% 50 TH PERCENTILE 10.21% 65 TH PERCENTILE 13.42% 2.4. THE LD.TPO THUS PROPOSED AN ADJUSTMENT OF RS.13,88,20,763/- BY CONSIDERING THE ALP OF ASSESSE E AT 10.21% IN RELATION TO THE ADMINISTRATIVE SUPPORT SE RVICE. 2.5. UPON RECEIPT OF THE TRANSFER PRICING ORDER PASSED B Y THE LD.TPO, THE LD.AO PASSED THE DRAFT ASSESSMENT O RDER ON 17/12/2018 UNDER SECTION 143(3) READ WITH SECTIO N 144C(1) OF THE ACT BY MAKING: DISALLOWANCE OF DEPRECIATION CLAIMED BY ASSESSEE ON ASSETS LEASED OUT, UNDER THE FINANCE LEASE ARRANGEMENT AMOUNTING TO RS.58,51,55,196/-. DISALLOWANCE OF SET OFF OF BROUGHT FORWARD DEPRECIATION LOSS AMOUNTING TO RS.112,07,33,348/-. 2.6. ON RECEIPT OF THE DRAFT ASSESSMENT ORDER, ASSESSEE FILED OBJECTIONS BEFORE THE DRP. BEFORE DRP ASSESSEE FILED ADDITIONAL EVIDENCES. HOW EVER THE DRP FOLLOWING ITS ORDER FOR ASSESSMENT YEAR 201 1-12 TO 2014-15, UPHELD DISALLOWANCE OF DEPRECIATION CLA IMED BY ASSESSEE ON ASSETS LEASED OUT UNDER FINANCE LEAS E ARRANGEMENT. THE DRP ALSO REJECTED THE ALTERNATE PL EA OF ASSESSEE TO GRANT DEPRECIATION ON THE OPENING WDV OF THE IT(TP)A NO.2614/BANG/2019 PAGE 8 OF 24 BLOCK OF ASSETS LEASED OUT UNDER FINANCE LEASE ARRANGEMENT. 2.7. THE DRP FURTHER DISALLOWED SET OFF OF BROUGHT FORWA RD DEPRECIATION LOSS BY FOLLOWING ITS OWN ORDER FOR ASSESSMENT YEAR 2009-10 TO 2014-15. 2.8. IN RESPECT OF THE TRANSFER PRICING ADJUSTMENT, THE DRP EXCLUDED ONE COMPARABLE, BEING M/S ASIAN BUSINE SS CONFERENCE EXHIBITIONS LTD. THE DRP OBSERVED AS UND ER:- THE DRP ON ANALYZING THE GROUP OVERVIEW AND TP DOCUMENTATION MAINTAINED, HAS CONCLUDED THAT CISCO CAPITAL ONLY ASSUMES ROUTINE MARKET RISK ASSOCIATED WITH INTEREST AND CAPITAL RISK AND DOES NOT BEAR MARKET RISK FOR PRODUCT SALES. FURTHER THE DRP HAS ALSO STATED THAT THE FAR ANALYSIS OF THE APPELLANT AND AES INDICATE THAT MARKETING FUNCTIONS AND MARKET RISKS ARE BORNE BY T HE MANUFACTURING ENTITY CSI BV AND MARKETING FUNCTION IS NOT ENVISAGED FOR CISCO CAPITAL. THE DRP HAS STATED THAT ALL THE INTANGIBLES DEVELOP ED FROM THE MARKETING EFFORTS INCURRED THROUGH CISCO CAPITA L BELONG TO CSI BV, THOUGH THE EXPENSES RELATING THERETO ARE BORNE BY CISCO CAPITAL AND AN INDEPENDENT THIRD PARTY WOU LD NOT BEAR SUCH COSTS WITHOUT ADEQUATE COMPENSATION TOWAR DS COSTS AND SERVICES PROVIDED. HAVING SAID SO, THE DRP HELD THAT THE TPO IS JUSTIF IED IN ANALYZING THE TRANSACTION SEPARATELY, AS THE COMPEN SATION TOWARDS MARKETING FUNCTION CANNOT BE EXAMINED IN COMBINATION WITH THE LEASING ACTIVITY AND THEREFORE THE SEGREGATED APPROACH OF THE TPO AND CONSEQUENT FRESH ANALYSIS IS UPHELD. IN RELATION TO THE PLEA OF THE APPELLANT THAT THE F EES PAID TO CISCO INDIA IN RELATION TO THE ADMINISTRATIVE AND M ARKETING & SALES SUPPORT SERVICES HAS BEEN CONSIDERED AS OPE RATING IN NATURE WHILE ANALYZING THE LEASING ACTIVITY TRAN SACTION AND ACCORDINGLY THE SAME IS TO BE CONSIDERED TO BE AT ARM'S LENGTH, THE DRP HELD THAT THE APPELLANT IS NOT PREJ UDICED BY THE SAME AS THE LEASING TRANSACTION HAS ALREADY BEE N FOUND TO BE AT ARM'S LENGTH. IT(TP)A NO.2614/BANG/2019 PAGE 9 OF 24 2.9. ON RECEIPT OF THE DRP DIRECTIONS, THE LD.AO PASSED FINAL ASSESSMENT ORDER BY MAKING ADDITION OF RS.1,85,02,38,966/-. AGGRIEVED BY THE ORDER PASSED BY THE LD.AO, ASSESSE E PREFERRED APPEAL BEFORE THIS TRIBUNAL . 3. GROUND NO.1-2 IS RAISED CHALLENGING DISALLOWANCE OF DEPRECIATION ON ASSETS GIVEN UNDER FINANCE LEASE. 3.1. THE LD.AR AT THE OUTSET SUBMITTED THAT COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 AND 2013-14 IN IT(TP)A NO.219/B/2018 AND 688/B/2016 DATED 07/06/2019 CONSIDERED SIMILAR ISSUE BY FOLLOWING DECISION OF HONBLE SUPREME COURT IN CASE OF ICDS VS CIT IN CIVIL APPEAL NO.3282 OF 2008 . SUBSEQUENTLY, FOR ASSESSMENT YEAR 2014-15 IN IT(TP)A NO.149/BANG/2019 BY ORDER DATED 29/05/2020 AND FOR ASSESSMENT YEAR 2012-13 IN ITA (T P) A NO. 180/BANG/2017 BY ORDER DATED 09/10/2020 , THIS TRIBUNAL HAD REMANDED THE ISSUE BACK TO LD. AO FOR FRESH DECISION AFTER VERIFYING IF THE TERMS AND CONDITION S MENTIONED IN THE LEASE AGREEMENT ARE SIMILAR TO THE TERMS AND CONDITIONS THAT ARE MENTIONED BY HONBLE APEX COURT IN CASE OF ICDS VS CIT (SUPRA) . IT WAS DIRECTED BY THIS TRIBUNAL THAT IN THE EVENT THERE IS NO MATERIAL VARIATION I N THE CONTEXT, THEN DEPRECIATION MUST BE GRANTED TO ASSESSEE AS CLAIMED. IT(TP)A NO.2614/BANG/2019 PAGE 10 OF 24 3.2. AS THE DEPARTMENT HAS NOT BEEN ABLE TO BRING OUT AN Y FACTUAL DIFFERENCE FOR THE YEAR UNDER CONSIDERATION VIS-A- VIS THE PRECEDING ASSESSMENT YEARS, WE ALSO REMAND THIS ISSUE BACK TO THE LD.AO WITH SIMILAR DIRECTION. ACCORDINGLY THESE GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 4. GROUND NO. 3 IS RAISED AGAINST NOT ALLOWING SET OFF OF BROUGHT FORWARD DEPRECIATION LOSS. 4.1. THE LD.AR SUBMITTED THAT, IN THE RETURN OF INCOME FILED BY ASSESSEE, IT HAD CLAIMED SET OFF OF BROUGH T FORWARD DEPRECIATION OF LOSS AMOUNTING TO RS.28,54,47,236/- PERTAINING TO ASSESSMENT YEAR 2009-10 AND RS.83,52,86,117/- PERTAINING TO ASSESSMENT YEAR 201 3- 14, TOTALLING TO RS.1,12,07,33,535/-. THE LD.AO WHI LE PASSING THE DRAFT ASSESSMENT ORDER DENIED THE CLAIM OF ASSESSEE. THE LD.AO WHILE PASSING FINAL ASSESSMENT ORDER NOTED THAT THAT ON COMPLETION OF ASSESSMENT FOR ASSESSMENT YEAR 2008-09, 2009-10 AND 2013-14, THE INCOME HAS RESULTED IN POSITIVE, AND THEREFORE NO S ET-OFF OF BROUGHT FORWARD LOSSES IS AVAILABLE FOR ASSESSEE FO R THE SAID YEARS. 4.2. THE LD.AR SUBMITTED THAT, THE LD.AO HAS NOT GIVEN EFFECT TO THE ORDERS (HEREINAFTER REFERRED TO AS OG E) PASSED BY COORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSMENT YEARS 2008-09, 2009-10 AND 2013-14. IT(TP)A NO.2614/BANG/2019 PAGE 11 OF 24 4.3. THE LD.CIT.DR PLACED RELIANCE ON ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE PERUSED THE DETAILS PLACED ON RECORD IN LIG HT OF SUBMISSION ADVANCED BY BOTH SIDES. 4.4. WE NOTE THAT, AS THE OGE TO THE ORDERS PASSED BY THIS TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS ARE PENDING WITH LD.AO, THE RELIEF GRANTED BY THIS TRIBUNAL WAS NOT AVAILABLE WITH THE LD.AO WHILE PASSING THE IMPUGNED ORDER FOR YEAR UNDER CONSIDERATION. IT IS NOTED THAT THE LD. AO DOES NOT DISPUTE REGARDING AVAILABI LITY OF SET OFF OF BROUGHT FORWARD LOSS TO ASSESSEE IF ANY IN THE PRECEDING YEAR WHILE COMPUTING INCOME FOR THE YEAR UNDER CONSIDERATION. THEREFORE, SET OFF OF BROUGHT FORWA RD LOSSES IS TO BE GRANTED, IF THERE IS LOSS FOR ASSESSMENT Y EARS 2008-09, 2009-10 AND 2013-14, AFTER PASSING THE OGE TO THE ORDERS OF THIS TRIBUNAL FOR ASSESSMENT YEARS2008-09, 2009-10 AND 2013-14. 4.5. WE ACCORDINGLY DIRECT THE LD.AO TO PASS THE ORDER GIVING EFFECT TO ALL THE PREVIOUS YEARS FROM ASSESS MENT YEAR 2008-09 TO ASSESSMENT YEAR 2014-15 AND THEREAF TER TO PROVIDE THE SET OFF OF BROUGHT FORWARD LOSSES. ACCORDINGLY, THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 4 IS AGAINST THE TRANSFER PRICING ADDITION MADE ON ACCOUNT OF RE-CHARACTERISATION OF PAYMENT M ADE IT(TP)A NO.2614/BANG/2019 PAGE 12 OF 24 TOWARDS ADMINISTRATION AND SUPPORT SERVICES BY ASSE SSEE TO CISCO INDIA. 5.1. PRIMARILY, THE LD.AR OF ASSESSEE OBJECTED FOR CONSIDERING THE SPECIFIED DOMESTIC TRANSACTION WITH IN THE AMBIT OF SECTION 92B OF THE ACT. IT HAS BEEN SUBMIT TED THAT CLAUSE (I) OF 92BA STANDS ADMITTED BY VIRTUE O F AMENDMENT IN FINANCE ACT, 2017, WITH EFFECT FROM TH E 01/04/2017, AND ACCORDINGLY, THE TRANSACTION UNDER CONSIDERATION WOULD FALL OUT OF THE AMBIT OF APPLIC ABILITY OF TRANSFER PRICING PROVISIONS. 5.2. THE LD.AR GAVE BRIEF BACKGROUND OF THE TRANSACTION AS UNDER: IT HAS BEEN SUBMITTED THAT, ASSESSEE IS IN THE BUSI NESS OF FINANCING THE PURCHASE OF NETWORKING EQUIPMENT UNDE R OPERATING/FINANCE LEASING ARRANGEMENTS OR BY WAY OF LOAN FOR PURCHASE OF NETWORKING EQUIPMENT. IT IS SUBMITT ED THAT IN THE SCENARIO OF THIRD-PARTY CUSTOMER SERVIC ES, THE CUSTOMERS APPROACH THE AE/THIRD-PARTY RESELLERS TO PURCHASES FOR EQUIPMENTS AND NEGOTIATE ON PRICE AND OTHER TERMS AND