Sika India Pvt. Ltd., Kolkata V. DCIT, CIR-11, KOLKATA, Kolkata

ITA 393/KOL/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5176 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Search and seizure; Opportunity of being heard; International transaction; Fair market value; Commercial expediency; Capital expenditure
• Section: 92C; 92A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA C BENCH, KOLKATA [BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER] I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11, KOLKATA..............APPELLANT M/S. SIKA INDIA PVT. LTD.....................RESPONDENT COMMERCIAL COMPLEX-II 620, DIAMOND HARBOUR ROAD KOLKATA 700 034 [PAN : AAECS 1119 F] I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD......................APPELLANT COMMERCIAL COMPLEX-II 620, DIAMOND HARBOUR ROAD KOLKATA 700 034 [PAN : AAECS 1119 F] DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11, KOLKATA..............APPELLANT APPEARANCES BY: SHRI M.P. LOHIA, A/R, APPEARED ON BEHALF OF THE ASSESSEE. SHRI G. MALLIKARJUNA, CIT, D/R, APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JULY 23 RD , 2018 DATE OF PRONOUNCING THE ORDER : OCTOBER 10 TH , 2018 O R D E R PER J. SUDHAKAR REDDY :- THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE LD. DISPUTE RESOLUTION PANEL, KOLKATA (HEREINAFTER THE LD. DRP), PASSED U/S 144C OF THE INCOME TAX ACT, 1961 (THE ACT), DT. 22/11/2013, RELATING TO ASSESSMENT YEAR 2009-10. 2. SIKA GROUP, WAS FOUNDED IN ZURICH IN 1910. IT IS IN THE FIELD OF SPECIALTY CHEMICALS. THIS SWISS GROUP HAS A COMPANY INCORPORATED IN INDIA UNDER THE NAME AND STYLE OF SIKA INDIA PVT. LTD. (THE ASSESSEE COMPANY). THIS IS A SUBSIDIARY OF SIKA SEVICES AG, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CONSTRUCTION AND INDUSTRIAL CHEMICALS AND ADHESIVES. 2 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD SIKA INDIA HAS ENTERED INTO AN AGREEMENT DT. 28/11/2002 WITH SIKA SERVICES AG (SSAG) FOR RECEIVING SUPPORT SERVICES WHICH INTER-ALIA INCLUDE THE FOLLOWING OPERATIONAL SERVICES : INCLUDES PUBLIC REPORTING, CASH MANAGEMENT, COORDINATION OF PURCHASES, CONTROLLING FACTORY OPERATIONS ETC. IT IS SUBDIVIDED INTO FINANCIAL SERICES AND OPERATIONS. MARKETING SERVICES : INCLUDES SUPPORTING DISTRIBUTIONS ACTIVITY, DEVELOPMENT OF SIKA PRODUCT IN GLOBAL MARKETS, EFFICIENT CORPORATE COMMUNICATION, IMPROVING EFFICIENCY IN SALES AND MARKETING ETC. IT IS SUBDIVIDED INTO INDUSTRY RELATED SERVICES AND CONSTRUCTIONS. ADMINISTRATIVE SERVICES : INCLUDES TRAINING OF EMPLOYEES, ISSUING WORK AGREEMENTS, LEGAL AND INSURANCE SERVICES, ETC. IT IS SUBDIVIDED INTO HUMAN RESOURCES SERVICES AND LEGAL SERVICES. 2.1. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/09/2009 DECLARING TOTAL LOSS OF RS.8,21,07,744/-. THE ASSESSING OFFICER REFERRED THE INTERNATIONAL TRANSACTIONS TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA(1) OF THE ACT, FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE (ALP). THE LD. TPO-1, KOLKATA, PASSED AN ORDER U/S 92CA(3) OF THE ACT, ON 30/01/2013, DETERMINING UPWARD ADJUSTMENT OF THE TOTAL INCOME OF THE ASSESSEE BY RS.9,63,78,285/-. THE ADJUSTMENTS WERE ON ACCOUNT OF ROYALTY EXPENDITURE CLAIMED AND PAYMENT FOR AVAILING OF SERVICES FROM THE AE. AGGRIEVED THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP IN ITS ORDER U/S 144C(5) R.W.S. 144C(8) OF THE ACT, DT. 22/11/2013, CONSIDERED THE OBJECTIONS OF THE ASSESSEE AND HELD THAT:- A) THE TP STUDY AND ALP DETERMINATION MADE BY THE ASSESSEE AGGREGATING ROYALTY TRANSACTIONS WITH OTHER TRANSACTIONS STANDS. B) THAT THE BENEFIT OUT OF INTRA GROUP SERVICES HAS ACCRUED TO THE ASSESSEE IN INDIA. HOWEVER, THE PROPORTION OF BENEFIT ACCRUING TO EACH PARTY REMAINS INDETERMINATE. IN VIEW OF THIS, WE ARE OF THE OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE DETERMINATION MADE BY THE TPO. C) LEASE PREMIUM IS IN THE NATURE OF CAPITAL EXPENDITURE. AS THEY ARE NOT IN THE NATURE OF INTANGIBLE ASSETS, DEPRECIATION CANNOT BE GRANTED. 2.2. AGGRIEVED WITH THE DIRECTIONS WHICH ARE AGAINST THE ASSESSEE, I.E. THE DIRECTIONS ON DETERMINATION OF ALP ON INTRA GROUP SERVICES AND LEASE PREMIUM PAID, THE ASSESSEE 3 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD FILED THE APPEAL. AGGRIEVED ON THE ISSUE OF DETERMINATION OF ALP OF ROYALTY, THE REVENUE HAS FILED THIS APPEAL. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER BASED ON DIRECTIONS OF DRP ERRED IN ASSESSING THE TOTAL INCOME AT RS 6,273,600 AS AGAINST BUSINESS LOSS OF RS 82,107,744 COMPUTED BY THE APPELLANT; ADJUSTMENT RELATED TO PAYMENT OF SERVICE CHARGES UNDER 'HEAD QUARTER SERVICE AGREEMENT AND IT SERVICE AGREEMENT (HERE-IN-AFTER REFERRED AS 'INTRA GROUP SERVICES' . 2. THE DIRECTIONS OF DRP AND PURSUANT ORDER OF THE ASSESSING OFFICER BASED THEREON (IMPUGNED ORDER) ARE CONTRARY TO LAW,. FACTS AND CIRCUMSTANCES OF THE CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND' IN LAW, THE IMPUGNED ORDER FAILS TO APPRECIATE THAT THE APPELLANT'S CASE IS NOT COVERED UNDER ANY OF (A) TO (D) CLAUSE OF SECTION 92C(3) OF THE ACT; . 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE IMPUGNED ORDER WRONGLY CONFIRMS THE DISALLOWANCE OF ENTIRE EXPENDITURE ON INTRA GROUP SERVICES ON IRRELEVANT CONSIDERATIONS AND UPHOLDS WITHOUT APPROPRIATE JUSTIFICATION THE REJECTION OF THE TRANSACTIONAL NET MARGIN METHOD ADOPTED BY THE APPELLANT AS ALSO DISREGARDING OF THE ECONOMIC ANALYSIS CARRIED OUT. THE IMPUGNED ORDER THEREBY UPHOLDS DISALLOWANCE OF HUGE EXPENDITURE BY A PROCESS COMPLETELY UNKNOWN TO LAW. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. AND IN LAW, THE LEARNED AO BASED ON DIRECTIONS OF DRP ERRED IN ARBITRARILY DETERMINING THE ALP IN RESPECT OF LNTRA GROUP SERVICE CHARGES AT RS NIL; 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE IMPUGNED ORDER ERRED IN QUESTIONING THE COMMERCIAL RATIONALE OF THE LEGITIMATE BUSINESS EXPENSES INCURRED BY THE TAXPAYER AND NOT RESTRICTING THE SCOPE OF ASSESSMENT UNDER SECTION 92CA TO DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION BY ADOPTING ONE OF THE PRESCRIBED METHODS. 7. THE IMPUGNED ORDER PROCEEDS ON CONJECTURES AND SURMISES, IGNORING FACTS TO UPHOLD DISALLOWANCE OF LEGITIMATE AND ROUTINE EXPENDITURE AND ALSO WRONGLY HOLDS THE SAME TO BE STEWARDSHIP EXPENDITURE. WITHOUT PREJUDICE ,THE DISALLOWANCE .LS CONTRARY TO SETTLED ,LAW THAT ONCE EXPENDITURE SERVICES THE PRIMARY PURPOSE OF BENEFITING THE PERSON INCURRING THE SAME, IT WOULD BE UNJUSTIFIED TO DISALLOW DEDUCTION ON THE PREMISE THAT IT MAY HAVE INCIDENTALLY BENEFITED SOME OTHER PERSON ALSO, MOREOVER, THE DRP AS WELL AS THE AO FAILED TO APPRECIATE THAT PROCESS ADOPTED 4 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD FOR DETERMINATION OF ARMS LENGTH PRICE BY THE TPO IS TOTALLY UNKNOWN TO LAW IS INCORRECT AND UNJUSTIFIED. 8, WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEARNED AO ERRED IN DISALLOWING THE ENTIRE AMOUNT OF RS 88,340,373 INCLUDING THE ACTUAL COST INCURRED IN RENDERING THE SERVICES AND NOT RESTRICTING TO ONLY PROFIT MARGIN CHARGED BY THE ASSOCIATED ENTERPRISE. ADJUSTMENT RELATED TO LEASE RIGHTS 9. ON THE FACTS AND IN THE CIRCUMSTANCES THE IMPUGNED ORDER ERRED, IN DISALLOWING THE DEDUCTION OF LEASE' PREMIUM OF RS 40,968 ON LAND ON THE BASIS THAT THE SAME, IS IN THE NATURE OF CAPITAL EXPENDITURE; 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND, IN LAW, THE LEARNED AO BASED ON DIRECTIONS OF DRP ERRED IN CONCLUDING THAT THE LEASE RIGHTS OF THE PLOTS OF LAND ARE NOT IN THE NATURE OF COMMERCIAL RIGHTS 'OR INTANGIBLE ASSETS AND THEREFORE DEPRECIATION SHOULD NOT BE ALLOWED ON THE ACTUAL COST OF SUCH ASSET; INTEREST UNDER SECTION 234D OF THE ACT 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER BASED ON DIRECTIONS' OF DRP ERRED IN LEVYING INTEREST UNDER SECTION 234D OF THE ACT OF RS 389,067; THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD; ALTER, AMEND, AMPLIFY OR MODIFY ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING OF THE APPEAL. 3.1. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND, WHICH READS AS FOLLOWS:- 14. WITHOUT PREJUDICE TO THE ABOVE, THE TRANSACTION OF PAYMENT FOR INTRA-GROUP SERVICES CLOSELY LINKED WITH THE MAIN BUSINESS ACTIVITY OF MANUFACTURING OF CHEMICALS OF THE APPELLANT AND THEREFORE THE TRANSACTION OF PAYMENT FOR INTRA- GROUP SERVICES IS AT ARMS LENGTH UNDER A COMBINED TNMM APPROACH. 4. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE BASIS OF FACTS AND IN LAW, LD. DRP, KOLKATA HAVE ERRED IN HOLDING THE COMPARABLE TRANSACTIONS SELECTED BY THE TPO FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE AS BEING CONTROLLED TRANSACTIONS ON THE BASIS OF PROVISIONS OF SECTION 92A (2)(G) OF THE ACT, WHILE NOT TAKING INTO ACCOUNT THE PROVISIONS OF SECTION 92A( 1) OF THE ACT WHICH IS A SINE QUA NON BEFORE APPLYING SECTION 92A (2)(G); 5 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD 2. WHETHER ON THE BASIS OF FACTS AND IN LAW, LD. DRP, KOLKATA HAVE ERRED IN HOLDING THAT THE APPLICATION OF THE CUP METHOD BY THE TPO FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES NOT IN ACCORDANCE WITH RULE 10(8)( 1 )(A) OF THE IT RULES, 1962 AS ADEQUATE INFORMATION IS NOT AVAILABLE, WHEREAS THE FORM OF TRANSACTION (SALE OR LICENSE), THE TYPE OF PROPERTY (KNOWHOW ETC.), DURATION AND DEGREE OF PROTECTION, SEGMENT OF INDUSTRY AND ANTICIPATED BENEFITS ARE SAME OR SIMILAR AND THE ECONOMIC ENVIRONMENT AND GEOGRAPHICAL AREA OF THE LICENSOR AND LICENSEE IN CASE OF COMPARABLE IS ALSO SAME OR SIMILAR; 3. WHETHER ON THE BASIS OF FACTS AND IN LAW, LD. DRP, KOLKATA HAVE ERRED IN HOLDING THAT THE DETERMINATION OF THE ARM'S LENGTH PRICE BY THE ASSESSEE OF ITS INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF ROYALTY BY IT TO ITS ASSOCIATED ENTERPRISE ON THE BASIS OF AGGREGATION OF ROYALTY TRANSACTION WITH OTHER INTERNATIONAL TRANSACTIONS UNDER THE TNMM IS CORRECT, WHEREAS THE ROYALTY TRANSACTION IS A SEPARATE CLASS OF TRANSACTION WHOSE ARM'S LENGTH PRICE IS REQUIRED TO BE DETERMINED SEPARATELY. 4. WHETHER ON THE BASIS OF FACTS AND IN LAW, LD. DRP, KOLKATA HAVE ERRED IN HOLDING THAT IN CASE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT MADE BY THE ASSESSEE FOR SERVICES RENDERED BY ITS ASSOCIATED ENTERPRISES OF THE ASSESSEE UNDER DIFFERENT SERVICE AGREEMENTS, A PART AND NOT THE WHOLE OF THE SERVICES SO RENDERED ARE OF THE NATURE OF STEWARDSHIP ACTIVITY AS HELD BY HON'BLE SUPREME COURT OF INDIA IN THE CASE OF M/S DIT (INTERNATIONAL TAXATION), MUMBAI VS MORGAN STANLEY & CO., INC, WHEREAS THE WHOLE OF SUCH SERVICES FALL UNDER THE CATEGORY OF STEWARDSHIP ACTIVITY; 5. WHETHER ON THE BASIS OF FACTS AND IN LAW, LD. DRP, KOLKATA HAVE ERRED IN HOLDING THAT IN CASE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT MADE BY THE ASSESSEE FOR SERVICES RENDERED BY ITS ASSOCIATED ENTERPRISES OF THE ASSESSEE UNDER DIFFERENT SERVICE AGREEMENTS; WITH REGARD TO A PART OF THE SERVICES BENEFITS HAVE ACCRUED TO BOTH THE ASSESSEE AND THE SERVICE PROVIDER BUT THE PROPORTION IS INDETERMINATE, WITHOUT CONSIDERING THAT IN CASE OF STEWARDSHIP ACTIVITY THE 'PROXIMATE AND DIRECT BENEFIT TEST' IS TO BE APPLIED WHICH IN THIS CASE IS ACCRUING IN THE HANDS OF THE SERVICE PROVIDER. 5. THE LD. COUNSEL FOR THE ASSESSEE DISPUTED THE TP ADJUSTMENT DONE TO INTRA-GROUP SERVICES BY RAISING THE FOLLOWING ARGUMENTS:- A) THE LD. ASSESSING OFFICER/TPO HAS NOT DISCHARGED THE ONUS THAT LAY ON HIM U/S 92C(3) OF THE ACT, WHICH REQUIRES COMPLIANCE WITH THE CIRCUMSTANCES ENUMERATED IN CLAUSES (A) TO (D) OF THAT SUB-SECTION BY RELYING ON THE CBDT CIRCULAR NO. 1 OF 2001 D. 23 RD AUGUST, 2001. FOR THIS PROPOSITION, THAT THE ASSESSING OFFICER/ TPO HAVE TO ESTABLISH THAT THE CASE IN QUESTION IS COVERED U/S 92C(3) OF THE ACT, PRIOR TO EMBARKING ON AN EXERCISE OF 6 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD SCRUTINISING THE ALP OF AN INTERNATIONAL TRANSACTION, HE RELIED ON THE FOLLOWING DECISIONS:- NLC NALCO INDIA LIMITED VS. DCIT (ITA NO. 529/KOL/2008 AND ITA NO. 1256/KOL/2009) AT&S INDIA (P) LTD. VS. DCIT (ITA NO. 77/KOL/2017) DCIT VS. LANDIS + GYR (ITA NOS. 584/KOL/2015 & 687/KOL/2015) HE FURTHER SUBMITTED THAT THE TPO HAS REJECTED THE TP STUDY MADE BY THE ASSESSEE AND THAT NO PRESCRIBED METHOD IS APPLIED IN THIS CASE BY THE TPO TO ARRIVE AT THE ALP AS NIL AND HENCE THE TP ADJUSTMENT HAS NO LEGS TO STAND ON. IN ADDITION TO THE CASE-LAW RELIED UPON EARLIER BY THE ASSESSEE, HE FURTHER RELIED ON THE FOLLOWING DECISION:- DRESSER-RAND INDIA P. LTD, MUMBAI VS ACIT (ITA NO. 8753/MUM/2010) HE FURTHER SUBMITTED THAT THE TPO FOR THE ASSESSMENT YEARS 2006-07, 2008-09 HAS NOT CHARACTERISED THE SERVICES IN QUESTION AS STEWARDSHIP SERVICES. HE POINTED OUT THAT THE TPO HAD CHALLENGED THE ALP OF SERVICES ARRIVED AT BY THE ASSESSEE BASED ON THE PROPORTION OF SHARE OF SERVICE FEE CHARGED TO THE INDIAN ENTITY. AS IN THOSE YEARS NEITHER THE ASSESSEE NOR THE REVENUE HAS APPLIED ANY OF THE PRESCRIBED METHODS FOR DETERMINATION OF THE ALP, THE TRIBUNAL HAD RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER. HENCE HE CONTENDED THAT IT IS NOT CORRECT ON THE PART OF THE TPO TO CHANGE ITS STAND AND ALLEGE THAT THE NATURE OF SERVICES ARE STEWARDSHIP SERVICES AND DETERMINE THE ALP AT NIL. HE FURTHER SUBMITTED THAT, WHEREVER STEWARDSHIP SERVICES WERE INVOLVED, THEY HAVE BEEN EXCLUDED WHILE COMPUTING THE ALP. FOR THIS PURPOSE HE DREW THE ATTENTION OF THE BENCH TO PAGE NO. 207 OF THE PAPER BOOK WHICH CONSISTS OF HEADQUARTER SERVICE AGREEMENT. B) THAT THE INTRA GROUP SERVICES AND THE IT SERVICES ARE NOT STEWARDSHIP SERVICES AND STEWARDSHIP COSTS HAVE ALREADY BEEN IDENTIFIED IN THE AGREEMENT AND THESE COSTS WERE NOT ALLOCATED TO THE GROUP ENTITIES. HE POINTED OUT THAT NO SEPARATE LICENSE FEE WAS CHARGED ON SIKA INDIA FOR ANY OF THE SERVICES. HE FURTHER POINTED OUT FROM THE FINANCIAL STATEMENTS THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY, LOCALLY ON THE 7 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD SERVICES SPECIFIED UNDER THE HEAD INDUSTRIAL GROUP SERVICES & IT SERVICES, WHICH WAS RENDERED BY ITS AE. C) HE RELIED ON THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF AKZO NOBEL INDIA LTD. (ITA NO. 531/KOL/2014) FOR THE ASSESSMENT YEAR 2009-10, AND SUBMITTED THAT THE ISSUE IN QUESTION IS COVERED BY THIS DECISION. HE FURTHER ARGUED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MORGAN STANELY STOOD DISTINGUISHED BY THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF AKZO NOBEL INDIA LTD. (SUPRA). D) WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED THAT, EVEN IF BENEFIT TEST IS APPLIED THE SALES HAD INCREASED BY 34.53 % AND THAT COMMERCIAL EXPEDIENCY OF THE TRANSACTIONS CANNOT BE QUESTIONED. FOR THIS PROPOSITION THAT COMMERCIAL EXPEDIENCY OF THE TRANSACTIONS CANNOT BE QUESTIONED, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD. (ITA NO. 1068/2011 AND ITA NO. 1070/2011), JUDGEMENT DT. 29 TH MARCH, 2012. E) HE FURTHER SUBMITTED THAT THE ASSESSEE HAS UNDERTAKEN A BUNDLED APPROACH OF IMPORT AND EXPORT OF GOODS AND CAPITAL ASSET PURCHASE FOR DETERMINING THE ALP USING TNMM AS THE MAM. HE CONTENDED THAT THESE TRANSACTIONS WERE CLUBBED TOGETHER AS THESE ARE INTER-LINKED TO MANUFACTURING. HE POINTED OUT THAT THE TPO HAD ACCEPTED THE BUNDLED TRANSACTIONS APPROACH AND HAS NOT MADE ANY ADJUSTMENT IN THE TP ORDERS. F) WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, HE SUBMITTED THAT SIKA INDIA IS ONLY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SUPPLYING OF CHEMICALS AND THAT THE SERVICES RECEIVED ARE IN SUPPORT OF THE BUSINESS ACTIVITIES TO ACHIEVE MORE SYNERGIES WITHIN THE ORGANISATION. HE RELIED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF AVERY DENNISON INDIA PVT. LTD. (ITA NO. 1670/DEL/2015) ORDER DT. 9 TH SEPTEMBER, 2015, FOR THE PROPOSITION THAT BUNDLED APPROACH FOR BENCHMARKING OF SERVICE CHARGES UNDER TNMM IS PERMISSIBLE. HE PRAYED THAT THE DISALLOWANCE BE DELETED. 8 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD G) ON GROUND NO. 9 AND 10, WHICH RELATES TO THE ISSUE OF LEASE PREMIUM, THE ASSESSEE FAIRLY SUBMITTED THAT THE ISSUE IS COVERED AGAINST HIM BY THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 & 2008-09, IN THE ASSESSEES OWN CASE. 6. THE LD. D/R, ON THE OTHER HAND OPPOSED THE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT THE AGREEMENT IN QUESTION FOR RENDERING OF SERVICES IS A GENERAL AGREEMENT AND NOT SPECIFIC TO SIKA INDIA. HE REFERRED TO PAGE 149 OF THE PAPER BOOK, WHEREIN FUNCTIONAL ANALYSIS HAS BEEN GIVEN OF THE HEADQUARTERS SERVICES. HE POINTED OUT THAT THE AE PROVIDES THESE SERVICES TO THE GROUP ENTITIES WORLDWIDE AND ALLOCATES COSTS BASED ON PRE-DETERMINED ALLOCATIONS KEYS AND THESE COSTS ARE REIMBURSED ON THE COST + 5% MARKUP ON SIPM. HE RELIED ON THE ORDER OF THE DRP AS WELL AS THAT OF THE TPO AND SUBMITTED THAT UNDER THE BENEFIT TEST, NO BENEFIT ACCRUES TO THE ASSESSEE AND THE ALP WAS RIGHTLY DETERMINED AT NIL. 6.1. THE LD. D/R, FURTHER ARGUED THAT IN CASE THE BENCH COMES TO A CONCLUSION THAT THE SERVICES IN QUESTION ARE NOT STEWARDSHIP SERVICES, THEN AS THE EXERCISE OF DETERMINATION OF THE ALP HAS NOT BEEN DONE BY THE TPO, THE MATTER SHOULD BE RESTORED TO THE FILE OF THE TPO FOR DETERMINATION OF THE ALP BY APPLYING ONE OF THE METHODS PRESCRIBED UNDER THE STATUTE. ON THE ISSUE OF LEASE PREMIUM, HE SUBMITTED THAT THESE ARE ALREADY ADJUDICATED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE EARLIER ASSESSMENT YEARS. 7. WE HAVE HEARD RIVAL CONTENTIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS:- 8. LOOKING AT THE NATURE OF THE SERVICES, WE ARE OF THE CONSIDERED OPINION THAT THESE ARE NOT IN THE NATURE OF STEWARDSHIP SERVICES. THESE ARE SERVICES WHICH ASSISTS SIKA INDIA IN MANAGING THE DAILY AFFAIRS OF ITS BUSINESS. IT HELPS SIKA INDIA IN CONDUCTING ITS BUSINESS OPERATIONS OF MANUFACTURING AND SALE OF CHEMICALS. THE DRP, IN ITS ORDER HAS AGREED THAT THE SERVICES IN QUESTION HAVE BENEFITTED THE ASSESSEE COMPANY. WHEN THIS IS THE FACTUAL FINDING OF THE DRP, THEN TO COME TO THE CONCLUSION THAT THE ALP WAS RIGHTLY DETERMINED AT NIL BY THE ASSESSING OFFICER, FOR THE REASON THAT THE PROPORTION OF THE BENEFIT COULD NOT BE DETERMINED SEPARATELY BETWEEN THE ASSESSEE AND ITS AE, IS TO OUR MIND, NOT CORRECT. 9 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD SUCH DIFFICULTIES IN ALLOCATION DIES NOT MAKE A SERVICE, A STEWARDSHIP SERVICE. THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR THESE SERVICES LOCALLY. IT HAD DEPENDED ENTIRELY ON THE AE FOR THESE SERVICES. IT IS NOT POSSIBLE FOR AN ORGANISATION SUCH AS THE ASSESSEE TO CARRY ON BUSINESS WITHOUT THESE SERVICES WHICH INCLUDE I.T. SERVICES. THEY ARE ESSENTIAL TO THE BUSINESS OF THE ASSESSEE. FOR THE ASSESSMENT YEAR 2006-07, 2007-08 AND 2008-09, THE TPO HAS NOT CHARACTERISED THESE SERVICES AS STEWARDSHIP SERVICES. HE SOUGHT TO DETERMINE THE ALP OF THESE SERVICES BASED ON PROPORTIONS OF SHARE OF SERVICE FEE CHARGED TO THE INDIAN ENTITY. IN THIS YEAR, THIS APPROACH IS SOUGHT TO BE CHANGED. LIKE MANY OTHER CASES, THE TPO CAME TO A CONCLUSION THAT THE SERVICES IN QUESTION ARE STEWARDSHIP SERVICES, WITHOUT ANY BASIS OR LOGIC. SUCH CLASSIFICATION IS ARBITRARY. APPLYING THE PRINCIPLES OF CONSISTENCY AND ON AN EXAMINATION OF THE FACTS OF THE CASE, WE HOLD THAT THE SERVICES IN QUESTION ARE NOT STEWARDSHIP SERVICES. HENCE THE DETERMINATION OF ALP AT NIL BY THE TPO IS BAD IN LAW. 9. WE NOW CONSIDER THE OTHER ARGUMENTS. THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER/TPO HAS NOT DISCHARGED THE ONUS THAT LAY ON IT U/S 92C(3) OF THE ACT. 9.1. IN THE CASE OF NLC NALCO INDIA LIMITED VS. DCIT (ITA NO. 529/KOL/2008 AND ITA NO. 1256/KOL/2009) , THE TRIBUNAL HELD AS FOLLOWS:- 19. WE HAVE GONE THROUGH THE DATA AS WELL THROUGH THE DETAILS FILED BY ASSESSEE IN ITS PAPER BOOK AND THE TPO HIMSELF MENTIONED IN HIS ORDER THAT THE ASSESSEE PERFORMED ARM'S LENGTH ANALYSIS IN RESPECT OF ALL THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSE WITH ITS ASSOCIATED ENTERPRISES UNDER SECTION 92C OF THE ACT READ WITH RULE 10B AND 10C OF THE RULES. AND THAT NOTHING WAS FOUND IN THE TPO'S ORDER WHICH WAS INDICATIVE OF THE EXISTENCE OF ANY OF THE CIRCUMSTANCES PRESCRIBED UNDER (A) TO (D) OF SECTION 92C (3) OF THE ACT WHICH NECESSITATES INTERVENTION OF THE AO/TPO FOR DETERMINATION OF ARM'S LENGTH PRI CE. BUT TPO, DETERMINED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDER REVIEW AT 'NIL' VALUE, BASED ON HIS MAIN ALLEGATION THAT THE BENEFITS CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSE FROM NALCO PACIFIC UNDER THE AGREEMENT WOULD NOT BE ONES FOR WHICH AN INDEPENDENT ENTERPRISE WOULD BE WILLING TO PAY. IN THIS CONNECTION LD. COUNSEL REFERRED TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. EKL APPLIANCES [2012] 24 TAXMANN.COM 199 (DELHI), WHEREIN THE HON'BLE HIGH COURT HAS EXAMINED THE ISSUE AS TO WHETHER THE TPO HAS POWER TO RESTRICT THE VALUE OF AN INTERNATIONAL TRANSACTION TO NIL WHEN HE WAS SUPPOSED TO HAVE DETERMINED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. THE HON'BLE HIGH COURT AFTER EXAMINING THE FACTS OF THE CASE HELD AS UNDER: 10 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD '19...... IN CIT V. WALCHAND& CO . ETC. [1967] 65 ITR 381, IT WAS HELD BY THE SUPREME COURT THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. . . 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORIZE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UN-REMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE L0B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESSEE TO DECIDE........ SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING ...' 20. LD. COUNSEL ALSO RELIED ON THE CASE OF CIT V. WALCHAND& CO . ETC. [1967] 65 ITR 381, THE HON'BLE APEX COURT HAS HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. THE ESSENCE IS THAT A BUSINESSMAN HIMSELF IS THE BEST JUDGE IN DETERMINING THE REASONABLENESS / USEFULNESS / BENEFIT OF AN EXPENDITURE WHICH IS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS. THE REVENUE HAS NO ROLE TO PLAY IN DETERMINING THE REASONABLENESS / USEFULNESS / BENEFIT OF A BUSINESS EXPENDITURE. HOWEVER, IN THE INSTANT CASE, THE TPO HAD JUDGED THE REASONABLENESS OF THE AFORESAID INTRA-GROUP SERVICE CHARGE (REGARDING WHICH THERE WAS NO DISPUTE THAT THE SAME WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS) FROM HIS OWN POINT OF VIEW AND COMPUTED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDER REVIEW AT 'NIL' VALUE BASED ON HIS MAIN ALLEGATION THAT THE BENEFITS CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE FROM NALCO PACIFIC UNDER THE AFORESAID AGREEMENT WOULD NOT BE ONES FOR WHICH AN INDEPENDENT ENTERPRISE WOULD BE WILLING TO PAY. HENCE, THE FIRST GROUND FOR CONFIRMING THE DISALLOWACE BY CIT (A) WILL NOT STAND. LD. COUNSEL ALSO REFERRED TO THE CASE OF CIT V. EKL APPLIANCES (SUPRA), THE HON'BLE DELHI HIGH COURT HAS HELD THAT RULE 10B OF THE RULES DOES NOT AUTHORIZE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE. THE HON'BLE HIGH COURT HAS FURTHER HELD THAT THE QUANTUM OF EXPENDITURE CAN BE EXAMINED BY THE TPO AS PER LAW AND SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. BUT IN THE PRESENT CASE BEFORE US, THE TPO JUDGED THE REASONABLENESS OF THE AFORESAID INTRA-GROUP SERVICE CHARGE AND COMPUTED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDER REVIEW AT 'NIL' VALUE BASED ON HIS MAIN ALLEGATION THAT THE BENEFITS CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE FROM NALCO PACIFIC UNDER THE AFORESAID AGREEMENT WOULD NOT BE ONES FOR WHICH AN 11 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD INDEPENDENT ENTERPRISE WOULD BE WILLING TO PAY. THE CIT (A) ALSO CONFIRMED HIS ORDER. 21. ATTENTION WAS FURTHER INVITED TO THE DECISION OF HON'BLE DELHI TRIBUNAL OF MCCANN ERICKSON INDIA (P.) LTD VS. ADDL . CIT [2012] 24 TAXMANN.COM 21 (DELHI), WHEREIN THE TRIBUNAL, FOLLOWING THE AFORESAID DECISION OF THE HON'BLE DELHI HIGH COURT, HAS INTERALIA HELD THAT: '9. WE HAVE HEARD BOTH SIDES AND HAVE ALSO GONE THROUGH THE ORDERS OF THE AO, TPO AND DRP.... THE EVIDENCES HAVE BEEN SUBMITTED BEFORE THE AUTHORITIES BELOW SHOWING RENDERING OF THE CERTAIN SERVICES AGAINST THE PAYMENTS MADE TO THE ASSOCIATED ENTERPRISES. IN THE ARENA IN WHICH THE ASSESSEE COMPANY IS FUNCTIONING, IT WILL BE DIFFICULT TO IMAGINE A SUCCESSFUL BUSINESS ENTITY IN THE GLOBAL ENVIRONMENT WITHOUT RECEIPT OF THE SERVICES WHICH CARRIES HUGE INTRINSIC AND CREATIVE VALUE. IN OUR CONSIDERED VIEW, IT IS ONLY A PARTICULAR BUSINESS EXPERT WHO CAN EVALUATE THE TRUE INTRINSIC AND CREATIVE VALUE OF SUCH SERVICES. IN VIEW OF THESE FACTS, IT SHALL BE JUST TO AVOID ANY GUESSWORK TO EVALUATE OR JUDGE VALUE OF THESE SERVICES IN ISOLATION OR INDIVIDUALLY. IN ANY CASE, THE VALUE OF THESE SERVICES CANNOT BE TAKEN AT NIL WHICH THE AO AS WELL AS TPO ORIGINALLY SOUGHT TO DO......... THE TERM 'BENEFIT' TO A COMPANY IN RELATION TO ITS BUSINESS HAS A VERY WIDE CONNOTATION. IT IS DIFFICULT TO ACCURATELY MEASURE THESE BENEFITS IN TERMS OF MONEY VALUE SEPARATELY. THEREFORE, WE FIND NO JUSTIFICATION TO SUSTAIN ANY ADDITION IN THIS REGARD ON THIS ISSUE. WE DIRECT TO DELETE THE ADDITION AND THIS GROUND IS ALLOWED. 22. WE HAVE GONE THROUGH THE CASE OF MCCANN ERICKSON INDIA (P.) LTD (SUPRA), THE DELHI TRIBUNAL HAS HELD THAT IT IS ONLY A PARTICULAR BUSINESS EXPERT WHO CAN EVALUATE THE TRUE INTRINSIC AND CREATIVE VALUE OF INTRA-GROUP SERVICES AND IN ANY CASE, THE VALUE OF THESE SERVICES CANNOT BE TAKEN AT NIL. HOWEVER, IN THE INSTANT CASE, THE TPO JUDGED THE REASONABLENESS OF THE AFORESAID INTRA-GROUP SERVICE CHARGE AND COMPUTED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDER REVIEW AT 'NIL' VALUE BASED ON HIS MAIN ALLEGATION THAT THE BENEFITS CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSE FROM NALCO PACIFIC UNDER THE AFORESAID AGREEMENT WOULD NOT BE ONES FOR WHICH AN INDEPENDENT ENTERPRISE WOULD BE WILLING TO PAY. THE CIT (A) ACCEPTED THE VALUATION OF THE INTRA-GROUP SERVICES MADE BY THE TPO AT 'NIL' VALUE. WE HAVE OBSERVED FROM THE FACTS OF THE CASE THAT IN THE INSTANT CASE, THE TPO DETERMINED THE ARM'S LENGTH PRICES OF THE INTRA-GROUP SERVICES CLAIMED TO HAVE BEEN RECEIVED BY ASSESSEE FROM NALCO PACIFIC AT 'NIL' VALUE WITHOUT APPLYING ANY OF THE TRANSFER PRICING METHODS PRESCRIBED UNDER SECTION 92C OF THE ACT READ WITH RULE 10B AND 10C OF THE RULES. IN THIS CONNECTION, CO-ORDINATE BENCH DECISION OF MUMBAI TRIBUNAL IN THE MATTER OF DCIT VS. DIEBOLD SOFTWARE SERVICES (P.) LTD. [2014] 48 TAXMANN.COM 26 (MUMBAI - TRIB) WAS REFERRED, WHEREIN THE PRINCIPLE LAID DOWN BY TRIBUNAL ALONG WITH BRIEF FACTS ARE AS UNDER: THE ASSESSEE RECEIVED INFORMATION TECHNOLOGY (IN SHORT, 'I.T.')SERVICES FROM ITS ASSOCIATED ENTERPRISE AND PAID SERVICE CHARGE TO THE LATTER. THE ASSESSEE CLUBBED THE AFORESAID INTERNATIONAL TRANSACTION TOGETHER WITH OTHER INTERNATIONAL TRANSACTIONS, APPLIED THE TNMM AS THE MOST APPROPRIATE METHOD AND SELECTED A SET OF EXTERNAL COMPARABLES. AS PER THIS ANALYSIS, THE INTERNATIONAL TRANSACTIONS COVERED 12 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD UNDER THE TNMM, WERE AT ARM'S LENGTH. THE AFORESAID ANALYSIS BY ASSESSEE WAS NOT DISPUTED BY THE TPO. THE ASSESSEE WAS CALLED UPON BY TPO TO PROVIDE THE BASIS OF PRICING OF THESE TRANSACTIONS. THE ASSESSEE WAS ALSO REQUIRED BY THE TPO TO PROVIDE NECESSARY DETAILS ALONG WITH ALLOCATION KEYS AND BASIS OF CALCULATION OF PAYMENT MADE FOR I.T. SUPPORT SERVICES. ACCORDING TO TPO, THE ASSESSEE, HOWEVER, FAILED TO COMPLY WITH THESE REQUIREMENTS AND THE ALP OF THE RELEVANT TRANSACTIONS THEREFORE WASDETERMINED BY TPO AT 'NIL' VALUE. THE CIT(A) HELD THAT THE ACTION OF TPO IN ARRIVING AT THE ALP OF THE RELEVANT INTERNATIONAL TRANSACTIONS AT 'NIL' WAS WITHOUT ANY BASIS AND ACCORDINGLY HE DELETED THE ADDITION MADE ON ACCOUNT OF THE TRANSFER PRICING ADJUSTMENTS MADE BY A.O./TPO HOLDING THE SAME TO BE UNSUSTAINABLE. THE TRIBUNAL OBSERVED THAT THE EXERCISE OF BENCHMARKING MADE BY THE ASSESSEE TO SHOW THAT THE PRICE CHARGED BY ITS ASSOCIATED ENTERPRISE FOR PROVIDING IT SUPPORT SERVICES WAS AT ARM'S LENGTH HAD NOT BEEN DISPUTED BY TPO. IT WAS ALSO OBSERVED BY THE TRIBUNAL THAT THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION UNDER REVIEW WAS DETERMINED BY THE TPO AT 'NIL' WITHOUT APPLYING ANY OF THE PRESCRIBED METHODS AND THE ENTIRE PAYMENT MADE BY THE ASSESSEE FOR AVAILING THE IT SUPPORT SERVICES FROM ITS ASSOCIATED ENTERPRISE WAS ADDED AS TP ADJUSTMENT. IN VIEW THIS, THE TRIBUNAL HAD GIVEN THE DECISION THAT THE ADDITION MADE BY A.O./TPO ON ACCOUNT OF TP ADJUSTMENTS IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AE INVOLVING AVAILING OF IT SUPPORT SERVICES WAS NOT SUSTAINABLE EITHER IN LAW OR ON THE FACTS OF THE CASE. THE TRIBUNAL UPHELD THE ORDER OF CIT (A). 23. ACCORDING TO ASSESSEE THE AFORESAID DECISION IS SQUARELY APPLICABLE TO THE CASE OF ASSESSEE. IN THE INSTANT CASE, TPO COMPUTED THE ARM'S LENGTH PRICE OF INTRA- GROUP SERVICES RECEIVED BY ASSESSEE FROM NALCO PACIFIC UNDER THE AFORESAID AGREEMENTS AT 'NIL' VALUE WITHOUT APPLYING ANY OF THE TRANSFER PRICING METHODOLOGIES PRESCRIBED UNDER SECTION 92C OF THE ACT READ WITH RULE 10B AND 10C OF THE RULES. ACCORDINGLY, THE ACTION OF THE TPO IN ARRIVING AT THE ARM'S LENGTH PRICE OF THE RELEVANT INTERNATIONAL TRANSACTIONS AT 'NIL' VALUE WITHOUT APPLICATION OF ANY TRANSFER PRICING METHODOLOGY, WAS WITHOUT ANY BASIS AND HENCE, WAS NOT SUSTAINABLE. IN THE INSTANT CASE, TPO WAS AUTHORISED TO DETERMINE, BY ORDER IN WRITING, THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SECTION 92C (3) OF THE ACT. THE TPO MENTIONED IN HIS ORDER THAT DURING THE COURSE OF HEARING IN RESPONSE TO NOTICE ISSUED UNDER SECTION 92CA (2) OF THE ACT, ASSESSEE HAD ATTENDED THE OFFICE OF THE TPO FROM TIME TO TIME AND FILED DETAILS AS REQUISITIONED BY THE TPO WHICH WERE PLACED ON RECORDS. THE TPO HAD EXAMINED THE DETAILS FILED BY ASSESSEE AND BASED ON SUCH EXAMINATION, HE HELD IN HIS ORDER THAT THE PRICING OF THE AFORESAID AGREEMENTS WAS JUSTIFIED BY ASSESSEE ON THE BASIS OF THE TNMM. WE FIND THAT THE TPO DID NOT MAKE ANY ADVERSE COMMENTS IN HIS ORDER UPON THE ARM'S LENGTH ANALYSIS CARRIED OUT BY ASSESSE UNDER THE TNMM AS PER SECTION 92C OF THE ACT READ WITH RULE 10B OF THE RULES. ACCORDINGLY, WE FEEL THAT TPO MADE PROPER ENQUIRY AND APPLIED HIS MIND TO THE DETAILS BROUGHT ON RECORD BY ASSESSEE. HE HAD AGREED WITH THE ASSESSEE THAT THE INTERNATIONAL TRANSACTIONS COVERED BY THE TNMM ANALYSIS 13 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD (INCLUDING THE INTRA-GROUP SERVICE CHARGE PAID /PAYABLE TO NALCO PACIFIC) ADHERED TO THE ARM'S LENGTH PRINCIPLE TRANSFER PRICING REGULATION. 24. FURTHER, IT IS ALSO A FACT THAT THE AFORESAID INTRA-GROUP SERVICE CHARGE WAS ALLOWED AS DEDUCTION BY TPO FOR THE ASSESSMENT YEARS 2005-06, 2006-07, 2007- 08 AND 2008-09. IN THIS CONNECTION, LD. COUNSEL REFERRED TO THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BRITANNIA INDUSTRIES LTD 257 ITR 225, WHEREIN HON'BLE CALCUTTA HIGH COURT HAS HELD THAT THE DEPARTMENT CANNOT TAKE A CONTRARY VIEW IN RESPECT OF ANY ISSUE WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT FOR SUCCEEDING ASSESSMENT YEAR BASED UPON THE SIMILAR SET OF FACTS. THUS, BY FOLLOWING THE ABOVE PRINCIPLE LAID DOWN BY THE HON'BLE CALCUTTA HIGH COURT, WE FEEL THAT THE ACTION OF TPO IN MAKING DISALLOWANCE OF THE INTRA-GROUP SERVICE CHARGE PAID/PAYABLE BY ASSESSE TO NALCO PACIFIC FOR THE ASSESSMENT YEAR 2004-05, AFTER ALLOWING THE SAME FOR THE ASSESSMENT YEARS 2005-06,2006-07,2007- 08 AND 2008-09 BASED ON THE SAME FACTS, HAS NO LEG TO STAND. LD. COUNSEL REFERRED TO THE RELEVANT INFORMATION IN THE TABULAR FORMAT: INTRA-GROUP SERVICE CHARGES ASSESSMENT YEAR ASSOCIATED ENTERPRISE INTRA-GROUP SERVICE CHARGE ALLOWED AS DEDUCTION (RS. '000) 2005-06 NALCO PACIFIC PTE LTD 19,543 2006-07 NALCO PACIFIC PTE LTD 31,128 2007-08 NALCO PACIFIC PTE LTD 27,157 2008-09 NALCO PACIFIC PTE LTD 28,120 WE ALSO FIND FROM THE RECORDS THAT ASSESSEE SUBMITTED VARIOUS EVIDENCES OF RECEIPT OF INTRA- GROUP SERVICES TO THE TPO WHICH ARE ENCLOSED IN PAGE NO. 71-79, 103-124, 129-132, 133- 138, 139-140, 143-144 AND 157-162 OF THE ASSESSEE'S PAPER BOOK. THE ASSESSEE ALSO FURNISHED EXPLANATION IN REGARD TO THE NATURE OF THE AFORESAID SERVICES IN PAGE NO. 9, 11AND 12 OF ITS FIRST SUBMISSIONS. FURTHER, IN APPEAL BEFORE CIT(A)ALSO ASSESSEE SUBMITTED A CERTIFICATE OF SERVICES DATED 01.09.2008, ISSUED BY LIAWHINHAO, FINANCE DIRECTOR, NALCO PACIFIC. COPY OF THE CERTIFICATE WAS ALSO SUBMITTED BEFORE US AND MARKED THE SAME AS ANNEXURE NO. 1. THE CERTIFICATE CONTAINS THE NATURE OF SERVICES RENDERED BY NALCO PACIFIC TO NALCO ASIA PACIFIC GROUP OF COMPANIES INCLUDING, THE PERSONNEL/DEPARTMENT ENGAGED IN RENDERING SERVICE, EXPENSES INCURRED BY VARIOUS PERSONNEL/DEPARTMENTS IN RENDERING SERVICES FROM THE YEAR 2002 TO 2004 (SEPARATELY FOR EACH YEAR) AND THE INTRA-GROUP SERVICE FEES CHARGED (BILLING) BY NALCO PACIFIC TO VARIOUS GROUP COMPANIES INCLUDING THE ASSESSE COMPANY FROM THE YEAR 2002 TO 2004 (SEPARATELY FOR EACH YEAR). THE ASSESSE ALSO SUBMITTED VARIOUS EVIDENCES OF RECEIPT OF INTRA-GROUP SERVICES TO CIT (A) WHICH ARE ENCLOSED IN PAGE NO.195-216, 243, 249-252 OF THE ASSESSEE'S PAPER BOOK. THE ASSESSE ALSO FILED EXPLANATIONS IN REGARD TO THE NATURE OF THE AFORESAID SERVICES IN PAGE NO. 10 OF ITS FIRST SUBMISSIONS. 14 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD 25. IN THE INSTANT CASE, NALCO PACIFIC OPERATED AS THE REGIONAL HEADQUARTERS COMPANY IN RELATION TO NALCO ASIA PACIFIC GROUP OF COMPANIES INCLUDING ASSESSEE. IT FUNCTIONED AS A GROUP SERVICE CENTRE AND RECRUITED REGIONAL EMPLOYEES, THOUGH LOCATED IN SINGAPORE, EXCLUSIVELY FOR THE PURPOSE OF RENDERING SERVICES TO NALCO ASIA PACIFIC GROUP OF COMPANIES INCLUDING ASSESSEE. NALCO PACIFIC INCURRED EXPENSES FOR THE PAYMENT OF SALARIES & OTHER BENEFITS TO THE REGIONAL EMPLOYEES. WE FIND THAT THE SERVICES RENDERED BY NALCO PACIFIC TO ASSESSEE UNDER THE AGREEMENT WERE SIMILAR TO THE SERVICES MENTIONED IN PARAGRAPH NO. 7.14 OF THE DECD GUIDELINES. IN VIEW OF THIS, WE APPRECIATE THAT THE SERVICES RENDERED BY NALCO PACIFIC TO ASSESSEE WERE INTRA- GROUP SERVICES FOR WHICH INDEPENDENT ENTERPRISES WOULD HAVE BEEN WILLING TO PAY FOR OR TO PERFORM IN-HOUSE FOR THEMSELVES AND HENCE, THE VALUE OF THE AFORESAID SERVICES IN COMPARABLE UNCONTROLLED TRANSACTIONS COULD NOT BE 'NIL'. THE PARAGRAPH NO. 7.12 OF THE OECD GUIDELINES PROVIDES THAT THERE ARE SOME CASES WHERE AN INTRA- GROUP SERVICE PERFORMED BY A GROUP MEMBER SUCH AS A SHAREHOLDER OR COORDINATING CENTRE RELATES ONLY TO SOME GROUP MEMBERS BUT INCIDENTALLY PROVIDES BENEFITS TO OTHER GROUP MEMBERS. EXAMPLES COULD BE ANALYSING THE QUESTION WHETHER TO RECOGNISE THE GROUP, TO ACQUIRE NEW MEMBERS, OR TO TERMINATE A DIVISION. THESE ACTIVITIES MAY CONSTITUTE INTRA-GROUP SERVICES TO THE PARTICULAR GROUP MEMBERS INVOLVED, FOR EXAMPLE THOSE MEMBERS WHO WILL MAKE THE ACQUISITION OR TERMINATE ONE OF THEIR DIVISIONS, BUT THEY MAY ALSO PRODUCE ECONOMIC BENEFITS FOR OTHER GROUP MEMBERS NOT INVOLVED IN THE OBJECT OF THE DECISION BY INCREASING EFFICIENCIES, ECONOMIES OF SCALE, OR OTHER SYNERGIES. THE INCIDENTAL BENEFITS ORDINARILY WOULD NOT CAUSETHESE OTHER GROUP MEMBERS TO BE TREATED AS RECEIVING INTRA-GROUP SERVICES BECAUSE THE ACTIVITIES PRODUCING THE BENEFITS WOULD NOT BE ONES FOR WHICH AN INDEPENDENT ENTERPRISE ORDINARILY WOULD BE WILLING TO PAY. BUT IN THE INSTANT CASE NO SUCH BENEFITS SUCH AS THOSE MENTIONED IN PARAGRAPH NO. 7.12 OF THE OECD GUIDELINES ACCRUED TO ASSESSEE UNDER THE AGREEMENT AND HENCE, NO INCIDENTAL BENEFITS ACCRUED UNDER THE AGREEMENT. 10. THE FACTS OF THIS CASE ARE IDENTICAL WITH THE FACTS OF NLC NALCO INDIA LIMITED (SUPRA). THIS CASE-LAW APPLIES TO THE EXTENT OF DETERMINATION OF ALP AT NIL BY THE TPO. ON AN ANALYSIS OF THE TYPE OF TRANSACTIONS, WE FIND THAT, IMPORT OF FINISHED GOODS IS RS.18,65,66,687/- AND WHEREAS IMPORT OF RAW MATERIAL IS JUST RS.8,69,24,041/-. THE ASSESSEE CLAIMS THAT IMPORT OF FINISHED GOODS HAS BEEN CLUBBED WITH IMPORT OF RAW MATERIAL, EXPORT OF PRODUCT OF RS.64,69,441/- AS WELL AS PURCHASE OF ASSETS OF RS.5,02,210/-, FOR THE PURPOSE OF DETERMINATION OF ALP UNDER TNMM. THE AMOUNTS PAID FOR AVAILING OF SERVICES IS RS.8,83,40,373/-. THE FIGURE OF RS.18.65 CRORES OF IMPORT OF FINISHED GOODS, CANNOT BE BUNCHED WITH OTHER INTERNATIONAL TRANSACTIONS WHICH ARE CONNECTED WITH MANUFACTURING OF CONSTRUCTION ADHESIVES AS IMPORT OF FINISHED IS RELATED TO THE TRADING SECTION. THE ASSESSEE PRIMARILY HAS THREE SEPARATE ACTIVITIES. A) MANUFACTURING OF CONSTRUCTION ADDITIVES 15 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD B) RENDERING OF SERVICES & C) TRADING OF CONSTRUCTION ADDITIVES, SEALANTS AND ADHESIVES ETC. COMBINING TRADING AND MANUFACTURING ACTIVITY OR THE SERVICES ACTIVITY FOR DETERMINATION OF ALP BY USING TNMM AS THE MAM, IN OUR VIEW IS NOT APPROPRIATE. 10.1. NOW THE ISSUE IS WHETHER THE TRIBUNAL HAS THE POWER TO SET ASIDE THE MATTER FOR FRESH DETERMINATION OF THE ALP, UNDER THESE CIRCUMSTANCES. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF FIDELITY BUSINESS SERVICES INDIA (P.) LTD. V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BANGALORE [2018] 257 TAXMAN 266 (KARNATAKA) , HAS HELD AS FOLLOWS:- 59. THUS ON THE ANALYSIS OF THE PROVISIONS OF THE ACT AND THE CASE LAWS DISCUSSED ABOVE, WE ARE OF THE CLEAR AND CONSIDERED OPINION THAT THE DIRECTIONS OF THE LEARNED TRIBUNAL IN PARA 7 FOR HOLDING AN INQUIRY INTO THE MATTER BY THE ASSESSING AUTHORITY INTO THE ASPECT OF FAIR MARKET PRICE OF THE SHARES BOUGHT BACK BY THE ASSESSEE FROM ITS MAJOR SHARE HOLDING MAURITIUS HOLDING COMPANY IS NOT BEYOND THE JURISDICTION OF THE LEARNED TRIBUNAL AND THE SAID REMAND DIRECTION OF THE TRIBUNAL TO HOLD SUCH AN ENQUIRY NOT ONLY FALLS WITHIN THE AMBIT AND SCOPE OF THE 'SUBJECT MATTER' OF THE APPEAL FILED BY THE ASSESSEE BY WHICH HE CLAIMED THAT THE REMITTANCE BY THE ASSESSEE COMPANY TO ITS MAURITIUS HOLDING COMPANY COULD NOT BE TAXED AS DIVIDEND, FORGETTING THE ASPECTS RELATING TO CLAUSE (E) OF SECTION 2(22) OF THE ACT AND THEREFORE THE SAID DIRECTIONS WERE WITHIN THE SUBJECT MATTER OR THE ISSUES RAISED BY THE ASSESSEE AND MAKING A DIRECTION TO HOLD AN ENQUIRY INTO THE ASPECT OF FAIR MARKET VALUE OF SHARES CANNOT BE SAID TO BE BEYOND THE SUBJECT MATTER OF THE APPEAL. THE SAID DIRECTIONS CANNOT BE SAID TO BE PER SE AMOUNTING TO TAXABILITY OF THE SAID PAY-OUT BY THE APPELLANT ASSESSEE AS 'DIVIDEND' BUT THE SAME WOULD DEPEND UPON THE NATURE OF ENQUIRY TO BE CONDUCTED BY THE ASSESSING AUTHORITY AND FINDINGS ARRIVED AT IN PURSUANCE OF THE SAID DIRECTION. THE POWER TO REMAND INCLUDING FOR CONDUCTING AN ENQUIRY IN THE ASPECT OF THE MATTER WHICH WAS NOT EARLIER ADJUDICATED UPON BY THE LOWER AUTHORITIES, CANNOT, IN OUR CONSIDERED OPINION, BE QUESTIONED BY THE ASSESSEE OR THE REVENUE. 60. THE WORDS 'AS IT THINKS FIT' EMPLOYED IN SECTION 254 OF THE ACT IS ONLY BOUND BY THE REQUIREMENT OF GIVING AN OPPORTUNITY OF BEING HEARD TO THE PARTIES TO THE APPEAL. 61. SECTION 254(1) OF THE ACT CLEARLY STIPULATES THAT THE APPELLATE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPORTUNITY OF BEING HEARD, PASS SUCH ORDERS THEREON AS IT THINKS FIT. THE EMPHASIS ON THE WORD ' THEREON' SOUGHT TO BE PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE, MR. PARDIWALA ON THE BASIS OF CASE LAWS RELIED UPON BY HIM AS AGAINST THE WORDS ' AS IT THINKS FIT ' IS SLIGHTLY MISPLACED. THE EMPHASIS WHILE ANALYZING THE POWERS OF THE TRIBUNAL SHOULD BE ON THE WORDS ' AS IT THINKS FIT' RATHER THAN ON THE WORD ' THEREON '. THE WORD ' THEREON' ONLY RELATES TO THE 'SUBJECT MATTER' OF THE APPEAL IN FIRST PART OF THE SUB-SECTION (1) AND THEREFORE WHILE THE TRIBUNAL IS DEALING WITH THE SUBJECT MATTER OF THE APPEAL, IT CAN PASS ANY SUCH RELEVANT ORDER AS IT THINKS FIT, WHICH WOULD BE RATIONAL, GERMANE, REASONABLE, APPROPRIATE, NECESSARY AND EXPEDIENT IN THE OPINION OF THE LEARNED TRIBUNAL SUBJECT TO THE REQUIREMENT THAT IT GIVES AN OPPORTUNITY OF HEARING TO BOTH THE PARTIES TO THE APPEAL, VIZ., THE ASSESSEE AND 16 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD THE REVENUE. NEITHER THE POWERS ARE RESTRICTED NOR THE POWER TO ALLOW THE FRESH AND NEW GROUND TO BE RAISED BEFORE IT IS RESTRICTED NOR THE POWERS TO ENHANCE AN ASSESSMENT OR TAX LIABILITY OR REDUCE THE TAX ESPECIALLY ENUMERATED IN THE PROVISO TO SUB-SECTION(2) OF SECTION 254 OF THE ACT ALSO IS RESTRICTED. 62. THE POWERS UNDER SECTION 254 OF THE ACT WITH THE TRIBUNAL TO PASS SUCH ORDERS ' AS IT THINKS FIT' CANNOT BE LESSER THAN THE POWERS CONFERRED UPON THE LOWER AND FIRST APPELLATE AUTHORITY, VIZ., THE COMMISSIONER OF INCOME TAX(APPEALS) WHO UNDER SECTION 251(1)(A) OF THE ACT HAS POWER TO DISPOSE OF AN APPEAL AGAINST THE ORDER OF ASSESSMENT AND HE MAY CONFIRM OR REDUCE OR ENHANCE OR ANNUL THE ASSESSMENT. THE HIGHER AND FINAL APPELLATE AUTHORITY UNDER THE ACT CANNOT BE INTENDED BY THE PARLIAMENT TO HAVE LESSER POWER THAN THE FIRST APPELLATE AUTHORITY AS IS WELL SETTLED THAT THE POWERS OF THE APPELLATE AUTHORITIES ARE ALWAYS CO-EXTENSIVE WITH THAT OF THE ASSESSING AUTHORITY AND THEREFORE WHAT THE ASSESSING AUTHORITY OR THE FIRST APPELLATE AUTHORITY COULD DO IN THE MATTER OF ASSESSMENT, THE TRIBUNAL CANNOT BE SAID TO HAVE ANY LESSER POWER TO DO SO. 63. SECTION 254 OF THE ACT, IN OUR OPINION, DOES NOT HAVE ANY NARROWER SCOPE TO PUT FETTERS ON THE POWERS OF THE TRIBUNAL AS IS SOUGHT TO BE CANVASSED BEFORE US THAT THE TRIBUNAL COULD NOT HAVE EXCEEDED THE GROUNDS RAISED BEFORE IT BY THE APPELLANT ASSESSEE. THE APPELLANT MAY BE EITHER ASSESSEE OR REVENUE BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS ALSO POWERS TO ALLOW FRESH GROUND OF APPEAL OR ALLOW THE OTHER PARTY TO THE APPEAL TO FILE ITS CROSS OBJECTIONS AND EVEN SUO MOTU DATE OF JUDGMENT :23-07-2018 I.T.A.NO.512/2017 M/S. FIDELITY BUSINESS SERVICES INDIA PVT. LTD., VS. ASSISTANT COMMISSIONER OF INCOME-TAX, & ANR. PASS APPROPRIATE ORDERS ' THEREON' AND THEREFORE THE WORDS ' AS IT THINKS FIT ' IN OUR OPINION, CONFER WIDE POWERS UPON THE INCOME TAX APPELLATE TRIBUNAL TO PASS SUCH ORDERS ON THE SUBJECT MATTER OF APPEAL ' AS ITTHINKS FIT ' WHETHER THE ISSUE IS RAISED BY EITHER PARTY TO THE APPEAL OR NOT. THE TRIBUNAL IS NOT BOUND TO DECIDE THE APPEAL IN A PARTICULAR OR NARROWER MANNER OR LIMITED TO THE GROUNDS RAISED IN THE APPEAL BEFORE IT. THE CONFINES OR BOUNDARY LIMIT IS ONLY 'SUBJECT MATTER' OF THE APPEAL. 64. THE POWERS OF THE TRIBUNAL ARE NOT LIMITED OR CIRCUMSCRIBED BY THE GROUNDS RAISED BEFORE IT AND ANY ORDER ON THE SUBJECT MATTER OF APPEAL CAN BE PASSED IF IT IS FOUND TO BE NECESSARY, EXPEDIENT AND RELEVANT BY THE LEARNED TRIBUNAL. 65. TRUTH BEING THE CHERISHED IDEAL AND ETHOS OF INDIA, PURSUIT OF TRUTH SHOULD BE THE GUIDING STAR OF THE ENTIRE JUSTICE SYSTEM. FOR JUSTICE TO BE DONE, TRUTH MUST PREVAIL. IT IS TRUTH THAT MUST PROTECT THE INNOCENT AND IT IS TRUTH THAT MUST BE THE BASIS TO PUNISH THE GUILTY. TRUTH IS THE VERY SOUL OF JUSTICE. THEREFORE TRUTH SHOULD BECOME THE IDEAL TO INSPIRE THE COURTS TO PURSUE. THIS CAN BE ACHIEVED BY STATUTORILY MANDATING THE COURTS TO BECOME ACTIVE SEEKERS OF TRUTH. IT IS OF SEMINAL IMPORTANCE TO INJECT VITALITY INTO OUR SYSTEM. CONCERN FOR AND DUTY TO SEEK THE TRUTH SHOULD NOT BECOME THE LIMITED CONCERN OF THE COURTS OR TRIBUNALS AND ADJUDICATING AUTHORITIES BUT SHOULD PERCOLATE DOWN IN OTHER EXECUTIVE WINGS OF THE STA TE AS WELL. 66. 'TRUTH' HAS A STRANGE BUT A FIRM CHARACTER OF FINDING ITS WAY AND COMING OUT AND REVEALING ITSELF EVEN THOUGH EMBEDDED AT THE BOTTOMS OF TIME PERIODS AND PILES OF PAPERS BOUND THROUGH THE CHAIN OF LITIGATION IN THE COURTS OF LAW BUT THE QUEST FOR TRUTH SHOULD NOT GET BOGGED-DOWN MERELY BECAUSE A LONG PERIOD HAS LAPSED. 67. THE ULTIMATE OBJECT OF PROVIDING THE MULTIPLE TIERS OF APPELLATE FORUMS AND MECHANISM IN THE INCOME TAX LAW AND THEN FURTHER PROVIDING FOR REMEDIES BY WAY OF 17 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD APPEALS BEFORE THE CONSTITUTIONAL COURTS ON THE SUBSTANTIAL QUESTIONS OF LAW IS NOTHING BUT TO ALLOW THE QUEST FOR TRUTH TO BE TAKEN TO ITS LOGICAL END. 10.2. APPLYING THE PROPOSITIONS OF LAW LAID DOWN IN THESE CASE-LAW TO THE FACTS OF THE CASE ON HAND, AND CONSISTENT WITH THE VIEW TAKEN BY THE BENCH IN THE EARLIER YEARS IN THE CASE OF THE ASSESSEE, WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER/TPO FOR FRESH DETERMINATION OF ALP OF INTRA GROUP SERVICES AS PER LAW. 11. IN THE RESULT, THIS GROUND OF THE ASSESSEE ALLOWED FOR STATISTICAL PURPOSES. 12. COMING TO THE ISSUE OF LEASE PREMIUM, THE ISSUE IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL ON THIS VERY SAME ISSUE IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 & 2008-09. 13. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS DISMISSED. 14. NOW WE TAKE UP THE REVENUES APPEAL IN ITA NO. 402/KOL/2014; ASSESSMENT YEAR 2009-10. 14.1. THE SOLE ISSUE THAT ARISES FOR OUR CONSIDERATION IN THE REVENUES APPEAL IS WHETHER THE DRP IS RIGHT IN UPHOLDING THE CONTENTIONS OF THE ASSESSEE THAT PAYMENT OF ROYALTY IS AT ALP. THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 & 2008-09, DT. 15 TH FEBRUARY, 2018, HELD AS FOLLOWS:- 7.2. THE ISSUE BEFORE US PERTAINS TO DETERMINATION OF ALP OF ROYALTY PAYMENT AND OF FEE PAID FOR AVAILING OF SERVICES. THE REVENUE HAS NOT DISPUTED THE COMPUTATION OF ALP BY THE ASSESSEE FOR ALL THE OTHER INTERNATIONAL TRANSACTIONS. 8. WE FIRST TAKE UP THE ISSUE OF ROYALTY. THE ROYALTY AGREEMENT PROVIDES FOR THE FOLLOWING:- A) TRANSFER OF EXCLUSIVE RIGHT FOR THE MANUFACTURE OF PRODUCTS EITHER MANUFACTURED (PARTIALLY OR ENTIRELY) BY SIKA INDIA OR MANUFACTURED BY ANY OF THE SIKA GROUP OF COMPANIES. B) TO MAKE AVAILABLE OF PRESENT AND FUTURE KNOWHOW NECESSARY FOR APPLICATION OF SALE EITHER MANUFACTURED (PARTIALLY OR ENTIRELY) BY SIKA INDIA OR MANUFACTURED BY ANY OF THE SIKA GROUP OF COMPANIES. 18 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD C) A GRANT OF EXCLUSIVE RIGHTS TO USE THE TRADE MARK IN RELATION TO THE PRODUCTS EITHER MANUFACTURED (PARTIALLY OR ENTIRELY) BY SI OR MANUFACTURED BY ANY OF THE SIKA GROUP OF COMPANIES. 8.1. THUS, THE ROYALTY IS BEING PAID FOR EXCLUSIVE RIGHTS FOR MANUFACTURING, MAKING AVAILABLE PRESENT AND FUTURE KNOWHOW NECESSARY FOR MANUFACTURE AND FOR EXCLUSIVE RIGHTS TO USE THE TRADE MARK, IN RELATION TO THE PRODUCTS OF SIKA GROUP OF COMPANIES. 8.2. IN OUR VIEW, SUCH PAYMENTS OF ROYALTY CANNOT BE BUNDLED WITH TRANSACTIONS OF IMPORT OF FURNISHED GOODS, IMPORT OF RAW MATERIALS, SERVICE UNDER IT SERVICE AGREEMENT ETC. AND TNMM AT ENTITY LEVEL BE APPLIED AS THE MAM. WHEN FINISHED GOODS ARE IMPORTED AND SOLD, WE DO NOT SEE ANY JUSTIFICATION IN BUNDLING ROYALTY ALONG WITH OTHER INTERNATIONAL TRANSACTION. FOR AVAILING OF SERVICE, TNMM IS USED AND AGAIN BENCHMARKED SEPARATELY. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GRUNER INDIA PVT. LTD. VS. DCIT (SUPRA), HAS DEALT WITH THIS ISSUE AT PARA 4 UP TO PARA 5.9 OF ITS ORDER, WHICH IS EXTRACTED HEREINBELOW:- 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS MANIFEST FROM THE ABOVE DISCUSSION THAT THE ASSESSEE DEMONSTRATED ALL THE EIGHT INTERNATIONAL TRANSACTIONS AT ALP ON A COMBINED BASIS UNDER THE TNMM. THE TPO HAS DISPUTED ONLY THE TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES, WHOSE ALP HAS BEEN DETERMINED UNDER THE CUP METHOD, THEREBY IMPLIEDLY ACCEPTING THE REMAINING SIX INTERNATIONAL TRANSACTIONS AT ALP UNDER THE TNMM. I. WHETHER SEGREGATION OF THE TWO TRANSACTIONS IS JUSTIFIED? 5.1. THE FIRST ISSUE RAISED BY THE LD. AR IS AGAINST THE SEPARATE DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES. HE URGED THAT THESE TWO INTERNATIONAL TRANSACTIONS OUGHT TO HAVE BEEN CONSIDERED ALONG WITH OTHER INTERNATIONAL TRANSACTIONS IN AN AGGREGATED MANNER UNDER THE TNMM AS WAS DONE BY THE ASSESSEE. RELYING ON CERTAIN TRIBUNAL ORDERS, IT WAS ARGUED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN SEGREGATING THESE TWO TRANSACTIONS FOR DETERMINING THEIR ALP UNDER CUP METHOD. THIS CONTENTION WAS STRONGLY OPPOSED BY THE LD. DR WHO SUBMITTED THAT THERE WAS NO RELATION BETWEEN PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES AND OTHER INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIALS, EXPORT OF FINISHED GOODS, LEASE OF MACHINE/TOOLS, PURCHASE OF PLANT AND MACHINERY, DIVIDEND PAID AND TESTING AND CELEBRATION FEES RECEIVED. IN HIS OPINION, THESE TWO TRANSACTIONS WERE REQUIRED TO BE SEPARATELY BENCHMARKED AS HAS BEEN DONE BY THE TPO. 5.2. THE KEY QUESTION WHICH, THEREFORE, FALLS FOR OUR CONSIDERATION IS WHETHER THE SEGREGATION OF THESE TWO TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES FROM THE OTHER INTERNATIONAL TRANSACTIONS, IS JUSTIFIED? 5.3. THE HON'BLE JURISDICTIONAL HIGH COURT IN SONY ERICSON MOBILE COMMUNICATION INDIA PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL), HAS DEALT WITH THE CIRCUMSTANCES IN WHICH AGGREGATION CAN BE DONE IN THE CONTEXT OF AMP EXPENSES. THE PRINCIPLES LAID DOWN IN THIS CASE ARE UNIVERSALLY APPLICABLE AND ARE NOT CONFINED TO THE PECULIAR FACTS OF THAT CASE ALONE. IT HAS BEEN HELD THAT 'TRANSACTION INCLUDES THE NUMBER OF CLOSELY LINKED TRANSACTIONS.' DEALING WITH AMP EXPENSES, IT HELD VIDE PARAS 80 AND 81 THAT INTER- CONNECTED INTERNATIONAL TRANSACTIONS CAN BE AGGREGATED AND SECTION 92(3) DOES NOT PROHIBIT THE SET OFF. FURTHER, IN PARAS 91, 121 AND OTHERS, IT HELD THAT THE ALP OF AMP 19 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD EXPENSES SHOULD BE DETERMINED PREFERABLY IN A BUNDLED MANNER WITH THE DISTRIBUTION ACTIVITY. VIDE PARAS 194 (I), (II), (VIII) AND OTHERS IT HELD THAT FOR DETERMINING THE ALP OF THESE TRANSACTIONS IN A BUNDLED MANNER, SUITABLE COMPARABLES HAVING UNDERTAKEN SIMILAR ACTIVITIES OF DISTRIBUTION OF THE PRODUCTS AND ALSO INCURRING OF AMP EXPENSES SHOULD BE CHOSEN. IT STILL FURTHER HELD IN PARAS 100, 121, AND 194 (III), (VI) AND (XI) THAT IF ADJUSTMENT IS NOT POSSIBLE OR COMPARABLES ARE NOT AVAILABLE, THEN, TNMM ON ENTITY LEVEL SHOULD NOT BE APPLIED AND THE INTERNATIONAL TRANSACTION OF AMP SHOULD BE VIEWED IN A DEBUNDLED OR A SEGREGATED MANNER. IN SEPARATELY DETERMINING THE ALP OF THE AMP EXPENSES, THE HON'BLE HIGH COURT HELD THAT THE TPO IS FREE TO CHOOSE ANY OTHER SUITABLE METHOD AND IN MAKING TP ADJUSTMENT ON ACCOUNT OF AMP EXPENSES, APPROPRIATE SET OFF/PURCHASE PRICE ADJUSTMENT SHOULD BE ALLOWED FROM THE OTHER TRANSACTION OF DISTRIBUTION OF THE PRODUCTS. THE HON'BLE HIGH COURT ALSO HELD IN PAGE 92 OF ITS JUDGMENT THAT 'IT WOULD NOT BE PROPER AND APPROPRIATE TO APPLY THE TNMM METHOD IN CASE THE INDIAN ASSESSED IS ENGAGED IN MANUFACTURING ACTIVITIES AND DISTRIBUTION AND MARKETING OF IMPORTED AND MANUFACTURED PRODUCTS AS INTERCONNECTED TRANSACTIONS. IMPORT OF RAW MATERIAL FOR MANUFACTURE WOULD POSSIBLY BE AN INDEPENDENT TRANSACTION VIZ., MARKETING AND DISTRIBUTION ACTIVITIES OR FUNCTIONS.' A CAREFUL PERUSAL OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT DIVULGES THAT THOUGH A NUMBER OF CLOSELY LINKED TRANSACTIONS CAN BE AGGREGATED, BUT, THE TRANSACTIONS WHICH ARE NOT CLOSELY RELATED TO EACH OTHER WOULD REQUIRE DETERMINATION IN A SEGREGATED MANNER. 5.4. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN KNORR BREMSE INDIA P. LTD. VS. ACIT (2016) 380 ITR 307 (P&H), HAS HELD THAT IN CASE OF A PACKAGE DEAL WHERE EACH ITEM IS NOT SEPARATELY VALUED, BUT, ALL ARE GIVEN A COMPOSITE PRICE, THIS SHOULD BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION AND PROCESSED ACCORDINGLY FOR THE TRANSFER PRICING PURPOSE. IT FURTHER HELD THAT WHERE A NUMBER OF TRANSACTIONS ARE PRICED DIFFERENTLY, BUT, ON THE UNDERSTANDING THAT THE PRICING WAS DEPENDENT UPON THE ASSESSEE ACCEPTING ALL OF THEM TOGETHER (I.E., EITHER TAKE ALL OR LEAVE ALL), THEN ALSO, THE SEPARATE TRANSACTIONS BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION. IN SUCH CIRCUMSTANCE, BURDEN HAS BEEN PLACED ON THE ASSESSEE TO PROVE THAT ALTHOUGH EACH TRANSACTION IS PRICED SEPARATELY, BUT, THEY WERE PROVIDED UNDER ONE COMMON UNDERSTANDING. IT FURTHER LAID DOWN EMPHATICALLY THAT : ` THE CONTENTION THAT AS THE SERVICES AND GOODS ARE UTILIZED BY THE ASSESSEE FOR THE MANUFACTURE OF THE FINAL PRODUCT THEY MUST BE AGGREGATED AND CONSIDERED TO BE A SINGLE TRANSACTION AND THE VALUE THEREOF OUGHT TO BE COMPUTED BY THE TNMM IS NOT ACCEPTABLE. MERELY BECAUSE THE PURCHASE OF EACH ITEM AND THE ACCEPTANCE OF EACH SERVICE IS A COMPONENT LEADING TO THE MANUFACTURE/PRODUCTION OF THE FINAL PRODUCT SOLD OR SERVICE PROVIDED BY THE ASSESSEE, IT DOES NOT FOLLOW THAT THEY ARE NOT INDEPENDENT TRANSACTIONS FOR THE SALE OF GOODS OR PROVISION OF SERVICES. THE END PRODUCT REQUIRES SEVERAL INPUTS. THE INPUTS MAY BE ACQUIRED AS PART OF A SINGLE COMPOSITE TRANSACTION OR BY WAY OF SEVERAL INDEPENDENT TRANSACTIONS. IN THE LATTER CASE, THE SALE OF CERTAIN GOODS AND/OR THE PROVISION OF CERTAIN SERVICES FROM OUT OF THE TOTAL GOODS PURCHASED OR SERVICES AVAILED OF BY AN ASSESSEE TOGETHER CAN FORM PART OF A SEPARATE INDEPENDENT INTERNATIONAL TRANSACTION. IN SUCH AN EVENT, THE AO/TPO MUST VALUE THIS GROUP OF SALE OR PURCHASE OF GOODS AND/OR PROVISION OF SERVICES AS SEPARATE TRANSACTIONS.' 5.5. WHEN WE CONSIDER THE RATIO DECIDENDI OF THE ABOVE REFERRED TWO JUDGMENTS, THE PICTURE WHICH EMERGES IS THAT ALTHOUGH CLOSELY RELATED TRANSACTIONS CAN BE AGGREGATED, BUT, UNRELATED TRANSACTIONS CANNOT BE CLUBBED FOR DETERMINING ALP ON A COMBINED BASIS. THE RELEVANT CRITERIA TO DETERMINE WHETHER CERTAIN TRANSACTIONS BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION OR NOT IS TO SEE IF SUCH TRANSACTIONS WERE ENTERED INTO A PACKAGE DEAL OR WERE INTENDED TO BE SIMULTANEOUSLY ACCEPTED OR THESE ARE SO CLOSELY 20 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD LINKED THAT ONE CANNOT AT ALL STAND WITHOUT THE OTHER. IF THE ABOVE CRITERIA IS SATISFIED, THEN, TWO OR MORE RELATED TRANSACTIONS CAN BE CONSIDERED AS ONE INTERNATIONAL TRANSACTION FOR THE PURPOSE OF DETERMINING THEIR ALP. ON THE CONTRARY, IF THE ABOVE CRITERIA IS NOT SATISFIED, THEN, THESE TRANSACTIONS ARE TO BE VIEWED SEPARATE FROM EACH OTHER AND, ACCORDINGLY, THEIR ALP SHOULD ALSO BE DETERMINED IN A DISTINCT MANNER AS IF THESE ARE TWO SEPARATE INDEPENDENT TRANSACTIONS. THE MERE FACT THAT BOTH THE INTRA- GROUP SERVICES AND GOODS ARE UTILIZED BY THE ASSESSEE FOR THE MANUFACTURE OF THE FINAL PRODUCT, CANNOT BE TREATED DECISIVE TO CONSIDER SUCH SEPARATE TRANSACTIONS AS A SINGLE TRANSACTION. 5.7. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ITS AE, NAMELY, GRUNER AG, A GERMAN COMPANY, ON 6TH OF MARCH, 2009, A COPY OF WHICH HAS BEEN PLACED ON PAGES 167 ONWARDS OF THE PAPER BOOK. UNDER THIS AGREEMENT, THE ASSESSEE WAS GRANTED A LICENCE PERMITTING USE OF TECHNOLOGY AND TECHNICAL KNOW-HOW IN THE FIELD OF ELECTRO MECHANICAL COMPONENTS AND ALSO THE BRAND NAME OF ITS FOREIGN AE. IN LIEU OF SUCH USE OF TECHNICAL KNOW-HOW AND BRAND NAME, THE ASSESSEE BECAME LIABLE TO PAY A LICENCE FEES AND ROYALTY AS STATED IN SCHEDULE II TO THIS AGREEMENT. THIS SCHEDULE PROVIDES FOR PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES EACH @ 8% CALCULATED ON THE BASIS OF THE NET EX-FACTORY SALE PRICE OF THE PRODUCT, EXCLUSIVE OF EXCISE DUTY MINUS THE COST OF THE STANDARD BOUGHT OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SOURCE OF PROCUREMENT, INCLUDING OCEAN FREIGHT, INSURANCE, CUSTOM DUTIES, ETC. APART FROM THIS AGREEMENT, THE ASSESSEE ALSO ENTERED INTO ANOTHER AGREEMENT DATED 25.6.2009 WITH GRUNER AG, GERMANY, FOR AVAILING CERTAIN MANAGEMENT SERVICES. A COPY OF SUCH AGREEMENT IS AVAILABLE ON PAGE 107 ONWARDS OF THE PAPER BOOK. UNDER THIS AGREEMENT, THE ASSESSEE AGREED TO PAY AT THE HOURLY RATES. IT IS THE PAYMENT PURSUANT TO THE AGREEMENT DATED 25.6.2009 AND 8% FEES FOR TECHNICAL SERVICES UNDER THE AGREEMENT DATED 6.3.2009, THAT THE ASSESSEE PAID TOTAL FEES FOR TECHNICAL SERVICES AT RS.4.72 CRORE. ROYALTY PAYMENT @ 8% MADE TO GRUNER AG, UNDER THE AGREEMENT DATED 6.3.2009, STANDS AT RS.3.24 CRORE. THUS IT IS PALPABLE THAT THE ASSESSEE PAID ROYALTY AND FEES FOR TECHNICAL SERVICES TO ITS AE PURSUANT TO THE AGREEMENTS WHICH ARE SOLELY FOR THIS PURPOSE. THERE IS NO REFERENCE OR MENTION WHATSOEVER OF ANY OTHER INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE YEAR IN THESE AGREEMENTS. IT IS FURTHER FOUND THAT THE INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIAL AND EXPORT OF FINISHED GOODS ALONG WITH LEASE OF MACHINE/TOOLS AND PURCHASE OF PLANT AND MACHINERY, ETC., HAVE NO LINK WITH PAYMENT OF ROYALTY AND PAYMENT OF FEES FOR TECHNICAL SERVICES. THE TWO INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES ARE ALTOGETHER INDEPENDENT FROM THE INTERNATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIALS, ETC. THE LD. AR VEHEMENTLY HARPED ON THE FACT THAT ROYALTY AND FEES FOR TECHNICAL SERVICES WAS PAID BY THE ASSESSEE ON THE BASIS OF IMPORT OF RAW MATERIAL AND, HENCE, THESE TRANSACTIONS SHOULD BE CONSIDERED ALONG WITH THE OTHER INTERNATIONAL TRANSACTIONS INCLUDING IMPORT OF RAW MATERIALS, SPARES AND CONSUMABLES. WE ARE AFRAID THAT THIS CONTENTION IS NOT CORRECT. WE HAVE DISCUSSED HEREINABOVE THAT THE AGREEMENT DATED 6.3.2009 PROVIDES FOR PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES: 'CALCULATED ON THE BASIS OF THE NET EX-FACTORY SALE PRICE OF THE PRODUCT, EXCLUSIVE OF EXCISE DUTY MINUS THE COST OF THE STANDARD BOUGHT OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SOURCE OF PROCUREMENT, INCLUDING OCEAN FREIGHT, INSURANCE, CUSTOM DUTIES, ETC.' THUS, IT IS MANIFEST THAT ROYALTY AND FEES FOR TECHNICAL SERVICES IS PAYABLE BY THE ASSESSEE ON SALE PRICE NET OF EXCISE DUTY AND IMPORT OF RAW MATERIAL, ETC. TO PUT IT SIMPLY, SUCH PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES @ 8% IS ONLY ON `VALUE ADDITION'. THERE MAY BE TOTAL IMPORT OF GOODS WORTH RS.100/-. HOWEVER, ROYALTY AND FEES FOR TECHNICAL SERVICES WILL BE PAID ONLY ON 21 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD THE SALE PRICE OF GOODS AS REDUCED, INTER ALIA, BY IMPORT OF THE CORRESPONDING RAW MATERIALS, ETC. IF, DURING A PARTICULAR YEAR, RAW MATERIAL, ETC., ARE CONSUMED WORTH RS.60/-, THE REMAINING RS.40/- WILL BE IN STOCK. IN SUCH A SITUATION, ROYALTY AND FEES FOR TECHNICAL SERVICES WILL BE PAID WITH REFERENCE TO THE AMOUNT OF SALE PRICE AS REDUCED, INTER ALIA, BY RS.60/-. THE ESSENCE OF THE MATTER IS THAT ROYALTY AND FEES FOR TECHNICAL SERVICES IS REQUIRED TO BE CALCULATED ON THE BASIS OF EX FACTORY SALE PRICE OF THE GOODS AS REDUCED BY THE EXPENSES AND NOT ON IMPORT OF RAW MATERIALS. IT IS FURTHER PERTINENT TO NOTE THAT THE ASSESSEE IS NOT OBLIGED TO MAKE 100% PURCHASES AND SALE TO ITS AES ALONE. THE ASSESSEE IS FREE TO PURCHASE RAW MATERIALS AND OTHER COMPONENTS FROM AND ALSO SELL ITS GOODS TO ITS NON-RELATED PARTIES AS WELL. THIS EXPLICITLY PROVES THAT THE PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES HAS RELATION WITH THE TOTAL SALES MADE BY THE ASSESSEE AND IT CANNOT BE CONSTRUED AS INTERLINKED WITH IMPORT OF RAW MATERIALS FROM ITS AE ALONE. 5.8. IT IS SIMPLE AND PLAIN THAT CROSS SUBSIDIZATION OF THE INTERNATIONAL TRANSACTIONS IN A COMBINED APPROACH IS IMPERMISSIBLE. IT IS CLEAR FROM SECTION 92(1) THAT IF AN INTERNATIONAL TRANSACTION IS RECORDED SHOWING A LOWER INCOME THAN ITS ALP INCOME, THEN IT IS THE HIGHER ALP INCOME, WHICH SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF THE TOTAL INCOME. SECTION 92(3) OF THE ACT MANIFESTS THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN A CASE WHERE THE COMPUTATION OF INCOME HAVING REGARD TO ALP HAS THE EFFECT OF REDUCING INCOME CHARGEABLE TO TAX. THE NET EFFECT OF SECTION 92(3) IS THAT IF TRANSACTED VALUE INCOME FROM AN INTERNATIONAL TRANSACTION IS MORE THAN ITS ARM'S LENGTH PRICE INCOME, THEN, THE ALP INCOME SHOULD BE DISCARDED AND THE ACTUAL INCOME SHOULD BE CONSIDERED. TO SUM UP, IT IS THE HIGHER OF ACTUAL INCOME OR THE ALP INCOME FROM AN INTERNATIONAL TRANSACTION, WHICH SHOULD TO BE TAKEN INTO CONSIDERATION FOR COMPUTING THE TOTAL INCOME. IT DOES NOT MEAN THAT THE ACTUAL MORE INCOME FROM ONE INTERNATIONAL TRANSACTION VIS-A-VIS ITS ALP INCOME SHOULD BE COMBINED WITH ANOTHER UNRELATED TRANSACTION WHICH GIVES ACTUAL INCOME LESS THAN THE ALP INCOME AND THEN BOTH BE PROCESSED TOGETHER UNDER THIS CHAPTER SO AS TO SET OFF THE INCOME (TRANSACTED INCOME MINUS ALP INCOME) FROM THE FIRST TRANSACTION WITH THE POTENTIAL INCOME ARISING FROM THE SECOND TRANSACTION (ALP INCOME MINUS TRANSACTED VALUE INCOME). WHEN WE CONSIDER MORE THAN ONE SEPARATE TRANSACTION UNDER THE COMBINED UMBRELLA OF TNMM ON AN ENTITY LEVEL, IT IS QUITE POSSIBLE THAT A PROBABLE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ARISING FROM ONE INTERNATIONAL TRANSACTION MAY BE USURPED BY THE INCOME FROM THE OTHER INTERNATIONAL TRANSACTION GIVING HIGHER INCOME ON TRANSACTED VALUE. THAT IS THE REASON FOR WHICH THE LEGISLATURE HAS PROVIDED FOR DETERMINING THE ALP OF EACH INTERNATIONAL TRANSACTION SEPARATELY FROM THE OTHERS. AS THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES ARE SEPARATE TRANSACTIONS AND NOT CLOSELY LINKED WITH THE OTHER TRANSACTIONS WITH WHICH THE ASSESSEE HAS MERGED THEM, WE CANNOT PERMIT SUCH MERGER OR AGGREGATION FOR THE PURPOSE OF THE DETERMINING THEIR ALP ON ENTITY LEVEL UNDER TNMM. WE, THEREFORE, REJECT THIS CONTENTION RAISED ON BEHALF OF THE ASSESSEE. 5.9. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE TPO WAS JUSTIFIED IN SEGREGATING THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY AND FEES FOR TECHNICAL SERVICES FROM OTHER INTERNATIONAL TRANSACTIONS AS THESE ARE NOT LINKED WITH IMPORT OF RAW MATERIAL ETC. FROM ITS AE. THE ASSESSEE'S CONTENTION IN THIS REGARD IS, ERGO, REPELLED. 9. RESPECTFULLY FOLLOWING THE PROPOSITIONS OF LAW LAID DOWN HEREIN AND APPLYING THE SAME TO THE FACTS OF THE CASE AND IN VIEW OF OUR FINDINGS THAT TNMM AT ENTITY LEVEL IS NOT THE MAM AND AS ALL THE INTERNATIONAL TRANSACTION ARE NOT OF THE SAME CATEGORY OR NATURE, WE HAVE TO NECESSARILY UPHOLD THE ORDER OF THE TPO AS CONFIRMED BY THE DRP 22 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD THAT TNMM IS NOT THE MAM FOR DETERMINATION OF ALP OF ROYALTY TRANSACTIONS. THE TRANSACTION HAS RIGHTLY BEEN DEBUNDLED. 14.2. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE UPHOLD THE DECISION OF THE DRP AND DISMISS THIS APPEAL OF THE REVENUE. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART AND IN APPEAL OF THE REVENUE IS DISMISSED. KOLKATA, THE 10 TH DAY OF OCTOBER, 2018. SD/- SD/- [S.S. VISWANETHRA RAVI] [ J. SUDHAKARREDDY ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10.10.2018 {SC SPS} COPY OF THE ORDER FORWARDED TO: 1. M/S. SIKA INDIA PVT. LTD COMMERCIAL COMPLEX-II 620, DIAMOND HARBOUR ROAD KOLKATA 700 034 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11, KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES 23 I.T.A. NO. 402/KOL/2014 ASSESSMENT YEAR: 2009-10 I.T.A. NO. 393/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIKA INDIA PVT. LTD