Appeal details
Counselvise Citation
[2018] 124 COUNSELVISE.COM (IT) 5942 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-10-2018
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
K
Assessment Year
2011-2012
Appeal Filed On
27-09-2016
Judgement Text
ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.5781/MUM/2016 ( ASSESSMENT YEAR: 2011-12) ASSISTANT COMMISSIONER OF INCOME TAX-13(2)(1) ROOM NO.146, 1 ST FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI -400 020 VS. SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED 1 ST FLOOR, GEMSTAR COMMERCIAL COMPLEX RAMCHANDRA LANE EXTENSION KANCHPADA, MALAD(W) MUMBAI-400 064 PAN : AAACR-2547-Q ( ! APPELLANT ) : ( '# ! RESPONDENT ) & I.T.A. NO.5707/MUM/2016 ( ASSESSMENT YEAR: 2011-12) SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED 1 ST FLOOR, GEMSTAR COMMERCIAL COMPLEX RAMCHANDRA LANE EXTENSION KANCHPADA, MALAD(W) MUMBAI-400 064 VS. ASSISTANT COMMISSIONER OF INCOME TAX-13(2)(1) ROOM NO.146, 1 ST FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI -400 020 PAN : AAACR-2547-Q ( ! APPELLANT ) : ( '# ! RESPONDENT ) A SSESSEE BY : NIMESH VORA, LD. AR RE VENUE BY : RIGNESH DAS, LD. JCIT-DR $ DATE OF HEARING : 05/09/2018 %&' / DATE OF PRONOUNCEMENT : 03/10/2018 ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 2 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THESE ARE CROSS APPEALS FOR ASSESSMENT YEAR [AY] 2011-12 WHICH CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-58 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-58/ARR.283/2013-14 DATED 02/06/2016 ON DIFFERENT GROUNDS OF APPEAL. FIRST WE TAKE UP ASSESSEES APPEAL ITA NO.5707/MUM/2016 WHEREIN THE ASSESSEE IS AGGRIEVED BY CONFIRMATION OF DISALLOWANCE OF GATE EXPENSES OF RS.2,98,472/- & CONFIRMATION OF DISALLOWANCE OF RS.12,77,575/- FOR DELAYED PAYMENT OF EMPLOYEE CONTRIBUTION TO PF / ESIC. 2. THE ASSESSEE BEING RESIDENT CORPORATE ENTITY ENGAGED IN THE BUSINESS OF CATERING AND HOUSE-KEEPING SERVICES WAS ASSESSED FOR IMPUGNED AY U/S 143(3) VIDE ORDER DATED 30/01/2014 PASSED BY LD. ADDITIONAL COMMISSIONER OF INCOME TAX-8(3), MUMBAI [AO] WHEREIN THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT RS.17.7 9 CRORES AFTER CERTAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURN ED INCOME OF RS.4.40 CRORES FILED BY THE ASSESSEE ON 15/10/2011. 3.1 FACTS QUA THE SUBJECT MATTER OF ASSESSEES APPEAL ARE THAT DU RING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSES SEE DEBITED A SUM OF RS.2,98,472/- UNDER THE HEAD CATERING AND GATE EXPENSES WHICH WERE DISALLOWED IN EARLIER YEARS AS THEY WERE FOUND TO B E ILLEGAL PAYMENTS IN THE FORM OF TIPS PAID TO CERTAIN AUTHORITIES AT THE DOCKS AND THEREFORE, NOT ALLOWABLE IN TERMS OF SECTION 37(1). THE LD.CIT(A) HAS CONFIRMED THE SAME, AGAINST WHICH THE ASSESSEE IS UNDER APPEAL BE FORE US. THE LD. AUHTORIZED REPRESENTATIVE FOR ASSESSEE [AR], SHRI NIMESH VORA, AT THE ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 3 OUTSET, FAIRLY CONCEDED THAT THE ISSUE STOOD COVERE D AGAINST THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL FOR SEVERAL EARLIER AYS STARTING FROM AY 1999-2000. IN VIEW OF THE ADMITTED POSITION , THIS GROUND STAND DISMISSED. 3.2 THE SECOND ADDITION ARISES OUT OF THE FACT THAT UPON PERUSAL OF TAX AUDIT REPORT, IT WAS NOTED THAT THE ASSESSEE DELAYED THE PAYMENT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND / STATE I NSURANCE / LABOR WELFARE FUND AGGREGATING TO RS.107.48 LACS, THE DETAILS OF WHICH HAVE ALREADY BEEN EXTRACTED IN THE QUANTUM ASSESSMENT OR DER AT PAGE NUMBER-8. THEREFORE, THE SAME WERE DISALLOWED IN TERMS OF PR OVISIONS OF SECTION 2(24)(X) READ WITH SECTION 36(1)(VA). AFTER ADJUSTING THE SUO- MOTO DISALLOWANCE OF RS.0.24 LACS AS MADE BY THE ASSESSE E, THE BALANCE AMOUNT OF RS.107.24 LACS WAS ADDED TO THE I NCOME OF THE ASSESSEE. UPON FURTHER APPEAL, LD. FIRST APPELLATE AUTHORITY GRANTED PARTIAL RELIEF BY HOLDING THAT THE CONTRIBUTION DEP OSITED WITHIN THE DUE DATE INCLUDING GRACE PERIOD OF 5 DAYS WAS ELIGIBLE FOR DEDUCTION WHEREAS THE PAYMENT MADE BEYOND THAT DATE WERE RIGHTLY DISA LLOWABLE. THE LD. AO WAS DIRECTED TO RE-COMPUTE DISALLOWANCE AFRESH. THE LD. CIT(A) WHILE ADJUDICATING THE SAME PLACED RELIANCE ON THE DECISION OF HONBLE KERALA HIGH COURT RENDERED IN MERCHEM LTD. [61 TAXMANN.COM 119]. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3.3 THE LD. AR SUBMITTED THAT THE ISSUE STOOD COVER ED IN ASSESSEES FAVOR BY THE FOLLOWING BINDING JUDICIAL PRONOUNCEME NTS, THE COPIES OF WHICH HAVE BEEN PLACED ON RECORD:- (I) PR. CIT V RAJASTHAN STATE BEVERAGES CORPORATION LTD [2017] 84 TAXMANN.COM 173 (RAJASTHAN HC). SPECIAL LEAVE PETIT ION FILED IN PR. CIT V ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 4 RAJASTHAN STATE BEVERAGES CORPORATION LTD [250 TAXM AN 16(SC) WAS DISMISSED BY THE SUPREME COURT [PAGE 301 TO 304 OF LEGAL PAPER BOOK]. (II) CIT V HINDUSTAN ORGANICS CHEMICALS LTD [366 IT R 001 (BOMBAY HC)] [PAGE 305 TO 309 OF LEGAL PAPER BOOK] (III) CIT V GHATGE PATIL TRANSPORTS LIMITED [368 IT R 749 (BOMBAY HC)] [PAGE 310 TO 314 OF LEGAL PAPER BOOK] BESIDES THE JUDGMENT OF HONBLE KERALA HIGH COURT A S RELIED UPON BY LD. CIT(A), THE LD. DR COULD NOT PUT FORWARD ANY OTHER CONTRARY JUDGMENT. UPON DUE CONSIDERATION, WE FIND THAT THE ISSUE STOO D SQUARELY COVERED IN ASSESSEES FAVOR BY THE DECISION OF OUR JURISDICTIO NAL HONBLE BOMBAY HIGH COURT RENDERED IN CIT VS. GHATGE PATIL TRANSPORTS LTD. [SUPRA] WHEREIN THE MATTER HAS BEEN CONCLUDED IN THE FOLLOW ING MANNER:- 14. FROM A READING OF ABOVE, IT IS CLEAR THAT THE EMPL OYER-ASSESSEE WOULD BE ENTITLED TO DEDUCTION ONLY IF THE CONTRIBUTION TO T HE EMPLOYEE'S WELFARE FUND STOOD CREDITED ON OR BEFORE THE DUE DATE AND NOT OTHERWIS E. IT TRANSPIRES THAT INDUSTRY ONCE AGAIN MADE REPRESENTATIONS TO THE MINISTRY OF FINAN CE TO REMOVE THIS ANOMALY. THE RESULT WAS THAT AN AMENDMENT WAS INSERTED WHICH CAM E INTO FORCE WITH EFFECT FROM 1ST APRIL, 2004 AND TWO CHANGES WERE MADE IN SECTIO N 43B FIRSTLY BY DELETING THE SECOND PROVISO AND FURTHER AMENDMENT IN THE FIRST P ROVISO WHICH READS AS UNDER: ' PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNI SHED BY THE ASSESSEE ALONG WITH SUCH RETURN.' 15. IN THIS MANNER, THE AMENDMENT PROVIDED BY FINANCE ACT, 2003 PUT ON PAR THE BENEFIT OF DEDUCTIONS OF TAX, DUTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTIONS TO VARIOUS EMPLOYEES' WELFARE FUNDS ON THE OTHER. ALL THIS CAME UP FOR CONSIDERATION BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF ALO M EXTRUSIONS LTD. (SUPRA). THE TRIBUNAL IN THE CASE AT HAND RELIED UPON THE SAID J UDGMENT. THERE IS NO REASON TO FAULT THE ORDER PASSED BY THE TRIBUNAL. WE ARE OF T HE VIEW THAT THE DECISION OF THE SUPREME COURT IN ALOM EXTRUSIONS LTD. (SUPRA) APPLI ES TO EMPLOYEES' CONTRIBUTION AS WELL AS EMPLOYERS' CONTRIBUTION. QUESTION NOS.2, 3 & 4 ARE ACCORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF J URISDICTIONAL HIGH COURT IN PREFERENCE TO ADVERSE DECISION OF KERALA HIGH CO URT AS RELIED UPON BY LD. FIRST APPELLATE AUTHORITY, WE DELETE THE IMPUGN ED ADDITION AS MADE BY ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 5 LD. AO SUBJECT TO VERIFICATION OF THE FACT THAT ALL THE PAYMENTS HAVE BEEN MADE BEFORE DUE DATE OF FILING OF RETURN U/S 139(1) . THE SUO-MOTO DISALLOWANCE OF RS.0.24 LACS AS MADE BY THE ASSESSE E SHALL REMAIN UNDISTURBED. THE LD. AO IS DIRECTED TO VERIFY THE F ACT THAT IMPUGNED PAYMENTS WERE DEPOSITED BY THE ASSESSEE BEFORE DUE DATE OF FILING OF RETURN OF INCOME WITH A DIRECTION TO ASSESSEE TO PR OVIDE REQUISITE DETAILS IN THIS REGARD. THE GROUND STAND ALLOWED. 3.4 RESULTANTLY, THE ASSESSEES APPEAL STAND PARTLY ALLOWED. REVENUES APPEAL ITA NO. 5781/MUM/2016 4. THE REVENUE IS AGGRIEVED BY CERTAIN RELIEF PROVI DED BY LD. CIT(A) TO THE ASSESSEE, WHICH COULD BE TABULATED IN THE FOLLO WING MANNER:- 5.1 FACTS QUA REVENUES APPEAL ARE THAT DURING ASSE SSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE HELD EX EMPT DIVIDEND INCOME YIELDING INVESTMENTS OF RS.4.83 CRORES AT YEAR-END, WHICH CALLED FOR DISALLOWANCE U/S14A. THE ASSESSEE DEFENDED THE SAME VIDE REPLY DATED 04/12/2013, INTER-ALIA, BY SUBMITTING THAT THE INVESTMENTS WERE OLD INVESTMENTS AND FURTHER, NO EXEMPT INCOME WAS EARNE D BY THE ASSESSEE AGAINST THE SAME DURING THE IMPUGNED AY AND THEREFO RE, NO DISALLOWANCE WAS CALLED FOR. HOWEVER, NOT CONVINCED , LD. AO, INTER-ALIA, REPLYING UPON JUDGMENT OF SPECIAL BENCH DELHI TRIBU NAL RENDERED IN CHEMINVEST LTD. VS ITO 121 ITD 318 COMPUTED AGGREGATE DISALLOWANCE GROUND NO. NATURE OF ADDITIONS / DISALLOWANCES REMA RKS 1. DISALLOWANCE U/S 14A RS.5,41,294/- 2. DEPOSITS WRITTEN-OFF RS.19,56,730/- 3. PROFESSIONAL / NON-COMPETE FEES PAID TO RAJU SHETE RS.97,26,905/- 4. TO 6. TRANSFER PRICING ADJUSTMENT RS.10,49,74,00 1/- ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 6 OF RS.5.41 LACS U/S 14A READ WITH RULE 8D(2) WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE OF RS.2.99 LACS U/R 8D(2)(II) AND EXPENSE DISALLOWANCE OF RS.2.41 LACS U/R 8D(2)(III). 5.2 AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) WHEREIN THE ADDITION WAS DELETED BY OBSE RVING THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE IMPUGN ED AY AND THEREFORE, NO DISALLOWANCE WAS CALLED FOR IN TERMS VARIOUS JUDGMENTS OF HONBLE PUNJAB & HARYANA HIGH COURT AS WELL AS DELH I HIGH COURT. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5.3 AFTER HEARING RESPECTIVE REPRESENTATIVES, WE FI ND THAT IT IS AN UNDISPUTED FACT THAT NO EXEMPT INCOME HAS BEEN EARN ED BY THE ASSESSEE DURING THE IMPUGNED AY AND THEREFORE, NO D ISALLOWANCE WAS CALLED FOR U/S 14A AS PER CATENA OF JUDGMENTS OF HI GHER JUDICIAL AUTHORITIES IN ASSESSEES FAVOR, THE DETAILS OF SOM E OF WHICH ARE AS FOLLOWS:- THE REVENUE IS UNABLE TO BRING ON RECORD ANY CONTRA RY JUDGMENT TO CONTROVERT THE SAME. RESPECTFULLY FOLLOWING THE WIS DOM OF HIGHER JUDICIAL AUTHORITIES, WE CONFIRM THE STAND OF LD. FIRST APPE LLATE AUTHORITY. THIS GROUND STAND DISMISSED. NO. CASE LAW JUDICIAL AUTHORITY CITATION 1. PCIT VS BALLARPUR INDUSTRIES LTD HONBLE BOMBAY HI GH COURT ITA NO. 51 OF 2016 2. CIT VS CHETTINAD LOGISTICS PVT. LTD. HONBLE MADRAS HIGH COURT 80 TAXMANN.COM 221 3. CIT VS. HOLCIM INDIA P. LTD. HONBLE DELHI HIGH C OURT 111 DTR 158 4. CHEMINVEST LTD VS CIT HONBLE DELHI HIGH COURT 378 ITR 33 5. PCIT VS IL&FS ENERGY DEV. CO. LTD. HONBLE DELHI HIGH COURT 84 TAXMANN.COM 186 6. PCIT VS EMPIRE PACKAGE PVT. LTD. HONBLE PUNJAB & HARYANA HIGH COURT 81 TAXMANN.COM 108 7. CIT VS LAKHANI MARKETING INC. HONBLE PUNJAB & HAR YANA HIGH COURT 2015 4 ITR-OL 246 8. CIT VS HERO CYCLES LTD HONBLE PUNJAB & HARYANA H IGH COURT 323 ITR 518 9. CIT VS. WINSOME TEXTILES IND. LTD. HONBLE PUNJA B & HARYANA HIGH COURT 319 ITR 204 10. CIT VS CORRTECH ENERGY PVT LTD HONBLE GUJARAT HIG H COURT 223 TAXMANN.COM 130 ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 7 6.1 THE SECOND ISSUE PERTAINS TO DEPOSITS WRITTEN-O FF FOR RS.19.56 LACS WHICH MAINLY COMPRISED-OFF OF FORFEITURE OF SECURITY DEPOSITS PAID BY THE ASSESSEE ON ACCOUNT OF TERMINATION OF LEASE BEFORE STIPULATED LOCK-IN- PERIOD. THE DETAILS OF THE WRITE-OFF AS EXTRACTED A T PAGE-10 OF THE QUANTUM ASSESSMENT ORDER IS AS FOLLOWS:- SR. NO. NATURE OF ADVANCE/DEPOSIT WRITTEN OFF AMOUNT WRITTEN OFF (IN RS.) REMARKS 1. SECURITY DEPOSIT FORFEITED (3 PARTIES IN GURGAON) 12,00,000/- LEASE TERMINATED BEFORE EXPIRY OF LOCK-IN-PERIOD 2. SECURITY DEPOSIT FORFEITED (1 PARTY IN PUNE) 7,50,000/- LEASE TERMINATED BEFORE EXPIRY OF LOCK-IN-PERIOD 3. NOT FURNISHED 6,730/- DELAY IN FURNISHING TDS CERTIFICATE TOTAL 19,56,730/- THE SAID SECURITY DEPOSITS PAID BY THE ASSESSEE AGA INST VARIOUS PREMISES TAKEN ON LEASE HAVE BEEN FORFEITED IN VIEW OF THE FACT THAT RESPECTIVE LEASES WERE TERMINATED BY THE ASSESSEE B EFORE EXPIRY OF LOCK- IN-PERIOD AND THEREFORE, CLAIMED AS DEDUCTION. THE SAID WRITE-OFFS, IN THE OPINION OF LD. AO, DID NOT SATISFY THE CONDITIONS O F SECTION 36(1)(VII) READ WITH SECTION 36(2) AND THEREFORE, THE SAME WERE NOT ALLOWABLE. THE LD . AO ALSO FORTIFIED HIS STAND BY OBSERVING THAT THE S AID LOSS WAS CAPITAL IN NATURE AND HENCE NOT ALLOWABLE. 6.2 AGGRIEVED, THE ASSESSEE CONTESTED THE SAME BEFO RE LD. FIRST APPELLATE AUTHORITY WHEREIN THE RELIEF WAS GRANTED TO THE ASSESSEE BY PLACING RELIANCE ON THE STAND OF LD. CIT(A) IN IMME DIATELY PRECEDING AY. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 6.3 THE LD. AR, DRAWING OUR ATTENTION TO THE LEASE DOCUMENTS PLACED IN THE PAPER-BOOK SUBMITTED THAT CERTAIN SECURITY DEPOSITS WERE GIVEN BY THE ASSESSEE TO LANDLORDS FOR ACQUIRING THE RENTED PREMISES TO BE USED ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 8 FOR BUSINESS PURPOSES. SINCE THE ASSESSEE HAD VACAT ED THE SAME BEFORE THE LOCK-IN-PERIOD AS STIPULATED IN THE RESPECTIVE LEASE AGREEMENTS, THE SAID SECURITY DEPOSITS WERE ADJUSTED / FORFEITED AG AINST THE COMPENSATION FOR THE NON-USE OF PREMISES AS PER THE LOCK-IN-PERI OD AND THE SAME BEING IRRECOVERABLE WERE WRITTEN-OFF IN THE BOOKS OF ACCO UNTS. THEREFORE, THE SAME BEING INCURRED FOR BUSINESS PURPOSES AND WRITT EN-OFF DURING THE COURSE OF BUSINESS AND HENCE, RIGHTLY ALLOWED U/S 3 7(1). PER CONTRA, LD. DR PLACED RELIANCE ON THE STAND OF LD. AO. 6.4 UPON CAREFUL CONSIDERATION, WE FIND THAT FACTUA L MATRIX IS NOT UNDER DISPUTE. THE SECURITY DEPOSITS MADE BY THE ASSESSEE HAVE BEEN ADJUSTED / FORFEITED BY THE LANDLORDS ON ACCOUNT OF THE FACT THAT THE PREMISES WERE NOT USED FOR MINIMUM LOCK-IN-PERIOD A S STIPULATED IN THE RESPECTIVE AGREEMENTS. IT IS ALSO UNDISPUTED FACT T HAT THE PREMISES WERE BEING USED FOR BUSINESS PURPOSES. THE LD. AO, HIMSE LF, IN THE ALTERNATIVE, OPINED THAT THE SAID EXPENDITURE WAS C APITAL IN NATURE WHICH DEMONSTRATES THAT THE GENUINENESS OF THE SAME WAS A LSO NOT UNDER DOUBT. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE EXPENDITURE WAS NOT CAPITAL IN NATURE SINCE THE SAME DID NOT BRING INTO EXISTENCE ANY NEW ASSET OR BENEFIT OF ENDURING IN NATURE. THE SAME, B EING INCURRED DURING THE COURSE OF BUSINESS, WERE REVENUE IN NATURE AND THEREFORE, ALLOWABLE TO THE ASSESSEE. THIS GROUND STAND DISMISSED. 7.1 THE ROOT OF THIRD ADDITION LIES IN THE FACT THA T THE ASSESSEE PAID PROFESSIONAL FEES OF RS.60 LACS TO AN INDIVIDUAL RAJU SHETE WHICH WAS PAYABLE IN 4 QUARTERLY INSTALLMENTS OF RS.15 LACS E ACH. IT WAS SUBMITTED THAT RAJU SHETE WAS THE PREVIOUS OWNER DIRECTOR OF AN ENTITY NAMEL Y M/S RADHAKRISHNA HOSPITALITY SERVICES PRIVATE LIMITED WHICH WAS TAKEN OVER ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 9 BY THE ASSESSEE COMPANY AND THEREFORE, THE PAYMENT WAS NECESSARY FOR CONTINUED PATRONAGE OF EARLIER CUSTOMER BASE AND EM PLOYEES IN THE TRANSITION PERIOD. AFTER ANALYZING THE RELEVANT DET AILS / AGREEMENT, THE LD. AO NOTED THAT RAJU SHETE WAS OFFERED THE POSITION OF NON-EXECUTIVE CHAIRMAN OF A GROUP OF ENTITIES INCLUDING THE ASSESSEE FOR A PERIOD OF FOUR YEARS TO ASSIST IN THE RETENTION EFFORTS WITH EXISTING CLIENTS AND EMPLOYEES. THE COMPENSATION PAYABLE WAS FOR RS.60 L ACS PER ANNUM PLUS REIMBURSEMENT OF BUSINESS EXPENSES NOT EXCEEDING RS .40 LACS PER ANNUM. THE LD. AO, UPON PERUSAL OF RELEVANT CONFIDE NTIAL CORRESPONDENCE DATED 10/03/2009, REACHED A CONCLUSI ON THAT THE PAYMENT WAS MORE IN THE NATURE OF NON-COMPETE FEES FOR AGREEING NOT TO COMPETE IN SIMILAR LINE OF BUSINESS AND THE SAME WA S PRIMARILY RELATED TO THE ACQUISITION PROCESS AND HENCE, CAPITAL IN NATUR E. THE REASONING OF LD. AO HAS BEEN GIVEN IN PARA-9.2, THE PERUSAL OF WHICH REVEAL THAT THE PAYMENT WAS AGREED TO BE PAID BY SODEXO SA, FRANCE TO SHRI RAJU SHETE UPON ACQUIRING THE BUSINESS / COMPANIES FROM SHRI RAJU SHETE AND WAS IN CONTINUATION TO THE ACQUIRING OF SHARES. RESULTANTLY, AGGREGATE AMOUNT OF RS.97.26 LACS COMPRISING OF ANN UAL COMPENSATION OF RS.60 LACS PLUS REIMBURSEMENTS OF RS.37.26 WAS HELD TO BE CAPITAL I N NATURE AND THEREFORE, NOT ALLOWABLE. IN THE ALTERNA TIVE, IT WAS NOTED THAT THE AGREEMENT STIPULATED RENDERING OF SERVICES NOT ONLY TO THE ASSESSEE BUT TO OTHER GROUP ENTITY VIZ. RHKS FOOD & ALLIED SERVICES PRIVATE LIMITED AS WELL AND THEREFORE, ENTIRE PAYMENT COULD NOT BE ALLOWED TO THE ASSESSEE. IN THE ABSENCE OF ADEQUATE BIFURCATION, T HE WHOLE AMOUNT WAS DISALLOWED. ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 10 7.2 THE LD.CIT(A) CONCLUDED THE MATTER IN ASSESSEE S FAVOR BY OBSERVING AS UNDER:- 9.4 THE SUBMISSIONS MADE BY THE APPELLANT HAS BEEN EXAMINED. IT IS SEEN THAT THE BUSINESS OF THE COMPANY IN WHICH MR. SHETE WAS A DI RECTOR, WAS TAKEN OVER BY THE APPELLANT COMPANY. IN ORDER TO ENSURE SMOOTH TRANSI TION AND TO STABILIZE THE ACTIVITIES OF THE APPELLANT, AN AGREEMENT WAS ENTER ED INTO BY THE PARENT COMPANY OF THE APPELLANT WITH MR. SHETE APPOINTING HIM NON-EXE CUTIVE CHAIRMAN FOR A PERIOD OF FOUR YEARS FOR A CONSIDERATION OF RS.60,00,000 PER ANNUM AND EXPENSES TO THE EXTENT OF RS.40,00,000/-. 9.5 THE AO HAS PLACED HIS RELIANCE ON THE AGREEMENT TO CONCLUDE THAT THE PAYMENT REPRESENTED NON-COMPETE FEE PAID TO MR. SHETE AND H ENCE A PAYMENT WHICH WAS CAPITAL IN NATURE. THE BUSINESS ACTIVITY OF THE APP ELLANT HAS BEEN EXAMINED. IT IS SEEN THAT THE APPELLANT IS IN HOSPITALITY BUSINESS WHICH REQUIRES A VERY INTIMATE KNOWLEDGE OF THE CLIENTS AND IS EXTREMELY SENSITIVE TO EVEN SMALL ERRORS OR MIS- MANAGEMENT. THE OPERATIONS INCLUDE SUPPLYING CATERI NG AND OTHER SERVICES TO AIRLINES ETC. WHICH HAVE SERIOUS QUALITY STANDARDS. HOSPITALITY BUSINESS IS NOT A BUSINESS WHICH CAN BE CREATED OVERNIGHT BUT IS AN O UTCOME OF GOODWILL GENERATED OVER YEARS. HENCE, THE SUBMISSION MADE BY THE APPEL LANT THAT THE PRESENCE OF MR. SHETE WAS REQUIRED FOR THE PURPOSE OF ITS BUSINESS SO AS TO ENSURE THAT THE CLIENTS WERE RETAINED AND THERE WAS NO DISTURBANCE IN THE S ERVICES BEING OFFERED, IS FOUND TO BE VALID EXPLANATION. IN A BUSINESS TAKE OVER, I T IS NOT UNUSUAL TO RETAIN KEY EMPLOYEES IN ORDER TO ENSURE THAT THE BUSINESS CONT INUES TO RUN SMOOTHLY. 9.6 THERE IS NO INFERENCE BY THE AO THAT SHRI RAJU SHETE HAS NOT RENDERED PROFESSIONAL SERVICES DURING THE YEAR. IF HE HAS FU NCTIONED AS NON-EXECUTIVE CHAIRMAN OF THE COMPANY AND PROVIDED SUITABLE GUIDA NCE TO THE COMPANY, THE PAYMENT MADE TO HIM FOR THESE SERVICES ARE LIABLE T O BE TREATED AS PROFESSIONAL CHARGES. 9.7 THE CLAUSE RELATING TO NON-COMPETE IN THE AGREE MENT WHICH HAS BEEN RELIED ON BY THE AO TO CONCLUDE THAT THE PAYMENT WAS CAPITAL IN NATURE IS ALSO EXAMINED. IN MY VIEW, SUCH A CLAUSE WOULD AUTOMATICALLY FORM A P ART OF SUCH AGREEMENT AS A SENIOR APPOINTEE OF THE COMPANY CANNOT BE EXPECTED TO START HIS OWN VENTURE OF THE SAME NATURE WHILE HE IS IN EMPLOYMENT OF THE COMPAN Y. 9.8 IN ORDER TO ASCERTAIN THE TREATMENT GIVEN BY SH RI RAJU SHETE, HIS RETURN OF INCOME FOR AY 2011-12 WERE CALLED. IT WAS SEEN THAT HE HAS OFFERED THE AMOUNT TO TAX AS PROFESSIONAL INCOME AND PAID TAXES THEREON. 9.9 IN LIGHT OF THE FACT PRESENTED ABOVE, THERE IS NO REASON TO TREAT THE PAYMENT MADE TO SHRI RAJU SHETE AS CAPITAL EXPENDITURE. THE AMOUNT REPRESENTS PROFESSIONAL CHARGES PAID TO HIM AND IS ALLOWABLE A S REVENUE EXPENDITURE. THE GROUND NO.17 TO 19 IS DECIDED ACCORDINGLY. GROUND N O.20 TO 22 IS NOT ADJUDICATED IN LIGHT OF THIS DECISION. AGGRIEVED AS AFORESAID, THE REVENUE IS IN FURTHER A PPEAL BEFORE US. 7.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. THE BASIC FACTS ARE NOT UNDER DISPUTE. T HE ASSESSEE, VIDE ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 11 AGREEMENT DATED 10/03/2009, APPOINTED SHRI RAJU SHETE AS NON- EXECUTIVE CHAIRMAN OF THE GROUP OF ENTITIES FOR A P ERIOD OF 4 YEARS STARTING FROM 01/09/2009 . THE TERMS ENVISAGED PAYM ENT OF RS.60 LACS AS PROFESSIONAL FEES AND FURTHER REIMBURSEMENT OF E XPENSES NOT EXCEEDING RS.40 LACS. SHRI RAJU SHETE WAS THE OWNER DIRECTOR OF THE ENTITY NAMELY RADHAKRISHNA HOSPITALITY SERVICES PRIVATE LIMITED WHICH WAS TAKEN OVER BY THE ASSESSEE AND AS STATED, WITH A VIEW TO PRESERVE EXISTING CLIENTS / BUSINESS, AFORESAID ARRANGEMENT WAS MADE WITH SHRI RAJU SHETE. THE LD. AO DISALLOWED THE SAME BY TREATING THE SAME AS NON-COMPETE FEES AND OPINED THAT THE SAME WAS CAPIT AL IN NATURE. THE LD. CIT(A), AFTER EXAMINING THE VARIOUS AGREEMENTS / CORRESPONDENCES AND INCOME TAX RETURNS OF THE STATED INDIVIDUAL, RE ACHED A CONCLUSION THAT THE AFORESAID PAYMENT WAS NOTHING BUT PROFESSI ONAL FEES PAID BY THE ASSESSEE AND HENCE, ALLOWABLE TO THE ASSESSEE AS BU SINESS EXPENDITURE. 7.4 AS PER THE DIRECTIONS OF THE BENCH, THE ASSESSE E, VIDE LETTER DATED 19/09/2018, HAS PLACED ON RECORD THE RELEVANT EXTRA CT OF THE SHARE SALE AGREEMENT DATED 10/03/2009 WHEREBY SODEXO SA HAS ACQUIRED THE ENTITY NAMELY RADHAKRISHNA HOSPITALITY PRIVATE LIMITED [RHKS-RENA MED AS SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED OR S FS I.E. THE ASSESSEE] AND RKHS FOOD & ALLIED SERVICES PRIVATE LIMITED FROM THE EXISTING SHAREHOLDERS. SHRI RAJU SHETE IS A PART OF SELLING SHAREHOLDER [NON-COMPETE PARTIES] . IN TERMS OF CLAUSE 8.5(C) OF THE SAID AGREEMENT, THE NON COMPETE PARTIES ARE ENTITLED FOR ADDITIONAL COMPENSATION OF US$1 MILLION, THE BREAK-UP OF WHICH HAS BEEN PROVID ED IN SCHEDULE-X- NON-COMPETE CONSIDERATION ALLOCATION OF THE SAID AGREEMENT. UPON ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 12 PERUSAL OF THE SAME, WE FIND THAT SHRI RAJU SHETE IS ENTITLED FOR COMPENSATION OF US $ 6 LACS. THE ALLEGATIONS OF LD. AO ARE EXACTLY THIS. THE LD. AO HAS OPINED THAT THE AMOUNT STATED TO BE PAID BY THE ASSESSEE TO SHRI RAJU SHETE FORMS PART OF ACQUISITION PROCESS AND THEREFORE, CAPITAL IN NATURE AND NOT ALLOWABLE TO A SSESSEE U/S 37(1). THE TERMS OF THE AGREEMENT, AS PRODUCED BEFORE US CORRO BORATE THE SAME. THIS BEING THE CASE, THE LD. CIT(A), IN OUR OPINION , FELL IN ERROR IN PROVIDING RELIEF TO THE ASSESSEE MERELY ON THE BASI S OF INCOME TAX RETURNS OF SHRI RAJU SHETE. THE PAYMENT MADE BY THE ASSESSEE SHOULD BREACH THE THRESHOLD CONDITIONS OF SECTION 37(1) TH AT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINES S PURPOSES OF THE ASSESSEE BEFORE BECOMING ELIGIBLE TO BE CLAIMED AS DEDUCTION. THE STATED PAYMENTS, PRIMA FACIE, SEEMS TO BE PART OF ACQUISITION PROCESS ONLY AND THEREFORE, IT BECOME IMPERATIVE TO FIND OU T THE EXACT NATURE OF SERVICES BEING RENDERED BY SHRI RAJU SHETE TO THE ASSESSEE COMPANY. THEREFORE, REVERSING THE STAND OF LD. CIT(A), THE M ATTER STAND REMITTED BACK TO THE FILE OF LD. AO FOR RE-ADJUDICATION IN T HE LIGHT OF ACQUISITION AGREEMENT DATED 10/03/2009 AS FILED BEFORE US. THE COMPLETE ONUS TO DEMONSTRATE THAT THE IMPUGNED EXPENDITURE QUALIFY F OR DEDUCTION AS PER LAW REST WITH THE ASSESSEE. 7.5 PROCEEDING FURTHER, IT IS ALSO PERTINENT TO NOT E THE TERMS OF CORRESPONDENCE DATED 10/03/2009, AS PLACED ON PAGE NUMBERS 169 TO 173 OF THE PAPER BOOK , PROVIDED FOR RENDERING OF SERVICES FOR A GROUP OF ENTITIES WHICH ARE REFERRED TO AS COMBINED ENTITIES AND THE SERVICES ARE NOT RESTRICTED EXCLUSIVELY TO ASSESSEE ONLY . ALL THESE ENTITIES HAVE SEPARATE LEGAL EXISTENCE. THEREFORE, IF THE SAID EX PENDITURE IS, AT ALL, ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 13 FOUND ADMISSIBLE, THE DEDUCTION TO THE ASSESSEE COU LD BE ALLOWED ONLY TO THE EXTENT OF SERVICES BEING RENDERED BY THE STATED INDIVIDUAL FOR THE BENEFIT OF THE ASSESSEE ONLY AND NOT FOR OTHER ENTI TIES. THE LD. AO IS DIRECTED TO DELVE INTO THE SAME, IF FOUND NECESSARY . 7.6 THIS GROUND STAND ALLOWED FOR STATISTICAL PURPO SES. 8.1 THE LAST ADDITION ARISES OUT OF TRANSFER PRICING [TP] ADJUSTMENT . THE PERUSAL OF INTERNATIONAL TRANSACTIONS AS REPORT ED BY ASSESSEE IN FORM NO. 3CEB REVEALED THAT THE ASSESSEE MADE / RECEIVED AGGREGAT E PAYMENT OF RS.11.28 CRORES TO ITS VARIOUS ASSOCIATED ENTERPRISES [AE] SITUATED IN SINGAPORE / FRANCE / MALAYSIA ETC. ON ACCOUNT OF PROCUREMENT SERVICES, TRADEMARK FEES, PAYMENT OF TECHNICAL ASSI STANCE, RECEIPT OF MANPOWER SERVICES, CORPORATE GUARANTEE AND REIMBURS EMENT OF EXPENSES . IN ITS TP STUDY DATED 25/11/2011, THE ASSESSEE ADOPTED ENTITY LEVEL TRANSACTIONAL NET MARGIN METHOD [TNMM] AS THE MOST APPROPRIATE METHOD [MAM], THE ASSESSEE BEING THE TESTED PARTY WITH PROFIT LEVEL INDICATOR [PLI] AS OPERATING PROFIT / OPERATING REVENUE . 8.2 IN ASSESSEES TP STUDY, THE MARGINS OF TESTED P ARTY WERE REFLECTED AS 0.68% AS AGAINST -10.52% REFLECTED BY 7 COMPARAB LES, THE DETAILS OF WHICH HAVE ALREADY BEEN EXTRACTED AT PARA-10.4 OF THE QUANTUM ASSESSMENT ORDER. IN VIEW OF THE SAME, NO ADJUSTMEN T WAS OFFERED / PROPOSED. THE MARGIN OF -10.52% WAS ARRIVED ON THE BASIS OF THREE YEARS DATA VIZ. FINANCIAL YEAR [FY] 2008-09, 2009-1 0 & 2010-11 OUT OF WHICH THE DATA FOR 2010-11 WAS INCOMPLETE. THE LD. AO REJECTED THE THREE YEARS DATA AND OPINED THAT ONLY THE DATA OF R ELEVANT FY WAS TO BE CONSIDERED FOR COMPARABILITY ANALYSIS. BASED ON DAT A FOR FY 2011-12, THE ASSESSEE ARRIVED AT MARGIN OF -20.91% FOR SIX COMPA RABLES AND IN THE ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 14 PROCESS EXCLUDED THE SEVENTH COMPARABLE NAMELY BRIGADE HOSPITALITY SERVICES LIMITED IN VIEW OF THE FACT THAT THERE WERE SIGNIFICANT REL ATED PARTY TRANSACTIONS CARRIED OUT BY THE SAID ENTITY. THE EXCLUSION OF THE SAME WAS ACCEPTED. HOWEVER, IN THE FINAL ANALYSIS, LD. AO COMPUTED MARGIN OF 3.056% OF FIVE ENTITIES AFTER EXCLUDING A SUPER LOSS MAKING ENTITY NAMELY HOTEL CORPORATION OF INDIA LIMITED WHICH REFLECTED ABNORMAL LOSS MARGIN OF -140.76% DURING THE IMPUGNE D AY. RESULTANTLY, THE AVERAGE MARGIN OF 3.056% OF FIVE ENTITIES AS PI TIED AGAINST ASSESSEES MARGIN OF 0.68% RESULTED INTO IMPUGNED A DDITION OF RS.10.49 CRORES IN THE HANDS OF THE ASSESSEE, AS COMPUTED IN THE FOLLOWING MANNER:- TOTAL OPERATING COST = RS.441,80,97,681/- ALP @ 3.056% ON TOTAL OPERATING COST = RS.13,50,17 ,065/- --(A) LESS: ALP PROFIT AS DETERMINED BY THE ASSESSEE IN THE RETURN = RS.3,00,43,064/ --( B) TOTAL ADJUSTMENT TO BE MADE (A)-(B) = RS.10,49,74, 001/- 8.3 AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER WHEREIN THE PLEA OF PROP ORTIONATE ADJUSTMENT WAS ACCEPTED. BEFORE LD. CIT(A), IT WAS POINTED OUT THAT THE VOLUME OF INTERNATIONAL TRANSACTIONS WITH AES CONST ITUTED ONLY 2.19% OF THE TOTAL PAYMENTS AND THE ADJUSTMENTS, IF ANY, WER E REQUIRED TO BE MADE WITH RESPECT TO INTERNATIONAL TRANSACTIONS ONL Y AS CARRIED OUT BY THE ASSESSEE WITH ITS AE AND COULD NOT BE EXTENDED TO A LL THE TRANSACTIONS OF THE ASSESSEE AT AN ENTITY LEVEL, WHICH HAD THIRD PA RTY TRANSACTIONS AS WELL. THE LD CIT(A), WHILE CONCURRING WITH THE AFOR ESAID SUBMISSIONS OF PROPORTIONATE ADJUSTMENT CONCLUDED THE MATTER IN AS SESSEES FAVOR BY OBSERVING AS UNDER:- ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 15 10.5 THE SECOND ISSUE RELATES TO PROPORTIONATE ADJU STMENT CLAIM MADE BY THE APPELLANT. THE APPELLANT HAS QUOTED A SERIES OF JUDGMENT IN SUPPORT OF ITS CLAIM THAT THE ADJUSTMENT IS REQUIRED TO BE RESTRIC TED TO THE LEVEL OF %AGE OF THE INTERNATIONAL TRANSACTION IN THE TOTAL TURNOVER OF THE APPELLANT. 10.5.1 THE CORRECT APPROACH IN A CASE WHERE THE TRA NSACTION VALUE IS SIGNIFICANTLY LOWER THAN THE TOTAL TURNOVER OF THE APPELLANT, WHILE CONDUCTING TP STUDY, WOULD BE TO CARRY OUT TRANSACTION BASED STUD Y. THIS WOULD ENSURE THAT THE ADJUSTMENTS ARE AUTOMATICALLY LIMITED TO THE TR ANSACTION VALUE. IN THE PRESENT CASE, THE APPELLANT ITSELF HAS RESORTED TO ENTITY LEVEL TNMM FOR BENCHMARKING RELATED PARTY TRANSACTIONS WHICH CONST ITUTE A VERY SMALL FRACTION OF TOTAL TURNOVER. HENCE, PRIMA FACIE, THE METHOD S ELECTED BY THE APPELLANT IS NOT CORRECT. THE VARIOUS TRANSACTIONS SHOULD HAVE B EEN BENCHMARKED SEPARATELY. HOWEVER, IT IS SEEN THAT HE AO HAS ACCE PTED THE METHOD AND HAS PROCEEDED TO BENCHMARK THE TRANSACTIONS ON THE BASI S OF /ARITHMETIC MEAN OF OVERALL MARGIN OF THE COMPARABLES. 10.5.2 UNDER SUCH CIRCUMSTANCES, THERE HAS BEEN AN OVERWHELMING JUDICIAL APPROVAL FOR RESTRICTING THE ADJUSTMENT TO THAT %AG E OF TURNOVER WHICH THE TRANSACTIONS HAVE WITH THE TURNOVER. IN THE PRESENT CASE, THE TOTAL VALUE OF TRANSACTIONS IS RS.11,28,82,570/-. THE TURNOVER OF THE APPELLANT IS RS.4,44,81,42,358/-. HENCE, THE INTERNATIONAL TRANS ACTION IS 2.54% OF THE TOTAL TURNOVER. HENCE, THE ADJUSTMENT WILL HAVE TO BE RES TRICTED TO A LEVEL OF 2.54% OF THE ADJUSTMENT COMPUTED ON ENTITY LEVEL. THE AO HAS COMPUTED ALL OF RS.10,49,74,001/- AT ENTITY LEVEL. THE PROPORTIONAT E ADJUSTMENT WILL BE 2.54% OF THIS AMOUNT OR RS 26,63,974/-. 10.5.3 THE TOTAL TRANSACTION VALUE IS RS.11,28,82,5 70/-. IF THE ADJUSTMENT FALLS WITHIN --/- 5% OF THIS AMOUNT, THEN THE ADJUSTMENT IS COVERED BY THE SAFE HARBOUR PROVIDED BY THE PROVISO TO SECTION 92C(2) O F THE ACT. 5% OF THE INTERNATIONAL TRANSACTION COMES TO RS.56,44,129/-. IT IS SEEN THAT THE SUGGESTED ADJUSTMENT IS LESS THAN 5% OF THE INTERNA TIONAL TRANSACTION AND HENCE COVERED BY THE SECOND PROVISO TO SECTION 92C( 2) OF THE ACT. 10.5.4 IN LIGHT OF THE ABOVE FACTS, THE ADJUSTMENT PROPOSED BY THE AO IS DIRECTED TO BE DELETED. THE GROUNDS ARE DECIDED ACC ORDINGLY. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 8.4 THE LD. AR ON THE STRENGTH OF VARIOUS JUDICIAL PRONOUNCEMENTS SUPPORTED THE STAND TAKEN BY LD. FIRST APPELLATE AU THORITY WHICH HAS BEEN CONTROVERTED BY LD. DEPARTMENTAL REPRESENTATIVE. 8.5 WE FIND THE DISPUTE IN A NARROW COMPASS IN THE SENSE THAT THE ONLY QUESTION TO BE ADJUDICATED IS WHETHER THE FACTUAL M ATRIX JUSTIFIED PROPORTIONATE ADJUSTMENT AS GRANTED BY LD. FIRST AP PELLATE AUTHORITY OR ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 16 NOT. THE ASSESSEE HAD APPLIED ENTITY LEVEL TNMM TO BENCHMARK THE INTERNATIONAL TRANSACTIONS WHICH HAS BEEN ACCEPTED BY LD.AO AND HENCE, THERE IS NO DISPUTE AS TO THE METHODOLOGY AS WELL SELECTION OF COMPARABLES. THE COMPUTED MARGINS ARE ALSO NOT UNDE R DISPUTE. ANOTHER UNDISPUTED FACT THAT THE ASSESSEES TRANSAC TIONS WITH ITS AES CONSTITUTED VERY INSIGNIFICANT PROPORTION I.E. LITT LE ABOVE 2.54% WHEREAS THE REST OF THE TRANSACTIONS ARE THIRD PARTY TRANSA CTIONS CALCULATED WITH REFERENCE TO TOTAL OPERATING TURNOVER [RS.11.28 CRO RES OF INTERNATIONAL TRANSACTIONS AS A % OF TOTAL OPERATING TURNOVER OF RS.444.81 CRORES]. THE ADJUSTMENT HAS BEEN COMPUTED BY LD. AO WITH REF ERENCE TO TOTAL OPERATING COST BASE ON GROSS BASIS WHICH EXPLAIN TH AT HOW THE ADJUSTMENT OF RS.10.49 CRORES HAS BEEN ARRIVED AT A GAINST AGGREGATE INTERNATIONAL TRANSACTIONS OF RS.11.28 CRORES CARRI ED OUT BY THE ASSESSEE WITH ITS AE DURING IMPUGNED AY. IN OTHER W ORDS, THE ARMS LENGTH PRICE OF TRANSACTIONS OF RS.11.28 CRORES HAS BEEN COMPUTED AS MERE RS.0.79 CRORES SINCE THE TP ADJUSTMENT AS PROPOSED BY LD.AO WAS RS.10.49 CRORES. THE SAME, IN OUR OPINION, IS F ALLACIOUS AND NOT JUSTIFIED AND THEREFORE, WE FIND STRENGTH IN THE AR GUMENT OF PROPORTIONATE ADJUSTMENT AS REITERATED BEFORE US BY LD.AR. THE LD . CIT(A) RIGHTLY RESTRICTED THE ADJUSTMENT TO THE EXTENT OF INTERNAT IONAL TRANSACTIONS VIS-- VIS TURNOVER OF THE ASSESSEE. OUR VIEW IS DULY SUPP ORTED BY THE RATIO OF CATENA OF DECISIONS RENDERED BY HIGHER JUDICIAL AUT HORITIES INCLUDING JURISDICTIONAL BOMBAY HIGH COURT, THE COPIES OF WHI CH HAVE BEEN PLACED ON RECORD. SOME OF THEM COULD BE TABULATED AS UNDER :- ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 17 RESPECTFULLY FOLLOWING THE SAME, WE FIND NO INFIRMI TY IN THE STAND OF LD. CIT(A) IN GRANTING THE BENEFIT OF PROPORTIONATE ADJ USTMENT TO THE ASSESSEE BY HOLDING THAT ENTITY LEVEL TNMM COULD NOT BE APPLIED TO ALL THE TRANSACTIONS / COST BASE ON GROSS BASIS AS A WH OLE AND THE SAME WAS TO BE APPLIED ON PROPORTIONATE BASIS TO INTERNA TIONAL TRANSACTIONS WHICH WERE SUBJECTED TO DETERMINATION OF ALP. 8.6 PROCEEDING FURTHER, UPON PERUSAL OF IMPUGNED OR DER, WE FIND THAT LD. FIRST APPELLATE AUTHORITY WHILE GRANTING PROPOR TIONATE ADJUSTMENT ARRIVED AT TP ADJUSTMENT OF RS.25.63 LACS, BEING 2.54% OF TP ADJUSTMENT OF RS.10.49 CRORES AS COMPUTED BY LD. AO . HOWEVER, THE SAID ADJUSTMENT HAS BEEN FOUND TO BE WITHIN RANGE O F SAFE HARBOR OF +5% AS PROVIDED U/S 92C(2) AS CALCULATED WITH REFER ENCE TO AGGREGATE INTERNATIONAL TRANSACTIONS OF RS.11.28 CRORES AND T HEREFORE, DELETED IN FULL. WE FIND NO INFIRMITY IN THE SAME SINCE THE BE NEFIT AS ENVISAGED BY THE STATUTORY PROVISIONS COULD NOT BE DENIED TO THE ASSESSEE. THEREFORE, THE SAME BEING IN ACCORDANCE WITH LAW, REQUIRE NO I NTERFERENCE ON OUR PART. 8.7 RESULTANTLY, THIS GROUND STAND DISMISSED. THE R EVENUES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. NO. CASE LAW JUDICIAL AUTHORITY CITATION 1. CIT VS TATA JEWELS EXPORTS PRIVATE LTD HONBLE BOMBAY HIGH COURT 381 ITR 404 2. CIT VS FIRESTONE INTERNATIONAL PVT. LTD. HONBLE BOMBAY HIGH COURT 378 ITR 558 3. THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. VS ACIT MUMBAI TRIBUNAL 55 SOT 497 AS APPROVED BY BOMBAY HIGH COURT IN REVENUES APPEAL 381 ITR 413] 4. HINDUSTAN UNILEVER LTD VS ACIT MUMBAI TRIBUNAL 22 ITR(T) 737 AS APPROVED BY BOMBAY HIGH COURT IN REVENUES APPEAL 394 ITR 73] ITA NOS.5781 & 5707/MUM/2016 SODEXO FOOD SOLUTIONS INDIA PRIVATE LIMITED ASSESSMENT YEAR-2011-12 18 CONCLUSION 9. THE ASSESSEES APPEAL STAND PARTLY ALLOWED WHERE AS THE REVENUES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSE S. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD OCTOBER, 2018. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ($ MUMBAI; DATED :03.10.2018 SR.PS:-THIRUMALESH ! COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT 3. / THE CIT(A) 4. / CIT CONCERNED 5. ) *' + +' ($ / DR, ITAT, MUMBAI 6. * ,-. $ GUARD FILE ' / BY ORDER, # '$% (DY./ASSTT.REGISTRAR) ($ / ITAT, MUMBAI