CONDITIONS. WHERE SUCH 3 RD PARTIES HAVE SUFFICIENT FUNDS TO PURCHASE EQUIPMENT, THE THIRD-P ARTY CUSTOMERS WOULD MAKE AN OUTRIGHT PURCHASE OF EQUIPMENT. IN THE EVENT THE THIRD-PARTY CUSTOMERS T O NOT HAVE SUFFICIENT FUNDS FOR THE PURCHASE, THEY WOULD CONSIDER THE OPTION TO TAKE LOAN FINANCING/LEASE FI NANCING IT(TP)A NO.2614/BANG/2019 PAGE 13 OF 24 APPROACH. IT HAS BEEN SUBMITTED THAT THE CUSTOMER M AY EITHER CHOOSE TO AVAIL SUCH SERVICES FROM A THIRD-P ARTY FINANCER OR APPROACH ASSESSEE TO FINANCE THE EQUIPM ENT BY WAY OF LOAN/LEASE. 5.3. IT HAS BEEN SUBMITTED BY THE LD.AR THAT THE THIRD- PARTY CUSTOMERS ARE NOT OBLIGED TO AVAIL SUCH FINAN CING SERVICES FROM ASSESSEE EXCLUSIVELY, AND IT IS THE D ISCRETION OF THE CUSTOMER TO DECIDE WHETHER THEY WANT TO AVAI L LEASE/LOAN FINANCING ARRANGEMENT FROM ASSESSEE OR O THER FINANCERS. 5.4. THE LD.AR VEHEMENTLY SUBMITTED THAT ASSESSEE IS AN INDEPENDENT ENTITY AND ACTS IN THE CAPACITY OF AN ENTERPRISE IN THE BUSINESS OF PROVIDING LEASING AND FINANCING SERVICES TO THE THIRD-PARTY CUSTOMERS. IT IS ALSO SUBMITTED THAT ASSESSEE BEARS ALL THE ENTREPRENEURI AL RISK ASSOCIATED WITH ITS BUSINESS AND THEREFORE RESPONSI BLE FOR ALL THE FUNCTIONS INTEGRAL TO THE LEASING/FINANCING BUSINESS OF CISCO. HE SUBMITTED THAT SINCE ASSESSEE DO NOT HAVE ITS OWN STAFF/EMPLOYEES, IT AVAILS SERVICE S OF CISCO INDIA FOR ADMINISTRATIVE, MARKETING AND SALES SUPPORT SERVICES LIKE ACCOUNTING, DATA PROCESSING, HELPING MARKETING AND PROMOTION ON FINANCIAL SERVICES. IT W AS SUBMITTED THAT, ASSESSEE ENTERED INTO AGREEMENT WIT H CISCO INDIA IN ORDER TO AVAIL ADMINISTRATIVE SUPPOR T SERVICES AND MARKETING AND SALES SUPPORT SERVICES W HICH IT(TP)A NO.2614/BANG/2019 PAGE 14 OF 24 WAS IN THE NATURE OF OUTSOURCING OF SERVICES BY CIS CO INDIA FOR PROMOTION AND MARKETING OF ASSESSEES OWN BUSIN ESS, WHICH IS LEASING AND FINANCING SERVICES. IT IS ALSO SUBMITTED THAT, THE CUSTOMER BASE OF ASSESSEE COMPR ISES ONLY OF THIRD-PARTY CUSTOMERS WHO PURCHASE NETWORKI NG EQUIPMENT EITHER FROM THIRD-PARTY RESELLERS OR CISC O GROUP ENTITIES. IT WAS THUS SUBMITTED THAT CISCO INDIA PR OVIDES NECESSARY ADMINISTRATIVE AND MARKETING AND SALES SUPPORT SERVICES REQUIRED TO CARRY OUT THE DAY-TO-D AY AFFAIRS OF BUSINESS OF ASSESSEE. AND THAT THE SAID SERVICES ENABLE FUNCTIONING OF THE BUSINESS OF ASSESSEE SMOO THLY. IT WAS SUBMITTED THAT, FOR SUCH SERVICES RENDERED B Y CISCO INDIA, ASSESSEE PAID SUM OF RS.12,59,60,224/- BASED ON COST PLUS ARRANGEMENT AND THE SAME WAS DISCLOSED AS A SPECIFIED DOMESTIC TRANSACTION IN FORM 3CEB. 5.5. IT HAS BEEN SUBMITTED THAT, IT IS NEITHER AN INTERNATIONAL TRANSACTION, NOR COULD BE DEEMED TO B E AN INTERNATIONAL TRANSACTION. HE SUBMITTED THAT IT IS A TRANSACTION BETWEEN TWO DOMESTIC ENTITIES. 5.6. IT HAS BEEN SUBMITTED BY THE LD.AR THAT, SECTION 92 B OF THE ACT COVERS THE TRANSACTION WHICH ACTUALLY EX ISTS BETWEEN TWO ASSOCIATED ENTERPRISES AND THAT THE PRO VISION THAT DOES NOT DEAL WITH AN HYPOTHETICAL TRANSACTION AND THEREFORE THE AUTHORITIES BELOW CANNOT PRESUPPOSE A N INTERNATIONAL TRANSACTION BETWEEN ASSESSEE AND ITS IT(TP)A NO.2614/BANG/2019 PAGE 15 OF 24 ASSOCIATED ENTERPRISES. IN SUPPORT OF, THE LD.AR PL ACED RELIANCE ON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF MARUTI SUZUKI INDIA & ANR. VS CIT & ANR. REPORTED IN (2015) 129 TTR 25 . THE RATIO LAID DOWN IN THIS DECISION HAS BEEN FOLLOWED IN THE DECISION OF HONBLE PUNE TRIBUNAL IN CASE OF DOVER INDIA PVT. LTD. VS DCIT IN ITA NO.411/PUN/2014 . 5.7. LD.AR THUS SUBMITTED THAT, THE ARRANGEMENT BETWEEN ASSESSEE AND CISCO INDIA FOR AVAILING OF ADMINISTRA TIVE SUPPORT SERVICES AND MARKETING SUPPORT SERVICES SIN CE ASSESSEE DO NOT HAVE EMPLOYEES OR ADMINISTRATIVE SE TUP LEASE A BONA FIDE ARRANGEMENT BETWEEN THE TWO, AND THE SAME CANNOT BE TREATED AS AN INTERNATIONAL TRANSACT ION UNDER SECTION 92B OF THE ACT. 5.8. THE NEXT PROPOSITION ARGUED BY THE LD.AR WAS THAT, THE BUNDLED APPROACH FOR BENCHMARKING THE TRANSACTI ON IS TO BE ACCEPTED AS THE TRANSACTION OF PURCHASE OF EQUIPMENT FROM THE AE BY ASSESSEE FOR FINANCING ARRANGEMENT IS HELD TO BE AT ARMS LENGTH BY THE LD. TPO. IT IS ALSO BEEN SUBMITTED THAT THE MARKETING AND SALES SUPPORT SERVICES AVAILED BY ASSESSEE FROM CISCO IND IA IS INTEGRAL TO THE MAIN BUSINESS OF ASSESSEE AND THE S AME HAS TO BE CONSIDERED AS A CLOSELY LINKED TRANSACTIO N TO THE PRINCIPLE TRANSACTION THAT IS LEASING SERVICES. SUC H COMBINED TRANSACTION HAS BEEN ADOPTED BY CONSIDERIN G IT(TP)A NO.2614/BANG/2019 PAGE 16 OF 24 THE ENTITY LEVEL TNMM AS MOST APPROPRIATE METHOD AN D THE SUBJECT PAYMENT HAS BEEN DETERMINED TO BE AT AR MS LENGTH IN THE TRANSFER PRICING DOCUMENTATION. LD.AR ALSO SUBMITTED THAT THE PLI ADOPTED BY ASSESSEE IS OP/OE WHEREIN WHILE COMPUTING THE OPERATING PROFITS THE IMPUGNED PAYMENT MADE TO CISCO INDIA HAS BEEN CONSIDERED AS OPERATING EXPENDITURE. 5.9. HE THUS SUBMITTED THAT THE LD.TPO HAS ALREADY CONSIDERED THE ABOVE EXPENDITURE TOWARDS ADMINISTRA TIVE AND MARKETING AND SALES SUPPORT SERVICES AS AN OPER ATING EXPENSES WHILE COMPUTING THE MARGIN OF ASSESSEE WHI CH IS CONSISTENTLY ACCEPTED BY THE LD.TPO IN THE PRECEDIN G ASSESSMENT YEARS. IT HAS BEEN SUBMITTED BY THE LD.A R THAT THE LD.TPO HAS ALREADY ACCEPTED THE MARGIN OF ASSESSEE AT 6.62% AS AGAINST THE COMPARABLES AT 7.7 5% WHICH FALLS WITHIN +3% IN RESPECT OF THE INTERNATIO NAL TRANSACTION BEING, PURCHASE OF NETWORKING EQUIPMENT FOR RELEASE BY ASSESSEE FROM THE AE. 5.10. THE NEXT SUBMISSION MADE BY THE LD.AR WAS AGAINST CONSIDERING THE ADMINISTRATIVE/SELLING EXPE NSES AS A PART OF AMP EXPENSES. IT HAS BEEN SUBMITTED TH AT THESE EXPENSES ARE INCURRED BY ASSESSEE FOR CARRYIN G OUT DAY-TO-DAY BUSINESS ACTIVITIES AND FOR GENERAL ADMINISTRATIVE AND MANAGEMENT OF THE COMPANY IN THE IT(TP)A NO.2614/BANG/2019 PAGE 17 OF 24 NATURE OF TRAVEL EXPENSES, SALARY, INFRASTRUCTURE F ACILITIES ETC WHICH CANNOT BE TREATED AS MARKETING EXPENSES. 5.11. ON THE CONTRARY THE LD. CIT DR RELIED ON ORDERS PASSED BY AUTHORITIES BELOW. 5.12. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. THE LD.AR HAD RAISED A PRELIMINARY ISSUE REGARDING THE CONCERNED TRANSACTION NOT FALLING WITHIN THE AMBIT OF TRANSFER PRICING PROVISIONS. IN THIS CONTEXT, REFE RENCE WAS MADE TO COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S TEXPORT OVERSEAS PVT. LTD VS DCIT IN IT(TP)A NO. 2213/B/2018 BY ORDER DATED 12/09/2018 WHEREIN, THIS TRIBUNAL ONLY REFERRED TO THE OMISSION OF CLAUSE (I) TO SECTION 92BA BY VIRTUE OF FINANCE ACT 2017. THE SAI D CLAUSE WAS OMITTED W.E.F. 01/04/2017. COORDINATE BE NCH OF THIS T RIBUNAL RELIED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF KOLHAPUR CANESUGAR WORKS LTD. AND GENERAL FINANCE CO. VS ACIT. 5.13. HONBLE SUPREME COURT IN THESE CASES EXAMINED THE STATUS OF PENDING PROCEEDINGS, WHERE, A PROVISION I N THE RULE HAS BEEN OMITTED. HONBLE SUPREME COURT CATEGORICALLY LAID DOWN THAT, IF THERE IS A PROVISI ON BY WAY OF A SAVING CLAUSE CONSIDERING SITUATION OF PENDING PROCEEDINGS, THEN, SUCH PENDING PROCEEDINGS SHALL IT(TP)A NO.2614/BANG/2019 PAGE 18 OF 24 CONTINUE AND BE DISPOSED OF UNDER THE OLD RULE, AS IF, SUCH RULE HAS NOT BEEN DELETED OR OMITTED. 5.14. WE NOTE IN CASE OF M/S TEXPORT OVERSEAS PVT. LTD VS DCIT (SUPRA) PROVISION OF SECTION 40A HAS NOT BEEN CONSIDERED, WHEREIN, A CORRESPONDING AMENDMENT TOOK PLACE BY WAY OF FINANCE ACT, 2017. THE OMITTED PROVISION UNDER SECTION 92BA READ AS UN DER: (I) ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HA S BEEN MADE OR IS TO BE MADE TO A PERSON REFERRED TO IN CL AUSE (B) OF SUBSECTION (2) OF SECTION 40A. WE NOW REFER TO PROVISO TO SECTION 40A, THAT IS INS ERTED BY FINANCE ACT 2017 W.E.F. 01/04/2016 THAT READS AS UN DER: PROVIDED THAT FOREIGN ASSESSMENT YEAR COMMENCING O N OR BEFORE 1 ST DAY OF APRIL, 2016 NO DISALLOWANCE, ON ACCOUNT OF ANY EXPENDITURE BEING EXCESSIVE OR UNREASONABLE HAV ING REGARD TO THE FAIR MARKET VALUE SHALL BE MADE IN RE SPECT OF A SPECIFIED DOMESTIC TRANSACTION REFERRED TO IN SEC TION 92BA, IF SUCH TRANSACTION IS AT ARMS LENGTH PRICE A S DEFINED IN CLAUSE (II) OF SECTION 92F. 5.15. ON COMBINED READING OF THE OMITTED PROVISIONS AND THE INSERTED PROVISO TO SECTION 40A, IT IS AMPLY CL EAR THAT THE NEW PROVISO TO SECTION 40A IS A SAVING CLAUSE B Y VIRTUE OF WHICH, ANY SPECIFIED TRANSACTION ON OR BEFORE 01.04.2016 HAS TO BE TESTED AS PER THE PROVISIONS O F SECTION 92C. 5.16. WE THEREFORE RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN CASE OF KOLHAPUR CANESUGAR WORKS LTD. AND GENERAL FINANCE CO. VS ACIT, HOLD THAT AS THE TRANSACTION UNDER CONSIDERATION IS PRIOR IT(TP)A NO.2614/BANG/2019 PAGE 19 OF 24 TO 1/04/2016, HAS TO PASS THROUGH THE TESTS LAID DO WN UNDER THE TRANSFER PRICING PROVISIONS. ACCORDINGLY GROUND FOR RAISED BY ASSESSEE STANDS DISMISSED. 6. GROUNDS 5-10: THESE GROUNDS ARE CONSIDERED TOGETHER AS THESE ARE 3 PROPOSITIONS ARGUED BY THE LD.AR. 6.1. ON GOING THROUGH THE BUSINESS SCENARIO EXPLAINED BY THE LD.AR, ASSESSEE PURCHASES GOODS FROM ITS AE WH ICH IS SOLD TO THIRD-PARTY CUSTOMERS WHO APPROACH ASSES SEE FOR FINANCIAL ASSISTANCE FOR PURCHASING CISCO EQUIP MENTS. AS ASSESSEE DO NOT HAVE ITS OWN STAFF, CISCO INDIA PROVIDES ADMINISTRATIVE SUPPORT SERVICES AND MARKETING AND S ALES SUPPORT SERVICES. IT HAS BEEN SUBMITTED THAT ASSESS EE IS AN ENTREPRENEUR PERFORMING INDEPENDENT FUNCTION FOR PROVIDING FINANCING/LEASING OF CISCO EQUIPMENTS FOR THIRD- PARTY CUSTOMERS. 6.2. THE QUESTION THAT ARISES IN THIS PRESENT SCENARIO WHETHER ASSESSEE COULD HAVE DEPLOYED ITS OWN EMPLOY EES FOR THE DAY TO DAY ADMINISTRATIVE FUNCTIONS AND MAR KETING SERVICES ON ITS OWN. THE QUERY BEING RAISED BY THE BENCH, THE LD.AR SUBMITTED THAT, ASSESSEE SOUGHT ADMINISTR ATIVE ASSISTANCE AND MARKETING AND SALES SUPPORT ASSISTAN CE FROM CISCO INDIA FOR EASE OF BUSINESS. AS CISCO IND IA ALREADY HAD ITS OWN MANPOWER WHICH COULD BE UTILISE D FOR CARRYING OUT DAY-TO-DAY ACTIVITIES OF ASSESSEE. IT(TP)A NO.2614/BANG/2019 PAGE 20 OF 24 6.3. IN OUR VIEW, BEING A FULL-FLEDGED ENTREPRENEUR, THE RE WAS NO NEED FOR ASSESSEE TO SEEK ASSISTANCE FROM CI SCO INDIA AND COULD HAVE EMPLOYED ITS OWN EMPLOYEES TO CARRY OUT ALL SUCH ADMINISTRATIVE AND MARKETING AND SALES SUPPORT FUNCTIONS. IN THE TRANSFER PRICING DOCUMENT S, NOTHING IS PLACED ON RECORD TO ESTABLISH THE NEED O F SUCH ASSISTANCE AS ASSESSEE HAD ITS OWN INFRASTRUCTURE FACILITIES. 6.4. THE LD.AR SUBMITTED THAT THERE ARE BUNDLED TRANSACTIONS INEXTRICABLY LINKED WITH LEASING ACTIV ITIES. THE LD.AR SUBMITTED THAT, THE EXPENSES INCURRED BY ASSESSEE BY WAY OF PAYMENT MADE TO CISCO INDIA IS SUBSUMED IN THE OPERATING EXPENSES CONSIDERED FOR COMPUTING ARMS LENGTH PRICE OF INTERNATIONAL TRANS ACTION BETWEEN ASSESSEE AND ITS ASSOCIATED ENTERPRISE, WHE REIN CISCO EQUIPMENTS WERE PURCHASED BY ASSESSEE FROM AE FOR LEASING. THE LD.AR SUBMITTED BY WAY OF ORAL AND WRITTEN SUBMISSIONS THAT NOT ALL THIRD-PARTY CUSTOM ERS, APPROACH ASSESSEE FOR FINANCING ACTIVITIES AND THAT , SUCH THIRD-PARTY CUSTOMERS ENTER INTO TRANSACTION FIRST WITH AE FOR PURCHASE OF CISCO EQUIPMENTS DIRECTLY. 6.5. WE HAVE ANALYSED THE BUSINESS WORKING MODEL OF ASSESSEE. MANY ISSUES REMAIN UNASCERTAINED ARE AS UNDER:- IT(TP)A NO.2614/BANG/2019 PAGE 21 OF 24 ARE THERE THIRD PARTY CUSTOMERS TO WHOM ASSESSEE SELLS THE PRODUCTS DIRECTLY? ARE THE THIRD PARTY CUSTOMERS REFERRED TO HEREINABOVE RESTRICTED TO INDIAN CUSTOMERS? 6.6. IN OUR VIEW THE TRANSACTION NEEDS TO BE BENCH MARKED SEPARATELY AND THERE HAS TO BE A SEGREGATION BASED ON THE CUSTOMERS WHO APPROACH ASSESSEE FOR FINANCING/LEASING AFTER ENTERING INTO AGREEMENT WIT H THE AE, AND THE LEASING/FINANCING ACTIVITY THAT ASSESSE E HAS WITH THE THIRD-PARTY CUSTOMERS INDEPENDENTLY. IN OU R VIEW, ONLY SUCH SERVICES THAT ASSESSEE IS RENDERING TO THIRD-PARTY FOR ASSISTING THEM IN FINANCING/LEASING , WHEREIN THE THIRD-PARTY DIRECTLY ENTER INTO AGREEME NT WITH THE AE COULD BE CONSIDERED TO BE INTERLINKED WITH T HE INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE WITH ITS AE. 6.7. IT IS ALSO AN ADMITTED FACT THAT ASSESSEE HAS BEEN CARRYING OUT THESE ACTIVITIES IN A BUNDLED FORMAT I N THE PRECEDING YEARS WHICH HAS NOT BEEN OBJECTED BY THE LD.TPO/AO. FURTHER THAT ALL THESE EXPENSES INCURRED BY ASSESSEE TOWARDS ADMINISTRATIVE EXPENSES AND SALES AND MARKETING EXPENSES STANDS SUBSUMED IN THE OPERATING EXPENSES UNDER TNMM FOR COMPUTING THE ARMS LENGTH MARGIN OF THE INTERNATIONAL TRANSACTION, A SEPARATE BENCHMARKING MAY NOT BE NECESSARY. HOWEVER ALL THES E IT(TP)A NO.2614/BANG/2019 PAGE 22 OF 24 THINGS DESERVES VERIFICATION AT THE END OF LD.AO/TP O. THE LD.AO/TPO SHALL VERIFY THE TRANSACTIONS AS INDICATE D HEREINABOVE. IN THE EVENT THE EXPENSES ARE SUBSUMED UNDER TNMM WE DO NOT FIND ANY NECESSITY FOR A SEPAR ATE BENCHMARKING. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.11-12 ARE THE ALTERNATIVE ARGUMENT RAISED BY ASSESSEE WHICH BECOMES ACADEMIC NOW. GROUND NO.13 IS CONSEQUENTIAL AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS DAY OF 8 TH APRIL, 2021. SD/- SD/- ( CHANDRA POOJARI ) ( BEENA PILLAI ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 8 TH APRIL, 2021. / DESAI S MURTHY / CPY: VMS IT(TP)A NO.2614/BANG/2019 PAGE 23 OF 24 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.