M/s. Disa India Limited, Bangalore V. Assistant Commissioner of Income-Tax, Bangalore

ITA 290/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2499 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-11-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; International transaction; Additional evidence; TDS
• Section: 92C; 142(1); 40(a)(ia); 37(1); 143(2); 64; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.290/BANG/2017 ASSESSMENT YEAR : 2012 13 M/S DISA INDIA LTD., 5 TH FLOOR, KUSHAL GARDEN ARCADE, 1A, PEENYA INDUSTRIAL AREA, PEENYA 2 ND PHASE, BENGALURU-560 058. PAN AAACG 5030 F VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, CIT (DR) DATE OF HEARING : 05-11-2020 DATE OF PRONOUNCEMENT : 25-11-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAIN ST FINAL ASSESSMENT ORDER DATED 15/12/2016 PASSED BY LD.ACIT CIRCLE 2(1)(2), BANGALORE UNDER SECTION 143 (3) READ WITH SECTION 144C(13) OF THE ACT, FOR ASSESSMENT YEAR 2012-13, ON FOLLOWING GROUNDS OF APPEAL: THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJ UDICE TO ONE ANOTHER. I. TRANSFER PRICING PAGE 2 OF 15 IT(TP)A NO.290/BANG/2017 101. THE LEARNED ASSESSING OFFICER ('LEARNED AO'), LEARNED TRANSFER PRICING OFFICER ('LEARNED TPO') AND THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') GROSSLY ERRED IN LAW AND FACT S OF THE CASE IN PROPOSING A TRANSFER PRICING ADJUSTMENT UNDER SECTI ON 92CA OF THE INCOME-TAX ACT, 1961 ('THE ACT') AMOUNTING TO INR 1 ,85,76,691 ON ACCOUNT OF PAYMENT OF GROUP SERVICE FEE AND TOWARDS COMMISS ION BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES ('AES'). 2. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN REJECTING THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT BY INVOKI NG PROVISIONS OF SUB- SECTION (3) OF 92C OF THE ACT. THEREBY, DISREGARDIN G THE ECONOMIC ANALYSIS PERFORMED BY THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION TO JUSTIFY THE ARM'S LENGTH NATURE OF THE INTERNATIONA L TRANSACTION PERTAINING TO PAYMENT OF GROUP SERVICES FEES AND TOWARDS COMMI SSION TO ITS AE. 3. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN CONSIDERING THE ARM'S LENGTH PRICE TO BE 'NIL' WITH RESPECT TO THE PAYMENTS MADE BY THE APPELLANT TOWARDS THE GROUP SERVICES RECEIVED FROM ITS AES. 4. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN SELECTING COMPARABLE UNCONTROLLED PRICE METHOD ('CUP') AS THE MOST APPROPRIATE METHOD IN DETERMINING THE ARM'S LENGTH PRICE OF PAY MENT TOWARDS GROUP SERVICE FEE TO ITS AE DESPITE THE LEARNED TPO NOT F OLLOWING THE PROVISIONS PRESCRIBED IN CLAUSE (A) OF THE SUB-RULE (1) OF RUL E LOB OF THE RULES FOR DETERMINATION OF ALP IN RELATION TO AN INTERNATIONA L TRANSACTION UNDER CUP. 5. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN HOLDING THAT THE INTERNATIONAL TRANSACTIONS CANNOT BE AGGREGATED IN THE APPLICATION OF TRANSACTIONAL NET MARGIN METHOD ('TNMM') FOR THE TR ANSFER PRICING ANALYSIS WITHOUT APPRECIATING THE FACT THAT THE PRI NCIPLE OF AGGREGATION OF CLOSELY LINKED TRANSACTIONS IS A WELL-ESTABLISHED R ULE PRESCRIBED BY THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPM ENT GUIDELINES ('OECD GUIDELINES') AND REFERRED TO FOR UIDANCE IN VARIOUS RULINGS OF INCOME TAX APPELLATE TRIBUNALS ('ITAT'). 6 THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN N OT APPRECIATING THE GROUP SERVICES RECEIVED BY THE APPELLANT ARE INEXTR ICABLY LINKED AND CONSTITUTE AN INTEGRAL PART OF THE MANUFACTURING AC TIVITY, THEREBY JUSTIFYING AGGREGATION WITH THE TRANSACTIONS IN THE MANUFACTUR ING OPERATION. THEREBY, NOT ACCEPTING THE TNMM ADOPTED BY THE APPE LLANT AS THE MOST APPROPRIATE METHOD FOR JUSTIFYING THE PAYMENTS MADE FOR THE RECEIPT OF GROUP SERVICES. 7. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN IGNORING THE EVIDENCES SUBMITTED BY THE APPELLANT TO PROVE THAT IT WAS IN NEED OF SERVICES, SERVICES WERE ACTUALLY RENDERED AND THE B ENEFIT WAS DERIVED FROM THE SERVICES OBTAINED FROM THE AE. - 8. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED I N PROPOSING ADJUSTMENT AMOUNTING TO MR 2,85,825 ON ACCOUNT OF C OMMISSION PAID TO ITS AE. PAGE 3 OF 15 IT(TP)A NO.290/BANG/2017 9. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N NOT ACCEPTING THE TNMM ADOPTED BY THE APPELLANT AS THE MOST APPROPRIA TE METHOD FOR BENCHMARKING THE TRANSACTION OF PAYMENT OF COMMISSI ON TO ITS AE. 10. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN CONSIDERING CUP AS THE APPROPRIATE METHOD TO COMPARE THE COMMISSION PAID BY APPELLANT TO ITS AE DESPITE THE LEARNED TPO NOT FOLLOWING THE PROVISIONS PRESCRIBED IN CLAUSE (A) OF THE SUB-RULE (1) OF RULE LOB OF TH E RULES FOR DETERMINATION OF ALP IN RELATION TO AN INTERNATIONAL TRANSACTION UNDER CUP. II CORPORATE TAX ME 11. THE LEARNED AO/ HON'BLE DPP ERRED IN DISALLO WING COMMISSION PAID/PAYABLE TO THE FOREIGN FIRM, RUBA INTERNATIONA L TRADING EST., JORDAN AMOUNTING TO RS. 4,13,72 1. U/S 40(A)(IA) OF THE ACT. 12. THE LEARNED AO/ HON'BLE DRP ERRED IN NOT FOLLOW ING THE DIRECTION OF THE FION'BLE DRP TO ALLOW CREDIT FOR TAX DEDUCTED A T SOURCE. 13. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN LEVYING INTEREST UNDER SECTION 234A & 234C OF THE INCOME-TAX ACT, 19 61. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND A ND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AN D EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RA ISED AT THE TIME OF HEARING, IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY AND FILED ITS RETURN OF IN COME FOR YEAR UNDER CONSIDERATION, DECLARING TOTAL INCOME OF RS.37,28,19,120/-. SUBSEQUENTLY, NOTICE UNDER SECTI ON 143(2) AND 142(1) OF THE ACT WAS ISSUED TO ASSESSEE. IN RE SPONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEA RED BEFORE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR. 3. LD.AO OBSERVED THAT, ASSESSEE IS ENGAGED IN BUS INESS OF MANUFACTURING OF MACHINERY AND EQUIPMENTS. ON VERIF ICATION OF FINANCIAL STATEMENTS FILED BY ASSESSEE, LD.AO NOTED THAT ASSESSEE HAD INTERNATIONAL TRANSACTION EXCEEDING RS. 15 CROR ES, AND THEREFORE, REFERENCE WAS MADE TO THE TRANSFER PRICI NG OFFICER TO DETERMINE ARMS LENGTH PRICE, AS PER THE PROVISIONS OF SECTION 92CA OF THE ACT. PAGE 4 OF 15 IT(TP)A NO.290/BANG/2017 4. UPON RECEIPT OF REFERENCE, LD.AO CALLED UPON ASS ESSEE TO FILE ECONOMIC DETAILS OF INTERNATIONAL TRANSACTION BETWE EN ASSESSEE AND ITS AE IN FORM 3CEB. 5. LD.TPO OBSERVED THAT, ASSESSEE IS ENGAGED IN BUS INESS OF MANUFACTURING FOUNDRY EQUIPMENT AND METALS. ASSESSE E ALSO HAD A RANGE OF SAND MOULDING EQUIPMENTS, SHORT BLAST AN D FILTERS. AS PER THE FORM 3 CEB FILED BY ASSESSEE, FOLLOWING WER E THE INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE: INTERNATIONAL TRANSACTION TOTAL VALUE OF TRANSACTION IMPORT OF RAW MATERIALS, COMPONENTS 4,33,24,431 EXPORT OF EQUIPMENT AND PARTS 8,19,72,810 IMPORT OF TRADED GOODS 1,86,14,571 IMPORT OF CAPITAL GOODS 94,91,360 PAYMENT FOR ERP SOFTWARE 34,65,000 PAYMENT OF ROYALTY 1,01,84,712 INCOME FROM SALES COMMISSION 1,81,24,976 RENDERING OF TECHNICAL SERVICES 32,49,778 PAYMENT OF COMMISSION 3,09,000 PAYMENT OF GROUP SERVICE FEES 1,82,90,866 PAYMENT OF GROUP INFORMATION TECHNOLOGY (IT) FEES 2,07,40,434 REIMBURSEMENT OF EXPENSES 4,16,526 AMOUNTS RECEIVABLE 4,15,33,167 AMOUNTS PAYABLE 3,98,67,807 6. LD.TPO OBSERVED THAT ASSESSEE RECEIVED BUSINESS SUPPORT SERVICES, AGAINST WHICH PAYMENTS WERE MADE TO AE. L D.TPO PAGE 5 OF 15 IT(TP)A NO.290/BANG/2017 ACCORDINGLY CALLED UPON ASSESSEE TO ESTABLISH THE S ERVICES HAVING RENDERED BY AE. ASSESSEE SUBMITTED THAT, THE GROUP SERVICE FEES ARE INCURRED CENTRALLY BY THE AE AND ALLOCATED TO T HE ASSOCIATED ENTERPRISES ON THE BASIS OF PERCENTAGE OF TOTAL SAL ES OF THE REGION. IT WAS SUBMITTED BY ASSESSEE THAT, THE METHOD ADOPT ED BY AE TO ALLOCATE GROUP SERVICE FEES IS BASED ON VARIOUS KE YS. LD.TPO HOWEVER WAS OF THE OPINION THAT NO SERVICES HAVING ECONOMIC AND COMMERCIAL BENEFITS HAVE BEEN RECEIVED BY ASSESSEE AND HENCE THE ARMS LENGTH PRICE OF THE SERVICE IS NIL. 7. LD.TPO OBSERVED THAT ASSESSEE WAS NOT ABLE TO JU STIFY THE NEED FOR MAKING PAYMENT OF RS.1,82,90,860/- TO ITS AE ON ACCOUNT OF GROUP SERVICE FEES. HE ALSO NOTED THAT, DOCUMENTS SUBMITTED BY ASSESSEE ARE GENERAL IN NATURE AND DO NOT PROVE THAT IT HAS DERIVED TANGIBLE COMMERCIAL BENEFIT OU T OF THE ALLEGED SERVICES, AND THE PAYMENT MADE IS COMMENSURATED TO THE BENEFIT RECEIVED. HE WAS OF THE OPINION THAT, ASSESSEE COUL D NOT ESTABLISH THAT A THIRD-PARTY WOULD HAVE MADE SIMILAR PAYMENT FOR SIMILAR SERVICES TO AN UNCONTROLLED PARTY. LD.TPO THUS SUBM ITTED THAT, ASSESSEE WAS NOT ABLE TO PROVE BY WAY OF ANY DOCUMENTARY/EVIDENCE OF TANGIBLE BENEFIT RECEIVED ON ACCOUNT OF ALLEGED SERVICES. HE WAS OF THE OPINION THAT, GENER AL WRITE-UP ON ALLEGED BENEFITS SUBMITTED BY ASSESSEE DO NOT CONST ITUTE CREDIBLE EVIDENCE FOR JUSTIFICATION OR QUANTIFICATION OF THE SERVICES RENDERED. 8. LD.TPO THUS HELD THAT, ASSESSEE FAILED TO PROVE THE ARMS LENGTH NATURE OF THE PAYMENT OF TECHNICAL AND MANAG EMENT COSTS PAGE 6 OF 15 IT(TP)A NO.290/BANG/2017 AMOUNTING TO RS.1,82,19,866/- PAID TO AE. HE THUS T REATED THE COST PAID AS NIL DUE TO INADEQUACIES OF ASSESSEE S ARGUMENT. LD.AO SUBSEQUENTLY WHILE PASSING DRAFT ASSESSMENT O RDER OBSERVED THAT ASSESSEE DEBITED A SUM OF RS.4,13,721 /- TOWARDS PROVISION OF COMMISSION. IT WAS NOTED BY LD.AO THAT , IT WAS AN ESTIMATED LIABILITY ON ADHOC BASIS, WHICH CANNOT BE ALLOWED AS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. HE ALSO NOTED THAT, ASSESSEE SHOULD HAVE DEDUCTED TDS UNDER SECTION 40( A)(IA) OF THE ACT. 9. AGGRIEVED BY PROPOSED ADDITIONS, ASSESSEE RAISED OBJECTIONS BEFORE DRP. 10. DRP IN REGARDS TO INTRAGROUP SERVICES OBSERVED AS UNDER: I) PAGE 61 AND 64 OF THE PAPERBOOK, VOLUME-11, ARE GENERAL SUBMISSIONS WHICH INDICATES THE AGREE SERVICES AND THE ALLOCATION OF INTRA-GROUP SERVICES FEES, IN ACCORDANCE WITH THE A GREEMENT DISCUSSED ABOVE; PAGE NO.129 TOWARDS WHICH OUR ATTENTION IS D RAWN, IS ALSO A WORKING OF ALLOCATION BASED ON THE AGREEMENT. THESE DOCUMENTS DO NOT PROVE THAT ANY ACTUAL SERVICES HAD BEEN RENDERED. II) PAGE 3 OF THE ADDITIONAL EVIDENCE, IS A CONFIDE NTIAL AND NON- DISCLOSURE AGREEMENT DATED 11/10/2013 (WHICH IS SUB SEQUENT TO THE ASSESSMENT YEAR) WHICH DOES NOT IN ANY WAY ESTABLIS H THAT THE SERVICES COMMENSURATE TO THE FEES, WERE RENDERED. 11. REGARDING DISALLOWANCE OF COMMISSION PAID/PAYAB LE TO FOREIGN FROM UNDER SECTION 40(A)(IA) OF THE ACT, LD DRP OBSERVED THAT NO EVIDENCE WAS FURNISHED BY ASSESSEE IT HAS B EEN OBSERVED BY DRP THAT ASSESSEE DID NOT ESTABLISH THE ONUS WIT H SUPPORTIVE DOCUMENTS THAT EXPENSES HAD BEEN INCURRED FOR PURPO SE OF BUSINESS CARRIED OUT DURING THE YEAR, AND THE CLAIM WAS NOT CONTINGENT IN NATURE. DRP ACCORDINGLY UPHELD THE DI SALLOWANCE MADE. PAGE 7 OF 15 IT(TP)A NO.290/BANG/2017 12. UPON RECEIPT OF DRP DIRECTIONS, LD.AO PASSED I MPUGNED ASSESSMENT ORDER MAKING ADDITION IN THE HANDS OF AS SESSEE. AGGRIEVED BY ORDER PASSED BY LD.AO, ASSESSEE IS IN APPEAL BEFORE US NOW. 13. AT THE OUTSET, LD.AR SUBMITTED THAT, VARIOUS DE TAILS WERE FURNISHED BY ASSESSEE BEFORE THE AUTHORITIES BELOW WHICH WERE NOT CONSIDERED IN RIGHT PERSPECTIVE. LD.AR SUBMITT ED THAT, ASSESSEE ENTERED INTO AGREEMENT WITH RESPECT TO M ANAGEMENT SERVICES AND THAT, VARIOUS DETAILS IN RESPECT OF BE NEFIT RECEIVED, AND NATURE OF SERVICES RENDERED BY AE WERE SUBMITT ED. HE ALSO SUBMITTED THAT EVIDENCE OF SERVICES AVAILED THROUGH E-MAIL CORRESPONDENCES FOR TRAINING CONDUCTED IN INDIA BY PERSONNEL OF AE GROUP, MARKETING ACTIVITIES CONDUCTED BY ASSESSE E ETC., WERE FURNISHED BEFORE AUTHORITIES BELOW. HE SUBMITTED T HAT, THE COST ALLOCATION WAS BASED ON VARIOUS KEYS BASED ON WHICH , THE PAYMENTS HAVE BEEN MADE BY ASSESSEE IN VIEW OF SERV ICES RECEIVED. 14. LD.AR SUBMITTED THAT, AUTHORITIES BELOW HAVE NO T VERIFIED ALL THESE DETAILS FILED BY ASSESSEE, AND HAVE SUMMARILY REJECTED THE SUBMISSIONS. HE SUBMITTED THAT, AUTHORITIES BELOW H AVE WRONGLY OBSERVED THAT, SATISFACTORY EVIDENCES WERE NOT FILE D IN SUPPORT OF THE CLAIM MADE BY ASSESSEE. LD.AR REFERRING TO THE OBSERVATIONS OF DRP, SUBMITTED THAT, ALLOCATION OF COSTS IN RES PECT OF IT SERVICES WHICH HAS BEEN ALLOWED BY LD.TPO ARE SIMIL AR TO THE COST ALLOCATION IN RESPECT OF MANAGERIAL SERVICES DISPUT ED BY LD.TPO. PAGE 8 OF 15 IT(TP)A NO.290/BANG/2017 HE SUBMITTED THAT IDENTICAL EVIDENCES WERE FILED FO R BOTH THESE SEGMENTS TO ESTABLISH THAT SERVICES WERE RECEIVED FROM AE. 15. LD.CIT.DR SUBMITTED THAT THE ISSUE MAY BE REMAN DED TO AUTHORITIES BELOW FOR VERIFICATION OF THE FACT IN T HE LIGHT OF EVIDENCES FILED BY ASSESSEE. 16. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 17. GROUNDS FROM 1-10 RELATE TO PAYMENT MADE TO AE IN VIEW OF INTRAGROUP SERVICES RECEIVED BY ASSESSEE. 18. IT IS OBSERVED THAT LD.TPO DETERMINED ALP AT NI L BY APPLYING CUP, VIS--VIS , ALP DETERMINED BY ASSESSEE AT AGGREGATE LEVEL BY USING TNMM. LD.TPO HELD THAT ASSESSEE DID NOT OBTAIN ANY BENEFIT OUT OF SUCH SERVICES AND THAT SUCH SERV ICES PROVIDED BY AE WERE NOT REQUIRED, AS, ASSESSEE FAILED TO PRO VIDE EVIDENCE REGARDING RECEIPT OF SERVICES, ALLEGED TO BE RENDER ED BY AE, NECESSITATING ANY PAYMENT. IT IS OBSERVED THAT, LD. TPO THUS HELD THAT, AS THERE IS NO BENEFIT FROM SERVICES FOR WHIC H PAYMENTS HAS BEEN MADE, HE DETERMINED ALP OF INTERNATIONAL TRANS ACTION AT NIL, WITHOUT CARRYING OUT ANY FAR ANALYSIS OF INTRA-GRO UP SERVICES. THIS APPROACH OF LD.TPO IS NOT ACCEPTABLE, AS ONCE A TRANSACTION HAS BEEN CATEGORISED AS INDEPENDENT INTERNATIONAL T RANSACTION, IT IS NECESSARY TO DETERMINED ALP OF SUCH TRANSACTION. LD.TPO CANNOT CONSIDER ALP AT NIL AND VALUE OF TRANSACTI ON HAS TO BE COMPUTED AS PER LAW. PAGE 9 OF 15 IT(TP)A NO.290/BANG/2017 19. THE INCOME TAX ACT PROVIDES COMPUTATION OF ARMS LENGTH PRICE OF ANY INTERNATIONAL TRANSACTION AS UNDER: COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIO N HAVING REGARD TO ARM'S LENGTH PRICE. 92. (1) ANY INCOME ARISING FROM AN INTERNATIONAL TR ANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y CLARIFIED THAT THE ALLOWANCE FOR ANY EXPENSE OR INTEREST ARIS ING FROM AN INTERNATIONAL TRANSACTION SHALL ALSO BE DETERMINED HAVING REGARD TO THE ARM'S LENGTH PRICE. (2) WHERE IN AN INTERNATIONAL TRANSACTION [OR SPECI FIED DOMESTIC TRANSACTION], TWO OR MORE ASSOCIATED ENTER PRISES ENTER INTO A MUTUAL AGREEMENT OR ARRANGEMENT FOR TH E ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNE CTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PR OVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES, THE COST OR EXPENS E ALLOCATED OR APPORTIONED TO, OR, AS THE CASE MAY BE, CONTRIBU TED BY, ANY SUCH ENTERPRISE SHALL BE DETERMINED HAVING REGARD T O THE ARM'S LENGTH PRICE OF SUCH BENEFIT, SERVICE OR FACI LITY, AS THE CASE MAY BE. 20. ACCORDING TO ABOVE PROVISIONS FOLLOWING PRINCIP LES EMERGE:- AN INTERNATIONAL TRANSACTION IS ENTERED IN TO BETWE EN TWO OR MORE ASSOCIATED ENTERPRISES FOR JOINTLY ACQUIRING O R DEVELOPING SOME PROPERTY OR FOR OBTAINING SERVICES. THE PARTIES TO TRANSACTION ENTER IN TO MUTUAL AGREE MENT OR ARRANGEMENT TO SHARE COST OR EXPENSES INCURRED OR T O BE INCURRED IN RESPECT OF JOINT PROPERTY. THE COST OR EXPENSES INCURRED SHOULD BE IN CONNECTI ON WITH A BENEFIT OR SERVICES OF FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISE. THE EXPECTATION OF PAGE 10 OF 15 IT(TP)A NO.290/BANG/2017 MUTUAL BENEFIT IS IMPORTANT CONSIDERATION FOR THE ACCEPTANCE OF ARRANGEMENT FOR POOLING OF RESOURCES BY THE ENTERPRISES. THE ENTERPRISES WOULD REQUIRE THAT EACH PARTICIPANT S PROPORTIONATE SHARE OF THE CONTRIBUTION IS CONSISTE NT WITH THE PROPORTIONATE SHARE OF OVERALL BENEFITS EXPECTE D TO BE RECEIVED FROM THE ARRANGEMENT. TRANSFER PRICE OF COST OR EXPENSES ALLOCATED OR APP ORTIONED TO SUCH ENTERPRISE OR CONTRIBUTED BY SUCH ENTERPRIS E SHALL BE DETERMINED HAVING REGARD TO ARM S LENGTH PRICE OF SUCH BENEFIT, SERVICE OR FACILITY RECEIVED BY THE ENTERP RISE. IN ORDER TO SATISFY ARMS LENGTH PRICE PARTICIPANTS CONTRIB UTIONS MUST BE CONSISTENT WITH WHAT AN INDEPENDENT ENTERPR ISE WOULD HAVE AGREED TO CONTRIBUTE UNDER COMPARABLE CIRCUMSTANCES CONSIDERING THE BENEFITS IT EXPECTS T O DERIVE FROM THE AGREEMENT. 21. WE DIRECT LD.TPO TO JUDGE THE REQUIREMENT OF SE RVICES FROM VIEWPOINT OF ASSESSEE AS A BUSINESSMAN. THEREFORE I N THIS REGARD WE ARE OF VIEW THAT ASSESSEE HAS TO SUBSTANTIATE TH AT THESE SERVICES ARE REQUIRED BY IT. WE NOTE THAT ASSESSEE HAS ENTERED INTO INTRA GROUP SERVICE AGREEMENT WITH AE, WHICH I S PLACED AT PAGE 467 OF PAPER BOOK VOLUME II. THIS GOES TO PROV E THAT SERVICES WERE REQUIRED BY ASSESSEE. 22 . HONBLE DELHI HIGH COURT IN CASE OF CUSHMAN WAKEFIELD LIMITED REPORTED IN 46 TAXMANN.COM 317 HAS HELD THAT: PAGE 11 OF 15 IT(TP)A NO.290/BANG/2017 34. THE COURT FIRST NOTES THAT THE AUTHORITY OF T HE TPO IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE TH E 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 (P.) LTD. V. ADDL. CIT [2011] 47 SOT 423 /13 TAXMANN.COM 82 (MUM.): '8. WE FIND THAT THE BASIC REASON OF THE TRANSFER PRICING OFFICER'S DETERMINATION OF ALP OF THE SERVI CES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NI L' IS HIS PERCEPTION THAT THE ASSESSEE DID NOT NEED THESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIENT EXP ERTS OF HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINT ED OUT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAF F 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 ASSESSEE HAD MANAGEMENT EXPERTS ON ITS ROL LS, AND, THEREFORE, GLOBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LES S APPROVE, THIS LINE OF REASONING. IT IS ONLY ELEMENT ARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIR ELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHO RITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHA T IS NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIE D ACCOUNTANTS AND MANAGEMENT EXPERTS ON HIS ROLLS, AN D YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXP ERTS FOR AUDITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEE'S WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WAS NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERCIAL 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 N OT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. W E HAVE FURTHER NOTICED THAT THE TRANSFER PRICING OFFI CER HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, A S EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE PAGE 12 OF 15 IT(TP)A NO.290/BANG/2017 ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RES ULTS, FROM THESE SERVICES. THIS ANALYSIS IS ALSO COMPLETE LY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AN D, BY NO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN 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 BENEFI TS 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 HAV E PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE T HE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEAR S WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT . THE AE MAY HAVE GIVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMINING THE ARM'S LENGTH PRICE OF TH E COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED THAT THE STAND OF T HE REVENUE AUTHORITIES IN THIS CASE IS THAT NO SERVICE S WERE RENDERED BY THE AE AT ALL, AND THAT SINCE THERE IS NO. EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL, T HE ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'.' 23. ANOTHER ASPECT THAT WAS MADE CLEAR BY COORDINAT E BENCH OF THIS TRIBUNAL IN DELLOITE CONSULTING INDIA (P.) LTD. V. DY. CIT/ITO REPORTED IN [2012] 137 ITD 21/22 TAXMANN.COM 107 (MUM) IS THAT: '37. ON THE ISSUE AS TO WHETHER THE TRANSFER PRICIN G OFFICER IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE AT 'N IL', WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN GEMPLUS INDIA (P.) LTD. V. ASSTT. CIT [IT APPEAL NO. 352 (BANG.) OF 20 09, DATED 20- 10- 2010] HELD THAT THE ASSESSEE HAS TO ESTABLISH B EFORE THE TRANSFER PRICING OFFICER THAT THE PAYMENTS MADE WER E PAGE 13 OF 15 IT(TP)A NO.290/BANG/2017 COMMENSURATE TO THE VOLUME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARABLE. WHEN COMMENSURATE BENEFIT AGA INST THE PAYMENT OF SERVICES IS NOT DERIVED, THEN THE TRANSF ER PRICING OFFICER IS JUSTIFIED IN MAKING AN ADJUSTMENT UNDER THE ARM'S LENGTH PRICE. 24. PLACING RELIANCE UPON AFORESTATED DECISIONS, WE ARE OF CONSIDERED OPINION THAT FOR THESE SERVICES, ASSESS EE HAS TO DEMONSTRATE AND SATISFY EVIDENCE TEST OR RENDITION TEST AND BENEFIT TEST, AS ENVISAGED U/S 92(2) OF THE ACT, AN D THAT, SERVICES PROVIDED BY AE ARE NEITHER DUPLICATIVE NOR SHAREHO LDERS ACTIVITY. LD.AO/TPO IS THEN DIRECTED TO DETERMINE ARMS LENGT H PRICE OF THESE SERVICES BASED ON DOCUMENTS SUBMITTED BY ASSE SSEE BY DETERMINING MOST APPROPRIATE METHOD AND COMPARABILITY ANALYSIS. ACCORDINGLY THIS ISSUE STANDS ALLOWED FOR STATISTIC AL PURPOSES. 25. GROUND 11 IS IN RESPECT OF DISALLOWANCE OF RS.4,13,721/- UNDER SECTION 40(A)(IA) OF THE ACT. 26. AT THE OUTSET BOTH SIDES SUBMIT THAT NO DETAILS HAVE BEEN FURNISHED IN SUPPORT OF THE CLAIM OF ASSESSEE. 27. ACCORDINGLY WE ARE OF CONSIDERED OPINION THAT T HE ISSUE NEEDS TO BE RE-VERIFIED BY LD.AO. ASSESSEE IS DIREC TED TO FILE ALL RELEVANT DETAILS IN SUPPORT OF ITS CONTENTION. LD.A O SHALL THEN CONSIDER ALL THESE DOC EVIDENCES FILED BY ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY THIS ISSUE STANDS ALLOWED FOR STATISTIC AL PURPOSES. GROUND NO. 12 IS IN RESPECT OF TDS CREDIT NOT BEING ALLOWED. PAGE 14 OF 15 IT(TP)A NO.290/BANG/2017 28. WE DIRECT LD.AO TO VERIFY THE SAME AND TO GRANT CREDIT IN ACCORDANCE WITH LAW. ASSESSEE IS DIRECTED TO SUBMIT DETAILS IN SUPPORT. ACCORDINGLY THIS ISSUE STANDS ALLOWED FOR STATISTIC AL PURPOSES. 29. GROUND NO.13 IS CONSEQUENTIAL AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH NOV, 2020 SD/- SD/- (B.R BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 25 TH NOV, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 15 OF 15 IT(TP)A NO.290/BANG/2017 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -11-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -11-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -11-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -11-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -11-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -11-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -11-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS