GEMOLOGICAL INSTITUTE INTERNATIONAL, INC, MUMBAI V. DDIT (IT) -3(1), MUMBAI

ITA 4659/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0825 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 28-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAHI SANJAY KUMAR
• Assessee Lawyers: JD MISTRTY NIRAJ SHETH
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH, MUMBAI SHRI C.N. PRASAD (JUDICIAL MEMBER) & BEFORE SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) ITA NO.4659/MUM/2014 - 2009-10 ITA NO.385/MUM/2016 - 2011-12 GEMOLOGICAL INSTITUTE INTERNATIONAL INC, C/O GIA INDIA LABORATORY P LTD, 10 TH FLOOR, TRADE CENTRE, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 PAN AADCG6758M VS. DY.CIT 2(2)(1), MUMBAI APPELLANT RESPONDENT APPELLANT BY: SHRI JD MISTRTY / NIRAJ SHETH RESPONDENT BY: SHRI SHAHI SANJAY KUMAR, CIT DR DATE OF HEARING: 02.05.2017 DATE OF ORDER: 09 .05.2017 O R D E R PER ASHWANI TANEJA, AM: THESE APPEALS PERTAIN TO SAME ASSESSEE FOR TWO DIF FERENT ASSESSMENT YEARS INVOLVING IDENTICAL ISSUES; THEREFORE THESE W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. FIRST, WE SHALL TAKE UP APPEAL FOR AY 2009-10 IN IT A NO.4659/MUM/2014 FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY C OMMISSIONER OF INCOME-TAX (APPEALS)-10, MUMBAI [HEREINAFTER CALLED CIT(A)] DA TED27-02-2014 AGAINST 2 GEMOLOGICAL INSTITUTE THE ORDER PASSED BY THE AO DATED 17-02-2012 FOR AY 2009-10, ON THE FOLLOWING GROUNDS:- 1 : RE.: TREATING THE REIMBURSEMENT OF THE EXPENSES AS INCOME FOR THE YEARRS.1,26,90,522/-: 1: 1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN CONFIRMING THE TREATMENT OF TRAVEL AND GROUP HEALTH INSURANCE AMOUNTS REIMBURSED TO THE APPELLANT BY 'GIA INDIA L ABORATORY P. LTD.' AS THE INCOME OF THE APPELLANT FOR THE YEAR. 1: 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE TRAVEL AND GROUP HEALTH INSURANCE AMOUNTS REIMBURSE D TO IT CANNOT BE TREATED AS ITS INCOME AND THE STAND TAKEN BY THE ASSESSING OFFICER IN THIS REGARD IS ILLEGAL, INCORRECT, ERRONEOUS AND MISCONCEIVED AND THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 1: 3 THE APPELLANT SUBMITS THE ASSESSING OFFICER BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM AND TO RE-COMPUTE ITS T OTAL INCOME ACCORDINGLY.' 3. THE ASSESSEE IS MAINLY AGGRIEVED BY THE ACTIONS OF THE LOWER AUTHORITIES IN TREATING THE AMOUNT OF TRAVEL, GROUP HEALTH INSU RANCE AND OTHER INCIDENTAL EXPENSES RECEIVED BY IT BY WAY OF REIMBURSEMENT FRO M M/S GIA INDIA LABORATORY P LTD (HEREINAFTER CALLED GIA) AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 4. WE HAVE HEARD AT LENGTH SUBMISSIONS OF BOTH THE PAR TIES AND DECIDE THIS ISSUE AS UNDER. 5. THE BRIEF BACKGROUND IS THAT ASSESSEE IS A NON-RESI DENT COMPANY INCORPORATED IN USA AND DURING THE YEAR, IT PROVIDE D TECHNICAL SERVICES TO GIA INDIA, WHICH HAPPENS TO BE A GROUP COMPANY OF THE A SSESSEE COMPANY. IN THIS REGARD, THE ASSESSEE HAD ENTERED INTO A TRAINI NG AND TECHNICAL SERVICE AGREEMENT DATED 1-11-2008 (HEREINAFTER REFERRED TO AS AGREEMENT) WITH GIA INDIA FOR TRAINING THE EMPLOYEES OF GIA INDIA AND P ROVIDING TECHNICAL SERVICES FOR THE IMPLEMENTATION OF GRADING POLICIES, PROCEDU RES AND PROCESSES. IN 3 GEMOLOGICAL INSTITUTE PURSUANCE TO THE SAID AGREEMENT, THE ASSESSEE RAISE D SEPARATE DEBIT NOTES FOR FEE FOR TRAINING AND TECHNICAL SERVICES RENDE RED BY IT TO GIA INDIA AND ALSO ON ACCOUNT OF REIMBURSEMENT OF TRAVEL EXPENSES, GR OUP HEALTH INSURANCE AND OTHER MINOR INCIDENTAL EXPENSES INCURRED BY IT PER TAINING TO THE AFORESAID ASSIGNMENT. THE ASSESSEE FILED ITS RETURN OF INCOM E DECLARING TOTAL INCOME OF RS.10,61,84,934. THE ASSESSEE EXCLUDED FROM ITS IN COME, THE AMOUNT RECEIVED BY WAY OF REIMBURSEMENT OF AFORESAID EXPEN SES FOR THE REASON THAT THESE CONSTITUTED ACTUAL COST BORNE BY THE ASSESSEE , AND THEREFORE, THESE WERE NOT IN THE NATURE OF INCOME. THE AO WAS OF TH E VIEW THAT THE TOTAL AMOUNT SO RECEIVED BY THE ASSESSEE FROM GIA INDIA W AS LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE INCLUDING THE AFORESA ID EXPENSES REIMBURSED BY GIA INDIA FOR THE REASON THAT THESE CONSTITUTED PAR T OF FEES OR TECHNICAL SERVICES. THEREFORE, ADDITION OF THE SAME WAS MAD E IN THE ASSESSMENT ORDER PASSED BY HIM. BEING AGGRIEVED, ASSESSEE FILED APP EAL BEFORE CIT(A) AND MADE DETAILED SUBMISSIONS TO AGITATE THE ACTION OF THE AO. BUT LD. CIT(A) WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND, THEREFORE, THE ORDER PASSED BY THE AO WAS UPHELD WITH THE FOLLOWING OBSE RVATIONS:- HAVING CONSIDERED THE AO'S ORDER AS WELL AS THE APP ELLANT AR'S SUBMISSIONS AND AFTER TAKING NOTE OF THE AID AGREEM ENT CLAUSE TO WHICH THE APPELLANT HAS SPECIFICALLY INVITED MY ATT ENTION FOR MAKING ITS CLAIM JUSTIFIED, I CONSIDER IT PROPER AND APPRO PRIATE TO HOLD THAT THE APPELLANT'S CLAIM IS COMPLETELY ERRONEOUS AND INCOR RECT AS NOWHERE THIS CLAUSE OF THE AGREEMENT SUGGESTS THAT THE INDI AN COMPANY I.E., M/S.GIA INDIA LABORATORY PRIVATE LIMITED WAS LIABLE TO REIMBURSE THE TRAVEL AS WELL AS INSURANCE EXPENSES OF THE APPELLA NT TO THE SERVICE PROVIDER. FURTHER TO THAT, EVEN BY NO STRETCH OF IM AGINATION, IT CAN BE SAID THAT THE TRAVELLING OR HEALTH EXPENSES ARE IN CONNECTION WITH THE SERVICE PROVIDED BY THE APPELLANT TO AN INDIAN COMP ANY. FURTHER TO THAT, EVEN I HAVE NO HESITATION TO HOLD HERE THAT T HE CLAIM OF THE APPELLANT IS COMPLETELY INCORRECT AND JUSTIFIED AS THERE IS NO SUCH 4 GEMOLOGICAL INSTITUTE PROVISION OF ANY CLAUSE IN THE SAID AGREEMENT ENTER ED INTO BY THE APPELLANT AND ITS INDIAN COMPANY THAT ANY SUCH PAYM ENT HAS TO BE MADE IN CONNECTION WITH THE SERVICES AVAILED BY IND IAN COMPANY. IN VIEW OF THE SAME, I AM IN COMPLETE AGREEMENT WITH T HE A.O'S FINDING THAT THE CHANGING OF THE NAME OF SUCH PAYMENT, WHIC H IS NOT HAVING ANY SUPPORT OF ANY AGREEMENT CLAUSE OR BY ANY BUSIN ESS PARLANCE, THE LIABILITY OF SUCH PAYMENT ON ACCOUNT OF INDIAN COMP ANY FOR INCURRING SUCH EXPENDITURE. THEREFORE, I CONSIDER IT PROPER A ND APPROPRIATE TO HOLD THAT THE A.O HAS RIGHTLY TAXED THE SAID PAYMEN T UNDER THE HEAD FEE FOR TECHNICAL SERVICES. ACCORDINGLY, THE ADDI TION SO MADE BY THE A.O IS CONFIRMED. 6. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE TRIBUNA L. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSEL OF THE ASSESSEE V EHEMENTLY CONTESTED THE ORDERS PASSED BY THE LOWER AUTHORITIES. IT WAS INTER-ALIA SUBMITTED THAT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH GIA IND IA CLEARLY LAYS DOWN THAT ASSESSEE WILL BE SEPARATELY ENTITLED FOR REIMBURSEM ENT OF EXPENSES IN ADDITION TO FEE RECEIVED ON ACCOUNT OF TECHNICAL SERVICES. IT WAS SUBMITTED THAT THERE IS NO QUARREL ON THE LEGAL PROPOSITION THAT IF THE FTS IS TAXABLE ON GROSS BASIS, NO DEDUCTION IS ALLOWABLE AGAINST THAT. HOWEVER, IF A N AMOUNT IS NOT PART OF FTS AND IF THE AMOUNT IS MERELY ON ACCOUNT OF REIMBURSE MENT OF EXPENSES WHEREIN NO PROFIT ELEMENT IS EMBEDDED, THEN IT CANN OT BE TAXED AS PART OF FTS. IN SUPPORT OF THIS PROPOSITION, HE RELIED UPO N A VERY RECENT JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF DIT VS A.P. MO LLER MAERSK 392 ITR 186 (SC). IT WAS FURTHER SUBMITTED THAT AS PER TERMS O F THE AGREEMENT, THE ASSESSEE WAS ENTITLED TO RECEIVE FROM GIA INDIA FEE ON ACCOUNT OF COST INCURRED BY THE ASSESSEE TO EMPLOY THE INDIVIDUALS FOR PERFO RMING THE TRAINING AND TECHNICAL SERVICES PLUS A MARK UP OF 6.5%. IN ADDI TION TO THAT, ASSESSEE WAS ENTITLED TO RECOVER FROM GIA INDIA BY WAY OF REIMBU RSEMENT THE EXPENSES INCURRED BY IT, ON ACCOUNT OF THIRD PARTY COST AND EXPENSES. THE PARTIES TO THE AGREEMENT HAVE ALSO UNDERSTOOD THE TERMS IN THE MAN NER THAT FTS IS SEPARATE 5 GEMOLOGICAL INSTITUTE FROM REIMBURSEMENT OF THIRD PARTY COST AND EXPENSES ETC. THE AO WAS OF THE DIFFERENT VIEW AND HE APPLIED HIS UNDERSTANDING OF TERMS OF THE SAID AGREEMENT FOR THE SAKE OF MAKING ADDITION OF NOTION AL INCOME IN THE HANDS OF THE ASSESSEE. LD. COUNSEL SUBMITTED THAT IF PARTIE S TO THE AGREEMENT HAVE UNDERSTOOD THE TERMS OF AGREEMENT IN A PARTICULAR M ANNER, THEN AO CAN FORCIBLY INFUSE HIS DISTINCT UNDERSTANDING OF THE S AME WHICH MAY RUN CONTRARY TO WHAT PARTIES HAVE UNDERSTOOD. IN SUPPORT OF THIS PROPOSITION, HE RELIED UPON THE JUDGEMENT OF HONBLE CALCUTTA HIGH COURT I N THE CASE OF CIT VS ARUN DUA 186 ITR 494 (CAL). THUS, HE SIMPLY ARGUED THAT THERE WERE NO BASIS TO TREAT THE EXPENSES AS PART OF INCOME. HE ALSO DREW OUR ATTENTION UPON THE COPY OF TRANSFER PRICING STUDY REPORT AND ORDER PAS SED BY THE TPO IN THE CASE OF GIA INDIA TO SHOW THAT NO PROFIT ELEMENT WAS INV OLVED IN THE AMOUNT PAID BY IT TO THE ASSESSEE ON ACCOUNT OF REIMBURSEMENT O F EXPENSES. 7. PER CONTRA, THE LD. DR RELIED UPON THE ORDERS OF TH E LOWER AUTHORITIES AND SUBMITTED THAT ANY PAYMENT MADE BY GIA INDIA TO THE ASSESSEE SHALL BE CONSIDERED AS PART OF FTS AND, THEREFORE, WHOLE AMO UNT SHOULD BE BROUGHT TO TAX. UNDER THESE CIRCUMSTANCES, ADDITION MADE BY T HE AO SHOULD BE UPHELD. 8. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND ARGUMENTS MADE BEFORE US BY BOTH THE SIDES. 9. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY INCOR PORATED IN USA IS ENGAGED IN GRADING AND CERTIFICATION OF DIAMONDS. GIA INDIA, (I.E. THE COMPANY INCORPORATED IN INDIA) ENTERED INTO AN AGREEMENT WI TH THE ASSESSEE COMPANY FOR AVAILING TRAINING AND TECHNICAL SERVICES. THE TERMS REGARDING PAYMENT OF FEE AND REIMBURSEMENT OF EXPENSES READ AS UNDER:- 1.2 FEES AND PAYMENT TERMS FOR TRAINING AND TECHNIC AL SERVICES . CUSTOMER WILL PAY SERVICE PROVIDER THE COSTS INCU RRED BY THE 6 GEMOLOGICAL INSTITUTE SERVICE PROVIDER TO EMPLOY THE INDIVIDUALS(S) PERFO RMING THE TRAINING OR TECHNICAL SERVICE PLUS A MARKUP OF SIX AND ONE-H ALF PERCENT (6.5%). SERVICE PROVIDER WILL INVOICE CUSTOMER THE FEES DUE FOR THE SERVICES AND CUSTOMER WILL PAY SUCH INVOICES WITHIN FORTY-FI VE(45) DAYS AFTER RECEIPT OF THE INVOICE. SUCH INVOICES MAY BE MONTHL Y OR QUARTERLY AS SPECIFIED BY SERVICE PROVIDER. 1.3. REIMBURSEMENT OF THIRD PARTY COSTS CUSTOMER WILL REIMBURSE SERVICE PROVIDER FOR (I) FEES PAID BY SER VICE PROVIDER TO THIRD PARTY SERVICE PROVIDERS, ADVISORS AND CONSULT ANTS IN CONNECTION WITH OR RELATED TO THE PERFORMANCE OF THE SERVICES RENDERED UNDER THE AGREEMENT, INCLUDING WITHOUT LIMITATIONS ACCOUNTANT S, ATTORNEYS, MARKETING CONSULTANTS AND AGENCIES AND INFORMATION TECHNOLOGY SERVICE PROVIDERS, ETC) AND (II) SOFTWARE, MATERIAL S AND ITEMS PAID FOR BY SERVICE PROVIDER IN CONNECTION WITH OR RELATED T O THE PERFORMANCE OF THE SERVICES (COLLECTIVE, (I) AND (II) ARE REFER RED TO AS THIRD PARTY COSTS). IF THIRD PARTY COSTS ARE INCURRED BY SERVI CE PROVIDER FOR THE BENEFIT OF CUSTOMER AND OTHER CUSTOMERS, THEN SERVI CE PROVIDER WILL ALLOCATE THE THIRD PARTY COSTS BETWEEN AND AMONG CU STOMER AND SUCH OTHER CUSTOMERS IN A MANNER DETERMINED BY SERVICE P ROVIDER IN ITS SOLE DISCRETION. SERVICE PROVIDER WILL INVOICE CUST OMER THE THIRD PARTY COSTS AND CUSTOMER WILL PAY SUCH INVOICES WITHIN FO RTY-FIVE(45) DAYS AFTER RECEIPT OF THE INVOICE. SUCH INVOICES MAY BE MONTHLY OR QUARTERLY AS SPECIFIED BY SERVICE PROVIDER. 10. THUS, FROM THE PERUSAL OF THE ABOVE, IT MAY BE NOTE D THAT ASSESSEE OFFERED TO TAX ONLY THE AMOUNT OF FEE RECEIVED FOR PROVIDING TRAINING AND TECHNICAL SERVICES AND AMOUNT OF EXPENSES RECEIVED BY WAY OF REIMBURSEMENT ON COST TO COST BASIS WERE NOT SHOWN AS TAXABLE IN THE HANDS OF THE ASSESSEE. THE AO WAS OF THE VIEW THAT WHOLE OF THE AMOUNT INC LUDING THE AMOUNT REIMBURSED AGGREGATING TO RS.1,26,09,523 SHOULD ALS O BE INCLUDED AS FEES IN THE HANDS OF THE ASSESSEE. 11. WE HAVE CAREFULLY CONSIDERED THE ORDERS PASSED BY THE LOWER AUTHORITIES AND WE DO NOT AGREE WITH THE STAND ADOPTED BY THE L OWER AUTHORITIES. IT MAY BE NOTED FROM THE PERUSAL OF THE TERMS OF THE AGREE MENT WHICH ARE 7 GEMOLOGICAL INSTITUTE REPRODUCED ABOVE THAT ASSESSEE WAS ENTITLED TO RECE IVE BY WAY OF FEE ONLY THE AMOUNT INCURRED BY WAY OF COST TO EMPLOY THE INDI VIDUALS PLUS MARK-UP OF 6.5%. CLEARLY SPEAKING, THE EXPRESSION COST TO EM PLOY INDIVIDUALS IS DIFFERENT FROM THE EXPRESSION COST INCURRED TO DEPUTE A PER SON. THE COST OF EMPLOYMENT WOULD CLEARLY MEAN AND INCLUDE ONLY INTE RNAL COSTS AS ARE INCURRED BY AN ORGANISATION TO EMPLOY AN INDIVIDUAL IN THE ORGANISATION. ANY COST INCURRED OVER AND ABOVE THAT TO DEPUTE THE IND IVIDUAL FOR A PARTICULAR ASSIGNMENT WHICH IS NOT INTERNAL ASSIGNMENT OF THE ASSESSEE WOULD BE ADDITIONAL COST. THUS, IN THE CASE BEFORE US, COSTS AND EXPENSES INCURRED BY THE ASSESSEE ON TRAVEL AND INSURANCE ETC ON THE PERSONS DEPUTED IN INDIA FOR PROVIDING TRAINING AND TECHNICAL SERVICES TO GIA IN DIA WAS IN THE NATURE OF COST INCURRED OVER AND ABOVE THE COST OF EMPLOYMENT. TH IS INTERPRETATION IS FURTHER RE-ENFORCED WHEN WE READ THE NEXT CLAUSE, I .E. CLAUSE 1.3 WHICH SAYS THAT GIA INDIA SHALL REIMBURSE TO THE ASSESSEE ANY EXPENSES INCURRED ON ACCOUNT OF THIRTY PARTY COSTS. THE DRAFTING OF THE AGREEMENT AND MANNER OF PLACEMENTS THE CLAUSES IN THE AGREEMENT CLEARLY MAK E OUT A CASE THAT FTS IS DIFFERENT FROM THE EXPENSES INCURRED ON THIRD PARTY COSTS. THUS, THERE IS A CLEAR BIFURCATION IN THE AGREEMENT BETWEEN THE INTE RNAL COST INCURRED BY THE ASSESSEE AND EXTERNAL COST BORNE OR PAID BY THE ASS ESSEE ON BEHALF OF GIA INDIA. IN OUR MIND, THERE IS NO CONFUSION IN THIS REGARD AND THE LOWER AUTHORITIES HAVE UNNECESSARILY MADE AN ISSUE OUT OF THAT. 12. WITH REGARD TO THE TAXABILITY OF FTS ON GROSS BASI S, IT HAS BEEN FAIRLY ADMITTED BY THE LD. COUNSEL OF THE ASSESSEE THAT TH ERE IS NO DISPUTE ON THE PROPOSITION THAT FTS HAS TO BE TAXED ON GROSS BASIS . HOWEVER, THE ISSUE THAT ARISE HERE FOR OUR CONSIDERATION IS WHETHER THE EXP ENSES INCURRED ON COST TO COST BASIS WILL ALSO BE INCLUDED IN THE AMOUNT OF F TS. WE FIND THAT THIS 8 GEMOLOGICAL INSTITUTE CONTROVERSY HAS NOW BEEN PUT TO REST BY HONBLE SUPREME COURT BY WAY OF ITS LATEST JUDGMENT IN THE CASE OF DIT VS A.P. MOLLER MAERSK 392 ITR 186 (SC) . RELEVANT PART OF THE JUDGEMENT IS REPRODUCED HEREUN DER:- 10. THE FACTS WHICH EMERGE ON RECORD ARE THAT THE A SSESSEE IS HAVING ITS IT SYSTEM, WHICH IS CALLED THE MAERSK NET. AS T HE ASSESSEE IS IN THE BUSINESS OF SHIPPING, CHARTERING AND RELATED BUSINE SS, IT HAS APPOINTED AGENTS IN VARIOUS COUNTRIES FOR BOOKING OF CARGO AN D SERVICING CUSTOMERS IN THOSE COUNTRIES, PREPARING DOCUMENTATI ON ETC. THROUGH THESE AGENTS. AFOREMENTIONED THREE AGENTS ARE APPOI NTED IN INDIA FOR THE SAID PURPOSE. ALL THESE AGENTS OF THE ASSESSEE, INCLUDING THE THREE AGENTS IN INDIA, USED THE MAERSK NET SYSTEM. THIS S YSTEM IS A FACILITY WHICH ENABLES THE AGENTS TO ACCESS SEVERAL INFORMAT ION LIKE TRACKING OF CARGO OF A CUSTOMER, TRANSPORTATION SCHEDULE, CUSTO MER INFORMATION, DOCUMENTATION SYSTEM AND SEVERAL OTHER INFORMATIONS . FOR THE SAKE OF CONVENIENCE OF ALL THESE AGENTS, A CENTRALISED SYST EM IS MAINTAINED SO THAT AGENTS ARE NOT REQUIRED TO HAVE THE SAME SYSTE M AT THEIR PLACES TO AVOID UNNECESSARY COST. THE SYSTEM COMPRISES OF BOOKING AND COMMUNICATION SOFTWARE, HARDWARE AND A DATA COMMUNI CATIONS NETWORK. THE SYSTEM IS, THUS, INTEGRAL PART OF THE INTERNATIONAL SHIPPING BUSINESS OF THE ASSESSEE AND RUNS ON A COM BINATION OF MAINFRAME AND NON-MAINFRAME SERVERS LOCATED IN DENM ARK. EXPENDITURE WHICH IS INCURRED FOR RUNNING THIS BUSI NESS IS SHARED BY ALL THE AGENTS. IN THIS MANNER, THE SYSTEMS ENABLE THE AGENTS TO CO- ORDINATE CARGOS AND PORTS OF CALL FOR ITS FLEET. 11. AFORESAID ARE THE FINDINGS OF FACTS. IT IS CLEA RLY HELD THAT NO TECHNICAL SERVICES ARE PROVIDED BY THE ASSESSEE TO THE AGENTS. ONCE THESE ARE ACCEPTED, BY NO STRETCH OF IMAGINATION, P AYMENTS MADE BY THE AGENTS CAN BE TREATED AS FEE FOR TECHNICAL SERV ICE. IT IS IN THE NATURE OF REIMBURSEMENT OF COST WHEREBY THE THREE A GENTS PAID THEIR PROPORTIONATE SHARE OF THE EXPENSES INCURRED ON THE SE SAID SYSTEMS AND FOR MAINTAINING THOSE SYSTEMS. IT IS RE-EMPHAS ISED THAT NEITHER THE AO NOR THE CIT(A) HAS STATED THAT THERE WAS ANY PROFIT ELEMENT EMBEDDED IN THE PAYMENTS RECEIVED BY THE ASSESSEE F ROM ITS AGENTS IN INDIA. RECORD SHOWS THAT THE ASSESSEE HAD GIVEN TH E CALCULATIONS OF THE TOTAL COSTS AND PRO RATA DIVISION THEREOF AMONG THE AGENTS FOR REIMBURSEMENT. NOT ONLY THAT, THE ASSESSEE HAVE EV EN SUBMITTED BEFORE THE TRANSFER PRICING OFFICER THAT THESE PAYM ENTS WERE 9 GEMOLOGICAL INSTITUTE REIMBURSEMENT IN THE HANDS OF THE ASSESSEE AND THE REIMBURSEMENT WAS ACCEPTED AS SUCH AT ARMS LENGTH. ONCE THE CHARACTER OF THE PAYMENT IS FOUND TO BE IN THE NATURE OF REIMBURSEME NT OF THE EXPENSES, IT CANNOT BE INCOME CHARGEABLE TO TAX.... .... (EMPHASIS SUPPLIED IN BOLD) THUS, FROM THE ABOVE JUDGEMENT IT IS CLEAR THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF REIMBURSEMENT WHICH HAS BEEN RECEIVED OVER AND ABOVE THE AMOUNT OF FTS CANNOT BE INCLUDED AND TAXE D AS PART OF FTS. OUR ATTENTION HAS BEEN DRAWN ON THE TRANSFER PRICING ST UDY REPORT AND TRANSFER PRICING ORDERS PASSED IN THE CASE OF GIA INDIA FROM WHERE IT CAN BE MADE OUT THAT NO PROFIT ELEMENT HAS BEEN INCLUDED IN THE EXP ENSES REIMBURSED. THUS, TAKING INTO ACCOUNT THE TOTALITY OF FACTS AND CIRCU MSTANCES OF THE CASE, WE FIND THAT ADDITION MADE BY THE AO IS CONTRARY TO FACTS A ND THEREFORE, IS DIRECTED TO BE DELETED. 13. IT WAS JOINTLY STATED BY BOTH THE PARTIES THAT FACT S AND ISSUES INVOLVED IN AY 2011-12 ITA NO.385/M/16) ARE SAME AS IN AY 2009- 10. THEREFORE, FOLLOWING OUR ORDER FOR AY 2009-10 , ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED FOR AY 2011-12 ALSO. 14. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING IN THE PRESENCE OF REPRESENTATIVES OF BOTH THE PARTIES . SD/- SD/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 09 TH MAY, 2017 PK/- 10 GEMOLOGICAL INSTITUTE COPY TO: THE APPELLANT 1. THE RESPONDENT 2. THE CIT(A) -39, MUMBAI 3. THE CIT - 2, MUMBAI 4. THE DR, L BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI