DCIT, New Delhi V. M/s G4S Securities Services (India) PVt. Ltd, New Delhi

ITA 321/DEL/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6775 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 15-12-2015
• Assessment Year: misc
• Appeal Filed On: 29-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency
• Section: 92C; 92B; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C, NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER I.T.A. NOS.321, 3979 AND 5351/DEL/2009 (ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07) DCIT, CIRCLE 12(1), VS. M/S. G4S SECURITY SERVICES NEW DELHI (INDIA) PVT. LTD., FORMERLY GROUP 4 SECURITIES GUARDING PVT. LTD., PLOT NO.1 & 2, LSC VASANT KUNJ, NEW DELHI 110 070 GIR / PAN :AAACG1625Q I.T.A. NO. 3979 /DEL/2009 (ASSESSMENT YEARS, 2005-06) DCIT, CIRCLE 12(1), VS. G4S SECURITY SERVICES (IND IA) NEW DELHI PVT. LTD., PANCHVATI, 82A, SECTOR 18 GURGAON I.T.A. NO. 5351/DEL/2009 (ASSESSMENT YEARS 2006-07) ACIT, CIRCLE 12(1), VS. G4S SECURITY SERVICES (IND IA) NEW DELHI PVT. LTD., PANCHVATI, 82A, SECTOR 18 GURGAON (APPELLANT) (RESPONDENT) APPELLANT BY :S/SHRI MUKESH BUTANI, GAURAV GUPTA, VISHAL KALRA, ANUJ AGARWAL, KALRA, ADV. MS. KHYATI DADHWAL. RESPONDENT BY :SHRI AMRENDRA KUMAR, CIT DR SHRI VIJAY KUMAR, SR. DR DATE OF HEARING: 16.12.2015 DATE OF PRONOUNCEMENT: 15.02.2015 ORDER 2 I.T.A.NO.321,3979,5351/DEL/2009 PER KULDIP SINGH, JM: SINCE, COMMON QUESTION HAS BEEN RAISED FOR DETERMI NATION BY THE APPELLANT, DCIT, CIRCLE 12(1), NEW DELHI (HEREINAFT ER REFERRED TO AS THE REVENUE) IN THE AFORESAID APPEALS, THE SAME ARE BE ING DISPOSED OF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUS SION. 1.1 THE REVENUE BY FILING THE PRESENT APPEALS HAS S OUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.11.2008 IN I.T.A.NO. 32 1/DEL/2009, ORDER DATED 29.07.2009 IN I.T.A.NO. 3979/DEL/2009 AND ORD ER DATED 28.09.2010 IN I.T.A.NO. 5351/DEL/2010 PASSED BY LD. CIT(A) XX, NEW DELHI QUA THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 R ESPECTIVELY ON THE GROUNDS INTER ALIA THAT: A. I.T.A.NO. 321/DEL/2009: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,7 4,86,042/- MADE BY THE TPO ON ACCOUNT OF ARMS LENGTH PRICE OF THE I NTERNATIONAL TRANSACTION RELATED TO PAYMENT OF ROYALTY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE CIT(A) ERRED IN DECIDING THE ISSUE WITHOUT WAITING FOR REMAND REPORT MATTER BEING REMANDED TO AO(TPO) AND AO (TPO ) HAVING SOUGHT TIME, THEREBY VIOLATING THE PRINCIPLES OF NA TURAL JUSTICE. B. I.T.A.NO. 3979/DEL/2009: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 3 I.T.A.NO.321,3979,5351/DEL/2009 2. WHETHER THE LD.CIT(A) WAS JUSTIFIED ON FACTS OF THE CASE AND IN LAW IN HOLDING THAT PAYMENT OF ROYALTY TO THE TU NE OF RS.3,39,17,4701- MADE BY THE ASSESSEE TO M/S GROUP 4 FALCK A/S DENMARK THROUGH M/S G4S CORPORATE SERVICES PVT. LTD ., A RESIDENT COMPANY, DOES NOT FALL WITHIN THE DEFINITION OF DEE MED INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTION 92892) OF THE INCOME TAX ACT 1961. C. I.T.A.NO. 5351/DEL/2010: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE CIT(A) IS ERRONEOUS, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. WHETHER THE LD.CIT(A) WAS JUSTIFIED ON FACTS OF THE CASE AND IN LAW IN HOLDING THAT PAYMENT OF ROYALTY TO THE TU NE OF RS. 3,12,18,850/- MADE BY THE ASSESSEE TO M/S GROUP 4 F ALCK A/S DENMARK THROUGH M/S G4S CORPORATE SERVICES PVT. LTD ., A RESIDENT COMPANY, DOES NOT FALL WITHIN THE DEFINITION OF DEE MED INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTION 928(2) OF THE INCOME TAX ACT 1961. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .4,19,499/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON TEMPORARY S TRUCTURE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .3,03,203/- MADE BY THE AO ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED . 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE AS UND ER: A. ITA NO.321/DEL/ 2009 (A.Y. 2004-05): 4 I.T.A.NO.321,3979,5351/DEL/2009 BRIEFLY STATED, THE FACTS OF THIS CASE ARE: DURING THE PROCESSING OF RETURN OF INCOME FILED BY THE ASSESSEE QUA THE ASSE SSMENT YEAR 2004-05, THE CASE WAS SUBJECTED TO SCRUTINY AND IN RESPONSE TO THE NOTICE ISSUED U/ 143(2) OF THE ACT, SHRI S.K. AGARWAL, CA ALONG WITH SHRI VENKAT PATNAIK, AR ATTENDED THE PROCEEDINGS FORM TIME TO TIME. KEE PING IN VIEW THE FACT THAT THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSA CTION WITH ITS ASSOCIATE ENTERPRISES (AE), THE CASE WAS REFERRED TO TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARM'S LENGTH PRICE (ALP) U/S 9 2CA OF THE INCOME TAX ACT, 1961 (HEREINAFTER TO BE REFERRED 'THE ACT' ). TPO PASSED THE ORDER DATED 06.12.2006 U/S 92CA(3) MAKING THE ADJUSTMENT OF RS.2,74,86,042/- IN THE ALP AND THE ASSESSEE WAS ISSUED SHOW CAUSE N OTICE AS TO WHY ADDITION OF RS.2,74,86,042/- BE NOT MADE. FINDING THE REPLY FILED BY THE ASSESSEE NOT TENABLE THAT THE TPO WAS NOT JUSTIFIED IN RELYING UPON THE FINANCIAL RESULTS FOR THE ASSESSMENT YEAR 2003-04 T O DETERMINE THE ALP AND WAS ALSO NOT JUSTIFIED IN DETERMINING THE ALP F OR ROYALTY PAID IN CASE OF ASSESSEE, THE A.O. PASSED THE ASSESSMENT ORDER I NCONSONANCE WITH THE ORDER PASSED BY TPO AND THEREBY MADE AN ADDITION OF RS.2,74,86,042/-. B. ITA NO.3979/DEV2009 (A.Y. 2005-06): BRIEFLY STATED, THE FACTS OF THIS CASE ARE: DURING THE PROCESSING OF RETURN OF INCOME FILED BY THE ASSESSEE QUA THE A.Y. 2005-06, THE CASE WAS SUBJECTED TO SCRUTINY AND IN RESPONSE TO THE NOTICE ISSUED U/ 143(2) OF THE ACT, SHRI S.K. AGARWAL, CA ALONG WITH SHRI VENKAT P ATNAIK, AR ATTENDED THE PROCEEDINGS FORM TIME TO TIME. KEEPING IN VIEW THE FACT THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES, THE MATTER WAS REFERRED TO TPO U/S 92C A OF THE ACT FOR DETERMINATION OF ALP, WHO HAS PASSED ORDER DATED 27 .10.2008 MAKING AN 5 I.T.A.NO.321,3979,5351/DEL/2009 ADJUSTMENT OF RS.3,39,17,470/- QUA PAYMENT MADE BY THE ASSESSEE COMPANY ON ACCOUNT OF ROYALTY PAID TO M/S. GROUP 4 FALCK VIZ. BEING DIFFERENCE IN ALP OF THE ASSESSEE AND AS DETERMINED BY THE TPO U/S 92CA(3) OF THE ACT. FINDING THE CONTENTION OF THE A SSESSEE THAT THE TRANSACTION ENTERED INTO BETWEEN BOTH THE RESIDENT COMPANIES ARE NOT INTERNATIONAL TRANSACTION, NOT TENABLE, AN ADDITION OF RS.3,39,17,470/- WAS MADE IN THE INCOME OF THE ASSESSEE BEING DIFFERENCE BETWEEN ALP. C. ITA NO.5351/DEL/2010 (A.Y. 2006-07): BRIEFLY STATED, THE FACTS OF THIS CASE ARE: DURING THE PROCESSING OF RETURN OF INCOME FILED BY