M/s. GE Money Financial Services Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 440/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6947 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 05-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 24-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SIDDHARTHA SINGH S
• Keywords: Depreciation; Transfer pricing; International transaction; Avoidance of tax
• Section: 92C; 92B; 37(1); 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAV, JUDICIAL MEMBER ITA NO.440/DEL/2014 ASSESSMENT YEAR : 2009-10 GE MONEY FINANCIAL SERVICES PVT. LTD., 401 & 402, AGGARWAL MILLENNIUM TOWER, 4 TH FLOOR, E-1,2,3, NETAJI SUBHASH PLACE, PITAMPURA, NEW DELHI. PAN: AAACC0642F VS. DCIT, CIRCLE-12(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SACHIT JOLLY, SHRI GAUTAM SWARUP & SHRI SIDDHARTHA SINGH, ADVOCATES DEPARTMENT BY : SHRI H.K. CHOUDHARY, CIT, DR DATE OF HEARING : 05.07.2016 DATE OF PRONOUNCEMENT : 08.07.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143 (3) READ WITH SECTION ITA NO.440/DEL/2014 2 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON 09.01.2014 IN RELATION TO THE ASSESSMENT YEAR 2009- 10. 2. THE FIRST ISSUE IS AGAINST ADDITION OF RS.25,79, 63,344/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THA T THE ASSESSEE ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES (AES) AND REPORTED THE SAME IN AUDIT REPORT IN FORM NO.3CEB. THE FIRST INTERNATIONAL TRANSACTION WAS REPORTED AS AV AILING CONSULTING, IT AND ADMINISTRATION SERVICES (FROM AE IN THE US) WI TH VALUE OF RS.25,68,31,273/- AND THE SECOND INTERNATIONAL TRAN SACTION AS AVAILING CONSULTING, IT AND ADMINISTRATION SERVICES (FROM AE IN ASIA) WITH A TRANSACTED VALUE OF RS.47,32,071/-. THE ASSESSEE A PPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE ME THOD AND CHOSE FOREIGN AE AS A TESTED PARTY. THAT IS HOW, IT WAS SHOWN THAT THESE INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH PRI CE (ALP). THE ASSESSING OFFICER (AO) REFERRED THE DETERMINATION O F ALP OF THE INTERNATIONAL TRANSACTIONS TO THE TRANSFER PRICING OFFICER (TPO), WHO ITA NO.440/DEL/2014 3 HELD THAT THE ASSESSEE SHOULD HAVE TAKEN ITSELF AS A TESTED PARTY INSTEAD OF FOREIGN AE AND FURTHER THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD SHOULD HAVE BEEN APPLIED AS THE MOST APPROPR IATE METHOD INSTEAD OF THE TNMM. THE TPO NOTICED THAT THE ASSE SSEE CLAIMED TO HAVE AVAILED INTRA GROUP SERVICES, THROUGH THESE IN TERNATIONAL TRANSACTIONS, IN FINANCE, HUMAN RESOURCES, IT AND SYSTEM SUPPORT, LEGAL AND COMPLIANCE, GROUP AND CENTRAL RISK MANAGE MENT, QUALITY CONSULTATION AND TRAINING, SALES AND MARKETING, BUS INESS DEVELOPMENT, CEO OFFICE AND OPERATIONS. HE DISCUSSED EACH OF TH ESE SERVICES AND HELD THAT EITHER THERE WAS NO NEED TO AVAIL THEM OR THEY WERE EITHER DUPLICATE OR OF NO BENEFIT TO THE ASSESSEE. THE TP O ALSO DID NOT APPROVE THE ASSESSEES SELECTION OF ITS FOREIGN AE AS TESTE D PARTY AND USE OF FOREIGN COMPARABLES. BY RELYING ON CERTAIN DECISIO NS, THE TPO HELD THAT THE CUP METHOD WAS TO BE APPLIED AS THE MOST APPROP RIATE METHOD INSTEAD OF THE TNMM AND SINCE THERE WAS EITHER NO B ENEFIT TO THE ASSESSEE OR SUCH SERVICES WERE EITHER NOT RENDERED OR AMOUNTED TO DUPLICATION, THE ALP OF THESE TRANSACTIONS WAS DETE RMINED AT NIL. THE TPO PROPOSED TRANSFER PRICING ADJUSTMENT AMOUNTING TO ITA NO.440/DEL/2014 4 RS.25,79,63,344/-. THE ASSESSEE COULD NOT CONVINCE THE DRP ON ITS LINE OF REASONING, WHO UPHELD THE DRAFT ORDER CONTAINING ADDITION ON ACCOUNT OF TP ADJUSTMENT. THE AO IN HIS FINAL ORDER MADE TH E ADDITION AMOUNTING TO RS.25.79 CRORE BY SIMPLY INCORPORATING THE DISCUSSION MADE BY THE DRP ON THIS ISSUE. THE ASSESSEE HAS CH ALLENGED THE TRANSFER PRICING ADDITION BEFORE US. 4. AT THE OUTSET, THE LD. AR SUBMITTED THAT SIMILAR ADDITIONS WERE MADE BY THE AO IN HIS ORDERS FOR THE ASSESSMENT YEA RS 2006-07 TO 2008- 09 PURSUANT TO THE TPO COMPUTING NIL ALP OF THE INT ERNATIONAL TRANSACTION OF INTRA GROUP SERVICES. TAKING US THRO UGH THE RELEVANT PARTS OF THE TRIBUNAL ORDER FOR THESE YEARS, THE LD. AR C ONTENDED THAT THE TRIBUNAL HAS ACCEPTED THAT THE ASSESSEE RECEIVED TH E SERVICES FROM ITS AES WHICH WERE DULY RENDERED AND THERE WAS NO DUPLI CATION OF ANY SERVICES. HE SUBMITTED THAT THE TRIBUNAL HAS RESTO RED THE MATTER TO THE FILE OF THE TPO FOR REDECIDING THE ISSUE OF TESTED PARTY, MOST APPROPRIATE METHOD AND COMPARABILITY ANALYSIS. IT WAS, THEREFO RE, PRAYED THAT SIMILAR DIRECTION BE GIVEN FOR THE INSTANT YEAR AS WELL. T HE LD. DR STRONGLY ITA NO.440/DEL/2014 5 OBJECTED TO THE SUBMISSIONS ADVANCED ON BEHALF OF T HE ASSESSEE BY CONTENDING THAT THE ASSESSEE DID NOT PLACE ON RECOR D ANY EVIDENCE TO SHOW THAT THE SERVICES WERE, IN FACT, RECEIVED. HE FURTHER CONTENDED THAT THE FOREIGN AE CANNOT BE TAKEN AS A TESTED PARTY AN D SELECTION OF THE CUP AS THE MOST APPROPRIATE METHOD IS IN ORDER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FIRST QUESTION IS ABOUT THE DETERMINAT ION OF THE FACT AS TO WHETHER ANY SERVICES WERE RECEIVED BY THE ASSESSEE FOR WHICH THE PAYMENT WAS MADE. IN THIS REGARD, IT IS NOTICED TH AT THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 1.1.2006 WITH ITS AE, A COP Y OF WHICH IS AVAILABLE FROM PAGE 743 ONWARDS OF THE PAPER BOOK, UNDER WHICH IT RECEIVED ACCOUNTING AND FINANCIAL SUPPORT SERVICES, HUMAN RESOURCES SERVICES, E-COMMERCE, CONSULTING, LEGAL AND COMPLIA NCE SERVICES, ETC. THE ASSESSEE ALSO ENTERED INTO ANOTHER AGREEMENT DA TED 1.1.2006 WITH THE SAME AE WHOSE COPY IS AVAILABLE ON PAGE 770 OF THE PAPER BOOK, FOR RECEIVING IT AND SYSTEM SUPPORT SERVICES. IN ADDIT ION, THE ASSESSEE ENTERED INTO STILL ONE MORE AGREEMENT DATED 1.4.200 5 WITH GECF ASIA ITA NO.440/DEL/2014 6 LTD., ANOTHER AE, WHOSE COPY IS AVAILABLE AT PAGE 7 95 ONWARDS OF THE PAPER BOOK FOR RECEIVING THE SERVICES. THESE THREE AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH ITS AES IN EARLIER YEARS REMAINED OPERATIVE FOR THE PRECEDING THREE YEARS AND THE INSTANT YEAR AS W ELL. THE TRIBUNAL IN ITS ORDER FOR THE A.YS. 2006-07 TO 2008-09 HAS ANALYSED THE SERVICES RECEIVED BY THE ASSESSEE PURSUANT TO THESE THREE AG REEMENTS AND HAS COME TO THE CONCLUSION THAT THESE SERVICES WERE REQ UIRED BY THE ASSESSEE (NEED TEST); THESE SERVICES WERE RENDERED BY THE AE S (RENDITION TEST); THESE SERVICES WERE NOT DUPLICATIVE IN NATURE; THES E WERE NOT SHAREHOLDERS SERVICES TO SAFEGUARD THEIR INTEREST; AND THE ASSESSEE WAS BENEFITED BY THESE SERVICES (BENEFIT TEST). WHEN W E ADVERT TO THE FACTS OF THE INSTANT YEAR, IT IS FOUND THAT THE DETAILS OF S ERVICES RENDERED COUPLED WITH THEIR NEED AND BENEFIT DERIVED, HAVE BEEN INCO RPORATED IN FOUR PAPER BOOKS STARTING FROM PAGE 895 TO PAGE 2757. THE SER VICES SO RECEIVED BY THE ASSESSEE IN THE INSTANT YEAR EMANATE FROM THE S AME AGREEMENTS PURSUANT TO WHICH THE SERVICES WERE RECEIVED BY THE ASSESSEE IN IMMEDIATELY PRECEDING THREE ASSESSMENT YEARS, FOR W HICH THE TRIBUNAL HAS HELD THAT THE ASSESSEE AVAILED THE SERVICES WHI CH WERE REQUIRED AND ITA NO.440/DEL/2014 7 WERE NOT DUPLICATIVE IN NATURE. THE LD. DR COULD N OT POINT OUT THAT THE DOCUMENTS CONTAINED IN FOUR PAPER BOOKS DETAILING T HE SERVICES RECEIVED AND OTHER RELEVANT ASPECTS CONCERNING THE RECEIPT O F SERVICES WERE DIFFERENT FROM THE EARLIER YEARS, ON WHOSE STRENGTH THE TRIBUNAL HAS ADMITTED THE FACT OF RENDITION OF SERVICES BY THE A ES TO THE ASSESSEE. 6. BE THAT AS IT MAY IT IS FOUND THAT THE TPO HAS SIMPLY DISREGARDED THE RECEIPT OF SERVICES BY THE ASSESSEE FROM ITS AES BY HOLDING THAT THE SAME WERE EITHER NOT NEEDED OR WERE DUPLICATE IN NATURE OR THE ASSESSEE DID NOT RECEIVE ANY BENEFIT FROM THEM. IN OUR OPINION, THE NEED FOR SERVICES CANNOT BE ASCERTAINED BY THE TPO/AO, SO LONG AS THE SERVICES ARE ACTUALLY RECEIVED. IT IS FOR THE ASSESSEE TO DECID E IF ANY SERVICES ARE REQUIRED TO CARRY ON ITS BUSINESS. SIMILARLY, THE S O CALLED BENEFIT TEST IS TOTALLY IRRELEVANT IN THIS CONTEXT. ONCE THE FACTUM OF RECEIPT OF SERVICES IS PROVED, THE TPO/AO CANNOT CORRELATE IT WITH THE BEN EFIT ACTUALLY DERIVED. IT IS NOT NECESSARY THAT EVERY SERVICE AVA ILED MUST GIVE CONCRETE BENEFIT TO THE ASSESSEE. SOMETIMES, A BUSINESSMAN A LSO INCURS LOSSES, WHICH IS A NORMAL FEATURE. THE AO CANNOT SAY THAT S INCE THE ASSESSEE ITA NO.440/DEL/2014 8 SUFFERED LOSSES IN CARRYING ON BUSINESS OR NO SIGNI FICANT BENEFIT WAS DERIVED, HE WILL NOT ALLOW DEDUCTION OF THE EXPENSE S GENUINELY INCURRED FOR THE PURPOSE OF BUSINESS. IN THE SAME MANNER, TH E TPO/AO CANNOT DENY DEDUCTION BY SIMPLY SAYING THAT THE INTRA GROU P SERVICES WERE DUPLICATE IN NATURE. IN THIS REGARD, ONE SHOULD UND ERSTAND THE MEANING OF DUPLICATE SERVICES. IF A PARTICULAR SERVICE IS AVAI LABLE IN INDIA BUT THE ASSESSEE CHOOSES TO AVAIL IT FROM ITS FOREIGN AE, T HE SERVICE DOES NOT BECOME DUPLICATE. IT WILL BE DUPLICATE ONLY WHEN TH E ASSESSEE AVAILS A PARTICULAR SERVICE FROM INDIA AND THEN SIMILAR SERV ICE IS AVAILED FROM FOREIGN AE AS WELL. TO ILLUSTRATE, IF THE ASSESSEE IS MAINTAINING ITS ACCOUNTS IN INDIA AND SIMILAR ACCOUNTS ARE ALSO GOT MAINTAINED BY THE FOREIGN AE FOR AND ON BEHALF OF THE ASSESSEE, THEN, OF COURSE, THE MAINTENANCE OF ACCOUNTS BY THE FOREIGN AE WILL BE A DUPLICATE SERVICE, WHICH WILL REQUIRE THE DETERMINATION OF ALP AT NIL. IF ON THE OTHER HAND, THE ASSESSEE, DESPITE THE AVAILABILITY OF ACCOUNTIN G SERVICE IN INDIA, OPTS TO GET ITS ACCOUNTS MAINTAINED BY THE FOREIGN AE AN D PAYS, THEN IT DOES NOT FALL IN THE CATEGORY OF DUPLICATE SERVICES. BEF ORE COMING TO THE CONCLUSION AS TO THE DUPLICATE SERVICES AVAILED FRO M THE AE, IT IS ITA NO.440/DEL/2014 9 INCUMBENT UPON THE TPO/AO TO SPECIFICALLY RECORD A FINDING AND DEMONSTRATE THAT THE ASSESSEE AVAILED SIMILAR SERVI CE TWICE AND THAT IS THE REASON FOR NOT GRANTING ANY DEDUCTION FOR PAYMENT O F INTRA GROUP SERVICES. IF ON THE OTHER HAND, THE ASSESSEE AVAILS SERVICE ONLY FROM ITS FOREIGN AE AND DOES NOT AVAIL AND PAY FOR THE SAME SERVICE IN INDIA, IT DOES NOT ASSUME THE CHARACTER OF A DUPLICATE SERVIC E. TO PUT IT SIMPLY, BEFORE CHARACTERIZING ANY PAYMENT FOR DUPLICATE SER VICE, THE TPO/AO MUST EXPRESSLY AND POSITIVELY PROVE THAT THE ASSESS EE PAID TWICE FOR SIMILAR SERVICE. ONCE THE SERVICES ARE ACTUALLY AVA ILED BY THE ASSESSEE IN A BONA FIDE MANNER, WHICH ARE NOT DUPLICATE AS DISCUSSED ABOVE , THE ONLY THING WHICH THE AO/TPO CAN DO IS TO FIND OUT IF THE QUID PRO QUO FOR SUCH PAYMENT IS COMMENSURATE WITH THE PAYMENT FOR S IMILAR SERVICES MADE IN AN UNCONTROLLED SITUATION. THIS CAN BE DONE BY DETERMINING THE ALP OF SUCH SERVICES BY ONE OF THE PRESCRIBED METHO DS. COMING BACK TO THE FACTS OF THE EXTANT YEAR, WE FIND THAT THE TPO/ AO HAVE SIMPLY HELD SUCH INTRA-GROUP SERVICES TO BE EITHER NOT NEEDED O R DUPLICATE OR NOT RESULTING INTO ANY BENEFIT ETC. WE HAVE HELD ABOVE THAT THE ASSESSEE ACTUALLY AVAILED THE SERVICES AS HAS BEEN BORNE OUT FROM RECORD AND ALSO ITA NO.440/DEL/2014 10 THE ORDER OF THE TRIBUNAL FOR THE PRECEDING YEARS. UNDER SUCH CIRCUMSTANCES, WE CANNOT COUNTENANCE THE ACTION OF THE AUTHORITIES BELOW. IN VIEW OF THE FOREGOING DISCUSSION, WE HOLD THAT THE ASSESSEE DID AVAIL THE SERVICES FOR WHICH IT MADE PAYMENT TO ITS AE. 7. HAVING HELD THAT THE ASSESSEE RECEIVED INTRA-GRO UP SERVICES FROM ITS AES, THE NEXT QUESTION IS THE DETERMINATION OF THEI R ALP. THERE ARE CERTAIN ASPECTS CONCERNING THE DETERMINATION OF THE ALP OF SUCH INTRA GROUP SERVICES IN THE INSTANT CASE, NAMELY, SELECTI ON OF TESTED PARTY, SELECTION OF THE MOST APPROPRIATE METHOD AND COMPAR ABILITY ANALYSIS. 8. THE FIRST ISSUE IS DETERMINATION OF TESTED PART Y. THE ASSESSEE SELECTED ITS FOREIGN AE AS TESTED PARTY AND WITH THE PROFIT MARGIN OF SUCH AE VIS- -VIS THE PROFIT MARGIN OF SOME FOREIGN COMPARABLES, TRIE D TO DEMONSTRATE THAT THE INTERNATIONAL TRANSACTIONS WER E AT ALP. THE TPO DID NOT ACCEPT SELECTION OF FOREIGN AE AS THE TESTE D PARTY. THE TRIBUNAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEARS HAS RESTORED THE QUESTION OF DETERMINATION OF TESTED PARTY TO THE TP O. HOWEVER, THE LD. AR INSISTED THAT THE SELECTION OF TESTED PARTY BE D ECIDED INDEPENDENTLY IN ITA NO.440/DEL/2014 11 THE CURRENT PROCEEDINGS. IT WAS SUBMITTED THAT SIM ILAR SERVICES WERE PROVIDED BY THE FOREIGN AE TO OTHER AES ACROSS THE GLOBE, HENCE, THE FOREIGN AE SHOULD BE CONSIDERED AS A TESTED PARTY H AVING UNDERTAKEN THE LEAST COMPLEX TRANSACTION. CRUX OF THE ARGUMENT IS THAT THE ASSESSEE IS FOLLOWING THE TNMM AS THE MOST APPROPRIATE METHOD A ND SINCE THE PROFIT RATE EARNED BY ITS FOREIGN AE FROM THE SERVI CES RENDERED TO THE ASSESSEE AND OTHERS IS COMPARABLE WITH THE PROFIT R ATE OF FOREIGN COMPARABLE COMPANIES RENDERING SIMILAR SERVICES, TH E INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS AES SHOULD BE CONSIDERED AT ALP. THIS REFERS TO THE FOREIGN AE AS A TESTED PART Y. 9. THE ASSESSEE HAS EMPLOYED THE TNMM AS THE MOST APPROPRIATE METHOD. IT COMPARED THE PROFIT RATE EARNED BY ITS F OREIGN AE WITH THE PROFIT RATE OF OTHER FOREIGN COMPARABLE COMPANIES T O CLAIM THAT THE PRICE PAID BY THE ASSESSEE UNDER THESE INTERNATIONAL TRAN SACTIONS WAS AT ALP. AS CAN BE NOTICED FROM THE TRANSFER PRICING STUDY R EPORT, THE RELEVANT PARTS OF WHICH HAVE BEEN REPRODUCED IN THE ORDER OF THE TPO, THAT THE ASSESSEE IS HARPING ON SELECTION OF ITS AE AS TESTE D PARTY. WE HAVE TO ITA NO.440/DEL/2014 12 DECIDE AS TO WHETHER THE SELECTION OF THE FOREIGN A E AS TESTED PARTY IS CORRECT IN THE INDIAN CONTEXT. 10. FOR THIS PURPOSE, WE NEED TO VISIT THE PROVIS IONS OF THE CHAPTER X OF THE ACT WITH THE CAPTION 'SPECIAL PROVISIONS RELATI NG TO AVOIDANCE OF TAX' DEALING WITH THE COMPUTATION OF INCOME FROM IN TERNATIONAL TRANSACTIONS HAVING REGARD TO ALP. SECTION 92(1) OF THE ACT PROVIDES THAT : ANY INCOME ARISING FROM AN INTERNATIONAL TR ANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. THUS, THIS PROVISION APPLIES TO INCOME OF AN ENTERPRISE FROM AN INTERNAT IONAL TRANSACTION, WHICH IS CHARGEABLE TO TAX UNDER THE ACT. THE TERM 'INTERNATIONAL TRANSACTION' HAS BEEN DEFINED IN SECTION 92B TO MEA N A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF . OR PROVISION OF SERVICES, OR ... THE METHODOLOGY FOR COMPUTATION OF ARMS L ENGTH PRICE OF AN INTERNATIONAL TRANSACTION HAS BEEN SET OUT IN SE CTION 92C(1) TO BE AS PER ANY OF THE PRESCRIBED METHODS, INCLUDING THE TN MM METHOD. THIS METHOD WAS USED BY THE ASSESSEE AS THE MOST APPROPR IATE METHOD, WHICH ITA NO.440/DEL/2014 13 HAS BEEN DISPUTED BY THE TPO. SUB-SECTION (3) OF SE CTION 92C PROVIDES THAT : WHERE DURING THE COURSE OF ANY PROCEEDING F OR THE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF M ATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE OPINION THAT- -(A) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRANSACTION HAS NOT BEE N DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2) ; OR.. , THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH P RICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION IN ACCORDANCE WI TH SUB-SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION O R DOCUMENT AVAILABLE WITH HIM. RULE 10B DEALING WITH THE DETERMINATION OF ARMS LENGTH PRICE UNDER SECTION 92C PROVIDES THROUGH SUB-RULE ( 1) THAT FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C, THE ARM S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE D ETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHO D. THE MECHANISM FOR DETERMINING ALP UNDER TNMM HAS BEEN ENSHRINED I N CLAUSE (E), WHICH STATES THAT : ITA NO.440/DEL/2014 14 (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM A N INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD TO ANY OTHER RELEVANT BASE ; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING RE GARD TO THE SAME BASE ; (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAU SE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSAC TIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MA RGIN IN THE OPEN MARKET ; ITA NO.440/DEL/2014 15 (IV) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE AND REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III) ; (V) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO T HE INTERNATIONAL TRANSACTION. 11. A CONJOINT READING OF THE ABOVE PROVISIONS IND ICATES THAT FIRSTLY, A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES IS CALLED AN INTERNATIONAL TRANSACTION; SECONDLY, ANY INCOME FRO M SUCH INTERNATIONAL TRANSACTION IS REQUIRED TO BE DETERMINED AT ALP; TH IRDLY, THE ALP IN RESPECT OF SUCH INTERNATIONAL TRANSACTION SHOULD BE DETERMINED BY ONE OF THE PRESCRIBED METHODS, WHICH ALSO INCLUDES THE TNM M. UNDER THIS METHOD, THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM A N INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFF ECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD TO ANY OTHER RELEVANT BASE, WHICH IS THEN COMPARED WITH TH E NET PROFIT MARGIN ITA NO.440/DEL/2014 16 REALIZED BY THE ENTERPRISE OR BY AN UNRELATED ENTER PRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION. THE MODUS OPERANDI OF DETERMINING ALP OF AN INTERNATIONAL TRANSACTION UND ER THIS METHOD IS THAT FIRSTLY, THE PROFIT RATE REALIZED OR EARNED BY THE ASSESSEE FROM A TRANSACTION WITH ITS AE IS DETERMINED (SAY, PROFIT A), WHICH IS THEN COMPARED WITH THE RATE OF PROFIT OF COMPARABLE CASE S (SAY, PROFIT B) SO AS TO ASCERTAIN IF PROFIT A IS AT ARMS LENGTH VIS--VIS THE PROFIT B. IF IT IS NOT, THEN, AN ADDITION ON ACCOUNT OF TRANSFER PRICING AD JUSTMENT, SUBJECT TO OTHER PROVISIONS, IS MADE IN THE HANDS OF THE ASSES SEE HAVING REGARD TO THE DIFFERENCE BETWEEN THE RATES OF PROFIT A AND PR OFIT B. THE RATE OF PROFIT OF COMPARABLE CASES (PROFIT B) MAY BE COMPUT ED FROM INTERNALLY OR EXTERNALLY COMPARABLE CASES, DEPENDING UPON THE FAR ANALYSIS AND THE FACTS AND CIRCUMSTANCES OF EACH CASE. THUS THE CALCULATION OF PROFIT B MAY UNDERGO CHANGE WITH THE VARYING SET OF COMPARAB LE CASES. HOWEVER, INSOFAR AS CALCULATION OF PROFIT A IS CONC ERNED, THERE CANNOT BE ANY DISPUTE AS THE SAME HAS TO NECESSARILY RESULT O NLY FROM THE TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES, AS IS THE MANDATE OF SECTIONS 92 READ WITH 92B IN JUXTAPOSITI ON TO RULE 10B. THE ITA NO.440/DEL/2014 17 NATURAL COROLLARY WHICH, ERGO, FOLLOWS IS THAT UNDE R NO SITUATION CAN THE CALCULATION OF PROFIT A BE SUBSTITUTED WITH ANYTH ING OTHER THAN THE PROFIT REALIZED OR EARNED BY THE ENTERPRISE FROM THE INTERNATIONAL TRANSACTION, THAT IS, A TRANSACTION BETWEEN THE ASSOCIATED ENTE RPRISES. SO, UNDER THE TNMM, IT IS THE PROFIT MARGIN REALIZED BY THE INDIAN ASSESSEE FROM THE TRANSACTION WITH ITS FOREIGN AE, WHICH IS COMPARED WITH THAT OF THE COMPARABLES. THERE CAN BE NO QUESTION OF SUBSTI TUTING THE PROFIT REALIZED BY THE INDIAN ENTERPRISE WITH THE PROFIT R EALIZED BY THE FOREIGN AE FOR THE PURPOSES OF DETERMINING THE ALP OF THE I NTERNATIONAL TRANSACTION OF THE INDIAN ENTERPRISE WITH ITS FOREI GN AE. SCOPE OF TRANSFER PRICING ADDITION UNDER THE INDIAN TAXATION LAW IS L IMITED TO TRANSACTION BETWEEN THE ASSESSEE AND ITS FOREIGN AE. WE FAIL T O COMPREHEND AS TO HOW THE PROFIT REALIZED BY THE FOREIGN AE CAN BE RE LEVANT, WHEN THE PROFIT OF THE INDIAN ENTERPRISE IS GOING TO BE ENSU RED AT ALP. THE UNDERLYING OBJECT OF THE TRANSFER PRICING PROVISION S IS, INTER ALIA, TO SEE THAT THERE IS NO PROFIT SHIFTING FROM THE INDIAN TA XATION BASE BY MEANS OF THE FOREIGN AE CHARGING MORE THAN COMPARABLE INDEPE NDENT CASES, WHICH FACT IS ENSURED BY DETERMINING ALP OF THE INT ERNATIONAL ITA NO.440/DEL/2014 18 TRANSACTION. IF FOREIGN AE HAS IN FACT CHARGED MORE , THEN ITS PROFIT RATE WILL SHOOT UP AND THE CORRESPONDING PROFIT OF THE I NDIAN ENTERPRISE WILL BE SQUEEZED. IN THAT SITUATION, A COMPARISON OF TH E PROFIT RATE OF THE FOREIGN AE WILL RUN CONTRARY TO THE MANDATE OF THE PROVISIONS. WHEREAS, WE WERE REQUIRED TO DETERMINE IF THE PROFI T CHARGED BY THE FOREIGN AE IS NOT MORE THAN THAT CHARGED BY UNCONTR OLLED COMPARABLES BY SEEING THE PROFIT RATE OF THE INDIAN ENTERPRISE, WE WILL END UP DOING A FUTILE EXERCISE OF RATHER VIEWING THE PROFIT RATE O F THE FOREIGN AE. SUPPOSE THE FOREIGN AE HAS CHARGED MORE, THEN ITS P ROFIT RATE WILL TURN OUT TO BE HIGHER, WHICH WHEN COMPARED WITH THE LOWE R RATE OF PROFIT MARGIN OF FOREIGN COMPARABLES, WILL SHOW THE TRAN SACTION AT ALP, CALLING FOR NO TRANSFER PRICING ADJUSTMENT. THIS EX ERCISE IS NOT ONLY OFF THE MARK, BUT RUNS COUNTER TO THE RULE AND SPIRIT O F THE TRANSFER PRICING PROVISIONS. ESSENCE OF THE MATTER IS THAT IT IS THE PROFIT MARGIN OF THE INDIAN ENTERPRISE AND NOT THAT OF THE FOREIGN AE, W HICH SHOULD BE COMPARED WITH THE COMPARABLES TO SEE IF ANY INCREAS E IN THE TOTAL INCOME OF THE ENTERPRISE CHARGEABLE TO TAX IN INDIA, IS WA RRANTED ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE CONTENTION OF THE LD. AR FOR CONSIDERING ITA NO.440/DEL/2014 19 THE PROFIT OF THE FOREIGN AE AS PROFIT A FOR THE PURPOSES OF COMPARISON WITH PROFIT OF COMPARABLES, BEING PROFIT B, TO DE TERMINE THE ALP OF TRANSACTION BETWEEN THE ASSESSEE AND ITS FOREIGN AE , MISSES THE WOOD FROM THE TREE BY MAKING THE SUBSTANTIVE SECTION 92 OTIOSE AND THE DEFINITION OF INTERNATIONAL TRANSACTION U/S 92B A ND RULE 10B REDUNDANT. THIS IS PATENTLY AN UNACCEPTABLE PROPOSITION HAVING NO SANCTION UNDER THE INDIAN TRANSFER PRICING LAW. THE REQUIREMENT UN DER THE INDIAN LAW IS TO COMPUTE THE INCOME FROM AN INTERNATIONAL TRANSAC TION BETWEEN TWO AES HAVING REGARD TO ITS ALP AND THE SAME IS REQUIR ED TO BE STRICTLY ADHERED TO IN THE MANNER AS PRESCRIBED. 12. THE HONBLE JURISDICTIONAL HIGH COURT IN CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) P. LTD. VS. DCIT (2015) 376 ITR 18 3 (DEL) HAS HELD THAT : `THUS, THE COURTS ARE PRIMARILY BOUND BY THE LAW ON THE SU BJECT IN INDIA ; IF THE LAW IS CLEAR AND UNAMBIGUOUS, THERE IS NO QUESTION OF RESORTING TO EXTRINSIC SOURCES. THE ONLY RIDER IS T HAT IF THE TERMS OF SUCH CONVENTIONS OR TREATIES ARE SIMILAR TO THE LAW APPL ICABLE IN INDIA, COURTS MAY CONSIDER PRECEDENTS IN THAT REGARD; HOWEVER THO SE ARE ONLY OF ITA NO.440/DEL/2014 20 PERSUASIVE VALUE. IN REACHING THIS CONCLUSION, THE HONBLE HIGH COURT TOOK NOTE OF ITS EARLIER JUDGMENT IN CIT VS. MENTOR GRAPHICS (NOIDA) PVT. LTD. (2013) 354 ITR 586 (DELHI) , WHEREIN IT HAS BEEN LAID DOWN THAT : `IN THE PRESENT CASE, THERE ARE SPECIFIC PROVISIO NS OF SUB- RULES (2) AND (3) OF RULE 10B OF THE SAID RULES AS ALSO OF THE FI RST PROVISO TO SECTION 92C(2) OF THE SAID ACT WHICH APPLY. THEREFORE, THE QUESTION OF APPLYING OECD GUIDELINES DOES NOT ARISE AT ALL. THESE JUDGM ENTS DELINEATE THAT THE PROVISIONS OF THE ACT ARE SUPREME AND HENCE SHO ULD NOT BE COMPROMISED. 13. COMING BACK TO THE CONTEXT, WE FIND THAT TH E OBLIGATION UNDER THE INDIAN LAW IS TO COMPUTE THE INCOME FROM AN INTERNA TIONAL TRANSACTION BETWEEN TWO AES HAVING REGARD TO ITS ALP AND THE SA ME IS REQUIRED TO BE STRICTLY DETERMINED AS STIPULATED. THE CONTENTIO N, THAT THE FOREIGN AE BE CONSIDERED AS A TESTED PARTY AND THEN FOREIGN CO MPANIES BE CONSIDERED AS COMPARABLE FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION, HAVING NO STATUTORY SANCTION, IS SANS MERIT AND HENCE JETTISONED. ITA NO.440/DEL/2014 21 14. TO SUM UP, WE HOLD THAT THE METHODOLOGY ADOPTE D BY THE ASSESSEE FOR COMPUTATION OF ALP IN RESPECT OF ITS INTERNATIO NAL TRANSACTIONS OF INTRA-GROUP SERVICES BY CHOOSING FOREIGN AE AS A TE STED PARTY IS COMPLETELY UNFOUNDED AND DESERVES TO BE AND IS HERE BY REJECTED IN ENTIRETY. 15. NOTWITHSTANDING THE ABOVE LEGAL POSITION AND TO PROVIDE COMPLETENESS TO OUR ORDER, WE WILL ALSO DEAL WITH THE ARGUMENT MADE BY THE LD. AR IN THE FORM IN WHICH IT WAS PUT FORTH BE FORE US. HE SUBMITTED THAT THE TRANSACTION OF FOREIGN AE IS LEAST COMPLEX AS THE DATA OF FOREIGN COMPARABLES COMPANIES IS ACCURATE FOR COMPARISON WH ICH CAN BE USED WITH MINIMAL ADJUSTMENTS. ON A POINTED QUERY, THE LD. AR TOOK US THROUGH PAGE 360 OF THE PAPER BOOK, WHICH IS A PART OF ITS TRANSFER PRICING REPORT, INDICATING THAT THE FOREIGN AE CHA RGED MARK-UP BETWEEN 3.70% TO 11% DEPENDING UPON THE NATURE OF SERVICES. ON A FURTHER QUERY, HE TOOK US THROUGH PAGE 385 OF THE PAPER BOO K SHOWING A LIST OF FOREIGN COMPANIES CHOSEN BY THE ASSESSEE AS COMPARA BLE FOR THE INTERNATIONAL TRANSACTION OF INTRA GROUP SERVICES. THERE IS A CHART ITA NO.440/DEL/2014 22 CONTAINING NAME OF 20 COMPANIES WITH THE DATA GIVEN FOR THE YEAR 2007 AND ROTC AT VARYING PERCENTAGES WITH AVERAGE OF 13. 23%, AS UNDER : - S.NO. COMPANY YEAR ROTC 1. ACCENTURE LTD. 2007 14.02% 2. ADVISORY BOARD CO. 2007 26.48% 3. CBIZ INC. 2007 8.58% 4. CORPORATE EXECUTIVE BRD CO. 2007 26.63% 5. CRA INTERNATIONAL INC 2007 14.10% 6. DIAMOND MANAGEMENT & TECHNL 2007 11.24% 7. DUFF & PHELPS CORP 2007 0.64% 8. FRANKLIN CNVEY CO. 2007 2.17% 9. FTI CONSULTING INC. 2007 22.97% 10. HACKETT GROUP INC. 2007 3.74% 11. HURON CONSULTING GROUP INC. 2007 18.04% 12. ICF INTERNATIONAL INC 2007 10.74% 13. INFORTE CORP 2007 1.85% 14. LECG CORP 2007 9.67% 15. NAVIGANT CONSULTING INC. 2007 12.48% 16. RESOURCES CONNECTION INC. 2007 13.38% 17. SIERRA SYSTEMS GROUP INC. 2007 6.45% 18. SM & A CORP. 2007 21.56% 19. THOMAS GROUP INC. 2007 23.22% 20 WATSON WYATT WORLDWIDE INC 2007 16.61% MEAN 13.23% 16. PAGE 384 OF THE PAPER BOOK DISCUSSES ABOUT TH E SCREENING OF COMPANIES. IT IS MENTIONED ON THIS PAGE THAT THE C OMPANIES PROVIDING DISSIMILAR SERVICES WERE REJECTED AND 20 COMPANIES WERE IDENTIFIED AS PROVIDING COMPARABLE SERVICES. NEXT PARA OF THE TR ANSFER PRICING STUDY REPORT READS AS UNDER :- ITA NO.440/DEL/2014 23 FURTHER, WHILE PERFORMING THE COMPARABLE SEARCHES FOR ROUTIN E ADMINISTRATIVE AND IT SERVICES, WE LOOKED FOR COMPA NIES THAT COULD BE CONSIDERED COMPARABLE TO THE CONSULTING SERVICES PROVIDED BY THE PROVIDING ENTITIES. THESE COMPANIES MAY NOT HAVE APPEARED IN THE INITIAL SET FOR CONSULTING SERVICES COMPARABLE SEAR CH. THIS IS BECAUSE THESE COMPANIES MAY BE CLASSIFIED UNDER SIC CODES T HAT WERE NOT CONSIDERED COMPARABLE FOR THE CONSULTING SERVICES S EARCH. HOWEVER, WE FOUND NO SUCH COMPANIES. 17. ON GOING THROUGH THE MECHANISM FOR SCREENING OF FOREIGN COMPANIES ADOPTED BY THE ASSESSEE AS COMPARABLE, IT CLEARLY EMERGES THAT THE ASSESSEE, INTER ALIA, RECEIVED ROUTINE ADMINISTRATIVE AND IT SERVICES, BUT COULD NOT FIND ANY COMPARABLE AND, HE NCE, COMPARABLES FOR SUCH SERVICES REMAINED ALTOGETHER ABSENT. THE ABOVE EXTRACTED PARA COMPLETELY BELIES THE LD. ARS CONTENTION ABOUT THE AVAILABILITY OF RELIABLE DATA OF FOREIGN COMPANIES, INASMUCH AS THE RE IS NO COMPANY PROVIDING ROUTINE ADMINISTRATIVE AND IT SERVICES, AS WERE ALSO AVAILED BY THE ASSESSEE FROM ITS AE, IN THE FINALLY SELECT ED LIST OF COMPANIES. THIS MANIFESTS THAT THE FOREIGN COMPANIES CONSIDERE D AS COMPARABLE BY THE ASSESSEE ARE LACKING COMPARABILITY. IT IS FURT HER NOTICED THAT THE DATA TAKEN FOR THE 20 COMPANIES CHOSEN BY THE ASSESSEE I S FOR THE YEAR 2007, WHEREAS WE ARE DEALING WITH THE ASSESSMENT YEAR 200 9-10. FURTHER, THE ITA NO.440/DEL/2014 24 LD. AR FAILED TO POINT OUT AS TO HOW ROTC OF THESE 20 COMPANIES WAS WORKED OUT WITH THE MEAN OF 13.23%. THUS, IT IS EV IDENT THAT APART FROM MAKING A CONTENTION THAT THE FOREIGN AE SHOULD BE C ONSIDERED AS A TESTED PARTY BECAUSE OF THE LEAST COMPLEX TRANSACTION, THE RE IS NO MATERIAL TO SUBSTANTIATE THE SAME AS THE DATA CHOSEN BY THE ASS ESSEE OF 20 COMPANIES DOES NOT CONFORM TO THE COMPARABILITY OF THE INTRA GROUP SERVICES RECEIVED BY THE ASSESSEE AND THIS DATA IS NOT RELIA BLE AND ACCURATE FOR COMPARISON AS DISCUSSED ABOVE. IT IS, THEREFORE, PA LPABLE THAT THE CONTENTION RAISED BY THE LD. AR IN THIS REGARD, FOR WHATEVER MERIT IT MAY HAVE, FAILS EVEN ON HIS OWN TOUCHSTONE. 18. IN THE ULTIMATE ANALYSIS, WE HOLD THAT THE ARG UMENT OF THE LD. AR FOR SELECTION OF FOREIGN AE AS A TESTED PARTY IS NE ITHER LEGALLY SUSTAINABLE NOR ACCEPTABLE ON THE YARDSTICK OF HIS OWN CONTENTI ON. WE, THEREFORE, DIRECT THAT THE ASSESSEE ITSELF SHOULD BE CONSIDERE D AS A TESTED PARTY. 19. THE NEXT ISSUE IS DETERMINATION OF THE ALP OF S UCH TRANSACTIONS. IN THE LIGHT OF THE FOREGOING DISCUSSION IT IS MANIFES T THAT THE VIEW POINT OF THE AO/TPO THAT THE ASSESSEE DID NOT RECEIVE ANY SE RVICES OR THESE WERE ITA NO.440/DEL/2014 25 NOT REQUIRED OR WERE DUPLICATE IN NATURE AND HENCE THE ALP OF THE INTERNATIONAL TRANSACTIONS BE TAKEN AS NIL, CANNOT BE APPROVED. WE HAVE HELD ABOVE THAT THE ASSESSEE DID RECEIVE THE INTRA GROUP SERVICES FROM ITS FOREIGN AES. EX CONSEQUENTI , THE WORKING OF NIL ALP BY THE TPO/AO BECOMES MEANINGLESS AND IS HEREBY SET ASIDE. WE HAV E ALSO HELD SUPRA THAT THE AO/TPO HAVE RIGHTLY HELD THAT THE ASSESSEE SHOULD BE CONSIDERED AS TESTED PARTY. IN THE BACKDROP OF SUC H A CONCLUSION, THE WORKING OF THE ALP BY THE ASSESSEE, BASED ON FOREIG N AE AS A TESTED PARTY AND FOREIGN COMPANIES AS COMPARABLE, IS ALSO VITIATED. UNDER SUCH CIRCUMSTANCES, THE ONLY COURSE WHICH REMAINS IS TO DIRECT THE TPO/AO TO RECOMPUTE THE ALP OF THE INTERNATIONAL TRANSACTION IN TERMS OF THE DISCUSSION MADE ABOVE. 20. AT THIS JUNCTURE, WE CONSIDER IT APPROPRIATE TO CONSIDER THE RATIO OF THE JUDGMENT IN CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730 (DEL), WHEREIN IT HAS BEEN HELD THAT THE AUTHORITY OF THE TPO IS LIMITED TO CONDUCTING TRANSFER PRICING ANALY SIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO DECIDE IF SUCH SERVICES ITA NO.440/DEL/2014 26 EXIST OR BENEFITS DID ACCRUE TO THE ASSESSEE. SUCH LATER ASPECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAIN OF THE A O. IN THAT CASE, IT WAS OBSERVED THAT THE E-MAILS CONSIDERED BY TRIBUNAL FR OM MR. BRAGANZA AND MR. CHOUDHARY DEALT WITH SPECIFIC INTERACTION AND R ELATED TO BENEFITS OBTAINED BY ASSESSEE, PROVIDING A SUFFICIENT BASIS TO HOLD THAT BENEFIT ACCRUED TO ASSESSEE. AS THE DETAILS OF SPECIFIC AC TIVITIES FOR WHICH COST WAS INCURRED BY BOTH AES (FOR ACTIVITIES OF MR. BRA GANZA AND MR. CHOUDHARY), AND ATTENDANT BENEFITS TO ASSESSEE WERE NOT CONSIDERED, THE HON'BLE HIGH COURT REMANDED THE MATTER TO FILE OF C ONCERNED AO FOR AN ALP ASSESSMENT BY TPO, FOLLOWED BY AO'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW CONSIDERING THE DEDUCTIBILITY O R OTHERWISE AS PER SECTION 37(1) OF THE ACT. 21. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE , IT TURNS OUT THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT EQUAL TO THE STATED VALUE OF TRANSACTION WITH NIL ALP BY HOLDING THAT NO BENE FIT ETC. WAS RECEIVED BY THE ASSESSEE BECAUSE OF THE INTRA-GROUP SERVICES RECEIVED BY IT AND HENCE NO PAYMENT ON THIS ACCOUNT WAS WARRANTED. THE AO IN HIS DRAFT ITA NO.440/DEL/2014 27 ORDER HAS TAKEN ALP OF THIS INTERNATIONAL TRANSACTI ON AT NIL ON THE BASIS OF RECOMMENDATION OF THE TPO WITHOUT CARRYING OUT A NY INDEPENDENT INVESTIGATION AS TO THE DEDUCTIBILITY OR OTHERWISE OF SUCH PAYMENT IN TERMS OF SECTION 37(1) OF THE ACT. THIS ADDITION HA S BEEN MADE BY THE AO IN HIS FINAL ASSESSMENT ORDER GIVING EFFECT TO T HE DIRECTION GIVEN BY THE DRP AND NOT BY INVOKING SECTION 37(1) OF THE AC T. AS PER THE RATIO DECIDENDI IN CUSHMAN & WAKEFIELD INDIA (P.) LTD . (SUPRA), THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THE INT ERNATIONAL TRANSACTION UNCONCERNED WITH THE FACT, IF ANY BENEF IT ACCRUED TO THE ASSESSEE AND THEREAFTER, IT WAS FOR THE AO TO DECID E THE DEDUCTIBILITY OF THIS AMOUNT U/S 37(1) OF THE ACT. AS THE TPO IN THE INSTANT CASE INITIALLY DETERMINED NIL ALP BY HOLDING THAT NO BENEFIT ACCRU ED TO THE ASSESSEE AND THE AO MADE THE ADDITION WITHOUT EXAMINING THE APPLICABILITY OF SECTION 37(1) OF THE ACT, WE FIND THE ACTIONS OF TH E AO/TPO RUN IN CONTRADICTION TO THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA) . RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DECI DING THIS ISSUE WITHIN THE BROADER PARAMETERS LAID DOWN BY THE HONBLE JUR ISDICTIONAL HIGH ITA NO.440/DEL/2014 28 COURT IN THE CASE OF CUSHMAN & WAKEFIELD (INDIA) (P.) LTD.(SUPRA) . IN DOING THE EXERCISE OF DETERMINATION OF THE ALP, THE TPO/AO, HAVING DUE REGARD TO THE DISCUSSION MADE ABOVE, WILL FIRS T ADOPT THE ASSESSEE AS TESTED PARTY AND THEN DECIDE ABOUT THE MOST APPROPR IATE METHOD AFTER CONSIDERING THE AVAILABILITY OF THE RELEVANT DATA. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F BEING HEARD. 22. THE NEXT ISSUE RAISED IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF RS.24,81,93,879/- MADE BY THE AO BY DENYING DEPRECI ATION IN RESPECT OF VEHICLES GIVEN ON LEASE. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY ENGAGED I N THE BUSINESS OF CONSUMER AND AUTO FINANCE. THE AO DURING THE DRAFT PROCEEDINGS NOTICED THAT LIKE PRECEDING YEARS THE ASSESSEE CLAI MED DEPRECIATION ON LEASED OUT VEHICLES. ON BEING CALLED UPON TO EXPLA IN AS TO WHY DEPRECIATION ON THE LEASED VEHICLES BE NOT DISALLOW ED AS THE LEASED TRANSACTIONS WERE, IN FACT, FINANCIAL TRANSACTIONS , THE ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF ICDS LTD. VS. CIT (2013) 350 ITR 527 (SC ) TO CONTEND THAT IT WOULD BE ENTITLED TO ITA NO.440/DEL/2014 29 CLAIM DEPRECIATION. THE AO PERUSED THE RELEVANT CL AUSES OF LEASE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH LESSORS AND FOUND THAT THE VEHICLES WERE DIRECTLY DELIVERED TO THE LESSEES WHO WERE BEARING THE INSURANCE AND HOLDING WARRANTY AND ALSO RETAINING T HE RIGHT TO THE EXCLUSION OF EVEN THE LESSOR. REPAIRS WERE TO BE C ARRIED OUT AT THE SOLE EXPENSE OF THE LESSEE. THOUGH THE SALE INVOICES WE RE RAISED IN THE NAME OF THE ASSESSEE-LESSOR, THE AO HELD THAT IN SUBSTAN CE IT WAS A CASE OF FINANCE LEASE. AFTER CONSIDERING CERTAIN JUDGMENTS AND FOLLOWING THE VIEW TAKEN BY HIM IN PRECEDING YEARS, THE AO DISALL OWED THE CLAIM OF DEPRECIATION ON LEASED CARS AMOUNTING TO RS.24.81 C RORE. THE ASSESSEE ALSO REMAINED UNSUCCESSFUL BEFORE THE DISPUTE RESOL UTION PANEL (DRP) WHICH OBSERVED THAT THE ASSESSEE FAILED TO ESTABLIS H THAT DEPRECIATION WAS NOT CLAIMED BY THE LESSEES ON THE VEHICLES LEASED T O THEM AND THE ASSESSEE WAS EVASIVE ON THIS ACCOUNT AND DID NOT DI SCLOSE THE TRUTHFUL PICTURE DESPITE THE FACT THAT VARIOUS LESSEES WERE THE ASSESSEES RELATED COMPANIES. IN REACHING THIS CONCLUSION, THE DRP AL SO TOOK INTO CONSIDERATION THE OBSERVATIONS MADE BY THE TRIBUNAL IN ITS ORDER PASSED IN THE ASSESSEES OWN CASE FOR THE AYS 2001-02 AND 2002-03, IN WHICH ITA NO.440/DEL/2014 30 THE MATTER WAS REMITTED TO THE FILE OF THE AO FOR D ECIDING THIS ISSUE AFRESH, AFTER TAKING COGNIZANCE OF THE FACT OF CLAI M OF DEPRECIATION BY THE LESSEES AND DIFFERENCE IN COVENANTS TO THE AGREEMEN T IN THE CASE OF THE TAX PAYER AND ICDS LTD. THE AO MADE THE DISALLOWAN CE VIDE THE IMPUGNED ORDER. THE ASSESSEE IS AGGRIEVED AGAINST THE DISALLOWANCE OF DEPRECIATION. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL FOR THE FIRST TIME IN RELATION TO THE ASSESSMENT YEARS 2000-01 AND 2002-03. VIDE ITS ORDER DATED 21.6.201 3, A COPY OF WHICH IS AVAILABLE ON PAGE 2883 ONWARDS OF THE PAPER BOOK , THE TRIBUNAL CONSIDERED THE CONTENTION OF THE ASSESSEE ABOUT THE APPLICABILITY OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F ICDS LTD. (SUPRA) AND HELD IN PARA 8.2: THAT THE COVENANTS ARE NOT IDENTICAL TO THE AGREEMENT AS WAS UNDER CONSIDERATION IN ICDS LTD. B Y HONBLE SUPREME COURT. FURTHER, WE FIND THAT HONBLE SUPREME COURT ALSO TOOK INTO CONSIDERATION THE FACT RECORDED BY THE TRIBUNAL THA T THE LESSEE HAD NOT ITA NO.440/DEL/2014 31 CLAIMED ANY DEPRECIATION WHICH FINDING IS NOT RECOR DED BY AO IN THE PRESENT CASE. IT WAS, THEREFORE, CONSIDERED: NEC ESSARY THAT THE TERMS OF LEASE AGREEMENT BE EXAMINED AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT AND ALSO A SPECIFIC FINDING I S RECORDED BY AO REGARDING CLAIM OF DEPRECIATION BY LESSEES. EVEN TUALLY, THE ISSUE WAS RESTORED TO THE FILE OF AO FOR DECIDING IT AFRESH. THE ASSESSEE FILED MISCELLANEOUS APPLICATION AGAINST THE ORDER PASSED BY THE TRIBUNAL. VIDE A DETAILED ORDER DATED 13.1.2014 PASSED U/S 25 4(2) IN MA NO.81 & 82/DEL/2013, A COPY OF WHICH IS AVAILABLE AT PAGE 2 989 ONWARDS, THE TRIBUNAL, REJECTED THE ASSESSEES CONTENTION THAT T HE ISSUE SHOULD HAVE BEEN DIRECTLY DECIDED IN THE ASSESSEES FAVOUR INST EAD OF RESTORATION TO THE AO FOR EXAMINING THE CLAIM OF DEPRECIATION IN T HE HANDS OF THE LESSEES. AFTER THE DISMISSAL OF THE MISCELLANEOUS APPLICATION, THE ASSESSEE APPROACHED THE HONBLE DELHI HIGH COURT CH ALLENGING THE ORDER PASSED BY THE TRIBUNAL U/S 254(1) FOR THE AYS 2000- 01 AND 2002-03. IT WAS URGED BEFORE THE HONBLE DELHI HIGH COURT THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE REVENUE HAD ESTABLISHED WHETHER THE LESSEE HAD CLAIMED HIGHER DEPRECIATION OR NOT AND, HENCE, THE REMAND ORDER WAS ITA NO.440/DEL/2014 32 ERRONEOUS. THE HONBLE DELHI HIGH COURT VIDE ITS J UDGMENT DATED 24.2.2014 IN ITA NO.46/2014, A COPY OF WHICH IS AVA ILABLE AT PAGE 2198 OF THE PAPER BOOK, DISMISSED THE ASSESSEES CONTENT ION BY HOLDING THAT THE ITAT HAS EVENTUALLY REMANDED THE QUESTION WHETH ER THE BENEFIT OF DEPRECIATION IS PERMISSIBLE IN LAW. THE CONTENTION OF THE LD. AR ABOUT THE FINDING GIVEN BY THE TRIBUNAL IN RELATION TO TH E DECISION IN ICDS LTD. WAS ALSO LEFT OPEN TO BE TAKEN UP BEFORE THE AO IN THE CASE OF REMAND PROCEEDINGS. THAT IS HOW, THE PROCEEDINGS FOR THE A.YS. 2000-01 AND 2002-03 ATTAINED FINALITY. ONCE AGAIN, SIMILAR ISSU E CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.YS. 2006-07, 2007-08 AND 2008-09. VIDE ITS ORDER DATED 2.5.2016, THE TRIBUNAL RESTORED THE MATTER TO THE FILE OF AO FOR DENOVO DECISION IN THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. (SUPRA) . IN VIEW OF THE DECISIONS OF THE TRIBUNAL FOR BOT H THE SETS OF THE YEARS, NAMELY, THE AYS 2000-01 AND 2002-03 POR UNA PARTE AND THE A.YS. 2006-07 AND 2008-09 POR OTRA PARTE , IT IS CLEAR THAT THE ISSUE OF DEPRECIATION OF LEASED VEHICLES REQUIRES RESTORATIO N TO THE FILE OF AO. HOWEVER, THE DETAILED DIRECTIONS GIVEN BY THE TRIBU NAL FOR EXAMINATION ITA NO.440/DEL/2014 33 IN ITS ORDER FOR THE A.YS. 2000-01 AND 2002-03 SHO ULD BE SCRUPULOUSLY FOLLOWED BY THE AO AS THE SAME HAVE BEEN UPHELD BY THE HONBLE DELHI HIGH COURT. THIS GROUND IS, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. 24. THE NEXT GROUND IS AGAINST THE ADDITION OF RS.2 1,58,87,262/- MADE BY THE AO TREATING INTEREST ON STICKY LOANS AS INCO ME OF THE ASSESSEE. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSES SEE, LIKE PRECEDING YEARS, HAD NOT OFFERED INCOME AMOUNTING TO RS.21.58 CRORE ON ACCOUNT OF INTEREST ACCRUED ON STICKY LOANS AND ADVANCES. FOLLOWING THE VIEW TAKEN IN EARLIER YEARS, THE AO HELD SUCH INTEREST A S CHARGEABLE TO TAX. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DRP A ND EVENTUALLY THE AO MADE ADDITION FOR THE SAID SUM IN THE FINAL ORDE R. THE ASSESSEE IS AGGRIEVED AGAINST THIS ADDITION. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT T HIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITS ORDER FOR THE A.YS. 2000-01 AND 2002-03. FOLLOWING THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC), THE TRIBUNAL HELD ITA NO.440/DEL/2014 34 THAT INTEREST ON STICKY LOANS AND ADVANCES COULD NO T BE CHARGED TO TAX. SIMILAR VIEW HAS BEEN REITERATED BY THE TRIBUNAL IN ITS LATER DECISION DATED 2.5.2016 (SUPRA) FOR THE IMMEDIATELY PRECEDIN G THREE YEARS. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE QUA THE FACTS FOR THE INSTANT YEAR AND THE EARLIER YEARS HAVING BEEN BROUGHT TO OUR NO TICE BY THE LD. DR, RESPECTFULLY FOLLOWING THE PRECEDENTS, WE HOLD THAT INTEREST ON STICKY LOANS AMOUNTING TO RS.21.58 CRORE AND ODD CANNOT BE CHARGED TO TAX. THIS GROUND IS, THEREFORE, ALLOWED. 26. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 08.07.201 6. SD/- SD/- [SUDHANSHU SRIVASTAV] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 08 TH JULY, 2015. DK ITA NO.440/DEL/2014 35 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.