BARCLAYS BANK PLC, MUMBAI V. ADDL DIT (IT) 3, MUMBAI

ITA 4030/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0708 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 02-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Permanent establishment
• Section: 92C; 10B

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./178/MUM/2011, /ASSESSMENT YEAR: 2006-07 ./I.T.A./4030/MUM/2014, /ASSESSMENT YEAR: 2007-08 M/S. BARCLAYS BANK PLC 801-808, CEEJAY HOUSE, SHIVSAGAR ESTATE DR. ANNIE BESANT ROAD, WORLI MUMBAI-400 018. PAN:AAACB 4876 G VS. ADIT (INTL TAXN)-3 SCINDIA HOUSE, BALLARD PIER MUMBAI-400 038 ( /APPELLANT ) ( / RESPONDENT) ./I.T.A./584/MUM/2011, /ASSESSMENT YEAR: 2006-07 ./I.T.A./4235/MUM/2014, /ASSESSMENT YEAR: 2007-08 ADIT (INTL TAXN)-3SCINDIA HOUSE, BALLARD PIER,MUMBAI-400 038. VS. M/S. BARCLAYS BANK PLC MUMBAI-400 018. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI JAYANT KUMAR- DR /ASSESSEE BY: S/SHRI NISHANT THAKKAR/HITEN CHANDE/MS. JASMIN AMAL SADWALA / DATE OF HEARING: 30/10/2017 / DATE OF PRONOUNCEMENT: 12.01.2018 / PER RAJENDRA, AM - CHALLENGING THE ORDERS,DATED 02/11/2010 AND 30/12 /2013,OF THE CIT(A)-15 AND CIT(A)-10 MUMBAI RESPECTIVELY THE ASSESSEE AND THE ASSESSING OFFICER(AO)HAVE FILED THE APPEALS FOR THE ABOVE MENTIONED TWO ASSESSMENT YEARS(AY.S).ASSESSEE -COMPANY IS ENGAGED IN THE BUSINESS OF STRUCTURING OF ASSET LIABILITY, RISK MANAGEMENT SER VICES, UNDERWRITING FOR DOMESTIC RUPEES/DEBT INSTRUMENTS IN INDIA THROUGH THE INVESTMENT BANKING ..DETAILS OF FILING OF RETURNS OF INCOME RETURNED INCOMES, ASSESSED INCOMES, ETC, CAN BE SUM MMARISED AS UNDER :- A.Y. ROI FILED ON RETURNED INCOME ASS T T . DT. ASSESSED INCOME 2006 - 07 30/11/2006 RS. 222.52CRORES 19/02/2010 RS.282.42 CRORES 2007 - 08 31/10/2007 RS.162.56CRORES 02/02/2011 RS.304.04 CRORES 2 . DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS(IT.S)WITH ITS ASSOCIATE ENTERPRISE(AE).TO DETERMINE THE ARMS LENGTH (ALP)OF THE TRANSACTIONS,HE MADE A REFERENCE TO THE TRANSFER PRICING OFFICER(TPO). VIDE HIS ORDER,DT.28/03/2008,THE TPO PROPOSED TOTAL ADJUSTME NT OF RS.52.51 CRORES. 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 2 ITA/178/MUM/2011,AY.2006-07: FIRST GROUND OF APPEAL,RAISED BY THE ASSESSEE FOR T HE YEAR UNDER APPEAL,IS OF GENERAL NATURE, HENCE,IT IS NOT BEING ADJUDICATED. 3.S ECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE OF INT EREST PAID TO THE HEAD OFFICE(HO)/ OVERSEAS BRANCHES ON DEPOSITS PLACED WITH THE ASSES SEE U/S.40(A)(I) OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSES SEE HAD PAID INTEREST OF RS.2.99 CRORES TO THE HO/OVERSEAS BRANCHES (OB.S) ON DEPOSIT PLACED WITH IT BY THOSE ENTITIES,THAT IT HAD DEBITED THE INTEREST PAYMENT TO THE P&L ACCOUNT FOR THE YEAR UN DER APPEAL ,THAT IT HAD CLAIMED A DEDUCTION IN RESPECT OF THE SAME.ON BEING QUERIED AS TO WHETHER TAX WAS DEDUCTED AT SOURCE ON THE SAID INTEREST PAYMENT,THE ASSESSEE ADMITTED THAT NO TAX WAS DEDUCTED ON THE PAYMENT MADE TO HO/ OB.S.REFERRING TO THE CIRCULAR NO.740 OF 1996, ISSU ED BY THE CBDT,THE AO DISALLOWED THE CLAIM MADE BY THE ASSESSEE FOR NON DEDUCTION OF TAX AT SOURCE. 3.1. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE ELABORATE SUBMISSIONS. AFT ER CONSIDERING THE AVAILABLE MATERIAL,HE RELIED UPON THE ORDER OF THE SPECIAL BENCH OF THE T RIBUNAL DELIVERED IN THE CASE OF BANK OF TOKYO MITSUBISHI LTD. AND ABN AMRO BANK NV (98TTJ295) AND HELD THAT THE PAYMENT OF INTEREST WAS NOT ALLOWABLE AS DEDUCTION BECAUSE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE WHILE MAKING THE PAYMENT OF INTEREST.FINALLY,HE DISMISSED THE APPEAL FILED BY ASSESSEE. 3.2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) STATED THAT THE ORDER OF THE TRIBUNAL,RELIED UPON BY THE FAA WAS RE VERSED BY THE HONBLE CALCUTTA HIGH COURT.THE AR FURTHER ARGUED THAT THE ASSESSEE WAS N OT REQUIRED TO DEDUCT TAX AT SOURCE,THAT THE FAA WAS NOT JUSTIFIED IN CONSIDERING INTEREST PORTI ON FOR CALCULATING THE DISALLOWANCE.HE RELIED UPON THE CASE OF BANK OF SUMITOMO (136 ITD 66); BAN K OF TOKYO(152 ITD 796) AND THE CASE OF BANK OF TOKYO MITSUBISHI UFJ LTD, (IT APPEAL NO.604 OF 2015 OF THE HONBLE DELHI HIGH COURT,DTD. 08.04.2016).THE DEPARTMENTAL REPRESENTAT IVE(DR)SUPPORTED THE ORDER OF THE FAA. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE CASE OF ABN AMRO BANK NV(343 ITR81)THE HONBLE CALC UTTA HIGH COURT HAD DEALT WITH THE IDENTICAL ISSUE. FACTS OF THE CASE WERE THAT THE ASSESSEE WAS A NETH ERLANDS COMPANY AND ITS PRINCIPAL BRANCH OFFICE WAS IN INDIA,THAT IN THE COURSE OF ITS BANKI NG ACTIVITIES, THE BRANCH OFFICE IN INDIA REMITTED 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 3 SUBSTANTIAL FUNDS TO ITS HEAD OFFICE AS INTEREST.ON APPEAL, TWO QUESTIONS WERE RAISED (I) WHETHER INTEREST PAYMENT MADE BY THE BRANCH OFFICE IN INDIA TO ITS HEAD OFFICE ABROAD WAS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE PROFITS OF THE ASSE SSEES BRANCH IN INDIA, AND (II) WHETHER IN MAKING SUCH PAYMENTS TO THE HEAD OFFICE, THE BRANCH OFFICE IN INDIA WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT.DECIDING THE IS SUE OF NON DEDUCTION OF TAX AT SOURCE,THE HONBLE COURT HELD AS UNDER: 23. ACCORDING TO THE REVENUE, UNDER SECTION 195(1) , THE APPELLANT'S HEAD OFFICE IS TO BE TREATED AS A FOREIGN COMPANY. WHEN THE APPELLANT REMITTED I NTEREST TO SUCH HEAD OFFICE, IT OUGHT TO HAVE DEDUCTED TAX UNDER SECTION 195(1). HAVING NOT SO DE DUCTED THE APPELLANT IS NOT ENTITLED TO CLAIM THE BENEFIT, OF SUCH DEDUCTION, UNDER SECTION 40(A) (I). 24. UNDER ARTICLE 7 READ WITH DEFINITION OF ARTICLE 5, THE PERMANENT ESTABLISHMENT IS TO BE TAKEN AS AN ASSESSEE FOR THE PURPOSE OF COMPUTATION OF BUSIN ESS PROFITS. FURTHER, UNDER SUB-ARTICLE (3)(B) OF ARTICLE 7 PAYMENT OF INTEREST CAN BE CLAIMED AS A DEDUCTION. 25. AN UNNECESSARY COMPLICATION HAS BEEN CREATED BY THE INTERPRETATION MADE OF SECTION 40(A)(I) OF THE INCOME-TAX ACT READ WITH SECTION 195 OF THE ACT BY BOTH THE APPELLANT AND THE RESPONDENTS. FIRST OF ALL, A PROPER MEANING HAS TO BE ASCRIBED T O THE EXPRESSION 'CHARGEABLE' UNDER THE PROVISIONS OF THIS ACT. SECTION 195(1) SAYS THAT, I F ANY INTEREST IS PAID BY A PERSON TO A FOREIGN COMPANY, WHICH INTEREST IS CHARGEABLE UNDER THE PRO VISIONS OF THIS ACT TAX SHOULD BE DEDUCTED AT SOURCE. THE WORD 'CHARGEABLE' IS NOT TO BE TAKEN AS QUALIFYING ONLY THE PHRASE 'ANY OTHER SUM' ONLY BUT IT QUALIFIES THE WORD 'INTEREST' ALSO. THI S INTERPRETATION IS SUPPORTED BY THE PHRASE IN PARENTHESIS, NAMELY, NOT BEING INCOME CHARGEABLE UN DER THE HEAD 'SALARIES'. THEREFORE, THE MEANING OF THIS SECTION IS THAT SUCH INTEREST MUST BE CHARGEABLE UNDER THE PROVISIONS OF THIS ACT. TO SIMPLIFY THE MATTER, THIS INTEREST MUST BE ACCOU NTED FOR OR CREDITED IN THE ACCOUNT OF SOME PERSON WHO IS CHARGEABLE UNDER THE ACT. IN OTHER WO RDS, THIS REMITTANCE OF INTEREST MUST RESULT IN AN INCOME WHICH IS CHARGEABLE UNDER THE ACT. IN THO SE CIRCUMSTANCES, TAX MAY BE DEDUCTED AT SOURCE. BUT WHERE THIS INTEREST IS NOT SO CHARGEABL E, NO TAX IS DEDUCTED. IN THIS CASE, BY VIRTUE OF THE ABOVE CONVENTION, THE HEAD OFFICE OF THE APPELL ANT IS NOT LIABLE TO PAY ANY TAX UNDER THE ACT. THEREFORE, IN OUR OPINION, THERE WAS AND STILL IS N O OBLIGATION ON THE PART OF THE APPELLANT'S SAID BRANCH TO DEDUCT TAX WHILE MAKING INTEREST REMITTAN CE TO ITS HEAD OFFICE OR ANY OTHER FOREIGN BRANCH. 26. THEREFORE, IN THE CIRCUMSTANCES, THERE IS NO SC OPE FOR ANY ARGUMENT THAT FOR THE PURPOSE OF COMPUTATION OF EXPENDITURE THE BRANCH AND THE HEAD OFFICE ARE TO BE TAKEN AS SEPARATE ENTITIES BUT FOR THE PURPOSE OF PAYMENT OF TAX TO BE DEDUCTED AT SOURCE ON INTEREST PAYMENT, IT IS TO BE TAKEN AS ONE BANK AND NO DEDUCTION IS TO BE MADE AS SOUGHT T O BE MADE BY THE LEARNED COUNSEL FOR THE APPELLANT. SUCH CONTENTIONS ARE TOTALLY UNFOUNDED, IN OUR OPINION. THE PERMANENT ESTABLISHMENT AND THE HEAD OFFICE HAVE TO BE TAKEN AS SEPARATE EN TITIES FOR ALL PURPOSES. BUT IN THE MAKING OF PAYMENT OF INTEREST NO TAX HAS TO BE DEDUCTED UNDER SECTION 195(1), FOR THE REASONS ABOVE. 27. THEREFORE, IF NO TAX IS DEDUCTIBLE UNDER SECTIO N 195(1) SECTION 40(A)(I) OF THE ACT WILL NOT COME IN THE WAY OF THE APPELLANT CLAIMING SUCH DEDU CTION AS FROM ITS INCOME. THEREFORE, IN THE CIRCUMSTANCES THE APPELLANT WOULD BE ENTITLED TO DE DUCT SUCH INTEREST PAID, AS PERMITTED BY THE CONVENTION OR AGREEMENT, IN THE COMPUTATION OF ITS INCOME. 28. IN VIEW OF OUR ABOVE FINDINGS THERE IS NO CONFL ICT AT ALL BETWEEN THE AGREEMENT AND THE ACT. IT IS ONLY THE TAX AUTHORITIES, THE TRIBUNAL AND TO SO ME EXTENT THE PARTIES WHO HAVE PUT A VERY COMPLICATED MEANING TO THE PROVISIONS IN THE CONVEN TION READ WITH THE ACT. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT,WE DECIDE SECOND GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 4 4. GOA-3 IS ABOUT APPLYING AN AD HOC RATE OF 20% FOR A GENCY FEE AND INTEREST INCOME OF THE OVERSEAS BRANCHES FOR THE EXTERNAL COMMERCIAL BORRO WINGS(ECB).IT IS ONE OF THE ISSUES DEALT WITH BY THE TPO. 4.1. DURING THE TP PROCEEDINGS,THE TPO FOUND THAT THE AS SESSEE WAS ENGAGED IN THE BUSINESS OF STRUCTURING OF ASSET LIABILITY, RISK MANAGEMENT SER VICES, UNDERWRITING FOR DOMESTIC RUPEES/DEBT INSTRUMENTS IN INDIA THROUGH THE INVESTMENT BANKING BUSINESSES STREAM OF ITS INDIA BRANCHES, THAT IT HAD COORDINATED ACTIVITIES FOR ECBS RAISED BY I NDIAN COMPANIES FROM ITS OVERSEAS BRANCHES. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE I N THAT REGARD,THE TPO HELD THAT IT HAD PLAYED AN ACTIVE ROLE IN ECB DEALS, THAT IT WAS ENGAGED IN PROVISION OF SUBSTANTIAL SUPPORT SERVICE TO ITS AE IN CONNECTION WITH THE ECBS. HE MADE AN ADJUSTM ENT OF RS. 1.25 CRORES BASED ON REVENUE SPLIT METHOD,APPLYING THE RATE OF 25%. THE AO, ACCO RDINGLY,PASSED THE FINAL ORDER MAKING AN ADDITION OF RS. 1,25,18,349/- TO THE TOTAL INCOME O F THE ASSESSEE. 4.2. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FAA AND MADE DETAILED SUBMISSIONS. AFTER CONSIDERING THE ORDER O F THE AO/TPO AND THE SUBMISSIONS OF THE ASSESSEE,HE HELD THE ASSESSEE PLAYED ITS ROLE IN EC BS GRANTED BY ITS FOREIGN BRANCHES TO THE INDIAN BORROWERS,THAT THE TPO/AO HAD RIGHTLY HELD T HAT OVERSEAS BRANCHES WERE HELPEDD BY IT FOR DOCUMENTATION, COLLECTING FEES,ENSURING SMOOTH AND TIMELY PAYMENT OF INTEREST, CREDIT REVIEW, MONITORING OF CREDIT FACILITIES,ANALYSIS OF FINANCI AL STATEMENTS OF THE INDIAN BORROWERS, MONITORING OF BREACH OF COVENANTS,MONITORING OF ASS ETS, COORDINATION WITH OTHER BANKS,LENDERS TO THE CLIENTS UNDER SYNDICATION AND PREPARATION OF WA TCH LIST REPORT, THAT THE ABOVE-MENTIONED SERVICES WERE RENDERED TO THE AES, THAT THE SERVIC ES HAD TO BE COMPENSATED AT ARMS LENGTH, THAT THE TPO HAD APPLIED THE PSM AND HAD FIXED THE RATE AT 25% ON THE BASIS THAT OTHER FOREIGN BANKS WERE CHARGING THE AES AT THE RATE OF 25%, THAT THE PERCENTAGE ADOPTED BY HIM COULD NOT BE TAKEN AS YARDSTICK, THAT OTHER FOREIGN BANKS WERE DEALING WITH THEIR AES, THAT PRICES ADOPTED BY THEM COULD NOT BE CONSIDERED FOR FIXING THE ALP. REFERRI NG TO THE ORDERS OF HIS PREDECESSORS FOR THE EARLIER ASSESSMENT YEARS,HE HELD THAT THE RATE SHOU LD BE FIXED AT 20% OF THE INTEREST AND THE COMMISSION AS ATTRIBUTABLE TO THE ASSESSEES BRANCH IN INDIA,THAT THE ENTIRE RISK ON CREDIT (ECB) WAS BORNE BY THE FOREIGN BANKS. 4.3. BEFORE US,THE AR CONTENDED THAT THE TPO HAD CONCLUD ED THAT UNCONTROLLED TRANSACTIONS WERE NOT AVAILABLE, THAT THE CUP METHOD USING UNCONTROLL ED TRANSACTIONS COULD NOT BE APPLIED, THAT HE ERRED IN NOT PROVIDING THE DETAILS OF CONTROLLED TR ANSACTIONS CONSIDERED AS COMPARABLES AND THE 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 5 ANALYSIS UNDERTAKEN IN TERMS OF COMPARABILITY OF FU NCTIONS PERFORMED RISKS ASSUMED AND THE ASSETS UTILISED WITH RESPECT TO THE ALLEGED COMPARA BLE TRANSACTIONS VIS--VIS THE ASSESSEES FUNCTIONS,ASSETS AND RISKS, THAT THE USE OF SECRET COMPARABLE MADE THE TP PROCESS INFRUCTUOUS.THE AR FURTHER STATED THAT THE ASSESSEE WAS NOT REQUIRE D TO DEDUCT TAX AT SOURCE,THAT THE FAA WAS NOT JUSTIFIED IN CONSIDERING INTEREST PORTION FOR CALCU LATING THE DISALLOWANCE.HE RELIED UPON THE CASE OF M/S.CREDIT LYONNAIS (ITA/1935/MUM/2007) AND M/S. CREDIT LYONNAIS(IT APPEAL 1781 OF 2014 OF THE HONBLE BOMBAY HIGH COURT)THE DEPARTMEN TAL REPRESENTATIVE (DR)SUPPORTED THE ORDER OF THE FAA. 4.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE WAS PLAYING A VERY LIMITED ROLE IN THE SEQ UENCE OF ACTIVITIES OF SANCTIONING OF LOAN BY THE AE.S TO THE INDIAN CUSTOMERS.THE CONTRIBUTION O N PART OF THE ASSESSEE WAS LIMITED TO ESTABLISH -ING INITIAL CONTACT WITH INDIAN ENTITIES AND ACTIN G AS A LIAISON BETWEEN THE AE AND THE CUSTOMER. IT IS A FACT THAT LOAN WAS GRANTED BY THE AE.S AND ALL THE GAINS AND RISKS OF THE TRANSACTION WAS WITH THEM ONLY.THE ASSESSEE WAS COMPENSATED BY THE AE.S FOR THE JOB DONE BY IT.AS FAR AS INTEREST INCOME IS CONCERNED,IT IS CLEAR THAT THERE WAS NO CONTRACT /AGREEMENT BETWEEN THE ASSESSEE AND THE AE.S TO SHARE THE INTEREST AMOUNT. THE ASSESSE IS OBJECTING TO THE ADJUSTMENT MADE UNDER THE HEAD INTEREST INCOME.IT HAS NO OBJEC TION WITH REGARD TO THE OTHER PORTION OF THE ADJUSTMENT.SO,WE DIRECT THE TPO/AO THAT ONLY 20% OF THE AGENCY FEE SHOULD BE ATTRIBUTED TO THE ASSESSEE AND THE INTEREST ATTRIBUTED TO ITS INCOME SHOULD BE DELETED. HERE,WE WOULD LIKE TO REFER TO THE CASE OF M/S CRED IT LYONNAIS (SUPRA), WHEREIN IDENTICAL ISSUE HAS BEEN DISCUSSED AS FOLLOWS: '8.8 HAVING HELD THAT PARA 4 OF THE PROTOCOL DOES N OT APPLY TO THE CASE OF THE ASSESSEE, NOW, THE QUESTION ARISES AS TO WHETHER THE ADJUSTMENT MADE B Y THE AUTHORITIES BELOW IS JUSTIFIED. FOR MAKING THE ADJUSTMENT, THE AUTHORITIES BELOW HAVE TAKEN IN TO CONSIDERATION, THE INCOME TOWARDS INTEREST AS WELL AS THE FEE CHARGED BY THE FOREIGN BRANCH FROM THE CLIENTS. IT IS PERTINENT TO NOTE THAT WHEN THE LOAN IS PROVIDED BY THE SYNDICATE AND THE ASSESSEE HAS NOT CONTRIBUTED TO THE LOAN AMOUNT THEN AS REGARDS THE INCOME OF INTEREST, THE SAME CANNOT BE ATTRIBUTED TO THE USSESSEE FOR PROVIDING THE SERVICES OF THE FINANCIAL ANALYSIS OF THE BORROWERS , MARKET CONDITION AND REGULATORY ENVIRONMENT IN INDIA. SINCE THE ASSESSEE HAS PROVIDED CERTAIN SERV ICES FOR THAT ARMS LENGTH CHARGES CAN BE DETERMINED AS PER THE PROVISIONS OF TRANSFER PRICIN G REGULATION. THE TPO AS WELL AS CIT(A) HAS NOT BROUGHT OUT ANY COMPARABLE FOR DETERMINATION OF THE ARMS LENGTH PRICE BUT LOOK THE TOTAL INCOME COMPRISING INTEREST AS WELL AS OTHER FEES CHARGED B Y THE FOREIGN BRANCHES FOR ALLOCATION/ATTRIBUTION T O THE ASSESSEE. IN THIS CASE, THE ALP HAS NOT BEEN DE TERMINED BY TAKING INTO CONSIDERATION UNCONTROLLED SIMILAR TRANSACTION. IN OUR VIEW, THE INTEREST CANN OT BE TAKEN INFO ACCOUNT FOR ATTRIBUTION OF INCOME TOWARDS SERVICE CHARGES/FEES AND, THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE ONLY THE FEE CHARSED BY THE FOREIGN BRANCHES CAN BE TAKEN INTO C ONSIDERATION FOR MAKING ADJUSTMENT UNDER TRANSFER PRICING PROVISIONS. ' * 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 6 THE ABOVE DECISION OF THE TRIBUNAL WAS UPHELD BY TH E HON'BLE BOMBAY HIGH COURT IN ITA NO. 1781 OF 2014.CONSIDERING THE AFORESAID FACTS,GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. ITA/584/MUM/2011,AY.2006-07: 5. SOLITARY GROUND OF APPEAL,RAISED BY THE AO,DEALS WI TH DERIVATIVE TRANSACTIONS AND THEIR ALP. DURING THE TP PROCEEDINGS,THE TPO OBSERVED THAT BAR CLAYS CAPITAL, A DIVISION OF BARCLAYS BANK, WOULD MANAGE THE GLOBAL DERIVATIVES OPERATIONS,THAT IT INCLUDED FOREIGN EXCHANGE, INTEREST RATE, EQUITY AND COMMODITY AND CREDIT DERIVATIVES,THAT TH E THREE PRINCIPAL LOCATIONS OF ITS OPERATIONS WERE LONDON, NEW YORK,TOKYO WITH APPROXIMATELY 50 O THER OPERATIONS OF DIFFERENT BUSINESS PROFILES ALL AROUND THE WORLD, INCLUDING INDIA, THA T EACH OF THE PRINCIPAL TRADING LOCATIONS TOGETHER FROM THE GLOBAL DERIVATIVE BUSINESS OF BARCLAYS, TH AT THE BUSINESS WAS DIVIDED BY CURRENCIES AND FURTHER SUBDIVIDED BY PRODUCTS, THAT IN VIEW OF VARIETY OF FACTORS THE DEAL WAS ENTERED DIRECTLY BY OVERSEAS ENTITY WITH THE CUSTOMERS,THAT EMPLOYEES O F BARCLAYS INDIA BRANCH HAD A PRIMARY RELATIONSHIP WITH THE INDIAN CUSTOMERS,THAT THEY WO ULD ASSIST THE OVERSEAS BARCLAYS ENTITY IN GETTING DERIVATIVE BUSINESS,THAT BARCLAYS INDIA BRA NCH WOULD GET COMPENSATED FOR ITS MARKET EFFORT.HE FOUND THAT IN ACCORDANCE WITH THE GLOBAL TP POLICY(GTPP) OF BARCLAYS THE INDIAN ENTITY WAS BEING COMPENSATED AT AROUND 24.40% OF TH E INITIAL NET PRESENT VALUE (INPV) IN RESPECT OF THE MARKETING SUPPORT IT PROVIDED TO IT S OVERSEAS AE.S,THAT IT HAD STATED THAT NO INTERNAL UNCONTROLLED COMPARABLE TRANSACTION WAS AV AILABLE FOR DETERMINING THE ALP OF THE SERVICES RENDERED BY IT. THE TPO CALLED FOR FURTHER DETAILS IN THAT REGARD.AFTER CONSIDERING THE SAME, HE HELD THAT THE PRIMARY ONUS OF BENCHMARKING THE TRANSACTION OF MARKETING OF DERIVATIVE PRODUCTS,BY CITING UNCONTROLLED COMPARABLES,WAS ON THE ASSESSEE,THAT IT HAD NOT DISCHARGED ITS PRIMARY ONUS,THAT IT HAD ONLY FURNISHED THE GTPP WI TH RESPECT TO MARKETING OF DERIVATIVE PRODUCTS,THAT THE DERIVATIVE PRODUCTS WERE VERY UNI QUE FINANCIAL PRODUCTS DEALT BY THE BRANCHES OF SELECTED FEW FOREIGN BANKS,THAT THOSE PRODUCTS W ERE NOT DEALT BY ANY INDIAN COMPANY, THAT THE DATA OF SUCH SERVICES PROVIDERS WERE NOT AVAILABLE IN THE PUBLIC DOMAIN, THAT THE EXTERNAL COMPARABLE SELECTED BY THE ASSESSEE TO BENCHMARK TH E TRANSACTION USING TNMM WAS NOT AS PER THE PROVISIONS OF THE ACT,THAT THE COMPARABLES WERE DEALING IN FINANCIAL AND LEASING BUSINESS OR WERE IN BUSINESS OF CONSULTANCY SERVICES,THAT NONE OF THEM WERE DEALING IN THE MARKETING OF DERIVATIVE PRODUCTS,THAT IT HAD FAILED TO DO THE FA R ANALYSIS OF THE COMPARABLES.HE REJECTED THE EXTERNAL COMPARABLE SELECTED BY THE ASSESSEE.HE FUR THER HELD THAT MARGIN SHOWN BY THE OTHER 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 7 BRANCHES OF FOREIGN BANKS OPERATING IN INDIA WERE S HOWING 60% OF INPV AS ARMS LENGTH COMPE -NSATION ON MARKETING OF DERIVATIVE PRODUCTS.REFERR ING TO THE RULE 10B (2)(D)OF THE INCOME TAX RULES,1962(RULES),HE HELD THAT THE RULE WAS ABOUT U NCONTROLLED TRANSACTIONS,THAT THE SPIRIT REMAINED THE SAME,THAT THE BANKS CONTENTION TO GIV E PREFERENCE TO ITS GTPP OVER THE EXTERNAL CONTROLLED COMPARABLES HAD TO BE REJECTED,THAT FUNC TIONS CARRIED OUT BY THE ASSESSEE WITH RESPECT TO MARKETING OF DERIVATIVE PRODUCTS WERE PRIMARILY TO MANAGE RELATIONSHIP WITH EXISTING CLIENTS AND ESTABLISH AND DEVELOP RELATIONSHIP WITH NEW CLI ENTS,THAT SOME OF THE INDIAN BRANCHES OF FOREIGN BANKS WERE SHOWING COMPENSATION AT THE RATE OF 60%, THAT JP MORGAN CHASE BANK AND BANK OF AMERICA WERE ALSO PRIMARILY INVOLVED IN PROVIDING O RIGINATION SUPPORT AND COORDINATION BETWEEN THE AES AND THE INDIAN CUSTOMERS FOR CONCLUDING SUC H DEALS,THAT TO THAT EXTENT THE FUNCTIONS CARRIED OUT BY THE ASSESSEE AND THOSE CARRIED OUT B Y OTHER BRANCHES OF FOREIGN BANKS OPERATING IN INDIA WERE THE SAME,THAT THE MANNER OF A LOCATION O F COMPENSATION TO THE ASSESSEE WAS NOT BASED ON COUNTRY SPECIFIC EFFORTS.HE REJECTED THE TNMM AD OPTED BY THE ASSESSEE AND APPLIED PROFIT SPLIT METHOD(PSM) FOR BENCHMARKING THE ALP OF THE I T.S.FINALLY, HE ADOPTED ARMS LENGTH COMPENSATION AT THE RATE OF 60% ON INPV FOR THE PUR POSE OF BENCHMARKING THE IT.S OF THE ASSESSEE.HE PROPOSED AN UPWARD ADJUSTMENT OF RS.51 ,23,17,545/-. 5.1. BEFORE FAA,DURING THE APPELLATE PROCEEDINGS,THE ASS ESSEE MADE ELABORATE SUBMISSIONS. AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD THAT TH E ASSESSEE WAS COORDINATING WITH THE FOREIGN BRANCHES THAT OFFER THE DESIRED DERIVATIVES TO INDI AN CUSTOMERS,THAT FOR THE SERVICES RENDERED, THE INDIAN BRANCH OF THE ASSESSEE WAS COMPENSATED BY TH E OVERSEAS BRANCHES AT 24.40 PERCENT (APPROXIMATELY) OF THE INPV,THAT THE INDIAN BRANCH HAD CHARGED THE FOREIGN BRANCHES ON THE BASIS OF THE GTPP,THAT THE AVERAGE COST PLUS MARGIN CONSIDERED BY THE ASSESSEE WAS FAR BETTER THAN THE AVERAGE OF COST PLUS MARGIN OF COMPARABLES ,THAT THE TPO HAD NOT ACCEPTED THE TP STUDY MADE BY THE ASSESSEE,THAT HE FIXED THE ALP ON THE B ASIS OF A FOREIGN BANK IN INDIA WHICH CHARGED @ 60 PERCENT OF THE INPV FOR THE DERIVATIVE PRODUCT ,THAT HE WAS NOT JUSTIFIED IN COMPARING THE TWO ENTITIES.FINALLY,HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5.2. BEFORE US,THE DR ARGUED THAT IN ABSENCE OF UNCONTRO LLED DATA IT WAS PERMISSIBLE TO USE CONTROLLED DATA FOR DETERMINING ALP OF IT.S,THAT TH E METHOD USED BY THE TPO I.E.PSM WAS BETTER THAN THE METHOD USED BY THE ASSESSEE,THAT THE ASSES SEE HAD NOT CONDUCTED ANY FAR ANALYSIS,THAT THE MATTER COULD BE REMANDED TO THE TPO FOR CARRYIN G OUT FRESH BENCHMARKING,THAT THE MATTER 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 8 COULD BE RESTORED BACK TO THE FILE OF THE TPO IF IT WAS FOUND THAT HE HAD NOT FOLLOWED THE PRESCRIBED METHOD. THE AR SUPPORTED THE ORDER OF THE FAA AND STATED TH AT THE ASSESSEE HAD CARRIED OUT TP STUDY,THAT IT HAD RIGHTLY APPLIED TNMM,THAT IT WAS FOLLOWING G LOBAL POLICY FOR DETERMINING ALP OF DERIVATIVE TRANSACTIONS,THAT NO DEFECT IN THE POLIC Y ADOPTED BY IT WAS POINTED OUT BY THE TPO,THAT COMPARABLE RATE FIXED BY THE AO AT 60% WAS WITHOUT ANY BASIS,THAT THE TPO HAD CONSIDERED TRANSACTION BETWEEN BRANCH IN INDIA AND THE FOREIGN HEAD OFFICE AS COMPARABLES FOR MAKING TP ADJUSTMENT.HE RELIED UPON THE CASES TECHNIMONT ICB( P.)LTD.(138ITD23), JP MORGAN INDIA PVT. LTD.(ITA/8193/MUM/2010),JOHNSON AND JOHNSON LTD.(24 7TAXMAN 136). 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ONE OF THE DIVISIONS OF THE ASSESSEE I.E. BARCLAYS CAPITAL WOULD HANDLE THE GLOBAL DERIVATIVE OPERATIONS, THAT SAME INCLUDED FOREIGN EXCHANGE,INTEREST RATE, EQUITY, COMMODITY AND CREDIT DERIVATIVES, THAT THE ACTIVITIES OF THE ASSESSEE WERE LIMITED TO MARK ETING ACTIVITIES,THAT THE AE.S WERE CONCLUDING THE SALE-TRANSACTION,THAT FOR THE YEAR UNDER CONSID ERATION THE ASSESSEE WAS COMPENSATED AT THE RATE OF 24%(APPROXIMATELY)OF THE ESTIMATED DAY-1PRO FIT/LOSS FROM THE SAID DEALS IN ACCORDANCE WITH THE GTPP OF THE GROUP,THAT THE TPO HAD REJECTE D THE TNMM APPLIED BY THE ASSESSEE AND HAD USED PSM FOR BENCHMARKING THE TRANSACTION OF MA RKETING OF DERIVATIVE PRODUCTS,THAT HE CONCLUDED THAT RISK RELATING TO THE DERIVATIVE BUSI NESS REMAINED PARTLY IN INDIA AND PARTLY OUTSIDE INDIA AND THAT THE KEY ASSETS IN DERIVATIVE WERE IT S PEOPLE,THAT ONE OF THE FOREIGN BANK BRANCH WAS BEING COMPENSATED AT THE RATE OF 60% FOR THE SAME D ERIVATIVE BUSINESS, THAT HE MADE AN ADDITION OF RS.51.12 CRORES,THAT THE FAA GRANTED RELIEF TO T HE ASSESSEE.WE FIND THAT THE TPO HAD ACCEPTED,IN PRINCIPLE,THAT THE FUNCTIONAL ROLE OF T HE ASSESSEE WAS LIMITED TO RENDERING THE MARKETING SERVICES TO OVERSEAS BRANCHES,THAT REST O F THE ACTIVITIES WERE HANDLED BY THE AE.S.THE DERIVATIVE TRANSACTION DOES NOT END WITH MARKETING. IT IS A COMPLEX PROCESS.SO,THE AE WOULD COMPENSATE THE ASSESSEE FOR THE SERVICES RENDERED T O IT.THERE WOULD ALWAYS BE A RELATION BETWEEN THE COMPENSATION PAID AND AVAILED SERVICES.THE ASSE SSEE HAD ADOPTED THE GTPP TO DETERMINE ALP OF THE IT.S.IN OUR OPINION, THERE WAS NO DEFECT IN ITS APPROACH.ON THE OTHER HAND,METHOD APPLIED BY THE TPO AND THE DETAILS OF CONTROLLED TR ANSACTIONS,RELIED UPON BY HIM,WERE NOT AVAILABLE IN THE PUBLIC DOMAIN. THE ASSESSEE DID NO T HAVE ANY OPPORTUNITY TO EXAMINE THE COMPARABILITY OF FAR OF THE TRANSACTIONS SELECTED B Y THE TPO. IN OUR OPINION,USE OF UNTESTED COMPARABLES TO DETERMINE THE ALP IS AGAINST THE BAS IC SPIRIT OF THE TP PROVISIONS AND THE RULE 10 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 9 OF THE RULES THE TPO HAD ALSO VIOLATED THE PRINCIPL ES OF NATURAL JUSTICE BY NOT CONFRONTING THE ASSESSEE WITH THE COMPARABLES USED AGAINST IT. HE P ROPOSED AN ADDITION OF RS. 51.12 CRORES TO THE INCOME OF THE ASSESSEE WITHOUT AFFORDING AN OPPORTU NITY TO IT,SO THAT IT COULD BECOME AWARE OF THE BASIS FOR THE ADJUSTMENT.ONLY ON THIS COUNT THE ADJUSTMENT COULD BE VALIDLY DELETED. 5.4. BUT,WE WOULD LIKE DECIDE THE ISSUE ON MERITS ALSO.I T IS FOUND THAT THE ASSESSEE HAD FOLLOWED GTPP FOR TP PURPOSES,THAT AS PER THE GLOBAL POLICY THE INDIAN BRANCHES-RENDERING THE SERVICES AND ARRANGING FOR THE SALES OF THE DERIVATIVE PRODU CTS FOR ITS CUSTOMERS FROM ITS FOREIGN BRANCHES- WERE TO GET AT 24.40 PERCENT OF THE INPV.THE APPELL ANT HAD CARRIED OUT A TP STUDY AND HAD APPLIED TNMM FOR DETERMINING THE ALP.WE FIND THAT T HE AVERAGE COST PLUS MARGIN OF THE UNCONTROLLED COMPARABLES WAS 19% AND IN THE ASSESSE ES CASE,COST PLUS MARGIN WAS 424%. IF WE LOOK AT THESE FIGURES,IT BECOMES CLEAR THAT COMPENS ATION RECEIVED BY THE ASSESSEE FROM ITS AE FOR DERIVATIVE DEAL WAS AT ARMS LENGTH.INPV OF A DERIV ATIVE TRANSACTION IS CALIBRATED BASED ON PROJECTION OF EXPECTED CASH FLOW ON A DERIVATIVE TR ANSACTION AND APPLYING APPROPRIATE DISCOUNTING FACTOR.INPV CALCULATION CAN BE DIFFERENT FOR DIFFER ENT BANKS BECAUSE OF THEIR FUNCTIONING.SO,IN OUR OPINION IT WOULD BE INAPPROPRIATE TO APPLY FOR A UNIFORM MULTIPLIER EFFECT ON THE VALUE OF SALES CREDIT/INPV OF DERIVATIVE TRANSACTIONS.IN OTH ER WORDS,THE INPV FIXED BY INDIAN BRANCH OF ANOTHER FOREIGN BANK IN INDIA SHOULD NOT HAVE BEEN COMPARED WITH THE ASSESSEE CASE,BECAUSE THE ABOVE SAID BRANCH OF THE FOREIGN BANK ITSELF WAS DE ALING WITH ITS ANOTHER AE.IN SHORT,WE HOLD THAT THE METHODOLOGY ADOPTED BY THE TPO,FOR DETERMINING THE ALP OF INPV OF THE DERIVATIVE TRANSACTIONS,WAS INCORRECT FROM THE VERY BEGINNING AND WAS FUNDAMENTALLY WRONG.WE WOULD LIKE TO REFER TO THE CASE OF TECHNIMONT ICB(P.)LTD.(SUPR A) AND IT READS AS UNDER: '14. WHAT IS AN 'UNCONTROLLED TRANSACTION' HAS BEEN CLEARLY DEFINED UNDER RULE 10A(A) TO MEAN 'A TRANSACTION BETWEEN ENTERPRISES OTHER THAN ASSOCIAT ED ENTERPRISES WHETHER RESIDENT OR NON- RESIDENT'. A PLAIN READING OF THE MEANING GIVEN TO THE EXPRESSION 'UNCONTROLLED TRANSACTION 1 LEAVES NO ROOM FOR ANY DOUBT THAT IT IS A TRANSACTI ON BETWEEN TWO NON-ASSOCIATED ENTERPRISES. IF THE TRANSACTION IS BETWEEN TWO ASSOCIATED ENTERPRIS ES, IT GOES OUT OF THE AMBIT OF' UNCONTROLLED TRANSACTION' UNDER RULE 10A.WHEN SECTION 92C IS REA D ALONG WITH RULES 10B(E), AND 10A, IT BECOMES ABUNDANTLY CLEAR THAT IN COMPUTING ALP UNDE R THE TRANSACLIONAL NET MARGIN METHOD, A COMPARISON OF THE ASSESSEE'S NET PROFIT MARGIN FROM INTERNATIONAL TRANSACTIONS WITH ITS AES HAS NECESSARILY TO BE MADE WITH THAT OF THE NET PRO FIT MARGIN REALIZED BY THE SAME ENTERPRISE OR AN UNRELATED ENTERPRISE FROM A COMPARABLE BUT DEFINITE LY UNCONTROLLED TRANSACTION I.E., A TRANSACTION BETWEEN NON-ASSOCIATED ENTERPRISES. THERE IS NO STA TUTORY SANCTION FOR ROPING IN A COMPARABLE CONTROLLED TRANSACTION FOR THE PURPOSES OF BENCHMAR KING. WHEN IT HAS BEEN CLEARLY MANDATED IN ALL THE RELEVANT METHODS FOR DETERMINING ALP THAT T HE COMPARISON HAS TO BE MADE BY THE ENTERPRISE'S INTERNATIONAL TRANSACTION WITH COMPARA BLE UNCONTROLLED TRANSACTION, BY NO SHEER LOGIC A COMPARABLE CONTROLLED TRANSACTION CAN BE EM PLOYED FOR THE PURPOSES OF MAKING COMPARISON. THERE IS NO WARRANT FOR DILUTING THE PR ESCRIPTION GIVEN BY THE STATUTE OR RULES WHEN 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 10 SUCH PRESCRIPTION ITSELF SERVES THE ENDS OF JUSTICE PROPERLY AND IS INFALLIBLE. IF THE VIEW OF THE REVENUE THAT A CONTROLLED TRANSACTION SHOULD NOT BE SHUNTED OUT FOR THE PURPOSES OF BENCHMARKING IS ACCEPTED, THEN ALL THE RELEVANT PRO VISIONS CONTAINED IN CHAPTER X IN THIS REGARD, WILL BECOME OTIOSE. IF SUCH A CONTENTION OJ MAKING COMPARISON WITH A COMPARABLE CONTROLLED TRANSACTION IS TAKEN TO ITS LOGICAL CONCLUSION, THE N THERE WILL NEVER ARISE ANY NEED TO TAKE UP ANY CASE FOR TRANSFER PRICING SCRUTINY. THE REASON IS O BVIOUS. ALP IS DETERMINED FOR APPLICATION IN RESPECT OF TRANSACTIONS BETWEEN TWO AES SO THAT THE PROFIT LIKELY TO ARISE FROM SUCH TRANSACTIONS IS NOT UNDER-REPORTED VIS-A-VIS FROM SIMILAR TRANSACTI ONS WITH THIRD PARTIES. IF THE COMPARISON IS MADE AGAIN WITH NET PROFIT MARGIN REALIZED FROM TRA NSACTIONS BETWEEN TWO AES, INSTEAD OF THIRD PARTIES, IT MAY DEMONSTRATE THE SAME COOKED RESULTS IN BOTH THE SITUATIONS, THEREBY LEAVING NO SCOPE FOR ANY ADJUSTMENT. IN THIS EVENTUALITY, THE VERY OBJECT OF SUCH PROVISIONS WILL BE FRUSTRATED. THUS IT FOLLOWS THAT THE ALP CAN BE DETERMINED ONLY BY MAKING COMPARISON WITH A COMPARABLE UNCONTROLLED TRANSACTION AND NOT A COMPARABLE CONTR OLLED TRANSACTION.' WE ARE OF THE OPINION THAT THE FAA HAD RIGHTLY HELD THAT THE TPO WAS NOT JUSTIFIED IN CONSIDERING JP MORGAN CHASE BANK AND BANK OF AMERIC A, NA HAVING SIMILAR ARRANGEMENTS WITH THEIR AES AS APPROPRIATE COMPARABLES FOR THE AFORES AID TRANSACTION. 5.5. WE ALSO FIND THAT THE METHOD APPLIED BY THE TPO IS NOT PSM AS DEFINED UNDER THE RULES.RULE 10B OF THE RULES STIPULATES THAT THE FOR THE PURPOS E OF APPLYING PSM THE NET PROFIT DERIVED BY THE AE FROM THE INTERNATIONAL TRANSACTIONS IS TO BE CONSIDERED. HOWEVER, THE TPO HAS MADE THE ADJUSTMENT BY TAKING 60% OF DAY 1 INPV, WHICH IS A HYPOTHETICAL VALUE REPRESENTING THE GROSS SURPLUS CASH.IN THE MATTER OF JOHNSON & JOHNSON LT D. (247 TAXMAN 136) THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE TPO IS OBLIGED UNDER THE LA W TO DETERMINE THE ALP BY FOLLOWING ANY ONE OF THE PRESCRIBED METHODS OF DETERMINING TH E ALP AS DETAILED IN SECTION 92C(1) OF THE ACT,THAT THE DETERMINATION OF THE ALP HAS TO BE DON E ONLY BY FOLLOWING ONE OF THE METHOD PRESCRIBED UNDER THE ACT.WE ARE ALSO AGREEABLE TO T HE ARGUMENT SUBMITTED BY THE ASSESSEE THAT THE PSM CAN NEVER BE APPLIED FOR BENCHMARKING MARKE TING SUPPORT SERVICE FUNCTIONS. AS PER RULE 10B(D),PSM IS APPLICABLE 'MAINLY IN IT.S INVOL VING TRANSFER OF UNIQUE INTANGIBLES OR IN MULTIPLE IT.S WHICH ARE SO INTER-RELATED THAT THEY CANNOT BE EVALUATED SEPARATELY FOR THE PURPOSE OF DETERMINING THE ALP OF ANY ONE TRANSACTION. 5.6. WE ARE NOT INCLINED TO REFER THE MATTER TO THE FILE OF THE TPO.WE WOULD LIKE TO REFER TO THE CASE OF KODAK INDIA(P)LTD.(155TTJ697)WHEREIN THE TR IBUNAL HAS HELD AS UNDER: 69.WE ALSO CANNOT AGREE WITH THE DR THAT THE ISSUE BE RESTORED TO THE TPO BECAUSE THE METHODS, AS PRESCRIBED BY THE LEGISLATURE ARE MANDATORY, NOT DIRECTORY. WHEN MANDATORY PROVISION IS EITHER SUPERSEDED OR IGNORED, IT STRAIGHTWAY AFFECT S THE JURISDICTION. IN THE INSTANT CASE, WE HAVE TO MENTION THAT IT WAS A CASE OF SUO MOTO REFERENCE TO THE TPO AND IT IS THE CASE OF THE REVENUE AUTHORITIES, TO IMPORT THE PROVISIONS OF CHAPTER X. IN THIS CIRCUMSTANCE, SINCE THE ATPO DDID NOT ADHERE TO THE PRESCRIBED METHODS CONSCIOUSLY, ANOTH ER INNINGS TO RECTIFY THE MISTAKE CANNOT BE ALLOWED, AS THE TPO INFRINGED THE RELEVANT PROVISIO N OF THE INCOME TAX ACT AND RULES. 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 11 IN THE CASE OF HAVELLS INDIA LTD.(140 TTJ283)THE TR IBUNAL HAS DEALT WITH THE ISSUE OF RESTORING THE MATTER TO THE FILE OF THE TPO AND HAS HELD AS U NDER: 29.APROPOS THE LD.DRS CONTENTION ASKING FOR REMITT ING THE MATTER TO THE ASSESSING OFFICER, IT MUST BE NOTED HERE THAT SUCH A COURSE I S NEIHER REQUIRED, NOR APPROPRIATE TO BE ADOPTED. AS AN APPELLATE AUTHORITY, THE TRIBUNAL HA S TO SEE WHETHER THE ASSESSMENT FRAMED HAS BEEN FRAMED IN ACCORDANCE WITH LAW AND I F THERE IS SUFFICIENT MATERIAL TO SUPPORT IT. IF THAT IS SO, IT IS NOT FOR THE TRIBUN AL TO START INVESTIGATION SUO MOTO AND TO THEREBY FILL UP THE LACUNAE IF THERE IS MATERIAL TO SUPPORT THE ASSESSMENT, THE ASSESSMENT, AS CONFIRMED OR UPHELD BY THE CIT(A) NEEDS TO BE SU STAINED BY THE TRIBUNAL IF NOT, THE ASSESSMENT FALLS. IT IS FOR THE DEPARTMENT TO GATHE R MATERIAL AND MAKE PROPER ASSESSMENT AND THE TRIBUNAL IS NOT IN THAT MANNER, AN INCOME-T AX AUTHORITY. THE INCOME-TAX ACT DOES NOT ENVISAGE THE ITAT AS AN INCOME-TAX AUTHORITY, R ATHER IN THE SCHEME OF THE ACT, IT IS A PURELY APPELLATE AUTHORITY. THAT BEING SO, AS OBSER VED IN RAJ KUMARJAIN V. ASSTT. CIT [1994] 501TD I (ALL.)(TM), THE OBJECT OF THE APPEAL BEFORE THE TRIBUNAL IS WHETHER THE ADDITION OR DISALLOWANCE SUSTAINED WAS IN ACCORDANC E WITH LAW. IF THERE IS SUFFICIENT MATERIAL, THE ADDITION MUST BE UPHELD. IF NOT, THE ADDITION MUST BE DELETED. NO FURTHER ENQUIRY CAN BE ORDERED BY THE TRIBUNAL WITH A VIEW TO FILL IN THE LACUNAE AND SUSTAIN THE ADDITION/DISALLOWANCE. DOING SO WOULD AMOUNT TO TAK ING SIDES WITH THE PARTIES, WHICH IS NOT THE FUNCTION OF A JUDICIAL AUTHORITY LIKE THE T RIBUNAL. IT IS ONLY THAT IF THERE IS ANY ERROR IN THE PROCEEDINGS OR THE PROCEDURE, THE APPE LLATE AUTHORITY COULD CORRECT IT. MAKING FURTHER INVESTIGATION, HOWEVER, IS NOT APART OF THE PROCEDURE, BUT IS SUBSTANTIVE AND IS BEYOND THE PURVIEW OF THE TRIBUNAL ' CONSIDERING THE ABOVE DISCUSSION AND THE PECULIAR F ACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFF ER FROM ANY LEGAL OR FACTUAL INFIRMITY.SO, CONFIRMING THE SAME,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. ITA/4030/MUM/2014,AY. 2007-08: 6. THE ONLY EFFECTIVE GROUND OF APPEAL IS ABOUT AGENCY FEE AND INTEREST INCOME FROM THE ECB TRANSACTIONS.FOLLOWING OUR ORDER FOR THE EARLIER YE AR,WE PARTLY ALLOW THE GROUND RAISED BY THE ASSESSEE. ITA/4235/MUM/2014, AY.2007-08: 7. THE APPEAL FILED BY THE AO IS DISMISSED AS THE ISSU E INVOLVED IN THE YEAR IS IDENTICAL TO THE ISSUE DEALT BY US LAST YEAR I.E. ALP OF DERIVATIVE TRANSACTIONS. AS A RESULT, APPEALS OF THE ASSESSEE STAND PARTLY A LLOWED AND THE APPEALS OF THE AO ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JANUARY,2018. 12 , 2018 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 12 .01.2018. JV.SR.PS. 178/M/11; I.T.A./4030/MUM/2014; I.T.A./584/MUM/2011 & I.T.A./4235/MUM/2014 M/S. BARCLAYS BANK PLC. AY-06-07 & 07-08 12 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.