AWB India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6480/DEL/2012

• Counselvise Citation: 648020114 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 03-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN; YOGESH KUMAR VERMA RESPO
• Assessee Lawyers: G C SRIVASTAVA; SAURABH SRIVASTAVA
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI I BENCH, NEW DELHI [CORAM: PRAMOD KUMAR AM AND C. M. GARG JM] I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 AWB INDIA PVT LTD .APPELLANT 111, RECTANGLE 1 SAKET DISTRICT CENTRE, SAKET NEW DELHI 110 017 [ PAN:AAFCA0734P] VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1), NEW DELHI .RESPONDE NT APPEARANCES BY: G C SRIVASTAVA AND SAURABH SRIVASTAVA FOR THE APPELLANT PEEYUSH JAIN AND YOGESH KUMAR VERMA , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : SEPTEMBER 03, 20 14 DATE OF PRONOUNCING THE ORDER : OCTOBER 13 TH , 2014 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE APPELLANT ASSESSING O FFICER HAS CHALLENGED CORRECTNESS OF ORDER DATED 3 RD OCTOBER 2012 PASSED BY THE ASSESSING OFFICER, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S . 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), F OR THE ASSESSMENT YEAR 2008-09. 2. GROUND NOS. 1 AND 2 ARE GENERAL IN NATURE AND DO NOT CALL FOR ANY SPECIFIC ADJUDICATION AS SUCH. I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 2 OF 9 3. IN GROUND NO. 3, THE ASSESSEE IS AGGRIEVED IS TH AT, THE LEARNED AND DRP HAVE ERRED IN FACTS AND ON LAW IN DISALLOWING RS 1, 60,369 ON ACCOUNT OF UNREALIZED LOSS ON THE COMMODITY DERIVATIVES CLAIME D IN ACCORDANCE WITH REGULAR METHOD OF ACCOUNTING FOLLOWED BY THE APPELL ANT. 4. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT RS 57,82,954 DISCLOSED BY THE ASSESSEE AS GAIN ON COMMODITY DERIVATIVES IS A NET FIGURE OF SUCH GAINS , AFTER ADJUSTING UNREALIZED LOSS OF RS 1,60,369. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY ADJUSTMENT OF RS 1,60,369 FOR UNREALIZED LOSS NOT BE DISALLOWED. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SAID AMOUNT REPRESENTS LOSS ON OPEN POSITIONS IN TRADING TRANSACTIONS OF COMMODITY DERI VATIVES. THE ASSESSEE EXPLAINED, IN SUBSTANCE, THAT ONCE A LOSS CAN BE RE ASONABLY ESTIMATED, AS WAS THE POSITION IN THAT CASE, SUCH A LOSS IS TO BE PROVIDE D FOR IN THE BOOKS OF ACCOUNTS, AND, IN SUPPORT OF THIS BROAD CONTENTION, RELIED UP ON SEVERAL JUDICIAL PRECEDENTS, INCLUDING LANDMARK JUDGMENT IN THE CASE OF CHAINRUP SAMPATRAM VS CIT (24 ITR 481) , AND ACCOUNTING PRACTICES, INCLUDING ACCOUNTING ST ANDARDS. THE ASSESSING OFFICER WAS, HOWEVER, NOT IMPRESSED BY AN Y OF THESE ARGUMENTS AND HE PROPOSED TO DISALLOW THE UNREALIZED LOSS ON COMM ODITY DERIVATIVES. AGGRIEVED, ASSESSEE APPROACHED THE DRP BUT WITHOUT ANY SUCCESS. IT WAS IN THIS BACKDROP THAT THE AO DISALLOWED RS 1,60,369. THE AS SESSEE IS AGGRIEVED AND IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF A PPLICABLE LEGAL POSITION. 6. IT IS ONLY ELEMENTARY THAT PRINCIPLE OF CONSERVA TISM, ON ONE HAND, REQUIRES ALL ANTICIPATED LOSSES TO BE ACCOUNTED FOR AT THE POINT OF TIME WHEN SUCH LOSSES CAN BE REASONABLY ESTIMATED, AND, ON TH E OTHER HAND, YET IT DEFERS ACCOUNTING FOR ALL ANTICIPATED PROFITS TO BE ACCOUN TED AT THE STAGE WHEN THESE PROFITS ARE REALIZED. THIS PRINCIPLE, WHICH IS THE CONCEPTUAL FOUNDATION FOR THE I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 3 OF 9 STOCK VALUATION AT COST PRICE OR MARKET PRICE- WHIC HEVER IS LOWER, IS DULY RECOGNIZED BY HONBLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATHRAM (SUPRA) WHEREIN THEIR LORDSHIPS OBSERVED AS FOLLOWS: WHILE ANTICIPATED LOSS IS THUS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING ST OCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE T O SHOW INCREASED PROFIT BEFORE ITS ACTUAL REALISATION. THIS IS THE T HEORY UNDERLYING THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOWER, AND IT IS NOW GENERALLY ACC EPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNT ANCY. AS PROFITS FOR INCOME-TAX PURPOSES ARE TO BE COMPUTED IN CONFO RMITY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLES S OF COURSE, SUCH PRINCIPLES HAVE BEEN SUPERSEDED OR MODIFIED BY LEGI SLATIVE ENACTMENTS, UNREALISED PROFITS IN THE SHAPE OF APPR ECIATED VALUE OF GOODS REMAINING UNSOLD AT THE END OF AN ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING YEAR'S ACCOUNT IN A BUSINESS THAT IS CONTINUING ARE NOT BROUGHT INTO THE CHARGE AS A MATTER OF PRAC TICE, THOUGH, AS ALREADY STATED, LOSS DUE TO A FALL IN PRICE BELOW C OST IS ALLOWED EVEN IF SUCH LOSS HAS NOT BEEN ACTUALLY REALISED. AS TRULY OBSERVED BY ONE OF THE LEARNED JUDGES IN WHIMSTER & CO. VS. IRC (1926) 12 TAX CASES 813, 827, 'UNDER THIS LAW (REVENUE LAW) THE PROFITS ARE THE PROFITS REALISED IN THE COURSE OF THE YEAR. WHAT SEEMS AN E XCEPTION IS RECOGNISED WHERE A TRADER PURCHASED AND STILL HOLDS GOODS OR STOCKS WHICH HAVE FALLEN IN VALUE. NO LOSS HAS BEEN REALIS ED. LOSS MAY NOT OCCUR. NEVERTHELESS, AT THE CLOSE OF THE YEAR HE IS PERMITTED TO TREAT THESE GOODS OR STOCKS AS OF THEIR MARKET VALUE.' 7. IT IS FOR THIS REASON THAT WHILE ANTICIPATED PRO FIT FOR FORWARD CONTRACTS ARE NOT TAKEN INTO ACCOUNT BUT ANTICIPATED LOSSES ARE D ULY TAKEN INTO ACCOUNT IN COMPUTATION OF BUSINESS PROFITS. ELABORATING UPON THIS LEGAL POSITION AND DEALING WITH THE DEDUCTIBILITY OF ANTICIPATED BUT U NREALIZED LOSSES ON FORWARD EXCHANGE CONTRACTS, A SPECIAL BENCH OF THIS TRIBUNA L , IN THE CASE OF DCIT VS BANK OF BAHRAIN & KUWAIT (41 SOT 290), HAS OBSERVED AS FOLLOWS: 58. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE A SSESSEES APPEAL FOR THE FOLLOWING REASONS : (I) A BINDING OBLIGATION ACCRUED AGAINST THE ASSESS EE THE MINUTE IT ENTERED INTO FORWARD FOREIGN EXCHANGE CONTRACTS. I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 4 OF 9 (II) A CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE CANNOT BE DISREGARDED ONLY ON THE GROUND THAT A BETTER MET HOD COULD BE ADOPTED. (III) THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE SA ME METHOD OF ACCOUNTING IN REGARD TO RECOGNITION OF PROFIT OR LO SS BOTH, IN RESPECT OF FORWARD FOREIGN EXCHANGE CONTRACT AS PER THE RAT E PREVAILING ON 31ST MARCH. (IV) A LIABILITY IS SAID TO HAVE CRYSTALLISED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE IS DETERMINABLE WITH REAS ONABLE CERTAINITY. THE CONSIDERATIONS FOR ACCOUNTING THE INCOME ARE EN TIRELY ON DIFFERENT FOOTING. (V) AS PER AS-11, WHEN THE TRANSACTION IS NOT SETTL ED IN THE SAME ACCOUNTING PERIOD AS THAT IN WHICH IT OCCURRED, THE EXCHANGE DIFFERENCE ARISES OVER MORE THAN ONE ACCOUNTING PER IOD. (VI) THE FORWARD FOREIGN EXCHANGE CONTRACTS HAVE AL L THE TRAPPINGS OF STOCK-IN-TRADE. (VII) IN VIEW OF THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. (SUPRA), THE ASSES SEES CLAIM IS ALLOWABLE. (VIII) IN THE ULTIMATE ANALYSIS, THERE IS NO REVENU E EFFECT AND IT IS ONLY THE TIMING OF TAXATION OF LOSS/PROFIT. 59. WE, ACCORDINGLY, HOLD THAT WHERE A FORWARD CONT RACT IS ENTERED INTO BY THE ASSESSEE TO SELL THE FOREIGN CURRENCY A T AN AGREED PRICE AT A FUTURE DATE FALLING BEYOND THE LAST DATE OF ACCOU NTING PERIOD, THE LOSS IS INCURRED TO THE ASSESSEE ON ACCOUNT OF EVAL UATION OF THE CONTRACT ON THE LAST DATE OF THE ACCOUNTING PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT. 8. IN VIEW OF THESE DISCUSSIONS, IT IS CLEAR THAT E VEN WHEN LOSS HAS NOT YET CRYSTALLIZED, A DEDUCTION IS TO BE GRANTED IN RESPE CT OF A REASONABLY ANTICIPATED LOSS. IT IS ALTOGETHER A DIFFERENT ISSUE THAT SINCE THESE PROVISIONS FOR ANTICIPATED LOSSES ARE REVERSED IN THE BEGINNING OF THE NEXT YE AR, THESE DEDUCTIONS ARE COMPLETELY TAX NEUTRAL AND THE IMPACT IS CONFINED T O THE TIMING OF DEDUCTION. IN SUCH A SITUATION, THERE CANNOT BE A DOUBLE DEDUCTIO N OF THE SAME LOSS- FIRST ONE AT THE END OF THIS ACCOUNTING PERIOD AND SECOND ONE AT THE POINT OF TIME WHEN THE TRANSACTION IS FINALLY SETTLED. THEREFORE, AS L ONG AS THE ASSESSEE HAS REVERSED I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 5 OF 9 THIS PROVISION IN THE BEGINNING OF NEXT YEAR AND TH US EFFECTIVELY ADJUSTED THIS LOSS AGAINST LOSS OR PROFIT FINALLY REALIZED COMMOD ITY DERIVATIVES, NO OBJECTION CAN BE TAKEN TO THIS CLAIM. FOR THIS LIMITED VERIFI CATION, THEREFORE, THE MATTER STANDS RESTORED TO THE FILE OF THE ASSESSING OFFICE R. 9. GROUND NO. 3 IS THUS ALLOWED FOR STATISTICAL PUR POSES IN THE TERMS INDICATED ABOVE. 10. GROUND NO 4 US NOT PRESSED AND IS, AS SUCH, DIS MISSED FOR WANT OF PROSECUTION. 11. IN GROUND NOS. 5 TO 9, WHICH WE WILL TAKE UP TO GETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 5. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE FAILED TO APPRECIATE THE BUSINESS MODEL AND BUSINESS REALITIES OF THE APPELLANT AND ROLE OF ITS AE, WHIL E CONDUCTING THE ECONOMIC ANALYSIS, AND CONCLUDING THAT NO SERVICE I S RECEIVED OR NO BENEFIT, AND/OR SERVICES RECEIVED ARE DUPLICATIVE I N NATURE. 6. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO ERRED IN PRESUMPTIVELY HOLDING THAT THE REVE NUE AUTHORITIES ARE EMPOWERED TO QUESTION THE COMMERCIAL DECISION O F THE APPELLANT AND IN NOT APPRECIATING THE JURISPRUDENCE THAT THE DRP AND THE AO/TPO CANNOT GO BEYOND THEIR POWERS TO QUESTION TH E BUSINESS DECISION OF THE COMPANY. 7. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP HAS ERRED IN CONFIRMING THAT THE TPO HAS DISCHARGED HIS STATUTORY ONUS BY ESTABLISHING THE CONDITIONS SPECIFIED IN (A) TO (D) OF SECTION 92C(3) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREG ARDING THE ARMS LENGTH PRICE DETERMINED BY THE APPELLANT AND PROCE EDING TO DECIDE THE ARMS LENGTH PRICE HIMSELF. 8. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE ERRED IN CONDUCTING ECONOMIC ANALYSIS O F THE INTERNATIONAL TRANSACTIONS WITHOUT RELYING ON ANY C OMPARABLE TRANSACTION/COMPANIES USING INAPPROPRIATE METHOD. 9. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE ERRED IN DETERMINING THE ARMS LENGTH P RICE OF I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 6 OF 9 INTERNATIONAL TRANSACTIONS CONSISTING OF COST AND P ROFIT MARGIN AT NIL. 12. SO FAR AS THESE GRIEVANCES OF THE ASSESSEE ARE CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE IS ENGA GED IN THE BUSINESS OF TRADING IN FOOD GRAINS. IT IS A PART OF AWB GROUP AUSTRALIA AND ITS 99.999% EQUITY IS HELD BY AWB AUSTRALIA LIMITED AND THE BALANCE .001% EQUI TY IS HELD BY ANOTHER GROUP COMPANY, NAMELY AWB INVESTMENTS LIMITED. ONE OF THE INTERNATIONAL TRANSACTIONS THAT THE ASSESSEE ENTERED INTO WITH IT S AES WAS PAYMENT OF RS 58,20,571 TOWARDS MANAGEMENT SERVICES. ON AN ANAL YSIS OF THE DETAILS OF THE PAYMENTS MADE UNDER THIS HEAD, THE TPO WAS OF THE V IEW THAT THE BENEFIT OF SOME OF THE SERVICES AVAILED UNDER THE HEAD MANAGE MENT SERVICES WAS NOT COMMENSURATE WITH THE PAYMENTS MADE FOR THE SAME. H E WAS ALSO OF THE VIEW THAT AS AGAINST THE USE OF TNMM BY THE ASSESSEE IN BENCHMARKING, THE RIGHT COURSE OF ACTION WILL BE TO FOLLOW CUP METHOD BECAU SE THE VALUE UNDER CUP METHOD WILL BE BEST INDICATOR OF THE VALUE OF THESE SERVICES. IT WAS IN THIS BACKGROUND THAT THE TPO MADE CERTAIN ADVERSE INFERE NCES AGAINST THE ASSESSEE. THE TPO WAS OF THE VIEW THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS 20,35,907 TOWARDS FINANCIAL MANAGEMENT AND REPORTIN G SERVICES, BUT THE SERVICES RENDERED ARE NEGLIGIBLE COMPARED TO THE CO ST INCURRED. THE TPO WAS ALSO OF THE VIEW THAT A MINOR CLARIFICATION OR SEE KING OF CERTAIN GUIDANCE ON VERIFY BASIC ISSUE DOES NOT CALL FOR A PAYMENT OF R S 20 LAKHS. THEREFORE, THE ALP OF THESE SERVICES WAS TAKEN AS NIL. HE FURTHER NO TED THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS 1,23,476 TOWARDS HUMAN RESOURC ES SERVICES, THE ASSESSEE HAS NOT FURNISHED ANY SPECIFIC INPUT ON TRAINING A ND DEVELOPMENT OF HUMAN RESOURCES AND IT IS ALSO NOTICED THAT THESE SERVICE S ARE OF ROUTINE NATURE AND DUPLICATE AT BEST. ACCORDINGLY, THE TPO ALSO TREAT ED ALP OF THESE SERVICES AS NIL. AS REGARDS THE PAYMENT OF RS 96,355 TOWARDS LEGAL SERVICES, THE TPO DID TAKE NOTE OF THE SERVICES THAT THE ASSESSEE WAS ENT ITLED TO UNDER THESE ARRANGEMENTS BUT AS THERE IS NO EVIDENCE OF ANY SER VICES HAVING BEEN ACTUALLY RENDERED BY THE AE, THE TPO CONCLUDED THAT IT DOES NOT HAVE ANY VALUE IN AN ARMS LENGTH SITUATION. THE VALUE OF THIS SERVICE W AS ALSO TAKEN AS NIL. THE SAME WAS THE CASE WITH RESPECT TO THE PAYMENTS FOR OTHER SERVICES. ACCORDINGLY, NO I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 7 OF 9 ARMS LENGTH VALUE WAS ASSIGNED TO THESE SERVICES A LSO. IN RESPECT OF THESE CASES TNMM WAS REJECTED AND CUP WAS APPLIED- THOUGH, EVEN UNDER CUP METHOD, VALUE ASSIGNED WAS NIL AS, IN THE OPINION OF THE TP O, THESE SERVICES WERE WORTHLESS. 13. WHEN ASSESSING OFFICER PROPOSED TO MAKE DISALLO WANCE IN RESPECT OF PAYMENTS FOR THE ABOVE SERVICES, ARMS LENGTH VALUE OF WHICH WAS TAKEN AT ZERO, AGGREGATING TO RS 31,23,325, AS AGAINST TOTAL MANAG EMENT FEES OF RS 58,20,571 PAID BY THE ASSESSEE, ASSESSEE CARRIED THE MATTER B EFORE THE DRP BUT WITHOUT ANY SUCCESS. THE DRP CONFIRMED THE STAND SO TAKEN B Y THE TPO, ACCORDINGLY, AN ALP ADJUSTMENT OF RS 31,23,325 WAS MADE BY THE ASSE SSING OFFICER. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 15. ONE OF THE VERY BASIC PRE CONDITION FOR USE OF CUP METHOD IS AVAILABILITY OF THE PRICE OF THE SAME PRODUCT AND SERVICE IN UNC ONTROLLED CONDITIONS. IT IS ON THIS BASIS THAT ALP OF THE PRODUCT OR SERVICE CAN B E ASCERTAINED. IT CANNOT BE A HYPOTHETICAL OR IMAGINARY VALUE BUT A REAL VALUE ON WHICH SIMILAR TRANSACTIONS HAVE TAKEN PLACE. COMING TO THE FACTS OF THIS CASE, THE APPLICATION OF CUP IS DEPENDENT ON THE MARKET VALUE OF THE ARRANGEMENTS U NDER WHICH THE PRESENT PAYMENTS HAVE BEEN MADE. UNLESS THE TPO CAN IDENTIF Y A COMPARABLE UNCONTROLLED CASE IN WHICH SUCH SERVICES, HOWSOEVER TOKEN OR IRRELEVANT SERVICES AS HE MAY CONSIDER THESE SERVICES TO BE, A RE RENDERED AND FIND OUT CONSIDERATION FOR THE SAME, THE CUP METHOD CANNOT H AVE ANY APPLICATION. HIS PERCEPTION THAT THESE SERVICES ARE WORTHLESS IS OF NO RELEVANCE. IT IS NOT HIS JOB TO DECIDE WHETHER A BUSINESS ENTERPRISE SHOULD HAVE INCURRED A PARTICULAR EXPENSE OR NOT. A BUSINESS ENTERPRISE INCURS THE EX PENDITURE ON THE BASIS OF WHAT IS COMMERCIALLY EXPEDIENT AND WHAT IS NOT COMM ERCIALLY EXPEDIENT. AS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS EKL APPLIANCES LIMITED (345 ITR 241) , EVEN RULE 10B(1)(A) DOES NOT AUTHORISE I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 8 OF 9 DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME . 16. THE VERY FOUNDATION OF THE ACTION OF THE TPO IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. THERE IS NO DISPUTE THAT THE IMPUGNED PAYMENTS ARE MADE UNDER AN ARRANGEMENT WITH THE AE TO PROVIDE CERTAIN SERVICES. IT IS NOT EVEN THE TPOS CASE THAT THE PAYMENTS FOR THESE SERVICES WER E NOT MADE FOR SPECIFIC SERVICES UNDER THE CONTRACT BUT HE IS OF THE VIEW T HAT EITHER THE SERVICES WERE USELESS OR THERE WAS NO EVIDENCE OF ACTUAL SERVICES HAVING BEEN RENDERED. AS FOR THE SERVICES BEING USELESS, AS WE HAVE NOTED AB OVE, IT IS A CALL TAKEN BY THE ASSESSEE WHETHER THE SERVICES ARE COMMERCIALLY EXPE DIENT OR NOT AND ALL THAT THE TPO CAN SEE IS AT WHAT PRICE SIMILAR SERVICES, WHATEVER BE THE WORTH OF SUCH SERVICES, ARE ACTUALLY RENDERED IN THE UNCONTROLLED CONDITIONS. 17. AS FOR THE EVIDENCE FOR EACH OF THE SERVICE STA TED IN THE AGREEMENT, IT IS NOT EVEN NECESSARY THAT EACH OF THE SERVICE, WHICH IS SPECIFICALLY STATED IN THE AGREEMENT, IS RENDERED IN EVERY FINANCIAL PERIOD. T HE ACTUAL USE OF SERVICES DEPENDS ON WHETHER OR NOT USE OF SUCH SERVICES WAS WARRANTED BY THE BUSINESS SITUATIONS WHEREAS PAYMENTS UNDER CONTRACTS ARE MAD E FOR ALL SUCH SERVICES AS THE USER MAY REQUIRE DURING THE PERIOD COVERED. AS LONG AS AGREEMENT IS NOT FOUND TO BE A SHAM AGREEMENT, THE VALUE OF THE SERV ICES COVERED UNDER THE AGREEMENT CANNOT BE TAKEN AS NIL JUST BECAUSE THE SE SERVICES WERE NOT ACTUALLY REQUIRED BY THE ASSESSEE. IN ANY CASE, HAVING PERU SED THE MATERIAL ON RECORD, WE ARE SATISFIED THAT THE SERVICES WERE ACTUALLY RE NDERED UNDER THE AGREEMENT AND THESE SERVICES DID JUSTIFY THE IMPUGNED PAYMENT S. 18. WE ARE ALSO OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF PREREQUISITES FOR APPLICATION OF CUP METHODS BEING ABSENT IN THE PRESENT CASE, IT WAS NOT OPEN TO THE TPO TO DISREGARD THE TNMM EMPLOYED BY THE AS SESSEE. NO DEFECTS HAVE BEEN POINTED OUT IN APPLICATION OR RELEVANCE OF TNM M IN THIS CASE. UNDER THESE CIRCUMSTANCES, THE TPOS IMPUGNED ACTION CANNOT MEE T OUR JUDICIAL APPROVAL. I.T.A. NO.: 6480/DEL/12 ASSESSMENT YEAR: 2008-09 PAGE 9 OF 9 19. FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHO LD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE IMPUGNED A LP ADJUSTMENT OF RS.31,23,325. THE ASSESSEE GETS THE RELIEF ACCORDIN GLY. 20. GROUND NOS, 5 TO 9 ARE THUS ALLOWED. 21. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT TODAY ON 13 TH DAY OF OCTOBER, 2014. SD/- SD/- C M GARG PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NEW DELHI, 13 TH DAY OF OCTOBER 2014 COPIES TO: (1) THE ASSESSEE (2) THE ASSESSING OFFI CER (3) CIT (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI