ACIT, New Delhi V. M/s. Sojitz India Pvt. Ltd., New Delhi

ITA 6298/DEL/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7470 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I1
• Next Hearing Date: 08-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VED JAIN ADV ASHIS H GOYALCA
• Keywords: Transfer pricing; International transaction; Rule of consistency; Wholly owned subsidiary
• Section: 37(1); 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I(1) NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER I.T.A. NO. 6298/DEL/2015 AY: 201 1-12 ACIT, VS SOJITZ INDIA PVT. LTD., CIRCLE 24(1), 7 TH FLOOR, EROS CORPORATE TOWER, ROOM NO. 163, NEHRU PLACE, C.R. BUILDING, NEW DELHI. NEW DELHI. (PAN: AAICS8883N) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PIYUSH JAIN, CIT DR RESPONDENT BY: S/SHRI VED JAIN, ADV., ASHIS H GOYAL,CA DATE OF HEARING: 08.06.2016 DATE OF PRONOUNCEMENT: 10.06.2016 ORDER PER N.K. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 30.9.2015 OF THE ASSESSING OFFICER PASSED U/S 143( 3) R/W SECTION 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFER RED TO AS THE ACT). 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E DRP HAS ERRED IN LAW ON DELETING THE ADDITION OF RS.61,20,15,101/- MADE BY TPO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS BEING THE DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE (COMMISSION) AND THE COMMISSION RECEIVED BY THE ASSESSEE FROM AES. I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 2 OF 20 2. THE DRP HAS ERRED IN LAW AND ON FACTS IN DELETI NG THE DISALLOWANCE OF RS.19,76,655/- MADE BY THE AO BEING GOLF MEMBERSHIP FEE UNRELATED TO THE BUSINESS .' 3. THE FIRST ISSUE IN GROUND NO. 1 RELATES TO THE D ELETION OF ADDITION OF RS. 61,20,15,101/- MADE BY THE TPO ON A CCOUNT OF ARMS LENGTH PRICE ADJUSTMENT. 3.1 THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSEE FILED A RETURN OF INCOME ON 30.11.2011 DECLARING AN INCOME OF RS. 3,43,39,183/-. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE HAD UNDERTAKEN IN TERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES (AE). HE, THEREFORE, REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA OF THE ACT FOR DETERMINING THE ARMSS LENGTH PRICE. THE TPO PROPOSED AN ADJUSTMENT OF RS. 61,20,15,101/- IN THE COMMISSION SEGMENT TRANSACTION WITH THE AE BY APPLYING AN OPER ATIVE GROSS PROFIT MARGIN OF 18.80%. THEREAFTER, THE ASSESSIN G OFFICER PASSED A DRAFT ASSESSMENT ORDER BY MAKING AN ADDITION OF RS. 61,20,15,101/-. THE ASSESSEE FILED THE OBJECTI ONS BEFORE THE LD. DISPUTE RESOLUTION PANEL (DRP) WHO DELETED THE ADDITION BY OBSERVING THAT FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09, THE TPO MADE ADJUSTMENT ON SIMILAR LINES. HOWEVER, THE ORDER OF I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 3 OF 20 THE TPO WAS SET ASIDE BY THE ITAT AND THE INTERNATI ONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE CONCLU DED TO BE ON ARMS LENGTH. THE LD. DRP ALSO OBSERVED AS UNDER: - FINALLY THE PANEL FEELS OBLIGED TO FOLLOW THE PREC EDENT SET BY THE JURISDICTIONAL BENCH OF THE INCOME TAX TRIBUNAL IN THE AS OWN CASE FOR THE SAKE OF JUDICI AL DISCIPLINE AND THE RULE OF LAW. THE DOCTRINE OF CONSISTENCY IS ALSO ATTRACTED IN THE INSTANT CASE A S THE REVENUE CONSISTENTLY EITHER TOOK A NON-ADVERSARIAL APPROACH OR HAD TO ULTIMATELY ENDORSE THE AS APPRO ACH UPON DIRECTIONS FROM A HIGHER JUDICIAL FORUM IN REG ARD TO THIS TRANSACTION IN THE PAST. THEREFORE IT IS CONCLUDED BY THE PANEL THAT THE TPO WAS MISPLACED IN HIS APPROACH WHILE HOLDING THAT THE INTANGIBLES AND THE TANGIBLES BROUGHT INTO EXISTENC E BY HIM IN INDIA MADE HIM A TRADER AND NOT A COMMISSION AGENT AS IS CLEAR FROM A READING OF SECTION 182 OF THE INDIAN CONTRACT ACT 1872. THE CASE LAWS RELIED BY H IM WERE MISUNDERSTOOD BY HIM. IN THE FACE OF THE FOREG OING FACTS GROUNDS 3 TO 6 ARE ALLOWED. 4. NOW, THE DEPARTMENT IS IN APPEAL. 5. LEARNED COUNSEL FOR THE ASSESSEE, AT THE VERY OU TSET, STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE ITAT IN THE PRECEDING YEARS 200 7-08 AND 2008-09 IN I.T.A. NO. 5168/D/11 AND 5433/D/12 ORDER DATED 15.5.2013. IT WAS ALSO STATED THAT THE FACTS FOR T HE PRESENT YEAR ARE IDENTICAL TO THE FACTS INVOLVED IN THE PRECEDIN G YEARS. A COPY I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 4 OF 20 OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD. IN HIS RIVAL SUBMISSIONS, LD. CIT DR, ALTHOUGH SUPPORTED T HE ORDER OF THE TPO, BUT COULD NOT CONTROVERT THE AFORESAID CON TENTION OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIAL PLACED ON RECORD. IN THE PRESENT CASE , IT IS NOTICED THAT AN IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY THE ITAT VIDE ORDER DATED 15.5.2013 IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2007-08 AND 2008-09. IN I.T.A. NO. 5168/D/11 AND I.T.A. 5433/D/2012, A COPY OF WHICH IS PLACED AT PAGES NO . 489 TO 532 OF THE ASSESSEES PAPER BOOK, AND THE RECENT FINDIN GS HAVE BEEN GIVEN IN PARA 12.31 TO 14 AT PAGES NO. 517 TO 531 W HICH READ AS UNDER:- 12.31 IN THE FACTS OF THE PRESENT CASE WHICH HAVE BEEN DISCUSSED AT LENGTH WHILE CONSIDERING THE ACTION OF THE TPO IN RE- CHARACTERIZING THE TRANSACTIONS, WE ARE OF THE VIEW THAT ON THE BASIS OF THE DETAILED FAR ANALYSIS OF THE ASSESSES, THE 'COSTS' REFERRED TO IN RULE 10 B (1)( E)(I) DOES NOT SUGGEST THAT IN THE FACTS OF A CASE LIKE THE PR ESENT CASE THE 'COSTS' WOULD MEAN THE FOB VALUE OF GOODS. THE ASSESSEE DEMONSTRABLY IS A LOW RISK ENTITY AS A SER VICE PROVIDER FUNCTIONING AS A FACILITATOR WHO IS NOT EX POSED TO PRICE RISK, WARRANTY RISK, INVENTORY RISK, ETC., WH OSE FUNDS ARE NOT LOCKED IN THE COST OF GOODS, TITLE IN GOODS NEVER VESTS WITH THE ASSESSEE CONTRACTS ARE ENTERED IN THE NAME OF SCJ AND ITS AFFILIATES AT ONE END AND THE CUSTOMERS IN INDIA ALSO IN THEIR OWN NAMES. IN THES E I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 5 OF 20 UNREBUTTED FACTS ON RECORD, THE TPO WAS NOT CORRECT IN HOLDING THAT THE 'COSTS' AS PER THE RULE WERE FOB V ALUE OF GOODS. AS SUCH (C) IS ALSO DECIDED ACCORDINGLY. 12.32. ARGUMENTS ON THE CREATION OF AND CONTRIBUTIN G TO THE HUMAN INTANGIBLES AND SUPPLY CHAIN INTANGIBLES HAVE BEEN ADDRESSED AS SUCH WE PROPOSE TO ADDRESSES THES E ALSO AT THIS STAGE. SINCE WE ARE OF THE VIEW THAT I SSUES IN TRANSFER PRICING ARE VERY FACT SPECIFIC AND CONCLUS ION NECESSARILY ARE FACT DRIVEN AS SUCH IT MAY BE PERTI NENT TO ADD THAT WHILE DELIBERATING ON FACTS WE HAVE ALSO T AKEN INTO CONSIDERATION THE ORDERS RELIED UPON BY THE PA RTIES, SPECIFICALLY THE DEPARTMENT, WHILE DECIDING THE ISS UE IN ASSESSEE'S FAVOUR. HOWEVER IN ORDER TO MAINTAIN COHERENCE AND LUCIDITY IN OUR FINDINGS WHICH ARE FA CT DRIVEN, WE PROPOSE TO DISCUSS THE JUDGEMENTS SUBSEQUENTLY. FOR THE PRESENT PURPOSES ON CONSIDERA TION OF THE FUNCTIONS PERFORMED BY THE ASSESSEE, THE ASS ETS DEPLOYED USING THE INTANGIBLES OF SCJ NETWORKS, THE RISKS TO WHICH THE ASSESSEE IS CONSEQUENTLY EXPOSED WE AR E UNABLE TO CONCUR WITH THE CONCLUSION OF THE TPO THA T THE ASSESSEE HAS CREATED HUMAN ASSETS AND SUPPLY CHAIN INTANGIBLES. THE UNREBUTTED FACT ON RECORD IS THAT THE ASSESSEE HAS BEEN ABLE TO RENDER SERVICES UTILIZING THE NETWORK OF THE AE AND ALL INTANGIBLES AND PATENTS E TC. UTILIZED INTERNALLY BELONG TO THE AE AND THE LEVEL AND DEGREE OF THE QUALIFICATION REQUIRED OF THE PERSONN EL OF THE ASSESSEE IS LOW AND SKILL REQUIREMENT IS SO LOW THA T NO SPECIFIC SKILLS ARE REQUIRED BY THE PERSONNEL WHO R EPLACE THE EXISTING PERSONNEL WHO MAY CHOOSE TO MOVE ON FO R BETTER OPTIONS. THE ASSESSEE DOES NOT NEED TO AND C ANNOT RESTRAIN THE LEAVING PERSONNEL FROM UTILISING ANY S KILLS WHICH THEY MAY HAVE ACQUIRED DURING EMPLOYMENT AS N O SPECIFIC SKILLS FOR INDENTING ARE REQUIRED FOR INDE NTING AND ACTING AS A FACILITATOR. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE IS PERFORMING CRITICAL FUNCTIONS WHICH ADMITTEDLY ARE PERFORMED BY THE AE OR THAT THE ASSE SSEE IS CONTRIBUTING BY WAY OF ANALYSIS, REPORTS AND OPI NIONS, BEING PROVIDED AS SUCH VALUE ADDED SERVICES ARE BEI NG PERFORMED WHEREIN THE ANALYSIS/OPINIONS MAY TURN OU T TO THE CORRECT OR GROSSLY WRONG AS SUCH DUE TO THE HIG H RISKS OF BOTH EVENTUALITIES OCCURING THE PERSONNEL ARE I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 6 OF 20 NECESSARILY HIGHLY QUALIFIED SOUGHT AFTER EXPERTS, COMMANDING HIGH SALARIES. THE SIMPLE PERFORMANCE OF A LOW RISK ACTIVITY OF FACILITATOR DOES NOT LEAD TO T HE CONCLUSION THAT A HUMAN INTANGIBLE IS BEING CREATED . IT IS SEEN THAT THERE IS NO MATERIAL ON RECORD AS TO HOW SUPPLY CHAIN INTANGIBLES ARE BEING CREATED AS THE ASSESSEE IS USING THE NETWORK AND INTANGIBLES OF ITS AE. 12.33 COMING TO THE FINAL QUESTION (D), WHICH WE HA VE POSED TO OURSELVES SINCE THE ANSWER TO QUESTION (A) IS IN THE NEGATIVE THE QUESTION REGARDING JUSTIFICATION O N FACTS IN APPLYING MARGINS EARNED IN TRADING ACTIVITY TO T HE PROFITS OF INDENTING ACTIVITY FOR WORKING OUT THE A RMS LENGTH PRICE REQUIRES TO BE CONSIDERED. FOR THE SAI D PURPOSE WE ARE OF THE VIEW THAT ELABORATE DISCUSSIO NS ARE NOT NECESSARY AS IT WOULD NECESSITATE RE-ITERATING THE DISTINCTIONS IN THE TWO SEPARATE SETS OF ACTIVITIES AND THE CONCLUSIONS ON THE DETAILED FAR ANALYSIS ALREADY DO NE IN THE EARLIER PARAS ESPECIALLY WHILE CONSIDERING QUER IES (A) AND (B). ACCORDINGLY RELYING ON THE SAME WE HOLD TH AT THERE IS NO JUSTIFICATION TO APPLY THE MARGINS OF T RADING ACTIVITY TO INDENTING ACTIVITY IN THE FACTS OF THE PRESENT CASE. 12.34. WE FURTHER SUPPORT THE VIEW TAKEN, BY REFERR ING TO 2006-07 ASSESSMENT YEAR WHEREIN THE REVENUE HAS ACCEPTED THE METHOD APPLIED AND ONLY ON COMPARABLES THERE HAVE BEEN A DISPUTE. SIMILARLY IN 2008-09 ASSESSMENT YEAR, THAT IS THE IMMEDIATELY SUBSEQUENT ASSESSMENT AFTER THE TWO YEARS UNDER CONSIDERATION, SAME METHOD HAS BEEN FOLLOWED BY THE ASSESSEE. ACCORDING TO THE LD. CIT DR THE METHOD HAS NOT BEEN ACCEPTED THOUGH ADJUSTMENTS HAVE NOT BEEN MADE AS T HE MARGINS IN THE TRADING ACTIVITY VIS--VIS THE INDEN TING ACTIVITY, DECLINED. THE LD. CIT D.R HAS BEEN AT PAI NS TO EMPHASIZE THAT NO DOUBT NO ADJUSTMENT WAS MADE IN T HE TP PROCEEDINGS FOR 2009-10 ASSESSMENT YEAR BUT NO DEVIATION HAS BEEN MADE FROM THE STAND TAKEN BY THE DEPARTMENT IN THE TP PROCEEDINGS. 12.35. ACCORDINGLY ON FACTS FOR THE DETAILED REASON ING GIVEN HEREINABOVE ON THE ISSUES ADDRESSED BEFORE US WE I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 7 OF 20 ARE OF THE VIEW THAT THE TPO'S ACTION UPHELD BY THE DRP CANNOT BE UPHELD BY US. 13. WE NOW PROPOSE TO DISCUSS THE ORDERS/JUDGEMENTS WHICH HAVE BEEN REFERRED TO BY THE PARTIES, FOR OUR CONSIDERATION WHICH WE HAVE CONSIDERED BEFORE ARRIV ING AT THE CONCLUSION. THE PRINCIPLES LAID DOWN IN THE JUDGEMENTS/ORDERS IN THE FACTS OF THE CASES HAVE BE EN KEPT IN MIND BEFORE ARRIVING AT THE CONCLUSION. HOW EVER FOR THE SAKE OF CONVENIENCE AND LUCIDITY THEY ARE B EING DISCUSSED SEPARATELY HEREUNDER:- 13.1. THE FIRST ORDER WHICH WE PROPOSE TO DISCUSS I S THE ORDER DATED 16.12.2011 IN 13.1.2 ITA NO.07977/MUM/2010 IN THE CASE OF BAYER MATERIAL SCIENCE PVT. LTD. 13.1.1 IT IS SEEN THAT THEREIN THE STAND OF THE ASS ESSEE, WAS THAT THE TRADING ACTIVITY AND THE INDENTING ACT IVITY WAS SIMILAR AS SUCH SEGMENTAL PROFITS WERE NOT REQU IRED TO BE CONSIDERED. THIS STAND OF THE ASSESSEE WAS NE ITHER APPROVED BY THE TPO NOR BY THE ITAT AS THE FAR ANAL YSIS DEMONSTRATED THAT THE FUNCTION AND RISKS OF THE TWO ACTIVITIES WERE VERY DIFFERENT. 13.1.2 THE ASSESSEE'S CLAIM WAS THAT ASSETS UTILIZE D WERE SAME FOR BOTH THE ACTIVITIES AND CERTAIN EXPEN SES ON BEING ASKED, WERE ALLOCATED ON A TURNOVER BASIS. TH E APPROACH OF THE ASSESSEE IN ALLOCATING THE COMMON A SSETS UTILIZED AT 1:1 RATION WAS NOT APPROVED. 13.1.3 THE MATERIAL FACT PREVALENT IN THE SAID CASE WAS THAT THE TURNOVER WAS ACHIEVED THROUGH THE EFFORTS OF THE ASSESSEE WHICH IS A RELEVANT POINT/ FACT TO BE TAKE N INTO CONSIDERATION AND IT IS NOT A FACT IN THE PRESENT PROCEEDINGS. IN THE FACTS OF THE PRESENT CASE THE A SSESSEE IS ONLY A SERVICE PROVIDER AND ACTS AS A FACILITATO R AND THE FAR ANALYSIS AVAILABLE ON RECORD HAS NOT BEEN REBUT TED. THE STAND OF THE TPO WHICH HAS BEEN APPROVED BY THE ITAT IN FACT SUPPORTS, THE VIEW TAKEN IN THE PRESEN T PROCEEDINGS THAT THE INDENTING ACTIVITY CANNOT BE T REATED AT PAR WITH THE TRADING ACTIVITY. I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 8 OF 20 13.2. ORDER DATED 31.12.2010 IN ITA NO.02469/MUM/20 06 AND OTHERS IN THE CASE OF SERDIA PHARMACEUTICALS (I NDIA) PVT. LTD. VS ACIT, MUMBAI HAS ALSO BEEN REFERRED TO BY THE LD. CIT DR IN SUPPORT OF THE PROPOSITION THAT TRANS ACTIONS CAN BE RE-CHARACTERIZED BY THE T.P.O. 13.2.1 AT THE OUTSET THERE CAN BE NO QUARREL WITH T HE SAID PROPOSITION AS POWERS TO DO SO HAVE BEEN VESTED ON THE TPO. HOWEVER, THERE IS A CAVEAT WHICH OPERATES WHIL E EXERCISING THE POWER WHICH NECESSARILY IS TO BE BAL ANCED WITH THE DUTY TO DO SO ONLY ON CONSIDERATION OF THE FACTS AVAILABLE ON RECORD WHICH NECESSITATE SUCH AN ACTIO N AND IT IS NOT AN ARBITRARY UNFETTERED POWER. 13.2.2. A PERUSAL OF THE SAID ORDER WOULD SHOW THAT THE FINDINGS THEREIN WERE ON A PECULIAR AND SPECIFIC, S ET OF FACTS IN WHICH THE ASSESSEE WAS OPERATING AND THOSE FACTS ARE NOT IN OPERATION IN THE PRESENT PROCEEDINGS. FOR RE ADY- REFERENCE, WE REPRODUCE PARA 92 FROM THE SAID ORDER :- '92. WE, HOWEVER, SEE NO SUBSTANCE IN THIS PLEA. WH EN AN EXCESSIVE PAYMENT FOR GOODS OR SERVICES IS MADE TO AN ASSOCIATED ENTERPRISES, IT HAS TWO IMPLICATIONS- FI RST, THAT DOMESTIC TAX LIABILITY IS REDUCED IN RESPECT OF INC OME OF THE ENTERPRISES SITUATED IN THAT TAX JURISDICTION, AND - SECOND, A PAYMENT FOR DIVIDEND, ROYALTY OR OTHER IN COME IS MADE TO THE FOREIGN AE IN THE GARB OF PAYMENT MA DE TO THE FOREIGN AE IS WRONGLY CHARACTERIZED AS PAYMENT OF GOODS OR SERVICES, IT IS ONLY A NATURAL COROLLARY O F THIS FINDING THAT THE PAYMENT SO MADE IN EXCESS OF ARM'S LENGTH PRICE MUST HAVE SOME OTHER CHARACTER. WHILE A LOWER DEDUCTION, ON ACCOUNT OF ALP ADJUSTMENT, NEUTRALIZES THE EROSION OF DOMESTIC TAX BASE CAUSED BY REPORTING ARTIFICIALLY LOWER PROFITS, A SIMPLICTOR ALP ADJUSTMENT DOES NOT NEUTRALIZE THE NON-TAXABILITY, IN SOURCE COUNTRY, OF THE PAYMENT OF DIVIDEND, ROYALTY OR OTHER INCOMES TO THE FOREIGN AES, IN THE GARB OF PA YMENT FOR GOODS OR SERVICES. MANY COUNTRIES, INCLUDING CA NADA- BY WAY OF SECTION 247(2) OF CANADIAN INCOME TAX ACT , NEUTRALIZE THIS ILL EFFECT OF A PAYMENT IN EXCESS O F ARM'S LENGTH PRICE BY PROVIDING FOR RE-CHARACTERIZING THE AMOUNT PAID IN EXCESS OF ALP. IN INDIA, RE CHARACTERIZATIO N I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 9 OF 20 PROVISIONS IN RESPECT OF PAYMENTS MADE IN EXCESS OF ALP HAVE NOT YET BEEN LEGISLATED, BUT THAT DOES NOT MEA N THAT JUDICIAL PRECEDENTS FROM THE COUNTRIES WHERE RECHARACTERIZATION OF PAYMENT IN EXCESS OF ALP PAYM ENT IS PERMISSIBLE, CEASE TO BE RELEVANT IN INDIA. THES E DECISIONS, THOUGH THEY GO A STEP FURTHER THAN THE P RESENT LEGAL POSITION IN INDIA, CONTINUE TO BE AS RELEVANT AND AS USEFUL AS THEY WOULD HAVE BEEN IN THE ABSENCE OF SU CH RE CHARACTERIZATION PROVISIONS IN THE RESPECTIVE COUNT RIES. THE RATIONALE AND LOGIC OF THESE DECISIONS CONTINUE S TO REMAIN UNAFFECTED BY THESE PROVISIONS. THE OBJECTIO N RAISED BY THE LEARNED COUNSEL IS DEVOID OF LEGALLY SUSTAINABLE MERITS.' 13.2.3 HOWEVER FOR THE JUSTIFICATION OF RE-CHARACTE RIZING THE INDENTING ACTIVITIES AS A TRADING ACTIVITY IN T HE PRESENT CASE SOME NECESSARY EXERCISE HAS TO BE DONE BY THE TPO. IT HAS TO BE DEMONSTRATED FROM FACTS TO SHOW AS TO HOW THE ASSESSEE THOUGH CALLING ITSELF A 'SERVICE PROVI DER' WAS ACTUALLY ACTING AS A 'TRADER'. NO SUCH DISCUSSION, REASONING OR FACT IS ON RECORD. ON THE CONTRARY, TH E CONSISTENT STAND OF THE ASSESSEE IS THAT NEITHER TH E GOODS HAVE BEEN PURCHASED IN ITS NAME NOR ARE THE CONTRAC TS ENTERED INTO ARE IN THE NAME OF THE ASSESSEE AS SUC H NEITHER THERE IS A PRICE RISK, INVENTORY RISK NOR, CREDIT RISK ETC. AS SUCH IN THE ABSENCE OF FACTS JUSTIFYING THE RE- CHARACTERIZATION OF THE TRANSACTION THE POWERS OF T HE TPO WHICH HAVE BEEN UPHELD FOR RE-CHARACTERIZING IN THE FACTS OF SERDIA PHARMACEUTICALS CASE DOES NOT HELP THE REVENUE, IN THE PRESENT PROCEEDINGS. THE TPO IN SER DIA PHARMACEUTICAL CASE HAD DISCUSSED THE FAR ANALYSIS OF THE ASSESSEE AND FOUND IT TO BE CONTRARY TO THE STA TED STAND. ON THE FACTS OF THE PRESENT CASE, WE ARE UNA BLE TO CONCUR WITH THE STAND OF THE REVENUE NAMELY THAT TH E TPO WAS JUSTIFIED IN RE-CHARACTERIZING THE TRANSACT ION, AS THE ORDER OF THE TPO AND THE DRP ARE DEVOID OF DISC USSION ON FACTS AND PROCEED ON GENERAL ASSUMPTIONS. THE OR DER OF THE MUMBAI BENCH OF THE CO-ORDINATE BENCH IN THE CASE OF SERDIA PHARMACEUTICALS INDIA VS ACIT PROCEEDS ON FACTS AVAILABLE ON RECORD AND WHICH ARE PECULIAR TO ITSELF AND IT DOES NOT LAY DOWN ANY GENERAL PROPOSITION. I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 10 OF 20 13.3. ATTENTION HAS ALSO BEEN INVITED BY THE REVENU E TO THE ORDER DATED 20.01.2011 IN ITA NO.-3839/DEL/2010 AND OTHERS IN BIRLA SOFT (INDIA) LTD. VS DCIT IN SU PPORT OF THE PROPOSITION THAT INTERNAL COMPARABLES ARE PREFE RABLE TO OTHER COMPARABLES. 13.3.1 THE SAID PROPOSITION IS AN ACCEPTED PROPOSIT ION. THE RATIONALITY FOR PREFERRING THEM IS BASED ON THE FACT THAT FOR INTERNAL COMPATABLES NO ADJUSTMENTS, NEED BE MADE AS FAR ANALYSIS REMAINS THE SAME. HOWEVER FOR DOING SO THE NATURE OF SERVICE/PRODUCT IN RESPECT O F WHICH TRANSACTIONS, HAVE BEEN UNDERTAKEN WITH RELATED PAR TIES AND UNRELATED PARTIES ARE NECESSARILY HAVE TO BE TH E SAME AND IDENTICAL. 13.3.2 IN THE FACTS OF THE PRESENT CASE, LOOKING AT THE DIVERSE NATURE OF TRADING ACTIVITIES ENTERED INTO B Y THE ASSOCIATED ENTERPRISE WITH ITS INDIAN CUSTOMERS RAN GING FROM MACHINERY AND AEROSPACE, ENERGY AND MINERAL RESOURCES, CHEMICAL AND PLASTICS, REAL ESTATE DEVEL OPMENT AND FOREST PRODUCTS, CONSUMER LIFESTYLE RELATED BUS INESS AND NEW BUSINESS DEVELOPMENT INCLUDING IT SOLUTIONS WHEREIN THE ASSESSEE IS A SERVICE PROVIDER AND THE TRADING ACTIVITY WHICH THE ASSESSEE HAS DONE AT ITS OWN LEVEL IS LIMITED TO SOME SALES TO LOCAL ENTITIES. N O COMPARISON HAS BEEN MADE AND THE MATERIAL DISTINCTI ON IN THE TWO ACTIVITIES NAMELY THAT OF A FACILITATOR AND THOSE OF A TRADER ARE SEPARATE AND DISTINCT WHICH MAKES T HE CONCLUSION ARRIVED AT IN THE SAID ORDER/INAPPLICABL E. 13.3.3. THERE IS NO SIMILARITY BETWEEN THE INTERNAL COMPARABLES APPLIED AND THE INTERNATIONAL TRANSACTI ONS OF SUPPORT SERVICES ENTERED INTO WITH THE AE. NOT ONLY THE TWO ACTIVITIES ARE ENTIRELY DISTINCT WHICH IS THE M ATERIAL DISTINCTION BUT EVEN OTHERWISE, NO SIMILARITY HAS B EEN ESTABLISHED IN THE NATURE OF GOODS IN WHICH THE AE' S HAVE TRANSACTED WITH THE BUYER INDIAN SUPPLIER AND THE ASSESSEE HAS TRADED AT ITS OWN LEVEL. 13.4. ATTENTION HAS ALSO BEEN INVITED ON BEHALF OF THE REVENUE TO THE ORDER DATED 31.10.2012 IN ITA NO.5568/DEL/2010 IN THE CASE OF INTERRA INFORMATION I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 11 OF 20 TECHNOLOGIES (INDIA) PVT. LTD FOR THE PROPOSITION T HAT PROFIT OF THE AE CANNOT BE A CONSIDERATION WHILE BENCH-MAR KING THE INTERNATIONAL TRANSACTIONS IN ORDER TO ARRIVE A T ARMS LENGTH PRICE. 13.4.1 A PERUSAL OF THE SAID ORDER SHOWS THAT LD. A R IN THE FACTS OF THE SAID CASE REQUESTED THE BENCH TO L AY DOWN THE PROPOSITION THAT TRANSFER PRICING ADJUSTME NT AT BEST CANNOT EXCEED THE AMOUNT OF MARGINS RETAINED B Y THE ASSESSEE, AS WELL AS THE AE. A PERUSAL OF PARA 67,6 8 & 69 WOULD SHOW THAT THE SAID REQUEST WAS TURNED DOWN ON THE REASONING THAT IN THE ABSENCE OF ANY PROVISI ON IN THE ACT AND THE RULES AND ALSO PRACTICAL DIFFICULTI ES AS THE PROFILE OF THE ENTIRE GROUP WAS NOT SUBJECTED TO SC RUTINY OF THE INDIAN AUTHORITIES, THE REQUEST WAS TURNED DOWN . 13.4.2 IN THE FACTS OF THE PRESENT CASE, NEITHER TH E TPO HAS DIRECTLY PROCEEDED ON THAT FOOTING NOR HAS THAT BEEN THE RATIONAL CANVASSED BY THE ASSESSEE FOR ASSAILIN G THE DEPARTMENTAL STAND. THE SAID ORDER HAS NO RELEVANCE IN THE FACTS OF THE PRESENT CASE. THE TPO HAS PROCEEDE D ON THE FOOTING THAT THE TWO ACTIVITIES ARE SIMILAR AND ON CONSIDERATION OF THE BUSINESS PROFILE, A FAR ANALYS IS OF THE ASSESSEE, WE HAVE COME TO THE CONCLUSION THAT T HE TWO ACTIVITIES ARE NOT SIMILAR AS SUCH THE PROPOSIT ION THAT PROFIT OF THE AE CANNOT BE A CONSIDERATION WHILE BE NCH- MARKING THE INTERNATIONAL TRANSACTIONS IN THE FACTS OF THE PRESENT CASE HAS NO RELEVANCE. CONSEQUENTLY THE FIN DING THEREIN HAS NO BEARING ON THE PRESENT PROCEEDINGS. 13.5. RELIANCE ON BEHALF OF THE REVENUE HAS ALSO BE EN PLACED UPON THE ORDER DATED 30.09.2011 OF THE TRIBU NAL IN ITA NO-5156/DEL/2010 IN THE CASE OF LI & FUNG (INDI A) PVT. LTD. COPY FILED BY THE LD. CIT DR. 13.5.1 A PERUSAL OF THE SAID ORDER RENDERED BY ONE OF US (LD. AM) WOULD SHOW THAT THE ASSESSEE COMPANY THERE IN PROVIDED BUYING/SOURCING SERVICES FOR SUPPLYING THE CONSUMER GOODS FROM INDIA FOR ITS AE LI FUNG INDIA PVT. LTD, HONG KONG WHO WAS SOURCING THE GOODS ON BEHALF OF ITS INTERNATIONAL CUSTOMERS. THE ASSESSEE WAS PAID SERVICE I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 12 OF 20 CHARGES FOR THE SERVICES COMPUTED ON THE BASIS OF C OST PLUS MARK UP METHOD. 13.5.2 THE CRUCIAL FACT FOR HOLDING THAT FOB VALUE OF GOODS SHOULD BE THE BASIS FOR COMMISSION OF THE ASSESSEE WAS THE FACT THAT THE ASSESSEE ADMITTEDLY UTILIZING ITS HUMAN INTANGIBLES AND SUPPLY CHAIN INTANGIBLES WHICH HAD CREATED BY IT AT ITS OWN COST HAD PERFORMED ALL, TH E CRITICAL FUNCTIONS AND IN THE FACTS OF THAT CASE AND THE AE DEMONSTRABLY AND ADMITTEDLY HAD NO COMPETENCE TO EXECUTE THE CONTRACTS ON ITS OWN AND THUS BEING COM PLETELY DEPENDENT ON ASSESSEE FOR RENDERING THE SERVICES, W AS EARNING COMMISSION ON FOB VALUE OF GOODS AND THE ASSESSEE, ON THE OTHER HAND WAS BEING MEAGERLY COMPENSATED BY COST PLUS MARK UP. 13.5.3 THUS IN THOSE FACTS WHERE ALL THE CRITICAL F UNCTIONS WERE BEING PERFORMED BY THE ASSESSEE UTILIZING ITS UNIQUE INTANGIBLES, WHO HAD THE PROFESSIONAL AND TECHNICAL CAPABILITIES WHICH WAS FURTHER DEMONSTRATED FROM TH E FACT AS THE ASSESSEE IN THE FACTS OF THAT CASE IN THE EA RLIER YEARS WAS CLAIMING AND HAD BEEN ALLOWED SEC 80.0 DEDUCTIONS. THUS THE EXISTENCE OF EXPERT KNOWLEDGE AND THE DEMONSTRATED CORE COMPETENCE OF THE ASSESSEE WA S ON RECORD. THERE IS NO SUCH EVIDENCE/MATERIAL AVAILABL E ON RECORD TO SUGGEST THAT THE ASSESSEE WHICH CAME INTO EXISTENCE IN MARCH 2005 HAD THE EXPERT KNOWLEDGE AVAILABLE FOR TAKING CRITICAL DECISION. THE CRITICA L DECISIONS ADMITTEDLY WERE TAKEN BY THE AES I.E. SCJ AND ITS AFFILIATES WHO HAVE BEEN GLOBAL PLAYERS FOR OVER 50 YEARS. THE CONTRACTS WERE ENTERED INTO IN THEIR NAMES, NEGOTIATIONS WERE DONE BY THEM AND THE CRITICAL DEC ISIONS OF TIMING, EXTENT, EXPOSED WERE ALL TAKEN BY THEM W HEREIN THE ASSESSEE WAS MERELY A FACILITATOR. 13.5.4 AS SUCH THE FINDING ARRIVED IN THE ORDER OF LI & FUNG INDIA PVT. LTD. PROCEEDS ON PECULIAR FACTS AND CIRCUMSTANCES OF THAT CASE WHERE THE AE WAS HELD TO BE NOT CAPABLE OF EXECUTING THE CONTRACTS AND WAS RECE IVING COMMISSION ON FOB VALUE AND ALL THE CRITICAL FUNCTI ONS WERE BEING PERFORMED BY THE ASSESSEE WHO WAS PAID O NLY ON COST PLUS BASIS. THUS ON THESE FACTS, IT WAS HEL D THAT I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 13 OF 20 SUCH A TRANSACTION IN THE FACE OF IT COULD NOT BE S AID TO BE AT ARM'S LENGTH. THE EARNING OF THE AE RECEIVED AS A PERCENTAGE OF FOB WAS COMPLETELY DEPENDENT ON THE ASSESSEE WHO HAD USED ITS TANGIBLE AND UNIQUE INTANGIBLES DEVELOPED OVER THE YEARS AT ITS OWN COS T UTILISED THE SUPPLY CHAIN MANAGEMENT AND DELIVERY, LOCATION & ADVANTAGE QUA MANUFACTURES AND LABOUR CO STS AND ITS PRICING COST ADVANTAGES TO MAKE AVAILABLE T O THE AE WHO WAS UNABLE TO EXECUTE THE CONTRACTS ON ITS O WN, THUS WHEN THE AE COULD EARN COMMISSION ON FOB VALUE OF GOODS WHY SHOULD THE ASSESSEE BE DEPRIVED OF IT SIN CE CRITICAL FUNCTIONS WERE BEING PERFORMED BY THE ASSE SSEE. AS A RESULT THE OVERALL EARNINGS OF THE AE WERE RED UCED TO 20:80 RATIO. THE FACTS AND FAR ANALYSIS, IN THE PRE SENT PROCEEDINGS ARE ENTIRELY DIFFERENT. IT WAS ALSO HEL D THEREIN THAT THE AMOUNT OF ADJUSTMENT COMPUTED BY THE TPO C AN NOT EXCEED THE AMOUNT WHICH COULD HAVE BEEN RECEIVE D BY THE AE. THE COMPENSATION WAS ALLOCATED IN THE RATIO OF 80:20 BETWEEN THE ASSESSEE AND ITS AE. 13.6 ATTENTION ON BEHALF OF THE REVENUE HAS ALSO BE EN INVITED TO ORDER DATED 31.01.2013 IN ITA NO- 5095/DEL/2011 IN THE CASE OF SUMITOMO CORPORATION I NDIA PVT. LIMITED VS. DCIT CASE. 13.6.1. A PERUSAL OF THE SAID ORDER SHOWS THAT TRAD ING TRANSACTIONS WERE HELD TO BE DIFFERENT FROM INDENTI NG TRANSACTIONS AS SUCH IT SUPPORTS THE VIEW TAKEN. TH E ASSESSEE THERE IN AGREED THAT THE MARGINS EARNED WI TH NON-AES, BE APPLIED TO MARGINS EARNED FROM THE AE A S IT WAS THE SAME SERVICE. THUS WHEN THERE WERE INTERNAL COMPARABLES IN THE SAME NATURE OF TRANSACTIONS THEY WERE THE PREFERABLE, COMPARABLES. RELEVANT FINDINGS ARE REPRODUCED HEREUNDER FROM THE SAID ORDER:- '23. WE AGREE WITH THE ASSESSEE'S PROPOSITION THAT THE NATURE OF INDENTING TRANSACTION IS DIFFERENT FROM T HE TRADING TRANSACTIONS. THE TRADING TRANSACTION INVOL VES RISKS AND FINANCES. WHEREAS IN THE INDENTING TRANSA CTION THE ASSESSEE HAS NOT TO INCUR ANY SUCH FINANCIAL OBLIGATION OR CARRY ANY SIGNIFICANT RISK. MOREOVER, WE NOTE THAT IN RESPECT OF INDENTING TRANSACTION WITH NON-A ES, THE I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 14 OF 20 AVERAGE MEAN MARGIN OF PROFIT OF 2.26% HAS BEEN ACCEPTED BY THE TPO. WE FURTHER FIND THAT THE INDEN T BUSINESS OF THE ASSESSEE WAS NOTHING BUT TRADE FACILITATION AND IS PURELY OF INDENT NATURE BOTH IN FORM AND SUBSTANCE. NO MATERIAL HAS BEEN BROUGHT ON RECO RD TO REGARD THE INDENT TRANSACTION AS TRADING TRANSACTIO NS.' ACCORDINGLY IT IS SEEN THAT NO STRENGTH CAN BE DERI VED BY THE REVENUE FROM THE SAID ORDER AS IN THE FACTS OF THE PRESENT CASE IT SUPPORTS THE CASE OF THE VIEW TAKEN . 13.7 RELIANCE HAS ALSO BEEN PLACED ON ORDER DATED 18.09.2012 IN ITA NO-5147/DEL/2011 IN THE CASE OF G AP INTERNATIONAL SOURCING (INDIA) PVT. LTD. VS ACIT (2 012) 25 TAXMANN.COM 414 FOR THE PROPOSITION THAT LI & FUNG CASE WAS CONSIDERED AND DISTINGUISHED BY THE ASSESSEE. T HE REVENUE HAS RELIED UPON THE SAME FOR THE PROPOSITIO N THAT MAKE UP OF 32% WAS UPHELD IN THE TP ADJUSTMENT. 13.7.1 FOR THE SAID PURPOSE IT IS NECESSARY TO REFE R TO THE FACTS CONSIDERED BY THE CO-ORDINATE BENCH. IN THE S AID CASE, THE ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY OF GAP INTERNATIONAL, USA, AND WAS ENGAGED IN FACILITA TING SOURCING OF APPAREL MERCHANDISE FROM INDIA FOR THE PARENT GROUP. IT FILED ITS TP REPORT CLAIMING TNMM WITH CO ST PLUS 15 PER CENT REMUNERATION TO BE THE MOST APPROPRIATE METHOD FOR DETERMINATION OF 'ALP'. THE TPO, HOWEVER , LOOKING AT THE FUNCTION ASSETS AND RISKS ANALYSIS ( FAR) AND OTHER FACTORS, REJECTED THE ASSESSEE'S COST PLU S 15 PER CENT ALP AND HELD THAT COMMISSION AT THE RATE OF 5 PER CENT ON THE FOB VALUE OF GOODS SOURCED BY THE FOREI GN ENTERPRISE THROUGH INDIAN VENDORS WAS THE MOST APPROPRIATE PROFIT LEVEL INDICATOR (PLI) FOR DETERM INING ALP. THIS WAS SO BECAUSE THE FUNCTIONS PERFORMED, ASSETS OWNED AND RISKS ASSUMED BY THE ASSESSEE WERE SUBSTANTIALLY MORE THAN LIMITED RISK AND ASSESSEE'S FUNCTIONS WERE NOT ONLY THAT OF A SERVICE PROVIDER BUT OF A HIGHER RESPONSIBILITY. FURTHER IT WAS INFERRED THAT THE ASSESSEE CREATED SUBSTANTIAL INTANGIBLE ASSETS THRO UGH ITS OPERATIONS. THE TPO ALSO ALLEGED THAT ON ACCOUN T OF OPERATING IN A LOW COST ECONOMY, THE ASSESSEE HAD GENERATED LOCATION SAVINGS IN INDIA WHICH HAD NOT B EEN I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 15 OF 20 FACTORED INTO IN ITS REMUNERATION MODEL. THE TPO TH US REJECTED THE ASSESSEE'S COST PLUS REMUNERATION BASE D MODEL. TPO'S REPORT WAS ACCEPTED BY DRP. THE ISSUE WAS AGITATED BY THE ASSESSES BEFORE THE TRIBUNAL. 13.7.2 CONSIDERING THE FAR ANALYSIS IT WAS HELD BY THE CO- ORDINATE BENCH THAT THE ASSESSEE WAS A LOW RISK PROCUREMENT SERVICE PROVIDER. THE CO-ORDINATE BENCH CONCLUDED THAT THE ASSESSEE PROPOSED THE USE OF TNM M AS THE MOST APPROPRIATE METHOD WITH NET PROFIT/TOTAL C OST AS PLI. THE DEPARTMENT ACCEPTED THE TNMM WITH A PERCEN TAGE OF FOB VALUE OF GOODS PROCURED BY PARENT AS PLI. TH E DISPUTE IN REGARD TO USE OF THE SAME CONSIDERING TH E FAR ANALYSIS AND ORDER OF LI & FUNG THE ISSUE WAS DECID ED IN THE FOLLOWING MANNER: 'VI. CONSIDERING ABOVE WE CONCLUDE THAT NON RISK BEARING PROCUREMENT FACILITATING FUNCTIONS WHICH AR E PREORDAINED BY CONTRACT AND HAND BOOK, THE APPROPRIATE PLI WILL BE NET PROFIT/TOTAL COST AND N OT THE % OF FOB VALUE OF GOODS SOURCED BY AE. ACCORDINGLY, WE UPHOLD THE NET PROFIT/TOTAL COST REMUNERATION MO DEL ADOPTED BY THE ASSESSEE. HAVING HELD SO NOW WE PROCEED TO DECIDE THE PERCENTAGE OF MARKUP TO BE APPLIED TO ASSESSEE'S COST.' 13.7.3. SINCE IN THE FACTS OF GAP INTERNATIONAL SOU RCING THE ASSESSEE HAD APPLIED COST PLUS 15 % ALP AND THE ENTIRE COMMISSION OF LI & FUNG GROUP TO LI & FUNG I NDIA WAS WORKED OUT AS PER THE CALCULATIONS PROVIDED BY THE ASSESSEE'S COUNSEL, HIS SUGGESTION THAT THE OP/TC O F LI & FUNG INDIA WORKED OUT OF 32.43 % BE APPLIED. THE SA ID PROPOSAL OF THE ASSESSEE WAS ACCEPTED AND 32% COST PLUS MARK UP WAS ACCEPTED IN GAP INTERNATIONAL. IN THE F ACTS OF THE PRESENT CASE THE SAID FINDINGS HAS NO ROLE T O PLAY AS IT WAS A CONCESSION GIVEN BY THE ASSESSEE IN THE SAID CASE. 14. ACCORDINGLY FOR THE REASONS DISCUSSED HEREINABO VE ON FACTS AND LAW IN THE LIGHT OF THE ARGUMENTS ADVANCE D BEFORE THE BENCH AND THE MATERIAL AVAILABLE ON RECO RD THE GROUND NO 2-5 IN ITA NO. 5186/DEL/2011 AND GROUND N O. I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 16 OF 20 3 TO 8 IN ITA NO. 5433/DEL/2012 ARE DECIDED IN ASSESSEE'S FAVOUR. 7. SINCE THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE PRECEDING ASSESSMENT YEARS 2007-08 AND 2008- 09, RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE SEE NO MERIT IN THIS GROUND OF APPEAL. 8. THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO DISA LLOWANCE OF RS.19,76,655/- MADE BY THE AO BEING GOLF MEMBERSHIP FEE UNRELATED TO THE BUSINESS. 8.1 THE FACTS RELATING TO THIS ISSUE ARE THAT THE A SSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD DEBITED GOLF MEMBERSHIP FEE AMOUNTING TO RS. 19,76,655/- IN THE PROFIT & LOSS ACCOUNT. HE A SKED THE ASSESSEE AS TO HOW THE SAID AMOUNT MAY NOT BE DISA LLOWED BEING PERSONAL IN NATURE. IN RESPONSE, THE ASSESSEE SUBM ITTED AS UNDER:- 'THE EXPENDITURE INCURRED TOWARDS MEMBERSHIP FEES PAID TO GOLF CLUBS FOR THE PURPOSE OF CONDUCTI NG BUSINESS BY THE EMPLOYEES & DIRECTORS. THUS, THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS AND THE SAME IS ALLOWABLE U/S 37(1) OF THE INCOME-TAX A CT, 1961. THE COMPANY IS ENGAGED IN TRADING BUSINESS. A S SUCH ITS EMPLOYEES & DIRECTORS INCUR EXPENSES ON SUBSCRIPTION TO VARIOUS CLUBS & FORUMS TO FACILITAT E MEETINGS WITH PROSPECTIVE CLIENTS SO THAT THEY CAN HELP I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 17 OF 20 THE BUSINESS GROW. THE EXPENDITURE IS FOR THE PURPO SE OF PROVIDING FORUM TO ITS PERSONNEL FOR MEETING WITH C LIENTS AND ALSO FOR FELICITATION OF CLIENTS AND IS THUS IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND AS SUCH IS ALLOWABLE REVENUE EXPENSE.' 9. THE ASSESSING OFFICER, AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE, PROPOSED THE ADDITION IN THE DRAFT AS SESSMENT ORDER BY OBSERVING AS UNDER:- AFTER CONSIDERING THE REPLY OF THE ASSESSEE IT WAS HELD IN THE DRAFT ASSESSMENT ORDER THAT AS PER SECTION 3 7(1) OF THE INCOME-TAX ACT, 1961 ONLY THOSE EXPENDITURE WHI CH HAVE BEEN INCURRED WHOLLY & EXCLUSIVELY FOR THE PUR POSE OF BUSINESS IS TO BE ALLOWED. FURTHER, NOT A SINGLE EVIDENCE HAS BEEN FILED TO PROVE THAT THE MEMBERSHI P WAS TAKEN FOR BENEFIT OF THE COMPANY OR WAS ACTUALL Y UTILIZED FOR THE BUSINESS PURPOSE OF THE ASSESSEE COMPANY. MERELY CLAIMING OF EXPENSE DOES NOT AMOUNT TO ITS BEING INCURRED FOR BUSINESS PURPOSE. THERE HAS TO BE A NEXUS IN THE EXPENDITURE INCURRED AND THE BUSINES S PURPOSE WHICH HAS NOT BEEN ESTABLISHED BY THE ASSES SEE IN THIS CASE. ACCORDINGLY, AN AMOUNT OF RS. 19,76,6 55/- WAS PROPOSED TO BE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMEN T ORDER. 10. BEING AGGRIEVED, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP WHO, VIDE ORDER DATED 9.9.2015, DIRECTED THE ASSESS ING OFFICER NOT TO MAKE THE DISALLOWANCE BY OBSERVING AS UNDER:- ' THE PANEL CONSIDERED THE FACTS OF THE MATTER IN TOTALITY. IT WAS NOTICED THAT THE AO DISREGARDED TH E DIRECTION ISSUED BY HONBLE DISPUTE RESOLUTION PANE L IN ASSESSEES OWN CASE FOR THE A.Y 2008-09 AND ALSO ORDERS OF HONBLE CIT(A) FOR THE A.Y 2009-10 AND AY I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 18 OF 20 2010-11 IN ASSESSEES OWN CASE AND TREATING THE PAYMENTS AMOUNTING TO RS. 19,76,655/- MADE FOR GOLF MANAGEMENT FEES AS THE EXPENSES NOT INCURRED FOR BUSINESS PURPOSE WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES WERE REVENUE IN NATURE AND INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. HAVING REGARD TO THE AFORESAID FACTS THE PANEL DOES NOT DE EM IT FIT TO DEPART FROM THE STAND TAKEN BY DIFFERENT LEV ELS OF AUTHORITIES IN THE PAST ON THE BASIS OF THE SAME SE T OF FACTS AS PREVAILING DURING THE IMPUGNED A. Y. EVEN OTHERWISE THE PANEL IS OF THE CONSIDERED VIEW THAT GOLF CLUB MEMBERSHIP CERTAINLY ACTED AS A PLATFORM FOR T HE ASSESSEE TO EXPAND ITS NETWORK OF BUSINESS RELATION SHIP. ACCORDINGLY THE SAID EXPENDITURE IS HELD AS EXCLUSI VELY FOR THE PURPOSES OF BUSINESS. THEREFORE OBJECTION 7 IS ALLOWED' 11. NOW, THE DEPARTMENT IS IN APPEAL. 11.1 THE LD. CIT DR STRONGLY SUPPORTED THE ORDER O F THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THESE EXPENSES WERE PERSONAL IN NATURE AND NOTHING WAS BROUGHT ON RECOR D TO PROVE THAT THE EXPENDITURE WAS INCURRED FOR BUSINESS PURP OSE. THEREFORE, THE DRP WAS NOT JUSTIFIED IN DIRECTING T HE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE S TRONGLY SUPPORTED THE ORDER OF THE DRP AND SUBMITTED THAT A SIMILAR DISALLOWANCE WAS PROPOSED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008-09 WHICH WAS DIRECTED TO BE DE LETED BY THE DRP AND THE DEPARTMENT HAS NOT PREFERRED ANY APPEAL AGAINST THE SAID ORDER OF THE DRP. SIMILARLY, FOR ASSESSMENT Y EAR 2009-10 I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 19 OF 20 AND 2010-11, THE ASSESSING OFFICER MADE THE DISALLO WANCES WHICH WERE DELETED BY THE LD. CIT(A) AND THE DEPARTMENT H AD NOT PREFERRED ANY APPEAL AGAINST THE SAID ORDERS. REFE RENCE WAS MADE TO PAGES NO. 637 AND 649 OF THE ASSESSEES PAP ER BOOK WHICH ARE THE COPIES OF THE RELEVANT PAGES OF THE A FORESAID ORDERS OF THE LD. CIT(A). 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIAL PLACED ON RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT SIMILAR DISALLOWA NCES WERE MADE BY THE ASSESSING OFFICER IN THE PRECEDING ASSESSMEN T YEARS. HOWEVER, THOSE DISALLOWANCES WERE DELETED BY THE DR P FOR THE ASSESSMENT YEAR 2008-09 AND BY THE LD. CIT(A) FOR T HE ASSESSMENT YEARS 2009-10 AND 2010-11. IT IS, THERE FORE, CLEAR THAT IN THE PRECEDING YEARS, THE DEPARTMENT HAD AC CEPTED THE CLAIM OF THE ASSESSEE SINCE NO APPEAL WAS FILED AGA INST THE AFORESAID REFERRED TO ORDERS VIDE WHICH THE DISALLO WANCES MADE BY THE ASSESSING OFFICER WERE DELETED. WE, THEREFORE, KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY, HOLD THAT THE LD. DRP WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISAL LOWANCES PROPOSED BY HIM. IN THIS VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. I.T.A. 6298/D/2015 ASSESSMENT YEAR 2011-12 PAGE 20 OF 20 13. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.06.2016. SD/- SD/- (KULDIP SINGH) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED: THE 10 TH JUNE 2016 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 4. DR, ITAT BY ORDER ASSTT. REGISTRAR