ACIT, New Delhi V. M/s. Sage Publications India Pvt. Ltd., New Delhi

ITA 2950/DEL/2015

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 2213 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 13-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S TOMER
• Assessee Lawyers: NIDHI SHARMA
• Keywords: Transfer pricing; International transaction; Services rendered outside India; Additional evidence; TDS
• Section: 92C; 40A(3); 143(3)

Judgement Text

, -2, IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI ! !! ! ! !! ! $ $ $ $ % % % % BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER & SH.R.K.PANDA, ACCOUNTANT MEMBER ! !! ! / ITA NO.2950/DEL/2015 && && && && / ASSESSMENT YEAR: 2009-10 THE ACIT, CIRCLE-22(1), ROOM NO.0238A, 2 ND FLOOR, C.R.BUILDING, I.P.ESTATE, NEW DELHI. .......... '( /APPELLANT VS SAGE PUBLICATION INDIA PVT.LTD., B-1/1-1, MOHAN CO-OPERATIVE INDL. ESTATE, NEW DELHI-110044. PAN-AAACS0332A . )*'( / RESPONDENT '(+, / APPELLANT BY : SH. VISHAL KALRA, ADV. & SH. S.S.TOMER, ADV. )*'(+, / RESPONDENT BY : MS. NIDHI SHARMA, SR.DR +-.$ / DATE OF HEARING: 07.11.2019 /0+-.$ / DATE OF PRONOUNCEMENT: 20.11.2019 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY REVENUE IS AGAI NST ORDER OF CIT(A)-44, NEW DELHI, DATED 19.02.2015 RELATING TO ASSESSMENT YEAR ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 2 2009-10 PASSED UNDER SECTION 143(3) OF THE INCOME-T AX ACT, 1961 (IN SHORT ACT). 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 1. 'THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 21,33,659/- MADE BY THE AO BY ADMIT TING THE ADDITIONAL EVIDENCES AS WELL AS THE ASSESSEE HAS FA ILED TO FURNISH THE RELEVANT DETAILS OF PAYMENTS MADE TO VARIOUS AU THORS.' 2. 'THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 17,82,362/- MADE BY THE AO ON ACCOU NT OF ADDITION MADE ON ACCOUNT OF ENHANCING THE AMOUNT OF WORK IN PROGRESS OF JOURNALS AS THE ASSESSEE HAS NOT VALUED THE STOCK O F JOURNAL ON THE DATE OF BALANCE SHEET.' 3. 'THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 7,56,935/- MADE BY THE AO ON ACCOUN T OF FOREIGN TRAVELLING EXPENSES AS THE ASSESSEE FAILED TO SUBMI T PROPER EXPLANATION OF FREQUENT FOREIGN TRAVEL.' 4. 'THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,17,20,448/- MADE BY THE AO ON ACC OUNT OF TRANSFER PRICING ADJUSTMENT OF EXPORT OF SERVICES IN VIOLATI ON OF SECTION 92C OF THE ACT.' ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 3 5. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, A DD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURIN G THE HEARING OF THIS APPEAL. 3. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE HA D FILED RETURN OF INCOME OF RS.4,25,97,873/-. THE CASE OF THE ASSESS EE WAS TAKEN UP FOR SCRUTINY. THE ASSESSEE WAS A GROUP COMPANY OF SAGE GROUP WHERE 76% EQUITY OF THE ASSESSEE COMPANY WAS HELD BY SAGE PUB LICATION LTD. UK AND BALANCE 24% WAS HELD BY SAGE PUBLICATIONS INC., USA. THE ASSESSEE WAS ENGAGED IN THE PUBLICATION OF ACADEMIC BOOKS AN D JOURNALS. THE BOOKS AND PERIODICALS PUBLISHED IN INDIA WERE PARTL Y EXPORTED TO THE AES ABROAD AND THE ASSESSEE WAS ALSO PURCHASING BOOKS A ND JOURNALS FROM ITS AES ABROAD AND SELLING AND DISTRIBUTING THE SAM E IN INDIA. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY. THE FI RST ADDITION MADE BY THE ASSESSING OFFICER WAS AGAINST THE DISALLOWANCE OF CASH PAYMENT MADE IN VIOLATION OF SECTION 40A(3) AT RS.21,547/-. THE NEXT ISSUE RAISED BY THE ASSESSING OFFICER WAS THE PAYMENT OF ROYALTY TO THE AUTHORS OF THE BOOKS AND JOURNAL, ON SALE OF THE SAID BOOKS. THE ASSESSEE HAD SHOWN ROYALTY PAYABLE AMOUNTING TO RS.85,34,636/-. THE A SSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE SAME AND ALSO JUSTIFY AS TO WHY THE AMOUNT WAS OUTSTANDING. THE ASSESSEE FURNISHED THE LIST O F THE PERSONS TO WHOM THE SAID ROYALTY WAS PAYABLE. THE ASSESSING OFFICE R NOTED THAT NO ADDRESSES OF THE SAID PERSONS WERE GIVEN BY THE ASS ESSEE. IN SUCH CIRCUMSTANCES, HE OBSERVED THAT IT WAS NOT POSSIBLE TO VERIFY WHETHER THE ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 4 AFORESAID AMOUNT WAS ACTUALLY PAYABLE TO THE SAID P ERSONS. HENCE, THE SUM OF RS.21,33,659/- EQUIVALENT TO 25% OF THE OUTS TANDING ROYALTY WAS TREATED AS NOT GENUINE AND WAS DISALLOWED. 4. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AGA INST WHICH THE REVENUE IS IN APPEAL. THE REVENUE IS AGGRIEVED ON THE GROUND THAT THE CIT(A) HAD DELETED THE ADDITION BY ADMITTING THE AD DITIONAL EVIDENCES AND WHERE THE ASSESSEE HAS FAILED TO FURNISH THE RELEVA NT DETAILS OF PAYMENT MADE TO VARIOUS AUTHORS, THE SAID EXPENDITURE CANNO T BE ALLOWED. 5. THE LD. DR FOR THE REVENUE PLACED HEAVY RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 6. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE EVIDENCES FILED BY THE ASSESSEE BEFORE THE CIT(A), WERE SENT TO THE AS SESSING OFFICER FOR FILING REMAND REPORT, WHICH THE ASSESSING OFFICER F AILED TO FILE. FURTHER, THE CIT(A) HAS MINUTELY GONE INTO THE DETAILS AND ALLOWED THE CLAIM OF THE ASSESSEE. HE ALSO POINTED OUT THAT THE ASSESSI NG OFFICER AFTER RECEIVING THE DETAILS FILED BY THE ASSESSEE, NEVER RAISED ANY QUERY REGARDING THE ADDRESSES OF THE AUTHORS. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RAISED BY THE REVENUE IS AGAINST THE ADMISSIO N OF ADDITIONAL EVIDENCE BY THE CIT(A). THE GRIEVANCE OF THE REVEN UE IN THIS REGARD IS THAT THE SAID EVIDENCE ON WHICH RELIANCE WAS PLACE D BY THE CIT(A), WAS NOT FILED BEFORE THE ASSESSING OFFICER AND WAS ALSO NOT CONFRONTED BY THE ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 5 CIT(A) TO THE ASSESSING OFFICER. ON THE PERUSAL OF RECORD, WE FIND THAT THE ASSESSEE HAD FURNISHED THE BASIC DETAILS OF NAM E OF PARTIES TO WHOM THE AFORESAID PAYMENT WAS MADE. THE ASSESSING OFFI CER DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ADDRESSES OF THE PARTIES TO WHOM THE AFORESAID PAYMENT HAS BEEN MADE, WAS NOT AVAILA BLE. FIRST OF ALL, NO SUCH QUERY WAS RAISED BY THE ASSESSING OFFICER DURI NG THE ASSESSMENT PROCEEDINGS AND HENCE NON-COMPLIANCE BY THE ASSESSE E. HOWEVER, DETAILS WERE FILED BY THE ASSESSEE BEFORE THE CIT(A ), WHO IN TURN FORWARDED THE SAME TO THE ASSESSING OFFICER FOR REM AND REPORT, WHICH WAS NEVER FILED BY THE ASSESSING OFFICER. IN SUCH S CENARIO, THE CIT(A) VERIFIED THE DETAILS FILED BY THE ASSESSEE I.E. (I) SCHEDULE OF THE ROYALTY FOR BOOKS INCLUDING THE NAME OF THE AUTHOR, TITLE OF TH E BOOK, ADDRESS OF THE AUTHOR/ROYALTY PAYEE AND AMOUNT OF ROYALTY PAYABLE AS ON MARCH 31, 2009 AND (II) SCHEDULE OF THE ROYALTY PAYABLE FOR J OURNALS INCLUDING THE NAME OF THE JOURNAL, ADDRESS OF THE ROYALTY PAYEES AND AMOUNT OF ROYALTY PAYABLE AS ON MARCH 31, 2009. THE ASSESSEE ALSO MA DE DETAILED SUBMISSIONS WITH REGARD TO THE ROYALTY PAYABLE AT R S.85,34,634/- AND THE ROYALTY EXPENSE CLAIMED IN THE P&L A/C AT RS.78 ,40,523/- WHICH WAS ALSO FILED BEFORE THE ASSESSING OFFICER AND ALSO CO NSIDERED THE CONTENTION OF THE ASSESSEE THAT AFTER FILING THE AFORESAID DET AILS, NO OTHER QUERY WAS RAISED BY THE ASSESSING OFFICER. THE CIT(A) VIDE P ARA 5.5 AT PAGE 11 OF THE APPELLATE ORDER OBSERVED AS UNDER:- ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 6 5.5. THE APPELLANT COMPANY HAS PAID THE ROYALTY OF RS. 85,34,636/- TO THE AUTHORS OF ITS BOOKS AND JOURNAL ON SALES OF BOOKS/ JOURNALS. THE APPELLANT HAS THE FURNISHED PE RSON-WISE LIST WITHOUT ANY ADDRESS BEFORE THE AO IN THIS REGARD. T HE AO HAS TREATED THE AMOUNT OF RS. 21,33,659/- BEING 25% OF THE ROYALTY AS NOT GENUINE AND ADDED BACK TO THE INCOME OF THE APP ELLANT COMPANY. DURING THE COURSE OF THE APPELLATE PROCEED INGS, THE APPELLANT HAS SUBMITTED (I) SCHEDULE OF THE ROYALTY FOR BOOKS INCLUDING THE NAME OF THE AUTHOR, TITLE OF THE BOOK , ADDRESS OF THE AUTHOR/ROYALTY PAYEE AND AMOUNT OF ROYALTY PAYABLE AS ON MARCH 31, 2009 AND (II) SCHEDULE OF THE ROYALTY PAYABLE F OR JOURNALS INCLUDING THE NAME OF THE JOURNAL, ADDRESS OF THE R OYALTY PAYEES AND AMOUNT OF ROYALTY PAYABLE AS ON MARCH 31, 2009. ALL THESE DETAILS WERE FORWARDED TO THE AO FOR A REMAND REPORT. THERE AFTER SEVERAL REMINDERS WERE ALSO ISSUED TO AO. HOWEVER, NO REMAN D REPORT HAS BEEN RECEIVED FROM THE AO. THE APPELLANT HAS STATED THAT AGAINST THE ROYALTY PAYABLE OF RS. 85,34,634, THE ROYALTY E XPENSE CLAIMED IN THE P&L ACCOUNT WAS RS. 78,40,523/-[ ON BOOKS PUBLI SHED : RS. 43,67,546 85 ON JOURNALS PUBLISHED : RS. 34,72,977] . DURING THE YEAR, THE APPELLANT DEALT WITH OVER 1200 BOOKS AUTH ORED BY AROUND 700 AUTHORS AND 31 JOURNALS. THE APPELLANT HAS STAT ED THAT THE AVERAGE ROYALTY EXPENSE PER BOOK TITLE (WITH AROUND 1,200 BOOKS) WORKS OUT TO RS. 3,640. THE AVERAGE ROYALTY EXPENSE PER AUTHOR (WITH AROUND 700 AUTHORS) WORKS OUT TO RS. 6,240/-. THE APPELLANT HAS STATED THAT ALL PAYMENTS TOWARDS ROYALTY HAVE B EEN MADE BY CROSSED CHEQUES TO THE CONCERNED AUTHORS AND TDS, W HEREVER APPLICABLE, HAS ALSO BEEN DEDUCTED AND DEPOSITED. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT CONSIDER ING THE FACTS OF THE CASE, I AM OF THE VIEW THAT THE ASSESSING OFFIC ER HAS MADE THE DISALLOWANCE OF RS.21,33,659/- OUT OF ROYALTY BASED ON CONJECTURES AND SURMISES. ACCORDINGLY, THE ASSESSING OFFICER I S DIRECTED TO DELETE THE ADDITION MADE IN THIS REGARD. 8. THE ABOVE SAID FINDINGS OF THE CIT(A) REFLECT TH AT THOUGH SEVERAL REMINDERS WERE ISSUED TO THE ASSESSING OFFICER BUT HE FAILED TO FILE THE REMAND REPORT. EVEN ON MERITS, THE ISSUE HAS BEEN CONSIDERED ELABORATELY BY THE CIT(A) AS TO THE NUMBER OF BOOKS DEALT IN AND HAS NOTED THAT THE AVERAGE ROYALTY EXPENSE PER BOOK TIT LE WORKS OUT TO RS.3,640/-. THE AVERAGE ROYALTY EXPENSE PER AUTHOR WORKS OUT TO ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 7 RS.6,240/-. THE AFORESAID PAYMENTS WERE MADE BY CH EQUE AND WHEREVER APPLICABLE TDS WAS DEDUCTED AND DEPOSITED. THE SAI D EXPENDITURE IS THUS ALLOWED IN THE HANDS OF ASSESSEE. IN SUCH C IRCUMSTANCES, WE FIND NO MERIT IN THE GROUND NO.1 OF APPEAL RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 9. THE ISSUE RAISED IN GROUND NO.2 IS AGAINST THE D ELETION OF ADDITION MADE OF RS.17,82,362/-. 10. BRIEFLY IN THE FACTS OF THE CASE RELATING TO TH E ISSUE, THE ASSESSEE DURING THE YEAR HAD DECLARED WORK IN PROGRESS RELA TING TO JOURNALS AMOUNTING TO RS.6,49,307/-. THE ASSESSEE HAD NOT S HOWN ANY STOCK OF JOURNAL PRINTED BY IT. IN REPLY TO THE QUERY RAISE D BY THE ASSESSING OFFICER, THE ASSESSEE EXPLAINED THAT JOURNALS AT HA ND, AT THE BALANCE SHEET DATE, WERE NOT VALUED. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WAS PUBLISHING VOLUMES OF JOURNALS AND THE SALE OF JOURNALS PUBLISHED BY THE ASSESSEE WAS RS.2.43 CRORES DURING THE YEAR. THE ASSESSING OFFICER WAS OF THE VIEW THAT JOURNALS COU LD NOT BE PUBLISHED OVERNIGHT AND SOME RELATED MATERIAL AND OTHER SETTI NGS HAD TO BE KEPT READY. THE ASSESSING OFFICER WAS NOT SATISFIED WIT H THE EXPLANATION GIVEN BY THE ASSESSEE AND HE NOTED THAT THE WORK IN PROGR ESS SHOWN WAS ONLY 2.67 % OF THE SALE VALUE OF THE JOURNALS. THE ASSE SSING OFFICER THUS ESTIMATED THE WORK IN PROGRESS @ 10% OF THE SALE VA LUE AT RS.24,31,669/- AND ENHANCED THE INCOME BY RS.17,82, 362/-. ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 8 11. THE CIT(A) TOOK NOTE OF THE EXPLANATION OF THE ASSESSEE THAT THE VALUE OF ANY PROGRESS HAD NO RELATIONSHIP WITH THE SALE OF JOURNALS, WHEREIN THE VALUE WAS DETERMINED ON THE BASIS OF AC TUAL EXPENDITURE INCURRED FOR THE UNFINISHED JOURNALS. THE CIT(A) V IDE PARA 6.3 AT PAGE 14 OBSERVED THAT THE WORK IN PROGRESS RELATED TO EXPEN DITURE INCURRED DURING PRE-PRESS STAGE LIKE EDITING, PROOF READING, COVER PRINTING AND OTHER EDITORIAL SERVICE FEES. HE THUS DELETED THE ESTIMATION OF VALUE OF WORK IN PROGRESS ESTIMATED BY THE ASSESSING OFFICER , HOLDING IT TO BE PASSED ON CONJECTURES AND SURMISES. 12. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER. THE LD.AR FOR THE ASSESSEE POI NTED OUT THAT COMPLETE DETAILS WERE FILED BEFORE THE ASSESSING OFFICER WHI CH ARE PLACED AT PAGE 131 OF THE PAPER BOOK, WHICH WERE NOT CONSIDERED B Y THE ASSESSING OFFICER, HENCE THE ADDITION. 13. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD AND EVIDENCES FILED BY THE ASSESSEE AND FIND NO MERIT I N THE ORDER OF THE AO IN ESTIMATING THE WORK IN PROGRESS OF THE JOURNALS. THE ASSESSEE CLAIMS TO HAVE SHOWN THE VALUE OF WORK IN PROGRESS ON THE BASIS OF ACTUAL EXPENSE INCURRED FOR THE UNFINISHED JOURNALS. IN T HE ABSENCE OF ANY EVIDENCE FOUND ON THE CONTRARY, THERE IS NO MERIT I N ESTIMATING THE VALUE OF WORK IN PROGRESS. UPHOLDING THE ORDER OF CIT(A) , WE DISMISS GROUND NO.2 OF THE APPEAL RAISED BY THE REVENUE. ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 9 14. THE GROUND NO.3 RAISED BY THE REVENUE IS AGAINS T THE DELETION OF ADDITION OF RS.7,56,935/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. 15. BRIEFLY IN THE FACTS OF THE CASE RELATING TO TH E ISSUE, THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.30,27,734/- ON FO REIGN TRAVELLING EXPENSES. THE ASSESSING OFFICER NOTED THAT THE ASS ESSEE WAS SELLING THE BOOKS AND JOURNALS PUBLISHED BY ITS AES. HOWEVER, HE WAS OF THE VIEW THAT SUCH HUGE EXPENSES AND FREQUENT VISITS OF FOR EIGN TRAVEL WERE NOT PROPERLY EXPLAINED AS WHAT WAS THE BUSINESS PURPOSE FOR WHICH SUCH VISIT WAS MADE. IN THE ABSENCE OF THE SAME, 25% OF THE TOTAL EXPENSES WERE DISALLOWED BY THE ASSESSING OFFICER AT RS.7,56 ,935/-. 16. THE CIT(A) NOTED THE CONTENTION OF THE ASSESSEE THAT THE BUSINESS TRIPS WERE MADE TO GROUP COMPANIES IN ORDER TO ATTE ND GLOBAL EXECUTIVE COMMITTEE MEETS AND TO DISCUSS CRITICAL BUSINESS IS SUES AND THE SAID TRAVELS WERE MADE BY THE MANAGING DIRECTOR OF THE A SSESSEE COMPANY. OUT OF THE TOTAL EXPENDITURE OF RS.98,39,723/-, THE EXPENDITURE ON OVERSEAS TRAVELS WAS RS.30,27,734/-. THE ASSESSEE EXPLAINS THAT SIMILAR TRAVEL WAS BEING UNDERTAKEN FROM YEAR TO YEAR. THE CIT(A) ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT WHERE THE ASSESSEE COMPANY WAS OWNED BY NON-RESIDENT COMPANIES INCORPORATED IN UK & USA AND WHERE ALL VISITS UNDERTAKEN ABROAD WERE FOR BUSINESS PURPOSES , THEN NO DISALLOWANCE COULD BE MADE OUT OF FOREIGN TRAVELLIN G EXPENSES BASED ON CONJECTURES AND SURMISES. ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 10 17. ON PERUSAL OF RECORD AND AFTER HEARING BOTH AUT HORIZED REPRESENTATIVES AND HAVE ALSO PERUSED THE DETAILS PLACED AT PAGE 136 OF THE PAPER BOOK, WE ARE OF THE VIEW THAT ADHOC DISAL LOWANCE OUT OF FOREIGN TRAVEL EXPENSES IS NOT WARRANTED IN THE CASE OF THE ASSESSEE. THE AFORESAID EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR ATTENDING THE ANNUAL MEETS AND OTHER BUSINESS CONFERENCES AND HEN CE, WERE UNDERTAKEN FOR BUSINESS PURPOSES. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUND NO.3 OF THE APPEA L RAISED BY THE REVENUE. 18. THE LAST ISSUE RAISED IN GROUND NO.4 IS AGAINST THE DELETION OF TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF EXPO RT OF SERVICES AT RS.1.17 CRORES. 19. BRIEFLY IN THE FACTS OF THE CASE RELATING TO T HE ISSUE, THE ASSESSEE HAD UNDERTAKEN VARIOUS INTERNATIONAL TRANSACTIONS W ITH ITS AE. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS NOTED THAT THE ASSESSEE HAD IN THE TP REPORT APPLIED THE TRANSACTIONAL NET MARGIN METHOD AND HAD PROPOSED THAT THE INTERNATION AL TRANSACTIONS UNDERTAKEN BY IT WERE AT ARMS LENGTH. THE ASSESSIN G OFFICER AFTER GOING THROUGH THE DETAILS SUBMITTED BY THE ASSESSEE AND A LSO THE ADJUSTMENTS MADE TO THE PROFITS REDUCING SEVERAL COSTS OBSERVED THAT CONSIDERING THE MARGINS ON THESE AVAILABLE TO THE INDIAN ENTITY NO ADVERSE INFERENCE IS BEING DRAWN. THE ASSESSING OFFICER FURTHER OBSERVED HOWEVER, REGARDING THE COST OF SERVICES THE ASSESSEE COMPANY HAS TRIED TO SHOW A ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 11 MARGIN OF 47.11. OUT OF THESE THE ASSESSEE HAS SOL D 2,88,35,230/- TO THE AES. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE A SSESSEE COMPANY NOT BEEN ABLE TO SUPPORT THE PROFITABILITY ON COST OF SERVICES. THE ASSESSEE HAD CHARGED COST OF SERVICES AT RS.62,64,4 89/-. THE ASSESSING OFFICER THEN MADE COST ALLOCATION ON ACCOUNT OF REN T AREA, ADMINISTRATION COST AND SELLING AND DISTRIBUTING EXPENSES AND REWO RKED THE COST OF SERVICES PROVIDED BY THE ASSESSEE TO ITS AE. THE A SSESSING OFFICER APPLIED COST PLUS METHOD AND IN THE FINAL ANALYSIS MADE ADJUSTMENT, OBSERVING THAT ADJUSTMENT OF RS.1,17,20,448/- IS TO BE MADE AT TWICE OF THE ABOVE ADDITIONAL COSTS TO THE ASSESSEE I.E. 58, 60,224/- (RS.7,04,656 + 38,64,200 + 12,91,368/-). 20. THE CIT(A) NOTED THAT THE ASSESSING OFFICER HAD HELD THAT ALLOCATION OF THE COST WAS NOT CORRECTLY MADE BY THE ASSESSEE AND HAD APPLIED COST PLUS METHOD. FURTHER, AS THE ASSESSEE HAD AGREED T HAT IT HAD UNDERSTANDING OF CHARGING 100% OF THE COST OF SERVI CES FROM THE AES, THE ASSESSING OFFICER HAD TAKEN 100% PROFIT ON THE ADDI TIONAL COST OF RENDERING THE SERVICES AND MAKING AN ADJUSTMENT OF RS.1.17 CRORES. THE CIT(A) NOTED THAT THE ASSESSEE HAD ALLOCATED 22% OF THE TOTAL RENT AS AGAINST 10% RENT AREA TAKEN BY THE ASSESSING OFFICE R; AS REGARDS THE ADMINISTRATION OF JOURNAL EXPENSES, THE ALLOCATION OF COST WAS ON THE BASIS OF TURNOVER FIGURES AND SELLING AND DISTRIBUT ION COST DID NOT RELATE TO THE SERVICES EXPORTED TO AE AND HENCE NO COST T O BE ALLOCATED. THE CIT(A) ALSO TOOK NOTE OF THE CONTENTS OF THE AFFIDA VIT FILED BY THE ASSESSEE ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 12 COMPANY THAT THE OBSERVATIONS OF THE ASSESSING OFFI CER MADE IN THE ASSESSMENT ORDER AS STATED ABOVE PARA AND HIS UNDER STANDING OF 100% MARGIN OVER COST WAS NOT CORRECT AND WAS CONTRARY T O THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY AND ITS AUTHORIZED REP RESENTATIVES DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE COMPAN Y DENIED FROM HAVING MADE ANY SUCH REPRESENTATION. THE COPY OF T HE AFFIDAVIT WAS FORWARDED TO THE AO WHO DID NOT MAKE ANY SUBMISSION IN RESPONSE TO THE SAME. THE CIT(A) DELETED THE ADDITION OBSERVIN G AS UNDER:- 8.7. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT. IN THE TRANSFER PRICING STUDY THE METHOD APPLIED FO R DETERMINING THE ARMS LENGTH PRICE WAS TRANSACTIONAL NET MARGIN ME THOD I.E. TNMM FOR EXPORT OF SERVICES. THE APPELLANT HAD EARN ED AN OPERATING MARGIN OF 13.58% WHICH IS MUCH MORE THAN THE MEAN O PERATING MARGINS OF COMPARABLE COMPANIES WHICH CAME TO 9.63% . THE EXPORT OF SERVICES INVOLVES PROVISION OF PRE-PRESS TASKS W ITH REGARD TO BOOKS AND JOURNALS PUBLISHED BY THE AES. I AM OF TH E VIEW THAT THAT THE APPELLANT HAS CORRECTLY ALLOCATED RENT, ADMINIS TRATION & GENERAL EXPENSES AND OTHER EXPENSES TO EXPORT OF SERVICES SEGMENT. CONSIDERING THE FACTS OF THE CASE, 1 ALSO HOLD THAT TNMM IS THE MOST APPROPRIATE METHOD IN THIS CASE. THE AO HAS FAILED TO BRING ANY MATERIAL ON RECORD IN SUPPORT OF HIS PRESUMPTION OF 100% MARGIN ON COST OF SERVICES 8S OTHER SPECIFIED COSTS. CONSIDER ING THE FACTS OF THE CASE, I AM OF THE VIEW THAT THE AO HAS DETERMINED T HE TRANSFER PRICING ADJUSTMENT OF RS. 1,17,20,448/-. BY APPLYIN G COST PLUS METHOD BASED ON CONJECTURES AND SURMISES. THE DETER MINATION OF THE TP ADJUSTMENT AT RS. 1,17,20,448 (REPRESENTING TWICE THE AMOUNT OF RS. 58,60,224) HAS NO BASIS AT ALL. ACCOR DINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION MADE IN THIS REGARD . 21. THE LD. DR FOR THE REVENUE AFTER TAKING US THRO UGH THE FACTS OF THE CASE POINTED OUT THAT THE ASSESSING OFFICER HAD SEP ARATED THE TRANSACTION OF PROVISION OF SERVICES TO THE AE AND MADE AN ADJU STMENT BY ESTIMATING THE COST. SHE ALSO POINTED OUT THAT THE ASSESSING OFFICER HAD APPLIED ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 13 COST PLUS METHOD AND DOUBLED THE COST ALLOCATED. R EFERRING TO THE ORDER OF CIT(A), SHE STRESSED THAT U/S 92C OF THE ACT, AR MS LENGTH PRICE OF EACH TRANSACTION HAVE TO BE DETERMINED, BUT THE CIT(A) H AS NOT BENCHMARKED THE MARGINS OF THE ASSESSEE AND THE MARGINS OF THE COMPARABLES IN THIS REGARD. 22. THE LD.AR FOR THE ASSESSEE TOOK US THROUGH THE TRANSFER PRICING REPORT OF THE ASSESSEE PLACED AT PAGES 41 TO 75 OF THE PAPER BOOK. OUR ATTENTION WAS DRAWN TO PAGE 49 WHICH GAVE OVER VIEW OF THE ACTIVITIES OF THE ASSESSEE AND PAGE 51 WHEREIN INTERNATIONAL TRAN SACTIONS UNDERTAKEN BY THE ASSESSEE WERE SPECIFIED. HE THEN REFERRED T O THE REPLY FILED BEFORE THE ASSESSING OFFICER DATED 02.12.2011 PLACED AT PA GES 1 TO 6 AND THE ANNEXURE AT PAGE 7 OF THE PAPER BOOK. HE STRESSED THAT AT THE BEHEST OF THE ASSESSING OFFICER, SEGMENTAL P&L A/C OF PROVISI ONS OF SERVICES TO THE AE WAS FILED. OUR ATTENTION WAS DRAWN TO THE SAID SEGMENTAL DETAILS AND IT WAS POINTED OUT THAT THE MARGIN OF THE TRANSACTI ON OF PROVISION OF SERVICES WAS AT 47.11 %. HE ALSO DREW OUR ATTENT ION TO ALLOCATION OF COST WHICH WAS MAJORLY ON ACTUAL BASIS AND ON SOME EXPENDITURE, TURNOVER RATIO WAS APPLIED. THE LD.AR FOR THE ASSE SSEE STRESSED THAT ALLOCATION WAS PARTLY ACCEPTED BY THE ASSESSING OFF ICER AND IN THE GARB OF COST PLUS METHOD, THE ASSESSING OFFICER RE-ALLOCATE D THE COST ON ACCOUNT OF RENTED SPACE AREA OCCUPIED, SELLING AND DISTRIBU TION EXPENSES AND ADMINISTRATION AND JOURNAL EXPENSES. THE SAID ALLO CATION WAS MADE WITHOUT ANY SHOW CAUSE NOTICE TO THE ASSESSEE WAS A LSO BASED ON ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 14 MARGINS WHEREAS THE ASSESSEE HAD ALLOCATED THIS COS T EITHER ON ACTUAL OR ON THE BASIS OF TURNOVER. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD ENTERED INTO MULTIPLE INTERNATIONAL TR ANSACTIONS WITH ITS AES AND HAD BENCHMARKED THE ARMS LENGTH PRICE OF TH E SAID INTERNATIONAL TRANSACTION ON AGGREGATE BASIS. THE ASSESSEE HAD APPLIED TRANSACTIONAL NET MARGIN METHOD AND COMPARED ITS MA RGINS WITH THE MEAN MARGINS OF THE COMPARABLES SELECTED BY IT. IT MAY BE POINTED OUT THAT THE ASSESSING OFFICER HAD ACCEPTED THE MARGINS OF VARIOUS INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESS EE, EXCEPT THE TRANSACTIONS OF PROVISIONS OF SERVICES TO AE. IN T HIS SEGMENT, THE ASSESSING OFFICER OBSERVED THE ALLOCATION OF COST W AS NOT CORRECTLY MADE BY THE ASSESSEE AND HE RE-WORKED COST AND DOUBLED THE COST, IN THE GARB APPLYING COST PLUS METHOD AND MADE AN ADDITION OF R S.1.17 CRORES. FIRST OF ALL, THERE IS NO BASIS IN THE EXERCISE CARRIED O UT BY THE ASSESSING OFFICER AS THE COST PLUS METHOD HAS NOT BEEN CORREC TLY APPLIED. EVEN OTHERWISE, WHERE THE ASSESSEE HAD PROVIDED THE SEGM ENTALS AT THE BEHEST OF THE ASSESSING OFFICER, WHICH IN TURN WERE WORKED OUT AFTER ALLOCATING THE COST EITHER ON ACTUAL OR ON TURN OVER BASIS, TH EN THE SAME CANNOT BE REJECTED. FIRST OF ALL, THERE IS NO MERIT IN SEGRE GATING ONE TRANSACTION OF PROVISIONS OF SERVICES TO AE AND SEPARATELY BENCHMA RKING THE SAME. SECONDLY, THE ASSESSING OFFICER HAD NOT DISTURBED T HE AGGREGATED MARGINS SHOWN BY THE ASSESSEE IN RESPECT OF VARIOUS INTERNATIONAL ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 15 TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. IN ANY CA SE, THE SEGMENTAL FOR THIS TRANSACTION OF PROVISION OF SERVICES WERE FILE D AT THE BEHEST OF THE ASSESSING OFFICER, UNDER WHICH THE ASSESSEE HAD ALL OCATED THE EXPENSES MAJORLY ON ACTUAL BASIS AND SOME ON TURN OVER BASIS . THE METHODOLOGY ADOPTED BY THE ASSESSEE CANNOT BE FAULTED WITH; EVE N OTHERWISE THERE IS NO MERIT IN ALLOCATING THE SELLING AND DISTRIBUTION COST TO THE SEGMENT OF PROVISION OF SERVICES. THE ALLOCATION OF RENT WAS HIGHER BY THE ASSESSEE AND EVEN THE ADMINISTRATION AND JOURNAL EXPENSES WE RE ALLOCATED ON TURN OVER BASIS. IN SUCH FACTS AND CIRCUMSTANCES, THE M ARGINS SHOWN BY THE ASSESSEE ON STANDALONE BASIS ALSO NEED TO BE ACCEPT ED. ACCORDINGLY, WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD. THUS, GROUND NO.4 RAISED BY THE REVENUE IN THIS APPEAL IS DISMISSED. 24. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DAY OF NOVEMBER, 2019. SD/- SD/- (R.K.PANDA) (SUSHMA CHOWL A) $ $ $ $ /ACCOUNTANT MEMBER /JUDICIAL MEMBER / DATED : 20 TH NOVEMBER, 2019 . * AMIT KUMAR * ITA NO.2950/DEL/2015 ASSESSMENT YEAR-2009-10 PAGE | 16 +)-232-4 COPY OF THE ORDER IS FORWARDED TO : 1. '( / THE APPELLANT 2. )*'( / THE RESPONDENT 3. 5 6 7 / THE CIT(A) 4. 8 5 / THE PR. CIT 5. 6. 29:)- / DR, ITAT, DELHI :&;4 GUARD FILE. / BY ORDER , *2-)- // TRUE COPY // =>? , ASSISTANT REGISTRAR, ITAT, DELHI