THE ASSESSEE QUA THE A.Y. 2006-07, THE CASE WAS SUBJECTED TO SCRUTINY AND IN RESPONSE TO THE NOTICE ISSUED U/S 143(2) OF THE ACT, SHRI S.K. AGARWAL, CA ALONG WITH SHRI VENKAT P ATNAIK, AR ATTENDED THE PROCEEDINGS FROM TIME TO TIME. THE ASSESSEE ACC EPTED THE PROPOSED DRAFT ORDER AND DID NOT FILE ANY OBJECTION BEFORE D RP. THE TPO PASSED THE ORDER MAKING ADJUSTMENT OF RS.3,12,18,850/- IN ALP BEING DIFFERENCE IN ALP ADJ USTMENT U/S 92CA(3). THE ASSESSEE'S OBJECTION THAT THE TRANSACTION ENTER ED INTO BETWEEN BOTH THE RESIDENT COMPANIES VIZ. ASSESSEE COMPANY AND M/S. G ROUP 4 FALCK, ARE NOT COVERED UNDER INTERNATIONAL TRANSACTION AFTER A NALYZING THE PROVISIONS OF DEEMED INTERNATIONAL TRANSACTION, HAS BEEN CONSI DERED AND REJECTED FIRSTLY BY THE TPO AND THEN ASSESSING OFFICER, IN C ONSONANCE WITH THE ORDER PASSED BY TPO, MADE ADDITION OF RS.3,12,18,85 0/- IN THE INCOME OF THE ASSESSEE. 6 I.T.A.NO.321,3979,5351/DEL/2009 2.1 THE ASSESSEE CLAIMED DEPRECIATION OF RS.4,66,1 00/- @ 100% REGARDING TEMPORARY ERECTIONS MADE ON LEASE HOLD BU ILDING, EXPIRY OF LEASE DEED, THESE STRUCTURES WOULD REVERT BACK TO L ESSER AND THEIR UTILITY FOR THE ASSESSEE IS TEMPORARY AND CLAIMED DEDUCTION U/S 37(1) OF THE ACT. THE ASSESSING OFFICER FINDING AND EXPLANATION MADE BY T HE ASSESSEE FOR DEDUCTION FOR THE TEMPORARY ERECTION U/S 37(1) NOT TENABLE, MADE AN ADDITION BY ALLOWING DEPRECIATION @ 10% AND MADE CO NSEQUENT ADDITION OF RS.4,19,499/- (RS.466110 - 46611). 2.2 THE ASSESSING OFFICER ALSO MADE ADDITION OF RS .3,03,203/- BY DISALLOWING THE DEPRECIATION CLAIMED BY THE ASSESSE E @ 60% ON COMPUTER PERIPHERALS, UPS AND PRINTERS ON COST / WDV OF RS.L 0,11,442/- FOR LESS THAN 180 DAYS I.E. 30% OF RS.L,68,064/- FOR MORE TH AN 180 DAYS I.E. 60% AMOUNTING TO RS.4,04,271/-. 2.3 THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER D ATED 29.12.2009 BEFORE LD. CIT(A) WHO HAS ACCEPTED THE APPEAL. FEEL ING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY FILING T HE PRESENT SET OF APPEALS. 3. WE HAVE HEARD LD. AUTHORIZED REPRESENTATIVES, P ERUSED THE MATERIAL ON RECORD IN THE LIGHT OF FACTS AND CIRCUM STANCES OF THE CASE, ORDERS OF TAX AUTHORITIES BELOW AND THE CASE LAW RE LIED UPON BY THE PARTIES TO THE APPEAL. GROUNDS NO.1 & 2 OF I.T.A.NO. 321/DEL/2009 (A.Y. 20 04-05), GROUNDS NO.1 & 2 OF I.T.A.NO. 3979/DEL/2009 (A.Y.2005-06) A ND GROUNDS NO.1 & 2 OF I.T.A.NO. 5351/DEL/2010 (A.Y. 2006-07): 7 I.T.A.NO.321,3979,5351/DEL/2009 4. LD. D.R. CHALLENGING THE IMPUGNED ORDER, CONTEN DED INTER ALIA THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .2,74,86,042/- RS.3,39,17,470/- AND RS.3,12,18,850/- QUA THE ASSES SMENT YEARS 2004-05, 2005-06 AND 2006-07 RESPECTIVELY ON ACCOUNT OF PAYM ENT OF ROYALTY MADE TO M/S. GROUP 4 FALCK A/S DENMARK THROUGH M/S. G4S CORPORATE SERVICE PVT. LTD., A RESIDENT COMPANY; THAT THE TRANSACTION OF MAKING PAYMENT OF ROYALTY BY THE ASSESSEE TO M/S. G4S CORPORATE SERVI CES INDIA (P) LTD., IS A SHAM TRANSACTION TO AVOID BENCHMARKING OF THE INTER NATIONAL TRANSACTION, IN ORDER TO AVOID THE PAYMENT OF TAX; THAT THE ASSE SSEE COMPANY HAS ACTUALLY MADE THE PAYMENT ON ACCOUNT OF ROYALTY TO ITS OWN CREATED ENTITY AND RELIED UPON THE CASE LAW SETTLED IN CASE CITED AS MC DOWEL CO .; THAT FACTUM OF MAKING PAYMENT OF ROYALTY BY THE ASSESSEE COMPANY TO M/S.G 4S CORPORATE SERVICE (INDIA) PVT. LTD. IS TO BE SE EN AS A WHOLE AND NOT ON PIECEMEAL BASIS; THAT LD. CIT(A) HAS PASSED THE ORD ER IN HASTE WITHOUT PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSI NG OFFICER FROM WHOM HE HAD CALLED REMAND REPORT AND, THEREBY DERAILED THE JUDICIAL PROCESS; THAT THE ASSESSEE ITSELF HAS REPORTED THE TRANSACTI ON AS INTERNATIONAL TRANSACTION BUT NEVER CHALLENGED ITS WRONG PLEADING S BEFORE TPO BY MOVING AN APPLICATION SHOWING ACTUAL NATURE OF TRAN SACTION; THAT SINCE THE ASSESSEE COMPANY HAS MADE THE PAYMENT OF ROYALTY TO THE HOLDING COMPANIES AND HOLDING COMPANY HAS MADE PAYMENT TO O FFSHORE COMPANY, WHICH APPARENTLY SHOWS THAT IT IS DEEMED INTERNATIO NAL TRANSACTION; THAT THE ASSESSEE COMPANY ITSELF HAS FILED FORM 3CEB FOR TREATING THE ROYALTY PAYMENT AS INTERNATIONAL TRANSACTION BUT BACK OUT T HEREAFTER TO AVOID THE BENCHMARKING AND RELIED UPON THE ORDER OF TPO. 8 I.T.A.NO.321,3979,5351/DEL/2009 5. HOWEVER, ON THE OTHER HAND LD. A.R. FOR THE ASS ESSEE TO REPEL THE ARGUMENTS ADDRESSED BY LD. D.R. CONTENDED INTER ALI A THAT SINCE THE ASSESSEE BEING AN INDIAN COMPANY, HAS PAID ROYALTY TO ANOTHER INDIAN COMPANY, THE QUESTION OF FALLING THE TRANSACTION UN DER THE PURVIEW OF INTERNATIONAL TRANSACTION' DOES NOT ARISE AND RELI ED UPON THE ORDER PASSED BY LD. CIT(A); THAT LD. CIT(A) HAS PROVIDED AMPLE OPPORTUNITY TO THE REVENUE AND RELIED UPON THE ORDER OF TPO AND HE WAS NOT TO WAIT ENDLESSLY TO PROLONG THE DECISION. 6. THE COMMON ISSUE TO BE DETERMINED IN ALL THE AF ORESAID APPEALS IS, AS TO WHETHER THE PAYMENT OF RS.2,74,86,042/- IN A SSESSMENT YEAR 2004- 05 AND RS.3,39,17,470/- IN ASSESSMENT YEAR 2005-06, MADE BY THE ASSESSEE COMPANY ON ACCOUNT OF ROYALTY PAYMENT TO G ROUP 4 FALCK A/S DENMARK THROUGH G4S CORPORATE SERVICES PVT. LTD., A RESIDENT COMPANY, FALLS WITHIN THE PURVIEW OF THE DEEMED INTERNATION AL TRANSACTION. 7. AT THE VERY OUTSET, LD. A.RS. FOR THE PARTIES TO THE APPEALS HAVE FAIRLY CONCEDED THAT TRANSFER PRICING ISSUE IN ALL THE AFORESAID APPEALS IS SIMILAR AND IDENTICAL, EXCEPT FOR THE CORPORATE TA X ISSUE, WHICH IS INVOLVED ONLY IN I.T.A. NO. 5351/DEL/2010 QUA ASSESSMENT YEA R 2006-07. SO, ALL THE APPEALS ARE BEING TAKEN UP TOGETHER FOR DISPOSA L. 8. UNDISPUTEDLY, THE ASSESSEE COMPANY REPORTED INTE RNATIONAL TRANSACTION IN DISPUTE IN FORM 3CEB AS UNDER: INTERNATIONAL TRANSACTIONS: THE MAJOR INTERNATIONAL TRANSACTIONS REPORTED IN FO RM NO.3CEB ARE SUMMARIZED AS UNDER: 9 I.T.A.NO.321,3979,5351/DEL/2009 S.NO. DESCRIPTION OF TRANSACTION METHOD VALUE (IN R S.) 1 BUSINESS SUPPORT FEE (ROYALTY) CUP 2,74,86,042 2 SERVICES GIVEN O THE AE CPM 6,44,940 3 SERVICES AVAILED CPM 61,50,243 4 REIMBURSEMENTS - 1,21,942 9. THE ASSESSEE TO DETERMINE THE ALP OF INTERNATION AL TRANSACTION PERTAINING TO THE PAYMENT OF ROYALTY USED COMPARABL E UNCONTROLLED PRICE METHOD (CUP). HOWEVER, THE TPO, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY AS WELL AS RECOMMENDAT IONS OF OECD, REJECTED THE CUP METHOD AND APPLIED THE TNMM METHOD . TPO ALSO REJECTED THE USE OF MULTIPLE YEAR DATA AND UNDER TN MM, THE DATA OF THE COMPARABLE IS TAKEN FROM THE YEAR 2004 ONLY FOR THE PURPOSE OF DETERMINING THE ALP OF INTERNATIONAL TRANSACTION. 10. CONSEQUENTLY, TPO PASSED THE ORDER U/S 92CA(3) OF THE ACT DETERMINING ADJUSTMENT OF RS.2,74,86,042/- HOLDING THE ALP ON PAYMENT OF ROYALTY AS NIL BY CONSIDERING THE OPERATING PR OFIT MARGIN OF THE COMPARABLE COMPANY AS UNDER: DETERMINATION OF ARM'S LENGTH OPERATING MARGIN: THE FOLLOWING TWO BROADLY COMPARABLE COMPANIES HAVE BEEN SELECTED BY THE ASSESSEE I) TOPS SECURITY LTD. II) BOMBAY INTELLIGENCE SECURITY (INDIA) LTD. THE ASSESSEE HAS COMPUTED THE AVERAGE OF THE WEIGHT ED PROFIT MARGIN OF THESE TWO COMPANIES AT 4.64%. SINCE, THE USE OF MULTIPLE YEAR DATA HAS ALREADY' BEEN REJECTED M THE PRECEDIN G PARAS, THE ARM'S LENGTH MARGIN IS COMPUTED IN THE FOLLOWING MA NNER: 10 I.T.A.NO.321,3979,5351/DEL/2009 S.NO. NAME NET OPERATING MARGIN FOR THE YEAR 2004 (%) 1 TOPS SECURITY LTD. 7.17% 2 BOMBAY INTELLIGENCE SECURITY (INDIA) LTD. 4.25% AVERAGE 5.71% COMPUTATION OF ARM'S LENGTH PRICE OF THE INTERNATIO NAL TRANSACTION; THE ARMS LENGTH PRICE'S OF THE INTERNATIONAL TRANSA CTION RELATED TO THE PAYMENT OF ROYALTY IS COMPUTED IN THE FOLLOWING MANNER; TOTAL INCOME OF THE ASSESSEE FOR THE F.Y 2003-04 2 62.16 CRORE NET PROFIT AS COMPUTED BY THE ASSESSEE 12.12 CROR E NET PROFIT MARGIN 4.62% ARM'S LENGTH NET PROFIT MARGIN 5.71% NET PROFIT AT ARM'S LENGTH MARGIN 14.96 CRORE DIFFERENCE 14.96 12.12 2.84 CRORE ADJUSTMENT REQUIRED TO BE MADE TO THE VALUE OF INTERNATIONAL TRANSACTION 2.84 CRORE VALUE OF THE INTERNATIONAL TRANSACTION RELATED TO PAYMENT OF ROYALTY 2.74 CRORE IT CAN BE SEEN THAT EVEN AFTER MAKING PAYMENT OF RO YALTY TO THE EXTENT OF RS.2.74 CRORE WHICH HAS BEEN ALLEGED TO H AVE FACILITATED HIGHER PRICING AND PREMIER CLIENTELE THE NET OPERAT ING MARGIN OF THE ASSESSEE ARE MUCH BELOW ARM S LENGTH MARGIN. EVEN I N ACCORDANCE WITH THE OECD GUIDELINES NO PAYMENT ON ACCOUNT OF R OYALTY IS JUSTIFIED AS THERE IS NO INCOME ACCRUING TO THE ASS ESSEE THAT IS COMMENSURATE WITH THE EXPENDITURE. ACCORDINGLY, THE ARM'S LENGTH PRICE OF THE INTERNAT IONAL TRANSACTION RELATED TO PAYMENT OF ROYALTY IS DETERMINED AT NIL VALUE. THE CORRESPONDING ADJUSTMENT REQUIRED TO BE MADE TO THE TOTAL INCOME IS RS.2,74,86,042/-. ARM'S LENGTH PRICE OF THE OTHE R TRANSACTIONS IS DETERMINED AT THE VALUE COMPUTED BY THE ASSESSEE IN FORM NO.3CEB. 11 I.T.A.NO.321,3979,5351/DEL/2009 11. ON THE OTHER HAND LD. CIT(A) VIDE IMPUGNED ORDE R, OVERTURNED THE FINDINGS RETURNED BY TPO AND CAME TO THE CONCLUSION THAT : NOW APPLYING ABOVE PROVISIONS OF THE SECTION 928 IN THE APPELLANT CASE, IT IS NOTICED THAT THERE IS NO INTE RNATIONAL TRANSACTION ON ACCOUNT OF PAYMENT OF ROYALTY TO THE TUNE OF RS.274,86,402/- BECAUSE: I) PAYMENT OF ROYALTY IS MADE BY G4 SECURITY INDIA (P) LTD. TO G4S CORPORATE SERVICES INDIA (P) LTD- BOTH OF WHICH ARE RESIDENT COMPANY IN INDIA. II) IN ORDER TO QUALIFY FOR 'INTERNATIONAL TRANSAC TION' AS PER SEC 928 AT LEAST ONE OF THE ENTERPRISE OR AE MUST BE A NON-RESIDENT. III) SINCE IN THE INSTANT CASE AS DISCUSSED ABOVE T HE ROYALTY PAYMENT OF RS 27486402 IS MADE BY ONE RESIDENT COMPANY (APPELL ANT) TO ANOTHER RESIDENT COMPANY I.E.( G4S CORPORATE SERVIC ES INDIA (P) LTD), HENCE IT IS NOT AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B AND THEREFORE PROVISIONS OF CHAPTER X OF INCOME TAX ACT, 1961 ARE NOT APPLICABLE. IV) THE 'INTERNATIONAL TRANSACTION' IS BETWEEN G4S CORPORATE SERVICES INDIA (P) LTD. (INDIAN CO.) AND GP 4 FALCK A/S DENMARK, FOR PAYMENT OF ROYALTIES AND IT IS ONLY IN THE CASE OF G4S CORPORATE SERVICES INDIA (P) LTD. (INDIAN ENTITY) AGAINST WHO M THE PROCEEDINGS UNDER CHAPTER 'X' CAN BE INITIATED TO D ETERMINE WHETHER THE ROYALTY PAYMENTS MADE BY G4S CORPORATE SERVICES INDIA (P) LTD TO GP 4 FALCK A/S DENMARK IS AT ARM'S LENGTH OR NOT. 8.1 HENCE IN VIEW OF THE ABOVE DISCUSSIONS, I HOLD THAT THE PAYMENT OF RS.27486402 MADE BY THE APPELLANT TO G4S CORPORA TE SERVICES INDIA (P) LTD. (INDIAN CO) IS NOT COVERED WITHIN TH E DEFINITION OF 'INTERNATIONAL TRANSACTION', ACCORDINGLY, IN THE RE SULT GROUND NO.5 IS ALLOWED. 12 I.T.A.NO.321,3979,5351/DEL/2009 12. LD. CIT(A) FOLLOWED HIS OWN DECISION IMPUGNED B Y WAY OF THE PRESENT APPEAL IN THE APPEAL PERTAINING TO THE SUBS EQUENT ASSESSMENT YEAR. 13. THE ASSESSEE BY RELYING UPON THE COPY OF ROYALT Y AGREEMENT ENTERED INTO BETWEEN G4S CORPORATE SERVICE INDIA PVT. LTD. AND GROUP 4 FALCK A/S, DENMARK RAISED OBJECTIONS THAT THE PAYMENT OF ROYALTY OF RS.3,39,17,470/- QUA ASSESSMENT YEAR 2005-06 (THE A MOUNT OF ROYALTY PAYMENT DIFFERS IN OTHER APPEALS QUA ASSESSMENT YEA RS 2004-05 AND 2006-07) DOES NOT FALL WITHIN THE PURVIEW OF DEFINI TION OF INTERNATIONAL TRANSACTION AND THE SAME WAS INADVERTENTLY INCLUDED IN FORM 3CEB AND MOREOVER, THE SAID PAYMENT HAS NOT BEEN MADE TO NON -RESIDENT COMPANY AND RELIED UPON THE FOLLOWING DOCUMENTS: COPY OF ROYALTY AGREEMENT ENTERED BETWEEN G4S CORP ORATE SERVICES & GROUP 4 FALCK A/S, DENMARK (REFER ANNEXU RE- I). 'COPY OF TP CERTIFICATE SHOWING THAT THE TRANSACTIO N ENTERED BETWEEN BOTH THE PARTIES IS AN INTERNATIONAL TRANSA CTION (REFER ANNEXURE- II). 'COPY OF TAX RETURN, AUDITORS REPORT, BALANCE SHEET & PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31S, MARCH, 2005 OF G4S CORPORATE SERVICES (REFER ANNEXURE- III). 'COPY OF APPROVAL LETTER RECEIVED BY G4S CORPORATE SERVICES FROM GOVERNMENT OF INDIA FOR PAYMENT OF ROYALTY TO NONRE SIDENT COMPANY I.E. TO GROUP 4 FALCK A/S, DENMARK (REFER A NNEXURE- IV). ''COPY TO DOCUMENTS SUBMITTED WITH THE BANK FOR PAY MENT OF ROYALTY TO NON-RESIDENT BY THE G4S CORPORATE SERVICES - (RE FER ANNEXURE- V). CONSIDERING THE ABOVE, YOUR GOODSELF WILL APPRE CIATE THAT THE TRANSACTION BETWEEN THESE ENTITIES I. E. G4S CORPOR ATE SERVICES & GROUP4 FALCK A/S, DENMARK IS AN INTERNATIONAL TRANS ACTION & THE TRANSACTION BETWEEN BOTH INDIAN COMPANIES I.E. G4S SECURITY 13 I.T.A.NO.321,3979,5351/DEL/2009 SERVICES & G4S CORPORATE SERVICES IS NOT AN INTERNA TIONAL TRANSACTION.' LD. TPO ARRIVED AT THE CONCLUSION THAT THE SAID TR ANSACTION OF PAYMENT OF ROYALTY BY THE ASSESSEE COMPANY IS DEEM ED INTERNATIONAL TRANSACTION U/S 92B(2) OF THE ACT, WHICH IS REPRO DUCED AS UNDER FOR READY REFERENCE: 92B(2): A TRANSACTION ENTERED INTO BY AN ENTERPRIS E WITH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, F OR THE PURPOSES OF SUB-SECTION (1), BE DEEMED TO BE A TRANSACTION E NTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANSACTION B ETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF RELEVANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUC H OTHER PERSON AND THE ASSOCIATED ENTERPRISE. 14. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES AND FINDINGS RETURNED BY THE ASSESSING OFFICER / TPO AN D LD. CIT(A), WE ARE OF THE CONSIDERED VIEW THAT LD. CIT(A) HAS ERRED IN HOLDING THAT THE PAYMENT OF RS.2,74,86,402/- MADE BY THE ASSESSEE CO MPANY TO GROUP 4 FALCK A/S, DENMARK THROUGH G4S CORPORATE SERVICE (I NDIA) PVT. LTD., AN INDIAN ENTITY, IS NOT AN INTERNATIONAL TRANSACTION BECAUSE WHEN THE ASSESSEE HAS INITIALLY FILED FORM 3CEB CLAIMING THE ROYALTY PAYMENT TRANSACTION AS INTERNATIONAL TRANSACTION BUT THEN R ETRACTED ITS CLAIM DURING APPELLATE PROCEEDINGS WITHOUT SEEKING ANY AMENDMENT TO THE ALLEGED WRONG PLEA TAKEN BY THE ASSESSEE BEFORE TPO. THE CI T(A) HAS DECIDED THE ISSUE WITHOUT AFFORDING AN OPPORTUNITY OF BEING HEA RD TO THE TPO. 15. EVEN OTHERWISE IN THE FACE OF UNDISPUTED FA CT THAT WHEN THE ASSESSEE COMPANY HAS MADE COMPREHENSIVE SUBMISSIONS REPRODUCED BY LD. CIT(A) AT PAGES 10 AND 11 OF THE IMPUGNED ORDER DURING APPELLATE 14 I.T.A.NO.321,3979,5351/DEL/2009 PROCEEDINGS, LD. CIT(A) HAS NOT FOUND IT EXPEDIENT TO TAKE ON RECORD THE COMMENTS / REPORT OF THE TPO CALLED FOR VIDE LETTER DATED 28.08.2008, NEITHER THERE IS AN IOTA OF EVIDENCE ON THE FILE I F SUCH LETTERS WERE EVER DELIVERED TO THE TPO TO FILE THE REQUISITE REPORT N OR SUBSTANTIVE EFFORTS ARE SHOWN TO HAVE BEEN MADE TO CALL THE REMAND REPORT, BUT HASTENED TO DECIDE THE MATTER WITHOUT WAITING FOR THE REPORT BY ADMITTING THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY AS A GOSPE L TRUTH AND THEREBY VIOLATED THE PRINCIPLES OF NATURAL JUSTICE. 16. SO WITHOUT ENTERING TO THE MERITS OF THIS CAS E WE CONSIDER IT EXPEDIENT IN THE INTEREST OF JUSTICE TO RESTORE THE CASE BAC K TO THE TPO TO DECIDE THE MATTER AFRESH FOR TRANSFER PRICING ADJUSTMENT IN TH E LIGHT OF THE COMPREHENSIVE SUBMISSIONS MADE BY THE ASSESSEE AFTE R PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE PARTIES. CONSE QUENTLY GROUNDS NO.1 & 2 OF I.T.A.NO. 321/DEL/2009 (A.Y. 2004-05), GROUNDS NO.1 & 2 OF I.T.A.NO. 3979/DEL/2009 (A.Y.2005-06) AND GROUNDS N O.1 & 2 OF I.T.A.NO. 5351/DEL/2010 (A.Y. 2006-07) ARE DETERMIN ED IN FAVOUR OF THE REVENUE. 17. GROUND NO.3 OF I.T.A. NO. 5351/DEL/2010 (A.Y. 2006- 07): THE ASSESSEE CLAIMED DEPRECIATION @ 100% AMOUNTING TO RS.4,66,110/- QUA THE TEMPORARY ERECTION. HOWEVER, ASSESSING OFFICER ALLOWED THE DEPRECIATION @ 10% I.E. RS.46,611/- AND CONSEQUENTLY MADE ADDITION OF RS.4,19,499/-. LD. CIT(A) ON THE OTHER HAND ALLOWED THE ENTIRE EXPENDITURE OF RS.4,66,110/- BY ADOPTING THE PRINCIPLE OF CONSISTENCY AS IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2002-03, SIMILAR EXPENDITURE IN RESPECT OF TEMPORARY ERECTIO N HAS BEEN ALLOWED. 15 I.T.A.NO.321,3979,5351/DEL/2009 18. LD. A.R. BY RELYING UPON THE ORDER PASSED BY ITAT IN I.T.A.NO. 4315/DEL/2005 QUA THE ASSESSMENT YEAR 2002-03 AND A NOTHER ORDER OF ITAT NEW DELHI BENCHES I BENCH, NEW DELHI IN I.T. A. NOS.278 AND 3871/DEL/2009 DATED 21.12.2012 , PASSED IN ASSESSEES OWN CASE, CONTENDED THAT THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSEE. 19. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORD ER PASSED BY THE ASSESSING OFFICER. 20. FROM THE ARGUMENTS ADDRESSED BY THE PARTIES TO THE PRESENT APPEAL AND PERUSAL OF THE ORDER PASSED BY ITAT DELHI BENCH I, NEW DELHI IN I.T.A.NO. 278 AND 3871/DEL/2009 ORDER DATED 21.12.2 012 IN ASSESSEES OWN CASE , AND IN I.T.A.NO. 1266/DEL/2010 IN CASE OF PEAREY LA L & SONS PVT. LTD. VS ACIT, ORDER DATED 16.12.2011 , WHICH HAVE SINCE ATTAINED FINALITY, WE ARE OF THE CONSIDERED VIEW TH AT THE ISSUE IN CONTROVERSY HAS FINALLY BEEN SETTLED BY THE TRIBUNA L AND THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE TRIBUNAL BEFOR E HON'BLE HIGH COURT AND HON'BLE SUPREME COURT HAVE ALREADY BEEN DISMISS ED, WE HEREBY CONFIRM THE FINDINGS RETURNED BY LD. CIT(A). SO, T HE GROUND NO.3 IS DETERMINED AGAINST THE REVENUE. 21 GROUND NO.4 I.T.A.NO. 5351/DEL/2009 (A.Y.2006-07): 16 I.T.A.NO.321,3979,5351/DEL/2009 22. THE ASSESSING OFFICER ALLOWED THE DEPRECIATION ON COMPUTER PERIPHERALS, UPS AND PRINTERS ON THE GROUND THAT UP S AND PRINTERS ARE NOT THE INTEGRAL PART TO THE EXTENT OF 50% I.E. RS.1,01 ,068/- ON THE GROUND THAT ASSESSEE HAS FAILED TO EXPLAIN THAT THE COMPUTER PE RIPHERALS AND UPS ARE TO BE TREATED IN THE BLOCK OF PLANT AND MACHINERY AND THEREBY MADE ADDITION OF RS.3,03,203 (EXCESS DEPRECIATION CLAIMED) TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, LD. CIT(A) BY RELYING UPON THE ORDER PASSED BY ITAT DELHI F BENCH, NEW DELHI IN THE CASE CITED E XPEDITORS INTERNATIONAL (INDIA) P. LTD. VS ACIT, 118 TTJ (DEL .) 652, ALLOWED THE DEPRECIATION @ 60% AND THEREBY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER, IN VIEW THE FACT THAT WITHOUT CO MPUTER PERIPHERALS, UPS AND PRINTERS, THE COMPUTER CANNOT FUNCTION AND AS SUCH THE SAME MAKE INTEGRAL PART OF THE COMPUTER. 23. MOREOVER, WHEN COMPUTER IS ELIGIBLE FOR DEPRECI ATION @ 60%, ITS INTEGRAL PART I.E. COMPUTER PERIPHERALS, PRINTERS A ND UPS ARE ALSO ENTITLED FOR DEPRECIATION @ 60%. THIS ISSUE HAS BEEN DECIDE D BY THE JURISDICTIONAL HIGH COURT IN THE JUDGEMENT CITED AS CIT VS BSES YAMUNA POWERS LTD. IN I.T.A. NO. 1267/2010 IN FAVOUR OF THE ASSESSEE WHEREIN, IT IS HELD BY HON'BLE HIGH COURT THAT THE COMPUTER ACCESSORIE S AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER, CONSEQUENTLY, THEY ARE THE PART OF THE COMPUTER SYSTEM, AND AS SUCH ARE ENTITLED TO DE PRECIATION AT THE HIGHER RATE OF 60%. SO, WE FIND NO GROUND TO INTERFERE IN THE FINDINGS RETUNED BY LD. CIT(A). HENCE, GROUND NO.4 IS DETERMINED AG AINST THE REVENUE. 17 I.T.A.NO.321,3979,5351/DEL/2009 24. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE HE REBY PARTLY ALLOW THE AFORESAID APPEALS FOR STATISTICAL PURPOSES SO F AR AS TRANSFER PRICING ISSUE QUA THE AFORESAID APPEALS ARE CONCERNED TO DECIDE A FRESH IN PURSUANCE TO THE FINDINGS RETURNED IN THE PRECEDING PARAS AND HE REBY DISMISS THE APPEAL IN I.T.A.NO. 5351/DEL/2010 (A.Y. 2005-06) OWN GROUN DS NO. 3 & 4 FILED BY THE REVENUE. 25. ORDER PRONOUNCED IN THE OPEN COURT ON 15 FEB., 2016. SD/- SD/- (R. S. SYAL) (KULDIP SI NGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 15 FEB, 2016 SP. COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) 18 I.T.A.NO.321,3979,5351/DEL/2009 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 15,27,28,/1- 3,410,11,11/2 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER