M/s Phillips India Limited, Kolkata V. ACIT, Cir-12(2), Kolkata, Kolkata

ITA 612/KOL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1713 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Depreciation; Transfer pricing; Business expenditure; Double taxation relief; International transaction; Rule of consistency; Corroborative evidences; Commercial expediency; Capital expenditure
• Section: 92C; 143(3); 92D; 244A; 92B; 234B; 80G; 37; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & HONBLE SHRI M.BALAGANESH, AM ] I.T.A NO. 612/KOL/201 7 ASSESSMENT YEAR : 2012-1 3 M/S PHILIPS INDIA LTD. -VS- ACIT, CIRCLE-12(2), KOLKATA (FORMERLY PHILIPS ELECTRONICS INDIA LTD.) [PAN: AABCP 9487 A] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI ARVIND SONDE, ADVOCATE SHRI KETAN KR. VED, ADVOCATE SHRI H.P. SRIVASTAVA, AR FOR THE REVENUE : SHRI G. MALLIKARJUNA, CIT DR DATE OF HEARING : 29.01.2018 DATE OF PRONOUNCEMENT : 07.02.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL FILED BY THE ASSESSEE AGAINST THE A SSESSMENT ORDER OF THE ACIT CIRCLE- 12(2), KOLKATA, DT. 29.04.2016 FOR THE A.Y. 2012-13 PASSED U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) IN PUR SUANCE TO THE ORDER OF THE DRP-2, NEW DELHI, DT. 5.12.2016. 2. THE GROUND NO. 1 RAISED BY THE ASSESSEE IS GENER AL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 2 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 2 3. DETERMINATION OF ARMS LENGTH PRICE (ALP) FOR MA NAGEMENT SUPPORT SERVICES THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE IS A PART OF THE ROYAL PHILIPS ORGANISATION, HEADQUARTERED IN NETHERLANDS. THE UL TIMATE PARENT COMPANY OF THE GROUP IS KONINKLIJKE PHILIPS ELECTRONICS NV (KPENV). ROY AL PHILIPS ELECTRONICS OF THE NETHERLANDS IS A DIVERSIFIED HEALTH AND WELL BEING COMPANY. ROYAL PHILIPS IS ORGANIZED INTO THE FOLLOWING PRODUCT DIVISIONS:- (I) PHILIPS CONSUMER ELECTRONICS: THIS DIVISION DEV ELOPS, MANUFACTURES AND MARKETS A WIDE RANGE OF TELEVISION, AUDIT, VIDEO, COMMUNICATI ONS AND INTERACTIVE MEDIA SYSTEMS. (II) PHILIPS DOMESTIC APPLIANCE AND PERSONAL CARE : THIS DIVISION MAKES A WIDE RANGE OF ELECTRICAL PRODUCTS FOR PERSONAL CARE AND HOUSEH OLD CONVENIENCE. (III) PHILIPS LIGHTING: THIS DIVISION IS THE GLOBAL LEADER IN LAMPS, LUMINARIES, LIGHTING ELECTRONICS, AUTOMOTIVE LIGHTING, SPECIAL LIGHTING, UHP & LCD BACKLIGHTING AND LUMILEDS. (IV) PHILIPS MEDICAL SYSTEMS : THIS DIVISION IS ONE OF THE WORLD LEADERS IN DIAGNOSTIC IMAGING SYSTEMS AND RELATED SERVICES. (V) PHILIPS SEMICONDUCTORS : THIS DIVISION SUPPLIES SILICON SYSTEM SOLUTIONS FOR MOBILE COMMUNICATIONS, CONSUMER ELECTRONICS, DIGITAL DISPL AYS, CONTACTLESS PAYMENTS AND CONNECTIVITY AND IN-CAR ENTERTAINMENT AND NETWORKIN G. (VI) OTHER ACTIVITIES : RELATES TO CORPORATE TECHNO LOGY, CORPORATE INVESTMENTS ETC. THE ASSESSEE HAD MADE INTERNATIONAL TRANSACTION WIT H ITS ASSOCIATED ENTERPRISES (AES) DURING THE YEAR AND THE SAME WAS REFERRED TO THE TR ANSFER PRICING OFFICER (TPO) U/S 92CA OF THE ACT FOR DETERMINATION OF ALP. THE ASSE SSEE SUBMITTED SECTOR WISE TRANSFER PRICING STUDY REPORT ALONG WITH FUNCTIONAL ANALYSIS AND INFORMATION REQUIRED U/S 92D(1) OF THE ACT BEFORE THE LD TPO. THE ASSESSEE HAS UN DERTAKEN INTERNATIONAL TRANSACTIONS DURING THE YEAR UNDER CONSIDERATIONS AS UNDER:- 3 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 3 SOFTWARE DEVELOPMENT SERVICES - RS 382,80,00,000 /- PAYMENT OF MANAGEMENT SUPPORT SERVICES - RS 339,17 ,83,606/- PAYMENT OF INTRA GROUP SERVICES (SERVICE LEVEL AGREEMENT) - REIMBURSEMENTS - RS 4,33,77 ,146/- PAYMENT TOWARDS AMP - RS 1,04,08,155/- HEALTH CARE CONTRACT MANUFACTURING - RS 34, 20,000/- 3.1. THE ASSESSEE SUBMITTED BEFORE THE LD TPO THAT SOME OF THE TRANSACTIONS PERTAIN TO SERVICES WHICH ARE COMMONLY DESCRIBED IN INTERNATIO NAL TAX AND TRANSFER PRICING CONTEXT AS INTRA-GROUP SERVICES (IN SHORT IGS). THE ASS ESSEE BENCHMARKED THE INTRA GROUP SERVICES TRANSACTIONS BY USING THE TRANSACTIONAL NE T MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM). 3.2. THE INTRA-GROUP SERVICES (IGS) RECEIVED BY THE ASSESSEE ARE COVERED UNDER WHAT HAS BEEN DESCRIBED AS A GENERAL SERVICES AGREEMENT (GSA ). UNDER THE OVERALL UMBRELLA PACKAGE OF THIS GSA, THE ASSESSEE HAS ENTERED INTO A MANAGEMENT SUPPORT SERVICES AGREEMENT (MSSA) AND A RESEARCH AND DEVELOPMENT C OOPERATION AGREEMENT (RDCA) WITH KPENV. AMONG THESE TWO AGREEMENTS UND ER THE GSA, ONLY THE IGS PROVIDED UNDER THE MSSA ARE DISCUSSED HEREIN. TH E PREAMBLE TO THIS MSSA ARE AS UNDER :- AN AGREEMENT MADE THIS DAY 22 ND OCTOBER, 2004 BY AND BETWEEN KONINKLIJKE PHILIPS ELECTRONICS NV (KPENV) AND PHI LIPS INDIA LTD (ASSESSEE HEREIN). WHEREAS, PHILIPS HAS SUBSTANTIAL RESOURCES IN COMME RCIAL , FINANCIAL, ACCOUNTING AND OTHER MATTERS WHICH WOULD BE BENEFIC IAL TO SUCCESSFULLY CONDUCTING A BUSINESS; WHEREAS, THESE RESOURCES WOULD BE EMPLOYED FOR THE BENEFIT OF THE INDIVIDUAL MEMBER COMPANIES OF THE PHILIPS CONCERN ; 4 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 4 WHEREAS, THE COMPANY WISHES TO ENSURE CONTINUITY IN ITS BUSINESS OPERATIONS AND FOR THAT REASON IS INTERESTED TO TAKE ADVANTAGE OF AND SECURE ACCESS TO THE AFOREMENTIONED RESOURCES AND ACKNOWLEDGES THE NECES SITY OF PAYING AN APPROPRIATE CONSIDERATION FOR THAT PURPOSE ; WHEREAS, IT IS RECOGNIZED BETWEEN THE PARTIES THAT A SYSTEM REQUIRING SEPARATE PAYMENTS FOR RESOURCES ON EACH SEPARATE OCCASION PO SES GREAT PROBLEMS IN VIEW OF THE FACT THAT FOR CERTAIN CONCERN SERVICES (AS H EREINAFTER DEFINED) NO MARKET PRICE CAN REASONABLY BE ESTABLISHED WITH REFERENCE TO COMPARABLE SITUATIONS IN THE MARKET PLACE ; WHEREAS, IT IS FURTHER RECOGNIZED THAT IN VIEW OF T HE CONTINUOUS FLOW OF INFORMATION SUCH A SYSTEM OF SEPARATE PAYMENTS WOUL D IN ANY EVENT BE VERY DIFFICULT, IF NOT IMPOSSIBLE, TO ADMINISTER AND WOU LD INVOLVE VERY COSTLY AND BURDENSOME ACCOUNTING PROCEDURES ; AND WHEREAS, IT IS FINALLY RECOGNIZED THAT SUCH A SYSTE M OF SEPARATE PAYMENTS DOES NO JUSTICE TO THE CONTINUOUS EFFORTS OF PHILIPS TO GENERATE AND OBTAIN NEW RESOURCES FOR THE BENEFIT OF THE COMPANY AND OTHER MEMBER COMPANIES OF THE PHILIPS CONCERN AND , ACCORDINGLY, THE PARTIES HAVE AGREED ON A REMUNERATION SYSTEM WHICH IS BASED ON THE RELATION EXISTING FROM YEAR BETWEEN THE ACTIVITIES OF THE COMPANY AND THE ACTIVITIES OF PHILIPS AND ITS A SSOCIATED COMPANIES. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS ARTICLE 1 DEFINITIONS . . CONCERN SERVICES : ANY AND ALL ACTIVITIES PERFOR MED BY PHILIPS IN RESPECT OF THE MATTERS SPECIFIED IN ARTICLE 2 HERETO. ARTICLE 2 SERVICES IN COMMERCIAL, ACCOUNTING, AUD ITING, FINANCIAL, FISCAL, SOCIAL AND LEGAL MATTERS AND IN ALL OTHER FIELDS IN WHICH PHILIPS HAS RESOURCES 5 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 5 THESE SERVICES FOR WHICH RESOURCES ARE AVAILABLE WI TH KPENV WERE SOUGHT TO BE RENDERED TO PEIL (ASSESSEE HEREIN). THE ASSESSEE E XPLAINED ARTICLE 2 BEFORE THE LD TPO ELABORATELY AS UNDER:- I. IN CASE OF COMMERCIAL MATTERS , THE SERVICES ARE DESCRIBED IN GENERAL AS PERTAINING TO DISTRIBUTION AND TRADING OF PRODUCTS, AND PARTICULARLY WITH RESPECT TO A) ADVERTISING, B) SALES PROMOTION, C) PUBLIC RELATIONS, D) MARKET RESEARCH (INCLUDING INFORMATION AND TREND S ON THE WORLD MARKET), E) LABELLING, PACKAGING, SHIPPING AND FORWARDING, F) LONG-TERM EXPORT BUSINESS AND G) INTERNATIONAL TENDERING AND PURCHASING FROM THIR D PARTIES. II. IN CASE OF ACCOUNTING. AUDITING AND FINANCIAL MATTERS , THE SERVICES ARE DESCRIBED AS A) ACCOUNTING AND AUDITING PRINCIPLES AND METHODS B) BUDGETING METHODS C) CAPITAL STRUCTURE, LOANS, EXCHANGE RISKS, FINANC IAL RESEARCH, WARRANTIES AND GUARANTEES, CREDIT MANAGEMENT, THE ESTABLISHMEN T AND MANAGEMENT OF FINANCE AND LEASE COMPANIES AND ALL FURTHER BANK ING ACTIVITIES, INCLUDING LONG-TERM FINANCE PLANS D) DEVELOPMENTS OF DATA PROCESSING III. IN CASE OF FISCAL AND LEGAL MATTERS , SPECIAL MENTION IS MADE OF PATENTS, TRADEMARKS AND CUSTOMS DUTIES, PARTICULARLY IN INTE RNATIONAL TRANSACTIONS IV. IN CASE OF PERSONNEL MATTERS, SPECIAL MENTION I S MADE OF 6 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 6 A) SELECTION AND TRAINING OF PERSONNEL B) AN ADEQUATE PERSONNEL POLICY V. INSURANCES VI. ADMIITTANCE AT PEIL'S SPECIFIC REQUEST AT MUTUALLY AGREED TIMES OF REASONABLE NUMBER OF EMPLOYEES OF PEIL TO KPENV'S P REMISES TO ACQUAINT ELVES WITH COMMERCIAL AND OTHER KNOWLEDGE AS SPECIFIED ABOVE, FAMILIARISE THEMSELVES WITH THE ORGANISATION OF THE WHOLE GROUP AND WITH WORKING METHODS USED BY IT OR RECEIVE ADVICE ON SPECIFIC MATTERS IN THE FIELDS DESCRIBED ABOVE. VII. ANY OTHER SIMILAR MATTERS WHICH PEIL MAY REASO NABLY REFER TO KPENV OR WHICH KPENV MAY ITSELF DEEM APPROPRIATE. ARTICLE 4 REMUNERATION IN CONSIDERATION OF THE CONCERN SERVICES RENDERED B Y PHILIPS UNDER THIS AGREEMENT THE COMPANY AGREES TO PAY TO PHILIPS AREM UNERATION BY AGGREGATING AMOUNTS CALCULATED AS FOLLOWS: A) THAT PART OF THE CONCERN SERVICES COSTS WHICH CORRE SPONDS TO THE RATIO BETWEEN THE RELEVANT LOCAL TURNOVER AND THE R ELEVANT WORLD TURNOVER; AND B) A SURCHARGE OF 10% ON THE AMOUNTS AS CALCULATED ACC ORDING TO A) ABOVE . THE AMOUNT CALCULATED AT A) ABOVE WOULD EXCLUDE ANY COSTS IN RESPECT OF CONCERN SERVICES RENDERED INSIDE THE COUNTRY. 3.3. THE ASSESSEE STATED THAT THE REASON OF ENTERIN G INTO THE MSSA HAS BEEN DESCRIBED IN THE PREAMBLE TO THE AGREEMENT. IT MENTIONS THAT KP ENV (ACTING AT THE SAME TIME FOR ITS ASSOCIATE COMPANIES, AND REFERRED TO AS PHILIPS J OINTLY AND SEVERALLY IN THE MSSA) HAS SUBSTANTIAL RESOURCES IN COMMERCIAL, FINANCIAL, ACCOUNTING AND OTHER MATTERS WHICH WOULD BE BENEFICIAL TO SUCCESSFULLY CONDUCTING A BU SINESS. THESE RESOURCES WOULD BE EMPLOYED FOR THE BENEFIT OF INDIVIDUAL MEMBER COMPA NIES OF THE PHILIPS CONCERN (I.E KPENV AND ITS ASSOCIATED COMPANIES). THUS, IT WOUL D APPEAR THAT KPENV, ON THE BASIS OF THE RESOURCES AVAILABLE AT ITS DISPOSAL, H AS DECIDED TO EMPLOY THOSE RESOURCES FOR 7 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 7 THE BENEFIT OF ITS ASSOCIATED COMPANIES. THE ASSES SEE ALSO STATED THAT IT IS MENTIONED IN THE PREAMBLE THAT IT IS PEIL (ASSESSEE) WHICH, WISH ING TO ENSURE THE CONTINUITY IN ITS BUSINESS OPERATIONS, IS INTERESTED TO TAKE ADVANTAG E OF AND SECURE ACCESS TO THE AFOREMENTIONED RESOURCES. FURTHER , IT IS PEIL WH ICH HAS ACKNOWLEDGED THE NECESSITY OF PAYING AN APPROPRIATE CONSIDERATION FOR THAT PU RPOSE' . IT WAS FURTHER STATED THAT THE PREAMBLE ALSO ASSERTS THAT IT IS RECOGNIZED BY EACH PARTY TO THE AGREEMENT THAT A SYSTEM REQUIRING PAYMENTS FOR RESOURCES ON EACH SEPARATE O CCASION POSES GREAT PROBLEMS IN VIEW OF THE FACT THAT FOR CERTAIN CONCERN SERVICES (ACTIVITIES DESCRIBED IN ARTICLE 2 OF THE MSSA) NO MARKET PRICE CAN REASONABLY BE ESTABLISHE D WITH REFERENCE TO COMPARABLE SITUATIONS IN THE MARKET PLACE. THIS STATEMENT I S OF GREAT IMPORTANCE WITH REGARD TO ARMS LENGTH PRICING OF THE TRANSACTIONS COVERED UN DER THE MSSA. THE PREAMBLE ALSO MENTIONS THAT IT IS FURTHER RECOGNIZED BY THE PARTI ES TO THE AGREEMENT THAT IN VIEW OF THE CONTINUOUS FLOW OF INFORMATION, SUCH A SYSTEM OF SE PARATE PAYMENTS WOULD IN ANY EVENT BE VERY DIFFICULT, IF NOT IMPOSSIBLE, TO ADMINISTER AND WOULD INVOLVE VERY COSTLY AND BURDENSOME ACCOUNTING PROCEDURES. IN THE END, THE PREAMBLE GOES ON TO MENTION THAT SUCH A SYSTEM OF SEPARATE PAYMENTS DOES NO JUSTICE TO THE CONTINUOUS EFFORTS OF PHILIPS TO GENERATE AND OBTAIN NEW RESOURCES FOR THE BENEFI T OF THE COMPANY AND OTHER MEMBER COMPANIES OF THE PHILIPS CONCERN AND , ACCORDINGLY, THE PARTIES HAVE AGREED ON A REMUNERATION SYSTEM WHICH IS BASED ON THE RELATION EXISTING FROM YEAR T O YEAR BETWEEN THE ACTIVITIES OF THE COMPANY AND THE ACTIV ITIES OF PHILIPS AND ITS ASSOCIATED COMPANIES. 3.4. THE ASSESSEE SUBMITTED A SEPARATE TRANSFER PR ICING STUDY REPORT WITH REGARD TO THE PHILIPS GENERAL SERVICE AGREEMENT. THIS REPORT O F SEPTEMBER 2006 IS SUBTITLED FOR CERTAIN INTERNAL GENERAL SERVICES BETWEEN VARIOUS P HILIPS GROUP COMPANIES IN ASIA PACIFIC REGION WITH KONINKLIJKE ELECTRONICS NV (KPE NV). THE ASSESSEE STATED THAT THE GROUP HAD PLACED RELIANCE ON OECD GUIDELINES AN D HAD ACCORDINGLY USED INDIRECT METHOD OF CHARGING THE COSTS , WHEREIN, WHEN AN IND IRECT METHOD OF CHARGING IS USED, 8 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 8 THE RELATIONSHIP BETWEEN THE COSTS AND THE SERVICES PROVIDED IS OBSCURED AND IT MAY BECOME DIFFICULT TO ASSESS THE VALUE OF THE BENEFIT PROVIDED. INDEED, IT MAY MEAN THAT THE CONTRIBUTING ENTERPRISE IS LESS AWARE THAN IN T HE CASE OF THE DIRECT- CHARGE METHOD THAT IT IS INCURRING COSTS FOR CERTAIN FACILITIES A ND, IN CONSEQUENCE, IS LESS AWARE OF WHETHER OR NOT IT IS BENEFITTING FROM THEM. THE M OST APPROPRIATE INDIRECT METHOD IS GENERALLY RECOGNIZED TO BE ONE WHICH IS BASED ON SH ARING AMONG THE BENEFICIARIES, IN PROPORTION TO THE BENEFITS RECEIVED OR EXPECTED, TH E ACTUAL COSTS INCURRED IN PROVIDING THE SERVICES. IT WAS STATED THAT KPENV HAS APPLIE D THE INDIRECT METHOD FOR ALLOCATING THE COSTS TO THE ASSESSEE UNDER THE MSSA AND THEN A DDED A MARGIN OF 10% ON THE COSTS WHILE MAKING THE CHARGE. SO FAR AS THE MARGINS ARE CONCERNED, THEY HAVE BEEN BENCHMARKED THROUGH A SEPARATE BENCHMARKING STUDY W HICH HAS RELIED ON DATA FROM PAN-ASIA COMPARABLES. IT NEEDS TO BE MENTIONED THA T THIS SELECTION OF THE COMPARABLES IS NOT APPROPRIATE AS THE RECIPIENT OF SERVICES, WI TH ITS SPECIFIC FUNCTIONAL PROFILE OF A LOW-RISK DISTRIBUTOR FOR CONSUMER LIFE STYLE SECTOR AND SPECIALITY LIGHTING SECTOR AND A NEAR ZERO-RISK DISTRIBUTOR IN CASE OF HEALTH CARE S ECTOR AND A GENERAL MANUFACTURER FOR DOMESTIC CONSUMPTION IN CASE OF LIGHTING SECTOR, IS BASED IN INDIA WITH ITS SPECIFIC ECONOMIC AND MARKET CONDITIONS. IF THE MARGINS ARE AT ALL TO BE COMPARED, THEN THE COMPARABLES NEED TO BE SELECTED FROM INDIA. 3.5. THE LD TPO APPLIED THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MAM FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) I N RESPECT OF THIS TRANSACTION. IN THIS REGARD, THE LD TPO OBSERVED AS UNDER:- (A) THE APPLICATION OF THE ARMS LENGTH PRINCIPLE W OULD BE TO SEE WHETHER THE CHARGES PAID BY THE TAXPAYER FOR INTRA GROUP SERVICES REFLE CT THE SAME CHARGES FOR THE SERVICES THAT WOULD HAVE BEEN, OR WOULD REASONABLY BE EXPEC TED TO BE, LEVIED BETWEEN INDEPENDENT PARTIES DEALING AT ARMS LENGTH FOR COM PARABLE SERVICES UNDER COMPARABLE CIRCUMSTANCES. IT IS CRUCIAL TO DETERMINE HOW MUCH A COMPARABLE INDEPENDENT SERVICE RECIPIENT, UNDER COMPARABLE CIRCUMSTANCES, WOULD BE WILING TO PAY FOR THAT SERVICE. 9 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 9 (B) AN ARMS LENGTH ENTITY WOULD BE WILLING TO PAY FOR AN ACTIVITY ONLY TO THE EXTENT THAT THE ACTIVITY CONFERS ON IT A BENEFIT OF ECONOMIC OR COMMERCIAL VALUE. THUS, WHETHER AS A RESULT OF PAYMENT OF MANAGEMENT SERVICE FEES AND HE AD QUARTER TO ITS AE THE TAXPAYER, GOT ANY ECONOMIC OR COMMERCIAL VALUE TO ENHANCE IT S COMMERCIAL POSITION IS ALSO TO BE SEEN. THE EXPECTED BENEFIT MUST BE SUFFICIENTLY DIR ECT AND SUBSTANTIAL SO THAT AN INDEPENDENT RECIPIENT, IN SIMILAR CIRCUMSTANCES, WO ULD BE PREPARED TO PAY FOR IT. IF NO BENEFIT HAS BEEN PROVIDED (OR WAS EXPECTED TO BE PR OVIDED), THE SERVICE CANNOT BE CHARGED FOR. (C ) IT IS FOR THE TAXPAYER TO PROVE THAT THE SERVI CES ARE RENDERED. THE OTHER ASPECT OF INTRA GROUP SERVICES IS THE QUANTIFICATION OF SUCH SERVICES IN TERMS OF ACTUAL EXPENDITURE INCURRED AND COMMENSURATE BENEFITS DERIVED THEREFRO M. TO CONFIRM TO THE ARMS LENGTH PRINCIPLE, THE COSTS OF INTRA-GROUP SERVICES CAN ON LY BE CHARGED FOR, WHERE THE RECIPIENT OF THE SERVICES DERIVED A BENEFIT FROM THOSE SERVIC ES AND THAT THE BENEFIT HAS BEEN SUFFICIENTLY DIRECT AND SUBSTANTIAL SO THAT; AN IND EPENDENT RECIPIENT, IN SIMILAR CIRCUMSTANCES, WOULD BE PREPARED TO PAY FOR IT. (D) ANOTHER ASPECT TO BE SEEN IS, WOULD THE ENTITY FOR WHOM THE ACTIVITY IS BEING PERFORMED EITHER HAVE BEEN WILLING TO PAY FOR THE A CTIVITY IF PERFORMED BY AN ARMS LENGTH ENTITY OR WOULD HAVE PERFORMED THE ACTIVITY ITSELF? (E) WHETHER EXPENSES INCURRED BY ONE ENTITY SHOULD BE APPORTIONED AND ALLOCATED TO OTHER MEMBERS OF THE GROUP OR WHETHER A CHARGE SHOU LD BE LEVIED BY THE SERVICE PROVIDER THAT REFLECTS THE VALUE OF THE SERVICES SU PPLIED. BECAUSE, THE ARMS LENGTH CHARGE IS NOT ONLY A FUNCTION OF THE PRICE AT WHICH A SUPPLIER IS PREPARED TO PERFORM THE SERVICE (OR THE COST OF PROVIDING THE SERVICE), BUT ALSO A FUNCTION OF THE VALUE TO THE RECIPIENT OF THE SERVICE (OR THE WILLINGNESS OF THE RECIPIENT TO PAY FOR SUCH SERVICES). THEREFORE, THE DETERMINATION OF AN ARMS LENGTH CHA RGE MUST TAKE INTO CONSIDERATION THE 10 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 10 AMOUNT THAT AN ARMS LENGTH ENTITY IS PREPARED TO P AY FOR SUCH A SERVICE IN COMPARABLE CIRCUMSTANCES. (F) MERE DESCRIPTION OF THE VARIOUS SERVICES WILL N OT SUFFICE TO JUSTIFY THE PRICE CHARGED IN INTRA GROUP SERVICES. THE TAXPAYER HAS TO PROVE WITH PROPER DOCUMENTATION AND EVIDENCE THAT THE SERVICES ARE ACTUALLY RENDERED AN D PAYMENT IS COMMENSURATE WITH THE BENEFIT DERIVED THEREFROM. (G) UNDERSTANDABLY, WHEN EXPENDITURE IS INCURRED FO R THE BENEFIT OF THE GROUP AS A WHOLE, NO CHARGING OF SUCH EXPENDITURE IS REQUIRED AS SUCH EXPENDITURE IS NOT INCURRED IN CONNECTION WITH ANY INDIVIDUAL MEMBER OF THE GRO UP AND THE BENEFIT OF SUCH EXPENDITURE WOULD BE AVAILABLE TO ALL THE MEMBERS O F THE GROUP. SIMILARLY, IF NO BENEFIT IS RECEIVED OR THE BENEFIT IS REMOTE OR FOR THE BEN EFIT OF ENTIRE GROUP, THE SAME SHOULD NOT BE CHARGED. THEREFORE, UNLESS IT IS SHOWN THAT TANGIBLE AND DIR ECT BENEFIT HAS BEEN DERIVED BY SUCH PAYMENT AND THAT THE PAYMENT MADE IS COMMENSURATE T O THE BENEFIT DERIVED OR EXPECTED TO BE DERIVED WHEN PARTIES DEAL WITH EACH OTHER AT ARMS LENGTH, THE ARMS LENGTH PRICE OF SUCH PAYMENT FOR INTRA GROUP SERVICES IS TO BE T REATED EITHER AS RS. NIL OR TO THE EXTENT OF THE BENEFIT ACTUALLY DERIVED FROM SUCH PAYMENT. THUS, PAYMENT FOR INTRA GROUP SERVICES TO BE TREATED AT ARMS LENGTH ONLY WHEN IT IS PROVED SUBSTANTIALLY BY THE TAXPAYER THAT SUCH SERVICES WERE ACTUALLY RECEIVED AND FURTHER PROVING THAT THE TAXPAYER HAS BENEFITTED FROM THE RECEIPT OF SUCH SERVICES. 3.6. DURING THE COURSE OF PROCEEDINGS BEFORE THE LD TPO, THE ASSESSEE SUBMITTED THAT THE SERVICES TO BE RENDERED AS PER THE MSSA BY THE AE A RE ESSENTIAL TO THE ASSESSEE TO OPERATE IN CONSISTENT AND COST EFFECTIVE MANNER. IN PRESENT BUSINESS ENVIRONMENT, OPERATIONAL SYNERGIES BETWEEN THE PEER COMPANIES AR E IMPERATIVE FOR ANY COMPANY TO 11 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 11 THRIVE IN THE CURRENT MARKET SCENARIO. THE SERVICE S UNDER MSSA WERE IN THE NATURE OF TECHNICAL, COMMERCIAL, FINANCIAL, ADMINISTRATIVE AN D GENERAL AREAS. THE PHILIPS GROUP GLOBALLY HAS ACCESS TO EXTENSIVE KNOWLEDGE AND EXP ERTISE IN SUCH AREAS. THESE ARRANGEMENTS HELPED PHILIPS GROUP IN EFFECTIVE APPL ICATION OF THESE SERVICES WHICH RESULTED IN SUBSTANTIAL SAVINGS IN TOTAL COSTS COMP ARED TO THE COST, THE GROUP WOULD HAVE INCURRED, IF THESE WERE BORNE BY THE RESPECTIVE COM PANIES IN DIFFERENT COUNTRIES IN AN INCONSISTENT MANNER WITHOUT ADHERING TO THE GLOBAL BEST PRACTICES WITHIN THE GROUP. THE MSSA LAYS DOWN THAT KPENV HAS EXPERTISE AND RESOURC ES IN COMMERCIAL, ACCOUNTING, AUDITING, FINANCIAL, FISCAL , SOCIAL AND LEGAL MATT ERS. THE GENERAL SERVICE AGREEMENT FRAMEWORK LEADS TO GLOBAL ARRANGEMENT MADE BY PHILI PS WHEREBY THE GROUP SERVICE CENTERS ARE RELENTLESSLY CARRYING OUT RESEARCH STUD IES IN TECHNICAL, COMMERCIAL, ACCOUNTING, FINANCIAL, HUMAN RESOURCE, LEGAL AND AD MINISTRATIVE MATTERS. THE OUTCOME OF THE ACTIVITIES CARRIED OUT BY THE GROUP SERVICE CENTERS ARE SHARED ACROSS THE PHILIPS GROUP. THE ARRANGEMENT UNDER MSSA IS AN EXCLUSIVE ARRANGEMENT TO BE USED WITHIN THE PHILIPS GROUP AND IS NOT MADE AVAILABLE TO ANY THIRD PARTIES. IT IS IMPORTANT TO MENTION THAT THE OBJECTIVE OF THE GROUP IS TO CENTR ALIZE CERTAIN ACTIVITIES SO THAT AN OVERALL STANDARDIZATION IS ACHIEVED BY THE SERVICE DELIVERY AND QUALITY. HOWEVER, IN FEW CASES, TECHNICAL ASSISTANCE AND LICENSES ARE GRANTE D TO THIRD PARTIES IN RETURN OF ROYALTY. THE ROYALTY PROCEEDS ARE DEDUCTED FROM CONCERN COST S BEFORE ALLOCATING THE COST TO RESPECTIVE COMPANIES. AS THE SERVICES PROVIDED BY AE UNDER MSSA ARE VAST AND ON CONTINUOUS BASIS, THE RELATIVE SHARE (IN %) OF SERV ICES PROVIDED TO THIRD PARTIES AS COMPARED TO PHILIPS IS NEGLIGIBLE AND HENCE NOT COM PARABLE. THE ASSESSEE SUBMITTED THAT THE INTRA GROUP SERVICES FROM AE HAVE BEEN ACC OUNTED UNDER DIFFERENT SEGMENTS AS FOLLOWS:- MSSA R&D SERVICES TOTAL LIGHTING 204,56,74,673 16,86,34,000 221,43,08,67 3 CL 53,52,94,985 14,01,63,749 67,54,58,734 HEALTHCARE 43,83,20,392 28,67,403 44,11, 87,795 HEALTHCARE (CM) 6,57,99,588 20,65,84,406 27, 23,83,995 12 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 12 CORPORATE 30,66,93,969 3,85,04,214 34,51,98 ,183 TOTAL 339,17,83,606 55,67,53,773 394,85,37,379 THE ASSESSEE PROVIDED THE DETAILS ABOUT THE RECEIPT OF SERVICES AND THE BENEFITS FROM THEM BY WAY OF MAILS RECEIVED FROM KPENV AND GROUP ENTITIES AND ON THE BASIS OF THESE MAILS AND THEIR DESCRIPTION, IT WAS OF THE BE LIEF THAT THE BENEFIT TEST WAS SUBSTANTIATED. THE ASSESSEE SUBMITTED THE ENTIRE S ERIES OF EMAILS FOR EACH DIVISION UNDER MSSA AND VOLUMINOUS DOCUMENTS SUBMITTED VIDE THEIR LETTERS DATED 15.10.2015 , 27.10.2015 15.1.2016 AND 20.1.2016 AND DEMONSTRATED THE BENEFITS RECEIVED ON ACCOUNT OF SUCH SERVICES RECEIVED. THE LD TPO ANALYSED THE ENTIRE EMAILS AND OTHER CORRESPONDENCES FILED BEFORE HIM SUPRA AND REJECTED THE SAME. THE LD TPO BY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF MORGAN STANLEY & CO DATED 13.2.2006 AND CONCLUDED THAT THE SERVICES RENDERED BY KPENV TO ASSESSEE IS ONLY IN THE NATURE OF STEWARDSHIP SERVICES (CONTROL , SUPERVISORY AND MONITORING FUNCTIONS) AND THUS THERE CANNOT BE ANY CHARGE FOR THEM. ACCORDINGLY HE HELD THAT THE MANAGEMENT SUPPORT SERVICES CHARGES ARE ONLY IN THE NATURE OF STEWARDSHIP ACTIVITIES AND HENCE THERE CANNOT BE ANY CHARGE FOR THEM AND A LSO ON THE ASPECT THAT THE ASSESSEE HAD NOT PROVED THE BENEFITS DERIVED BY IT PURSUANT TO THIS MSSA. BASED ON THE ABOVE OBSERVATIONS, THE ALP OF THE SERVICES PROVIDED TO T HE ASSESSEE BY KPENV UNDER THE MSSA WAS HELD TO BE NIL AND ACCORDINGLY THE LD TPO MADE AN UPWARD ADJUSTMENT TO ALP BY RS 339,17,83,606/-. 3.7. THE LD DISPUTE RESOLUTION PANEL (DRP) ON VERIF ICATION OF THE WORKING SHEETS DETAILING THE PAYMENT ALLOCATION KEYS GIVING OUT TH E BASIS OF PAYMENTS MADE TO THE AE. IT OBSERVED THAT THE AE RENDERS SET OF SERVICES TO THE ASSESSEE WHICH ARE CATEGORIZED BROADLY IN THE FOLLOWING MODULES :- 13 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 13 MODULE 1 : THE COSTS OF THE CONCERN GROUP SERVICES, COMPANY RESEARCH AND PATENT & LICENSE ACTIVITIES ARE ALLOCATED BASED UPON RELEVAN T TURNOVER. MODULE 2 : THE COSTS OF THE SECTOR / BUSINESS GROUP SERVICES ARE ALLOCATED BASED UPON THE SECTOR / BUSINESS RELEVANT TURNOVER. MODULE 3 : THE COSTS OF THE BUSINESS UNIT (BU) SERV ICES ARE ALLOCATED BASED UPON 3A : THE BU RELEVANT TURNOVER ; OR 3B : THE BU PRODUCTION VALUE MODULE 4 : THE COSTS OF THE REGIONAL SERVICES ARE A LLOCATED BASED UPON : 4A: SECTOR / BUSINESS RELEVANT TURNOVER IN THE REGI ON ; OR 4B: SALES TO THIRD PARTIES BY SELLING ORGANIZATIONS IN THE REGION MODULE 5 : THE COSTS OF THE CONCERN DEVELOPMENT ACT IVITIES ARE ALLOCATED BASED UPON : 5A: PRODUCTION VALUE ; OR 5B: PRODUCTION QUANTITIES (MOSTLY AT AG LEVEL). 5C: PURCHASE VALUE IN CASE OF OUTSOURCED PRODUCTION OR CONTRACT MANUFACTURING (INTERNAL OR EXTERNAL PHILIPS) THE SERVICES AS PER MODULE 3 ARE NIL FOR INDIAN ENT ITY. THE ASSESSEE HAS ALLOCATED COSTS IN PROPORTION OF THE TURNOVER FOR MODULES 1, 2, & 4 WHEREAS THE ALLOCATION FOR MODULE 5 IS BASIS PRODUCTION VALUE RATIOS. IT HELD THAT IT HAS TO BE SEEN IN THE CONTEXT OF THESE SERVICES AS TO WHETHER THESE RESULT IN SOME TANGIBL E BENEFIT TO THE ASSESSEE OR NOT. THE SERVICES AS THEY APPEAR ARE ROUTINE SERVICES AND IT MAY BE JUST TO STANDARDIZE THE OUTPUT OF THE ASSESSEE. THE UNIQUE FACTORS OF THE INDIAN MARKET CANNOT BE GOVERNED AND STRATEGIZED THROUGH GUIDANCE FROM THE PARENT SET UP WHICH MAY NOT HAVE ENOUGH EXPERTISE. FURTHER, THE PRODUCTION BY THE INDIAN E NTITY MAY BE AS PER SPECIFICATION FROM 14 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 14 THE PARENT, BUT THIS CANNOT EXTEND TO THE OFFICE A ND MARKET OPERATIONS OF THE SOURCING ETC. OF THE ASSESSEE. THE LD DRP OBSERVED THAT THE LD COUNSEL FOR THE ASSESSEE CONTENDED THAT ASSESSEE IS A RISK BEARING MANUFACTU RER IN THIS CONTEXT IT IS QUITE ILLOGICAL THAT THE ENTITY IS MAGNIFYING ITS COSTS B Y AVAILING OF SERVICES WHICH AT BEST CAN BE DUPLICATE IN NATURE AND CONTENT. IT OBSERVED THA T THE EXAMINATION OF THE FINANCIALS LEADS TO THIS CONCLUSION. IT FINALLY HELD THAT THE SERVICE CONTENT DOES NOT APPEAR TO BE OF THE NATURE OF STEWARDSHIP NATURE AND THE LD TPO IS WELL WITHIN HIS STATUTORY DOMAIN TO DETERMINE THE ALP FOR THE INTRA GROUP SERVICES REND ERED APPARENTLY PER FORCE TO THE ASSESSEE. THE LD DRP PLACED RELIANCE ON THE DECI SION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES REPORTED IN (2012) 34 5 ITR 241 (DEL) WHEREIN IT WAS HELD THAT :- 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOWAN CE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HI S BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRR ELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO T HE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A PART THEREOF O N THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THERE IS CERTAINL Y NO AUTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE AS SESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY 3.7.1. IT FURTHER HELD THAT ASSESSEE HAS TO MEET TH E RIGORS OF THE BENEFIT TEST AS LAID DOWN IN THE RECENT JUDGEMENT OF DELHI TRIBUNAL IN THE CASE OF BOMBARDIER TRANSPORTA TION INDIA PVT LTD REPORTED IN 2015-TIOL-473-ITAT-DEL-TP WHEREIN IT WAS HELD AS UNDER:- INTRA GROUP SERVICES VIS--VIS BENEFIT TEST IT IS SEEN THAT IN THE PRESENT A.Y. THERE IS CLEAR FINDING BY THE TPO AND THE DRP THAT THE ASSESSEE HAS NOT GIVEN THE DETAILS OF THE TOTAL COSTS INCURRED BY THE AE ON PARTICULAR SERVICES. IN FACT, THE ASSESSEE COULD NOT ESTABLISH HOW THE SAID COST WAS INCURRED AND ON WHAT BASIS THE SAID COST WAS PLACED UPON THE ASSESS EE. THUS, THE ASSESSEES CONTENTIONS OF THE BENEFIT GIVEN IN A.Y. 2008-09 AND 2010-11 BE TAKEN INTO CONSIDERATION, DOES NOT 15 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 15 SURVIVE. THE PAYMENT FOR INTRA GROUP SERVICES TO AE S IS SEPARATE INTERNATIONAL TRANSACTION INDEPENDENT OF FINANCIAL RESULTS AND CA PABLE OF VERIFIABLE SEPARATELY. THEREFORE, THE TPO WAS RIGHT IN HIS ACTION TO DETER MINE THE ALP SEPARATELY, RATHER THAN AGGREGATING IT WITH OTHER TRANSACTIONS UNDER TNMM. THE DOCUMENTS FIELD BEFORE THE PANEL SHOWS THAT THE ASSESSEE COMPANY HAVE RECEIVED HARDWARE/SOFTWARE FROM THIRD PARTIES DIRECTLY AND THE BILING WAS ALSO RAISED BY THOSE THIRD PARTIES ON THE ASSESSEE. ONLY THE SAID TRANSACTION WAS ROUTED THROUGH THE AE , THOSE INVOICES WERE TO THE TUNE OF RS.13,87,84,117/- AND INVOICES AMOUNTING TO RS.97, 99,091/- WHICH WAS RAISED BY THE THIRD PARTIES ON THE AE FOR THE SERVICES RENDERED B Y THEM TO THE ASSESSEE. THUS, THE DRP RIGHTLY DIRECTED THE TPO TO EXAMINE THESE INVOICES AND ALLOWABILITY OF THE SAME AS EXPENSE TO BE DECIDED. FROM THE REVIEW OF THE SERVI CES AND BENEFIT REPORT AND THE SUPPORTING DOCUMENTS SUBMITTED BY THE ASSESSEE, IT CAN BE SEEN THAT THE ASSESSEE COMPANY IS BENEFITED FROM THE SUPERVISION AND GUIDA NCE OF THE GROUPS FUNCTIONAL EXPERTS. THOUGH, THE ANNEXURES SHOW THAT THE ASSESS EE WAS BENEFITTED SIGNIFICANTLY FROM THE INTRA-GROUP SERVICES RECEIVED FROM ITS AES, IT FAILED TO GIVE THE SUPPORTING EVIDENCE SUCH AS INVOICE, CONFIRMATION FROM PARTIES TO PROVE THE SAME. THE ASSESSEE HAS ALSO UNDERTAKEN A DETAILED COST BENEFIT ANALYSIS IN ORDE R TO DEMONSTRATE THE COST SAVINGS ACHIEVED BY IT BY AVAILING THE SAID SERVICES FROM T HE AES. THEREFORE, WHEN AES TRANSACT WITH EACH OTHER, FOR THE PURPOSE OF TRANSFER PRICIN G, THEY MUST REPLICATE THE DYNAMICS OF MARKET FORCES, AS THERE IS NO CONCEPT OF FREE LUNCH IN BUSINESS DEALINGS. THUS, THE DRP RIGHTLY HELD THAT THE BENEFIT TEST WHICH IS WELL RE COGNIZED BY OECD AND OTHER DEVELOPED COUNTRIES TAX REGIME HAVE TO BE SEEN FOR ALLOWING T HE PAYMENT IN CASE OF INTRA-GROUP SERVICES. THE EXPECTED BENEFIT MUST BE SUFFICIENTLY DIRECT AND SUBSTANTIAL SO THAT AN INDEPENDENT ENTITY IN SIMILAR CIRCUMSTANCES, WOULD BE PREPARED TO PAY FOR IT. IF NO BENEFITS HAVE BEEN PROVIDED THEN THE SERVICES CANNO T BE CHARGED FOR. SINCE THE ASSESSEE JUST EXPLAINED IN GENERIC NATURE ABOUT THE BENEFITS VIS--VIS THE INTRA-GROUP SERVICES PAYMENT TO ITS AES, THEREFORE, WE UPHOLD THE ORDERS OF THE DRP AS WELL AS THE TPO. 3.7.2. THE LD DRP ALSO PLACED RELIANCE ON THE DECIS ION OF DELHI TRIBUNAL IN THE CASE OF KNORR BREMSE INDIA P LTD VS ACIT IN ITA NO. 5097/DE L/2011 FOR AY 2007-08 WHEREIN IT WAS HELD THAT :- 9.2. AFTER HEARING THE PARTIES WITH REFERENCE TO M ATERIAL ON RECORD, WE FIND THAT THE AUTHORITIES BELOW HAVE NOT CONCLUSIVELY HELD THAT T HE ASSESSEE COULD NOT ENTER INTO SUCH A TRANSACTION NOR HAD THEY DISALLOWED THE SAME BY H OLDING THAT SUCH AN EXPENDITURE IS NOT ASSESSEE'S BUSINESS EXPENDITURE. THE DRP AS WEL L AS THE AUTHORITIES BELOW HAVE MERELY ELUCIDATED THAT THE PAYMENTS ARE REIMBURSEME NT IN RESPECT OF MS. RITA RICKEN AND OTHER PERSONNEL'S CASE TO SERVE THE INTEREST OF SHARE HOLDERS. BY SAYING SO THEY HAVE ONLY DESCRIBED (HE CIRCUMSTANCE UNDER WHICH THE INT ERNATIONAL TRANSACTION HAS BEEN ENTERED BY THE APPELLANT. SO AS TO TEST THE BENEFIT THAT CAN BE SAID TO HAVE REACHED THE ASSESSEE. IT, THEREFORE, CANNOT BE SAID TO HAVE QUE STIONED THE COMMERCIAL EXPEDIENCY OF SUCH TRANSACTIONS ENTERED BY THE APPELLANT. THE I.T RULES CONTAIN EXHAUSTIVE DETAIL REGARDING NATURE OF INFORMATION AND DOCUMENTS WHICH ARE REQUIRED TO BE MAINTAINED BY THE ASSESSEE. RULE 10D(1) OF THE 1. T RULES. 1962 A LSO MANDATES THE MAINTAINABILITY 16 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 16 OFRECORD OF UNCONTROLLED TRANSACTIONS TO BE TAKEN I NTO ACCOUNT IN ANALYSING THE COMPARABILITY OF THE INTERNATIONAL FUNCTIONS ENTERE D INTO BY THE ASSESSEE. IT, THEREFORE, IS OBLIGATORY ON PART OF THE APPELLANT TO MAINTAIN SUC H RECORD AND PRODUCE THE SAME BEFORE THE TPO TO SHOW THAT IT HAS BENCHMARKED THE INTERNATIONAL TRANSACTION AT ALP. THIS OBLIGATION, HOWEVER, HAS NOT BEEN DISCHARGED B Y THE ASSESSEE. 9.3. THE APPELLANT IN THE PRESENT CASE IS ALSO NOT SHOWN TO BE WILLING TO PAY ANY AMOUNT FOR SUCH SERVICES, IF IT WERE, SO PROVIDED BY AN IN DEPENDENT ENTERPRISE OR IF THE SAME WOULD HAVE BEEN PERFORMED IN HOUSE. THE DRP IS FOUN D TO HAVE CONSIDERED THESE SERVICES AS NON-BENEFICIAL FOR THE RECIPIENT AND DI D NOT TAKE IT AS CHARGEABLE SERVICES. THE PERUSAL OF E-MAILS AND OTHER CONTEMPORANEOUS RE CORD ONLY GOES TO REVEAL THAT INCIDENTAL AND PASSIVE ASSOCIATION BENEFIT HAS BEEN PROVIDED BY THE ASSOCIATE ENTERPRISE. IN THIS VIEW OF THE MATTER THERE COULD NEITHER BE ANY COST CONTRIBUTION OR COST REIMBURSEMENT NOR PAYMENT FOR SUCH SERVICES TO THE AE. THE TPO, THEREFORE, HAS RIGHTLY ADOPTED NIL VALUE FOR BENCHMARKING THE ARM'S LENGTH PRICE IN RESPECT OF BOTH THESE SERVICES. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE WELL REASONED CONCLUSION REACHED BY THE AO ON THIS COUNT. THE GRO UNDS RAISED IN APPEAL IN THIS RESPECT, THEREFORE, STAND REJECTED. ' 3.7.3. BASED ON THE AFORESAID OBSERVATIONS AND JUDI CIAL PRECEDENTS RELIED UPON, THE LD DRP HELD THAT THE SERVICES ARE NOT OF THE NATURE OF STEWARDSHIP IN NATURE BUT ALSO NOT MEETING THE BENEFIT TEST SO AS TO MERIT ALLOWANCE O F THE SAME AND ACCORDINGLY UPHELD THE ALP DETERMINED BY THE LD TPO THOUGH NOT AS STEWARDS HIP SERVICE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS:- 2. DETERMINATION OF ARM'S LENGTH PRICE BY THE AO, TPO AND DRP FOR MANAGEMENT SUPPORT SERVICES RECEIVED BY THE APPELLA NT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED AO, DRP AND TPO ERRED IN REJECTING THE TRANSFER PRICING ANALYSI S UNDERTAKEN BY THE APPELLANT WITH RESPECT TO THE MANAGEMENT SUPPORT SE RVICES WITHOUT APPRECIATING THE CONTENTIONS, ARGUMENTS, VOLUMINOUS DOCUMENTARY EVIDENCES AND DATA PUT FORWARD BY THE APPELLANT DUR ING THE COURSE OF THE PROCEEDINGS BEFORE THEM AND IN DOING SO HAVE GROSSL Y ERRED IN - 2.1 MAKING AN ADJUSTMENT OF RS. 339,17,83,606/- TO THE ARM'S LENGTH PRICE (HEREIN REFERRED TO AS 'ALP') OF THE INTERNATIONAL TRANSACTION RELATING TO MANAGEMENT SUPPORT SERVICES RECEIVED BY THE APPELLA NT AND IN NOT ACCEPTING THE ALP OF THE INTERNATIONAL TRANSACTION AS RECORDED IN THE BOOKS OF THE APPELLANT IN SPITE OF HOLDING AND THER EBY NEGATING THE TPO'S 17 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 17 VIEWPOINT THAT SERVICES ARE NOT IN THE NATURE OF ST EWARDSHIP SERVICES AND THUS NEGATING THE FINDINGS OF THE TPO; 2.2 CONCLUDING THE ALP FOR SERVICES PROVIDED BY TH E ASSOCIATED ENTERPRISE ('AE') TO THE APPELLANT UNDER THE MANAGEMENT SUPPOR T SERVICES AGREEMENT TO BE NIL; 2.3 COMPLETELY DISREGARDING THE BENEFITS RECEIVED BY THE APPELLANT ON RECEIPT OF SUCH MANAGEMENT SERVICES AND NOT APPRECIATING TH AT SUCH SERVICES ARE NOT DUPLICATIVE AND HAVE SIGNIFICANTLY ASSISTED THE APPELLANT IN ACHIEVING ITS DAILY OPERATIONAL EFFICACY; 2.4 IGNORING THE FACT THAT THE VOLUMINOUS TANGIBLE EVIDENCES FURNISHED UNAMBIGUOUSLY DEMONSTRATE REGULAR FLOW OF VALUABLE SERVICES RECEIVED BY THE APPELLANT FROM THE ASSOCIATED ENTERPRISES AND N OT DISCUSSING THE SAME APPROPRIATELY IN THE RESPECTIVE ORDERS; 2.5. CONCLUDING THAT NO SPECIFIC BENEFIT WAS RECEIVED BY THE APPELLANT AND THUS HOLDING THAT BENEFIT TEST HAVE NOT BEEN SA TISFIED BY THE APPELLANT SO AS TO MERIT ALLOWANCE OF SUCH EXPENSES; 2.6. REJECTING/ NOT TAKING COGNIZANCE OF THE TRANSA CTIONAL LEVEL ECONOMIC ANALYIS UNDERTAKEN BY THE APPELLANT IN THE TP STUDY TO SUBSTANTIATE THE ARMS LENGTH PRICE OF SUCH TRANSACTION; 2.7 NOT APPRECIATING THE FACT THAT PERCENTAGE OF SALES INCREASED IN THE FUTURE YEARS AFTER THE APPELLANT STARTED RECEIVING MANAGEM ENT SUPPORT SERVICES ; 2.8 ERRED IN CONCLUDING THAT NO SPECIFIC BENEFIT WAS RE CEIVED BY THE APPELLANT FROM THE SERVICES RECEIVED ; 2.9 NOT APPRECIATING THAT THE APPELLANT BEING A PAR T OF MULTINATIONAL ENTERPRISE WHEREIN MANY PROCESSES ARE CENTRALIZED T O FACILITATE THE GROUP ENTITIES TO ATTAIN OPERATIONAL EFFICIENCY AND A COM PETITIVE EDGE IN THEIR RESPECTIVE COUNTRIES. THESE ARRANGEMENTS ARE MEANT FOR THE BENEFICIARY OF SUCH POOLED SERVICES; 2.10. NOT TAKING COGNIZANCE OF THE FACT THAT RATION AL AND SCIENTIFIC ALLOCATION KEYS FOR THE PAYMENT OF MANAGEMENT SUPPORT SERVICE FEES WERE PROVIDED BY THE APPELLANT AND THAT THE APPELLANT HAS MAINTAI NED PROPER 18 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 18 DOCUMENTATION AND GLOBAL AUDITOR'S CERTIFICATE TO D EMONSTRATE THE BASIS OF THE CHARGE; 2.11. WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, NOT TAKIN G COGNIZANCE OF THE FACT THAT THE AO IN THE CASE OF KPENV (I.E THE ASSO CIATE ENTERPRISE OF PHILIPS INDIA FROM WHICH IT AVAILS MSSA SERVICES) , FOR THE SAME AY, HAS HELD THAT THE SERVICES PROVIDED BY KPENV TO THE APP ELLANT ARE FOR THE SURVIVAL AND SUCCESS OF THE APPELLANT, WHICH VIEW H AS ALSO BEEN UPHELD BY THE DRP PANEL IN THE CASE OF KPENV AND THEREBY RESU LTING IN A CONTRADICTORY APPROACH. 4. RULE OF CONSISTENCY 4.1 THE LEARNED AO, DRP AND TPO ERRED IN DISALLOWI NG THE PAYMENTS MADE FOR MANAGEMENT SUPPORT SERVICES BY THE APPELLA NT IN THE YEAR UNDER APPEAL WITHOUT APPRECIATING THAT THE SAME HAVE BEEN ACCEPTED TO BE AT ARM'S LENGTH IN THE APPELLANT'S OWN CASE IN ALL PRE CEDING YEARS (I.E. FOR ALL THE ASSESSMENT YEARS PRECEDING TO AY 2009-10) BY TH E AO AND THE TPO. 4.3. THE LEARNED TPO ERRED IN NOT APPLYING THE RUL E OF CONSISTENCY TO TRANSFER PRICING PROCEEDINGS WHEN THE FACTS OF THE CASE INCL UDING THE UNDERLYING ARGUMENTS HAVE NOT ALTERED. 4. THE LD AR VEHEMENTLY RELIED ON THE ORDERS OF THI S TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR THE ASST YEAR 2009-10 IN ITA NO. 1141/KOL/ 2016 DATED 5.4.2017 ; FOR THE ASST YEAR 2010-11 IN ITA NOS . 2408 /KOL/2016 AND 505/KO L/2015 DATED 27.6.2017 AND FOR THE ASST YEAR 2011-12 IN ITA NOS. 863 & 539/KOL/201 6 DATED 15.12.2017 WHEREIN IT WAS HELD THAT THE ASSESSEE HAD DULY DEMONSTRATED TH E BENEFITS DERIVED PURSUANT TO MSSA SERVICES RENDERED BY THE AE AND DELETED THE AD JUSTMENT MADE TO ALP THEREON. THE LD AR ARGUED THAT EVEN IN THIS YEAR, THE MSSA I S GOVERNED BY THE VERY SAME AGREEMENT ENTERED INTO ON 22.10.2004 AS WAS CONSIDE RED BY THIS TRIBUNAL IN THE EARLIER YEARS SUPRA AND HENCE THERE IS NO NEED TO TAKE A DI VERGENT VIEW DURING THIS YEAR. 19 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 19 5. IN RESPONSE TO THIS, THE LD DR RELIED ON THE WRI TTEN SUBMISSIONS FILED BY HIM DURING THE COURSE OF APPELLATE PROCEEDINGS FOR THE ASST YE AR 2011-12 AND THE SAME ARE REPRODUCED HEREUNDER:- THE INDIAN TRANSFER PRICING REGULATIONS EXPLICITLY COVER THE TRANSACTIONS IN THE NATURE OF PROVISION OF SERVICES, INCLUDING PROVISIO N OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE, WITHIN THE AMBIT OF TRANSFER PRICING PROVISIONS. HO WEVER, THEY FAIL TO PRO-VIDE ANY FURTHER GUIDANCE ON THE APPROACH TO BE FOLLOWED WHI LE BENCHMARKING INTRA-GROUP SERVICES. RELIANCE IS THUS, PLACED ON THE INTERNATI ONAL TAX PRACTICES FOLLOWED IN THE UN TP MANUAL, OECD GUIDELINES, THE UNITED STATES TR ANSFER PRICING REGULATIONS ETC. BOTH BY THE TAXPAYER AND THE REVENUE WHILE UND ERTAKING THE COMPLIANCE AND THE AUDIT EXERCISE RESPECTIVELY THE TEST FOR AN INT RA-GROUP SERVICE GENERALLY INVOLVES EXAMINATION OF THE FOLLOWING FACTORS: THE NATURE OF ACTIVITIES; THE ASSOCIATED NEED AND BENEFITS; DOCUMENTARY EVIDENCE IN SUPPORT OF THE TRANSACTIO N; THE CHARGE-OUT MECHANISM; AND THE ALP OF THE TRANSACTION. NATURE OF ACTIVITIES IN TRANSFER PRICING'S CONTEXT, IT IS ESSENTIAL TO D RAW A LINE OF DISTINCTION BETWEEN A BUSINESS ACTIVITY AND A SERVICE. ESSENTIALLY THE GUIDING PRINCIPLE THAT GOES IN DETERMINING THE EXISTENCE OF AN INTRA-GROUP SERVICE IS WHETHER AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE B EEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED FOR IT BY AN INDEPENDENT ENTE RPRISE OR WOULD HAVE PERFORMED THE ACTIVITY IN-HOUSE FOR ITSELF. AN IN-D EPTH ANALYSIS, FOLLOWING THE AFOREMENTIONED CONCEPTUAL DIFFERENCE BETWEEN BUSINE SS ACTIVITIES AND SERVICES, CLEARS THE AIR ON MANY COMMON BUSINESS ACTIVITIES E RRONEOUSLY PERCEIVED TO BE IN THE NATURE OF INTRA-GROUP SERVICES. THIS INCLUDE S: ACTIVITIES WITHOUT ANY BENEFIT: ANY ACTIVITY WHIC H DOES NOT LEAD TO AN INCREMENTAL COMMERCIAL OR ECONOMIC VALUE ADDITION F OR THE RECIPIENT CANNOT BE REGARDED AS A SERVICE. IN THE CASE OF GEMPLUS INDIA (P.) LTD VS ACIT, [2010] 8 TAXMANN.COM 170 THE BANGALORE TRIBUNAL UPHELD THE A DJUSTMENT MADE BY THE TPO WHERE THE PAYMENTS TO BE MADE TO AE WERE NOT DE PENDENT ON THE NATURE AND VOLUME OF SERVICE AND EVEN THE APPELLANT FAILED TO PROVE ANY COMMENSURATE BENEFIT AGAINST SUCH PAYMENTS. THE TRI BUNAL RULED THAT THE TPO WAS JUSTIFIED IN HOLDING THAT ASSESSEE HAD NOT PROV ED ANY COMMENSURATE BENEFITS AGAINST PAYMENTS OF MANAGEMENT SERVICE CHA RGE, THEREFORE, UPHELD THE IMPUGNED ADDITION. IT IS IMPORTANT TO HIGHLIGHT HERE THAT AN INDEPENDENT ENTITY WOULD NEVER HAVE ENTERED INTO AN AGREEMENT F OR RECEIPT OF SERVICES THE TERMS OF PAYMENTS OF WHICH WOULD BE INDEPENDENT OF THE NATURE AND VOLUME OF 20 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 20 SERVICE. THIS RULING REITERATE THE AFOREMENTIONED P RINCIPLE THAT DISTINGUISHES A SERVICES FROM OTHER BUSINESS ACTIVITIES. SHAREHOLDE R / CUSTODIAL ACTIVITIES: THE ACTIVITIES OF A PARENT COMPANY PRIMARILY AS AN INVE STOR OF CAPITAL OR A SHAREHOLDER OF THE SUBSIDIARY WHICH ARE MAINLY UNDE RTAKEN FOR THE BENEFIT OF THE GROUP'S SHAREHOLDERS ARE CONSIDERED AS SHAREHOLDER ACTIVITIES. IT ALSO COVERS ACTIVITIES INVOLVING COMPLIANCE OF REGULATORY, LEGA L, AND REPORTING REQUIREMENT OF THE PARENT COMPANIES. A THIRD PARTY WOULD NEVER REQ UIRE SUCH SERVICES AND SO WOULD NEVER MAKE PAYMENTS FOR THEM. FOR EXAMPLE: AC TIVITIES IN RELATION TO CONSOLIDATION OF ACCOUNTS BY THE PARENT COMPANY WOU LD CONSTITUTE SHAREHOLDERS SERVICES, REQUIRING NO REMUNERATION FOR THE COSTS I NCURRED. ACTIVITIES PROVIDING INCIDENTAL OR REMOTE BENEFIT S: IN A SITUATION WHERE AN ENTITY RECEIVES INCIDENTAL BENEFITS ATTRIBUTED SOLE LY TO IT BEING PART OF THE MNE GROUP, AND NOT BECAUSE OF ANY SPECIFIC ACTIVITY BEING PERFORMED, THE SAME REQUIRES NO REMUNERATION. SIMILARLY, AN EN TITY MAY BE RECEIVING INCIDENTAL BENEFITS BECAUSE OF ACTIVITIES RELATING TO OTHER GROUP MEMBERS. AN INDEPENDENT ENTERPRISE IN AN UNCONTROLLED ENVIRO NMENT IS NOT EXPECTED TO MAKE PAYMENTS FOR AN INCIDENTAL BENEFIT ASSOCIATED WITH ANOTHER SET OF UNCONTROLLED TRANSACTION. BASIS THIS , IT CAN BE SURMISED THAT INCIDENTAL BENEFIT DO NOT REQUIRE AN INDEPENDE NT REMUNERATION ARRANGEMENT. THE DELHI TRIBUNAL IN THE CASE OF M/S KNORR-BREMSE INDIA PVT. LTD VS ACIT TS-700-ITAT-2012 (DEL)HELD THAT PR OFESSIONAL CONSULTANCY AND MANAGEMENT FEE PAID BY THE APPELLAN T WERE ONLY TOWARDS INCIDENTAL AND PASSIVE ASSOCIATION BENEFITS , THEREFORE THE TRANSFER PRICING OFFICER HAD RIGHTLY ADOPTED NIL VA LUE AS THE ALP. ACTIVITIES LEADING TO DUPLICATION OF BENEFITS: A THIRD PARTY WOULD NEVER MAKE PAYMENT FOR RECEIVING THE SAME SERVICE TWICE S INCE THE INCREMENTAL BENEFIT IS LOST. KEEPING THIS IN MIND, AN ACTIVITY LEADING TO DUPLICATION OF BENEFITS CANNOT BE CONSTRUED AS A SE RVICE AND THEREFORE DOES NOT REQUIRE ANY REMUNERATION. SURMISING THE ABOVE, FOR AN ACTIVITY TO QUALIFY AS A SERVICE, THE FUNDAMENTAL FACTOR THAT NEED TO BE CONSIDERED IS: WHETHER AN INDEPENDENT ENTERPRISE WOULD HAVE BEE N WILLING TO PAY FOR THE ACTIVITY; OR WHETHER AN INDEPENDENT ENTERPRISE WOULD HAVE PERF ORMED THE ACTIVITY IN-HOUSE ITSELF. EVALUATING THE NEEDS AND BENEFITS OF INTRA-GROUP SE RVICES IT INVOLVES IDENTIFYING THE INCREMENTAL ECONOMIC OR COMMERCIAL VALUE THAT HAS ARISEN TO THE SERVICES RECIPIENT. A DIRECT NEXUS BE TWEEN THE SERVICES RECEIVED AND THE CORRESPONDING VALUE CREATED SHOULD BE ESTAB LISHED. AN INTRA-GROUP SERVICE SHOULD BE ANALYSED TO SEE HOW IT HELPS THE SERVICE RECIPIENT MAKE GAINS THROUGH INCREASED PROFITABILITY BE IT BY INCREASING SALES OR BY REDUCING COSTS. IN ORDER TO UNDERSTAND THE VALUE CREATION ASPECT OF IN TRA-GROUP SERVICES, IT IS NECESSARY TO BREAK THE SAME INTO BITS AND PIECES AN D ANALYSE IT FURTHER. THE VALUE OF AN INTRA-GROUP SERVICES CAN SEGREGATED INT O ITS REFERENCE VALUE AND ITS 21 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 21 DIFFERENTIAL VALUE. THE REFERENCE VALUE OF AN INTRA -GROUP SERVICE WOULD NECESSARILY CONSTITUTE THE PRICE OF THE NEXT BEST A LTERNATIVE. WHEREAS, THE DIFFERENTIAL VALUE OF THE SERVICE IS ESSENTIALLY TH E NET BENEFIT IT DELIVERS TO THE RECIPIENT OVER AND ABOVE THOSE RENDERED BY COMPETIT IVE REFERENCE SERVICE PROVIDERS I.E. THE VALUE OVER AND ABOVE THE REFEREN CE VALUE. IN SHORT, IT IS THAT PART OF THE ECONOMIC VALUE WHICH IS ATTRIBUTED TO I TS DIFFERENCE OVER ALTERNATIVES. IT IS VERY COMMON TO FIND AN INDIAN SUBSIDIARY OF A N MNE GROUP RECEIVING SOME CENTRALLY PROVIDED SERVICES, FOR INSTANCE TO GAIN ECONOMIES OF SCALE THROUGH THE CONCENTRATION OF ACTIVITIES. THESE SERVICES MAY VAR Y FROM BEING VERY SIMPLE ADMINISTRATIVE FUNCTIONS TO MORE COMPLEX INDUSTRY S PECIFIC FUNCTIONS. THE DECISION TO PROVIDE CERTAIN SERVICES CENTRALLY MAY ALSO BE DETERMINED BY THE NEED TO HAVE THE BEST PRACTICES IMPLEMENTED ACROSS GEOGRAPHIES. THUS IT CAN BE SAID THAT THE NEEDS AND BENEFITS OF INTRA-GROUP SERVICE ARRANGEMENTS IS DRIVEN BY THE NECESSITY TO ACHIEVE OPERATIONAL EFFI CIENCY, IMPROVE BUSINESS OPERATIONS, STANDARDIZE POLICIES, PROCEDURES AND CO NTROLS THAT ARE CONDUCIVE TO THE MNE GROUP'S BUSINESS OPERATIONS. DOCUMENTARY EVIDENCE IN SUPPORT OF INTRA-GROUP SERV ICES WHERE A PAYMENT HAS BEEN MADE FOR AN INBOUND SERVIC E, A TAXPAYER IS EXPECTED TO PROVIDE DOCUMENTARY PROOF OF TANGIBLE B ENEFIT ACCRUED ON ACCOUNT INTRA-GROUP SERVICES RECEIVED. THE FOLLOWING DOCUM ENTS ARE ESSENTIAL FOR ANY TAXPAYER TO SUPPORT THE CHARGES FOR INTRA-GROUP SER VICES: SERVICE AGREEMENTS BETWEEN PARTIES: THE SERVICE A GREEMENT PROVIDES A BASIC LEGAL FRAMEWORK FOR RECEIPT OF SERVICES AND I S EXPECTED TO COVER EVERY POSSIBLE DETAIL. THE AGREEMENT SHOULD LIST THE SERV ICES TO BE PROVIDED ALONG WITH HOW AND WHEN THESE SERVICES ARE BE REQUISITION ED. THE AGREEMENT SHOULD PROVIDE WHAT COSTS ARE TO BE INCLUDED IN THE CHARGE FOR THE SERVICES AND THE BASIS OF DETERMINING THE PAYMENT FOR VARIOU S CATEGORIES OF SERVICES. IN CASE THE ALL OR A PART OF THE SERVICE IS OUTSOUR CED TO A THIRD PARTY, THE SAME MAY BE MENTIONED IN THE AGREEMENT ALONG WITH T HE MARK-UP, IF ANY CHARGED ON THE THIRD PARTY COSTS. IT IS ADVISABLE T HAT THE SERVICE AGREEMENT CONTAINS A CLAUSE PROVIDING THE PARAMETERS OF THE M EASURING THE EXPECTED BENEFITS AND LINKING THE CHARGES TO SUCH BENEFITS. SUCH AN ARRANGEMENT HELP IN ESTABLISHING THE COST BENEFIT NEXUS BEFORE THE I NDIAN REVENUE. COST BENEFIT ANALYSIS: DETAILS OF COST BENEFIT ANA LYSIS, IF ANY UNDERTAKEN AT THE TIME OF ENTERING INTO THE AGREEMENT. THIRD PARTY QUOTES FOR SIMILAR SERVICES IF ARRANGED FOR AT THE TIME OF ENTERING INTO THE AGREEMENT, SHO ULD ALSO BE MADE AVAILABLE FUNCTIONAL ANALYSIS: THE FUNCTIONAL ANALYSIS SHOUL D COVER ALL BASIC QUESTIONS LIKE: WHO IS DOING WHAT AND FOR WHOM; WHERE ARE THEY DOING IT; WHY ARE THEY DOING IT; WHO ARE THEY DOING IT; WHAT PROPERTY IS BEING USED OR TRANSFERRED IN CONN ECTION THEREWITH; BENEFIT TEST DOCUMENTATION: SERVICES MAY BE RECEIV ED BY WAY OF CONFERENCE CALLS, OCCASIONAL VISITS AND MAILS / PRESENTATIONS / TOOL KITS EXCHANGED FROM TIME TO TIME. 22 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 22 THE ACTUAL EVIDENCE OF RECEIPT OF SERVICES CAN BE E STABLISHED WITH THE HELP OF THE POLICIES / E MAILS / GUIDELINES / PRESENTATIONS USE D DURING THE RENDITION OF SERVICES. IN ADDITION TO THESE, COPIES OF TIME SHEETS OF THE SERVICE PROVIDERS PERSONNEL, COST CENTRE REPORTS AND GLOBAL TRANSFER PRICING DOCUMENT ATION CAN ALSO BE HELPFUL IN SUBSTANTIATING AND JUSTIFYING INTRA-GROUP SERVICES. THE TABLE BELOW GIVES AN ILLUSTRATIVE LIST OF FEW GENERIC SERVICES AND THE C ORRESPONDING BENEFIT TEST DOCUMENTS THAT MAY BE SUBMITTED: NATURE OF SERVICES EXAMPLES OF BENEFIT TEST DOCUMEN TS FINANCE AND TREASURY LEGAL - EMAIL CORRESPONDENCE AND DOCUMENTS SHOWING FINANCIAL REPORTING AND ACCOUNTING GUIDELINES RECEIVED; - MANUALS GOVERNING INVESTMENT AND TRANSFER OF ASSETS DECISIONS; - PRESENTATIONS ON USAGE OF FINANCIAL REPORTING AND GROUP RECORD MANAGEMENT SOFTWARE AND DATABASES; - TREASURY MANAGEMENT STRATEGY AND GUIDANCE; AND - EMAIL CORRESPONDENCE BETWEEN THE AE AND THIRD PARTY BANKS IN LIEU OF NEGOTIATIONS OF INTEREST RAT ES, LOANS, CREDIT LINES ETC. - CORRESPONDENCES HIGHLIGHTING THE LEGAL ASSISTANCE IN THE FORM OF EMAILS AND DRAFT CONTRACTS; - GUIDANCE RECEIVED ON HIRING A FOREIGN COUNSEL; - GUIDANCE ON LEGAL SYSTEM, PREVAILING IN A FOREIGN JURISDICTION WHERE THE SERVICE RECIPIENT HAS A BUSINESS INTEREST; - ASSISTANCE REGARDING SETTING UP AN OVERALL LEGAL POLICY. BUSINESS DEVELOPMENT - PRESENTATION AND CORRESPONDENCES DEPICTING FORMULATION OF BUSINESS DEVELOPMENT STRATEGY, IDENTIFICATION OF BUSINESS OPPORTUNITIES IN NEW MARKETS, ACQUISITION AND STRATEGY ALLIANCE, IDENTIFICATION OF CUSTOMER BASE, ASSISTANCE IN NEGOTIATION ETC.; - BUSINESS PROPOSALS FOR NEW CUSTOMER PREPARED BY THE SERVICE PROVIDER; - MARKET RESEARCH REPORT RECEIVED FROM SERVICE PROVIDER. TAX - MEMOS AND PRESENTATIONS RECEIVED CONTAINING RECOMMENDATION AND ADVISE ON VARIOUS TAX 23 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 23 IMPLICATIONS IN RESPECT OF FOREIGN OPERATIONS; - INSIGHTS INTO POTENTIAL TAX EXPOSURES FOR SPECIFI C PROJECTS SUCH AS INVESTMENTS, ACQUISITION OR REORGANISATIONS. INFORMATION TECHNOLOGY - CALL LOGS DETAILING THE DESCRIPTION OF PRODUCTS / SERVICES USED BY EMPLOYEES OF SERVICE RECIPIENT ALONG WITH THE AMOUNT PAID FOR THE PRODUCT / SERVICES AND THE QUANTITY; - ROLE OF RECIPIENT COMPANYS PERSONNEL ENGAGED IN INFORMATION TECHNOLOGY OPERATIONS VIS.A VIS. THE ROLE OF THE SERVICE PROVIDER SO AS TO ESTABLISH NON - DUPLICITY OF SERVICES. - PRESENTATION / REPORTS CONTAINING BENEFITS OBTAINED FROM HAVING A CENTRALISED INFORMATION TECHNOLOGY FUNCTION IN TERMS OF COST SAVING AND ECONOMICS OF SCALE; - SCREENSHOTS / EMAILS SHOWING IT SERVICES ACTUALLY BEING RECEIVED (TROUBLESHOOTING PROBLEMS, CREATION OF LOGINS FOR EMPLOYEES); - THIRD PARTY INVOICES RAISED ON THE SERVICE PROVIDER AND AGREEMENTS FOR THE SERVICES AND SOFTWARE LICENSES PROCURED; HUMAN RESOURCE AND TRAINING - EMAIL INVITATION AND ATTENDANCE SHEET OF THE EMPLOYEES ATTENDING THE TRAINING PROGRAMME; - DOCUMENTS DEPICTING ANY REVIEW OF EMPLOYMENT CONTRACTS BY THE SERVICE PROVIDER ON BEHALF OF RECIPIENT; - REPORTS DEMONSTRATING BENEFITS OF A CENTRALIZED HUMAN RESOURCE SYSTEM LIKE LOWERING OF ATTRITION RATE, LESSER PERSONNEL EMPLOYED IN THE HUMAN FUNCTION THAN REQUIRED, PEOPLE SURVEY RESULTS. BEFORE PROCEEDING WITH DETERMINING THE ALP, IT IS E SSENTIAL TO ESTABLISH THE CHARGE-OUT MECHANISM FOR THE INTRA-GROUP SERVICES R ENDERED. FOR THIS, IT IS ESSENTIAL TO DISTINGUISH BETWEEN SERVICES THAT BENE FIT A PARTICULAR AFFILIATE DIRECTLY AND SERVICES THAT BENEFIT SEVERAL AFFILIAT ES OR THE GROUP AS A WHOLE. THERE ARE TWO CHARGE-OUT MECHANISMS: THE DIRECT CHARGE MECHANISM THE INDIRECT CHARGE MECHANISM THE DIRECT CHARGE MECHANISM INVOLVES CHARGING AES D IRECTLY FOR SPECIFIC SERVICES. THE DECD ADVOCATES THE USE OF DIRECT CHAR GE MECHANISM IN CASES WHERE SIMILAR SERVICES ARE PROVIDED TO AES. E SSENTIALLY, THE COST POOL FOR SERVICES RENDERED TO ASSOCIATE CONCERNS NE EDS TO BE 24 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 24 DISTINGUISHABLE AND THERE SHOULD BE A COMPARABLE OP EN MARKET TRANSACTION TO FACILITATE PRICING. UNDER THE INDIRECT CHARGE METHOD, THE CHARGEABLE CO ST POOL IS IDENTIFIED, AGGREGATED AND ALLOCATED OR APPORTIONED AMONGST THE MEMBERS OF MNE GROUP ON THE BASIS OF SOME DEGREE OF ESTIMATION OR APPROX IMATION. DECD ADVOCATES USE OF AN INDIRECT CHARGE METHOD WHICH IS SENSITIVE TO THE FEATURES OF THE INDIVIDUAL CASE, CONTAINS SAFEGUARDS AGAINST MANIPU LATION AND FOLLOW SOUND ACCOUNTING PRINCIPLES AND BE CAPABLE OF PRODUCING C HARGES OR ALLOCATIONS OF COSTS THAT COMMENSURATE WITH THE ACTUAL OR REASONA BLY EXPECTED BENEFITS TO THE RECIPIENT OF SERVICE, 'OECD FURTHER STRESSES THAT T O SATISFY' ARM'S LENGTH PRINCIPLE, ONE NEEDS TO HAVE AN ALLOCATION METHOD T HAT LEADS TO A RESULT THAT IS CONSISTENT WITH WHAT COMPARABLE INDEPENDENT ENTERPR ISE WOULD HAVE BEEN PREPARED TO PAY. ARM'S LENGTH PRICING OF INTRA-GROUP SERVICES BEFORE COMING TO THE QUESTION OF DETERMINING THE AL P, IT IS ESSENTIAL TO ESTABLISH THE FOLLOWING: THE BUSINESS ACTIVITY QUALIFIES AS AN INTRA-GROUP SERVICE; THE COST OF SUCH INTRA-GROUP SERVICE COMMENSURATE WITH ITS BENEFITS; THERE EXISTS SUFFICIENT DOCUMENTARY EVIDENCE TO J USTIFY SUCH BENEFITS; AND A PRUDENT AND REASONABLE CHARGE OUT MECHANISM HAS BEEN ESTABLISHED; ONCE ALL OF THE ABOVE CONDITIONS ARE SATISFIED, ONE SHOULD PROCEED WITH CHOOSING THE MOST APPROPRIATE METHOD FOR BENCHMARKI NG THE TRANSACTION DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. BENEFIT TEST THE DELHI HIGH COURT IN THE CASE OF CIT VS. CUSHMAN AND WAKEFIELD (INDIA) P. LTD TS-150-HC-2014 (DEL-TP) CLARIFIED THAT IT WAS A BSOLUTELY NECESSARY FOR THE TAXPAYER TO RELATE COSTS TO BENEFITS AND DEMONSTRAT E THE VALUE RECEIVED ON ACCOUNT OF THE PAYMENT. HERE IT IS WORTH MENTIONING THAT THE HIGH COURT IN THIS JUDGMENT HAS SOUGHT TO CREATE A DISTINCTION BETWEEN THE IN THE CASE OF DELOITTE CONSULTING INDIA (P.) LTD. VS DCIT [2012] BENEFIT T EST I.E. EXAMINING SERVICES EXISTS OR BENEFITS HAVE ACCRUED AND THE ARM'S LENGT H TEST. HIGH COURT HELD THAT THE POWERS OF THE TPO IS LIMITED TO DETERMINATION O F ALP, HOWEVER THE TPO MAY DETERMINE THE ARM'S LENGTH PRICE AS NIL IN SITU ATIONS WHERE AN INDEPENDENT ENTITY IN A COMPARABLE TRANSACTION WOULD NOT PAY AN Y AMOUNT. IN THE CASE OF DELOITTE CONSULTING INDIA (P) LTD. VS. DCIT [2012] 150 TTJ 824 (MUMBAI) THE TRIBUNAL ON THE ISSUE AS TO WHETHER THE TPO WAS EMP OWERED TO DETERMINE THE ALP AT NIL, HELD THAT THE TAXPAYER HAD TO ESTABLISH BEFORE THE TPO THAT THE PAYMENTS MADE WERE COMMENSURATE TO THE VOLUME AND Q UALITY OF THE SERVICE AND THAT SUCH COSTS WERE COMPARABLE. THE TRIBUNAL F URTHER HELD THAT WHEN COMMENSURATE BENEFIT AGAINST THE PAYMENT OF SERVICE IS NOT DERIVED, THE TPO IS 25 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 25 JUSTIFIED IN MAKING AN ADJUSTMENT UNDER ALP. THE TR IBUNAL HAD DETERMINED THE ALP AT NIL KEEPING THE FACTUAL POSITION AS TO WHETH ER IN A COMPARABLE CASE, SIMILAR PAYMENT WOULD HAVE BEEN MADE OR NOT IN TERM S OF THE AGREEMENTS SIMILARLY, IN THE CASES OF M/S KNORR-BREMSE INDIA P VT. LTD VS ACIT AND GEMPLUS INDIA (P.) LTD VS ACIT, DISCUSSED ABOVE, THE PAYMEN TS MADE IN CONGRUENCE OF INTRA-GROUP SERVICE ARRANGEMENT WERE DISALLOWED BY DETERMINING THEIR AS NIL ON THE GROUNDS THAT THEY FAILED THE BENEFIT TEST. THEREFORE, IN THIS CASE THE TPO IN HIS ORDER HAS EX HAUSTIVELY DISCUSSED WITH REASONS 'AS TO WHY THE SERVICES RENDERED AMOUNT TO SHAREHOLDER ACTIVITIES AND IN THE ABSENCE OF PROPER DOCUMENTARY EVIDENCE ,HE A RRIVED ALP AT NIL AND ADJUSTMENT ACCORDINGLY. EVEN THE DRP HAS AT LENGTH DEALT THE ISSUE AND FURTHER ON THE FAILURE OF ASSESSEE TO PROVE CONCLUSIVELY WI TH NECESSARY EVIDENCES HAS UPHELD THE ORDER OF TPO. IN VIEW OF THE FACTUAL PO SITION OF THE ASSESSEE AND ALSO THE CASE LAWS DISCUSSED THE ORDER OF TPO MAY K INDLY BE UPHELD. THE LD DR FURTHER ARGUED THAT THE EMAIL CORRESPONDE NCES DID NOT CLEARLY QUANTIFY THE BENEFITS DERIVED BY THE ASSESSEE AND THAT THEY ARE GENERAL IN NATURE. ACCORDINGLY HE PLEADED THAT THE ASSESSEE HAD NOT PROVED THE BENEFI TS RECEIVED BY IT PURSUANT TO THIS MSSA WITH AE AND PRAYED FOR NON-INTERFERENCE IN THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE. WE FIND THAT SIMILAR ISSUE HAD CROPPED UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEARS 2009-10 , 2010-11 AND 2011-12 AND SIMILAR ARGUMENTS WERE ADVANCED BY BOTH THE SIDES. WE FIND THAT IN THE ORDER PASSED FOR THE ASST YEAR 2011-12, THIS TRIBUN AL HAD HELD AS UNDER:- 10. WE HAVE HEARD THE RIVAL CONTENTIONS & PERUSED T HE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE TPO HAS TREATED TH E MSSA RECEIVED BY THE ASSESSEE AS STEWARDSHIP SERVICES AND FOR THE BENEFI T OF AE. ACCORDINGLY THE TPO VALUED THE ALP OF THESE SERVICES AT NIL VALUE. THE ORDER OF THE TPO WAS SUBSEQUENTLY CONFIRMED BY THE LD. DRP. HOWEVER WE NOTE THAT THE ASSESSEE HAS PROVIDED THE DETAILS OF THE BENEFIT DERIVED BY IT FROM THE MSSA RECEIVBED FROM AE AT THE TIME O F ASSESSMENT PROCEEDINGS. HOWEVER THE ORDER OF THE TPO IS SILENT ON THIS ASPE CT. 26 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 26 SIMILARLY WE ALSO NOTE THAT THE REVENUE IN THE OWN CASES OF THE ASSESSEE PERTAINING TO OTHER ASSESSMENT YEARS AS DISCUSSED A BOVE HAS ACCEPTED CLAIM OF MSSA OF THE ASSESSEE. BESIDES WE ALSO NOTE THAT TH E HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE HAS DECIDED IMPUGNED ISSUE IN FAVOUR OF ASSESSEE IN ITA NO. 1141/KOL/2016 FOR THE AY 2009-10 VIDE ORDER DATED 5.4.2017. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE. WE FIND THAT THE LD AR REFERRED TO THE AGREEMENT ENTERED IN TO BY THE ASSESSEE WHICH IS ENCLOSED IN PAGE 194 OF VOLUME 1 OF PAPER BOOK AS UNDER:- 5.2 CONCERN SERVICES FURNISHED BY PHILIPS IN GENERAL, WHEN A QUALIFIED PHILIPS SUBSIDIARY ENT ERED INTO GSA AGREEMENT WITH PHILIPS, IT WILL BE PROVIDED CONCERN SERVICES. THE MAJOR CONCERN ACTIVITIES PERFORMED BY PHILIPS IS RELATED TO SERVICES IN COMMERCIAL, ACCOUNTING, AUDITING, FINANCIAL, FISCAL , SOCIAL AND LEGAL MATTERS AND IN ALL OTHER FIELDS IN WHICH PHILIPS HA S KNOW-HOW AND EXPERIENCE. PHILIPS SHALL MAKE AVAILABLE TO THE CO MPANY SUCH KNOW-HOW, EXPERTISE AND EXPERIENCE IN THE AFORESAID AREAS AS PHILIPS NOW AND IN THE FUTURE MAY POSSESS AND MAY FREELY AND UNCONDITIONAL LY FURNISH TO THE COMPANY, AND RENDER ASSISTANCE IN THIS CONNECTION, ALL TO THE EXTENT REASONABLY REQUIRED TO IMPROVE THE COMPANYS BUSINE SS OPERATION . THE ASSISTANCE MAY RELATE TO : A. THE DISTRIBUTION AND TRADING OF PRODUCTS, PARTICULA RLY WITH RESPECT TO ADVERTISING, SALES PROMOTION, PUBLIC RELATIONS, MAR KET RESEARCH (IN PARTICULAR, INFORMATION AND TRENDS ON THE WORLD MA RKET), LABELING, PACKAGING, SHIPPING AND FORWARDING, LONG-TERM EXPOR T BUSINESS AND INTERNATIONAL PUBLIC TENDERING AND PURCHASING FROM THIRD PARTIES; B. ADVICE AND SUPPORT WITH RESPECT TO THE SUPPLY OF RE QUIREMENTS OF THE COMPANY FROM OTHER RESOURCES ; C. FINANCIAL, ACCOUNTING AND AUDITING MATTERS RELATING TO SUCH SUBJECTS AS: I. ACCOUNTING AND AUDITING PRINCIPLES AND METHODS; II. BUDGETING METHODS; 27 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 27 III. CAPITAL STRUCTURE, LOANS, EXCHANGE RISKS, FINANCIAL RESEARCH, WARRANTIES AND GUARANTEES, CREDIT MANAGEMENT, THE E STABLISHMENT AND MANAGEMENT OF FINANCE AND LEASE COMPANIES AND A LL FURTHER BANKING ACTIVITIES, INCLUDING LONG-TERM FINANCE PLA NS; IV. DEVELOPMENT OF DATA PROCESSING D. FISCAL AND LEGAL MATTERS , INCLUDING PATENTS, TRADE MARKS AND CUSTOMS DUTIES, PARTICULARLY IN INTERNATIONAL TRANSACTIONS ; E. PERSONAL MATTERS PARTICULARLY WITH RESPECT TO : I. THE SELECTION AND TRAINING OF PERSONNEL ; II. AN ADEQUATE PERSONNEL POLICY; F. INSURANCES; G. ADMITTANCE AT THE COMPANYS SPECIFIC REQUEST AND AT MUTUALLY AGREED TERMS OF A REASONABLE NUMBER OF EMPLOYEES OF THE CO MPANY TO ITS PREMISE TO THE EXTENT TO WHICH PHILIPS HAS THE FREE RIGHT T O DO SO, SO THAT THEY CAN ACQUAINT THEMSELVES WITH COMMERCIAL AND OTHER KNOWL EDGE AS SPECIFIED ABOVE, FAMILIARIZE THEMSELVES WITH THE ORGANIZATION OF THE PHILIPS CONCERN AND WITH WORKING METHODS USED BY IT OR RECEIVE ADVI CE ON SPECIFIC MATTERS IN THE FIELDS DESCRIBED ABOVE; H. SENDING AT THE COMPANYS SPECIFIC REQUEST SUCH EXPE RTS FROM PHILIPS TO THE COMPANYS OFFICES AS MAY BE AGREED BETWEEN THE PART IES FOR SUCH PERIOD OR PERIODS AS MAY BE AGREED BETWEEN THEM TO ADVISE THE COMPANY ON MATTERS AS MENTIONED ABOVE; I. ANY OTHER SIMILAR MATTERS WHICH THE COMPANY MAY REA SONABLY REFER TO PHILIPS OR WHICH PHILIPS ITSELF MAY DEEM APPROPRIAT E. 4.1. THE LD AR ALSO BROUGHT TO OUR NOTICE PAGE 196 OF THE PAPER BOOK CONTAINING THE FUNCTIONS PERFORMED AS BELOW:- FUNCTIONS ARE DEFINED AS THE ACTIVITIES THAT EACH O F THE ENTITIES PARTICIPATING IN A PARTICULAR TRANSACTION PERFORMS AS A NORMAL PA RT OF THEIR OPERATIONS. FUNCTIONS CAN BE DIVIDED INTO BROAD CATEGORIES: - STRATEGIC MANAGEMENT FUNCTIONS ARE THOSE ACTIVITI ES THAT DETERMINE THE OVERALL STRATEGY AND ORGANIZATION OF THE FIRM ; 28 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 28 -CORPORATE SERVICE FUNCTIONS ASSIST IN THE DAY-TO-D AY MANAGEMENT OF THE ORGANIZATION (E.G. FINANCE, HUMAN RESOURCES, INFORM ATION SYSTEMS, ETC.,); -PRODUCT AND PROCESS DEVELOPMENT FUNCTIONS RELATE T O DESIGN, RESEARCH AND DEVELOPMENT ACTIVITIES ; -PROCURE FUNCTIONS ARE THOSE ACTIVITIES RELATED TO THE SOURCING AND PURCHASE OF RAW MATERIALS AND OTHER INPUTS TO THE PRODUCTION PR OCESS; -MAKE FUNCTIONS ARE ACTIVITIES THAT IMPACT THE MANU FACTURE OF A COMPANYS PRODUCTS INCLUDING PRODUCTION PLANNING AND CONTROL AND PROCESS IMPROVEMENT; -MOVE FUNCTIONS FOCUS ON THE ORGANIZATION OF OUTBOU ND LOGISTICS TO DELIVER PRODUCTS TO THE CUSTOMER ; AND -SELL FUNCTIONS INCLUDE MARKETING, ADVERTISING , SA LES AND DISTRIBUTION ACTIVITIES. 4.2. WE FIND THAT NO ADJUSTMENT ON ACCOUNT OF MANAG EMENT SUPPORT SERVICE CHARGES WERE MADE IN THE PAST BY THE REVENUE FROM A SST YEARS 2005-06 TO 2008-09 THOUGH THE AGREEMENT IS EFFECTIVE FROM 22.1 0.2004 ONWARDS. WE ALSO FIND THAT ARTICLE 6 OF MSSA ENCLOSED IN PAGE 2 94 OF THE PAPER BOOK ON TAXES IS AS UNDER:- THE COSTS, TAXES, STAMP DUTIES AND SIMILAR CHARGES ARISING OUT OF THIS AGREEMENT SHALL BE BORNE BY THE COMPANY (ASSESSEE) IF SUCH AMOUNTS ARE DUE IN THE COUNTRY, AND BY PHILIPS IF SUCH AMOUNTS ARE DUE OUTSIDE THE COUNTRY WITH THE EXCEPTION OF : A. TAXES WHICH CAN BE CLAIMED BACK OR CREDITED AGAI NST TAX BY THE COMPANY IN ACCORDANCE WITH THE LEGAL PROVISIONS WH ICH SHALL BE CHARGEABLE TO THE COMPANY; AND B. TAXES WHICH CAN BE CLAIMED BACK OR CREDITED AGAI NST TAX BY PHILIPS IN ACCORDANCE WITH THE LEGAL PROVISIONS, WH ICH SHALL BE CHARGEABLE TO PHILIPS. THE LD AR ARGUED THAT THE ASSESSEE HAD COMPLIED WI TH THE TDS OBLIGATIONS ON THE SUBJECT MENTIONED PAYMENTS AND THE SAME HAS BEE N ACCEPTED BY THE DEPARTMENT. HE ALSO REFERRED TO THE SUMMARY OF E MAILS FROM PAGES 333 TO 378 29 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 29 AND FURTHER EMAILS WHICH ARE ENCLOSED IN EXHIBIT II FROM PAGES 800 TO 854 OF PAPER BOOK. HE ALSO REFERRED TO THE EXCLUSION OF 1 2000000 EUROS TOWARDS THE SHAREHOLDER FUNCTION COSTS IN THE OVERALL COST ALLO CATION TO THE ASSESSEE COMPANY WHICH IS ENCLOSED IN PAGE 795 OF THE PAPER BOOK. WE FIND THAT THE ASSESSEE HAD ALSO FURNISHED BEFORE THE LOWER AUTHORITIES , THE D ETAILS OF SPECIFIC BENEFITS DERIVED BY IT ON EACH OF THE EMAILS CORRESPONDED BE TWEEN THE ASSESSEE AND KPENV COMPRISING OF VARIOUS SERVICES RENDERED BY KP ENV PURSUANT TO THE MSSA. IN FACT THE BENEFITS DERIVED FROM EACH OF TH E SERVICES IS FURNISHED IN THE SEPARATE COLUMN IN THE SAID REPLY DATED 11.1.2013 B EFORE THE LD TPO WHICH IS ALSO ENCLOSED AS EXHIBIT II IN THE PAPER BOOK FILED BY US. THE LD TPO SIMPLY REPLIED IN HIS REMAND REPORT FILED BEFORE THE LD DR P TO THESE EMAILS AND THE REPLY OF THE ASSESSEE BY STATING THAT THE SERVICES RENDER ED ARE ONLY IN THE NATURE OF CONTROL, SUPERVISORY AND MONITORING FUNCTIONS. THE ASSESSEE IN TURN FILED REJOINDER TO THIS REMAND REPORT BY SPECIFICALLY POI NTING OUT THE BENEFITS DERIVED FROM EACH OF THE SERVICES AND ALSO BY OBJECTING TO THE REMAND REPORT OF THE LD TPO BY STATING THAT THE LD TPO HAD NOT ASSIGNED ANY REASON FOR CONCLUDING THAT THE SERVICES ARE IN THE NATURE OF CONTROL, SUPERVIS ORY AND MONITORING FUNCTIONS. WE FIND THAT THE ASSESSEE HAD SPECIFICALLY REPLIED THAT IT WAS BENEFITTED BY SUBSTANTIAL COST REDUCTION ON AN OVERALL BASIS BY U TILIZING THE SERVICES RENDERED BY KPENV PURSUANT TO MSSA. THE DETAILS OF THESE BE NEFITS DERIVED ARE ENCLOSED IN PAGES 965 TO 981 OF THE PAPER BOOK. THE LD AR ALSO DREW OUR ATTENTION TO THE ORDER OF THE LD DRP DATED 23.12.2013 PASSED IN THE HANDS OF KPENV FOR THE ASST. YEAR 2009-10 (ENCLOSED IN PAGE 1018 TO 1043 O F PAPER BOOK) , WHEREIN THE LD DRP AGREED THAT KPENV HAD RENDERED SERVICES WHIC H ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES ON GOING THROUGH EACH AND EVERY CLAUSE OF THE MSSA AND MANAGEMENT SUPPORT CHARGES WERE PAID BY PH ILIPS INDIA LTD (ASSESSEE HEREIN) TO KPENV FOR RECEIVING SUCH SERVI CES. WE FIND THAT IN PARA 38 OF THE SAID ORDER OF LD DRP IN THE HANDS OF KPENV, IT WAS HELD AS BELOW:- 38. IN VIEW OF THE ABOVE, IT IS EVIDENT THAT IN ORD ER TO ENSURE THE SURVIVAL AND SUCCESS OF PIL (I.E. PHILIPS INDIA LTD) , THE A SSESSEE HAS BEEN INVOLVED IN THE SELECTION AND TRAINING OF PILS PERSONNEL AN D IN THE PROCESS, MADE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL TO THE PERSONNEL , WHICH WILL ENABLE THE PERSONNEL TO FULFILL SUCH SPE CIALIZED TASKS ON THEIR OWN. THEREFORE THE ASSESSEES CLAIM OF NOT FULFIL LING THE MAKE AVAILABLE CONDITION IS REJECTED. THE LD DRP IN IN PARA 39 OF THE SAID ORDER (ENCLOSE D IN PAGE 1040 OF PAPER BOOK) HAD FURTHER HELD THAT THE CONSIDERATION OF AL L THESE FACTS LEADS TO THE CONCLUSION THAT THE DELIVERABLES UNDER THE MSSA ARE PREDOMINANTLY IN THE FORM 30 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 30 OF COMMERCIAL KNOWHOW AND NOT COMMERCIAL SERVICES AND THEREFORE COVERED BY THE DEFINITION OF THE TERM ROYALTY UNDER ARTICLE 12 OF THE DTAA. 4.3.3.4. FROM THE ABOVE IT WOULD BE CLEAR THAT THE RECEIPTS IN RESPECT OF MSSA WOULD BE TAXABLE EITHER AS FTS (TO THE EXTENT THEY ARE SERVICES RENDERED) OR ROYALTY (TO THE EXTENT IT IS PROVIDING COMMERCIAL K NOW-HOW OR COMMERCIAL EXPERIENCE). AS BOTH FTS AND ROYALTY ARE TAXABLE A T THE SAME RATE UNDER THE DTAA, IT DOES NOT MATTER THAT THERE IS NO CLEAR CUT SEPARATION OR QUANTIFICATION IN THE MSSA OF THE SERVICE AND THE KNOW-HOW PORTIONS. THE ENTIRE RECEIPTS WOULD BE CHARGEABLE TO TAX IN INDIA UNDER THE DTAA AS WEL L AS THE I.T.ACT. 4.2.1. HENCE BASED ON THE AFORESAID ORDER OF LD DRP IN THE HANDS OF KPENV FOR THE ASST YEAR 2009-10, WE FIND THAT THE LD DRP HAD TREATED THE RECEIPTS OF MANAGEMENT SUPPORT SERVICES CHARGES FROM ASSESSEE H EREIN (I.E. PHILIPS INDIA LTD) IN THE HANDS OF KPENV AS FTS OR ROYALTY AND MA DE IT TAXABLE IN INDIA. SO ONCE THE SAME IS ACCEPTED AS FTS OR ROYALTY IN THE HANDS OF KPENV, THE NATURE OF PAYMENT CANNOT BE DIFFERENT IN THE HANDS OF THE ASSESSEE HEREIN BY SIMPLY PLACING RELIANCE ON THE BENEFIT TEST, EVEN THOUGH T HE BENEFITS DERIVED BY THE ASSESSEE PURSUANT TO MSSA HAS BEEN ELABORATED IN DE TAIL BY THE ASSESSEE BY WAY OF SUBSTANTIAL COST REDUCTION. WE ALSO FIND THAT TH E ASSESSEE HAD PAID SERVICE TAX OF RS 14,87,24,134/- ON PAYMENT OF MANAGEMENT SUPPO RT SERVICE CHARGES OF RS. 125,27,30,863/-. 4.3. WE FIND THAT THE LD DR ARGUED THAT ASSESSEE HA D NOT PROVED THAT SERVICES WERE RECEIVED BY THE ASSESSEE AND HAD DERIVED COMME RCIAL AND ECONOMIC BENEFITS OUT OF THE MSSA. HE ARGUED THAT ONLY GEN ERAL REPLY WAS GIVEN BY THE ASSESSEE WITH REGARD TO THE BENEFITS DERIVED. HE A RGUED THAT THESE SERVICES WERE RENDERED BY KPENV TO OTHER GROUP COMPANIES ALSO AND QUANTUM OF BENEFIT VIS A VIS THE SERVICE IS NOT PROVED BY THE ASSESSEE. 4.4. WE FIND THAT THE ASSESSEE HAD ALSO PROVED THE BENEFITS DERIVED BY WAY OF INCREASE IN TURNOVER FROM THE YEARS ENDED 31.3.2005 ONWARDS PURSUANT TO THE MSSA. IT IS REITERATED THAT MSSA WAS ENTERED INTO ON 22.10.2004 AND THE FOLLOWING TABLE WOULD PROVE THE BENEFIT DERIVED BY WAY OF INCREASE IN TURNOVER IN FIGURES AS WELL AS IN PERCENTAGE PRIOR TO RENDERING OF MANAGEMENT SUPPORT SERVICES AND THEREAFTER :- SR. NO. YEAR ENDED SALES (RS. CRORES) % INCREASE (TAKING YEAR 200-01) AS THE BASE YEAR REMARKS 31 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 31 1 MARCH 2001 15313 - NO MANAGEMENT SUPPORT SERVICES RECEIVED DURING THIS PERIOD 2 MARCH 2002 15709 3% 3 MARCH 2003 16379 7% 4 MARCH 2004 16293 6% 5 MARCH 2005 21484 40% MANAGEMENT SUPPORT SERVICES WERE RECEIVED FROM FY 2004-05 ONWARDS (I.E., FIRST YEAR OF RECEIPT OF MANAGEMENT SUPPORT SERVICES) 6 MARCH 2006 23829 56% SUBSEQUENT YEARS IN WHICH MANAGEMENT SUPPORT SERVICES CONTINUED TO BE RECEIVED BY THE ASSESSEE 7 MARCH 2007 22790 49% 8 MARCH 2008 27621 80% 9 MARCH 2009 28645 87% 10 MARCH 2010 31162 104% 11 MARCH 2011 34867 128% 4.5. IN THE INSTANT CASE, WE ARE CONVINCED THAT THE ASSESSEE HAD INDEED RECEIVED THE SERVICES FROM KPENV WHICH FACT IS ALSO ACKNOWLE DGED BY THE LD DRP IN THE HANDS OF KPENV AS STATED SUPRA. THE BENEFITS DERIV ED BY THE ASSESSEE OUT OF THESE SERVICES BY WAY OF SUBSTANTIAL COST REDUCTION AND INCREASE IN TURNOVER SUBSTANTIALLY CANNOT BE SWEPT UNDER THE CARPET. WE FIND THAT NO ADJUSTMENTS TO ALP WAS MADE IN THE ASST YEARS 2005-06 TO 2008-09 I N RESPECT OF THE VERY SAME MSSA BY THE LD TPO FOR THE ASSESSEE. WE FIND THAT T HE PRINCIPLES OF CONSISTENCY NEED TO BE FOLLOWED AND CANNOT BE GIVEN A GO BY WHE N THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FROM THE EARLIE R YEARS . RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF RADHASAOMI SATSANG VS CIT REPORTED IN (1992) 193 IT R 321 (SC) . 4.6. WE FIND THAT THE DECISION RELIED UPON BY THE L D AR ON THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS CUSHMAN AND WAKEFIELD ( INDIA) (P) LTD REPORTED IN (2014) 367 ITR 730 (DEL) IS WELL FOUNDED WHEREIN IT WAS HELD THAT :- '35. THE TRANSFER PRICING OFFICER'S REPORT IS, SUBS EQUENT TO THE FINANCE ACT, 2007, BINDING ON THE ASSESSING OFFICER. THUS, IT BECOMES ALL THE MORE IMPORTANT TO CLARIFY THE EXTENT OF THE TRANSFER PRICING OFFICER'S AUTHORITY IN THIS CASE, WHICH IS TO DETERMINING THE ARM'S LENGTH PRICE FOR INTERNATIONAL TRANSACTIO NS REFERRED TO HIM OR HER BY THE ASSESSING OFFICER, RATHER THAN DETERMINING WHETHER [SUCH SERVICES EXIST OR BENEFITS HAVE ACCRUED. THAT EXERCISE - OF FACTUAL VERIFICATION IS RETAINED BY THE ASSESSING OFFICER UNDER SECTION 37 IN THIS CASE.] INDEED, THIS IS NOT TO SAY THAT THE TRANSFER PRICING 32 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 32 OFFICER CANNOT -AFTER A CONSIDERATION OF THE FACTS - STATE THAT THE ARM'S LENGTH PRICE IS 'NIL' GIVEN THAT AN INDEPENDENT ENTITY IN A COMPARA BLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HOWEVER, THIS IS DIFFERENT FROM THE TRANSFE R PRICING OFFICER STATING THAT THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPENDITURE. THAT DECISION IS OUTSIDE THE AUTHORITY OF THE TRANS FER PRICING OFFICER. . . . 36. IN THIS CASE, THE ISSUE IS WHETHER AN INDEPENDE NT ENTITY WOULD HAVE PAID FOR SUCH SERVICES. IMPORTANTLY, IN REACHING THIS CONCLUSION, NEITHER THE REVENUE, NOR THIS COURT, MUST QUESTION THE COMMERCIAL WISDOM OF THE ASSESSEE , OR REPLACE ITS OWN ASSESSMENT OF THE COMMERCIAL VIABILITY OF THE TRANSACTION. THE SE RVICES RENDERED BY CWS AND CWHK IN THIS CASE CONCERN LIAISING AND CLIENT INTERACTIO N WITH IBM ON BEHALF OF THE ASSESSEE- ACTIVITIES FOR WHICH, ACCORDING TO THE ASSESSEE'S C LAIM-INTERACTION WITH IBM'S REGIONAL OFFICES IN SINGAPORE AND THE UNITED STATES WAS NECE SSARY. THESE SERVICES CANNOT - AS THE INCOME-TAX APPELLATE TRIBUNAL CORRECTLY SURMISED-BE DUPLICATED IN INDIA INSOFAR AS THEY REQUIRE INTERACTION ABROAD. WHETHER IT IS COMMERCIA LLY PRUDENT OR NOT TO EMPLOY OUTSIDERS TO CONDUCT THIS ACTIVITY IS A MATTER THAT LIES WITHIN THE ASSESSEE'S EXCLUSIVE DOMAIN, AND CANNOT BE SECOND- GUESSED BY THE REVENU E.' [BRACKETS PROVIDED BY US] 4.7. WE ALSO FIND THAT THE DECISION RELIED UPON BY THE LD AR ON THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS BATA INDIA LTD REPORTED IN (2016) 69 TAXMANN.COM 120 (KOLKATA TRIB) DATED 6.4.2016 HA D CONSIDERED THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS E KL APPLIANCES LTD (2012) 345 ITR 241 (DEL) ; CIT VS CUSHMAN & WAKEFIELD (IND IA) (P) LTD (2014) 367 ITR 730 (DEL) AND CO-ORDINATE BENCH OF MUMBAI TRIBU NAL IN THE CASE OF DRESSER RAND INDIA (P) LTD VSADDL CIT (2011) 47 SOT 423 (MU M) AND APPLIED THE PRINCIPLES EMANATING OUT OF THOSE JUDGEMENTS AND AP PLIED THE SAME TO THE FACTS OF THE CASE IN BATA INDIA LTD. IN THE SAID CASE (I.E BATA INDIA LTD SUPRA) IT WAS OBSERVED AS UNDER:- 27. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT V. EKL APPLIANCES LTD. [2012] 345 ITR 241/24 TAXMANN.COM 199/209 TAXMAN 20 0 AS WELL AS CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. [2014] 367 ITR 730/46 TAXMANN.COM 317 (DELHI) , RENDERED SIMILAR RULING AS WAS RENDERED IN THE CASE OF DRESSER-RAND INDIA (P.) LTD. (SUPRA). I N THE CASE OF CUSHMAN & WAKEFIELD INDIA (P.) LTD. (SUPRA), THE HON'BLE DELH I HIGH COURT OBSERVED THAT WHETHER A THIRD PARTY - IN AN UNCONTROLLED TRANSACT ION WITH THE TAXPAYER WOULD HAVE CHARGED AMOUNTS LOWER, EQUAL TO OR GREATER THA N THE AMOUNTS CLAIMED BY THE AES, HAS TO PERFORCE BE TESTED UNDER THE VARIOU S METHODS PRESCRIBED UNDER THE INDIAN TP PROVISIONS. IN THE CONTEXT OF COST SH ARING ARRANGEMENT, THE HON'BLE HIGH COURT OPINED THAT CONCEPT OF BASE EROS ION IS NOT A LOGICAL INFERENCE FROM THE FACT THAT THE AES HAVE ONLY ASKE D FOR REIMBURSEMENT OF COST. THIS BEING A TRANSACTION BETWEEN RELATED PARTIES, W HETHER THAT COST ITSELF IS INFLATED OR NOT ONLY IS A MATTER TO BE TESTED UNDER A COMPREHENSIVE TRANSFER 33 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 33 PRICING ANALYSIS. THE BASIS FOR THE COSTS INCURRED, THE ACTIVITIES FOR WHICH THEY WERE INCURRED, AND THE BENEFIT ACCRUING TO THE TAXP AYER FROM THOSE ACTIVITIES MUST ALL BE PROVED TO DETERMINE FIRST, WHETHER, AND HOW MUCH, OF SUCH EXPENDITURE WAS FOR THE PURPOSE OF BENEFIT OF THE T AXPAYER, AND SECONDLY, WHETHER THAT AMOUNT MEETS ALP CRITERION. IN THE PRE SENT CASE HOWEVER, THE ARRANGEMENT BETWEEN THE AE AND THE ASSESSEE IS NOT A COST SHARING ARRANGEMENT BUT A PAYMENT FOR SPECIFIC SERVICES RENDERED. TO TH IS EXTENT THE ABOVE OBSERVATIONS OF THE HON'BLE HIGH COURT MAY NOT BE R ELEVANT TO THE PRESENT CASE. 28. THE FOLLOWING ASPECTS WOULD REQUIRE CONSIDERATION IN ORDER TO IDENTIFY INTRAGROUP SERVICES REQUIRING ARM'S LENGTH REMUNERA TION: - WHETHER SERVICES WERE RECEIVED FROM RELATED PARTY . - NATURE OF SERVICES INCLUDING QUANTUM OF SERVICES RECEIVED BY THE RELATED PARTY. - SERVICES WERE PROVIDED IN ORDER TO MEET SPECIFIC NEED OF RECIPIENT OF THE SERVICES. - THE ECONOMIC AND COMMERCIAL BENEFITS DERIVED BY T HE RECIPIENT OF INTRAGROUP SERVICES. - IN COMPARABLE CIRCUMSTANCES AN INDEPENDENT ENTERP RISE WOULD BE WILLING TO PAY THE PRICE FOR SUCH SERVICES? - AN INDEPENDENT THIRD PARTY WOULD BE WILLING AND A BLE TO PROVIDE SUCH SERVICES? WHETHER PAYMENT MADE TO AE MEETS ALP CRITERION WILL BE DETERMINED, KEEPING IN MIND ALL THE ABOVE FACTORS, AS WELL. 29. KEEPING IN MIND THE PRINCIPLES EMANATING FROM THE AFORESAID DECISIONS, WE SHALL NOW PROCEED TO EXAMINE THE MATERIAL ON RECORD TO SEE THE NATURE OF SERVICES RECEIVED BY THE ASSESSEE AND AS TO WHETHER THE SAME WERE AT ARM'S LENGTH. 47. IN THE LIGHT OF THE DISCUSSION IN PARAGRAPHS 30 TO 46, WE HOLD THAT THE ASSESSEE HAS ESTABLISHED THE NATURE OF SERVICES INC LUDING QUANTUM OF SERVICES RECEIVED BY THE RELATED PARTY, THAT SERVICES WERE P ROVIDED IN ORDER TO MEET SPECIFIC NEED OF THE ASSESSEE FOR SUCH SERVICES, TH E ECONOMIC AND COMMERCIAL BENEFITS DERIVED BY THE ASSESSEE OF INTRAGROUP SERV ICES. 4.8. WE ALSO FIND THAT IN THE RECENT DECISION OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF KNORR-BREMSE INDIA (P) LTD VS ACIT REPO RTED IN (2016) 380 ITR 307 (DEL) WHEREIN THE RELEVANT HEAD NOTES IS REPRODUCE D HEREIN BELOW :- 34 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 34 SECTION 92C OF THE INCOME-TAX ACT, 1961 - TRANSFER PRICING - COMPUTATION OF ARMS LENGTH PRICE (COMPARABLES AND ADJUSTMENTS/ADJ USTMENTS - GENERAL) - ASSESSMENT YEAR 2007-08 - WHETHER ANSWER TO ISSUE W HETHER A TRANSACTION IS AT AN ARM'S LENGTH PRICE OR NOT IS NOT DEPENDENT ON WH ETHER TRANSACTION RESULTS IN AN INCREASE IN ASSESSEE'S PROFIT; MERE FAILURE TO E STABLISH THAT TRANSACTIONS RESULTED IN A PROFIT DOES NOT INDICATE THAT THEY WE RE NOT AT AN ARM'S LENGTH PRICE AND EVEN IF PROFIT IS ESTABLISHED, IT DOES NOT NECE SSARILY FOLLOW THAT TRANSACTION WAS AT AN ARM'S LENGTH PRICE - HELD, YES [PARA 21] WE FIND THAT THIS JUDGEMENT HAD APPROVED THE EARLIE R DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CUSHMAN AND WAKEFIELD (IN DIA) (P) LTD SUPRA AND ALSO THE DECISION OF EKL APPLIANCES SUPRA. 4.9. IN VIEW OF THE AFORESAID FINDINGS AND RESPECT FULLY FOLLOWING THE JUDICIAL PRECEDENT RELIED UPON HEREINABOVE, WE HOLD THAT THE DETERMINATION OF ALP FOR MANAGEMENT SUPPORT SERVICES AT RS NIL IS UNWARRANTE D AND ACCORDINGLY THE UPWARD ADJUSTMENT MADE BY THE LD TPO IN THE SUM OF RS. 125,27,30,863/- IS DELETED. ACCORDINGLY, THE GROUND NOS 2 & 3 RAISED BY THE ASSESSEE ARE ALLOWED. WE FIND THAT THERE IS NO CHANGE IN THE FACTS AND CI RCUMSTANCES DURING THE YEAR UNDER APPEAL WITH REGARD TO MSSA WHEN COMPARED TO THAT IN THE EARLIER YEARS AND HENCE RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELI ED UPON HEREINABOVE, WE HOLD THAT THE DETERMINATION OF ALP FOR MANAGEMENT SUPPORT SERVICE S AT RS NIL IS UNWARRANTED AND ACCORDINGLY THE UPWARD ADJUSTMENT MADE BY THE LD TP O IN THE SUM OF RS 339,17,83,606/- IS DELETED. ACCORDINGLY, THE GROUND NOS. 2, 4.1. AND 4.3. RAISED BY THE ASSESSEE ARE ALLOWED. 7. DETERMINATION OF ALP FOR AMP EXPENSES GROUND NO. 3.1. TO 3.11 AND 4.2 & 4.3 OF ASSESSEE A PPEAL THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE DURING THE YEAR INCURRED EXPENSES TOWARDS ADVERTISEMENT AND MARKETING (AMP) IN EACH O F ITS BUSINESS SEGMENTS. AS PER THE ASSESSEE, SUCH EXPENSES WERE CRITICAL FOR ITS B USINESS IN INDIA AND IT HAS ALSO 35 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 35 BENEFITED FROM SUCH EXPENSES. THE ASSESSEE ALSO CL AIMED THAT IT HAD INCURRED SIMILAR EXPENDITURE IN EARLIER YEARS AND THE LD TPO ACCEPTE D THE SAME. THE ASSESSEE, IN ORDER TO PROMOTE ITS SALES IN THE INDIAN REGION, HAS UNDE RTAKEN MARKETING AND SALES PROMOTION ACTIVITIES WHICH IS A PRE-REQUISITE OF ANY INDEPEND ENT COMPANY COMPETING TO THRIVE IN SUCH COMPETITIVE MARKET. THE MARKETING ACTIVTIES UN DERTAKEN BY THE ASSESSEE WERE AIMED AT CAPTURING THE MARKET TO ENABLE IT TO ENHAN CE ITS MARKET SHARES AND HENCE INCREASE THE REVENUE AND PROFITABILITY OF THE COMPA NY. THIS IS IMMENSELY CRITICAL TO THE ASSESSEES OWN DOMESTIC BUSINESS DUE TO THE INTENSE COMPETITION IN THE MARKET PLACE. IT IS DIFFICULT FOR COMPANIES TO PENETRATE THE MARKET, SUSTAIN AND SUBSEQUENTLY INCREASE THE CUSTOMERS BASE. ALL THE MARKETING ACTIVITIES OF T HE ASSESSEE ARE PRODUCTS SPECIFIC I.E THE LIGHTS, CONSUMER LIFESTYLE AND HEALTHCARE PRODUCTS. THEREFORE IT CLEARLY DEMONSTRATES THAT THE PURPOSE OF SUCH PROMOTIONAL ACTIVITIES IS TO POSITION OUR PRODUCTS IN TARGET CUSTOMERS MIND RATHER THAN RENDERING SUCH MARKETIN G SERVICES TO THE AES FOR PROMOTING THE BRAND EXCLUSIVELY. THE SALES AND MAR KETING TEAM OF THE ASSESSEE WERE RESPONSIBLE FOR PROMOTING THE SALES AND UNDERTAKING THE MARKETING FUNCTIONS. MOST OF THESE ACTVITIES WERE UNDERTAKEN TO BUILD A BETTER D ISTRIBUTION CHANNEL AND MARKET SUSTAINABILITY IN INDIA. THE ASSESSEE BEFORE THE L D TPO MADE DETAILED SUBMISSIONS IN RESPECT OF AMP EXPENSES AS DETAILED UNDER:- A) THE AMP COSTS WERE INCURRED FOR ADVERTISEMENT IN THE DESIGNATED TERRITORY OF THE ASSESSEE ONLY, WHICH IS INDIA. THE ADVERTISEMENTS PRIMARILY CONTAINED LOCAL CONTENT SUITED / CREATED FOR THE INDIAN CUSTOMERS ; B) THE AMP COSTS ARE PAYMENTS MADE TO THIRD PARTIES IN INDIA THAT ARE NOT IN ANY WAY RELATED TO EITHER THE ASSESSEE OR ANY OF ITS AES. THE ASSESSEE HAD THE DISCRETION OF DECIDING THE FORM, MANNER, CONTENT AND TIMING OF TH E ADVERTISING ; 36 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 36 C) THE ASSESSEE DECIDES THE EXTENT OF EXPENDITURE I T NEEDS TO INCUR ON ADVERTISEMENT TO PROMOTE ITS SALES AND IN THE BEST INTEREST OF ITS B USINESS IN ITS DESIGNATED TERRITORIES. 7.1. THE ASSESSEE SUBMITTED THAT THE AMP EXPENSES I NCURRED BY IT CANNOT BE TREATED AS MARKETING & DISTRIBUTION SERVICES RENDERED TO THE A ES AND THEREBY AS AN INTERNATIONAL TRANSACTION AS THESE AMP EXPENSES REPRESENT PURELY PAYMENTS MADE TO THIRD PARTY VENDORS AND ARE NOT COVERED UNDER THE PURVIEW OF SE CTION 92 OF THE ACT. THE RELEVANT EXTRACT OF SECTION 92F(V) OF THE ACT WHICH GOVERNS THE DEFINITION OF TRANSACTION IS REPRODUCED BELOW:- TRANSACTION INCLUDES AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT .- (A) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS FORMAL OR IN WRITING ; OR (B) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDINGS. MERE PRESUMPTION JUST BECAUSE OF THE ASSESSEE BEING A SUBSIDIARY WHICH IS OWNED BY AE, AN ARRANGEMENT BETWEEN AE AND THE ASSESSEE EXIS TS IS ERRONEOUS. THE ASSESSEE IS A SEPARATE LEGAL ENTITY WITH ITS OWN MANAGEMENT AND F UNCTIONS INDEPENDENTLY. THERE IS NO SUBSTANTIAL EVIDENCE TO JUSTIFY THAT THERE EXISTS A N ARRANGEMENT. THEREFORE, IT WAS PLEADED THAT THE EXPENSES INCURRED BY THE ASSESSEE ON AMP CANNOT BE SAID TO BE AN INTERNATIONAL TRANSACTION AS AT FIRST PLACE IT DOES NOT EVEN MEET THE CRITERION LAID DOWN U/S 92F(V) OF THE ACT, WHICH DEFINES THE TERM TRAN SACTION. FURTHER SECTION 92B(1) OF THE ACT DEFINES THE TERM INTERNATIONAL TRANSACTION TO MEAN TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES . IN THIS REGARD, IT IS N OTED THAT SECTION 92B(2) OF THE ACT, EXTENDS THE SCOPE OF SECTION 92B(1) BY INTRODUCING A DEEMING FICTION WITH REGARD TO INTERNATIONAL TRANSACTIONS TO INCLUDE TRANSACTIONS BETWEEN AN UNRELATED ENTITY AND THE ASSESSEE RESULTING FROM THE EXISTENCE OF A PRIOR AR RANGEMENT BETWEEN THE AE OF THE ASSESSEE AND SUCH UNRELATED ENTITY. FROM THE ABOV E, IT IS EVIDENT THAT THE PURVIEW OF SECTION 92 OF THE ACT IS LIMITED TO ONLY SUCH TRANS ACTIONS THAT ARE EITHER BETWEEN TWO 37 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 37 AES OR GOVERNED BY A PRIOR ARRANGEMENT BETWEEN THE AES AND ANY UNRELATED PARTY. HERE, IT MAY BE NOTED THAT THE AMP EXPENSES DO NOT FORM PART OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE SINCE THE EXPENDITURE HAS BEEN ENTIRELY INCURRED IN INDIA AND WITH UNRELATED DOMESTIC PARTIES BY THE ASSESSEE. A SSESSING DOMESTIC TRANSACTIONS ENTERED INTO BY THE COMPANY WITH INDEPENDENT THIRD PARTIES IS BEYOND THE SCOPE OF POWERS VESTED WITH THE LD TPO UNDER THE SAID SECTIO N. IT WAS PLEADED THAT RELYING ON THE JUDGEMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSS ON REPORTED IN 55 TAXMANN.COM 240 (DELHI) , THE LD TPO HAD ASSUMED THAT THE ASSESSEE IS ENGA GED IN RENDERING MARKETING SERVICES TO ITS AES AND THUS TR EATED AMP AS AN INTERNATIONAL TRANSACTION. IT WOULD BE WORTHWHILE TO MENTION HER E THAT AMP EXPENSES AS AN INTERNATIONAL TRANSACTION HAS NOT BEEN ANALYSED IN THE CASE OF SONY ERICSSON BY THE HONBLE DELHI HIGH COURT AND THE SAID COURT DID TOU CH UPON THE ISSUE BUT DID NOT CONCLUDE AMP TO BE AN INTERNATIONAL TRANSACTION. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZU KI INDIA LTD REPORTED IN 381 ITR 117 (DEL) , WHEREIN IT WAS HELD THAT AMP CANNOT BE TREATED AS AN INTERNATIONAL TRANSACTION. THIS DECISION WAS RENDERED AFTER CONS IDERING SONY ERICSSON JUDGEMENT. ACCORDINGLY, IT WAS PLEADED THAT THE DECISION OF SO NY ERICSSON CANNOT BE APPLIED AS PROPOSED BY THE LD TPO TO DETERMINE THE EXISTENCE O F AN INTERNATIONAL TRANSACTION RELATING TO MARKETING & DISTRIBUTION SERVICES TO TH E AES ON ACCOUNT OF THE AMP EXPENSES INCURRED BY THE ASSESSEE. THE ASSESSEE ALSO PLACED RELIANCE ON TWO MORE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS WHIR LPOOL OF INDIA LTD REPORTED IN (2015) 64 TAXMANN.COM 324 (DELHI) AND H ONDA SIEL POWER PRODUCTS LTD VS DCIT REPORTED IN (2015) 64 TAXMANN.COM 328 (DELHI) . THE ASSESSEE STATED BEFORE THE LD TPO THAT SINCE IT DOES NOT BELIEVE AMP TO BE AN INTERNATIONAL TRANSACTION, THE ASSESSEE IS NOT MANDATED TO MAINTAIN TP DOCUMENTS I N TERMS OF SECTION 92D READ WITH RULE 10D OF THE ACT. 38 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 38 7.2. THE ASSESSEE SUBMITTED THE DETAILS OF AMP EXPE NDITURE FOR THE FINANCIAL YEAR 2011- 12 AS UNDER:- MEDIA SPEND AGENCY FEES LIGHTING 16,11,58,309 13,32,70,087 CONSUMER LIFESTYLE 26,45,19,614 5,97,95,416 HEALTH CARE 4,20,92,304 1,16,65,041 CORPORATE 0 (23,12,896) TOTAL 46,77,70,228 20,24,17,649 WITHOUT PREJUDICE TO THE CLAIM OF THE ASSESSEE THAT AMP IS NOT AN INTERNATIONAL TRANSACTION, THE ASSESSEE HOWEVER FURNISHED THE SAM PLE COPY OF INVOICES ON ACCOUNT OF MEDIA AND AGENCY FEES FOR CONSUMER LIFESTYLE AND HE ALTHCARE SECTOR AND SOFT COPY OF AUDIO / VIDEO ADVERTISEMENTS FOR LIGHTING / CONSUME R LIFESTYLE SECTOR IN DVD ALONG WITH THE WRITTEN SUBMISSIONS THEREON. 7.3. THE ASSESSEE STATED THAT AMP EXPENSES ARE ALRE ADY FACTORED IN TNMM IN THE DISTRIBUTION SEGMENTS AND HENCE THE SAME ARE NOT RE QUIRED TO BE EVALUATED SEPARATELY. IT WAS PLEADED THAT THE BUSINESS AND PRICING MODEL OF THE ASSESSEE IN RELATION TO ITS DISTRIBUTION ACTIVTIES SHOULD BE EVALUATED BEFORE C ONCLUDING APPLICABILITY OF THE SPECIAL BENCH RULING OF LG ELECTRONICS. WHERE THE INDIAN E NTITY HAS BEEN ADEQUATELY AND PROPERLY COMPENSATED FOR INCURRING SUCH EXPENDITURE , NO SEPARATE TP ADJUSTMENT IS WARRANTED. APPLICATION OF BRIGHT LINE TEST (BLT) IS NOT IN CONSONANCE WITH INDIAN TRANSFER PRICING REGULATIONS. IT WAS ARGUED THAT W ITHOUT PREJUDICE TO THE ABOVE, EVEN IF BLT IS APPLIED, A PROPER COMPARABLE SET IS IMPORTAN T TO ESTABLISH THE BLT. 39 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 39 7.4. WITH REGARD TO THE COMPARABLES CHOSEN BY THE L D TPO, THE ASSESSEE MENTIONED THAT IF THE COMPARABLES TAKEN BY THE LD DRP IN ASST YEAR 2011-12 ARE CONSIDERED, ASSESSEES AMP EXPENSES WERE LESS THAN THAT OF COMPARABLES IN % TERMS. 7.5. HOWEVER, THE LD TPO REJECTED THE ASSESSEES CL AIM AND HELD THAT EXCESS OF AMP EXPENSES INCURRED BY THE ASSESSEE IS SERVICE RENDER ED BY THE ASSESSEE FOR PROMOTING THE BRAND ON BEHALF OF AE AND HENCE CATEGORIZED THE SAM E AS AN INTERNATIONAL TRANSACTION U/S 92B OF THE ACT BY OBSERVING THAT THE ASSESSEE HAS INCURRED SIGNIFICANT AMP EXPENSES WHICH RESULTING IN PROMOTING BRAND OF ITS AE. THE LD TPO REJECTED THE ASSESSEES CONTENTION THAT THE TNMM ANALYSIS WAS SU FFICIENT TO SHOW THAT THE TRANSACTIONS OF THE ASSESSEE ARE AT ALP AND DETERMI NED THE PRICE OF THE ALLEGED AMP EXPENSES BY APPLYING BLT. BASED ON THE ABOVE, THE LD TPO PROPOSED AN UPWARD ADJUSTMENT TO THE TUNE OF RS 1,04,03,155/- TOWARDS EXCESS AMP EXPENSES HOLDING THAT THE ASSESSEE SHOULD HAVE RECEIVED REIMBURSEMENT OF SUCH ALLEGED EXCESS OF AMP EXPENSES FROM THE AE. 7.6. BEFORE THE LD DRP, THE ASSESSEE SUBMITTED THAT THE INTERNATIONAL TRANSACTION ON ACCOUNT OF AMP SPEND COULD NOT BE VIEWED AS SUCH IN THE ABSENCE OF AGREEMENT / ARRANGEMENT / UNDERSTANDING TO INCUR AMP EXPENSES O R EXCESSIVELY INCUR AMP EXPENSES AND ACCORDINGLY AMP EXPENDITURE INCURRED B Y THE ASSESSEE DOES NOT RESULT IN AN INTERNATIONAL TRANSACTION. THE LD DRP HELD THA T MERE ABSENCE OF A FORMAL AGREEMENT DOES NOT HELP THE CASE OF THE ASSESSEE, WHEREAS THE CONDUCT HAS THE TRANSACTION WRITTEN ALL ACROSS. IN SUCH A SCENARIO, IT DOES NOT HELP T HE CASE OF THE ASSESSEE AS THE ASSESSEE INDEED UNDERTAKES THE AMP ACTION RESULTING IN PROMO TION OF THE BRAND. ACCORDINGLY THE LD DRP HELD THAT THE AMP EXPENDITURE TO BE AN INTER NATIONAL TRANSACTION. THE LD DRP ON PERUSAL OF THE TABULATION OF AMP EXPENSES DIVISI ON WISE DONE BY THE LD TPO OBSERVED THAT THE PROFILE OF THOSE EXPENSES INDICAT ED DIRECT AND CONSPICUOUS ROLE IN BUILDUP OF THE INTANGIBLES. THOSE EXPENSE HEADS HA VE THEREFORE BEEN CORRECTLY 40 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 40 CATEGORIZED AS AMP EXPENSES. THE LD TPO COMPUTED TH E ALP ON SUCH AMP EXPENSES BY IMPUTING A MARK UP OF 5% ON SUCH ELIGIBLE EXPENS ES. THE SAME IS IN LINE WITH EXAMPLE 10 OF BEPS GUIDELINES. THE SAID EXAMPLE CO NCLUDED THAT AN ENTITY, PERFORMING FUNCTIONS AND INCURRING MARKETING EXPEND ITURE SUBSTANTIALLY IN EXCESS OF THE LEVEL OF FUNCTION AND EXPENDITURE OF INDEPENDENT MA RKETER / DISTRIBUTOR / MANUFACTURER IN COMPARABLE TRANSACTIONS, IS REQUIRED TO BE COMPENSA TED AND THE APPROPRIATE TAX ADMINISTRATION MUST PROPOSE A TRANSFER PRICING ADJU STMENT BASED ON SUCH COMPENSATION FOR SUCH AMP ACTIVITY PERFORMED. SUCH ADJUSTMENT MAY BE CONSISTENT WITH WHAT INDEPENDENT ENTERPRISES WOULD HAVE EARNED IN SIMILA R TRANSACTIONS. 7.6.1. THE LD DRP HELD THAT THE ASSESSEE IS INTO MA NUFACTURING AS WELL AS DISTRIBUTION ACTIVITIES. THE LD TPO HAD RIGHTLY INVOKED TNMM IN VIEW OF THE FACTS OF THIS CASE. THE CHOICE OF COMPARABLES HAS BEEN ACCEPTED BY THE ASSESSEE. THE MARK UP FOR SERVICES IS REQUIRED AND IT HAS BEEN UPHELD BY BEPS GUIDANCE ALSO. THE LD TPO WITHOUT INVOKING THE BLT IS THEREFORE DIRECTED TO RE-COMPUT E THE MARK UP BASIS THE ABOVE EXAMPLE BY BEPS. THE LD DRP DIRECTED THE LD TPO T O EXCLUDE TWO GOVERNMENT OWNED ENTITIES (WEBEL TECHNOLOGIES LTD AND SHREETRO N INDIA LTD) FROM THE LIST OF COMPARABLES AS THE FAR OF GOVERNMENT OWNED COMPANIE S IS NOT COMPARABLE WITH PRIVATELY OWNED BUSINESS GROUPS. SUBJECT TO THE AB OVE DIRECTIONS, ACTION OF THE LD TPO WAS UPHELD IN LINE WITH BEPS EXAMPLE. THE LD DRP PL ACED RELIANCE ON THE DECISION OF SONY ERICSSON AND HELD AMP TO BE AN INTERNATIONAL T RANSACTION. 8. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUNDS:- 3. DETERMINATION OF ARMS LENGTH PRICE FOR AMP EXPE NSES 3.1. THE AO, DRP AND TPO ERRED ON FACTS AND IN LAW, IN MAKING AN ADJUSTMENTS OF RS. 10,359,000/- TOWARDS ALLEGED EXCESS AMP EXPE NSES INCURRED BY APPELLANT AND CONSTRUED SUCH EXPENSE AS BRAND PROMOTION FOR T HE PARENT AE; 41 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 41 3.2 THE AO, DRP AND TPO ERRED ON FACTS AND IN LAW I N NOT APPRECIATING THAT EXPENDITURE ON AMP UNILATERALLY INCURRED BY THE APP ELLANT IN INDIA COULD NOT BE REGARDED AS AN INTERNATIONAL TRANSACTION AS PER SEC TION 92B OF THE ACT, SO AS TO INVOKE THE PROVISIONS OF SECTION 92 OF THE ACT; 3.3 THE TPO ERRED IN USING THE FORMULA OF AMP/SALES WHILE DETERMINING THE EXCESS AMP SPEND, WHICH TANTAMOUNT TO BRIGHT LINE T EST AND WHICH HAS BEEN REJECTED BY THE HONBLE HIGH COURTS IN VARIOUS JUDG MENTS; 3.4 MISINTERPRETING AND PLACING INCORRECT RELIANCE ON THE INTERNATIONAL GUIDANCE IN RELATION TO THE MARKETING INTANGIBLES AND THE BRIGHT LINE TEST (WHICH IS NOT IN CONSONANCE WITH INDIA TRANSFER PRICING REGULATIO NS) AND ARRIVED AT ERRONEOUS CONCLUSIONS WHILE MAKING UNWARRANTED TP ADJUSTMENT; 3.5 THE AO AND TPO ERRED IN NOT GIVING APPROPRIATE EFFECT TO THE DIRECTIONS OF HONBLE DRP. 3.6 THE AO, DRP AND TPO ERRED IN IGNORING THE FACT THAT THE AMP EXPENSES ARE ALREADY FACTORED IN TNMM ANALYSIS AND HENCE THE SAM E ARE NOT REQUIRED TO BE EVALUATED SEPARATELY; 3.7 THE AO, DRP AND TPO ERRED ON FACTS AND IN LAW I N HOLDING THAT THE APPELLANT HAS RENDERED SERVICES TO ITS AE BY INCURR ING THE ALLEGED EXCESS AMP EXPENSES; 3.8 THE AO, DRP AND TPO ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT THE AMP EXPENSE INCURRED BY THE APPELLANT WERE IN RESPE CT OF ITS OWN BUSINESS PURPOSE AND REQUIREMENTS AND THAT ALL THE BENEFITS RESULTING FROM SUCH EXPENDITURE ARE TO ITS OWN ACCOUNT; 3.9 THE AO, DRP AND TPO ERRED IN COMPLETELY DISREGA RDING THE BUSINESS AND PRICING MODEL OF THE APPELLANT WHICH COMPENSATES TH E APPELLANT FOR THE AMP EXPENSES INCURRED BY IT; 3.10 WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, THE AO, DRP AND TPO ERRED AND FAILED TO APPRECIATE THAT COMPARABLE CONSIDERED BY THE TPO FOR THE PURPOSE OF DETERMINING THE EXCESS AMP SPEND ARE NOT VALID COMP ARABLES; 3.11 WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, THE AO, DRP AND TPO ERRED IN NOT APPRECIATING/ACKNOWLEDGING THAT DRP IN ASSESSEE S OWN CASE FOR A.Y. 2010- 11 AND A.Y. 2011-12 HAS ACCEPTED CERTAIN COMPANIES AS COMPARABLES FOR AMP ANALYSIS AND THERE IS NO OCCASION TO DEVIATE FROM S UCH COMPARABLES. 42 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 42 4.2 THE LEARNED AO, DRP AND TPO ERRED IN MAKING TRA NSFER PRICING ADJUSTMENT ON THE ALLEGED EXCESS COST INCURRED FOR AMP EXPENSE S AS BRAND PROMOTION FOR AE. THE PAYMENT FOR AMP EXPENSES HAVE BEEN ACCEPTED AS NOT EXCESSIVE IN THE APPELLANTS OWN CASE IN PRECEDING YEARS BY THE AO, TPO AND THE DRP. 4.3 THE LEARNED TPO ERRED IN NOT APPLYING THE RULE OF CONSISTENCY TO TRANSFER PRICING PROCEEDINGS WHEN THE FACTS OF THE CASE INCL UDING THE UNDERLYING ARGUMENTS HAVE NOT ALTERED. 9. THE LD AR VEHEMENTLY RELIED ON THE ORDER OF THIS TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12 IN ITA NOS. 863 & 53 9/KOL/2016 DATED 15.12.2017 WHEREIN IT WAS HELD THAT AMP EXPENDITURE INCURRED B Y THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE CANNOT BE CONSTRUED AS AN INTERNATIONAL TRANSACTION BY PLACING RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COUR T IN THE CASE OF MARUTI SUZUKI INDIA LTD REFERRED TO SUPRA. 10. IN RESPONSE TO THIS, THE LD DR STATED THAT THE ASSESSEE IS ONLY IMPORTING GOODS FROM ITS AE AND SELLING IT LOCALLY IN INDIA AND AS SUCH , IT IS ONLY A DISTRIBUTOR OF PRODUCTS. THE DECISION RENDERED IN SONY ERICSSON CASE WAS CLE ARLY GIVEN IN THE CASE OF DISTRIBUTOR WHEREAS, DECISION IN MARUTI SUZUKI CASE WAS GIVEN IN THE CASE OF MANUFACTURER & MARKETER. HENCE THE RELIANCE PLACE D BY THIS TRIBUNAL IN EARLIER YEAR IS INCORRECT AND CANNOT BE USED FOR THE YEAR UNDER APP EAL. HE FURTHER ARGUED THAT THE DEPARTMENT HAD FILED SPECIAL LEAVE PETITION (SLP) B EFORE THE HONBLE APEX COURT AGAINST THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD AND PLEADED THAT ONLY THE DECISION OF SONY ERICSSON WOULD RULE THE FIELD AS ON DATE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUT SET, WE FIND THAT THE LD TPO, LD AO AND THE LD DRP HAD CATEGORICALLY ACCEPTED THE BASIC FACT THAT THE ASSESSEE IS A MANUFACTURER AND ALSO ENGAGED IN DISTRIBUTION OF PR ODUCTS. WHILE THIS IS SO, WE ARE NOT ABLE TO COMPREHEND THE ARGUMENT ADVANCED BY THE LD DR THAT ASSESSEE IS ONLY A DISTRIBUTOR AND THEREBY THE DECISION OF SONY ERICSS ON WOULD APPLY TO THE CASE. WE FIND 43 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 43 THAT SINCE THE ASSESSEE IS A MANUFACTURER CUM DISTR IBUTOR AS ACCEPTED BY THE LOWER AUTHORITIES, THE DECISION RENDERED IN MARUTI SUZUKI SUPRA WOULD BE APPLICABLE TO THE ASSESSEES CASE, SINCE THE CONTENTION OF THE LD DR THAT ASSESSEE IS ONLY DISTRIBUTOR, IS NOT EMANATING FROM THE RECORDS OF THE LOWER AUTHORITIES . WE FIND THAT THE ISSUE UNDER DISPUTE BEFORE US IS SQUARELY ADDRESSED BY THIS TRI BUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12 SUPRA WHEREIN IT WAS HELD :- 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE PRELIMINARY ISSUE HERE ARISES WHETHER T HE AMP EXPENSES CONSTITUTE THE INTERNATIONAL TRANSACTIONS SO AS TO ATTRACT THE PRO VISIONS OF TRANSFER PRICING OF THE INCOME TAX ACT, 1961. THE CLAIM OF THE LD. AR IS T HAT THE AMP TRANSACTION DOES NOT REPRESENT THE INTERNATIONAL TRANSACTION BETWEEN THE AES THEREFORE NO QUESTION OF DETERMINING THE ALP OF AMP TRANSACTIONS. WE FIND FO RCE IN THE ARGUMENT OF THE LD. AR IN THE GIVEN FACTS AND CIRCUMSTANCES. THEREFORE, IN OUR CONSIDERED VIEW THE AMP CANNOT BE REGARDED AS INTERNATIONAL TRANSACTION. IN HOLDIN G SO WE FIND THE SUPPORT & GUIDANCE FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN TH E CASE OF MARUTI SUZUKI INDIA LIMITED VS. CIT REPORTED IN 381 ITR 117 WHEREIN IT WAS HELD AS UNDER: 51. THE RESULT OF THE ABOVE DISCUSSION IS THAT IN THE CONSIDERED VIEW OF THE COURT THE REVENUE HAS FAILED TO DEMONSTRATE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION ONLY ON ACCOUNT OF THE QUANTUM OF AMP EXPENDITURE BY MSIL. SECONDLY, THE COURT IS OF THE VIEW THAT THE DECISION IN SONY ERICSSON MOBILE COMMUNICA TIONS INDIA (P) LTD. CASE (SUPRA) HOLDING THAT THERE IS AN INTERNATIONAL TRANSACTION AS A RESULT OF THE AMP EXPENSES CANNOT BE HELD TO HAVE ANSWERED THE ISSUE AS FAR AS THE PRESENT ASSESSEE MSIL IS CONCERNED SINCE FINDING IN SONY ERICSSON TO THE ABO VE EFFECT IS IN THE CONTEXT OF THOSE ASSESSEES WHOSE CASES HAVE BEEN DISPOSED OF BY THAT JUDGMENT AND WHO DID NOT DISPUTE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION REGAR DING AMP EXPENSES. IN VIEW OF WE NOTE THAT THE FACTS OF THE ABOVE CASE S ARE IDENTICAL TO THE PRESENT ISSUE, THUS, THE PRINCIPLE LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED (SUPRA) ARE APPLICABLE TO THE INSTANT CASE. RESPECTFULLY FOLLOWING THE SAME WE DISMISS THE GROUND OF APPEAL FILED BY T HE REVENUE. RESPECTFULLY FOLLOWING THE SAME, THE UPWARD ADJUSTM ENT MADE BY THE LD TPO AND UPHELD BY THE LD DRP IN THE SUM OF RS 1,03,59,000/- IS HEREBY DIRECTED TO BE DELETED. ACCORDINGLY, THE GROUNDS 3 , 4.2 & 4.3. RAISED BY T HE ASSESSEE ARE ALLOWED. 12. THE GROUND NO. 5 RAISED BY THE ASSESSEE IS WITH REGARD TO CLAIM OF BENEFIT ARISING OUT OF THE PROVISO TO SECTION 92C(2) OF THE ACT I.E VARIATION OF 5% FROM THE ARITHMETIC 44 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 44 MEAN. IN VIEW OF OUR DECISIONS RENDERED HEREINAB OVE FOR GROUNDS 2 TO 4, WE DO NOT DEEM IT NECESSARY TO ADJUDICATE THIS GROUND. 13. THE GROUND NO. 13 RAISED BY THE ASSESSEE IS WIT HOUT PREJUDICE TO THE GROUNDS RAISED BY IT IN GROUNDS 2 TO 5 , WHEREIN THE LD TPO CONCLU DED THAT AN ADJUSTMENT MAY BE REQUIRED TO BE MADE TO THE INTERNATIONAL TRANSACTIO NS OF THE ASSESSEE IN RELATION TO ITS OTHER SEGMENTS, IF IT IS HELD LATER IN JUDICIAL PRO CEEDINGS THAT INTRA-GROUP SERVICE CHARGES IS ACTUALLY REQUIRED TO BE PAID. IN THIS REGARD, THE OBSERVATIONS OF THE LD TPO IN PARA 61.5 PAGE 164 OF HIS ORDER WOULD BE RELEVANT AND TH E SAME ARE REPRODUCED HEREUNDER FOR THE SAKE OF CONVENIENCE:- 61.5. WITHOUT PREJUDICE TO THE ABOVE DISCUSSION, I T IS PROPOSED THAT THE OPERATING PROFIT OF THE TESTED PARTY I.E ASSESSEE I S TAKEN AS 12.41% AND 14.17% RESPECTIVELY FOR THE DISTRIBUTION SEGMENT AND CONTR ACT MANUFACTURING DIVISION. CONSEQUENTLY, EVEN IF IT IS HELD IN LATER JUDICIAL PROCEEDINGS THAT THE INTRAGROUP SERVICES IS ACTUALLY REQUIRED TO BE PAID THEN THE O PERATING PROFIT MARGIN OF THE COMPANY IS TO BE TAKEN AS GIVEN IN THE TABLE ABOVE AT 4.66% AND 4.88% FOR DISTRIBUTION SEGMENT AND CONTRACT MANUFACTURING DIV ISION RESPECTIVELY. THIS OBSERVATION OF THE LD TPO HAD TRIGGERED THE RA ISING OF GROUND NO. 6 BEFORE US BY THE ASSESSEE. BUT WE FIND THAT THIS PASSIVE OBSER VATION OF THE LD TPO WAS NOT AT ALL CONSIDERED IN THE FOLLOWING ORDERS PASSED BY THE LO WER AUTHORITIES :- A) ORDER OF THE LD DRP DATED 19.12.2016 U/S 144C(5) OF THE ACT B) ORDER PASSED BY THE LD TPO U/S 92CA(3) R.W.S. 92 CA(5) & 144C95) OF THE ACT DATED 25.1.2017 C) FINAL ASSESSMENT ORDER PASSED BY THE LD AO U/S 1 43(3) R.W.S. 144C OF THE ACT DATED 27.2.2017. 45 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 45 HENCE WE HOLD THAT THE PASSIVE OBSERVATIONS MADE BY THE LD TPO HAD BEEN COMPLETELY IGNORED BY THE LD DRP AND IN THE GIVING EFFECT ORDE R TO DRP DIRECTIONS AND IN THE FINAL ASSESSMENT ORDER. ACCORDINGLY, THE SAID OBSERVATIO NS WOULD HAVE NO RELEVANCE IN THE PROCEEDINGS FOR THE ASSESSEE AND THERE IS NO GRIEVA NCE THAT COULD BE CAUSED TO THE ASSESSEE IN THAT REGARD. THERE IS NO IMPACT FOR THE ASSESSEE PURSUANT TO THE AFORESAID PASSIVE OBSERVATIONS OF THE LD TPO. THE VARIOUS C ONTENTIONS RAISED BY THE ASSESSEE ARE LEFT OPEN IN VIEW OF GIVING EFFECT ORDER TO DRP PAS SED BY THE LD TPO AND FINAL ASSESSMENT ORDER PASSED BY THE LD AO. HENCE WE ARE OF CONSIDERED OPINION THAT ADJUDICATION OF GROUND NO. 6 RAISED BY THE ASSESSEE WOULD BE SUPERFLUOUS. 14. DISALLOWANCE OF LEASE RENTALS RS 6,86,60,107/- GROUND NOS. 7.1 TO 7.3 THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE CLAIMED LEASE RENTAL PAID FOR MOTOR CAR TAKEN ON FINANCE LEASE FROM CITI CORP AMOUNTING TO RS. 6,86,60,107/-. THE SAME WAS TREATED AS CAPITAL EXPENDITURE BY THE LD AO BASED O N THE RELIANCE PLACED IN ASSESSEES OWN CASE FOR THE ASST YEAR 2003-04 WHICH GOT CONFIR MED BY THIS TRIBUNAL. THE LD DRP OBSERVED AS UNDER:- THE LEASE RENTALS PAID BY THE ASSESSEE FOR THE YEAR 2003-04 WERE DISALLOWED AND THE ACTION WAS UPHELD BY THE ITAT. SUBSEQUENT MATT ERS HAVE BEEN PENDING / THOUGH THIS ADJUSTMENT HAS BEEN ALLOWED IN 2011-12 , THE PANEL UPON CONSIDERATION OF THE FACTS IS NOT INCLINED TO ALLOW RELIEF TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUNDS :- 7. LEASE RENTAL 7.1. THE LEARNED AO AND DRP ERRED IN LAW AND ON FAC TS IN DISALLOWING RS. 6,86,60,107 BEING THE LEASE RENT PAID IN RESPECT OF CARS TREATING THE SAME AS CAPITAL EXPENDITURE. 46 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 46 7.2. THE LEARNED AO AND DRP ERRED IN LAW AND ON FAC TS IN DISALLOWING THE LEASE RENT PAID WITHOUT TAKING COGNIZANCE OF THE DECISION OF THE SUPREME COURT IN THE CASE OF ICDS LTD. VS. CIT (2013) 350 ITR 527 (SC). 7.3. STRICTLY WITHOUT PREJUDICE TO THE ABOVE, THE L EARNED AO AND DRP ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEPRECIATION ON TO TAL PAYMENT TOWARDS LEASE TRANSACTIONS INCLUDING INTEREST. 14.1. THE LD AR ARGUED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD VS CIT REPORT ED IN (2013) 350 ITR 527 (SC) WHEREIN IT WAS HELD THAT :- THE LESSOR I.E THE ASSESSEE IS THE OWNER OF THE VE HICLES. AS THE OWNER, IT USED THE ASSETS IN THE COURSE OF ITS BUSINESS, SATISFYING BO TH REQUIREMENTS OF SECTION 32 OF THE ACT AND HENCE, IS ENTITLED TO CLAIM DEPRECIATIO N IN RESPECT OF ADDITIONS MADE TO THE TRUCKS, WHICH WERE LEASED OUT. THE LD AR STATED THAT THE ASSESSEE HEREIN IS A LES SEE AND IS ENTITLED FOR DEDUCTION TOWARDS LEASE RENTALS PAID TOWARDS CARS TAKEN ON FI NANCE LEASE. HE ALSO STATED THAT THE LESSOR HAD CONFIRMED THAT IT HAD CLAIMED DEPRECIATI ON IN THE RELEVANT ASST YEAR ON THE SAID CARS WHICH WERE LEASED OUT TO THE ASSESSEE. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF RAJSHRE E ROADWAYS VS UOI REPORTED IN 263 ITR 206 (RAJ) WHEREIN IT WAS HELD THAT THE LESSEE WOULD BE ENTIT LED TO THE DEDUCTION OF RENT PAID BY HIM AND THE BENEFIT O F THE DEPRECIATION SHALL BE AVAILABLE TO OWNER OF THE ASSET. FURTHER THE SPECIAL LEAVE P ETITION (SLP) FILED BY THE DEPARTMENT AGAINST THE SAID DECISION BEFORE THE HONBLE SUPREM E COURT HAS BEEN DISMISSED . HE FURTHER PLACED RELIANCE ON THE CO-ORDINATE BENCH DE CISION OF THIS TRIBUNAL IN THE CASE OF THE ROYAL BANK OF SCOTLAND N.V. VS DDIT IN ITA NO. 1738/KOL/2009, 1926/KOL/2010 , 519/KOL/2011 AND 1805/KOL/2012) DATED 13.4.2016 WHE REIN ON IDENTICAL MATTER, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN R ESPONSE TO THIS, THE LD DR FAIRLY CONCEDED THAT THE ISSUE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD SUPRA. 47 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 47 14.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE UNDER DISPUTE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF ICDS LTD SUPRA IN FAVOUR OF THE ASSESSEE. HENCE RESPECTFULLY FOLLOWI NG THE SAME, WE ALLOW THE GROUND NO. 7 RAISED BY THE ASSESSEE. 15. DEPRECIATION ON MOULDS GROUND NOS. 8.1 TO 8.4 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS CLAIMED DEPR ECIATION @ 30% ON MOULDS INSTEAD OF 15%. THE LD AO FURTHER OBSERVED THAT THE ASSESS EE IS ENGAGED IN BUSINESS OF MANUFACTURING, SELLING AND TRADING OF ELECTRONICS A ND ELECTRICAL PRODUCTS, ELECTRONIC MEDICAL EQUIPMENTS AND DEVELOPMENT OF SOFTWARE SERV ICES. THEREFORE, THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION @ 15% ON MOULDS. TH E DEPRECIATION ON MOULDS @ 30% IS AVAILABLE TO THE ASSESSEE IF THESE ARE USED EXCL USIVELY IN RUBBER AND PLASTIC INDUSTRIES. AS SUCH, THE ASSESSEE HAD NO PLASTIC FACTORY. THER EFORE, THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION @ 30% ON MOULDS. ACCORDINGLY, THE LD AO DISALLOWED THE EXCESS DEPRECIATION CLAIMED BY ASSESSEE FOR RS 3,14,04,052 /- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE FILED OBJEC TIONS BEFORE THE LD DRP. THE LD DRP REJECTED THE CLAIM BY OBSERVING AS UNDER:- ACCORDING TO THE NEW APPENDIX 1 TO RULE 5 OF THE IT RULES EFFECTIVE FROM AY 2006-07 ONWARDS, (VII) OF PART A OF THE TABLE OF RA TES AT WHICH DEPRECIATION IS ADMISSIBLE MOULDS ARE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 30% IN THE CASES OF FACTORIES INVOLVED IN RUBBER & PLASTIC GOODS PRODUC TION. IN THE CASE AT HAND, THE BUSINESSES WERE CONSUMER LIFESTYLE PRODUCTS DISTRIB UTION, HEALTHCARE, LIGHTINGS AND SOFTWARE DEVELOPMENT AND NOT PRODUCTION OF PLAS TIC OR RUBBER GOODS. IN THE ABOVE VIEW OF THE MATTER THE PANEL DOES NOT FEEL INCLINED TO INTERFERE WITH THE FINDING OF THE AO. THE DEPRECIATION @ 15% IS U PHELD. ACCORDINGLY THE OBJECTION IS DISMISSED . 48 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 48 15.1. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUNDS:- 8.1. THE LEARNED AO AND DRP ERRED IN LAW AND ON FAC TS IN DISALLOWING RS. 3,14,04,052/- BEING EXCESS DEPRECIATION TO THE TUNE OF 15% CLAIMED BY THE COMPANY ON MOULDS. 8.2. THE LEARNED AO AND DRP ERRED IN LAW AND ON FAC TS IN DISALLOWING THE EXCESS DEPRECIATION ON MOULDS WITHOUT TAKING COGNIZ ANCE OF THE PROVISIONS OF THE ACT READ WITH INCOME TAX RULE, 1962. 8.3. THE LEARNED AO AND DRP ERRED ON FACTS IN HOLDI NG THAT THE MOULDS ARE NOT USED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY AND ARE NOT USED IN RUBBER/PLASTIC FACTORY. 8.4. STRICTLY WITHOUT PREJUDICE TO THE ABOVE, THE L EARNED AO AND DRP ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEPRECIATION ON MO ULDS FOR THIS YEAR AFTER ADDING THE AMOUNT OF RS. 2,67,54,530/- DISALLOWED L AST YEAR TO THE OPENING WRITTEN DOWN VALUE OF MOULDS. 15.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD AR STATED THAT THE MOULDS WERE OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF I TS BUSINESS. FURTHER, THE MOULDS WERE EXCLUSIVELY USED IN THE PLASTIC FACTORY BY THE JOB WORKERS / CO-MAKERS TO WHOM MOULDS WERE GIVEN BY THE ASSESSEE TO BE USED IN THE PLASTIC FACTORY, UNDER ITS CONTROL AND SUPERVISION AND PRAYED THAT DEPRECIATION @ 30% WOU LD BE ELIGIBLE ON THE SAID MOULDS. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12 IN ITA NOS. 863 & 539/KOL/201 6 DATED 15.12.2017 WHEREIN IT WAS HELD AS UNDER:- 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, ISSUE RELATES TO DEPRECIATION CLAIMED BY THE ASSESSEE @ 30% ON MOULDS ON THE GROUND THAT THESE ARE USED IN PLASTIC FACTORIES. HOWEVER, THE AMOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE ON MOULDS WAS DISALLOWED BY THE ASSESSEE ON THE GROUND THAT HIGHER RATE OF DEPRECIATION ON MOULDS I S AVAILABLE ONLY IF THESE ARE USED IN THE PLASTIC FACTORY. THE VIEW TAKEN BY THE AO WAS S UBSEQUENTLY CONFIRMED BY THE LD. DRP. NOW THE ISSUE BEFORE US AROSE WHETHER ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON MOULDS AT HIGHER RATE IN THE GIVEN FACTS AND CIRCUM STANCES. IT IS UNDISPUTED FACT THAT ASSESSEE HAS BEEN CLAIMING DEPRECIATION ON MOULDS @ 30% IN ALL THE EARLIER YEARS WHICH WAS GRANTED BY THE REVENUE AND NO DISPUTE WIT H REGARD TO RATE OF DEPRECIATION AROSE IN THE EARLIER YEARS DESPITE THE FACT THAT TH E ASSESSMENTS FOR EARLIER YEARS WERE FRAMED U/S 143(3) OF THE ACT. IN THIS REGARD, WE OB SERVE THAT THE ASSESSEE WAS ALLOWED 49 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 49 DEPRECIATION AT HIGHER RATE IN ALL THE EARLIER YEAR S AND NO DISALLOWANCE WAS MADE ON ACCOUNT OF THIS. HOWEVER, WE NOTE THAT SIMILAR DISA LLOWANCE WAS ALSO MADE BY THE LD. DRP FOR THE A.Y. 2012-13 & 2013-14. THE LD. AR BEFO RE US HAS ALSO NOT BROUGHT ANYTHING ON RECORD EVIDENCING THAT THE ASSESSEE HAD PLASTIC FACTORY. THE LD. AR HAS JUST VERBALLY SUBMITTED THAT IN MOST OF THE PRODUCTS WHI CH APPEARS TO BE TRUE. BUT AS SUCH NO DOCUMENTARY EVIDENCE WAS FILED IN SUPPORT OF THE AS SESSEES CLAIM. HOWEVER IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE ARE INCLINES TO RESTORE THIS MATTER TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW. THE LD. AR IS DIRECTED TO PRODUCE NECESSARY DOCUMENTS IN SUPPORT OF HIS CLAIM. HENCE, THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECE DENT, WE RESTORE THIS MATTER TO THE FILE OF THE LD AO FOR FRESH ADJUDICATION IN ACCORDANCE W ITH LAW. THE ASSESSEE IS AT LIBERTY TO ADDUCE FRESH EVIDENCES BEFORE THE LD AO IN SUPPORT OF ITS CONTENTIONS. ACCORDINGLY, THE GROUND NOS. 8.1 TO 8.4 RAISED BY THE ASSESSEE ARE A LLOWED FOR STATISTICAL PURPOSES. 16. NON-GRANT OF DEDUCTION U/S 80G OF THE ACT GROUND NO. 9 THE ASSESSEE CLAIMED DEDUCTION U/S 80G OF THE ACT I N THE SUM OF RS 26,22,813/- IN THE RETURN OF INCOME. THIS WAS NOT GRANTED BY THE LD AO AND THIS ACTION WAS UPHELD BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US ON THE FOLLOWING GROUND:- 9. NON GRANT OF DEDUCTION U/S 80G 9.1. THE LEARNED AO AND DRP ERRED IN LAW AND ON FAC TS IN NOT GRANTING DEDUCTION UNDER SECTION 80G OF THE ACT AMOUNTING TO RS. 26,22,813/-. 16.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER REGARDING THIS AND HENCE WE DEEM I T FIT AND APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF THE LD AO TO VERIFY THE CLAIM OF DEDUCTION U/S 80G OF THE ACT WITH THE RECEIPTS AND OTHER RELEVANT DOCUMENTS TO BE PRODUCE D BY THE ASSESSEE BEFORE THELD AO. ACCORDINGLY, THE GROUND NO. 9 RAISED BY THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSES. 50 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 50 17. SHORT CREDIT OF TAX DEDUCTED AT SOURCE GROUND NO. 10 THE LD AO GRANTED CREDIT FOR TAX DEDUCTED AT SOURCE OF RS. 5,17,37,622/- AS AGAINST THE CLAIM BY THE ASSESSEE TO THE TUNE OF RS.5,19,20,101 /- . SINCE THE ISSUE INVOLVES ONLY VERIFICATION OF CERTIFICATES / FORM 26AS, AS THE CA SE MAY BE, WE HEREBY DIRECT THE LD AO TO KINDLY VERIFY THE NECESSARY EVIDENCES IN THIS RE GARD AND GRANT TDS CREDIT, IF ELIGIBLE, TO THE ASSESSEE. ACCORDINGLY, THE GROUND NO. 10 RA ISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 18. LEVY OF INTEREST U/S 234 B OF THE ACT THE GROUND NO. 11 RAISED BY THE ASSESSEE IS WITH RE GARD TO CHARGEABILITY OF INTEREST U/S 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AN D DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 19. LEVY OF INTEREST U/S 234 D OF THE ACT THE GROUND NO. 12 RAISED BY THE ASSESSEE IS WITH RE GARD TO CHARGEABILITY OF INTEREST U/S 234D OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AN D DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 20. LEVY OF INTEREST U/S 244A OF THE ACT THE GROUND NO. 13 RAISED BY THE ASSESSEE IS WITH RE GARD TO CHARGEABILITY OF INTEREST U/S 244A OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AN D DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 51 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 51 21. INITIATION OF PENALTY U/S 271(1)( C) OF THE ACT THE GROUND NO. 14 RAISED BY THE ASSESSEE IS WITH RE GARD TO INITIATION OF PENALTY U/S 271(1)( C) OF THE ACT WHICH WOULD BE DECIDED AFRESH BY THE LD AO IN ACCORDANCE WITH LAW WHILE GIVING EFFECT TO THIS ORDER. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 07.02.2018 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : 07.02.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. M/S PHILIPS INDIA LIMITED (FORMERLY PHILIPS ELEC TRONICS INDIA LTD., DLF IT PARK, TOWER-A, 3 RD FLOOR, 08, MAJOR ARTERIAL ROAD, BLOCK-AF, NEW TOWN (RAJARHAT), KOLKATA-700156. 2. ACIT, CIRCLE-12(2), KOLKATA, AAYAKAR BHAWAN, P-7 , CHOWRINGHEE SQUARE, 6 TH FLOOR, KOLKATA-700069. 3..C.I.T.(A)- , KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 52 ITA NO.612/KOL/2017 PHILIPS INDIA LTD.. A.YR.2012-13 52