Seagram Manufacturing (P) Ltd, V. Addl CIT Range-8,

ITA 4783/DEL/2007

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8333 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 14-03-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 12-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A M GOVIL
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 234B; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA : JUDICIAL MEMBER ITA NOS. 4783 & 4784/DEL/2007 ASSTT. YRS: 2002-03 & 2003-04 SEAGRAM MANUFACTURING PVT. LTD., VS. ACIT RANGE- 8, (NOW PERNOD RICHARD INDIA PVT. LTD.) NEW DELHI. 104, ASHOKA ESTATE, BARAKHAMBA ROAD, NEW DELHI. PAN: AAACS 9563 R AND ITA NOS. 4779 & 4780/DEL/2007 ASSTT. YRS: 2002-03 & 2003-04 ACIT RANGE-8, VS. SEAGRAM MANUFACTURING PVT. LTD. , NEW DELHI. (NOW PERNOD RICHARD INDIA PVT. LTD.) 104, ASHOKA ESTATE, BARAKHAMBA ROAD, NEW DELHI. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA ADV. MRS. RASHI KHANNA ADV. MS. NEHA SINGH ADV. DEPARTMENT BY : SHRI A.M. GOVIL CIT (DR) DATE OF HEARING : 14/03/2016. DATE OF ORDER : 12/04/2016. O R D E R PER S.V. MEHROTRA, A.M: THESE ARE CROSS APPEALS, PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE, RAISING RESPECTIVE GROUNDS OF APPEAL RELAT ING TO AY 2002-03 & 2 2003-04. SINCE COMMON ISSUES ARE INVOLVED FOR ADJUD ICATION, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMPOSITE ORDER, FOR THE SAKE OF CONVENIENCE. A.Y. 2002-03 (ASSESSEES APPEAL): 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WAS SET UP AS A 100% SUBSIDIARY OF SEAGRAM INDIA LTD. IN THE YEAR 1994. IN THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION, IT WAS ENGAGED IN THE BUSINESS OF BLENDING, BOTTLING AND TRADING OF INDIAN MADE FOREI GN LIQUOR (IMFL). THE LIQUOR WAS BOTTLED AND SOLD WITHIN INDIA THROUGH GO VERNMENT AGENCIES AND PRIVATE DISTRIBUTORS AND ALSO EXPORTED OUT OF INDIA . THE AO HAD MADE A REFERENCE U/S 92CA(1) TO TRANSFER PRICING OFFICER ( TPO) TO DETERMINE THE ARMS LENGTH PRICE (ALP) IN RELATION TO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (AES) REPORTED IN FOR M 3CEB FILED WITH THE RETURN OF INCOME: NAME AND ADDRESS OF THE ASSOCIATED ENTERPRISE DESCRIPTION OF THE INTERNATIONAL TRANSACTION BOOK VALUE OF THE TRANSACTION (RS.) ARMS LENGTH PRICE COMPUTED BY THE ASSESSEE (RS.) SEAGRAM MARTELL DUTY FREE LTD. [SMDF] UNIT 23118, NATHAN RD. KOWLOOM, HONG KONG MARKET SUPPORT SERVICES 4,95,18,093/- 4,95,18,093/- CHIVAS BROTHERS LTD. 111/115 EINFREW ROD, U.K. PA3 4DY CI PURCHASE OF RAW-MATERIAL 5,60,19,146/- 5,60,19,146/- SEAGRAM NETHERIANDS ANTILLES N.V. 15, INTEREST FREE LOAN GRANTED IN EARLIER NIL NIL 3 PIETERMAN, NETHERLANDS, ANTILLES YEARS SEAGRAM CO. LTD. CANADA, 1430, PEEL STREET, CANADA H3A 159. SALE OF COTTON FLANNEL 4,68,21,889/- 4,68,21,889/- 3. LD. TPO ACCEPTED THE ALP AS DETERMINED BY ASSESS EE IN REGARD TO PURCHASE OF RAW-MATERIAL, INTEREST FREE LOAN GRANTE D IN EARLIER YEARS AND SALE OF COTTON FLANNEL. HOWEVER, HE DID NOT ACCEPT THE ALP DETERMINED BY ASSESSEE IN REGARD TO MARKETING SUPPORT SERVICES. LD. TPO HAS OBSERVED THAT AS PER PARA 3.2.1 OF THE T.P. REPORT, SEAGRAM MARTE LL SUPPLIED VARIOUS INTERNATIONAL BRANDS OF THE ALCOHOLIC BEVERAGES PUR SUANT TO ORDERS RECEIVED FROM LICENSE BONDERS AND DUTY FREE SHOPS (COLLECTI VELY REFERRED TO AS DUTY FREE SALES). IN ORDER TO PROMOTE DUTY FREE SALES O F THESE INTERNATIONAL BRANDS IN INDIA, ASSESSEE PROVIDED NEED BASED MARKETING SU PPORT SERVICES TO SEAGRAM MARTELL IN SAARC REGION. THESE SERVICES INC LUDED THE FOLLOWING: - PROMOTING SALES OF PRODUCTS IN THE MARKETS IN INDIA ; - CANVASSING ORDERS FOR THE PRODUCTS; - PROVIDING ADMINISTRATIVE ASSISTANCE TO SEAGRAM MART ELL IN PRODUCT ADVERTISING, ADDRESSING CUSTOMER GRIEVANCES REGARDI NG FEATURES AND STANDARDS OF THE PRODUCTS, ORGANIZING AND CONDUCTIN G OF VARIOUS PROMOTION/ MARKETING EVENTS ON BEHALF OF SEAGRAM MA RTELL; - PROVIDING ASSISTANCE AND SUPPORT TO SEAGRAM MARTELL IN THE COLLECTION AND FOLLOW UP OF PAYMENTS DUE. 4. IT IS FURTHER NOTICED BY LD. TPO THAT ASSESSEE D ID NOT HAVE AUTHORITY TO CONCLUDE CONTRACT ON BEHALF OF SEAGRAM MARTELL. HE NOTED THAT FOR THE ABOVE 4 MENTIONED SERVICES RENDERED BY ASSESSEE TO SEAGRAM MARTELL, SEAGRAM MARTELL REIMBURSED THE ACTUAL MARKETING COST INCURR ED BY ASSESSEE FOR PERFORMING THE ABOVE SERVICES AND PAID THE FIXED CO MMISSION OF US$ 2500 P.M. TO ASSESSEE. THIS ARRANGEMENT WAS GOVERNED BY REPRESENTATION AGREEMENT DATED 01.07.2000 BETWEEN SEAGRAM MARTELL DUTY FREE LTD. AND SEAGRAM INDIA MFG. P. LTD. (ASSESSEE). 5. LD. TPO NOTED FROM THE REPRESENTATION AGREEMENT THAT IN ADDITION TO THE FUNCTIONS NOTED EARLIER, THE ASSESSEE WAS ALSO PERFORMING FOLLOWING FUNCTIONS: (A) NEGOTIATIONS OF TERMS AND CONDITIONS AND CREDIT LIM IT WITH CUSTOMERS (B) OBTAINING ORDERS FROM CUSTOMERS AND FORWARDING THE M TO SEAGRAM MARTELL WITH DRAFT PROFORMA INVOICES CONTAINING PRO POSED TERMS AND CONDITIONS INCLUDING PRICES, BASED ON CONFIRMATIONS FROM THE CUSTOMERS; (C) ADVISING SEAGRAM MARTELL ON DELIVERY OF GOODS. 6. LD. TPO EXAMINED THE ECONOMIC ANALYSIS CARRIED OUT BY ASSESSEE IN RESPECT OF MARKETING SUPPORT SERVICES TRANSACTION AND NOTED THAT TNM METHOD WAS FOUND TO BE THE MOST APPROPRIATE TP METH OD TO TEST THE OVERALL PROFITABILITY OF ASSESSEES SERVICE FUNCTION. THE A SSESSEE WAS TAKEN AS THE TESTED PARTY ON THE GROUND THAT IT WAS BEARING LESS RISK AS COMPARED TO THE 5 AES. THE PLI FOR THE TNM METHOD ANALYSIS WAS TAKEN AS NET PROFIT TO TOTAL EXPENSES (OR COST) RATIO, TERMED AS NCP IN THE T.P. REPORT. 7. LD. TPO NOTICED THAT WEIGHTED AVERAGE OF PLI FOR THE COMPARABLE CASES WAS 6.11% USING DATA FOR 3 YEARS. THE PROFIT EARNED BY ASSESSEE FROM MARKETING SUPPORT SERVICE ACTIVITIES, SEGMENTED OU T OF THE CONSOLIDATED ACCOUNT BY THE COMPANY MANAGEMENT, WAS 13.25%, WHIC H WAS COMPUTED AS UNDER: INCOME SALES RS. 1501610 OPERATING INCOME [A] RS. 1501610 EXPENSES COST OF TRADED GOODS PERSONNEL EXPENSES RS. 1081023 ADMINISTRATION AND SELLING EXPENSES RS. 244866 OPERATING EXPENSES (B) RS. 1325889 OPERATING PROFIT =(A)-(B) RS. 175721 NET COST PLUS MARGIN (%) (C)/(B)/100 13.25 8. IN COURSE OF PROCEEDINGS, THE ASSESSEE FILED RE VISED COMPUTATION IN REGARD TO MARKET SUPPORT SERVICES, WHICH WAS AS UND ER: MARKET SUPPORT SERVICES FEE RS. 13,85,339/- REIMBURSEMENT FOR MARKET SUPPORT SERVICES RS. 4,8 0,71,661/- EXCHANGE GAIN RS. 61,093/- TOTAL AMOUNT FOR MARKET SUPPORT SERVICES RS. 4,95 ,18,093/- 9. HE NOTED THAT REVISED PROFITABILITY OF ASSESSEE FROM ITS MARKET SUPPORT SERVICES FUNCTION WORKED OUT AT 4.48%. THUS, ASSESS EE CLAIMED THAT ITS 6 MARKET SUPPORT SERVICES FUNCTION WAS WITHIN 5% OF THE AVERAGE OF NCPS OF COMPARABLE CASES. 10. LD. TPO EXAMINED THE ASSESSEES COMPUTATION AND NOTED FOLLOWING TWO DEFECTS IN THE ECONOMIC ANALYSIS DONE BY THE AS SESSEE, WHICH ARE REPRODUCED HEREUNDER:- 7.0 TWO SERIOUS DEFECTS WERE NOTED IN THE ECONOMIC ANALYSIS DONE IN THE T.P. REPORT TO JUSTIFY THE ARM'S LENGTH PRICE OF MARKET SUPPORT SERVICE ACTIVITY: . (A) THE EXPENDITURE IN RESPECT OF MARKETING SUPPOR T SERVICES SEGMENT HAS NOT BEEN PROPERLY ALLOCATED BY SMPL MANAGEMENT. AS A RESULT, THE OPERATING PROFIT COMPUTED ON PAGE 28 OF THE T.P. REPORT AND REPRODUCED ABOVE IN THIS ORDER IS NOT THE ACTUAL PROFIT FROM THIS ACTIVITY. THIS ISSUE WILL BECOME FURTHER CLEAR IN THIS ORDER. THERE ARE VARIOUS OTHER EXPENSES (BESIDES THOSE DEBITED NOW), WHICH NEEDED TO BE TAKEN INTO ACCOUNT FOR THIS SEGMENT. (B) THE REIMBURSED EXPENSES OF ABOUT RS. 4.8 CRORE S ARE ROUTED THROUGH ASSESSEE'S ACCOUNTS AND ARE MENTIONED AS PART OF 'INTERNATIONAL TRANSACTION OF MARKET SUPPORT SERVICES' IN FORM 3CEB. HOWEVER, WHILE PREPARING THE SEGMENTED ACCOUNTS, THE COMPANY MANAGEMENT (PAGE 28 OF THE T.P. REPORT), EXCLUDED THESE REIMBURSEMENTS BOTH FROM THE RECEIPTS AND THE EXPENDITURE. FOR NCP RATIO CALCULATION ALSO, REIMBURSED EXPENSES ARE NOT INCLUDED IN THE 'COST'. 7 11. LD. TPO GAVE OPPORTUNITY TO ASSESSEE, OBSERVING IN PARA 8 AS UNDER: 8.0 DURING THE PROCEEDINGS U/S 92CA. VIDE ORDER SH EET ENTRY DT. 17.01.2004 ASSESSEE WAS INFORMED THAT FOR MARK ET SUPPORT SERVICES ACTIVITY THE AGREEMENT WITH SEAGRAM MARTEL L HONG KONG, LISTS COMPREHENSIVE RESPONSIBILITY OF SMPL F OR SALE OF LIQUOR MANUFACTURED BY SEAGRAM MARTELL IN DUTY FREE OUTLETS IN THE SAARC REGION. HOWEVER, THE COMMISSION RECEIVED IS FIXED AT US$ 2500 PER MONTH AND IS NOT LINKED TO EI THER COST INCURRED OR SALES MADE. ASSESSEE'S (ARS) WERE ASKED TO CLARIFY AS TO WHY IN THE ECONOMIC ANALYSIS. REIMBURSED EXPE NSES OF ABOUT RS. 4.8 CRORES WERE EXCLUDED TO CALCULATE NCP OF SMPL. ASSESSEE WAS ALSO ASKED TO FURNISH TOTAL SALES OF L IQUOR ACHIEVED BY SMPL DURING F.Y. 2001-02 SEPARATELY FOR INDIA AN D SAARC COUNTRIES. IT WAS ALSO ASKED AS TO WHY THE COMMISSI ON WAS AGREED TO BE RECEIVED AS A FIXED SMALL SUM AND NOT AS A PERCENTAGE OF SALES. AS IS THE USUAL PRACTICE FOR I NDEPENDENT COMMISSION AGENTS. DETAILS OF EXPENSES INCURRED ON MARKET SUPPORT SERVICES OF RS. 13.25.889/- AND REIMBURSED EXPENSES OF RS. 4.80.71.661/- WERE ALSO CALLED FOR. 12. THE ASSESSEE IN ITS REPLY POINTED OUT THAT UNDE R THE REPRESENTATION AGREEMENT BETWEEN SEAGRAM MARTELL AND ASSESSEE, THE ROLE OF ASSESSEE WAS THAT OF A MERE COORDINATOR BETWEEN SEAGRAM MARTELL AND FINAL CUSTOMERS. IN DISCHARGING RESPONSIBILITIES UNDER HE SAID REPRESE NTATION AGREEMENT. SMPL IS REQUIRED TO UNDERTAKE ACTIVITIES THAT REQUIRE VERY MINIMAL TIME AND THE RISKS TAKEN AND DEPLOYMENT OF ASSETS BY ASSESSEE WE RE ALMOST NEGLIGIBLE. IT WAS FURTHER POINTED OUT THAT ALL THE ACTIVITIES WER E COORDINATED BY ONE 8 EMPLOYEE SPENDING FULL TIME EFFORTS (NAMELY. MR. SU RJIT VERMA) AND ANOTHER EMPLOYEE SPENDING MINIMAL PART OF THIS TIME (MR. ADITYA GOOPTU). THE ROLE OF ASSESSEE WAS NEITHER TO UNDERTAKE FULL-FLED GED MARKETING/ DISTRIBUTION ACTIVITIES NOR TO OPERATE AS A SALES AGENT OF SEAGR AM MARTELL. HENCE IT WAS CLAIMED THAT THE FIXED FEE OF US $ 2500 PER MONTH F OR THE LIMITED ACTIVITIES UNDERTAKEN BY ASSESSEE WAS JUSTIFIED, WHICH COVERED PERSONNEL COSTS, COMMUNICATION EXPENSES AND A PROFIT MAKE UP. 13. THE ASSESSEE, AS REGARDS NON-INCLUSION OF EXPEN SES OF RS. 4.8 CRORES IN THE COST TO COMPUTE NCP MARGIN, SUBMITTED AS UNDER: THESE EXPENSES ARE SPECIFICALLY INCURRED TO UNDERT AKE CERTAIN SPECIFIC ACTIVITIES FOR SEAGRAM MARTELL AND ARE REI MBURSED AT ACTUALS. THESE EXPENSES DO NOT PORT SERVICE ROLE UN DERTAKEN BY SMPL. THE ROLE OF SMPL IN THIS CASE IS PROVIDE ADMI NISTRATIVE ASSISTANCE TO SEAGRAM MARTELL FOR G/PROMOTIONS/EVEN TS ETC. THE AFORESAID EXPENSES ARE MERE OUT-OF- POCKET EXPENSES INCURRED BY SMPL IN PROVIDING THE AFORESAID ADMINISTRATIVE A SSISTANCE. SMPL IS NOT IN THE BUSINESS OF PROVIDING ADVERTISEM ENT OR SALES PROMOTION SERVICES TO UNRELATED PARTIES. THE BENEFI T (OF SMPL INCURRING THESE EXPENSES AND OBTAINING REIMBURSEMEN T OF THE SAME), IF ANY, TO SEAGRAM MARTELL IS NO MORE THAN INDIRECT OR REMOTE IN NATURE. ANY BENEFIT ARISING TO SEAGRAM MA RTELL IS PURELY INCIDENTAL AND NOT INTENTIONAL SO AS TO WARR ANT ANY MARK- UP ON THE COSTS SO INCURRED BY SMPL. FURTHER, THE C OST OF PROVIDING SUCH ASSISTANCE AND INCIDENTAL BENEFIT AR ISING TO SEAGRAM MARTELL. IF ANY. IS NOT A SIGNIFICANT PORTI ON AS COMPARED TO THE OPERATING COSTS OF SMPL. THUS. COST OF RENDERING ANY INDIRECT BENEFIT. IF ANY TO SEAGRAM M ARTELL SHOULD NOT WARRANT A MARK-UP. IN THIS REGARD. WE ALSO SUBM IT THAT THE 9 ABOVE IS IN ACCORDANCE WITH PARAGRAPH 7.36 OF OECD- TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AN D TAX ADMINISTRATIONS: 'WHEN AN ASSOCIATED ENTERPRISE IS ACTING ONLY AS AN AGENT OR INTERMEDIARY IN THE PROVISION OF SERVICES, IT IS IM PORTANT IN APPLYING THE COST-PLUS METHOD THAT THE RETURN OR MA RK-UP IS APPROPRIATE FOR THE PERFORMANCE OF SERVICES THEMSEL VES. IN SUCH A CASE, IT MAY NOT BE APPROPRIATE TO DETERMINE ARM' S LENGTH PRICING AS A MARK-UP ON THE COST OF SERVICES BUT RA THER ON THE COSTS OF THE AGENCY FUNCTION ITSELF, OR ALTERNATIVE LY, DEPENDING ON THE TYPE OF COMPARABLE DATA BEING USED, THE MARK -UP ON THE COST OF SERVICES SHOULD BE LOWER THAN WOULD BE APPR OPRIATE FOR THE PERFORMANCE OF THE SERVICES THEMSELVES. FOR EXA MPLE, AN ASSOCIATED ENTERPRISE MAY INCUR THE COSTS OF RENDER ING ADVERTISING SPACE ON BEHALF OF GROUP MEMBERS, COST THAT THE GROUP MEMBERS WOULD HAVE INCURRED DIRECTLY HAD THEY BEEN INDEPENDENT. IN SUCH A CASE, IT MAY WELL BE APPROPR IATE TO PASS ON THESE COSTS TO THE GROUP RECIPIENTS WITHOUT A MA RK-UP, AND TO APPLY A MARK-UP ONLY TO THE COSTS INCURRED BY THE I NTERMEDIARY IN PERFORMING ITS AGENCY FUNCTION. 14. LD. TPO REQUIRED THE ASSESSEE TO INFORM AS TO H OW THE SALES WERE MADE BY SEAGRAM MARTELL IN INDIA BEFORE ENTERING IN TO REPRESENTATION AGREEMENT WITH ASSESSEE. 15. THE ASSESSEE POINTED OUT THAT SEAGRAM MARTELL C OMMENCED SALES TO DUTY FREE SHOPS AND OTHER GOVT. APPROVED VENDORS ET C. FROM AUGUST, 1999. FOR THE PERIOD UP TO MARCH, 2000 (APPROXIMATELY 3 M ONTHS), SEAGRAM MARTELL DIRECTLY COORDINATED THE SALES WITH THE SAI D CUSTOMER. THE ASSESSEE FURNISHED FOLLOWING DETAILS OF EXPENSES INCURRED FO R MARKET SUPPORT SERVICES: 10 SURJIT VERMA SALARY ETC. 100% 842,180 ADITYA GOOPTU SALARY ETC. 15% 238,843 1,081,023 SURJIT VERMA TRAVEL EXPENSES ACTUAL EXPENSES 11 7,590 ADITYA GOOPTU TRAVEL EXPENSES 15% OF ACTUAL EXP.1 27,276 244,866 16. LD. TPO POINTED OUT WITH REFERENCE TO ABOVE DET AILS THAT THOUGH IN THE LETTER DATED 6.2.2004, THE ASSESSEE STATED THAT THE OBJECTIVE OF FIXED FEE RECEIVED BY ASSESSE WAS TO COVER PERSONNEL COSTS, C OMMUNICATION EXPENSES AND A PROFIT MAKE UP, NO COMMUNICATION EXPENSES WER E INCLUDED IN THE EXPENDITURE ON COMMUNICATION. HE FURTHER POINTED OU T THAT ASSESSEE HAD NOT INCLUDED ANY EXPENDITURE ON RENT, WEAR AND TEAR OF FIXED ASSETS, POSTAGE, LOCAL CONVEYANCE AND PETROL, POWER AND FUEL, BANK C HARGES ETC. INCURRED TOWARDS MARKETING SUPPORT ACTIVITIES. 17. THE ASSESSEE PROVIDED THE DETAIL OF REIMBURSEME NT OF EXPENSES, WHICH WERE AS UNDER: PARTICULARS AMOUNT (IN RS.) CR OPEN GOLF CHAMPIONSHIP 15,564,227 POLO CHAMPIONSHIP 7,746,195 PROMOTIONS 7,527,981 DISPLAY MATERIAL 4,221,607 OTHER EVENTS 2,494,166 CONSUMER PROMOTIONAL MATERIAL 2,234,397 MARTELL GRANT NATIONAL 2,025,434 PAPER POS 1,759,514 PUBLIC RELATIONS 1,655,184 MARKET RESEARCH 1,342,950 ADVERTISING 969,577 BAR COLLETRAL 387,420 11 PACKAGING & DEVELOPMENT 85,940 COURIER CHARGES 57,069 TOTAL 48,071,661 18. THE ASSESSEE HAD ALSO FURNISHED THE DETAILS OF THESE REIMBURSEMENTS SPECIFYING THE NAMES OF THE PARTIES TO WHOM PAYMENT S WERE MADE AND CLARIFICATIONS ON NATURE OF EXPENSES BEFORE LD. TPO . 19. LD. TPO HAD ALSO REQUIRED THE ASSESSEE TO FURNI SH THE DETAILS OF SALES ACHIEVED BY SEAGRAM MARTELL DURING FY 2001-02 FOR I NDIA AND OTHER SAARC COUNTRIES. THE ASSESSEE POINTED OUT THAT SINC E THE ACTIVITIES OF ASSESSEE WERE LIMITED TO PROVIDING CERTAIN MARKETIN G SUPPORT SERVICES, THE ASSESSEE HAD NOT MAINTAINED ANY COMPREHENSIVE RECOR D OF SALES MADE BY SEAGRAM MARTELL. 20. THE ASSESSEE ONLY PROVIDED LIMITED DETAILS IN T HIS REGARD POINTING OUT THAT SEAGRAM MARTELL HAD UNDER GONE A MAJOR REORGAN IZATION AFTER THE SPLIT AND SUBSEQUENT ACQUISITION OF SEAGRAM GROUP WORLDWI DE BY DIAGEO AND PERNOD RICARD. THE TOTAL SALES FOR THE PERIOD 1.4.2 001 TO 31.12.2001 WERE HK $ 2,97,53,000. 21. LD. TPO HAD ALSO REQUIRED THE ASSESSEE TO PRODU CE SHRI SURJIT VERMA AND MR. ADITYA GOOPTU, THE TWO EMPLOYEES ALLEGEDLY ASSOCIATED WITH MARKETING SUPPORT FUNCTIONS. HE OBSERVED THAT WHILE SHRI SURJIT VERMA WAS PRODUCED MR. ADITYA GOOPTU WAS SAID TO HAVE LEFT TH E COMPANY AND HENCE NOT AVAILABLE. ACCORDINGLY, THE STATEMENT U/S 131 O F SHRI SURJIT VERMA WAS 12 RECORDED. THE AO HAS IN DETAIL DISCUSSED THE ALLOCA TION OF EXPENSES FOR MARKETING SUPPORT SERVICE IN PARAS 10 TO 11.6 AND H AS FINALLY CONCLUDED THAT FOLLOWING EXPENSES HAD TO BE ALLOCATED TOWARDS MARK ETING SUPPORT SERVICES: SALARY VERMA 8,42,180/- SALARY GOOPTU 7,96,143/- TRAVEL EXPENSES VERMA 1,17,590/- TRAVEL EXPENSES GOOPTU 4,24,253/- COMMUNICATION 42,52,114/- FINANCE CHARGES 4,44,088/- RENT 3,00,000/- CONVEYANCE 2,50,000/- DEPRECIATION 1,00,000/- POWER AND FUEL 1,25,516/- MISCELLANEOUS 1,00,000/- TOTAL 77,51,884/- 22. AS REGARDS THE NON-INCLUSION OF REIMBURSED EXPE NSES IN THE COST BASE FOR NCP CALCULATION, LD. TPO HAS OBSERVED THAT WHEN ASSESSEE, WHICH INCURS EXPENSES IN THE FIRST PLACE AND RECORDS THEM IN ITS BOOKS, THERE CAN BE NO JUSTIFICATION IN EXCLUDING THEM FROM TOTAL COST F OR CALCULATING NCP RATIO. LD. TPO HAS REFERRED TO THE STATEMENT OF MR. SURJIT VERMA AND HAS OBSERVED AS UNDER: AS EVIDENT FROM THE STATEMENT OF MR. SURJIT VERMA, SMPL IS FULLY INVOLVED IN ORGANIZING AND COORDINATING VARIO US ACTIVITIES AND EVENTS FINANCED THROUGH . REIMBURSED EXPENSES. MR. GOOPTU COORDINATED WITH ADVERTISING AGENCY FOR ORGANIZATIO N OF CHIVAS REGAL GOLF & POLO ACTIVITIES IN INDIA. RESEARCH WAS CONDUCTED ON BEHALF OF SEAGRAM MARTELL. FINDINGS FOR WHICH WE RE COMMUNICATED BY MR. GOOPTU TO SEAGRAM MARTELL. MR. VERMA PLAYED A ROLE IN SELECTION OF THE VENUES. INVITEES FOR THE GOLF & POLO EVENTS. BOTH MR. GOOPTU AND MR. VERMA WERE FUL LY 13 INVOLVED IN THESE EVENTS. MR. VERMA WAS INVOLVED IN COORDINATION WITH ITDC AND THE AGENCY HIRED BY SEAG RAM MARTELL TO DEVELOP ITDC SHOPS AT BANGALORE AND HYDE RABAD. FOR EACH AND EVERY ACTIVITY FINANCED THROUGH REIMBU RSED EXPENSES. INVOLVEMENT OF EITHER SURJIT VERMA OR ADI TYA GOOPTU. I.E. OF SMPL WAS THERE. IT CANNOT BE DENIED THAT SMPL PLAYED A VITAL ROLE IN ALL THE ACTIVITIES DONE TO P ROMOTE SALES OF SEAGRAM MARTELL DUTY-FREE LTD. (SMDF) FOR WHICH EXP ENSES OF RS. 4,80.71,661/- WERE INCURRED. 23. HE POINTED OUT THAT THIS EFFORT MADE BY ASSESSE E DEFINITELY REQUIRED A MARK UP ON THE COST. HE POINTED OUT THAT INDEPENDEN T PARTIES DEALING AT ARMS LENGTH WOULD NOT WORK FOR FREE. HE POINTED OUT THAT THE COST INCURRED BY ASSESSEE IN TURN REPRESENTS THE MAGNITUDE OF EFFORT OF ASSESSEE ALSO. THE REIMBURSED COST, THEREFORE, SHOULD HAVE BEEN IN CLUDED IN THE COST TO CALCULATE NCP RATIO AND A MARK UP ON THIS COST WAS DEFINITELY NEEDED TO BE EARNED BY ASSESSEE. HE REFERRED TO ASSESSEES EXPLA NATION WITH REFERENCE TO PARA 7.36 OF THE OECD GUIDELINES AND POINTED OUT TH AT THE SAME REFERS TO THOSE SITUATIONS WHERE THE AGENT WAS RESTRICTING IT SELF TO THE AGENCY FUNCTION AND WAS NOT INVOLVED IN THE OTHER ACTIVITIES OF PRI NCIPAL, FOR WHICH IT ONLY ACTED AS A CONDUIT. HERE ASSESSEE WAS FULLY INVOLVE D IN THE FUNCTIONS REPRESENTED BY REIMBURSED EXPENSES. HE POINTED OUT THAT ASSESSEE ALSO FINANCES EXPENSES FOR THE TIME BEING TILL IT GOT RE IMBURSED BY AES. HE, THEREFORE, CONCLUDED THAT PARA 7.36 OF OECD GUIDELI NES WAS NOT APPLICABLE. ACCORDINGLY, HE CONCLUDED THAT REIMBURSED EXPENSES SHOULD BE TAKEN AS A 14 PART OF COST TO BE USED FOR CALCULATING NCP RATIO . HE, ACCORDINGLY, CALCULATED THE NCP RATIO FOR THE MARKETING SUPPORT SERVICES AS UNDER: MARKET SUPPORT SERVICES FEE RS. 13,85,339/- REIMBURSEMENT FOR MARKET SUPPORT SERVICES RS. 4,8 0,71,661/- EXCHANGE GAIN RS. 61,093/- OPERATING INCOME (A) RS. 4,95,18,093/- LESS: EXPENSES ALLOCATED ABOVE RS. 7751884/- REIMBURSED EXPENSES RS. 4,80,71,661/ - TOTAL EXPENSES (B) RS. 5,58,23,545/- OPERATING PROFIT (C)=(A)-(B) (-) RS. 63,05,452/- NET COST PLUS MARGIN (&) (C)/(B)X100 24. HE, THEREFORE, POINTED OUT THAT THE NCP RATIO F OR THE TESTED PARTY I.E. SMPL FOR FY 2001-02 WAS (-11.30%) AS AGAINST THE M EAN OF NCP RATIO FOR COMPARABLE PARTIES, USING THE CURRENT YEAR DATA FOR F.Y. 2001-02 WAS 7.99%. 25. HE DIRECTED ADDITION OF RS. 1,07,65,753/-, OBSE RVING AS UNDER: BY APPLYING THE MEAN NCP RATIO FOR THE COMPARABLE CASES I.E. 7.99% TO THE TOTAL COST FOR MARKET SUPPORT SERVICES FUNCTION OF THE TESTED PARTY SMPL. PROFIT = RS. 55823545 X 0.0799 = RS. 44,60,301 AMOUNT RECEIVABLE USING NCP OF 7.99% = RS. 55823 545+RS. 44,60,301 = RS. 6,02,83,846 95% OF THE ABOVE = RS. 57269654 95% OF THE AMOUNT RECEIVABLE USING NCP OF 7.99% IS MORE THAN THE AMOUNT ACTUALLY RECEIVED I.E. RS. 4,95,18,093/-. THE ARMS LENGTH PRICE OF THE MARKET SUPPORT SERVICES RECEIPTS IS THEREFORE RS. 6 ,02,83,846. THE DIFFERENCE WORKS OUT TO RS. 1,07,65,753 IT NEEDS TO BE NOTED THAT THE DIFFERENCE BETWEEN AL P AND THE TRANSACTION VALUE ARISES ON TWO COUNTS: 15 COSTS INCURRED BY SMPL BUT NOT REIMBURSED RS. 64, 25,995/- (DIFFERENCE OF RS. 7751884 AND RS. 1325889) SHORTFALL IN PROFIT RS. 43,39,758/ - (DIFFERENCE BETWEEN RS. 4460301 &(RS. 59450+RS.6109 31) TOTAL RS. 1,07,65,753/- 26. THE AO, ACCORDINGLY GAVE EFFECT TO THE DIRECTIO NS OF LD. TPO AND FURTHER MADE ADDITION ON FOLLOWING COUNTS: - LOSS ON FOREIGN EXCHANGE FLUCTUATION - PROVISION FOR PROFESSIONAL EXPENSE - PROVISION FOR TRANSIT BREAKAGES - DIFFERENCE IN ARMS LENGTH PRICE U/S 92CA - EXPENDITURE DISALLOWED ON BRAND PROMOTION. - EXPENDITURE ON ADVERTISEMENT & SALES PROMOTION, TRE ATED AS CAPITAL EXPENDITURE. 27. THE AO ALSO COMPUTED THE INTEREST INCOME OF RS. 98,85,207/- , RETURNED BY ASSESSEE AS BUSINESS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 28. LD. CIT(A) HAS PARTLY ALLOWED THE ASSESSEES AP PEAL. BEING AGGRIEVED, BOTH THE ASSESSEE, AS WELL AS THE DEPARTMENT ARE IN APPE AL BEFORE US. 29. FIRST WE TAKE UP THE ASSESSEES APPEAL. GROUNDS RAISED BY ASSESSEE ARE AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME (APPEALS) [ LD. C!T(A)] ERRED ON FACTS AND IN LAW IN SUSTAINING THE ADJUSTMENT OF RS. 5,809,675 MADE BY THE TRANSFER PRICING OFFIC ER (TPO) UNDER SECTION 92CA OF THE INCOME TAX ACT, 1961 (ACT ). 1.1 THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE APPORTIONMENT OF EXPENSES DONE BY THE TPO WERE WITH OUT BASIS AND COULD NOT BE SUSTAINED. 16 1.2 THAT THE LD. CIT(A) ERRED IN CONCLUDING THAT T HE NCP MARGIN OF THE APPELLANT WORKED OUT TO -3.35% AS AGA INST THE NCP MARGIN OF7.99% AS TAKEN BY THE TPO. 1.3 THAT THE LD. C!T(A) ERRED IN LAW IN NOT GRANTI NG THE VARIATION OF 5% AS PERMITTED UNDER THE PROVISO TO S ECTION 92C(2) OF THE ACT. 2. THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN SUSTAINING THE DISALLOWANCE OF RS. 50,540 BEING PROVISION FOR PROFESSIONAL CHARGES. 3. THAT THE LD. CIT(A) GROSSLY ERRED IN LAW IN SUST AINING THE DISALLOWANCE OF RS. 5,159,990 ON ACCOUNT OF PROVISI ON FOR TRANSIT BREAKAGES. 3.1 THAT THE LD. CIT(A) GROSSLY ERRED IN LAW IN CO NCLUDING THAT THERE WAS NO CERTAINTY IN RESPECT OF BREAKAGES AND AS SUCH THERE WAS NO ACCRUAL ON ANY LEGAL LIABILITY. 3.2 THAT THE LD. CIT(A) GRAVELY ERRED IN LAW IN CO NCLUDING THAT THE PROVISION FOR TRANSIT BREAKAGES WAS PURELY CONTINGENT IN NATURE. 4. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DISA LLOWANCE OF RS. 114,449 ON ACCOUNT OF DEPRECIATION. 5. THAT THE LD. CIT(A) ERRED IN LAW IN SUSTAINING T HE ADDITION OF RS. 5,159,990 BEING PROVISION OF TRANSI T BREAKAGES IN ORDER TO COMPUTE BOOK PROFIT UNDER SECTION 115JA OF THE ACT. 6. THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN SUSTAINING THE TREATMENT OF RS. 9,885,207 AS 'INCOM E FROM OTHER SOURCES' AS AGAINST 'BUSINESS INCOME' OF THE APPELL ANT. 7. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE LEVY OF INTEREST UNDER SECTION 234B AND D OF THE ACT. 30. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASS ESSEE DID NOT PRESS GROUND NOS. 2 & 4. ACCORDINGLY, GROUND NOS. 2 & 4 STAND DISMISS ED, BEING NOT PRESSED. 17 31. APROPOS GROUND NO. 1 LD. COUNSEL POINTED OUT TH AT LD. CIT(A) HAS DETERMINED THE COST INCURRED BY ASSESSEE TOWARDS MA RKETING SUPPORT SERVICE, AS UNDER: S. NO. NATURE OF EXPENSES VALUE TAKEN BY TPO HEAD OF EXPENSES AS APPEARING IN THE P&L APPORTIONMENT ON THE BASIS OF HEAD COUNT COMPUTED BY THE APPELLANT FINDING IN THIS ORDER 1. REIMBURSEMENT EXPENSES 48071661 0 0 4,80,71,661 2. COMMUNICATION EXPENSES 42,52,144 1,05,06,755 52,534 5,26,388 3. FINANCE CHARGES 4,44,088 33,94,492 16,972 0 4. RENT 3,00,000 1,84,65,610 92,328 92,328 5. CONVEYANCE AND LOCAL TRAVEL 2,50,000 3,18,18,476 1,59,092 1,59,092 6 DEPRECIATION 1,00,000 1,96,10,713 98,054 98,054 7 POWER AND FUEL 1,25,616 12,93,984 6,470 6,470 8 MISCELLANEOUS 1,00,000 1,88,04,901 94,025 1,00,00 0 9 SALARY EXPENSE OF MR. VERMA 8,42,180 - - 8,42,180 10 TRAVEL EXPENSES OF MR. VERMA 1,17,590 - - 1,17,590 11 50% SALARY OF MR. ADITYA GOOPTU 7,96,143 7,96,143 7,96,143 7,96,143 12 50% TRAVEL EXPENSES OF MR. ADITYA GOOPTU 4,24,253 - - 4,24,253 TOTAL 5,58,23,675 4,05,05,741 13,15,618 5,12,34,15 9 (*) THE TOTAL EXPENSES WORKED OUT AT RS. 26,41,507/ - AFTER INCLUDING EXPENSES OF RS. 13,25,889/- ALREADY TAKEN INTO ACCO UNT BY THE TPO. THIS IS AGAINST THE TOTAL EXPENSES WORKED OUT IN TH IS ORDER OF RS. 28,72,072/- EXCLUDING THE REIMBURSEMENT EXPENSES. 32. LD. COUNSEL DID NOT SERIOUSLY DISPUTE THE ALLO CATION OF EXPENSES AS DETERMINED BY LD. CIT(A) IN REGARD TO VARIOUS EXPEN SES FROM SL. NO. 2 TO 12 18 BUT HE VEHEMENTLY OPPOSED THE INCLUSION OF REIMBURS EMENT OF EXPENSES WHILE DETERMINING THE COST INCURRED BY ASSESSEE IN REGARD TO MARKETING SUPPORT SERVICE. 33. LD. COUNSEL REFERRED TO PAGE 295 OF THE PB, WHE REIN THE REPRESENTATION AGREEMENT DATED 1.7.2000 IS CONTAINED AND REFERRED TO THE FOLLOWING RECITAL OF THE AGREEMENT: (B)SML POSSESSES THE NECESSARY EXPERTISE, KNOW-HOW AND THE RESOURCES FOR PROMOTING THE PRODUCTS AND THEIR SAL E, IN THE MARKETS IN THE TERRITORY AND IS CAPABLE AND WILLING TO ACT AS THE INTERFACE BETWEEN THE COMPANY AND ITS CUSTOMERS IN THE TERRITORY ; 34. HE ALSO REFERRED TO THE FOLLOWING COVENANTS OF THE AGREEMENT: 1.2. SML SHALL PROVIDE THE FOLLOWING SERVICES (TH E 'SERVICES') TO THE COMPANY FOR PROMOTING THE SALE ARID SUPPLY OF PRODUCTS IN THE MARKETS IN THE TERRITORY; 1.2.1 PROMOTING SALES OF PRODUCTS IN THE MARKETS IN THE TERRITORY; 1.2.2 CANVASSING ORDERS FOR THE PRODUCTS; 1.2.3 PROVIDING ADMINISTRATIVE ASSISTANCE TO THE CO MPANY IN PRODUCT ADVERTISING, ADDRESSING CUSTOMER GRIEVANCES REGARDING FEATURES AND STANDARDS OF THE PRODUCTS PROVIDING CL ARIFICATIONS TO CUSTOMERS AND PROSPECTIVE CUSTOMERS IN THE TERRI TORY, ORGANIZATION AND CONDUCT OF VARIOUS PROMOTION/ MARK ETING EVENTS AND LIAISON WITH THIRD PARTIES SUCH AS ADVER TISING AGENCIES, EVENT MANAGERS AND OTHER SPONSORS IF ANY, ON BEHALF OF THE COMPANY WITHOUT IN ANY WAY HAVING THE AUTHOR ITY TO FINALLY BIND THE COMPANY TO THE TERMS AND CONDITION S NEGOTIATED BY IT WITH SUCH THIRD PARTIES; 19 1.2.4 NEGOTIATING TERMS AND CONDITIONS AND CREDIT LIMITS WITH CUSTOMERS, SUBJECT TO THE TERMS AND CONDITIONS OF A RTICLE 2.3; 1.2.5 OBTAINING ORDERS FROM CUSTOMERS 3..11D FORWARDING SUCH ORDERS TO COMPANY WITH DRAFT PROFOR MA INVOICES CONTAINING PROPOSED TERMS AND CONDITIONS, INCLUDING PRICES; 1.2.6 UPON RECEIPT OF FORMAL PROFORMA INVOICES FR OM THE COMPANY, OBTAINING CONFIRMATION FROM CUSTOMERS; 1.2.7 BASED ON THE CONFIRMATION RECEIVED FROM THE CUSTOMERS, ADVISING COMPANY ON DELIVERY OF GOODS WHILE RETAINI NG THE ORIGINAL INVOICE WITH ITSELF; 1.2.8 PROVIDING ASSISTANCE AND SUPPORT TO THE COMPA NY IN THE COLLECTION AND FOLLOW UP OF PAYMENTS DUE AND OUTSTA NDING FROM CUSTOMERS IN THE TERRITORY; AND 1.2.9 PROVIDING ANY OTHER ASSISTANCE AS MAY BE MUT UALLY AGREED BETWEEN THE PARTIES HERETO. .. 6.3. THE COMPANY SHALL DIRECTLY BEAR ALL EXPENDITU RE TO BE INCURRED IN RESPECT OF THE PROMOTION AND MARKETING EVENTS ORGANIZED BY SML FOR AND ON BEHALF OF THE COMPANY. IN THE EVENT THAT SML AGREES TO DISBURSE SUCH EXPENDITURE OR ANY PART THEREOF ON BEHALF OF THE COMPANY DUE TO EXPEDIENCY OR CONVENIENCE, THE COMPANY SHALL PROVIDE TO SML AN A DVANCE OF THE ESTIMATED AMOUNT OF EXPENDITURE TO BE SO DISBUR SED BY IT. SML SHALL FURNISH TO THE COMPANY A DETAILED STATEME NT OF ACCOUNT ON THE CONCLUSION OF THE EVENT AND ADJUST ANY BALANCE AMOUNTS AGAINST THE COMMISSION PAYABLE TO SML UNDE R THIS AGREEMENT. 35. LD. COUNSEL SUBMITTED THAT WHEN COST HAS ALREAD Y BEEN ALLOCATED FOR CARRYING OUT MARKETING SUPPORT SERVICE BY ASSESSEE, THEN HOW REIMBURSEMENT 20 CAN BE ALLOCATED TO COST BASE. LD. COUNSEL RELIED O N THE DECISION OF ITAT DELHI BENCH IN THE CASE OF DCIT VS. CHEIL COMMUNICA TIONS INDIA (P) LTD. [2011] 11 TAXMANN.COM 205 (DELHI), HOLDING AS UNDER : THE ONLY QUESTION THAT FELL FOR CONSIDERATION WAS W ITH REGARD TO THE METHOD OF COMPUTING PROFIT/TC MARGIN WHETHER ON GROSS BASIS AS DONE BY THE TPO OR NET BASIS AS WORKED OUT BY THE ASSESSEE. IN THE INSTANT CASE THE ASSESSEE HAD APPL IED TNM METHOD TO DETERMINE ALP, WHICH HAD ALSO BEEN ACCEPT ED BY THE REVENUE AUTHORITIES. THE COM PARABLES CITED BY THE ASSESSEE HAD ALSO BEEN ACCEPTED BY THE TPO AS APPROPRIATE. IT WA S ALSO FOUND THAT IN THE REGULAR FINANCIAL ACCOUNTS MAINTA INED BY THE COMPARABLE COMPANIES, THE COM PARABLES RECOGNIZED R EVENUE ON A NET BASIS. THE ASSESSEE HAD ALSO RECOGNIZED RE VENUES ON A NET BASIS IN ITS FINANCIAL ACCOUNT, WHICH HAD BEEN DULY AUDITED BY THE AUDITOR. THE ASSESSEE HAD COMPUTED THE MARGI N OF OPERATIVE PROFIT ON THE TOTAL COST ON THE BASIS OF NET REVENUE BY WAY OF MARK-UP RECEIVED FROM THE ASSOCIATE CONCERN. THE PAYMENT MADE BY THE ASSESSEE TO THIRD PARTY VENDOR/ MEDIA AGENCIES FOR AND ON BEHALF OF THE PRINCIPAL HAD NOT BEEN INCLUDED IN THE TOTAL COST FOR DETERMINING THE PROF IT MARGIN, THOUGH , ON THE OTHER HAND, THE TP75HACRMCRUDED THE PAYMENT REIMBURSED BY THE ASSESSEE'S ASSOCIATE ENTERPRISE T O THE ASSESSEE ON ACCOUNT OF PAYMENT MADE TO THIRD PARTY VENDOR/MEDIA AGENCIES. IT WAS NOT IN DISPUTE THAT T HE ASSESSEE WAS ENGAGED IN UNDERTAKING ADVERTISING SERVICES FOR ITS CUSTOMERS/AES IN THE CAPACITY OF AN AGENT. AS PART OF ITS BUSINESS OPERATION, THE ASSESSEE FACILITATED PLACEM ENT OF ADVERTISEMENT FOR ITS AE IN THE PRINT/ELECTRONIC ET C. MEDIA AND FOR THAT PURPOSE, THE ASSESSEE WAS REQUIRED TO MAKE PAYMENT TO THIRD PARTIES FOR RENDERING OF ADVERTISEMENT SPACE ON BEHALF OF ITS CUSTOMERS OR AES. IT WAS, THUS, CLEAR THAT THE ASSESSEE'S BUSINESS WAS NOT SALE OF ADVERTISING SLOTS TO ITS C USTOMERS OR ASSOCIATE CONCERN. FOR PERFORMING THE FUNCTIONS FOR AND ON BEHALF OF AES, THE ASSESSEE WAS REMUNERATED BY ITS AES ON THE BASIS OF A FIXED COMMISSION/CHARGES BASED ON EXPENS ES OR COST INCURRED BY THE ASSESSEE FOR RELEASE OF A PARTICULA R 21 ADVERTISEMENT. IT WAS ALSO TO BE NOTED THAT ADVERTI SING SPACE ( BE IT MEDIA, PRINT OR OUTDOOR), HAD BEEN LET OUT BY THIRD PARTY VENDORS IN THE NAME OF ULTIMATE CUSTOMERS AND BENEF ICIARY OF ADVERTISEMENT. THE ASSESSEE SIMPLY ACTED AS AN INTE RMEDIARY BETWEEN THE ULTIMATE CUSTOMER AND THE THIRD PARTY V ENDOR IN ORDER TO FACILITATE PLACEMENT OF THE ADVERTISEMENT. THE PAYMENT MADE BY THE ASSESSEE TO VENDOR WAS RECOVERED FROM T HE RESPECTIVE CUSTOMERS OR AES. IN THE EVENT CUSTOMER FAILED TO PAY ANY SUCH AMOUNT TO THE ADVERTISEMENT AGENCY, THE BA D DEBT RISK WAS BORNE BY THE THIRD PARTY VENDOR AND NOT BY THE ADVERTISING AGENCY I.E. THE ASSESSEE. IT WAS, THUS, CLEAR THAT THE ASSESSEE HAD NOT ASSUMED ANY RISK ON ACCOUNT OF NON-PAYMENT BY ITS CUSTOMERS OR AES. AT THIS STAGE A USEFUL REFERENCE MAY BE MADE TO ITS 2009 TRANSFER PRICING GUIDELINES ACCEPTED BY THE GECD WHERE IT IS LAID DOWN THAT WHEN AN AE IS ACTING ONL Y AS AN AGENT OR INTERMEDIARY IN THE PROVISION OF SERVICE, IT IS IMPORTANT IN APPLYING THE COST PLUS METHOD THAT THE RETURN OR MARK-UP IS APPROPRIATE FOR THE PERFORMANCE OF AN AGENCY FUNCTI ON RATHER THAN FOR THE PERFORMANCE OF THE SERVICES THEMSELVES , AND, IN SUCH A CASE, IT MAY NOT BE APPROPRIATE TO DETERMINE ALP AS A MARK-UP ON THE COST OF SERVICES BUT RATHER ON THE C OST OF AGENCY FUNCTION ITSELF, OR ALTERNATIVELY, DEPENDING ON THE TYPE OF COMPARABLE DATA BEING USED, THE MARK-UP ON THE COST OF SERVICES SHOULD BE LOWER THAN WOULD BE APPROPRIATE FOR THE PERFORMANCE OF THE SERVICES THEMSELVES. IN THIS TYP E-OF CASE, IT WILL BE APPROPRIATE TO PASS ON THE COST OF RENDERIN G ADVERTISING SPACE, TO THE CREDIT RECIPIENT WITHOUT A MARK-UP AN D TO APPLY A MARK-UP ONLY TO THE COSTS INCURRED BY THE INTERMEDI ARY IN PERFORMING ITS AGENCY FUNCTION. 36. LD. CIT(DR) REFERRED TO PARA 9.4.4 OF LD. CIT(A )S ORDER AND POINTED OUT THAT HE HAS GIVEN ADDITIONAL REASONS FOR ACCEPT ING THE VIEW EXPRESSED BY LD. TPO. HE SUBMITTED THAT LD. CIT(A) HAS, INTER AL IA, POINTED OUT THAT PERUSAL OF SOME OF THE ADVERTISING BILLS REVEALED THAT THE ASSESSEE, WHILE MAKING PAYMENTS COLLECTED TDS, OBTAINING TAN, FILING TDS R ETURNS AND ALL OTHER 22 CONSEQUENTIAL LEGAL OBLIGATIONS WERE MET BY THE AS SESSEE IN ITS OWN RIGHT AS AN INDEPENDENT ENTITY. RESOURCES OF THE ENTIRE ENTE RPRISE WERE USED TO MEET SUCH LEGAL OBLIGATIONS AND SUPPORT THE MARKET SERVI CE FUNCTION. THEREFORE, THE ASSESSEE WAS ENTITLED TO GET MARK UP ON THE ACT UAL COST INCURRED INCLUSIVE OF REIMBURSED EXPENSES. 37. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AT LENGTH AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE S HORT POINT FOR OUR CONSIDERATION, AFTER ELABORATE CONSIDERATION OF FAC TS, IS WHETHER THE COST REIMBURSED TO ASSESSEE BY ITS AES IS TO BE INCLUDED IN THE COST BASE FOR DETERMINING THE NCP OF ASSESSEE OR NOT. THE CLAIM O F ASSESSEE IS THAT ASSESSEE WAS GETTING ADVANCES FROM ITS AES FOR PERF ORMING CERTAIN FUNCTIONS ON BEHALF OF AES ONLY. THESE FUNCTIONS INCLUDED ORG ANIZATION OF VARIOUS FUNCTIONS SUCH AS GOLF CHAMPIONSHIP, POLO CHAMPIONS HIP SPONSORED BY AES. THE MARKETING SUPPORT SERVICES IMPLIES THAT A SSESSEE IS PROVIDING SUPPORT SERVICES FOR BUILDING UP THE MARKET FOR ITS AES. IT CANNOT BE DISPUTED THAT HAD THIS ACTIVITY HAD BEEN PERFORMED BY AN IN DEPENDENT ENTITY, WOULD HAVE BEEN COMPENSATED NOT ONLY TOWARDS THE COST INC URRED BY IT BUT ALSO A MARK UP ON THE SAME WOULD HAVE BEEN REALIZED. THE C OMPARABLES SELECTED BY ASSESSEE AND ACCEPTED BY LD. TPO, WHICH WERE PERFOR MING MARKETING SUPPORT SERVICES, THERE IS NOTHING ON RECORD TO SUG GEST THAT ALL SUCH 23 COMPARABLES WERE ALSO BEING REIMBURSED FOR CERTAIN SPECIFIC FUNCTIONS CARRIED OUT BY THEM. UNDER SUCH CIRCUMSTANCES, IN O RDER TO BRING THE TESTED PARTY AND COMPARABLES AT LEVEL PLAYING FIELD, IT IS NECESSARY THAT REIMBURSED COST SHOULD BE CONSIDERED IN THE COST BASE AS WELL AS PART OF INCOME SO AS TO NEUTRALIZE ANY VARIATION IN THE COST INCURRED BY AS SESSEE TOWARDS CARRYING OUT MARKETING SUPPORT SERVICES. ADMITTEDLY, AT FIRST PL ACE ASSESSEE HAS INCURRED ALL THESE EXPENSES AND THEN GOT REIMBURSED BY ITS A ES. ALL RISKS INCIDENTAL TO THESE EXPENSES WERE AT ASSESSEES ACCOUNT AND NOT A E. LD. CIT(A) HAS VERY RIGHTLY EXCLUDED ANY ALLOCATION TOWARDS FINANCE CHA RGES BECAUSE ASSESSEE HAD RECEIVED ADVANCE FROM ITS AES. THE STATEMENT GI VEN BY MR. SURJIT VERMA, REFERRED TO EARLIER, IN THE OBSERVATION OF L D. TPO, CLEARLY SHOWED THAT BOTH EMPLOYEES COORDINATED WITH VARIOUS AGENCIES WH ICH WERE TO CONDUCT OR ORGANIZE THESE EVENTS. HE HAS OBSERVED THAT RESEARC H WAS ALSO CONDUCTED ON BEHALF OF SEAGRAM MARTELL, FINDINGS FOR WHICH WERE COMMUNICATED BY MR. ADITYA GOOPTU TO SEAGRAM MARTELL. IN ORDER TO AVOID REPETITION, WE ARE NOT REFERRING TO THE DETAILED ACTIVITIES PERFORMED BY A SSESSEE NOTICED BY LD. TPO, WHICH WE HAVE REPRODUCED EARLIER, WHILE CONSIDERING THE TPOS FINDINGS. IT WOULD SUFFICE TO OBSERVE THAT ASSESSEE PLAYED A VIT AL ROLE IN ALL THE ACTIVITIES DONE TO PROMOTE SALES OF SEAGRAM MARTELL DUTY FREE LTD. IN INDIA AND THE MEAGER AMOUNT OF US$ 2500 P.M. WAS NOT AT ALL JUSTI FIED CONSIDERING THE 24 SERVICES RENDERED BY ASSESSEE. WE COULD APPRECIATE ASSESSEES CONTENTION OF NOT INCLUDING THE REIMBURSEMENT OF EXPENSES AS PAR T OF THE COST BASE IF INCOME OF MARKETING SUPPORT SERVICES DID NOT INCLUD E THESE RE- IMBURSEMENTS BUT THAT IS NOT SO. LD. TPO HAS INCLUD ED THE SAME. 38. THE DECISION IN THE CASE OF CHEIL COMMUNICATION S INDIA (P) LTD. (SUPRA)RELIED UPON BY ASSESSEE IS OF LITTLE ASSISTA NCE BECAUSE THERE ASSESSEE MADE PAYMENTS TO THIRD PARTIES FOR AND ON BEHALF OF AE A ND AE REIMBURSED THAT AMOUNT TO ASSESSEE. ASSESSEE WAS ACTING AS AGENT OF AE. TH E ASSESSEE SIMPLY ACTED AS AN INTERMEDIARY BETWEEN THE AE AND THIRD PARTY IN ORDE R TO FACILITATE PLACEMENT OF ADVERTISEMENT. NO RISK WAS BORNE BY ASSESSEE. HOWEV ER, IN THE PRESENT CASE, ASSESSEE WAS RENDERING OVERALL MARKET SUPPORT SERVI CES TO AE AND ONLY PART OF THE EXPENSES WERE REIMBURSED. 39. WE ARE FURTHER IN AGREEMENT WITH THE FOLLOWING FINDINGS OF LD. CIT(A): IN VIEW OF THE FOREGOING ANALYSIS, I AM INCLINED T O AGREE WITH THE FINDINGS OF THE TPO THAT THE REIMBURSED EXPENSE S SHOULD BE PART OF THE COST BASE OF THE APPELLANT FOR COMPUTIN G RETURN ON THE TOTAL COST, FOR THE FOLLOWING ADDITIONAL REASON S, IN ADDITION TO WHAT HAS BEEN CITED BY THE TPO: (I) THE RESOURCES OF THE ENTIRE ENTERPRISE OF THE A PPELLANT HAD BEEN PUT TO USE FOR DISCHARGING THE COMPREHENSIVE F UNCTIONS ASSIGNED TO THE APPELLANT AS PER THE AGREEMENT. (II) SALES PROMOTION ACTIVITIES OF SIMILAR NATURE W ERE ALSO ORGANIZED FOR THE DOMESTIC SEGMENT OF THE APPELLANT AND CLAIM 25 OF SUCH EXPENSES HAVE BEEN ALLOWED AS BUSINESS EXPE NSES. THERE IS NO REASON AS TO WHY A SEPARATE TREATMENT I S TO BE GIVEN TO THE REIMBURSED AMOUNTS IN THE SEGMENTED ACCOUNTS AS BOTH THESE EXPENSES AIM AT ACHIEVING SIMILAR RESULTS. IN ANY CASE, THE REIMBURSED EXPENSES DID IMPACT THE SALES OF THE AE POSITIVELY. (III) THE APPELLANT HAS BEEN USING THE SAME AGENCIE S FOR THE SALES PROMOTION PURPOSES BOTH FOR THE DOMESTIC SEGM ENT AS WELL AS FOR THE AE SEGMENT. CREDITS ARE EXTENDED TO SMPL ON ITS OWN CREDIBILITY OR STANDING AND NOT ON THE BASIS OF THE CREDIBILITY OF THE AE. THIS MAKES THESE EXPENSES AN INTEGRAL PART OF THE MARKET SUPPORT FUNCTION. (IV) PERUSAL OF SOME OF THE ADVERTISING BILLS REVE ALS THAT THE APPELLANT WHILE MAKING PAYMENTS COLLECTED TDS. ALL OBLIGATIONS RELATING TO COLLECTION OF TDS, OBTAININ G TAN, FILING TDS RETURNS AND ALL OTHER CONSEQUENTIAL LEGAL OBLIG ATIONS ARE MET BY THE APPELLANT IN ITS OWN RIGHT AS AN INDEPEN DENT ENTITY. RESOURCES OF THE ENTIRE ENTERPRISE ARE USED TO MEET SUCH LEGAL OBLIGATIONS AND SUPPORT THE MARKET SERVICE FUNCTION . UNDER THESE CIRCUMSTANCES, THE APPELLANT IS ENTITLED TO G ET A MARK-UP ON THE ACTUAL COST INCURRED INCLUSIVE OF REIMBURSED EXPENSES. (V) UNDER TNMM, THE APPROPRIATE COST BASE IS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE ARM'S LENGTH NATURE, OF COMPENSATION RECEIVED FOR DISCHARGING A PARTICULAR FUNCTION. EXC LUSION OF A RELEVANT COST ITEM WOULD DISTORT THE BENCH MARKING ANALYSIS VIS-A-VIS THE RESULTS OF THE COMPARABLES. NO SUCH EXCEPTIONS HAVE BEEN BROUGHT OUT BY THE APPELLANT FOR THE COMPARABLES. 40. IN VIEW OF ABOVE DISCUSSION THIS GROUND IS DISM ISSED. 41. GROUND NO. 3: BRIEF FACTS APROPOS GROUND NO. 3 ARE THAT FROM THE DETAILS OF OTHER MISC. EXPENSES, THE AO NOTICED T HAT THERE WAS PROVISION OF 26 RS. 24,59,972/- APPEARING IN THE ACCOUNTS OF THE AS SESSEE COMPANY ON ACCOUNT OF TRANSIT SHORTAGES. THE AO WAS OF THE OPI NION THAT THIS REPRESENTED UNASCERTAINED LIABILITY. THE ASSESSEE EXPLAINED THA T IT WAS A RUNNING ACCOUNT AND THE ACTUAL EXPENSES INCURRED AND THE PROVISION OF THE LAST YEAR WERE REVERSED. ACCORDINGLY, THE PROVISION WAS CREATED ON A SCIENTIFIC BASIS AND ON THE PAST EXPERIENCE. THE ASSESSEE RELIED ON THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS 112 TAXMAN 61. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION, INTER ALIA, OBSER VING THAT THERE WAS NO CERTAINTY THAT IF A BREAKAGE OR SHORTAGE HAD OCCURR ED IN THE PAST IT WILL OCCUR IN THIS YEAR ALSO. 42. HE FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAD ADJUSTED AN AMOUNT OF RS. 44 LAKHS ON ACCOUNT OF PROVISION PERT AINING TO OTHER VARIABLE EXPENSES REVERSED UNDER THE HEAD TRANSIT SHORTAGES. ACCORDINGLY, HE MADE A TOTAL DISALLOWANCE OF RS. 68,58,773/- (24,58,773/- + 44,00,000/-). 43. LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEA L, CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS. 51,59,990/-. 44. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE D ECISION OF HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE IN ITA NOS. 898/2 009 & OTHERS DATED 6.10.2015, WHEREIN THE HONBLE HIGH COURT HAS OBSER VED AS UNDER: 27 25. THE QUESTION IS NOT WHETHER ON ACCOUNT OF THE REVERSAL OF THE PROVISION MADE BY THE ASSESSEES ON THE FIRST DA Y OF THE FOLLOWING YEAR, THERE WOULD BE NO LOSS AS SUCH TO T HE REVENUE. THE QUESTION IS WHETHER MAKING A PROVISION FOR TRAN SIT BREAKAGES WOULD BE ALLOWABLE AS A BUSINESS EXPENDIT URE. IN LIGHT OF THE LAW EXPLAINED IN THE ABOVE DECISIONS, THE COURT IS SATISFIED THAT THE VIEW TAKEN BY THE ITAT IN THE PR ESENT CASE IS NOT ERRONEOUS IN LAW. 26. TO SUMMARISE THE LEGAL POSITION AS FAR AS THE A SSESSEES ARE CONCERNED: (A) THERE IS NO REASONABLE SCIENTIFIC METHOD ADOPTE D BY THE ASSESSEES TO ESTIMATE THE TRANSIT BREAKAGES SO AS T O JUSTIFY CREATING OF PROVISION FOR SUCH BREAKAGES. (B) THE PROVISION WOULD, IN THE CIRCUMSTANCES, BE A PROVISION FOR A CONTINGENT LIABILITY AND, THEREFORE, IN TERMS OF THE AS 29 OUGHT NOT BE RECOGNISED. (C )THE ACTUAL TRANSIT BREAKAGES AS AND WHEN THEY O CCUR ARE ALLOWABLE AS REVENUE EXPENDITURE IN THE ACCOUNTING YEAR IN WHICH SUCH BREAKAGES OCCUR. 27. CONSEQUENTLY, THE QUESTION FRAMED IS ANSWERED I N FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEES. 28. IT IS CLARIFIED THAT WHILE GIVING AN APPEAL EFF ECT TO THIS ORDER, THE AO SHALL ALLOW THE ACTUAL TRANSIT BREAKA GES FOR A Y 2001-02 AS REVENUE EXPENDITURE CONSISTENT WITH THE SETTLED LEGAL POSITION. THE ASSESSEES WOULD ALSO BE PERMITTED TO GET THE BENEFIT OF THE REVERSAL OF THE PROVISION FOR TRANSI T BREAKAGES MADE IN THE AYS IN QUESTION ACCORDANCE WITH LAW. 45. HAVING HEARD BOTH THE PARTIES, RESPECTFULLY FOL LOWING THE DECISION OF HONBLE DELHI HIGH COURT (SUPRA), IN ASSESSEES OWN CASE, WE RESTORE THE MATTER TO THE FILE OF AO TO PASS THE ORDER IN TERMS OF THE OBSERVATIONS MADE 28 BY HONBLE DELHI HIGH COURT NOTED ABOVE. IN VIEW OF ABOVE, GROUND NO. 3 IS ALLOWED FOR STATISTICAL PURPOSES. 46. GROUND NO. 5: AS WE HAVE RESTORED THE ISSUE INV OLVED IN GROUND NO. 3 TO THE FILE OF AO FOR DECISION AFRESH, GROUND NO. 5 BECOMES ACADEMIC, WHEREIN THE ASSESSEE HAS ASSAILED THE DIRECTIONS OF LD. CIT(A) IN SUSTAINING THE ADDITION OF RS. 51,59,990/-, BEING PROVISION OF TRANSIT BREAKAGES IN ORDER TO COMPUTE BOOK PROFIT U/S 115JA OF THE ACT. 47. GROUND NO. 6: BRIEF FACTS APROPOS GROUND NO. 6 ARE THAT THE AO CONSIDERED THE INTEREST INCOME RETURNED BY ASSESSEE UNDER THE HEAD BUSINESS INCOME AS INCOME FROM OTHER SOURCE. BEFORE LD. CIT( A) IT WAS SUBMITTED BY THE ASSESSEE THAT THE ISSUE IS COVERED IN ITS FAVOU R BY THE ORDER OF THE TRIBUNAL FOR AY 1999-2000. HOWEVER, NO FURTHER DETA IL WAS FURNISHED. 48. LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD NOT B ROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE INTEREST INCOME OF RS.98, 25,207/- PERTAINED TO THE SAME ITEM AS COVERED BY THE TRIBUNALS DECISION IN ITS OWN CASE FOR AY 1999-2000. HE OBSERVED THAT THE AO HAD SIMPLY FOLLO WED THE DETAILS GIVEN BY THE ASSESSEE IN ITS COMPUTATION SHEET, ATTACHED WITH THE RETURN OF INCOME, WITHOUT MAKING ANY ADDITIONAL REMARKS IN THE BODY O F THE ASSESSMENT ORDER. HE CONFIRMED THE AOS ACTION. 29 49. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE TRIBUNALS ORDE R FOR AY 1999-2000 IS CONTAINED AT PAGES 116 TO 121 OF PB, WHEREIN TRIBUN AL IN PARA 5 HAS OBSERVED AS UNDER: 5. THE REMAINING ISSUE IN APPEAL FOR ASSESSMENT YE AR 1998- 99 IS I REGARD TO TREATING THE INTEREST INCOME OF RS. 3,40,680/- EARNED ON LOANS GIVEN TO EMPLOYEES, AS INCOME FROM OTHER SOURCES AGAINST INCOME SHOWN BY ASSESSEE AS BUSINES S INCOME. THE ASSESSING OFFICER AND THE CIT(APPEALS) HELD THA T THE INCOME EARNED ON LOANS GIVEN TO EMPLOYEES BY THE AS SESSEE IS INCOME FROM OTHER SOURCES. THE CONTENTION OF THE AS SESSEE WAS NOT ACCEPTED THAT THE LOAN WAS GIVEN TO ITS EMPLOYE ES FOR KEEPING HARMONIOUS RELATIONSHIP AND THE INTEREST CH ARGED BY ASSESSEE WAS ON A REDUCED RATE. 50. THUS, IT IS EVIDENT THAT THE ISSUE WAS CONSIDER ED FOR AY 1998-99 AND NOT 1999-2000 AS SUBMITTED BY ASSESSEE. FURTHER, TH E INTEREST INCOME EARNED ONLY ON LOANS GIVEN TO EMPLOYEES WERE CONSIDERED. T HEREFORE, WE DIRECT THE ASSESSEE TO FURNISH THE DETAILS OF INTEREST EARNED ON LOANS GIVEN TO EMPLOYEES BEFORE AO AND THE AO WILL TREAT THE SAID INTEREST U NDER THE HEAD BUSINESS INCOME AND THE BALANCE INTEREST IS TO BE CONFIRMED AS INCOME FROM OTHER SOURCES, AS ASSESSEE HAS NOT FURNISHED ANY DETAILS. IN TERMS OF AFOREMENTIONED OBSERVATIONS THIS GROUND IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. 30 51. GROUND NO. 7: CHARGING OF INTEREST U/S 234B & D IS CONSEQUENTIAL. THE AO SHALL RECALCULATE THE INTEREST UNDER THE AFO RESAID SECTIONS, IF ANY, WHILE GIVING EFFECT TO APPELLATE ORDERS. DEPARTMENTAL APPEAL (ITA NO. 4779/DEL/2007):- 52. THE DEPARTMENT HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN ALLOWING RELIE F OF RS.49,56,078/- OUT OF TOTAL DISALLOWANCE OF RS. 1,0 7,65,753/- MADE BY THE AO ON ACCOUNT OF DIFFERENCE IN ARM'S LE NGTH PRICE DETERMINED BY THE TPO AND THAT TAKEN BY THE ASSESSE E.' 2.' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN DELETING THE A DDITION OF RS.63,60,000/- MADE BY THE AO ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION LOSS.' 3.' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN DELETING THE D ISALLOWANCE OF RS.3,11,81,808/- REPRESENTING 10% OF THE BRAND E XPENSES BY HOLDING THAT THE PARENT COMPANY WAS ALSO BENEFITED FROM SUCH BRAND BUILDING EXERCISE.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) ERRED- IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.3,11,81,808/- BEING 10% OF THE BRAND EXPENSES MADE BY THE AO BY HOLDING THE SAME AS OF CAPITAL NATURE.' 53. AS FAR AS GROUND NO. 1 IS CONCERNED, WE HAVE CO NFIRMED THE ACTION OF LD. CIT(A) ON BOTH THE COUNTS VIZ. ALLOCATION OF EX PENSES TO MARKETING SUPPORT SERVICE SEGMENT AND ALSO FOR INCLUDING THE REIMBURSEMENT OF 31 EXPENSES AS COST BASE AND ALSO FOR THE INCOME OF TH IS SEGMENT FOR COMPUTING THE NCP OF THIS SEGMENT. THEREFORE, THIS GROUND STA NDS DISMISSED. 54. BRIEF FACTS APROPOS GROUND NO. 2 ARE THAT ASSES SEE HAD CLAIMED LOSS OF RS. 50,12,108/- ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION. AO EXAMINED THE DETAILS AND FOUND THAT ACTUAL AMOUNT P ROVIDED ON RESTATEMENT OF FOREIGN CURRENCY LOAN WAS RS. 63,60,000/- AND TH E SUM OF RS. 50,12,108/- WAS ARRIVED AT AFTER ADJUSTING THE PROFIT ON FOREIG N EXCHANGE FLUCTUATION. THE AO NOTICED THAT DURING THE YEARS 1996-97 AND 1997-9 8, THE ASSESSEE HAD TAKEN EXTERNAL COMMERCIAL LOAN OF US$ 3 MILLION FR OM ITS PARENT COMPANY VIZ. SEAGRAM NETHERLANDS, ANTILLES, N.V. AND THE R EPAYMENT OF SAME WAS TO BEGIN AFTER SIX YEARS FROM THE DATE THE LOAN WAS DR AWN. HE, THEREFORE, CONCLUDED THAT THE LOSS OF RS. 63,60,000/- HAD BEEN CLAIMED IN RESPECT OF LIABILITY WHICH HAD NOT ARISEN DURING THE PREVIOUS YEAR. THE ASSESSEE RELIED ON THE SUBMISSIONS MADE FOR AY 2001-02 AND ALSO SON THE ORDER OF ITAT IN ITS OWN CASE FOR AY 1998-99 AND 1999-2000. IT WAS F URTHER POINTED OUT BEFORE HIM THAT EVEN FOR AY 2001-02 THE CIT(A) HAD ALLOWED ITS CLAIM IN THIS REGARD. THE AO, HOWEVER, FOLLOWING THE ASSESSM ENT ORDER FOR AY 2001- 02, DENIED THE CLAIM OF ASSESSEE, INTER ALIA, OBSER VING THAT THE ORDER OF ITAT HAD BEEN CHALLENGED IN APPEAL BEFORE THE HONBLE HI GH COURT. 32 55. THE LD. CIT(A), INTER ALIA, FOLLOWING THE DECIS ION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. 294 ITR 354, ALLOWED THE ASSESSEES CLAIM. 56. LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT N OW THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF WOODWARD G OVERNOR INDIA PVT. LTD. (SUPRA), HAS BEEN AFFIRMED BY THE HONBLE SUP REME COURT IN 312 ITR 254 (SC). 57. LD. DR HAS NOT BROUGHT ON RECORD ANY PARTICULAR ASPECT OF THE ENTIRE ISSUE TO TAKE ANY CONTRARY VIEW. WE, THEREFORE, RES PECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. (SUPRA), DISMISS THIS GROU ND OF APPEAL, HOLDING THAT THE LOSS INCURRED BY THE ASSESSEE WAS A FATE ACCOMP ALI AND NOT A NOTIONAL ONE. 58. GROUND NOS 3 & 4: THE AO NOTICED THAT IN THE P& L A/C THE ASSESSEE HAD CLAIMED SALES AND MARKETING EXPENSES AMOUNTING TO RS. 51,61,92,453/- AS AGAINST RS. 39,02,30,608/- IN THE IMMEDIATELY PR ECEDING YEAR. HE NOTED THAT THE EXPENDITURE OF RS. 51,61,92,453/- INCLUDED EXPENSES OF RS. 31,18,18,080/- AS BRAND EXPENSES. THE ASSESSEE EXPL AINED THAT THESE EXPENSES COMPRISED OF EXPENDITURE ON EVENT MANAGEME NT, BUSINESS PROMOTION, MERCHANDISING, PRINCTING OF BROUCHERS/ M AILERS, MARKET RESEARCH 33 ETC. TO DETERMINE THE CONSUMER REACTION TO COMPANY S PRODUCTS, BAR COLLATERALS (LIKE STIRRERS, GLASSES, ICE BUCKETS, C OASTERS ETC.), ADVERTISEMENT (BOTH ELECTRONIC AND PRINT MEDIA) AND DESIGNING OF PACKAGING MATERIAL FOR COMPANYS PRODUCTS. THE ASSESSEE SUBMITTED THAT THE EXPENDITURE ON BRANDS DID NOT PROVIDE ENDURING BENEFIT TO THE COMPANY AND WAS ALLOWABLE AS REVENUE EXPENDITURE. IT WAS EXPLAINED THAT THE COMP ANY BRAND WAS A PRIMARY SOURCE OF ITS COMPETITIVE ADVANTAGE AND ALSO A VALU ABLE STRATEGIC ASSET. FURTHER, BRANDS CREATE AN IDENTIFICATION FOR COMPAN YS PRODUCTS IN A BRAND CONSCIOUS MARKET AND AS SUCH THESE WERE AN INTEGRAL PART OF ASESSEES BUSINESS AND ENSURE CUSTOMER LOYALTY/ SATISFACTION WHICH NATURALLY RESULTS SIN INCREASED IN ITS TURNOVER AND HIGHER TAXABLE PROFIT S. 59. THE AO AFTER CONSIDERING THE ASSESSEES SUBMISS IONS CONCLUDED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON INCREASING THE BRAND POPULARITY OF THE PARENT COMPANY WAS AN INADMISSIBL E EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. HE OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON POPULARIZING THE SEAGRAM BRAND, COULD NOT BE ALLOWED AS WHOLLY AND EXCLUSIVELY CONNECTED WITH ITS BUSINESS ACTIVITIES. HE ALLOWED 10% OF THE EXPENSES CLAIMED BY THE ASSESSEE UNDER T HE HEAD BRAND EXPENSES AND ACCORDINGLY MADE DISALLOWANCE OF RS. 3,11,81,80 8/-. HE FURTHER HELD THAT PART OF SUCH EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTION BECOMES 34 CAPITAL IN NATURE AS IT LEADS TO CREATION OF A TANG IBLE ASSET BEING GOODWILL, REPUTATION AND CREDIBILITY. HE, THEREFORE, MADE A F URTHER DISALLOWANCE OF RS. 3,11,81,808/- BEING 10% OF SUCH EXPENDITURE. 60. LD. CIT(A) FOLLOWING THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF EMPIRE JUTE COMPANY VS. CIT 124 ITR 1 HELD THAT THE EXPENSES WERE RELATABLE TO THE CARRYING ON OR CONDUCT OF THE BUSINESS MORE PROFITABLE AND WERE INTEGRAL PART OF THE PROFIT EARNING PROCES S. HE FURTHER OBSERVED THAT THE MEMORY OF CONSUMERS IS SHORT AND ESPECIALLY IN A FAST EVOLVING LIQUOR MARKET, THE CONSUMERS ARE REQUIRED TO BE REMINDED O N A REGULAR BASIS THE POSITIONING OF THE PRODUCTS TO MAINTAIN THE COMPETI TIVE ADVANTAGE AGAINST ALL OTHER COMPETING PRODUCTS AVAILABLE IN THE MARKET. H E RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V S. BERGER PAINTS (INDIA) LTD. 254 ITR 503 AND HELD THAT BRAND EXPENSES DID F ACILITATE THE PROFITABLE OPERATIONS OF THE ASSESSEES BUSINESS. 61. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ITAT IN THE CASE ASSESSEES SISTER CONCERN HAS HELD THAT THE EXPENSES ON ADVERTISEMENT AND SALES PROMOTION ARE ALLOWABLE AS REVENUE EXPENDITURE U/S 37(1). 62. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. WE FIND THAT THE ITAT DELHI BENCH G VIDE ITS ORDER DATED 35 10.07.2015 IN THE CASE OF M/S SEAGRAM DISTILLERIES PVT. LTD. VS. JCIT (ITA NO. 4278/DEL/2010) & OTHERS, UNDER IDENTICAL SET OF FACTS, IN PARAS 10 TO 10.5, HAS OBSERVED AS UNDER: 10. GROUND NO. 4 RELATES TO RESTRICTING THE ALLOWA NCE OF BRAND EXPENSES TO THE TUNE OF RS. 10,16,10,577/- TO ONLY 1/5TH OF SUCH EXPENSES FOR AY 2006-07, RS. 11,48,67,170/- FO R A Y 2007- 08 AND RS. 7,34,56,093 FOR AY 2008-09. IN THE PROFI T AND ACCOUNT, THE APPELLANT DEBITED AN AMOUNT OF RS. 30, 18,52,870/- UNDER THE HEAD ADVERTISING, SALES PROMOTIONS AND RE BATES. OUT OF THE SAME THE APPELLANT HAD SHOWN EXPENSES OF RS. 10,16,10,577/- AS BRAND EXPENSES. THE APPELLANT EXP LAINED THAT THESE EXPENSES WERE INCURRED FOR ADVERTISING, SALES PROMOTION, COST AND DISTRIBUTION ETC. THE ASSESSING OFFICER HE LD THAT THE BRAND EXPENSES WERE INCURRED FOR ENHANCING THE IMAG E OF THE BRAND AND AS SUCH IT WAS RESULTING IN AN ENDURING B ENEFIT. THEREFORE, HE DISALLOWED THE SAME HOLDING TO BE CAP ITAL EXPENDITURE. ON APPEAL BEFORE THE CIT(A), THE CIT(A ) HELD THAT ALTHOUGH THE EXPENDITURE WAS IN THE NATURE OF EVENT MANAGEMENT, BUSINESS PROMOTION EXPENSES ETC. THE SA ME WOULD RESULT IN AN ENDURING BENEFIT TO THE APPELLANT. HE ACCORDINGLY SPREAD THE EXPENSES OVER A PERIOD OF 5 YEARS AND AL LOWED ONLY 1/5 OF THE TOTAL EXPENDITURE FOR THE YEAR UNDER CON SIDERATION. 10.1 BEFORE US, THE LEARNED COUNSEL ARGUED THAT THE EXPENDITURE WAS IN THE NATURE OF ADVERTISING AND SALES PROMOTIO N OF THE PRODUCTS BEING SOLD BY THE APPELLANT AND THE EXPEND ITURE HAS NOT RESULTED IN CREATION OF NEW ASSET. THE TEST OF ENDURING BENEFIT CANNOT BE ALONE APPLIED TO DETERMINE WHETHE R THE EXPENDITURE IS REVENUE OR CAPITAL. HE PLACED RELIAN CE ON THE FOLLOWING DECISIONS: 1. EMPIRE JUTE COMPANY, 124 ITR 1 (SC), 2. CIT VS. BERGER PAINTS (INDIA) LTD., 254 ITR 503, (CAL.), 3. CIT VS. VS. ADIDAS INDIA MARKETING PVT. LTD., 19 5 TAXMAN 256 (DEL.), 36 4. ADDL. COMM. VS. DELHI CLOTH AND GENERAL MILLS, 1 44 ITR 280 (DEL), 5. DCM VS. CIT, 198 ITR 500 (DEL.), 6. THE COMMISSIONER OF INCOME TAX VS. CITI FINANCIA L CONSUMER FINANCIAL LTD., 335 ITR 29 (DEL.), 7. CIT VS. INDIA VISIT.COM (P) LTD., 2019 CTR 603 ( DEL.), 8. NESTLE INDIA VS. DY. CIT, 11 TTJ 498 (DEL.) 9. CIT VS. SPICE DISTRIBUTION LTD., ITA NO. 5971201 4, DATED 19.09.2014 (DELHI H.C.), 10. SONY INDIA PVT. LTD. VS. DCIT, [2008] 114 ITD 4 48 (DEL.), 11. CIT VS. MODI REVLON PVT. LTD., [2012] 26 TAXMAN N.COM 133 (DEL.), 12. CIT VS. MONTO MOTORS LTD., [2012] 19 TAXMANN.CO M 57 (DEL.), 13. CIT VS. SALORA INTERNATIONAL LTD., [2009] 308 I TR 199 (DEL.) 10.2 ON THE OTHER HAND, LEARNED DR PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 10.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE DETAILS OF THE EXPENDITURE INCURRED PLACED AT PAGES NO. 76 TO 79 OF THE PAPER BOOK. FROM THE DETAILS, IT IS CLEAR TH AT THE EXPENDITURE IS INCURRED ONLY TOWARDS SALES PROMOTIO N AND ON ADVERTISEMENT ISSUED. THE ISSUE WHETHER THE ADVERTI SEMENT EXPENDITURE IS REVENUE OR CAPITAL IS ADJUDICATED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MO NTO MOTORS, 206 TAXMAN 43 (DEL.) VIDE PARA 4, WHICH IS REPRODUC ED BELOW: 'ADVERTISEMENT EXPENSES WHEN INCURRED TO INCREASE S ALES OF PRODUCTS ARE USUALLY TREATED AS A REVENUE EXPEND ITURE, SINCE THE MEMORY OF PURCHASERS OR CUSTOMERS IS SHOR T. ADVERTISEMENTS ARE ISSUED FROM TIME TO TIME AND THE EXPENDITURE IS INCURRED PERIODICALLY, SO THAT THE CUSTOMERS REMAIN ATTRACTED AND DO NOT FORGET THE PR ODUCT AND ITS QUALITIES. THE ADVERTISEMENTS PUBLISHED/DIS PLAYED MAY NOT BE OF RELEVANCE OR SIGNIFICANCE AFTER LAPSE OF 37 TIME IN A HIGHLY COMPETITIVE MARKET, WHEREIN THE PR ODUCTS OF DIFFERENT COMPANIES COMPETE AND ARE AVAILABLE IN ABUNDANCE. ADVERTISEMENTS AND SALES PROMOTION ARE CONDUCTED TO INCREASE SALE AND THEIR IMPACT IS LIMI TED AND FELT FOR A SHORT DURATION. NO PERMANENT CHARACT ER OR ADVANTAGE IS ACHIEVED AND IS PALPABLE, UNLESS SPECI AL OR SPECIFIC FACTORS ARE BROUGHT ON RECORD. EXPENSES FO R ADVERTISING CONSUMER PRODUCTS GENERALLY ARE A PART OF THE PROCESS OF PROFIT EARNING AND NOT IN THE NATURE OF CAPITAL OUTLAY. THE EXPENSES IN THE PRESENT CASE WE RE NOT INCURRED ONCE AND FOR ALL, BUT WERE A PERIODICAL EX PENSES WHICH HAD TO BE INCURRED CONTINUOUSLY IN VIEW OF TH E NATURE OF THE BUSINESS. IT WAS AN ONGOING EXPENSE. GIVEN THE FACTUAL MATRIX, IT IS DIFFICULT TO HOLD THAT TH E EXPENSES WERE INCURRED FOR SETTING THE PROFIT EARNING MACHIN ERY IN MOTION OR NOT FOR EARNING PROFITS. ' 10.4. FOLLOWING THE ABOVE RATIO LAID DOWN BY THE H ON'BLE JURISDICTIONAL HIGH COURT, WE ALLOW THIS GROUND OF APPEAL FILED BY THE ASSESSEE. 10.5 HENCE THE APPEAL FILED BY THE ASSESSEE COMPANY IS ALLOWED. 63. AS NO DISTINGUISHING FEATURE HAS BEEN BROUGHT ON RECORD BY THE DEPARTMENT, RESPECTFULLY FOLLOWING THE ORDER OF TH E ITAT IN THE CASE OF M/S SEAGRAM DISTILLERIES PVT. LTD. (SUPRA), HOLDING THA T THE BRAND EXPENSES WERE IN REVENUE FIELD AND CONTRIBUTED TOWARDS PROFIT EAR NING PROCESS OF THE ASSESSEE, DISMISS BOTH THESE GROUNDS RAISED BY REVE NUE. 64. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ASSESSEES APPEAL FOR AY 2003-04 (4784/DEL/2007): 65. IN AY 2003-04 THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 38 1. THAT THE LD. COMMISSIONER OF INCOME (APPEALS) [L D. CIT(A)] ERRED ON FACTS AND IN LAW IN SUSTAINING THE ADJUSTMENT OF RS. 4,748,353 MADE BY THE TRANSFER PRICING OFFIC ER (TPO) UNDER SECTION 92CA OF THE INCOME TAX ACT, 1961 (ACT ). 1.1 THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE APPORTIONMENT OF EXPENSES DONE BY THE TPO WERE WITH OUT BASIS AND COULD NOT BE SUSTAINED. 1.2 THAT THE LD. CIT(A) ERRED IN CONCLUDING THAT T HE NCP MARGIN OF THE APPELLANT WORKED OUT TO -1.41 % AS AG AINST THE NCP MARGIN OF 8.05% AS TAKEN BY THE TPO. 1.3. THAT THE LD. CIT(A) ERRED IN LAW IN NOT GRANTI NG THE VARIATION OF 5% AS PERMITTED UNDER THE PROVISO TO S ECTION 92C(2) OF THE ACT. 2. THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN SUSTAINING THE DISALLOWANCE OF RS. 153,428 BEING PR OVISION FOR PROFESSIONAL CHARGES. 3. THAT THE LD. CIT(A) GROSSLY ERRED IN LAW IN SUST AINING THE DISALLOWANCE OF RS. 782,854 ON ACCOUNT OF PROVISION FOR TRANSIT BREAKAGES. 3.1. THAT THE LD. CIT(A) GROSSLY ERRED IN LAW IN CO NCLUDING THAT THERE WAS NO CERTAINTY IN RESPECT OF BREAKAGES AND AS SUCH THERE WAS NO ACCRUAL ON ANY LEGAL LIABILITY. 3.2. THAT THE LD. CIT(A) GRAVELY ERRED IN LAW IN CO NCLUDING THAT THE PROVISION FOR TRANSIT BREAKAGES WAS PURELY CONTINGENT IN NATURE. 4. THAT THE LD. CIT(A) ERRED IN LAW IN SUSTAINING T HE ADDITION OF RS. 782,854 BEING PROVISION OF TRANSIT BREAKAGES IN ORDER TO COMPUTE BOOK PROFIT UNDER SECTION 115JA OF THE ACT. 5. THAT THE LD. C1T(A) ERRED IN SUSTAINING THE LEVY OF INTEREST UNDER SECTION 234B AND D OF THE ACT. 66. LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROU ND NO. 2. HENCE, GROUND NO. 2 STANDS DISMISSED BEING NOT PRESSED. 39 67. GROUND NO. 1: IDENTICAL GROUND HAS BEEN TAKEN BY THE ASSESSEE AS GROUND NO. 1 IN AY 2002-03. ON IDENTICAL SET OF FAC TS IN AY 2002-03 WE HAVE UPHELD THE ACTION OF LD. CIT(A) IN SUSTAINING THE ADJUSTMENT BY LD. TPO U/S 92CA. FOR THE SAME REASONS HEREIN ALSO WE U PHOLD THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION. GROUND IS DISMISSE D. 68. GROUND NO. 3: IDENTICAL GROUND HAS BEEN TAKEN BY THE ASSESSEE AS GROUND NO. 3 IN AY 2002-03. ON IDENTICAL SET OF FAC TS IN AY 2002-0 FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE IN ITA NOS. 898/2009 & OTHERS DATED 6.10.2015, 3 WE HAVE RESTORED THE MATTER TO THE FILE OF AO TO PASS ORDER IN TERMS OF THE OBSERVATIONS MADE BY HONBLE DELHI HIGH COURT (SUPRA). GROUND NO. 3 IS A LLOWED FOR STATISTICAL PURPOSES. 69. GROUND NO. 4: IDENTICAL GROUND HAS BEEN TAKEN BY THE ASSESSEE AS GROUND NO. 5 IN AY 2002-03. IN AY 2002-03 WE HAVE REJECTED THIS GROUND BEING OF ACADEMIC INTEREST ONLY. FACTS BEING IDENTI CAL HEREIN ALSO ADOPT THE SAME COURSE. GROUND IS DISMISSED. 70. GROUND NO. 5: CHARGING OF INTEREST U/S 234B & D IS CONSEQUENTIAL. THE AO SHALL RECALCULATE THE INTEREST UNDER THE AFO RESAID SECTIONS, IF ANY, WHILE GIVING EFFECT TO APPELLATE ORDERS. 71. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES ONLY. 40 REVENUES APPEAL FOR AY 2003-04 (ITA NO. 4780/DEL/2 007): 72. IN AY 2003-04 THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN ALLOWING RELIE F OF RS.26,35,948/- OUT OF TOTAL DISALLOWANCE OF RS. 73, 84,301/- MADE BY THE AO ON ACCOUNT OF DIFFERENCE IN ARM'S LE NGTH PRICE DETERMINED BY THE TPO AND THAT TAKEN BY THE ASSESSE E.' 2. ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN DELETING T HE ADDITION OF RS.7,00,292/- MADE BY THE AO ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION LOSS.' 3. ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN DELETING T HE DISALLOWANCE OF RS.3,77,54,860/- REPRESENTING 10% OF THE BRAND EXPENSES BY HOLDING THAT THE PARENT COMPANY W AS ALSO BENEFITED FROM SUCH BRAND BUILDING EXERCISE. 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.76,90,395/- BEING 10% OF THE BR AND EXPENSES MADE BY THE AO BY HOLDING THE SAME AS OF C APITAL NATURE.' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF COMMISSION OF RS. 76,90,395/-, MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO M/S SUNRISE BOTTLES. 73. GROUND NOS. 1 TO 4 TAKEN BY THE REVENUE IN AY 2 003-04 ARE IDENTICAL(EXCEPTING QUANTUM) TO GROUND NOS. 1 TO 4 AS TAKEN IN AY 2002-03. FOR THE VERY SAME REASONS HEREIN ALSO WE DISMISS GR OUND NOS. 1 TO 4. 41 74. GROUND NO. 5: BRIEF FACTS ARE THAT ASSESSEE HAD CLAIMED COMMISSION ON SALES AT RS. 1,46,76,978/-. THE AO NOTICED THAT OUT OF THIS AN AMOUNT OF RS. 76,90,395/- WAS CLAIMED TO HAVE BEEN PAID TO M/S SU NRISE BOTTLERS PVT. LTD., CHANDIGARH. THE AO REQUIRED THE ASSESSEE TO FURNISH CONFIRMATION FOR THE SAME. HOWEVER, NO CONFIRMATION WAS FILED ON THE GRO UND OF PAUCITY OF TIME. THE AO, ACCORDINGLY, MADE A DISALLOWANCE OF RS. 76, 90,395/-. 75. BEFORE LD. CIT(A) THE ASSESSEE HAD PRODUCED SAM PLE COPIES OF DEBIT NOTES RAISED BY THIS PARTY AS WELL AS RECONCILIATIO N SHEETS SHOWING COMPUTATION OF THE COMMISSION PAYABLE WHICH ALSO IN CLUDED REIMBURSEMENT OF TOLL TAX AND OTHER GOVERNMENT DUES. LD. CIT(A) N OTED THAT THESE PAYMENTS WERE MADE BY A/C PAYEE CHEQUES AND TDS HAD ALSO BEE N DEDUCTED IN RESPECT OF PAYMENTS MADE TO THIS PARTY. DETAILS OF COMPUTAT ION OF COMMISSION AMOUNT ON THE BASIS OF BUSINESS TRANSACTED HAD BEE N BROUGHT ON RECORD. AFTER TAKING INTO ACCOUNT ALL THESE EVIDENCES, LD. CIT(A) ALLOWED THE ASSESSEES CLAIM BY OBSERVING THAT THE AUTHENTICITY OF PAYMENT OF COMMISSION CANNOT BE IN DOUBT ONLY ON THE BASIS OF ABSENCE OF THE CONFORMATION LETTER. 42 76. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E DEPARTMENT HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO CONTRADICT THE FI NDINGS RECORDED BY LD. CIT(A). UNDER SUCH CIRCUMSTANCES, WE DO ARE NOT INC LINED TO INTERFERE WITH THE FINDING OF LD. CIT(A) ON THE ISSUE IN QUESTION. GROUND IS DISMISSED. 77. IN THE RESULT, ASSESSEES APPEALS ARE PARTLY AL LOWED FOR STATISTICAL PURPOSES AND THE DEPARTMENTS APPEALS ARE DISMISSED . ORDER PRONOUNCEMENT IN OPEN COURT ON 12/04/2016. SD/- SD/- (SUDHANSHU SRIVASTAVA) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12/03/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.