ACIT, New Delhi V. M/s Turner International India Pvt. Ltd., New Delhi

ITA 3080/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7797 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 02-11-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 10-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: SHRIA NUBHAV RASTOGI
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Competent authority; Commercial expediency
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I - 1 NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI L.P. SAHU ITA NO. 3080 /DEL/201 1 ASSESSMENT YEAR: 200 5 - 0 6 ASSISTANT CIT, VS. TURNER INTERNATIONAL INDIA PVT. LTD., CIR CLE 16(1), 5 TH FLOOR, RADISSON COMMERCIAL NEW DELHI. PLAZA, NH - 8, MAHIPALPUR, NEW DELHI. (PAN: AAAC T3821H ) (APPELLANT) (RESPONDENT) ITA NO. 5981/DEL/2010 ASSESSMENT YEAR: 2006 - 07 TURNER INTERNATIONA L INDIA PVT. LTD., VS. DCIT, 5 TH FLOOR, RADISSON COMMERCIAL (LD. A.O.), CIRCLE 16(1), PLAZA, NH - 8, MAHIPALPUR, NEW DELHI. NEW DELHI. (PAN: AAACT3821H) (APPELLANT) (RESPONDENT) CROSS OBJ. NO. 246/DEL/2011 ( IN ITA NO. 3080/DEL/2011) ASSESSMENT YEAR: 2005 - 06 TURNER INTERNATIONAL INDIA PVT. LTD., VS. DCIT, 5 TH FLOOR, RADISSON COMMERCIAL (LD. A.O.), CIRCLE 16(1), PLAZA, NH - 8, MAHIPALPUR, NEW DELHI. NEW DELHI. (PAN: AAACT3821H ) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRIA NUBHAV RASTOGI, ADV. DEPARTM ENT BY: SHRI AMRENDRA KUMAR , CIT( DR ) 2 DATE OF HEARING : 0 3 . 0 3 .201 6 DATE OF PRONOUNCEMENT: 20 : 0 5 .201 6 ORDER PER I.C. SUDHIR : JUDICIAL MEMBER THE PARTIES HAVE PREFERRED APPEALS AND CROSS OBJECTION AGAINST THE ORDERS OF LEARNED CIT(APPEALS) AND LEARNED DRP. 2. THE REVENUE (ITA NO. 3080/DEL/2011) HAS PREFERRED APPEAL AGAINST THE FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.5,69,04,207 MADE ON THE RECOMMENDATION OF THE TPO FOR ADJUSTME NTS TO THE ARMS LENGTH PRICE OF TRANSACTIONS BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES, BY NOT DECIDING ENTIRELY ON MERITS THE CONTENTIONS OF THE TPO AND THE A.O. AND BY NOT APPRECIATING THAT ADDITION OF IDENTICAL NATURE IN RESPECT OF THE A.Y. 2004 - 05 WAS CONFIRMED IN FIRST APPEAL. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF INTEREST ON BORROWED CAPITAL AMOUNTING TO RS.28,87,831. 3. THE ASSESSEE ( CROSS OBJ. NO. 24 6/DEL/2011) ON THE OTHER HAND RAISED FOLLOWING OBJECTIONS AGAINST THE ORDER OF THE LEARNED CIT(APPEALS): THAT THE LEARNED COMMISSIONER (APPEALS) ('LD. CIT') HAS ERRED IN LAW AND ON FACTS OF THE CASE IN NOT ADJUDICATING ON THE FOLLOWING GROUNDS RAISED BY TH E RESPONDENT: 3 1. THAT THE REFERENCE MADE BY THE LEARNED ASSESSING OFFICER ('AO') SUFFERS FROM JURISDICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS 'EXPEDIENT AND NECESSAR Y' TO REFER THE MATTER TO THE LEARNED TRANSFER PRICING OFFICER ('LD. TPQ') FOR COMPUTATION OF THE ARM'S LENGTH PRICE, AS REQUIRED UNDER SECTION 92CA(1). 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO ERRED IN CONFIRMING THE ORDER PASS ED BY THE LD. TPO WITHOUT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE CASE, AND CLEARLY DISREGARDING THE FETTERS PLACED BY THE CENTRAL BOARD OF DIRECT TAXES ('CBDT') THROUGH CIRCULAR NO. 12/2001 DATED 23.8.2001. 3. THE LD. TPO HAS ERRED BY NOT DISCLOSING AS TO WHY THE TRANSFER PRICING METHODOLOGY, AND APPROACH INCLUDING COMPARABLE UNCONTROLLED PRICE INFORMATION FOR THE COMMISSION FOR MARKETING OF ADVERTISEMENTS ADOPTED BY THE APPELLANT, FOR FY 2003 - 04, W AS REJECTED AND BY NOT GIVING AN OPPORTUNITY OF ANALYSIS TO THE APPELLANT ON THE TRANSFER PRICING METHODOLOGY ADOPTED. 4. THE LD. TPO HAS ERRED IN REJECTING THE ECONOMIC ANALYSIS CONDUCTED BY THE RESPONDENT IN RESPECT OF 'DISTRIBUTION SEGMENT' AND SELECTING SEVEN COMPANIES WITHOUT APPRECIATING THAT THEIR FUNCTIONS PERFORMED, ASSETS UTILISED AND RISK ASSUMED ('FAR') IS DIFFERENT AS COMPARED TO FAR OF THE RESPONDENT AND BY PLACING ERRONEOUS RELIANCE ON THE TP ORDER OF EARLIER YEARS. 5. THE LD. TPO HAS ERRED BY N OT PROVIDING THE DETAILED SEARCH ANALYSIS (INCLUDING QUALITATIVE, QUANTITATIVE FILTERS AND THE SOURCE OF DATA) AS CONDUCTED BY THE LD. TPO IN IDENTIFYING THE ALLEGED COMPARABLES. 6. THE LD. TPO HAS ERRED IN DISREGARDING THE COMPANIES IDENTIFIED BY THE RESPON DENT, ON WITHOUT PREJUDICE BASIS, FOLLOWING THE SAME METHODOLOGY AS WAS ADOPTED BY THE LD. TPO 7. THE LD. TPO HAS ERRED BY NOT CONSIDERING THAT IN MAKING AN ADJUSTMENT ON OVERALL PROFITABILITY, UNDER THE TNMM, WOULD REQUIRE THE RESPONDENT TO EARN AN ARM'S LE NGTH MARGIN ON THIRD PARTY COSTS AS WELL AS THE RESPONDENT'S TRANSFER PRICES AND TOTAL SHORTFALL CANNOT BE 4 ATTRIBUTED SOLELY TO TRANSFER PRICES. 8. THE LD. TPO HAS ERRED IN ERRONEOUSLY OBSERVIN G THAT THE RESPONDENT HAS ACCEPTED THE BENCH MARKING ANALYSIS AND THE ADJUSTMENT MADE BY THE DEPARTMENT FOR THE EARLIER YEARS WITHOUT APPRECIATING THAT IN THOSE YEARS, IN TERM OF ARTICLE 27 OF THE INDIA USA DOUBLE TAXATION AVOIDANCE AGREEMENT, THE COMPETENT AUTHORITY OF USA AGREED TO PROVIDE A CORRELATIVE RELIEF TO THE ASSOCIATED ENTERPRISE IN ITS ASSESSMENT, FOR THE TRANSFER PRICING ADJUSTMENT MADE IN THE CASE OF RESPONDENT AND IN VIEW THEREOF THE APPEALS FILED BY THE RESPONDENT WERE NOT PRESSED ON WITHOUT PREJUDICE BASIS. 9. THE LD. TPO HAS FAILED TO CONSIDER AN D APPRECIATE THAT THE RESPONDENT IS ENTITLED TO THE BENEFIT OF THE OPTION OF +5% AS PER THE PROVISIONS OF PROVISO TO SEC. 92C(2) OF THE ACT. 4. SINCE THE ISSUES RAISED IN THE ABOVE APPEAL S AND CROSS OBJECTION ARE MOSTLY RELATED TO T RANSFER PRICING HENCE, INTER - CONNECTED, WE PREFER RED TO DISPOSE OFF THESE MATTERS SIMULTANEOUSLY. 5. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS REL IED UPON. 6. THE FIRST GRIEVANCE OF THE REVENUE IN GROUND NO.1 OF ITS APPEAL IS THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.5,69,04,207 MADE ON THE RECOMMENDATION OF THE LEARNED TPO FOR ADJUSTMENT TO THE ARMS LENGTH PRICE OF T RANSACTION BY THE ASSESSEE WITH ITS 5 ASSOCIATED ENTERPRISES. THE CONTENTION OF THE LEARNED CIT(DR) REMAINED THAT WHILE DELETING THE ADDITION, THE LEARNED CIT(APPEALS) HAS NOT GIVEN REASON FOR ACCEPTING CHANGE OF METHOD APPLIED BY THE ASSESSEE. THE ASSESSEE HAD APPLIED TNMM. THE LEARNED CIT(APPEALS) HAS ALSO EXCLUDED ONE COMPARABLE AND HAS FAILED TO APPRECIATE THAT ADDITION OF IDENTICAL NATURE IN THE ASSESSMENT YEAR 2004 - 05 WAS UPHELD BY THE FIRST APPELLATE AUTHORITY. THE LEARNED CIT(APPEALS) HAS ALSO NOT MET WITH THE REASONS RECORDED BY THE TPO/A.O. FOR MAKING THE ADDITION IN QUESTION. IN THE ASSESSMENT YEAR 2006 - 07, THE LEARNED DRP HAS CONFIRMED THE SAME ADDITION WHICH HAS BEEN QUESTIONED BY THE ASSESSEE BEFORE THE ITAT. 7. THE LEARNED AR ON THE OTHER H AND PLACED RELIANCE ON THE FINDING OF THE LEARNED CIT(APPEALS) ON THE ISSUE. HE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF SATELLITE CHANNELS OF CARTOON NETWORK, CNN, POGO, HBO ETC. (COLLECTIVELY REFERRED AS TV CHANNELS) AND SOLICITING ADVERTISEMENT TO BE TELECASTED ON TV CHANNELS. FOR THE PURPOSE OF ESTABLISHING COMPLIANCE WITH THE ARMS LENGTH STANDARD, THE ASSESSEE AGGREGATED ITS TRANSACTION PERTAINING TO DISTRIBUTION FUNCTION (PART OF CHANNEL SUBSCRIPTION FEE PAID, PURCHAS E OF DISTRIBUTION AND ADVERTISEMENT RIGHTS AND COMMISSION FOR MARKETING OF ADVERTISEMENT) AND BENCH MARKED THEM BY 6 COMPARING OPERATING MARGIN OF TIIPL WITH THE ARITHMETIC MEAN OF OPERATING MARGIN OF COMPANIES ENGAGED IN DISTRIBUTION OF RETAIL PRODUCTS 8. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW IN VIEW OF ABOVE SUBMISSIONS, WE FIND THAT TH E LEARNED TPO FOLLOWING THE APPROACH OF ITS PREDECESSOR TPO USED SERVICE PROVIDER AS COMPARABLES FOR THE DISTRIBUTION SEGMENT OF THE ASSESSEE. THE MARGINS OF THE FINALLY ACCEPTED COMPANY USED BY THE LEARNED TPO ARE AS FOLLOWS: SR.NO. COMPANY NAME OPERATING PROFIT MARGIN ON COST (OP/TC) OF FINALLY SELECTED COMPANIES. 1 IGE (INDIA) LTD. 11.15% 2 INDIACOM LTD. 11.52% 3 INTERNATIONAL TRAVEL HOUSE LTD. 2 0.81% 4 INTERADS LTD. - 4.57% 5 MCS LTD. 11.76% MEAN 10.13% 9. THE LEARNED TPO BY FOLLOWING THE ABOVE APPROACH BENCHMARKED THE IMPUGNED INTERNATIONAL TRANSACTION AND MADE ADJUSTMENT OF RS.5,69,04,207 TO THE TOTAL INCOME OF THE ASSESSEE . BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE REITERATED ITS CONTENTION THAT INTERNATIONAL TRANSACTION OF THE ASSESSEE 7 UNDER THE DISTRIBUTION SEGMENT MEETS THE ARMS LENGTH STANDARD AND WITHOUT PREJUDICE TO THE SUBMISSION, IT WAS FURTHER SUBMITTED THAT IN THE EV ENT THE COMPARABLES AS SELECTED BY THE LEARNED TPO, WHICH ARE SERVICE PROVIDER, ARE CONSIDERED THEN OPERATING PROFIT/VALUE ADDED EXPENSES (OP/VAE) SHOULD BE CONSIDERED AS THE PROFIT LEVEL INDICATOR(PLI). IT WAS ON ACCOUNT OF THE FACT THAT THE TOTAL OPERATI NG COST OF THE ASSESSEE UNDER THE DISTRIBUTION SEGMENT ALSO INCLUDED THE COST OF PURCHASE OF DISTRIBUTION/ADVERTISEMENT RIGHTS AS PAID TO ITS ASSOCIATED ENTERPRISES. IT WAS CONTENDED THAT THE COMPANIES SELECTED BY THE LEARNED TPO ARE THE SERVICE PROVIDER W HICH DO NOT HAVE INPUT COSTS IN THEIR COST BASE UNLIKE THE ASSESSEE. THUS, IN ORDER TO OVERCOME THE ACCOUNTING DIFFERENCE BETWEEN THE ASSESSEES DISTRIBUTION SEGMENT AND THE COMPARABLE COMPANIES, OPERATING PROFIT/VALUE ADDED EXPENSES OF THE ASSESSEE SHOULD BE SELECTED AS THE PLI WITH A VIEW TO MAKE A MEANINGFUL COMPARISON BETWEEN THE PLI OF THE COMPARABLES CHOSEN BY THE LEARNED TPO AND THE PLI OF THE ASSESSEE. THE ASSESSEE PROVIDED THE CALCULATION OF OP/VAE OF THE ASSESSEES DISTRIBUTION SEGMENT . IN SUPPORT OF THE FACT THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE IS DIFFERENT FROM THE FUNCTIONAL PROFILE OF THE COMPANIES SELECTED BY THE LEARNED TPO IT WAS SUBMITTED THAT THE ASSESSEE IN THE TP DOCUMENTATION HAD CARRIED OUT A DETAILED ANALYSIS OF FUNCTIONS PERFO RMED, ASSETS EMPLOYED AND RISK ASSUMED (FAR ANALYSIS). 8 BASED ON THE SAID FAR ANALYSIS OF THE DISTRIBUTION SEGMENT, THE ASSESSEE WAS CHARACTERIZED AS A DISTRIBUTOR THAT ASSUMED NORMAL RISK IN UNDERTAKING SUCH DISTRIBUTION ACTIVITIES. THE TPO IGNORED THE CO MPARABLES IDENTIFIED BY THE ASSESSEE AND SELECTED FOLLOWING COMPANIES, WHICH AS PER THE ASSESSEE WERE FUNCTIONALLY NON - COMPARABLE TO THE ASSESSEE: S.NO. NAME OF COMPANY ASSESSEES CONTENTIONS 1 IGE (INDIA LTD. THE COMPANY IS ENGAGED IN TRAINING AND STAFFI NG SERVICES TO THE GROUP COMPANIES. THE SCHEDULE 1 TO P & L A/C PROVIDES THE BREAKUP OF INCOME EARNED BY THE COMPANY DURING THE A.Y. 2004 - 05. IT CLEARLY DEPICTS THAT INCOME IS EARNED FROM TRAINING AND STAFFING SERVICES. THE PROVISION OF TRAINING COURSES I S NOT COMPARABLE TO THE DISTRIBUTION FUNCTIONS OF THE ASSESSEE. (REFER PAGE 27 OF THE SUPPLEMENTARY PAPER BOOK FOR ANNUAL REPORT OF THE COMPARABLE). FURTHER, AS PER THE ANNUAL REPORT OF THE COMPANY IN DIRECTORS REPORT (REFER PAGE 4 OF THE SUPPLEMENTARY P APER BOOK) AND IN POINT 13 OF THE NOTES TO ACCOUNTS (REFER PAGE 32 OF THE SUPPLEMENTARY PAPER BOOK), THE SERVICES PERTAINING TO PROVISION OF TRAINING COURSES AND PROGRAM EMPLOYEE SERVICES WERE DISCONTINUED FROM FEB 2005. 2 INDIACOM LTD. AS PER ANNUAL REPO RT OF THE COMPANY (REFER PAGE 36 OF THE SUPPLEMENTARY PAPER BOOK), THE COMPANY IS ENGAGED IN PUBLICATION OF VARIOUS DIRECTORIES, INCLUDING TELEPHONE DIRECTORIES, WITH OR WITHOUT YELLOW PAGES, IN PRINT AND ELECTRONIC MEDIA AND PROVIDING VARIOUS TYPES OF INF ORMATION SERVICES USING PRINT, ELECTRONIC AND VOICE AS MEDIUM. 9 REVENUE FROM OPERATIONS INCLUDES ADVERTISEMENT REVENUE, SALE OF DIRECTORIES, INCOME FROM PRINT JOBS AND ROYALTY FROM THE TELECOME DISTRICTS (REFER PAGE 57 OF THE SUPPLEMENTARY PAPER BOOK) THU S, THE FUNCTIONAL PROFILE OF COMPANY IS COMPLETELY DIFFERENT FROM THAT OF THE ASSESSEE AND SHOULD NOT BE ACCEPTED AS COMPARABLE. 3 INTERADS LTD. THE COMPANYS PRIMARY BUSINESS IS ORGANIZING TRADE EXHIBITIONS AND CONFERENCES. AS PER THE ANNUAL REPORT OF TH E COMPANY IN THE SUPPLEMENTARY PAPER BOOK), THE COMPANY HAS EARNED EXHIBITION REVENUE BY ORGANIZING SEVERAL EXHIBITIONS DURING F.Y. 2004 - 05. THUS, THE FUNCTIONAL PROFILE OF COMPANY IS COMPLETELY DIFFERENT FROM THAT OF THE ASSESSEE AND SHOULD NOT BE ACCE PTED AS COMPARABLE. 4 M C S LTD. AS PER THE ANNUAL REPORT OF THE COMPANY (REFER PAGES 106 & 126 OF THE SUPPLEMENTARY PAPER BOOK), THE MAIN BUSINESS OF THE COMPANY IS OF REGISTRAR AND TRANSFER AGENTS AND REGISTRAR TO ISSUE. AS PER THE P & L A/C. OF THE CO MPANY, THE REVENUE IS EARNED FROM PROVIDING PROFESSIONAL SERVICES. THUS, THE FUNCTIONAL PROFILE OF COMPANY IS COMPLETELY DIFFERENT FROM THAT OF THE ASSESSEE AND SHOULD NOT BE ACCEPTED AS COMPARABLE. 10. THE ASSESSEE CONTENDED BEFORE THE LEARNED CIT(A PPEALS) FOR EXCLUSION OF INTERNATIONAL TRAVEL HOUSE LTD. WHICH HAD SIGNIFICANT RELATED PARTY TRANSACTION I.E. HUNDRED PERCENT OF ITS REVENUE TRANSACTION WERE WITH ITS RELATED PARTY. THE OPERATING PROFIT MARGIN OF COMPARABLE COMPANIES 10 IDENTIFIED BY THE LEAR NED TPO AFTER REMOVING INTERNATIONAL TRAVEL HOUSE LTD. WAS 7.47%. THE ASSESSEE ACCORDINGLY CONTENDED THAT APPLYING THE PROVISO TO SECTION 92C(2) OF THE ACT, THE INTERNATIONAL TRANSACTION OF THE ASSESSEE UNDER THE DISTRIBUTION SEGMENT WAS MEETING THE ARMS LENGTH STANDARD. THE LEARNED CIT(APPEALS) FOUND SUBSTANCE IN THE SUBMISSION OF THE ASSESSEE ON USING OP/VAE AS THE PLI. IT WAS POINTED OUT THAT THE OP/VAE OF THE ASSESSEE AT 2.78% IN COMPARISON TO AVERAGE OP/TC (IN ABSENCE OF COST OF GOODS IN THE PL OF THE SERVICE COMPANIES, OP/TC WILL BE EQUAL TO OP/VAE OF THE COMPARABLE COMPANIES OF 7.47% WAS ACCEPTED TO BE AT ARMS LENGTH BY THE LEARNED CIT(APPEALS) AND THE TRANSFER PRICING ADJUSTMENT OF RS.5,69,04,207 MADE BY THE ASSESSING OFFICER WAS ACCORDINGLY DELETE D. WE ALSO FIND THAT PLI OF OP/VAE AS A COMPARABLE HAS BEEN APPROVED BY DELHI BENCH OF THE ITAT IN THE CASE OF CHEIL COMMUNICATION 137 TPJ 539 (DEL.) . THE DELHI BENCH OF THE ITAT IN THE CASE OF MITSUBISHI CORPORATION INDIA PVT. LTD., (ITA NO. 5042/DEL/20 11) HAS UPHELD THE USE OF BERRY RATIO AS PLI FOR ITS TRADING SEGMENT. THE RELEVANT PARA NO. 79 OF THIS DECISION IS BEING REPRODUCED HEREUNDER FOR A READY REFERENCE: 79. IN VIEW OF THESE DISCUSSIONS, IN OUR CONSIDERED VIEW, THE USE OF BERRY RATIO AS PLI IS APPROPRIATE TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE OBJECTIONS TAKEN BY THE AUTHORITIES BELOW TO THE USE OF BERRY 11 RATIO ARE UNSUSTAINABLE IN LAW, AND THE ADJUSTMENTS FOR USE OF INTANGIBLES AND LOCATIONAL SAVINGS ARE UNWARRANTED. WITH THESE OBSERVA TIONS, THE COMPUTATION OF ALP SO FAR AS BUY SELL SEGMENT OF ASSESSEES ACTIVITIES ARE CONCERNED STANDS RESTORED TO THE ASSESSMENT STAGE. THE MATTER WILL BE EXAMINED AFRESH IN THE LIGHT OF OUR ABOVE OBSERVATIONS. 11. DIALECT OF VERY RATIOS HAS BEEN APPROVE D BY OECD (PARA NOS. 2.100 TO 2.102) AND UN GUIDELINES (PARA NOS. 6.3.7.5 AND 6.3.7.6). 12. WE ALSO FIND SUBSTANCE IN THE CONTENTION OF THE LEARNED AR THAT ADDITION MADE BY THE LEARNED ASSESSING OFFICER ARE NOT TENABLE DUE TO FUNCTIONAL PROFILE OF THE AS SESSEE, REJECTION OF THE ECONOMIC ANALYSIS OF THE ASSESSEE, COMPANIES SELECTED BY THE TPO FOR ASCERTAINING ARMS LENGTH PRICE WERE NOT COMPARABLE TO THE FUNCTIONAL PROFILE OF THE ASSESSEE AND ACCEPTANCE OF THE BENCHMARKING ANALYSIS AND THE ADJUSTMENT MADE BY THE DEPARTMENT IN EARLIER YEARS. THE DETAILED SUBMISSION MADE IN THIS REGARD HEREINABOVE IN THE ARGUMENTS OF THE LEARNED AR JUSTIFIED THE STAND OF THE ASSESSEE. THE LEARNED TPO HAD MERELY RELIED ON THE SERVICE COMPANIES CONSIDERED AS COMPARABLE BY HIS P REDECESSOR. UNDER THE DISTRIBUTION SEGMENT, THE ASSESSEE WAS ENGAGED IN THE ACTIVITIES OF DISTRIBUTION OF TV CHANNEL SUBSCRIPTION RIGHTS/ADVERTISEMENT AIR TIME SLOTS AND MARKETING OF ADVERTISEMENT AIR TIME 12 FOR THE TURNER GROUP CHANNELS. THE ASSESSEE WAS CH ARACTERIZED AS A DISTRIBUTOR THAT ASSUMED NORMAL RISK IN UNDERTAKING SUCH DISTRIBUTION ACTIVITIES. THE ASSESSEE HAD IDENTIFIED COMPANIES ENGAGED IN DISTRIBUTION OF RETAIL PRODUCTS AS COMPARABLES SINCE COMPANIES ENGAGED IN DISTRIBUTION OF CHANNEL/AIRTIME IN VENTORY WERE NOT AVAILABLE IN PUBLIC DOMAIN. THE LEARNED TPO IGNORING THE SAME ERRED IN COMPARING THE ASSESSEE WITH THE ENTITIES INVOLVED IN SERVICE ACTIVITIES. HE ERRED IN SELECTING SERVICE COMPANIES AS COMPARABLES FOR THE DISTRIBUTION SEGMENT OF THE ASSE SSEE. THE LEARNED TPO WAS ALSO NOT JUSTIFIED IN IGNORING THE COMPANIES PRESENTED BY THE ASSESSEE IN THE TP DOCUMENTATION AND THE PRESS SEARCH SUBMITTED. WE CONCUR WITH THE SUBMISSIONS OF THE LEARNED AR FOR BENCHMARKING A DISTRIBUTOR LIKE THE ASSESSEE, ONLY DISTRIBUTORS SHOULD BE SELECTED AS COMPARABLES AND SINCE DISTRIBUTORS OF CHANNELS WERE NOT AVAILABLE IN PUBLIC DOMAIN, DISTRIBUTORS OF BROADLY COMPARABLES PRODUCTS/SERVICES SHOULD HAVE BEEN SELECTED. IN THE APPEALS FOR THE ASSESSMENT YEARS 2007 - 08 AND 20 08 - 09 IN THE CASE OF ASSESSEE ITSELF ON SIMILAR ISSUES, THE ITAT HAS UPHELD THAT THE COMPARABLES SELECTED BY BOTH THE REVENUE AND THE ASSESSEE ARE NOT APPROPRIATE AND HAS SET ASIDE THE ORDERS OF THE ASSESSING OFFICER AND REMITTED BACK THE MATTER TO THE FIL E OF THE ASSESSING OFFICER TO UNDERTAKE FRESH SEARCH OF COMPARABLES COMPANIES. THE GRIEVANCE OF THE ASSESSEE DURING THE YEAR IS ALSO THAT DURING 13 THE ASSESSMENT PROCEEDINGS, THE LEARNED TPO INITIALLY PROPOSED TO USE INTERADS LTD. AS A FINAL COMPARABLES ON THE PREMISE OF USING THE SAME COMPANIES AS USED BY THE LEARNED TPO IN ASSESSMENT YEAR 2005 - 06 WHILE DETERMINING THE ARMS LENGTH NATURE OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. HOWEVER, IN THE FINAL ORDER PASSED BY THE LEARNED TPO, THE COMPANY WAS REJECTED ON THE GROUND THAT IT WAS PERSISTENT LOSS MAKING COMPANY. IT WAS CONTENDED THAT LEARNED TPO FAILED TO APPRECIATE THE FACT THAT THE NET WORTH OF THE COMPANY HAD NOT ERODED. IT WAS POINTED OUT BY THE LEARNED AR THAT SAME COMPANY WAS SELECTED BY THE LEARNED TPO IN THE ASSESSMENT YEAR 2005 - 06. THE DELHI BENCH OF THE ITAT IN THE CASE OF MENTOR GRAPHICS (NOIDA) PVT. LTD. (SUPRA) HAS GIVEN FOLLOWING FINDINGS: 26. THE FIRST STEP IN THE DETERMINATION OF ARMS LENGTH PRICE IS TO ANALYSE S THE SPEC I FIC CH ARACTERISTICS OF THE CONTROLLED TRANSACTION WHETHER IT RELATES TO TRANSFER OF GOODS, SERVICES OR INTANGIBLE. WITHOUT PROPER STUDY OF SPECIFIC CHARACTERISTICS OF CONTROLLED TRANSACTION, NO MEANINGFUL COMPARISON OR LOCATION OF COMPARABLE IS POSSIBLE. FOR EXA MPLE, A MERE CONSIDERATION THAT CONTROLLED TRANSACTION RELATES TO SOFTWARE SUPPLY IS NOT SUFFICIENT AS THERE ARE HUNDREDS OF SOFTWARE WITH DIFFERENT CHARACTERISTICS WHICH MATERIALLY AFFECT THEIR OPEN MARKET VALUE. THE CHARACTERISTICS THAT ARE REQUIRED TO BE CONSIDERED INCLUDE IN CASE OF TRANSFER OF TANGIBLE PROPERTY, THE PHYSICAL FEATURE OF THE PROPERTY, ITS QUALITY, RELIABILITY AND AVAILABILITY (SUPPLY) TO PUT IT 14 IN OTHER WORDS, ALL THE CHARACTERISTICS OF THE CONTROLLED TRANSACTION WHICH ARE LIKELY TO AFFECT ITS OPEN MARKET VALUE MUST BE TAKEN INTO ACCOUNT. THE STUDY SHOULD INCLUDE ANALYSIS OF FUNCTIONS, RISK AND ASSETS OF THE CONTROLLED TRANSACTION FOR CORRECT LOCATION OF SIMILAR OR NEARLY SIMILAR CHARACTERISTICS IN UNCONTROLLED TRANSACTIONS. SPECIFIC CHARACTERISTICS ARE NECESSARY TO CARRY SEARCH OF SIMILAR COMPARABLE WITH SIMILAR CHARACTERISTICS. 13. AGAIN IN THE CASE OF SONY INDIA (P) LTD. VS. DCIT (SUPRA), THE DELHI BENCH OF THE ITAT HAS HELD THAT LOSS AND COMPETITION ARE NORMAL BUSINESS REALITIES AND MERELY BASED ON THESE FACTORS, EXCLUSION OF LOSS MAKING COMPANIES IS NOT JUSTIFIED. A MUCH MORE DETAILED ANALYSIS OF OTHER COMPANY SPECIFIC FACTORS NEEDS TO BE UNDERTAKEN AND ONLY AFTER THE CUMULATIVE EFFECT OF ALL SUCH FACTORS IS EVALUATED, CAN A LOSS MAKING COMPANY BE REJECTED AS COMPARABLES. WE ALSO FIND THAT WHILE OBSERVING THAT IN EARLIER YEARS, THE ASSESSEE HAD TAKEN DISTRIBUTORS AS COMPARABLES, A STAND NOT ACCEPTED BY THE DEPARTMENT WHICH USED SERVICE PROVIDER AS COMPARABLE AND THAT THE ASSESSEE ITSELF HAD ACCEPTED THIS STAND BY GOING IN FAR MAP PROCEEDINGS AND ACCEPTING THAT DECISION, THE LEARNED TPO HA S FAILED TO APPRECIATE THE FACT THAT FOR THE EARLIER YEARS, ON BEHALF OF ASSOCIATED ENTERPRISES, AN APPLICATION WAS MADE UNDER ARTICLE 27 OF INDIA USA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) TO SETTLE THE DISPUTES ARISING FROM THEIR ASSESSMENTS AND 15 IT WAS POINTED OUT THAT ASSESSMENTS IN INDIA RESULTED IN DOUBLE TAXATION ESPECIALLY IN VIEW OF TRANSFER PRICING ADJUSTMENT MADE IN THE CASE OF ASSESSE E. IN THE SETTLEMENT REACHED BETWEEN COMPETENT AUTHORITIES OF INDIA AND UNITED STATES, THE LATTER AGREED TO PROVIDE CO - RELATIVE RELIEF IN THE ASSESSMENTS OF ASSOCIATED ENTERPRISES FOR THE TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF THE ASSESSEE TO AVO ID DOUBLE TAXATION. WE THUS AGREE WITH THE SUBMISSIONS OF THE LEARNED AR THAT SUCH ACT OF ASSESSEES SHOULD NOT BE CONSIDERED AS A CONSENT OF THE ASSESSEE ABOUT THE ADJUSTMENT PROPOSED BY THE DEPARTMENT IN EARLIER YEARS AS THE ASSESSEE, IN GOOD FAITH HAD NOT PRESSED FOR ANY APPEAL. A DUE FUNCTIONAL AND ECONOMIC ANALYSIS HAS TO BE CARRIED OUT EVERY YEAR TO REFLECT CHANGES IN THE MARKET OR CHANGES IN THE NATURE OF ITS INTRA - GROUP TRANSACTION. 14. IN VIEW OF ABOVE SUBMISSIONS AND THE FINDINGS OF THE ITAT IN THE APPEAL FOR THE ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 IN THE CASE OF ASSESSEE ITSELF ON AN IDENTICAL ISSUE, WE IN THE INTEREST OF JUSTICE AND TO MEET OUT ENDS OF JUSTICE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER UNDERTAKING FRESH SEARCH OF COMPARABLE COMPANIES. IT IS NEEDLESS TO MENTION OVER HERE THAT WHILE DECIDING THE ISSUE AFRESH, THE ASSESSING OFFICER WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND WILL MEET OUT THE SUBMISSION OF THE ASSESSEE BY SPEAKING ORDER. IT WILL 16 DISPOSE OFF THE CROSS OBJECTION PREFERRED BY THE ASSESSEE AND GROUND NO.1 OF THE REVENUE QUESTIONING THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.5,69,04,207 MADE ON THE RECOMMENDATION OF THE TPO FOR ADJU STMENT ON THE ARMS LENGTH PRICE OF TRANSACTION BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES, AS THE LEARNED CIT(APPEALS) WHILE DECIDING THE ISSUE HAS NOT PASSED A SPEAKING ORDER MEETING OUT THE RESPECTIVE SUBMISSIONS OF THE PARTIES. 15. GROUNDS IN ITA NO. 5981/DEL/2010 : THE ASSESSEE HAS QUESTIONED ORDER OF THE LEARNED DRP ON THE FOLLOWING GROUNDS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW; 1. THAT THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE LEARNED DISP UTE RESOLUTION PANEL ('LD.DRP ' ) IS A VITIATED ORDER AS THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN PARTIALLY CONFIRMING THE ADDITION MADE BY THE LD. ASSESSING OFFICER {.O.) TO THE APPELLANTS INCOME BY ISSUING A NON - SPEAKING ORDER WITHOUT APPROPRIATE A PPLICATION OF MIND. 2. THE LD.DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE A DDITION OF RS. 8,32,30,812 TO THE INCOME OF THE APPELLANT BY H OLDING THAT ITS INTERNATIONAL TRANSACTION UNDER THE DISTRIBUTION SEGMENT OF THE APPELLANT DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO THE LD. DRP HAS GROSSLY ERRED IN AGREEING WITH THE LD. TPO'S ACTION OF: 2.1. NOT APPRECIATING THAT THE APPE LLANT HAD PREPARED THE DETAILED CONTEMPORANEOUS TRANSFER PRICING DOCUMENTATION BONA F IDE AND IN COMPLIANCE WITH THE ACT AND INCOME TAX RULES 1962 ('THE RULES'). 17 2.2. NOT APPRECIATING THE FACT THAT THE APPELLANT HAD SELECTED UNCONTROLLED COMPARABLE COMPANIES BASED ON A DETAILED FUNCTIONAL ASSET AND RISK ('FAR') ANALYSIS FOLLOWING A MET HODICAL BENCH MARKING PROCESS AND COMPLETELY DISREGARDING THE COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT. 2.3. ERRED IN NOT PROVIDING THE SEARCH ANALYSIS CONDUCTED BY HIM IN IDENTIFYING THE ALLEGED COMPARABLES. 2.4. REJECTING THE ECONOMIC ANA LYSIS CONDUCTED BY THE APPELLANT IN RESPECT OF 'DISTRIBUTION SEGMENT' WHEREIN DISTRIBUTORS WERE SELECTED AS COMPARABLES AND INSTEAD SELECTING THREE COMPANIES WHICH WERE SERVICE PROVIDERS AS COMPARABLE TO THE APPELLANT WITHOUT APPRECIATING THAT THEIR FAR I S DIFFERENT AS COMPARED TO THE APPELLANT AND BY PLACING ERRONEOUS RELIANCE ON THE TP ORDER OF EARLIER YEARS. 2.5. NOT CONSIDERING THAT IN CASE SERVICE COMPANIES WERE TO BE ACCEPTED AND COMPARED WITH THE DISTRIBUTION ACTIVITIES OF THE APPELLANT, OPERATI NG PROFIT/ VALUE ADDED EXPENSES ('OPNAE') SHOULD HAVE BEEN USED AS THE PROFIT LEVEL INDICATOR (PLI). 2.6. REJECTING A COMPANY I.E. INTERADS LTD., HOLDING THE SAME TO BE A PERSISTENTLY LOSS MAKING COMPANY WITHOUT APPRECIATING THAT THIS COMPANY WAS COMPA RABLE BASED ON HIS OWN CRITERIA AND THE COMPARABLE COMPANY CANNOT BE SELECTED/ RESELECTED BASED ON THE MARGINS EARNED BY THEM AND ALSO ERRED IN IGNORING THE FACT THAT THIS COMPANY WAS ALSO SELECTED BY HIM IN THE TP ORDER FOR FY 2004 - 05. 2.7. DISREGARD ING THE COMPANIES AS IDENTIFIED BY THE APPELLANT, ON A WITHOUT PREJUDICE BASIS, FOLLOWING THE SAME METHODOLOGY AS ADOPTED BY THE TPO. 2.8. DISREGARDING PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURREN T YEAR (I.E. FY 2005 - 06) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION, AND IN DOING SO HAVE GROSSLY ERRED IN INTERPR ETING THE REQUIREMENT OF 'CONTEMPORANEOUS' DATA IN THE RULES TO NECESSARILY IMPLY CURRENT YEAR (I.E. FY 2005 - 06) DATA. 2.9 WRONGLY OBSERVING THAT THE APPELLANT HAS ACCEPTED THE BENCH MARKING ANALYSIS AND THE ADJUSTMENT MADE BY THE DEPARTMENT FOR THE EA RLIER YEARS WITHOUT APPRECIATING THAT IN THOSE YEARS, IN TERM OF ARTICLE 27 OF THE INDIA USA DOUBLE TAXATION AVOIDANCE AGREEMENT, THE COMPETENT 18 AUTHORITY OF USA AGREED TO PROVIDE A CORRELATIVE RELIEF TO THE AE IN ITS ASSESSMENT, FOR THE TRANSFER PRICING A DJUSTMENT MADE IN THE CASE OF APPELLANT AND IN VIEW THEREOF THE APPEALS FILED BY THE APPELLANT WERE NOT PRESSED ON WITHOUT PREJUDICE BASIS. 2.10 GROSSLY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY NOT PROVIDING THE APPELLANT A REASONABLE OPPORTUNITY OF BEING HEARD. 2.11 ERRED ON FACTS AND IN LAW, FAILING TO CONSIDER THAT IN ANY EVENT, ONLY PROPORTIONATE TP ADJUSTMENT SHOULD HAVE BEEN MADE IN THE APPELLANT'S CASE AFTER APPLYING THE PRINCIPLES ENUNCIATED BY THE HON'BLE DELHI BENCH OF THE INCOME - TAX APPE LLATE TRIBUNAL IN THE MATTER OF 'IL JIN ELECTRONICS INDIA (P) LTD. VS. ACIT, CIRCLE - 11(1)'. 2.12 FAILED TO CONSIDER AND APPRECIATE THAT THE APPELLANT IS ENTITLED TO THE BENEFIT OF THE OPTION OF +/ - 5 % AS PER THE PROVISIONS OF PROVISO TO SECTION 92C(2) OF THE ACT. 3. LD. DRP ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ADDITION OF RELOCATION EXPENSES AMOUNTING TO RS. 3,78,390 TO THE INCOME OF THE APPELLANT HOLDING THAT THE EXPENDITURE INCURRED ON RELOCATION OF TWO EMPLOYEES (RS. 1,53,283) AND ON REL OCATION OF ASSETS LIKE UPS, PRINTERS ETC. RS.2,25,107 RESULTED IN A CAPITAL ADVANTAGE. 4. LD. DRP ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ADDITION OF COMMUNICATION EXPENSES AMOUNTING TO RS. 98,720 TO THE INCOME OF THE APPELLANT, WHICH REPRESENT ED THE REVERSAL OF A PROVISION CLAIMED AS NOT CHARGEABLE TO TAX. THE SAID PROVISION WAS MADE IN AN EARLIER YEAR AND VOLUNTARILY DISALLOWED IN THE RETURN OF INCOME OF THAT YEAR. 5. THE LD. DRP ERRED, BOTH IN FACTS AND IN LAW, IN CONFIRMING THE ADDITION OF ADVERTISEMENT CHARGES AMOUNTING TO R S . 2,79 24 3 CLAIMED ALLOWABLE UNDER SECTION 40(A)(IA) OF T H E ACT AFTER DEDUC TIN G AND DEPOSITING APPROPRIATE TDS THEREON. 6. THE LD. AO ERRED ON FACTS IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT AT AN EXCESSIVE AMOUNT . THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 19 16. SINCE THE ISSUES RELATING TO TRANSFER PRICING RAISED IN THE PRESENT APPEAL ON SIMILAR TO THE ISSUES RAISED IN RELATION TO TRANSFER PRICING IN THE ASSESSMENT YEAR 2005 - 06, PARTIES HAVE B EEN ADOPTED SIMILAR ARGUMENTS AS ADVANCED BY THEM IN ASSESSMENT YEAR 2009 - 10. WE THUS FOLLOWING OUR FINDING THEREIN SET ASIDE THE MATTER FOR THE FRESH ADJUDICATION OR THE TPO/A.O. ON SIMILAR DIRECTIONS AS MADE IN THE MATTERS FOR THE ASSESSMENT YEAR 2005 - 06 DEALT ABOVE. THE APPEAL IS THUS SET ASIDE FOR STATISTICAL PURPOSES. 17. SO FAR AS GROUND NO.2 OF THE APPEAL OF THE REVENUE IS CONCERNED, THE LEARNED AR POINTED OUT THAT THE ISSUE UNDER SIMILAR SET OF FACTS IS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY TH E ORDER DATED 25..9.2009 OF THE ITAT IN THE CASE OF ASSESSEE ITSELF (ITA NO.98/DEL/2008) IN THE APPEAL FOR ASSESSMENT YEAR 2004 - 05. 18. THE LEARNED CIT(DR) ON THE OTHER HAND RELIED UPON THE ASSESSMENT ORDER. 19. THE LEARNED CIT(APPEALS) HAS DELETED THE DI SALLOWANCE OF RS.28,87,831 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST ON BORROWED CAPITAL AMOUNT. CONTENTION OF THE ASSESSEE REMAINED THAT THE ASSESSEE HAD OBTAINED EXTERNAL COMMERCIAL BORROWING (ECB) LOAN FROM ITS HOLDING COMPANY IN THE FINANC IAL YEARS 1998 - 99 AND 2000 - 01 FOR THE 20 PURPOSE OF WORKING CAPITAL REQUIREMENT AMOUNTING TO USD 3 MILLION AND USD 2 MILLION VIDE LOAN REGISTRATION NUMBERS 41158 AND 41262, RESPECTIVELY. THE SAID ECB WAS UTILIZED BY THE APPELLANT FOR BUSINESS PURPOSE (AS WORK ING CAPITAL) IN THE YEARS PRIOR TO THE YEAR IN CONSIDERATION VIZ. A.Y. 2005 - 06. TO SUBSTANTIATE THE SAME, COPIES OF THE ECB - 2 (VIZ. THE RETURN FORM PRESCRIBED BY THE RESERVE BANK OF INDIA FOR REPORTING OF ACTUAL TRANSACTIONS OF ECB) HAVE BEEN ENCLOSED AS A NNEXURE - I. 20. UNDER SIMILAR SET OF FACTS, THE ITAT IN THE APPEAL OF THE PRESENT ASSESSEE FOR THE ASSESSMENT YEAR 2004 - 05 (SUPRA) HAD DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. CONCLUDING PARA NO. 11 THEREOF IS REPRODUCED HEREUNDER: 11 . WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE, IT IS CLEAR THAT THE ASSESSEE HAD BORROWED AN AMOUNT OF RS.4,00,43,616 UNDER ECB. THE ASSESSEE HAS OBTAINED RBI APPROVAL FOR THE SAME. THE ASSESSEE IS RECEIVING COMMISSION FROM THE GROUP COMPANIES ON BEHALF OF WHOM THE EXPENDITURE WAS INCURRED. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE TREATED TO HAVE BEEN INCURRED AS A COMMERCIAL EXPEDIENCY AS HELD BY THE HONBLE APEX COURT IN TH E CASE OF SA BUILDERS (SUPRA). IT IS ALSO A FACT THAT ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE LOAN OBTAINED BY THE ASSESSEE UNDER ECB WAS DIVERTED TO GROUP COMPANIES. IN THE ABSENCE OF SUCH NEXUS, IT CANNOT BE SAID THAT AM OUNT BORROWED FOR THE PURPOSE 21 OF BUSINESS WAS DIVERTED FOR NON - BUSINESS PURPOSES. IN THE ABSENCE OF ANY SUCH MATERIAL ON RECORD, IN OUR CONSIDERED OPINION, CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION ON THE GROUND THAT THERE WAS NO NEXUS BETWEEN T HE MONEY BORROWED AND EXPENSES INCURRED BY THE ASSESSEE. SECONDLY, THE AMOUNT WAS SPENT BY THE ASSESSEE ON BEHALF OF THE GROUP COMPANIES FOR OBTAINING THE COMMISSION FROM THEM AND HENCE, THE SAME WAS INCURRED AS COMMERCIAL EXPEDIENCY. ACCORDINGLY, IN OUR C ONSIDERED OPINION, THE CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. 21. DURING THE YEAR, THE LEARNED CIT(APPEALS) HAS DECIDED HE ISSUE FOLLOWING ABOVE DECISION OF THE ITAT TO WHICH WE FULLY CONCUR WITH AND UPHOLD THE FINDING OF THE LEARNED CIT(A PPEALS) IN THIS REGARD. IN RESULT, GROUND NO.2 IS REJECTED. 22. IN SUMMARY, APPEAL OF THE REVENUE IS PARTLY ALLOWED AND THOSE CROSS OBJECTION AND APPEAL FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 . 0 5 . 201 6 S D/ - SD/ - ( L .P . S A HU ) ( I.C. S UDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20 / 0 5 /201 6 MOHAN LAL 22 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED DIRECTLY ON COMPUTER 20 . 0 5 .201 6 DRAFT PLACED BEFORE AUTHOR 20 . 0 5 .2016 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND ME MBER. 20 .05 .2016 APPROVED DRAFT COMES TO THE SR.PS/PS 20 . 0 5 .2016 KEPT FOR PRONOUNCEMENT ON 20 .0 5 .2016 FILE SENT TO THE BENCH CLERK 20 . 0 5 .2016 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.