Cook India Medical Devices Private Limited, CHENNAI V. DCIT Corporate Circle 1(2), CHENNAI

ITA 3137/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4675 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 21-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAYAKUMAR PUNNA JR
• Keywords: Gift; Transfer pricing; International transaction; Wholly owned subsidiary; Corroborative evidences
• Section: 143(3); 234B; 10B; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , ! , ! & BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.3137/CHNY/2017 /ASSESSMENT YEAR: 2013-14 M/S.COOK INDIA MEDICAL DEVICES- PVT. LTD., 4/249A, RASIM ENCLAVE, POONAMALLEE HIGH ROAD, NEAR SAVITHA DENTAL COLLEGE, GOPARASANALLUR, KATTUPAKKAM, CHENNAI-600 034. [PAN: AACCC 7628 P] VS. THE DY. COMMISSIONER OF- INCOME TAX, CORPORATE CIRCLE-1(2), CHENNAI. ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR.VIKRAM VIJAYARAGHAVAN, ADV. )*( + /RESPONDENT BY : MR.VIJAYAKUMAR PUNNA, JR. STANDING COUNSEL + /DATE OF HEARING : 01.05.2018 + / DATE OF PRONOUNCEMENT : 01.05.2018 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.3137/CHNY/2017 IS AN APPEAL FILED BY THE AS SESSEE AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL-2, BENGALURU, IN F. NO.406/DRP-2- BNG/2016-17 DATED 15.09.2017 FOR THE AY 2013-14. ITA NO.3137/CHNY/2017 :- 2 -: 2. SHRI VIJAYAKUMAR PUNNA, JR. STANDING COUNSEL, RE PRESENTED ON BEHALF OF THE REVENUE AND SHRI VIKRAM VIJAYARAGHAVA N, ADV., REPRESENTED ON BEHALF OF THE ASSESSEE. 3. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, COOK INDIA MEDICAL DEVICES PRIVATE LIMITED (COOK INDIA OR APPELLANT OR THE COMPANY) RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY LD. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), CHENNAI (LD. AO), DATED OCTOBER 20, 2017, UNDER SECTION 143(3) READ WITH SE CTION 144C (1) READ WITH SECTION 92CA OF THE INCOME TAX ACT, 1961 (ACT) IN PURSUANCE OF THE DIRECTIONS ISSUED BY LD. DISPUTE RESOLUTION PANEL-2, BANGALORE (LD. DRP) DATED SEPTEMBER 15, 2017 UNDER SECTION 144C(5) OF THE ACT (IMPUGNE D ORDER) INTER-ALIA ON THE FOLLOWING GROUNDS: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW: 1. THE IMPUGNED ORDER AND DIRECTIONS OF THE HONBLE DRP ARE BASED ON INCORRECT APPRECIATION OF FACTS AND WRONG INTERPRETATION OF L AW AND THEREFORE, ARE BAD IN LAW. 2. THE LD. AO HAS ERRED IN ASSESSING THE TOTAL INCO ME AT RS.7,38,56,155/- AS AGAINST THE RETURNED INCOME OF RS.3,51,95,750/- COM PUTED BY THE APPELLANT IN ITS RETURN OF INCOME FOR AY 2013-14. 3. THE LD. AO HAS ERRED IN LAW AND IN FACT, IN DETE RMINING A SUM OF RS.1,98,87,910/- AS THE BALANCE TAX (INCLUDING INTE REST) DEMAND PAYABLE BY THE APPELLANT. TRANSFER PRICING GROUNDS 4. THE LD. AO/ TRANSFER PRICING OFFICER (TPO)/ DR P HAS ERRED, IN LAWS AND FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN B Y THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, WITH RESPECT TO THE INTERNATIONAL TRANSACTION PERTAINING TO SUPPORT SERVICES (IMPUGN ED TRANSACTION) PROVIDED BY THE ASSOCIATED ENTERPRISES (AES) TO THE APPELLANT AND FURTHER HOLDING THAT THE IMPUGNED TRANSACTION IS NOT AT ARMS LENGTH AND HEN CEFORTH MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.1,05,28 ,594/-. 4.1. THE LD. AO/TPO/ DRP HAVE ERRED, IN LAW AND IN FACTS, BY REJECTING THE FOREIGN AES AS THE TESTED PARTY AND SELECTING THE APPELLANT AS THE TESTED PARTY. 4.2. THE LD. AO/TPO/DRP HAS ERRED, IN LAWS AND FACT S, BY REJECTING TRANSACTION NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD (MAM ) FOR DETERMINATION OF THE ARMS LENGTH PRICE (ALP) FOR THE IMPUGNED TRANSAC TION. THE LD. AO/DRP HAS ERRED IN UPHOLDING LD. TPOS APPLICATION OF COMPARA BLE UNCONTROLLED PRICE (CUP) ITA NO.3137/CHNY/2017 :- 3 -: AS THE MAM FOR THE PURPOSES OF DETERMINATION OF THE ALP OF THE IMPUGNED TRANSACTION. 4.3. THE LD. TPO AND THE LD. AO HAVE ERRED, IN LAWS AND IN FACTS, BY NOT CONSIDERING FACT THAT THE APPELLANT HAS INCLUDED A LL THE OPERATING COSTS (I.E. EVEN THE COSTS PERTAINING TO SUPPORT SERVICES) IN THE CO ST BASE WHILE DETERMINING THE MARGINS FOR DISTRIBUTION BUSINESS. THE LD. TPO AND LD. AO HAVE FAILED TO APPRECIATE THE FACT THAT THE APPELLANT HAS EARNED N ET MARGIN OF 6.88 PERCENT ON REVENUE WHICH IS HIGHER THAN COMPARABLES I.E. 3.69 PERCENT (UNADJUSTED) AND (-) 0.81 PERCENT (ADJUSTED) AND WHICH HAS ALREADY BEEN CONSIDERED AT ARMS LENGTH BY THE LD. TPO. 4.4. THE LD. TPO AND THE LD. AO HAVE ERRED, IN LAWS AND FACTS, BY NOT CONSIDERING THE CORROBORATIVE ANALYSIS UNDERTAKEN BY THE APPELL ANT TO JUSTIFY THE MARK-UP OF 8 PERCENT LEVIED ON INTERNAL COSTS CHARGED BY THE AES . 4.5. THE LD. AO/DRP HAS ERRED, IN LAWS AND FACTS, B Y CONSIDERING THE ALP OF CERTAIN SUPPORT SERVICES AS NIL. 5. THE LD. AO/TPO/DRP HAS ERRED, IN LAWS AND FACTS, BY NOT CONSIDERING THE DOCUMENTARY EVIDENCES AS SUBMITTED BY THE APPELLANT TOWARDS RECEIPT OF SUPPORT SERVICES FROM ITS AES. 6. THE LD. AO/TPO/DRP HAS ERRED, IN LAWS AND FACTS, BY CONSIDERING THE RECEIPT OF SUPPORT SERVICES AS REPETITIVE IN NATURE. CORPORATE TAX GROUNDS 7. THE LD. AO/DRP HAS ERRED, IN LAWS AND FACTS, BY DISALLOWING THE ENTIRE PAYMENT MADE TOWARDS SUPPORT SERVICES AVAILED FROM THE FORE IGN AES AMOUNTING TO RS.2,29,94,915/- UNDER SECTION 37 OF THE ACT. THE L D. AO/DRP HAS ERRED WITH RESPECT TO THE FOLLOWING: 7.1. AS PER THE ORDER PASSED UNDER SECTION 92CA OF THE ACT, THE LD. TPO HAS DETERMINED THE ALP OF THE SAID TRANSACTION AT RS.1, 24,66,321/- AND SUBSEQUENTLY HAS PROPOSED AN ADJUSTMENT AMOUNTING TO RS.1,05,28, 594/-. AS THE LD. TPO, AFTER EXAMINING THE ENTIRE DETAILS, SUPPORTING EVIDENCES AND METHODOLOGY ADOPTED BY THE APPELLANT, HAS PASSED A DETAILED ORDER UNDER SE CTION 92CA(3) OF THE ACT, THE SAME WAS BINDING ON THE LD. AO IN TERMS OF THE PROV ISIONS OF SECTION 92CA(4) OF THE ACT. ACCORDINGLY, THE LD. AO/DRP HAS ERRED, IN LAWS AND FACTS, BY DISALLOWING ENTIRELY THE SAID EXPENDITURE UNDER SECTION 37 OF T HE ACT. 7.2. THE LD. AO/DRP HAS ERRED IN LAWS AND FACTS, BY CONCLUDING THAT THE EXPENDITURE INCURRED BY THE APPELLANT WAS A SPECIOU S ARRANGEMENT MADE BY THE APPELLANT TO REDUCE ITS TAX LIABILITY IN THE COUNTR Y AND FOR SHIFTING OF THE PROFITS. THE LD. AO/DRP HAS ERRED IN LAWS AND FACTS, BY IGNO RING THE FACT THAT THE SAID TRANSACTION WAS ALREADY SCRUTINIZED BY THE LD. TPO. 7.3. AFTER CONSIDERING THE ADJUSTMENT AMOUNT OF RS. 1,05,28,594/- THE LD. AO/DRP HAS ERRED, IN LAWS AND FACTS, BY DISALLOWING THE BA LANCE EXPENDITURE AMOUNTING TO RS.1,24,66,321/-. 8. THE LD. AO/DRP HAS ERRED, IN LAW AND ON FACTS, I N DISALLOWING AN AMOUNT OF RS.1,56,65,490/- IN RESPECT OF CONFERENCE EXPENSES INCURRED BY THE APPELLANT. ITA NO.3137/CHNY/2017 :- 4 -: 8.1. THE LD. AO/DRP HAS ERRED, IN LAWS AND FACTS, B Y CONSIDERING THE CONFERENCE EXPENSES INCURRED BY THE APPELLANT ARE IN NATURE OF DONATIONS MADE TO MEDICAL ASSOCIATIONS. 8.2. THE LD. AO/DRP HAS ERRED, IN LAW AND ON FACTS, IN APPLYING THE CBDT CIRCULAR NO.5/2012 (CBDT CIRCULAR) DATED 1 AUGUST, 2012 WI THOUT CONSIDERING THE FACT THAT THERE HAS BEEN NO VIOLATION OF THE INDIAN MEDI CAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 ( IMC REGULATIONS) OR THE REGULATIONS ISSUED BY MEDICAL COUNCIL OF INDIA. 8.3. WITHOUT PREJUDICE TO THE OBJECTION NO. 8.2, EV EN IF THE CBDT CIRCULAR IS TO BE APPLIED IN THE APPELLANTS CASE, THE LD. AO/DRP HAS ERRED BY NOT APPRECIATING THE FACT THAT CONFERENCE EXPENSES ARE NOT COVERED WITHI N THE AMBIT OF THE IMC REGULATIONS OR THE CBDT CIRCULAR. 8.4. THE LD. AO/DRP HAS ERRED, IN LAWS AND ON FACTS , BY IGNORING THE FACT THAT THE APPELLANT HAD INCURRED RS.1,63,50,744/-, TOWARDS CO NFERENCE EXPENSES AND ISSUED A CREDIT NOTE AMOUNTING TO RS.1,11,32,940/- ON ITS AE, TO RECOVER THE CERTAIN CONFERENCE MEETING EXPENSES. HENCE, THE AMOUNT OF C ONFERENCE EXPENSES CLAIMED IN THE RETURN OF INCOME FILED FOR THE AY 2013-14, W AS RS.52,17,840/- ONLY. HENCE, THE LD. AO/DRP HAS ERRED, IN LAWS AND ON FACTS, BY NOT CONSIDERING THE SAID CREDIT NOTE AMOUNTING TO RS.1,11,32,940/- RECOVERED FROM T HE AE AGAINST THE EXPENDITURE INCURRED. GENERAL GROUNDS 9. THE LD. AO HAS ERRED IN LEVYING INTEREST OF RS.7 6,67,313/- UNDER SECTION 234B AND RS.2,72,400/- UNDER SECTION 234C OF THE ACT. 10. THE LD. AO HAS ERRED, IN LAW AND IN FACTS, IN I NITIATING PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT; THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE OF EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONBLE TRIBUNAL TO DEC IDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 4. IT WAS SUBMITTED BY THE LD.AR THAT BASICALLY THR EE ISSUES ARE RAISED IN THE ASSESSEES APPEAL. GROUND NOS.4 TO 6 WERE I N RESPECT OF THE TRANSFER PRICING. GROUND NO.7 WAS IN RESPECT OF TH E DISALLOWANCE OF THE EXPENDITURE INCURRED BY THE ASSESSEE AS QUANTIFIED BY THE TPO IN RESPECT OF THE SALES SUPPORT EXPENDITURE AND GROUND NO.8 WA S IN RESPECT OF THE DISALLOWANCE OF THE CONFERENCE EXPENSES. ITA NO.3137/CHNY/2017 :- 5 -: 5. IN REGARD TO GROUND NOS.4 TO 6 IN RESPECT OF TRA NSFER PRICING, IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE IS IN THE BUSINESS OF DISTRIBUTION OF MEDICAL DEVICES IN THE INDIAN MARKET IN RESPECT OF THE COOK GROUP INCORPORATED USA, OF WHICH, THE ASSESSEE IS A WHOLL Y OWNED SUBSIDIARY. IT WAS A SUBMISSION THAT THE TPO HAD DONE THE TRANSFER PRICING STUDY AND HAD ACCEPTED THE RESULTS IN RESPECT OF THE PURCHASE OF MEDICAL DEVICES AS ALSO THE REIMBURSEMENT OF THE EXPENSES. HOWEVER, I N RESPECT OF THE ISSUE OF MANAGEMENT SERVICE CHARGES WHICH CONSISTED OF TH E SERVICES UNDER THE HEAD HUMAN RESOURCES, MARKETING, IT, LOGISTICS SUP PORT, FINANCE AND REGIONAL SALES SUPPORT OUT OF THE TOTAL EXPENDITURE CLAIMED RS.2,29,94,915/-, THE TPO HAD ACCEPTED THE REGIONAL SALES SUPPORT SERVICES TO AN EXTENT OF RS.1,24,66,321/- AND HAD M ADE A DOWNWARD ADJUSTMENT OF RS.1,05,28,594/- IN RESPECT OF THE MA NAGEMENT SERVICE FEE PAID. IT WAS SUBMITTED BY THE LD.AR THAT THE ISSU E HAD COME UP FOR THE AY 2012-13. IT WAS A SUBMISSION THAT THE ASSESSEE HAD SPECIFICALLY SUBMITTED THAT THE MANAGEMENT SERVICE WAS INCLUDED IN THE PURCHASE OF MEDICAL DEVICES AND CONSEQUENTLY, NO SPECIFIC DOWNW ARD ADJUSTMENT WAS REQUIRED. HOWEVER, TO RE-CONSIDER THE ISSUE, THE C O-ORDINATE BENCH OF THIS TRIBUNAL HAD FOR THE IMMEDIATELY PRECEDING ASSESSME NT YEAR IN ITA NO.2546/MDS/2016 DATED 30.03.2017 HELD AS FOLLOWS: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD AND JUDICIAL DECISIONS RELIED BY THE ASSESSEE. THE SOLE CRUX OF THE ISSUE BEING THE DOWNWARD ADJUSTMENT MADE BY THE LD. TPO IN RESPECT OF THE INTERNATIONAL TRANSACTIONS, WE FIND THE ASSESSEE HAD INTERNATIONA L TRANSACTIONS WITH ASSOCIATED ENTERPRISES IN RESPECT OF RECEIPT OF SERVICES WITH M/S. COOK, AUSTRALIA AND M/S. COOK ASIA LIMITED, HONG KONG AND THE LD. TPO HAS CO NSIDERED THE TP STUDY OF THE ASSESSEE AND WORKED OUT THE MARGINS, WHERE THE ASSE SSEE IS IN THE IMPORT OF MEDICAL EQUIPMENTS AND THE ASSESSEE HAS ADOPTED TNM METHOD AS A MOST ITA NO.3137/CHNY/2017 :- 6 -: APPROPRIATE METHOD AND CERTAIN FILTERS WERE APPLIED AND THE ASSESSEE HAS PROVIDED FIVE COMPARABLES AND THEIR ADJUSTED ARITHMETIC MEAN PLI(OP/OI) WHICH WORKED OUT TO 0.09% AS AGAINST THE PLI OF 3.49% AND THE L D. TPO HAS DEALT EXCLUSIVELY ON THE SUPPORT SERVICE FEES, CHOICE OF TESTED PARTY AND CAME TO A CONCLUSION THAT THE MOST APPROPRIATE METHOD TO BE APPLIED IS CUP ME THOD AND MADE DOWNWARD ADJUSTMENT OF RS.2,65,83,539/- WHICH WAS SUBSEQUENT LY PEGGED DOWN BY THE DRP ON SUBMISSION OF EVIDENCE TO THE EXTENT OF RS.2,26, 95,052/-. THE LD. DR HAS SUBMITTED THAT THE ASSESSEE COMPANY COULD NOT SUBST ANTIATE 85% OF ITS EXPENDITURE AND RELIED ON THE ORDER OF THE DRP. THE DRP FIND THE LD. TPO HAS EXAMINED THE VARIOUS DOCUMENTS, AGREEMENTS PRODUCED BY THE ASSESSEE TO JUSTIFY ITS CLAIM FOR HAVING RECEIVED SERVICES FROM ASSOCIA TED ENTERPRISES, WHEREAS IT WAS OBSERVED THAT MANY OF THE SERVICES WERE DUPLICATIVE IN NATURE AS THE ASSESSEE FAILED TO EXPLAIN HOW PAYMENTS WERE MADE TO ITS EMP LOYEES AS WELL AS ITS ASSOCIATED ENTERPRISES. THE DRP EMPHASIZED THAT THE ASSESSEE COMPANY HAS FAILED TO PRODUCE ANY DOCUMENTS TO SUBSTANTIATE THE CLAIMS AND THE LD. TPO HAS CONSIDER THE INFORMATION AND OBSERVED THAT THE ASSE SSEE HAS NOT COOPERATED IN SUBMITTING THE CORRECT DATA. THE CONTENTION OF THE LD.TPO THAT SERVICES AVAILED, BUT ACTUALLY NOT RENDERED AND THE PAYMENTS WERE MAD E BY THE ASSESSEE AT ALP AND THE ASSESSEE HAS NOT UTILIZED THE OPPORTUNITY P ROVIDED BEFORE THE LD. TPO. FURTHER THE DRP SUBSTANTIATED THAT THE ASSESSEE IN THE PROCEEDINGS COULD NOT SUPPORT THEIR CLAIMS WHETHER SERVICES ARE ACTUALLY RECEIVED OR THAT THE SERVICES WERE NOT IN THE NATURE OF STEWARD SERVICES AND THE CONTENTION OF THE ASSESSEE TO SUBSTANTIATE THE ENTIRE CLAIM OF EXPENDITURE WILL P UT THE ASSESSEE UNDUE IN HARDSHIP. THE LD. DRP FOUND THAT THE ASSESSEE FAILE D TO SUBSTANTIATE ITS CLAIM TO THE EXTENT OF RS.2,26,95,052/- WHICH BEING IN RELAT ION TO THE ASSOCIATED ENTERPRISES SERVICES. WE FOUND THAT THE ASSESSEE TH OUGH SUBMITTED THE DETAILS, AGREEMENTS, WRITTEN SUBMISSIONS THE DRP WAS NOT SAT ISFIED WITH THE EVIDENCE AND MADE A CATEGORICAL FINDING THAT THE ASSESSEE HAS TO MAINTAIN SUFFICIENT RECORDS TO PROVE ITS CLAIM BEFORE INCOME-TAX AUTHORITIES. THE SUBMISSIONS OF THE ASSESSEE THAT GUIDANCE WAS RECEIVED THROUGH TELEPHONE CALLS AND THEY WERE NOT DOCUMENTED, THE LD. DRP AFTER CONSIDERING THE INFOR MATION TECHNOLOGY REGIONAL SALES SUPPORT AND PROJECT MANAGEMENT SERVICES, WHIC H ARE IN THE ARM LENGTH, DIRECTED THE LD.TPO TO EXCLUDE THIS EXPENDITURE FRO M THE DOWNWARD ADJUSTMENT. THE LD.AR SUBMITTED THAT THE DOCUMENTS ARE GENUINE AND THE SERVICES HAVE BEEN RECEIVED BY THE ASSESSEE AND THEREFORE TRANSACTIONS ARE IN THE NATURE OF BUSINESS. THE LD.AR RELIED ON THE ORDER OF CO-ORDINATE BENCH IN THE CASE OF DCIT V. FLAKT (INDIA) LTD., (SUPRA) DEALT AT PARA NO.9 AS FOLLOWS : THE TRANSFER PRICING OFFICER HAS NOT TAKEN ANY PAI N TO IDENTIFY UNCONTROLLED TRANSACTION BETWEEN TWO INDEPENDENT ENTITIES. IN TH E ABSENCE OF ANY COMPARISON OF THE TRANSACTION WITH TRANSACTION CARR IED OUT IN A UNCONTROLLED MARKET, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE TRANSFER PRICING OFFICER CANNOT INDEPENDENTLY COME TO A CONCLUSION T HAT VOLUME AND QUALITY OF SERVICES WAS DISPROPORTIONATE TO THE PAYMENT MAD E BY THE ASSESSEE. THE MATTER MAY BE TOTALLY DIFFERENT IF THE TRANSFER PRICING OFFICER WAS ABLE TO IDENTIFY THE UNCONTROLLED TRANSACTION BETWEEN TH E ENTERPRISES ENTERING INTO SUCH TRANSACTION WHICH WOULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET. IN THIS CASE, SUCH AN EXERCISE WAS NOT MADE BY THE TRANSFER PRICING OFFICER. THE DISPUTE RESOLUTION PANEL HAS, THEREFORE, RIGHTLY FOUND THAT THE METHOD ADOPTED BY THE TRANSFER PRICING OFF ICER FOR DISALLOWING THE CLAIM OF THE ASSESSEE WAS NOT JUSTIFIED. AS RIGHTLY OBSERVED BY THE DISPUTE RESOLUTION PANEL, THE TRANSFER PRICING OFFICER HAS NOT BROUGHT ON RECORD THE BASE ON WHICH HE ESTIMATED THE ARM'S LENGTH PRICE A T 25%, WHEN RULE 10B(C) PROVIDES FOR METHOD OF DETERMINING THE ARM'S LENGTH PRICE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ESTIMATI ON OF THE SERVICES RENDERED AND COSTS FOR SUCH SERVICES MAY BE OUTSIDE THE SCOPE OF TRANSFER ITA NO.3137/CHNY/2017 :- 7 -: PRICING ADJUSTMENT. WITHOUT IDENTIFYING THE COMPARA BLE CASES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ESTIMATION OF THE DISALLOWANCE WITHOUT ANY BASE IS NOT CALLED FOR. THEREFORE, THE DISPUTE RESO LUTION PANEL HAS RIGHTLY UPHELD THE TRANSFER PRICING STUDY MADE BY THE ASSES SEE. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 5.1 SIMILARLY, ON THE DISPUTED ISSUE IN THE CASE OF M/S. AB MAURI INDIA PVT. LTD. SUPRA WHICH HAS HELD AT PAGE 4 PARA 5 AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR MAKING A DJUSTMENT IN TRANSFER PRICING MATTER, FIVE METHODS PRESCRIBED UNDER RULE 10B OF INCOME-TAX RULES, 1962 HAVE TO BE FOLLOWED. IN THE CASE BEFORE US, THE ASSESSING OFFICER HAS NOT FOLLOWED ANY METHOD. THOUGH THE ASS ESSEE CLAIMED THAT THE TRANSACTION NET MARGIN METHOD IS THE MOST APPROPRIA TE METHOD, THE TRANSFER PRICING OFFICER HAS NOT DISCUSSED IN HER O RDER WITH REGARD TO APPROPRIATE METHOD AND SHE SIMPLY FOUND THAT SINCE THERE WAS NO IMPROVEMENT IN THE REVENUE, THE PAYMENT OF MANAGEME NT FEES IS NOT JUSTIFIED. THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT WHEN THE ASSESSEE CLAIMS THAT MANAGEMENT FEE WAS PAID IN RESPECT OF T HE SERVICES PROVIDED BY THE ASSOCIATE ENTERPRISE OUTSIDE THE COUNTRY, TH E PAYMENT MADE BY THE ASSESSEE HAS TO BE COMPARED WITH SIMILARLY PLACED C OMPANIES IN INDIA AND WHETHER THE PAYMENT MADE BY THE ASSESSEE IS AT ARM S LENGTH. THE TRANSFER PRICING OFFICER AND THE DISPUTE RESOLUTION PANEL ARE EXPECTED TO COMPARE THE PAYMENT WITH THAT OF THE COMPARABLE COM PANIES IN INDIA ON THE BASIS OF METHOD PRESCRIBED UNDER RULE 10B. UNFO RTUNATELY, BOTH THE TRANSFER PRICING OFFICER AND THE DISPUTE RESOLUTION PANEL HAVE NOT TAKEN SUCH PAIN IN COMPARING THE PAYMENT MADE BY THE ASSE SSEE WITH THAT OF THE COMPARABLE COMPANIES IN INDIA BY APPLYING PROVISION S OF RULE 10B. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF PAYMENT OF MANAGEMENT FEE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICE R SHALL REFER THE MATTER TO THE TRANSFER PRICING OFFICER FOR RECONSIDERATION. T HE TRANSFER PRICING OFFICER SHALL COMPARE THE PAYMENT MADE BY THE ASSESSEE WITH THAT OF PAYMENT MADE BY COMPARABLE COMPANIES IN INDIA AND POINT OUT WHETHER THE PAYMENT MADE BY THE ASSESSEE IS REALLY AT ARMS LEN GTH. THE TRANSFER PRICING OFFICER SHALL EXAMINE THE ISSUE IN THE LIGH T OF THE METHOD PRESCRIBED UNDER RULE 10B FOR THE PURPOSE OF DETERMINATION OF THE ARM'S LENGTH PRICE. 5.2 WE ARE IN CONSONANCE WITH THE FACTS THAT THE AS SOCIATED ENTERPRISES RENDERED SERVICES AND THE PAYMENTS HAVE BEEN MADE BY THE ASS ESSEE COMPANY THOUGH ASSESSEE COULD NOT SUBSTANTIATE IT DUE TO VARIOUS R EASONS ON THE CLAIM, WE FIND STRENGTH IN THE ARGUMENTS OF THE LD. AR, THAT THESE EXPENDITURE BEING GENUINE AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WE ARE OF THE OPINION THAT IF THE ASSESSEE PRODUCED THE DETAILS O F EXPENDITURE FOR AVAILING THE SERVICES FROM THE ASSOCIATED ENTERPRISES AND PROVE THE GENUINENESS OF TRANSACTION. WE FOUND SIMILAR ISSUE DEALT BY THE CO -ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. CONTROL TECHNIQUES INDIA PVT. L TD. V. JCIT ON 16.12.2016 AT PAGE 5, PARA 4 & 5. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN PLEA OF THE ASSESSEE IS THAT THE TPO ANALYSES THE A SSESSEES PROFITABILITY AND ARRIVED OPERATION MARGINS OF THE ASSESSEE AT 13.96% AS AGAINST THE ARITHMETIC ITA NO.3137/CHNY/2017 :- 8 -: MEAN OF THE OPERATING MARGIN OF 13 COMPARABLES AT 7 .02%. AFTER TESTING THAT THE OPERATING MARGIN OF THE ASSESSEE IS ON HIGHER SIDE, HE STEPPED INTO THE BENCH MARKED THE MANAGEMENT SERVICES FEE BY APPLYING THE CUP METHOD OVERWHELMING THAT TNMM IS NOT MOT APPROPRIATE METHOD. ACCORDING TO HIM, THE TPO IS NOT AN ASSESSING OFFICER AND HE IS CONCERNED WITH ONLY IN RESPECT OF T.P ADJUSTMENTS AND HE CANNOT HAVE JURISDICTION TO DECIDE ALLOWABILITY OF EXPENDITURE U/S.37 OF THE ACT. FURTHER, HE RELIED ON THE JUDGEMENT OF HYDERABAD TR IBUNAL IN THE CASE OF DCIT VS. M/S.AIR LIQUID ENGINEERING IN ITANO.1040/HYD./2011 & OTHERS VIDE ORDER DATED 13.02.2014 WHEREIN HELD THAT:- 20. FURTHERMORE, WE ARE OF THE OPINION THAT ONCE TN MM HAS BEEN APPLIED TO THE ASSESSEE COMPANYS TRANSACTION, IT COVERS UNDER ITS AMBIT THE ROYALTY TRANSACTIONS IN QUESTION TOO AND HENCE SEPARATE ANALYSIS AND CON SEQUENT DELETION OF THE ROYALTY PAYMENTS BY THE TPO IN THE INSTANT CASE SEE MS ERRONEOUS. WE DRAW SUPPORT FROM THE HONBLE MUMBAI ITAT DECISION, CADB URY INDIA LTD. VS. ACIT (ITA NO 7408/MUM/2010 AND ITA NO.7641/MUM/2010 DATED 13- 11-2013) WHEREIN THE HONBLE ITAT UPHELD THE USE OF TNMM FOR ROYALTY AS WELL AS RELIED ON MANY OF THE ABOVE DECISIONS TO HOLD ADJUSTMENT BY TPO WAS ERRON EOUS: 33. THE TPO HAS MADE THE DISALLOWANCE IN QUESTION MAINLY ON THE BASIS OF THE BENEFIT TEST. IN THIS REGARD, IT IS SEEN THAT THE P AYMENT OF ROYALTY CANNOT BE EXAMINED DIVORCED FROM THE PRODUCTION AND SALES. RO YALTY IS INEXTRICABLY LINKED WITH THESE ACTIVITIES. IN THE ABSENCE OF PRODUCTION AND SALE OF PRODUCTS, THERE WOULD BE NO QUESTION ARISING REGARDING PAYMENT OF A NY ROYALTY. RULE 1 OA(D) OF THE ITAT RULES DEFINES TRANSACTION AS A NUMBER OF CLOSELY LINKED TRANSACTIONS. ROYALTY, THEN, IS A TRANSACTION CLOSELY LINKED WITH PRODUCTION AND SALES. FT CANNOT BE SEGREGATED FROM THESE ACTIVITIES OF AN ENTERPRIS E, BEING EMBEDDED THEREIN. THAT BEING SO, ROYALTY CAFINOT BE CONSIDERED AND EX AMINED IN ISOLATION ON A STANDALONE BASIS. ROYALTY IS TO BE CALCULATED ON A SPECIFIED AGREED BASIS, ON DETERMINING THE NET SALES WHICH, IN THE PRESENT CAS E, ARE REQUIRED TO BE DETERMINED AFTER EXCLUDING THE AMOUNTS OF STANDARD BOUGHT OUT COMPONENTS, ETC., SINCE SUCH NET SALES DO NOT STAND RECORDED BY THE A SSESSEE IN ITS BOOKS OF ACCOUNT. THEREFORE, IT IS OUR CONSIDERED OPINION TH AT THE ASSESSEE WAS CORRECT IN EMPLOYING AN OVERALL TNMM FOR EXAMINING THE ROYALTY . THE TPO WORKED OUT THE DIFFERENCE IN THE PU OF THE OUTSIDE PARTY (THE ASSE SSEE) AT 4.09% AND THE COMPARABLES AT 7.05%. THIS HAS NOT BEEN SHOWN TO FA LL OUTSIDE THE PERMISSIBLE RANGE. 34. THE DECISION OF THE TRIBUNAL IN EKLA APPLIANCE S, 2012-TH-01- HCDE1- TP, HAS BEEN SOUGHT TO BE DISTINGUISHED BY THE TPO, OBSERVI NG THAT THE FACTS IN THAT CASE ARE NOT IN PAN MATENA WITH THOSE OF THE ASSESSEES CASE. HOWEVER, THEREIN ALSO, THE BENEFIT TEST HAD BEEN APPLIED BY THE TPO, AS IN THE PRESENT CASE. THE MATTER WAS CARRIED IN APPEAL BEFORE THE HONBLE HIGH COURT . THE HONBLE DELHI HIGH COURT HAS HELD THAT THE SO-CALLED BENEFIT TEST CANNOT BE APPLIED TO DETERMINE THE ALP OF ROYALTY PAYMENT AT NIL AND THAT THE TPO COULD APPLY ONLY ONE OF THE METHODS PRESCRIBED UNDER THE LAW. A SIMILAR VIEW HAS BEEN T AKEN IN SONA OKEGAWA PRECISION FORGINGS LTD. (SUPRA) AND IN KHS MACHIN ERY PVT. LTD. VS. ITO, 53 SOT 100 (AHM) (URO). 35. IT IS, THUS, SEEN THAT THE ROYALTY PAYMENT @ 3% BY THE ASSESSEE IS AT ARMS LENGTH. THE TECHNICAL COLLABORATION AGREEMENT STAND S APPROVED BY THE GOVERNMENT OF INDIA. THE ROYALTY PAYMENT HAS BEEN A CCEPTED BY THE DEPARTMENT AS HAVING BEEN MADE BY THE ASSESSEE WHOLLY AND EXCL USIVELY FOR ITS BUSINESS PURPOSES. FOR ASSESSMENT YEARS 2004-05 AND 2005-06, SUCH PAYMENT OF ROYALTY HAS BEEN ALLOWED BY THE CIT (A). AS PER THE FEMA RE GULATIONS, ROYALTY CAN BE PAID ON NET SALES @ 5% ON DOMESTIC SALES AND @ 8% ON EXP ORT SALES. THE ROYALTY ITA NO.3137/CHNY/2017 :- 9 -: PAYMENT BY THE ASSESSEE FALLS WITHIN THESE LIMITS. FT ALSO FALLS WITHIN THE LIMITS OF PAYMENT OF ROYALTY IN THE AUTO MOBILE SECTOR, AS PE R THE MARKET TREND. THIS PAYMENT OF ROYALTY IS AT THE SAME PERCENTAGE AS THA T PAID BY OTHER AUTO ANCILLARIES IN THE AUTOMOTIVE INDUSTRY. THEN, IN E KIA APPLIANCES (SUPRA) AND IN ERICSSON INDIA PVT. LTD. VS. DCIT, 2012-TII-48-IT AT-DEL-TP, IT HAS BEEN HELD THAT ROYALTY PAYMENT CANNOT BE DISALLOWED ON THE BASIS O F THE SO-CALLED BENEFIT TEST AND THE DOMAIN OF THE TPO IS ONLY TO EXAMINE AS TO WHETHER THE PAYMENT BASED ON THE AGREEMENT ADHERES TO THE ARMS LENGTH PRINCI PLE OR NOT. THAT BEING SO, THE ACTION OF THE TPO IN THE PRESENT CASE, TO MAKE THE DISALLOWANCE MAINLY ON THE GROUND OF THE BENEFIT TEST, IS UNSUSTAINABLE IN LAW . 36. KEEPING IN VIEW ALL THE ABOVE FACTORS, THE DISA LLOWANCE MADE ON ACCOUNT OF ROYALTY IS FOUND TO BE TOTALLY UNCALLED FOR AND IT IS DELETED AS SUCH. ... . 21. HENCE, FOLLOWING THE RATIO OF THE HONBLE DELHI HIGH COURT IN CIT VS. EKL APPLIANCES (SUPRA) AND VARIOUS OTHER DECISIONS AS N OTED ABOVE AND GIVEN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WE HOLD THAT THE ADDITION MADE BY THE TPO AND UPHELD BY THE DRP IS UNSUSTAINABLE AND IS TO BE DELETED. HENCE GROUND NO. 2 IS HELD IN FAVOUR OF THE ASSESSEE. HENCE, THE APPEA L OF THE REVENUE ITA.NO.1040/HYD/2011 IS DISMISSED AND ASSESSEES AP PEAL IN ITA.NO.1159/HYD/2011 IS ALLOWED. 5. FURTHER, HE DREW OUR ATTENTION TO CASE OF CIT VS . EKL APPLIANCES LTD.IN [2012] 345 ITR 241 (DEL) WHEREIN THE HONBLE DELHI HIGH COURT HAD OCCASION TO CONSIDER AN ISSUE OF DISALLOWANCE OF ROYALTY BY TPO BECAUSE THE ASSESSEE IN THAT CASE HAD BEEN SUFFERING LOSSES; THE DELHI HIGH COUR T, WHILE HOLDING THAT SO LONG AS THE EXPENDITURE OR PAYMENT BY ASSESSEE HAS BEEN DEM ONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSE OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. THUS , ACCORDING TO THE LD.A.R, THE AO HAS NO JURISDICTION TO NULLIFY THE TRANSACTION, WHEN THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND OPERATING MARGIN OF ASSESSEE HIGHER THAN THE ARITHMETIC MEAN OF THE OPERATING MARGIN OF THE COMPARABLES. IN PRINCIPLE, WE AGREE WITH THE ARGUMENT OF THE LD.A.R. HOWEVER, WE FIND FROM THE ORDER OF LOWER AUTHORITIES THAT TPO WANTED THE ASSESSEE TO SHOW TH AT SERVICES WERE ACTUALLY RENDERED TO THE ASSESSEE AND PAYMENT WAS MADE FOR T HE SAME, ALSO IT WAS NOTED BY THE DRP THAT THE INVOICES SUBMITTED BY THE ASSES SEE PERTAINING TO THE FEES PAID BY THE ASSESSEE TO ITS AE FOR REGISTRATION OF PATEN TS DEVELOPED BY AE IN THEIR OWN COUNTRY WITH HARDLY ANYTHING TO SHOW AS TO HOW THE ASSESSEE BENEFITTED FROM THE SAME IN ITS BUSINESS. SIMILARLY, IN RELATION TO INV OICE FOR MIS, THE SAME HAD BEEN PERTAINED TO THE YEAR UNDER CONSIDERATION AND ASSES SEE FAILED TO SUBSTANTIATE ITS CLAIM OF SERVICE WERE ACTUALLY RECEIVED OR THAT SER VICES ARE NOT IN NATURE OF STEWARDSHIP SERVICES. FURTHER, DRP OBSERVED THAT TH E TPO HAD DISCUSSED IN DETAIL THE NATURE OF VARIOUS SERVICES, CLAIMED TO HAVE BEE N RECEIVED THE ASSESSEE FROM ITS A.E. HENCE, THE DRP DIRECTED THE AO FOR DISALLO WANCE OF 78,57,058/-. IN OUR OPINION, IF THE ASSESSEE PRODUCES THE PARTICULARS O F ACTUAL EXPENDITURE FOR AVAILING THESE SERVICES, THEN IT IS TO BE ALLOWED. WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. 5.3 WE HAVING CONSIDERED THE FACTUAL ASPECTS, JUDIC IAL DECISIONS AND ALSO THE FACTS OF CLAIM OF EXPENDITURE BY THE ASSESSEE AND CANNOT BE OVERLOOKED AND AN OPPORTUNITY MAY BE PROVIDED TO SUBSTANTIATE THE CLA IM SUPPORTING THE DETAILS OF EXPENDITURE IN THE NATURE OF MANAGEMENT FEES PAID T O THE ASSOCIATED ENTERPRISES. IN THE INTEREST OF JUSTICE, WE PROVIDE AN OPPORTUNI TY TO THE ASSESSEE AND REMIT THE DISPUTED ISSUE TO THE FILE OF THE DRP WHICH HAS CON SIDERED THESE FACTS IN ITS ORDER AND FURTHER DIRECT THE ASSESSEE TO PRODUCE THE CLAI M OF EXPENDITURE WITH ITA NO.3137/CHNY/2017 :- 10 -: SUPPORTING EVIDENCE AND ACCORDINGLY THE ASSESSEE AP PEAL IS ALLOWED FOR STATISTICAL PURPOSES. 6. IT WAS A SUBMISSION THAT THE ASSESSEE HAD NO OBJ ECTION IF THE ISSUE WAS RESTORED TO THE FILE OF THE AO/TPO FOR RE-ADJUD ICATION ON SIMILAR DIRECTIONS. 7. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE ORD ER OF THE DRP. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 9. AS IT IS NOTICED THAT THE ISSUE IN RESPECT OF TH E MANAGEMENT SERVICE FEE HAVE BEEN RESTORED TO THE FILE OF THE DRP IN TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR, WE ARE OF THE VIEW THAT FOR THIS A SSESSMENT YEAR ALSO, THE ISSUE MUST BE RESTORED TO THE FILE OF THE AO/TP O FOR RE-ADJUDICATION IN LINE WITH THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE REFERRED TO SUPRA AND WE DO SO. 10. CONSEQUENTLY, GROUND NOS.4 TO 6 OF THE ASSESSEE S APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 11. IN REGARD TO GROUND NO.7, IT WAS SUBMITTED BY T HE LD.AR THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.2,29,94,915/- UNDER THE HEAD SUPPORT SERVICES AVAILED FROM FOREIGN ASSOCIATED EN TERPRISE. IT WAS A SUBMISSION THAT THE TPO HAD DETERMINED THE SUPPORT SERVICES REASONABLE ITA NO.3137/CHNY/2017 :- 11 -: TO AN EXTENT OF RS. RS.1,24,66,321/-. IT WAS A SUB MISSION THAT HOWEVER THE AO HAD DISALLOWED THE SAME ON THE GROUND THAT T HE ASSESSEE HAD NOT PRODUCED ANY CONVINCING PROOF AT ALL FOR SUBSTANTIA TING THE NECESSITY OF SUCH PAYMENTS. IT WAS A SUBMISSION THAT THE ASSESS EE IS A WHOLLY OWNED SUBSIDIARY OF THE ASSOCIATED ENTERPRISE AND THE SER VICE CHARGES HAVE BEEN PAID AS PER THE BILLS RAISED ON THE ASSESSEE. THE REQUIREMENT OF THE SERVICE IS KNOWN TO THE ASSESSEE AND THE TPO HAS AL SO FOUND THAT THE AMOUNT PAID TO AN EXTENT OF RS.1,24,66,321/- WAS RE ASONABLE. IT WAS A SUBMISSION THAT THE AO WAS ATTEMPTING TO DISALLOW T HE EXPENDITURE WHICH IS INCURRED BY THE ASSESSEE WITHOUT UNDERSTANDING T HE NATURE OF THE BUSINESS OF THE ASSESSEE. IT WAS A SUBMISSION THAT THE EXPENDITURE CLAIMED WAS LIABLE TO BE ALLOWED AND NO DISALLOWANC E WAS CALLED FOR. 12. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE OR DER OF THE AO & DRP. IT WAS A SUBMISSION THAT NO PROOF SHOWING THE NECESSITY OF INCURRING THE EXPENDITURE HAD BEEN PRODUCED. IT WAS A SUBMIS SION THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE FOR THE SERV ICE CHARGES PAYMENTS WAS ONLY FOR SHIFTING PROFITS OF THE ASSESSEE TO TH E ASSOCIATED ENTERPRISE. IT WAS A SUBMISSION THAT THE ORDER OF THE DRP ON TH IS ISSUE IS LIABLE TO BE SUSTAINED. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ITA NO.3137/CHNY/2017 :- 12 -: 14. A PERUSAL OF THE ORDER OF THE AO SHOWS THAT HE HAS TAKEN A STAND THAT THE ASSESSEE HAS NOT FURNISHED CONCLUSIVE PROO F FOR THE NEED BENEFIT EVIDENCES TEST THAT NEEDS TO BE SATISFIED BY THE AS SESSEE FOR THE TENABLE CLAIM OF THE SERVICE RECEIVED. THIS IS ALSO THE SAM E STAND TAKEN BY THE DRP. THIS IS FOUND AT PAGE NO.8 OF THE TPO ORDER. AFTER TAKING THE STAND, THE TPO PROCEEDED TO QUANTIFY THE ALP IN RESPECT OF THE VARIOUS BREAK UPS OF THE SERVICES AND IN RESPECT OF THE REASONABLE SA LES SUPPORT AS AGAINST THE ASSESSEE CLAIM OF RS.1,24,66,321/- AS FOUND AT PAGE NO.14 OF HIS ORDER. A PERUSAL OF THE PAGE NO.11 OF THE ORDER SH OWS THAT COPIES OF THE E-MAIL EXCHANGE BETWEEN THE EMPLOYEE AND THE THIRD PARTY AGENCIES, SERVICES TO REPAIRS, ETC., HAD BEEN PRODUCED. CONS EQUENTLY, THE TPO HAS HELD IN VIEW OF THE ABOVE, THE PAYMENT TOWARDS THI S SERVICE IS ACCEPTABLE. AFTER THIS, HE HAS WORKED OUT THE DOWN WARD ADJUSTMENT. THUS, CLEARLY THE TPO HAS SHOWN HIS SATISFACTION IN REGARD TO THE REQUIREMENT OF THE REASONABLE SALES SUPPORT EXPENDI TURE. THIS IS NOT DISLODGED BY THE AO OR THE DPR. THE TPO HAVING GIV EN, THIS FINDING IT WOULD NOW NOT BE OPEN FOR THE AO TO TURN ROUND AND SAY THAT NO EVIDENCE HAD BEEN PRODUCED TO PROVE THE REQUIREMENT OF SUCH EXPENDITURE. THIS BEING SO, WE ARE OF THE VIEW THAT DISALLOWANCE OF R S.1,24,66,321/- AS DONE BY THE AO AND AS UPHELD BY THE DRP IS ERRONEOU S AND UNSUSTAINABLE. CONSEQUENTLY, THE AO IS DIRECTED TO GRANT THE ASSES SEE THE BENEFIT OF THE EXPENDITURE IN RELATION TO THE REASONABLE SALES SUP PORT AS QUANTIFIED BY THE TPO. CONSEQUENTLY, GROUND NO.7 STANDS ALLOWED. ITA NO.3137/CHNY/2017 :- 13 -: 15. IN REGARD TO GROUND NO.8, IT WAS SUBMITTED BY T HE LD.AR THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE OF RS.52,17,8 40/- TOWARDS CONFERENCE EXPENSES. HOWEVER, THE AO/DRP HAD DISAL LOWED AN AMOUNT OF RS.1,54,65,490/- UNDER THE HEAD CONFERENCE EXPENSE S ALLEGING THAT THE SAID EXPENSES WERE IN NATURE OF PROVIDING SPONSORSH IP OR GIFT, ETC., TO DOCTORS. IT WAS A SUBMISSION THAT THE ASSESSEE HAS NOT GIVEN ANY SPONSORSHIP OR GIFT TO ANY DOCTORS. THE LD.AR PLAC ED BEFORE US THE DETAILS OF THE EXPENSES INCURRED IN RESPECT OF VARIOUS CONF ERENCES ALONG WITH BILLS AND VOUCHERS. IT WAS A SUBMISSION THAT THESE EVIDE NCES HAVE NOT BEEN CONSIDERED BY THE AO. IT WAS A SUBMISSION THAT HE HAD NO OBJECTION IF THE ISSUE IS RESTORED TO THE FILE OF THE AO FOR RE- ADJUDICATION. 16. IN REPLY, THE LD.DR SUBMITTED THAT NO EVIDENCE HAVE BEEN PRODUCED TO SHOW THE DETAILS IN RESPECT OF THE EXPENDITURE I NCURRED ON THE CONFERENCE. IT WAS, HOWEVER, A SUBMISSION THAT THE STAND OF THE AO THAT THE EXPENDITURE HAS BEEN INCURRED FOR PROVIDING GIF T AND SPONSORSHIP TO DOCTORS CANNOT BE RULED OUT. IT WAS A SUBMISSION T HAT THE ORDER OF THE AO/DRP WAS LIABLE TO BE UPHELD. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 18. A PERUSAL OF THE EVIDENCES AS PRODUCED BY THE L D.AR SHOWS THAT THE ASSESSEE HAS INCURRED SUBSTANTIAL EXPENDITURE TOWAR DS STALL CHARGES AT VARIOUS CONFERENCES. HOWEVER, AS IT IS NOTICED THA T THE AO HAS TAKEN A ITA NO.3137/CHNY/2017 :- 14 -: STAND THAT THE EXPENDITURE CLAIMED AS CONFERENCE EX PENDITURE ARE IN FACT SPONSORSHIP AND GIFT GIVEN TO DOCTORS, THIS ISSUE I S RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING THE ASSES SEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE. THE ASSESSEE SHALL BE AT LIBERTY TO PRODUCE ALL EVIDENCES AS REQUIRED TO PROVE THAT THE EXPENDITURE INCURRED WERE ACTUALLY CONFERENCE EXPENDITURE. THE AO IF HE IS OF THE VIEW THAT THE EXPENDITURE WERE IN NATURE OF SPONSORSHIP OR GIFT T O THE DOCTORS THEN THE AO SHALL IDENTIFIED THE SAME SPECIFICALLY BEFORE MA KING THE DISALLOWANCE. CONSEQUENTLY, GROUND NO.8 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 19. THOUGH, OTHER GROUNDS HAVE BEEN RAISED, NONE OF THE OTHER GROUNDS HAVE BEEN SPECIFICALLY ARGUED. CONSEQUENTLY, SUCH GROUNDS ARE NOT ADJUDICATED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 01, 2018 , AT CHENNAI. SD/- SD/- ( ) ( S. JAYARAMAN ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER ITA NO.3137/CHNY/2017 :- 15 -: /CHENNAI, 2 /DATED: MAY 01, 2018. TLN + )34 54 /COPY TO: 1. ( /APPELLANT 4. 6 /CIT 2. )*( /RESPONDENT 5. 4 ) /DR 3. 6 ( ) /CIT(A) 6. /GF