Cushman & Wakefield India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 3933/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53191 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Assessee Lawyers: NITIN GARG; VIKRANT SURI
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Diversion of income; International transaction; Commercial expediency
• Section: 92C; 43B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.3933/DEL/2010 ASSESSMENT YEAR : 2006-07 CUSHMAN & WAKEFIELD INDIA PVT. LTD., B-6/8, COMMERCIAL COMPLEX, OPP. DEER PARK, SAFDARJUNG ENCLAVE, NEW DELHI. PAN : AAACC5006B VS. ACIT, RANGE-3, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI NITIN GARG & VIKRANT SURI, CA REVENUE BY : SHRI KRISHNA, CIT, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER DATED 6 TH JULY, 2010 U/S 143 (3) READ WITH SECTION 144C OF THE IT ACT, 1961. THE G ROUNDS OF APPEAL READ AS UNDER:- THE FOLLOWING GROUNDS OF APPEAL ARE MUTUALLY EXCLUS IVE OF AND WITHOUT PREJUDICE TO EACH ANOTHER. 1. THAT THE LEARNED A.O. HAS ERRED ON FACTS AND IN LAW IN RE- COMPUTING THE ARMS LENGTH PRICE OF TRANSACTIONS AND IN HOLDING THAT THE SERVICES AVAILED BY THE ASSESSEE ARE N OT INTRA-GROUP SERVICES AND HENCE NO REMUNERATION SHOULD HAVE BEEN MADE BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES. THE ADDITION OF RS.10,602,930/- MADE TO THE INCOME OF THE APPELLANT IS ILLEGAL, ERRONEOUS AND CON TRARY TO LAW AND FACTS. ITA NO.3933/DEL/2010 2 2. THAT THE LEARNED A.O. HAS ERRED IN LAW AND ON FACT IN DISALLOWING THE REFERRAL FEE PAID TO ASSOCIATES AMOUNTI NG TO RS.1,73,52,922/- AND IN CONCLUDING THAT THE AMOUNT REPRESENTED THE APPELLANTS INCOME DIVERTED TO THE GROUP CONCERNS. HE ERRED IN ALLEGING THAT NO BENEFIT HAS BE EN DERIVED BY THE APPELLANT FROM REFERRAL FEES PAID TO GR OUP COMPANIES AND THAT ACCORDINGLY, THE AMOUNT IS NOT A DEDUCTIBLE EXPENDITURE WHILE COMPUTING THE INCOME TAX PAYABLE BY THE APPELLANT. 3. THAT THE LEARNED A.O. HAS ERRED IN LAW AND ON FACT IN HOLDING THAT UNREALIZED SERVICE TAX HAS TO BE DISALLOWE D AS PER PROVISIONS OF SECTION 43B OF THE ACT. 4. THAT THE LEARNED A.O. HAS ERRED IN LAW AND ON FACT IN TREATING COMPUTER PERIPHERALS AND ACCESSORIES AS NORMA L PLANT AND MACHINERY AND ALLOWING DEPRECIATION AT 15% RATHER THAN DEPRECIATION RATE OF 60% APPLICABLE TO COMPUTER AND COMPUTER SOFTWARE. 5. THAT THE LEARNED A.O. HAS ERRED, IN LAW, AND ON FA CTS IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AGAINST THE APPELLANT. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RENDERING SER VICES IN CONNECTION WITH ACQUISITION, SALES AND LEASE OF REAL EST ATE PROPERTY AND OTHER SERVICES SUCH AS ADVISORY AND RESEARCH, FACILITIES M ANAGEMENT, PROJECT MANAGEMENT, ETC. IN THE REAL ESTATE SECTOR. IT FILED ITS RETURN OF INCOME AT ` 20,46,62,822/- ON 27 TH NOVEMBER, 2006 WHICH HAS BEEN ASSESSED BY THE AFOREMENTIONED ORDER AT AN INCOME OF ` 23,63,43,039/- BY MAKING THE FOLLOWING ADDITIONS:- I) ARMS LENGTH PRICE U/S 92CA (3) 1,06,02,930/- II) REFERRAL FEE PAID TO GROUP ENTITIES 1,73,52,922 /- III) DISALLOWANCE U/S 43B- UNPAID SERVICE TAX 31,8 1,878/- IV) DEPRECIATION ON COMPUTER PERIPHERALS 5,42,48 7/- 3. SO AS IT RELATES TO THE ADDITION MADE ON ACCOUNT O F ARMS LENGTH PRICE U/S 92CA(3), THE ASSESSEE ENTERED INTO THE FOLLOWI NG INTERNATIONAL TRANSACTIONS WITH ITS AE:- ITA NO.3933/DEL/2010 3 TYPE OF TRANSACTION TYPE OF TRANSACTION TYPE OF TRANSACTION TYPE OF TRANSACTION VALUE (IN VALUE (IN VALUE (IN VALUE (IN RS.) RS.) RS.) RS.) VALUE (IN RS.) VALUE (IN RS.) VALUE (IN RS.) VALUE (IN RS.) METHOD USED METHOD USED METHOD USED METHOD USED 1. PAYMENT OF REFERRAL FEES 1,73,26,631 CUP* 2. PROVISION OF DATABASE SERVICES LEASE ABSTRACTION SERVICES 63,38,339 CUP* 3. CONSULTANCY SERVICES 21,68,790 CUP* CUP* A. PROFESSIONAL SERVICES RESEARCH STUDY B. PROFESSIONAL SERVICES VALUATION OF INDUSTRIAL PROPERTY C. PROFESSIONAL SERVICES DESKTOP VALUATION SERVICES 1,344,060 521,488 303,241 CUP* 4. BROKERAGE SERVICES 6,45,662 CUP* 5. REIMBURSEMENT OF EXPENSES TO AES 1,06,39,865 NO BENCHMARKING REQUIRED 6. REIMBURSEMENT OF EXPENSES BY AES 3,96,424 NO BENCHMARKING REQUIRED * CUP COMPARABLE UNCONTROLLED PRICE 4. THE ASSESSEE SUBMITTED TP STUDY, THE COPY OF WHICH IS F ILED AT PAGES 59-129 OF THE PAPER BOOK TO SUPPORT THE TRANSACT IONS ENTERED INTO BY IT WITH ITS ASSOCIATE ENTERPRISES. NOT SATISFIED WITH THE AFOREMENTIONED FINDINGS IN AFOREMENTIONED TP STUDY, T HE ASSESSING OFFICER REFERRED THE ISSUE TO THE TRANSFER PRICING OFF ICER (TPO) WHO HAS SUBMITTED HIS ORDER COPY OF WHICH IS PLACED AT PAGE 13 0-135 OF THE PAPER BOOK. AFTER LISTING OUT THE AFOREMENTIONED SIX INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES, T HE TPO HAS OBSERVED THAT REGARDING TRANSACTIONS AT SERIAL NOS. 1 T O 4, NAMELY; THE TRANSACTIONS OF ` 1,73,26,631/-; ` 63,38,339/-; 21,68 ,790/- AND ` 6,45,662/-, NO ADVERSE INFERENCE IS DRAWN, MEANING THEREBY LD. TPO HAS ACCEPTED THAT THE AFOREMENTIONED FOUR TRANSACTION S ARE AT ARMS LENGTH. SO AS IT RELATES TO THE TRANSACTIONS MENTIONED AT SL.NO.5, HE NOTED THAT THIS CONTAINS TWO AMOUNTS OF REIMBURSEMENTS W HICH HAVE BEEN DESCRIBED AS FOLLOWS IN THE ORDER:- (A) REIMBURSEMENT OF COMPANY SHARE OF SALARY FOR COMMON MANPOWER RESOURCE, PER COST SHARING ARRANGEMENT OF RS.92,25,838/- PAID TO CUSHMAN- HONGKONG. ITA NO.3933/DEL/2010 4 (B) REIMBURSEMENT OF COMPANY SHARE OF SALARY FOR COMMON MANPOWER RESOURCE, PER COST SHARING ARRANGEMENT OF RS.13,77,092 PAID TO CUSHMAN SINGAPORE. 5. THE TPO REQUIRED THE ASSESSEE TO SUBMIT THE NATURE OF SERVICES RECEIVED BY IT FROM ITS ASSOCIATE ENTERPRISES WITH REGAR D TO WHICH SUCH REIMBURSEMENT HAS BEEN MADE. THE REPLY OF THE ASSESSEE H AS BEEN SUMMARIZED BY THE LD. TPO WITH REGARD TO BOTH OF THE ABOVE MENTIONED TRANSACTIONS AS UNDER:- SERVICE RECEIVED FROM CUSHMAN SINGAPORE:- CWS PROVIDES SUPPORT SERVICES TO THE ASSESSEE WHEREBY IT ACTS AS A LIAISON BETWEEN THE ASSESSEE AND ITS CLIENT, R EGIONAL HEADQUARTERS OF IBM. SINCE CWS WOULD LIAISE WITH IBM ON A REGULAR BASIS, IT ASSISTS THE ASSESSEE IN MAINTAINING AND IMPROVING ITS RELATIONSHIP WITH IBM. CWS UNDERTAKES SUCH COORDINATION ACTIVITY WITH IBM ON BEHALF OF CUSHMAN GROUP ENTITIES WITH ASIAN REGION. SERVICES RECEIVED FROM CUSHMAN HONGKONG:- WITHIN THE CUSHMAN WAKEFIELD GROUP, THE ROLE OF CUSHMAN HONGKONG ENTAILS COORDINATING THE ACTIVITIES OF THE VARIOUS CUSHMAN & WAKEFIELD COMPANIES IN THE ASIAN R EGION. IN LINE WITH THE ABOVE, CUSHMAN HONGKONG ACTS AS THE LINK BETWEEN CUSHMAN & WAKEFIELD IN., USA AND THE ASS ESSEE AND OTHER CUSHMAN GROUP ENTITIES WITHIN ASIAN REGION. THE ROLE OF CUSHMAN HONGKONG UNDER THE CURRENT TRANSACTION IS TO ALLOCATE THE COSTS INCURRED BY CUSHMAN US WHILE PROVID ING MARKETING SUPPORT SERVICES, TO CUSHMAN GROUP ENTITIES IN ASIAN REGION ON A REASONABLE BASIS. CWS UNDERTAKES SUCH COORDINATION ACTIVITY WITH IBM ON BEHALF OF CUSHMAN GROUP ENTITIES WITHIN ASIAN REGION. 6. LD. TPO AGAIN ASKED THE ASSESSEE WHETHER THE SERVICES F OR WHICH THE COST HAS BEEN PAID WOULD CONSTITUTE TO BE INTRA GR OUP SERVIES AS ITA NO.3933/DEL/2010 5 PER THE OECD GUIDELINES. IN RESPONSE THERETO, THE ASSESSE ES REPLY WAS AS UNDER:- (A) IN THE CASE OF CUSHMAN SINGAPORE, IT RECEIVES COORDINATION AND LIAISON SERVICES IN RESPECT OF THEIR CLIENT IBM WHICH RESULTS IN GOOD CLIENT RELATIONS AND CONTINUOUS R EVENUE GENERATION FROM IBM. GIVEN THE BENEFIT DERIVED FROM S UCH ACTIVITIES OF CWS, IT WOULD HAVE BEEN WILLING TO PAY AN Y INDEPENDENT ENTERPRISE IN CASE INDEPENDENT SERVICE PRO VIDER LOCATED IN SINGAPORE WOULD HAVE BEEN HIRED. ACCORDI NGLY, THIS WOULD QUALIFY TO BE AN INTRA GROUP SERVICE. (B) IN CASE OF CUSHMAN HONGKONG, THE ASSESSEE HAS STA TED THAT IT MERELY ACTS AS A COLLECTING AGENCY ON BEHALF OF CUSHMAN US WHICH PROVIDES MARKETING RELATED SERVICES FOR CUSH MAN GROUP WITHIN THE ASIAN REGION. IN THIS CASE THE SERVIC E RELATES TO MARKETING ACTIVITIES CARRIED BY CUSHMAN US AND CORRESPONDING REVENUE GENERATED THROUGH SUCH MARKETING EFFORTS. AS SUCH THESE ACTIVITIES HAVE BEEN CONCLUDED TO BE INTRA GROUP SERVICES. 7. ACCORDING TO LD. TPO, THE EXPENSES INCURRED WITH R ESPECT TO INTRA GROUP SERVICES CAN BE ALLOWED ONLY IN THE CIRCUMSTANCE S IN A CASE WHERE THE ACTIVITY PROVIDES A RESPECTIVE GROUP MEMBER WITH THE ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCI AL POSITION AND SUCH FACT CAN BE DETERMINED BY CONSIDERING WHETHER IN DEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY FEE PERFORMED FOR IT BY AN IND EPENDENT ENTERPRISES OR WOULD HAVE PERFORMED THE ACTIVITY IN HOUSE FOR IT SELF. HE OBSERVED THAT IF THE ACTIVITY IS NOT ONE FOR WHICH THE INDEPE NDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY OR PERFORM FOR ITSELF , THE ACTIVITY ORDINARILY SHOULD NOT BE CONSIDERED AS AN INTRA GROUP SERVICE UNDER THE ARMS LENGTH PRICE. THE ASSESSEE WAS REQUIRED TO MENTION THAT WHAT WAS THE ROLE AND SCOPE OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH CUSHMAN & WAKEFIELD, HONGKONG AND SINGAPORE AND WHAT ACTIVITIES ARE PERFORMED AND SHOULD BE ROUTINELY PERF ORMED BY THE ASSESSEE ITSELF. HE OBSERVED THAT AGREEMENT ENTERED BY T HE ASSESSEE WITH THESE TWO ASSOCIATE ENTERPRISES DOES NOT REVEAL THAT THESE ITA NO.3933/DEL/2010 6 ASSOCIATE ENTERPRISES ARE SPECIFICALLY NAMED SERVICE CENT ERS FOR THE ASSESSEE. THE SCOPE OF THE AGREEMENT DOES NOT PROHIBIT T HEM FOR RENDERING SERVICES TO THIRD PARTIES AS WELL. IN SUCH CI RCUMSTANCES, LD. TPO RECORDED A FINDING THAT THE SCOPE OF SERVICES FOR WHICH MANY AGREEMENTS ARE ENTERED INTO ARE INCIDENTAL AND ANCIL LARY SERVICES WHICH IN ANY WAY ARE PERFORMED BY THE ASSESSEE ITSELF. THEREFORE, NO INDEPENDENT ENTERPRISE WOULD BE WILLING TO PAY FOR T HE SERVICES WHICH ARE A PART OF ITS ROUTINE BUSINESS PERFORMED BY IT AND WOULD NOT ENGAGE SUCH AGENCY TO RECEIVE SUCH INCIDENTAL SERVICES FOR A P AYMENT EVEN AT COST. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THESE ASSOCIATE ENTERPRISES ARE NOT DEDICATE SERVICE CENTERS FOR THE A SSESSEE. 8. IT WAS POINTED OUT THAT THE QUESTION OF THESE AE S RENDERING SUCH SERVICES TO THIRD PARTIES DOES NOT ARISE. LD. TPO DID NO T FIND ANY FORCE IN SUCH SUBMISSION AND HAS OBSERVED THAT IT IS NOT DISPUTED THAT ACTIVITIES FOR WHICH THE PAYMENT IS MADE BY THE ASSESSEE ARE NOT PERFORMED BY THE ASSESSEE ITSELF. THEN, LD. TPO REFERRE D TO THE OECD GUIDELINES AND HAS REFERRED TO PARAS 7.4, 7.5 AND 7.6 AND REFERRING TO THESE PARAS HE OBSERVED THAT THE KEY MEASURES IN IDENTIF YING INTRA GROUP SERVICES AND IN APPLYING ARMS LENGTH TEST ARE WH ETHER : (A) THE SERVICE HAVE BEEN PROVIDED IN ORDER TO MEET S PECIFIC NEED OF THE RECIPIENT; (B) ANY BENEFIT HAS ACCRUED TO THE RECIPIENT; (C) INDEPENDENT ENTERPRISE WOULD HAVE UNDER TAKEN THE RELEVANT ACTIVITY INTERNALLY I.E., IN-HOUSE; (D) IN COMPARABLE CIRCUMSTANCES ANY INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY AN INDEPENDENT THIRD PA RTY TO DO SO. 8.1 AFTER REFERRING TO THIS HE HAS ARRIVED AT THE FOL LOWING CONCLUSIONS:- ITA NO.3933/DEL/2010 7 (A) THE AR FOR THE ASSESSEE HAS FILED COPIES OF AGR EEMENTS BETWEEN THE ASSESSEE AND CWS AND BETWEEN ASSESSEE AND CWHK IN SUPPORT OF THE CLAIM THAT CWS AND WHK HAD RENDE RED INTRA GROUP SERVICES WHICH REQUIRED REMUNERATION AT AR MS LENGTH PRICE. (B) IN THIS CASE, THE AR FOR THE ASSESSEE HAS MADE A G ENERAL STATEMENT IN ITS REPLIES DATED 10.08.2009 AND 24.09.2009 THAT CWS HAD USED ONE OF ITS EMPLOYEE TO RENDER LIAISON SE RVICE TO IBM ON BEHALF OF THE ASSESSEE. ACCORDINGLY, CWS HAD CHARGED SERVICES FEE OF RS.13,77,092 IN THE YEAR UNDER CONSI DERATION. HOWEVER, NO DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLA IM WAS FILED. IT IS EVIDENT FROM A NEWS REPORT DATED 08.12.1 993 AS APPEARED IN REAL ESTATE WEEKLY THAT BUSINESS RELATIONS HIP BETWEEN CUSHMAN & WAKEFIELD USA (IN SHORT CWU) AND IB M WAS VERY OLD AND THE PARENT COMPANY HAS BEEN LOOKING AFTER ALL THE REAL ESTATE WORK OF IBM SINCE EARLY NINETIES. THE ASS ESSEE WHO HAS STARTED ITS BUSINESS IN INDIA MUCH LATER MAY HAVE R ECEIVED INCIDENTAL BENEFIT FROM THIS OLD BUSINESS RELATIONSHIP BETWEEN HOLDING COMPANY OF THE ASSESSEE AND IBM. HOWEVER, I T IS EVIDENT FROM OECD TP GUIDELINES IN PARAGRAPH 7.13 THA T INCIDENTAL BENEFITS ARE NOT INTRA COMPANY SERVICES. IN THESE CIRCUMSTANCES LIAISON SERVICES ARE NOT HELD INTRA GROU P SERVICES. (C) IN THE ABOVE REFERRED TO REPLIES THE AR FOR THE ASS ESSEE HAS ALSO MADE A CLAIM THAT PAYMENTS OF RS.92,25,838 WAS MA DE TO CWU THROUGH CWHK FOR INTRA GROUP SERVICES OF MARKET S UPPORT. HOWEVER, EXCEPT FOR MAKING THIS GENERAL STATEMENT NO OTHE R EVIDENCE WAS FILED WHICH MAY ESTABLISH THAT MARKET SUPP ORT SERVICES WERE ACTUALLY PERFORMED EITHER BY CWU OR BY CWHK FOR THE BENEFIT OF THE ASSESSEE. IT IS PERTINENT TO MENTION HE RE THAT ASSESSEE HAS STARTED ITS BUSINESS OPERATION IN INDIA IN THE YEAR 1997 AND NOW IS LARGEST PRIVATELY HELD REAL ESTATE SERV ICE FIRM IN INDIA. IT HAS OFFICES IN NEW DELHI, MUMBAI, CHENNAI , PUNE, HYDERABAD AND KOLKATA AND HAS EMPLOYED MORE THAN 700 TECHNICALLY SKILLED PEOPLE IN INDIA. I HAVE FURTHER NOTED THAT ASSESSEE IS CONDUCTING MARKET RESEARCH ON ITS OWN WITH REGARD TO REAL ESTATES BUSINESS IN VARIOUS CITIES AND THESE MAR KET REPORTS ARE PUBLISHED IN EACH QUARTER OF THE YEAR. IT IS PROVED FROM THESE FACTS THAT THE ASSESSEE IS CARRYING OUT ITS OWN MARKET RESEARCH SPECIFIC TO INDIA WHEREAS THE AR FOR ASSESSE E DID NOT FURNISH ANY EVIDENCE THAT CWU OR WHK HAD ANY INFRASTR UCTURE TO PROVIDE MARKET SUPPORT SERVICES TO THE ASSESSEE IN I NDIA AND THAT THESE AES HAD ACTUALLY RENDERED MARKET SUPPORT SERVI CES TO THE ASSESSEE. IN THESE CIRCUMSTANCES, I AM NOT INCLINED TO AGREE WITH UNSUBSTANTIATED CLAIM OF THE ASSESSEE THAT ITS PARENT A E IN USA HAS CONDUCTED MARKETING SUPPORT SERVICES IN INDIA. (D) IT IS EVIDENT FROM FACTS RECORDED IN ABOVE PARAGRA PH (B) AND (C) THAT THE AR FOR THE ASSESSEE DID NOT FILE ANY EVIDEN CE TO SUPPORT A CLAIM THAT THESE SERVICES WERE ACTUALLY PROVID ED TO THE ITA NO.3933/DEL/2010 8 ASSESSEE AT ITS REQUEST TO MEET THE SPECIFIC NEED OF THE A SSESSEE AND THAT BENEFIT HAD ACTUALLY ACCRUED TO THE ASSESSEE. (E) IT IS MATTER OF RECORD THAT THE ASSESSEE HAS BOTH INFRASTRUCTURE AND A TEAM OF SKILLED MANPOWER OF 700 E MPLOYEES IN INDIA FOR MARKET SUPPORT, RESEARCH AND LIAISON SER VICES, WHEREAS, THE ASSESSEE DID NOT FURNISH ANY EVIDENCE THA T CWS AND CWHK HAD INFRASTRUCTURE AND HAD ACTUALLY RENDERED THESE ALLEGED SERVICES TO THE ASSESSEE IN THE COMPARABLE CIRCUMSTANCES, IN MY VIEW AN INDEPENDENT ENTERPRISE WO ULD NOT HAVE EITHER UNDERTAKEN THESE ACTIVITIES INTERNALLY OR WOU LD NOT HAVE BEEN WILLING TO PAY AN INDEPENDENT THIRD PARTY TO D O SO, SINE NEITHER OF THESE ALTERNATIVES HOLDS TRUE, THE OED G UIDELINES AS MENTIONED ABOVE, TAKE THE VIEW THAT THE ACTIVITY SHOULD NOT BE REGARDED AS AN INTRA-GROUP SERVICE. (F) I AGREE WITH A VIEW THAT IT IS NOT IMPOSSIBLE HOWEVE R, FOR A GROUP MEMBER TO BENEFIT INCIDENTALLY FORM SERVICES BEI NG PROVIDED TO ONE OR MORE FELLOW AFFILIATES. FOR EXAMPL E IN THIS CASE, THE ASSESSEE MIGHT BE BENEFITED FROM SERVICES RE NDERED BY CWU AND CWS TO IBM. HOWEVER, SUCH INCIDENTAL BENE FITS ARE NOT REGARDED AS GIVING RISE TO ARRANGEMENT SUBJECT TO AR MS LENGTH PRICING AS STIPULATED IN OECD TP GUIDELINES PAR AGRAPH 7.13 UNDER CHAPTER VII. THESE FINDINGS LEAD TO AN IR RESISTIBLE CONCLUSION THAT PAYMENTS FOR LIAISON SERVICES AND MANA GEMENT SUPPORT SERVICES ALLEGEDLY PROVIDED BY THE AES ARE N OT AT ARMS LENGTH PRICE. (G) I HAVE NOTED FROM DETAILS CONTAINED IN THE TRANSFER PRIC ING REPORT OF THE ASSESSEE SUBMITTED UNDER RULE 10D THAT THE ASSESSEE HAD NOT CONDUCTED FAR ANALYSIS IN REGARDS TO THESE ALLEGED SERVICES AND HAD FAILED TO JUSTIFY THE FUNCTION S PERFORMED BY THE AE FOR THESE PAYMENT. THIS IS PROBABLY A REASO N THAT THE RECEIPT OF ALLEGED SERVICES HAVE NOT BEEN BENCHMARKED UNDER ANY OF THE FIVE METHOD PRESCRIBED UNDER THE ACT IN THE T RANSFER PRICING REPORT. 9. IT IS IN THIS MANNER, LD. TPO HAS WORKED OUT THE AD JUSTMENT OF ` 1,06,02,930/- WHICH HAS BEEN ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER IN THE APPROVED ORDER HAS MADE THE AFOREMENTIONED ADDITION AGAINST WHICH THE ASSESSEE HAD F ILED OBJECTIONS TO THE DRP. 10. THE ASSESSEE HAS FILED DETAILED SUBMISSIONS BEFORE THE D RP AND COPY OF THESE SUBMISSIONS HAVE BEEN FILED ALONG WITH THE APPEAL AT PAGES 20-69 IN THE SHAPE OF ANNEXURE II. THIS ISSUE HAS B EEN DISCUSSED ITA NO.3933/DEL/2010 9 AT PAGES 20-43 OF THE SAID SUBMISSION. IN SUM AND SUBSTANC E FOR DESCRIBING THE NEED OF COST ALLOCATION BETWEEN THE ASSE SSEE AND ITS ASSOCIATE ENTERPRISES OF HONG KONG AND SINGAPORE, IT WA S SUBMITTED THAT ACCORDING TO THE COMMERCIAL NEEDS TO APPOINT A PROPER AND DEDICATED PERSON IN THE US TO GENERATE BUSINESS FOR CUSH MAN ENTITIES THE SERVICES WERE AVAILED FROM HONG KONG ASSOCIATE ENTE RPRISES. MAINTAINING SEPARATE OFFICE FOR EACH OF CUSHMAN ENTIT IES IN ASIAN REGION WOULD HAVE MEANT SIGNIFICANT OVERHEAD COST WHI CH INTER ALIA INCLUDE MAINTAINING A SEPARATE OFFICE, SEPARATE INFRA STRUCTURE, ETC., THEREFORE, CUSHMAN ASIAN ENTITIES JOINTLY REQUESTED CWU S TO HIRE A DEDICATED RESOURCE AND PROVIDE NECESSARY RESOURCES TO ID ENTIFY PERSON WHO WILL BE ABLE TO GENERATE BUSINESS FOR CUSHMAN ENTIT IES IN THE ASIAN REGION AND AS THE PERSON SHOULD HAVE EXPERIENCE OF WOR KING IN ASIAN MARKET. THEREFORE, THESE ENTITIES JOINTLY APPOINTED A PERSON WHO WAS HIRED BY CWUS FOR RENDERING THE SERVICES. 11. FOR AVAILING THE SERVICES FROM ITS SINGAPORE ASSOCIA TE ENTERPRISES (CWS), IT WAS DESCRIBED THAT IBM IS THE MAJOR CLIENT F OR CUSHMAN GROUP WORLDWIDE AND ESPECIALLY FOR ENTITIES WORKING IN ASIAN REGION. DUE TO LACK OF REGIONAL HEADQUARTERS, IBM IN SINGAPORE AND THE PERSONS OF CUSHMAN IN SINGAPORE IS LIAISONING BETWEEN THE TWO WIL L PROVE MORE EFFICIENT AS OPPOSED TO THE ASSESSEE CARRYING OUT FROM I NDIA AND, THUS, IT WAS A VERY COST EFFECTIVE ARRANGEMENT TO IMPROVE C LIENT RELATIONSHIP AND WHICH IS VISIBLE FROM THE REVENUE GENERATED ON TH IS ACCOUNT. DESCRIBING THE SCOPE OF SERVICES UNDER AGREEMENT WITH H ONG KONG ENTITY, REFERENCE WAS MADE TO THE AGREEMENT ACCORDIN G TO WHICH HONG KONG ENTITY WAS TO COORDINATE THE ACTIVITIES OF VARIO US ASSOCIATE ENTERPRISES IN THE ASIAN REGION AND IT ALSO WORKED AS A LINK BETWEEN CWUS AND THE ASSESSEE AND OTHER ASSOCIATE ENTERPRISES IN TH E ASIAN REGION AND THIS IS ONLY BEARING THE COST INCURRED BY C WS WHILE PROVIDING MARKETING SUPPORT SERVICES TO CUSHMAN ENTITIE S. REFERENCE ITA NO.3933/DEL/2010 10 WAS MADE TO AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THOSE TWO PARTIES AND DESCRIBING THE BASIS OF COST ALLOCATION, IT WAS SUBMITTED THAT CWHK OUT OF TOTAL COST INCURRED FOR CLIENT SOLUT ION GROUP, HAS ALLOCATED 75% OF THE COST TO ASIAN ENTITIES ON THE BASI S OF REVENUE GENERATED BY THE CONCERNED EMPLOYEES FOR THE RESPECTI VE ENTITIES IN ASIA AND REMAINING 25% COST WAS ALLOCATED ON THE BASIS O F NET REVENUE FOR EACH OF CUSHMAN ENTITY AND REFERENCE WAS MADE TO THE DETAILS FILED FOR THIS PURPOSE. FOR THE SERVICES AVAILED FROM SINGAP ORE ENTITY (CWS), IT WAS SUBMITTED THAT COST IS SHARED BETWEEN THE ASSESSEE AN D ITS GROUP COMPANIES ON THE BASIS OF TIME SPENT BY EMPLOYEES BY UNDERTAKING LIAISONING AND COORDINATING ACTIVITIES IN RELATION TO IBM ACCOUNT. SINCE THE REVENUE OF THE ASSESSEE FROM IBM WA S APPROXIMATELY 83% OF THE TOTAL REVENUE GENERATED FR OM ASIAN REGION, 75% OF THE TOTAL COST WAS ALLOCATED TO THE ASSESSEE. REL ATING THE SERVICES RENDERED TO THE REVENUE EARNED, IT WAS SUBMITT ED THAT WITH THE HELP OF CWHK THE ASSESSEE IS ABLE TO GENERATE BUSINESS WORTH $ 30,37,398/- AS AGAINST COST OF $ 2,03,932/-. SIMILARL Y, FROM THE SERVICES RENDERED BY SINGAPORE ENTERPRISES THE ASSESSEE HAS EARNED REVENUE OF ` 47,69,488/- AGAINST PAYMENT MADE OF ` 13,77,092/-. MEETING THE OBJECTIONS RAISED BY THE TPO, IT WAS SUBMITTED THAT ACC ORDING TO OECD GUIDELINES A SERVICE RENDERED BY A MEMBER OF A GROUP COMPANY TO A FELLOW MEMBER CONSTITUTE AN INTRA GROUP SERVICE IF PR OVIDED MEANING OR EXEMPTION, VALUE AND THE RECIPIENT OF THE SERVICES WI LL PAY FOR SUCH SERVICES, IF PERFORMED BY INDEPENDENT ENTERPRISES AND I N THE LIGHT OF THAT PRINCIPLE IF THE TRANSACTIONS OF THE ASSESSEE WITH C WHK AND CWS ARE EXAMINED, THE COST INCURRED BY THE ASSESSEE WILL BE ALLOWABLE. IT WAS ALSO SUBMITTED THAT THE TPO WHILE COMPUTING THE AR MS LENGTH PRICE HAS NOT PROPERLY APPRECIATED THE VARIOUS SUBMISSIO NS MADE BEFORE HIM. IT WAS ALSO SUBMITTED THAT THE TPO HAS WRO NGLY HIGHLIGHTED THE LACK OF DOCUMENTARY EVIDENCE FURNISH ED BY THE ASSESSEE IN RELATION TO COST ALLOCATED. IT WAS SUBMITTED THAT ACCORDING ITA NO.3933/DEL/2010 11 TO THE BUSINESS NEEDS OF THE ASSESSEE, THESE SERVICES WERE REQ UIRED TO BE OBTAINED. THE ASSESSEE HAS DERIVED BENEFIT OUT OF TH OSE SERVICES. IF THE SIMILAR SERVICES WERE NOT AVAILED FROM THE ASSOCI ATE ENTERPRISES, THE SERVICES FROM INDEPENDENT ENTERPRISES WOULD HAVE BE EN UNDERTAKEN. IN COMPARABLE CIRCUMSTANCES ANY INDEPEND ENT ENTERPRISES WOULD HAVE BEEN WILLING TO PAY TO AN INDE PENDENT THIRD PARTY TO DO SO. THUS, IT WAS SUBMITTED THAT THE ADJUSTM ENT HAS WRONGLY BEEN MADE BY THE TPO WHICH SHOULD BE DELETED. 12. LD. DRP HAS OBSERVED THAT THE GROUND WAS HEARD AT LENGTH, THE PAPER BOOK FILED BY THE ASSESSEE WAS PERUSED. NO FURTHER DOCUMENTARY EVIDENCE WAS FURNISHED BY THE ASSESSEE IN RESPECT OF COST A LLOCATIONS. THE RELIANCE BY THE ASSESSEE TO VARIOUS CASE LAWS IS MISPLAC ED. THE OBSERVATIONS OF THE TPO THAT THE SERVICES AVAILED BY TH E ASSESSEE ARE NOT INTRA GROUP SERVICES AND, HENCE, NO REMUNERATION SHOULD HAVE BEEN PAID BY THE ASSESSEE TO ITS AES IS CORRECT AND, THE REFORE, NO DIRECTIONS ARE BEING ISSUED. AGAINST SUCH OBSERVATIONS OF LD. DRP, THE ASSESSEE IS AGGRIEVED, HENCE, HAS FILED GROUND NO.1. 13. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY THE LEARNED AR THAT THE OBSERVATIONS OF TPO IS WRONG IN OBSERVING THAT THE SERVICES RENDERED BY ITS ASSOCIATE ENTERPRISES WERE BEING PERFORM ED IN-HOUSE. HE SUBMITTED THAT OUTSOURCED MARKETING SERVICES IS QUITE COMMON AND EVEN IF THE ASSESSEE HAS DEPLOYED ITS EMPLOYEES TO DO THE WORK DONE BY ITS ASSOCIATE ENTERPRISES THEN THE SAID EXERCISE WOULD HAVE RESULTED IN SIMILAR COST WITH TAX OUT FLOW IN FOREIGN JURISDICT ION. THERE IS NO DUPLICATE ACTIVITIES AS CONTENDED BY THE TPO. HE SUBM ITTED THAT INTRA GROUP SERVICES AS PER OECD PARA 7.13 ARE DEFINED AS THA T IT WAS RECEIVED ON SPECIFIC REQUEST OF THE ASSESSEE, APPROVED BY THE TOP MANAGEMENT WHOSE REMUNERATION IS LINKED TO THE NET PR OFITABILITY OF THE COMPANY AND PARA 7.13 STATES THAT ACTIVE ASSOCIATIO N SHOULD BE DISTINCT WITH PASSIVE ASSOCIATION. ITA NO.3933/DEL/2010 12 14. REFERENCE WAS MADE TO THE DECISION OF ITAT, MUMBA I IN THE CASE OF DRESSER-RAND INDIA (P) LTD. VS. ADDL. CIT 47 SOT 42 3 (MUM) TO CONTEND THAT HOW AN ASSESSEE CONDUCT ITS BUSINESS IS UNDOUBT EDLY IS THE PREROGATIVE OF THE BUSINESSMEN AND IT IS NOT FOR TH E REVENUE AUTHORITY TO DECIDE THAT WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT IS NOT. AN ASSESSEE MAY HAVE NUMBER OF QUALIFIED ACCOUNTA NTS AND MANAGEMENT EXPERTS ON ITS ROLLS AND YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGEMENT CONSULTANCY AND IT WILL NOT BE WITHIN THE DOMAIN OF THE REVENUE TO QUESTION THE ASSESSEES WISDOM IN DOING SO. THEREFORE, IT WAS HELD THAT TPO WAS NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING C OMMERCIAL WISDOM OF THE ASSESSEES DECISION TO TAKE BENEFIT OF EXPER TISE OF DRESSER RAND, US BUT ALSO TRAVEL BEYOND THE POWERS OF T HE ASSESSING OFFICER AND SUCH APPROACH OF THE REVENUE AUTHORITIES CANNOT BE APPROVED. WHILE EVALUATING THE ARMS LENGTH PRICE O F THE SERVICES, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FRO M IT OR NOT AND THE REAL QUESTION WHICH IS TO BE DETERMINED IS WHETHER THE PRICE OF THE SERVICE IS WHAT AN INDEPENDENT ENTERPRISES WOULD HAVE P AID FOR THE SAME. 15. HE SUBMITTED THAT TO SUPPORT THE SERVICES RENDERED, THE ASSESSEE HAS FILED AMPLE EVIDENCE AND BASIS OF ALLOCATION OF CO ST, ETC., WHICH HAS BEEN IGNORED. HE SUBMITTED THAT IF THE SIMILAR SERVIC ES HAVE BEEN OBTAINED BY THE ASSESSEE FROM OUTSIDE PARTIES, THE SAME WO ULD HAVE BEEN COSTED MORE TO THE ASSESSEE. IN THE SIMILAR MANNER, IF THE SERVICES ARE AVAILED BY THE ASSESSEE FROM ITS OWN EMPLOYEE S, THEN ALSO IT WOULD HAVE BEEN COSTLIER THAN THE COST REIMBURSED B Y THE ASSESSEE TO THESE ASSOCIATE ENTERPRISES. THE LEARNED AR ALSO REFE RRED TO THE EVIDENCE WHICH HAS BEEN DISCUSSED IN DETAIL IN THE AFOR EMENTIONED PART OF THIS ORDER AND CONTENDED THAT THE PAYMENTS MA DE BY THE ASSESSEE ARE ONLY REIMBURSEMENT OF COST INCURRED BY THOSE ASSOCIATE ITA NO.3933/DEL/2010 13 ENTERPRISES IN RELATION TO THE REVENUE GENERATED BY T HE ASSESSEE AND THERE BEING NO ELEMENT OF PROFIT IN THE SAID COST, TH E SAME IS ELIGIBLE FOR DEDUCTION AS EXPENDITURE INCURRED BY THE ASSESSEE WH OLLY AND EXCLUSIVELY EARNED FOR BUSINESS. THEREFORE, HE PLEADED THAT THE DISALLOWANCE HAS WRONGLY BEEN SUSTAINED BY LD. DRP. 16. ON THE OTHER HAND, IT WAS SUBMITTED BY THE LEARNE D DR THAT THERE ARE TWO ISSUES IN THE ANALYSIS OF THE TRANSFER PRICING OF INTRA GROUP SERVICES. ONE ISSUE IS WHETHER INTRA GROUP SERVICES HAVE IN FACT BEEN PROVIDED. THE OTHER ISSUE IS WHAT IS CHARGED BY THE IN TRA GROUP FOR SUCH SERVICES FOR TAX PURPOSES SHOULD BE IN ACCORDANCE WI TH THE ARMS LENGTH PRICE. RELYING UPON THE ORDER OF TPO, IT WA S SUBMITTED BY THE LEARNED DR THAT THE PAYMENT MADE BY THE ASSESSEE TO MR . ROYDEN AND MR. ARSHPREET CHOUDHARY IS NOT JUSTIFIED AS THEY WE RE WORKING FOR THE GROUP COMPANIES AND WERE NEITHER EMPLOYED BY THE ASSESSEE COMPANY NOR THEY WORKED FOR IT. HE SUBMITTED THAT T HERE IS NO EVIDENCE OF INTRA GROUP SERVICES FOR THESE PERSONS AND I N THE ABSENCE OF ANY SUCH EVIDENCE, EVEN AT THE STAGE OF THE TRIBUN AL, THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. FOR THIS PURPOSE, HE HA S RELIED UPON THE FINDINGS RECORDED BY THE TPO AS WELL AS THE DRP. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. FIRST WE TAKE UP THE CLAIM OF THE ASSESSEE REGARDING THE PAYMENT MADE TO CWS. THE SAID PA YMENT IS CLAIMED BY THE ASSESSEE ON THE GROUND THAT CWS HAD USED ONE OF ITS EMPLOYEES TO RENDER LIAISON SERVICES TO IBM ON BEHALF O F THE ASSESSEE. IT IS THE CASE OF THE TPO THAT THE ASSESSEE DID NOT SUBMIT DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAIM. LD. TPO ALSO REFER RED TO THE NEWS REPORT DATED 8 TH DECEMBER, 1993 AS APPEARED IN REAL ESTATE WEEKLY THAT BUSINESS RELATIONSHIP BETWEEN CUSHMAN & WAKEFIELD U SA (CWUS) AND IBM ARE VERY OLD AND PARENT COMPANY HAS BEEN LOO KING AFTER AS THE REAL ESTATE WORK OF IBM SINCE EARLY 1990S. THEREF ORE, LD. TPO HAS ITA NO.3933/DEL/2010 14 OBSERVED THAT LOOKING INTO THIS FACT, THE ASSESSEE WHO HA S STARTED THE BUSINESS IN INDIA HAD LATER MAY HAVE RECEIVED INCIDENT AL BENEFIT FROM SUCH OLD BUSINESS RELATIONSHIP BETWEEN THE HOLDING COMPA NY OF THE ASSESSEE AND IBM. ANOTHER REASON FOR REJECTION OF THE C LAIM OF THE ASSESSEE BY THE TPO IS PARA 7.13 OF OECD COMMENTARY ACCO RDING TO WHICH THE INCIDENTAL BENEFITS ARE NOT INTRA COMPANY SERVICES AND, THUS, HE HAS HELD THAT LIAISON SERVICES ARE NOT INTRA GROUP SE RVICES. COPY OF AGREEMENT BETWEEN THE ASSESSEE AND CWS HAS BEEN FILED AT PAGES 185-186 OF THE PAPER BOOK. ACCORDING TO THE AGREEM ENT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RENDERING SERVICES IN CONNE CTION WITH THE ACQUISITION, SALES AND LEASE OF REAL ESTATE PROPERTY AND OTHER SERVICES SUCH AS ADVISORY AND RESEARCH, FACILITY MANAGEMENT, PRO JECT MANAGEMENT, ETC. IN THE REAL ESTATE SECTOR. ACCORDIN G TO THE RECITAL CLAUSE, CWS, AT THE COST OF ASSESSEE, HAD AGREED TO UNDER TAKE LIAISONING AND SUPPORT ACTIVITIES IN RELATION TO ONE O F THE ASSESSEES CLIENTS, VIZ., IBM REGIONAL HEADQUARTERS. CWS SHALL ASSI ST THE ASSESSEE IN MAINTAINING RELATIONSHIP WITH IBM REGIONAL HEADQU ARTERS LOCATED AT SINGAPORE WHEREBY THE CWS WOULD LIAISE WITH IBM REGI ONAL HEADQUARTERS ON ROUTINE BASIS. THE AGREEMENT HAD TO C OMMENCE ON 1 ST JANUARY, 2006 AND CONSIDERATION HAS BEEN PROVIDED IN CLAUSE 2.1 WHICH DESCRIBE AS UNDER:- 2.1 IN CONSIDERATION OF SERVICES PROVIDED OR TO BE P ROVIDED BY C&W SINGAPORE TO C&W INDIA HEREUNDER, C&W INDIA SHAL L PAY TO C&W SINGAPORE SUCH COSTS (INCLUDING SALARY AND OTHER ATTRIBUTABLE COSTS FOR CONCERNED EMPLOYEES) AS MAY BE A LLOCATED BY C&W SINGAPORE TO C&W INDIA ON A REASONABLE BASIS TAKING INTO ACCOUNT THE ACTIVITIES ACTUALLY PERFORMED BY C&W SIN GAPORE AND THE BENEFITS DERIVED BY C&W INDIA THEREFROM. ANY FEE FROM TIME TO TIME AGREED TO BE PAID PURSUANT TO THIS PARAGRAPH SHALL BE PAID BY C&W INDIA IN SUCH INSTALL MENTS AND AT SUCH TIME OR TIMES AS THE PARTIES MAY AGREE. 18. IN PURSUANCE OF AFOREMENTIONED AGREEMENT, VIDE T AX INVOICE (COPY OF WHICH IS PLACED AT PAGE 191 OF THE PAPER BO OK), CWS HAS ITA NO.3933/DEL/2010 15 RAISED AN AMOUNT OF 74,330 SINGAPORE DOLLARS BEING R EIMBURSEMENT OF 75% OF MR. ROYDENS COST INCURRED FROM JANUARY TO JUNE, 2006 IN SINGAPORE OFFICE. THE AFORESAID AMOUNT HAS BEEN CAL CULATED IN A SEPARATE SHEET, THE COPY OF WHICH IS FILED AT PAGE 192 OF THE PAPER BOOK. A DETAILED COST HAS BEEN WORKED OUT AT 99,107 SINGAPORE DOLLARS, 75% THEREOF COME TO 74,330 SINGAPORE DOLLA RS. TO SUPPORT THAT MR. ROYDEN BRAGANZA HAS ACTUALLY RENDERED THE SE RVICES, THE ASSESSEE HAS ALSO ENCLOSED COPIES OF E-MAILS SENT BY MR. ROYD EN BRAGANZA RELATING TO THE PERIOD UNDER CONSIDERATION. THE COPIES OF SEVERAL E-MAILS ARE PLACED AT PAGES 318 ONWARDS IN WHIC H REFERENCE HAS BEEN MADE TO THE SERVICES OBTAINED BY IBM. THEREF ORE, IT CANNOT BE SAID THAT THERE IS COMPLETE ABSENCE OF EVIDENCE SUBM ITTED BY THE ASSESSEE IN RESPECT OF SERVICES OBTAINED BY IT FROM THE SAI D MR. ROYDEN BRAGANZA IN RESPECT OF THE REVENUE EARNED BY THE ASSESSE E. THEREFORE, THE OBSERVATIONS OF THE TPO THAT THERE IS N O DOCUMENTARY EVIDENCE FURNISHED BY THE ASSESSEE IS CONTRARY TO RECORD. LD. TPO HAS MAINLY DENIED THE BENEFIT TO THE ASSESSEE ON THE GROUND THAT THERE WAS NO NEED BY THE ASSESSEE TO MAKE SUCH PAYMENT AS THE ASSE SSEE WHEN STARTED ITS BUSINESS IN INDIA MAY HAVE RECEIVED INC IDENTAL BENEFIT FROM OLD BUSINESS RELATIONSHIP BETWEEN THE HOLDING COMP ANY OF THE ASSESSEE AND IBM. IN OUR OPINION, SUCH OBSERVATIONS OF LD . TPO ARE NOT CORRECT. THE ASSESSEE HAS BEEN SHOWN TO HAVE EARNED SUBSTA NTIAL REVENUES FROM IBM AND THAT CANNOT BE THE RESULT OF ON LY INCIDENTAL BENEFIT RECEIVED BY THE ASSESSEE FROM OLD BUSINESS RELATIO NSHIP BETWEEN THE HOLDING COMPANY OF THE ASSESSEE AND IBM. I F ONE WANTS TO OBTAIN REVENUE UPON DEALING IN REAL ESTATE, CERTA IN WORK HAS TO BE DONE. ALL THE PRIMARY FACTS WERE SUBMITTED TO THE ASSE SSING OFFICER AS WELL AS THE TPO. THE NAMES OF THE PARTIES WERE MENTIO NED. WITHOUT EXAMINING ANY OF SUCH DETAILS, IT CANNOT BE SAID THAT THE REVENUE EARNED BY THE ASSESSEE WAS ONLY ON ACCOUNT OF INCIDENTA L BENEFIT. THERE IS A FORCE IN THE CLAIM OF THE ASSESSEE THAT TO EN ABLE IT TO EARN ITA NO.3933/DEL/2010 16 THE REVENUE FROM IBM, IT WAS NECESSARY TO PROVIDE THE SERVICES TO IBM OUTSIDE INDIA. IF SUCH SERVICES ARE PROVIDED BY THE EM PLOYEES OF THE ASSESSEE COMPANY, THEN, IT HAS TO INCUR THE COST OF ITS EM PLOYEE WHO HAS TO TRAVEL TO THE DESTINATION AND THAT WOULD RESULT IN EXTRA EXPENDITURE. SIMILARLY, IF THOSE SERVICES ARE OUTSOURC ED TO THE INDEPENDENT PARTY, THEN ALSO THERE WOULD BE SOME ELEM ENT OF PROFIT TO BE CHARGED BY THE SAID INDEPENDENT PARTY. AS AGAINST BOTH THESE SITUATIONS, WHAT COST HAS BEEN INCURRED BY THE ASSESSEE IS O NLY REIMBURSEMENT OF THE EXPENSES OF AN EMPLOYEE WHO IS SITT ING IN SINGAPORE WHICH IS COST EFFECTIVE. 19. NOW, CONSIDERING THE PAYMENT MADE BY THE ASSESSEE FO R THE SIMILAR SERVICES OBTAINED BY IT FROM CUSHMAN HONG KONG (CWHK), COPY OF AGREEMENT HAS BEEN FILED AT PAGES 182-184 OF THE P APER BOOK. THE BUSINESS OF THE ASSESSEE HAS BEEN STATED TO BE SIMILAR AS MENT IONED IN THE AGREEMENT OF THE ASSESSEE WITH CWS. CWHK IS STATED T O BE COORDINATING ENTITY FOR CW ENTITIES IN ASIA REGION AN D IS STATED TO BE RESPONSIBLE FOR COORDINATING THE ACTIVITIES OF CLIENT SOLUTION GROUP OF CUSHMAN & WAKEFIELD INC. (CWS LOCATED IN THE US FOR ASIAN REGION). THE ROLE OF CLIENT SOLUTION GROUP IN THE AGREEMENT HAS BEEN DESCRIBED AS SUNDER:- THE GROUP WILL BE RESPONSIBLE FOR UNDERTAKING FOLLO WING ACTIVITIES ON BEHALF OF C&W INDIA:- (A) TO LIAISE AND COORDINATE WITH OFFICES OF CLIENTS OF C&W INDIA: (B) TO DEVELOP FROM TIME TO TIME A MARKETING PLAN IN RES PECT OF POTENTIAL CLIENTS, WITH LIKELY REVENUE POTENTIAL FOR C&W INDIA (C) TO IDENTIFY POTENTIAL OPPORTUNITIES TO PROVIDE ADDITION AL SERVICES TO EXISTING CLIENTS AND OBTAIN INSTRUCTIONS THERE OF; AND (D) TO ASSIST C&W INDIA IN SETTING OUT BUSINESS BROCHURE S, FINANCIAL PLANNING AND STRATEGY IN RESPECT OF CORPORATE SERVICES GENERALLY FOR THE INDIA REGION. ITA NO.3933/DEL/2010 17 20. ACCORDING TO CLAUSE (2), THE AGREEMENT WAS TO COM MENCE ON 1 ST JANUARY, 2005 UNTIL TERMINATED BY NOT LESS THAN SIX MO NTHS PRIOR WRITTEN NOTICE BY EITHER PARTY. 20.1 THE PAYMENT IS DESCRIBED IN CLAUSE (3) WHICH STATE AS UNDER:- 3. PAYMENT 3.1 IN CONSIDERATION OF ACTIVITIES OF CLIENT SOLUTIONS G ROUP, C&W WOULD RECHARGE THE ACTUAL COSTS TO C&W HK (INCLUDIN G SALARY AND OTHER ATTRIBUTABLE COSTS FOR CONCERNED EMPLOY EES). AS PART OF ITS SHARE OF TOTAL COSTS, C&W INDIA SHALL PAY TO C&W HK SUCH COSTS AS MAY BE ALLOCATED BY C&W HK TO C&W IND IA ON A REASONABLE BASIS TAKING INTO ACCOUNT THE SERVICES ACTU ALLY PERFORMED BY CLIENT SOLUTION GROUP AND THE BENEFITS DER IVED BY C&W INDIA THEREFROM. ANY FEE FROM TIME TO TIME AGREED TO BE PAID PURSUANT TO TH IS PARAGRAPH SHALL BE PAID BY C&W INDIA IN SUCH INSTALL MENTS AND AT SUCH TIME OR TIMES AS THE PARTIES MAY AGREE. FURTHER, FOR THE ABOVE PURPOSE, &W HK SHALL AT ONLY AS AN INTERMEDIATE AGENT AND SHALL NOT BE ALLOWED ANY PROFIT/MARK UP OVER THE C OSTS CHARGED BY C&W US. 21. BASED ON THE AFOREMENTIONED AGREEMENT CWHK HAS RA ISED AN INVOICE OF $ 2,03,931 COPY OF WHICH IS PLACED AT PAG E 187 OF THE PAPER BOOK. THE DETAILS AS PER WHICH THE AFOREMENTIONED AM OUNT IS CHARGED IS FOUND AT PAGES 189-190 OF THE PAPER BOOK. THE CHA RT WHICH IS REPRODUCED AT PAGE 189 IS THE BASIS OF ALLOCATION OF T HE COST TO VARIOUS ENTITIES AND IT WILL BE RELEVANT TO REPRODUCE THE SAM E. NY REVENUE ESTIMATE NY REVENUE ESTIMATE NY REVENUE ESTIMATE NY REVENUE ESTIMATE C&W ASIA REVENUE C&W ASIA REVENUE C&W ASIA REVENUE C&W ASIA REVENUE ESTIMATE ESTIMATE ESTIMATE ESTIMATE ALLOCATION ALLOCATION ALLOCATION ALLOCATION COUNTRY NET FEE TO LOCAL OFFICE (US $) % ALLOCATION ASIA REVENUE US $ % ALLOCATION 75% NY REVENUE ALLOCATION 25% GROSS REVENUE ALLOCATION TOTAL ALLOCATION US $ BP % ALLOCATION BP TOTAL ALLOCATION US $ INDIA 3,037,398 82.44% 11,220,932 42.7% 173,900 30,031 203,931 72.5% 150,360 CHINA 369,000 10.01% 5,859,619 22.3% 21,126 15,682 36,809 13.1% 146,243 HONG KONG 120,065 3.26% 4,292,851 16.3% 6,874 11,489 18,363 6 .5% 124,770 KOREA 24,252 0.66% 3,244,992 12.4% 1,389 8,685 10,0 73 3.6% 47,784 SINGAPORE 133,782 3,63% 1,655,239 6.3% 7,659 4,430 12,089 4.3 % 47,926 C&W ASIA 3,684,497 100.0% 26,273,633 100.0% 210,949 70,316 281,265 100.0% 517,083 NET COST OF NY CS GROUP 281,265 ====================== ITA NO.3933/DEL/2010 18 22. MONTH-WISE ALLOCATION OF COST IS ALSO DETAILED IN T HE CHART PLACED AT PAGE 190 OF THE PAPER BOOK ACCORDING TO WHICH TH E TOTAL COST ALLOCATED TO THE ASIAN ENTITIES IS AT $ 2,81,265. 23. IT CAN BE SEEN FROM THE ABOVE CHART THAT THE MAI N REVENUE EARNED IS BY THE ASSESSEE ONLY WHICH IS 82.44% OF THE TOT AL REVENUE AND RE-IMBURSEMENT OF COST IS ONLY TO THE EXTENT OF $ 2,81,265/- OUT OF WHICH COST ALLOCATED TO THE ASSESSEE IS $ 2,03,931. THE REVENUE RELATABLE TO SUCH COST ALLOCATION IS $ 3,037,398. EV IDENCE IN THE SHAPE OF VARIOUS E-MAILS SENT BY MR. ARSHPREET CHOUDHARY TO T HE ASSESSEE COMPANY WITH REGARD TO VARIOUS CLIENTS FROM WHOM THE ASSESSEE HAS EARNED INCOME ARE PLACED AT PAGES 193 ONWARDS. THESE E-MAILS WERE PRODUCED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, TPO AND DRP. THUS, IT CANNOT BE SAID THAT THERE IS ABSENCE OF EVIDEN CE SUBMITTED BY THE ASSESSEE AND IT WILL BE INCORRECT TO SAY THAT THE ASSE SSEE DID NOT FURNISH EVIDENCE TO SUPPORT ITS CONTENTION THAT IT HAS REIMBURSED THE COST IN RESPECT OF REVENUES EARNED BY IT ON ACCOUNT OF SERVICES RENDERED BY CWHK. ALL THE DETAILS HAVE BEEN FURNISHE D ON RECORD. THE REASONS GIVEN FOR UPHOLDING THE ADJUSTMENT TO ARMS LEN GTH PRICE ARE SAME AS HAVE BEEN GIVEN IN RESPECT OF CWS. THOSE REASON S ARE ALREADY DISCUSSED FOR THE ADJUDICATION OF REIMBURSEMENT TO CWS AND ADOPTING SAME CRITERIA, WE FIND NO JUSTIFICATION IN T HE ADJUSTMENT OF ` 92,25,838/- TO THE TP ADJUSTMENT IN RESPECT OF PAYMEN TS MADE BY THE ASSESSEE TO CWHK. 24. IN VIEW OF THE ABOVE DISCUSSION, WE DELETE THE TP ADJUSTMENT OF ` 1,06,39,865/- AND GROUND NO.1 OF THE ASSESSEE IS ALLOWED . 25. COMING TO GROUND NO.2, THIS ISSUE HAS BEEN DISCUSSED B Y THE ASSESSING OFFICER IN PARA 4 OF THE ASSESSMENT ORDER. IT WI LL BE PERTINENT TO MENTION HERE THAT THE REFERRAL FEE OF ` 1,73,52, 922/- WAS ALSO SUBJECT ITA NO.3933/DEL/2010 19 MATTER OF REFERENCE MADE BY THE ASSESSING OFFICER TO TP O AS IT WAS THE TRANSACTION OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES, T HE ARMS LENGTH PRICE OF WHICH WAS REQUIRED TO BE DETERMINED BY THE ASSESSING OFFICER FROM TPO. THE TPO IN ITS ORDER HAS ALSO MENTI ONED THIS TRANSACTION AT SL.NO.1 AT PAGE 1 OF HIS ORDER. OVERA LL SIX TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES WERE INTERNATION AL TRANSACTIONS THE DETAILS OF WHICH HAS ALREADY BEEN GIV EN IN PARA 3 OF THIS ORDER. IT HAS BEEN CLEARLY WRITTEN BY THE TPO W HILE ANALYZING THE TRANSFER PRICING APPROACH OF THE ASSESSEE THAT WITH REGA RD TO TRANSACTION NO.1-4 NO ADVERSE INFERENCE IS DRAWN. THE REFORE, THE TPO HAS CONSIDERED THIS TRANSACTION OF THE ASSESSEE WITH ITS ASSOC IATE ENTERPRISE AT ARMS LENGTH AND HE HAS SUGGESTED NO ADDIT ION WHATSOEVER WITH REGARD TO THE IMPUGNED TRANSACTION. H OWEVER, THE ASSESSING OFFICER HAS MADE THIS TRANSACTION SUBJECT MATTER OF DISCUSSION IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER FOU ND THAT THE ASSESSEE HAS DEBITED A CONSOLIDATED SUM OF ` 3,14,22,3 75/- IN ITS PROFIT & LOSS ACCOUNT WHICH IS CLAIMED AS REFERRAL FEE . THE ASSESSEE WAS REQUIRED TO SUBMIT THE DETAILS THEREOF. THE DETAI L OF RS.3,14,22,375/- IS AS UNDER:- S. NO. PARTICULARS RELATED REVENUES GENERATED REFERRAL FEE PAID 1. FOREIGN ASSOCIATED ENTERPRISES (AES) 6,27,45,515 1,73,52,922 2. FOREIGN INDEPENDENT ENTITIES 4,68,98,175 1,45,27,40 8 3. DOMESTIC INDEPENDENT ENTITIES 23,55,263 4,57,955 TOTAL 11,19,98,953 3,18,80,330 26. THE ASSESSING OFFICER DID NOT MAKE ANY ADDITION WIT H REGARD TO FOREIGN INDEPENDENT ENTITIES AND DOMESTIC INDEPENDENT ENTITIES. HE REQUIRED THE ASSESSEE TO EXPLAIN THE PAYMENT OF ` 1,73, 52,922/-. THE SUBMISSION OF THE ASSESSEE WAS THAT THE SAID AMOUNT REPRESENT THE PAYMENT MADE BY IT TO CW GROUP ENTITIES IN THE SHAPE OF REFERRAL FEE WITH RESPECT TO THE BUSINESS GENERATED BY THE ASSESSEE THRO UGH THOSE ITA NO.3933/DEL/2010 20 CW GROUP ENTITIES. IT WAS SUBMITTED THAT THE REFERRAL FEE PAID BY THE ASSESSEE TO ITS ENTITIES WAS AVERAGED AT 19% OF THE REVENU E GENERATED FROM SUCH CUSTOMERS. IT WAS SUBMITTED THAT IT IS A COMMO N PRACTICE TO PAY REFERRAL FEE TO THE PERSONS REFERRING THE BUSINESS. 27. REFERENCE WAS ALSO MADE TO THE VARIOUS REFERRAL AG REEMENTS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTITIES AN D IT WAS FOUND BY THE ASSESSING OFFICER THAT AS PER ARTICLE 3 OF THE SAID AGREEMENT THE ASSESSEE DID NOT SPECIFY THE PERCENTAGE OF REFERRAL FEE. CLAUSE (3) OF THE AGREEMENT IS REPRODUCED BELOW FOR T HE SAKE OF CONVENIENCE:- CWI WILL BE LIABLE TO PAY TO C&W SHANGHAI A % OF THE INVOICE RAISED REFERRED TO CWI ON THE REFERRED CUSTOMERS (HERE INAFTER CALLED REFERRAL COMMISSION) IN ACCORDANCE WITH THE STA NDARD REFERRAL FEES SCHEDULE AS APPENDED TO THIS AGREEMENT. CWI WILL INFORM C&W SHANGHAI, OF ALL INVOICES RAISED UPON R EFERRED CUSTOMERS. 28. FINDING THAT EXACT PERCENTAGE OF REFERRAL FEE T O BE RECEIVED BY CWS WAS NOT DESCRIBED IN THE AGREEMENT, THE ASSESSING OF FICER OBSERVED THAT SUCH CLAIM OF THE ASSESSEE IS A DEVICE TO GI VE THE COLOUR TO THE TRANSACTION, SO THAT THE SAME MAY NOT BE TREATE D AS ROYALTY OR FEE FOR PROFESSIONAL OR TECHNICAL SERVICES, TO AVOID TH E DEDUCTION OF TAX. THE EVIDENCE FILED IN THE SHAPE OF E-MAILS, ETC. WAS R EJECTED ON THE GROUND THAT THEY ARE CRYPTIC MAILS IN WHICH EITHER T HE NAME OF THE CLIENT HAS NOT BEEN MENTIONED OR THE REQUIREMENTS OF THE CLIENTS ARE NOT MENTIONED. THE ASSESSING OFFICER ALSO OBSERVED THAT THERE IS NO EVIDENCE REGARDING THE SERVICES PROVIDED BY THE GROUP ENTITIES. THE ASSESSING OFFICER ALSO REFERRED TO THE OBSERVATIONS OF THE DRP ACCORDING TO WHICH THE ASSESSEE WAS UNABLE TO DEMONSTRATE THE GENUINENESS OF THE TRANSACTION, THE SERVICES RENDERED BY THE GROUP ENTITIES TO MAKE THE REFERRAL FEE AT A HIGHER RATE A ND THE BUSINESS ITA NO.3933/DEL/2010 21 PURPOSES WERE NOT SUBSTANTIATED AND, IN THIS MANNER, THE ASSESSING OFFICER HAS DISALLOWED THE REFERRAL FEE OF ` 1,73,52, 922/-. 29. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY THE LEARNED AR THAT THE AES TO WHOM THE REFERRAL FEE HAS BEEN PAID ARE P RIMARILY RESPONSIBLE FOR INVESTIGATING AND FACILITATING THE DEV ELOPMENT OF BUSINESS OPPORTUNITIES FOR THE ASSESSEE COMPANY IN THE REAL ESTATE SECTOR IN INDIA. THEY IDENTIFIED NEW BUSINESS OPPORTUN ITY FOR THE ASSESSEE AND REFERRED CLIENTS TO THE ASSESSEE. THE CLIENTS R EFERRED MIGHT BE AN EXCLUSIVE CLIENT I.E., THE CLIENT COULD HAVE COME EXCLUSIVELY TO THE ASSESSEE BASED ON REFERRAL PROVIDED BY THE ASSOCIATE ENTERPRISES OR THE CLIENT COULD ALSO JUST BE REFERRED I N WHICH CASE THE ULTIMATE RESPONSIBILITY TO PAY AND GET THE CLIENT LIA ISE WITH THE ASSESSEE. HE SUBMITTED THAT ASSOCIATE ENTERPRISES ARE ONLY RESPONSIBLE FOR IDENTIFYING NEW BUSINESS OPPORTUNITIES AN D THEY ARE NOT AUTHORIZED TO ENCASH ORDERS ON BEHALF OF THE ASSESSEE OR ENTER INTO ANY CONTRACTUAL AGREEMENT ON BEHALF OF THE ASSESSEE. THE C ONTRACTUAL AGREEMENTS ARE DIRECTLY ENTERED INTO BY THE ASSESSEE. H E SUBMITTED THAT COPY OF REFERRAL FEE AGREEMENTS ARE PLACED AT P AGES 356 TO 375 OF THE PAPER BOOK. HE SUBMITTED THAT THE PAYMENT OF FE E IS ACCORDING TO THE STANDARD REFERRAL FEE SCHEDULE THE COPY OF WHICH IS PLACED AT PAGES 703 TO 705 OF THE PAPER BOOK. THESE ARE THE INTERNA TIONAL FEE SHARING RULES AND REFERRAL FEE ON THE TENANTS REPRESENTATION T RANSACTIONS W.E.F. 1 ST FEBRUARY, 2003 IS TO BE PAID AS FOLLOWS:- TENANT REPRESENTATION TRANSACTIONS THE REFERRING PARTY WILL RECEIVE THE FOLLOWING PERCEN TAGE OF THE NET COMMISSION PAID TO THE EXECUTING PARTY. FOR BUSINESS REFERRED WITH COMPETITION: FOR THE PORTION BETWEEN $ 0 - $ 20,000 0% FOR THE PORTION BETWEEN $ 20,001 - $150,000 20% FOR THE PORTION BETWEEN $ 150,001 - $500,000 30% FOR THE PORTION ABOVE $ 500,001 40% ITA NO.3933/DEL/2010 22 FOR BUSINESS REFERRED WITHOUT COMPETITION: FOR THE PORTION BETWEEN $0 - $20,000 0% FOR THE PORTION BETWEEN $20,001 - $150,00 30% FOR THE PORTION BETWEEN $150,000-$500,000 40% FOR THE PORTION ABOVE $500,001 50% THE PROTECTION PERIOD FOR THE ABOVE-REFERRED CLIENT WIL L BE TWO YEARS FOR ALL TRANSACTIONS AND ASSIGNMENTS. 30. HE SUBMITTED THAT COMPLETE DETAILS WERE FILED BEF ORE THE ASSESSING OFFICER AS WELL AS BEFORE THE TPO AND DRP. THE NAME OF THE PROPERTY AND THE NAME OF THE ASSOCIATE ENTERPRISES WAS A LSO GIVEN. THE EVIDENCE RELEVANT TO PAYMENT OF SUCH REFERRAL FE E WAS ALSO FILED. HE SUBMITTED THAT THIS KIND OF PAYMENTS OF REFERRAL FE E IS COMMON PRACTICE IN THE REAL ESTATE BUSINESS. HE SUBMITTED THAT THE ASSESSING OFFICER HAS ACCEPTED SIMILAR REFERRAL FEE PAID BY THE ASSESSEE TO INDEPENDENT PARTIES FOR GENERATION OF OUTSIDE INDIA R EVENUE WHICH IS PAID TO THE EXTENT OF ` 1.45 CRORE AGAINST THE REVEN UE OF 4.68 CRORES WHICH IS 31% OF THE REVENUE GENERATED AND 45% OF THE TOTAL REFERRAL FEE. HE SUBMITTED THAT EVEN IF THE TRANSACTION OF TH E ASSESSEE WITH ITS ASSOCIATE ENTERPRISE IS SEEN IN THE LIGHT OF THE TRANSACT ION COMPARED WITH THE INDEPENDENT PARTIES, THE PAYMENTS MADE BY TH E ASSESSEE COMPANY TO ITS AES ARE AS MUCH LESS AS 19% AND FOR THIS R EASON ONLY TPO HAS OBSERVED THAT THIS TRANSACTION OF THE ASSESSEE IS AT ARMS LENGTH. HE SUBMITTED THAT ONCE THE TRANSACTION HAS BE EN HELD BY TPO AT ARMS LENGTH, THEN THE ASSESSING OFFICER DOES NOT HAVE ANY JURISDICTION TO REVISIT THAT TRANSACTION AGAIN UNDER T HE NORMAL PROVISIONS OF THE ACT AS THE SAME WILL TANTAMOUNT TO DO AN ACT INDIRECTLY WHICH CANNOT BE DONE DIRECTLY. HE IN TH IS REGARD REFERRED TO THE PROVISIONS REGULATING INTERNATIONAL TRANSACTIONS, A CCORDING TO WHICH ORDER OF TPO IS BINDING ON ASSESSING OFFICER. ITA NO.3933/DEL/2010 23 31. HE SUBMITTED THAT THE PAYMENT OF REFERRAL FEE IS A COMMERCIAL DECISION, THE EXPEDIENCY OF WHICH CANNOT BE CHALLENG ED BY THE REVENUE. HE SUBMITTED THAT SAMPLE MAIL EVIDENCE WERE PRODUCED BEFORE THE ASSESSING OFFICER. THOSE ASSOCIATE ENTERPRISES H AD COORDINATED BETWEEN THE CLIENT AND THE ASSESSEE AND REF ERENCE IN THIS REGARD CAN BE MADE TO THE EVIDENCES PLACED AT PAGES 4 19 TO 424 AND 510 TO 523. THEREFORE, IT WAS PLEADED BY THE LEARNE D AR THAT THE DISALLOWANCE HAS WRONGLY BEEN MADE BY THE ASSESSING OFFIC ER AND IT SHOULD BE DELETED. 32. ON THE OTHER HAND, IT WAS SUBMITTED BY THE LEARNE D DR THAT DURING THE COURSE OF HEARING THE ASSESSEE WAS ASKED TO MAT CH EACH TRANSACTION IN THE LIST FOR WORK DONE FOR THE GROUP E NTITIES SPECIFICALLY IN RELATION TO THE PROPERTY TRANSACTION DONE, BUT, THE SAME WAS NOT PROVIDED BY THE ASSESSEE. THE ASSESSEE ALSO COULD NOT PRODU CE ANY EVIDENCE TO DEMONSTRATE THE GENUINENESS OF THE TRANSACT ION, THE SERVICES RENDERED BY THE GROUP ENTITIES AND THE ASSESSEE H AVING FAILED TO DO SO, IS NOT ENTITLED TO GET THIS CLAIM. HE SUBMIT TED THAT BY MAKING PAYMENT TO ITS ASSOCIATE ENTERPRISES THE ASSESSEE IS CLAIMING DEDUCTION OF EXPENSES IN THE PROFIT & LOSS ACCOUNT TO T HE EXTENT OF 30% OF THE GROSS FEE. THE CORRESPONDENCE BY E-MAIL SUB MITTED BY THE ASSESSEE WILL SHOW THAT A PARTICULAR TRANSACTION TAKES MAN Y MONTHS TO COMPLETE AND EARN FEE. THE ASSESSEE WAS ALSO REQUIRED TO DEVOTE CONSIDERABLE RESOURCES FOR THE SAME. IF THE AMOUNTS PAI D AS FEE WAS TO BE PAID AS DIVIDEND, THEN, THE ASSESSEE WOULD BE REQUIRE D TO PAY DIVIDEND DISTRIBUTION TAX AS PER PROVISIONS OF SECTION 115-O. IN THE AGREEMENT THE ASSESSEE DID NOT SPECIFY THE EXACT PERCENT AGE OF FEE AND NO PRUDENT BUSINESS PERSON WILL LEAVE THE ISSUE OF PA YMENT OF FEE OPEN AND, THEREFORE, THE TRANSACTION IS PRIMA FACIE F OR AVOIDANCE OF INCOME-TAX. IT WAS SUBMITTED BY THE LEARNED DR THAT THE ASSESSEE IS RELYING UPON CRYPTIC E-MAILS BETWEEN MR. ROYDEN AND ASHPREET ITA NO.3933/DEL/2010 24 CHOUDHARY WITH THE EMPLOYEES OF THE ASSESSEE COMPANY. H E SUBMITTED THAT WITHOUT PREJUDICE TO HIS SUBMISSIONS ON GR OUND NO.1, THE ASSESSEE IS ALSO PAYING 75% OF THE TOTAL SALARY AND T RAVELING EXPENSES FOR MR. ROYDEN AND ASHPREET CHOUDHARY FOR THE SERVICES RENDERED BY THEM, THEREFORE, THE PAYMENT OF REFERRA L FEE AGAIN WOULD AMOUNT TO DOUBLE DEDUCTION OF THE SAME. THE ASSESSEE CO MPANY IS HAVING ITS OWN WEBSITE AT WHICH ALL THE INFORMATION I S AVAILABLE TO THE PROSPECTIVE CUSTOMER. ANY CUSTOMER CAN GO TO THE WEBSI TE OF THE ASSESSEE COMPANY AND KNOW ABOUT THE AVAILABLE PROPERTIE S. THERE WAS NO NEED FOR THE CUSTOMER SITTING IN USA TO GO TO S INGAPORE AND HONG KONG TO BUY PROPERTY IN INDIA WHEN ALL THE INF ORMATION WAS AVAILABLE ON THE WEBSITE OF THE ASSESSEE. THE ACCEPTANC E OF TRANSACTION BY THE TPO BEING AT ARMS LENGTH WILL NOT HELP THE ASSESSEE AS THE ASSESSING OFFICER AND DRP HAS HELD THAT REFERRAL SE RVICES WERE NOT RECEIVED BY THE ASSESSEE FROM ITS ASSOCIATE ENTERPRISES AND THE ASSESSEE HAS FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE. HE INVITED OUR ATTENTION TO PAGE 3270 OF SAMPATH IYENGARS LAW OF INCOME-TAX 10 TH EDITION VOLUME II IN WHICH IT HAS BEEN MENTIONED TH AT IN ORDER TO BE ADMISSIBLE AS DEDUCTION, THE EXPENSES SHOULD BE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT IS MENTI ONED THAT SECOND ADVERB EXCLUSIVELY HAS REFERENCE TO THE MOTIV E AND OBJECT BEHIND THE EXPENDITURE. IF THE SAME IS NOT EXCLUSIVE OR SOLE FOR PROMOTION OF BUSINESS THE EXPENDITURE, THEN, IT WILL N OT QUALIFY FOR DEDUCTION. MERE EXISTENCE OF AGREEMENT DOES NOT ESTAB LISH THE EXISTENCE OF COMMERCIAL EXPEDIENCY AND THE LEARNED D R HAS REFERRED TO THE FOLLOWING DECISIONS:- I) OCEAN CITY TRADING (INDIA) PVT. LTD. VS. CIT (201 0) 328 ITR 0290 (BOMBAY) WHEREIN THE TRAINING EXPENSES OF TH E EMPLOYEES ABROAD WERE CONSIDERED TO BE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.3933/DEL/2010 25 II) SIDDHO MAL AND SONS VS. ITO (1980) 122 ITR 0839 ( DEL) WHEREIN EXPLAINING THE MEANING OF THE WORD WHOLLY IT WAS HELD THAT AN EXPENDITURE IS TO BE ALLOWED IF IT SA TISFY THE TEST OF COMMERCIAL EXPEDIENCY WHICH HAS TO BE JUDGED FROM THE POINT OF VIEW OF ASSESSEE WHO KNOWS BEST HOW HIS BUSINESS HAS TO BE RUN, BUT SUCH A POINT OF VIEW HAS TO BE PRUDENT AND REASONABLE POINT OF VIEW WHICH IS FREE FROM AN APPARENT TAINT OF EXCESSIVENESS, COLLUSIVENESS AND COLOURABLE DISCRETION. IF THE MOTIVE BEHIND THE EXPENDITURE IS TO UNDULY BENEFIT SOME ONE, THE ASSESSING OFFICER WILL BE WITHIN HIS RIGHT TO COME T O A FINDING THAT THE EXPENDITURE IS NOT EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE COURTS AND AUTHORITIES ARE NOT TO WEAR BLINKERS TO OVERLOOK OR CONDONE THE PASSING OF F OF THE PUBLIC REVENUE OF ONES OWN KITH AND KIN BY SUBTERFUGE OR CLANDESTINE OR CLEVER DEVICES CLOTHED IN LEGALISTIC JARGON. III) YUM! RESTAURANTS (INDIA) P. LTD. VS. CIT (2010) 3 27 ITR 0150 (DEL) WHEREIN THE DISALLOWANCE OF ` 2,76,882/- ON ACCOUNT OF ACCRUED MARKETING EXPENDITURE TO THE FRANCHISEES OF THE ASSESSEE WAS NOT HELD JUSTIFIED. LD. DR DISTINGUISHED THE CASE LAW RELIED UPON BY THE LEARNED AR AND, IN THIS MANNER, IT WAS SUBMITTED BY TH E LEARNED DR THAT THE ASSESSEE HAVING NOT PRODUCED ANY DOCUMENTARY EVIDENCE REGARDING RENDERING OF SERVICE BY ITS ASSOCIATE ENTERPRISES IS NOT ENTITLED FOR CLAIM OF REFERRAL FEES. THE PAYMENT WAS MADE TO EVADE PAYMENT OF TAXES. THE TRANSACTION IS SHAM AND WAS ARRANGED FOR DIVERSION OF INCOME TO ASSOCIATE ENTERPRISES FOR ITA NO.3933/DEL/2010 26 AVOIDANCE OF PAYMENT OF TAX. THUS, HE PLEADED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE SUSTAINED. 33. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE IMPUGNED TRANSAC TION IS ONE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE W ITH ITS ASSOCIATE ENTERPRISES. THIS TRANSACTION WAS REFERRED BY T HE ASSESSING OFFICER TO THE TPO UNDER THE PROVISIONS OF SECTION 92 CA. SECTION 92CA IS BROUGHT ON TO THE STATUTE BY THE FINANCE ACT, 2002 . THE SCOPE OF THIS SECTION HAS BEEN EXPLAINED BY THE CBDT IN EXPLAN ATORY NOTES IN CIRCULAR NO.8 OF 2002 IN PARA 50.6 WHICH READ AS UND ER:- 50.6 A NEW SECTION 92CA HAS BEEN INTRODUCED BY THE FINANCE ACT, 2002. IT PROVIDES THAT WHERE AN ASSESSEE HAS ENTER ED INTO AN INTERNATIONAL TRANSACTION IN ANY PREVIOUS YEAR, THE A SSESSING OFFICER MAY, WITH THE PREVIOUS APPROVAL OF THE COMMISS IONER, REFER THE COMPUTATION OF THE ARMS LENGTH PRICE IN RELA TION TO THE SAID INTERNATIONAL TRANSACTION TO A TRANSFER PRICING OFF ICER. THE TRANSFER PRICING OFFICER, AFTER GIVING THE ASSESSEE A N OPPORTUNITY OF BEING HEARD AND AFTER MAKING ENQUIRIES, SHALL DETE RMINE THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSA CTION IN ACCORDANCE WITH SUB-SECTION (3) OF SECTION 92C. THE A SSESSING OFFICER SHALL COMPUTE THE TOTAL INCOME OF THE ASSESSEE U NDER SUB-SECTION (4) OF SECTION 92C HAVING REGARD TO THE ARM S LENGTH PRICE DETERMINED BY THE TRANSFER PRICING OFFICER. 34. LATER ON BY THE FINANCE ACT, 2007 SUB-SECTION (4) OF SECTION 92CA WAS AMENDED. IT WILL BE APPROPRIATE TO REPRODU CE THE PRE- AMENDED AND POST AMENDED PROVISIONS: PRE-AMENDED PROVISION (4) ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL IN COME OF THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C HAVI NG REGARD TO THE ARMS LENGTH PRICE DETERMINED UNDER SUB-SECTION ( 3) BY THE TRANSFER PRICING OFFICER. ITA NO.3933/DEL/2010 27 POST AMENDED PROVISION (4) ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL INC OME OF THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C IN C ONFORMITY WITH THE ARMS LENGTH PRICE AS SO DETERMINED BY THE TRAN SFER PRICING OFFICER. 35. THE POSITION AS EXPLAINED BY CBDT FOR PRE-AMENDED SUB-SECTION (4) OF 92CA HAS ALREADY BEEN REPRODUCED AND THE POST- AMENDED SITUATION HAS BEEN EXPLAINED IN CIRCULAR NO.3/2008 DA TED 12 TH MARCH, 2008 IN PARA 43.4 AND ITS APPLICABILITY HAS BEEN DISCU SSED IN PARA 43.5. THE SAME IS REPRODUCED BELOW:- 43.4 SUB-SECTION (4) OF SECTION 92CA HAS BEEN AMEN DED SO AS TO PROVIDE THAT, ON RECEIPT OF THE ORDER UNDER SUB-SECTIO N (3) OF SECTION 92CA, THE ASSESSING OFFICER SHALL PROCEED TO C OMPUTE THE TOTAL INCOME OF THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C IN CONFORMITY WITH THE ARMS LENGTH PRICE DETERMINED UNDER SUB-SECTION (3) OF SECTION 92CA BY THE TRANSFER PRICING OFFICER. THUS, WITH THE AMENDMENT IN THE PROVISIONS, THE ARMS LENGTH PRICE DETERMINED BY THE TR ANSFER PRICING OFFICER (TPO) WOULD BE BINDING ON THE ASSESS ING OFFICER. 43.5 APPLICABILITY THESE AMENDMENTS SHALL APPLY IN CASES WHERE REFERENCE TO TRANSFER PRICING OFFICER WAS MADE ON OR AFTER JUNE 1, 2007 AND SHALL ALSO BE APPLICABLE IN CASES WHERE A REFERENCE TO THE TRANSFER PRICING OFFICER WAS MADE PR IOR TO 1.6.2007 BUT THE TRANSFER PRICING OFFICER DID NOT PASS ORDER UNDER SUB-SECTION (3) OF SECTION 92CA BEFORE THE SAID DATE. 36. IN VIEW OF THE ABOVE EXPLANATION RENDERED BY CB DT, THE AMENDED PROVISIONS OF SECTION 92A(4) WILL BE APPLICA BLE. THE DATE OF REFERENCE TO TPO IN THE PRESENT CASE IS 10 TH SEPTEMBER, 2008 AND THE ORDER OF TPO IS DATED 29 TH OCTOBER, 2009. 37. TRANSFER PRICING PROVISIONS IN ITS NEW FORM WERE FI RST INTRODUCED IN THE INCOME-TAX ACT BY THE FINANCE ACT, 2001. EA RLIER TO THAT SECTION 92 WAS REGULATING THE CROSS BORDER TRANSACTIONS. EXPLAI NING THE SCOPE OF NEWLY SUBSTITUTED SECTION 92 BROUGHT ON THE STATUTE BY THE FINANCE ITA NO.3933/DEL/2010 28 AT, 2001, CBDT IN ITS CIRCULAR NO.14/2001 IN PARA 55 .4 TO 55.5 HAS DESCRIBED THE SCOPE OF NEWLY SUBSTITUTED SECTION 92 AS U NDER: 55.4 THE NEWLY SUBSTITUTED SECTION 92 PROVIDES THAT I NCOME ARISING FROM AN INTERNATIONAL TRANSACTION BETWEEN ASSOCI ATED ENTERPRISES SHALL BE COMPUTED HAVING REGARD TO THE ARM S LENGTH PRICE. ANY EXPENSE OR OUTGOING IN AN INTERNATIONAL TRAN SACTION IS ALSO TO BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PR ICE. THUS IN THE CASE OF A MANUFACTURER, FOR EXAMPLE, THE P ROVISIONS WILL APPLY TO EXPORTS MADE TO THE ASSOCIATED ENTERPRISE AS ALSO TO IMPORTS FROM THE SAME OR ANY OTHER ASSOCIATED ENTERPRI SE. THE PROVISION IS ALSO APPLICABLE IN A CASE WHERE THE INTERNATIONAL TRANSACTION COMPRISES ONLY AN OUTGOING FROM THE INDIAN ASSESSEE. 55.5 THE NEW SECTION FURTHER PROVIDES THAT THE COST OR E XPENSE ALLOCATED OR APPORTIONED BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES UNDER A MUTUAL AGREEMENT OR ARRANGEMENT SHA LL BE AT ARMS LENGTH PRICE. EXAMPLES OF SUCH TRANSACTIONS C OULD BE WHERE ONE ASSOCIATED ENTERPRISE CARRIES OUT CENTRALIZED FUNCTIONS WHICH ALSO BENEFIT ONE OR MORE OTHER ASSOCIA TED ENTERPRISES, OR TWO OR MORE ASSOCIATED ENTERPRISES AGR EE TO CARRY OUT A JOINT ACTIVITY, SUCH AS RESEARCH AND DEVELO PMENT, FOR THEIR MUTUAL BENEFIT. 55.5A THE NEW PROVISION IS INTENDED TO ENSURE THAT P ROFITS TAXABLE IN INDIA ARE NOT UNDERSTATED (OR LOSSES ARE NOT OVERSTATED) BY DECLARING LOWER RECEIPTS OR HIGHER OUTGO INGS THAN THOSE WHICH WOULD HAVE BEEN DECLARED BY PERSONS ENTER ING INTO SIMILAR TRANSACTIONS WITH UNRELATED PARTIES IN THE SAME OR SIMILAR CIRCUMSTANCES. THE BASIC INTENTION UNDERLYING THE NEW TRANSFER PRICING REGULATIONS IS TO PREVENT SHIFTING OUT OF PROFITS BY MANIPULATING PRICES CHARGED OR PAID IN INTERNATIONA L TRANSACTIONS, THEREBY ERODING THE COUNTRYS TAX BASE. T HE NEW SECTION 92 IS, THEREFORE, NOT INTENDED TO BE APPLIED IN CASES WHERE THE ADOPTION OF THE ARMS LENGTH PRICE DETERMINED UNDER THE REGULATIONS WOULD RESULT IN A DECREASE IN THE OVERA LL TAX INCIDENCE IN INDIA IN RESPECT OF THE PARTIES INVOLVED IN THE INTERNATIONAL TRANSACTION. 38. IT IS CLEAR FROM THE ABOVE EXPLANATION THAT THE PROVISIONS OF TRANSFER PRICING ARE APPLICABLE AS WELL TO EXPENSES AND OUTGOING IN AN INTERNATIONAL TRANSACTION. THE IMPUGNED AMOUNT REPR ESENT THE OUTGO OF THE ASSESSEE OR THE EXPENSE OF THE ASSESSEE FOR EARNING I NCOME WITH REFERENCE TO THE REAL PROPERTY TRANSACTIONS IN THE SHA PE OF LEASE, ETC. IT ITA NO.3933/DEL/2010 29 CANNOT BE DISPUTED BY THE REVENUE THAT THE IMPUGNED TRANSACTION IS INTERNATIONAL TRANSACTION FALLING WITHIN THE SCOPE OF TRANSFER PRICING REGULATIONS AS THE ASSESSING OFFICER HIMSELF HAS REFERRED T HIS TRANSACTION TO THE TPO ON THE GROUND THAT IT IS AN IN TERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES, THE ARMS LENGTH PRICE OF WHICH WAS TO BE DETERMINED BY THE TPO. IF IT IS SO, THEN, THE POST AMENDED PROVISIONS OF SECTION 92CA (4) WILL BE APPLICABLE AND ARMS LENGTH PRICE DETERMINED BY THE TPO IS BINDING UPON THE ASSESSING OFFICER. IT HAS ALREADY BEEN MENTIONE D THAT ALL THE SIX TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE REFERRED IN THE TPOS ORDER AND THE IMPUGNED TRANSACTION HAS BEEN MENTIONED AT SL.NO.1 AND IT HAS BEEN RECORDED BY THE TPO IN ITS ORDER THAT REGARDING TRANSACTIONS 1-4 ABOVE NO ADVERSE INFERENCE IS DRAWN. THEREFORE, LD. TPO HAS ACCEPTED THE IMPUGNED TRANSACTION OF THE ASSESSEE AT ARMS LENGTH. ACCORDING TO THE PROVISIONS OF SECTION 92CA(4 ), AS APPLICABLE TO THE PRESENT CASE, THE ARMS LENGTH PRICE DETERMINED BY THE TPO IS BINDING ON ASSESSING OFFICER. ONCE THE ARMS LENGTH PRI CE IS DETERMINED BY TPO, THE ASSESSING OFFICER CANNOT HAVE TH E JURISDICTION TO RE-DETERMINE THE PROFIT OR LOSS ARISING OUT OF THAT TRANSACTION UNDER THE NORMAL PROVISIONS OF THE ACT. BY BRINGING THIS TR ANSACTION AGAIN UNDER THE NORMAL PROVISIONS OF THE ACT, THE ASSESSING OFF ICER HAS SOUGHT TO DO AN ACT INDIRECTLY WHICH HE CANNOT DO DI RECTLY. SUCH ACTION OF THE ASSESSING OFFICER IS AGAINST THE WELL SETTLED PROPO SITION OF LAW ACCORDING TO WHICH WHAT CANNOT BE DONE PER DIRECTUM IS NOT PERMISSIBLE TO BE DONE PER OBLIQUUM MEANING THEREBY WHATEVER IS PROHIBITED BY LAW TO BE DONE, CANNOT LEGALLY BE EFF ECTED BY AN INDIRECT OR CIRCUITOUS CONTRIVANCE ON THE PRINCIPLE OF QUANDO ALIQUID PROHIBETUR, PROHIBETUR AT OMNE PER QUOD DEVENITUR A D ILLUD. APPLYING THE ABOVE PRINCIPLE, WE HOLD THAT AFTER DETERMINATI ON OF ARMS LENGTH PRICE BY THE TPO, ASSESSING OFFICER DID NOT HAVE JURISDI CTION TO RE- EXAMINE THE SAID TRANSACTION AND BY RE-EXAMINATION OF THE TRANSACTION ITA NO.3933/DEL/2010 30 THE ASSESSING OFFICER HAS SOUGHT TO DO AN ACT INDIRECTLY, WHICH HE CANNOT DO DIRECTLY. SUCH PROPOSITION OF LAW IS SUPPORT ED BY FOLLOWING JUDICIAL PRONOUNCEMENT:- IN JAGIR SINGH V. RANBIR SINGH AIR 1979 SC 381, THE APEX COURT HAS OBSERVED THAT AN AUTHORITY CANNOT BE PERMITTED TO EVADE A LAW BY 'SHIFT OR CONTRIVANCE'. WHILE DECIDING THE SAID CASE, THE SUPREME COURT PLACED RELIANCE ON THE JUDGMENT IN FOX V. BISHOP OF CHESTER [1824] 2 B & C 635, WHEREIN IT HAS BEEN OBSERVED AS UNDER (PAGE 384): TO CARRY OUT EFFECTUALLY THE OBJECT OF A STATUTE, IT MUST B E CONSTRUED AS TO DEFEAT ALL ATTEMPTS TO DO, OR AVOID DOING, IN AN INDIRECT OR CIRCUITOUS MANNER THAT WHICH IT HAS PROHIBI TED OR ENJOINED. LAW PROHIBITS TO DO SOMETHING INDIRECTLY WHICH IS PROHI BITED TO BE DONE DIRECTLY. SIMILAR VIEW HAS BEEN REITERATED BY THE APEX COURT IN M.C. MEHTA V. KAMAL NATH AIR 2000 SC 1997, WHEREIN IT HAS BEEN HELD THAT EVEN THE SUPREME COURT CANNOT ACHIEVE SOMETHING INDIRECTLY WHICH CANNOT BE ACHIEVED DIRECTLY BY RESORTING TO THE PROVISIONS OF ARTICLE 142 OF THE CONSTITU TION, WHICH EMPOWERS THE COURT TO PASS ANY ORDER IN A CASE I N ORDER TO DO COMPLETE JUSTICE.' (PP. 477 AND 478 OF THE REPORT) 39. RIGHT FROM THE BEGINNING IT HAS BEEN THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER DID NOT HAVE JURISDICTION TO RE-EXAMINE THE ALLOWABILITY OF REFERRAL FEE AS LD. TPO HAS ALREADY H ELD THAT THIS BEING INTERNATIONAL TRANSACTION OF THE ASSESSEE IS AT ARMS LENG TH. IN VIEW OF AFOREMENTIONED DISCUSSION, WE FOUND THAT SUCH CONTENTIO N OF THE ASSESSEE HAS A FORCE AND IT IS TO BE HELD THAT ONCE AN IN TERNATIONAL TRANSACTION HAS BEEN MADE SUBJECT OF DETERMINATION OF ARMS LENGTH PRICE BY THE TPO & TPO FOUND THAT TRANSACTION AT ARM S LENGTH THEN IT WILL NOT BE PERMISSIBLE FOR THE ASSESSING OFFICER TO RE-E XAMINE THAT TRANSACTION AND MAKE DISALLOWANCE OF THE SAME UNDER NO RMAL PROVISIONS OF THE ACT. 40. EVEN ON MERITS, THE DISALLOWANCE OF REFERRAL FEE IS MADE ONLY ON THE GROUND THAT THE ASSESSEE WAS NOT REQUIRED TO INCUR I T AND THERE ITA NO.3933/DEL/2010 31 WAS NO EVIDENCE PLACED ON RECORD TO PROVE THE SAME. THE ASSESSEE HAD SUBMITTED AMPLE EVIDENCE TO SUPPORT THE EXPENDITU RE AND IT WAS SHOWN THAT SUCH EXPENDITURE IS INCURRED WITH RESPECT TO REVENUE EARNED BY THE ASSESSEE ON PROPERTY TRANSACTION REFERRED TO THE ASSESSEE BY ITS ASSOCIATE ENTERPRISES. IT WAS SUBMITTED THAT T HE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF TRANSA CTION REFERRED BY AES WAS MUCH LESS THAN THE SIMILAR EXPENDITURE INCUR RED VIS-A-VIS THE INDEPENDENT PARTIES. SUCH CONTENTION WAS ALSO PLA CED BEFORE TPO. NO ADVERSE MATERIAL WHATSOEVER HAS BEEN BROUGHT ON REC ORD TO SHOW THAT EITHER THE EVIDENCE SUBMITTED BY THE ASSESSEE IN TH IS RESPECT WAS INCORRECT OR THE CONTENTION OF THE ASSESSEE THAT EXPEND ITURE RELATING TO TRANSACTION ENTERED INTO WITH AES WERE LESS COSTLY WAS I NCORRECT. THEREFORE, EVEN ON MERITS THERE IS NO JUSTIFICATION IN UPHOLDING THE DISALLOWANCE. LOOKING FROM ANY ANGLE, THE SUSTENANCE O F ADDITION OF ` 1,73,52,922/- IS NOT JUSTIFIED AND THE SAME IS DELETED. THIS GROUND OF THE ASSESSEE IS ALLOWED. 41. APROPOS GROUND NO.3, THE ASSESSING OFFICER NOTICED T HAT IN THE AUDIT REPORT FILED ALONG WITH THE RETURN, IT WAS POI NTED OUT THAT SERVICE TAX OF ` 31,81,878/- WAS NOT PAID BEFORE THE DUE DAT E OF FURNISHING THE INCOME-TAX RETURN AND THE SAME HAS ALSO NOT BEEN PASSED THROUGH PROFIT & LOSS ACCOUNT. THE ASSESSEE WAS REQUIRED TO EXPLA IN AS TO WHY THE SAID AMOUNT SHOULD NOT BE DISALLOWED. IT WAS SUBMIT TED THAT ASSESSEE MERELY COLLECTED THE SERVICE TAX FROM ITS CLIENT S AND DEPOSITED THE SAME AS AND WHEN IT RECEIVED FROM THE CU STOMERS. AS THE SAID AMOUNT WAS NOT COLLECTED, THE SAME REMAINED O UTSTANDING. IT WAS SUBMITTED THAT SERVICE TAX IS DEPOSITED ON THE VALUE OF AMOUNT REALIZED ONLY. THEREFORE, NO DISALLOWANCE IS CALLED FOR U/S 43B. HOWEVER, LD. ASSESSING OFFICER HAS DISALLOWED THE AMOUNT AFTER REJECTING THE SUBMISSIONS OF THE ASSESSEE. ITA NO.3933/DEL/2010 32 42. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY THE LEARNED AR THAT LIABILITY TO PAY SERVICE TAX DOES NOT ARISE TILL THE SE RVICE TAX IS COLLECTED. HE REFERRED TO RULE 6 OF SERVICE TAX RULES AND ALSO T HE DECISION OF CHENNAI ITAT IN THE CASE OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGY LTD. HE SUBMITTED THAT OBJECTIONS IN DETAIL WERE FILED BEF ORE DRP IN WHICH ALL THESE CONTENTIONS WERE RAISED. A SPECIFIC REFERENC E WAS MADE TO THE DECISION OF CHENNAI ITAT IN WHICH SIMILAR PROPOSIT ION HAS BEEN LAID DOWN AND IT HAS BEEN HELD THAT AS THE SERVICE TAX WAS N OT PAYABLE BY THE ASSESSEE, THE RIGORS OF SECTION 43 B COULD NOT BE AP PLIED TO THE CASE OF THE ASSESSEE. HE IN THIS REGARD REFERRED TO THE SUBMISSIONS MADE BEFORE DRP WHICH ARE PLACED AS ANNEXURE-4 AT PA GES 56-60 OF THE APPEAL DOCUMENTS. HE, THEREFORE, SUBMITTED THAT THE CLAIM OF THE ASSESSEE SHOULD BE ACCEPTED. 43. ON THE OTHER HAND, RELYING UPON THE ORDER PASSED BY THE ASSESSING OFFICER, IT WAS SUBMITTED BY THE LEARNED DR THA T THIS CLAIM OF THE ASSESSEE HAS RIGHTLY BEEN REJECTED BY THE DRP AND TH E ORDER OF THE ASSESSING OFFICER IN THIS REGARD SHOULD BE UPHELD. 44. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT IS THE CASE OF THE ASSESSEE THAT SERVICE TAX DID NOT BECOME PAYABLE AND IT WAS NOT ROU TED THROUGH PROFIT & LOSS ACCOUNT. ACCORDING TO THE RELEVANT PRO VISIONS OF SERVICE TAX ACT, THE ASSESSEE WAS LIABLE TO PAY THE SERVICE TAX O NLY FROM THE QUARTER IN WHICH THE PAYMENTS ARE RECEIVED. IT IS TH E CASE OF THE ASSESSEE THAT SERVICED TAX HAS NOT BECOME DUE DURING THE YEAR UNDER CONSIDERATION AS THE RELEVANT PAYMENTS WERE NOT RECEIV ED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ACCORDING TO THE REGULATIONS OF SERVICE TAX ACT, THE SERVICE TAX WILL BECOME DUE BY 5 TH OF MONTH IMMEDIATELY FOLLOWING THE QUARTER IN WHICH TH E PAYMENTS ARE RECEIVED AND, THEREFORE, THE RIGORS OF PROVISIONS OF S ECTION 43B ARE NOT APPLICABLE TO SERVICE TAX. IN SUCH SUPPORT THE ASSESSEE H AS RELIED UPON ITA NO.3933/DEL/2010 33 THE AFOREMENTIONED DECISION OF CHENNAI ITAT IN THE C ASE OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGY LTD. (SUPRA) THE DETAIL ED OBJECTIONS WERE RAISED BEFORE THE DRP IN WHICH ALL THESE FACTS H AVE BEEN STATED AS WELL AS THE REFERENCE IS ALSO MADE TO THE DECISION OF CHENNAI ITAT IN THE CASE OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGY LTD. THE FACTS IN THAT CASE AND THE PRESENT CASE APPEARS TO BE SIMILAR. HOWEVE R, THE LEARNED DRP HAS DISPOSED OF THIS OBJECTION OF THE ASSESSEE IN THE F OLLOWING MANNER:- THE THIRD GROUND OF OBJECTION IS BASED ON THE FACTS AN D CIRCUMSTANCES OF THE CASE, THE LEARNED A.O. HAS ERRED IN LAW AND ON FACTS IN CONTENDING THAT UNREALIZED SERVICE TAX HAS TO BE DISALLOWED AS PER PROVISIONS OF SECTION 43B OF THE AC T REGARDING THIS GROUND OF OBJECTION THE ASSESSEE HAS ASKED RS.31, 81,878/- TO BE ALLOWED AS HE HAS NOT COLLECTED THIS SERVICE TAX. SECTION 43B IS CLEAR ON THIS DISALLOWANCE. NO DIRECTIONS ARE BEING ISSUED. 45. IT MAY BE SEEN FROM THE ABOVE OBSERVATIONS OF THE DRP THAT NO REASONS HAVE BEEN ASSIGNED FOR NOT ADMITTING THE CLAIM OF THE ASSESSEE AND NO REFERENCE HAS BEEN MADE TO THE DECISION O F CHENNAI ITAT AND IT HAS NOT BEEN STATED THAT WHY THE SAID DECI SION IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THEREFORE , WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF DRP WITH A DIRECTION TO RE-CONSIDER THIS ISSUE AFTER GIVING THE ASSESSEE A REASON ABLE OPPORTUNITY OF HEARING AND THEREAFTER RE-ADJUDICATI NG THIS ISSUE BY WAY OF A REASONED AND SPEAKING ORDER. WE DIRECT ACCORDIN GLY. 46. FOR STATISTICAL PURPOSES THIS GROUND IS TREATED TO BE ALLOWED. 47. APROPOS GROUND NO.4, DURING THE YEAR UNDER CONSID ERATION THE ASSESSEE HAD MADE ADDITION TO THE COMPUTER AND COMPUTE R SOFTWARE OF ` 70,68,641/-. THE DETAILS WERE FILED AND FROM P ERUSAL OF THE DETAILS, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HA D CLAIMED 60% DEPRECIATION ON THE COMPUTER ACCESSORIES AND PERI PHERALS LIKE CD WRITER, SCANNERS, MODEMS, SERVERS, ETC. ACCORDING TO TH E ASSESSING ITA NO.3933/DEL/2010 34 OFFICER, DEPRECIATION OF 60% IS APPLICABLE ONLY ON COMPUTERS AND COMPUTER SOFTWARE AND THE SAME CANNOT BE EXTENDED TO COMPUTER ACCESSORIES AND PERIPHERALS. HE, THEREFORE, RESTRICTED THE DEPRECIATION TO 15% AND HAS MADE THE DISALLOWANCE OF ` 5,42,487/-. 48. THE LEARNED AR OF THE ASSESSEE MAINLY RELIED UPON T HE DECISION OF ITAT IN THE CASE OF ACIT VS. M/S CONTAINER CORPORAT ION OF INDIA LTD., 30 SOT 284 IN WHICH ITAT HAD OBSERVED AS UNDER:- THE ACCESSORIES AND PERIPHERALS OF COMPUTER PROVIDE INPUT PROCESSING, STORAGE AND VARIOUS OUTPUT DEVICES. THE O UTPUT DEVICES SUCH AS PRINTER, SCANNER, ETC. ARE COMPUTER PE RIPHERALS AND FORM ESSENTIAL PARTS OF PC. THESE OUTPUT DEVICES C ANNOT WORK IN ISOLATION AND ALSO WORKING ON COMPUTER SYSTEM WITHOUT AN OUTPUT DEVICE SUCH AS PRINTER WOULD BE FUTILE. IN V IEW OF THE ABOVE, THE CLAIM OF DEPRECIATION AT 60% ON PRINTER, SCA NNER AND OTHER COMPUTER PERIPHERALS IS COMPLETELY JUSTIFIED. TH E CLAIM OF DEPRECIATION OF 60% FURTHER GETS JUSTIFIED IN VIEW OF TH E FACT THAT EVEN COMPUTER SOFTWARE WHICH IS INSTALLED ON COMPUTER S YSTEM SUPPORTS THE COMPUTER HARDWARE AND IS ELIGIBLE FOR DEP RECIATION AT 60%. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT (A) IN ALL OWING DEPRECIATION @ 60% ON COMPUTER PERIPHERALS AND ACCESS ORIES BY TREATING THEM AS COMPUTERS. 49. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ASSESSING OFFICERS ORDER. 50. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT HAS BEEN HELD BY H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES YAMUNA POWER LTD., 2010-TIOL-636- H.C-DEL-IT VIDE DECISION DATED 31 ST AUGUST, 2010 THAT COMPUTER PERIPHERALS ARE ELIGIBLE FOR DEPRECIATION @ 60%. THE RELEVANT OBSERVATIONS ARE REPRODUCED BELOW:- 4. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL TH AT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINTER S, SCANNERS AND SERVER, ETC. FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM. IN FACT, THE COMPUTER ACCESSORIES AND PERIPHER ALS ITA NO.3933/DEL/2010 35 CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUENTLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. 51. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLO W DEPRECIATION TO THE ASSESSEE ON COMPUTER PERIPHERALS @ 60%. THIS GROU ND OF THE ASSESSEE IS ALLOWED. 52. APROPOS GROUND NO.5, THE SAME IS RAISED AGAINST INIT IATION OF PENALTY PROCEEDINGS. THE SAID GROUND IS PREMATURE AND IS NOT REQUIRED TO BE ADJUDICATED UPON AT THIS STAGE, THEREFORE, DISMI SSED. 53. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN TH E MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18.11.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 18.11.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES ITA NO.3933/DEL/2010 36 DATE OF DICTATION 09.11.2011 DATE OF PRESENTATION OF THE DRAFT ORDER TO THE MEMBER 11.11.2011 DATE OF RETURN FROM THE BENCH AFTER PRONOUNCEMENT &SIGNING DATE OF DISPATCH OF THE ORDER TO THE BENCH