M/s Safran Engineering Services India Pvt. Ltd., Bangalore V. Asst.C.I.T., Bangalore

ITA 701/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7125 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G R REDDY
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; Business expenditure; International transaction; Rule of consistency; Additional evidence; Reasonable cause; Commercial expediency
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, B E NGAL U R U BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR , JUDICIAL MEMBER IT (TP) A NO. 701 / BANG/20 1 6 (ASSESSMENT YEAR: 2011 - 12 ) M/S.SAFRAN ENGINEERING SERVICES INDIA PVT.LTD. THE HUB, PROPERTY NO.8/2 & 9, AMBALIURA VILLAGE, VARTHUR HOBLI, BENGALURU EAST TALUK, SARJAPURA ROAD, BENGALURU - 5600 APPELLANT VS. ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 6(1)(1) BENGALURU. RESPONDENT A PPELLANT BY : SHRI K.R.VASUDEVAN, ADVOCATE. RESPONDENT BY : SHRI G.R.REDDY , CIT(DR). DATE OF HEARING : 13 /0 9 /2017 DATE OF PRONOUNCEMENT : 11 /1 2 /2017 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE THE FINAL ASSESSMENT ORDER DATED 28/01/2016 PASSED U/S 143(3) R.W.S. 144C(1) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] FOR THE ASSESSMENT YEAR 20 1 1 - 12 . 2. BRIEFLY, FACTS OF THE CASE ARE THAT THE RESPONDENT - ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT SERVICES . IT BELO NGS TO HIGH TECHNOLOGY GROUP WITH THREE CORE BUSINESSES: AEROSPACE, DEFENSE AND SECURITY. IT DEVELOPS, PRODUCES AND MARKETS ENGINES AND PROPULSION SYSTEMS FOR CIVIL AND MILITARY AIRPLANES AND HELICOPTERS, BALLISTIC MISSILES, LAUNCH VEHICLES AND SATELLITES . IT ALSO IT(TP)A NO . 701 /BANG/201 6 PAGE 2 OF 15 PROVIDES A WIDE RANGE OF SYSTEMS AND EQUIPMENT FOR CIVIL AND MILITARY AIRPLANES AND HELICOPTERS. RETURN OF INCOME FOR THE ASSESSMENT YEAR 20 1 1 - 1 2 WAS FILED ON 29/11/2011 DECLARING NIL INCOME. THE ASSESSEE - COMPANY ALSO REPORTED THE FOLLOWING I NTERNATIONAL TRANSACTIONS IN ITS 92CE REPORT: THE ASSESSEE - COMPANY ALSO SUBMITTED TRANSFER P RICING (TP) STUDY REPORT APPLYING TNMM AS THE MOST APPROPRIATE METHOD AND 12 COMPARABLES WERE SELECTED BY THE TAX - PAYER IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES SEGMENT WHERE PROFIT MARGIN WAS CALCULATED AT 13.71% . THE ASSESSING OFFICER (AO) SELECTED THE CASE FOR SCRUTINY AND REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR THE PURPOSE OF BENCH MARKING INT ERNATIONAL TRANSACTION. 3. THE TPO ACCEPTED THE TRANSFER PRICING STUDY REPORT SUBMITTED BY THE ASSESSEE COMPANY IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES SEGMENT, RECEIPT AND RE - IMBURSEMENT BY COMPARING THE NET MARGINS UNDER TNMM AND HELD THAT INTE RNATIONAL TRANSACTIONS RELATING TO SOFTWARE DEVELOPMENT SERVICE, RECEIPT AND REIMBURSEMENT ARE AT ARM'S LENGTH AND THEREFORE NO TRANSFER PRICING ADJUSTMENT WAS SUGGESTED BY THE TPO. HOWEVER, IN RESPECT OF MANAGEMENT FEE, TECHNICAL SUPPORT AND PROFESSIONAL FEES WHICH ARE CALLED AS INTRA - GROUP SERVICES , THE TPO APPLIED CUP METHOD. THE TPO REJECTED THE CONTENTION OF THE ASSESSEE - COMPANY THAT THESE TRANSACTIONS SHOULD BE AGGREGATED WITH SOFTWARE DEVELOPMENT FUNCTIONS AND TNMM SHOULD BE APPLIED. THE TPO SHOW CAUSED THE ASSESSEE COMPANY TO PRODUCE EVIDENCE IN SUPPORT OF RECEIPT OF INTRA - GROUP SERVICES, TECHNICAL FEE AND MANAGEMENT FEE IN THE FORM OF MANAGEMENT FEE OF RS.6,87,88,525/ - WAS PAID AND ALSO TO SHOW THE BENEFIT DERIVED OUT OF SUCH SERVICES. IN RESPO NSE TO SHOW CAUSE NOTICE, THE ASSESSEE - COMPANY SUBMITTED THE FOLLOWING DOCUMENTS IN SUPPORT OF ITS CLAIM: IT(TP)A NO . 701 /BANG/201 6 PAGE 3 OF 15 4. BASED ON THIS INFORMATION FILED BY THE ASSESSEE - COMPANY, THE TPO, AFTER REFERRING TO THE PROFITABILITY OF THE COMPANY FOR THE PRECEDING SEVEN YEARS, THERE WAS NO BENEFIT DERIVED OUT OF PAYMENT OF SUCH MANAGEMENT FEES TO THE GROUP CONCERNED AND THERE WAS NO PROOF OF RECEIPT OF SERVICES AND THEREFORE, HELD THAT ALP OF THE TRANSACTION OF MANAGEMENT, TECHNICAL FEE ETC., IS NIL. THE AO PASSED DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S. 144C OF THE ACT DATED 27/03/2015 INCORPORATING THE ABOVE TP ADJUSTMENT AND ALSO REDUC ING FREIGHT, TELE - COMMUNICATION AND INSURANCE ATTRIBUTABLE TO DELIVERY OF SOFTWARE, INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER FOR THE PURPOSE OF CALCULATING 10A BENEFIT. 5. AFTER RECEIPT OF THE DRAFT ASSESSMENT ORDER, THE ASSESSEE - COMPANY HA D CHOSEN TO FILE OBJECTIONS BEFORE THE HON BLE DISPUTE RESOLUTION PANEL [DRP] CONTENDING INTER ALIA THAT THE TPO WAS NOT JUSTIFIED IN MAKING ALP ADJUSTMENT ON PAYMENT OF MANAGEMENT, TECHNICAL, ETC., ADOPTING CUP METHOD. 6. THE HON BLE DRP CONFIRMED THE ALP ADJUSTMENT IN RESPECT OF MANAGEMENT SUPPORT FEE. IN RESPECT OF DEDUCTION U/S 10A THE HON BLE DRP, FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI (349 ITR 98) HELD THAT INSURANCE, TRAVELLING AND CO MMUNICATION EXPENDITURE INCURRED IN FOREIGN CURRENCY SHOULD BE REDUCED FROM BOTH EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING BENEFIT U/S 10A OF THE ACT. IT(TP)A NO . 701 /BANG/201 6 PAGE 4 OF 15 7. AFTER RECEIPT OF THE ABOVE DIRECTIONS, THE AO PASSED FINAL ASSESSME NT ORDER U/S 143(3) R.W.S. 144C(1) OF THE ACT ON 28 /01/201 6 INCORPORATING THE ABOVE ADJUSTMENTS. 8. BEING AGGRIEVED, THE ASSESSEE - COMPANY IS BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: IT(TP)A NO . 701 /BANG/201 6 PAGE 5 OF 15 IT(TP)A NO . 701 /BANG/201 6 PAGE 6 OF 15 9. BEFORE US, LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT FOR ASSESSMENT YEAR 2006 - 07 IN ITA NO.1261/BANG/2010 DATED 31/12/2014 IT(TP)A NO . 701 /BANG/201 6 PAGE 7 OF 15 AND FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO.1169/BANG/2011 DATED 25/1/2017, THE HON BLE TRIBUNAL HAS SET ASIDE THIS ISSUE TO THE FILE OF THE AO. THEREFORE, IT IS SUBMI TTED THAT THE ISSUE MAY BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 10. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE OF DETERMINING ALP ADJUSTMENT IN RESPECT OF MANAGEMENT FEE TO INTRA - GROUP SERVICES, HA D COME UP BEFORE THE CO - ORDINATE BENCH TO WHICH THE HON BLE ACCOUNTANT MEMBER IS THE AUTHOR, IN THE CASE OF M/S. 3M INDIA LTD. , IN IT(TP)A NO.725/BANG/2011 DATED 13/05/2016. NO ALP ADJUSTMENT CAN BE MADE IN RESPECT OF INTRA - GROUP SERVICES FOR THE REASON THAT NO BENEFIT WAS DERIVED BY THE ASSESSEE - COMPANY BY INCURRING SUCH EXPENDITURE AND ALSO THE TPO CANNOT QUESTION NECESSITY OF INC URRING SUCH EXPENDITURE. THIS TRIBUNAL HELD THAT IT IS INCUMBENT UPON THE ASSESSEE - COMPANY TO PROVE THAT SERVICES ARE ACTUALLY RECEIVED BY THE ASSESSEE - COMPANY AND FAILING TO DO SO MAY RESULT IN ALP ADJUSTMENT. THE MANDATORY CONDITION OR MAKING NO ALP AD JUSTMENT IS THAT THE ASSESSEE - COMPANY SHOULD PROVE BY LEADING NECESSARY EVIDENCE ON RECORD THAT SERVICES ARE ACTUALLY RECEIVED. FAILURE TO DO SO MAY ALSO RENDER THE VERY TRANSACTION AS A SHAM TRANSACTION AND THE REAL PURPOSE OF MAKING SUCH PAYMENT REQUIRE S TO BE PROVED. THE RELEVANT OBSERVATION MADE BY THE TRIBUNAL IN THE CASE OF M/S. 3M INDIA LTD. , (SUPRA) IS AS UNDER: S 8. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. A PERUSAL OF THE TPO S ORDER REVEALS THAT THE ALP IN RESPECT OF IN TRA - GROUP SERVICES WAS DETERMINED AT NIL AS, IN HIS PERSPECTIVE, NO BENEFITS WERE DERIVED BY THE ASSESSEE - COMPANY OUT OF SUCH SERVICES AND THERE WAS NO NEED OF SUCH SERVICES AND THERE WAS NO PROOF IN SUPPORT OF RENDITION OF SUCH SERVICES TO THE ASSESSEE - COMPANY. THE TPO HAS NEITHER CHALLENGED THE KEYS APPLIED FOR ALLOCATION OF COST BY AE NOR THE TPO HAS DISPUTED THE ACTUAL COST INCURRED BY THE AE. 9. NOW, WE SHALL ANALYZE EACH OF THE ABOVE REASONS ASSIGNED BY THE TPO FOR DETERMINING ALP AT N IL . THE LAW IS NOW QUITE WELL SETTLED THAT IT IS BEYOND THE SCOPE AND POWERS OF THE AO/TPO TO QUESTION THE NECESSITY OF INCURRING EXPENDITURE. THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD. (345 ITR 241), AFTER CONSIDERING THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. WALCHAND & CO. P.LTD. (65 ITR 381)(SC), SASSOON J.DAVID & CO. PVT. LTD. VS. CIT (118 ITR 261)(SC) HELD THAT THE TPO CANNOT DETERMINE ALP AT NIL BY HOLDING THAT THERE WAS NO NEED TO INCUR SUCH EXPENDITURE. WHILE COMING TO THIS CONCLUSION, THE HON BLE HIGH COURT HAS REFERRED TO THE JUDGMENT OF THE IT(TP)A NO . 701 /BANG/201 6 PAGE 8 OF 15 APEX COURT IN THE CASE OF EASTERN INVESTMENTS LTD. VS. CIT (20 ITR 1)(SC) AND CIT VS. RAJENDRA PRASAD MOODY (115 ITR 519)(SC). IT HAS BEEN HELD BY THE HON BLE HIGH COURT THAT : IT HAS BEEN HELD BY OUR COURTS THAT IT IS NOT FOR THE REVENUE AUTHORITIES TO DICTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINESS AND IT IS NOT FOR THEM TO TELL THE ASSESSEE AS TO WHAT EXPENDITURE THE ASSESSEE CAN INCUR. WE MAY R EFER TO A FEW OF THESE AUTHORITIES TO ELUCIDATE THE POINT. IN EASTERN INVESTMENT LTD. V. CIT , (1951) 20 ITR 1, IT WAS HELD BY THE SUPREME COURT THAT 'THERE ARE USUALLY MANY WAYS IN WHICH A GIVEN THING CAN BE BROUGHT ABOUT IN BUSINESS CIRCLES BUT IT IS NOT FOR THE COURT TO DECIDE WHICH OF THEM SHOULD HAVE BEEN EMPLOYED WHEN THE COURT IS DECIDING A QUESTION UNDER SECTION 12(2) OF THE INCOME TAX ACT'. IT WAS FURTHER HELD IN THIS CASE THAT 'IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNED'. IN CIT V. WALCHAND & CO . ETC., (1967) 65 ITR 381, IT WAS HELD BY THE SUPREME COURT THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF TH E BUSINESSMAN AND NOT OF THE REVENUE. IT WAS FURTHER OBSERVED THAT THE RULE THAT EXPENDITURE CAN ONLY BE JUSTIFIED IF THERE IS CORRESPONDING INCREASE IN THE PROFITS WAS ERRONEOUS. IT HAS BEEN CLASSICALLY OBSERVED BY LORD THANKERTON IN HUGHES V. BANK OF NEW ZEALAND, (1938) 6 ITR 636 THAT 'EXPENDITURE IN THE COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONE THE LESS A PROPER DEDUCTION IF WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSES OF TRADE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE CREDIT SIDE T O JUSTIFY THE DEDUCTION OF AN EXPENSE'. THE QUESTION WHETHER AN EXPENDITURE CAN BE ALLOWED AS A DEDUCTION ONLY IF IT HAS RESULTED IN ANY INCOME OR PROFITS CAME TO BE CONSIDERED BY THE SUPREME COURT AGAIN IN CIT V. RAJENDRA PRASAD MOODY , (1978) 115 ITR 519, AND IT WAS OBSERVED AS UNDER: - 'WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTHERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE INTERPRETATION OF SECTION 57(III) CANNOT BE DIFFERENT. THE DEDUCTION OF THE EXPENDITURECANNOT, IN THE CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNING OF THE INCOME.' IT IS NOTEWORTHY THAT THE ABOVE OBSERVATIONS WERE MADE IN THE CONTEXT OF SECTION 57(III) OF THE ACT WHERE THE LANGUAGE IS SOMEWHAT NARROWER THAN THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT. THIS FACT IS RECOGNISED IN THE JUDGMENT ITSELF. THE FACT THAT THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT IS BROADER THAN SECTION 57(III) OF THE ACT MAKES THE POSITION STR ONGER. 20. IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD. V. CIT , (1979) 118 ITR 261 (SC), THE SUPREME COURT REFERRED TO THE LEGISLATIVE HISTORY AND IT(TP)A NO . 701 /BANG/201 6 PAGE 9 OF 15 NOTED THAT WHEN THE INCOME TAX BILL OF 1961 WAS INTROD UCED, SECTION 37(1) REQUIRED THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY, NECESSARILY AND EXCLUSIVELY' FOR THE PURPOSES OF BUSINESS IN ORDER TO MERIT DEDUCTION. PURSUANT TO PUBLIC PROTEST, THE W ORD 'NECESSARILY' WAS OMITTED FROM THE SECTION. 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITURE INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECES SARY FOR THE ASSESSEE TO SHOW THAT ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE OF BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B(1)(A) DOES NOT A UTHORISE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUANTUM OF EXPE NDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A PART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THERE IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/ BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS W HICH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR AUTHORISED. ...... THE RATIO OF THE ABOVE DECISION WAS FOLLOWED BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN SEVERAL CASES. SOME OF THEM ARE: I. DRESSER - RAND INDIA PVT. LTD. V. ACIT [2012] 13 ITR (TRI B.) 422 (MUM) II. ERICSSON INDIA (P) LTD. V. DCIT [2012] 146 TTJ 708 (DEL) IT(TP)A NO . 701 /BANG/201 6 PAGE 10 OF 15 III. AWB INDIA PVT. LTD. V. ACIT: ITA NO.4454/DEL/2011 (DEL - ITAT); AY 2007 - 08 IV. SC ENVIRO AGRO INDIA LTD. V. DCIT [ITA NO.2057 - 2058/MUM/2009] V. ABHISHEK AUTO INDUSTRIES LTD. V. DCIT: ITA NO.1433/DEL/2009 AY 2004 - 05 VI. MCCANN ERICKSON INDIA PVT. LTD. V. ACIT: ITA NO.5871/DEL/2011 AY 2007 - 08 VII. DSM ANTI - INFECTIVES INDIA LTD. V. ACIT: ITA NOS. 1139/CHD/2011 AND 1290/CHD/2012 AY 2007 - 08; 2008 - 09 VIII. TNS INDIA PVT. LTD. V. ACIT: (2014) 32 ITR (TRIB.) 44 (HYD.) AY 2003 - 04; 2004 - 05; 2005 - 06 IX. ATOTECH INDIA LTD. V. ACIT: ITA NO.104/DEL/2012 AY 2007 - 08 X. NIPPON LEAKLESS TALBROS V. ACIT: I.T.A. NO. 5931/DEL/2012 AY 2008 - 09 XI. NIPPON LEAKLESS TALBROS V. ACIT: IT(TP)A NO. 475/DEL/2015 AY 2010 - 11 XII. HUGHES SYSTIQUE INDIA P. LTD. V. ACIT: [2013] 25 ITR (TRIB) 556 (DELHI) - AY 2007 - 08, 2008 - 09 XIII. KNORR - BREMSE INDIA (P.) LTD. V. ACIT: [2013] 56 SOT 349 (DELHI) - AY 2007 - 08 XIV. THYSSEN KRUPP INDUSTRIES INDIA (P.) LTD. V. ACIT: [2013] 55 SOT 497 (MUMBAI) - AY 2007 - 08 XV. LG POLYMERS INDIA P. LTD. V. ACIT: [2012] 16 ITR (TRIB) 240 AY 2006 - 07 THUS, IN THE LIGHT OF ABOVE LEGAL POSITION, THOUGH ALP OF SERVICES BY AE CANNOT BE DETERMINED AT NIL BY QUESTIONING THE NECESSITY, THE BENEFITS OF EXPENDITURE INCURRED, SUCH EXPENDITURE CAN BE ALLOWED ONLY AFTER PROVING CONCLUSIVELY THAT THERE WAS ACTUAL RENDITION OF SERVICES BY AE. THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE SERVICES ARE ACTUA LLY RENDERED BY THE AE. IN THIS CONTEXT, WE MAY POINT OUT TO THE DECISION IN THE CASE OF HON BLE SUPREME COURT IN THE CASE OF LAXMI NARAYAN MADANLAL VS. CIT (86 ITR 439) WHEREIN IT WAS HELD AS FOLLOWS:......... IT(TP)A NO . 701 /BANG/201 6 PAGE 11 OF 15 THUS, FOR ALLOWABILITY OF THIS KIND OF EXPEND ITURE, CONDITION SINE QUA NON IS PROOF OF ACTUAL SERVICES RENDERED. THE CO - ORDINATE BENCH OF THE TRIBUNAL, TO WHICH ONE OF US I.E. THE ACCOUNTANT MEMBER IS THE AUTHOR OF THE ORDER, IN THE CASE OF M/S.B FOURESS PVT. LTD. VS. DCIT IN ITA NOS.847 & 847/BANG /2014 DATED 30/12/2015 HELD AS FOLLOWS: ............THUS, THE ASSESSEE FAILED TO DISCHARGE THE BURDEN OF PROVING THAT THE EXPENDITURE LAID OUT WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE MAY FURTHER ADD THAT THE HON BLE SUPREME COU RT IN THE CASE OF CIT VS IMPERIAL CHEMICAL INDUSTRIES (IND.) PVT. LTD (1969) 74 ITR 17 HAS UNEQUIVOCALLY HELD THAT THE BURDEN OF PROVING THAT A PARTICULAR EXPENDITURE HAD BEEN AID OUT OR INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ENTIRELY LIES ON THE ASSESSEE. THE DISCHARGE OF THE BURDEN HAD TO BE EFFECTIVE AND MEANINGFUL AND NOT TO COVER UP BY MERELY BOOK ENTRIES AND PAPER WORK. THE MERE FACT OF PAYMENT OF COMMISSION BY ACCOUNT PAYEE CHEQUES AND COMPLIANCES WITH THE TDS PROVISIONS SHALL NOT ALONE ENABLE THE ASSESSEE TO CLAIM DEDUCTION UNLESS AND AMOUNT HAS BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 11. A CO - ORDINATE BENCH TRIBUNAL OF DELHI IN THE CASE OF KANU KITCHEN KULTURE (P)LTD VS DCIT (2013) 28 ITR (T) 49 (D EL. - TRIB.) HELD THAT WHETHER THE ASSESSEE FAILED TO DEMONSTRATE THE SERVICES RENDERED BY THE COMMISSION AGENT, THE COMMISSION WAS DISALLOWED. THE RELEVANT PARAS OF THE JUDGMENT ARE REPRODUCED BELOW; 22. THUS THE ASSESSEE AS UTTERLY FAILED TO DEMONSTRA TE THE NATURE AND EXTENT OF SERVICE RENDERED BY THE AGENT AND AVAILED OF BY THE ASSESSEE FOR ITS BUSINESS OF MODULAR KITCHEN. IN THIS SCENARIO WHAT APPEARS ON RECORD IS MERELY BOOK ENTRIES COUPLED WITH TDS THE AMOUNT WHICH WILL BE CLAIMED AS A REFUND BY T HE RECIPIENT BEING A LOSS MAKING CONCERN. IN OUR CONSIDERED VIEW THE ASSESSEE HAS PRODUCED ONLY SKELETAL PAPER WORK OF THE ARRANGEMENT WITHOUT ANY IOTA OF EVIDENCE ABOUT ACTUAL BUSINESS SERVICES RENDERED. 23. THE ASSESSEE S CLAIM FOR ALLOWING SIMILAR COMM ISSION PAYMENT IN SUBSEQUENT YEAR CARIES NO MERIT INASMUCH AS THE LEARNED DR HAS RIGHTLY PLEADED THAT EACH AND EVERY YEAR OF ASSESSMENT IS SEPARATE AND INDEPENDENT UNIT AND PRINCIPLES OF RESJUDICATA DO NOT APPLY. THE ASSESSMENT FOR THE ASSESSMENT YEAR 200 9 - 10 IS UNDER SECTION 143(1) AND FOR THE ASSESSMENT YEAR 2010 - 11 THERE IS NO MENTION OF THE COMMISSION AT ALL. THEREFORE, WE ARE UNABLE TO GIVE EVIDENCED TO THE FACTS WHOSE RECORD IS NOT BEFORE US AND NOT REFERRED TO BEFORE THE LOWER AUTHORITIES . 12. SIMILARLY, THE HON BLE DELHI HIGH COURT IN THE CASE OF SCHNEIDER ELECTRIC (IND.) LTD VS CIT (21008) 304 ITR 360 (DEL.) HELD THAT IN THE ABSENCE OF MATERIAL ON RECORD SUGGESTING THAT THE COMMISSION AGENTS HAD PROCURED THE SALE ORDERS, NO COMMISSION SHOUL D BE ALLOWED. THE RELEVANT PARA OF THE JUDGMENT IS REPRODUCED BELOW; IT(TP)A NO . 701 /BANG/201 6 PAGE 12 OF 15 13. WE AGREE WITH THE TRIBUNAL THAT THERE IS ABSOLUTELY NO MATERIAL ON RECORD TO SUGGEST THAT M/S RAM AGENCIES HAD PROCURED ANY SALE ORDERS FOR THE ASSESSEE. THE PRODUCTION OF A FEW B ILLS OR PAYMENT HAVING BEEN MADE BY ACCOUNT PAYEE CHEQUES CANNOT BY ITSELF SHOW THAT M/S RAM AGENCIES HAD PROCURED SALE ORDERS FOR THE ASSESSEE. APART FROM AN INTERNAL NOTE, THERE IS NO EVIDENCE OF ANY CORRESPONDENCE OR ANY PERSONAL; MEETINGS ETC. BETWEEN THE ASSESSEE AND M/S RAM AGENCIES TO SUGGEST THAT THE WAS ANY RELATIONSHIP ON THE BASIS OF WHICH M/S RAM AGENCIES PROCURED SOME ORDERS FOR THE ASSESSEE FOR WHICH IT WAS ENTITLED TO RECEIVE COMMISSION. MOREOVER, WE FIND THAT THE UNDERSTANDING BETWEEN THE P ARTIES WAS AN ORAL UNDERSTANDING AND IT APPEARS TO BE DOUBTFUL THAT SUCH AN ORAL UNDERSTANDING CAN BE ARRIVED AT WITHOUT ANY LONG STANDING RELATIONSHIP HAVING BEEN ESTABLISHED BETWEEN THE ASSESSEE AND M/S RAM AGENCIES. IT SEEMS A BIT OUT OF PLACE THAT THE PARTIES ENTERED INTO AN ORAL BUSINESS RELATIONSHIP INVOLVING SUCH HUGE AMOUNTS OF MONEY OVER A PERIOD OF TIME . 13, THE CO - ORDINATE BENCH OF DELHI IN THE CASE OF PRINTER HOUSE PVT.LTD. VS DCIT (DEL.) AUTHORED BY ACCOUNTANT MEMBER, AFTER REFERRING TO TH E ABOVE PRECEDENCE ON THIS ISSUE HELD AS FOLLOWS: THUS, HAVING REGARD TO THE RATIO LAID DOWN IN THE ABOVE CASES THAT IN THE ABSENCE OF PROOF IN SUPPORT OF THE SERVICES RENDERED BY THE COMMISSION AGENT, NO COMMISSION CAN BE ALLOWED AS A DEDUCTION. THEREFORE, WE DISMISS THE APPEAL FILED BY THE ASSESSEE AND ALLOW THE APPEALS FILED BY THE REVENUE . 14. IN THE PRESENT CASE, THE LEARNED CIT(A) HAD NOT EXAMINED ANY EVIDENCE TO SHOW THAT THE AGENTS HAVE ACTUALLY RENDERED THEIR SERVICES. THE LEARNED CIT(A) HAD TOTALLY MISDIRECTED HIMSELF BY EXAMINING THE ISSUE FROM THE ANGLE OF TAX DEDUCTED AT SOURCE AND HE HAD FAILED TO EXAMINE WHETHER THE SERVICES ARE ACTUALLY RENDERED BY THE COMMISSION AGENTS OR NOT. THEREFORE, WE ARE UNABLE TO SUSTAIN THE ORDER OF THE LEARNED CIT(A) AND HOLD THAT THE COMMISSION PAYMENTS IN QUESTION ARE NOT ALLOWABLE KEEPING IN VIEW THE RATIO LAID DOWN IN THE CASES CITED SUPRA. THE ASSESSEE COMPANY HAD MISERABLY FAILED TO DEMONSTRATE THE ACTUAL SERVICES RENDERED BY THE AGENTS TO WHOM THE COMMISSION PAYMENTS WERE MADE, DESPITE AMPLE OP PORTUNITY GRANTED BY THIS TRIBUNAL TO FURNISH EVIDENCE IN SUPPORT OF SERVICE RENDERED BY COMMISSION AGENT. 10. IN LIGHT OF THE RATIO LAID DOWN IN THE CASES CITED SUPRA WE HOLD THAT THE CONDITION OF RENDITION OF SERVICES SHOULD BE SATISFIED BY THE AS SESSEE SO AS TO ALLOW THE SAME AS EXPENDITURE. IN THE PRESENT CASE, ASSESSEE - COMPANY HAD NOT PRODUCED ANY EVIDENCE IN SUPPORT OF RENDERING OF SERVICES BEFORE THE TPO. IT IS ONLY BEFORE US, BY WAY OF ADDITIONAL EVIDENCE, ASSESSEE - COMPANY HAS FILED SOME MAT ERIAL, IN SUPPORT OF THE ACTUAL SERVICES RENDERED BY THE AE. THE CIT(A) HAD NO OCCASION TO EXAMINE THIS EVIDENCE AS IT WAS CLAIMED THAT THIS EVIDENCE WAS FILED FOR THE FIRST TIME BEFORE US . THEREFORE, THE CIT(A), WITHOUT EXAMINING THE IT(TP)A NO . 701 /BANG/201 6 PAGE 13 OF 15 ASPECT OF ACTUAL R ENDITION OF SERVICES BY THE AE IN RESPECT OF IT SERVICES, HAD DIRECTED THE ALLOWANCE OF EXPENDITURE. THEREFORE, IN INTERESTS OF JUSTICE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR PURPOSES OF VERIFICATION OF THIS EVIDENCE AND COME TO CONCLUSION WHETH ER THE SERVICES ARE ACTUALLY RENDERED BY THE AE OR NOT AND DIRECT THE TPO/AO TO BENCH MARK THE TRANSACTION OF RENDERING OF SERVICES OF MARKET MANAGEMENT SUPPORT SERVICES, AFTER BEING SATISFIED HIMSELF THAT THE SERVICES ARE ACTUALLY RENDERED BY THE AE. 11. ON THE PRINCIPLE OF CONSISTENCY, WE HOLD THAT EACH ASSESSMENT YEAR IS SEPARATE AND DISTINCT. THE PRINCIPLES OF RES JUDICATA HAVE NO APPLICATION TO INCOME - TAX ASSESSMENT PROCEEDINGS. SIMPLY BECAUSE IN THE PRECEDING YEAR, THIS EXPENDITURE CAME TO BE ALL OWED WITHOUT ANY PROBE OR ENQUIRY IT DOES NOT PRECLUDE THE AO FROM MAKING THE ENQUIRIES ON THESE ISSUES. 11. NOW, IN THE PRESENT CASE, ASSESSEE - COMPANY HAD NOT DISCHARGED THE ONUS OF PROVING THE RECEIPT OF SERVICES BEFORE LOWER AUTHORITIES. DESPITE OPP ORTUNITIES GIVEN TO THE ASSESSEE - COMPANY, NO ATTEMPT WAS MADE BY THE ASSESSEE - COMPANY TO LEAD NECESSARY EVIDENCE IN SUPPORT OF RECEIPT OF ACTUAL SERVICES FROM THE AE. THE SUBMISSION OF THE ASSESSEE - COMPANY THAT AN OPPORTUNITY MAY BE GRANTED TO THE ASSESSE E - COMPANY TO DISCHARGE ONUS, CANNOT BE ACCEPTED BECAUSE IT IS SETTLED PRINCIPLE OF LAW THAT THE ASSESSEE - COMPANY CANNOT BE ACCEPTED, BECAUSE IT IS SETTLED PRINCIPLE OF LAW THAT THE ASSESSEE - COMPANY CANNOT BE GIVEN A SECOND INNINGS TO MAKE GOOD ITS CASE. RE LIANCE CAN BE PLACED ON THE FOLLOWING DECISION OF THE ITAT: I. ASST. CIT VS. ANIMA INVESTMENT LTD. (2000) 73 ITD 125(DELHI) ; II. ASST. CIT VS. ARUNODOI APARTMENTS (P) LTD. (2002) 123 TAXMAN 48(GAU.) THE COURTS HAVE HELD THAT APPEALS ARE NOT TO BE DECIDED FOR GIVING ONE MORE INNINGS TO THE LOWER AUTHORITIES IN THE APPELLATE JURISDICTION. I. RAJESH BABUBHAI DAMANIA VS. CIT (2001) (251 ITR 541)(GUJ. II. CIT VS. HARIKISHAN JETHALAL PATEL (1987) 168 ITR 472 (GUJ) REMAND NOT FOR THE BENEFIT OF THE PARTY SEEKING IT TO FILL UP GAPS. EVEN THE HON BLE JURISDICTION HIGH COURT IN THE CASE OF KARNATAKA WAKF BOARD VS. STATE OF KARNATAKA, REPORTED IN AIR 1996 KAR.55 AT PAGES 63 & 64 HELD AS UNDER: IT(TP)A NO . 701 /BANG/201 6 PAGE 14 OF 15 WHERE THE PARTY HAD AN OPPORTUNITY OF ADDUCING EVIDENCE IN THE CASE BUT WITH O PEN EYES FAILED TO ADDUCE THAT EVIDENCE, THE CASE SHOULD NOT BE REMANDED TO GIVE A SECOND CHANCE TO THE PARTY TO ADDUCE THAT EVIDENCE. THE POLICY OF THE LAW IS THAT ONCE THAT MATTER HAS BEEN FAIRLY TRIED BETWEEN THE PARTIES, IT SHOULD NOT, EXCEPT IN SPECI AL CIRCUMSTANCES, BE REOPENED AND RETRIEVED. IN A RECENT DECISION THEIR LORDSHIPS OF THE SUPREME COURT LAID DOWN THAT POWER TO ORDER RETRIAL AFTER REMAND, WHERE THERE HAD ALREADY BEEN A TRIAL ON EVIDENCE BEFORE THE COURT OF FIRST INSTANCE, CANNOT BE EXER CISED MERELY BECAUSE THE APPELLATE COURT IS OF THE VIEW THAT THE PARTIES WHO COULD LEAD BETTER EVIDENCE IN THE COURTS OF FIRST INSTANCE HAVE FAILED TO DO SO. THE HON BLE TRIBUNAL, DELHI BENCH IN THE CASE OF ZUARI LEASING & FINANCE CORPORATION LTD. VS. IT O (2008) 112 ITD 205(DELHI)(TM), FOLLOWING THE CASE - LAWS REFERRED TO ABOVE HELD THAT THE TRIBUNAL SHOULD NOT REMAND BACK TO THE FILE OF THE AO IN ORDER TO GIVE A SECOND INNINGS TO THE LITIGANT. THEREFORE, FOLLOWING THE PRINCIPLES ENUNCIATED IN THE ABOVE D ECISION, WE ARE UNABLE TO REMAND THE PRESENT ASSESSMENT ORDER TO THE FILE OF THE AO FOR DE NOVO EXAMINATION AS NO CASE WAS MADE OUT BY THE ASSESSEE - FIRM THAT IT WAS PREVENTED BY SUFFICIENT REASONABLE CAUSE FROM FILING NECESSARY EVIDENCE IN SUPPORT OF RECEI PT OF ACTUAL SERVICES FROM THE AE. SIMPLY BECAUSE IN EARLIER YEARS THE ISSUE WAS REMANDED BACK TO LOWER AUTHORITIES, REMAND CANNOT BE ORDERED IN THE PRESENT YEAR WITHOUT VALID REASON IN THE LIGHT OF THE DECISIONS CITED SUPRA. NEEDLESS TO MENTION THAT EAC H YEAR IS AN INDEPENDENT AND SEPARATE ASSESSMENT YEAR AND THE PRINCIPLE OF RES - JUDICATA IS NOT APPLICABLE. IT MAY BE MENTIONED HERE THAT IN THE EARLIER ASSESSMENT YEAR IN THE ASSESSEE S OWN CASE, THIS ISSUE WAS DECIDED AGAINST THE APPELLANT . HENCE, THE A PPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER , 201 7 SD/ - SD/ - ( LALIET KUMAR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : B EN GAL URU D A T E D : 11 /1 2 /2017 SRINIVASULU, SPS IT(TP)A NO . 701 /BANG/201 6 PAGE 15 OF 15 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL B ENG ALURU