M/s Verizon India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6700/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4193 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Retrospective amendment; Onus to prove
• Section: 40(a)(ia); 195

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I - 2 BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND SHRI KULDIP SINGH , JUDICIAL MEMBER ITA NO. 6700 /DEL/201 5 [A.Y 20 09 - 10 ] M/S VERIZON INDIA PVT LTD VS. THE DY. C . I . T A WING, 3 RD FLOOR, CIRCLE - 2 6 ( 1 ) RADISSON COMMERCIAL PLAZA NEW DELHI N H - 8, NEW DELHI PAN: AACCM 2423 N (APPLICANT) (RESPONDENT) ASSESSEE BY : SH RI S H RIRAM SESHADRI, CA SHRI PRABHAT LATH, CA MS. AMULYA K. CA. DEPARTMENT BY : SH RI H.K. CHOUDHARY, CIT - DR DATE OF HEARING : 0 6 . 0 5 .201 9 DATE OF PRONOUNCEMENT : 1 0 . 0 5 .201 9 ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, TH IS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 44, NEW DELHI DATED 03.09.2015 PERTA INING TO ASSESSMENT YEAR 2008 - 09 . 2 2. GRIEVANCE S OF THE ASSESSEE CAN BE SUMMARISED AS UNDER: A) TRANSFER PRICING [TP] ADJUSTMENT; B) DISALLOWANCE U/S 40(A)()IA) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT ]; C) DISALLOWANCE OF REIMBURSEMENT OF CONFERENCE CALL CHARGES; D) DISALLOWANCE OF TRAVEL AND CONVEYANCE CHARGES. 3. IN ADDITION TO THE ABOVE, VIDE APPLICATION DATED 18.02.2019, THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND IN RELATION TO THE MAIN GROUND AGAINST THE TP ADJUSTMENT AND WITH THIS ADDITIONAL GROUND, THE ASSESSEE CONTENDS FOR EXCLUSION OF PRIYA LTD AS COMPARABLE COMPANY BASED ON SUBSEQUENT JUDICIAL PRECEDENTS IN THIS REGARD. 4. WE WILL FIRST ADDRESS TO THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 5. FACTS ON RECORD SHOW THAT THE ASSESSEE ITSELF HAS INCLUDED PRIYA LTD AS A COMPARABLE COMPANY. NOW THE ASSESSEE CONTENDS THAT PRIYA IS FUNCTIONALLY NOT A COMPARABLE COMPANY AND RELIES UPON SUBSEQUENT JUDICIAL DECISIONS OF THE CO - ORDINATE BENCHES. IN OUR CONSIDE RED OPINION, WHETHER A COMPANY IS A GOOD COMPARABLE OR NOT IS PURELY A 3 QUESTION OF FACT AND NO POINT OF LAW IS INVOLVED. IN OUR CONSIDERED VIEW, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS NOT TENABLE IN LAW IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NTPC 229 ITR 383. SINCE THE INCLUSION OR OTHERWISE OF A COMPARABLE COMPANY REQUIRES EXAMINATION OF NEW FACTS, HENCE THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE. THE ADDITIONAL GROUND SO RAISED BY THE ASSESSEE IS DISM ISSED. 6. COMING TO THE ALTERNATIVE PLEA OF THE ASSESSEE, IN RELATION TO THE ALLOCATION OF UNALLOCATED EXPENSE S IN THE SEGMENTAL REPORTING OF PRIYA LTD, WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. THE FACTUAL MATRI X CAN BE UNDERS TOOD FROM THE FOLLOWING CHART: AS PER TPO'S COMPUTATION - BASED ON SEGMENT REVENUE - REF PG. 10 OF CIT(A) ORDER AS PER APPELLANT'S COMPUTATION PARTICULARS REFERENCE INDENTING SEGMENT TRADING SEGMENT TOTAL INDENTIN G SEGMENT TRADING SEGMENT TOTAL REVENUE(A) TOTAL REVENUE AS PER FINANCIALS 186.88 502.81 689.69 186.88 502.81 689.69 SEGMENT RESULT (B) AS PER SEGMENT FINANCIALS 127.65 102.85 230.13 127.65 102.85 230 13 ALLOCATED EXPENSE C =(A - B) (59.23) (399.96) (459.56) (59.23) (399.96) (459,56) ALLOCATION OF UNALLOCATED EXPENSES D = UNALLOCATED EXPENSE (41.83) (117.62) (159.45) (91.21) (68.24) (159.45) TOTAL COST E = (C+D) (101.06) (517.58) .(618.64) (150.44) (468.20) (618.64) OPERATING PROFIT F= (AE) 85.82 (14.77) 70.68 36.44 34.61 70.68 OP/TC G =(F/E) 84.92% - 2.85% 11.43% 24.22% 7.39% 11.43% 4 7. THE TPO OBSERVED THAT THE ASSESSEE HAS INCORRECTLY CORRECTED THE SEGMENTAL MARGIN OF PRIYA LTD. THE ASSESSEE HAS TREATED THE INDENTING SEGMENT AS COMPARABLE AND HAS ALLOCATED THE UNALLOCATED EXPENSES AMOUNTING TO RS. 1,63,21,400/ - IN THE RATIO OF GROSS MARGIN WHEN IT SHOULD HAVE BEEN ALLOCATED IN THE PROPORTION OF SEGMENTAL REVENUE TO TOTAL REVENUE. THE TPO DID NOT CONCUR WITH THIS ALL O C ATION OF THE ASSESSEE. THE TPO FOUND THAT THE RATIO OF SEGMENTAL REVENUE TO TOTAL REVENUE IS 27.06%. ACCORDINGLY, OUT OF TOTAL UNALLOCATED EXPENSE OF RS. 1,63,21,400/ - , A SUM OF RS. 1,01,06,889/ - HAS BEEN ALLOCATED TO THE INDENTING SEGMENT. THE TPO COMPUTED THE SEGMENTAL OPERATING AS UNDER: SEGMENTAL OPERA TING REVENUE RS. 18688202 LESS: ALLOCATED EXPENSES RS. 5923000 UNALLOCATED EXPENSES RS. 4183889 TOTAL OPERATING EXPENSES RS. 10106889 OPERATING PROFIT RS. 8581313 OP/TC RS. 84.90% 5 8. THE LD. CIT(A), WHILE DECIDING THE ISSUE, ANALYSED THE SEGMENTAL RESULT TO ARRIVE AT DIRECT COST ALLOCATED IN THESE TWO SEGMENTS I.E. INDENTING SEGMENT AND TRADING SEGMENT OF PRIYA LTD, WHICH IS AS UNDER: I ) COST ALLOCATED FOR INDENTIN G SEGMENT AS PER SEGMENTAL RESULTS: - II) COST ALLOCATED FOR TRADING CHEMICALS : - 9. THE LD. CIT(A) FURTHER OBSERVED AS UNDER: ANALYSIS OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT I HAVE EXAMINED SCHEDULE P AND Q OF PROFIT AND LOSS ACCOUNT WHICH CONTAIN ENTIRE EXPENSES EXCLUDING COST OF GOOD TRADED. THE SCHEDULE P IS THE EXPENDITURE RELATED TO EMPLOYEE COST AMOUNTING TO 98.17 LACS AND SCHEDULE Q IS FOR OTH ER THE REVENUE 186.51 LACS LESS SEGMENT RESULT I.E. PROFIT OF THE SEGMENT WITHOUT LOADING UNALLOCATED EXPENSE 127.28 LACS DIRECT COST ALLOCATED 59.23 LACS THE REVENUE 502.81 LACS LESS SEGMENT RESULT 102.85 LACS TOTAL EXPENSE ALLOCATED 399.96 LACS LESS COST OF MATERIAL 373.16 LACS (AS PER PROFIT & LOSS ACCOUNT) DIRECT COST ALLOCATED TO TRADING SEGMENT OTHER THEN COST OF MATERIAL 26.8 LACS 6 EXPENSES AMOUNTING TO RS. 144.19 LACS. UNDER THE AHEAD OTHER EXPENSES THERE ARE CERTAIN ITEMS OF EXPENSES WHICH PRIMA FACIE RELATE TO TRADING SEGMENT AS OTHER SEGMENT WILL NOT HAVE HANDLING OF GOODS AND RELATED EXPENSE I.E WAREHOUSING CHARGES, FREIGHT C LEARING AND FORWARDING EXPENSES, SELLING AND ADVERTISEMENT EXPENSES, COMMISSION ON SELLS ETC. THE DETAILS OF SUCH EXPENSES DEBITED UNDER THE \ HEAD OTHER EXPENSES ARE AS UNDER: - AGAINST THESE APPARENT DIRECT EXPENSES FOR TRADING SEGMENT ONLY 26.8 LACS HAS BEEN ALLOCATED AS DIRECT EXPENSE TO TRADING SEGMENTS. AT THE MOST SOME PORTION OF OFFICE RENT MAY BE PERTAINING TO IDENTITY SEGMENT. FURTHER, UNDER THE HEAD TRAVELLING AND CONVEYANCE RS. 25,66,172/ - HAS BEEN DEBITED OUT OF THESE EXPENSES, EXPENDITURE IN FOREIGN CURRENCY UNDER THE HEAD TRAVELLING IS RUPEE 3,85,495 ONLY(ITEM NO. 6, PAGE NO. 19 OF 26 TH ANNUAL PIL REPORT) MENTION HERE THAT ENTIRE EARNING OF INDENTING SEGMENT IS THROUGH FOREIGN EXCHANGE. THEREFORE, THE SHARE OF INDENTING SEGMENT UNDER THE H EAD TRAVELLING AND CONVEYANCE EXPENSE WILL NOT BE MUCH IN DOMESTIC TRAVELLING. RENTS, SERVICE AND WAREHOUSING CHARGES 2437250 SELLS PROMOTION EXPENSE 407174 FREIGHT CLEARING AND FORWARDING 1068835 SELLING AND ADVERTISEMENT EXPENSES 105923 COMMISSION ON SALES 315090 TOTAL 3927128 7 CONVEYANCE EXPENSE IS DEFINITELY LOCAL IN NATURE WHICH MOSTLY WILL PERTAIN TO TRADING SEGMENT. IF WE EXCLUDE THESE ABOVE EXPENSES, MAJOR REMAINING EXPENSES ARE GROUPED AS UNDER: - THE TOTAL EXPENDITURE ALLOCATED TO INDENTING SEGMENT BY THE TPO ARE AS UNDER: - THEREFORE, OUT OF TOTAL MAJOR EXPENSE NOT DIRECTLY RELATED TO TRADING ACTIVITY AMOUNTING TO 137.44 LACS HAS BEEN ALLOCATED TO INDENTING SEGMENT TO THE EXTENT OF RS. 101.06 LACS, WHICH IS 73% OF REMAINING COST. IN VIEW OF ABOVE ANALYSIS, IT APPEARS THAT ALLOCATION OF UNALLOCATED EXPENSES BY THE TPO MATCHES WITH THE FINANCIAL STATEMENTS OF M/S PRIYA INTERNATI ONAL LTD, EV EN ON GROSS PROFIT LEVEL. IT M AY BE MENTIONED HERE THAT THE NATURE OF EMPLOYMENT COST 98.17 LACS MISCELLANEOUS EXPENSES 25.35 LACS POSTAGE TELEPHONE, FAX EXPENSES 13.92 LACS TOTAL 137.44 LACS I) COST DIRECTLY ALLOCATED IN THE SEGMENTAL RESULTS 59.23 LACS (II UNALLOCATED EXPENSES PERTAINING TO THIS SEGMENT BY THE TPO 41.83 LACS TOTAL 101.06 LACS 8 EXPENSE RETABLE TO INDENTING SEGMENT WILL EITHER BE EMPLOYEE COST OR TRAVELLING COST OR SOME SECRETARIAL COST MAINLY POSTAGE, TELEGRAPH, FAX RELATED TO OFFICE EXPENSE. NEXT ARGUMENTS BY T HE LD. AR THAT MY PREDECESSOR CIT APPEAL IN APPELLANT CASE FOR ASSESSMENT YEAR THAT HAS APPROVED THE ALLOCATION KEY ON THE BASIS OF GROSS PROFIT MARGIN FOR UNALLOCATED EXPENSES CANNOT BE ACCEPTED AS EACH ASSESSMENT YEAR HAS DIFFERENT FACTS IN RELATION TO T HE FUNCTION PERFORMED AND RISK UNDERTAKEN. IT MAY FURTHER BE MENTIONED THAT MY PREDECESSOR HAS NOT APPARENTLY ANALYZED THE FINANCIAL RESULTS OF M/S PRIYA INTERNATIONAL LTD. BEFORE ARRIVING AT THE CONCLUSION. NEXT ARGUMENT OF LD. AR IS THAT ON ITAT DELHI IN THE CASE OF DCIT V/S CORNING ESSAY ITA NO. 2564/DEL/2011 BY ORDER DATE 28/08/2015 HAS APPROVED ALLOCATION OF UNALLOCATED EXPENSES IN THE RATIO OF GROSS PROFIT. THE DECISION OF UNDER RULE ITAT IS NOT APPLICAB LE TO THE FACTS OF THE CASE AS THE FINANCIAL RESULT OF PRIYA INTERNATIONAL LTD. HAS BEEN ANALYZED IN DETAIL ABOVE FOR ALLOCATION OF UNALLOCATED EXPENSES. IN VIEW OF THE ABOVE ANALYSIS OF FINANCIAL RESULTS. I AM CONVINCED THAT UNALLOCATED EXPENSES HAS BEEN FAIRLY ALLOCATED BY THE TPO TO INDENTING SEGMENT. ACCORDINGLY THE GROUNDS OF APPEAL RELATING TO THE DETERMINATION OF OPERATING PROFIT(OP BY 9 TC)MARGIN OF M/S PRIYA INTERNATIONAL LTD. IS HEREBY DISMISSED. PROFIT MARGIN OF COMPARABLE M/S PRIYA INTERNATIONAL L TD. IS APPROVED AT THE RATE OF 84.9%). CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, THE TPOS WORKING OF AVERAGE PROFIT MARGIN OF 23.32%(OP/TC) IS HEREBY CONFIRMED. ACCORDINGLY, ADJUSTMENT . MADE UNDER SECTION 92CA FOR RS. 3,18,27,587/ - BY A O/TPO IS HEREBY CONFIRMED. ALL THESE RELEVANT GROUNDS OF APPEAL ARE HEREBY DISMISSED. 10. THE LD. DR STRONGLY RELIED UPON THE AFORESAID FINDINGS OF THE LD. CIT(A). 11. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS THE CHART EXHIBITED ELSEW HERE AND POINTED OUT THAT IF THE CONTENTION OF THE TPO IS ACCEPTED, THEN IT WOULD RESULT INTO ABSURD PROFITABILITY MARGIN IN AS MUCH AS THE INDENTING SEGMENT IS SHOWING MARGIN OF 84.92% WHEREAS THE TRADING SEGMENT IS SHOWING LOSS OF MINUS 2.85%. WHEREAS, IF THE GROSS PROFIT RATIO IS ADOPTED FOR ALLOCATION OF UNALLOCATED EXPENSES, THEN THE INDENTING SEGMENT WOULD SHOW MARGIN OF 24.22% AND TRADING SEGMENT WOULD SHOW A MARGIN OF 7.39%. 10 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GIVEN THOUGHTFUL CONSIDE RATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE COST OF ALLOCATION DONE BY THE LD. CIT(A) IS ADOPTED FROM THE AUDITED FINANCIAL RESULTS OF THE ASSESSEE EXHIBITED AT PAGE 506 OF THE PAPER BOOK. MOREOVER, THE EXERCISE DONE BY THE LD. CIT(A ) HAS NOTHING TO DO WITH UNALLOCATED EXPENSES. WE FIND THAT WHILE ANALYSING THE EXPENSES DEBITED UNDER THE HEAD OTHER EXPENSE, THE LD. CIT(A) HAS COMPLETELY IGNORED THE FACT THAT SALES PROMOTION EXPENSES OF RS. 40 , 7 , 174/ - IS NOTHING BUT DIRECTLY RELATED TO THE INDENTING SEGMENT IN AS MUCH AS THE COMMISSION EARNED BY THE ASSESSEE IS IN FOREIGN CURRENCY AND IS DIRECTLY RELATED TO THE INDENTING SEGMENT. WE FIND THAT THE FIRST APPELLATE AUTHORITY HAS SIMPLY PRESUMED THAT THE OTHER EXPENSES PERTAINED TO ONLY TRADING SEGMENT. 13. WE FIND THAT ON IDENTICAL SET OF FACTS IN ASSESSMENT YEAR 2005 - 06, THE LD. CIT(A) HIMSELF HAS APPROVED THE ALLOCATION KEY ON THE BASIS OF GROSS PROFIT MARGIN FOR UNALLOCATED EXPENSES. THE LD. CIT(A) HAS DECLINED TO FOLLOW THE DECISI ON OF HIS PREDECESSOR GIVEN IN ASSESSMENT YEAR 2005 - 06 BECAUSE HE IS OF THE VIEW THAT HIS PREDECESSOR HAS NOT APPARENTLY ANALYSED THE FINANCIAL RESULTS OF PRIYA LTD BEFORE ARRIVING AT THE CONCLUSION. WE DO NOT FIND ANY FORCE IN THIS FINDING OF THE LD. 11 CIT (A). IN ASSESSMENT YEAR 2005 - 06, THE THEN LD. CIT(A) HAD CONSIDERED THE FOLLOWING CHART: PARTICULARS FINANCIAL YEAR ENDED MARCH 2009 A M O U N T I N R S ) INDENTING TRADING CHEMICALS TOTAL SEGMENTS E L I M I N A T I O N S TOTAL 1 INCOME INCOME AS P ER SEGMENTAL INFORMATION TOTAL REVENUE (INCLUDING INTER - SEGMENT REVENUE) 18,651,000 50,281,000 68,932,000 68,932, 000 LESS: INTER - SEGMENT REVENUE - 1 OTHER ALLOCATED INCOME - - IOTAS SEGMENTAL INCOME 18,651,000 50,281,000 68,932,000 - 68,932, 000 ISEGMENTAL REVENUE/TOTA! OPERATING REVENUE 27.06% 72.943% (GROSS MARGIN 18,651,000 12,964,638 GROSS MARGIN RATIO 59% 41% OPERATING INCOME (AS PER P&L) 68,995, 061 INCOME TO BE ALLOCATED FROM P& L TO SEGMENTAL INCOME (ALLOCATED ON THE BASIS CF GROSS RATIO) 37,202 25,859 63,061 63,061 TOTAL OPERATING INCOME 18,688,202 50,306,859 68,995,061 SEGMENTAL PROFIT (GIVEN) 12,728,000 10,289,000 23,017,000 EXPENSES ALLOCATED EXPENSES (SEGMENTAL) 5.923,000 39,992,000 45,915,000 ADD: UNALLOCATED ITEMS OF EXPENSE DIRECTLY ALLOCABLE TO ANY SEGMENT TOTAL SEGMENTAL EXPENSE 5,923,000' 39,992,000 45,915,000 - 45,915, 000 OPERATING EXPENSES (AS PER P& L) 61,376, 528 EXPENSES TO BE ALLOCATED FROM P&L TO SEGMENTAL EXPANSE A LLOCATED ON THE BASIS OF GROSS RATIO) 9,121,213 6,340,315 15,461,528 15,461, 528 OTAL OPERATING EXPENSES 15,044,213 46,332,315 61,376,528 SEGMENT COST/TOTAL OPERATION COST 24,51% 75.49% | (OPERATING PROFIT 3,643,989 3,974,544 (OPERATING PROFIT/TOTAL OPERATING COST 24.22% 8.58% ! I. * 14. AFTER CONSIDERING THE AFOREMENTIONED CHART, THE LD. CIT( A) ACCEPTED THE CONTENTION THAT THE ALLOCATION KEY SHOULD BE ON THE BASIS OF GROSS PROFIT MARGIN FOR UNALLOCATED EXPENSES. 12 15. AFTER CONSIDERING THE FACTS IN TOTALITY, IN LIGHT OF THE FACTUAL MATRIX EXHIBITED ELSEWHERE, WE ARE OF THE CONSIDERED OPINION T HAT THE ALLOCATION KEY ON THE BASIS OF GROSS PROFIT MARGIN IS CORRECT. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER/TPO TO ALLOCATE UNALLOCATED EXPENSES ON THE BASIS OF GROSS PROFIT MARGIN. ACCORDINGLY, THIS ALTERNATIVE GROUND IS ALLOWED. 16. GROUND NO. 2 HAS NOT BEEN PRESSED . THE SAME IS DISMISSED AS NOT PRESSED. 17. FACTS RELATING TO GROUND NO. 3 ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O OBSERVED THAT THE ASSESSEE HAS PAID CONFERENCE CALL CHARGES PAYABLE TO ITS AE, NAMELY, VERIZON, HONG KONG. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAME SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. 18. THE ASSESSEE, IN ITS REPLY, CONTENDED THAT CONFERENCE CHARGES PAYMENT WAS MADE TAXABLE IN INDIA AS ROYALTY BY RETROSPECTIVE AMENDMENT BY E XPLANATION 6 OF SECTION 9(1) OF THE ACT. THEREFORE, DURING THE PERIOD OF PAYMENT, THERE WAS NO SUCH DEFINITION OF ROYALTY. ACCORDINGLY, THE SAID SUM WAS NOT TAXABLE IN INDIA, HENCE THERE IS NO 13 QUESTION OF DEDUCTION OF TAX U/S 195 OF THE ACT. IT WAS FURTH ER POINTED OUT THAT THE PAYMENT IS IN THE NATURE OF REIMBURSEMENT, THEREFORE, THERE IS NO ELEMENT OF INCOME IN THE HANDS OF THE PAYEE AND HENCE SECTION 195 OF THE ACT DOES NOT APPLY ON THE FACTS OF THE CASE. 19. THE CONTENTION OF THE ASSESSEE DID NOT FI ND ANY FAVOUR WITH THE ASSESSING OFFICER WHO WAS OF T HE STRONG BELIEF THAT EXPLANATION 6 TO SECTION 91 OF THE ACT IS CLARIFICATORY IN NATURE AND HAS BEEN GIVEN A RETROSPECTIVE EFFECT. 20. THE LD. DR HAS ALSO HIGHLIGHTED THIS FACT BY STATING THAT THE DEFIN ITION OF ROYALTY U/S 91 OF THE ACT ALWAYS INCLUDED IMPUGNED PAYMENT AND IT IS ONLY BY WAY OF CLARIFICATION EXPLANATION 6 HAS BEEN INSERTED. 21. THE ASSESSING OFFICER HAS ALSO DISMISSED THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE PAYMENT IS NOTHING BUT REIMBURSEMENT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE PURPOSE OF PAYMENT IS IMPORTANT SINCE SUCH CONFERENCE CHARGES IS ROYALTY IN INDIA, THEREFORE, THE SAME IS TAXABLE IN INDIA. 14 22. THE ASSESSING OFFICER FURTHER OBSERVED THAT MERELY BECAU SE THE PAYMENT IS MADE FIRST BY THE GROUP CONCERN OF THE ASSESSEE AND THEN RECOVERED FROM THE ASSESSEE, DOES NOT ALTER THE TAXABILITY OF ROYALTY. 23. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE IMPUGNED PAYMENT IS GOVERNED BY EXPLANATION 6 SECTION 91 AS IT EXISTED BEFORE FINANCE ACT, 2012. IT IS ONLY AFTER FINANCE ACT 2012 EXPLANATION 4, 5 AND 6 TO SECTION 91 HAVE BEEN INSERTED WITH RETROSPECTIVE EFFECT. IN OUR CONSIDERED OPINION, THE ASSE SSEE COULD NOT BE HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE BY RELYING ON SUBSEQUENT AMENDMENTS. 24. SIMILAR VIEW TAKEN BY THE CO - ORDINATE BENCH AT KOLKATA IN THE CASE OF SDV INTERNATIONA L LOGISTICS LTD IN ITA NOS 501, 708 AND 712/KOL/2016 REPORTED IN 172 ITD 505. 25. COMING TO THE ISSUE OF REIMBURSEMENT, WE FIND THAT THERE IS NO DISPUTE THAT VERIZON HONG KONG [AE OF THE ASSESSEE] HAS MADE PAYMENT AND SUBSEQUENTLY, COST WAS RECOVERED FROM THE ASSESSEE COMPANY WHICH CAN BE UNDERSTOOD FROM THE C HART ANNEXED AS ANNEXURE WHICH WILL FORM PART OF THIS ORDER . 15 26. CONSIDERING THE FACTS OF THE CASE IN HAND IN TOTALITY, IN THE LIGHT OF DECISION OF THE CO - ORDINATE BENCH [SUPRA], WE ARE OF THE CONSIDERED OPINION THAT NO LIABILITY TO DEDUCT TAX AT SOURCE AROSE ON THE I MPUGNED PAYMENT QUA INSERTION OF EXPLANATION TO SECTION 91 OF THE ACT. MOREOVER, BEING REIMBURSEMENT, NO LIABILITY TO DEDUCT TAX AT SOURCE AROSE. ACCORDINGLY, GROUND NO. 3 IS ALLOWED. 27. FACTS RELATING TO GROUND NO. 4 ARE THAT DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED TRAVELLING EXPENSES AMOUNTING TO 80,38,766/ - . THE ASSESSING OFFICER FURTHER NOTICED THAT OTHER THAN L OCAL TRAVELLING EXPENSES OF RS. 80.38 LAKHS, FOREIGN TRAVELLING EXPENSES WERE ALSO BOOKED AMOUNTING TO RS. 14,95,607/ - . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT PROVIDED DETAILS OF SOME OF THE TRAVELLING EXPENSES AND FURTHER OBSERVED THAT THERE WAS NO NEED FOR THE ASSESSEE TO TAKE FOREIGN TRAVELLING AS MAJOR FUNCTIONS INVOLVED PROVIDING LOCAL CONTACT POINT FOR CUSTOMERS IN INDIA AND SUPPORTING THE REQUIREMENT S OF LOCAL CUSTOMERS IN INDIA. 16 28. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED COMP LETE DETAILS OF TRAVELLING AND CONVEYANCE EXPENDITURE SUCH AS COMPLETE LEDGER PROVIDING DETAILS OF AIR FARE, VISA CHARGES FOR FOREIGN TRAVEL, SAMPLE INVOICE OF AIR FARE AND CABS HIRED BY THE ASSESSEE AND DETAIL BREAKUP OF TRAVELLING AND CONVEYANCE EXPENSES . IT WAS POINTED OUT THAT ALL THE DETAILS AND VOUCHERS ARE CERTIFIED BY THE INTERNAL AUDITOR AND FINAL ACCOUNTS ARE DULY AUDITED BY STATUTORY AUDITORS. IT WAS FURTHER CONTENDED THAT THE ASSESSEE PROVIDED SERVICES TO ITS CUSTOMER ON A COST PLUS BASIS. TH EREFORE, THE ENTIRE COST HAS BEEN DULY COMPENSATED B Y ITS AES. 29. AFTER CONSIDERING THE FACTS AND DETAILED SUBMISSIONS, THE LD. CIT(A) HELD AS UNDER: - I HAVE EXAMINED AND CONSIDERED FACTS OF THE CASE AND ARGUMENTS OF LD. AR. I DO NOT AGREE WITH THE REASONING OF THE ASSESSING OFFICER THAT NO. F OREIGN TRAVEL IS 'REQUIRED BY THE EMPLOYEE OF THE APPELLANT FOR ITS BUSINESS. THE APPELLANT IS GETTING REVENUE FROM ITS AE ABROAD FOR SERVICES RENDERED BY IT. THEREFORE, IT IS THE BUSINESS NE ED OF THE APPELLANT TO INCUR SUCH EXPENSES. OTHER GROUNDS OF DISALLOWANCE BY THE ASSESSING OFFICER IS THAT THE APPELLANT HAS CLAIMED SOME PART OF THE EXPENSE ON PROVISION BASIS APPARENTLY FROM THE BREAK UP FILED BY THE APPELLANT. 17 LD. AR HAS CLAIMED THAT EA CH EXPENSE IS BACKED UP BY BILLS AND VOUCHERS AND FILED BILLS AND V OUCHERS AS FRESH EVIDENCES. I HAVE P ERUSED THESE BILLS AND VOUCHER & MOSTLY, THE BILLS ARE IN NAME OF THE APPELLANT. HOWEVER, FEW BILLS ISSUED BY AUTO QUICK (P) LTD. AR E IN THE NAME OF M/S VERIZON BUSINES S, AE OF THE APPELLANT. AS THESE INVOICES ARE NOT IN THE NAME OF THE APPELLANT, THE EXPENDITURE CANNOT BE SAID TO PERTAIN TO THE APPELLANT. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE BILLS AND VOUCHERS IN RESPECT OF TRAVELLING AND CONV EYANCE EXPENSE. IF THE BILLS AND VOUCHERS ARE NOT IN THE NAME OF THE APPELLANT, THE DISALLOWANCE SHOULD BE RESTRICTED TO THE EXTENT OF SUCH BILLS /VOUCHERS. I WOULD ALSO LIKE TO CONSIDER THE ARGUMENTS OF LD. AR THAT THE APPELLANT IS GETTING THE REVENUE ON THE BASIS OF EXPENSE WITH MARK UP OF 11%. THIS MODEL OF BUSINESS IS TO COMPUTE THE REVENUE. AFTER CREDITING SUCH REVENUE ON THIS BASIS, THE APPELLANT HAS TO CLAIM EXPENSE IN ITS BOOKS OF ACCOUNTS WHICH IS ACTUALLY INCURRED. UNDOUBTEDLY, THE EXPENSE UNDER T HE HEAD TRAVELING AND CONVEYANCE ARE CLAIMED BY THE APPELLANT AND THE APPELLANT HAS TO SUBSTANTIATE THESE EXPENSE TO ARRIVE AT INCOME. THEREFORE, JUST BECAUSE THE APPELLANT IS GETTING REVENUE ON THE BASIS OF EXPENDITURE DOES NOT ABSOLVE THE APPELLANT FRO M ITS ONUS TO PROVE THE GENUINENESS OF THE EXPENDITURE CLAIMED BY IT IN ITS BOOK OF ACCOUNT. THEREFORE, THIS ARGUMENT IS NOT ACCEPTABLE. 18 30. BEFORE US, THE LD. AR REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 31. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE CIT(A). 32. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT EVEN THE FIRST APPELLATE AUTHORITY HAS DISMISSED THE REASONING OF THE ASSESSING OFFICE R THAT NO FOREIGN TRAVEL IS REQUIRED BY THE EMPLOYEE OF THE ASSESSEE FOR ITS BUSINESS. 33. WE FIND THAT THE CIT(A) HAS CATEGORICALLY OBSERVED TH A T FEW BILLS ISSUED BY AUTO QUICK [P] LTD ARE IN THE NAME OF M/S VERIZ ON BUSINESS, THE AE OF THE APPELLANT . AS THESES INVOICES ARE NOT IN THE NAME OF THE APPELLANT, THE CIT(A) OBSERVED THAT THE EXPENDITURE CANNOT BE STATED TO PERTAIN TO THE APPELLANT. 34. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE BILLS AND VOUCHERS IN RESPECT OF TRAVELLING AN D CONVEYANCE EXPENSES. IF THE BILLS AND VOUCHERS ARE NOT IN THE NAME OF THE ASSESSEE, THE DISALLOWANCE SHOULD BE RESTRICTED TO THE EXTENT OF SUCH BILLS/VOUCHERS. WE DO NOT 19 FIND ANY ERROR OR INFIRMITY IN SUCH DIRECTIONS OF THE CIT(A). THE ASSESSEE IS DIR ECTED TO PRODUCE ALL THE BILLS/VOUCHERS FOR VERIFICATION AND THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AND IF SOME INVOICES/BILLS ARE NOT FOUND IN THE NAME OF THE ASSESSEE, ONLY SUCH EXPENSES SHOULD BE DISALLOWED. WITH THESE DIRECTIONS, GROUND NO. 4 IS PARTLY ALLOWED. 35. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 6700/DEL/2015 IS PARTLY ALLOWED. THE ORDER IS PRON OUNCED IN THE OPEN COURT ON 1 0 . 0 5 .201 9 . SD/ - SD/ - [ KULDIP SINGH ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 0 T H MAY , 201 9 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 20 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER