Appeal details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 88941 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-02-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Assessment Year
2008-2009
Appeal Filed On
01-02-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.339/PN/2013 (ASSESSMENT YEAR : 2008-09) HENKEL ADHESIVES TECHNOLOGIES INDIA PRIVATE LIMITED, 10 TH FLOOR, KESAR SOLITAIRE, PLOT NO.5, SECTOR 19, PALM BEACH ROAD, SANPADA, NAVI MUMBAI 400 705. PAN : AAACL1954B . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE. . RESPONDENT ASSESSEE BY : MR. M. P. LOHIA & MR. RAJENDRA AGIWAL DEPARTMENT BY : MR. A. K. MODI DATE OF HEARING : 13-01-2015 DATE OF PRONOUNCEMENT : 18-02-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE PERTAINING TO THE ASSESSMENT YEAR 2008-09, WHICH IS DIRECTED AGAI NST THE ORDER OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE ( IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 27.11.2012, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHO RT THE DRP) DATED 05.09.2012. 2. IN THIS APPEAL, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: - ON BEING AGGRIEVED BY THE FINAL ORDER DATED 27 NOV EMBER 2012 PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME -TAX, CIRCLE-1(2), PUNE ('AO'), PASSED UNDER SECTION 143(3) READ WITH SECTI ON 144C(13) OF THE INCOME- TAX ACT, 1961 ('THE ACT') IN PURSUANCE OF THE DIREC TIONS ISSUED BY THE DRP, THE PRESENT APPEAL IS BEING PREFERRED ON THE FOLLOWING GROUNDS AMONGST OTHERS WHICH, IT IS PRAYED, MAY BE CONSIDERED WITHOUT PREJ UDICE TO ONE ANOTHER. ITA NO.339/PN/2013 GENERAL GROUNDS 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO, BASED ON DIRECTIONS OF DRP ERRED IN MAKING ADDI TION OF RS.3,24,71,763/- IN THE APPELLANT'S CASE. SPECIFIC GROUNDS TRANSFER PRICING MATTER INTERNATIONAL TRANSACTION: IMPORT OF RAW MATERIALS FROM ASSOCIATED ENTERPRISES ('AES') AND EXPORT OF FINISHED GOODS TO AES 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO/TPO/ DRP ERRED IN PROPOSING AN ADJUSTMENT OF RS. 3,08,72,664/- AND RS.61,958/- TO THE INTERNATIONAL TRANSACTIONS P ERTAINING TO EXPORT OF FINISHED GOODS TO AES AND IMPORT OF RAW MATERIALS F ROM AES RESPECTIVELY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO/TPO/ DRP ERRED IN REJECTING THE AGGREGATION APPR OACH ADOPTED BY THE APPELLANT FOR BENCHMARKING ITS INTERNATIONAL TR ANSACTIONS VIZ IMPORT OF RAW MATERIALS, IMPORT OF PACKING MATERIALS AND E XPORT OF FINISHED PRODUCTS (CLASSIFIED AS 'MANUFACTURING ACTIVITY'), USING TRANSACTIONAL NET MARGIN METHOD (TNMM'), WITHOUT PROVIDING ANY CO GENT REASONS FOR THE SAME. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO/TPO/ DRP ERRED IN APPLYING COMPARABLE UNCONTROLL ED PRICE METHOD ('CUP') AS THE MOST APPROPRIATE METHOD IN TH E INSTANT CASE FOR BENCHMARKING INTERNATIONAL TRANSACTIONS PERTAINING TO IMPORT OF RAW MATERIALS FROM AES AND EXPORT OF FINISHED GOODS TO AES. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO/TPO/ DRP ERRED IN NOT ALLOWING WORKING CAPITAL ADJUSTMEN T TO THE APPELLANT IN RESPECT OF ITS INTERNATIONAL TRANSACTION OF EXPO RT OF FINISHED GOODS TO AES. INTERNATIONAL TRANSACTION: RECEIPT OF COMMISSION FO R RENDERING DROP SHIPMENT SERVICES TO AES 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO/TPO/ DRP ERRED IN PROPOSING AN ADDITION OF RS.2, 86,441/- TO THE COMMISSION INCOME EARNED BY THE APPELLANT FOR DROP SHIPMENT SERVICES RENDERED TO ITS AES WITHOUT PROVIDING ANY COGENT REASONS FOR THE SAME. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO/TPO/ DRP ERRED IN REJECTING THE AGGREGATION APPR OACH ADOPTED BY THE APPELLANT FOR BENCHMARKING ITS INTERNATIONAL TR ANSACTION VIZ IMPORT OF FINISHED GOODS FOR RESALE AND COMMISSION RECEIVE D FOR DROP SHIPMENT SERVICES (CLASSIFIED AS TRADING ACTIVITY') , USING TNMM, WITHOUT PROVIDING ANY COGENT REASONS FOR THE SAME. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO/TPO/ DRP ERRED IN IGNORING THE FACT THAT THE APP ELLANT HAD EARNED AN OPERATING MARGIN OF 13.14% VIS-A-VIS AN ARITHMET IC MEAN MARGIN OF 6.31% EARNED BY THE COMPARABLE COMPANIES IN RESPECT OF ITS TRADING ACTIVITY. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED AO/TPO/ DRP ERRED BY PROPOSING AN ADDITION TO THE I NCOME OF THE APPELLANT MERELY ON ACCOUNT OF THE TERMS AND CONDIT IONS LAID DOWN IN ITA NO.339/PN/2013 THE SERVICE AGREEMENT ENTERED INTO BY THE APPELLANT WITH ITS AES INSTEAD OF CONDUCTING AN ARM'S LENGTH ANALYSIS FOR THE INTERNATIONAL TRANSACTION AS PRESCRIBED IN SECTION 92C(3) OF THE ACT. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/TPO/ DRP ERRED BY NOT ADOPTING ANY OF THE METHOD S PRESCRIBED UNDER SECTION 92C OF THE ACT FOR CONDUCTING ARM'S L ENGTH ANALYSIS IN RELATION TO ITS INTERNATIONAL TRANSACTION OF COMMIS SION RECEIVED FOR DROP SHIPMENT SERVICES. BENEFIT OF +/- 5 PERCENT NOT PROVIDED 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/TPO/ DRP ERRED IN MAKING TRANSFER PRICING ADJUST MENT WITHOUT GIVING THE OPTION OF +/- 5 PERCENT VARIATION AS AVA ILABLE UNDER PROVISO TO SECTION 92C(2) OF THE ACT NON TRANSFER PRICING DISALLOWANCES DISALLOWANCE OF PROVISION FOR ONEROUS CHARGES 12. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN DISALLOWING PROVISION FOR ONEROUS CHARGES OF RS.12,50,700/- CLAIMED AS EXPENSES BY THE APPELLANT DURING THE FIN ANCIAL YEAR 2007- 08 RELEVANT TO AY 2008-09 TREATING THE SAME AS CONT INGENT LIABILITY ON WHICH NO TAXES HAVE BEEN WITHHELD. INITIATION OF PENALTY UNDER SECTION 271(1)(C) 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) WHEN THE APPELLANT HAD MADE FULL AND TRUE DISCLOSURES BOTH, IN THE RETURN OF INCOME AND DURING THE ASSESSMENT P ROCEEDINGS. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, OMIT OR S UBSTITUTE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT THE TIM E OF THE APPEAL. 3. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE F OR THE ASSESSEE POINTED OUT THAT THE SUBSTANTIVE DISPUTE IN THIS APPEAL IS ON ACCOUNT OF GROUND OF APPEAL NOS.1 TO 11, WHICH RELATE TO THE DETERMINATI ON OF ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. ON THIS ASPECT, IT WAS A C OMMON POINT BETWEEN THE PARTIES THAT SIMILAR DISPUTE HAD ARISEN IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2007-08 WHICH WAS DEALT WITH BY THE TRIBUNAL I N ITA NO.1647/PN/2011 ORDER DATED 18.03.2014 AND THAT THE AFORESTATED GRO UNDS OF APPEAL ARE LIABLE TO BE DISPOSED-OFF IN THAT LIGHT. ITA NO.339/PN/2013 4. IN THE AFORESAID BACKGROUND, WE MAY NOTE THE FOL LOWING FACTS. THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVI SIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINE SS OF MANUFACTURING AND TRADING OF ADHESIVE PRODUCTS AS IN THE PRECEDING AS SESSMENT YEAR. THE ASSESSEE COMPANY DEALS IN ENGINEERING ADHESIVES, SE ALANTS & SPECIALITY MAINTENANCE SOLUTIONS IN INDIA. THE APPELLANT COMP ANY IS A PART OF WORLDWIDE HENKEL GROUP, A GERMANY BASED MNC, WHICH IS ENGAGED IN MANUFACTURING AND MARKETING OF A BROAD RANGE OF HIGH TECHNOLOGY S EALANTS, ADHESIVES AND COATINGS ACROSS THE WORLD. 5. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASS ESSEE COMPANY FILED A RETURN OF INCOME ON 30.09.2008 DECLARING TOTAL IN COME OF RS.23,17,25,807/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT. THE AS SESSEE HAD UNDERTAKEN CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIA TE ENTERPRISES, WHICH WERE REFERRED BY THE ASSESSING OFFICER TO TRANSFER PRICI NG OFFICER (IN SHORT THE TPO) IN ORDER TO DETERMINE ITS ARMS LENGTH PRICE IN TERMS OF SECTION 92CA(1) OF THE ACT. THE TPO VIDE HIS ORDER DATED 28.10.201 1 PASSED U/S 92CA(3) OF THE ACT PROPOSED AN ADJUSTMENT OF RS.3,12,21,063/- TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESS EE WITH ITS ASSOCIATED ENTERPRISES IN ORDER TO BRING THEM TO THEIR ARMS L ENGTH PRICE. THE ASSESSING OFFICER HAS THEREAFTER PASSED AN ORDER U/S 143(3) R .W.S. 144C(13) OF THE ACT DATED 27.11.2012 MAKING AN ADDITION OF RS.3,12,21,0 63/- TO THE RETURNED INCOME IN CONFORMITY WITH THE ORDER OF THE TPO AFTE R CONSIDERING THE DIRECTIONS OF THE DRP CONTAINED IN ITS ORDER DATED 05.09.2012, WHICH WAS APPROACHED BY THE ASSESSEE RAISING OBJECTIONS AGAINST THE DRAFT A SSESSMENT ORDER PROPOSED BY THE ASSESSING OFFICER DATED 20.12.2011. THE AFO RESAID ADDITION OF RS.3,12,21,063/- ON ACCOUNT OF TRANSFER PRICING ADJ USTMENT IS THE SUBJECT- MATTER OF DISPUTE IN THE PRESENT PROCEEDING. ITA NO.339/PN/2013 6. THE APPELLANT HAD UNDERTAKEN INTERNATIONAL TRANS ACTIONS WITH ITS ASSOCIATED ENTERPRISES ON ACCOUNT OF : (I) IMPORT O F RAW MATERIALS, PACKING MATERIALS, AND FINISHED GOODS; (II) DROP SHIPMENT C OMMISSION RECEIPTS; AND, (III) EXPORT OF FINISHED GOODS, WHICH ARE SIMILAR TO THE TRANSACTIONS CARRIED OUT IN THE PRECEDING ASSESSMENT YEAR 2007-08. IN THE TRANSFER PRICING STUDY CONDUCTED BY THE ASSESSEE, IT AGGREGATED THE AFORESAID INTERN ATIONAL TRANSACTIONS INTO TWO BROAD SEGMENTS FOR THE PURPOSES OF BENCHMARKING IT WITH THE COMPARABLES. THE INTERNATIONAL TRANSACTIONS COMPRISING OF IMPORT OF RAW MATERIALS & PACKING MATERIALS, AND EXPORT OF FINISHED GOODS WERE AGGREG ATED UNDER MANUFACTURING SEGMENT, AND THE RESIDUAL INTERNATIONAL TRANSACTION S ON ACCOUNT OF THE IMPORT OF FINISHED GOODS FOR RE-SALE AND RECEIPTS BY WAY O F DROP SHIPMENT COMMISSION, WERE GROUPED TOGETHER UNDER TRADING SEG MENT. THE ASSESSEE CHOSE TO AGGREGATE THE TRANSACTIONS INTO THE RESPEC TIVE SEGMENTS FOR THE REASON THAT THE TRANSACTIONS OF IMPORT OF RAW MATER IALS & PACKING MATERIALS, AND EXPORT OF FINISHED GOODS WERE RELATING TO THE M ANUFACTURING FUNCTIONS WHEREAS THE IMPORT OF FINISHED GOODS FOR RE-SALE AN D RECEIPTS BY WAY OF DROP SHIPMENT COMMISSION RELATED TO TRADING ACTIVITIES. FOR BOTH THE SEGMENTS, ASSESSEE CHOSE THE TRANSACTIONAL NET MARGIN (TNM) M ETHOD AS THE MOST APPROPRIATE METHOD AND THE OPERATING PROFIT/COSTS W AS TAKEN AS THE PROFIT LEVEL INDICATOR (I.E. PLI). AFTER COMPARING THE ASSESSEES PLI IN BOTH THE SEGMENTS WITH THOSE OF THE EXTERNAL COMPARABLES CHO SEN FROM THE DATA BASE IN PUBLIC DOMAIN, IT WAS FOUND THAT ASSESSEES OPER ATING MARGINS WERE ABOVE THE AVERAGE MEAN MARGIN OF THE COMPARABLES AND THUS IT WAS INFERRED THAT THE STATED VALUES OF THE INTERNATIONAL TRANSACTIONS WER E AT AN ARMS LENGTH PRICE. THE AFORESAID APPROACH OF THE ASSESSEE WAS IDENTICA L TO ITS APPROACH IN ASSESSMENT YEAR 2007-08, WHICH WAS A SUBJECT-MATTER OF CONSIDERATION BY THE TRIBUNAL IN ORDER DATED 18.03.2014 (SUPRA). ITA NO.339/PN/2013 7. HOWEVER, THE TPO HAS NOT AGREED WITH THE ASSESSE ES SELECTION OF TNM METHOD AS THE MOST APPROPRIATE METHOD AND INSTE AD HE HAS ADOPTED THE COMPARABLE UNCONTROLLED PRICE (I.E. CUP) METHOD A S THE MOST APPROPRIATE METHOD. AS A RESULT, THE TPO HAS NOT ACCEPTED ASSE SSEES PLEA THAT THE STATED VALUE OF THE INTERNATIONAL TRANSACTIONS IN R ELATION TO IMPORT OF RAW MATERIALS, EXPORT OF FINISHED GOODS AND DROP SHIPME NT SERVICES WERE AT AN ARMS LENGTH PRICE. WITH RESPECT TO THE STATED VAL UE OF IMPORT OF RAW MATERIALS, THE TPO ADOPTED THE CUP METHOD AND DETERMINED THE A RMS LENGTH PRICE, THEREBY MAKING AN ADJUSTMENT OF RS.61,958/-. SIMIL ARLY, THE TPO DID NOT ACCEPT THE STATED VALUE OF THE EXPORT OF FINISHED G OODS AT RS.1,38,45,540/- TO BE AT AN ARMS LENGTH PRICE AND INSTEAD DETERMINED THE SAME AT RS.4,47,18,204/-, THEREBY MAKING AN ADJUSTMENT OF R S.3,08,72,664/-. THIRDLY, IN RELATION TO THE STATED VALUE OF RECEIPTS ON ACCO UNT OF DROP SHIPMENT SERVICES OF RS.49,02,853/-, THE TPO COMPUTED ITS ARMS LENGT H PRICE BY MAKING AN ADJUSTMENT OF RS.2,86,441/- TO THE STATED VALUE. I N THIS MANNER, THE TOTAL ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING ANALYSIS HAS BEEN COMPUTED AT RS.3,12,21,063/-, WHICH IS THE SUBJECT-MATTER OF DI SPUTE BEFORE US. THESE ADJUSTMENTS ARE SIMILARLY PLACED AS WERE MADE BY TH E ASSESSING OFFICER IN PRECEDING ASSESSMENT YEAR 2007-08. 8. NOW, WITH REGARD TO THE ASSESSEES STAND OF AGGR EGATING THE INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIA LS & PACKING MATERIALS AND EXPORT OF FINISHED GOODS UNDER MANUFACTURING SEGMEN T. THE ASSESSEE HAD AGGREGATED THE TRANSACTIONS FOR THE REASON THAT IMP ORT OF RAW MATERIALS & PACKING MATERIALS AND EXPORT OF FINISHED GOODS WERE RELATING TO THE MANUFACTURING FUNCTIONS AND THEREFORE THEY WERE AGG REGATED FOR THE PURPOSES OF THE BENCHMARKING ANALYSIS. THE TNM METHOD WAS A DOPTED AS THE MOST APPROPRIATE METHOD FOR THE DETERMINATION OF ARM'S L ENGTH PRICE. SIMILAR ISSUE CAME BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 WHEREIN THE STAND OF ITA NO.339/PN/2013 THE ASSESSEE WAS DISMISSED AND THE APPLICATION OF C UP METHOD WAS UPHELD. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUN AL IS RELEVANT :- WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS . AS REGARDS THE METHOD TO BE ADOPTED FOR COMPARABILITY ANALYSIS, AT THE OUTSET WE MAY SAY THAT THE APPROACH OF THE TPO AND THE DRP IN THIS RE GARD CANNOT BE FAULTED. IN OUR CONSIDERED OPINION, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, INCLUDING THE FACT THAT INTERNAL COMPARABLE U NCONTROLLED TRANSACTIONS ARE AVAILABLE, THE ADOPTION OF CUP METHOD AS THE MOST A PPROPRIATE METHOD FOR THE PURPOSES OF COMPARABILITY ANALYSIS, IS LIABLE TO BE UPHELD. THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS THE LEARNED CIT (DR) HAVE REFERRED TO CERTAIN DECISIONS OF THE TRIBUNAL IN THIS REGARD IN SUPPORT OF THEIR RESPECTIVE STANDS. WE ARE NOT INCLINED TO DISCUSS EACH OF THE M AS THE ADOPTION OF THE MOST APPROPRIATE METHOD FOR THE PURPOSES OF COMPARA BILITY ANALYSIS IS DETERMINED BY THE PECULIAR FACTS AND CIRCUMSTANCES OF EACH CASE. SO HOWEVER, IN THIS REGARD, WE MAY MAKE A BRIEF REFERE NCE TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SERDIA PHARMACEUTICALS (INDIA) (P) LTD. VS. ACIT, (2011) 136 TTJ 129 (MUMBAI) WHER EIN THE BENCH WAS CONSIDERING APPLICABILITY OF EITHER THE TNM METHOD OR THE CUP METHOD FOR THE PURPOSES OF COMPARABILITY ANALYSIS. AS PER THE TRI BUNAL, THOUGH THE TRANSFER PRICING LEGISLATION DOES NOT PRESCRIBE A PARTICULAR ORDER OF PREFERENCE FOR THE METHODS FOR DETERMINING THE ARM'S LENGTH PRICE, BUT THE SELECTION OF MOST APPROPRIATE METHOD ESSENTIALLY REQUIRES THE METHODS TO BE RANKED ON A RATIONAL BASIS, HAVING REGARD TO THE PECULIARITIES OF THE FACTS OF EACH CASE. FOLLOWING THE AFORESAID RATIONALE, IN THE PRESENT C ASE, HAVING REGARD TO THE EXISTENCE OF INTERNAL COMPARABLE UNCONTROLLED TRANS ACTIONS, THE CUP METHOD HAS BEEN RIGHTLY SELECTED AS THE MOST APPROPRIATE M ETHOD IN ORDER TO DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATION AL TRANSACTIONS OF EXPORT OF FINISHED GOODS TO THE ASSOCIATED ENTERPRISES. 9. NOW, WE MAY TAKE-UP THE ADJUSTMENT MADE BY THE I NCOME-TAX ON ACCOUNT OF EXPORT OF FINISHED GOODS I.E. RS.3,08,72 ,664/-. AS NOTED EARLIER, ASSESSEE HAD BENCHMARKED THE ABOVE TRANSACTION USIN G TNM METHOD AS THE MOST APPROPRIATE METHOD, IT WAS DISREGARDED BY THE TPO. THE TPO APPLIED INTERNAL CUP METHOD (I.E. SALE TO LOCAL AND THIRD P ARTIES) TO BENCHMARK THE ABOVE INTERNATIONAL TRANSACTION. THE ARGUMENT SETU P BY THE ASSESSEE WAS THAT THE COMPARISON BETWEEN THE EXPORT PRICES AND L OCAL SALE PRICES USING THE CUP METHOD WAS INAPPROPRIATE. BEFORE THE LOWER AUT HORITIES, ASSESSEE HAD FURNISHED DETAILS OF THE DIFFERENCE IN FAR ANALYSIS OF THE TRANSACTION OF EXPORT TO ASSOCIATED ENTERPRISES VIS--VIS SALES TO LOCAL PARTIES. ADDITIONALLY, IT WAS ALSO EXPLAINED THAT ASSESSEE WAS UNDERTAKING CERTAI N FUNCTIONS IN LOCAL THIRD PARTY SALES WHICH WERE NOT SO IN CASE OF EXPORT OF PRODUCTS TO THE ASSOCIATED ITA NO.339/PN/2013 ENTERPRISES. THE RIVAL STANDS ON THIS ISSUE ARE SI MILAR TO THOSE WHICH CAME BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 WHER EIN IT WAS HELD AS UNDER :- NO DOUBT, THE ONUS SHALL BE ON THE ASSESSEE TO JUS TIFY SUITABLE ADJUSTMENTS TO THE COMPARABLE UNCONTROLLED TRANSACT ION. IN THE PRESENT CASE, ASSESSEE HAS CLAIMED ADJUSTMENTS ON ACCOUNT OF DIFF ERENCES IN SALES & MARKETING FUNCTIONS AND CREDIT RISK, AND SUCH A PLE A WAS VERY MUCH RAISED BEFORE THE TPO. THE ASSESSEE HAS REFERRED TO THE S EGMENTAL ACCOUNTS PLACED AT PAGE 302 OF THE PAPER BOOK TO SHOW THAT I T HAD INCURRED EXPENDITURE ON SALES & MARKETING FUNCTION, WHICH IS ALMOST 41% OF THE SALES MADE TO THE NON-ASSOCIATED ENTERPRISES AND ON ACCOUNT OF CREDIT RISK IT IS STATED TO BE 1%, AS THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS AROU ND 1% OF SALES, AND IN THIS REGARD REFERENCE HAS BEEN MADE TO SCHEDULE 16 OF TH E FINANCIAL STATEMENTS PLACED AT PAGE 180 OF THE PAPER BOOK. ON THIS BASI S, THE TOTAL ADJUSTMENT TO THE COMPARABLE UNCONTROLLED TRANSACTION HAS BEEN WO RKED AT RS.34,10,274/- AS PER DETAILS AT PAGE 303 OF THE PAPER BOOK. THE SAID WORKING WAS VERY MUCH BEFORE THE TPO AS IS EVIDENT FROM A READING OF PARA 8(A)(VIII) OF HIS ORDER. THE TPO HAS NOT DISPUTED THE WORKING OF THE ADJUSTMENTS, AND IN PRINCIPLE ALSO WE FIND NO REASONS TO DENY THE SAME. IT IS ALSO NOT IN DISPUTE THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200 8-09, THE LD. DRP ITSELF HAS ALLOWED ADJUSTMENTS ON ACCOUNT OF SALES & MARKE TING FUNCTIONS AND CREDIT RISK. THE PLEA OF THE TPO THAT SUCH COSTS DO NOT E NTIRE THE PRODUCT PRICING AS THE PRODUCTS ARE PRICED AT THE PREVAILING MARKET PR ICES, IN OUR OPINION IS NOT JUSTIFIED. THUS, IN THE ABSENCE OF ANY CREDIBLE RE ASON ADVANCED BY THE TPO TO DENY SUCH ADJUSTMENTS, WE ARE OF THE VIEW THAT THE ADJUSTMENT OF RS.34,10,274/- COMPUTED BY THE ASSESSEE ON ACCOUNT OF SALES & MARKETING FUNCTION AND CREDIT RISK IS ALLOWABLE. WE HOLD SO. 10. AT THE TIME OF HEARING, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THIS ASPECT OF THE MATTER IS LIABLE TO BE DECIDED I N THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08. WE THERE FORE, DEEM IT FIT AND PROPER TO RESTORE THIS MATTER BACK TO THE FILE OF T HE ASSESSING OFFICER, WHO SHALL CONSIDER THE FACTS AND FIGURES OF THE CURRENT YEAR AND DECIDE AFRESH IN THE LIGHT OF THE DECISION OF THE TRIBUNAL REFERRED ABOVE FOR ASSESSMENT YEAR 2007-08 (SUPRA). 11. THE NEXT ISSUE IS WITH REGARD TO THE ADJUSTMENT OF RS.61,958/- WITH RESPECT OF THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIALS FROM THE ASSOCIATED ENTERPRISE. IN THIS CONTEXT, THE INCOME -TAX AUTHORITIES HAVE COMPARED THE IMPORT PRICES WITH LOCAL PRICES AND ON THAT BASIS ADJUSTMENT TO ITA NO.339/PN/2013 THE STATED VALUE OF THE TRANSACTIONS HAVE BEEN MADE . THE AFORESAID ACTION OF THE TPO WAS SOUGHT TO BE JUSTIFIED BY THE REVENUE O N ACCOUNT OF THE AVAILABILITY OF INTERNAL CUP DATA. THE ASSESSEE HA D POINTED OUT THAT THE QUANTITY OF THE PRODUCTS IMPORTED FROM ASSOCIATED E NTERPRISES WAS VERY FEW AND THE PURCHASES FROM THE ASSOCIATED ENTERPRISES A ND THE LOCAL PARTIES WERE MADE AT DIFFERENT TIME INTERVALS. IT WAS ALSO POIN TED OUT THAT ASSESSEE HAD PURCHASED 1419 PRODUCTS OUT OF WHICH ONLY 12 ITEMS WERE COMMON PRODUCTS, I.E. WHICH WERE PURCHASED FROM ASSOCIATED ENTERPRIS ES AND LOCAL THIRD PARTIES, THOUGH AT A DIFFERENT TIME INTERVALS. ONLY IN CASE OF 3 PRODUCTS, OUT OF 12 ITEMS, THE PURCHASE PRICE OF THE ASSESSEE FROM ASSO CIATED ENTERPRISES WAS HIGHER THAN THE PRICE AT WHICH THE SAME WAS PURCHAS ED FROM A LOCAL PARTY, WHICH WAS EXPLAINED TO BE ON ACCOUNT OF CERTAIN BUS INESS EXIGENCIES. ON THIS ASPECT, IT WAS POINTED OUT THAT SIMILAR MATTER CAME BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 WHEREIN THE ACTION OF THE T PO IN APPLYING CUP METHOD WAS UPHELD IN-PRINCIPLE. HOWEVER, THE TRIBU NAL ALLOWED RELIEF BY DIRECTING THAT THE TRANSACTIONS OF THE IMPORT OF RA W MATERIAL FROM ASSOCIATED ENTERPRISES BE BENCHMARKED ON A CUMULATIVE BASIS. IN OTHER WORDS, IT WAS HELD THAT THE TRANSACTION OF IMPORT FROM ASSOCIATED ENTERPRISES SHOULD BE CONSIDERED IN ENTIRETY TO CALCULATE ADJUSTMENT AMOU NTS INSTEAD OF ONLY THOSE COMMON PRODUCTS WHEREBY THE IMPORT PRICE FROM ASSOC IATED ENTERPRISES WAS HIGHER VIS--VIS THE PURCHASE PRICE FROM THE LOCAL THIRD PARTIES. THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNAL ON THIS ASP ECT IS CONTAINED IN PARA 26 OF THE ORDER DATED 18.03.2014 (SUPRA), WHICH READS AS UNDER :- 26 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN OUR CONSIDERED OPINION, THE ENTIRE PURPOSE OF THE TRANS FER PRICING ANALYSIS IS TO COMPUTE THE INCOME ARISING FROM AN INTERNATIONAL TR ANSACTION, HAVING REGARD TO ITS ARM'S LENGTH PRICE. THE INTERNATIONAL TRANSAC TION IN QUESTION, RELATES TO IMPORT OF RAW MATERIALS BY THE ASSESSEE FROM ITS AS SOCIATED ENTERPRISES. THEREFORE, WHAT IS EXPECTED OF THE TPO IS TO CONSID ER THE TRANSACTIONS OF IMPORT OF RAW MATERIALS BY THE ASSESSEE FROM ITS AS SOCIATED ENTERPRISES IN ITS ENTIRETY. IN THE PRESENT CASE, AS FACTUALLY DEMONS TRATED BY THE ASSESSEE, TPO HAS IGNORED CERTAIN TRANSACTIONS OF IMPORT OF RAW M ATERIALS FROM THE ASSOCIATED ENTERPRISES WHERE THE PRICES CHARGED BY THE ASSOCIA TED ENTERPRISES WERE ITA NO.339/PN/2013 LOWER THAN THE PRICES CHARGED BY THE NON- ASSOCIATE D ENTERPRISES. IN OTHER WORDS, TPO HAS PICKED UP ONLY THOSE TRANSACTIONS WH ERE THE PRICES CHARGED BY THE ASSOCIATED ENTERPRISES ARE HIGHER IN COMPARI SON TO PRICES CHARGED BY THE THIRD PARTIES, WITHOUT CONSIDERING THE REASONS FOR THE SAME. IN OUR CONSIDERED OPINION, THE SAID APPROACH OF THE TPO IS QUITE FLAWED AND IS NOT JUSTIFIED. MOREOVER, IN THE TABULATION NOTED ABOVE , ASSESSEE HAS EXPLAINED REASONS WHICH PREVAILED WITH IT TO MAKE IMPORTS FRO M THE ASSOCIATED ENTERPRISES OF THE 5 PRODUCTS, THOUGH THE PRICES CH ARGED BY ASSOCIATED ENTERPRISES WERE HIGHER THAN THE PRICES CHARGED BY THE NON-ASSOCIATED ENTERPRISES. THE CIRCUMSTANCES CANVASSED BY THE AS SESSEE HAVE NOT BEEN FOUND TO BE LACKING IN BONAFIDES BY THE TPO. HE HA S MERELY BRUSHED ASIDE THE SAME. IN OUR CONSIDERED OPINION, IT WOULD MEET THE ENDS OF JUSTICE, IF THE AFORESAID ACTION OF THE TPO IS SET-ASIDE AND THE MA TTER IS REMANDED BACK FOR RE-COMPUTATION OF THE ARM'S LENGTH PRICE BY TAKING INTO CONSIDERATION THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIAL S FROM THE ASSOCIATED ENTERPRISES IN ITS ENTIRETY AND NOT MERELY IN RELAT ION TO 5 PRODUCTS AND LEAVING OUT THE OTHER 5 PRODUCTS WHICH ARE ALSO IMPORTED FR OM THE ASSOCIATED ENTERPRISES. THUS, THE TPO/ASSESSING OFFICER SHA LL RE-VISIT THE CONTROVERSY ON THIS ASPECT AFTER ALLOWING THE ASSESSEE A REASON ABLE OPPORTUNITY OF BEING HEARD AND THEREAFTER DECIDE AS PER LAW. THUS, ON T HIS GROUND, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 12. ON THE BASIS OF THE AFORESAID DECISION OF THE T RIBUNAL, A WORKING OF THE COMPARABILITY ANALYSIS WAS FURNISHED AT THE TIME OF THE HEARING. THE LD. REPRESENTATIVE SUBMITTED THAT THE DETAILED WORKING RELATED TO THE TRANSACTIONS WHERE COMMON PRODUCTS WERE BEING IMPORTED FROM ASSO CIATED ENTERPRISES, WHICH WERE ALSO BEING PURCHASED FROM THIRD PARTIES IN INDIA. THE LD. REPRESENTATIVE POINTED OUT THAT AS PER THE SAID WOR KING THERE WAS NO NECESSITY OF MAKING ANY ADJUSTMENT TO THE STATED VA LUE OF THE IMPORTS FROM THE ASSOCIATED ENTERPRISES. NEVERTHELESS, WE FIND THAT THE AFORESAID WORKING, WHICH IS CLAIMED TO HAVE BEEN PREPARED AS PER THE D ECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 (SUPRA) REQUIRES TO BE VERI FIED BY THE ASSESSING OFFICER. WE THEREFORE DIRECT THE ASSESSING OFFICER TO VERIFY THE AFORESAID WORKING AND IF IT IS IN LINE WITH THE DIRECTIONS OF THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 (SUPRA) THEN NO ADDITION WOULD SURVIVE IN R ELATION TO THE INTERNATIONAL TRANSACTION OF IMPORT OF PRODUCTS FROM ASSOCIATED E NTERPRISES. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE AN OPPORTUNITY OF BEING HEARD BEFORE PASSING AN ORDER AFRESH ON THIS ASPECT . ITA NO.339/PN/2013 13. THE OTHER ADJUSTMENT IN DISPUTE IS WITH REGARD TO THE INTERNATIONAL TRANSACTION ON ACCOUNT OF DROP SHIPMENT COMMISSION. THE RELEVANT FACTS IN THIS REGARD ARE THAT ASSESSEE EARNED DROP SHIPMENT COMMISSION FROM ITS ASSOCIATED ENTERPRISES I.E. HENKEL USA AND HENKEL M ALAYSIA FOR RENDERING SALES SUPPORT SERVICES. THE TPO NOTICED THAT IN TH E CASE OF HENKEL MALAYSIA, THE ASSOCIATED ENTERPRISE DEDUCTED A 7% ROYALTY BEF ORE REMITTING THE COMMISSION TO ASSESSEE WHEREAS IN THE CASE OF HENKE L USA NO SUCH CHARGE WAS LEVIED. THE TPO COMPARED THE AGREEMENTS ENTERE D BY THE ASSESSEE WITH HENKEL USA AND HENKEL MALAYSIA AND PROPOSED AN ADJU STMENT TO THE EXTENT OF 7% ROYALTY DEDUCTED BY HENKEL MALAYSIA. THIS AP PROACH OF THE TPO IS IDENTICAL TO THE APPROACH FOR ASSESSMENT YEAR 2007- 08 WHICH CAME FOR CONSIDERATION BY THE TRIBUNAL IN ITS ORDER DATED 18 .03.2014 (SUPRA). THE TRIBUNAL VIDE PARA 21 OF ITS ORDER HELD AS UNDER :- 21. THE AFORESAID THREE STEPS WOULD REVEAL THAT T HE ACTION OF THE TPO IN THE PRESENT CASE IS CONTRARY TO THE PRESCRIP TION CONTAINED IN SUB-CLAUSE (I) OF CLAUSE (A) OF SUB-RULE (1) OF RULE 10B OF TH E RULES. OSTENSIBLY, IN TERMS OF SUB-CLAUSE (I), THE PRICE CHARGED OR PAID IN A COM PARABLE UNCONTROLLED TRANSACTION IS TO BE IDENTIFIED FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION BEING TESTED . IT IS STARKLY EVIDENT THAT IN THE PRESENT CASE, THE COMPARABLE TRANSACTION PICKED -UP BY THE TPO, NAMELY, AGREEMENT BETWEEN ASSESSEE AND HENKEL USA IS A TRAN SACTION BETWEEN TWO RELATED/ASSOCIATED ENTERPRISES AND THEREFORE IT IS A CONTROLLED TRANSACTION AND NOT A UNCONTROLLED TRANSACTION. SUCH A TRANSACTI ON UNDERTAKEN BETWEEN TWO CONTROLLED ENTITIES, IN OUR VIEW CANNOT BE CONSIDER ED AS A COMPARABLE UNCONTROLLED TRANSACTION, AS ENVISAGED IN CLAUSE ( A) OF SUB-RULE (1) OF RULE 10B OF THE RULES. HENCE, ON THIS COUNT ITSELF, IN OUR VIEW, THE ADJUSTMENT MADE BY THE TPO BY CONSIDERING THE AGREEMENT BETWEEN HENKEL USA AND ASSESSEE AS AN ARM'S LENGTH PRICE FOR THE IMPUGNED INTERNATI ONAL TRANSACTION HAS TO FAIL. THEREFORE, THE ADDITION MADE BY THE TPO ON THIS COU NT AMOUNTING TO RS.2,29,410/- IS HEREBY DIRECTED TO BE DELETED. 14. FOLLOWING THE AFORESAID PRECEDENT, WHEREIN AN I DENTICAL CONTROVERSY HAS BEEN DISCUSSED, THE ADDITION MADE TO THE INTERNATIO NAL TRANSACTION OF DROP SHIPMENT COMMISSION OF RS.2,86,441/- IS DIRECTED TO BE DELETED. WE HOLD SO. 15. IN THE ABOVE BACKGROUND, WE THEREFORE RESTORE T HE MATTER RELATING TO THE DETERMINATION OF ARM'S LENGTH PRICE OF THE INTERNAT IONAL TRANSACTIONS TO THE FILE ITA NO.339/PN/2013 OF THE ASSESSING OFFICER, WHO SHALL RE-WORK THE SAM E KEEPING IN MIND THE ORDER OF THE TRIBUNAL DATED 18.03.2014 (SUPRA) AS A LSO THE ABOVE DISCUSSION. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE RE-WORKING THE AD DITION IF ANY ON THIS ASPECT. 16. THUS, THE GROUNDS OF APPEAL NO.1 TO 11 ARE ACCO RDINGLY DISPOSED-OFF. 17. THE ONLY OTHER GROUND REMAINING IS BY WAY OF GR OUND OF APPEAL NO.12 WHICH RELATES TO A PROVISION FOR ONEROUS CHARGES OF RS.12,50,700/- WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER. IN BRIEF , THE FACTS ARE THAT THE ASSESSEE-COMPANY ENTERED INTO A LEASE AGREEMENT IN NOVEMBER, 2006 FOR TAKING AN OFFICE SPACE ON LEASE. THE LEASE-DEED WA S ENTERED WITH THE LANDLORD FOR A PERIOD OF 54 MONTHS EFFECTIVE FROM 01 ST NOVEMBER, 2006 AND THE MONTHLY RENT AS PER THE LEASE-DEED WAS RS.56,850/-. THE LE ASE-DEED WAS SUBJECT TO A LOCK-IN-PERIOD OF 36 MONTHS. AS PER THE SAID TERM OF LEASE, IN CASE THE ASSESSEE-COMPANY OPTED TO TERMINATE THE LEASE-DEED PRIOR TO LOCK-IN-PERIOD OF 36 MONTHS THEN ASSESSEE-COMPANY WAS LIABLE TO COMPE NSATE THE LANDLORD FOR THE ENTIRE UNEXPIRED PERIOD OF LOCK-IN-PERIOD. IN DECEMBER, 2007, ASSESSEE- COMPANY OPTED TO TERMINATE THE SAID LEASE-DEED AND SHIFTED TO A NEW LOCATION. AS A CONSEQUENCE, ASSESSEE-COMPANY WAS LIABLE TO CO MPENSATE THE LANDLORD FOR THE ENTIRE UNEXPIRED PERIOD OF LOCK-IN-PERIOD. THE LOCK-IN-PERIOD AS PER THE LEASE-DEED WAS FROM NOVEMBER, 2006 TO OCTOBER, 2009 (I.E. 36 MONTHS). THE SAID COMPENSATION FOR THE UNEXPIRED LOCK-IN-PERIOD STARTING FROM JANUARY, 2008 TO OCTOBER, 2009 (I.E. 22 MONTHS) AMOUNTED TO RS.12,50,700/-. THE SAID AMOUNT WAS DEBITED IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION UNDER THE HEAD PROVISION FOR ONEROUS CHARGES AND CLAIMED AS A DEDUCTION. THE ASSESSING OFFICER HAS DENIED THE CL AIM ON THE GROUND THAT IT WAS A CONTINGENT LIABILITY. ALTERNATIVELY, AS PER THE ASSESSING OFFICER, IF IT WAS NOT TO BE UNDERSTOOD AS A CONTINGENT LIABILITY EVEN THEN ITS DEDUCTION CANNOT BE ITA NO.339/PN/2013 ALLOWED AS THE REQUISITE TAX AT SOURCE WAS NOT DEDU CTED AND THEREFORE SECTION 40(A)(IA) OF THE ACT COMES INTO OPERATION. 18. BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US, THE STAND OF THE ASSESSEE IS THAT THE SAID LIABILITY WAS A CONTRACTU AL OBLIGATION AND NOT A CONTINGENT LIABILITY. IT WAS POINTED OUT THAT THE LEASE WAS TERMINATED IN DECEMBER, 2007 AND THEREFORE ON ACCOUNT OF THE TERM S OF THE LEASE-DEED, THE AFORESAID LIABILITY HAD CRYSTALLIZED. THEREFORE, I T CANNOT BE SAID TO BE A CONTINGENT LIABILITY. IT WAS ALSO POINTED OUT THAT THE SAID AMOUNT PAYABLE TO THE LANDLORD CANNOT BE TREATED AS A RENT AS PER THE D EFINITION CONTAINED IN EXPLANATION TO SECTION 194-I OF THE ACT AND THEREFO RE THERE WAS NO REQUIREMENT OF DEDUCTING TAX AT SOURCE. THE LD. REPRESENTATIVE SUBMITTED THAT EXPLANATION TO SECTION 194-I OF THE ACT DEFINES THE RENT TO M EAN ANY PAYMENT FOR USE OF THE PROPERTY WHEREAS IN THE PRESENT CASE THE IMPUGN ED AMOUNT IS NOT FOR USE FOR THE PROPERTY BUT IT IS FOR TERMINATING THE LEAS E-DEED PREMATURELY. 19. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE APPEARING FOR THE REVENUE HAS POINTED OUT THAT IT WAS A CONTINGEN T LIABILITY AND THAT IN ANY CASE THE PAYMENT HAS BEEN MADE IN PURSUANCE TO THE RENTAL ARRANGEMENT WITH A LANDLORD AND THEREFORE SUCH AMOUNT IS SUBJECT TO TDS U/S 194-I OF THE ACT. SINCE THE ASSESSEE HAD NOT DEDUCTED THE TDS, THE SA ID EXPENDITURE WAS ALLOWABLE IN VIEW OF SECTION 40(A)(IA) OF THE ACT A LSO. 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IT IS QUITE EVIDENT FROM THE FACTUAL MATRIX NOTED ABOVE THAT THE PAYMEN T IN QUESTION HAS ARISEN ON ACCOUNT OF THE TERMINATION OF LEASE-DEED BY THE ASS ESSEE. THE ASSESSEE HAD ENTERED INTO A LEASE AGREEMENT IN NOVEMBER, 2006 FO R TAKING A PREMISES ON RENT FOR THE PURPOSES OF OFFICE. THE LEASE-DEED WA S FOR A PERIOD OF 54 MONTHS SUBJECT TO A LOCK-IN-PERIOD OF 36 MONTHS FROM NOVEM BER, 2006. SINCE ITA NO.339/PN/2013 ASSESSEE TERMINATED THE LEASE-DEED IN NOVEMBER, 200 7 I.E. BEFORE EXPIRY OF THE 36 MONTHS OF THE LOCK-IN-PERIOD, ASSESSEE WAS R EQUIRED TO COMPENSATE THE LANDLORD FOR THE UNEXPIRED PERIOD OF LOCK-IN-PERIOD . THE IMPUGNED SUM OF RS.12,50,700/- REFLECTS THE COMPENSATION FASTENED O N THE ASSESSEE ON ACCOUNT OF THE LEASE-DEED FOR THE ASSESSEE HAVING T ERMINATED IT PREMATURELY. THE AFORESAID FACTS ARE NOT DISPUTED BY THE REVENUE . IN OUR CONSIDERED OPINION, THE SAID LIABILITY CANNOT BE TREATED AS CO NTINGENT LIABILITY. THE LIABILITY IS AN ASCERTAINED LIABILITY BECAUSE IT HAS ARISEN B ECAUSE OF THE ASSESSEE HAVING OPTED TO TERMINATE THE SAID LEASE-DEED PREMA TURELY. IT IS ALSO NOBODYS CASE THAT THE SAID DECISION WAS NOT A BUSINESS DECI SION. THEREFORE, THE LIABILITY HAVING CRYSTALLIZED IN VIEW OF THE TERMS AND CONDITIONS OF THE LEASE- DEED, WE FIND THAT ITS INCURRENCE CANNOT BE SAID TO BE CONTINGENT. THEREFORE, THE STAND OF THE REVENUE TO SAY THAT IT IS A CONTIN GENT LIABILITY IS NOT JUSTIFIED. 21. ANOTHER PLEA OF THE REVENUE IS THAT THE AMOUNT IN QUESTION IS A RENT PAYMENT AND THEREFORE TAX OUGHT TO HAVE BEEN DEDUCT ED AT SOURCE IN TERMS OF SECTION 194-I OF THE ACT. SINCE ASSESSEE HAD NOT D EDUCTED THE TAX AT SOURCE, THE AMOUNT WAS DISALLOWABLE IN TERMS OF SECTION 40( A)(IA) OF THE ACT. IN THIS CONTEXT, THE EXPLANATION BELOW SECTION 194-I OF THE ACT EXPLAINS THE MEANING OF EXPRESSION RENT, AS UNDER :- EXPLANATION.FOR THE PURPOSES OF THIS SECTION, [(I) RENT MEANS ANY PAYMENT, BY WHATEVER NA ME CALLED, UNDER ANY LEASE, SUB-LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANG EMENT FOR THE USE OF (EITHER SEPARATELY OR TOGETHER) ANY, (A) LAND; OR (B) BUILDING (INCLUDING FACTORY BUILDING); OR (C) LAND APPURTENANT TO A BUILDING (INCLUDING FACTO RY BUILDING); OR (D) MACHINERY; OR (E) PLANT; OR (F) EQUIPMENT; OR (G) FURNITURE; OR (H) FITTINGS, WHETHER OR NOT ANY OR ALL OF THE ABOVE ARE OWNED BY THE PAYEE;] ITA NO.339/PN/2013 22. THE MOOT QUESTION IS WHETHER THE IMPUGNED SUM O F RS.12,50,700/- CAN BE CONSIDERED AS RENT SO AS TO FALL WITHIN THE SC OPE OF SECTION 194-I OF THE ACT. NOTABLY, RENT IS UNDERSTOOD TO MEAN ANY PAYMENT, BY WHATEVER NAME CALLED FOR THE USE OF THE PROPERTY SPECIFIED IN THE SAID EXPLANATION. CAN IT BE SAID THAT THE AFORESAID SUM IS PAID BY THE ASSESSEE FOR USE OF THE LEASE PREMISES ? IN-FACT, ON AN APPRECIATION OF THE TERMS AND CONDIT IONS OF THE LEASE-DEED WHICH REQUIRED THE ASSESSEE TO PAY SUCH SUM, IT CAN BE SE EN THAT THE SAID PAYMENT IS FOR NON-USE OF THE PROPERTY FOR THE PRE-CONTRACT ED PERIOD. IN OTHER WORDS, THE PAYMENT AT BEST CAN BE SEEN TO BE FOR BREACH OF A C ONTRACTUAL OBLIGATION OF TAKING PREMISES ON RENT, BUT CANNOT BE SAID TO BE F OR USE OF THE PROPERTY. THEREFORE, IN OUR VIEW, IT WOULD BE INAPPROPRIATE T O CHARACTERIZE THE SUM OF RS.12,50,700/- AS A PAYMENT MADE FOR THE USE OF PRO PERTY SO AS TO FALL WITHIN THE MEANING OF EXPRESSION RENT U/S 194-I OF THE ACT. THEREFORE, IN OUR VIEW, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT ATTRACTED IN THE PRESENT CASE, AS TAX U/S 194-I OF THE ACT WAS NOT REQUIRED TO BE DEDUCTED. 23. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSI NG OFFICER TO DELETE THE AFORESAID ADDITION. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED ON 18 TH FEBRUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 18 TH FEBRUARY, 2015. SUJEET ITA NO.339/PN/2013 COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE DIT (INTERNATIONAL TAXATION), PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE
