M/s adcock Ingram Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-1(1)(1), Bangalore

ITA 2728/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1085 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-09-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 15-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRISCILLA SINGSIT
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Commercial expediency
• Section: 143(3); 92B; 10B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE S HRI JASON P BOAZ , ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER I.T . (T.P) A. NO. 2728 /BANG/20 17 (ASSESSMENT YEAR : 20 13 - 14 ) M/S. ADCOCK INGRAM LIMITED, NO.49C & D, BOMMAS ANDRA INDL. AREA, ANEKAL TALUK, BANGALORE - 560 099 . . APPELLANT. PAN AAGCA 4343M VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI BHARATH L, C.A. R E SPONDENT BY : SMT. PRISCILLA SINGSIT, CIT (D.R) DATE OF H EARING : 06.09.2018 DATE OF P RONOUNCEMENT : 14 .09 .201 8 . O R D E R PER SHRI JASON P BOAZ , A .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - I , BANGALORE DT.31.7.2017 FOR THE ASSESSMENT YEAR 20 13 - 14. 2 IT (TP) A NO. 2728 /BANG/20 17 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UNDER : - 2.1 THE ASSESSEE COMPANY IS A J.V ESTABLISHED ON 5.2.2007 BETWEEN ADCOCK INGRAM HOLDING (PROPRIETARY) LTD., SOUTH AFRICA (ALHPL) AND MEDREICH S.A IN INDIA WITH SHAREHOLDING OF 49.9% AND 50% R ESPECTIVELY. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF PHARMACEUTICAL FORMULATIONS FOR ADCOCK INGRAM HEALTH CARE (PTY) LTD., SOUTH AFRICA AND PROVIDING OUTSOURCED FORMULATION MANUFACTURING SERVICES TO DOMESTIC PHARMACEUTICAL COMPANIES. IN THIS REGARD, TH E ASSESSEE WAS TO PAY AIHPL LICENSE FEE @ 8% ON NET SALES AND MANAGEMENT FEE @ 3% OF NET SALES. FOR ASSESSMENT YEAR 2013 - 14, THE ASSESSEE FILED ITS RETURN OF INCOME ON 18.11.2013 DECLARING INCOME OF RS.43,62,66,300. THE CASE WAS TAKEN UP FOR SCRUTINY AND ON THE BASIS OF INTERNATIONAL TRANSACTIONS REPORTEDLY ENTERED INTO, THE ASSESSING OFFICER MADE A REFERENCE UNDER SECTION 92CA OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') TO THE TRANSFER PRICING OFFICER ( TPO ) FOR DETERMINATION OF THE ARM S LENGTH PRICE ( ALP ) THEREOF. THE TPO PASSED AN ORDER UNDER SECTION 92CA OF THE ACT ON 28.10.2016 PROPOSING AN ADJUSTMENT OF RS.10,52,95,928; COMPRISING OF RS.5,05,29,393 TOWARDS LICENSE FEE FOR USE OF KNOW HOW AND 3 IT (TP) A NO. 2728 /BANG/20 17 RS.5,47,66,535 IN RESPECT OF MANAGEMENT FEES. THE ASSESSING OFFICER ACCORDINGLY COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C OF THE ACT VIDE ORDER DT.5.1.2017 WHEREIN THE ASSESSEE'S INCOME WAS DETERMINED AT RS.56,73,98,890 IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES : - (I) (I) TR ANSFER PRICING ADJUSTMENT (LICENSE FEES / MANAGEMENT FEES) RS10,52,95,928. (II) PROVISION FOR DOUBTFUL ADVANCES RS.42,80,810 (III) LOSS ON SALE OF ASSET RS.4,42,017 (IV) REIMBURSEMENT OF EXPENSES WITHOUT TDS RS.13,47,737 (V) DISALLOWANCE OF PAYMENT TO H.K. TECHNOLOGIES LTD. RS.1,97,66,101 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DT.5.1.2017, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (APPEALS) 1, BANGALORE. THE LEARNED CIT (APPEALS) DISPOSED THE ASSESSEE'S APPEAL VIDE THE IMPUGNED ORDER DT .31.7.2017. 3. THE ASSESSEE, BEING AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) 1, BANGALORE DT.31.7.2017 FOR ASSESSMENT YEAR 2013 - 14, HAS PREFERRED THIS APPEAL, WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS : - 4 IT (TP) A NO. 2728 /BANG/20 17 5 IT (TP) A NO. 2728 /BANG/20 17 4. GROUND NO.1 BEING GENER AL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 6 IT (TP) A NO. 2728 /BANG/20 17 5. GROUND NO.2. 5.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE ORDERS OF THE TPO/CIT (APPEALS) IN CONCLUDING THAT LICENSE FEES AND MANAGEMENT FEES TRANSACTIONS ARE A SEPARATE CLASS OF TRANSACTIO NS AND ARE NOT CLOSELY LINKED WITH THE TRANSACTION RELATING TO MANUFACTURE AND EXPORT OF DRUG FORMULATIONS TO ADCOCK INGRAM HEALTH CARE (PTY) LTD., SOUTH AFRICA ( AIHPL ). 5.2.1 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE WAS HEARD IN SUPPO RT OF THE GROUNDS RAISED. AT THE OUTSET, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ONLY ISSUE FOR CONSIDERATION AND ADJUDICATION IN THIS APPEAL WAS WHETHER OR NOT LICENSE FEE AND MANAGEMENT FEES ARE TO BE HELD TO BE CLOSELY LINKED TO THE IN TERNATIONAL TRANSACTIONS OF SALE OF PHARMACEUTICAL FORMULATIONS TO AIHPL SOUTH AFRICA. AT THE OUTSET THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ISSUE FOR CONSIDERATION BEFORE US IS COVERED BY THE DECISION OF A CO - ORDINATE BENCH OF THIS TR IBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 IN IT(TP)A NOS.1039 & 1078/BANG/2015 DT.31.1.2018 AND THAT ONCE GROUND 7 IT (TP) A NO. 2728 /BANG/20 17 NO.2 (SUPRA) IS ADJUDICATED, GROUNDS 3 TO 6 (SUPRA) WOULD BECOME ACADEMIC IN NATURE. 5.2.2 THE LEARNED A UTHORISED REPRESENTATIVE SUBMITTED THAT THE TRANSACTIONS OF PAYMENT OF LICENSE FEES AND MANAGEMENT FEES WERE INTER - LINKED WITH THE PRIMARY ACTIVITY OF THE ASSESSEE AND CANNOT BY SEPARATELY BENCH MARKED, BUT ARE TO BE AGGREGATED. THE LEARNED AUTHORISED REP RESENTATIVE PRAYED THAT THE MATTER BE DECIDED ON THE BASIS OF THE DECISION OF THE CO - ORDINATE BENCH IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2009 - 10 & 2010 - 11 (SUPRA). 5.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW. 5.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL PRONOUNCEMENT CITED. THE ISSUE FOR CONSIDERATION BEFORE US IS WHETHER OR NOT THE LICENSE FEES AND MANAGEMENT FEES PAID BY THE ASSESSEE WERE INTER - LINKED, INTER - RELATED OR INTER - CONNECTED WITH THE PRIMARY ACTIVITY OF THE ASSESSEE . WE ALSO OBSERVE THAT THE FACTS AND CIRCUMSTANCES IN THE CURRENT YEAR ARE IDENTICAL TO THE EARLIER ASSESSMENT YEAR 2012 - 13, WHICH 8 IT (TP) A NO. 2728 /BANG/20 17 HAS BEEN REITERATED BY THE LEARNED CIT (APPEALS) AT PAGE 10 OF HIS ORDER AND THE TRANSACTIONS WERE TO BE AGGREGATED. WE ALSO OBSERVE THAT THE LEARNED CIT (APPEALS) FINDINGS ARE IDENTICAL TO EARLIER ASSESSMENT YEAR 2012 - 13 WHICH HAS BEEN REITERATED AT PAGE 10 OF HIS ORDER. WE FIND THAT A CO - ORDINATE BENCH OF THIS TRIBUNAL HAS CONSIDERED THE VERY SAME / IDENTICAL ISSUE IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 AND IN ITS ORDER IN IT(TP)A NO.1039 & 1078/BANG/2015 DT.31.1.2018 HAS RE MAN DED TH IS ISSUE TO THE FILE OF THE LEARNED CIT (APPEALS) FOR EXAMINING THE CORRECTNESS OF THE ARM S LENGTH PRICE (ALP) AT THE ENTITY LEVEL BY APPLYING TNMM AS THE MOST APPROPRIATE METHOD (MAM) BY AGGREGATING THE TRANS A CTIONS. IN ITS ORDER DT.31.1.2018 FOR ASSES SMENT YEAR 2009 - 10 & 2010 - 11 IN THE ASSESSEE'S OWN CA S E (SUPRA), THE CO - ORDINATE BENCH HAS HELD AS UNDER IN PARAS 16 TO 23 AS UNDER : - 16. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RECORDS AS ALSO THE CASE LAWS CITED BY BOTH THE PARTIES. FROM A READING OF THE EFFECTIVE GROUNDS RAISED BY THE REVENUE, IT IS CLEAR THAT THE FINDING OF FACT RECORDED BY THE CIT (A) IN PARAS 15 AND 16 (REPRODUCED ABOVE) HAVE NOT BEEN REFUTED BY THE REVENUE BY WAY OF CHALLENGING THAT THE MANAGEMENT FEES AND LICENCE FEES PAID BY THE ASSESSEE WERE NOT INTER LINKED, INTERRELATED OR INTER CONNECTED WITH THE PRIMARY ACTIVITY OF THE ASSESSEE I.E THE APPROACH OF ASSESSEE AS WELL AS CIT(A) IN AGGREGATING THE TRANSACTIONS WERE WRONG . IN OUR VIEW, AGGREGATION OF TRANSACTION IS P ERMISSIBLE UNDER INCOME TAX ACT AND RULES FRAMED 9 IT (TP) A NO. 2728 /BANG/20 17 THERE UNDER . IN THIS REGARD, WE MAY CONVENIENTLY RELY UPON THE RECENT JUDGMENT OF HON BLE DELHI HIGH COURT IN SONY ERICSSON MOBILE COMMUNICATION INDIA (P.) LTD. V. CIT [2015] 374 ITR 118/231 TAXMAN 113/55 TAXMANN.COM 240 WHEREIN IT WAS HELD THAT AGGREGATION OF SUCH TRANSACTION IS PERMISSIBLE AND RELIED UPON THE OECD COMMENTARY IN THIS REGARD. 80 . THE USE OF EXPRESSION 'CLASS OF T RANSACTION', 'FUNCTIONS PERFORMED BY THE PARTIES' IN SECTION 92C(1) ILLUSTRATES TO THE CONTRARY, THAT THE WORD 'TRANSACTION' CAN NEVER INCLUDE AND WOULD EXCLUDE BUNDLE OR GROUP OF CONNECTED TRANSACTIONS. MORE IMPORTANT WOULD BE REFERENCE TO MEANING OF THE TERM 'TRANSACTION' IN SECTION 92F, CLAUSE (V), WHICH AS PER THE SAID DEFINITION INCLUDES AN ARRANGEMENT OR UNDERSTANDING OR ACTION IN CONCERT WHETHER OR NOT THE SAME IS FORMAL OR IN WRITING, WHETHER OR NOT IT IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDI NGS. RULE 10A IN CLAUSE (D) STATES THAT 'FOR THE PURPOSE OF THIS RULE AND RULES 10AB AND 10E', THE TERM 'TRANSACTION' WOULD 'INCLUDE A NUMBER OF CLOSELY LINKED TRANSACTIONS'. THIS RULE IN POSITIVE TERMS DECLARES THAT THE LEGISLATIVE INTENT IS NOT TO DEVIAT E FROM THE GENERIC RULE THAT SINGULAR INCLUDES PLURAL. THE MEANING OR DEFINITION OF THE EXPRESSION 'TRANSACTION' IN CLAUSE (D) TO RULE 10A READ WITH SUB - SECTION (1) TO SECTION 92C, THEREFORE, DOES NOT BAR OR PROHIBIT CLUBBING OF CLOSELY CONNECTED OR INTERT WINED OR CONTINUOUS TRANSACTIONS. THIS IS DISCERNIBLE ALSO FROM SUB - RULE (2) TO RULE 10B QUOTED ABOVE. THE SUB - RULE REFERS TO 'SERVICES PROVIDED', 'FUNCTIONS PERFORMED', 'CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSAC TIONS' WHICH LAY DOWN EXPLICITLY OR IMPLIEDLY THE RESPONSIBILITIES, RISKS AND BENEFITS TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS. USE OF PLURALITY BY WAY OF NECESSITY AND LEGISLATIVE MANDATE IS EVIDENT IN THE SAID RULE. 81 . SIMILARLY , SUB - RULE (3) TO RULE 10B REFERS TO TRANSACTIONS BEING COMPARED OR COMPARISON OF THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS LIKELY TO AFFECT THE PRICE OR COST CHARGED ETC. A READING OF RULE 10C REASSURES AND AFFIRMS THAT THE GENERAL PRINCIPLE OF PLUR ALITY IS NOT ABANDONED OR DISCARDED. AND COORDINATE BENCH DECISION IN THE MATTER OF GULBRANDSEN CHEMICALS (P.) LTD. V. DEPUTY COMMISSIONER OF INCOME - TAX * [2017] 79 TAXMANN.COM 105 (AHMEDABAD - TRIB.) HAD HELD AS UNDER 8 . WE FIND THAT, IN THE CASE OF KNORR - BREMSE INDIA (P.) LTD. V. ASSTT. CIT [2016] 380 ITR 307/236 TAXMAN 318/[2015] 63 TAXMANN.COM 186 (PUNJ. & HAR.) , HON'BLE PUNJAB & HARYANA HIGH COURT HAS OBSERVED THAT 'THE DOUBT, IF ANY, IN THIS REGARD IS SET AT REST BY RULE 10A( D ), WHICH PROVIDES THAT FOR THE PURPOSE OF RULE 10A AND RULES 10 B TO 10E, 'TRANSACTION' INCLUDES A NUMBER OF CLOSELY RELATED TRANSACTION S' AND THAT 'THUS, THE CLOSELY LINKED TRANSACTIONS CAN, IN A GIVEN SITUATION, BE COMPONENTS OF SINGLE COMPOSITE TRANSACTION'. THEIR LORDSHIPS HAVE THEN ADDED THAT 'THE ASSESSEE WOULD, HOWEVER, HAVE TO PROVE THAT ALTHOUGH EACH SALE AND EACH 10 IT (TP) A NO. 2728 /BANG/20 17 PROVISION OF SER VICE IS PRICED SEPARATELY, THEY WERE ALL PROVIDED UNDER ONE COMPOSITE AGREEMENT WHICH CONSTITUTES ONE INTERNATIONAL TRANSACTION'. SIMILARLY, IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. V. CIT [2015] 374 ITR 118/231 TAXMAN 113/55 TAXMANN.COM 240 (DELHI) , HON'BLE DELHI HIGH COURT HAS OBSERVED THAT, 'THERE IS CONSIDERABLE TAX LITERATURE AND TEXT THAT CUP METHOD, I.E. COMPARABLE UNCONTROLLED PRICE METHOD, RP MET HOD, I.E. RESALE PRICE METHOD, AND CP METHOD (I.E. COST PLUS METHOD) CAN BE APPLIED TO A TRANSACTION OR A CLOSELY LINKED OR CONTINUOUS TRANSACTIONS'. THEIR LORDSHIPS HAVE, IN THIS BACKDROP, PUT IN A WORD OF CAUTION THAT 'THUS, IT WOULD BE INAPPROPRIATE TO PROCEED WITH THE ARM'S LENGTH PRICE COMPUTATION METHODS WITH A PRECONCEIVED NOTION OF SINGULARITY AS A STATUTORY MANDATE' AND THAT 'CLUBBING OF CLOSELY LINKED, WHICH COULD INCLUDE CONTINUOUS TRANSACTIONS, MAY BE PERMISSIBLE AND NOT OSTRACISED'. CLEARLY, TH EREFORE, IN CERTAIN SITUATIONS, SUCH AGGREGATION OF TRANSACTIONS IS PERMISSIBLE FOR BENCHMARKING EVEN WHEN THE PRICES AT WHICH TRANSACTIONS ARE ENTERED INTO ARE DIFFERENT. IN PRINCIPLE THUS AGGREGATION OF TRANSACTIONS CAN BE DONE AND IS PERMISSIBLE .. AND COORDINATE BENCH DECISION IN THE MATTER OF CUMMINS INDIA LTD. [2015] 53 TAXMANN.COM 53 (PUNE - TRIB.) WHEREIN IT WAS HELD AS UNDER 24 . THE FIRST ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER IN VIEW OF THE OECD GUIDELINES AND THE INDIAN TRANS FER PRICING PROVISIONS, AGGREGATION OF TRANSACTIONS COULD BE MADE OR NOT. WE FIND THAT PUNE BENCH OF THE TRIBUNAL IN DEMAG CRANES & COMPONENTS (INDIA) (P.) LTD. ( SUPRA ) HAD ELABORATELY CONSIDERED THE OECD GUIDELINES UNDER CHAPTER III AND ALSO THE GUIDANC E NOTES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON TRANSFER PRICING IN PARA 13.7 AND HAD HELD AS UNDER: '30. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. SECTION 92B OF THE ACT PROVIDES THE MEANING OF EXPRESSION 'INTERNATIONAL TRA NSACTION' AS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES. RULE 10A(D) OF THE RULES EXPLAINS THE MEANING OF THE EXPRESSION 'TRANSACTION' FOR THE PURPOSES OF COMPUTATION OF ALP AS TO INCLUDE A NUMBER OF CLOSELY LINKED TRANSACTIONS. RULE 10B OF T HE RULES PRESCRIBES THE MANNER IN WHICH THE ALP IN RELATION TO AN INTERNATIONAL TRANSACTION IS TO BE DETERMINED BY FOLLOWING ANY OF THE METHODS PRESCRIBED. SHORN OF OTHER DETAILS, IT WOULD SUFFICE TO OBSERVE THAT ON A COMBINED READING OF RULE 10A(D) AND 10 B OF THE RULES, A NUMBER OF TRANSACTIONS CAN BE AGGREGATED AND CONSTRUED AS A SINGLE 'TRANSACTION' FOR THE PURPOSES OF DETERMINING THE ALP, PROVIDED OF COURSE THAT SUCH TRANSACTIONS ARE 'CLOSELY LINKED'. OSTENSIBLY THE RATIONALE OF AGGREGATING 'CLOSELY LIN KED' TRANSACTIONS TO FACILITATE DETERMINATION OF ALP ENVISAGED A SITUATION WHERE IT WOULD BE INAPPROPRIATE TO ANALYSE THE 11 IT (TP) A NO. 2728 /BANG/20 17 TRANSACTIONS INDIVIDUALLY. THE PROPOSITION THAT A NUMBER OF INDIVIDUAL TRANSACTIONS CAN BE AGGREGATED AND CONSTRUED AS A COMPOSITE TRA NSACTION IN ORDER TO COMPUTE ALP ALSO FINDS AN ECHO IN THE OECD GUIDELINES UNDER CHAPTER III WHEREIN THE FOLLOWING EXTRACT IS RELEVANT: - 'IDEALLY, IN ORDER TO ARRIVE AT THE MOST PRECISE APPROXIMATION OF ARM'S LENGTH CONDITIONS, THE ARM'S LENGTH PRINCIPLE S HOULD BE APPLIED ON A TRANSACTION - BY - TRANSACTION BASIS. HOWEVER, THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTIONS ARE SO CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. EXAMPLES MAY INCLUDE 1. SOME LONG TERM CONTRACTS FOR THE SUPPLY OF COMMODITIES OR SERVICES; 2. RIGHTS TO USE INTANGIBLE PROPERTY; AND 3. PRICING A RANGE OF CLOSELY LINKED PRODUCTS (E.G. IN A PRODUCT LINE) WHEN IT IS IMPRACTICAL TO DETERMINE PRICING FOR EACH INDIVIDUAL PRODUCT OR TRANSACTION. A NOTHER EXAMPLE WOULD BE THE LICENSING OF MANUFACTURING KNOW - HOW AND THE SUPPLY OF VITAL COMPONENTS TO AN ASSOCIATED MANUFACTURER; IT MAY BE MORE REASONABLE TO ACCESS THE ARM'S LENGTH TERMS FOR THE TWO ITEMS TOGETHER RATHER THAN INDIVIDUALLY. SUCH TRANSACTI ONS SHOULD BE EVALUATED TOGETHER USING THE MOST APPROPRIATE ARM'S LENGTH METHOD. A FURTHER EXAMPLE WOULD BE THE ROUTING OF A TRANSACTION THROUGH ANOTHER ASSOCIATED ENTERPRISE; IT MAY BE MORE APPROPRIATE TO CONSIDER THE TRANSACTION OF WHICH THE ROUTING IS A PART IN ITS ENTIRETY, RATHER THAN CONSIDER THE INDIVIDUAL TRANSACTIONS ON A SEPARATE BASIS.' 31. IN THIS BACKGROUND, CONSIDERING THE LEGISLATIVE INTENT MANIFESTED BY WAY OF RULE 10A(D) READ WITH RULE 10B OF THE RULES, IT CLEARLY EMERGES THAT IN APPROPRIAT E CIRCUMSTANCES WHERE CLOSELY LINKED TRANSACTIONS EXIST, THE SAME SHOULD BE TREATED AS ONE COMPOSITE TRANSACTION AND A COMMON TRANSFER PRICING ANALYSIS BE PERFORMED FOR SUCH TRANSACTIONS BY ADOPTING THE MOST APPROPRIATE METHOD. IN OTHER WORDS, IN A GIVEN C ASE WHERE A NUMBER OF CLOSELY LINKED TRANSACTIONS ARE SOUGHT TO BE AGGREGATED FOR THE PURPOSES OF BENCH MARKING WITH COMPARABLE UNCONTROLLED TRANSACTIONS, SUCH AN APPROACH CAN BE SAID TO BE WELL ESTABLISHED IN THE TRANSFER PRICING REGULATION HAVING REGARD TO RULE 10A(D) OF THE RULES. THOUGH IT IS NOT FEASIBLE TO DEFINE THE PARAMETERS IN A WATER TIGHT COMPARTMENT AS TO WHAT TRANSACTIONS CAN BE CONSIDERED AS 'CLOSELY LINKED', SINCE THE SAME WOULD DEPEND ON FACTS AND CIRCUMSTANCES OF EACH CASE. SO HOWEVER, AS PER AN EXAMPLE NOTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IN SHORT THE 'ICAI') IN ITS GUIDANCE NOTES ON TRANSFER PRICING IN PARA 13.7, IT IS STATED THAT TWO OR MORE TRANSACTIONS CAN BE SAID TO BE 'CLOSELY LINKED', IF THEY EMANATE FROM A COMM ON SOURCE, BEING AN ORDER OR CONTRACT OR AN AGREEMENT OR AN ARRANGEMENT, AND THE NATURE, CHARACTERISTIC AND TERMS OF SUCH TRANSACTIONS SUBSTANTIALLY FLOW FROM THE SAID COMMON SOURCE. THE FOLLOWING EXTRACT FROM THE SAID GUIDANCE NOTES IS WORTHY OF NOTICE: - 12 IT (TP) A NO. 2728 /BANG/20 17 '13.7 THE FACTORS REFERRED TO ABOVE ARE TO BE APPLIED CUMULATIVELY IN SELECTING THE MOST APPROPRIATE METHOD. THE REFERENCE THEREIN TO THE TERMS 'BEST SUITED' AND 'MOST RELIABLE MEASURE' INDICATES THAT THE MOST APPROPRIATE METHOD WILL HAVE TO BE SELECTED AF TER A METICULOUS APPRAISAL OF THE FACTS AND CIRCUMSTANCES OF THE INTERNATIONAL TRANSACTION. FURTHER, THE SELECTION OF THE MOST APPROPRIATE METHOD SHALL BE FOR EACH PARTICULAR INTERNATIONAL TRANSACTION. THE TERM 'TRANSACTION' ITSELF IS DEFINED IN RULE 10A(D ) TO INCLUDE A NUMBER OF CLOSELY LINKED TRANSACTIONS. THEREFORE, THOUGH THE REFERENCE IS TO APPLY THE MOST APPROPRIATE METHOD TO EACH PARTICULAR TRANSACTION, KEEPING IN VIEW, THE DEFINITION OF THE TERM 'TRANSACTION', THE MOST APPROPRIATE METHOD MAY BE CHOS EN FOR A GROUP OF CLOSELY LINKED TRANSACTIONS TWO OR MORE TRANSACTIONS CAN BE SAID TO BE LINKED WHEN THESE TRANSACTIONS EMANATE FROM A COMMON SOURCE BEING AN ORDER OR A CONTRACT OR AN AGREEMENT OR AN ARRANGEMENT AND THE NATURE, CHARACTERISTICS AND TERMS OF THESE TRANSACTIONS ARE SUBSTANTIALLY FLOWING FROM THE SAID COMMON SOURCE. FOR EXAMPLE, A MASTER PURCHASE ORDER IS ISSUED STATING THE VARIOUS TERMS AND CONDITIONS AND SUBSEQUENTLY INDIVIDUALS ORDERS ARE RELEASED FOR SPECIFIC QUANTITIES. THE VARIOUS PURCHAS E TRANSACTIONS ARE CLOSELY LINKED TRANSACTIONS . 13.8 IT MAY BE NOTED THAT IN ORDER TO BE CLOSELY LINKED TRANSACTIONS, IT IS NOT NECESSARY THAT THE TRANSACTIONS NEED BE IDENTICAL OR EVEN SIMILAR . FOR EXAMPLE, A COLLABORATION AGREEMENT MAY PROVIDE FOR IMPORT OF RAW MATERIALS, SALE OF FINISHED GOODS, PROVISION OF TECHNICAL SERVICES AND PAYMENT OF ROYALTY. DIFFERENT METHODS MAY BE CHOSEN AS THE MOST APPROPRIATE METHODS FOR EACH OF THE ABOVE TRANSACTIONS WHEN CONSIDERED ON A STANDALONE BASIS. HOWEVER, UNDER PART ICULAR CIRCUMSTANCES, ONE SINGLE METHOD MAYBE CHOSEN AS THE MOST APPROPRIATE METHOD COVERING ALL THE ABOVE TRANSACTIONS AS THE SAME ARE CLOSELY LINKED.' (UNDERLINED FOR EMPHASIS BY US). 17. IN VIEW OF THE ABOVE WE HOLD THAT THE AGGREGATION OF TRANSACTIO N S AS DONE BY THE ASSESSEE AND AS UPHELD BY THE CIT(A) WERE IN ACCORDANCE WITH LAW FURTHER THERE IS NO SPECIFIC CHALLENGE BY THE REVENUE BEFORE US CHALLENGING THIS FINDING OF FACT THAT BUNDLE APPROACH OF ASSESSEE AND CIT(A) WERE INCORRECT . 18. HAVING H ELD SO NOW WE ARE DUTY BOUND TO DECIDE THE GROUNDS RAISED BEFORE US IN THE LIGHT OF THE ADMITTED POSITION THAT AGGREGATIONS OF TRANSACTIONS AS DONE BY THE ASSESSEE AND UPHELD BY THE CIT(A) WERE IN ACCORDANCE WITH LAW . 13 IT (TP) A NO. 2728 /BANG/20 17 LI CENS E FEE 19. WE MAY MENTION TH AT INDIAN TP PROVISIONS DO NOT CONTAIN ANY SPECIFIC GUIDELINES ON INTRA - GROUP SERVICE PAYMENTS (MANAGEMENT FEES AND LICEN S E FEE ETC). IN MANY CASES THE TPO HAS ARRIVED AT AN ALP AS NIL, BY ARRIVING AT A CONCLUSION THAT NO BENEFIT HAS BEEN OBTAINED BY THE A SSESSEE FROM SUCH INTRA - GROUP SERVICE PAYMENTS. WHILE OECD GUIDELINES SEEM TO INDICATE THE BENEFIT TEST TO BE ACTUAL RENDITION OF SERVICES WHICH PROVIDES ECONOMIC OR COMMERCIAL VALUE, THE INDIAN TPOS INSIST ON POSITIVE DEMONSTRATION OF ACTUAL BENEFIT ACC RUING TO THE SERVICE RECIPIENT FROM THE SERVICES RENDERED. IN OUR CONSIDERED OPINION THE REVENUE COULD NOT DECIDE WHAT WAS NECESSARY FOR A TAXPAYER AND WHAT WAS NOT. THE REQUIREMENT OF SERVICES SHOULD HAVE BEEN JUDGED FROM THE VIEW POINT OF THE TAXPAYER A S A BUSINESSMAN; AS PER SECTION 92(2) OF THE ACT, THE ALP OF TRANSACTIONS ARE IN THE NATURE OF COST OR EXPENSES ALLOCATION, OR APPORTIONED TO AN ENTERPRISE OR CONTRIBUTED BY AN ENTERPRISE, SHALL BE DETERMINED HAVING REGARD TO THE ARM S LENGTH PRICE OF SUC H BENEFITS, SERVICE AND FACILITY. THIS SECTION ALSO COVERS INTRA - GROUP SERVICE TRANSACTIONS, AS OFTEN THE CHARGE FOR THE SERVICES WERE BASED ON COST ALLOCATION/ APPORTIONMENT. THEREFORE, THE BENEFIT TEST WAS A NECESSARY PART OF DETERMINING THE ARM S LENGTH PRICE OF ANY INTRA GROUP SERVICES; THE BENEFIT NEEDED TO BE IDENTIFIED FROM THE TAXPAYER S VIEWPOINT, WHICH COULD BE POTENTIAL, REASONABLE, FORESEEABLE, MAY NOT BE QUANTIFIABLE IN MONEY ALONE, AND MAY BE STRATEGIC, BUT COULD NOT BE INCIDENTAL. THE BENE FIT ALSO COULD NOT HAVE QUALIFICATIONS SUCH AS SUBSTANTIAL , DIRECT AND TANGIBLE BECAUSE THESE QUALIFICATIONS WERE NOT GIVEN IN SECTION 92(2) OF THE ACT. THERE ARE SEVERAL NON - MONETARY TERMS OTHER THAN PROFITABILITY, LIKE USEFULNESS, ENHANCEMENT IN VA LUE, SUSTAINABILITY AND ENHANCEMENT OF BUSINESS INTEREST, WHICH WERE REQUIRED TO BE SEEN WHILE JUDGING THE BENEFIT TEST. LIKE IN THE PRESENT CASE , THE LICENCE IS REQUIRED FOR LONG TERM MANUFACTURING OF DRUGS AND FORMULATION WITHIN KNOW HOW OF THE AE 14 IT (TP) A NO. 2728 /BANG/20 17 FURTH ER THE ASSESSEE IS JOINT VENTURE COMPANY THEREFORE TPO CANNOT LOSE SIGHT OF VARIOUS BENEFIT WHICH MAY FLOW TO INDIAN PARTNER IN THE ABSENCE OF PROVISION FOR MAKING THE PAYMENT FOR THE USE OF LICENSE IN THE CASE IN HAND TPO HAS CONCLUDED THAT NO LICENCE FEE SHOULD HAVE BEEN CHARGED BY AIHPL AS ALL THE MANUFACTURED DRUGS FORMULATIONS ARE EXPORTED TO AIHPL WHICH IS AN ASSOCIATE ENTITY OF THE ASSESSEE COMPANY AND ON MANUFACTURED DRUG FORMULATION WAS SOUGHT TO ANY OTHER ENTITY THEREFORE AE, TO NOT HAVE CHARGED ANY AMOUNT FROM ASSESSEE IN THE NATURE OF LICENCE FEE AS THE ENTIRE MANUFACTURED DRUG FORMULATION HAVE BEEN EXPORTED TO IT AND THEREAFTER TPO HAD RECORDED THAT THERE IS A HUGE DIFFERENCE IN PROFIT MARGIN OF A RELATED PARTY SALES AND THE CONTRACT MANUFACT URE . IN OUR VIE THE APPROACH OF TPO WAS NOT CORRECT AS IT IS CONTRARY TO LAW LAID IN THE CASE OF EKL APPLIANCES, DELHI HIGH COURT, 345 ITR 241 AND DRESSER RAND , MUMBAI TRIBUNAL, 13 TAXMANN.COM 82 (MUMBAI) WHERE HON BLE COURT AND TRIBUNAL HAD HE LD I) NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITURE WAS ALSO INCURRED OUT OF NECESSITY II) NOT NECESSARY TO SHOW THAT ANY EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS HAS ACTUALLY RESULTED IN PROFIT OR INCOME, EITHER IN THAT YEAR OR SUBSEQUENT YEARS III) THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS I) TPO IS EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMEN T. WHOLESALE DISALLOWANCE IS NOT AUTHORISED AND FURTHER IN DRESSER RAND, MUMBAI TRIBUNAL, 13 TAXMANN.COM 82 (MUMBAI) IT WAS HELD AS (1) TPO/AO CANNOT QUESTION THE COMMERCIAL WISDOM OF THE TAXPAYER (2) HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS HIS PREROGATIVE AN D IT IS NOT FOR REVENUE AUTHORITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT IS NOT (3) WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT, EVEN A CONSIDERATION FOR ITS BEING 15 IT (TP) A NO. 2728 /BANG/20 17 ALLOWED AS A DEDUCT ION IN COMPUTATION OF INCOME, AND BY NO STRETCH OF LOGIC, IT CAN HAVE A ROLE IN DETERMINING THE ALP OF THAT SERVICE. (4) WHEN EVALUATING THE ALP OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT. THE REAL QUESTION IS WHET HER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME 20. IN VIEW OF THE ABOVE AND AS WELL AS IN VIEW OF FINDING RECORDED HEREIN ABOVE THAT ALL THESE INTERNATIONAL TRANSACTIONS ARE LINKED TO THE MAIN BUSINESS BEING CARRIED ON BY THE ASSESSEE AND SUCH CLOSELY LINKED TRANSACTIONS ARE TO BE ANALYSED IN AGGREGATE TO DETERMINE THE ARM'S LENGTH PRICE. MOREOVER IT IS DIFFICULT TO COMPREHEND THE MANUFACTURING OF DRUGS IN INDIA WITHOUT THERE BEING ANY OPERATION IN LICENCE TO MANUFACTURE THE DRUGS FROM THE STATUTORY AUTHORITIES AND FOR THAT TO HAVE THE ACCESS ON THE FORMULATION WHICH IS THE TECHNICAL KNOWLEDGE AND DOMAIN OF AE. THE PRICES CHARGED BY THE ASSESSEE AND THE AMOUNT OF LICENCE FEES PAID TO AE CANNOT BE EXAMINED ON S TAND - ALONE BASIS, BECAUSE IT WILL HAVE EFFECT OF DETERMINATION THE NET PRIZES RECEIVED BY THE ASSESSEE. FURTHER THE CHARGES PAID BY THE ASSESSEE ( JV) TO AE FOR ACQUIRING THE TECHNICAL KNOW - HOW AND IS A VALUABLE ASSETS. IN THE PRESENT CASE, TPO HAS NOT B ROUGHT ON RECORD ANY COMPARABLE UNCONTROLLED PARTY( JV OR OTHERWISE ) WHICH IS MANUFACTURING THE DRUGS WITH THE SAME PRICES OR LESS PRICES AS THAT OF THE ASSESSEE WITHOUT SEPARATELY CHARGING THE LICENSE FEE, THEREFORE THE APPROACH OF THE TRANSFER PRICING O FFICER TO COMPUTE NIL CHARGES FOR THE LICENSE FEE CANNOT BE UPHOLD AS TRANSFER PRICES ADJUSTMENT CAN BE MADE IN ACCORDANCE WITH THE ONE OF THE METHOD PROVIDED UNDER THE RULES FRAMED UNDER THE INCOME TAX ACT. IN VIEW THEREOF, WE FI ND NO MERIT IN THE ANALYSIS CARRIED OUT BY THE TPO BY BENCHMARKING THE LICENCE FEE. IN FACT ASSESSEE BY AGGREGATION OF TRANSACTIONS IN THE TP STUDY HAD BENCHMARKED THE ARM'S LENGTH PRICE OF ALL THE TRANSACTIONS BY COMPARING OPERATING PROFIT / OPERATING COS T AT THE ENTITY LEVEL WAS 25.49% AS AGAINST THE NON - AE IT WAS 5.26 % . HOWEVER, WE OBSERVE 16 IT (TP) A NO. 2728 /BANG/20 17 THAT THE COMPARABILITY ANALYSIS IN THE TP STUDY CARRIED OUT BY THE ASSESSEE BY AGGREGATION OF TRANSACTIONS ADOPTING TNMM AS THE MOST APPROPRIATE METHOD HAS NOT BEEN E XAMINED BY EITHER OF THE AUTHORITIES BELOW WHO HAVE MERELY CONCENTRATED MERELY ON THE ISSUE OF AGGREGATION / SEGREGATION OF TRANSACTIONS. THE CIT (A) HAS MECHANICALLY ACCEPTED THE RESULTS OF THE ASSESSEE TO BE AT ARM S LENGTH BY ACCEPTING THE OPERATING PR OFIT / OPERATING COST OF THE ASSESSEE AS 25.49% AS AGAINST NON - AE AT 5.26%. IN THAT VIEW OF THE MATTER, WE DEEM IT APPROPRIATE TO REMAND THE ISSUE TO THE FILE OF THE CIT (A) FOR EXAMINING THE CORRECTNESS OF THE ALP AT THE ENTITY LEVEL BY APPLYING THE TNMM AS THE MOST APPROPRIATE METHOD BY AGGREGATING THE TRANSACTIONS. THE CIT (A) IS DIRECTED TO TAKE THE REMAND REPORT FROM THE TPO IN THIS REGARD AND AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER. MANAGEMENT FEES 21. SIMILARLY THE A SSESSING OFFICER / TPO HAD MADE THE ADDITION FOR RS 165592899/ - ON THE PROTEST THAT THERE IS NO REQUIREMENT FOR THE ASSESSEE TO PAY FOR THE MANAGEMENT FEES AND FURTHER IT WAS MENTIONED THAT NO EVIDENCE / PROOF FOR A) COMMERCIALLY NEED/ EXPEDIENCY OF THE REQUIREMENT OF SERVICE SUCH SERVICES B) WHETHER IT IS A NORMAL MARKET BUSINESS PRACTICE TO INVOLVE PARTIES AS IN THE PRESENT CASE . THE ASSESSEE HAS FURNISHED THE DETAILS OF THE SERVICES AVAILABLE BY THE ASSESSEE FROM MEDREICH TO THE ASSESSING OFFICER AS M ENTIONED AT PAGE 22 - 23 OF THE TRANSFER PRICING ORDER . THE TPO HAD MENTIONED THE REPLY PURSUANT TO THE SHOW CAUSE NOTICE IN HIS ORDER AND THE ASSESSEE HAS CONCLUDED IT IS FURTHER SUBMITTED THAT AFTER FACTORING IN COST OF ALL RELATED PARTY TRANSACTION T HE COMPANY HAS EARNED AND OPERATING MARGIN OF 22.53% WHICH IS SIGNIFICANTLY HIGHER THAN 9.05% EARNED BY THE COMPARABLE COMPANIES THUS ESTABLISHING ALL THE UNDERLYING TRANSACTION INCLUDING THE TRANSACTION FOR PAYMENT OF LICENCE FEE AND MANAGEMENT FEE ARE AT ARM S LENGTH ................. ( PAGE 40 OF TPO ORDER ). TPO HAD THE RECORDED THE CONTRADICTION FINDINGS INASMUCH AS IT WAS MENTIONED THAT THAT THERE WAS DUPLICATION OF SERVICES AS ALLEGED THERE WAS NO EVIDENCE OF RENDERING THE SERVICES FOR THE MANAGEMEN T . IN OUR VIEW TAXPAYER COULD ONLY BE ASKED TO MAINTAIN AND PRODUCE THE EVIDENCE OF RECEIPT OF SERVICE WHICH A BUSINESSMAN KEEPS AND MAINTAINS REGARDING SERVICES RECEIVED 17 IT (TP) A NO. 2728 /BANG/20 17 FROM A THIRD PARTY. THE BURDEN OF MAINTENANCE OF DOCUMENTS/ EVIDENCES COULD NOT BE H IGHER ON THE TAXPAYER MERELY DUE TO THE REASON THAT IT WAS RECEIVING SERVICES FROM ITS AES FURTHER TPO HAS NOT HELD THAT THE SIMILAR KIND OF SERVICES WAS ALREADY AVAILABLE WITH THE TAXPAYER WITH ANY CONCRETE EVIDENCE. IN THE ABSENCE OF ANY INSTANCES OF SER VICES PROVIDED BY THE AE AND FROM THE FACT THAT SERVICES AVAILED BY THE TAXPAYER FROM THE THIRD PARTIES WERE SIMILAR IN NATURE, THE TPO S VIEWPOINT ON DUPLICATION TEST WAS NOT ACCEPTABLE. IN ALL . WE FIND THAT IN A MATERIALLY IDENTICAL SITUATION IN THE CAS E OF MERCK LTD. V. DY. CIT [2016] 69 TAXMANN.COM 45 (MUM.) , A COORDINATE BENCH, HAS OBSERVED, INTER ALIA, AS FOLLOWS: '9. WE FIND THAT THERE IS A CLEAR CONTRADICTION IN THE FINDI NGS OF THE AUTHORITIES BELOW. ON ONE HAND, THE STAND OF THE AUTHORITIES BELOW IS THAT NO SERVICES ARE RENDERED, AND, ON THE OTHER HAND, THERE ARE CATEGORICAL FINDINGS THAT THE SERVICES RENDERED ARE SO GENERAL IN NATURE THAT EVEN AN EMPLOYEE OF THE ASSESSEE COULD HAVE RENDERED THE SAME. IN THE EVENT OF NO SERVICES ACTUALLY HAVING BEEN RENDERED, THERE CANNOT BE ANY OCCASION FOR THE SAME SERVICES BEING RENDERED BY A PERSON WITHOUT SPECIALIZED KNOWLEDGE. ON THE ONE HAND, IT IS HELD THAT ARM'S LENGTH PRICE OF TH ESE SERVICES IS ZERO VALUE, AND, IN THE SAME BREATH, IT IS HELD THAT 'THERE WOULD HARDLY BE ANY SUBSTANTIAL PAYMENT' FOR THESE SERVICES. CLEARLY, SERVICES ARE RENDERED ON THE FACTS OF THE PRESENT CASE. THERE IS SUFFICIENT MATERIAL ON RECORD TO SHOW THAT TH E ASSESSEE WAS, UNDER THE AGREEMENT, ENTITLED TO RECEIVE A PACKAGE OF SERVICES ON AS AND WHEN REQUIRED BASIS. THE EMAILS AND OTHER DOCUMENTARY EVIDENCES SHOW THAT THE ASSESSEE WAS IN RECEIPT OF THESE SERVICES. JUST BECAUSE THESE SERVICES WERE TOO GENERAL, IN THE PERCEPTION OF THE AUTHORITIES BELOW, OR JUST BECAUSE THE ASSESSEE DID NOT NEED THESE SERVICES FROM THE OUTSIDE AGENCIES, CANNOT BE REASON ENOUGH TO HOLD THAT THE SERVICES WERE NOT RENDERED AT ALL. WE HAVE PERUSED THE MATERIAL BEFORE US, AND, IN OUR CONSIDERED VIEW, THE ASSESSEE HAS REASONABLY ESTABLISHED RENDITION OF SERVICES. THE ASSESSEE MAY NOT HAVE RECEIVED ALL THE SERVICES UNDER THE AGREEMENT BUT ESSENTIALLY THE ASSESSEE HAD RIGHT TO RECEIVE ALL THESE SERVICES, AS AND WHEN REQUIRED, UNDER THE AG REEMENT. THE PAYMENT IS MADE FOR THE RIGHTS ACCRUING TO THE ASSESSEE FOR THE BUNDLED SERVICES UNDER THE CONTRACT AND NOT FOR EACH SERVICE ON ALA CARTE BASIS. THE REASON THAT THE ASSESSEE DID NOT USE A PARTICULAR SERVICE CANNOT JUSTIFY HOLDING THAT NO PAYME NT WAS WARRANTED FOR SUCH SERVICES. TO GIVE AN EXAMPLE FROM DAY TO DAY LIFE, IF AN ASSESSEE IS PAYING FOR HAVING RIGHT TO VIEW A BOUQUET OF TELEVISION CHANNELS, WHICH COME AS A PACKAGE, HE DOES NOT DECLINE TO PAY THE CONSIDERATION FOR THE BOUQUET OF TELEVI SION CHANNELS BECAUSE 18 IT (TP) A NO. 2728 /BANG/20 17 HE DID NOT VIEW A PARTICULAR TELEVISION CHANNEL. THE EXAMPLE MAY SEEM TO BE A BIT TOO SIMPLISTIC BUT IT DOES HAMMER THE MASSAGE, AS WE WOULD LIKE TO, THAT NOT AVAILING A PARTICULAR SERVICE UNDER A CONTRACT DOES NOT MEAN THAT NO PAYMEN TS ARE REQUIRED TO BE MADE FOR ALL THE SERVICES BUNDLED UNDER THE CONTRACT. THE OTHER THING IS THE BENEFIT TEST. WE DO NOT THINK BENEFIT TEST HAS TOO MUCH RELEVANCE IN THE ARM'S LENGTH PRICE ASCERTAINMENT. WHEN EVALUATING THE ALP 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 THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. IN CASE TPO CAN DEMONSTRATE THAT THE CONSIDERATION FOR SIMILAR SERVICES, UNDER THE CUP METHOD, IS NIL, HE CAN VERY WELL DO SO. THAT'S NOT, HOWEVER, HIS CASE. HE ONLY STATES THAT THESE SERVICES ARE NOT WORTH THE AMOUNT PAID BY THE ASSESSEE. SUCH BAND STATEMENTS AND SWEEPING GENERALIZATIONS CANNOT HELP THE CASE OF THE REVENUE AUTHORITIES. THE ASSESSEE HAS BENCHMARKED THE TRANSACTION ON TNMM BASIS, AND UNLESS THE REVENUE AUTHORITIES CAN DEMONSTRATE THAT SOME OTHER METHOD OF ASCERTAINING THE ARM'S LENGTH PRICE ON THE FACTS OF THIS CASE WILL BE MORE APPROPRIATE A METHOD OF ASCERTAINING THE ARM'S LENGTH PRICE, THE TNMM CANNOT BE DISCARDED. DEALING WITH ALMOST A SIMILAR SITUATION, AS WE ARE IN SEISIN OF, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF AWB INDIA (P.) LTD. V. DY. CIT [2015] 152 ITD 770 , HAS OBSERVED AS FOLLOWS: '11. IN GROUND NOS. 5 TO 9, WHICH WE WILL TAKE UP TOGETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 5. THAT, ON THE FACTS AND CIRCUMST ANCES OF THE CASE, THE DRP AND TPO/AO HAVE FAILED TO APPRECIATE THE BUSINESS MODEL AND BUSINESS REALITIES OF THE APPELLANT AND ROLE OF ITS AE, WHILE CONDUCTING THE ECONOMIC ANALYSIS, AND CONCLUDING THAT NO SERVICE IS RECEIVED OR NO BENEFIT, AND/OR SERVICES RECEIVED ARE DUPLICATIVE IN NATURE. 6. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DRP AND TPO/AO ERRED IN PRESUMPTIVELY HOLDING THAT THE REVENUE AUTHORITIES ARE EMPOWERED TO QUESTION THE COMMERCIAL DECISION OF THE APPELLANT AND IN NOT APPRECIAT ING THE JURISPRUDENCE THAT THE DRP AND THE AO/TPO CANNOT GO BEYOND THEIR POWERS TO QUESTION THE BUSINESS DECISION OF THE COMPANY. 7. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DRP HAS ERRED IN CONFIRMING THAT THE TPO HAS DISCHARGED HIS STATUTORY ONUS BY ESTABLISHING THE CONDITIONS SPECIFIED IN (A) TO (D) OF SECTION 92C(3) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREGARDING THE ARM'S LENGTH PRICE DETERMINED BY THE APPELLANT AND PROCEEDING TO DECIDE THE ARM'S LENGTH PRICE HIMSELF. 19 IT (TP) A NO. 2728 /BANG/20 17 8. THAT, ON THE FA CTS AND CIRCUMSTANCES OF THE CASE, THE DRP AND TPO/AO HAVE ERRED IN CONDUCTING ECONOMIC ANALYSIS OF THE INTERNATIONAL TRANSACTIONS WITHOUT RELYING ON ANY COMPARABLE TRANSACTION/COMPANIES USING INAPPROPRIATE METHOD. 9. THAT, ON THE FACTS AND CIRCUMSTANCES O F THE CASE, THE DRP AND TPO/AO HAVE ERRED IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS CONSISTING OF COST AND PROFIT MARGIN AT 'NIL'. 12. SO FAR AS THESE GRIEVANCES OF THE ASSESSEE ARE CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FO LLOWS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN FOOD GRAINS. IT IS A PART OF AWB GROUP AUSTRALIA AND ITS 99.999% EQUITY IS HELD BY AWB AUSTRALIA LIMITED AND THE BALANCE. 001% EQUITY IS HELD BY ANOTHER GROUP COMPANY, NAMELY AWB INVESTMENTS LIMI TED. ONE OF THE INTERNATIONAL TRANSACTIONS THAT THE ASSESSEE ENTERED INTO WITH ITS AES WAS PAYMENT OF RS. 58,20,571 TOWARDS 'MANAGEMENT SERVICES'. ON AN ANALYSIS OF THE DETAILS OF THE PAYMENTS MADE UNDER THIS HEAD, THE TPO WAS OF THE VIEW THAT THE BENEFIT OF SOME OF THE SERVICES AVAILED UNDER THE HEAD 'MANAGEMENT SERVICES' WAS NOT COMMENSURATE WITH THE PAYMENTS MADE FOR THE SAME. HE WAS ALSO OF THE VIEW THAT AS AGAINST THE USE OF TNMM BY THE ASSESSEE IN BENCHMARKING, THE RIGHT COURSE OF ACTION WILL BE TO FO LLOW CUP METHOD BECAUSE THE VALUE UNDER CUP METHOD WILL BE BEST INDICATOR OF THE VALUE OF THESE SERVICES. IT WAS IN THIS BACKGROUND THAT THE TPO MADE CERTAIN ADVERSE INFERENCES AGAINST THE ASSESSEE. THE TPO WAS OF THE VIEW THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS. 20,35,907 TOWARDS FINANCIAL MANAGEMENT AND REPORTING SERVICES, 'BUT THE SERVICES RENDERED ARE NEGLIGIBLE COMPARED TO THE COST INCURRED'. THE TPO WAS ALSO OF THE VIEW THAT 'A MINOR CLARIFICATION OR SEEKING OF CERTAIN GUIDANCE ON VERIFY BASI C ISSUE DOES NOT CALL FOR A PAYMENT OF RS. 20 LAKHS. THEREFORE, THE ALP OF THESE SERVICES WAS TAKEN AS 'NIL'. HE FURTHER NOTED THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS. 1,23,476 TOWARDS HUMAN RESOURCES SERVICES, THE ASSESSEE HAS 'NOT FURNISHED ANY SPECIFIC INPUT ON TRAINING AND DEVELOPMENT OF HUMAN RESOURCES AND IT IS ALSO NOTICED THAT THESE SERVICES ARE OF ROUTINE NATURE AND DUPLICATE AT BEST'. ACCORDINGLY, THE TPO ALSO TREATED ALP OF THESE SERVICES AS 'NIL'. AS REGARDS THE PAYMENT OF RS. 96,355 TO WARDS 'LEGAL SERVICES', THE TPO DID TAKE NOTE OF THE SERVICES THAT THE ASSESSEE WAS ENTITLED TO UNDER THESE ARRANGEMENTS BUT AS THERE IS NO EVIDENCE OF ANY SERVICES HAVING BEEN ACTUALLY RENDERED BY THE AE, THE TPO CONCLUDED THAT IT DOES NOT HAVE ANY VALUE IN AN ARM'S LENGTH SITUATION. THE VALUE OF THIS SERVICE WAS ALSO TAKEN AS NIL. THE SAME WAS THE CASE WITH RESPECT TO THE PAYMENTS FOR OTHER SERVICES. ACCORDINGLY, NO ARM'S LENGTH VALUE WAS ASSIGNED TO THESE SERVICES ALSO. IN RESPECT OF THESE CASES TNMM WAS REJECTED AND CUP WAS APPLIED THOUGH, EVEN UNDER CUP METHOD, VALUE ASSIGNED WAS NIL AS, IN THE OPINION OF THE TPO, THESE SERVICES WERE WORTHLESS. 20 IT (TP) A NO. 2728 /BANG/20 17 13. WHEN ASSESSING OFFICER PROPOSED TO MAKE DISALLOWANCE IN RESPECT OF PAYMENTS FOR THE ABOVE SERVICES, ARM'S LENGTH VALUE OF WHICH WAS TAKEN AT 'ZERO', AGGREGATING TO RS. 31,23,325, AS AGAINST TOTAL MANAGEMENT FEES OF RS. 58,20,571 PAID BY THE ASSESSEE, ASSESSEE CARRIED THE MATTER BEFORE THE DRP BUT WITHOUT ANY SUCCESS. THE DRP CONFIRMED THE STAND SO TAKEN BY THE TPO, ACCORDINGLY, AN ALP ADJUSTMENT OF RS. 31,23,325 WAS MADE BY THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 15. ONE OF THE VERY BASIC PRE - CONDITION FOR USE OF CUP METHOD IS AVAILABILITY OF THE PRICE OF THE SAME PRODUCT AND SERVICE IN UNCONTROLLED CONDITIONS. IT IS ON THIS BASIS THAT ALP OF THE PRODUCT OR SERVICE CAN BE ASCERTAINED. IT CANNOT BE A HYPOTHETICAL OR IMAGINARY VALUE BUT A REAL VALUE ON WHICH SIMILAR TRANSACTIONS HAVE TAKEN PLACE. COMING TO THE FACTS OF THIS CASE, THE APPLICATION OF CUP IS DEPENDENT ON THE MARKET VALUE OF THE ARRANGEMENTS UNDER WHICH THE PRES ENT PAYMENTS HAVE BEEN MADE. UNLESS THE TPO CAN IDENTIFY A COMPARABLE UNCONTROLLED CASE IN WHICH SUCH SERVICES, HOWSOEVER TOKEN OR IRRELEVANT SERVICES AS HE MAY CONSIDER THESE SERVICES TO BE, ARE RENDERED AND FIND OUT CONSIDERATION FOR THE SAME, THE CUP ME THOD CANNOT HAVE ANY APPLICATION. HIS PERCEPTION THAT THESE SERVICES ARE WORTHLESS IS OF NO RELEVANCE. IT IS NOT HIS JOB TO DECIDE WHETHER A BUSINESS ENTERPRISE SHOULD HAVE INCURRED A PARTICULAR EXPENSE OR NOT. A BUSINESS ENTERPRISE INCURS THE EXPENDITURE ON THE BASIS OF WHAT IS COMMERCIALLY EXPEDIENT AND WHAT IS NOT COMMERCIALLY EXPEDIENT. AS HELD BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. EKL APPLIANCES LIMITED ( 3 45 ITR 241 ), 'EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME'. 16. THE VERY FOUNDATION OF THE ACTION OF THE TPO IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. THERE IS NO DISPUTE THAT THE IMPUGNED PAYMENTS ARE MADE UNDER AN ARRANGEMENT WITH THE AE TO PROVIDE CERTAIN SERVICES. IT IS NOT EVEN THE TPO'S CASE THAT THE PAYMENTS FOR THESE SERVICES WERE NOT MADE FOR SPECIFIC SERVICES UNDER THE CONT RACT BUT HE IS OF THE VIEW THAT EITHER THE SERVICES WERE USELESS OR THERE WAS NO EVIDENCE OF ACTUAL SERVICES HAVING BEEN RENDERED. AS FOR THE SERVICES BEING USELESS, AS WE HAVE NOTED ABOVE, IT IS A CALL TAKEN BY THE ASSESSEE WHETHER THE SERVICES ARE COMMER CIALLY EXPEDIENT OR NOT AND ALL THAT THE TPO CAN SEE IS AT WHAT PRICE SIMILAR SERVICES, WHATEVER BE THE WORTH OF SUCH SERVICES, ARE ACTUALLY RENDERED IN THE UNCONTROLLED CONDITIONS. 17. AS FOR THE EVIDENCE FOR EACH OF THE SERVICE STATED IN THE AGREEMENT, I T IS NOT EVEN NECESSARY THAT EACH OF THE SERVICE, WHICH IS SPECIFICALLY STATED IN THE AGREEMENT, IS RENDERED IN EVERY FINANCIAL PERIOD. THE ACTUAL USE OF SERVICES DEPENDS ON WHETHER OR NOT USE OF SUCH SERVICES WAS WARRANTED BY THE BUSINESS 21 IT (TP) A NO. 2728 /BANG/20 17 SITUATIONS WHERE AS PAYMENTS UNDER CONTRACTS ARE MADE FOR ALL SUCH SERVICES AS THE USER MAY REQUIRE DURING THE PERIOD COVERED. AS LONG AS AGREEMENT IS NOT FOUND TO BE A SHAM AGREEMENT, THE VALUE OF THE SERVICES COVERED UNDER THE AGREEMENT CANNOT BE TAKEN AS 'NIL' JUST BECA USE THESE SERVICES WERE NOT ACTUALLY REQUIRED BY THE ASSESSEE. IN ANY CASE, HAVING PERUSED THE MATERIAL ON RECORD, WE ARE SATISFIED THAT THE SERVICES WERE ACTUALLY RENDERED UNDER THE AGREEMENT AND THESE SERVICES DID JUSTIFY THE IMPUGNED PAYMENTS. 18. WE AR E ALSO OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF PREREQUISITES FOR APPLICATION OF CUP METHODS BEING ABSENT IN THE PRESENT CASE, IT WAS NOT OPEN TO THE TPO TO DISREGARD THE TNMM EMPLOYED BY THE ASSESSEE. NO DEFECTS HAVE BEEN POINTED OUT IN APPLICATION O R RELEVANCE OF TNMM IN THIS CASE. UNDER THESE CIRCUMSTANCES, THE TPO'S IMPUGNED ACTION CANNOT MEET OUR JUDICIAL APPROVAL. 19. FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE IMPUGNED ALP ADJUS TMENT OF RS. 31,23,325. THE ASSESSEE GETS THE RELIEF ACCORDINGLY.' 25. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. 26. IN THE PRESENT CASE, THOUGH A FINDING IS GIVEN TO THE EFFECT THAT NO SERVICES ARE RENDERED, IN THE LIGHT OF THE CONTRADICTIONS IN THIS FINDING AND THE OBSERVATIONS ABOVE, IT IS CLEAR THAT IN EFFECT COMMERCIAL EXPEDIENCY OF THIS PAYMENT IS QUESTIONED. THAT EXERCISE, IN OUR CONSIDERED VIEW - PARTICULARLY IN THE LIGHT OF HON'BLE DELHI H IGH COURT'S JUDGMENT IN THE CASE OF CIT V. EKL APPLIANCES LTD. [2012] 345 ITR 241 , CANNOT BE CONDUCTED IN THE COURSE OF ASCERTAINING THE ARM'S LENGTH PRICE. 27. IN VIEW OF THE AB OVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CIRCUMSTANCE, IT IS CLEAR THAT THE IMPUGNED ALP ADJUSTMENT IS CONTRARY TO THE SCHEME OF THE ACT. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH WERE NOT GERMANE TO THE ISSUE. WE, THEREFORE, UPHOLD THE GRIEVANCES OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ALP ADJUSTMENTS IN RESPECT OF THE PAYMENT OF FEES FOR TECHNICAL SERVICES. THE ASSESSEE GETS THE RELIEF ACCORD.' 22 . WE ARE IN CONSIDERED AGREEMENT WITH THE VI EWS SO EXPRESSED BY THE COORDINATE BENCH AND THE IMPUGNED ADDITION MUST STAND DELETED FOR THIS SHORT REASON ALONE. IN OUR CONSIDERED VIEW, THE FACTS OF THE CASE BEFORE US ARE MATERIALLY SIMILAR INASMUCH AS THE SERVICES 22 IT (TP) A NO. 2728 /BANG/20 17 ARE INDEED RENDERED BY THE AE, AS EVI DENT FROM THE DOCUMENTARY EVIDENCES ON RECORD AND YET ITS ARM'S LENGTH VALUE IS HELD TO BE NIL ONLY BECAUSE, ACCORDING TO THE AUTHORITIES BELOW, THESE SERVICES WERE WORTHLESS, THESE SERVICES WERE NOT REQUIRED BY THE ASSESSEE, THE ASSESSEE COULD HAVE PERFOR MED THESE SERVICES ON ITS OWN AND THE SERVICES WERE NOT RENDERED BY THE GROUP ENTITY. THE TPO HAS REJECTED THE DETERMINATION OF ARM'S LENGTH PRICE ON THE BASIS OF TNMM, AT ENTITY LEVEL, BUT THEN HE HAS NOT ADOPTED ANY OTHER PERMISSIBLE METHOD FOR DETERMINA TION OF ARM'S LENGTH PRICE. SUCH A COURSE OF ACTION, AS NOTED ABOVE, IS NOT PERMISSIBLE IN LAW. JUST BECAUSE THESE SERVICES ARE WORTHLESS IN THE EYES OF THE REVENUE AUTHORITIES, THE ARM'S LENGTH PRICE OF THESE SERVICES CANNOT BE HELD TO BE NIL. SIMILARLY, THE FINDINGS THAT NO SERVICES WERE RENDERED AND THAT THE ASSESSEE COULD HAVE PERFORMED THESE SERVICES ON ITS OWN ARE CONTRADICTORY. IF NO SERVICES WERE RENDERED, WHICH SERVICES THE AUTHORITIES BELOW HOLD THAT THE ASSESSEE COULD HAVE PERFORMED ON ITS OWN. EVEN THE AGREEMENT FOR MANAGEMENT SERVICES PROVIDED FOR COST ALLOCATION BASED ON TURNOVER AT THE RATE OF 3 PERCENT. FOR THE SAKE OF REPETITION APPROACH OF THE ASSESSEE AS WELL AS THE COMMISSIONER HAS NOT BEEN CHALLENGED BY THE REVENUE BEFORE US WHEREBY BY THE AGGREGATION OF TRANSACTIONS HAS BEEN DONE. THE COMPUTATION OF NIL FOR MANAGEMENT SERVICES BY THE TPO WAS DONE ON THE BASIS OF METHOD NOT PERMISSIBLE UNDER THE LAWS BY BRINGING IN THE COMPARABLE UNCONTROLLED TRANSACTION BY THE TPO. TH ESE ARE AT HAS TO BE DONE ON THE BASIS OF A PERMISSIBLE METHOD OF ASCERTAINING THE ARM'S LENGTH PRICE. IT CANNOT BE OPEN TO THE TPO TO REJECT A METHOD OF ASCERTAINING THE ARM'S LENGTH PRICE WITHOUT APPLYING A LEGALLY PERMISSIBLE METHOD TO SUBSTITUTE FOR THE METHOD OF ASCERT AINING ALP AS ADOPTED BY THE ASSESSEE. TO HOLD THAT THE ARM'S LENGTH PRICE OF THESE SERVICES WAS NIL UNDER THE CUP METHOD, THE TPO HAD TO NECESSARILY DEMONSTRATE THAT THE SAME SERVICES, WHATEVER BE ITS INTRINSIC WORTH, WERE AVAILABLE FOR NIL CONSIDERATION IN AN UNCONTROLLED SITUATION; THAT IS NOT, AND THAT CANNOT BE, THE 23 IT (TP) A NO. 2728 /BANG/20 17 CASE. IT IS ALSO NOT THE CASE OF THE AUTHORITIES BELOW THAT THE ARM'S LENGTH PRICE OF THESE SERVICES, UNDER ANY OTHER LEGALLY PERMISSIBLE METHOD IS, NIL THERE IS THUS NO LEGALLY SUSTAINABLE FOUNDATION FOR THE IMPUGNED ALP ADJUSTMENT. HOWEVER, WE OBSERVE THAT THE COMPARABILITY ANALYSIS IN THE TP STUDY CARRIED OUT BY THE ASSESSEE BY AGGREGATION OF TRANSACTIONS ADOPTING TNMM AS THE MOST APPROPRIATE METHOD HAS NOT BEEN EXAMINED BY EITHER OF THE AUTHORITIES BELOW WHO HAVE MERELY CONCENTRATED MERELY ON THE ISSUE OF AGGREGATION / SEGREGATION OF TRANSACTIONS. THE CIT (A) HAS MECHANICALLY ACCEPTED THE RESULTS OF THE ASSESSEE TO BE AT ARM S LENGTH BY ACCEPTING THE OPERATING PROFIT / OPERATING COST OF THE ASSESSEE AS 25.49% AS AGAINST NON - AE AT 5.26%. IN THAT VIEW OF THE MATTER, WE DEEM IT APPROPRIATE TO REMAND THE ISSUE TO THE FILE OF THE CIT (A) FOR EXAMINING THE CORRECTNESS OF THE ALP AT THE ENTITY LEVEL BY APPLYING THE TNMM AS THE MOST APPROPRIATE METHOD BY AGGREGATING THE TRANSACTIONS. THE CIT (A) IS DIRECTED TO TAKE THE REMAND REPORT FROM THE TPO IN THIS REGARD AND AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER. .THUS GROUND NOS.3, 4, 5 & 6 OF REVENUE APPEAL ARE ALLOWED FO R STATISTICAL PURPOSES. 23 WITH RESPECT TO THE ALTERNATIVE GROUND I.E NO 7 WE MAY RECORD , THAT THE AUTHORITY OF THE TPO IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE THE ALP AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FROM WHICH THE ASSESSEE BENEFITS. THAT ASPECT OF THE EXERCISE IS LEFT TO THE AO. THIS DISTINCTION WAS MADE CLEAR BY THE ITAT IN DRESSER - RAND INDIA PVT. LTD. V. ADDITIONAL COMMISSIONER OF INCOME TAX, 2012 (13) ITR (TRIB) 422: WHEN 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 IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT. THE AE MAY HAVE GIVEN THE SAME 24 IT (TP) A NO. 2728 /BANG/20 17 SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SER VICES IS 'NIL'. THUS, IT BECOMES IMPORTANT TO CLARIFY THE EXTENT OF THE TPO'S AUTHORITY IN THIS CASE, WHICH IS TO DETERMINING THE ALP FOR INTERNATIONAL TRANSACTIONS REFERRED TO HIM OR HER BY THE AO, RATHER THAN DETERMINING WHETHER SUCH SERVICES EXIST OR B ENEFITS HAVE ACCRUED. THAT EXERCISE - OF FACTUAL VERIFICATION IS RETAINED BY THE AO UNDER SECTION 37 IN THIS CASE. INDEED, THIS IS NOT TO SAY THAT THE TPO CANNOT - AFTER A CONSIDERATION OF THE FACTS - STATE THAT THE ALP IS 'NIL' GIVEN THAT AN INDEPENDENT E NTITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HOWEVER, THIS IS DIFFERENT FROM THE TPO STATING THAT THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPENDITURE. THAT DECISION IS OUTSIDE THE AUTHORITY OF THE TPO. WHILST THE REPORT OF THE TPO IN THIS CASE ULTIMATELY NOTED THAT THE ALP WAS 'NIL', SINCE A COMPARABLE ENTITY WOULD PAY 'NIL' AMOUNT FOR THESE SERVICES, THIS COURT NOTED THAT REMARKS CONCERNING, AND THE FINAL DECISION RELATING TO, BENEFIT ARISING FROM THES E SERVICES ARE PROPERLY RESERVED FOR THE AO. THE AO CAN, THEREFORE, DETERMINE UNDER SECTION 37 THAT THE EXPENDITURE CLAIMED (IN THIS CASE, THE REFERRAL FEES) WAS NOT FOR THE BENEFIT OF THE BUSINESS, AND THUS, DISALLOW THAT AMOUNT. THIS DOES NOT RESTRICT O R IN ANY WAY BYPASS THE FUNCTIONS OF THE TPO. QUITE TO THE CONTRARY, IT REPRESENTS THE CORRECT DIVISION OF JURISDICTION BETWEEN THE TWO ENTITIES. 5.4.2 ANOTHER CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE AS OWN CASE FOR ASSESSMENT YEAR 2012 - 13 IN ITS ORDER IN IT(TP)A NO.125/BANG/2017 DT.3.8.2018 , FOLLOWING THE EARLIER DECISION OF THE CO - ORDINATE BENCH DT.31.1.2018 (SUPRA) AT PARA 5 THEREOF HAS HELD AS UNDER : 5. WE FIND THAT AS PER THIS PARA NO. 22 REPRODUCED FROM THE TRIBUNAL ORDER IN ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, THE MATTER WAS RESTORED BACK TO THE FILE OF CIT(A) FOR EXAMINING THE CORRECTNESS OF ALP AT THE ENTITY LEVEL BY APPLYING THE TNMM AS THE MOST APPROPRIATE METHOD BY AGGREGATING THE TRANSACTIONS. IN THE PRE SENT YEAR, THE MATTER HAS COME TO THE TRIBUNAL AGAINST THE ASSESSMENT ORDER BECAUSE THE ASSESSEE PREFERRED TO CHOSE THE DRP ROUTE AND NOT CIT(A) ROUTE. THEREFORE, BY RESPECTFULLY FOLLOWING THIS 25 IT (TP) A NO. 2728 /BANG/20 17 TRIBUNAL ORDER IN ASSESSEE S OWN CASE FOR EARLIER YEARS, WE SE T ASIDE THE ASSESSMENT ORDER ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF DRP FOR FRESH DECISION WITH SIMILAR DIRECTIONS AS WERE GIVEN BY THE TRIBUNAL IN EARLIER YEARS AS PER PARA 22 OF THE TRIBUNAL ORDER REPRODUCED ABOVE. ACCORDINGLY, GROUND N OS. 1 TO 5 OF ASSESSEE S APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 5.4.3 RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2009 - 10 & 2010 - 11 (SUPRA) AND ASSESSMENT YEAR 2012 - 13 (SUPRA) WHERE ADMITT EDLY THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, WE DEEM IT APPROPRIATE TO SET ASIDE THE ORDER OF THE LEARNED CIT (APPEALS) / TPO IN THE MATTER AND REMAND THIS ISSUE TO THE FILE OF THE LEARNED CIT (APPEALS) FOR EXAMINING THE CORR ECTNESS OF THE ALP AT THE ENTITY LEVEL BY APPLYING TNMM AS THE MAM BY AGGREGATING THE TRANSACTIONS. THE LEARNED CIT (APPEALS) IS DIRECTED TO OBTAIN A REMAND REPORT FROM THE TPO IN THIS REGARD AND AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FILE DETAILS / SUBMISSIONS REQUIRED WHICH SHALL BE CONSIDERED BEFORE DECIDING THIS ISSUE. THEREFORE, THE GROUND RAISED BY THE ASSESSEE AT S.NO.2 IS ALLOWED FOR STATISTICA L PURPOSES. I N VIEW OF OUR FINDING ABOVE, WITH RESPECT TO GROUND N O.2, THE GROUNDS 3 TO 6 ARE RENDERED ACADEMIC AT THIS STAGE AND DO NOT REQUIRE ADJUDICATION. 26 IT (TP) A NO. 2728 /BANG/20 17 6. IN THE RESULT, THE ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2013 - 14 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 14TH DAY OF SEPT., 201 8 . SD/ - ( LALIET KUMAR ) JUDICIAL MEMBER SD/ - ( JASON P BOAZ ) ACCOUNTANT MEMBER BANGALORE, DT. 14 .09.2018. *REDDY GP COPY TO : 1 APPELLANT 4 CIT(A) 2 RESPONDENT 5 DR. ITAT, BANGALORE 3 CIT 6 GUARD FILE SENIOR PRIVATE SECRE TARY INCOME TAX APPELLATE TRIBUNAL BANGALORE.