CLSA INDIA P. LTD, MUMBAI V. DCIT CIR 4(1)(1), MUMBAI

ITA 6748/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7364 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 27-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PARAS SAVLA ARS
• Keywords: Transfer pricing; International transaction; Question of law; Commercial expediency; Set aside
• Section: 92C; 143(3); 10B; 201; 73; 13; 22

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL K BENCH MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.6748/MUM/2017 (ASSESSMENT YEAR 2013-14) ITA NO. 7257/MUM/2018 (ASSESSMENT YEAR 2014-15) ITA NO. 7246/MUM/2019 (ASSESSMENT YEAR 2015-16) CLSA INDIA PRIVATE LTD. [FORMERLY KNOWN AS CLSA INDIA LTD.], 8/F, DALAMAL HOUSE, NARIMAN POINT, MUMBAI-400021. P AN: AAACC2262K VS. DCIT CIRCLE- 4(1)(1) 6 TH FLOOR, R.NO. 640/678, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT APPELLANT BY : SHRI MUKESH BHUTANI, MISS. KARISHMA R. PHATARHEKAR AND SHRI PARAS SAVLA (ARS) RESPONDENT BY : SHRI ANAND MOHAN (CIT-DR) DATE OF HEARING : 24.07.2020 DATE OF PRONOUNCEMEN T : 20.08.2020 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE THREE APPEALS BY ASSESSEE ARE DIRECTED AGAINS T THREE DIFFERENT ASSESSMENT ORDERS UNDER SECTION 143(3) R.W.S 144(C) (13), PASSED IN PURSUANCE OF DIRECTIONS OF DISPUTE RESOLUTION PENAL (DRP) FOR ASSESSMENT YEARS 2013-14, 2014-15 & 2015-16. IN ALL THE APPEAL S, THE ASSESSEE HAS RAISED CERTAIN COMMON GROUNDS OF APPEAL, FACTS IN A LL YEARS ARE ALMOST IDENTICAL EXCEPT VARIATION OF FIGURES OF ADJUSTMENT /ADDITION SUGGESTED BY TRANSFER PRICING OFFICER (TPO), THUS, ALL APPEALS W ERE CLUBBED HEARD AND ARE ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 2 DECIDED BY A CONSOLIDATED ORDER. WITH THE CONSENT O F PARTIES, APPEAL FOR ASSESSMENT YEAR 2013-14 IN ITA NO. 6748/MUM/2017 IS TREATED AS LEAD CASE. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED TRANSFER PRICING OFFICER ('TPO') / THE LEARNED AO / HON'BLE DRP ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT AT RS 156,66,14.610. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN REJECTING THE TRANSFER PRICING ('TP') ANALYSIS UNDERTAKEN BY THE APPELLANT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN PROPOSING / U PHOLDING AN ADJUSTMENT TO THE ARM'S LENGTH PRICE ('ALP') DETERMINED BY THE AP PELLANT IN RESPECT OF THE INTERNATIONAL TRANSACTIONS IN CONNECTION WITH AVAIL ING OF INTRA-GROUP SERVICES BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISES ('AES '). IN DOING SO, THE LEARNED TPO / LEARNED AO / HON'BLE DRP HAS ERRED IN LAW AND IN FACTS BY: 3.1. GOING BEYOND THEIR JURISDICTION IN DETERMINING THE ALP OF INTRA-GROUP SERVICES ON AN AD-HOC BASIS WITHOUT APPLYING ANY OF THE PRESCRIBED METHODS AS PER SECTION 92C(1) OF THE ACT; 3.2. REJECTING TRANSACTIONAL NET MARGIN METHOD ('TN MM') AS THE MOST APPROPRIATE METHOD ('MAM') FOR THE DETERMINATION OF THE ALP; 3.3. NOT APPRECIATING THE VOLUMINOUS DOCUMENTARY EV IDENCE, DETAILS OF COST INCURRED BY THE AES, DETAILS OF ALLOCATION KEYS USE D BY THE AES ETC FILED BY THE APPELLANT; AND 3.4. NOT CONSIDERING THE BENEFITS DERIVED BY THE AP PELLANT AND ALSO DISREGARDING THE COMMERCIAL EXPEDIENCY OF THE APPEL LANT. THE APPELLANT CLAIMS RELIEF ON THE ABOVE GROUNDS AN D PRAYS THAT THE ADJUSTMENTS MADE BY THE LEARNED AO IN THE FINAL ASSESSMENT ORDE R ARE DELETED. THE APPELLANT CRAVES FOR LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR A T THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE INCOME-TAX APPE LLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 3 FOR THE ABOVE AND OTHER GROUNDS AND REASONS WHICH M AY BE SUBMITTED DURING THE COURSE OF HEARING OF THIS APPEAL, THE APPELLANT REQUESTS THAT THE APPEAL BE ALLOWED AS PRAYED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS A PART OF CLSA GROUP AN ASIA BROKERAGE HOUSE HAVING ITS REGIONAL O FFICE IN HONG KONG. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EQUITY B ROKING AND IS MEMBER OF BOMBAY STOCK EXCHANGE (BSE) AND NATIONAL STOCK EXCH ANGE (NSE). THE ASSESSEE CUSTOMERS MAINLY COMPRISES OF FOREIGN INST ITUTIONAL INVESTOR (FII) AND DOMESTIC INSTITUTIONAL INVESTOR (DII). THE ASSE SSEE WHILE FILING RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR BESIDES OTHER I NTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATES ENTERPRISES (AES), REPORTED TRANSACTION WITH REGARD TO INTRA GROUP SERVICES (PAID) OF RS. 160.26 CRORE. CONSEQUENT UPON REPORTING TRANSACTION OF MORE THAN SPECIFIED AMOUNT THE ASSESSING OFFICER (AO) MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH PRICE (ALP) OF THE SAID INTERNATIONA L TRANSACTION. DURING THE TRANSFER PRICING ADJUSTMENT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE ENTERED WITH SIMILAR INTRA GROUP SERVICES IN ASSESS MENT YEAR 2011-12. IT WAS NOTED THAT THE ASSESSEE ENTERED INTO SEPARATE S ERVICE LEVEL AGREEMENTS (SLA) WITH CLSA HONG KONG, CLSA UNITED KINGDOM AND CLSA SINGAPORE. THE ASSESSEE WAS ASKED TO FURNISH THE DE TAILS OF INTRA GROUP SERVICES AND TO SUBSTANTIATE THE ALP WITH DOCUMENTA RY EVIDENCES. THE TPO FURTHER NOTED THAT SIMILAR INTRA GROUP PAYMENTS WER E MADE IN AY 2011-12. THE ASSESSEE WAS ISSUED SHOW-CAUSE NOTICE AS TO WHY SIMILAR ADJUSTMENT HAS ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 4 MADE IN ASSESSMENT YEAR 2011-12 MAY NOT BE MADE, AS THERE IS NO MATERIAL CHANGE IN THE FACTS FOR THE YEAR. THE ASSESSEE FILE D DETAILED SUBMISSION VIDE REPLY DATED 29 TH AUGUST 2016, 30 TH SEPTEMBER 2016 AND 26 TH OCTOBER 2016. 3. THE CONTENTION OF REPLY BY THE ASSESSEE IS RECORDED BY TPO IN PARAGRAPH 5.3 OF HIS ORDER. THE ASSESSEE IN ITS REPLY CONTENDED T HAT ASSESSEE SELECTED TRANSACTION NET MARGIN METHOD (TNMM) AS MOST APPROP RIATE METHOD TO BENCH MARK ITS INTERNATIONAL TRANSACTION. THE ASSES SEE CONTENDED THAT PURSUANT TO THE SLA THE ASSESSEE RENDERED THE SERVI CES OF BROKING MANAGEMENT, CLIENT MANAGEMENT, COMMUNICATION, COMPL IANCES, CREDIT RISK, DEVELOPMENT SQUADS, EVENT MARKETING, FINANCE AND AC COUNTING, FUTURE AND OPTIONS MANAGEMENT SUPPORT SERVICES, HUMAN RESOURCE S, INFORMATION TECHNOLOGY, INTERNATIONAL SALES AND SALES TRADING, LEGAL, MANAGEMENT, MARKET RISK MANAGEMENT, OPERATIONAL RISK MANAGEMENT, REGIO NAL ALGORITHM BUSINESS SUPPORT, REGIONAL SEARCH, AX PLANNING AND MANAGEMEN T, ADMINISTRATION AND GROUP SECURITY. THE ASSESSEE FURNISHED DETAILS OF THE VARIOUS SERVICES AND HEAD-WISE BREAKUP OF THE PAYMENTS, COST ALLOCATION AS PROVIDED IN THE SLAS AND AUDITORS REPORT. 4. THE ASSESSEE HAS BENCHMARKED ITS TRANSACTIONS BY U SING FOREIGN COMPARABLE COMPANIES BY USING AE AS A TESTED PARTY. BASED ON C OMPARABLES MARGIN, THE ASSESSEE JUSTIFIED THAT MARKED UP CHARGED BY ASSESS EE WITH ITS ARMS LENGTH. THE SEGREGATED SERVICES IN FOUR BASKETS I.E (I) BRO KING RELATED SERVICES, (II) REGIONAL RESEARCH RELATED SERVICES, (III) IT SUPPOR T SERVICES AND (IV) BUSINESS ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 5 SUPPORT SERVICES. THE ASSESSEE IN ITS TRANSFER PRIC ING STUDY REPORT (TPSR), TNMM ANALYSIS FURNISHED AS UNDER; SR. NO. NATURE OF SERVICES ARITHMETIC MEAN MARGIN OF COMPARABLES COMPANIES MARK UP EARNED BY THE AES (COST PLUS) I BROKING RELATED SERVICES 13.4% 10% II REGIONAL RESEARCH RELATED SERVICES 13.5% 10% III IT SUPPORT SERVICES 6.9% 7% IV BUSINESS SUPPORT SERVICES 5.9% 5% 5. FOR SERVICES PROVIDED BY CLSA UK, THE ARITHMETIC ME ANS MARGIN OF COMPARABLES IS 10.84% AND THE MARK UP EARNED BY THE AE WAS COST PLUS 10%. THUS, THE ASSESSEE CLAIMED THAT ALL THE AES AR E EARNING LESS THAN THE COMPARABLES COMPANIES PROVIDING SIMILAR SERVICES, T HEREFORE, THE TRANSACTION IS WITHIN ARMS LENGTH. 6. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY TPO BY TAKING VIEW THAT NO CONCRETE EVIDENCE ON RECEIPT OF SERVICE HAS BEEN PR OVIDED BY ASSESSEE (PARA 5.5 OF TPO). HOWEVER, IN PARA 5.7 THE TPO RECORDED THAT ASSESSEE SUBMITTED VOLUMINOUS PAPER BOOK FOR EVIDENCING THE BENEFITS, CONSISTING VARIOUS EVENTS, FORUMS/ ROAD SHOWS ORGANIZED BY VARIOUS CLI ENTS, CALL LOGS/ MEETING LOGS OF EMPLOYEE ENGAGED IN RENDERING SERVICES, SCR EEN SHOOTS FROM SYSTEM FOR EVIDENCING COMMUNICATION BETWEEN CENTRAL TEAM A ND ASSESSEE, , COPIES ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 6 ON NOTES AGENDAS, SAMPLES EMAILS EXCHANGES ETC. TH E ASSESSING OFFICER ON THE BASIS OF EARLIER YEARS I.E. ASSESSMENT YEAR 201 1-12 MADE ADDITION OF RS. 156.26 CRORE BY PASSING THE FOLLOWING ORDER: I) THEREFORE, THE ASSESSEE IN THIS CASE HAS FAILED TO DISCHARGE ITS BASIC ONUS TO BENCHMARK THE TRANSACTION. IT HAS FAILED TO SHOW TH AT IN UNCONTROLLED SITUATION AN INDEPENDENT PARTY WILL BE WILLING TO PAY THE SAM E AMOUNT AS THE ASSESSEE HAS PAID. THE ASSESSEE HAS ALSO NOT PROVIDED ANY DETAIL S OF NO. OF HOURS DEVOTED BY THESE PERSONS IN RELATION TO SERVICES GIVEN SPECIFI C TO INDIA, IF ANY. IT HAS ALSO NOT SUBMITTED PER HOUR COST OF THE PERSONS INVOLVED IN THESE COST CENTERS, WHO HAVE RENDERED SERVICES TO INDIA, IF ANY. IN THE ABS ENCE OF THESE DETAILS IT IS ALSO NOT POSSIBLE TO BENCHMARK THESE TRANSACTIONS. II) IN ABSENCE OF ALL THESE DETAILS REGARDING HE SA LARIES PAID TO EMPLOYEES WORKING WITH THE AE, THE EDUCATIONAL QUALIFICATION OF THESE EMPLOYEES, THE NUMBER OF HOURS DEDICATED BY THESE EMPLOYEES TOWARD S THE SERVICES RENDERED TO THE ASSESSEE, THE UNDERSIGNED IS CONSTRAINED TO GO BY ESTIMATION TO THE BEST JUDGMENT, TO QUANTIFY THE VALUE OF THE SERVICES IF AT ALL ANY, BEING RENDERED BY THE AE TO THE ASSESSEE. WITHOUT PREJUDICE TO THE CO NTENTION OF THE UNDERSIGNED, THAT THERE IS NOT VERY SIGNIFICANT EVIDENCE IN SUBS TANCE, REGARDING THE SERVICES BEING RENDERED BY THE AE TO THE ASSESSEE. HOWEVER A FTER CONSIDERING THE EVIDENCE FILED BY THE ASSESSEE, AS A MATTER OF ABUN DANT PRECAUTION, THE UNDERSIGNED PROCEEDS TO MAKE A REASONABLE ESTIMATE, OF WHATEVER LITTLE SERVICES THAT CAN BE SAID TO HAVE BEEN RENDERED IN THE FACTS AND CIRCUMSTANCES OF THIS CASE. HAVING REGARD TO THE NATURE OF SERVICES WHICH ARE CLAIMED TO HAVE BEEN RENDERED IN THE INSTANT CASE, THE UNDERSIGNED ESTIM ATES THE SALARY FOR SUCH AN EMPLOYEE AT RS 4000 PER HOUR. TO THE BEST OF MY JUD GMENT, THE NUMBER OF MAN HOURS RENDERED BY THE EMPLOYEES TOWARDS RENDERING O F THESE SERVICES TO THE ASSESSEE, IS ESTIMATED EARLIER AT 10,000 HOURS AT P ARA 5.9.2. III) THUS THE TOTAL AMOUNT OF MAN-HOURS OF SERVICES RENDERED BY THE AE TO THE ASSESSEE IS ARRIVED AT 10,000 HOURS. APPLYING THE M AN HOUR RATE OF RS. 4000 PER HOUR, THE ARMS LENGTH COMPENSATION OF THE SERVICES RENDERED BY THE AE TO THE ASSESSEE, APPLYING THE CUP METHOD, IS ARRIVED AT RS 4,00,00,000/-. HENCE THE ARM'S LENGTH PRICE FOR PAYMENT TOWARDS THESE SERVIC ES IS TREATED AS RS 4,00,00,000/- AND AN ADJUSTMENT OF RS.156,26,18,641 /- (RS160,26,18,641/- - RS 4,00,00,000/ -) IS MADE TO THE INTERNATIONAL TRANSA CTIONS ON A/C OF CORPORATE COST ALLOCATION CHARGES PAID. 7. ON RECEIPT OF REPORT OF TPO, THE ASSESSING OFFICER PASSED THE DRAFT ASSESSMENT ORDER DATED 15.12.2016. THE COPY OF DRAF T ASSESSMENT ORDER WAS ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 7 SERVED UPON THE ASSESSEE. THE ASSESSEE EXERCISED IT S OPTION FOR FILING OBJECTION BEFORE THE DRP. BEFORE THE DRP, THE ASSES SEE FURNISHED THE DETAILED AND EXHAUSTIVE WRITTEN SUBMISSION. THE DET AILED WRITTEN SUBMISSIONS OF THE ASSESSEE ARE RECORDED VERBATIM B Y DRP. THE DRP INSTEAD OF GIVING ANY INDEPENDENT FINDING FOLLOWED THE ORDER OF THEIR PREDECESSOR IN ASSESSMENT YEAR 2011-12 AND UPHELD T HE ADJUSTMENT SUGGESTED BY TPO. IN RECEIPT OF DIRECTION OF DRP, T HE ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER DATED 12.10.2017. THUS, FURTHER AGGRIEVED, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US . 8. SIMILAR ADDITIONS WERE SUGGESTED BY TPO IN ASSESSME NT YEAR 2014-15 & 2015-16. THE ADDITIONS IN AY 2014-15 & 2015-16 WERE ALSO MADE ON THE ON THE BASIS OF ADDITION OF ASSESSMENT YEAR 2011-12. I N ALL YEARS THE ADJUSTMENT ON ACCOUNT OF TP ADJUSTMENT WAS MADE ON ESTIMATE BASIS. 9. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) F OR THE REVENUE AND PERUSED THE ORDER OF LOWER AUTHORITIES CAREFULLY. T HE LD. AR OF THE ASSESSEE SUBMITS THAT THE TPO WHILE BENCH MARKING AND TO PRO CEED BENCH MARKED THE TRANSACTION BY USING CUP AS MOST APPROPRIATE METHOD . HOWEVER, THE TPO DID NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT C UP IS THE MOST APPROPRIATE METHOD NOR EVEN IN A SINGLE COMPARABLE INSTANCE WAS REFERRED. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE TPO MAD E THE ADDITION IN CONTRAVENTION OF THE PROVISION OF SECTION 92C OF TH E ACT AND THE RULES ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 8 WHICH MANDATES USING ONE OF THE PRESCRIBED METHODS TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANS ACTION. 10. THE TPO ESTIMATED TOTAL MAN HOURS OF SERVICES RENDE RED BY AES TO THE ASSESSEE AT 10,000 HOURS PURELY ON ADHOC BASIS FOR ALL THREE ASSESSMENT YEARS IN APPEAL. IN ADDITION TO THE ESTIMATION OF A D-HOC HOURS, THE TPO ESTIMATED SALARY OF EMPLOYEE ON AD-HOC RATE OF RS. 4000 PER HOUR FOR ASSESSMENT YEAR (AY) 2013-14 AND RS. 5,000/- PER HO UR FOR AYS 2014-15 & 2015-16. THE TPO MERELY RELIED ON THE ORDER OF TP O AND DRP MERELY RELIED UPON ITS EARLIER YEARS ORDER FOR ASSESSMENT YEAR 2011-12. IT WAS SUBMITTED THAT SIMILAR TRANSFER PRICING ADDITION/AD JUSTMENT WERE SUGGESTED BY TPO IN ASSESSMENT YEAR 2012-13 AS WELL. THE LD. AR OF THE ASSESSEE INVITED OUR ATTENTION TO PARAGRAPH 5.3 OF TPOS ORD ER IN ALL ASSESSMENT YEAR WHEREIN A VERBATIM ORDER IS MADE EXCEPT CHANGE THE ASSESSMENT YEARS. SIMILARLY, PARAGRAPH 6(II) OF TPO ORDER, IN ALL YEA RS THE ORDER IS VERBATIM. THE LD. AR OF THE ASSESSEE SUBMITS THAT ON SIMILAR AD-HOC ADJUSTMENT SUGGESTED BY TPO IN ASSESSMENT YEAR 2011-12 AND 201 2-13, THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL SET- ASIDE THE ORDER OF TPO BY HOLDING THAT THE TPO/DRP HAS NOT FOLLOWED THE MANDA TED PRESCRIBED METHOD AND THEREBY DELETED THE TRANSFER PRICING ADJ USTMENT. THE LD. AR OF THE ASSESSEE FURNISHED THE COPY OF ORDER OF TRIBUNA L FOR ASSESSMENT YEAR 2011-12 AND 2012-13 IN ITA NO.902/MUM/2016 DATED 03 .02.2020 REPORTED VIZ; [2019] 101 TAXMANN.COM 388 (MUM TRIB), AND ITA NO. ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 9 1182/MUM/2017 DATED 16.01.2019 RESPECTIVELY. ACCOR DINGLY, THE LD AR FOR THE ASSESSEE SUBMITS THAT THE GROUNDS OF APPEAL RAI SED BY ASSESSEE IN THE PRESENT APPEAL ARE SQUARELY COVERED BY THE DECISION OF TRIBUNAL FOR AY 2011-12 AND 2012-13. THE LD. AR OF THE ASSESSEE FUR THER SUBMITS THAT THE ASSESSEE FURNISHED ALL THE DETAILS IN TRANSFER PRIC ING STUDY REPORT (TPSR) TO SUBSTANTIATE THAT THE TNMM IS MOST APPROPRIATE METH OD TO BENCH MARK THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. THE COMP LETE RECORDS ALONG WITH THE DOCUMENTARY EVIDENCES WITH REGARD TO THE SERVIC ES AVAILED BY THE ASSESSEE HAS BEEN PLACED BEFORE THE LOWER AUTHORITI ES AS WELL AS NOW BEFORE THE TRIBUNAL. THUS, THE LD. AR OF THE ASSESSEE WOUL D SUBMITS THAT THERE IS NO VARIATION IN THE FACTS FOR THE YEAR UNDER CONSIDERA TION VIS A VIS THE ASSESSMENT YEAR 2011-12 AND 2012-13. 11. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT THE HONBLE BOMBAY HIGH COURT IN VARIOUS CASE LAWS HELD THAT THE LEGAL INF IRMITY IN THE TPOS ORDER CANNOT BE CURED BY RESTORING THE ISSUE TO THE FILE OF AO/TPO. TO BUTTRESS HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED ON TH E FOLLOWING DECISIONS: CIT VS MERCK LTD [2017] 73 TAXMANN.COM 23 (BOM), CIT VS LEVER INDIA EXPORT LTD [2017] 78 TAXMANN.COM 88 (BOM), CIT VS JOHNSONS & JOHNSONS LTD.[2017] 80 TAXMANN.CO M (BOM), CIT VS KODAK INDIA (P) LTD [ 2016]288 CTR 46 (BOM) AND KODAK INDIA (P) LTD VS ACIT [2017] 37 TAXMANN.COM 2 33(MUMBAI- TRI). ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 10 12. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPP ORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE SUBMITS THA T THE CONTENTION OF LD. COUNSEL FOR ASSESSEE THAT INSTANT APPEALS UNDER ADJ UDICATION ARE COMPLETELY COVERED IN FAVOUR OF ASSESSEE IS MISUNDERSTOOD. THE LD. DR FOR THE REVENUE SUBMITS THAT IN PRECEDING YEAR, THE ORDER OF ASSESS MENT YEAR 2012-13, THE TRIBUNAL HAS APPROVED THE TNMM AS MOST APPROPRIATE METHOD TREATING THE AE AS TESTED PARTY. FURTHER, CONTENTION OF LD. COUN SEL FOR ASSESSEE IS THAT THE TPO DID NOT FOLLOW ANY OF THE FIVE PRESCRIBED METHO D AS PER SECTION 92C AND DECISION FOR ASSESSMENT YEAR 2011-12 IS CONCERN ED WHERE THE SIMILAR ALP WAS DETERMINED AS NIL BY RELYING UPON THE DECIS ION OF ASSESSMENT YEAR 2012-13. THE LD. DR FOR THE REVENUE SUBMITS TH AT THOUGH THE DRP HAS NOTED THAT FACTS FOR ASSESSMENT YEAR 2013-14 & 2014 -15 & 2015-16 ARE IDENTICAL TO THE FACTS FOR ASSESSMENT YEAR 2011-12, HOWEVER, THE LAW HAS BEEN CHANGED SINCE ASSESSMENT YEAR 2013-14, WHEN SI XTH METHOD I.E. (OTHER METHOD) FOR COMPUTING THE ALP IN INDIAN TRAN SFER PRICING REGULATION IS BROUGHT UNDER THE RULES AS PER RULE 1 0AB. THE CBDT INTRODUCED RULE 10AB FROM ASSESSMENT YEAR 2013-14 O NWARDS. THE LD. DR FOR THE REVENUE INVITED OUR ATTENTION TO RULE 10AB WHICH HAS BEEN INSERTED VIDE FINANCE ACT 2012, WHEREIN FOR THE PURPOSE OF C LAUSE- (F) OF SUB-SECTION 1 OF SECTION 92C, THE OTHER METHOD FOR DETERMINING THE ALP IN RELATION TO INTERNATIONAL TRANSACTION SHALL BE ANY METHOD WHICH TAKES INTO ACCOUNT, THE PRICE WHICH HAS BEEN CHARGED OR PAID, OR WOULD HAVE BEEN CHARGED OR PAID, ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 11 FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTION, W ITH OR BETWEEN NON- ASSOCIATED ENTERPRISES UNDER SIMILAR CIRCUMSTANCES, CONSIDERING ALL RELEVANT FACT. THE LD. DR FOR THE REVENUE FURTHER SUBMITS TH AT DELHI TRIBUNAL IN CASE OF TOLL GLOBAL FORWARDING INDIA PVT LTD VS DCIT (IT A NO. 3812/MUM/2015) WHERE RELEVANCE AND IMPORTANCE OF O THER METHOD IS EXTENSIVELY DISCUSSED, WHEREIN IT WAS HELD THAT SIX TH METHOD IS NOT RESIDUAL METHOD BUT AT PAR WITH THE OTHER METHOD. THE DECISI ON OF DELHI TRIBUNAL IS AFFIRMED BY DELHI HIGH COURT IN PCIT VS TOLL GLOBAL FORWARDING INDIA PVT LTD IN ITA 374/2015 & 396/2015. 13. THE LD. DR FOR THE REVENUE FURTHER SUBMITS THAT TP O RESORTED TO DETERMINE THE ALP RELATED WITH THE INTER GROUP SERVICES (IGS) ON THE BASIS OF MAN HOURS OF SERVICES BY AES. NOW THE QUESTION ARISE W HETHER THIS METHODOLOGY OF MAN HOURS OF SERVICES IS VALID UNDER TRANSFER PR ICING REGULATION FOLLOWED IN INDIA, THE MUMBAI TRIBUNAL IN GULF ENERGY MARITI ME SERVICES PVT LTD VS ITO (ITA NO. 3812/MUM/2015 DATED 29.12.2016), WHILE REFEREEING TOLL GLOBAL FORWARDING INDIA PVT LTD (SUPRA) HELD THAT WHILE DETERMINING ARMS LENGTH PRICE, THE ASSESSING OFFICER CAN ONLY DECIDE AS TO WHAT IS THE ARMS LENGTH FOR SERVICES RENDERED BUT HE HAS TO DO SO ON THE BASIS OF A LEGALLY RECOGNIZED METHOD. THE LD DR FOR THE REVENUE FURTHER SUBMITS THAT DETERMINATION OF ALP RELATED TO IGS SERVICES ON THE BASIS OF MAN HOURS OF SERVICES RENDERED BY AE IS A RECOGNISED METHOD, AS HELD BY PUNE TRIBUNAL ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 12 IN EMERSON CLIMATE TECHNOLOGIES (INDIA) LTD (2018) 90 TAXMANN.COM 125 (PUNE TRIB). 14. IT WAS FURTHER ARGUED BY LD. DR FOR THE REVENUE TH AT THE DECISION OF TRIBUNAL IN AY 2011-12 & 2012-13 IS NOT APPLICABLE FOR THE I NSTANT YEARS UNDER CONSIDERATION. THE TRIBUNAL IN AY 2012-13 HAS HELD THAT METHOD OF HOURS DEVOTED BY THE AE IN RESPECT OF VARIOUS SERVICES CL AIMED TO BE AVAILED BY THE ASSESSEE IS PURELY ON ESTIMATED BASIS AND NO PRESCRIBED METHOD HAS BEEN APPLIED. IT IS ALSO HELD THAT ALTHOUGH THE TPO HAS MENTIONED THAT ALP IS DETERMINED BY APPLYING CUP METHOD, BUT THE TPO H AS NOT COME UP WITH ANY COMPARABLE TO JUSTIFY THE APPLICATION OF CUP ME THOD. HENCE, THE ASSESSEES APPLICATION OF TNMM CANNOT BE REJECTED. THE TRIBUNAL ALSO RELIED ON THE DECISION OF BOMBAY HIGH COURT IN JOHN SONS & JOHNSONS LTD (SUPRA) TO THE EXTENT THAT THE TPO IS MANDATED BY L AW TO DETERMINE THE ALP BY FOLLOWING ONE OF THE METHOD PRESCRIBED IN SECTIO N 92C OF THE ACT READ WITH RULE 10B OF THE IT RULES. 15. AFTER REFEREEING THE DECISION OF TRIBUNAL IN EARLIE R YEAR, THE LD DR FURTHER SUBMITS THAT AFTER INTRODUCTION OF NEW RULES 10AB, WHICH IS APPLICABLE FROM AY 2013-14 ONWARDS, FOR THE PURPOSE OF CLAUSE (F) O F SUB-SECTION (1) OF SECTION 92C, A SIXTH METHOD HAS COME IN TO APPLICAT ION. THEREFORE, THE RATIO OF DECISIONS OF EARLIER YEARS IS NOT APPLICABLE TO THIS YEAR. 16. IN THE REJOINDER SUBMISSION, THE LD. AR OF THE ASSE SSEE SUBMITS THAT THE CONTENTION OF LD. DR FOR THE REVENUE THAT DECISIONS OF TRIBUNAL FOR A.YS. ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 13 2011-12 AND 2012-13 ARE NOT APPLICABLE TO THE IMPUG NED AYS, AS THE LAW HAS BEEN CHANGED FROM A.Y. 2013-14 ARE MISCONSTRUED . THE LD. DR FOR THE REVENUE CANNOT DENY THAT SECTION 92C ALWAYS PROVIDE D A LIBERTY FOR THE SIXTH METHOD BEING (F) SUCH OTHER METHOD. ON THE BASIS OF PROVISIONS OF SECTION 92C, THE CENTRAL BOARD OF DIRECT TAXES (CBDT) COULD HAVE NOTIFIED THE SIXTH METHOD MERELY BY ISSUING A NOTIFICATION. HOWE VER, SIXTH METHOD WAS NOTIFIED IN AY 2013-14 BY WAY OF INTRODUCTION OF RU LE 10AB IN THE INCOME TAX RULES, WHICH WAS DONE WITH THE INTENTION TO INT RODUCE SIXTH METHOD ON THE SAME FOOTING AS OTHER FIVE METHODS. HENCE, THE SIXTH METHOD WAS NOT NOTIFIED INTO DILUTE THE STRICTNESS OF THE OTHER FI VE METHODS, BUT, INSTEAD, IT WAS ON THE SAME PEDESTAL. IT WAS SUBMITTED THAT THE LD. DR CANNOT DENY THAT TPO WHILE PASSING THE ORDER FOR THESE THREE YEARS U NDER CONSIDERATION WAS AWARE OF THE LEGAL POSITION THAT ALP COULD BE DETER MINED BASED ON THE SIXTH METHOD I.E. RULE 10AB. IN ALL THREE YEARS THE TPO H IMSELF HAS ACCEPTED THE ASSESSEES DETERMINATION OF ALP ON CERTAIN TRANSACT ION BASED ON OTHER METHODS. HENCE, IT CANNOT BE SAID THAT TPO WAS NOT AWARE OF THE CHANGE IN LAW FROM AY 2013-14 ONWARDS. THE TPO ACCEPTED INTER NATIONAL TRANSACTION BENCH MARKING BASED ON OTHER METHOD/SIXTH METHOD WI TH REGARD TO RECOVERY OF EXPENSES IN AY 2013-14, RECOVERY AND REIMBURSEME NT OF EXPENSES IN AY 2014-15 AND RECOVERY OF REIMBURSEMENT OF EXPENSES, PURCHASE OF SOFTWARE LICENSES AND DIRECTORS REMUNERATION. ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 14 17. THE ASSESSEE WHILE ARRIVING AT THE MOST APPROPRIATE METHOD OF PAYMENT OF INTRA GROUP SERVICES HAS EXAMINED ALL SIX METHODS A ND ONLY THEN CONCLUDED THAT TNMM IS THE MOST APPROPRIATE METHOD. THE TPO E XAMINED THE TRANSFER PRICING STUDY REPORT (TPSR) SUBMITTED BY A SSESSEE. DESPITE BEING AWARE OF THE OPTION OF SIXTH METHOD, TPO CONSCIOUSL Y CHOSE TO ADOPT THE CUP METHOD AS REFERRED IN PARA-5.6 IN EACH AYS UNDE R CONSIDERATION. THUS, THE CONTENTION OF LD. DR ABOUT THE CHANGE IN LAW FR OM AY 2013-14 CANNOT COME TO THE RESCUE OF THE TPOS ACTION, SINCE TPO H AS ALREADY EXAMINED ADDITIONAL METHOD/SIXTH METHOD AND YET CONCLUDED TH AT CUP IS THE MOST APPROPRIATE METHOD TO BENCH MARKED THE INTRA GROUP SERVICES. 18. THE LD. AR FURTHER SUBMITS THAT IT IS WELL SETTLED POSITION UNDER LAW THAT DR IS BARRED TO TAKE ANY NEW ARGUMENT, WHICH TPO NEVER WHISPERED IN HIS ORDER. THE DISPUTE BEFORE THE TRIBUNAL IN A.Y. 2012 -13 WAS WHETHER THE CUP ADOPTED BY TPO IS APPROPRIATE OR NOT. THE CONTE NTION OF ASSESSEE BEFORE THE TRIBUNAL WAS THAT UNDER THE GARB OF USIN G CUP METHOD, THE TPO RESORTED TO AD-HOC DETERMINATION OF ALP AND THIS AP PROACH WAS REJECTED BY TRIBUNAL. THE WORD USED BY TPO TO THE BEST OF MY JUDGMENT CLEARLY INDICATES AD-HOC APPROACH BY TPO IN ABSENCE OF ANY COMPARABLE INSTANCES UNDER CUP METHOD, THUS, APPROACH OF TPO IS CONTRARY TO THE MANDATE OF SECTION 92C. THUS, THE RATIO OF TRIBUNALS ORDER FO R EARLIER YEARS IS SQUARELY APPLICABLE TO ALL THREE YEARS UNDER CONSIDERATION. ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 15 19. ON THE DECISION RELIED BY LD. DR IN TOLL GLOBAL FOR WARDING INDIA PVT. LTD. (SUPRA) THAT SIXTH METHOD IS DIRECT METHOD AND IT S HOULD BE GIVEN PREFERENCE OVER TNMM. THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE SUBMISSION OF LD. DR IS COMPLETELY MISPLACED AS THE FACT OF THE ASSES SEES APPEAL IS COMPLETELY DIFFERENT. IN TOLL GLOBALS CASE, THE AS SESSEE AND ITS FOREIGN AE WERE ENGAGED IN THE BUSINESS OF INTERNATIONAL FREIG HT TRANSPORTATION AND THE QUESTION WAS IF THE 50:50 REVENUE SPLIT MEETS WITH THE STANDARD SET OUT BY THE SIXTH METHOD. THE TRIBUNAL READING THE MANDATE OF SIXTH METHOD APPROVED ITS APPLICABILITY AND AGREED TO THE ASSESS EES BASIS OF REVENUE SPLIT, GIVEN THE NATURE OF BUSINESS. IN THE SAID CASE, THE TRIBUNAL CONCLUDED THAT APPLICATION OF CUP METHOD WAS RIGHT AND ALLOW THE U SE OF SIXTH METHOD BEING A CONSISTENT METHOD BEING FOLLOWED WITH RESPE CT TO ITS TRANSACTION WITH AES AND INDEPENDENT THIRD PARTIES. HOWEVER, IN THE CASES IN HAND THE TPO HAS MERELY RESORTED TO ADHOC APPROACH TO DETERMINE ALP, WHICH IN NO MANNER CAN BE SAID TO PASS THE REQUIREMENT OF RULE 10AB. FURTHER, THE DECISION OF TRIBUNAL IN ACIT VS. AGILITY LOGISTICS PVT. LTD. (SUPRA) ARE ALSO CASE OF 50:50 SPLIT AS IN THE CASE OF TOLL GLOBAL ( SUPRA). SIMILARLY IN CASE OF GULF ENERGY MARITIME SERVICES VS ITO (SUPRA) IS ALS O MISPLACED. THIS DECISION GOES IN FAVOUR OF ASSESSEE. IN THE GULF EN ERGYS CASE (SUPRA), THE DISPUTE WAS WHETHER THE ASSESSEE WAS JUSTIFIED IN B ENCH MARKING ITS INTERNATIONAL TRANSACTION USING CUP METHOD BASED ON RECEIVED FROM TWO INDEPENDENT PARTY. THE TRIBUNAL HELD THAT THOUGH TH E CUP METHOD USED BY ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 16 THE ASSESSEE STRICTLY DOES NOT ALLOW THE USE OF QUE STION BY THE INDEPENDENT PARTIES, HOWEVER, RULE 10AB DOES ALLOW THAT. AND TH E TRIBUNAL UPHELD THE ASSESSEES BENCH MARKING APPROACH. ON THE RELIANCE OF EMERSIONS CLIMATE TECHNOLOGIES (INDIA) LTD. VS ACIT (SUPRA), THE LD. AR SUBMITS THAT TRIBUNAL APPROVED THE TAXPAYER ALLOCATION OF ACTUAL COST BASED ON ACTUAL MAN HOURS. THE LD. DR COMPLETELY MISSED THE POINT T HAT IN THE PRESENT CASES IN HAND (ASSESSEES CASE), THE TPOS DETERMINATION OF ALP IS NOT BASED ON ACTUAL. BOTH THE MAN HOURS AND RATE PER HOURS IS ME RE ESTIMATION BY THE TPO, WHICH IS ALREADY HELD TO BE ADHOC IN NATURE BY TRIBUNAL IN A.Y. 2012- 13. 20. THE LD. DR FILED ITS FURTHER WRITTEN SUBMISSION ON 28.07.2020, THROUGH E- MAIL AND CONTROVERTED THE CONTENTION OF LD. AR OF T HE ASSESSEE (COPY OF WHICH WAS FORWARDED BY LD. DR FOR THE REVENUE TO TH E LD. AR FOR ASSESSEE THROUGH HIS E-MAIL). THE DR SUBMITS THAT TPOS DETE RMINATION OF MAN HOURS OF SERVICES RENDERED BY THE AE TO THE ASSESSEE AT 1 0000 HOURS IS BASED ON EVIDENCE ON RECORD AND THE TPO AFTER FOLLOWING ONE OF THE PRESCRIBED METHODS SUGGESTED THE ADJUSTMENT UNDER SECTION 92C, WHICH NEEDS TO BE UPHELD. ON THE CONTENTION OF LD. AR OF THE ASSESSEE THAT TPO WAS AWARE OF THE EXISTENCE OF OTHER/SIXTH METHOD, AS HE HAS ACCE PTED OTHER METHOD FOR CERTAIN TRANSACTION. THE LD. DR HAS SUBMITTED THAT ALTHOUGH SECTION 92C PREVIOUSLY MENTIONS SIXTH METHOD, BEING (F) SUCH O THER METHOD AS MAY BE PRESCRIBED BY THE BOARD, THE BOARD HAS NOT PRESCRI BED SUCH OTHER METHOD, ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 17 THUS MAKING IT APPLICABLE TILL A.Y. 2012-13. THE SI XTH METHOD CAME TO LIFE WITH THE CBDT NOTIFICATION BY WAY OF INTRODUCTION O F RULE 10AB W.E.F. A.Y. 2013-14, BRINGING IT ON SAME FOOTING AS OTHER FIVE METHODS. THE OTHER METHOD IS ONLY VARIANT OF CUP METHOD AS HAS BEEN HE LD BY DELHI TRIBUNAL IN TOLL GLOBAL FORWARDING INDIA PVT LTD (SUPRA). TH E LD DR FOR THE REVENUE ALSO MENTIONED THAT ON THE BASIS OF DECISIONS OF TR IBUNAL, OTHER METHOD UNDER RULE 10AB, IS ONLY VARIANT OF CUP METHOD AND BOTH CUP AND OTHER METHOD BEING DIRECT METHOD HAVE INHERENT ED GE OVER OTHER INDIRECT METHOD, VIZ; TNMM. AS FAR AS POSSIBLE DIRECT METHO D SHOULD BE APPLIED AS COMPARED TO INDIRECT METHOD. IT WAS ALSO MENTIONED THAT UNDER RULE 10 AB, FOR THE PURPOSE OF OTHER METHOD THE RIGOUR OF RUL E 10B(1)(A) HAS BEEN RELAXED TO THE EXTENT THAT NOT ONLY ACTUAL PRICE OF TRANSACTION UNDER CUP, BUT ALSO HYPOTHETICAL PRICE WHICH HAS BEEN CHARGED UNDE R COMPARABLE UNCONTROLLED CONDITIONS CAN BE TAKEN INTO ACCOUNT F OR COMPUTING ALP. IT WAS FURTHER SUBMITTED THAT IF THE ABOVE PRINCIPLES TO THE FACTS OF PRESENT CASE IS APPLIED, IT IS CLEAR THAT THE TPO WAS AWARE OF B OTH CUP AND THE OTHER METHOD WHILE DETERMINING ALP OF THE TRANSACTION. T HE TPO COMPUTER ALP BASED ON MAN HOURS OF SERVICES RENDERED BY AE TO TH E ASSESSEE, WHICH IS BASED ON THE EVIDENCE ON RECORD. SO FAR AS AY 2012- 13 IS CONSIDERED, SIXTH METHOD WAS NOT OPERATIONAL; THE LAW IS CHANGED FRO M THE A-Y 2013-14 ONWARDS. THE LEARNED DR FOR THE REVENUE ALSO REFERR ED THE DECISION OF DELHI HIGH COURT IN SPRINGER (INDIA) PRIVATE LIMITED VS A CIT IN IT NO. ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 18 1148/2017 DATED 15 NOVEMBER 2017 AND SUBMITTED THAT THE HONBLE COURT EXAMINED THE QUESTION OF LAW WITH RESPECT TO APPLIC ABILITY OF THE OTHER METHOD FOR BENCHMARKING INTERNATIONAL TRANSACTION UNDER SECTION 92C FOR WHICH THE ASSESSEE CLAIMED APPLICABILITY OF RULE10A B. IN THE SAID CASE THE HONBLE COURT HELD THAT ON THE GIVEN FACTS AND CIRC UMSTANCES THAT OTHER METHOD WAS INTRODUCED FOR THE FIRST TIME, AND ALSO GIVEN THE FACT THAT THERE DOES NOT APPEAR TO BE MUCH JUDICIAL THINKING ON THE APPLICATION OF THE OTHER METHOD AS APPROPRIATE METHOD AND ALL THE CONSIDERA TION SHOULD WEIGH TO THE TAX ADMINISTRATION IN THIS REGARD VIZ-A-VIZ REVENUE AND COST ALLOCATION. THE HIGH COURT WAS OF THE OPINION THAT TRIBUNAL SHOULD HAVE PROCEEDED WITH THE MATTER OF FACT IN THE STATE OF HAVING REMANDED THE MATTER TOTALLY TO THE TPO. THE LEARNED DR FOR THE REVENUE ACCORDINGLY SUBMITTE D THAT, CONSIDERING THE CHANGES LAW, THERE IS NO MERIT IN THE CLAIM OF ASSE SSEE THAT TPO HAS CONSCIOUSLY CHOSEN TO ADOPT CUP METHOD DURING THE Y EAR UNDER CONSIDERATION WITH RESPECT TO THE IMPUGNED TRANSACT ION. 21. THE LEARNED DR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT CONTRADICTED THE FINDING OF TPO, WHICH ACCORDING TO IT IS ON ESTIMAT ION BASIS. THE ASSESSEE HAS NOT BROUGHT ON RECORD THE FACTUAL INACCURACY IN TPOS BEST JUDGMENT AND WHAT ACCORDING TO IT IS CORRECT MAN HOURS IS RE SPECT OF VARIOUS SERVICES CLAIM TO HAVE AVAILED BY IT AND AVERAGE SALARY OF THE EMPLOYEE FOR THIS PURPOSE. IT IS FURTHER SUBMITTED THAT TRIBUNAL HAS NOT REJECTED OR DISCARDED THE FINDING OF TPO AND THE DRP IN EARLIER YEARS. THE AC CEPTANCE OF ENTITY ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 19 TNMM IS ADOPTED BY THE ASSESSEE HAS NOT BEEN APPROV ED ON MERIT BUT FOUND UNACCEPTABLE SINCE METHODOLOGY ADOPTED BY TPO WAS N OT AS PER THE PRESCRIBED METHOD IN THE TP PROVISION PARTICULARLY APPLYING CUP AS STATED BY TPO IN ITS ORDER FOR EARLIER YEARS. 22. THE LEARNED DR FOR THE REVENUE IN HIS WITHOUT PREJU DICE SUBMISSION SUBMITTED THAT IF THE TRIBUNAL FEELS THAT MORE ACCU RATE METHODOLOGY ON THE BASIS OF MAN-HOURS AND THE AVERAGE VALUE OF THE EMP LOYEE SHOULD BE COMPUTED BY THE TPO FOR THE PURPOSE OF APPLICATION OF OTHER METHODS, THE MATTER MAY BE SET ASIDE TO THE FILE OF TPO WITH THE DIRECTION TO THE ASSESSEE, TO MAKE AVAILABLE ALL NECESSARY DETAILS, FACTS AND THE FIGURE FOR THE PURPOSE OF COMPUTATION. IN SUPPORT OF HIS SUBMISSION THE LE ARNED DR FOR THE REVENUE RELIED UPON THE DECISION OF HONBLE APEX COURT IN P CIT MUMBAI VERSUS SG ASIA HOLDING INDIA PRIVATE LIMITED (ITA NO. 6144 OF 2019 DATED 13 AUGUST 2018 (TS-775-SC-2019 TP). 23. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES. WE HAVE ALSO GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. WE HAV E ALSO DELIBERATED ON VARIOUS CASE LAWS CITED BY BOTH THE PARTIES. FURTHE R, WE HAVE ALSO GONE THROUGH THE ORDER OF COORDINATE BENCH OF TRIBUNAL I N ASSESSEES OWN CASE FOR EARLIER YEARS. ON REPORTING INTERNATIONAL TRANSACTI ON MORE THAN THE SPECIFIED AMOUNT, THE ASSESSING OFFICER MADE REFERENCE TO THE TRANSFER PRICING OFFICER FOR COMPUTATION OF ARMS LENGTH PRICE. THE ASSESSEE SELECTED TNMM IS MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL T RANSACTION. THE ASSESSEE ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 20 CLAIMED THAT ON THE BASIS OF COMPARABLE COMPANIES MARGIN, THE ASSESSEES MARKUP CHARGE BY THE ASSESSEE WAS AT ARMS LENGTH. THE EXPLANATION FURNISHED BY ASSESSEE WAS NOT ACCEPTED BY TPO. THE TPO CONCLUDED THAT THE AE OF ASSESSEE IS NOT PROVIDING THE SERVICES TO UNRELATED THIRD PARTIES, THUS, IT IS ONLY A CAPTIVE SERVICE PROVIDER. SECOND LY, RESEARCH PROVIDED BY ASSESSEE DOES NOT SPECIFY WHETHER THE SEARCH HAS BE EN MADE FOR CAPTIVE SERVICE PROVIDER. THE TPO ALSO NOTED THAT AS THE AS SESSEE IS PROVIDING RISK FREE SERVICES WHEREAS THE COMPARABLES ARE DOING FOR PROFIT-MAKING. THUS, THE COMPARABLE SELECTED IN SUCH IS NOT CORRECT AND THE SAME WAS REJECTED RESULT IN TO THE BENCHMARKING OF THE ASSESSEE WAS A LSO REJECTED WITH REGARD TO THE COST BENEFIT ANALYSES AND THE FACT THAT ASSE SSEE HAS INCURRED LOSSES; THE BENCHMARKING APPROACH ADOPTED BY THE ASSESSEE WAS A LSO REJECTED. THE TPO AFTER EXAMINING THE OPERATING TURNOVER OF THE ASSES SEE DURING THE YEAR AND THE OTHER INCOME AND PROFIT BEFORE THE TAX, AFTER E XCLUDING OTHER INCOME, THE TPO CONCLUDED THAT THE ASSESSEE SUFFERED LOSSES. ON THE BASIS OF AFORESAID OBSERVATION THE TPO TOOK HIS VIEW THAT IT IS DIFFIC ULT TO COMPREHEND UNDER THE ARMS LENGTH SCENARIO, IF THIRD PARTY ENTITY WO ULD BE WILLING TO PAY A CHARGE OF MORE THAN 100% OF ITS PROFIT AS A SERVICE CHARGE. THE TPO AFTER EXAMINING VARIOUS SEGMENTAL ACTIVITIES SUCH AS INTE RNATIONAL SALES AND SALES SUPPORT, REASONS RESEARCH, MANAGEMENT, INFORMATION TECHNOLOGY, BROKEN MANAGEMENT, COMPLIANCE, LEGAL, COMMUNICATION, CLIEN T MANAGEMENT, EVENTS MARKETING, OPERATIONAL RISK MANAGEMENT, HUMAN RESOU RCES, INTERNAL AUDITS, ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 21 CRM, TAX, FINANCES, THE TPO CONCLUDED THAT DETAILED ANALYSES REPRESENTS THE ENTIRE EVIDENCE SUBMITTED BY ASSESSEE IN SUPPOR T OF RECEIPT OF SERVICE AND OBJECTIVE VALUATION OF THE SAME AND CONCLUDED THAT THE ASSESSEE HAS GIVEN DESCRIPTION OF THE VARIOUS SERVICES FOR WHICH THE PAYMENT IS STATED TO HAVE BEEN MADE AND THAT ACTUAL EVIDENCE OF RECEIPT OF SERVICE HAS NOT BEEN FURNISHED TO JUSTIFY THE HUGE COST ALLOCATION OR UN ABLE TO THE ALP DETERMINATION, SOME AUDITORS CERTIFICATE HAS BEEN F URNISHED BUT THE EVIDENCE, WHICH WERE PROVIDED TO THE AUDITOR BASED ON WHICH AUDITOR ARRIVED AT SUCH CONCLUSION WERE NOT FURNISHED. 24. THEREAFTER, THE TPO ON THE BASIS OF ORDER FOR AY 20 11-12 ESTIMATED ADJUSTMENTS BY TAKING VIEW THAT AS A MATTER OF ABUN DANT CAUTION HE IS PROCEEDING TO MAKE A REASONABLE ESTIMATE OF WHATEV ER LITTLE SERVICES THAT CAN BE SAID TO HAVE BEEN RENDERED IN THIS CASE. CON SIDERING THE NATURE OF SERVICES THE TPO ESTIMATED SALARY OF SUCH EMPLOYEES AT THE RATE OF RS. 4000/- PER HOUR, THE WORKING HOURS OF EMPLOYEES WER E ALSO ARRIVED AT 10,000 ON THE BASIS OF HIS ESTIMATION. THE TPO SUGG ESTED THE ADJUSTMENT OF RS. 156.26 CRORE. THE DRP AFFIRMED THE ACTION OF TP O BY FOLLOWING THE ORDER OF THEIR PREDECESSOR IN A.Y. 2011-12. NO INDE PENDENT FINDING WAS RECORDED BY DRP, THOUGH ITS ORDER/DIRECTION IS RUNN ING INTO 85 PAGES EXCEPT MAKING FOLLOWING OBSERVATION: 4.5.1 WE HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION MADE BY THE ASSESSEE. WE FIND THAT THE ISSUES AT HAND ARE SQUAR ELY COVERED AGAINST THE ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 22 ASSESSEE IN ITS OWN CASE FOR A.Y. 2011-12 BY THE DE CISION OF DRP-1 (WZ), MUMBAI HOLDING AS UNDER: 1.5----- 1.5.1---- ------- ------- -------THE TPO HAS BEEN MORE PAIR IN GRANTING THE D EDUCTION ON ESTIMATION BASIS ON THE EVIDENCE PRODUCED. THEREFOR E, THE ADJUSTMENT DONE BY TPO ON THIS GROUND IS UPHELD. 4.5.2 AS THE FACTS OBTAINING IN THIS YEAR ARE IN PARI MATERIA WITH THE FACTS IN A.Y. 2011-12, RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE GROUNDS OF OBJECTION 4 TO 7 ARE REJECTED. 25. THERE IS NO DISPUTE THAT TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2012-13, WHICH WAS FOLLOWED IN A.Y. 2011-12 HELD THAT THE AD -HOC DETERMINATION OF ARMS LENGTH PRICE BY TPO DE-HORS SECTION 92C(1) WOU LD NOT BE SUSTAINABLE. THE LD. AR OF THE ASSESSEE HAS STRONG LY RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT VS. JOHNSON & J OHNSON LTD. (SUPRA) WHEREIN THE HONBLE HIGH COURT UPHELD THE FINDING O F TRIBUNAL THAT AD-HOC DETERMINATION OF ALP CANNOT BE SUSTAINED. 26. THE LD. DR FOR THE REVENUE STRONGLY RELIED UPON THE LATEST DECISION OF HONBLE SUPREME COURT IN PCIT VS. S.G. ASIA HOLDING S (INDIA) PVT. LTD. (SUPRA). IN THE SAID CASE, THE TRIBUNAL NOTED THAT MANDATORY INSTRUCTION ISSUED BY CBDT FOR MAKING REFERENCE TO THE TPO WAS NOT FOLLOWED BY AO AND THE T.P. ADJUSTMENTS WERE HELD AS BAD-IN-LAW. B EFORE TRIBUNAL, THE REVENUE SOUGHT RESTORATION/SET-ASIDE THE CASE TO TH E FILE OF AO AS THAT AO HAS NOT FOLLOWED THE MANDATORY DIRECTION. THE REQUE ST OF REVENUE WAS NOT ACCEPTED BY THE TRIBUNAL. THE ORDER OF TRIBUNAL WAS UPHELD BY HONBLE ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 23 JURISDICTIONAL HIGH COURT. HOWEVER, ON APPEAL BEFOR E THE HONBLE APEX COURT BY REVENUE, IT WAS HELD THAT THE TRIBUNAL OUG HT TO HAVE ACCEPTED THE SUBMISSION OF REVENUE (LD. DR) AND THE MATTER OUGHT TO HAVE BEEN RESTORED TO THE FILE OF AO SO THAT APPROPRIATE REFERENCE COU LD BE MADE TO THE TPO. THUS, THE CONTENTION OF THE REVENUE FOR RESTORING T HE MATTER TO THE FILE OF AO WAS ULTIMATELY ALLOWED BY HONBLE APEX COURT. 27. AT THIS STAGE WE MAY ALSO REFER A LEADING CASE LAW IN KAPOORCHAND SHRIMAL VS CIT (1981) 7 TAXMAN 6 SC, WHEREIN THE HONBLE SU PREME COURT HELD THAT IT IS WELL KNOWN THAT AN APPELLATE AUTHORITY H AS THE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERRORS IN THE PROCEEDING S UNDER APPEAL AND TO ISSUE, IF NECESSARY, APPROPRIATE DIRECTIONS TO THE AUTHORI TY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED TO DISPOSE OF THE WHOLE OR ANY PART OF THE MATTER AFRESH UNLESS FORBIDDEN FROM DOING SO BY THE STATUT E. IT WAS FURTHER HELD THAT THE STATUTE DOES NOT SAY THAT SUCH A DIRECTION CANN OT BE ISSUED BY THE APPELLATE AUTHORITY IN A CASE OF THIS NATURE ( EMPHASIS ADDED BY US ). 28. WE ARE CONSCIOUS OF THE FACTS THAT NO TAX CAN BE L EVIED WITHOUT THE AUTHORITY OF LAW AS MANDATED BY ARTICLE 265 OF THE CONSTITUTI ON OF INDIA. SIMILARLY, THE EXCHEQUER SHOULD NOT BE DEPRIVED FROM ITS LEGIT IMATE TAX DUE. IN OUR VIEW, THE ASSESSEE WOULD NOT BE PREJUDICED IN SETTI NG-ASIDE PROCEEDING, IF THEY HAVE MERIT IN THEIR FAVOUR. CONSIDERING THE AF ORESAID FACTUAL AND LEGAL DISCUSSION AND THE FACTS THAT THE TPO HAS NOT FOLLO WED THE MANDATE OF SECTION 92C IN DETERMINING ALP, THEREFORE, WE DEEM IT APPROPRIATE TO ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 24 RESTORE THE ISSUE TO THE FILE OF AO/TPO FOR DETERMI NATION OF ALP OF INTERNATIONAL TRANSACTION BY THE METHOD PRESCRIBED UNDER SECTION 92C(1) READ WITH RULE 10AB AND 10B OF INCOME TAX RULES, 19 62. NEEDLESS TO ORDER THAT BEFORE PASSING THE ORDER, THE AO/TPO SHA LL PROVIDE DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSE E IS ALSO DIRECTED TO SUBSTANTIATE ITS CONTENTION BY EXPLAINING ALL THE F ACTS AND PROVIDE NECESSARY INFORMATION AND EVIDENCES TO THE AO/TPO. THE AO/TPO IS FURTHER DIRECTED TO PASS THE ORDER AS EARLY AS POSSIBLE AND WITHIN S IX MONTH OF RECEIPT OF THIS ORDER. IN THE RESULT, THE GROUNDS OF APPEAL RELATED WITH THE T.P. ADJUSTMENT IN ALL YEARS (AYS 2013-14, 2014-15 & 2015-16) ARE R ESTORED BACK TO THE FILE OF AO/TPO AND ARE TREATED AS ALLOWED FOR STATISTICA L PURPOSE. 29. NOW ADVERTING TO THE GROUNDS OF APPEAL IN A.Y. 2014 -15 RELATED WITH THE DISALLOWANCE OF MAT CREDIT ENTITLEMENT. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE CLAIMED A MAT CREDIT OF RS. 1.53 CRORE PERTAINING TO A.Y. 2013-14, WHICH THE LOWER AUTHORITIES HAVE DENIED ON ACCOUNT OF ADDITION MADE IN A.Y. 2013-13. THE LD. AR OF THE ASSESSEE PR AYED THAT APPROPRIATE DIRECTION MAY BE GIVEN TO ALLOW MAT CREDIT BASED ON THE PROVISION OF LAW IN ACCORDANCE WITH A.Y. 2013-14 PROCEEDINGS. 30. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMI TS THAT APPROPRIATE DIRECTION MAY BE GIVEN TO THE AO. 31. CONSIDERING THE SUBMISSION OF THE PARTIES, WE DIREC T THE AO TO ALLOW MAT CREDIT TO THE ASSESSEE ON THE BASIS OF ORDER FOR AY 2013-14 IN ACCORDANCE ITA NO. 6748/M/17, 7257 MUM 2018 & 7246/M/19-CLSA INDIA PRI VATE LTD. 25 WITH LAW. NEEDLESS TO ORDER THAT BEFORE PASSING THE ORDER, THE AO/TPO SHALL PROVIDE DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 32. GROUND NO.4 & 5 IN APPEAL FOR A.Y. 2015-16 RELATES TO CALCULATION OF TAX AND INTEREST. THE LD. AR SUBMITS THAT AO ERRED IN C OMPUTING ASSESSEES TAX AND INTEREST PAYABLE ADOPTING RS. 344,55,19,104/- A S ASSESSEES INCOME IN PLACE OF RS. 344,49,99,403/- AS MENTIONED IN THE AS SESSMENT ORDER. 33. CONSIDERING THE FACT THAT SUBSTANTIAL ADDITION, WHI CH WAS BASED ON THE ADJUSTMENT ON ACCOUNT OF T.P. ISSUE HAS BEEN RESTOR ED TO THE FILE OF AO/TPO, THE AO IS DIRECTED TO VERIFY THE FACT AND C ALCULATE THE TAX AND INTEREST IN ACCORDANCE WITH LAW. 34. IN THE RESULT, ALL APPEALS OF THE ASSESSEE ARE PART LY ALLOWED. ORDER PRONOUNCED ON 20/08/2020 AS PER RULE 34 OF IT(AT) RULES. SD/- SD/ - R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER JUDICIA L MEMBER MUMBAI, DATE: 20.08.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR K BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI