McCann Erickson India Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5871/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61713 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Related party transaction; Transfer pricing; International transaction; Rule of consistency; Capital expenditure
• Section: 143(3); 92D; 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) SHRI B.C. MEENA, ACCOUNTANT MEMBER AND BEFORE SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.5871/DEL./2011 (ASSESSMENT YEAR : 2007-08) MCCANN ERICKSON INDIA PVT. LTD., VS. ADDL. CIT, RA NGE 6, 204 206, TOLSTOY HOUSE, NEW DELHI. TOLSTOY MARG, NEW DELHI. (PAN : AAACT0835D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI TANEJA, FCA REVENUE BY : SHRI PEEYUSH JAIN, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE 6, NEW DELHI U/S 144C/143(3) OF INCOME-TAX ACT, 1961 DATED 29.11.201 1 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ADVERTISING AND ITS ALLIED SERVICES. ASSESSEE IS A COMPANY WHOLLY OWNE D SUBSIDIARY OF MCCANN ERICKSON WORLD GROUP (MEW) WHICH IS ONE OF THE SIX OPERATING DIVISION OF INTER PUBLIC GROUP (IPG). IPG IS ONE OF THE LARGES T ADVERTISING AND MARKETING ITA NO.5871/DEL./2011 2 SERVICES CONGLOMERATE, CONSISTING OF MANY COMMUNICA TION AGENCIES AROUND THE WORLD. MEW PROVIDES FULLY INTEGRATED MARKETING COMMUNICATION SERVICES. MCCANN INDIA HELPS CLIENTS IN INDIA TO C ONCEPTUALIZE AND MAKE THE ADVERTISEMENT WHICH ARE SHOWN TO CONSUMERS / CUSTOM ERS THROUGH TV, RADIO, NEWSPAPER, MAGAZINES. SUCH SERVICES HELP CUSTOMER TO MAKE BRAND WITH TARGETED GROUP OF CUSTOMERS / CONSUMERS. THE ORIGI NAL RETURN OF INCOME WAS FILED ON 31.10.2007 DECLARING INCOME OF RS.15,75,74 ,160/-. THE CASE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME-TAX AC T (HEREINAFTER REFERRED AS THE ACT). THE RETURN WAS SELECTED FOR SCRUTINY A ND NOTICE U/S 143(2) WAS ISSUED. A REFERENCE WAS MADE U/S 92CA OF THE ACT T O TPO BY THE AO TO DETERMINE ALP (ARMS LENGTH PRICE) OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ASSOCIATED ENTERPRISES (AE). TPO PASSED ORDER U/S 92CA(3) ON 27.10.2010 (PLACED AT PAGES 505 TO 518 O F PAPER-BOOK). THE ASSESSING OFFICER MADE A DRAFT ASSESSMENT ORDER U/S 144C OF THE ACT ON 27.12.2010 BY PROPOSING THE FOLLOWING ADDITIONS :- (I) ADDITION ON ACCOUNT OF ADJUSTMENT MADE BY THE T PO IN RESPECT OF MANAGEMENT SERVICE FEE AND COORDINATION COST OF RS.4,02,51,986/-; (II) DISALLOWANCE U/S 14A R/W RULE 8D, OF RS.2,664/ -; (III) DISALLOWANCE OF BUSINESS DEVELOPMENT EXPENSES OF RS.9,58,408/-; (IV) DISALLOWANCE U/S 40(A) OF RS.61,90,531/-. ITA NO.5871/DEL./2011 3 THE ASSESSEE CONTESTED THE DRAFT ASSESSMENT ORDER B EFORE THE DISPUTE RESOLUTION PANEL I, NEW DELHI (HEREINAFTER REFERR ED AS THE DRP) BY FILING OBJECTIONS. THESE OBJECTIONS ARE PLACED AT PAGES 4 6 TO 495 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE DRP DISPOSED OF OBJECTI ONS AND ISSUED THE DIRECTIONS U/S 144C(5) OF THE ACT ON 20.09.2010 (PL ACED AT PAGES 34 TO 42 OF THE PAPER BOOK). IN PURSUANCE TO DIRECTIONS OF D RP, THE TPO PASSED FRESH ORDER ON 29.11.2011 (PLACED AT PAGES 29 TO 31 OF TH E PAPER BOOK) IN WHICH AD HOC RELIEF OF 40% WITH RESPECT OF PAYMENT OF MANAGE MENT SERVICES CHARGES WAS GIVEN AND CONFIRMED THE ADDITION ON ACCOUNT OF PAYMENT OF COORDINATION COSTS. FINALLY, ORDER U/S 144/143(3) WAS MADE ON 2 9.11.2011. AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE GROUNDS OF APPEAL READ AS UNDER :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER PASSED BY THE I ASSESSING OFFICER ('LD AO') IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE L EARNED DISPUTE RESOLUTION PANEL ('LD DRP'), IS BAD IN LAW AND VOID AB-INITIO. 2. THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CO NFIRMING THE LD. AO/ TRANSFER PRICING OFFICER'S (TPO) ACTION OF MAKING AN ADJUSTMENT OF RS.2,57,34,747 (RS.2,17,75, 889 FOR MANAGEMENT SERVICES AND RS.39,58,838 FOR COORDINATION SERVICES) TO THE INCOME OF THE APPELLA NT BY HOLDING THAT THE INTERNATIONAL TRANSACTIONS UNDERTA KEN BY THE APPELLANT DO NOT SATISFY THE ARM'S LENGTH PRINC IPLE ENVISAGED UNDER THE INCOME-TAX ACT 1961 ('ACT'). IN DOING SO THE LD. DRP HAS GROSSLY ERRED IN; ITA NO.5871/DEL./2011 4 2.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS S ET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRES ENT CASE; 2.2. DISREGARDING THE BENCHMARKING APPROACH AND METHODOLOGY FOLLOWED BY THE APPELLANT FOR DETERMINING THE ARM'S LENGTH NATURE OF THE TRANSFER PRICING ('TP') ARRANGEMENT WITH REGARD TO PAYMENT O F MANAGEMENT SERVICE FEE AND COORDINATION COST FEE TO OVERSEAS ASSOCIATED ENTERPRISES ('AES') IN ITS TP DOCUMENTATION MAINTAINED UNDER SECTION 92D OF THE ACT READ WITH RULE LOD OF THE INCOME TAX RULES, 1962 ('RULES'). 2.3. NOT APPRECIATING THAT PAYMENT OF MANAGEMENT CHARGES AND COORDINATION COST ARE CLOSELY LINKED TO THE ADVERTISING FUNCTION OF THE APPELLANT AND ERRED IN ANALYSING THE TRANSACTION SEPARATELY FOR THE DETERMINATION OF ALP; 2-4. ADOPTING A COMPLETELY CONTRADICTORY POSITION O F ACCEPTING THE TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD ON ONE HAND, AND YET SEEKING TO QUESTION APPROPRIATENESS O F INDIVIDUAL ELEMENTS OF OPERATING COST (I.E. PAYMENT OF MANAGEMENT COST AND COORDINATION COSTS) ON THE OTHER, THEREBY FAILING TO APPRECIATE FUNDAMENTAL TP PRINCIPLES; 2.5. FAILING TO APPRECIATE THAT, BASED ON THE TNMM APPLIED BY THE ASSESSEE IN ITS TP DOCUMENTATION STUDY, ITS OPERATING PROFIT MARGIN (AS ARRIVED AT A FTER DEDUCTING ITS ENTIRE MANAGEMENT COST AND COORDINATION COSTS) WAS HIGHER THAN THAT OF THE COMPARABLE COMPANIES, THEREBY EVIDENCING THE ARM'S LENGTH NATURE OF ITS INTERNATIONAL TRANSACTIONS; 2.6. NOT APPRECIATING THE BENEFIT AND CORRESPONDING ECONOMIC OR COMMERCIAL VALUE DERIVED BY THE APPELLANT FROM THE MANAGEMENT AND CLIENT COORDINATION SERVICES RECEIVED BY IT FROM THE AES. ITA NO.5871/DEL./2011 5 2.7. BY DISREGARDING THE DETAILED SUBMISSIONS AND DOCUMENTS SUBMITTED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS/ DRP PROCEEDINGS WITHOUT PROVIDING ANY RATIONALE/ BASIS FOR THE SAME. 2.8. ERRONEOUSLY CLASSIFYING STRATEGIC PLANNING ASS ISTANCE AND MEDIA SUPPORT SERVICES (FOR THE PURPOSE OF EXAMINING THE BENEFITS RECEIVED FROM MANAGEMENT SERVICES) UNDER THE HEAD COORDINATION SERVICES IN T HE DRP DIRECTIONS, THUS LEADING TO ERRONEOUS REDUCTION IN INTENDED/ ACTUAL RELIEF (GRANTED BY THE DRP) IN THE ORDER ISSUED BY THE AO/ TPO DUE TO INCORRECT CLASSIFICATION; 3. THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CO NFIRMING THE LD. AO'S ACTION IN DISALLOWING RS. 61,90,531/- UNDER SECTION 40(A) OF THE ACT TREATING THE SERVICES AS TECHNICAL/MANAGERIAL IN NATURE AND ALLEGING NON DED UCTION OF TAX. 4. THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CO NFIRMING THE LD. AO'S ACTION IN DISALLOWING RS. 39,58,839/- UNDER SECTION 4O(A)(I) OF THE ACT IN RESPECT OF 'GLOBAL A CCOUNT COORDINATION COST' TREATING THE SERVICES AS TECHNICAL/MANAGERIAL IN NATURE AND ALLEGING NON DED UCTION OF TAX. 5. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. WITHOUT PREJUDICE, THE LD. AO ERRED IN WRO NGLY COMPUTING THE AMOUNT OF INTEREST UNDER SECTION 234B AT RS. 65,83,410. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 4. THE GROUND NO.1 IS GENERAL IN NATURE AND DOES NO T REQUIRE ANY ADJUDICATION. ITA NO.5871/DEL./2011 6 5. IN THE GROUND NO.2, THE ISSUES RELATED TO TRANSF ER PRICING HAS BEEN CHALLENGED BY THE ASSESSEE. THERE ARE TWO TRANSFER PRICING ADJUSTMENTS ONE FOR THE MANAGEMENTS SERVICES OF RS.2,57,34,747/- AN D OTHER FOR COORDINATION COSTS OF RS.39,58,838/- TO ITS ASSOCIATED ENTERPRIS ES (HEREINAFTER REFERRED TO AS AE). IN THE DRAFT TPOS ORDER, ADJUSTMENT WAS SU GGESTED OF RS.3,62,93,148/- ON ACCOUNT OF MANAGEMENT SERVICES AND RS.39,58,838/- ON ACCOUNT OF COORDINATION COSTS PAID BY THE ASSESSEE TO THE AE. THE ASSESSEE CONTESTED THE TPOS ORDER BEFORE THE DRP WHEREIN TH E DRP ISSUED THE DIRECTION AS UNDER :- TPO DEDUCTIONS ARE LOGICAL AS SHE HAS HELD NO SPE CIFIC PROJECT DETAILS HAVE BEEN PROVIDED. HOWEVER, EVIDE NCE SUBMITTED BEFORE DRP AS DISCUSSED ABOVE GIVES DETAI LS OF SOME OF THE SPECIFIC PROJECTS. HENCE IT CANNOT BE TOTAL LY DENIED THAT NO SERVICES WERE PROVIDED. THE TPO IS DIRECTED TO VER IFY THE COSTS OF THESE SERVICES BASED ON ALLOCATION KEY OF THE AS SESSEES AND RECOMPUTED THE DISALLOWANCE ACCORDINGLY. THE DRP DIRECTED THE TPO / AO TO RECOMPUTE THE ADJU STMENT AS PER THESE DIRECTIONS. DRP ADMITTED THE FACT OF PROVIDING SER VICE. TPO IS DIRECTED TO VERIFY THE COSTS OF SERVICES BASED ON ALLOCATION KE Y OF THE ASSESSEE. WHILE GIVING THE EFFECT TO THE DIRECTION OF THE LD. DRP, THE TPO GAVE A PART RELIEF AND NET ADJUSTMENT ON ACCOUNT OF MANAGEMENT SERVICE S CHARGES WAS WORKED OUT TO RS.2,17,75,889/- AND ON ACCOUNT OF COORDINAT ION CHARGES RS.39,58,838/-. ITA NO.5871/DEL./2011 7 6. LD. AR SUBMITTED THAT IT IS APPROPRIATE TO MENTI ON THAT MCCANN INDIA (ASSESSEE) HELPED CLIENTS IN INDIA TO CONCEPTUALIZE AND PRODUCE THE ADVERTISEMENTS FOR THE PRODUCTS TO THE CONSUMERS EX POSED TO TELEVISION, RADIO, NEWSPAPER, MAGAZINES, ETC. ASSESSEE ALSO HE LPS ITS CLIENTS TO MAKE STRATEGY FOR MARKET APPEAL AND BRAND TO TARGET AUDI ENCES. THE LEARNED AR ALSO SUBMITTED THAT THE LD. TPO HAS ERRED IN GIVING THE EFFECT TO THE DIRECTION OF THE DRP AND GAVE RELIEF TO THE ASSESSEE ON AD HO C AND IMAGINARY BASIS @ 40% BY MIS-APPRECIATING THE ORDER OF THE DRP. ASSE SSEE IS ENGAGED IN ONLY ONE BUSINESS ACTIVITY, NAMELY, ADVERTISING AND MARK ETING SERVICES AND ALL ITS TRANSACTIONS WHETHER LOCAL OR INTERNATIONAL ARE CLO SELY LINKED WITH THIS ACTIVITY ONLY. ALL THESE TRANSACTIONS ARE HAVING CLOSE NEXU S WITH THE CORE REVENUE GENERATING ACTIVITY THAT IS ADVERTISING ACTIVITY. DUE TO THIS FACTOR, THE INTERNATIONAL TRANSACTIONS HAVE TO BE LOOKED AT A U NIT OPERATING ENTITY LEVEL. 6.1 DURING FINANCIAL YEAR ('FY) 2006-07, THE ASSES SEE COMPANY HAD THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AES, WHICH WERE REPORTED IN THE ACCOUNTANTS REPORT (IN FORM NO. 3CEB) FILED ALONG WITH THE RETURN OF INCOME : (I) INCOME FROM SALE OF ADVERTISING MATERIAL; (II) INCOME FROM SERVICES PROVIDED; . (III) COST OF MEDIA RELEASES AND COMMISSION; (IV) PAYMENT FOR PURCHASE OF ADVERTISING MATERIAL; (V) PAYMENT OF HUB CHARGES; (VI) PAYMENT OF ANNUAL MAINTENANCE FEE AND IMPLEMEN TATION CHARGES (VII) PAYMENT OF LICENSE FEES; (VIII) PAYMENT OF COORDINATION COST; ITA NO.5871/DEL./2011 8 (IX) PAYMENT OF MANAGEMENT SERVICE CHARGE; (X) COST RECHARGES FROM GROUP COMPANIES; AND (XI) COST RECHARGES TO GROUP COMPANIES. THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN M ETHOD ('TNMM') TO CONFIRM THE ARM'S LENGTH PRICING OF ALL ITS INTERNA TIONAL TRANSACTIONS UNDERTAKEN EXCEPT COST RECHARGES TO GROUP COMPANIES . OUT OF AFORESAID ELEVEN TRANSACTIONS, AO/TPO OBJECTED TO ALP OF TWO ITEMS I.E. PAYMENT OF MANAGEMENT SERVICE CHARGE AND PAYMENT OF COORDINATI ON COSTS. 6.2 BEFORE THE DRP IT HAS BEEN CONTENDED THAT THE A SSESSING OFFICER/TPO HAS ACCEPTED ALL THE INTERNATIONAL TRANSACTIONS APP LYING TNMM METHOD EXCEPT TWO ITEMS I.E. PAYMENT OF MANAGEMENT SERVICE CHARGE S (ITEM NO.IX) AND PAYMENT OF COORDINATION COSTS (ITEM NO.VIII). IN TH E OBJECTIONS FILED BEFORE THE DRP, IT WAS CONTENDED THAT THE RESULTS FROM THE ECONOMIC ANALYSIS CONDUCTED BY THE ASSESSEE PROVIDE EVIDENCE THAT THE PRICING BASIS OF THE VARIOUS TRANSACTIONS THAT HAVE IMPACT ON THE PROFIT ABILITY OF THE ASSESSEE AND THE OUTCOME OF THAT PRICING, I.E., THE PROFITABILIT Y WAS AT ARM'S LENGTH AND HENCE IT SATISFY THE 'ARM'S LENGTH' STANDARD PRESCR IBED UNDER THE INDIAN REGULATIONS. IT IS CLAIMED THAT IN THE COURSE OF T HE ASSESSMENT PROCEEDINGS, VARIOUS DETAILS AND INFORMATION WERE CALLED FOR, WH ICH WERE FURNISHED FROM TIME TO TIME. 6.3 AS PER LD. AR, TPO HAS FAILED TO APPRECIATE RAT HER IGNORED THE DOCUMENTS SUBMITTED WITH RESPECT TO THE SERVICES WH ILE ACCEPTING THE ALP OF ITA NO.5871/DEL./2011 9 TRANSACTION RELATING TO MANAGEMENT AND COORDINATION COST CHARGES. TPO PASSED AN ORDER DATED 27 TH OCTOBER, 2010 U/S 92CA (3) OF THE ACT BY ACCEPTING MOST OF THE INTERNATIONAL TRANSACTIONS TO BE AT ARM'S LENGTH ENTERED INTO BY THE ASSESSEE WITH ITS AE DURING THE YEAR UN DER CONSIDERATION. HOWEVER, THE INTERNATIONAL TRANSACTIONS ENTERED INT O BY THE ASSESSEE WITH ITS AE RELATING TO PAYMENT OF MANAGEMENT CHARGES AND CO ORDINATION COSTS AMOUNTING TO INR 36,293,148/- AND 3,958,838/- RESPE CTIVELY WERE CHARACTERISED AS INTRA GROUP SERVICES RECEIVED FROM THE AE AND THE ALP OF THESE PAYMENTS WAS COMPUTED AS 'NIL'. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, DOCUMENTARY EVIDENCES ON A SAMPLE BASI S WERE SUBMITTED TO THE LD. TPO TO SUBSTANTIATE BOTH THE AFORE-MENTIONED PA YMENTS MADE BY THE ASSESSEE. TO DEMONSTRATE THE ECONOMIC BENEFIT REALI SED BY THE ASSESSEE, THE ASSESSEE SUBMITTED THE DOCUMENTS/MAILS EXCHANGED IN DAY-TO-DAY OPERATIONS WITH AE ON A SAMPLE BASIS AS ANNEXURES 4 - 8 TO SUB MISSIONS DATED SEPTEMBER 21, 2010 (PLACED AT PAGES 3 TO 224 PAP ERBOOK). THESE DOCUMENTS ARE EVIDENCE FOR THE RECEIPT OF ECONOMIC BENEFIT BY THE ASSESSEE. 6.4 IN THE INSTANT CASE, THE SERVICES RECEIVED BY T HE ASSESSEE UNDER THE MANAGEMENT SERVICES AGREEMENT ARE AIMED TO ENABLE M CCANN INDIA IN CARRYING OUT ITS BUSINESS OPERATIONS MORE EFFICIENT LY IN AN INCREASINGLY GLOBALISED AND COMPETITIVE SCENARIO. FURTHER, BY HA VING ACCESS TO SUCH KNOWLEDGE/ KNOW-HOW, CREATIVITY AND RESEARCH REPORT S, WHICH ARE THE CORE ITA NO.5871/DEL./2011 10 FUNDAMENTALS OF THE ADVERTISING BUSINESS WITHOUT WH ICH MCCANN INDIA WOULD FIND IT DIFFICULT TO PERFORM EFFICIENTLY AND KEEP U P TO THE CLIENT EXPECTATIONS. HAD MCCANN INDIA NOT RECEIVED THE ACCESS TO THE ABO VE INFORMATION, IT WOULD HAVE BEEN REQUIRED TO PERFORM THEM BY ITSELF BY HIR ING SENIOR EXPERIENCED PEOPLE AND PROCURING THE DATABASES/ RESEARCH REPORT S FROM OUTSIDE. 6.5 BY VIRTUE OF RECEIVING THESE SERVICES FROM MCCA NN GROUP, MCCANN INDIA HAS THE BENEFIT OF BEING SERVICED BY SPECIALI ZED PERSONNEL WHO ARE EXPERTS IN THEIR RESPECTIVE FIELDS AND ARE WELL VER SED WITH THE INTRICACIES OF BUSINESS REQUIREMENT. MCCANN INDIA HAS BEEN ABLE TO SUBSTANTIALLY GROW IN THIS HIGHLY COMPETITIVE MARKET AND HAS BEEN, OVER T HE YEARS, ABLE TO POST 14% REVENUE GROWTH. THEREBY, IT HAS BEEN ABLE TO THWART COMPETITION BY BREAKING AWAY CLIENTS FROM ITS COMPETITORS. 6.6 THE PAYMENT HAS BEEN QUANTIFIED BY AN ALLOCATIO N METHODOLOGY ADOPTED BY THE GROUP COMPANIES. THE ASSESSEE WISHES TO SUBMIT A DETAILED REPORT OBTAINED BY MCCANN GROUP FROM THE INDEPENDEN T AUDITORS DOCUMENTING THE MANNER AND THE METHODOLOGY FOR COMP UTING THE CONTRIBUTION MADE BY EACH PARTICIPATING GROUP ENTITY. THE AUDIT REPORT ON THE APPROPRIATENESS OF THE COSTS GATHERED AT MEM EXAMIN ES WHETHER THE COSTS HAVE BEEN PROPERLY ALLOCATED AMONG THE GROUP COMPAN IES ('CHARGE-IN') ACCORDING TO THE TERMS OF THE AGREEMENT. ITA NO.5871/DEL./2011 11 6.7 DURING THE COURSE OF HEARING BEFORE US ALSO, LD . AR HAS ARGUED THE MATTER AT LENGTH. LD. AR HAS TAKEN US TO VARIOUS P AGES OF THE PAPER BOOK DRAWING OUR ATTENTION TO VARIOUS DETAILS AND EVIDEN CES FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFI CER, TRANSFER PRICING OFFICER AND OBJECTIONS FILED BEFORE THE DRP. LD. AR ALSO RELIED UPON MANY CASE LAWS IN SUPPORT OF HIS ARGUMENTS. LD. ARS F IRST ARGUMENT IS THAT THE DRP HAS, IN PRINCIPLE, ACCEPTED THE OBJECTION OF TH E APPELLANT ASSESSEE AND HAS GIVEN DIRECTIONS TO THE AO/TPO TO ALLOW THE REL IEF AND TO MAKE THE DISALLOWANCE ONLY IF ANY EVIDENCE OR INFORMATION WA S NOT PROVIDED BY THE ASSESSEE WITH REGARD TO FACTUAL ASPECT OF INCURRING OF COST BY THE AE. LD. AR FURTHER STATED THAT PRINCIPALLY THE DRP ALLOWED THE FULL RELIEF ON BOTH THE GROUNDS I.E. DRP HAS ACCEPTED THAT THE SERVICES HAV E BEEN RENDERED BY THE AE TO THE APPELLANT ASSESSEE AND THE ALLOCATION KEY OF 5% MARK UP ON THE COST WAS ALSO ACCEPTED. THUS, THE DRP HAS ACCEPTED THE F ACT OF RENDERING OF SERVICES AND ALSO ACCEPTED THAT THEIR PAYMENTS WERE MADE AT ARM'S LENGTH PRICE. LD. AR HAS STATED THAT THE ORDER OF DRP IS F INAL AND THERE IS NO PROVISION UNDER THE LAW TO ENABLE REVENUE I.E. AO/T PO TO FILE THE APPEAL AGAINST THE ORDER OF DRP. LD. AR HAS FURTHER ARGUE D THAT THE AO/TPO HAS NOT CONTESTED THE ORDER OF DRP. THUS, IN VIEW OF TH ESE FACTS AND CLEAR POSITION OF LAW, THE AO/TPO WERE DUTY BOUND TO GIVE EFFECT T O THE DIRECTIONS OF THE ITA NO.5871/DEL./2011 12 DRP BY FOLLOWING THE ORDER IN ITS ENTIRETY AND IN I TS TRUE SPIRIT AND BY NOT DOING SO, THE RESULTANT ORDER PASSED BY AO/TPO IS I LLEGAL PER SE. 6.8 THE FURTHER ARGUMENT OF THE LD. AR IS THAT THES E PAYMENTS HAVE BEEN ACCEPTED IN ALL PAST YEARS BY THE AO AS WELL AS TPO ON CONSISTENT BASIS AND NO ADDITION/TP ADJUSTMENT HAS EVER BEEN MADE IN THI S REGARD. THE TPO/AO IN EARLIER YEARS HAVE ACCEPTED THE RECEIPT OF SUCH SER VICES FROM ITS AE AND HAVE ALLOWED MANAGEMENT SERVICE CHARGES' AND COORDINAT ION FEE PAID TO AE AS ALLOWABLE EXPENDITURE. IN SUPPORT OF HIS ARGUMENTS, LD. AR SUBMITTED A CHART (PLACED BELOW) SHOWING THAT SUCH EXPENSES WERE NEVE R DISALLOWED AND THESE WERE ALWAYS ALLOWED EVEN UNDER THE REGULAR ASSESSME NTS SHOWING THAT THE REVENUE HAS ALWAYS ACCEPTED THE FACTUM OF THE SERVI CES RENDERED BY THE APPELLANT AND THESE EXPENSES HAVING BEEN INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND MOREOVER, THE METHO D OF DETERMINATION OF ARM'S LENGTH PRICE HAS ALSO BEEN FOUND ACCEPTABLE A S THAT OF TNMM IN ALL THE YEARS CONSISTENTLY DURING THE PAST. LD. AR TOOK US THROUGH THE VARIOUS PAGES OF THE PAPER BOOK COMPRISING OF THE ORDER OF TPO FO R ASSESSMENT YEAR 2004- 05 SHOWING THE ACCEPTANCE OF TNMM AND COPIES OF ASS ESSMENT ORDERS U/S 143(3) FOR VARIOUS YEARS SHOWING THAT NO ADDITION H AS BEEN MADE ON ACCOUNT OF ANY ADJUSTMENT IN ARM'S LENGTH PRICE ON THIS SCO RE. IT WAS VEHEMENTLY ARGUED THAT IN ABSENCE OF ANY CHANGE IN FACTS OR IN LAW, RULE OF CONSISTENCY DEMANDS THAT TNMM HAVING BEEN ACCEPTED AS MOST APPR OPRIATE METHOD ITA NO.5871/DEL./2011 13 CANNOT BE DISCARDED SUDDENLY IN THIS YEAR. LD. AR RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF RADHA SOAMI SATSANG REPORTED AT 193 ITR 321. THE CHART ON THIS ISSUE FOR VARIOUS YEAR S SUBMITTED READ AS UNDER :- AY AMOUNT IN RS. (MANAGEMENT SERVICE CHARGE) AMOUNT IN RS. (CLIENT COORDINATION FEE) REMARKS 2002-03 NIL 2,972,711 ASSESSMENT WAS MADE U/S 143(3). NO ADDITION MADE ON ACCOUNT OF TRANSFER PRICING MATTER. 2003-04 18,845,590 3,683,530 THOUGH SPECIFIC REFERE NCE WAS MADE TO THE TPO FOR MANAGEMENT SERVICES AND CLIENT COORDINATION SERVICES, IT WAS ACCEPTED BY THE TPO IN HIS ORDER. 2004-05 30,685,972 2,619,492 THOUGH SPECIFIC REFERE NCE WAS MADE TO THE TPO FOR MANAGEMENT SERVICES AND CLIENT COORDINATION SERVICES, IT WAS ACCEPTED BY THE TPO IN HIS ORDER. 2005-06 27,104,315 6,531,351 ASSESSMENT WAS MADE U/ S 143(3). NO ADDITION MADE ON ACCOUNT OF TRANSFER PRICING MATTER. 2006-07 40,153,610 3,033,686 NO ASSESSMENT WAS ASSE SSMENT WAS MADE U/S 143(3). 6.8 THE FURTHER ARGUMENT OF THE LD. COUNSEL IS THAT THE AO/TPO ERRED IN REJECTING TNMM METHOD AND FURTHER ERRED IN APPLYING CUP METHOD. IT WAS ITA NO.5871/DEL./2011 14 ARGUED BY LD. AR THAT TNMM METHOD WAS ADOPTED BY TH E APPELLANT SINCE LAST SEVERAL YEARS AND THE SAME HAS BEEN ACCEPTED B Y THE REVENUE IN ALL THOSE YEARS CONSISTENTLY. LD. AR HAS FURTHER ARGUED THAT LD. TPO HELD THAT NO INDEPENDENT PERSON COULD HAVE PAID ANY AMOUNT FOR T HESE SERVICES BUT TPO HAS NOT GIVEN ANY REASONS OR EVIDENCE IN SUPPORT OF HIS BALD ASSERTIONS. LD. COUNSEL HAS TAKEN US TO VARIOUS PAGES OF THE TRANSF ER PRICING STUDY REPORT WHEREIN IT WAS EXPLAINED THAT TNMM WAS THE MOST APP ROPRIATE METHOD HAVING REGARD TO NATURE OF APPELLANT'S ACTIVITIES. IT HAS BEEN EXPLAINED BY LD. AR BY DEMONSTRATING VARIOUS ILLUSTRATIONS AND VARIO US EVIDENCES ENCLOSED IN THE PAPER BOOK THAT THESE SERVICES ARE NOT INDEPEND ENT TRANSACTIONS AND VALUE OF THESE SERVICES CANNOT BE MEASURED ON STANDALONE BASIS. ACCORDING TO LD. AR, THESE ARE SUB FUNCTIONS OR VARIOUS CONSTITUENTS OF THE PRIME FUNCTION OF THE ASSESSEE'S ORGANIZATION. ACCORDING TO HIM, IT I S INFEASIBLE AND IMPRACTICAL TO ASCERTAIN ANY INDEPENDENT VALUE OF THESE SERVICE S. IN VIEW OF THESE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, IT IS DESIRABL E THAT THE BENCH MARKING OF THESE SERVICES SHOULD BE DONE ON AN OVER-ALL BASIS I.E. ANALYZING THE NET MARGIN RATE, WHICH WOULD BE MOST APPROPRIATE METHOD TO ASCERTAIN TRUE PICTURE OF FINANCIAL RESULTS OF THE ORGANISATION. LD. AR HAS STATED THAT AVERAGE RATE OF MARGIN OF COMPARABLES AS SHOWN IN THE TRANS FER PRICING STUDY REPORT IS CALCULATED @ 8% WHEREAS THE ASSESSEE COMPANY HAS RE TURNED THE NET MARGIN OF 26%. THUS, ACCORDING TO LD. AR, THE ASSESSEE HAS FILED ITS RETURN OF INCOME ITA NO.5871/DEL./2011 15 AT A PROFIT WHICH IS MUCH HIGHER THAN ANY OTHER COM PARABLE ORGANIZATIONS HAVE SHOWN. THUS, IN SUBSTANCE, THERE CANNOT BE ALL EGATION OF SHIFTING OF PROFIT. IT HAS BEEN ARGUED BY LD. AR THAT THE FACTS OF 8% OF AVERAGE RATE OF MARGIN AND 26% OF ASSESSEE PROFIT HAVE NOT BEEN DIS PUTED BY AO OR TPO OR ANY OTHER AUTHORITY. LD. AR HAS FURTHER STATED THA T TPO HAS ACCEPTED EIGHT INTERNATIONAL TRANSACTIONS AS PER TNMM ITSELF AS SH OWN BY THE ASSESSEE. ONLY FOR THESE TWO TRANSACTIONS I.E. MANAGEMENT SERVICES AND COORDINATION COSTS, TPO HAD GONE IN FOR CUP METHOD. 6.9 LD. AR HAS ARGUED THAT EVEN ON MERITS TNMM WAS THE MOST APPROPRIATE METHOD, DUE TO THE FACT THAT APPELLANT WAS ENGAGED IN ONLY ONE ACTIVITY I.E., ADVERTISING AND MARKETING SERVICES A ND ALL THE INTERNATIONAL TRANSACTIONS ARE CLOSELY LINKED AND HAVING NEXUS WI TH THE CORE REVENUE GENERATING ADVERTISING ACTIVITY. IN SUCH CIRCUMSTAN CES, IT IS CONSIDERED APPROPRIATE TO ASSESS THE IMPACT OF ALL THE INTERNA TIONAL TRANSACTIONS PERTAINING TO ITS ADVERTISING ACTIVITY AT THE NET UNIT OPERATI NG ENTITY LEVEL. IN SUPPORT OF HIS ARGUMENTS, LD. AR HAS RELIED UPON CASE LAWS. L D. AR RELIED UPON THE DECISION OF ADDL. CIT VS. TEJ DIAM (2010-TII-27-ITA T-MUM-TP) (PLACED AT PAGES 872 TO 875 OF PAPER BOOK) FOR THE PROPOSIT ION THAT IN THESE FACTS AND CIRCUMSTANCES TNMM IS THE MOST APPROPRIATE METHOD. LD. AR FURTHER RELIED UPON THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN TH E CASE OF UCB INDIA PVT. LTD WHEREIN IT WAS HELD THAT IN CASES WHERE PR OFITS OF AN ENTERPRISE ARE ITA NO.5871/DEL./2011 16 ATTRIBUTABLE TO SIMILAR TRANSACTIONS AND WHEN AN EN TERPRISE DOES NOT HAVE ANY DISSIMILAR TRANSACTIONS/ACTIVITIES WHICH DISTORT TH E PROFITS, THEN THE NET MARGIN DERIVED BY ENTERPRISE AS A WHOLE MAY BE CONSIDERED FOR TP ANALYSIS. IT WAS ALSO OBSERVED THAT TNMM MAY BE APPROPRIATE WHEN A T RANSACTION OR A CLASS OF TRANSACTION. IS TO BE EVALUATED. LD. AR ALSO DREW O UR ATTENTION TO THE RELEVANT PORTION OF THE OECD GUIDELINES WHEREIN IT WAS PROVI DED THAT THERE ARE CERTAIN SITUATIONS WHERE SEPARATE TRANSACTIONS ARE SO CLOSE LY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE B ASIS. LD. AR FURTHER SUBMITTED THAT AFTER FACTORING IN THE COSTS OF ALL RELATED PARTY TRANSACTIONS (INCLUDING PAYMENT OF MANAGEMENT CHARGES AND COORDI NATION FEE) AS WELL AS THIRD PARTY COSTS, THE APPELLANT EARNED AN OP/TC OF 26% DURING THE FY 2006- 07, WHICH WAS SIGNIFICANTLY HIGHER THAN THE MEAN OP /TC OF 8% EARNED BY COMPARABLE COMPANIES USING FY 2006-07 DATA, THUS ES TABLISHING THAT ALL THE UNDERLYING TRANSACTIONS, INCLUDING THE TRANSACTIONS IN DISPUTE OF PAYMENT OF MANAGEMENT CHARGES AND COORDINATION FEE WERE AT ARM 'S LENGTH. LD. AR FURTHER ARGUED THAT IN LIGHT OF THE ABOVE, IT IS TH E SPECIFIC AVERMENT OF THE APPELLANT THAT BY ADOPTING A COMPLETELY CONTRADICTO RY POSITION OF ACCEPTING TNMM AS THE MOST APPROPRIATE METHOD ON THE ONE HAND , AND YET SEEKING TO QUESTION APPROPRIATENESS OF INDIVIDUAL ELEMENTS OF OPERATING COST ON THE OTHER, THE LD TPO HAS THEREBY FAILED TO APPRECIATE FUNDAME NTAL TP PRINCIPLES. ITA NO.5871/DEL./2011 17 6.10 THE LD. AR FURTHER SUBMITTED THAT THE TPO ADOP TED CUP METHOD AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERN ATIONAL TRANSACTIONS UNDER REVIEW AND DERIVED THE ALP TO BE 'NIL' WITHOU T PROVIDING THE REASONS FOR SELECTION OF CUP METHOD AS THE MOST APPROPRIATE METHOD OVER THE TNMM SELECTED BY THE APPELLANT. 6.11 THE LD. AR FURTHER SUBMITTED THAT TPO HAS NOT SHOWN WITH THE HELP OF ANY EVIDENCE AS TO WHY SUCH VALUABLE SERVICES RECEI VED BY AN ASSESSEE WOULD NOT BE COMPENSATED BY AN INDEPENDENT ASSESSEE UNDER UNCONTROLLED CONDITIONS AND SUCH UNREASONED AND UNSUBSTANTIATED CONCLUSIONS OF TPO DO NOT HAVE LEGAL LEGS TO STAND. 6.12 THE NEXT ARGUMENT OF THE LD. AR WAS THAT LD. T PO AND LD. AO HAVE DISREGARDED THE OVER WHELMING DOCUMENTARY EVIDENCES SUBMITTED BEFORE THEM TO ESTABLISH THE RECEIPT OF SERVICES FROM THE AE AN D THE BENEFIT DERIVED BY THE ASSESSEE FROM THE SERVICES SO RECEIVED. IT WAS SUBM ITTED BY THE LD. AR THAT LD. TPO HAS GROSSLY ERRED IN HOLDING THAT APPELLANT COULD NOT ESTABLISH THAT SERVICES WERE RENDERED BY AE AND BENEFITS THERE FRO M WERE DERIVED BY THE ASSESSEE COMPANY. IT HAS BEEN SUBMITTED BY THE LD. AR THAT THE TPO/AO IN EARLIER YEARS HAVE ACCEPTED THE RECEIPT OF SUCH SER VICES FROM ITS AE AND HAVE ALLOWED THE IMPUGNED PAYMENTS AS ALLOWABLE EXPENDIT URE. LD. AR HAS FURTHER RELIED UPON TWO DECISIONS OF THE TRIBUNAL IN THE CA SE OF DRESSER RAND INDIA PVT. LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX (MUMBAI ITAT) AND ITA NO.5871/DEL./2011 18 CUSHMAN AND WAKEFIELD INDIA PVT. LTD. VS. ACIT (DEL HI ITAT). LD. AR HAS DRAWN OUR ATTENTION TO THE JUDGMENT OF JURISDICTION AL HIGH COURT IN THE CASE OF HIVE COMMUNICATION PVT. LTD. (ITA NO.306/2011). THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- 'THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY MUST BE JUDGED FROM THE VIEW POINT OF THE COMPANY ITSELF AND MUST BE VIEWED FROM THE POINT OF VIEW OF A PRUDENT BUSINESSMAN. IT IS NOT FOR THE ASSESSING OFFICER TO DICTATE WHAT THE BUSINESS NEED S OF THE COMPANY SHOULD BE AND HE IS ONLY TO JUDGE THE LEGIT IMACY OF THE BUSINESS NEEDS OF THE COMPANY FROM THE POINT OF VIE W OF A PRUDENT BUSINESSMAN. THE BENEFIT DERIVED OR ACCRUIN G TO THE COMPANY MUST ALSO BE CONSIDERED FROM THE ANGLE OF A PRUDENT BUSINESSMAN. THE TERM 'BENEFIT' TO A COMPANY IN REL ATION TO ITS BUSINESS, IT MUST BE REMEMBERED, HAS A VERY WIDE CO NNOTATION AND MAY NOT NECESSARILY BE CAPABLE OF BEING ACCURAT ELY MEASURED IN TERMS OF POUND, SHILLINGS AND PENCE IN ALL CASES .' 6.13 IN ADDITION TO THE ABOVE, LD. AR HAS ALSO DRAW N OUR ATTENTION TO AN EXHAUSTIVE CHART WHICH WAS PREPARED ON THE BASIS OF VARIOUS EVIDENCES SUBMITTED BEFORE TPO/ AO, SUBSTANTIATING AND DEMONS TRATING FOLLOWING FACTS:- 1 DESCRIPTION OF SERVICES 2 EXPLANATION IN BRIEF ON THE TYPE OF SERVICES REC EIVED 3 HOW THESE SERVICES HAVE BEEN RECEIVED BY THE ASS ESSEE COMPANY 4 IN WHAT MANNER AND TO WHAT EXTENT THE BENEFITS H AVE BEEN DERIVED BY THE ASSESSEE COMPANY. 5 REFERENCES OF THE EXHAUSTIVE EVIDENCES TO ESTABL ISH THE ABOVE ITA NO.5871/DEL./2011 19 S. NO. DESCRIPTION OF SERVICE EXPLANATION IN BRIEF ON THE TYPE OF SERVICES RECEIVED HOW ARE THESE SERVICES RECEIVED BENEFITS DERIVED BACK-UPS AVAILABLE/ SUBMITTED ON SAMPLE BASIS MANAGEMENT SERVICES 1 FOSTERING AND DEVELOPING CREATIVITY 1)PROVIDING ASSISTANCE ON HOW TO FOSTER CREATIVITY - ASSESSEE IS PROVIDED ACCESS TO CASE STUDIES, REPORTS AND RELATED MATERIAL WHICH REFLECT CREATIVE CAPABILITY AT A WORLD WIDE LEVEL. - AS AND WHEN REQUESTED, ASSESSEE RECEIVES REELS OF INTERNATIONAL WORK DONE BY THE NETWORK , AND CASE STUDIES ON SUCCESSFUL / AWARD WINNING / PITCH WINNING CAMPAIGNS TO PASS ON TO MEDIA AND CLIENTS AND AN ACCESS TO SIMILAR MATERIAL ON THE MCCANN WORLD GROUP WORLDWIDE SITE. E-MAIL AND WEBSITE / FTP SITE ACCESS, PRESENTATIONS, RESEARCH MATERIALS UP TO DATE NEWS ON GLOBAL ACCOUNTS AND PROVISION OF CASE STUDIES AND EXAMPLES TO MARKET TO CLIENTS, PROSPECTIVE CLIENTS AND MEDIA. THIS LEADS TO DECREASE IN THE EFFORT FOR LOCAL MANAGEMENT INITIATIVES RELATING TO THE CREATIVE DIRECTION AND IMPLEMENTATION OF LOCAL CREATIVE STRATEGIES. FURTHER, SUCH INFORMATION/ EXPERTISE IS NOT AVAILABLE WITH THE ASSESSEE AND IN ORDER TO SERVE ITS CLIENTS BETTER, THE ASSESSEE HAS TO LEVERAGE THE INFORMATION/ DETAILS/ NEWS/ UPDATES FROM THE MCCANN GROUP. THE APPELLANT HAS GOT ACCESS TO RESEARCH MATERIALS, PRESENTATIONS AVAILABLE ON CMI FACILITY. THE APPELLANT HAS RECEIVED SERVICES IN AREAS SUCH AS PHARMACEUTICAL AND HEALTHCARE INDUSTRY, INFORMATION ON TREND REVIEWS WHICH COVERED CONSUMER MOOD, SHOPPING, ADVERTISING, BRAND ATTITUDES ETC. ALL SUCH RESEARCH INFORMATION HAS ENABLED THE APPELLANT IN UNDERSTANDING VARIOUS TRENDS PREVAILING IN THE MARKET AND THUS ENABLING IT IN PRESENTING A BETTER OFFERING TO ITS CLIENTS. THIS HAS HELPED THE APPELLANT IN FORMULATING CREATIVE STRATEGIES, DEVELOPING COMPETITIVE INTELLIGENCE, THUS ADDING VALUE TO THE WORK DONE BY THE APPELLANT FOR ITS CLIENTS. AS PROVIDED ON PAGES 643 TO 662 OF PAPERBOOK , 2) PROVIDING REGULAR TRAINING AND SKILLS DEVELOPMENT WORKSHOPS FOR CREATIVE DIRECTORS ASSESSEE EMPLOYEES GET AN OPPORTUNITY AND PLATFORM TO PARTICIPATE IN GLOBAL / REGIONAL BRAND MEETS, AND CREATIVE BRAINSTORMING WORKSHOPS. WORKSHOPS/ CONFERENCES - THESE REGULAR TRAINING AND SKILL DEVELOPMENT WORKSHOPS PROVIDE ASSESSEE'S EMPLOYEES AN OPPORTUNITY TO SHARE IDEAS AND INTERACT WITH CREATIVE HEADS AT A GLOBAL LEVEL, AND GAIN BETTER UNDERSTANDING OF GLOBAL IDEAS, WHICH EVENTUALLY ASSIST IN BETTER ADAPTATION. THE AGENDA OF WORKSHOP / CONFERENCE AND THE PRESENTATIONS ON INTERNAL AUDIT CONTROL PROCESS IS ATTACHED. (REFER PAGES 372 TO 410 OF PAPERBOOK) '- MCCANN INDIAS EXECUTIVE DIRECTOR, MRPRASOON JOSHI HAD PARTICIPATED IN CONFERENCES HELD IN CITIES LIKE LONDON AND MANILA AMONGST OTHERS. THE APPELLANT HAS BENEFITTED FROM THESE CONFERENCES BY WAY OF RECEIVING FOLLOWING SERVICES: - INFORMATION ON HOW TO MAINTAIN AN EFFECTIVE INTERNAL AUDIT PROCESS - UPDATE/ INFORMATION ON HOW MCCANN INDIA CAN BENEFIT BY WAY OF RECEIVING IT SERVICES FROM GROUP COMPANY AND HOW TO EFFECTIVELY UTILIZE TOOLS/ PROCESSES SUCH AS MY PROJECT, MY TIMESHEET, MY WORKGROUP ETC. - IPG TREASURY SERVICES WHICH FOCUS ON EFFECTIVE MANAGEMENT OF LIQUIDITY, CAPITAL STRUCTURE, CASH AND DEBT REPORTING ETC. - SUCH CONFERENCES/ SEMINARS WERE AIMED AT IMPARTING THEM WITH THE LATEST INSIGHTS IN THE WORLD OF ADVERTISING AND TO HELP ITA NO.5871/DEL./2011 20 THE LOCAL MCCANN OFFICES SERVE THEIR CUSTOMERS IN A BETTER MANNER. 3) PROVIDING ASSISTANCE IN DEVELOPING CREATIVE CONCEPTS AND IDEAS FOR USE WHEN SERVICING CLIENTS. THE ASSESSEE IS PROVIDED WITH BIG IDEAS ON FOREIGN BRANDS. ACCESS TO SIMILAR CASE STUDIES, BRAND IDEA DOCUMENTS, CREATIVE EXAMPLES, SHARING OF COMMON CREATIVE OR ELEMENTS. CLIENT E-MAILS - LOCAL TEAM OBTAINS MORE CLARITY ON THE LARGER PICTURE WITH ASSISTANCE FROM THE GROUP ON DEVELOPING CREATIVE CONCEPTS AND IDEAS ENABLES QUALITY PRODUCTION, WHICH IS SOMETIMES, NOT AFFORDABLE BY LOCAL CLIENTS OR AVAILABLE LOCALLY. FOR EXAMPLE: LOREAL CREATIVES WERE SHARED WITH THE ASSESSEE WHICH WERE USED IN INDIA WITH VERY MINOR MODIFICATIONS/ CUSTOMIZATION TO SUIT THE INDIAN MARKET. - PRESENTATION DEPICTING THE PRINT COMMERCIALS RECEIVED FROM MCCANN WORLD GROUP FOR L'OREAL ADVERTISEMENTS IS ATTACHED AS PAGES 457 TO 461 OF PAPERBOOK. 2 NEW BUSINESS TARGETING ASSISTANCE (1) ASSISTANCE ON TARGETING OF POTENTIAL MULTINATIONAL CLIENTS MCCANN WORLD GROUP CREATES TEMPLATE OF E- MAILS COMMUNICATION, WHICH ASSESSEE LOCALISES FOR TARGETING CLIENTS IN INDIA. EMAILS - ASSESSEE HAS RECEIVED ASSISTANCE ON TARGETING OF POTENTIAL MULTINATIONAL CLIENTS SUCH AS INTEL, BARCLAYS, COMPAQ ETC THE DETAILED PRESENTATIONS SHARED BY THE GROUP COMPANIES ARE ATTACHED AS PAGES 412 TO 431 OF PAPERBOOK .'- THE APPELLANT RECEIVED CLIENT PITCH PRESENTATIONS FOR TARGETING INTEL AND BARCLAYS FROM ITS GROUP COMPANY.- SUCH PRESENTATIONS WERE DEVELOPED BY ITS GROUP COMPANY SPECIFICALLY FOR MCCANN INDIA CHALKING OUT PLANS WITH RESPECT TO AWARENESS, ENGAGEMENT AND NATIONAL LEVEL PROMOTION FOR SUCH POTENTIAL CLIENTS. - GETTING ASSISTANCE BY WAY OF SHARING OF WORK METHODOLOGIES SUCH AS ESTABLISHING DEMAND CHAIN AND HOW THAT LEADS TO CREATION OF INNOVATIVE IDEAS FOR MCCANN INDIA'S CLIENTS. ITA NO.5871/DEL./2011 21 (2) PROVISION OF MATERIAL FOR USE IN TARGETING POTENTIAL BUSINESS - ASSESSEE IS PROVIDED ACCESS TO GLOBAL CASE STUDIES, CREDENTIALS, CATEGORY INFORMATION ETC. - ASSESSEE PARTICIPATES IN GLOBAL BUSINESS DEVELOPMENT MEETINGS WHICH IDENTIFY NEW AREAS OF OPPORTUNITY WHICH CAN BE APPLIED TO THE INDIAN MARKET. - ACCESS TO GLOBAL INFORMATION DATABASES SUCH AS THE GUN REPORT LIBRARY, WARC, CMI ON- LINE AND OFFLINE ETC. - CASE STUDIES DONE BY BRANDS IN OTHER COUNTRIES, CATEGORY INFORMATION, RESEARCH, STUDIES ARE RECEIVED BY THE ASSESSEE. E-MAILS, ONLINE ACCESS. -ENRICHING PITCHES FOR NEW CLIENTS, BETTER SERVICING OF EXISTING CLIENTS, BETTER UNDERSTANDING OF TRENDS IN THE MARKETS DURING THE RELEVANT YEAR, THE APPELLANT HAS DOWNLOADED REPORTS FOCUSING ON RETAIL INDUSTRY AND IN PARTICULAR THE BUYING HABITS OF CONSUMERS IN INDIA AND OTHER ASIA- PACCOUNTRIES. REFER PAGE 141 TO 147 OF PAPERBOOK. - THE APPELLANT HAS DOWNLOADED RESEARCH MATERIALS AVAILABLE THROUGH THE CMI. ONE OF SUCH REPORTS RELATED TO THE FAST CHANGING TRENDS IN THAT INDUSTRY. DETAILS OF REPORTS DOWNLOADED ARE ATTACHED AS PAGES 201 TO 431 OF PAPERBOOK. '- THE ASSESSEE HAS ACCESS TO CENTER FOR MARKETING INTELLIGENCE INFORMATION(CMI) DATABASE . CMI FACILITY PROVIDES ACCESS TO MCCANN INDIA WITH RESPECT TO BACKGROUND RESEARCH MATERIALS REGARDING POTENTIAL CLIENTS. - THROUGH CMI, MCCANN INDIA HAS ACCESS TO RESEARCH MATERIALS WITH RESPECT TO PARTICULAR INDUSTRIES/ SECTORS WHICH HELP IN TARGETING POTENTIAL CLIENTS AND SERVING THE EXISTING CLIENTS BETTER. (3) PROVISION TO ASSESSEE OF TRAINING/ TECHNIQUES ON NEW BUSINESS DEVELOPMENT. ASSESSEE IS PROVIDED WITH CONSTANT TRAINING THROUGH E-MAIL, ONLINE ACCESS, NEW TECHNIQUES WHICH ENRICH BOTH NEW BUSINESS AND EXISTING CLIENT ACTIVITY. E-MAIL AND ONLINE ACCESS. - ENRICHES BUSINESS AND CATEGORY UNDERSTANDING WHICH IS INVALUABLE IN NEW BUSINESS ACQUISITION. - FOR EXAMPLE: ROLL OUT OF NEW PLANNING TOOLKITS. SERIES OF WORKSHOPS AND TRAINING PROGRAMMES WERE CONDUCTED FOR LOCAL EMPLOYEES THAT FACILITATED IN ADDING VALUE TO THE NEW BUSINESS PROCESS. THE NAME OF PERSONNEL WHO TRAVELLED DURING THE YEAR IS ATTACHED AS PAGE 434 OF PAPERBOOK. '-THE EMPLOYEES OF APPELLANT ATTENDED SERIES OF WORKSHOPS/ TRAINING PROGRAMMES DURING THE FINANCIAL YEAR 2006-07. 3 STRATEGIC PLANNING ASSISTANCE (1) PROVISION OF BACKGROUND RESEARCH MATERIALS FOR USE IN TARGETING POTENTIAL NEW CLIENTS - ASSESSEE IS PROVIDED ACCESS TO CENTRALISED ONLINE WEB ACCESS MARKETING INTELLIGENCE ONLINE. - THIS INCLUDES INFORMATION, BACKGROUND AND KNOWLEDGE RESEARCH ON COMPANIES, INDUSTRY, CONSUMER TRENDS, REPORTS AND WHITE PAPERS. ONLINE WEB ACCESS - THIS BACKGROUND RESEARCH MATERIAL ON POTENTIAL CLIENTS HELPS ASSESSEE TO HAVE SUPERIOR CONSUMER, INDUSTRY AND TRENDS UNDERSTANDING. - FOR EXAMPLE: ASSESSEE WAS PROVIDED RESEARCH MATERIAL ON THE LOCAL AND REGIONAL RETAIL, TOURISM, HEALTH MARKETS ETC FOR CUSTOMERS LIKE DABUR, LG ETC - THE REPORTS SHARED BY MCCANN GROUP/ DOWNLOADED FROM THE DATABASE ON THE RETAIL AND TOURISM SECTOR ON A SAMPLE BASIS ARE ATTACHED AS PAGES 153 TO 371 OF PAPERBOOK . - THE APPELLANT HAS RECEIVED RESEARCH MATERIALS ON MEDICAL TOURISM INDUSTRY IN INDIA WHICH HIGHLIGHTS THE GOOD GROWTH PROSPECTS OF THAT INDUSTRY. REFER PAGES 192-195 OF PAPERBOOK . SUCH RESEARCH MATERIALS HAVE HELPED THE APPELLANT IN TARGETING ITA NO.5871/DEL./2011 22 2) PROVISION OF RESEARCH MATERIALS RELATED TO PARTICULAR INDUSTRIES AND MARKETS TO FACILITATE TARGETING OF POTENTIAL CLIENTS IN THOSE INDUSTRIES AND MARKETS. - RESEARCH MATERIAL ON INDUSTRIES LIKE AD/MARKETING, APPAREL, BEVERAGES, DRUGS, FINANCE, FOOD, HOME PRODUCTS, LEISURE, PERSONAL CARE, RETAILING, TECHNOLOGY, TRAVEL AND OTHER ARE DONE BY THE GROUP AND ARE MADE AVAILABLE TO THE GROUP MEMBERS INCLUDING ASSESSEE. ONLINE WEB ACCESS AND EMAILS - AVAILABILITY OF SUCH MATERIAL HELPS ASSESSEE TO HAVE SUPERIOR CONSUMER INDUSTRY AND TRENDS UNDERSTANDING. - IT ALSO ENABLES ASSESSEE TO GAIN INFORMATION FROM VENDORS SUCH AS EMARKETER, FORRESTER, GARTNER, IDC &EUROMONITOR ETC. AT DISCOUNTED RATES. - ONLINE ACCESS TO GLOBAL CASE STUDIES ACROSS THE MCCANN OFFICES IN ORDER TO ILLUSTRATE THE APPLICATION AND APPROACH OF HIGH VALUE IDEAS & HIGH VALUE WORKS. THIS COVERS DIFFERENT CATEGORIES AND VARYING MARKETING PROBLEMS THAT CAN BE SOLVED BY COMMUNICATION. ONLINE ACCESS - UNDERSTANDING OF DIFFERENT APPROACHES AND LEARNING FROM HIGH VALUE IDEAS ASSIST THE ASSESSEE TO SERVICE ITS CLIENTS IN ACCORDANCE WITH GLOBAL STANDARDS. - WORLD ADVERTISING RESEARCH CENTRE- ONLINE ACCESS TO WARC PORTAL. PROVIDES ACCESS TO A FULLY SEARCHABLE ARCHIVE OF SPECIFIC ADVERTISING AND MARKETING RELATED MATERIAL. - THE CONTENT INCLUDES OVER 25,000 ARTICLES, CASE STUDIES, RESEARCH REPORTS AND SUMMARIES COVERING ALL AREAS OF MARKETING COMMUNICATIONS DRAWN FROM MORE THAN 30 LEADING CONTENT SOURCES WORLDWIDE. ONLINE ACCESS - HELPS ASSESSEE LEARN FORM OTHER COMPANIES' MISTAKES THROUGH RESEARCH REPORTS AND PROVIDE BETTER RECOMMENDATIONS TO ITS CLIENTS. - THIS ENABLES ASSESSEE TO HAVE BETTER UNDERSTANDING OF TARGET AUDIENCE, GLOBAL TREND ETC. CLIENTS WHICH BENEFIT OUT OF GROWTH PROSPECTS IN THIS INDUSTRY. - FURTHER, MCCANN GROUP HAS DEVELOPED SEVERAL UNIQUE PROPRIETARY TOOLS, SOME OF THEM BEING MCCANN DEMAND CHAIN, DEMAND HEALTH CHECK, BRAND CLOUT, DEMAND DASHBOARD, MEDIA IN MIND, MCCANN PULSE, FUSION 3.0 ETC. - MCCANN WORLD GROUP PROVIDES ACCESS TO THE AFOREMENTIONED TOOLS TO ITS GROUP COMPANIES AROUND THE WORLD INCLUDING MCCANN INDIA. THE TOOLS HELP THE INDIAN TEAM IN DEVELOPING APPROPRIATE CREATIVES AND OTHER MATERIALS WHICH WOULD HAVE PERSUASIVE IMPACT ON CONSUMERS AND IN CREATING CUSTOMER DEMAND IN A COHESIVE, EFFECTIVE AND OPTIMIZED MANNER ETC. 4 MEDIA SUPPORT SERVICES (1) DEVELOPMENT AND PROVISION OF PLANNING AND RESEARCH TOOLS AND INFORMATION ABOUT MEDIA IN THE ASSESSEES TARGET MARKETS. - ASSESSEE RECEIVES TOOLS AND GUIDANCE ON THEIR IMPLEMENTATION AND USAGE.- FOR EXAMPLE: MEDIA AND STRATEGIC PLANNING TOOLS (AWARENESS PLANNING SOFTWARE). THIS SOFTWARE ALLOWS TO DO MATHEMATICAL MODELLING OF THE INPUT MEDIA INVESTMENT AND THE MARKET RESPONSE IN TERMS OF THE CONSUMERS AWARENESS PARAMETERS. THIS AIDS IN ESTABLISHING THE RETURN ON INVESTMENTS OF CLIENTS' MEDIA INVESTMENTS AND DECIDING ON THE INVESTMENT LEVELS IN THE FUTURE. - ASSESSEE'S EMPLOYEES HAVE BEEN PROVIDED USERNAME AND PASSWORD TO ACCESS THE WEBSITE TO DOWNLOAD THE TOOLS. - AFTER INSTALLATION, THE USERS GET THE LICENSE FROM THESE SITES VIA EMAIL. - BETTER MEDIA PLANNING FOR EXISTING CLIENTS HELPS IN GETTING NEW CLIENTS BY SHOWCASING THE ADVANCED TOOLS. - MEDIALAB WHICH IS A MEDIA PLANNING SOFTWARE HELPS MCCANN INDIA IN ORGANISING MEDIA SPENDS FOR ITS CLIENTS. THESE UNIQUE PROPRIETORY TOOLS HELP MCCANN INDIA IN COMING TO AN ESTIMATE FOR THE ADVERTISING BUDGETS FOR ITS CLIENTS AND ALSO HELPS IN MEASURING THE MARKET RESPONSE TO SUCH ADVERTISMENT SPENDS. SCREEN SHOTS OF WEBSITE ENCLOSED AS PAGES 136 TO 138 OF PAPERBOOK. ITA NO.5871/DEL./2011 23 - ASSESSEE IS PROVIDED ACCESS TO MCCANN PLANNING CDS AND TRAINING. - TOOLKITS - A SET OF TOOLS TO ADDRESS VARIOUS BRAND STRATEGY ISSUES. CDS, DVDS AND TRAINING - THERE IS A SIGNIFICANT VALUE ADDITION TO THE PROCESS OF BRAND MEDIA ANALYSIS WITH HELP OF MCCANN PLANNING TOOLKITS. - ASSESSEE IS PROVIDED ACCESS TO INFOCENTRE WEBSITE PROPRIETARY INFORMATION. - THIS WEBSITE IS A GLOBAL REPOSITORY OF MEDIA PLANNING RELATED INFORMATION AND IS A PORTAL OF ACCESS TO THE DOCUMENTS ON ALL AVAILABLE TOOLS. - ASSESSEE'S EMPLOYEES HAVE BEEN PROVIDED WITH USERNAME AND PASSWORD TO ACCESS THIS SITE AND DOWNLOAD ALL INFORMATION REQUIRED. - THIS ENABLES ASSESSEE TO ADDRESS INTERNATIONAL CLIENT REQUESTS FOR DATA AND INFORMATION WITH THE HELP OF STUDY TOOLS MANUALS AND UPDATES. 5 FINANCIAL ADMINISTRATION SERVICES (1) ASSISTANCE ON GENERAL ACCOUNTING METHODS, COST ACCOUNTING METHODS, PREPARING AND MONITORING PERIODIC PROFITABILITY ANALYSES, BUDGETING AND BUSINESS PLANNING METHODS,CAPITAL EXPENDITURE REQUIREMENTS,AND FINANCIAL FORECASTS ASSESSEE IS PROVIDED TEMPLATES FOR OVERALL CONTROL OF ALL REVENUES AND EXPENSES. THESE INCLUDE - CENTRALISED CAPITAL EXPENDITURE BUDGETING SYSTEM AND MONITORING OF EXPENSES AGAINST BUDGET. - FORWARD PLAN CALENDAR YEAR BUDGET & THREE REVISIONS ARE THERE TO TAKE COGNIZANCE OF CHANGE IN THE ENVIRONMENT & ITS EFFECT ON THE BUSINESS PLAN. CENTRALISED EXTENSIVE ANNUAL BUDGET PREPARATION EXERCISE FOR EACH CALENDAR YEAR, INCLUDING MANPOWER NUMBERS & UPDATING THE SAME. - MONTHLY & QUARTERLY ACCOUNTING INFORMATION DIRECTLY INTO HYPERION. - COMPARISON WITH BUDGETS AND SEEKING SENSIBLE COMMENTARIES ON VARIATIONS. - ASSISTING & EXAMINING ACCOUNTS RECEIVABLE BASED ON DATA SUBMITTED & RAISING QUERIES WHERE AMOUNTS ARE SUBSTANTIALLY OLD. - INPUT OF UNIT PROFITABILITY DATA FOR EACH ASSESSEE DIVISION INTO KHALIX ON A MONTHLY BASIS. - PREPARING CLIENT PROFITABILITY AS PER THE KHALIX FORMAT FOR HYPERION CLIENTS. - PRESCRIBING A COA & SP&P REDUCES LEEWAY FOR E-MAILS, PRESENTATIONS, MEETINGS, PHONE CONFERENCES, WORKSHOPS AND ONLINE ACCESS. - THIS ASSISTANCE HELPS ASSESSEE IN IMPROVING CORPORATE GOVERNANCE, TRANSPARENCY AND EFFECTIVE REPORTING SYSTEMS ALONG WITH ASSISTING IN ALIGNING WITH INTERNATIONAL ACCOUNTING STANDARDS. - THE EMPLOYEES OF ASSESSEE HAVE ATTENDED SEVERAL WORK- SHOPS DURING THE YEAR. - ON SAMPLE BASIS, A DETAILED ITINIARY OF THE WORK-SHOP ATTENDED BY MANOJ SINGH, THE CFO OF THE ASSESSEE COMPANY IS ATTACHED ON PAGES 372 TO 373 OF STAY PETITION PAPERBOOK. - FURTHER, CERTAIN EMAILS SUBSTANTIATING THE RECEIPT OF SERVICES HAS ALSO BEEN ATTACHED AS PAGES 660 TO 710 OF PAPERBOOK . ITA NO.5871/DEL./2011 24 UNIT MANAGERS IN REPORTING THEIR RESULTS. - LOCAL MANAGEMENT USES IPG POLICIES TO INCULCATE PROPER CORPORATE GOVERNANCE. INTERNAL AUDIT COMPLIANCE & TEST ON OUR INTERNAL CONTROL SYSTEM THROUGH REGIONAL MONITORING CONTROL (RMC TEAM REPRESENTATIVE FROM THE ASIA PACIFIC) - MANDATORY MONTHLY/QUARTERLY STATEMENT BOOK CLOSE CHECKLIST. - MONITORING ON A MONTHLY BASIS ALL CLIENT CONTRACTS. - DISCIPLINE ENFORCE TO THE ENTIRE ORGANISATION AS SENIOR MANAGEMENT HAS TO SIGN OFF DETAILED QUARTERLY MANAGEMENT REPRESENTATION LETTERS. - NEW SYSTEM FOR RECORDING WIP & AGING ANALYSIS. - REVENUE RECOGNITION CONCEPTS EXAMINE IN DEPTH. - CONFERENCE CALLS WITH US & ASIA PACIFIC CONTROLLERS/RMC TEAM TO COMPREHEND REQUIREMENTS & COMPLY WITH THE SAME. - COACHING THROUGH WEB CONFERENCE. (2) ARRANGEMENT OF FINANCING FACILITIES WITH BANKS AND OTHER INSTITUTIONAL AND GOVERNMENTAL BODIES - MCCANN WORLD GROUP PROVIDES MCCANN INDIA TREASURY SUPPORT IN THE FORM OF CREDIT LINES, GUARANTEES ETC AS AND WHEN NEEDED. CORPORATE GUARANTEE/ FINANCIAL ASSISTANCE - GUARANTEE GIVEN BY MCCANN GROUP TO CITIBANK FOR THE CREDIT FACILITY AVAILED BY MCCANN INDIA - DURING THE SAID PERIOD THE GUARANTEE PROVIDED TO MCCANN INDIA AMOUNTS TO INR 8.8 CRORES WITH RESPECT TO CITIBANK'S OVERDRAFT FACILITY BEING AVAILED. REFER PAGES 436 TO 440 OF PAPERBOOK . 3) ASSISTANCE ON TREASURY MANAGEMENT PROCEDURES AND TECHNIQUES - ADVICE AND DIRECTION ARE PROVIDED TO ASSESSEE FOR MONITORING AND INVESTING SURPLUS FUNDS. - FOR THIS SUPPORT, ASSESSEE TEAM ENTERS INTO DISCUSSIONS WITH IPG/MEM TREASURY & VARIOUS INVESTMENT ADVISORS IN INDIA. CONFERENCE CALLS & VISIT BY MEM/IPG TEAMS MEM AND IPG ASSISTED ASSESSEE IN THE FOLLOWING: MET WITH TWO MULTINATIONAL BANKS, CITIBANK AND HSBC TO SEE WHAT CAPABILITIES AND SERVICES THEY COULD PROVIDE TO ASSESSEE MET TWICE WITH THEIR MERRILL LYNCH INVESTMENT ADVISOR AND REVIEWED THE INVESTMENT PORTFOLIO FOR APPROPRIATE RISK, CONFORMITY TO IPG POLICY AND DURATION. PROVIDED PORTFOLIO INFORMATION AND VALUATION DATA TO PWC FOR ANNUAL AUDIT TREASURY MANAGEMENT PRESENTATION ATTACHED ON PAGES 404 TO 410 OF PAPERBOOK. ITA NO.5871/DEL./2011 25 (4) FINANCIAL AWARENESS/ EDUCATION OF PERSONNEL ASSESSEE PERSONNEL ARE PROVIDED EDUCATION THROUGH WEB CONFERENCE & PERSONNEL SENT ABROAD FOR TRAINING. WEB CONFERENCE, TRAINING ASSESSEE EMPLOYEES ARE PROVIDED ONGOING TRAINING AND UNDERSTANDING ON FINANCIAL ISSUES. 'CLOSING PROCESS' PRESENTATION ATTACHED AS PAGES 443 TO 446 OF PAPERBOOK. 6 HUMAN RESOURCE MANAGEMENT 1) PROVIDING ASSISTANCE FOR RECRUITING NEW PERSONNEL - ASSESSEE IS PROVIDED ASSISTANCE WHEN RECRUITING NEW PERSONNEL BY PROVIDING ASSESSEE'S HUMAN RESOURCE TEAM ACCESS TO JOB PORTAL, WHICH HELP IN UNDERSTANDING THE JOB REQUIREMENTS AND ESTABLISHING THE CANDIDATES ABILITY TO MATCH THE REQUIREMENT. - THE ACCESS TO THIS PORTAL HELPS IN RECRUITMENT ARCHITECT WHERE USERS CAN VIEW, CREATE, DOWNLOAD AND USE THE INTERVIEW GUIDES - INTERVIEW PROMPTS, APPROPRIATE EVALUATION QUESTIONS ETC. CONFERENCE CALL, ON LINE DEMONSTRATION OF THE TOOL, ACCESS TO THE WEBSITE WITH MULTIPLE USER IDS AND PASSWORDS. - THIS ENABLES ASSESSEE TO STANDARDISE AND HAVE CONSISTENT EVALUATION PARAMETERS FOR EVERY CANDIDATE THROUGH MULTIPLE ROUNDS OF INTERVIEWS (2) PROVIDING ASSISTANCE WITH STRUCTURING AND IMPLEMENTING EMPLOYMENT CONTRACTS - ASSESSEE IS PROVIDED WITH DRAFT CONTRACTS ON CODE OF CONDUCT WHICH ALL EMPLOYEES NEED TO SIGN. THESE CONTRACTS ABIDE THE EMPLOYEES TO A SUPERIOR CODE OF CONDUCT. CONFERENCE CALLS ADDITIONAL PROTECTION FROM EMPLOYEE MISCONDUCT AND SUBSEQUENT LIABILITY THEREOF. - PRESENTATION ON MCCANN WORLDGROUPS' OBJECTIVES TO DEVELOP STRONG TALENT AND PROVIDE THEM WITH VARIOUS TRAININGS THROUGH SEMINARS AND E-LEARNING PROGRAMS IS ATTACHED AS PAGES 447 TO 456 OF PAPERBOOK . - IT PROVIDES PEOPLE MANAGEMENT SKILLS PROGRAMS, BETTER NEGOTIATION SKILLS, PROJECT MANAGEMENT ETC. DESCRIPTION OF SERVICE EXPLANATION IN BRIEF ON THE TYPE OF SERVICES RECEIVED HOW ARE THESE SERVICES RECEIVED BENEFITS RECEIVED BACK-UPS AVAILABLE/ SUBMITTED ON SAMPLE BASIS COORDINATION SERVICES PROVIDING ASSESSEE WITH THE OPPORTUNITY TO SERVICE MCCANN GROUPS MULTINATIONAL CLIENTS IN ITS LOCAL MARKET. ITA NO.5871/DEL./2011 26 (1) CLIENT SPECIFIC STRATEGIES AND ACCOUNT PLANS - IN THE CASE OF MANY GLOBAL BRANDS, APPELLANT IS PROVIDED A STRATEGY FOR THE INDIAN MARKET FOR ADAPTATION / EXECUTION. - APPELLANT ALSO RECEIVES STRATEGIC GUIDELINES, TEMPLATES, DIRECTION AND GUIDANCE TO BUILD CLIENT SPECIFIC STRATEGIES. E-MAILS, PRESENTATIONS, MEETINGS, PHONE, CONVERSATIONS, CONFERENCES, WORKSHOPS ETC. - THIS HELPS APPELLANT TO HAVE A BETTER UNDERSTANDING OF WHAT IS LIKELY TO WORK / NOT WORK FOR THE BRAND LEADING TO EASE OF OPERATIONS, SYNERGY IN STRATEGY ALONG WITH EFFICIENCY IN OPERATIONS. - THE EXAMPLES ARE INFORMATION RECEIVED FOR LOREAL BRANDS, GM BRANDS , COCA COLA AND MAYBELLINE. - THE APPELLANT RECEIVED ASSISTANCE FROM GLOBAL ACCOUNT TEAMS FOR SERVICING ITS INTERNATIONAL CLIENTS. THESE SERVICES HELPS THE APPELLANT IN DISCUSSING WITH THE GLOBAL ACCOUNT TEAM, VARIOUS ISSUES FACED BY INTERNATIONAL CLIENTS IN INDIA AND ANY REMEDIAL MEASURES THAT NEED TO BE TAKEN. - THE APPELLANT HAS ALSO RECEIVED GUIDES FOR ITS GLOBAL CLIENT NESTLE . THIS HELPS THE APPELLANT IN COMMUNICATING THE BENEFITS OF NESTLE PRODUCTS BETTER IN ITS ADVERTISEMENTS. EMAIL ON SAMPLE BASIS SUBMITTED BEFORE THE TPO VIDE SUBMISSION DATED SEPTEMBER 21, 2010. REFER PAGES 746 TO 756 OF PAPERBOOK. (2) WORLDWIDE ACCOUNT MANAGEMENT - SOME OF THE BRANDS ARE GLOBALLY RUN, FOR WHICH, THE ACCOUNT MANAGEMENT TEAM OF MCCANN INDIA REPORT TO THE REGIONAL OR GLOBAL ACCOUNT MANAGEMENT TEAM. HENCE, THE GLOBAL ACCOUNT MANAGEMENT TEAM IS A SINGLE POINT OF CONTACT FOR ALL INFORMATION ON THESE BRANDS ALL OVER THE WORLD. - ASSESSEE LEVERAGES ON THE BRAND WORK DONE IN OTHER REGIONS. THIS INFORMATION IS SOURCED FROM THE GLOBAL ACCOUNT MANAGEMENT TEAM AND OTHER GROUP COMPANIES. STRATEGIC GUIDELINES, TEMPLATES, DIRECTION, DISCUSSIONS WITH SENIOR LEVEL CLIENTS IS CARRIED OUT BY THE GLOBAL ACCOUNT MANAGEMENT TEAM. LINKS, E-MAILS, PRESENTATIONS, MEETINGS, PHONE, CONVERSATIONS, CONFERENCES, WORKSHOPS ETC. - MONTHLY STATUS REPORT ON THE WORK CARRIED OUT FOR THESE CLIENTS BY THE GROUP IS SHARED WITHIN THE NETWORK. THESE SERVICES ARE GOOD 'THOUGHT STARTERS FOR CREATIVE DEVELOPMENT OF ASSESSEE. ADDITIONALLY, IT HELPS IN GENERATING REVENUES, IMPROVING AGENCY RATINGS, HELPS IN PROVIDING GOOD EXPOSURE AND GROWTH TO ASSESSEE STAFF AND BRINGS IN EFFICIENCY IN OPERATIONS. - EXAMPLES: PRINT, RADIO AND TELEVISION COMMERCIALS WERE SHARED WITH ASSESSEE FOR THE ABOVE MENTIONED GLOBAL CLIENTS. - THE GLOBAL ACCOUNT MANAGEMENT TEAM OF L'OREAL SHARED CERTAIN ADVERTISEMENTS WITH THE APPELLANT WHICH WERE USED BY IT IN RELEASING ADVERTISMENT PRINTS FOR L'OREAL IN INDIA. SUCH PRESENTATIONS ARE ATTACHED AS PAGES 457 TO 461 OF PAPERBOOK. ITA NO.5871/DEL./2011 27 (3)PROVIDING CENTRALISED CREATIVE DIRECTION AND CREATIVE CO- ORDINATION TO FACILITATE THE PROVISION OF COHESIVE, COHERENT AND CONSISTENT CREATIVE CONTENT IN A MULTINATIONAL CLIENTS WORLDWIDE ADVERTISING STRATEGY - ASSESSEE WORKS WITH TEAMS IN LONDON, PARIS, NEW YORK AND BANGKOK WHO PROVIDE INPUTS AND DIRECTION IN THE DEVELOPMENT OF STRATEGY, CREATIVE GUIDELINES, DIRECTION ETC. E-MAILS, PRESENTATIONS, MEETINGS, PHONE, CONVERSATIONS, CONFERENCES, WORKSHOPS ETC. - THERE IS INCREASE IN REVENUES, AGENCY RATINGS, EXPOSURE AND GROWTH OF THE ASSESSEE STAFF, EASE OF OPERATIONS, SYNERGY IN STRATEGY, EFFICIENCY IN OPERATIONS. - FOR EXAMPLE- ASSESSEE WORKED WITH MCCANN TEAMS IN OTHER REGIONS FOR LOREAL, NESTLE, GM AND COCA COLA. - THE APPELLANT BENEFITS BY GETTING ACCESS TO GLOBAL CONTRACTS ENTERED BY MCCANN WORLDGROUP WITH ITS INTERNATIONAL CLIENTS. IT HELPS THE APPELLANT IN FINALISING THE TERMS OF CONTRACTS WITH SUCH INTERNATIONAL CLIENTS IN INDIA. SAMPLE ATTACHED AS PAGES 462 TO 465 OF PAPERBOOK . (4)PERFORMING CENTRALISED COMMISSION AND FEE NEGOTIATIONS - GLOBAL CLIENT FEE STRUCTURE, INFORMATION ON TOTAL HOURS / RESOURCE ALLOCATION ON CLIENTS IS DISCLOSED. SUCH INFORMATION HELPS TO BUILD THE BASIS OF FEE NEGOTIATIONS. E-MAILS, MEETINGS, PHONE CONVERSATIONS, ETC. - BETTER NEGOTIATION PLATFORM AND INCREASE IN REVENUE FOR ASSESSEE. EXAMPLE: NESTLE FEE STRUCTURE IN OTHER MARKETS IS MADE AVAILABLE TO ASSESSEE. - THE LOREAL-MCCANN FEE IS DISCUSSED AND AGREED BETWEEN LOREAL PARIS AND MCCANN PARIS AND THE SAME IS SUBSEQUENTLY ROLLED OUT TO ALL THE MCCANN OFFICES. SAMPLE ATTACHED AS PAGES 462 TO 465 OF PAPERBOOK . LD. AR WITH THE HELP OF VARIOUS EVIDENCES ENCLOSED IN THE PAPER BOOK WHICH WERE SUBMITTED BEFORE THE AO/TPO SHOWING THAT THE E VIDENCES OF COST INCURRED BY THE AE FOR RENDERING EACH TYPE OF SERVI CES WERE SUBMITTED BEFORE THESE AUTHORITIES AND THESE HAVE BEEN ACCEPTED BY A O/TPO AND NO CONTRADICTORY MATERIAL OR INFORMATION HAS BEEN BROU GHT ON RECORD TO CONTROVERT THESE EVIDENCES. LD. COUNSEL HAS SUMMA RIZED HIS ARGUMENTS BY SUBMITTING THAT ASSESSEE HAS BEEN SUC CESSFUL IN DEMONSTRATING BEFORE THE AUTHORITIES BELOW ON ALL TH REE ASPECTS I.E. SERVICES HAVE BEEN RENDERED BY THE AE, BENEFITS HAVE BEEN DERIVE D BY THE ASSESSEE ITA NO.5871/DEL./2011 28 COMPANY FROM THESE SERVICES AND THE PAYMENTS MADE F OR THESE SERVICES TO THE AE HAVE BEEN MADE AT ARM'S LENGTH PRICE. 6.15 THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE HA S SUBMITTED REPLY TO EACH AND EVERY QUESTION RAISED BY THE TPO AND EXPLA INING THE MANAGEMENT SERVICES UNDER THE VARIOUS SUB-HEADS AND BENEFITS D ERIVED THEREFROM IN ITS LETTER DATED 21.09.2010 ADDRESSED TO TPO (PLACED AT PAGES 628 TO 633 OF THE PAPER BOOK). EXPLANATION REGARDING THE COORDINATIO N SERVICES IS ALSO FILED IN THIS LETTER (PLACED AT PAGES 633 TO 637 OF THE PAPE R BOOK). THE LD. AR SUBMITTED THAT THERE WAS A MISTAKE IN THE ORDER OF THE DRP EVIDENT FROM PAGE 38 OF THE PAPER BOOK WHERE THE DRP WRONGLY MENTIONE D STRATEGIC PLANNING ASSISTANCE AND MEDIA SUPPORT SERVICES UNDER THE HEA D COORDINATION SERVICES INSTEAD OF MANAGEMENT SERVICES FOR WHICH HE PRAYED TO RECTIFY. LD. AR FURTHER SUBMITTED THAT THIS ERROR HAS BEEN OCCURRED IN THE ORDER OF THE DRP WHICH IS CLEAR FROM FINDINGS AT PAGE 39 OF THE PAPE R BOOK. PAGE 734 TO 742 IS PART OF THE MANAGEMENT SERVICES AGREEMENT FILED BEF ORE TPO TO SHOW THAT THESE TWO SERVICES WERE PART OF THE MANAGEMENT SERV ICES AND NOT COORDINATION SERVICES (EVIDENCED AT PAGES 840 TO 843 OF PAPER BO OK). CHART OF MANAGEMENT SERVICES AVAILABLE AT PAGES 842 & 843 SH OWS THAT THESE TWO SERVICES ARE PART OF THE MANAGEMENT SERVICES. CHAR T AT PAGES 843 OF THE PAPER BOOK GIVES THE DETAILS OF THE COORDINATION SERVICES . FROM THESE FACTS IT IS CLEAR THAT SHOW THAT THESE TWO SERVICES (STRATEGIC PLANNI NG ASSISTANCE AND MEDIA ITA NO.5871/DEL./2011 29 SUPPORT SERVICES) ARE NOT PART OF THE COORDINATION SERVICES. THE TRANSFER PRICE STUDY REPORT FOR 2006-07 PLACED AT PAGES 532 TO 584 ALSO SHOWS THAT THESE TWO SERVICES ARE PART OF MANAGEMENT SERVICES AND NOT OF COORDINATED SERVICES. THE DETAILS ARE AVAILABLE AT PAGES 557 & 558 PAPER BOOK. DUE TO THESE APPARENT MISTAKES OF WRONG CLASSIFICATION MADE BY T HE DRP, THE ASSESSING OFFICER COULD NOT GIVE PROPER EFFECT TO THE DIRECTI ONS. LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS MADE A RECTIFICATION APPLICAT ION REQUESTING FOR RECTIFYING OF ERROR. LD. AR FINALLY SUBMITTED TO SET ASIDE TH E ORDERS OF THE AUTHORITIES BELOW. 7. LD. DR ALSO RELIED UPON THE ORDERS PASSED BY THE AO AND THE TPO. LD. DR CONTENDED THAT ALTHOUGH THE DRP HAS ALLOWED RELI EF TO THE ASSESSEE BUT THE ORDERS PASSED BY AO AND TPO ARE MORE APPROPRIATE IN THE EYES OF LAW. FOR THE PAST HISTORY OF THE ASSESSEE AND CONSISTENT STA ND OF THE REVENUE ON THESE ISSUES IN PAST YEARS, THE LD. D.R SUBMITTED THAT FO R THE YEAR UNDER CONSIDERATION, THE TPO AND THE AO HAVE DONE MORE IN TELLIGENT ANALYSIS OF THE FACTS. THE LD. DR SUBMITTED THAT IN THE TRANSFER P RICING, RULE OF CONSISTENCY SHOULD NOT BE ACCEPTED. EACH ASSESSMENT YEAR IS A SEPARATE ASSESSMENT YEAR. THE PRINCIPLE OF RES JUDICATA IS NOT APPLICA BLE IN THE INCOME-TAX PROCEEDINGS. EACH ASSESSMENT YEAR IS A SEPARATE UN IT, ANYTHING ACCEPTED IN ONE YEAR, IPSO FACTO CANNOT BE APPLIED TO ANOTHER Y EAR. LD. DR PLEADED TO SUSTAIN THE ORDER OF THE AUTHORITIES BELOW. THE LD . DR ALSO RELIED ON THE ITA NO.5871/DEL./2011 30 DECISION OF ITAT IN THE CASE OF LI & FUNG (INDIA) P VT. LTD. VS. DCIT IN ITA NO.5156/DEL/2010 DATED 30.09.2011 AND JOHNSON MATTH EY INDIA PVT. LTD. VS. DCIT IN ITA NO.344/DEL/2010 DATED 20.03.2012 FOR TH E APPLICABILITY OF RULE OF CONSISTENCY. IN THE INCOME TAX ACT, EACH ASSESS MENT YEAR IS A SEPARATE YEAR, THEREFORE, PROFITABILITY OF EACH YEAR HAS TO BE EXAMINED INDEPENDENTLY. LD. DR TRIED TO EXPLAIN THE ISSUE WITH THE HELP OF ILLUSTRATIONS BY SUBMITTING THAT IN CASE AN ASSESSEE IS DEALING IN DIFFERENT PR ODUCTS FOR EXAMPLE CRUDE OIL, LIME STONE AND GYPSUM ETC, THEN PRICING OF EACH PRO DUCT HAS TO BE DETERMINED SEPARATELY AND BENCH MARKING CANNOT BE DONE ON OVER ALL BASIS AS HAS BEEN SOUGHT TO BE DONE BY THE ASSESSEE. LD. DR FURTHER C ONTENDED THAT WHETHER THE ASSESSEE WAS ABLE TO EARN NET MARGIN OF 26% AS A RE SULT OF RECEIPT OF IMPUGNED SERVICES OR THERE WERE VARIOUS OTHER FACTO RS WHICH HAVE LED TO EARNING OF SUCH GOOD AMOUNT OF PROFIT, IS NOT C1EAR . LD. DR HAS FURTHER SUBMITTED THAT ASSESSEE HAS NOT BEEN ABLE TO DEMONS TRATE THAT THERE HAVE BEEN ADDITIONS TO NEW FOREIGN CLIENTS BY THE ASSESSEE BE CAUSE OF THESE SERVICES. LD. DRS FURTHER CONTENTION WAS THAT IN MANY AREAS, THE ASSOCIATED ENTERPRISES WERE ALSO BENEFITED WITH THE HELP OF ROLE PLAYED BY THE ASSESSEE COMPANY AND THUS IT CANNOT BE SAID THE ASSESSEE ALONE IS LIABLE TO MAKE PAYMENT FOR THESE SERVICES. LD. DR HAS FURTHER SUBMITTED T HAT THE EVIDENCES RELIED UPON BY THE LD. COUNSEL SHOWING RECEIPT OF SERVICES APPEAR TO BE PART OF A PUBLISHED BOOK AND, THEREFORE, THERE WAS NO ITA NO.5871/DEL./2011 31 NEED TO MAKE SUCH HIGH PAYMENTS FOR JUST BUYING PUB LISHED BOOKS. IT WAS FURTHER SUBMITTED BY LD. DR THAT NOW A DAYS, LOW CO ST HUMAN RESOURCES AND HUMAN SERVICES ARE AVAILABLE IN INDIA AND THERE WAS NO NEED TO AVAIL THESE SERVICES FROM ABROAD. IN NUTSHELL, LD. DR HAS SUMMA RIZED HIS ARGUMENTS BY SUBMITTING THAT THERE WAS NO NEED FOR THE ASSESSEE TO BEAR SUCH A HIGHER COST FOR AVAILING THESE SERVICES FROM ABROAD SINCE EVERY THING IS AVAILABLE IN INDIA NOW A DAYS. LD. DR ALSO RELIED UPON FOLLOWING CASE LAWS: (I) PEROT SYSTEM TSI (INDIA)LTD. (ITAT-DEL) (II) BENETTON INDIA (P) LTD. VS. ITO, WARD 2 (4), N EW DELHI 134 ITD 229 (ITAT - DEL) 8. IN REJOINDER, LD AR SUBMITTED THAT SINCE DRP'S O RDER IS FINAL, LD. AO AND LD. TPO WERE DUTY BOUND TO FOLLOW THE SAME BUT THE SAME HAS NOT BEEN FOLLOWED CORRECTLY. THE LD. AR PRAYED THAT THE ADD ITIONS SUSTAINED ARE ILLEGAL AND DESERVES TO BE DELETED. LD. AR FURTHER PLEADED THAT THE ASSESSEE COMPANY IS NOT DEALING IN TWO DIFFERENT PRODUCTS. THE ASSES SEE COMPANY IS DEALING WITH RESPECT TO ONLY ONE DOMAIN OF SERVICES I.E. WITH RE SPECT TO ADVERTISING. VARIOUS SERVICES RECEIVED BY THE ASSESSEE FROM ITS AES ARE VARIOUS CONSTITUENTS THAT MAKE UP THE CORE FUNCTION OF THE ASSESSEE COMPANY. IT IS NOT FEASIBLE TO EVALUATE THE PRICE OF EACH SUCH SERVICE S IN FINANCIAL TERMS IN ISOLATED AND STAND ALONE MANNER FOR EACH SUCH SERVI CE OR PART OF THE SERVICE. THUS THE CONTENTION OF REVENUE IN THIS REGARD IS WI THOUT ANY BASIS AND CONTRADICTORY, AS DEPARTMENT HAS BEEN ACCEPTING IN PAST THE METHOD OF BENCH ITA NO.5871/DEL./2011 32 MARKING AS ADOPTED BY THE ASSESSEE. IT HAS BEEN FU RTHER SUBMITTED THAT THERE IS NO CHANGE IN FACTS OF THE CASE AND THERE IS NO CHAN GE IN THE POSITION OF LAW. IN THESE FACTS AND CIRCUMSTANCES OF THE PECULIAR IN NA TURE, THERE WAS NO LOGIC WITH THE REVENUE AUTHORITIES TO EVOLVE NEW METHODS THAT TOO WHICH ARE NOT SUITABLE, APPROPRIATE AND APPLICABLE TO THE PECULIA R FACTS OF THE ASSESSEES CASE. LD. AR FURTHER SUBMITTED THAT WHEN ASSESSEE H AS EARNED NET MARGIN OF 26% WHICH IS FAR MORE THAN THE AVERAGE OF 8% OF T.P . STUDY. THUS, THERE WAS NO REASON TO MAKE ANY INTERFERENCE IN THE RESULTS S HOWN BY THE ASSESSEE UNLESS SOMETHING ADVERSE MATERIAL IN NATURE WAS BROUGHT ON RECORD BY THE REVENUE AUTHORITIES. LD. AR DRAW OUR ATTENTION TO PAGE NO. 411 OF PAPER BOOK WHEREIN THE DETAILS OF SOME OF THE FOREIGN CLIENTS AND INDI AN C1IENTS HAVE BEEN PROVIDED. LD. AR CONTENDED THAT IT WAS NOT POSSIBL E FOR THE ASSESSEE TO GET BIG CORPORATE LIKE NESTLE, LOREAL, HP COMPAQ, BARKL AYS BANK, ITC, EXIDE BATTERIES, DABUR, BRITANIA, RELIANCE, ADLABS FILMS LTD. ETC. WITHOUT THE ASSISTANCE OF FOREIGN AFFILIATES. LD. AR FURTHER SU BMITTED THAT RECEIPT OF SERVICES EVIDENT FROM THE RESEARCH PAPERS AND THESE ARE NOT PART OF ANY PUBLISHED BOOKS. LD. AR FURTHER SUBMITTED THAT ALL THE EVIDENCES WITH REGARD TO THE COST INCURRED BY THE AES WERE SUBMITTED TO T HE AUTHORITIES BELOW. THESE EVIDENCES HAVE BEEN CONSIDERED BY THESE AUTHO RITIES, THEREFORE, LD. DR CANNOT MAKE OUT A NEW CASE AT THIS STAGE. LD. AR FU RTHER SUBMITTED THAT IT IS TRUE THAT INDIA IS HOT DESTINATION IN TERMS OF DEMA ND BUT AS FAR AS THE ITA NO.5871/DEL./2011 33 DEVELOPMENT AND USER OF TECHNOLOGY IS CONCERNED, IN DIA HAS NOT BEEN ABLE TO ACHIEVE OPTIMUM RESULTS SO FAR. INDIA HAS TO DEPEN D UPON ITS FOREIGN COUNTER PARTS FOR AVAILING BEST OF THE TECHNOLOGIES. LD. A R ALSO TRIED TO MAKE OUT HIS CASE WITH THE HELP OF AN ILLUSTRATION THAT TODAY ES PECIALLY AFTER IPL MATCHES, INDIA STANDS AT NUMBER ONE POSITION IN TERMS OF ORG ANIZING AND PLAYING CRICKET MATCHES BUT WHENEVER THE ISSUE ARISES FOR T RAINING THE PLAYERS, MOST OF THE TIMES WE WOULD FIND THAT COACHES ARE HIRED FROM THE FOREIGN COUNTRIES. LD. AR DISTINGUISHES THE CASE LAWS RELIED UPON BY L D. DR. IT IS PLEADED THAT THESE CASES ARE NOT APPLICABLE TO THE FACTS AND CIR CUMSTANCES OF THE ASSESSEES CASE DUE TO PECULIAR NATURE OF BUSINESS OF THE ASSE SSEE. IN NUTSHELL, LD. AR ARGUED THAT ESPECIALLY AFTER DRP'S ORDER, THERE WAS NO REASON WITH THE AO/TPO TO MAKE ANY ADDITION. THE ADDITIONS SUSTAIN ED ARE ABSOLUTELY ILLEGAL AND DESERVES TO BE DELETED. 9. WE HAVE HEARD BOTH SIDES AND HAVE ALSO GONE THRO UGH THE ORDERS OF THE AO, TPO AND DRP. WE HAVE ALSO PERUSED THE RELEVANT EVIDENCES FILED BEFORE THE AUTHORITIES BELOW. THE DRP HAS ALLOWED PART RE LIEF TO THE ASSESSEE. THE ASSESSEE HAD PLACED EVIDENCES IN RESPECT OF THE MAN AGEMENT SERVICE CHARGES AND CLIENT COORDINATION FEE ON RECORD. THE CHART A T PAGES 18 TO 26 OF THIS ORDER WHICH IS PART OF ASSESSEES ARGUMENT ESTABLIS HES THE NATURE OF SERVICE PROVIDED BY AE AND RECEIVED BY ASSESSEE. BENEFITS DERIVED BY ASSESSEE ARE ALSO NARRATED IN THIS CHART. IN OUR CONSIDERED VIE W, THE REVENUE HAD NOT ITA NO.5871/DEL./2011 34 BROUGHT OUT ANYTHING FOR NEGATING ANY CONTENT OF TH IS CHART OF SERVICES AND BENEFITS DERIVED THEREOF. THE ASSESSEE COMPANY HAS DISCLOSED NET MARGIN FOR 26% AS AGAINST 8% AVERAGE OF THE COMPARABLE OTHER C OMPANIES AT ENTITY LEVEL. THE ASSESSEE IS ENGAGED IN ONE CLASS OF BUSINESS TH AT IS ADVERTISING AND ITS ALLIED SERVICES. IN THE BUSINESS OF THE ASSESSEE, THERE ARE NO SEGMENTS OR DIFFERENT ACTIVITIES WHICH CAN BE SAID INDEPENDENT OF EACH OTHER. IN OUR CONSIDERED VIEW, THE ENTITY LEVEL BENCHMARKING ON T NMM METHOD SHALL BE MOST APPROPRIATE FOR ALL INTERNATIONAL TRANSACTIONS WITH AE. ALTHOUGH THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE INCOME-TAX PROCEEDINGS, HOWEVER, SOMETHING MATERIAL OR ADVERSE IN NATURE, W HICH IS HAVING DIRECT BEARING ON THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, HAS TO BE BROUGHT ON RECORD TO DRAW THE ADVERSE INFERENCE. ALTHOUGH IT IS PLEADED BY REVENUE THAT THIS YEAR, TPO AND ASSESSING OFFICER HAVE DONE MORE INTELLIGENT ANALYSIS OF FACTS BUT NO ADVERSE MATERIAL HAS BEEN BROUGHT O N RECORD BY THE REVENUE. IN OUR CONSIDERED VIEW, DUE TO THE PECULIAR NATURE OF THE BUSINESS OF THE ASSESSEE AND THE NATURE OF SERVICES RECEIVED FROM T HE ASSOCIATED ENTERPRISES, THE MOST APPROPRIATE METHOD FOR BENCHMARKING TO EVA LUATE THE RESULTS FROM THE PRINCIPLE OF ARMS LENGTH BASIS SHALL BE TRANSAC TIONAL NET MARGIN METHOD (TNMM). THE EVIDENCES HAVE BEEN SUBMITTED BEFORE T HE AUTHORITIES BELOW SHOWING RENDERING OF THE CERTAIN SERVICES AGAINST T HE PAYMENTS MADE TO THE ASSOCIATED ENTERPRISES. IN THE ARENA IN WHICH THE ASSESSEE COMPANY IS ITA NO.5871/DEL./2011 35 FUNCTIONING, IT WILL BE DIFFICULT TO IMAGINE A SUCC ESSFUL BUSINESS ENTITY IN THE GLOBAL ENVIRONMENT WITHOUT RECEIPT OF THE SERVICES WHICH CARRIES HUGE INTRINSIC AND CREATIVE VALUE. IN OUR CONSIDERED VI EW, IT IS ONLY A PARTICULAR BUSINESS EXPERT WHO CAN EVALUATE THE TRUE INTRINSIC AND CREATIVE VALUE OF SUCH SERVICES. IN VIEW OF THESE FACTS, IT SHALL BE JUST TO AVOID ANY GUESSWORK TO EVALUATE OR JUDGE VALUE OF THESE SERVICES IN ISOLAT ION OR INDIVIDUALLY. IN ANY CASE, THE VALUE OF THESE SERVICES CANNOT BE TAKEN A T NIL WHICH THE AO AS WELL AS TPO ORIGINALLY SOUGHT TO DO. HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF HIVE COMMUNICATION PVT. LTD. (ITA NO.306/2011) H AS HELD THAT THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY MUST BE JU DGED FROM THE VIEW POINT OF THE COMPANY ITSELF AND MUST BE VIEWED FROM THE P OINT OF VIEW OF A PRUDENT BUSINESSMAN. IT IS NOT FOR THE AO TO DICTATE WHAT THE BUSINESS NEEDS OF THE COMPANY SHOULD BE. IT IS THE BUSINESSMAN WHO CAN O NLY TO JUDGE THE LEGITIMACY OF THE BUSINESS NEEDS OF THE COMPANY FRO M THE POINT OF VIEW OF A PRUDENT BUSINESSMAN. THE BENEFIT DERIVED AND OCCUR RING TO THE COMPANY MUST ALSO BE CONSIDERED FROM THE ANGLE OF A PRUDENT BUSINESSMAN. THE TERM BENEFIT TO A COMPANY IN RELATION TO ITS BUSINESS HAS A VERY WIDE CONNOTATION. IT IS DIFFICULT TO ACCURATELY MEASURE THESE BENEFIT S IN TERMS OF MONEY VALUE SEPARATELY. WE HAVE EXAMINED THE CHART WHERE ASSES SEE HAS ENUMERATED IN DETAIL AND DESCRIPTION OF TYPE OF SERVICES RECEIVED AND HOW THESE SERVICES HAVE BEEN RECEIVED AND IN WHAT MANNER THE BENEFITS HAVE BEEN DERIVED FROM ITA NO.5871/DEL./2011 36 THESE SERVICES BY THE ASSESSEE COMPANY. THE DESCRI PTION OF SERVICES RECEIVED BY THE ASSESSEE COMPANY FROM ITS ASSOCIATED ENTERPR ISES HAS BEEN MENTIONED IN PARA 6.13. FOR THE SAKE OF BREVITY, THE DESCRI PTION OF THE SERVICES ALONG WITH THE EXPLANATION OF THE TYPE OF SERVICES RECEIV ED, HOW THESE SERVICES WERE RECEIVED AND WHAT BENEFITS DERIVED BY THE ASSESSEE ARE NOT REPEATED HERE AGAIN. IN THESE CHARTS, THE ASSESSEE HAS GIVEN DET AILED FUNCTIONS, SUBMISSIONS AND REFERENCES TO VARIOUS EVIDENCES. THE REVENUE H AS NOT BROUGHT ANYTHING ON RECORD TO NEGATE THE DETAILS PROVIDED IN THESE C HARTS. IN VIEW OF THESE EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE AND CON SIDERING THE PECULIAR NATURE OF BUSINESS AND FACTS AND CIRCUMSTANCES OF T HE CASE, WE FIND MERITS IN THE CLAIM OF THE ASSESSEE. THEREFORE, WE FIND NO J USTIFICATION TO SUSTAIN ANY ADDITION IN THIS REGARD ON THIS ISSUE. WE DIRECT T O DELETE THE ADDITION AND THIS GROUND IS ALLOWED. 10. THE ISSUE INVOLVED IN GROUND NOS.3 & 4 ARE RELA TED TO THE DISALLOWANCES U/S 40(A) AND 40(A)(I). 11. AT THE OUTSET OF THE HEARING, BOTH THE SIDES HA D AGREED THAT THESE ISSUES MAY BE RESTORED O THE FILE OF THE ASSESSING OFFICER FOR DECIDING DE NOVO. 12. AFTER HEARING BOTH THE SIDES, WE FIND IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING DE NOVO. ITA NO.5871/DEL./2011 37 13. GROUND NO.5 IS AGAINST LEVYING THE INTEREST UND ER SECTION 234B. AFTER HEARING BOTH THE SIDES, WE HOLD THAT CHARGING INTER EST IS MANDATORY AND HAS A CONSEQUENTIAL EFFECT. THEREFORE, WE DISMISS THIS G ROUND. 14. GROUND NO.6 IS RELATED TO INITIATE PENALTY PROC EEDINGS UNDER SECTION 271(1)(C) WHICH IS ALSO PREMATURE AND ACCORDINGLY D ISMISSED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 8 TH DAY OF JUNE, 2012. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 8 TH DAY OF JUNE, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI AR, ITAT NEW DELHI.