Sabic Innovative Plastics India Pvt.Ltd., Vadodara V. The ACIT, Circle-2(1)(1), Baroda

ITA 427/AHD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8945 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 22-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 23-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Transfer pricing; International transaction; Commercial expediency; Revenue expenditure; FORM 26AS
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 37(1); 201; 13; 22

Judgement Text

ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM ] ITA NO. 1125/AHD/ 2014 AND IT (TP) NO. 427/AHD/16 ASSESSMENT YEAR S : 2009 - 10 AND 2011 - 12 SABIC INNOVATIVE PLASTICS INDIA PVT LTD . ... ..... ....... .....APPELLANT PLASTIC AVENUE, JAWAHARNAGAR 391 320 DISTRICT: VADODARA . PAN: AABCE7565N VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1), VAODARA 390 007 .. .RESPONDENT APPEARANCES BY: MANOJ PARDASINI, ALONG WITH ANISH MEHTA AND VI VEK GUPTA FOR THE A SSESSEE SHANKAR LAL MEENA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : DECEMBER 21 , 2016 DATE OF PRONOUNC ING THE ORDER: MARCH 17 , 201 7 O R D E R PER BENCH : 1. THESE TWO APPEALS PERTAIN TO THE ASSESSEE PERTAIN TO THE SAME AS SESSEE, INVOLVE SOME COMMON ISSUES AND WERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE, THEREFORE, BOTH THE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10. 3. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT CALL FOR ANY INDEPENDENT ADJUDICATION. IT IS DISMISSED AS INFRUCTUOUS. 4. IN GROUND NOS. 2 TO 10, WHICH WE WILL TAKE UP TOGETHER, THE ASSESSE HAS RAISED THE FOLLOWING GRIEVANCES: 2. THE LD TPO, LD AO AND HO N'BLE DRP ERRED ON FACTS AND IN LAW IN DISREGARDING THE BENCHMARKING APPROACH OF THE APPELLANT OF APPLYING TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE OF MANAGEMENT SERVICES FEES. 3. THE L D TPO, LD AO AND HON'BLE DRP ERRED IN LAW, IN APPLYING THE 'COMPARABLE UNCONTROLLED PRICE' METHOD AS PRESCRIBED UNDER RULE 10B(1)(A) FOR DETERMINING THE ARM'S LENGTH PRICE FOR MANAGEMENT ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 2 OF 12 SERVICES, IN THE ABSENCE OF ANY FINDING OF 'THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION,' 4. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (SALES AND MARKETING SERVICES) TO SABIC INNOVATIVE PLASTICS JAPAN, SABIC INNOVATIVE PLASTICS KOREA AND SABIC INNOVATIVE PLASTICS HONGKONG AT 'NIL' AS AGAINST INR 1,37,74,052 (USD 2,99,826) AS DETERMINED BY THE APPELLANT. 5. THE LD TPO, LD A O AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (ENVIRONMENT, HEALTH AND SAFETY SERVICES) TO SABIC INNOVATIVE PLASTICS JAPAN AND SABIC INNOVATI VE PLASTICS SINGAPORE AT 'NIL' AS AGAINST INR 14,45,548 (USD 31,466) AS DETERMINED BY THE APPELLANT. 6. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (MANUFACTURING SERVICES) TO SABIC INNOVATIVE PLASTICS HONGKONG AT 'NIL' AS AGAINST INR 13,14,941 (USD 28,623) AS DETERMINED BY THE APPELLANT. 7. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (SUPPLY CHAIN MANAGEMENT SERVICES) TO SABIC INNOVATIVE PLASTICS JAPAN, SABIC INNOVATIVE PLASTICS KOREA AND SABIC INNOVATIVE PLASTICS HONGKONG AT 'NIL' AS AGAINST I NR 12,89,490 (USD 28,069) AS DETERMINED BY THE APPELLANT, 8 THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (FINANCIAL SERVICE S) TO SABIC INNOVATIVE PLASTICS JAPAN AND SABIC INNOVATIVE PLASTICS KOREA AT 'NIL' AS AGAINST INR 1,23,119 (USD 2,680) AS DETERMINED BY THE APPELLANT. 5. TO ADJUDICATE ON THESE GRIEVANCES, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE I S A PART OF SABIC GROUP, OWNED BY SABIC INNOVATIVE PLASTICS GP BV (14%) AND SABIC INNOVATIVE PLASTIC HOLDING SINGAPORE PVT LTD (84%), AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF ADVANCED ENGINEERING THERMO PLASTICS AND IS TRADING OF POLY CARBONATE SHEETS. DURING THE RELEVANT PREVIOUS YEAR , THE ASSESSEE MADE CERTAIN PAYMENTS, ON ACCOUNT OF INTRA GROUP MANAGEMENT SERVICES , TO ITS ASSOCIATED ENTERPRISES, NAMELY SABIC INNOVATIVE PLASTICS US LLC ( SABIC US , IN SHORT), SABIC INNOVATIVE PLASTICS (SEA) PTE LTD ( SABIC SEA , IN SHORT), SABIC INNOVATIVE PLASTICS MANAGEMENT SHANGHAI CO LTD ( SABIC SHANGHAI , IN SHORT), ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 3 OF 12 SABIC IP JAPAN LLC ( SABIC JAPAN , IN SHORT), SABIC IP KOREA LTD ( SABIC KOREA , IN SHORT) SABIC IP HONGKONG LTD ( SABIC HK , IN SHORT). IN RESP ECT OF FOLLOWING PAYMENTS MADE TO THE AES, FOR THE CONSULTANCY SERVICES SPECIFIED BELOW, THE TPO WAS OF THE VIEW THAT THE ARM S LENGTH PRICE SERVICES WAS NIL, AND, ACCORDINGLY, AN ALP ADJUSTMENT WAS MADE. NAME OF AE AMOUNT IN US $ SALES AND MARKET ING SABIC JAPAN 2, 72,037 SABIC KOREA 25,566 SABIC HK 2,224 ENVIRONMENT, HEALTH AND SAFETY SABIC SEA 15,500 SABIC JAPAN 15,966 MANUFACTURING SERVICES SABIC HK 28,623 SUPPLY CHAIN SERVICE S SABIC JAPAN 4,883 SABIC KOREA 12,303 SABIC HK 10,883 FINANCE CONSULTANCY SERVICES SABIC JAPAN 896 SABIC KOREA 1,784 6. THE REASONING ADOPTED BY THE TPO WAS BROADLY ON T HES E LINES. SO FAR AS SALES AND MARKETING SERVICES ARE CONCERNED, H E WAS OF THE VIEW THAT, ON A PERUSAL OF EVIDENCES IN SUPPORT OF THESE SERVICES, THE DISCUSSIONS IN EMAILS EYC SEEM TO BE SOMEWHAT GENERAL IN NATURE AND IN ANY CASE NOT WORTH ANY INDEPENDENT PA YMENT. HE HAS OBSERVED THAT BENEFIT CONFERRED ON THE ASSESSEE BECAUSE OF A PART OF SABIC GROUP, WHICH GETS HIM THESE INPUTS PROVIDED BY THE AES, DOES NOT DESERVE ANY PAYMENT . IN RESPECT OF EHS, THE TPO HAS OBSERVED THAT EXCEPT CORRESPONDENCE RELATING T O THE TRAINING OF PERSONNEL IN THIS AREA AND LONG FORECASTING, NO SERVICES APPEAR TO HAVE BEEN RENDERED AND THAT TO FACTOR THE ISSUE OF TRAINING AS WELL FORECASTING, THE PAYMENTS . ARE TAKEN AS FOR THE SERVICES RENDERED . SIMILARLY, IN TERMS OF MANUFACTU RING SEGMENT, HE WAS OF THE VIEW THAT SHARING OR MATERIAL, PREPARATION OF BUDGET, ASSISTANCE IN ARRANGING SPARE PARTS OF A MACHINE, ANALYSIS OF DATE PERTAINING TO EFFECTIVE CAPACITY UTILIZATION OF PRODUCTION PLANT ETS, EVIDENCES FOR WHICH WERE DULY FURNISH ED, WERE NOT IN THE NATURE OF ANY WORTHWHILE SERVICES, AND, AS SUCH, ARM S LENGTH PRICE OF THE SAME WAS NIL. AS REGARDS SUPPLY MANAGEMENT CHAIN, WHILE THE TPO DID ACKNOWLEDGE THAT SOME EVIDENCE OF SUCH SERVICE APPEARS FROM EMAIL CORRESPONDENCE , HE STA TED THAT THERE IS NO QUANTIFICATION OF THESE SERVICES. ON FINANCIAL SERVICES ALSO, THE COMMENTS WERE EQUALLY VAGUE. IT WAS STATED THAT THERE WAS NO EVIDENCE OF SERVICES RENDERED BY THE AES. AGGRIEVED BY THE ALP ADJUSTMENTS SO HELD TO BE ADMISSIBLE, ASSES SEE RAISED GRIEVANCE BEFORE THE DRP ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 4 OF 12 BUT WITHOUT ANY SUCCESS. THE DRP WAS OF THE VIEW THAT THE EVIDENCE OF RECEIPT OF SERVICES DOES NOT LIE IN MERE DOCUMENTS, SUCH AS AGREEMENTS DRAWN IN THIS REGARD OR EMAILS EXCHANGED BETWEEN THE PARTIES ; IT LIES IN THE BENEFIT REACHING THE RECIPIENT . IT WAS FURTHER ADDED THAT BENEFIT SHOULD BE DIRECT AND POSITIVELY CORRELATED WITH THE RECEIPT OF SERVICE . THE STAND OF THE TPO WAS THUS UPHELD. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 8. WE MAY AT THE OUTSET NOTE THAT THE DRP S OBSERVATIONS JUSTIFYING THE IMPUGNED ALP ADJUSTMENT ON THE GROUND OF BENEFI T NOT REACHING THE ASSESSEE FROM RENDITION OF SERVICES, ARE SOMEWHAT IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN DETERMINING ALP OF THAT SERVICE. WHEN EVALUATING THE ALP OF A SERVICE THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDE PENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. THIS PROCESS OF DETERMINATION OF ARM S LENGTH PRICE HAS TO BE DONE ON THE BASIS OF A RECOGNIZED METHOD OF DETERMINING ARM S LENGTH PRICE, RATHER THAN ON THE BASIS OF SUBJECTIVE PERCEPTIONS, DIVORCED FROM GR OUND REALITIES OF BUSINESS, OF THE TPO. WHILE ON THIS ISSUE, WE MAY ALSO REFER TO THE FOLLOWING OBSERVATIONS MADE BY A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AWB INDIA PVT LTD VS DCIT [(2015) 152 ITD 770 (DEL)] AND WHICH ARE EQUALLY APPLICABLE IN THE PRESENT CONTEXT : 15. ONE OF THE VERY BASIC PRE CONDITION FOR USE OF CUP METHOD IS AVAILABILITY OF THE PRICE OF THE SAME PRODUCT AND SERVICE IN UNCONTROLLED CONDITIONS. IT IS ON THIS BASIS THAT ALP OF THE PRODUCT OR SERVICE CAN BE ASCERTAINED. IT CANN OT BE A HYPOTHETICAL OR IMAGINARY VALUE BUT A REAL VALUE ON WHICH SIMILAR TRANSACTIONS HAVE TAKEN PLACE. COMING TO THE FACTS OF THIS CASE, THE APPLICATION OF CUP IS DEPENDENT ON THE MARKET VALUE OF THE ARRANGEMENTS UNDER WHICH THE PRESENT PAYMENTS HAVE BEE N MADE. UNLESS THE TPO CAN IDENTIFY A COMPARABLE UNCONTROLLED CASE IN WHICH SUCH SERVICES, HOWSOEVER TOKEN OR IRRELEVANT SERVICES AS HE MAY CONSIDER THESE SERVICES TO BE, ARE RENDERED AND FIND OUT CONSIDERATION FOR THE SAME, THE CUP METHOD CANNOT HAVE ANY APPLICATION. HIS PERCEPTION THAT THESE SERVICES ARE WORTHLESS IS OF NO RELEVANCE. IT IS NOT HIS JOB TO DECIDE WHETHER A BUSINESS ENTERPRISE SHOULD HAVE INCURRED A PARTICULAR EXPENSE OR NOT. A BUSINESS ENTERPRISE INCURS THE EXPENDITURE ON THE BASIS OF WHAT IS COMMERCIALLY EXPEDIENT AND WHAT IS NOT COMMERCIALLY EXPEDIENT. AS HELD BY HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS EKL APPLIANCES LIMITED (345 ITR 241), EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME . 16. THE VERY FOUNDATION OF THE ACTION OF THE TPO IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. THERE IS NO DISPUTE THAT THE IMPUGNED PAYMENTS ARE MADE UNDER AN ARRANGEMENT WITH THE AE TO PROVIDE CERTAIN SERVICES. IT IS NOT EVEN THE TPO S CASE THAT THE PAYMENTS FOR THESE SERVICES WERE NOT MADE FOR ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 5 OF 12 SPECIFIC SERVICES UNDER THE CONTRACT BUT HE IS OF THE VIEW THAT EITHER THE SERVICES WERE USELESS OR THERE WAS NO EVIDENCE OF ACTUA L SERVICES HAVING BEEN RENDERED. AS FOR THE SERVICES BEING USELESS, AS WE HAVE NOTED ABOVE, IT IS A CALL TAKEN BY THE ASSESSEE WHETHER THE SERVICES ARE COMMERCIALLY EXPEDIENT OR NOT AND ALL THAT THE TPO CAN SEE IS AT WHAT PRICE SIMILAR SERVICES, WHATEVER B E THE WORTH OF SUCH SERVICES, ARE ACTUALLY RENDERED IN THE UNCONTROLLED CONDITIONS. 17. AS FOR THE EVIDENCE FOR EACH OF THE SERVICE STATED IN THE AGREEMENT, IT IS NOT EVEN NECESSARY THAT EACH OF THE SERVICE, WHICH IS SPECIFICALLY STATED IN THE AGREEMENT, IS RENDERED IN EVERY FINANCIAL PERIOD. THE ACTUAL USE OF SERVICES DEPENDS ON WHETHER OR NOT USE OF SUCH SERVICES WAS WARRANTED BY THE BUSINESS SITUATIONS WHEREAS PAYMENTS UNDER CONTRACTS ARE MADE FOR ALL SUCH SERVICES AS THE USER MAY REQUIRE DURING THE PER IOD COVERED. AS LONG AS AGREEMENT IS NOT FOUND TO BE A SHAM AGREEMENT, THE VALUE OF THE SERVICES COVERED UNDER THE AGREEMENT CANNOT BE TAKEN AS NIL JUST BECAUSE THESE SERVICES WERE NOT ACTUALLY REQUIRED BY THE ASSESSEE. IN ANY CASE, HAVING PERUSED THE MA TERIAL ON RECORD, WE ARE SATISFIED THAT THE SERVICES WERE ACTUALLY RENDERED UNDER THE AGREEMENT AND THESE SERVICES DID JUSTIFY THE IMPUGNED PAYMENTS. 18. WE ARE ALSO OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF PREREQUISITES FOR APPLICATION OF CUP METHOD S BEING ABSENT IN THE PRESENT CASE, IT WAS NOT OPEN TO THE TPO TO DISREGARD THE TNMM EMPLOYED BY THE ASSESSEE. NO DEFECTS HAVE BEEN POINTED OUT IN APPLICATION OR RELEVANCE OF TNMM IN THIS CASE. UNDER THESE CIRCUMSTANCES, THE TPO S IMPUGNED ACTION CANNOT ME ET OUR JUDICIAL APPROVAL. 19. FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE IMPUGNED ALP ADJUSTMENT OF RS.31,23,325. THE ASSESSEE GETS THE RELIEF ACCORDINGLY . 9. THE ONLY JUSTIFICATION FOR TAKING ALP OF SERVICES AT NIL IS UNDER CUP BUT THEN THERE HAS TO BE SOMETHING ON RECORD TO SHOW THAT IN AN ARM S LENGTH SITUATION THESE SERVICES ARE RENDERED WITHOUT CONSIDERATION. THE WORTH OF SERVICES CANNOT BE DECIDED BY THE TPO, NOR IS IT OPEN TO HIM TO QUESTION, AS SUCH AN APPROACH IMPLICITLY DOES, THE COMMERCIAL EXPEDIENCY OF THESE SERVICES. IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THEM TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT IS NOT. IT IS NOT FOR THE TPO TO QUESTI ON ASSESSEE S WISDOM IN MAKING PAYMENT FOR THE SERVICES, WHICH, IN THE OPINION OF THE TPO, ARE NOT OF MUCH USE . THE TPO HAS TRAVELLED MUCH BEYOND HIS POWERS IN QUESTIONING COMMERCIAL WISDOM OF ASSESSEE S DE CISION TO TAKE BENEFIT OF EXPERTISE OF ITS AES. THE DRP IS ALSO IN ERROR, IN THE LIGHT OF THESE DISCUSSIONS, EVALUATING THE WORTH OF SERVICES ON THE BASIS OF BENEFIT OF THESE SERVICES. THE VERY FOUNDATION OF THE IMPUGNED ALP ADJUSTMENT WAS THUS DEVOID OF A NY LEGALLY SUSTAINABLE BASIS. 10. IN ANY CASE, WE HAVE CAREFULLY PERUSED THE EVIDENCE OF SERVICES RENDERED AND THE NATURE OF SERVICES IN QUESTION, ON RANDOM SAMPLE BASIS. IN OUR CONSIDERED VIEW, ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 6 OF 12 THERE IS REASONABLE EVIDENCE OF THE RENDITION OF SERVICE AND IT CANNOT BE OPEN TO TPO TO PROCEED ON THE BASIS THAT THE SERVICES WERE NOT RENDERED. THE METHOD OF ASCERTAINING THE ARM S LENGTH PRICE, ON THE BASIS OF TPO S SUBJECTIVE PERCEPTION ABOUT WORTH OF SERVICES, IS NOT SUSTAINABLE IN LAW EITHER. IN VIEW OF THES E DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE IMPUGNED ALP ADJUSTMENTS. GROUND NOS 2 TO 8 ARE, THEREFORE, TO BE ALLOWED. IN VIEW OF THE FACT THAT THE ASSESSEE SUCCEEDS IN HIS GRIEVANCE AGAINST ALP ADJU STMENT ON MERITS, GRIEVANCES RAISED IN GROUND NOS 9 AND 10 ARE DISMISSED AS INFRUCTUOUS. 11. GROUN D NOS. 2 TO 8 ARE THUS ALLOWED, AND GROUND NOS. 9 AND 10 ARE DISMISSED AS INFRUCTUOUS. 12. IN GROUND NOS 11, 12 AND 13, WHICH WE WILL TAKE UP TOGETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 11. THE AO, BASED ON DIRECTIONS OF HON'BLE DRP, ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION WITH RESPECT TO THE ADDITIONAL DUTY OF CUSTOMS ('ADC') WRITTEN OFF OF INR 19,04,000 AND THE SERVICE TAX CREDI T ('STC') WRITTEN OFF OF INR 39,51,000 UN DER THE ACT WITHOUT APPRECIATING THE FACT THAT THE SAME WERE CRYSTALLIZED DURING YEAR. 12. THE AO ERRED ON FACTS AND IN LAW IN HOLDING THAT EXPENSE WITH RESPECT TO ADC AND STC WERE NOT SUPPORTED BY ADEQUATE DOCUMEN TATION WITHOUT APPRECIATING THAT THE HON'BLE DRP HAS ONLY DIRECTED THE THE AO TO VERIFY THE YEAR OF CRYSTALLIZATION OF THE EXPENSES. 13 WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN LAW, THE LD AO BE DIRECTED TO ALLOW THE DEDUCTION OF ADC AND STC WR ITTEN OFF IN THE YEAR IN WHICH IT IS HELD TO BE CRYSTALLIZED. 13. AS REGARDS THE ABOVE GRIEVA NCES, WE HAVE NOTED THAT WHEN THE DRP S DIRECTIONS ON THIS ISSUE WERE TO THE EFFECT THAT IF THE INELIGIBILITY FOR REFUND IN RESPECT OF ADDITIONAL CUSTOM DUTY AND SERVICE TAX CREDIT CRYSTALLIZED ONLY IN THE FINANCIAL YEAR 2008 - 09, THEN THE CLAIM OF THE ASSESSEE FOR WRITE OFF MAY BE ENTERTAINED . HOWEVER, WHEN THE AO WAS TO GIVE EFFECT TO THESE DIRECTIONS HE NOTED THAT THE ASSESSEE HAS NOT SUBMITTED ANY FURTHER DET AILS FOR VERIFICATION THAT THE SAME ARE CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION . AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD A ND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 15. WE HAVE NOTED THAT THESE CREDITS WERE DULY ACCOUNTED FOR AND THAT IS HOW THESE WERE SHOWN IN THE BOOKS OF ACCOUNTS AS AN ASSET. THE PRESENT POSITION IS, AND THAT APPEA RS TO BE UNDISPUTED, THAT THE ASSESSEE IS NO LONGER ELIGIBLE FOR THESE CREDITS. CLEARLY THE ASSESSEE HAS AN INCURRED A BUSINESS LOSS IN RESPECT OF THE CREDITS SO LOST. THE ADMISSIBILITY OF DEDUCTION IS THUS BEYOND ANY DISPUTE OR CONTROVERSY. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS NOT CLAIMED THIS DEDUCTION IN ANY OTHER YEAR AS THE LOSS IS WRITTEN OFF IN THE CURRENT PREVIOUS YEAR AND ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 7 OF 12 AS SUCH BONAFIDES OF THIS CLAIM IS ALSO NOT IN DOUBT. ON THESE FACTS, IN OUR CONSIDERED VIEW, THE PEDANTIC APPROACH BE ING ADOPTED BY THE ASSESSING OFFICER, IN DEMANDING CONCLUSIVE EVIDENCE OF LOSS HAVING CRYSTALLIZED IN THE CURRENT PREVIOUS YEAR, IN WHOLLY UNJUSTIFIED. AS THE ASSESSEE HAS RECOGNIZED THIS LOSS IN THE PRESENT YEAR, AND AS INCURRING OF LOSS IS BEYOND ANY DOU BT OR CONTROVERSY, WE DEEM IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCES. THE ASSESSEE THUS SUCCEEDS IN THIS GRIEVANCE AS WELL. 16. GROUND NOS. 11, 12 AND 13 ARE THUS ALLOWED. 17. IN THE RESULT, THE APPEAL FILED B Y THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IS ALLOWED IN THE TERMS INDICATED ABOVE. 18. COMING TO THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 12, GROUND NUMBERS 1 TO 12, WHICH WE WILL TAKE UP TOGETHER, ARE AS FOLLOWS: 1. THE LEARNED ASSESSING OFFICER ('LD AO') [ALONG WITH THE LEARNED TRANSFER PRICING OFFICER ('LD TPO')] UNDER THE DIRECTIONS OF HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE FOR PAYMENT OF MANAGEMENT SERVICES FEES UNDER THE PROVISIONS OF SE CTION 92CA(4) OF THE ACT AND THEREBY MAKING AN ADJUSTMENT OF INR 3,24,24,757 TO THE TAXABLE INCOME OF THE APPELLANT. 2. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DISREGARDING THE BENCHMARKING APPROACH OF THE APPELLANT OF APPLYING TRAN SACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE OF MANAGEMENT SERVICES FEES. 3. THE LD TPO, LD AO AND HON'BLE DRP ERRED IN LAW, IN APPLYING THE 'COMPARABLE UNCONTROLLED PRICE' METHOD AS PRESCRIBED UNDER RULE 10B(L)(A) FOR DETERMINING THE ARM'S LENGTH PRICE FOR MANAGEMENT SERVICES, IN THE ABSENCE OF ANY FINDING OF 'THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION,' 4. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (FINANCIAL SERVICES) TO SABIC INNOVATIVE PLASTICS US LLC ARBITRARILY AT 50%, THAT IS INR 13,43,6 46 (USD 29,563), AS AGAINST INR 26,87,292 (USD 59,126) AS DETERMINED BY THE APPELLANT. 5. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SE RVICES FEES (FINANCIAL SERVICES) TO SABIC INNOVATIVE PLASTICS MANAGEMENT (SHANGHAI) CO., LTD AT 'NIL' AS AGAINST INR 1,04,72,623 (USD 2,30,421) AS DETERMINED BY THE APPELLANT. ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 8 OF 12 6. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING T HE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (SUPPLY CHAIN MANAGEMENT SERVICES) TO SABIC INNOVATIVE PLASTICS MANAGEMENT (SHANGHAI) CO., LTD AND SABIC INNOVATIVE PLASTICS (SEA) PTE. LTD AT 'NIL' AS AGA INST INR 33,16,370 (USD 72,967) AS DETERMINED BY THE APPELLANT. 7. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (LEGAL SERV ICES) TO SABIC INNOVATIVE PLASTICS (SEA) PTE, LTD AND SABIC INNOVATIVE PLASTICS US LLC AT 'NIL' AS AGAINST INR 31,97,788 (USD 70,358) AS DETERMINED BY THE APPELLANT. 8. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S L ENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (HUMAN RESOURCE SERVICES) TO SABIC INNOVATIVE PLASTICS US LLC AND SABIC INNOVATIVE PLASTICS MANAGEMENT (SHANGHAI) CO., LTD AT 'NIL' AS AGAINST INK 41,84,616 (USD 92, 071) AS DETERMINED BY THE APPELLANT. 9. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (SALES AND MARKETING SERVICES) TO SAB IC INNOVATIVE PLASTICS (SEA) PTE. LTD AT 'NIL' AS AGAINST INK 25,42,342 (USD 55,937) AS DETERMINED BY THE APPELLANT. 10. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAIN ING TO PAYMENT OF MANAGEMENT SERVICES FEES (ENVIRONMENT, HEALTH AND SAFETY SERVICES) TO SABIC INNOVATIVE PLASTICS (SEA) PTE. LTD AT 'NIL' AS AGAINST INK 15,23,949 (USD 33,530) AS DETERMINED BY THE APPELLANT. 11. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (INFORMATION MANAGEMENT ORGANIZATION SERVICES) TO SABIC INNOVATIVE PLASTICS US LLC AT 'NIL' AS AGAINST INR 23,33,534 (USD 51,343) AS DETERMINED BY THE APPELLANT. 12. THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT SERVICES FEES (EXECUTIVE SUPPORT SERVICES) TO SA BIC INNOVATIVE PLASTICS (SEA) PTE. LTD AT 'NIL' AND MAKING AN ADJUSTMENT OF INR 14,66,855 (USD 32,274). ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 9 OF 12 19. LEARNED REPRESENTATIVES FAIRLY AGREE THAT WHATEVER WE DECIDE ON GROUND NOS. 2 TO 8, FOR THE ASSESSMENT YEAR 2009 - 10 , WILL FOLLOW MUTATIS MUTANDIS H ERE AS WELL. THERE ARE SOME VARIATIONS IN THE FACTS OF THE CASE AND THE AMOUNTS INVOLVED BUT THAT DOES NOT, AS LEARNED REPRESENTATIVES FAIRLY AGREE, AFFECT THE DECISION ON LEGAL SUSTAINABILITY OF THE IMPUGNED ADDITIONS. 20. VIDE OUR DECISION EARLIER IN T HIS ORDER, WE HAVE UPHELD THOSE GROUNDS OF APPEAL AND DELETED THE RELATED ALP ADJUSTMENTS. RESPECTFULLY FOLLOWING THE SAID DECISION, WE ALLOW THESE GROUNDS OF APPEAL AS WELL, AND DELETE THE IMPUGNED ALP ADJUSTMENT. 21. GROUNDS NOS. 1 TO 12 ARE THUS ALLOWE D IN THE TERMS INDICATED ABOVE. 22. IN GROUND NO 13, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN PROPOSING A COST PLUS MARK - UP OF 3% INSTEAD OF 10% IN RESPECT OF FEES OF INFORMATION TECH NOLOGY SERVICES AVAILED FROM SABIC INNOVATIVE PLASTICS (SEA) PTE. LTD, THEREBY PROPOSING AN ADJUSTMENT OF INR 20,43,025 (USD 44,951). 23. SO FAR AS THIS ISSUE IS CONCERNED, IT WAS NOTED BY THE TPO THAT T HE SABIC - SEA WAS PAID US $ 7,06,366 FOR INFORMATION MANAGEMENT SUPPORT AND THIS INCLUDED 10% MARK UP ON THE COSTS ALLOCATED. THE TPO WAS OF THE VIEW THAT THE SERVICE RENDERED BY THIS AE WAS MORE OF INFRASTRUCTURE SUPPORT THAN SOFTWARE DEVELOPMENT, BECAUSE THE SOFTWARE IS BEING PROCURED FROM OUTSIDE AND BEI NG DISTRIBUTED TO THE AES. THEREFORE, THE MARK UP OF 10% IS NOT ACCEPTABLE AND IT SHOULD BE TAKEN @ 3% AS USUALLY APPLICABLE ON INFRASTRUCTURE SUPPORT. AGGRIEVED BY THIS PROPOSAL, THE ASSESSEE RAISED A GRIEVANCE BEFORE THE DRP BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 24. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 25. WE DID ASK THE LEARNED DEPARTMENTAL REPRES ENTATIVE ABOUT THE BASIS ON WHICH 3% MARGIN WAS ADOPTED AND HE JUSTIFIED THE SAME ON THE GROUND THAT WHEN SOFTWARE IS BEING PROCURED FROM OUTSIDE AND SIMPLY BEING DISTRIBUTED BY THE AE, SUCH A MARGIN IS MORE THAN REASONABLE. NO SPECIFIC COMPARABLES WERE, H OWEVER, POINTED OUT. SUCH BEING THE POSITION, A S LEARNED COUNSEL RIGHTLY POINTS OUT, THERE IS NO BASIS FOR ADOPTION OF 3% AS AN ACCEPTABLE MARK UP FOR THE INFORMATION MANAGEMENT SERVICES. THIS VARIATION IN THE MARK UP IS BASED ON THE PERCEPTIONS OF THE TPO AND NOT AN Y COGENT MATERIAL. THERE IS, IN ANY CASE, NO REASON FOR REJECTING THE COMPARABLES FROM IT SECTOR ONLY BECAUSE THE AE IS NOT DEVELOPING THE SOFTWARE ON ITS OWN AND PROVIDING THE SOFTWARE OBTAINED FROM OUTSIDE VENDORS. IN VIEW OF THESE DISCUSSIONS , AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE RELATED ALP ADJUSTMENT. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 10 OF 12 26. GROUND NO. 13 IS THUS ALLOWED. 27. IN GROUND NO. 14, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE LD TPO, LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT THE ASSOCIATED ENTERPRISES FILED THEIR 'RETURN OF INCOME' IN INDIA AND OFFERED TO TAX THEIR TAXABLE INCOME IN INDIA 28. GIVEN THE FACT THAT THE ASSESSEE HAS SUCCEEDED IN HIS GRIEVANCES ON MERITS, AGAINST THE ALP ADJUSTMENTS IN QUESTION, THIS GROUND OF APPEAL IS RENDERED INFRUCTUOUS AND IT DOES NOT CALL FOR ANY ADJUDICATION. 29. GROUND NO. 14 IS THUS DISMISSED AS INFRU CTUOUS. 30. IN GROUNDS OF APPEAL NUMBERS 14, 15 AND 19 , WHICH WE WILL TAKE UP TOGETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 15. THE LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DISALLOWING ADDITIONAL DUTY OF CUSTOMS ('ADC') ADJUSTED AG AINST PROVISION FOR DOUBTFUL LOANS AND ADVANCES OF INR 65,43,170 AS AN EXPENSE U/S 37(1) OF THE ACT. 16 THE LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DISALLOWING DEDUCTION WITH RESPECT TO SERVICE TAX CREDIT WRITTEN OFF OF INR 42,47,391 AS AN EXP ENSE U/S 37(1) OF THE ACT. 19 . THE LD AO AND HON'BLE DRP, WITHOUT PREJUDICE TO THE ABOVE FACTS AND IN LAW, BE DIRECTED TO ALLOW THE DEDUCTION OF SERVICE TAX CREDIT WRITTEN OFF AND CUSTOM DUTY EXPENSES WRITTEN OFF IN THE YEAR IN WHICH IT IS HELD TO BE CRY STALLIZED. 31. AS FAR AS THESE GRIEVANCES ARE CONCERNED, LEARNED REPRESENTATIVES FAIRLY AGREE THAT WHATEVER WE DECIDE ON THESE ISSUES FOR THE ASSESSMENT YEAR 2009 - 10 WILL EQUALLY APPLY HERE AS WELL. VIDE OUR DECISION FOR THE ASSESSMENT YEAR 2009 - 10 EARLIE R IN THIS ORDER, WE HAVE DELETED THESE ADDITIONS. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER IN THIS YEAR. WE, THEREFORE, UPHOLD THE GRIEVANCES OF THE ASSESSEE ON THESE POINTS. 32. GROUND NO. 15,16 AND 19 ARE THUS DELETED. 33. IN GROUND NO. 1 7 , THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DISALLOWING ADVANCES OF INR 7,92,881 ADJUSTED AGAINST PROVISION FOR DOUBTFUL ADVANCES AS AN EXPENSE U/S 37(1) OF THE ACT. 34. TO ADJUDICATE ON THIS GRIEVANCE OF THE ASSESSEE, ONLY A FEW FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE HAS WRITTEN OFF SMALL DEBIT BALANCES AGGREGATING TO RS 7,92,881 AND CLAIMED DEDUCTION IN RESPECT OF THE SAME. THE ASSESSING OFFICER HAS, ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 11 OF 12 HOWEVER, DISALLOWED THE CLAIM ON TH E GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THAT THESE ADVANCES WERE GIVEN IN THE COURSE OF NORMAL BUSINESS AND FURNISH THE EVIDENCES IN SUPPORT OF ITS CLAIM. THE DRP HAS ALSO CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT THE ASSESSEE HAS FAILED TO S ATISFY THE ASSESSING OFFICER WITH REGARD TO OLD BALANCES IN THE CREDITORS LEDGER . THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 35. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT THE ADVANCES WRITTE N OFF WERE IN RESPECT OF ADVANCE PAYMENTS FOR CREDITORS FOR SUPPLIES IN THE COURSE OR NORMAL BUSINESS. THE CLAIM OF THE ASSESSEE WAS THUS JUSTIFIED AND IT IS UPHELD. THE ASSESSING OFFICER IS DIRECTED TO DELETE THIS DISALLOWANCE OF RS 7,92,881 AS WELL. 36. GROUND NO. 17 IS THUS ALLOWED. 37. GROUND NO. 18 AND 22 WERE NOT PRESSED DUE TO SMALLNESS OF AMOUNTS INVOLVED, AND ARE DISMISSED AS SUCH. 38. IN GROUND NO. 20 , THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE LD AO AND HON'BLE DRP ERRED ON FACTS AN D IN LAW IN MAKING ADDITION OF INR 9,88,087 AS DIFFERENTIAL INTEREST INCOME AS PER BOOKS OF ACCOUNTS VIS - A - VIS FORM 26AS. 39. LEARNED REPRESENTATIVES FAIRLY AGREED TO LET THE MATTER BE RESTORED TO THE FILE OF THE ASSESSING OFFICER, AS THE RELATED FACTS HA VE NOT BEEN EXAMINED IN THE RIGHT PERSPECTIVE AND BY DEALING WITH THE RECONCILIATION DRAWN , FOR FRESH ADJUDICATION AFTER GIVING YET ANOTHER OPPORTUNITY OF HEARING TO THE ASSESSEE, BY WAY OF A SPEAKING ORDER AND IN ACCORDANCE WITH THE LAW. WE DIRECT SO. 40 . GROUND NO. 20 IS THUS ALLOWED. 41. IN GROUND NO. 21, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE LD AO AND HON'BLE DRP ERRED ON FACTS AND IN LAW IN DISALLOWING INR 16,30,000 BEING IN THE NATURE OF SALES PROMOTION EXPENSES AS AN EXPENSE U/S 37( 1) OF THE ACT. 42. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS 16,30,000 IN RESPECT OF PAYMENT MADE TO INDO JAPAN LIGHTING PVT LTD . UNDER AN ARRANGEMENT THAT THE ASSES SEE HAD ENTERED INTO WITH IJL, THE ASSESSEE WAS TO GIVE ALL ITS TECHNICAL KNOW HOW AS WELL AS RAW MATERIAL FOR DEVELOPMENT AND MANUFACTURING OF ENGINEERING THERMOPLASTIC HEADLAMP REFLECTOR FOR COMMERCIAL VEHICLES. THE ASSESSEE ALSO AGREED TO PAY AN AMOUNT OF UPTO RS 30 LAKHS FOR DEVELOPMENT OF THIS TOOL. THIS ARRANGEMENT WAS, HOWEVER, SUBJECT TO THE CONDITION THAT IJL WILL BE BUYING POLY ETHERIMIDE PEI FROM THE ASSESSEE TILL THE END OF LIFE OF THIS TOOL AND IF IT ANY TIME, IJL BUYS THIS MATERIAL FROM ANY OT HER SUPPLIER, IT WILL REIMBURSE ALL THE ABOVE MENTIONED CONTRIBUTION. ON THESE FACTS, THE CLAIM OF THE ASSESSEE WAS THAT THE PAYMENT MADE ITA NO. 1125/AHD/ 2014 A ND IT (TP) NO. 427/AHD/16 ASSESSMENT YEARS: 2009 - 10 AND 2011 - 12 PAGE 12 OF 12 TO IJL FOR DEVELOPMENT OF TOOL WAS A REVENUE EXPENDITURE AS IT WILL ULTIMATELY RESULT IN INCREASED SALE BY THE ASSESSE E. THE ASSESSING OFFICER, HOWEVER, WAS OF THE VIEW THAT AS THE EXPENDITURE RESULTS IN CREATION OF A CAPITAL ASSET, AND THE ASSESSEE WILL BE OWNER OF THIS ASSET AS ALSO RELATED INTELLECTUAL PROPERTY, THE EXPENDITURE IS REQUIRED TO BE TREATED AS CAPITAL IN N ATURE. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, ASSESSEE RAISED AN OBJECTION BEFORE THE DRP BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 43. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL O N RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 44. WE FIND THAT THE PURPOSE OF MAKING THE IMPUGNED PAYMENT IS UNDISPUTEDLY INCREASED SALE OF THE ASSESSEE INASMUCH AS IF AT ANY POINT OF TIME IJL IS TO PROCURE ITS RELATED RAW MATERIAL FROM ANY OTHER SUPPLIER, THE ENTIRE COSTS BORNE BY THE ASSESSEE ARE TO BE REFUNDED TO THE ASSESSEE. THE BENEFIT DERIVED FROM THE EXPENSES IS THUS DIRECTLY RELATABLE TO THE REVENUE FIELD OF SALES. THE COSTS INCURRED BY THE ASSESSEE FOR SUPPLY OF MOULDS, DEVELOPING ENGINEERING RESINS AND DEVELOPMENT OF THERMOPLASTIC HEAD LAMP REFLECTOR HAS A DIRECT BEARING WITH SALE OF THE ASSESSEE AND IN THAT SENSE, EVEN THOUGH IT MAY RESULT IN ENDURING ADVANTAGE, IT MUST BE TREATED AS REVENUE EXPEN DITU RE, AS DOMINANT PURPOSE OF EXPENSES WAS FOR INCREASING SALES. IN VIEW OF THESE DISCUSSIONS, IN OUR CONSIDERED VIEW, THE ASSESSEE DESERVES TO SUCCEED ON THIS PLEA AS WELL. THE IMPUGNED DISALLOWANCE OF RS 16,30,087 THUS STANDS DELETED. 45. GROUND NO 21 IS THUS ALLOWED. 46. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 12 IS ALSO ALLOWED. 47. TO SUM UP, WHILE APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 IS ALLOWED, THE APPEAL FOR THE ASSESSMENT YEAR 2011 - 12 IS PARTLY ALLOWED. PRONOUN CED IN THE OPEN COURT TODAY ON 17 TH DAY OF MARCH 2017 SD/XX SD/XX S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 17 TH DAY OF MARCH , 201 7 . COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD