Bureau Veritas Consumer Products Services (I) Pvt. Ltd., Noida V. ACIT, Circle- 5(1), New Delhi

ITA 5582/DEL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9071 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2013-2014
• Appeal Filed On: 26-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BARANWAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Wholly owned subsidiary; Commercial expediency; Sham transactions; Set aside
• Section: 234B; 10B; 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 5582/DEL/2019 [ASSESSMENT YEAR: 2013-14] BUREAU VERITAS CONSUMER PRODUCTS SERVICES VS. THE A.C.I.T (INDIA) PRIVATE LIMITED CIRCLE 5(1) 2 ND FLOOR, C-19, SECTOR -7 NEW DELHI NOIDA, UTTAR PRADESH PAN: AAACM 6792 J [APPELLANT] [RESPONDENT] DATE OF HEARING : 03.08.2020 DATE OF PRONOUNCEMENT : 05.08.2020 ASSESSEE BY : SHRI RAVI SHARMA, ADV REVENUE BY : SHRI M. BARANWAL, SR. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE CIT(A) - 44, NEW DELHI DATED 16.04.2019 PERTAINING TO ASSESSMENT YEAR 2013-14. 2 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. THAT THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW, IN PARTLY CONFIRMING THE DISALLOWANCE MADE BY THE LD. TPO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 2. ON THE FACTS AND IN LAW, THE LD. TPO/AO AND LD. CI T (A) VIOLATED THE PROVISIONS OF RULE 10B (2) OF THE RULE S BY ARBITRARILY REJECTING THE COMPANIES SELECTED BY THE APPELLANT IN THE TP DOCUMENTATION/FRESH SEARCH WHICH ARE FUNC TIONALLY COMPARABLE TO THE APPELLANT. 3. ON THE FACTS AND IN LAW, THE LD. TPO/AO AND THE LD . CIT(A) HAS ERRED IN NOT ACCEPTING /VEBPO SERVICES PRIVATE LIMITED AS A VALID COMPARABLE TO THE INFORMATION TECHNOLOGY EN ABLED SERVICES SEGMENT OF THE APPELLANT, EVEN THOUGH THE COMPANY PASSES ALL THE QUANTITATIVE FILTERS APPLIED BY THE LD. TPO, AND IS FUNCTIONALLY COMPARABLE TO THE INFORMATION TECHN OLOGY ENABLED SERVICES SEGMENT OF THE APPELLANT. 4. ON THE FACTS AND IN LAW, THE LD. TPO/AO HAS ERRED IN SELECTING COMPANIES (VIZ. TCS E- SERVE INTERNATIONA L LTD., INFOSYS BPO LIMITED, CAPGEMINI BUSINESS SERVICES (I NDIA) PVT. LTD., TECH MAHINDRA LIMITED AND HARTRON COMMUNICATI ONS LIMITED), WHICH ARE NOT COMPARABLE TO THE INFORMATI ON TECHNOLOGY ENABLED SERVICES SEGMENT OF THE APPELLAN T, ON ACCOUNT OF VARIOUS QUANTITATIVE/ QUALITATIVE FILTER S, ACCEPTABLE 3 TO THE LD. TPO HIMSELF. FURTHER, THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING ON THE ACTION / APPROACH OF THE LD . TPO, W.R.T. SELECTION OF THE AFORESAID COMPANIES. 5. THAT THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW, IN CONFIRMING DISALLOWANCE MADE BY THE LD. AO AMOUNTIN G TO INR 3,50,08,872/- INCURRED IN RELATION TO REBATES / DIS COUNTS PAID TO THE HOLDING COMPANY OF THE APPELLANT WITHOUT APP RECIATING THE FACT THAT THESE WERE IN THE NATURE OF SALE AND PROMOTIONAL EXPENSES. 6. THAT THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW, IN NOT APPRECIATING THAT THE REBATES/ DISCOUNT PAYMENTS HA VE BEEN MADE TO AN ASSOCIATED ENTERPRISE AND NO ADVERSE INF ERENCE HAS BEEN DRAWN BY THE LD. TPO IN THIS REGARD. 7. THAT THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO ON ACCOUNT OF REBAT ES/ DISCOUNTS WITHOUT APPRECIATING THAT THE LD. AO CANN OT QUESTION THE COMMERCIAL EXPEDIENCY OF THE TRANSACTI ON. 8. THAT THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW, IN CHARGING INTEREST UNDER SECTION 234B OF THE ACT. 9. THAT THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW, IN INITIATING PENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SEC TION 27I(I)(C) OF THE ACT. 4 3. THOUGH, WHILE CHALLENGING THE SELECTION OF THE C OMPARABLE COMPANIES, THE ASSESSEE HAS CHALLENGED SEVERAL COMP ANIES, BUT, AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATE D THAT THE APPELLANT IS CHALLENGING THE INCLUSION OF TCS E-SERVE INTERNA TIONAL LIMITED AND TECH MAHINDRA LIMITED ONLY AND SOLELY ON THE GROUND THAT BOTH THESE COMPANIES DO NOT PASS THE FILTER OF 25% OF RELATED PARTY TRANSACTIONS [RPT]. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE APPELLANT- COMPANY BVCPS IS A WHOLLY OWNED SUBSIDIARY OF BUREA U VERITAS SA., FRANCE AND WAS INCORPORATED IN INDIA IN APRIL 2003. BVCPS PROVIDES TESTING, INSPECTION AND AUDIT SERVICES TO CLIENTS F OR A FULL RANGE OF CONSUMER PRODUCTS/SOFTLINES/TEXTILES, TOYS AND JUVE NILE PRODUCTS, HARDLINES/HARD GOODS AND HOUSE HOLD PRODUCTS THROUG HOUT THE SUPPLY CHAIN. 5. DURING THE YEAR UNDER CONSIDERATION, THE APPELLA NT COMPANY HAS UNDERTAKEN THE FOLLOWING INTERNATIONAL TRANSACTIONS : 5 SL. NO NATURE OF TRANSACTIONS VALUE [RS.] 1 IMPORT OF STORES AND SPARES 5,32,550 2 PAYMENT OF LICENSE FEES 85,61,954 3 PAYMENT OF TECHNICAL KNOW-HOW FEE 5,07,39,945 4 AVAILING OF TESTING SERVICES 1,18,96,267 5 PROVISION OF TESTING SERVICES 2,40,26,662 6 PROVISION OF INSPECTION AND AUDIT SERVICES 5,09,90,406 7 PAYMENT OF REBATE 2,93,22,603 8 REIMBURSEMENT OF EXPENSES PAID/PAYABLE 2,05,72,720 9 PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES 7,10,50,617 10 PROVISION OF SOFTWARE DEVELOPMENT SERVICES 1,28,86,089 11 REIMBURSEMENT OF EXPENSES RECEIVED/RECEIVABLE 4,80,31,644 6. THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRAN SACTIONS REPRESENTING SOFTWARE DEVELOPMENT PROVIDED TO THE A SSOCIATED ENTERPRISES (AE) IS DETERMINED BY APPLYING TRANSACT IONAL NET MARGIN METHOD (TNMM), WHICH IS STATED TO BE THE MOST APPRO PRIATE METHOD IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE OPERAT ING PROFIT TO TOTAL COST (OP/TC) RATIO IS TAKEN AS THE PROFIT LEVEL IND ICATOR (PLI) IN THE TNMM ANALYSIS. THE PLI OF THE COMPANY IS ARRIVED AT 10% ON COST WHEREAS THE AVERAGE PLI OF THE COMPARABLES IS ARRIVED AT 9.64% AND HENCE, INTERNATIONAL TRANSACTION WAS TAKEN TO BE AT ARMS L ENGTH PRICE [ALP. 6 7. DURING THE COURSE OF TRANSFER PRICING ASSESSMENT PROCEEDINGS, THE TPO QUESTIONED THE SELECTION MATRIX AND POINTED OUT THAT SOME OF THE FILTERS USED ARE INAPPROPRIATE, AS THE ECONOMIC ANA LYSIS IS INADEQUATE AND PROPOSED HIS OWN FILTERS, WHICH ARE AS UNDER: I) COMPANIES WHOSE DATE IS NOT AVAILABLE FOR F.Y. 2 012-13 ARE EXCLUDED; II) COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE IN COME IS LESS THAN RS. 1 CRORE ARE EXCLUDED; III) COMPANIES WHOSE REVENUE FROM SERVICES IS LESS THAN 75% OF THE TOTAL OPERATING REVENUES ARE EXCLUDED; IV) COMPANIES WHO HAVE EXPORT SALES LESS THAN 75% O F THE SALES FROM SOFTWARE DEVELOPMENT SERVICES ARE EXCLUDED; V) COMPANIES HAVING MORE THAN 25% RELATED PARTY TRANSACTIONS, SALES AS WELL AS EXPENDITURE COMBINES , OF THE SALES ARE EXCLUDED; 7 VI) COMPANIES WHO HAVE PERSISTENT LOSSES FOR THE LA ST THREE YEARS UPTO AND INCLUDING F.Y. 2011-12 ARE EXCLUDED; VII) COMPANIES WHOSE EMPLOYEES COST IS LOWER THAN 2 5% OF THE TOTAL COSTS ARE EXCLUDED; VIII) COMPANIES HAVING DIFFERENT FINANCIAL YEAR END ING OR DATA OF THE COMPANY DOES NOT FALL WITHIN 12 MONTHS PERIOD A RE REJECTED; IX) COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THE TAX PAYER ARE EXCLUDED AND X) COMPANIES THAT ARE HAVING PECULIAR ECONOMIC CIRC UMSTANCES ARE EXCLUDED. 8. AS MENTIONED ELSEWHERE, THE APPELLANT HAS ONLY Q UESTIONED THE INCLUSION OF TCS E-SERVE INTERNATIONAL LIMITED AND TECH MAHINDRA LTD ON THE GROUND THAT BOTH THESE COMPANIES FAIL [RELAT ED PARTY TRANSACTION] FILTER ADOPTED BY THE TPO. 8 9. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENT ION TO THE COMPUTATION OF RPT IN RESPECT OF THESE TWO COMPANIE S AND POINTED OUT THAT IN THE CASE OF TCS E-SERVE LTD AND TECH MA HINDRA LTD, THE RPT IS MORE THAN 40%. 10. A PERUSAL OF THE ORDER OF THE TPO SHOWS THAT WH EN THIS OBJECTION WAS RAISED BEFORE THE TPO, THE TPO SUMMARILY REJECT ED THE OBJECTION BY STATING THAT BOTH THESE COMPANIES PASS THE FILTE R, AS CAN BE SEEN FROM CLAUSE 2 AT PAGE 50 AND CLAUSE 5 AT PAGE 51 OF THE TPOS ORDER. 11. THOUGH BEFORE US, THE LD. DR HAS STRONGLY OBJEC TED TO THIS LINE OF ARGUMENT BY THE LD. COUNSEL FOR THE ASSESSEE STATIN G THAT THIS ISSUE WAS NEVER RAISED BEFORE THE FIRST APPELLATE AUTHORITY, THIS CONTENTION OF THE LD. DR DOES NOT HOLD ANY WATER, IN AS MUCH AS A DETAILED COMPUTATION OF RPT WAS GIVEN BEFORE THE LD. CIT(A) ALSO, WHICH IS EVIDENT FROM PAGE 93 ONWARDS OF HIS ORDER. 12. AFTER GIVING THOUGHTFUL CONSIDERATION TO THE OR DERS OF THE AUTHORITIES BELOW AND AFTER GOING THROUGH THE COMPU TATION OF RPT AS MENTIONED ELSEWHERE, WE ARE OF THE CONSIDERED OPINI ON THAT THE TPO/LD. CIT(A) SHOULD HAVE EXAMINED THE CALCULATION PROVIDED BY THE 9 ASSESSEE. THEREAFTER, SHOULD HAVE REJECTED THE CON TENTION OF THE ASSESSEE. THEREFORE, IN THE INTEREST OF JUSTICE AN D FAIR PLAY, WE DEEM IT FIT TO RESTORE THIS ISSUE TO THE FILE OF THE ASS ESSING OFFICER/TPO WITH A DIRECTION TO EXAMINE THE ARITHMETICAL ACCURACY OF COMPUTATION OF RPT AND, IF FOUND CORRECT, BOTH THESE COMPANIES SHO ULD BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. OTHERWISE, THE ASSESSING OFFICER/TPO SHALL DEMONSTRATE HOW THESE TWO COMPANI ES PASSED THE RPT FILTER. 13. THE NEXT GRIEVANCE IN RESPECT OF TP ADJUSTMENT RELATES TO NOT ACCEPTING ACE BPO SERVICES PVT LTD AS A VALID COMPA RABLE TO THE ITES SEGMENT OF THE APPELLANT. 14. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE TPO HAS REJECTED THIS COMPANY ON THE GROUN D THAT IT IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE COMPANY . IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE AS IT IS ENGAGED IN RENDERING BPO SERVIC ES WHICH IS EVIDENT FROM THE ANNUAL REPORT OF THIS COMPANY. THE LD. CO UNSEL FOR THE ASSESSEE FURTHER STATED THAT THE BPO SERVICES ARE A KIN TO THE ITES SERVICES RENDERED BY THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE 10 FURTHER STATED THAT THIS COMPANY ALSO PASSES ALL TH E FILTERS APPLIED BY THE TPO AND, THEREFORE, PRAYED FOR INCLUSION OF THI S COMPANY. 15. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE DECISION OF THE CO-ORDINATE BENCH AT HYDERABAD IN T HE CASE OF M/S. HYUNDAI MOTOR INDIA ENGINEERING PVT. LTD ITA NO. 18 07/HYD/2017 AND POINTED OUT THAT ON SIMILAR CIRCUMSTANCES, THE TRIB UNAL HAS DIRECTED FOR INCLUSION OF THIS COMPANY. 16. PER CONTRA, THE LD. DR STRONGLY OBJECTED FOR IN CLUSION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY IS FUNCTION ALLY DISSIMILAR AS HELD BY THE TPO AND IS ENGAGED IN MEDICAL HEALTH CA RE SERVICES. 17. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE TPO HAS REJE CTED THE INCLUSION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY IS FUN CTIONALLY DISSIMILAR AS IS EVIDENT FROM PARA 3 AT PAGE 47 OF HIS ORDER. NO REASON HAS BEEN GIVEN TO DEMONSTRATE THE DISSIMILARITY IN THE FUNCTIONS. 11 18. A PERUSAL OF THE ANNUAL REPORT OF ACE BPO SERVI CES LTD SHOWS THAT UNDER SCHEDULE TYPES OF PRINCIPAL PRODUCTS OR SERVICES, IT HAS BEEN MENTIONED THAT THIS COMPANY IS ENGAGED IN BPO SERVICES, THOUGH IN THE HEALTH CARE SEGMENT. NEVERTHELESS, IN OUR C ONSIDERED OPINION, SINCE THIS COMPANY IS ENGAGED IN BPO SERVICES, THE TPO SHOULD NOT HAVE REJECTED THIS COMPANY MERELY BY STATING THAT T HIS COMPANY IS IN THE HEALTH CARE SEGMENT AND IS FUNCTIONALLY DISSIMI LAR. 19. SIMILAR QUARREL AROSE BEFORE THE COORDINATE BEN CH AT HYDERABAD [SUPRA], THE RELEVANT FINDINGS OF WHICH READ AS UND ER: 14. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT FROM THE ANNUAL REPORT OF ACE BPO SERVICES LTD, AT PAGE NOS. 1318 AND 1368 OF THE PAP ER BOOK, THIS COMPANY IS INTO BPO SERVICES AND THE TRANSACTI ONS WITH RELATED PARTIES ARE ALSO REPORTED. THEREFORE, WE AR E OF THE OPINION THAT THIS COMPANY NEEDS TO BE CONSIDERED AS A COMPARABLE. THE AO IS DIRECTED TO VERIFY THE INFORM ATION FILED BY THE ASSESSEE AND IF IT SATISFIES THE RPT F ILTER, THEN THE SAME SHOULD BE CONSIDERED AS A COMPARABLE. 12 20. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-O RDINATE BENCH [SUPRA], WE RESTORE THE INCLUSION OR OTHERWISE OF T HIS COMPANY TO THE FILE OF THE TPO/ASSESSING OFFICER TO EXAMINE THE SA ME IN LIGHT OF THE DIRECTIONS OF THE CO-ORDINATE BENCH. ACCORDINGLY, ALL THE GROUNDS RELATED TO TP ADJUSTMENTS IN SO FAR AS THESE TWO CO MPARABLE COMPANIES ARE CONCERNED ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 21. NEXT SUBSTANTIVE GRIEVANCE RELATES TO DISALLOWA NCE OF RS. 3,50,08,872/- INCURRED IN RELATION TO REBATES/DISCO UNTS PAID TO THE HOLDING COMPANY. 22. THE UNDERLYING FACTS IN ISSUE ARE THAT DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE PROVIDED TESTING SERVIC ES TO VARIOUS TO VARIOUS CUSTOMERS AND RAISED INVOICES ON SUCH COMPA NIES ON WHICH THE ASSESSEE RECEIVED SERVICE FEE WHICH IS CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE THE ASSESSEE INCURRED AN EX PENDITURE OF RS. 3,50,08,872/- TOWARDS REBATE AND DISCOUNTS ON SALE OF SERVICES RENDERED TO VARIOUS PARTIES. COMPLETE DETAILS OF D ISCOUNT PAID TO ITS AES VIS A VIS SALES OF SERVICES TO VARIOUS CUSTOMER S ALONGWITH PERCENTAGE OF DISCOUNT OFFERED DURING THE YEAR WERE FURNISHED. THE 13 ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THE PAYMENT IN LIGHT OF FACT THAT THERE WAS NO NEXUS BETWEEN THE CUSTOMER A ND HOLDING COMPANY AND, THEREFORE, EXPENSES SO MADE ARE NOT AL LOWABLE. THE ASSESSEE FILED DETAILED SUBMISSIONS VIDE LETTER DAT ED 19.12.2016 WHICH HAS BEEN EXTRACTED BY THE ASSESSING OFFICER FROM PA GES 3 TO 10 OF ASSESSMENT ORDER. 23. AFTER PERUSING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAS NO T BEEN IN A POSITION TO JUSTIFY THE PAYMENT OF DISCOUNT TO THE HOLDING C OMPANY IN PLACE OF REPAYMENT OF THE SAME TO CUSTOMER ON ITS OWN. ACCO RDING TO THE ASSESSING OFFICER, IN COMMON PARLANCE, A DISCOUNT I S GIVEN BY THE SERVICE PROVIDER TO A CUSTOMER AGAINST AGREED CHARG ES TO PROMOTE BUSINESS AND OBTAIN REPEATED ORDERS. BUT THE ASSES SEE, FOR REASONS BEST KNOWN TO HIM, IN PLACE OF OFFERING DISCOUNT TO CUSTOMERS, HAS CHOSEN TO PASS ON THE DISCOUNT TO THE HOLDING COMPA NY. THE ASSESSING OFFICER, ACCORDINGLY, DISALLOWED THE ENTIRE CLAIM, AS, ACCORDING TO HIM, EXPENDITURE IS NOT WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AND A DEVICE TO TRANSFER THE PROFIT TO THE HOLDING COMPANY. 14 24. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 25. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE ENTIRE TRANSACTIONS HAVE BEEN DONE AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND ITS AES AND ALSO THROUGH M OUS BETWEEN THE AES AND CUSTOMERS. THE LD. COUNSEL FOR THE ASSESSE E DREW OUR ATTENTION TO CLAUSES OF THE AGREEMENT/MOUS WHICH AR E PLACED IN THE PAPER BOOK AND POINTED OUT THE RELEVANT CLAUSES OF THE AGREEMENT. 26. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE LOWER AUTHORITIES AND VEHEMENTLY STATED THAT THERE IS NO TRIPARTITE AGREEMENT AND THE CLIENT OF THE ASSESSEE ARE IN OBL IVION AND THERE IS NO EVIDENCE THAT ANY SUCH REBATE/DISCOUNT WAS PASSE D ON TO THE CLIENTS OF THE ASSESSEE. 27. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE ASSESSEE HAS PAID REBATE/DISCOUNT TO ITS OVERSEAS AES. IT IS EQUALLY TRUE THAT SUCH ARRANGEMENT HAS BEEN DONE THROUGH MASTER SERVICE AGREEMENTS ('MSA') WITH VARIOUS OVERSEAS 15 COMPANIES (SAMPLE JC PENNY ) FOR PROVIDING TESTING AND INSPECTION SERVICES. UNDER SUCH MSA, BV OVERSEAS ENTITIES HAVE AGREED TO PROVIDE FOR A VOLUME REBATE AND DISCOUNT AT A PRE-DECIDED P ERCENTAGE TO THE OVERSEAS CUSTOMERS IN RELATION TO WORLDWIDE SALE OF SERVICES MADE TO THE ENTIRE GROUP OF OVERSEAS CUSTOMERS. 28. WE FIND THAT THE DISCOUNTS AND REBATES HAVE TO BE PROVIDED AT A GLOBAL LEVEL AND NOT DIRECTLY BY THE COMPANY RENDER ING THE SERVICES. WE FURTHER FIND THAT SUCH REBATE/ DISCOUNT PAYMENTS ARE RECOVERED BY THE BV OVERSEAS ENTITIES FROM THEIR AFFILIATES WHIC H INCLUDED THE APPELLANT, AS PER ALLOCATED PERCENTAGES BASED UPON THEIR RESPECTIVE SALES PROPORTION ON THE GLOBAL SALES. WE FURTHER FI ND THAT FOR RECOVERY OF SUCH REBATE/ DISCOUNTS, BV OVERSEAS ENTITIES HAV E ENTERED INTO A MEMORANDUM OF UNDERSTANDING ('MOU') WITH THE APPELL ANT COMPANY WHICH PROVIDES THAT THE APPELLANT IS REQUIRED TO RE NDER TESTING AND INSPECTION SERVICES TO VARIOUS AFFILIATES / SUPPLIE RS / AGENTS OF THE OVERSEAS VENDORS IN INDIA. THESE MOUS ARE PLACED IN THE PAPER BOOK. 29. WE FIND THAT AS PER THE AGREEMENT/MOUS, BV OVER SEAS ENTITIES ENTERED INTO MSA WITH OVERSEAS CUSTOMERS FOR PROVIS ION OF TESTING AND INSPECTION SERVICES. SIMULTANEOUSLY, BV OVERSEAS EN TITIES ENTER INTO A 16 MOU WITH THE APPELLANT, INSTRUCTING THEM TO PROVIDE TESTING AND INSPECTION SERVICES TO THE OVERSEAS CUSTOMER /AGENT S/ AFFILIATES/ SUPPLIER. THE ASSESSEE PROVIDES SERVICES AS REQUIRED, FROM TI ME TO TIME AND BV OVERSEAS ENTITIES COMPUTES THE GLOBAL SALE O F SERVICES MADE TO THE OVERSEAS CUSTOMERS AND ACCORDINGLY COMPUTED THE VOLUME DISCOUNT PAYABLE TO THEM. SUCH DISCOUNT PERCENTAGE IS ALLOCATED AMONGST THE AFFILIATES OF BV OVERSEAS ENTITIES WHICH ALSO INCLU DED THE ASSESSEE COMPANY BASED UPON THEIR PROPORTIONATE SALES VIS-- VIS GLOBAL SALE AND SUCH DISCOUNTS ARE RECOVERED FROM ITS AFFILIATES WH ICH ALSO INCLUDED THE ASSESSEE COMPANY AND FINALLY, REBATE IS PASSED UPON TO THIRD PARTY VENDOR. SOME SAMPLE PROOF OF REMITTANCES ARE PLACE D IN THE PAPER BOOK. 30. IN OUR HUMBLE OPINION, THESE AGREEMENTS/MOUS WE RE BEFORE THE LOWER AUTHORITIES AND NOWHERE THE ASSESSING OFFICER HAS DEMONSTRATED THAT THESE ARE SHAM TRANSACTIONS. WITHOUT PROPERLY APPRECIATING THE AGREEMENT, THE ASSESSING OFFICER HAS RUBBISHED THE SAME STATING THAT: IN COMMON PARLANCE, A DISCOUNT IS GIVEN BY THE SE RVICE PROVIDER TO A CUSTOMER AGAINST AGREED CHARGES TO PR OMOTE BUSINESS AND OBTAIN REPEATED ORDERS. BUT THE ASSES SEE, FOR REASONS BEST KNOWN TO HIM, IN PLACE OF OFFERING DIS COUNT TO 17 CUSTOMER HAS CHOSEN TO PASS ON THE DISCOUNT TO THE HOLDING COMPANY. 31. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICE R SHOULD HAVE EXAMINED THE TRANSACTIONS IN LIGHT OF AGREEMENTS/MO US AND RELATED DOCUMENTARY EVIDENCES BEFORE COMING TO ANY CONCLUSI ON. WE FURTHER FIND THAT ALL THE DOCUMENTS WERE NOT FURNISHED BEFO RE THE ASSESSING OFFICER AS THE SAME HAS BEEN PLACED BEFORE US IN T HE FORM OF ADDITIONAL EVIDENCES TO DEMONSTRATE THAT THE DISCOU NTS/REBATES HAVE ULTIMATELY BEEN PASSED ON TO THE CUSTOMERS. 32. IN THE INTEREST OF JUSTICE AND FAIR PLACE, WE D EEM IT FIT TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. T HE ASSESSEE IS DIRECTED TO DEMONSTRATE THAT DISCOUNTS/REBATES HAVE ULTIMATE LY BEEN PASSED ON TO CUSTOMERS AND THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME IN LIGHT OF AGREEMENTS/MOUS. NEEDLESS TO MENTION, THE ASSESSING OFFICER SHALL GIVE REASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GRIEVANCE IS ALSO SET ASIDE AND ALL OWED FOR STATISTICAL PURPOSES. 18 33. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 5582/DEL/2019 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 05.0 8.2020. SD/- SD/- [SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 05 TH AUGUST, 2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR 19 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER