Rehau Polymers Pvt. Ltd., Pune V. Asistant Commissioner of Income-tax,

ITA 519/PUN/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9250 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Keywords: Depreciation; Transfer pricing; Business expenditure; International transaction; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! , '# $ !% , ! & BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM #. / ITA NO. 519/PUN/2014 ( )( / ASSESSMENT YEAR : 2009-10 REHAU POLYMERS PVT. LTD. KHED- PABAL ROAD, HOLEWADI, RAJGURU NAGAR, TAL : KHED, PUNE-410 505 PAN : AAACR7521E ...... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE. / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : MS. NIRUPAMA KOTRU / DATE OF HEARING : 05.12.2017 / DATE OF PRONOUNCEMENT : 05.03.2018 * / ORDER PER VIKAS AWASTHY, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASS ESSMENT ORDER DATED 13.01.2014 PASSED UNDER SECTION 143(3) R.W.S 144C(13) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 20 09-10. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE REC ORD ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING, DISTRIB UTION AND MARKETING OF POLYMER PRODUCTS AND PROVIDING TECHNICAL, SALES AND OTHER SERVICES IN RESPECT OF SUCH 2 ITA NO. 519/PUN/2014 A.Y. 2009-10 PRODUCTS. THE ASSESSEE ALSO OPERATES AS AN INDENTING AG ENT IN INDIA FOR ITS OVERSEAS GROUP COMPANIES. THE ASSESSEE IS A 100% SUBSIDIARY OF FR ANKISCHE PLASTIKS, GMBH, GERMANY. THE ASSESSEE IS DEALING IN THE PLASTIC/POLYMER PRODUCTS WITH TRADE MARK REHAU. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UN DER APPEAL, THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS GR OUP ENTITIES. TO DETERMINE ALP OF THE TRANSACTIONS, THE ASSESSEE APPLIED COST PLUS METHOD. THE TRANSFER PRICING OFFICER ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE TO BENCH MARK ITS ALL INTERNATIONAL TRANSACTIONS EXCEPT COST OF SHARING OF INTRA GROUP SERVICES. THE TRANSFER PRICING OFFICER HELD THAT ASSESSEE HAS NOT BEEN ABLE TO SH OW AS TO WHAT BENEFIT THE ASSESSEE HAS DERIVED FROM SERVICES RENDERED BY REHAU PTE. LTD, SINGAPORE. THE ASSESSEE HAD MADE PAYMENT TO THE TUNE OF RS.4,36,74,768/ - IN RESPECT OF INTRA GROUP SERVICES RENDERED BY ITS AE DURING THE RELEVANT YEAR. T HE TRANSFER PRICING OFFICER APPLIED CUP TO ARRIVE AT ALP OF THE TRANSACTION AND DET ERMINED THE COST OF INTRA GROUP SERVICES AT NIL. BASED ON THE ADJUSTMENTS MADE BY THE TRANSFER PRICING OFFICER VIDE ORDER DATED 18.01.2013, THE ASSESSING OFFICER PASSED DRAFT ASSES SMENT ORDER. 3. AGGRIEVED BY THE ADJUSTMENT MADE BY THE TRANSFER P RICING OFFICER AND THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE DIS PUTE RESOLUTION PANEL (DRP). THE DRP REJECTED THE CONTENTIONS OF ASSESSEE AND UPHELD THE ADDITION MADE BY TRANSFER PRICING OFFICER. THE ASSESSING OFFICER ACCORDINGLY , MADE ADDITION OF RS. 4,36,74,768/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN THE INCOME RETURNED BY ASSESSEE. NOW THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL AS SAILING THE SAID ADDITION MADE BY THE ASSESSING OFFICER. 4. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN APPEAL ASS AILING THE ORDER OF ASSESSING OFFICER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER (AO)/ TRANSFER PRICING OFFICER (TPO) OF DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENTS MA DE TO ASSOCIATED 3 ITA NO. 519/PUN/2014 A.Y. 2009-10 ENTERPRISES(AE) FOR INTRA GROUP SERVICES ( TECHNI CAL, MARKETING & SALES AND ADMINISTRATIVE SERVICES) AS NIL INSTEAD OF RS.4,3 6,74,768/-. THE APPELLANT PRAYS THAT THE AFORESAID ADJUSTMENT B E DELETED. 2. THE DRP ERRED IN CONFIRMING THE ACTION OF THE AO /TPO OF REJECTING THE AGGREGATION OF INTERNATIONAL TRANSACTIONS APPROACH ADOPTED BY THE APPELLANT AND THEREBY EVALUATING THE INTERNATIONAL TRANSACTION PE RTAINING TO INTRA GROUP SERVICES SEPARATELY. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MO DIFY AND/OR SUBSTITUTE, ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 5. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A SUBSIDIARY OF FRANKISCHE PLASTIKS, GMBH, GERM ANY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING, DISTRIBUTION AND M ARKETING OF POLYMER PRODUCTS AND PROVIDING TECHNICAL, SALES AND OTHER SERVICES IN RESPECT OF SUCH PRODUCTS. THE ASSESSEE HAS RECEIVED VARIOUS INTRA GROUP SERVICES VIZ. ADMINISTRATIVE, TECHNICAL, MARKETING AND SALES FROM ITS AE, REHAU PTE. LTD., SINGAPORE. THE INTRA GROUP SERVICES HAVE BEEN RENDERED BY THE OVERSEAS CO MPANY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT DATED 05.01.1998 AT PAGE NO . 133 OF THE PAPER BOOK. THEREAFTER, SUPPLEMENTARY AGREEMENTS WERE EXECUTED FR OM TIME TO TIME KEEPING ALL CONDITIONS SET OUT IN THE MAIN AGREEMENT INTACT EXCEPT FOR CHANGE IN ALLOCATION AND PERCENTAGE OF THE FEE CHARGED FOR THE SERVICES REND ERED. THE SUPPLEMENTARY/AMENDED AGREEMENTS ARE AT PAGE NO. 142 TO 155 OF THE PAPER BOOK. THE LD. AR SUBMITTED THAT DURING THE PERIOD RELEVANT TO A SSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS ENTERED INTO VARIOUS INTERNATION AL TRANSACTIONS. THE TRANSFER PRICING OFFICER ACCEPTED THE BENCH MARKING OF ALL T HE TRANSACTIONS EXCEPT COST OF SHARING OF INTRA GROUP SERVICES. ALTHOUGH, THE ME THOD IS STATED TO BE COST PLUS METHOD FOR DETERMINATION OF ALP BUT IN FACT IT IS TRANSACTIO NAL NET MARGIN METHOD (TNMM). THE TRANSFER PRICING OFFICER DISALLOWED AMOUNT PAID TO REHAU PTE LTD., SINGAPORE FOR THE REASONS:- (I) THE ASSESSEE HAS NOT RECEIVED ANY BENEFIT. (II) THERE WAS NO NEED TO PAY THIRD PARTY FOR SUCH SERVICES. 4 ITA NO. 519/PUN/2014 A.Y. 2009-10 THE TRANSFER PRICING OFFICER DETERMINED THE COST OF SERVICE S AS NIL. THE DRP SOUGHT REMAND REPORT FROM THE TRANSFER PRICING OFFICER. 6. THE LD. AR OF THE ASSESSEE SUBMITTED BEFORE US THAT T HE AGREEMENT UNDER WHICH REHAU PTE LTD., SINGAPORE IS CHARGING FOR SERVICES WAS FIRST EXECUTED IN JANUARY, 1998. TILL 2005, REHAU PTE LTD., SINGAPORE DID NOT CHARGE AN Y AMOUNT FOR RENDERING THE SERVICES, THOUGH THE ASSESSEE STARTED RECEIVING SER VICES IMMEDIATELY AFTER EXECUTION OF AGREEMENT. THEREAFTER, REHAU PTE LTD., SINGAPO RE STARTED CHARGING FOR SERVICES RENDERED AND THE ASSESSEE CLAIMED THE SAME AS EXPENDITURE. THE DEPARTMENT ACCEPTED THE SAME AND RAISED NO QUESTION O N SUCH PAYMENTS. THE ASSESSMENT YEAR UNDER APPEAL IS THE FIRST YEAR WHEN THE TRANSFER PRICING OFFICER HAS RAISED OBJECTIONS QUA THE PAYMENTS MADE IN LIEU OF SERVICE S RENDERED BY REHAU PTE LTD., SINGAPORE. 6.1 THE LD. AR REFERRED TO THE SCOPE OF SERVICES RENDERED BY REHAU PTE LTD., SINGAPORE AT PAGE NO. 135-136 OF THE PAPER BOOK. THE LD . AR FURTHER REFERRED TO THE RATE CHARGED BY REHAU PTE LTD., SINGAPORE FOR PROVIDING M ARKETING AND SALES AND TECHNICAL SERVICES AT PAGE NO. 144 OF THE PAPER BOOK AND FOR ADMINISTRATIVE SERVICES AT PAGE NO. 146 OF THE PAPER BOOK. THE LD. AR EXPLAINED THAT THE INTRA GROUP SERVICES RECEIVED BY ASSESSEE CAN BE BIFURCATED INTO THREE SEGMENTS VIZ. (I) TECHNICAL APPLICATION DEPARTMENT (TAD) (II) MARKETING & SALES (III) ADMINISTRATION COST (FINANCE, HR, IT AND LEGAL SERVICES) THE ENTIRE EXPENDITURE TOWARDS TAD IS INCURRED BY AE AN D IS ALLOCATED TO VARIOUS UNITS ON THE BASIS OF SALES. AS REGARDS MARKETING AND ADMINISTRATION COSTS, 50% OF THE COST INCURRED BY AE IS ALLOCATED. MARKETING COS T IS ALLOCATED ON THE BASIS 5 ITA NO. 519/PUN/2014 A.Y. 2009-10 OF SALES OF VARIOUS UNITS AND ADMINISTRATION COST IS ALLOCATED ON THE BASIS OF HEAD COUNT OF UNITS. 6.2 THE LD. AR SUBMITTED THAT THE ASSESSEE HAD FURNISHED SEVERAL DOCUMENTS BEFORE AUTHORITIES BELOW TO SUBSTANTIATE THAT THE SERVICE S WERE RENDERED BY REHAU PTE LTD., SINGAPORE. THE LD. AR REFERRED TO SAMPLE E-MAILS/CORRE SPONDENCE TO INDICATE THAT TECHNICAL SERVICES, MARKETING & SALES SERVICES AND A DMINISTRATIVE SERVICES WERE PROVIDED BY REHAU PTE. LTD, SINGAPORE. THE SAID DETAILS ARE AT PAGE NO. 240 TO 817 OF THE PAPER BOOK. THE DRP SOUGHT REMAND REPORT FROM THE TRANSFER PRICING OFFICER IN RESPECT OF VOLUMINOUS DOCUMENTS FURNISHED BY THE ASSESSE E BEFORE DRP. THE REMAND REPORT IS AT PAGE NO. 818 AND 823 OF THE PAPER BOOK. A PERUSAL OF THE REMAND REPORT WOULD SHOW THAT THE TRANSFER PRICING OFFICER HAS NOT POINTE D ANY DEFECT IN THE DOCUMENTS FURNISHED BY THE ASSESSEE AND NO ADVERSE CO MMENTS HAVE BEEN MADE BY THE TRANSFER PRICING OFFICER IN RESPECT OF THE DOCUMENTS RU NNING IN MORE THAN 600 PAGES. THUS, THE OBJECTION RAISED BY THE TRANSFER PRICING OFFICER THAT DOCUMENTS ARE NOT EXHAUSTIVE TO INDICATE THE SERVICES RENDERED BY AE DOES NOT SURVIVE. IN REMAND REPORT, THE TRANSFER PRICING OFFICER ADMITTED THAT SERVICES WERE RENDERED BY REHAU PTE LTD, SINGAPORE. HOWEVER, THE TRANSFER PRICING OFFICER DE FENDED HIS ACTION BY OBSERVING THAT EVEN IF SERVICES WERE RENDERED, THEY WERE IN THE NATURE OF DUPLICATE SERVICES AND THE ASSESSEE HAS NOT PRODUCED EVIDENCE T O JUSTIFY THE PRICE PAID FOR SUCH SERVICES AND NO INDEPENDENT ENTERPRISE WOULD HAVE PAID A NY SEPARATE CONSIDERATION FOR SUCH SERVICES. 6.3 THE LD. AR SUBMITTED THAT REHAU PTE LTD., SINGAPORE IS CHARGING C OST TO COST FOR RENDERING SERVICES TO ITS GROUP CONCERNS. THERE IS NO M ARK UPON THE COST. ONE OF THE OBJECTIONS RAISED BY THE AUTHORITIES BELOW IS THAT THERE HAS BEEN DECREASE IN THE PROFITS. THE REASON FOR DECREASING PROFITS IS NOT CONNECTED WITH THE SERVICES RENDERED BY REHAU PTE LTD., SINGAPORE. THE FACTOR RESPONSIBLE FOR DE CLINE IN PROFITS ARE NOTIONAL CURRENCY FLUCTUATION LOSS DUE TO YEAR END ADJUSTMENT, PR OVISION FOR DOUBTFUL 6 ITA NO. 519/PUN/2014 A.Y. 2009-10 DEBTS, INCREASE IN DEPRECIATION OF PLANT AND MACHINERY DUE TO INSTALLATION OF NEW PRODUCTION LINE IN FINANCIAL YEAR 2007-08. WHEREAS, THERE IS N O CORRESPONDING INCREASE IN TURNOVER DURING FINANCIAL YEAR 2008-09 AS EXP ECTED AFTER INSTALLATION OF ADDITIONAL PRODUCTION LINE. 6.4 THE LD. AR SUBMITTED THAT CHARGING OF FEES ON BASIS OF B UDGET SALES IS ACCEPTED METHOD OF ALLOCATION AS PER OECD GUIDELINES. THE LD. AR REFER RED TO OECD GUIDELINES WITH RESPECT TO CONSIDERATION FOR INTRA GROUP SERVICES. TH E LD. AR CONTENDED THAT THE CASE OF THE ASSESSEE FALLS IN PARA 7.14 OF CHAPTER VII OF THE OECD GUIDELINES. FURTHER, IN PARA 7.25 OECD HAS CLARIFIED THAT THE COST CAN BE ALLOCA TED ON TURNOVER BASIS OR HEAD COUNT BASIS. THE LD. AR FURTHER REFERRED TO METHOD OF DETERMINATION OF ALP UNDER OECD GUIDELINES AND ALLOCATION OF TURNOVER. IN RESPE CT OF INCREASE IN PAYMENT FOR SERVICES RENDERED BY REHAU PTE LTD., SINGAPORE, THE LD AR SUBMITTED THAT IT IS DUE TO :- (I) INCREASE IN SALE AS COMPARED TO BUDGET ALLOCATION. (II) THE INVOICES RECEIVED IN AUGUST, 2008 INCLUDES PAYMENTS FO R SERVICES RENDERED DURING THE PERIOD JANUARY TO MARCH, 2008 I.E PA YMENTS MADE IN THE FINANCIAL YEAR 2008-09 INCLUDES THREE MONTHS OF PRIOR PERIOD EXPENSE S. TO SUPPORT HIS SUBMISSIONS, LD. AR REFERRED TO TAX INVOICES AT PAGE NO. 92 OF THE PAPER BOOK. 6.5 THE LD. AR CONTENDED THAT AS A RESULT OF SERVICES RENDERED BY THE REHAU PTE LTD., SINGAPORE IN VARIOUS SEGMENT, THE TURNOVER OF THE A SSESSEE COMPANY SUBSTANTIALLY INCREASED OVER THE PERIOD OF TIME. THE LD. AR FURNISHED CHART/GIVING DETAILS OF SALES AND PROFITABILITY TREND OF THE ASSESSEE OVER THE YEARS STARTING FROM ASSESSMENT YEAR 2006-07 TO ASSESSMENT YEAR 2015-2016. 7 ITA NO. 519/PUN/2014 A.Y. 2009-10 6.6 THE LD. AR CONTENDED THAT THE AUTHORITIES BELOW HAVE TRAVELLED BEYOND THEIR JURISDICTION IN QUESTIONING THE BENEFIT DERIVED BY ASSESSEE FROM THE SERVICES RENDERED BY AE. BENEFIT TEST IS NOT TO BE APPLIED BY TPO WHILE DETE RMINING ALP OF INTRA GROUP SERVICES. IN SUPPORT OF HIS SUBMISSION, THE LD. AR PLACED R ELIANCE ON THE FOLLOWING DECISIONS:- (I) DRESSER-RAND INDIA PVT LTD VS. ADDL CIT. RANGE 6(2) MUMBAI, IN ITA NO. 8753/MUM/2010 (II) CIT DELHI VS. EKL APPLIANCES LTD., IN ITA NO.1068/2 011 & ITA NO. 1070/2011. (III) TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. DCIT CIRCLE-7 PUNE, IN ITA NO. 1450/PN/2011. (IV) AVERY DENNISON ( INDIA) P. LTD. VS. ACIT (OSD) CIT-1, NEW DELHI, IN ITA NO. 4869/DEL/2014. (V) DCIT. CIRCLE 10(1) NEW DELHI VS. DANISCO (INDIA) PVT. LTD., IN ITA NO. 2444/DEL/2012. 6.7 THE LD. AR FURTHER POINTED THAT IN ASSESSMENT YEAR 2006-07, THE TRANSFER PRICING OFFICER HAD ALLOWED PAYMENTS MADE BY ASSESSEE TO R EHAU PTE LTD., SINGAPORE FOR RENDERING SIMILAR SERVICES. THE LD. AR REFERRED TO THE O RDER OF TRANSFER PRICING OFFICER DATED 28.07.09 FOR ASSESSMENT YEAR 2006-07 AT PA GE NO. 155 TO 158 OF THE PAPER BOOK ( LEGAL COMPLIATION). 7. ON THE OTHER HAND, SMT. NIRUPAMA KOTRU REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF AUTHORITIES BELOW IN DIS ALLOWING PAYMENTS MADE BY ASSESSEE TO REHAU PTE LTD. SINGAPORE. THE LD. DR SUBM ITTED THAT ALL THE TRANSACTIONS FOR SUCH PAYMENTS ARE TO BE SEEN INDEPEND ENTLY AND ARE NOT TO BE CLUBBED WITH OTHER TRANSACTIONS. THE ALLOCATION OF EXPENDITU RE IS WITHOUT ANY SCIENTIFIC BASIS. THE AGREEMENT FURNISHED BY THE ASSESSEE B ETWEEN REHAU PTE. LTD, SINGAPORE AND ITS VARIOUS GROUP ENTITIES IS SELF-SERVING DO CUMENT. THE MOST APPROPRIATE METHOD APPLIED BY ASSESSEE TO BENCHMARK IT INTRA GROUP SERVICES TRANSACTION IS ALSO DEFECTIVE. THE TPO APPLIED CUP AND DETE RMINED THE COST AS NIL. 8 ITA NO. 519/PUN/2014 A.Y. 2009-10 THE SALES OF THE ASSESSEE HAVE SUBSTANTIALLY INCREASED IN LATER YEARS WHICH SHOWS THE ALLOCATION OF SERVICES. THERE HAS BEEN A CATEGORIC FINDING BY THE TRANSFER PRICING OFFICER AND THE DRP THAT BENEFIT OF SERVICES HAVE NOT BEEN PROVED. FURTHER, THE SERVICES RENDERED BY REHAU PTE LTD., SINGAPORE ARE NOT DISTINGUISHABLE AND QUANTIFIED. LD. DR IN SUPPORT OF HIS SUBMISSION PLACED RELIANCE ON THE FOLLOWING DECISION:- (I) CRANES SOFTWARE INTERNATIONAL LTD. VS. DY. CIT, 152 ITD 737 (B ANG-TRIB) (II) DELOITTE CONSULTING INDIA (P) LTD. VS. DY. CIT, 137 ITD 21 (M UM-TRIB) (III) KNORR BREMSE INDIA LTD. VS. ASST. CIT, 56 SOT 349 , (DELHI-TRIB) 8. THE LD. AR CONTROVERTING THE SUBMISSIONS MADE ON BEHA LF OF DEPARTMENT SUBMITTED THAT THE TPO ERRED IN APPLYING CUP WITHOUT SE LECTING SUITABLE COMPARABLES. FURTHER, THERE IS NO DUPLICATION OF SERVICES A S HAS BEEN ALLEGED BY THE REVENUE. THE ASSESSEE IS RECEIVING THESE SERVICES AS PAR T OF INTRA GROUP SERVICE AGREEMENT AND THE ASSESSEE DOES NOT HAVE ANY IN HOUS E ARRANGEMENT FOR SUCH SERVICES. THE ASSESSEE HAS BEEN RECEIVING THESE SERVICES FROM ITS AE AT BUDGETED COST. THE LD. AR REITERATED THAT BENEFIT TEST IS NOT TO BE APP LIED IN VIEW OF THE DECISION OF HON'BLE DELHI HIGH COURT. THE LD. AR FURTHER POINTED THAT T HE DECISION RENDERED IN THE CASE OF CRANES SOFTWARE INTERNATIONAL LTD. VS. DY. CI T (SUPRA.) AND DELOITTE CONSULTING INDIA (P.) LTD. V. DY. CIT (SUPRA) ARE DISTINGUISHABLE ON FACTS AND THE DECISION IN THE CASE OF KNORR BREMSE INDIA LTD. VS. ASS T. CIT (SUPRA.) HAS BEEN OVERRULED BY HON'BLE P & H HIGH COURT IN ASSESSEES OWN CASE IN ITA NO.182/2013 FOR ASSESSMENT YEAR 2007-08 DECIDED ON 06.11.2015. 9. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIV ES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALS O CONSIDERED VARIOUS DOCUMENTS AND DECISIONS REFERRED TO BY THE LD. AR DURING THE COURSE OF HIS SUBMISSIONS. THE PRIMARY REASON RAISED FOR DISALLOWING ASSESS EES PAYMENT FOR INTRA- GROUP SERVICES BY TPO AND DRP IS THAT ASSESSEE HAS NO T BEEN ABLE TO SUBSTANTIATE 9 ITA NO. 519/PUN/2014 A.Y. 2009-10 FROM THE DOCUMENTS, THE NEED OF SERVICES RENDERED AND B ENEFIT DERIVED FROM THE SERVICES PROVIDED BY AE. 10. THE CASE OF THE ASSESSEE IS THAT ASSESSEE HAS P AID COST FOR SHARING INTRA-GROUP SERVICES, PROVIDED BY THE PARENT COMPANY I.E. REHAU PTE. L TD. SINGAPORE. THE PARENT COMPANY PROVIDED VARIOUS SERVICES WHICH INTER ALIA INCLUDES MARKETING, RECRUITMENT AND TECHNICAL SUPPORT ETC. TO THE GROUP COMPANIES IN AS IA-AUSTRALIA REGION. THE SERVICES PROVIDED BY AE IS INVOICED AS MANAGEMENT CONSULT ANCY SERVICES. THE LD. AR HAS DRAWN OUR ATTENTION TO THE AGREEMENT ENTERED INTO BY REHAU PTE. LTD. SINGAPORE WITH ITS VARIOUS GROUP ENTITIES INCLUDING ASSESSEE FOR PROV IDING MANAGEMENT CONSULTANCY SERVICES. THE SAID AGREEMENT IS PLACED AT 133 TO 138 OF THE PAPER BOOK. FOR THE SAKE OF COMPLETENESS, THE RELEVANT EXTRACT OF TH E AGREEMENT INDICATING AREAS OF RESPONSIBILITY OF THE PARENT COMPANY AND DETAILS OF IN VOICING OF COSTS ARE REPRODUCED HEREIN BELOW: I. AREAS OF RESPONSIBILITY 1. HEAD OFFICE SINGAPORE (HO SIN, CONTRACTOR) PROVIDES THE FOLLOWING SERVICES ON BEHALF OF THE CLIENTS TO THE SALES OFFICES (S/OS) R EPORTING TO HO SIN OR DIRECTLY TO THEIR CUSTOMER (RECIPIENTS OF SERVICES). THE TECHNICAL APPLICATIONS DEPARTMENT (TAD) AND THE MARKETING & SALES DEPARTMENT (M&S) OF THE CONTRACTOR ARE RESPONSIBLE ,FOR PROVIDING TECHNICAL SUPPORT WITH CUSTOMER APPLICATIONS IN THE ASIAN AND AUSTRALIAN SALES OFFICES' (S/OS) TERRITORIES AND FOR PROVIDING SALES SUPPORT IN THE INTEREST OF MARKETING. 2. THE TAD IS THE CONTACT BETWEEN THE CUSTOMER AND THE APPROPRIATE REHAU DEPARTMENT OF THE CLIENT. ITS MAIN DUTIES ARE: - THE TECHNICAL SUPPORT OF THE SALES OFFICERS IN ACQU ISITION OF NEW BUSINESS. - PRODUCT DEVELOPMENT (REALIZATION OF CUSTOMER SPECIF ICATION, CHANGES AND ADJUSTMENTS). - TECHNICAL EVALUATION OF QUOTATION REQUEST (FEASIBIL ITY ANALYSIS, TVK). - PREPARATION OF TECHNICAL DOCUMENTATION (PRODUCT DES CRIPTION, TECHNICAL TERMS OF DELIVERY, RESTRICTION OF PRODUCT APPLICABILITY). - TRANSFORMATION OF PRODUCT REQUIREMENTS INTO PRODUCT ION PROCEDURES AND PROCESSES. - SUPERVISION OF SCHEDULES AND COORDINATION BETWEEN T HE SPECIALIZED REHAU DEPARTMENTS. - COOPERATION WITH THE CENTRAL QUALITY MANAGEMENT. - PROCESSING OF CUSTOMER CLAIMS RELATED TO TECHNICAL ISSUES. - SUPPORT OF THE PLANT. 3. THE M & S IS RESPONSIBLE FOR MARKET AND CUSTOMER RE LATED SALES SUPPORT, THE COORDINATION OF SALES MANAGEMENT, PLANNING AND CONT ROLLING IN THE INTEREST OF THE CLIENT. ITS MAIN DUTIES ARE: - KEY ACCOUNT MANAGEMENT. 10 ITA NO. 519/PUN/2014 A.Y. 2009-10 - DEVELOPMENT AND IMPLEMENTATION OF NEW PROGRAMS. - COORDINATION OF KEY ACTIONS IN PRODUCT IMPLEMENTATI ON, MARKET RESEARCH AND RESEARCH OF COMPETITORS. - INVOLVEMENT IN REGIONAL ADVERTING PROGRAMS IN COORD INATION WITH SALES OFFICES/ADVERTISING DEPARTMENT. - DEVELOPMENT AND IMPLEMENTATION OF DISTRIBUTION CONC EPTS AND SALES DIRECTIONS. - ESTABLISHMENT OF TERMS AND CONDITIONS OF SALE INCLU DING DISCOUNT AND INCENTIVE PROGRAMS. - OBSERVATION AND GATHERING OF COMPETITORS ACTIVITIE S IN THE RESPECTIVE S/O AREA. - PARTICIPATION AND COORDINATION BETWEEN REHAU SPECIA LIZED DEPARTMENTS IN ORDER TO OPTIMIZE NEW BUSINESS OPPORTUNITIES AND TO MAINTA IN HIGH CUSTOMER SATISFACTION - SUPERVISION AND CONTROL OF SALES ACTIVITIES OF THE S/O EMPLOYEES ACCORDING TO THE APPROVED DISTRIBUTION AND MARKETING CONCEPTS OF THE CLIENT. - REVIEWING AND ANALYZING OF THE REHAU STATISTICS CON CERNING ORDER FLOWS, INVOICED SALES ETC. II. INVOICING OF COSTS: 1. THE EFFORTS OF THE DEPARTMENTS TAD AND M & S ARE PR ODUCT-RELATED. THE CLIENTS INCLUDE THE COSTS FOR THESE SERVICES IN THE SALES P RICE OF THE INDIVIDUAL ARTICLES, EXCEPT WHEN THE SERVICES RESULT FROM A DIRECT REQUE ST BY THE INDIVIDUAL S/O FOR A SPECIFIC CUSTOMER SUPPORT. COSTS OF THE TAD AND M & S DEPARTMENTS OF HO SIN, W HICH ARE NOT CHARGED DIRECTLY TO THE SALES OFFICES, ARE ALLOCATED TO THE INDIVIDUAL REHAU PRODUCTION COMPANIES ACCORDING TO THE PRODUCTION COMPANIES FOR ECASTED SHARES OF DELIVERS (VALUED AT PLANT SALES PRICES) INTO THE S/O TERRITO RIES OF ASIA AND AUSTRALIA. COSTS ARE TO BE BILLED MONTHLY. THE PAYMENT TERMS CORRESPOND WITH THE INTERNAL REHA U GROUP DIRECTIONS FOR SERVICES. 2. THE YEAR-END SETTLEMENT OF COSTS OF THE TAD AND M & S DEPARTMENTS HAVE TO SHOW THE DETAILED COSTS INCURRED, REDUCED BY THE CO STS DIRECTLY BILLED TO THE S/OS. THE CLIENTS ARE ENTITLED TO REVIEW THE BASIS AND TH E DETAIL OF THE INVOICED AMOUNTS. IF OUTSIDE PARTIES ARE USED FOR THEIR REVIEW, THEY ARE PAID FOR BY THE CLIENTS. WE FIND THAT AGREEMENT HAS BEEN EXTENDED /RENEWED FRO M TIME TO TIME BY EXECUTION OF SUPPLEMENTARY AGREEMENT WITH VARIATION IN TH E PERCENTAGE OF COST ALLOCATION. THE RELEVANT EXTRACT OF THE SUPPLEMENTARY AGRE EMENT RELEVANT TO ASSESSMENT YEAR UNDER APPEAL INDICATING COST ALLOCATION IS REPRO DUCED AS UNDER: II. TO ALLOCATE 5% OF THE TOTAL HOSIN-ADMIN COSTS, BASED ON FOLLOWING PROPORTION RATIO EFFECTIVE 2006. - P.T. REHAU, INDONESIA 18.67% - REHAU POLYMERS PVT. LTD 20.80% - REHAU POLYMERS (SUZHOU) CO. LTD., CHINA 15.47% -REHAU LIMITED, BANGKOK 45.07% _________________ TOTAL 100.00% III. ABOVE PROPORTION USES ACTUAL HEADCOUNT AS AT 1 ST , JANUARY 2008. SINGAPORE, THE 22 SEPT., 2009 INDIA, THE 22 SEPT. 2009 REHAU PTE. LTD. REHAU POLYMERS PVT. LTD . 11 ITA NO. 519/PUN/2014 A.Y. 2009-10 11. THE PAYMENTS HAVE BEEN MADE BY ASSESSEE TO ITS P ARENT COMPANY FOR PROVIDING VARIOUS SERVICES INCLUDING TECHNICAL SUPPORT, MARKETING & S ALES AND ADMINISTRATIVE SUPPORT IN TERMS OF THE AFORESAID AGREEMENT. THE ASSESS EE HAS FURNISHED VOLUMINOUS DATA TO SUBSTANTIATE THE SERVICES RENDERED BY PARENT COMPANY. THE SAME HAS BEEN FURNISHED BEFORE THE TRIBUNAL IN THE FORM OF PAPER BOOK. HOW EVER, THE AUTHORITIES BELOW HAVE BRUSHED ASIDE THE SAME TO MAKE ADDITION. A P ERUSAL OF ORDERS OF AUTHORITIES BELOW REVEALS THAT THERE IS NO WHISPER POINTING ANY DEFECT OR SHORT COMING IN THE DOCUMENTS FURNISHED BY ASSESSEE TO SUBSTANTIATE THE SERVICES PROVIDED BY PARENT COMPANY. 12. BE THAT AS IT MAY, THE ASSESSING OFFICER / TPO COULD N OT STEP INTO THE SHOES OF THE ASSESSEE TO ASCERTAIN THE NEED AND REQUIREMENT OF THE SERVICES. THE AUTHORITIES BELOW HAVE NOT RAISED ANY DOUBT OVER THE GENUINENESS O F THE PAYMENTS MADE BY THE ASSESSEE TO ITS PARENT COMPANY. THE ENTIRE EMPHASIS OF THE TPO/ D RP IN REJECTING THE ASSESSEES CLAIM IS THE BENEFIT DERIVED FROM SERVICES AND NEED OF THE SERVICES. THE REVENUE AUTHORITIES CANNOT QUESTION THE NEED FOR SERVICE S. IT SHOULD BE LEFT TO THE PRUDENCE OF ASSESSEE TO ASCERTAIN THE NEED AND REQUIRE MENT OF SERVICES. THE TASK OF THE ASSESSING OFFICER IS TO DETERMINE WHETHER THE COST PA ID FOR THE SERVICES TO AE IS AT ARMS LENGTH OR NOT AND TO MAKE ADJUSTMENT, IF REQUIRED. THE ASSESSEE HAD MADE PAYMENTS TO ITS AE FOR INTRA GROUP SERVICES AT COST. TH E METHOD FOR DETERMINING ALP HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. THE TPO MERELY ON SURMISE HAS MADE ADJUSTMENT BY OBSERVING THAT NO INDEPENDENT PAR TY WOULD HAVE MADE PAYMENT IN UNCONTROLLED CIRCUMSTANCES FOR THE PURPORTED SERVICES. SUCH OBSERVATION OF TPO, SUBSEQUENTLY CONFIRMED BY DRP ARE NOT SUSTAINABLE TO MA KE ADJUSTMENT IN THE FACTS AND CIRCUMSTANCES OF THIS CASE. THE LD. AR OF THE ASSESSEE HAS POINTED THAT IN ASSESSMENT YEAR 2006-07, THE TPO ACCEPTED THE PAYMEN TS MADE TO REHAU PTE. LTD., SINGAPORE BY ASSESSEE ON SIMILAR SET OF FACTS. THIS CONTENT ION OF THE LD. AR HAS NOT BEEN REBUTTED BY THE DEPARTMENT. HENCE, THE IMPUGNED O RDER IS SET ASIDE AND APPEAL OF THE ASSESSEE IS ALLOWED. 12 ITA NO. 519/PUN/2014 A.Y. 2009-10 13. IN PROCEEDINGS BEFORE DRP, REMAND REPORT WAS SOUGH T FROM TPO ON THE DOCUMENTS FURNISHED BY ASSESSEE. IN REMAND REPORT DATE D 28.10.2013, THE TPO HAS ADMITTED THAT DOCUMENTARY EVIDENCE HAS BEEN SUBMITTED BY THE ASSESSEE. MOREOVER, THE TPO TIME & AGAIN HAS QUESTIONED JUSTIFICATION OF THE PA YMENT WITH REFERENCE TO BENEFIT RECEIVED. WE ARE OF CONSIDERED VIEW THAT QUESTIONIN G THE NEED OF HAVING SUCH SERVICES FROM ANY OUTSIDE AGENCY BY THE ASSESSEE IS BEY OND PURVIEW OF REVENUE AUTHORITIES. IN SO FAR AS BENEFIT DERIVED FROM SERVICES IS CO NCERNED, THE AUTHORITIES BELOW WITHOUT APPRECIATING THE DOCUMENTS FURNISHED BY ASS ESSEE HAS FORMED OPINION THAT THE ASSESSEE HAS NOT BENEFITED FROM SERVICES PROV IDED BY REHAU PTE. LTD. SINGAPORE. THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF DRE SSER-RAND INDIA PVT. LTD. (SUPRA.) WHILE DEALING WITH THE SIMILAR CONTROVERSY HAS HELD : 8. WE FIND THAT THE BASIC REASON OF THE TRANSFER PR ICING OFFICERS DETERMINATION OF ALP OF THE SERVICES RECEIVED UNDER COST CONTRIBUTIO N ARRANGEMENT AS NIL IS HIS PERCEPTION THAT THE ASSESSEE DID NOT NEED THESE SER VICES AT ALL, AS THE ASSESSEE HAD SUFFICIENT EXPERTS OF HIS OWN WHO WERE COMPETEN T ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINTED O UT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAFF WHICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FEES TO EXTERNAL F IRM. SIMILARLY, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE ASSESSEE H AD MANAGEMENT EXPERTS ON ITS ROLLS, AND, THEREFORE, GLOBAL BUSINESS OVERSIGHT SE RVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, THIS LI NE OF REASONING. IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINE SS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHORITI ES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT IS NOT. AN ASSESSEE MAY HA VE ANY NUMBER OF QUALIFIED ACCOUNTANTS AND MANAGEMENT EXPERTS ON HIS ROLLS, AN D YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSE ES WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WAS NOT ONLY GOING MUCH BE YOND HIS POWERS IN QUESTIONING COMMERCIAL WISDOM OF ASSESSEES DECISIO N TO TAKE BENEFIT OF EXPERTISE OF DRESSER RAND US, BUT ALSO BEYOND THE POWERS OF T HE ASSESSING OFFICER. WE DO NOT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIE S. WE HAVE FURTHER NOTICED THAT THE TRANSFER PRICING OFFICER HAS MADE SEVERAL OBSER VATIONS TO THE EFFECT THAT, AS EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALYSIS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AN D, BY NO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN DETERMINING ARMS LENGTH PRICE OF THAT SERVICE. WHEN EVALUATING THE ARMS LENGTH PRICE OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUES TION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT. THE AE MAY HAVE GIVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARMS L ENGTH PRICE OF THESE SERVICES IS NIL. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY TH E CONSIDERATIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMINING T HE ARMS LENGTH PRICE OF THE COSTS 13 ITA NO. 519/PUN/2014 A.Y. 2009-10 INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRAN GEMENT. WE HAVE ALSO NOTED THAT THE STAND OF THE REVENUE AUTHORITIES IN THIS C ASE IS THAT NO SERVICES WERE RENDERED BY THE AE AT ALL, AND THAT SINCE THERE IS NO EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL, THE ARMS LENGTH PRICE OF THE SE SERVICES IS NIL. THE DISPUTE RESOLUTION PANEL HAS ALSO CONFIRMED THESE FINDINGS OF THE TRANSFER PRICING OFFICER AND THE ASSESSING OFFICER. HOWEVER, WE HAVE NOTED T HAT VIDE LETTER DATED 25TH JANUARY 2010 (ACKNOWLEDGED TO HAVE BEEN RECEIVED IN DRP OFFICE ON 28TH JANUARY 2010), THE ASSESSEE HAS FILED A HUGE COMPIL ATION OF PAPERS, RUNNING INTO ALMOST THREE HUNDRED PAGES, INCLUDING COPIES OF REP ORTS, EMAILS AND OTHER DOCUMENTS EVIDENCING THE RENDERING OF SERVICES. YET , THE DRP SIMPLY BRUSHED ASIDE THESE DOCUMENTS BY SIMPLY OBSERVING THAT THE DRP HAS PERUSED THE SUBMISSIONS OF THE ASSESSEE AND THE DOCUMENTS. IN V IEW OF THE DRP, SUCH DOCUMENTS DO NOT PROVE THE RECEIPT OF SERVICES BY T HE ASSESSEE ASCERTAINED ( ASSERTED ?) TO BE PROVIDED BY ITS AE, AND, ACCORDIN GLY, THE ACTION OF THE AO IN TREATING THE COST OF SUCH SERVICES AT ZERO IS CONFI RMED. ALL THESE EVIDENCES WERE BEFORE THE DRP, BUT THERE IS NOT EVEN A WHISPER ABO UT WHAT WAS THE NATURE OF THESE DOCUMENTS, WHY DOES THE DRP FIND THESE DOCUME NTS TO BE NOT SATISFACTORY, WHAT IS THE KIND OF EVIDENCE THAT WAS NECESSARY TO PROVE THE FACTUM OF SERVICES HAVING BEEN AVAILED, AND WHAT PRECISELY IS THE REAS ON THAT THESE DOCUMENTS CANNOT BE RELIED UPON. THE SOUL OF AN ORDER IS IN I TS REASONING, AND UNLESS THE REASONS FOR COMING TO A CONCLUSION IN THE ORDER ARE NOT SET OUT, IT IS NOT POSSIBLE TO DO A MEANINGFUL SCRUTINY OF THE ORDER, BUT WE FIND NO REASONING AT ALL IN THE ORDER PASSED BY THE DRP [EMPHASIS BY US] 14. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD. (SUPRA) HAD OCCASION TO DEAL WITH SIMILAR ISSUE WHERE LEGITIMAC Y OF EXPENDITURE INCURRED BY ASSESSEE WAS UNDER QUESTION. THE HONBLE HIG H COURT AFTER REFERRING TO VARIOUS DECISIONS SAND PARA 1.36 TO 1.38 OF OECD GUIDELINES HELD: 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITUR E INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EX PENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE O F BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSI ON IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORIZE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXP ENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDG ING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DIS ALLOW THE ENTIRE EXPENDITURE OR A PART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRI TERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THERE IS CERTAINLY NO AUTHORITY FOR THA T. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE 14 ITA NO. 519/PUN/2014 A.Y. 2009-10 TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONIN G. AS PROVIDED IN THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE INTERNATI ONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BU T A WHOLESALE DISALLOWANCE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS WHI CH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR AUTHORIZED. [ EMPHASIS BY US] SIMILAR VIEW HAS BEEN TAKEN BY PUNE BENCH OF TRIBUNAL IN THE CASE OF TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. DCIT (SUPRA.) AND BY DELHI BENCH OF TRIBUNAL IN THE CASE OF AVERY DENNISON (INDIA) P. LTD. VS. ACIT (SUPRA.) 15. A PERUSAL OF THE CHAPTER-VII OF THE OECD GUIDELINES RE LATING TO INTRA GROUP SERVICES SHOW THAT IN PARA 7.14 OECD HAS DEALT WITH SITUA TIONS WHERE SOME ACTIVITIES ARE CENTRALIZED IN PARENT COMPANY AND ARE MADE AVAILABLE TO GROUP AS WHOLE. THE RELEVANT EXTRACTS OF PARA-7.14 OF OECD GUIDELINES ARE REPRODUCED HEREIN BELOW: 7. 14 OTHER ACTIVITIES THAT MAY RELATE TO THE GR OUP AS A WHOLE ARE THOSE CENTRALISED IN THE PARENT COMPANY OR A GROUP SERVIC E CENTRE (SUCH AS A REGIONAL HEADQUARTERS COMPANY) AND MADE AVAILABLE TO THE GRO UP (OR MULTIPLE MEMBERS THEREOF). THE ACTIVITIES THAT ARE CENTRALISED DEPEN D ON THE KIND OF BUSINESS AND ON THE ORGANIZATIONAL STRUCTURE OF THE GROUP, BUT IN G ENERAL THEY MAY INCLUDE ADMINISTRATIVE SERVICES SUCH AS PLANNING, COORDINAT ION, BUDGETARY CONTROL, FINANCIAL ADVICE, ACCOUNTING, AUDITING, LEGAL, FACT ORING, COMPUTER SERVICES; FINANCIAL SERVICES SUCH AS SUPERVISION OF CASH FLOW S AND SOLVENCY, CAPITAL INCREASES, LOAN CONTRACTS, MANAGEMENT OF INTEREST A ND EXCHANGE RATE RISKS, AND REFINANCING; ASSISTANCE IN THE FIELDS OF PRODUCTION , BUYING, DISTRIBUTION AND MARKETING; AND SERVICES IN STAFF MATTERS SUCH AS RE CRUITMENT AND TRAINING. GROUP SERVICE CENTRES ALSO OFTEN CARRY OUT RESEARCH AND D EVELOPMENT OR ADMINISTER AND PROTECT INTANGIBLE PROPERTY FOR ALL OR PART OF THE MNE GROUP. THESE TYPE OF ACTIVITIES ORDINARILY WILL BE CONSIDERED INTRA-GROU P SERVICES BECAUSE THEY ARE THE TYPE OF ACTIVITIES THAT INDEPENDENT ENTERPRISES WOU LD HAVE BEEN WILLING TO PAY FOR OR TO PERFORM FOR THEMSELVES. THUS, OECD ALSO RECOGNIZES THE NEED FOR ALLOWABILITY OF COST S PAID TO PARENT COMPANY WHERE SERVICES ARE CENTRALIZED AND ARE PROVIDED TO GROUP ENTITIES BY PARENT COMPANY. 16. IN VIEW OF THE FACTS OF THE CASE, VARIOUS CASES LAWS D ISCUSSED ABOVE & OECD GUIDELINES, WE ARE OF CONSIDERED VIEW THAT AUTHORITIES BELOW HAVE ERRED IN DETERMINING COST OF INTRA GROUP SERVICES AS NIL AND MAK ING ADJUSTMENT OF 15 ITA NO. 519/PUN/2014 A.Y. 2009-10 RS.4,36,74,768/- IN RESPECT OF INTERNATIONAL TRANSACTIONS PER TAINING TO INTRA GROUP SERVICES PROVIDED BY AE TO THE ASSESSEE. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY , THE 05 TH DAY OF MARCH, 2018. SD/- SD/- ( / ANIL CHATURVEDI ) ( $ !% /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 05 TH MARCH, 2018 SB * + ,-$ .$) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-13, PUNE. 4. THE CIT-IT/TP, PUNE. 5. %&' () , * () , + +,- , / DR, ITAT, B BENCH, PUNE. 6. './ 01 / GUARD FILE. // TRUE COPY // *2 / BY ORDER, 3 (- / PRIVATE SECRETARY * () , / ITAT, PUNE.