Deputy Commissioner of Income-tax, V. Tata Ficosa Automotive Systems Ltd., Pune

ITA 271/PUN/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0309 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Business expenditure; Question of law; Fair market value; Corroborative evidences; Capital expenditure; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 115JB; 37(1); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 254 TO 258/PN/2015 %' ( ')( / ASSESSMENT YEARS : 2007-08 TO 2011-12 TATA FICOSA AUTOMOTIVE SYSTEMS LIMITED, S. NO. 235 & 245, VILLAGE HINJEWADI, TAL.-MULSHI, DISTT.-PUNE 411057 PAN : AAACT5755F ....... / APPELLANT ' /VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -7, PUNE / RESPONDENT / ITA NOS. 269 TO 273/PN/2015 %' ( ')( / ASSESSMENT YEARS : 2007-08 TO 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -7, PUNE ....... / APPELLANT ' /VS. TATA FICOSA AUTOMOTIVE SYSTEMS LIMITED, S. NO. 235 & 245, VILLAGE HINJEWADI, TAL.-MULSHI, DISTT.-PUNE 411057 PAN : AAACT5755F / RESPONDENT ASSESSEE BY : SHRI PERCY PARDIWALA REVENUE BY : SHRI P.L. KUREEL / DATE OF HEARING : 14-12-2016 / DATE OF PRONOUNCEMENT : 23-12-2016 2 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 * / ORDER PER VIKAS AWASTHY, JM : THESE APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIR ECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- 5, PUNE DATED 23-12-2014 COMMON FOR THE ASSESSMENT YEARS 200 7-08 TO 2011-12. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTU RE AND SALE OF AUTO COMPONENTS VIZ. MIRRORS, PARKING BRAKE, WASHER SYS TEMS, GEAR SHIFTERS, CABLES, ETC. THE ASSESSEE ENTERED INTO ADMINISTR ATIVE SUPPORT AGREEMENT WITH TATA AUTOCOMP SYSTEMS LTD. (TACO) ON 0 1-04-2006 FOR PROVIDING ADMINISTRATIVE SUPPORT SERVICES WHICH INTER ALIA INCLUDES : I. INITIAL START-UP AND OPERATING PHASE SUPPORT; II. DESIGNING AND IMPLEMENTING THE PERFORMANCE MANAGEMENT SYSTEM; III. TRAINING AND HUMAN RESOURCE DEVELOPMENT (INCLUDING EMPLOYEE BENEFIT ADMINISTRATION); IV. EMPLOYEE RELATIONSHIP ADMINISTRATION; V. SUPPORTING MARKETING AND SALES RELATED ACTIVITIES; VI. SUPPORT FOR VARIOUS FINANCE RELATED ACTIVITIES; VII. SUPPORT FOR LEGAL AND TAXATION COMPLIANCE ISSUES; VIII. HELPING DEVELOPMENT OF STRATEGY PLAN AND INITIATIVES; IX. SETTING UP OF IT INFRA-STRUCTURE-DESIGNING, IDENTIFICATION, NEGOTIATION AND IMPLEMENTATION; X. SETTING UP OF COMMUNICATION INFRASTRUCTURE. 3 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 2.1 TO ACCOMPLISH THE AFORESAID SERVICES, TACO APPOINTED ITS STAFF AT VARIOUS LEVELS AND CHIEF INTERNAL AUDITOR AND TREASURY OFFIC ER FOR ITS GROUP COMPANIES TO REVIEW THE INTERNAL PROCESSES. AS PE R THE AGREEMENT THE ASSESSEE AGREED TO PAY FEE TO TACO FOR PROVIDING ADMINISTRATIVE SERVICES @ 2% OF NET SALES. THE ASSESSEE CLAIMED THE PAYMENT OF SAID ADMINISTRATIVE FEE CHARGES TO TACO AS REV ENUE EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE SAME ON T HE GROUND THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY DOCUMENTAR Y EVIDENCE AND TO SUBSTANTIATE ITS CLAIM. THE ASSESSING OFFICER FURTHER RE JECTED THE CLAIM OF ASSESSEE UNDER THE PROVISIONS OF SECTION 40(A)(2)(A) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). APART FROM THE ABOVE, THE ASSESSING OFFICER MADE CERTAIN O THER DISALLOWANCES ON ACCOUNT OF INTERNATIONAL/DOMESTIC TRAVELLING, TRANSPORT AND WELFARE EXPENSES ETC. IN THE ASSESSMENT Y EARS UNDER APPEAL. 2.2 AGGRIEVED BY THE ASSESSMENT ORDERS FOR THE RESPEC TIVE ASSESSMENT YEARS I.E. ASSESSMENT YEARS 2007-08 TO 2011-12, THE ASS ESSEE PREFERRED APPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). T HE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER C OMMON FOR ALL THE FIVE ASSESSMENT YEARS RESTRICTED THE DISALLOWANC E OF ADMINISTRATIVE EXPENSES TO 75%. IN OTHER WORDS THE COM MISSIONER OF INCOME TAX (APPEALS) ALLOWED 25% OF THE TOTAL ADMINISTRATIVE EXPENDITURE CLAIMED BY THE ASSESSEE. IN RESPECT OF TRAV ELLING AND WELFARE EXPENSES THE COMMISSIONER OF INCOME TAX (APPEALS) R EDUCED THE AD HOC DISALLOWANCES MADE BY THE ASSESSING OFFICER FROM 20% TO 10% IN ASSESSMENT YEAR 2007-08 AND CONFIRMED THE DISALLOW ANCE OF 4 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 TRANSPORTATION AND WELFARE EXPENDITURE IN ASSESSMENT YEA RS 2008-09 AND 2009-10 AT 10%. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), BOTH, THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS ASSAILED THE ORDER OF COMMISSIONER OF I NCOME TAX (APPEALS) IN DISALLOWING REMAINING 75% OF THE ADMINISTRATIVE EXPENDITURE AND CONFIRMING 10% DISALLOWANCES ON ACCOUNT OF TRANSPORTATION AND WELFARE EXPENSES. THE REVENUE ON TH E OTHER HAND HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPE ALS) IN ALLOWING 25% OF THE ADMINISTRATIVE EXPENSES TO THE ASSESSEE. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEAR 2007-08 ARE AS UNDER : THE APPELLANT OBJECTS TO THE ORDER DATED 23 DECEMB ER 2014 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) - 5, PUNE [ 'CIT(A)'] FOR THE AFORESAID ASSESSMENT YEAR ON THE FOLLOWING AMONG OT HER GROUNDS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF ADMINISTRATIVE SERVICE CHARGES PAID TO TATA AUTOCOM P SYSTEMS LTD. ('TACO') TO THE EXTENT OF RS.36,02,323 UNDER S ECTION 40(A)(2)(A) OF THE INCOME-TAX ACT, 1961 ('THE ACT') ON THE GROUNDS THAT THE SAME IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO SERVICES RENDERED BY TACO AND THE LEGITIM ATE BUSINESS NEEDS OF THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN MAKING THE FOLLOWING OBSERVATIONS, WHICH ARE CONTRARY TO THE FACTS OF THE CASE AND IN LAW: A) .....THE APPELLANT COMPANY WAS INCORPORATED IN T HE YEAR 1998 AND THE INITIAL START-UP PHASE OF THE COMPANY INCLUDING LAND ACQUISITION, CONSTRUCTION OF FACTORY PREMISES ETC. IS ALREADY OVER AND THEREFORE, QUESTION OF AVA ILING ANY SERVICES BY THE APPELLANT FROM TA CO, DURING THE YE AR ON ACCOUNT OF START-UP PHASE OF THE COMPANY DOES NOT A RISE ... 5 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 B) .....EXCEPT FURNISHING THE ABOVE E-MAIL CORRESPO NDENCE BETWEEN THE TWO GROUP CONCERNS, NO OTHER DOCUMENTAR Y EVIDENCE WAS FILED BY THE APPELLANT TO SHOW THAT SERVICES WERE ACTUALLY RENDERED BY TA CO TO THE APP ELLANT DURING THE YEAR ... C) .....IT WAS ALSO OBSERVED THAT SOME OF THE E-MAI LS ARE TOO VAGUE AND GENERAL ... D) .....EVEN THE SERVICES SUPPOSEDLY RECEIVED FOR M ARKETING, BUSINESS AND ANALYSES AND CUSTOMER LIAISON AS EVIDE NCED BY THE EMAILS ARE IN THE NATURE OF GENERAL CORRESPO NDENCE ... E) .....IT IS NOT KNOWN FROM THE DETAILS PLACED ON RECORD WHETHER ALL THESE EMAILS CULMINATED INTO RENDERING O F ANY SPECIFIC SERVICES TO THE APPELLANT. THUS, THE E-MAI L CORRESPONDENCE DOES NOT ESTABLISH CONCLUSIVELY THAT SERVICES AND SUPPORT TO THE EXTENT CLAIMED BY THE A PPELLANT WERE RECEIVED FROM TA CO DURING THE YEAR ... F) .....BY NO STRETCH OF IMAGINATION, IT CAN BE SAI D THAT THE EXPENDITURE WAS INCURRED DUE TO BUSINESS EXPEDIENCY . THEREFORE, THE PAYMENTS TO TA CO AT A FIXED PERCENT AGE OF THE TURNOVER IRRESPECTIVE OF ACTUAL SERVICES RENDER ED IN A PARTICULAR YEAR ARE NOT AT ALL JUSTIFIED . G) .....RENDERING OF SERVICES BY TA CO DURING START -UP PHASE DOES NOT EVEN ARISE AS THE SAID PHASE IS ALREADY OV ER. FURTHER, AS PER EMAIL CORRESPONDENCE, ONLY IN A FEW ACTIVITIES DURING THE OPERATING PHASE, THE APPELLAN T APPARENTLY RECEIVED SOME SUPPORT FROM TACO ... H) .....THERE COULD BE BUSINESS EXPEDIENCY TO AVAIL THE SERVICES 0.( TA CO IN THE INITIAL FORMATIVE YEARS OF THE COM PANY I.E. DURING START-UP PHASE BUT ONCE THE COMPANY IS WELL ESTABLISHED, IT CANNOT BE SAID THAT THE EXPENDITURE TO THE EXTENT CLAIMED BY THE APPELLANT AT A FIXED PERCENTA GE OF TURNOVER WAS INCURRED ON ACCOUNT OF BUSINESS EXPEDI ENCY ... THE APPELLANT OBJECTS TO THE ABOVE OBSERVATIONS. 6 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF TRANSPORTATION AND STAFF WELFARE EXPENSES TO THE EX TENT OF RS.359,883 ON ADHOC BASIS. 4. THE LEARNED CIT(A) ERRED IN MAKING THE FOLLOWING OBSERVATIONS, WHICH ARE CONTRARY TO THE FACTS OF THE CASE AND IN LAW: A) .....THE APPELLANT HAS NOT SATISFIED THE ASSESSI NG AUTHORITY REGARDING THE BUSINESS EXPEDIENCY OF INCURRING THE IMPUGNED STAFF WELFARE EXPENDITURE ... B) .....MANY OF THESE EXPENSES WERE EITHER NOT EXPL AINED OR AMOUNTED TO PERSONAL EXPENDITURE ... C) .....THE APPELLANT COULD NOT HAVE BEEN SAID TO H AVE DISCHARGED THE ONUS CAST UPON HIM TO PROVE THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES ... D) .....FROM THE DETAILS PRODUCED SUCH EXPENDITURE IS CLEARLY IN THE NATURE OF PERSONAL OR NON-BUSINESS EXPENDITURE ... THE APPELLANT OBJECTS TO THE ABOVE OBSERVATIONS. 5. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHO UT PREJUDICE TO THE OTHER. 6. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO THE GROUNDS OF APPEAL. THE ASSESSEE HAS RAISED SIMILAR GROUNDS IN OTHER ASSESSM ENT YEARS I.E. ASSESSMENT YEARS 2008-09 TO 2011-12 EXCEPT THAT THE SECOND ISSUE COMPRISING IN GROUND NOS. 3 AND 4 RELATING TO DISALLOWA NCE ON TRANSPORTATION AND STAFF WELFARE EXPENDITURE IS ONLY CONFINE D TO ASSESSMENT YEARS 2007-08 TO 2009-10. THERE ARE NO S UCH DISALLOWANCE OF TRANSPORTATION AND WELFARE EXPENDITURE IN ASSESSMENT Y EARS 2010-11 AND 2011-12. 7 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 4. THE REVENUE IN ITS CROSS APPEALS HAS RAISED SOLITARY GROUND. THE GROUND RAISED BY THE REVENUE IN ITS CROSS APPEAL FOR ASS ESSMENT YEAR 2007-08 READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE EXPENSES ON ACCOUNT OF AD MINISTRATIVE SERVICE CHARGES TO THE EXTENT OF 25% OF THE TOTAL EXPENDITU RE CLAIMED BY THE ASSESSEE. IN APPEALS FOR ASSESSMENT YEARS 2008-09 TO 2011-12, ID ENTICAL GROUND HAS BEEN RAISED BY THE DEPARTMENT. 5. SHRI PERCY PARDIWALA APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO ADMINISTRA TIVE SUPPORT AGREEMENT ON 01-04-2006 WITH TACO. THE ASSESSEE HAD PROVIDED DETAILED DESCRIPTION OF SERVICES RENDERED BY TACO ALONG WIT H SUPPORTING EVIDENCE TO THE AUTHORITIES BELOW. TACO HAD PROVIDED SERVICES TO THE ASSESSEE IN VARIOUS AREAS SUCH AS : I. CASH MANAGEMENT OF GROUP COMPANIES; II. INVESTMENT DECISIONS; III. HUMAN RESOURCE AND DEVELOPMENT FOR ALL THE GROUP COMPAN IES, RECRUITMENT, IMPARTING TRAINING TO PERSONNEL, MANAGING SERVIC E MATTERS ETC.; IV. KEEPING TRACK OVER CAPITAL EXPENDITURE/INVESTMENT APPROVALS; V. FRAMING OF POLICIES AND PROCEDURES IN THE AREAS OF PRODUCT COSTING OF PRICE DETERMINATION, EXPENDITURE AUTHORIZATION, COMMITTING FINANCIAL RESOURCES, PRODUCT PRICING, OUTSOURCING MANUFACTURING ACTIVITIES ON JOB WORK, PROVISIONS FOR SLOW M OVING OR OBSOLETE STOCK, POLICY FOR BANK RECONCILIATIONS, OBTAINING B ANK GUARANTEE AND LETTER OF CREDIT ETC.; 8 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 VI. OVERLOOKING THE LEGAL AND TAXATION MATTERS OF THE GROUP COMPANIES, LIAISONING WITH THE VARIOUS GOVERNMENT OFFICES, HOLDING TRAINING SESSIONS ON NEW AND SIGNIFICANT AMENDMENT IN THE LAW, CIRCULATION OF TAX UPDATES/CASE LAWS ETC.; VII. PROVIDING SECRETARIAL ASSISTANCE FOR DRAFTING LEGAL AGREEMENT S, GUIDANCE FOR CONDUCTING BOARD MEETINGS, PROCEDURES UNDER THE COMPANIES ACT ETC.; VIII. CHALKING OUT BUSINESS DEVELOPMENT INITIATIVES AND STRATEG IC PLANNING; IX. CONDUCTING INTERNAL AUDIT, REVIEW OF EXISTING PROCESSES; X. SETTING UP OF INFORMATION TECHNOLOGY INFRASTRUCTURE, REVIEW ETC.; XI. OVERALL MONITORING OF OPERATIONS OF GROUP COMPANIES. 5.1 THE SERVICES WERE PROVIDED BY TACO TO THE ASSESSEE OUT OF BUSINESS EXPEDIENCY. THE LD. AR POINTED THAT THE EXAMINA TION OF DOCUMENTARY EVIDENCE WOULD CLEARLY PROVE BEYOND DOUBT THAT THE SERVICES RENDERED BY TACO ARE DIRECTLY LINKED TO THE AC TIVITIES CARRIED OUT BY THE ASSESSEE. THE AUTHORITIES BELOW HAVE ERRED IN DISALLOWING THE LEGITIMATE BUSINESS EXPENDITURE OF THE ASSESSEE BY INV OKING THE PROVISIONS OF SECTION 40(A)(2)(A) OF THE ACT. THE LD. AR FURTHER POINTED THAT TACO HAD ENTERED INTO SUCH ADMINISTRATIVE SUPPORT AGREEMENT WITH VARIOUS OTHER TATA GROUP COMPANIES FOR PROVIDING ADM INISTRATIVE SERVICES ON SIMILAR LINES. TACO IS CHARGING FEE @ 2% OF THE T OTAL TURNOVER AND IN SOME CASES 1% OF TOTAL TURNOVER DEPEND ING UPON THE SERVICES RENDERED BY IT. THE LD. AR POINTED THAT THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TATA JOHNSON CONTROLS AUTO MOTIVE LIMITED VS. THE DY. COMMISSIONER OF INCOME TAX IN ITA NO. 1450/PN/2011 FOR ASSESSMENT YEAR 2006-07 DECIDED ON 0 9-12-2015 9 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 HAD ACCEPTED THE CLAIM OF ASSESSEE. THEREAFTER, PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF TATA TOYO RADIATOR PVT. LTD. VS. TH E DY. COMMISSIONER OF INCOME TAX IN ITA NO. 1034/PN/2013 FOR AS SESSMENT YEAR 2006-07 DECIDED ON 18-03-2016 ALLOWED THE CLAIM OF A SSESSEE TOWARDS THE PAYMENT OF ADMINISTRATION CHARGES. IN BOTH THE ABOVE MENTIONED CASES THE ASSESSEES HAD ENTERED INTO ADMINIST RATIVE SUPPORT AGREEMENT WITH TACO ON SIMILAR LINES. IN THE CASE OF TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. THE DY. COMMISSIONER OF INCO ME TAX (SUPRA) ADMINISTRATIVE CHARGES PAID TO TACO WERE @ 1% OF T OTAL TURNOVER WHEREAS IN THE CASE OF TATA TOYO RADIATOR PVT . LTD. VS. THE DY. COMMISSIONER OF INCOME TAX (SUPRA) THE ADMINISTRATIVE C HARGES PAID TO TACO WERE @ 2%, AS IS IN THE CASE OF ASSESSEE. T HE LD. AR SUBMITTED THAT THE DOCUMENTARY EVIDENCE FURNISHED BY AS SESSEE IN RESPECT OF ADMINISTRATIVE SERVICES RENDERED BY TACO BEFOR E THE AUTHORITIES BELOW IS COMPLIED IN PAGES 94 TO 221 OF THE PAPER BOOK. 5.2 IN RESPECT OF GROUND NOS. 3 AND 4 RELATING TO DISALLOW ANCE OF TRANSPORTATION AND STAFF WELFARE EXPENSES THE LD. AR SUBMIT TED THAT THE ASSESSING OFFICER HAS ERRED IN DISALLOWING 20% OF TOTAL EXPEND ITURE CLAIMED BY THE ASSESSEE IN ASSESSMENT YEAR 2007-08. DU RING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FURNISHED THE DETAILS OF ALL THE EXPENDITURE ALONG WITH THE VOUCHERS EXCEPT TWO VOU CHERS WHICH COULD NOT BE TRACED AT THAT TIME. THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE SUBJECT TO AUDIT. THE ASSESSING OFFICER HAS NOT PO INTED ANY DEFECT IN BOOKS MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER MADE AD HOC DISALLOWANCE OF 20% OF THE TOTAL EXPENDITURE IN AN ARBIT RARY AND UNJUSTIFIED MANNER. IN ASSESSMENT YEARS 2008-09 AND 20 09-10 THE ASSESSING OFFICER MADE DISALLOWANCE ON 10% OF THE TOTAL EXP ENDITURE 10 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 WITHOUT ASSIGNING ANY REASON, ALTHOUGH NO DEFECT WAS POINT ED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS FOR AS SESSMENT YEARS 2008-09 AND 2009-10. THEREAFTER, IN SUBSEQUENT A SSESSMENT YEARS NO DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN OBSERVING THAT THE ASSESSEE HAS FAILED TO PRODUCE DOCUM ENTARY EVIDENCE IN RESPECT OF STAFF WELFARE EXPENDITURE AND THAT T HE DETAILS PRODUCED BY THE ASSESSEE SHOW THAT THE NATURE OF EXP ENDITURE IS PERSONAL OR NON-BUSINESS. EVEN AFTER HOLDING EXPENDITURE FOR NON- BUSINESS PURPOSE, THE COMMISSIONER OF INCOME TAX (APPEALS ) REDUCED THE DISALLOWANCE FROM 20% TO 10% IN ASSESSMENT YEAR 2007 -08 AND UPHELD THE DISALLOWANCE OF 10% IN ASSESSMENT YEARS 2008-0 9 AND 2009-10. THE OBSERVATIONS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE ARE AGAINST THE FACTS OF THE CASE A ND DOCUMENTS ON RECORD. 6. ON THE OTHER HAND SHRI P.L. KUREEL REPRESENTING THE D EPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF ASSESSING OFFICER IN D ISALLOWING THE ENTIRE ADMINISTRATIVE FEE PAID TO TACO AND CLAIMED AS E XPENDITURE BY THE ASSESSEE. THE LD. DR SUBMITTED THAT THERE WAS NO JUSTIFIC ATION OF CLAIMING SUCH HUGE EXPENDITURE ON ACCOUNT OF ADMINISTRATIVE EXPENSES. BUSINESS EXPEDIENCY FOR PAYMENT OF SUCH EXPENDITURE WOU LD BE JUSTIFIABLE IF IT WOULD HAVE BEEN INITIAL YEARS OF SET UP, BUT ONCE, THE COMPANY IS WELL ESTABLISHED IT CANNOT BE SAID THAT THE EXP ENDITURE TO THE EXTENT CLAIMED BY THE ASSESSEE AT A FIXED PERCENTA GE OF TURNOVER WAS INCURRED ON ACCOUNT OF BUSINESS EXPEDIENCY. ESPECIALL Y, WHEN THE ASSESSEE HAD DEVELOPED ITS OWN ESTABLISHMENT, BASIC INFRAS TRUCTURE, LOGISTIC AND OTHER RESOURCES TO TAKE CARE OF ITS VARIOUS BUSINESS NEEDS. 11 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 THE LD. DR VEHEMENTLY DEFENDED THE ORDER OF ASSESSING OFFIC ER IN MAKING DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S. 40(A)(2)(A) OF THE ACT. THE LD. DR CONTENDED THAT THE COMMISSIONER OF INCOM E TAX (APPEALS) EVEN AFTER COMING TO THE CONCLUSION THAT THERE WAS NO BUSINESS EXPEDIENCY FOR MAKING SUCH PAYMENT TO TACO STILL ALLOWED 25% OF THE TOTAL ADMINISTRATIVE EXPENSES. THE LD. DR SUBMIT TED THAT THE PAYMENTS MADE BY THE ASSESSEE TO TACO ARE NOTHIN G BUT A MODE TO REDUCE TAX LIABILITY. THE LD. DR PRAYED FOR RESTORING THE FIND INGS OF ASSESSING OFFICER IN DISALLOWING ADMINISTRATIVE FEE EXPENSES. 7. CONTROVERTING THE SUBMISSIONS MADE BY THE LD. DR, THE LD. AR SUBMITTED THAT BOTH THE COMPANIES I.E. ASSESSEE AND TACO ARE PAYING TAX AT THE SAME TAX RATE. IN ASSESSMENT YEAR 2009-1 0 BOTH, THE ASSESSEE AS WELL AS TACO HAD SUFFERED LOSSES. THEREFORE, IT CANNOT BE SAID THAT PAYMENT OF ADMINISTRATIVE EXPENSES BY ASSESSE E TO TACO IS IN ANY MANNER A DEVICE TO CIRCUMVENT THE PROVISIONS OF TAX LAWS. TACO IN ITS RETURN OF INCOME FOR THE RESPECTIVE ASSESSMENT YEARS HAD DISCLOSED THE AMOUNT AND HAS PAID TAX THEREON. THE LD. AR FURTHER TO FORTIFY HIS SUBMISSIONS PLACED RELIANCE ON THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. V.S. D EMPO & CO. (P) LTD. REPORTED AS 196 TAXMAN 193. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. WE HAVE ALSO EXAMINED THE VARIOUS DECISIONS ON WHICH THE LD . AR HAS PLACED RELIANCE AND THE DOCUMENTS FURNISHED BY THE ASSES SEE IN THE FORM OF PAPER BOOK. IN APPEALS, THE ASSESSEE HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING ADMINISTRATIV E 12 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 SERVICES CHARGES PAID BY THE ASSESSEE TO TACO. THE DISALLOWANCE HAS BEEN MADE UNDER THE PROVISIONS OF SECTION 40(A)(2)(A) OF THE A CT. THE DISALLOWANCE SUSTAINED BY THE COMMISSIONER OF INCOME TAX (AP PEALS) IN ASSESSMENT YEARS UNDER APPEAL ARE AS UNDER : ASSESSMENT YEAR ADDITION S SUSTAINED BY CIT(A) 2007 - 08 ` 36,02,323/ - 2008 - 09 ` 31,63,773/ - 2009 - 10 ` 31,19,814/ - 2010 - 11 ` 43,39,371/ - 2011 - 12 ` 51,71,250/ - 9. THE CASE OF THE ASSESSEE IS THAT THE ADMINISTRATIVE S ERVICES CHARGES HAVE BEEN PAID BY THE ASSESSEE TO TACO @ 2% OF TOTAL TURNOVER ARE IN ACCORDANCE WITH THE ADMINISTRATIVE SUPPORT AGREEM ENT DATED 01-04-2006 BETWEEN ASSESSEE AND TACO (PLACED ON RECOR D AT PAGES 89 TO 93 OF THE PAPER BOOK). THE ASSESSEE HAS FURTHER PLAC ED ON RECORD VARIOUS DOCUMENTS AT PAGES 94 TO 221 OF THE PAPER BOO K TO SUBSTANTIATE THE SERVICES RENDERED BY TACO TO THE ASS ESSEE OVER THE PERIOD OF TIME FOR SMOOTH RUNNING OF BUSINESS. A PERUSAL OF AGREEMENT SHOWS THAT SERVICES PROVIDED BY TACO INCLUDE : I. SUPPORT FOR LAND ACQUISITION AND DEVELOPMENT; II. SUPPORT FOR PAYROLL AND BENEFIT ADMINISTRATION (PROVIDENT FUN D SUPERANNUATION, GRATUITY); III. SUPPORT FOR LIAISON WITH BANK AND FINANCIAL INSTITUTIONS; IV. SUPPORT FOR DECISIONS REGARDING CAPITAL BUDGETING; V. SUPPORT FOR LEGAL AND TAXATION SERVICES; VI. SUPPORT FOR HUMAN RESOURCES DEVELOPMENT & TRAINING FACILITIES; 13 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 VII. COMMUNICATION INFRASTRUCTURE ADVISOR SERVICES; VIII. SUPPORT FOR MANPOWER RECRUITMENT; IX. SUPPORT FOR MAINTAINING INDUSTRIAL RELATIONS; X. SUPPORT FOR PROVIDE MARKETING AND DISTRIBUTION NETWORK; XI. SUPPORT FOR LIAISON WITH GOVERNMENT AUTHORITIES; XII. SUPPORT FOR VENDOR DEVELOPMENT EFFORTS. 10. FOR PROVIDING AFORESAID SERVICES TACO CHARGED AMOUNT EQUAL TO 2% OF THE NET SALES AS DEFINED IN PARA 1.3 OF ARTICLE 1 OF T HE AGREEMENT. THE LD. AR HAS POINTED THAT THE ISSUE RELATING TO ALLOWABILITY OF ADMINISTRATIVE SERVICE CHARGES HAS BEEN ADJUDICATED BY T HE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TATA JOHNSON CONTRO LS AUTOMOTIVE LIMITED VS. THE DY. COMMISSIONER OF INCOME TAX (SUPRA) AND IN THE CASE OF TATA TOYO RADIATOR PVT. LTD. VS. THE DY. COMMISSION ER OF INCOME TAX (SUPRA). A PERUSAL OF THE ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. THE DY. COMMISSIONER OF INCOME TAX (SUPRA) FOR THE ASSES SMENT YEAR 2006-07 REVEALS THAT THE GROUNDS RAISED BY THE ASSESS EE IN PRESENT SET OF APPEALS ARE IDENTICAL TO THE GROUNDS RAISED IN THE AFOR ESAID APPEAL ASSAILING THE DISALLOWANCE OF ADMINISTRATIVE SERVICE CHARGES PAID BY ASSESSEE TO TACO. IN THE AFOREMENTIONED CASE, THE DISALLO WANCE WAS MADE BY THE ASSESSING OFFICER ON SIMILAR GROUNDS INVOKING TH E PROVISIONS OF SECTION 40(A)(2)(B) OF THE ACT. THE ASSESSEE IN T HE SAID CASE HAD ENTERED INTO ADMINISTRATIVE SUPPORT AGREEMENT WITH TACO WHICH WAS ON SIMILAR LINES AS IS IN THE CASE OF PRESENT ASS ESSEE. THE COMMERCIAL EXIGENCY OF AGREEMENT AND THE REASONABLENESS OF ADMINISTRATIVE SERVICE CHARGES PAID TO TACO WERE UNDER Q UESTION. THE 14 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 TRIBUNAL DECIDED BOTH THESE ISSUES IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER : 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. IN THE FACTS OF THE PRESENT CASE AS REFERRED TO BY US IN THE PARAS HEREINABOVE, THE ASSESSEE WAS A JOINT VENTURE COMPA NY WITH 50:50 SHARE BETWEEN TACO AND JOHNSON CONTROL INC. AFTER FORMATION OF JOINT VENTURE COMPANY, IT WAS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES ON ACCOUNT OF AUTOMOBILE SECTOR I.E. SEATING SYSTEM S FOR MOTOR CARS. EQUAL CONTROL WAS BETWEEN TWO I.E. TACO AND JOHNSON CONTROL INC. AN AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND TACO FOR PROVIDING ADMINISTRATIVE SERVICES BOTH ON ACCOUNT O F START-UP PHASE AND OPERATING PHASE. THE SAID AGREEMENT WAS IN PLACE F OR THE PAST SEVERAL YEARS AND AS PER THE TERMS AND CONDITIONS OF THE AG REEMENT, THE ASSESSEE WAS TO PAY REMUNERATION TO TACO @ 1% OF TU RNOVER IN ADDITION TO REIMBURSING ALL THE EXTERNAL COSTS INCURRED BY T ACO, IF ANY. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD PA ID SUM OF RS.2,00,84,162/- TO TACO AND THE QUESTION OF ITS DE DUCTIBILITY HAS ARISEN BY WAY OF PRESENT GROUNDS OF APPEAL RAISED. THE AS SESSING OFFICER WAS OF THE VIEW THAT SINCE TACO WAS A RELATED PARTY, IN VIEW OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, THE SAI D EXPENDITURE HAS TO BE LOOKED INTO ACCORDINGLY. THE ASSESSEE FURNISHED CE RTAIN INFORMATION BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THERE WAS NO JUSTIFICATION IN THE CLAIM O F ASSESSEE SINCE THE ASSESSEE HAD ESTABLISHED ITS ADMINISTRATIVE SET UP AND WAS ALSO INCURRING EXPENDITURE ON PROFESSIONAL SERVICES AND OTHER EXPENSES AND THERE WAS NO MERIT IN THE CLAIM OF ASSESSEE VIS--V IS SAID EXPENDITURE BEING PAID TO TACO. THE CIT(A) ALSO REFERRED TO TH E PROVISIONS OF SECTION 40A(2)(A) OF THE ACT AND AFTER CONSIDERING THE VARI OUS EVIDENCES FILED BY THE ASSESSEE, WAS OF THE VIEW THAT CERTAIN SERVICES HAVE BEEN RENDERED BY TACO AND HE WAS OF THE VIEW THAT ONLY 25% OF THE EXPENDITURE HAS TO BE ALLOWED IN THE HANDS OF ASSESSEE. BOTH THE ASSE SSEE AND THE REVENUE ARE IN APPEAL AGAINST THE SAID ORDER OF CIT (A). 24. THE FIRST ISSUE TO BE ADDRESSED IN THIS REGARD IS WHETHER IN ORDER TO JUDGE COMMERCIAL EXIGENCY OF THE AGREEMENT AND T HE QUANTUM OF REMUNERATION PAID IN VIEW OF THE TERMS OF AGREEMENT ENTERED INTO BETWEEN TWO PARTIES, CAN THE REASONABLENESS OF EXPE NDITURE BE VIEWED BY THE AUTHORITIES OR REASONABLENESS HAS TO BE ESTA BLISHED FROM THE VIEW POINT OF BUSINESSMAN . THE FIRST ASPECT IN THIS REGARD IS THAT WHERE TH ERE IS A JOINT VENTURE BETWEEN TWO CONCERNS TO THE EXTE NT OF 50:50 AND ADDITIONAL REMUNERATION IS BEING PAID BY JOINT VENT URE COMPANY 15 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 FORMULATED BY THEM TO ONE OF THE CONCERNS, THEN THE ISSUE HAS TO BE SEEN FROM THE VIEW POINT OF OTHER CONCERN WHO IS PART OF JOINT VENTURE AND IS INCURRING 50% COST OF THE SAID REMUNERATION PAID. THERE IS A COMMERCIAL AGREEMENT BETWEEN THE ASSESSEE AND TACO, UNDER WHIC H CERTAIN SERVICES HAD TO BE PROVIDED BY TACO, FOR WHICH REMU NERATION WAS DUE TO THEM. THE LIST OF SERVICES ARE ENLISTED IN THE AGR EEMENT AND UNDOUBTEDLY, THE SAID AGREEMENT HAS BEEN IN FORCE F OR MORE THAN 7 YEARS AND THE AMOUNTS HAVE BEEN PAID AND ALLOWED AS EXPEN DITURE IN THE HANDS OF ASSESSEE FROM YEAR TO YEAR. IN THE ENTIRE TY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE OR DER OF ASSESSING OFFICER IN HOLDING THAT THE ENTIRE EXPENDITURE MERI TS TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE, SINCE THE QUANTUM OF REM UNERATION HAS BEEN FIXED AT PERCENTAGE OF TURNOVER. THE EXPLANATION O F THE ASSESSEE BEFORE US WAS THAT TACO WAS THE HOLDING COMPANY OF ALL JOI NT VENTURE COMPANIES AND IT WAS PROVIDING THE SAID SERVICES TO ALL THE JOINT VENTURES AND THE ASSESSEE WAS ONE SUCH JOINT VENTURE, TO WHI CH THE SAID SERVICES WERE PROVIDED. THE REMUNERATION PAID IN THIS REGAR D IS ALLOWABLE IN THE HANDS OF ASSESSEE AS THE SAME IS PAID ON ACCOUNT OF BUSINESS EXIGENCY . 25. NOW, COMING TO THE QUANTUM OF REMUNERATION WHIC H IS TO BE ALLOWED IN THE HANDS OF ASSESSEE. BOTH THE AUTHORI TIES BELOW HAVE CONSIDERED THE RELATED PARTY TRANSACTION AS REFERRE D TO IN SECTION 40A(2) OF THE ACT. THE SAID PROVISIONS OF THE ACT LAY DOW N THAT THE SERVICES TO A RELATED PARTY, AS ENVISAGED IN SECTION 40A(2)(B) OF THE ACT, SHALL NOT BE ALLOWED AS DEDUCTION UNDER SECTION 40A(2)(A) OF THE ACT, WHERE THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPEN DITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF T HE GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE. HOWEVER, WHE RE THE EXPENDITURE IS INCURRED FOR THE LEGITIMATE NEEDS OF THE BUSINESS, THE SAME IS TO BE ALLOWED AS AN EXPENDITURE IN THE HANDS OF ASSESSEE. THOUGH, UNDER THE ACT, PART OF EXPENDITURE WHICH IS EXCESSIVE OR UNRE ASONABLE HAVING REGARD TO THE MARKET VALUE OF THE SERVICES, CAN BE DISALLOWED IN THE HANDS OF ASSESSEE, BUT IN ORDER TO INVOKE THE SAID PROVISIONS OF THE ACT, FIRST STEP IS TO FIND OUT FAIR MARKET VALUE OF THE SERVICES, FOR SUCH INVOKING OF THE POWERS, THE ASSESSING OFFICER IS NOT EMPOWER ED TO SIT IN THE SEAT OF BUSINESSMAN TO DECIDE THE MERITS OF QUANTUM OF CLAI M TO BE ALLOWED IN THE HANDS OF ASSESSEE. THE AUTHORITIES BELOW IN TH E PRESENT CASE HAVE NOT DISPUTED THE TERMS OF AGREEMENT, BUT WERE OF TH E VIEW THAT REMUNERATION PAID AT A PERCENTAGE OF TURNOVER, IN V IEW OF THE ASSESSEE HAVING ESTABLISHED ITS BUSINESS, WAS EXCESSIVE. TH E CONTENTION OF THE 16 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 ASSESSEE ON THE OTHER HAND WAS THAT FOR SMOOTH RUNN ING OF ITS BUSINESS, SERVICES WERE PROVIDED BY TACO, WHICH WERE AS TERMS OF THE AGREEMENT. 26. WE FIND SIMILAR ISSUE OF ALLOWABILITY OF EXPEND ITURE PURSUANT TO AGREEMENT BETWEEN THE ASSESSEE AND THE THIRD PARTY, AROSE BEFORE COCHIN BENCH OF TRIBUNAL IN HARRISONS MALAYALAM LTD . VS. ACIT (SUPRA) AND THE FACTUAL ASPECTS OF THE CASE WERE AS UNDER:- 16. THE NEXT ISSUE IS IN RESPECT OF THE DISALLOWAN CE OF FEES PAID TO M/S. R.P.G. ENTERPRISES LTD. (RPGEL' FOR SHORT) AND THI S ISSUE ARISES IN ALL THE APPEALS BEFORE US. THE ID. CA SUBMITTED THAT THE AS SESSEE IS ENGAGED IN MULTIPLE BUSINESS ACTIVITIES LIKE TEA AND RUBBER CU LTIVATION BY TECHNOLOGY, STRUCTURAL, CIVIL, MECHANICAL AND ELECTRICAL ENGINE ERING, TRADING IN TEA, COFFEE, SPICES AND EXPORT OF THE SAME ESTATE SUPPLI ES AND TRADING, CLEARING AND SHIPPING, AIR TRAVEL AND AIR CARGO. TH E ASSESSEE-COMPANY HAS ENTERED INTO AN AGREEMENT DATED 8-8-1994 WITH M /S. RPGEL TO ACQUIRE THE NON-EXCLUSIVE LICENCE TO USE 'RPG' LOGO OWNED BY RPGEL FOR THE PURPOSE OF ASSESSEE'S BUSINESS INCLUDING IN REL ATION TO OR UPON ITS PRODUCTS, LABEL, LETTER-HEAD, BROCHURE, PAMPHLETS A ND ADVERTISEMENT MATERIALS, ETC., THE ID. CA REFERRED TO THE COPY OF AGREEMENT WHICH IS PLACED AT PAGES 162 TO 167 OF THE PAPER BOOK. IT IS FURTHER ARGUED THAT THE SAID RPGEL HAS ITS OBJECTIVES, DEVELOPMENT OF C ODE OF CONDUCT AND CREATION OF GOODWILL WHICH COULD BE SUITABLY IDENTI FIED TO THE PUBLIC MIND AND THE LOGO 'RPG' IS HAVING A HIGH GOODWILL IN THE MARKET. IT IS FURTHER SUBMITTED, THAT DUE TO THE USE OF THE LOGO RPGEL PR OVIDES THE INFRASTRUCTURE FOR DEVELOPING CERTAIN CODE OF CONDU CT AND TO OPERATE AND RUN THE ORGANIZATION FOR PROMOTING AND MONITORING S TANDARD INDUSTRIAL, COMMERCIAL AND TRADE PRACTICES IN THE PURSUIT OF AT TAINMENT OF EXCELLENCE IN QUALITY OF THEIR PRODUCTS AND SERVICES. THE COST S OF RENDERING THE GROUP RESOURCES WERE SHARED BY THE LICENSEE COMPANIES AND THAT ENABLES THE LICENSEE COMPANY LIKE THE PRESENT ASSESSEE TO AVAIL THE BENEFITS OF THE GROUP RESOURCES WITHOUT INCURRING THE FULL COST OF SUCH FACILITIES. THE TOTAL ACTUAL EXPENSES OF THE CORPORATE CENTRE ARE SHARED BY LICENSEE COMPANY IN RELATION TO THEIR SIZE AND PROFITABILITY AND THE SAME ARE PAID BY THE COMPANIES LIKE THE ASSESSEE'S WHO ARE THE LICENSEES TO RPGEL AS A LICENSE FEE. AS PER THE AGREEMENT THE LICENSEES UTI LISED THE BENEFITS OF THE EXPERTISE DEVELOPED AS A GROUP RESOURCES BY RPGEL I N THE IMPORTANT FIELD LIKE HRD, STRATEGIC PLANNING, CORPORATE FINAN CE, MANAGEMENT INFORMATION, TAXATION, QUALITY MANAGEMENT, PROJECT DEVELOPMENT, INFORMATION TECHNOLOGY AND CORPORATE GOVERNANCE, ET C. THE SAID RPGEL WITH GROUP RESOURCES ARE HAVING TALENTED AND HIGHLY QUALIFIED EXPERTS IN DIVERSIFIED FIELDS AND ASSESSEE AND OTHER COMPANIES WHO ARE LICENSEES AVAILED, THE EXPERTISE IN THE REQUIRED FIELD FOR TH E EXCELLENCE IN THE CORPORATE MANAGEMENT AS WELL AS PROMOTING BUSINESS STANDARDS. HE FURTHER SUBMITTED THAT IF THE ASSESSEE HAS TO ACQUI RE THIS EXPERTISE, THE 17 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 COST OF INFRASTRUCTURE WILL BE 10 TIMES MORE THAN T HE LICENSE FEE PAID AND CERTAINLY IT IS IN THE NATURE OF BUSINESS EXPEDIENC Y AND THE SAME IS ALLOWABLE. HE FURTHER ARGUED THAT THE CIT(A) HAS NO T DISPUTED THE NATURE OF THE EXPENSES AS CAPITAL OR REVENUE. THE ONLY RES ERVATION OF THE CIT(A) IS THAT IT IS NOT AN ALLOWABLE EXPENDITURE. THE ID. CA RELIED ON THE FOLLOWING PRECEDENTS :- (I) CIT VS. DELHI SAFE DEPOSIT CO. LTD. (1982) 133 ITR 750 (SC) (II) SASOON J. DAVID & CO. LTD. VS. CIT (1979) 118 ITR 2 61 (SC) (III) BOMBAY STEAM NAVIGATION CO. (1953) (P.) LTDD. VS. C IT (1965) 56 ITR 52 (SC) (IV) CIT VS. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 14 0 (SC) 17. 18. 19. 20. THE AUTHORITIES BELOW HAVE NOT DISPUTED THE TER MS OF THE AGREEMENT BUT IT APPEARS FROM THE REASONS GIVEN BY THE CIT(A) THAT THE SAID PAYMENT WAS NOT REQUIRED AT ALL. THE CONCEPT OF BUS INESS IS CHANGING DUE TO GLOBALIZATION. THE MARKET STRATEGIES OF THE CORPORATE ORGANIZATIONS ARE ALSO CHANGING FAST. IF ANY BUSINESS HOUSE IS RE QUIRED TO STAND IN THE MARKET, THEN IT HAS TO IMPROVE THE QUALITY OF THE P RODUCTS AND IMPROVEMENT OF THE QUALITY OF THE PRODUCTS AS WELL AS THE MARKET STRATEGIES WILL DEPEND ON LOT OF SUPPORTING INFRAST RUCTURE. THE CONTENTION OF THE ASSESSEE IS THAT RPGEL IS ONE OF THE LOGO HA VING GOODWILL IN THE MARKET AND USE OF GOODWILL GIVES AN INDICATION TO T HE BUYERS AND CONSUMERS THAT THE ASSESSEE COMPANY IS HAVING THE B ACK UP OF EXCELLENCE WITH CODE OF CONDUCT AND QUALITY. IN THE CHANGING SCENARIO OF GLOBALIZATION, ONE CANNOT GO WITH THE CONSERVATIVE CONCEPT OF THE EARLY FIFTIES. AS FAR AS HRD IS CONCERNED, IT HAS GAINED IMPORTANCE IN THE INDUSTRIAL AND BUSINESS WORLD. WE FIND FORCE IN THE ARGUMENT OF THE ID. CA THAT RPGEL IS HAVING THE INFRASTRUCTURE WHICH IS USED BY THE ASSESSEE-COMPANY FOR THE DEVELOPMENT OF ITS BUSINES S. WHETHER ANY PARTICULAR PAYMENT IS ON ACCOUNT OF BUSINESS EXPEDI ENCY OR NOT IS TO BE CONSIDERED FOR ALLOWING THE SAME UNDER SECTION 37 O F THE ACT. 21. ANOTHER ASPECT TO BE CONSIDERED HERE IS THAT SE CTION 37 PROVIDES THAT ANY EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS BUT IT DOES NOT MEAN THAT THE SAID EXPRESS ION CONTEMPLATES THAT THE SAID EXPENDITURE MUST BE INCURRED NECESSARILY F OR THE PURPOSE OF BUSINESS. 22. IN THE CASE OF SASOON J. DAVID & CO. (P.) LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS HELD THAT THE EXPRESSION 'WHOLLY AND EXCLUSIVELY' USED IN SECTION 10(2)(XV) OF INDIAN INCOME-TAX ACT, 1922 DOES NOT MEAN 18 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 'NECESSARILY'. ORDINARILY IT IS FOR THE ASSESSEE TO DECIDE, WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFIT THEN HE CAN CLAIM THE DEDUCTION EVEN THOUGH THERE WAS NO COMPEL LING NECESSITY TO INCUR SUCH EXPENDITURE (HEAD NOTES). THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT WHILE INTERPRETING SECTION 10 (2)(XV) OF THE 1922 ACT ARE SQUARELY APPLICABLE TO SECTION 37(1) OF 196 1 ACT. IN OUR OPINION, THE PAYMENTS MADE BY THE ASSESSEE TO RPGEL IS AN AL LOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. WE, THE REFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE IN ALL THE ASSESS MENT YEARS BEFORE US AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDI TIONS. 27. IN THE FACTS OF THE CASE BEFORE COCHIN BENCH OF TRIBUNAL, THE REMUNERATION WAS ALSO FIXED AT PRESCRIBED RATE ON T URNOVER AS REFERRED TO IN PARA 16 OF THE DECISION. 28. NEXT ASPECT OF THE ISSUE, WHERE THE PAYMENTS HA VE BEEN MADE TO TACO, ON WHICH TAXES HAVE BEEN PAID BY TACO, DISALL OWANCE MADE IN THE HANDS OF ASSESSEE WOULD RESULT IN DOUBLE TAXATI ON. ADMITTEDLY, THE CONCERN TACO HAS FURNISHED NIL RETURN OF INCOME UND ER NORMAL PROVISIONS, BUT HAS PAID TAXES UNDER SECTION 115JB OF THE ACT. THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO SAUDI SER VICES (TRAVEL) (P.) LTD. (2008) 219 CTR 562 (BOM) HAVE CONSIDERED FACTS OF THAT CASE, WHICH READ AS UNDER:- 3. THE RELEVANT FACTS GIVING RISE TO THE PRESENT APPEALS ARE BRIEFLY SET OUT HEREUNDER:- (I) THE ASSESSEES BUSINESS IS THAT OF BEING GENERAL SA LES AGENTS OF SAUDI ARABIAN AIRLINES. THE ASSESSEE EARNED COMMIS SION @ 12 PER CENT FROM SAUDI ARABIAN AIRLINES ON THE TICKETS BOOKED/SOLD BY THEM. THE ASSESSEE APPOINTED SEVERAL AGENTS INC LUDING THEIR SISTER CONCERN, VIZ., M/S MIDDLE EAST INTERNATIONAL AND PAID INCENTIVE COMMISSION TO SUCH AGENTS, BY WAY OF HAND LING CHARGES. (II) FOR THE ASST. YRS. 1991-92 AND 1992-93 THE AO BY HI S ORDERS DATED 25 TH MARCH, 1994 AND 31ST JAN., 1995 RESPECTIVELY HELD THAT THE INCENTIVE COMMISSION PAID TO M/S MIDDLE EA ST INTERNATIONAL (SISTER CONCERN OF THE ASSESSEE) WAS HALF PER CENT MORE THAN OTHER SUB-AGENTS. THE AO INVOKED SECTION 40A(2) OF THE IT ACT AND DISALLOWED THE EXCESS COMMISSION PAID TO THE ASSESSEE'S SISTER CONCERN @ 1/2 PER CENT. THE CIT(A ) BY ORDERS 19 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 DATED 5TH JAN., 1995 AND 14TH NOV., 1995 CONFIRMED THE DISALLOWANCE FOR ASST. YRS 1991-92 AND 1992-93 RESP ECTIVELY. (III) THE ASSESSEE CARRIED THE MATTER FURTHER BY FILING A N APPEAL BEFORE THE TRIBUNAL. INITIALLY THE TRIBUNAL BY ITS COMMON ORDER DATED 3RD APRIL, 1997 DISMISSED THE ASSESSEE'S APPEALS FOR TH E ASST. YRS. 1991-92 AND 1992-93. THEREAFTER THE ASSESSEE FILED AN APPLICATION UNDER SECTION 254 OF THE IT ACT, 1961 B EFORE THE TRIBUNAL AND TRIBUNAL BY ITS ORDER DATED 3RD MARCH, 1999 ALLOWED THE SAID APPLICATION OF THE ASSESSEE ARISIN G OUT OF THE TRIBUNAL'S ORDER DATED 3RD APRIL, 1997. THEREAFTER THE TRIBUNAL BY ITS ORDER DATED 21 ST OCT., 1999 ALLOWED THE APPEAL OF THE ASSESSEE PARTLY AND DELETED THE ADDITIONS WHICH WER E EARLIER CONFIRMED. (IV) THE APPELLANT (REVENUE) BEING AGGRIEVED BY THE TRIB UNAL'S ORDER DATED 21ST OCT., 1999 FILED THE ABOVE APPEALS, INTE R ALIA CONTENDING THAT THE TRIBUNAL WAS NOT RIGHT IN LAW I N ALLOWING THE ASSESSEE'S CLAIM OF INCENTIVE COMMISSION PAID TO IT S SISTER CONCERN WHICH WAS HALF PER CENT MORE THAN THE OTHER SUB-AGENTS AND WHICH HAS BEEN CORRECTLY DISALLOWED IN TERMS OF SECTION 40A(2)(B) OF THE ACT. 29. THE HONBLE BOMBAY HIGH COURT HELD AS UNDER:- 4. WE HAVE HEARD THE LEARNED ADVOCATES APPEARING FOR BOTH SIDES. WE HAVE ALSO PERUSED THE ORDER PASSED BY THE TRIBUN AL DATED 21ST OCT., 1999 WHICH IS IMPUGNED BY THE REVENUE IN THE PRESENT APPEALS. WE FIND THAT THE FOLLOWING FACTS WERE ESTA BLISHED BEFORE THE TRIBUNAL AND THE SAME HAVE BEEN ACCEPTED BY THE REVENUE EVEN BEFORE US. (I) THAT THE ASSESSEE APART FROM PAYING HANDLING C HARGES @ 9 1/2 PER CENT TO ITS SISTER CONCERN, HAVE PAID HANDLING CHARGES AT THE SAME RATE TO OTHER AGENTS VIZ., M/S A.K.TRAVELS, M/ S OM TRAVELS AND M/S JET AGE TRAVELS. (II) FOR ASST. YRS. 1986-87 AND 1987-88 THE ASSESS EE HAD PAID THE HANDLING CHARGES @ 10 PER CENT TO THE SISTER CONCER N OF THE ASSESSEE AND SUCH CHARGES PAID WERE CONSIDERED TO B E REASONABLE BY THE APPELLANT. (III) FOR ASST.YRS. 1989-90 AND 1990-91 THE ASSESSE E HAD REDUCED THE PAYMENT OF HANDLING CHARGES TO 9 1/2 PER CENT T O ITS SISTER CONCERN. THE AO HAS CONSIDERED THE PAYMENT OF COMMI SSION TO THE SISTER CONCERN IN THE ASST. YR. 1989-90 AND ALL OWED THE CLAIM AFTER DUE SCRUTINY. FOR ASST. YR. 1990-91 ALSO THE CLAIM OF THE 20 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 ASSESSEE @ 9 1/2 PER CENT HAS BEEN ALLOWED THOUGH T HE SAME HAS NOT BEEN DEALT WITH BY THE AO SPECIFICALLY IN T HE ORDER. (IV) FOR ASST.YRS. 1993-94 AND 1994-95 THE ASSESSM ENT HAS BEEN MADE BY THE AO UNDER SECTION 143(3) AND HANDLING CH ARGES PAID TO THE SISTER CONCERN @ 9.5 PER CENT HAVE BEEN CONS IDERED TO BE REASONABLE AND ALLOWED. (IV) THE SISTER CONCERN OF THE ASSESSEE M/S MIDDLE EAST INTERNATIONAL IS ALSO ASSESSED TO TAX AND INCOME ASSESSED FOR THE ASST. YR. 1991-92 IS RS.9,38,510 AND FOR ASST.YR. 1992-93 IS RS.14,65,880 AND THE SAID ASSESSMENT ORDERS HAVE BEEN PLACED ON RECORD. (V) UNDER THE CBDT CIRCULAR NO. 6-P, DATED 6TH JUL Y, 1968 IT IS STATED THAT NO DISALLOWANCE IS TO BE MADE UNDER SEC TION 40A(2) IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND S ISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. 5. IN VIEW OF THE AFORESAID ADMITTED FACTS WE ARE OF THE VIEW THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSIO N THAT THE CIT(A) WAS WRONG IN DISALLOWING HALF PER CENT COMMI SSION PAID TO THE SISTER CONCERN OF THE ASSESSEE DURING THE ASST. YRS.1991-92 AND 1992-93. THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT WAS ALSO NOT IN A POSITION TO POINT OUT HOW THE ASS ESSEE EVADED PAYMENT OF TAX BY ALLEGED PAYMENT OF HIGHER COMMISS ION TO ITS SISTER CONCERN SINCE THE SISTER CONCERN WAS ALSO PA YING TAX AT HIGHER RATE AND COPIES OF THE ASSESSMENT ORDERS OF THE SISTER CONCERN WERE TAKEN ON RECORD BY THE TRIBUNAL. 6. WE, THEREFORE, ANSWER THE ABOVE QUESTION OF LAW RAISED IN THESE APPEALS IN AFFIRMATIVE AND DISMISS THE ABOVE APPEAL S FILED BY THE APPELLANT. THERE WILL, HOWEVER, BE NO ORDER AS TO COSTS. 30. APPLYING THE ABOVE RATIO LAID DOWN BY THE HONB LE BOMBAY HIGH COURT IN CIT VS. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. (SUPRA) TO THE FACTS OF THE PRESENT CASE, WHERE ADMITTEDLY TACO HAD PAID TAXES UNDER SECTION 115JB OF THE ACT, WE REVERSE THE FINDINGS O F CIT(A) THAT THERE WAS EVASION OF TAXES BY THE ASSESSEE IN MAKING SUCH PAY MENT. 31. ANOTHER ASPECT OF THE ISSUE RAISED IS THE OBSER VATIONS OF REVENUE AUTHORITIES THAT NO SERVICES HAVE BEEN RENDERED BY ASSOCIATE ENTERPRISES AND IF ANY SERVICES HAVE BEEN RENDERED, THEY ARE NO T SUFFICIENT TO JUSTIFY THE PAYMENT. THE ASSESSEE BEFORE US HAS FILED COMP ILATION OF PAPERS INCLUDING THE COPIES OF REPORTS, E-MAILS AND OTHER DOCUMENTS EVIDENCING THE RENDERING OF SERVICES FROM DAY TO DAY. ALL THE SE DOCUMENTS WERE NOT CONSIDERED BY THE AUTHORITIES BELOW AND WE FIND NO MERIT IN THE ORDERS OF REVENUE AUTHORITIES IN BRUSHING ASIDE THOSE DOCUMEN TS IN A SUMMARY 21 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 MANNER WITHOUT PROPERLY ANALYZING THE SAME. WE FIN D IN SIMILAR CIRCUMSTANCES, THE MUMBAI BENCH OF TRIBUNAL IN DRES SER-RAND INDIA (P.) LTD. VS. ADDL.CIT (SUPRA) HAD OBSERVED AS UNDER:- 8. WE FIND THAT THE BASIC REASON OF THE TRANSFER P RICING OFFICER'S DETERMINATION OF ALP OF THE SERVICES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NIL' IS HIS PERCEPTION THAT THE ASS ESSEE DID NOT NEED THESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIE NT EXPERTS OF HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAM PLE, THE TRANSFER PRICING OFFICER HAD POINTED OUT THAT THE ASSESSEE H AS QUALIFIED ACCOUNTING STAFF 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 A SSESSEE HAD MANAGEMENT EXPERTS ON ITS ROLLS, AND, THEREFORE, GL OBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, THIS LINE OF REASONING. IT IS ONLY EL EMENTARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIRELY HIS PRER OGATIVE AND IT IS NOT FOR THE REVENUE AUTHORITIES TO DECIDE WHAT IS NECES SARY FOR AN ASSESSEE AND WHAT IS NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUNTANTS AND MANAGEMENT , EXPERTS ON HIS ROLLS, AND YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AU DITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE O FFICERS TO QUESTION ASSESSEE'S WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WAS NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERC IAL 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 NOT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. WE HAVE FURTHE R NOTICED THAT THE TRANSFER PRICING OFFICER HAS MADE SEVERAL OBSERVATI ONS TO THE EFFECT THAT, AS EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMAN CE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RESULTS, FROM TH ESE SERVICES. THIS ANALYSIS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHE THER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN A SSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALL OWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE 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 BENEFITS 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 HAVE PAID FOR THE SAME . SIMILARLY, WHETHER THE AE GAVE THE SAME SERVICES TO THE ASSESSEE IN TH E PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT . THE AE MAY HAVE GIVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE E ARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SERV ICES IS 'NIL'. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERA TIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMINING THE A RM'S LENGTH PRICE OF THE 22 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED THAT THE STAND OF THE REVENUE AUTHO RITIES IN THIS CASE IS THAT NO SERVICES WERE RENDERED BY THE AE AT ALL, AN D THAT SINCE THERE IS NO EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL , THE ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE DISPUTE RESOL UTION PANEL HAS ALSO CONFIRMED THESE FINDINGS OF THE TRANSFER PRICING OF FICER AND THE ASSESSING OFFICER. HOWEVER, WE HAVE NOTED THAT VIDE LETTER DATED 25TH JANUARY 2010 (ACKNOWLEDGED TO HAVE BEEN RECEIVED IN DRP OFFICE ON 28 TH JANUARY 2010), THE ASSESSEE HAS FILED A HUGE COMPIL ATION OF PAPERS, RUNNING INTO ALMOST THREE HUNDRED PAGES, INCLUDING COPIES OF REPORTS, EMAILS AND OTHER DOCUMENTS EVIDENCING THE RENDERING OF SERVICES. YET, THE DRP SIMPLY BRUSHED ASIDE THESE DOCUMENTS BY SIM PLY OBSERVING THAT 'THE DRP HAS PERUSED THE SUBMISSIONS OF THE ASSESSE E AND THE DOCUMENTS. IN VIEW OF THE DRP, SUCH DOCUMENTS DO NO T PROVE THE RECEIPT OF SERVICES BY THE ASSESSEE ASCERTAINED (ASSERTED ? ) TO BE PROVIDED BY ITS AE, AND, ACCORDINGLY, THE ACTION OF THE AO IN TREAT ING THE COST OF SUCH SERVICES AT ZERO IS CONFIRMED'. ALL THESE EVIDENCES WERE BEFORE THE DRP, BUT THERE IS NOT EVEN A WHISPER ABOUT WHAT WAS THE NATURE OF THESE DOCUMENTS, WHY DOES THE DRP FIND THESE DOCUMENTS TO BE NOT SATISFACTORY, WHAT IS THE KIND OF EVIDENCE THAT WAS NECESSARY TO PROVE THE FACTUM OF SERVICES HAVING BEEN AVAILED, AND WHA T PRECISELY IS THE REASON THAT THESE DOCUMENTS CANNOT BE RELIED UPON. THE SOUL OF AN ORDER IS IN ITS REASONING, AND UNLESS THE REASONS FOR COM ING TO A CONCLUSION IN THE ORDER ARE NOT SET OUT, IT IS NOT POSSIBLE TO DO A MEANINGFUL SCRUTINY OF THE ORDER, BUT WE FIND NO REASONING AT ALL IN THE O RDER PASSED BY THE DRP. WE MAY IN THIS REGARD REFER TO THE OBSERVATION S MADE BY HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. MOHA NLAL CAPOOR AIR 1974 SC 87, WHEREIN THEIR LORDSHIPS HAVE, INTER ALI A, OBSERVED AS FOLLOWS: 'IF THE STATUTE REQUIRES RECORDING OF REASONS, THEN IT IS THE STATUTORY REQUIREMENT AND, THEREFORE, THERE IS NO S COPE FOR FURTHER INQUIRY. BUT EVEN WHEN THE STATUTE DOES NOT IMPOSE SUCH AN OBLIGATION IT IS NECESSARY FOR THE QUASI-JUDICIAL A UTHORITIES TO RECORD REASON AS IT IS ONLY VISIBLE SAFEGUARD AGAIN ST POSSIBLE INJUSTICE AND ARBITRARINESS AND AFFORDS PROTECTION TO THE PERSON ADVERSELY AFFECTED. REASONS ARE THE LINKS BETWEEN T HE MATERIAL ON WHICH CERTAIN CONCLUSIONS ARE BASED AND THE ACTU AL CONCLUSIONS. THEY DISCLOSE HOW THE MIND IS APPLIED TO THE SUBJECT- MATTER FOR A DECISION, WHETHER IT IS PURELY ADMINIS TRATIVE OR QUASI JUDICIAL. THEY SHOULD REVEAL RATIONAL NEXUS BETWEEN THE FACTS CONSIDERED AND THE CONCLUSION REACHED. ONLY IN THIS WAY CAN OPINIONS OR DECISIONS RECORDED BE SHOWN TO BE MANIF ESTLY JUST AND REASONABLE. ' 23 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 9. IN OUR CONSIDERED VIEW, IT IS NOT OPEN TO DISPUT E RESOLUTION PANEL TO REJECT THE OBJECTIONS OF THE ASSESSEE IN A SUMMARY MANNER WITHOUT PROPERLY ANALYZING THE OBJECTIONS OF THE ASSESSEE A ND DEALING WITH EVIDENCES FILED BY THE ASSESSEE. UNDER SECTION 144 C (6), THE DISPUTE RESOLUTION PANEL CAN ISSUE DIRECTIONS AFTER, INTER ALIA, CONSIDERING OBJECTIONS OF THE ASSESSEE AND EVIDENCES FILED BY T HE ASSESSEE. THAT EXERCISE IS CLEARLY NOT DONE. IN THE CASE OF VODAFO NE ESSAR LTD. V. DISPUTE RESOLUTION PANEL II [2011] 196 TAXMAN 423 / [20I0] 8 TAXMANN.COM 297, HON'BLE DELHI HIGH COURT HAS OBSERVED THAT, 'WHEN A QUASI JUDICIAL AUTHORITY (LIKE THE DRP) DEALS WITH A LIS, IT IS OB LIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS T HE HEART AND SOUL OF THE MATTER. AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BY THE SUPERIOR FORUM'. YET, MORE OFTEN THAN NOT, THE ORDERS PASSED BY THE DISPUTE RESOLUTION PA NELS, LIKE ONE BEFORE US, ARE NOT ONLY WANTING IN TERMS OF THEIR ANALYSIS OF FACTS AND LAW AND LACKING IN REASONS FOR ARRIVING AT CONCLUSIONS, THE SE ORDERS ALSO OFFER US NO ASSISTANCE IN ANY MANNER AT ALL. IN THIS VIEW OF THE MATTER, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF T HE ASSESSING OFFICER FOR FRESH ADJUDICATION ON THE QUESTION, OF SERVICES HAV ING BEEN ACTUALLY RENDERED, IN THE LIGHT OF EVIDENCES FILED BY THE AS SESSEE. 32. NOW, COMING TO THE CASE OF QUANTUM OF REMUNERAT ION TO BE ALLOWED IN THE HANDS OF ASSESSEE, WHERE THE CIT(A) HAS ALLO WED EXPENDITURE @ 25% OF TOTAL EXPENSES AND NO BASIS HAS BEEN GIVEN B Y THE CIT(A) TO ALLOW THE SAID EXPENDITURE @ 25% OF THE TOTAL. THERE IS NO BASIS FOR MEASURING SUCH SERVICES AND IN THE ABSENCE OF ANY EVIDENCE BR OUGHT ON RECORD TO ESTABLISH THAT THE EXPENDITURE INCURRED BY THE ASSE SSEE WAS EXCESSIVE I.E. MORE THAN MARKET VALUE OF THE SAID SERVICES, W E FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN INVOKING PROVISIONS OF SECTION 40A(2)(A) OF THE ACT . ACCORDINGLY, WE MODIFY THE ORDER OF CIT(A) AND D IRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE IN TOTAL ITY IN THE HANDS OF THE ASSESSEE AS THE SAID EXPENDITURE HAS BEEN LAID DOWN IN TERMS OF THE AGREEMENT AGREED UPON BETWEEN THE PARTIES AND IS FO R CARRYING ON OF THE BUSINESS OF THE ASSESSEE MORE EFFICIENTLY AND IS AL LOWABLE AS BUSINESS EXPENDITURE. THE GROUNDS OF APPEAL NO.2 AND 3 RAIS ED BY THE ASSESSEE ARE ALLOWED AND GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS DISMISSED. THE CO-ORDINATE BENCH OF THE TRIBUNAL UPHELD THE COMMERC IAL EXIGENCY AS WELL AS REASONABLENESS OF THE ADMINISTRATIVE SE RVICE 24 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 CHARGES PAID BY THE ASSESSEE THEREIN TO TACO. THE TRIB UNAL ALLOWED THE EXPENDITURE IN TOTALITY IN THE HANDS OF THE ASSESSEE. 11. SUBSEQUENTLY, IN THE CASE OF TATA TOYO RADIATOR PVT. LTD. VS. THE DY. COMMISSIONER OF INCOME TAX (SUPRA), IDENTICAL ISSUE WAS RAISED AND THE GROUNDS ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE WERE ALSO SIMILAR. THE CO-ORDINATE BE NCH BY FOLLOWING THE ORDER RENDERED IN THE CASE OF TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. THE DY. COMMISSIONER OF INCOME TAX (SUPRA) ACCEPTED THE GROUNDS RAISED BY THE ASSESSEE IN SAID APPEAL. IN THE PRESENT SET OF APPEALS AS WELL THE ISSUE IS IDENTICAL. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF CO- ORDINATE BENCH OF THE TRIBUNAL AND HAS NOT PLACED ON RECORD ANY JUDGMENT TO THE CONTRARY. THE LD. DR HAS NOT BEEN ABLE TO POINT ANY DIFFER ENCE IN THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE. NO DISTINCT ION HAS BEEN BROUGHT TO OUR NOTICE WITH RESPECT TO THE TERMS AND CONDITIONS OF THE ADMINISTRATIVE SUPPORT AGREEMENT. THE FACT THAT BOTH TH E COMPANIES HAVE SAME INCIDENCE OF TAX HAS ALSO NOT BEEN REBUTTED. FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. THE DY. COMMISSION ER OF INCOME TAX (SUPRA), WE ALLOW GROUND NOS. 1 AND 2 IN THE A PPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08. 12. SINCE, IDENTICAL GROUNDS HAVE BEEN RAISED BY THE ASSES SEE ASSAILING DISALLOWANCE OF ADMINISTRATIVE SERVICES CHARGES PAID TO TACO IN THE APPEALS FOR ASSESSMENT YEARS 2008-09 TO 2011-12 , THE FINDINGS GIVEN BY US IN APPEAL FOR ASSESSMENT YEAR 2007-08 WOULD MUTATIS MUTANDIS APPLY TO THE GROUNDS RAISED BY THE ASSESSEE IN THE 25 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 SUBSEQUENT ASSESSMENT YEARS UNDER APPEAL. ACCORDINGL Y, THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE IN THE RESPECTIVE A PPEALS ARE ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM O F ASSESSEE WITH RESPECT TO PAYMENT OF ADMINISTRATIVE SERVICE CHARGES IN FULL. 13. GROUNDS NO. 3 AND 4 IN APPEAL FOR ASSESSMENT YEAR 20 07-08 RELATE TO DISALLOWANCE OF TRANSPORTATION AND STAFF WELFARE EX PENSES. SIMILAR DISALLOWANCE HAS BEEN MADE BY THE DEPARTMENT IN AS SESSMENT YEARS 2008-09 AND 2009-10. THE EXTENT OF DISALLOWANCE O F TRANSPORTATION AND STAFF WELFARE EXPENSES IN THE IMPUGNED ASSESSMENT YEARS IS AS UNDER : ASSESSMENT YEAR AMOUNT 2007 - 08 ` 3,59,883/ - 2008 - 09 ` 15,47,864/ - 2009 - 10 ` 8,75,000/ - 14. THE ASSESSEE IN ITS RETURN OF INCOME HAS CLAIMED EXPEN DITURE UNDER THE HEAD TRANSPORT AND OTHER WELFARE EXPENSES . THE ASSESSING OFFICER IN HIS ORDER FOR ASSESSMENT YEAR 2007-08 HAS OBSE RVED THAT THE ASSESSEE WAS ASKED TO PRODUCE VOUCHERS IN RESPECT OF THE EXPENDITURE CLAIMED TO PROVE THE GENUINENESS OF THE EXPENDITURE. HOW EVER, THE ASSESSEE WAS UNABLE TO PRODUCE THE SUPPORTING DOCUMEN TS. THE ASSESSING OFFICER DISALLOWED 20% OF THE TOTAL EXPENDITURE CLAI MED IN THE ASSESSMENT YEAR 2007-08 AND ON THE SAME PREMISE THE ASSESSING OFFICER DISALLOWED 10% OF THE TOTAL EXPENDITURE CLAIMED UNDER THE HEAD TRANSPORT AND OTHER WELFARE EXPENSES IN ASSESSMENT Y EARS 2008-09 AND 2009-10. THE CONTENTION OF THE LD. AR IS THAT THE AS SESSEE COULD NOT PRODUCE ONLY TWO VOUCHERS IN THE ASSESSMENT YEAR 2007-08. THE ASSESSING OFFICER IN AN ARBITRARY MANNER MADE DISALLOWANCE O F 20%. IN ASSESSMENT YEARS 2008-09 AND 2009-10 THE ASSESSING O FFICER HAS NOT 26 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 POINTED ANY DEFECT, YET AD HOC DISALLOWANCE OF 10% OF THE E XPENDITURE WAS MADE BY THE ASSESSING OFFICER. IN THE SUBSEQUENT AS SESSMENT YEARS NO DISALLOWANCE HAS BEEN MADE IN RESPECT OF SUCH EXPENDITURE. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS REDUCED THE DISALLOWANCE FROM 20% TO 10% IN ASSESSMENT YEAR 2007 -08 AND HAS UPHELD THE DISALLOWANCE OF 10% IN ASSESSMENT YEARS 20 08-09 AND 2009-10. WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS A RE VISIT TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EX AMINE THE DOCUMENTS FURNISHED BY THE ASSESSEE AND SHALL MAKE DISALLO WANCE ONLY TO THE EXTENT OF VOUCHERS NOT PRODUCED BY THE ASSES SEE IN RESPECT OF EXPENDITURE CLAIMED. IF THE ASSESSEE IS ABLE TO PRODUCE T HE RELEVANT DOCUMENTARY EVIDENCE, NO DISALLOWANCE IS TO BE MADE UNDER THIS HEAD. ACCORDINGLY, GROUND NOS. 3 AND 4 RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2007-08 IS ALLOWED FOR STATISTICAL PURPOSE. 15. SIMILAR GROUNDS HAVE BEEN RAISED IN ASSESSMENT YEARS 2008-09 AND 2009-10 WITH RESPECT TO DISALLOWANCE TRANSPORTATION AND STAFF WELFARE EXPENSES. OUR ABOVE FINDINGS IN RESPECT OF GROUND NOS. 3 AND 4 ON THE ISSUE WOULD MUTATIS MUTANDIS APPLY TO THE GROUNDS RAISED ON IDENTICAL ISSUE IN ASSESSMENT YEARS 2008-09 AND 2009-10. ACCORDINGLY, THE SAID GROUNDS IN THE APPEALS FOR ASSESSME NT YEARS 2008-09 AND 2009-10 ARE ALLOWED FOR STATISTICAL PURPOSE. ITA NOS. 269 TO 273/PN/2015 (REVENUES APPEALS) 16. THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER O F INCOME TAX (APPEALS) IN ALLOWING 25% OF THE ADMINISTRATIVE SER VICE CHARGES TO THE ASSESSEE. SINCE, IN THE APPEAL OF THE ASS ESSEE WE HAVE 27 ITA NOS. 254 TO 258 & 269 TO 273/PN/2015 ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND ALLOWED T HE ENTIRE AMOUNT CLAIMED IN RESPECT OF ADMINISTRATIVE SERVICE CHARGES, THE S OLITARY GROUND RAISED BY THE DEPARTMENT IN ITS APPEALS FOR ALL THE FIVE ASS ESSMENT YEARS I.E. ASSESSMENT YEARS 2007-08 TO 2011-12 ARE LIABLE TO BE DISMISSED. 17. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR ASSES SMENT YEARS 2007-08 TO 2009-10 ARE PARTLY ALLOWED, THE APPEALS OF TH E ASSESSEE FOR ASSESSMENT YEARS 2010-11 AND 2011-12 ARE ALLOWED AND THE APPEALS OF THE REVENUE FOR ASSESSMENT YEARS 2007-08 TO 2011-12 ARE DISMIS SED. ORDER PRONOUNCED ON FRIDAY, THE 23 RD DAY OF DECEMBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 23 RD DECEMBER, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-5, PUNE 4. PR. CIT-4, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE