PERI INDIA P.LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 7265/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88012 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 25-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-12-2012
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Commercial expediency; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.7265/MUM/2012 ASSESSMENT YEAR: - 2008-09 PERI INDIA PVT. LTD. 717, PALM SPRINGS, LINK ROAD, MALAD (W) MUMBAI 400 064. VS.` DEPUTY COMMISSIONER OF INCOME TAX, RANGE 8(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S 144C(13) OF THE INCOME TAX ACT., IN PURSUANT TO THE DIRECTIONS OF DRP DATED 2.08.2012 PAS SED U/S 144C(5) OF THE ACT., FOR THE A.Y. 2008-09. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. ASSESSING OFFICER/TRANSFER PRICING OFFICER (TPO) B ASED ON DIRECTIONS OF DRP: 1. ERRED IN MAKING ADDITION OF RS. 2,24,848/- ON A CCOUNT OF ALLOCATION OF EXPENSES FOR RECEIPT OF TECHNICAL SERVICES FROM ASSOCIATED ENTERPRISE (AE) BY COMPUTING ARMS LENGTH PRICE A T NIL; 2. ERRED IN MAKING ADDITION OF RS. 45,28,743/- ON A CCOUNT OF COMMISSION IN THE NATURE OF REIMBURSEMENT OF LEGAL AND ASSESSEE BY SHRI M.P. LOHIA AND SHRI ANKIT KOCHAR REVENUE BY SHRI N.K. CHAND DATE OF HEARING 25-11-2014 DATE OF PRONOUNCEMENT 14.01.2015 PERI INDIA PVT. LTD. 2 | P A G E PROFESSIONAL FEES FOR SECURING CONTRACT IN INDIA PA ID BY AE BY TREATING THE ARMS LENGTH PRICE AT NIL; 3. ERRED IN DISALLOWING DEPRECIATION OF RS. 3,62,44 1/- ON SOFTWARE BY ALLEGING THAT PAYMENT FOR USE OF COMPUTER SOFTWARE OF RS. 11,73,864/- IS NOT AT ARMS LENGTH. 4. MAKING ADDITION OF RS. 5,50,441/- ON ACCOUNT OF REIMBURSEMENT OF TRAVEL EXPENSES OF PERSONNEL OF AE. 2. GROUND NO. 1 IS REGARDING TRANSFER PRICING ADJUST MENT ON ACCOUNT OF ALLOCATION OF EXPENSES FOR RECEIPT OF TECHNICAL SERVICES FROM AE. 3 THE ASSESSEE IS A SUBSIDIARY OF PERI (GMBH) GERMA NY, THE ASSESSEE IS ENGAGED IN PROVIDING FORMWORK AND SCAFFOL DING MATERIAL TO COMPANIES ENGAGED IN THE CONSTRUCTION BUSINESS. THE ASSESSEE IMPORTS THE FORMWORK AND SCAFFOLDING MATERIAL FOR RESALE IN I NDIA. THE ASSESSEE HAS SHOWN PAYMENT OF RS. 2,24,848/-TOWARDS COST ALL OCATION TO AE. IN ITS TP STUDY REPORT, THE ASSESSEE STATED THAT THE COSTS ARE ALLOCATED TO THE ASSESSEE ON A TIME SPENT BASIS. THE ASSESSEE ALSO C LAIMED THAT PERI GERMANY ALLOCATES THESE EXPENSES TO ALL GROUP ENTIT IES ON THE BASIS OF TIME SPENT BY ITS EMPLOYEES ON EACH ENTITY. IN SUPP ORT OF ITS CLAIM, THE ASSESSEE PRODUCED COPIES OF INVOICES RAISED BY PERI G ERMANY TO OTHER GROUP COMPANIES FOR PROVIDING THE SAME SERVICES. TH EREFORE, THE ASSESSEE COMPARED THE INVOICES RAISED BY THE PERI G ERMANY TO OTHER GROUP COMPANIES WITH THE COST ALLOCATED TO THE ASSE SSEE. THE TPO ASKED THE ASSESSEE TO SHOW AS TO WHY THE ALP OF ALLOCATIO N OF EXPENSES SHOULD NOT BE CONSIDERED AS NIL AS THE ASSESSEE HAS NOT FUL FILLED THE REQUIREMENT FOR AVAILING SUCH SERVICES FROM THE AE VIZ. THE BAS IS AND DATA OF ALLOCATION OF EXPENSES AMONG OTHER AES WORLDWIDE, ACTUAL COST I NCURRED AND SHOWN BY THE AE IN ITS BOOKS OF ACCOUNTS, BENEFIT AND AVAI LING SUCH SERVICES FOR PERI INDIA PVT. LTD. 3 | P A G E THE BUSINESS OF THE ASSESSEE. IN RESPONSE THE ASSES SEE VIDE ITS LETTER DATED 21 ST AUGUST 2011 SUBMITTED THAT IN THE TP STUDY REPORT, THE AUDITOR HAS EXPLAINED THE MATTER IN DETAIL IN PARA 5.3 OF TH E TP STUDY WITH REFERENCE TO THE OECD GUIDELINES. IT WAS FURTHER SUB MITTED THAT THE ASSESSEE COMPANY HAS UNDERTAKEN TO PROVIDE SITE SU PPORT SERVICES TO ITS CUSTOMER AT THE TIME OF SALE AND THE SAID SERVICE S PROVIDED AT THE SITE OF CUSTOMERS ARE VERY TECHNICAL IN NATURE WHICH REQUIR ES DEPTH KNOWLEDGE AND EXPERIENCE WHICH THE ASSESSEE COMPANY BEING AT I TS INITIAL STAGE DOES NOT HAVE AND AS SUCH USED THE SERVICES OF EXPER IENCED PERSONNEL OF ITS AE. THE TPO DID NOT ACCEPT THE CONTENTION AND EXPL ANATION OF THE ASSESSEE AND HELD THAT THE ASSESSEE HAS NOT FURNIS HED ANY AGREEMENT TO PROVE THAT THE SERVICES WERE REQUESTED BY THE ASSES SEE AND WERE ACTUALLY AVAILED BY THE ASSESSEE. EVEN THE COST TO AE AND BAS IS OF ALLOCATION WAS ALSO NOT PROVIDED BY THE ASSESSEE TO THE SATISFACTIO N. ACCORDINGLY, THE TPO HELD THAT THE ALP OF THE TRANSACTION HAS TO BE DE TERMINED AT RS. NIL. CONSEQUENTLY, THE TPO PROPOSED THE ADJUSTMENT OF ENT IRE EXPENDITURE OF RS. 2,24,848/-. 4. THE ASSESSEE CHALLENGED THE ACTION OF TPO/AO BEF ORE THE DRP BY FILING THE OBJECTIONS AGAINST THE DRAFT ASSESSM ENT ORDER AND CONTENDED THAT THE TPO FAILED TO TAKE INTO CONSIDERATION THE B ENEFIT RECEIVED BY THE ASSESSEE. THE ASSESSEE HAS PRODUCED THE EVIDENCE IN T HE FORM OF INVOICES AS WELL AS THE INVOICES IN RESPECT OF THE OTHER CO MPANIES REGARDING THE SAME SERVICES TO PROVE AND ESTABLISH THE BASIS OF AL LOCATION OF COST BEING TIME SPENT. THE SERVICES RECEIVED BY THE ASSESSEE IS TECHNICAL IN NATURE AND SINCE THE ASSESSEE WAS NEW IN THE BUSINESS AND W AS NOT HAVING THE PERI INDIA PVT. LTD. 4 | P A G E REQUISITE EXPERTISE IN THE FILED OF THIS TECHNICAL SERVICE, THEREFORE, THE ASSESSEE AVAILED THE SERVICES OF TECHNICAL EXPERTS O F ITS AE. THE DRP DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIR MED THE ADJUSTMENT PROPOSED IN THE DRAFT ORDER ON THIS ACCOUNT ON SIMILA R REASONING AS OF THE ASSESSING OFFICER/TPO. 5. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAS SUBMITTED THAT THE ASSESSEE WAS INCORPORATED ON 28 TH DECEMBER 2006 AND THIS WAS THE FIST FULL YEAR BUSINESS OF THE ASSE SSEE. THE ASSESSEE IS PROVIDING FORMWORK AND SCAFFOLDING SYTEM TO ITS CLIEN TS ENGAGED IN THE BUSINESS OF CONSTRUCTION. THE SAID SERVICES PROVIDED BY THE ASSESSEE TO ITS CLIENTS NEED ASSISTANCE AT THE SITE OF THE CLIEN TS INCLUDING THE DESIGN/DRAWINGS OF VARIOUS CONSTRUCTION ACTIVITIES. THE LD. AUTHORIZED REPRESENTATIVE HAS REFERRED THE INVOICES RAISED BY TH E AE PERI (GMBH) GERMANY FOR RENDERING TECHNICAL SERVICES FOR RCS TAB LE LIFT. HE HAS ALSO REFERRED THE DESIGN PROVIDED BY ITS AE FOR SPECIFIC T ECHNICAL WORK OF RCS LIFT TO THE LARSEN & TOUBRO LTD. (L&T). THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE DESIGN PROVIDED B Y THE AE IS HIGHLY TECHNICAL WORK AND IT GOES TO PROVE THAT THE AE HAS RENDERED THE SERVICES TO THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT THESE TECHNICAL SERVICES ARE VERY ESSENTIAL FOR EXECUTION OF THE WO RK AT THE SITE, THEREFORE, WITHOUT THESE TECHNICAL SERVICES, THE ASSESSEES SE RVICES TO ITS CLIENTS IS NOT POSSIBLE. IT IS THE PART AND PARCEL AND ALSO INE VITABLE SERVICE IN PROVIDING THE FORMWORK AND SCAFFOLDING SYSTEM TO THE CLIENTS ENGAGED IN THE BUSINESS OF CONSTRUCTION. HE HAS REFERRED THE BA SIS OF COST ALLOCATED FOR THESE SERVICES AS TIME HOUR BASIS AND AT THE RAT E OF 42 EURO PER HOUR. PERI INDIA PVT. LTD. 5 | P A G E THE LD. AUTHORIZED REPRESENTATIVE HAS REFERRED THE S IMILAR SERVICES AVAILED BY THE PERI FORMWORK MALAYSIA AND IN TURN PRO VIDED TO THE LTC TECHNICAL WORKS MALAYSIA. THUS THE LD. AUTHORIZED RE PRESENTATIVE HAS SUBMITTED THAT WHEN THE ASSESSEE WAS IN ITS INITIAL STAGE OF BUSINESS AND REQUIRED TECHNICAL GUIDANCE THE SERVICES WERE RENDER ED BY ITS AES ENGINEER MR. BERND SEIBOLD WHO IS AN EXPERIENCED DESIG N ENGINEER IN INTERNATIONAL FORMWORK. THE AE CHARGED THE ASSESSEE ON THE BASIS OF HOUR SPENT BY THE ENGINEER ON THE PROJECT. THE ASSE SSEE PRODUCED ALL THE RELEVANT DOCUMENTS/MATERIAL TO SHOW THE VISITS OF E NGINEER OF THE AE AND THE SERVICES PROVIDED AT THE SITE OF THE CLIENTS AS WELL AS INVOICES RAISED BY THE A.E. THE TPO HAS DETERMINED THE ALP OF THE SER VICES AT NIL BY DISREGARDING THE EVIDENCE PRODUCED BY THE ASSESSEE OF ACTUAL SERVICES RENDERED BY THE AE. 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT TH E FIRST PRINCIPLE OF COST SHARE IS THE BENEFIT DERIVED BY THE ENTITY S HARING THE COST FROM THE ORIGINATING ENTITY WHICH REQUIRED AND JUSTIFIED SU CH PAYMENT ENTITY. THE COST SHARING SHOULD BE INTERNALLY AND EXTERNALLY COST OF THE ORIGINATING ENTITY AND, THEREFORE, IT SHOULD BE THE ACTUAL COST. AS PER THE BENEFIT TEST THE ASSESSEE WAS REQUIRED TO ESTABLISH THE BENEFIT OBTAINED FROM SERVICES OF THE AE. HE HAS FURTHER SUBMITTED TH AT UNDER THE COST SHARING AGREEMENT THE ASSESSEE HAS TO PASS THE EVIDE NCE TEST BY PRODUCING THE DOCUMENTS OF ACTUAL COST , SERVICES RE NDERED AND THE NEED OF THE ASSESSEE. THE ASSESSEE HAS NOT GIVEN THE EVI DENCE OF ACTUAL COST WHICH WAS ALLOCATED BY THE AE AND CHARGED TO THE ASSE SSEE BUT THE ASSESSEE HAS GIVEN AS GENERAL DESCRIPTION WITHOUT TH E REQUISITE EVIDENCE PERI INDIA PVT. LTD. 6 | P A G E DESPITE THE TPO SPECIFICALLY ASKED THE ASSESSEE TO PR ODUCE THE EVIDENCE. THEREFORE, THE ASSESSEE FAILED TO SATISFY THE VARIO US TEST UNDER THE COST SHARING ARRANGEMENT. IN SUPPORT OF HIS CONTENTION H E HAS RELIED UPON THE COMMENTARY OF CA PANKIL SANGHVI, ON THE SUBJECT OF COST SHARING ARRANGEMENT. HE HAS SUPPORTED THE ORDERS OF AUTHORIT IES BELOW AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO DISCHARGE I TS ONUS OF PROVING THE NEED OF THE ASSESSEE IN AVAILING THE ALLEGED SER VICES FROM THE AE, THE BENEFIT DERIVED BY THE ASSESSEE OUT OF THE SAID ACTIV ITY AND THE BASIS OF COST SHARE AND THE ACTUAL COST INCURRED BY THE AE. IN REJOINDER, THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS PRODUCED ALL THE RELE VANT RECORD AND EVIDENCE TO SHOW THE NEED OF THE ASSESSEE, THE BENEF IT OF THE ASSESSEE AS WELL AS THE ACTUAL SERVICES RENDERED BY THE ENGINEER OF THE AE WHICH WAS INEVITABLE FOR THE BUSINESS ACTIVITY OF THE ASSESSE E. THE ALLOCATION OF THE COST IS BASED ON THE TIME SPENT BY THE ENGINEERS AT THE RATE OF 42 EURO PER HOUR. THE ACTUAL TIME SPENT BY THE ENGINEER HAS BEEN DULY RECORD IN THE INVOICES WHICH ALSO SUPPORT THE SERVICES RENDER ED AT THE SITE OF THE CLIENTS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEV ANT MATERIAL ON RECORD. IT IS RELEVANT TO TAKE INTO CONSIDERATION, FOR ADJUDICATION OF THE ISSUE, THAT THE ASSESSEE WAS INCORPORATED ON 28 TH DEC. 2006 AND THIS WAS THE FIRST FULL YEAR OF BUSINESS ACTIVITY OF THE AS SESSEE, THEREFORE, THE ASSESSEE WAS AT ITS INITIAL STAGE OF ITS BUSINESS OF PROVIDING FORMWORK AND SCAFFOLDING SYSTEM TO THE COMPANIES ENGAGED IN THE CONSTRUCTION PERI INDIA PVT. LTD. 7 | P A G E BUSINESS. THE ASSESSEE IMPORTS THE FORMWORK AND SCAF FOLDING SYSTEM AND THEN PROVIDING THE SERVICES TO ITS CLIENTS. THE SER VICE ACTIVITY OF THE ASSESSEE INVOLVES THE TECHNICAL WORK AS WELL AS THE TECHNICAL DESIGN IN SPECIFIC STRUCTURES AND CONSTRUCTION ACTIVITY. THE A SSESSEE HAS PRODUCED THE DRAWINGS REGARDING THE WORK OF RCF LIFT AT THE SI TE OF L&T LTD. IT IS NOT THE CASE OF REVENUE THAT THE SERVICES CLAIMED TO HAVE BEEN AVAILED BY THE ASSESSEE FROM ITS AE THROUGH THEIR EXPERIENCED A ND EXPERT DESIGN ENGINEERS, OTHERWISE AVAILABLE WITH THE ASSESSEE IN ITS OWN ORGANIZATION. WHEN THE ASSESSEE WAS NOT HAVING SUCH AN EXPERIENCE D DESIGN ENGINEER TO EXECUTE THE TECHNICAL SERVICES AT THE SITE OF TH E CLIENTS THEN THE SAID SERVICES WHICH IS INEVITABLE FOR PROVIDING SERVICES BY ASSESSEE TO ITS CLIENTS WAS IN ANY CASE HAS TO BE HIRED FROM OUTSIDE. FROM THE RECORD AND THE DESIGN PRODUCED BY THE ASSESSEE, WE FIND THAT TH E SERVICE OF PROVIDING FORMWORK AND SCAFFOLDING SYSTEM INVOLVES HIG HLY TECHNICAL ACTIVITY AS WELL AS DRAWINGS AND DESIGNS WITH PRECISE SKILLS FOR ACTUAL EXECUTION OF CONSTRUCTION WORK. 7.1 THE TPO HAS DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THE NEED AND ACTUAL A VAIL OF SERVICES FROM THE AE. IT IS PERTINENT TO NOTE THAT WHEN THE SERVI CES PROVIDED BY THE ASSESSEE TO ITS CLIENTS INVOLVES HIGHLY TECHNICAL SERVICES THEN THE NATURE OF BUSINESS ACTIVITY OF THE ASSESSEE ITSELF DEMONSTR ATES THE REQUIREMENT OF TECHNICAL DESIGN ENGINEER IN THE FIELD. AS THE AS SESSEE WAS NOT HAVING SUCH EXPERIENCED DESIGN ENGINEERS IN ITS OWN ORGANI ZATION THEN AVAILING THE SERVICES FOR PERFORMING THE BUSINESS ACTIVITY I S OTHERWISE PART AND PARCEL OF THE BUSINESS ACTIVITY OF THE ASSESSEE. TH US, THE MODE AND ACTUAL PERI INDIA PVT. LTD. 8 | P A G E SERVICE AVAILED BY THE ASSESSEE CANNOT BE DOUBTED KE EPING IN VIEW THE NATURE OF BUSINESS ACTIVITY AND THE PECULIAR FACT T HAT THE ASSESSEE IS AT ITS INITIAL STAGE OF PROVIDING SERVICES THAT TOO BY THE IMPORT OF THE SAID SYSTEM AND THEN TO PROVIDE TO THE CLIENTS. THEREFORE, WHEN THE ASSESSEE HAS PRODUCED THE RELEVANT RECORD INCLUDING THE NATURE OF WORK, THE DESIGN OF THE WORK TO BE CARRIED, THE TECHNICAL NATUR E OF THE SERVICES AND ASSESSEES INABILITY TO EXECUTE SUCH A SERVICE ON I TS OWN THEN DETERMINING THE ALP OF THE EXPENDITURE BY THE TPO AT NIL IS TOT ALLY CONTRARY TO THE FACTS AS WELL AS EVIDENCE PRODUCED BY THE ASSESSEE. T HE ASSESSEE HAS PRODUCED THE INVOICES RAISED BY THE AE FOR PROVIDING T HE SERVICES WHICH IS BASED ON THE TOTAL NUMBER OF HOURS SPENT BY THE E NGINEERS OF THE AE AT THE SITE OF THE CLIENTS OF THE ASSESSEE IN PROVIDIN G THE SERVICES. THE TPO/ASSESSING OFFICER HAS NOT DISPUTED THE PRESENCE OF THE ENGINEER IN INDIA FOR PROVIDING THE SERVICES, THE ASSESSEE EVEN PRODUCED THE RECORD WITH REGARD TO THE ACTUAL WORK EXECUTED AT THE SITE O F L&T LTD THEN NOT ACCEPTING THE CLAIM OF THE ASSESSEE DE HORS THE EVIDENCE, MATERIAL, RECORD AND FACTS OF THE CASE IS NOT JUSTIFIED. 7.2 THOUGH THE TPO/ASSESSING OFFICER HAS THE POWER AND JURISDICTION TO VERIFY THE PRICE PAID BY THE ASSESSEE AT ARMS L ENGTH, HOWEVER, INSTEAD OF EXAMINING WHETHER THE PRICE PAID BY THE ASSESSEE IS AT ARMS LENGTH, THE TPO PROCEEDED ON THE PREMISE THAT THE ASSESSEE W AS NOT IN NEED OF THE SERVICES AND THE SERVICES WAS NOT ACTUALLY AVAIL ED BY THE ASSESSEE. WHEN THE ASSESSEE HAS PRODUCED THE SUFFICIENT EVIDENC E THAT THE SAID SERVICES WAS AN INEVITABLE PART OF THE BUSINESS ACT IVITY OF THE ASSESSEE THEN THE ACTION OF THE TPO IS NOT SUSTAINABLE. ACCO RDINGLY, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW QUA THIS ISSUE. SIN CE THE ASSESSEE HAS PRODUCED THE INVOICES WHICH IS BASED ON THE PER HOUR CHARGES ACTUALLY PERI INDIA PVT. LTD. 9 | P A G E SPENT BY THE ENGINEER FOR PROVIDING THE SERVICES TO THE ASSESSEE, THEREFORE, THE TEST OF COST SHARING ARRANGEMENT BETWEEN THE ASSESSEE AND AE AS CONTENDED BY LD. DR ARE NOT AT ALL RELEVA NT ON THIS POINT BECAUSE THE ASSESSEE WAS CHARGED SPECIFICALLY FOR T HE HOURS SPENT BY THE ENGINEER FOR PROVIDING THE SERVICES. IT IS NOT A CA SE OF PERFORMING THE COMPOSITE ACTIVITIES OF THE ASSESSEE AND AE BY THE C OMMON STAFF AND THEN SHARING THE COST . THE COST WAS INCURRED BY THE AE EXCLUSIVELY FOR PROVIDING THE SERVICES TO THE ASSESSEE THEN THE PRI NCIPLE AND TEST AS CONTENDED BY THE LD. DR WOULD NOT BE APPLICABLE. THE A SSESSEE HAS ALSO PRODUCED THE COMPARATIVE COST CHARGED BY THE AE FROM OTHER GROUP CONCERNS. IN THE ABSENCE OF ANY CONTRARY RECORD BROU GHT BY THE TPO/ASSESSING OFFICER TO SHOW THAT THE PRICE PAID BY THE ASSESSEE IS NOT AT ARMS LENGTH WE ALLOW THE CLAIM OF THE ASSESSEE. 8. GROUND NO. 2 IS REGARDING TP ADJUSTMENT ON ACCOUNT OF COMMISSION FOR SECURING THE CONTRACT IN INDIA. 9. THE ASSESSEE PAID AN AMOUNT OF RS. 45,28,743/- ON ACCOUNT OF SALES COMMISSION TO PERI MALAYSIA. THE ASSESSEE CLAIMED THAT IT IS A REIMBURSEMENT OF LEGAL AND PROFESSIONAL FEE FOR SECU RING A CONTRACT IN INDIA. THE ASSESSEE EXPLAINED THAT EARLIER THE PROJE CT WAS AWARDED TO PERI MALAYSIA HOWEVER, PERI MALAYSIA COULD NOT C ONDUCT WORK IN INDIA AFTER THE ASSESSEE CAME INTO EXISTENCE FROM 26.12.2006. THE PROJECT (JANA PRIYA) WAS HANDED OVER TO ASSESSEE B Y PERI MALAYSIA . THE TPO ASKED THE ASSESSEE TO SHOW CAUSE THAT ALP OF TRA NSACTION SHOULD NOT BE TREATED AS NIL. THE ASSESSEE SUBMITTED BEFORE THE TPO THAT M/S LTC PERI INDIA PVT. LTD. 10 | P A G E TECHNICAL WORKS SDN BHD HAS PLAYED A VITAL ROLE IN AWARDING THE PROJECT (JANA PRIYA) TO PERI MALYASIA AT 7.5% C OMMISSION OF CONTRACT VALUE. SINCE THIS PROJECT WAS EXECUTED BY THE ASSESS EE IN VIEW OF THE GROUP POLICY, THE LIABILITY OF THE SAID COMMISSION WAS ON THE ASSESSEE, WHICH WAS DISCHARGED BY WAY OF REIMBURSEMENT. THE T .P.O DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND WAS OF THE VIEW THAT THE PERI MALAYSIA WAS NOT ENTITLED TO EXECUTE WORK IN INDI A. IT WAS NOT ENTITLED TO NEGOTIATE THE TERMS OF WORK. THEREFORE, THE QUES TION OF COMMISSION DOES NOT ARISE ON SUCH TRANSACTION. ACCORDINGLY THE TPO TREATED THE ALP OF THE SAID PAYMENT AT NIL AND PROPOSED THE ADJUSTMENT OF THE ENTIRE AMOUNT OF RS. 45,28,743/-. THE DRP CONFIRMED THE ACT ION OF TPO/ASSESSING OFFICER. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS EXPLAINED THE FACTS AND CIRCUMSTANCES UNDER WHICH THE PROJECT (JANA PRIYA) WAS INITIALLY AWARDED TO THE MALAYSIAN AE AND THEN WAS TRANSFERRED TO THE ASSESSEE AS PER THE GROUP POLICY. HE HAS FURTHER SUBMITTED THAT THE PAYMENT OF COMMISSION IS ONLY A R EIMBURSEMENT WHICH WAS CHARGED AS PER THE ORIGINAL AGREEMENT FOR AWARD OF THE PROJECT UNDER WHICH THE MALAYSIAN AE OF THE ASSESSEE WAS UNDER OBLIGATION TO PAY 7.5% OF THE CONTRACT AMOUNT AS CO MMISSION. SINCE THE PROJECT WAS TRANSFERRED TO THE ASSESSEE THEREFORE, THE OBLIGATION WAS ALSO TRANSFERRED TO THE ASSESSEE AND, ACCORDINGLY, T HE ASSESSEE REIMBURSED THE SAID AMOUNT TO THE AE. THERE IS NO EL EMENT OF ANY PROFIT IN THE SAID PAYMENT AS FAR AS THE AE IS CONCERNED, TH EREFORE, THERE IS NO QUESTION OF ANY ARMS LENGTH PRICE WHEN THE PAYMENT WAS FINALLY MADE TO PERI INDIA PVT. LTD. 11 | P A G E A THIRD PARTY. HE HAS FURTHER SUBMITTED THAT INITIA LLY THE AGENT INTRODUCED M/S JANA PRIYA TO PERI MALAYSIA FOR SALE OF PERI FORMWORK. BEFORE THE INCORPORATION OF THE ASSESSEE, PERI MALA YSIA USED TO EXECUTE THE WORK IN INDIA. HOWEVER, POST INCORPORATION OF T HE ASSESSEE AS PER THE GROUP POLICY ALL PERI PROJECTS IN INDIA WERE TO BE UNDERTAKEN BY THE ASSESSEE AND ACCORDINGLY THE PERI MALAYSIA TRANSFERRE D THE SAID PROJECT OF PROVIDING THE SERVICES TO ASSESSEE. HE HAS REFER ED THE REVENUE EARNED BY THE ASSESSEE FORM THE PROJECT AND SUBMITTED THAT T HE PAYMENT IN QUESTION IS NOTHING BUT THE OBLIGATION UNDER THE AGR EEMENT FOR PAYMENT OF COMMISSION TO THIRD PARTY. SINCE THE ORIGINAL AGR EEMENT WAS BETWEEN THE MALAYSIAN AE AND THE AGENT WHICH WAS SUBSEQUENT LY TRANSFERRED TO THE ASSESSEE THEREFORE, THE ASSESSEE HAS REIMBURSED THE SAID EXPENDITURE OF PAYMENT OF COMMISSION TO THE AGENT. THE LD. AUTH ORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE EARNE D THE REVENUE OF APPROXIMATELY RS. 7 CRORE FROM M/S JANA PRIYA OUT O F ITS TOTAL REVENUE OF RS. 19.5 CRORES WHICH CONSTITUTE APPROXIMATELY 35% OF THE TOTAL REVENUE. THE CONTRACT WAS INITIALLY SECURED BY MALAY SIAN AE PRIOR TO PASSING IT TO THE ASSESSEE. THE PAYMENT OF COMMISSI ON TO THE AGENT WAS FOR HIS DILIGENT EFFORTS WHO IDENTIFIED THE CUSTOMERS THROUGH ITS CONTACTS AND INTRODUCED THE CUSTOMER TO THE PERI MALAYSIA. THER EFORE, IN THE ABSENCE OF THE PRIOR CONTRACT BETWEEN THE JANAPRIYA AND PERI MALAYSIA, THE ASSESSEE WOULD NOT HAVE BEEN ABLE TO GENERATE SU CH REVENUE FROM OPERATION FROM THE SAID PROJECT. HE HAS REFERRED THE COMMUNICATION BETWEEN LTC TECHNICAL WORKS AND PERI MALAYSIA TO S HOW THAT THE PROJECT JANAPRIYA WAS ARRANGED BY THE AGENT LTC TECH NICAL WORKS. THE TERMS OF PAYMENTS WERE ALSO SETTLED BETWEEN THE JANA PRIYA AND PERI MALAYSIA AND AFTER THE SETTLEMENT OF THE CONTRACT, TERMS OF PROVIDING THE PERI INDIA PVT. LTD. 12 | P A G E SERVICES OF SAID PROJECT WAS TRANSFERRED TO THE ASSES SEE. HE HAS REFERRED THE CONTRACT DATED 5.11.2007 BETWEEN JANAPRIYA AND PE RI MALAYSIA AND SUBMITTED THAT THE CONTRACT WAS SECURED BY THE PERI M ALAYSIA THROUGH THE AGENT AND, THEREFORE, THE COMMISSION AND BROKER AGE AS PER THE AGREEMENT BETWEEN THE PERI MALAYSIA AND THE AGENT BE CAME THE LIABILITY OF THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT ON T RANSFER OF THE SAID CONTRACT TO THE ASSESSEE, THE ASSESSEE AGREED TO PAY THE COMMISSION AMOUNT AND ACCORDINGLY IT WAS REIMBURSED TO THE MALA YSIAN AE. THE PAYMENT WAS MADE THROUGH CHEQUE AFTER DEDUCTION OF T DS. THE LD. AUTHORIZED REPRESENTATIVE REFERRED THE LEDGER ACCOUNT AND SUBMITTED THAT THE PAYMENT WAS MADE AFTER DEDUCTION OF TAX AT SO URCE. 10. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT NO FORMAL AGREEMENT BETWEEN THE AGENT AND THE ASSESSEE AS WELL AS THE AE WAS PRODUCED BY THE ASSESSEE. THE DECISION IS TAKEN BY TH E HEADQUARTER, THEREFORE, THIS IS AN INCIDENTAL EXPENDITURE SHALL BE BORNE BY THE HEADQUARTER AND NOT BY THE ASSESSEE. IN THE ABSENCE O F ANY TERMS OF THE AGREEMENT BETWEEN THE PARTIES, THE ASSESSEE WAS NOT UNDER ANY OBLIGATION TO PAY THE AMOUNT IN QUESTION. HE HAS FU RTHER CONTENDED THAT THE DRIVER OF THE TRANSACTION IS THE PARENT COMPANY OF THE ASSESSEE AND IN THE ABSENCE OF ANY RECORD TO SHOW PRIOR DEALING OF TH E MALAYSIAN AE WITH THE AGENT, THE ASSESSEE FAILED TO PROVE THE LIABILI TY OF PAYING SUCH AMOUNT AS A COMMISSION. NO COMPARABLE TO SHOW THE SIMILAR SERVICES RENDERED BY THE LTC TECHNICAL WORKS AND PAYMENT OF SUCH COMMI SSION MADE BY THE MALAYSIAN ENTITY WAS PRODUCED. HE HAS RELIED UPON THE FINDINGS OF TPO AND DRP. PERI INDIA PVT. LTD. 13 | P A G E 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELE VANT MATERIAL ON RECORD. THE ASSESSEE HAS PRODUCED ALL THE RECORDS SPECI FICALLY ALL THE CORRESPONDENCES BETWEEN THE PERI MALAYSIA AND JANA P RIYA AS WELL AS BETWEEN PERI MALAYSIA AND LTC TECHNICAL WORKS IN RES PECT OF ARRANGEMENT AND AWARDING THE PROJECT OF JANA PRIYA. A PART FROM THE CORRESPONDENCE, THE ASSESSEE HAS ALSO PRODUCED THE AG REEMENT UNDER WHICH THE WORK OF PROVIDING SERVICES BY THE PERI MAL AYSIA WAS AWARDED BY THE JANA PRIYA TO THE PERI MALAYSIA. THEREFORE, BY PRODUCING THE RECORD AND EVIDENCE, THE ASSESSEE HAS DISCHARGED ITS O NUS TO PROVE THAT THE PROJECT IN QUESTION WAS INITIALLY AWARDED TO PERI MALAYSIA AND, THEREAFTER AS PER THE GROUP POLICY AND THE ASSESSEE WAS INCORPORATED AS INDIAN ENTITY, THE SAID PROJECT WAS TRANSFERRED TO TH E ASSESSEE FOR PROVIDING THE SERVICES IN THE PROJECT OF JANA PRIYA. THE ASSESSING OFFICER ADMITTED THE FACT THAT THE ASSESSEE HAS GENERATED RS. 7 CRORE FROM THIS PROJECT ABOUT 35% OF THE TOTAL REVENUE OF THE ASSES SEE GENERATED DURING THE YEAR. THEREFORE, THIS IS NOT A CASE OF NON VIAB LE PROJECT WAS TRANSFERRED BY THE AE TO THE ASSESSEE BUT PROJECT WA S VERY MUCH REVENUE EARNING AND THE ASSESSEE HAS IN FACT EARNED A HANDSOM E REVENUE FROM THE SAID PROJECT. THE TPO HAS DENIED THE CLAIM OF PAYM ENT OF COMMISSION ON THE GROUND THAT THERE WAS NO JUSTIFICATION OF PAY MENT OF THE SAID COMMISSION BECAUSE APART FROM THE SAID COMMISSION T HE ASSESSEE HAS SHOWN ONLY 3,46,888/- BEING COMMISSION AND BROKERAGE PAID DURING THE YEAR. THEREFORE, THE TPO OBSERVED THAT FOR THE REMA INING 65% TURNOVER THE ASSESSEE HAS INCURRED THE EXPENSES ON ACCOUNT OF COMMISSION AND BROKERAGE AT ONLY RS. 3,46,888/-, THE PAYMENT OF RS . 45,28,743 IS NOT JUSTIFIED. IT IS PERTINENT TO NOTE THAT IF THE GENUI NENESS OF THE CLAIM AND DOCUMENTS PRODUCED BY THE ASSESSEE WERE DOUBTED BY THE ASSESSING PERI INDIA PVT. LTD. 14 | P A G E OFFICER/TPO THEN AN ENQUIRY COULD HAVE BEEN CONDUCT ED IN THIS REGARD. THE TPO HAS NOT DISPUTED THE AGREEMENT BETWEEN THE P ERI MALAYSIA AND LTC TECHNICAL WORKS FOR PAYMENT OF THE COMMISSION I N LIEU OF SECURING THE CONTRACT IN THE PROJECT JANA PRIYA . THOUGH THE RE WAS NO DIRECT CONTRACT BETWEEN THE ASSESSEE AND THE AGENT LTC TEC HNICAL SERVICES REGARDING THE PAYMENT OF COMMISSION, HOWEVER, THE AS SESSEE PRODUCED THE CORRESPONDENCE BETWEEN THE PERI MALAYSIA AND LTC TECHNICAL WORKS REGARDING THE AGREEMENT FOR OF SUCH COMMISSION BY MALAYSIAN AE IN LIEU OF SECURING THE PROJECT IN QUESTION. SO FAR AS THE DOCUMENTS PRODUCED BY THE ASSESSEE ARE CONCERNED THEY ARE SUFFI CIENT TO DEMONSTRATE THAT THE OBLIGATION OF PAYMENT OF COMMI SSION IN QUESTION WAS CLEARLY BORNE OUT FROM THE CORRESPONDENCE BETWEE N THE PERI MALAYSIA AND LTC TECHNICAL WORKS AND THAT COMMISSION WAS TO BE PAID IN RESPECT OF THE PROJECT JANA PRIYA SECURED THROUG H THE AGENT. THUS THE ASSESSEE HAS BROUGHT ON RECORD ENOUGH MATERIAL TO S HOW THAT IT WAS A CONTRACTUAL LIABILITY OF ITS ASSESSEE WITH RESPECT TO THE SECURING OF THE PROJECT JANA PRIYA AND IN THE EVENT OF THE SAID PROJE CT WAS TRANSFERRED TO THE ASSESSEE, THE SAID LIABILITY WAS ALSO STAND TRANS FERRED TO THE ASSESSEE ALONG WITH THE PROJECT. THE ASSESSEE CLAIMED THAT TH IS IS NOTHING BUT REIMBURSEMENT OF EXPENSES WHICH WERE TO BE PAID BY T HE MALAYSIAN AE TO THE AGENT FOR SECURING THE PROJECT. ON PRINCIPLE , WE DO AGREE WITH THE CLAIM OF THE ASSESSEE THAT HE SAID AMOUNT OF COMMIS SION WAS OBLIGATION OF THE AE (MALAYSIA) FOR SECURING THE PROJECT AND ON CE THE PROJECT WAS TRANSFERRED TO THE ASSESSEE FOR EXECUTION AND IN TURN THE ASSESSEE HAS EARNED A HANDSOME REVENUE FROM THE SAID PROJECT THEN THE LIABILITY OF PAYMENT OF COMMISSION WAS FASTENED ON THE ASSESSEE B EING A CONTRACTUAL OBLIGATION. THEREFORE, DENIAL OF THE CLAIM OF THE A SSESSEE IS NOT JUSTIFIED PERI INDIA PVT. LTD. 15 | P A G E WHICH IN TOTAL DISREGARD OF THE EVIDENCE PRODUCED BY THE ASSESSEE. THE ASSESSEE HAS ALSO PRODUCED THE EVIDENCE OF ACTUAL PAY MENT OF AMOUNT IN QUESTION AFTER DEDUCTION OF TDS. THE ONLY QUESTION WHICH REMAINS UNANSWERED IS WHETHER THE AMOUNT IN QUESTION WAS IN TURN PAID BY THE MALAYSIAN AE TO THE AGENT. THE ASSESSEE HAS NOT PRO DUCED ANY EVIDENCE IN THIS RESPECT THAT THE AMOUNT WAS FINALLY PAID TO THE THIRD PARTY BEING LTC TECHNICAL WORKS. HENCE HE ACCEPT THE CLAIM OF THE ASSESSEE SUBJECT TO THE VERIFICATION OF CORRESPONDING PAYMENT BY THE MALAYSIAN AE TO THE AGENT NAMELY LTC TECHNICAL WORKS. ACCORDINGLY, THE ASSESSING OFFICER/TPO IS DIRECTED TO VERIFY THIS FACT FROM THE RECORD TO BE FILED BY THE ASSESSEE AND THEN CONSIDER THE CLAIM IN THE LIGHT OF ABOVE OBSERVATION. 12. GROUND NO. 3 IS REGARDING DISALLOWANCE OF DEPRECI ATION ON SOFTWARE. 13. THE ASSESSEE HAS SHOWN REIMBURSEMENT PAYMENT O F AN AMOUNT OF RS. 11,73,864/- ON ACCOUNT OF SOFTWARE. THE ASSESSE E STATED THAT THE SAID SOFTWARE WAS ELECTRONICALLY DOWNLOADED IN THE SYSTEM . THE PAYMENT WAS SAID TO BE MADE ON ACTUAL COST. THE ASSESSEE CLAI MED THAT THE SOFTWARE CHARGES HAVE BEEN DEBITED BY THE PERI GERMA NY THE PARENT COMPANY TO THE OTHER GROUP COMPANY AT THE SAME RATE AS HAVE BEEN CHARGED FROM THE ASSESSEE COMPANY. IN SUPPORT OF TH E CLAIM, THE ASSESSEE FILED THE COPY OF E-MAIL IN THIS RESPECT. THE TPO QU ESTIONED THAT IN THE ABSENCE OF ANY EVIDENCE OF ACTUAL COST INCURRED BY TH E PARENT COMPANY AND THE ALLOCATION OF THE SAME AMONG AE WHY THE ALP OF THE EXPENSES PERI INDIA PVT. LTD. 16 | P A G E SHOULD NOT BE TREATED AT NIL. THE TPO HELD THAT THE AE DID NOT REQUIRE THE SAID SOFTWARE AND, THEREFORE, THE ALP OF THE SOF TWARE EXPENSES WAS DETERMINED AT NIL. ACCORDINGLY, THE TPO PROPOSED AN ADJU STMENT OF RS. 11,73,864/-. THE DRP THOUGH CONCUR WITH THE VIEW OF THE TPO IN DETERMINING THE ALP AT NIL, IT HAS ONLY DISALLOWED THE DEPRECIATION ON RS. 3,62,441/- BECAUSE THE ASSESSEE HAS CAPITALIZED THE SAID AMOUNT OF RS. 11,73,864/- AND NOT CLAIMED AS REVENUE EXPENDITURE/DED UCTION IN THE PROFIT & LOSS ACCOUNT. THEREFORE, THE DRP DIRECTED T HE ASSESSING OFFICER/TPO TO VERIFY THE TREATMENT GIVEN BY THE A SSESSEE TO THE CLAIM COST OF THE SOFTWARE AND IN CASE IT IS NOT DEBITED TO THE P&L ACCOUNT AS REVENUE EXPENDITURE AND WAS SIMPLY CAPITALIZED NO FU RTHER DISALLOWANCE SHOULD BE MADE. 14. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE SOFTWARE WAS VERY MUCH REQUIRED BY THE ASSESSEE FOR OPENING THE DESIGNS AND DRAWINGS SENT BY THE AE. HE HAS FURTHER SU BMITTED THAT THE SOFTWARE AUTOCAD WAS PURCHASED BY THE PERI GMBH GERM ANY. IT WAS PURCHASED WITH FRESH LICENSES ALONG WITH ITS SUBSCR IPTION FOR ITS GROUP COMPANIES. THE SUBSCRIPTION ALLOWS ACCESS TO THE AU TODESK SOFTWARE WHICH ENABLES QUICK CREATION OF ILLUSTRATIVE PRESEN TATION OF GRAPHICS. THIS WAS PURCHASED BY THE PARENT COMPANY FOR VARIOUS GROUP COMPANIES AND SAME WAS MADE AVAILABLE ONLINE ON THE WEBSITE OF THE PARENT COMPANY FOR DOWNLOAD AND USE. THE ASSESSEE PRODUCED T HE RECORD SHOWING THAT THE PRICE CHARGED BY AUTODESK INC. FROM THE PARENT COMPANY IS RECOVERED FROM THE ASSESSEE. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT IT IS THE PURE REI MBURSEMENT OF THE PERI INDIA PVT. LTD. 17 | P A G E ACTUAL COST WHICH WAS INCURRED BY THE PARENT COMPANY FOR THE GROUP COMPANIES. THE ASSESSEES BUSINESS IS TO PROVIDE TH E FORMWORK AND SCAFFOLDING SYSTEM FOR THE COMPANIES ENGAGED IN THE B USINESS OF CONSTRUCTION AND, THEREFORE, IT IS THE CONSTANT NEED AND REQUIREMENT OF THE BUSINESS ACTIVITY OF THE ASSESSEE OF HAVING DIFF ERENT SOURCE OF DRAWINGS TO BE PROVIDED TO THE ASSESSEE WHICH ACTS AS SOURCE INFORMATION TO START WITH ANY PROJECT RIGHT FROM TE NDERING STAGE TO EXECUTION. THESE DRAWINGS ARE CREATED WITH THE HELP OF AN AUTO CAD AND TO ACCESS THE DRAWING FILE RECEIVED FROM THE CLIENT , THE ASSESSEE REQUIRES AUTOCAD PLATFORM. THEREFORE, THE DRAWING WAS VERY MUCH REQUIRED AND IS AN ESSENCE OF BUSINESS ACTIVITY OF THE ASSESSEE. WITHOUT UNDERSTANDING THE NEED AND THE BUSINESS NATURE OF THE ASSESSEE THE TPO HAS HELD THAT THE ASSESSEE DID NOT REQUIRE THE SOFTWARE IN QUESTION WHEREAS IN THE ABSENCE OF THE SAID SOFTWARE THE ASSESSEE COULD NOT HAVE RECEIVED THE DRAWINGS SENT BY THE CLIENTS FOR THE PURPOSE OF SECU RING THE WORK AND EXECUTION OF THE SAME. HE HAS REFERRED THE INVOICES RAISED BY THE PARENT COMPANY IN RESPECT OF SOFTWARE IN QUESTION AS WELL AS THE PRICE QUOTATION OF THE SOFTWARE PROVIDER TO THE PARENT COM PANY AND SUBMITTED THAT THE REIMBURSEMENT IS ONLY FOR THE ACTUAL COST INCURRED BY THE PARENT COMPANY. HE HAS ALSO REFERRED THE INVOICES OF THE PA RENT COMPANY RAISED TO THE OTHER GROUP COMPANIES AT SAME PRICE. THEREFO RE, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSE SSEE PRODUCED ALL THE RELEVANT RECORD AND EVIDENCE TO ESTABLISH THAT TH E SOFTWARE IN QUESTION WAS AS PER THE NEED OF THE ASSESSEE AND THE AMOUNT IN QUESTION IS ONLY REIMBURSEMENT OF ACTUAL COST. PERI INDIA PVT. LTD. 18 | P A G E 15. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS FAILED TO PASS THE TEST OF REQUIREMENT AS WELL AS BE NEFIT FROM THE SAID TRANSACTION. HE HAS RELIED UPON THE ORDERS OF AUTHORI TIES BELOW. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELE VANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE SOFTWARE IN QUES TION IS TO ENABLE THE USER OF THE SOFTWARE TO OPEN THE FILE OF GRAPHICS A ND PARTICULARLY THE DESIGN AND DRAWINGS. THE ASSESSEE EXPLAINED BEFORE THE AUTHORITIES BELOW THAT THE SOFTWARE WAS REQUIRED BY THE ASSESSE E TO RECEIVE AND OPEN THE DRAWINGS SENT BY ITS CLIENTS AS A SOURCE IN FORMATION TO START WITH ANY PROJECT RIGHT FROM TENDERING STAGE TO THE E XECUTION. THESE DRAWINGS ARE CREATED WITH THE HELP OF SOFTWARE NAMELY AUTOCAD. IN THE ABSENCE OF SUCH SOFTWARE IT IS VERY DIFFICULT TO AC CESS THE DRAWING FILES, THEREFORE, THE SOFTWARE WAS VERY MUCH NEEDED AND ESSE NCE OF THE BUSINESS ACTIVITY OF THE ASSESSEE. ONCE THE ASSESS EE HAS EXPLAINED THAT HOW THE SOFTWARE IS USEFUL FOR THE BUSINESS ACTIVIT Y OF THE ASSESSEE THEN THE QUESTION ARISES IS WHETHER THE PAYMENT MADE BY T HE ASSESSEE IS AT ARMS LENGTH OR NOT. THE ASSESSEE HAS PRODUCED THE I NVOICES RAISED BY ITS PARENT COMPANY AS COST OF THE SOFTWARE ALONG WITH A CTUAL PRICE PAID BY THE PARENT COMPANY TO THE SOFTWARE PROVIDER. ONCE TH ESE TWO DOCUMENTS WERE PRODUCED BY THE ASSESSEE SHOWING THAT THE PRICE PAID BY THE ASSESSEE IS NOTHING BUT THE ACTUAL COST OF THE SOFT WARE PURCHASED BY PARENT COMPANY WHICH WAS INSTALLED BY THE ASSESSEE. WE FIND FROM THE RECORD THAT SO FAR AS THE ACTUAL COST OF SOFTWARE IN QUESTION IS CONCERNED THE ASSESSEE HAS PRODUCED THE INVOICE RAISED BY THE S OFTWARE PROVIDER TO PARENT COMPANY AND THE PAYMENT MADE BY THE PARENT C OMPANY MATCHES PERI INDIA PVT. LTD. 19 | P A G E WITH THE REIMBURSEMENT OF THE ACTUAL COST OF THE SO FTWARE IN QUESTION. THEREFORE, THERE IS NO ELEMENT OF ANY MARK UP OR PR OFIT BY THE PARENT COMPANY OF THE ASSESSEE. IT WAS A MERE REIMBURSEMEN T OF THE COST OF THE SOFTWARE IN QUESTION. SO FAR THE NEED AND BENEFIT OF THE SOFTWARE IN QUESTION FOR THE ASSESSEES BUSINESS ACTIVITY IS CO NCERNED, THE ASSESSEE HAS BROUGHT ON RECORD HOW THE SOFTWARE WAS USEFUL FO R DAY TO DAY BUSINESS OF THE ASSESSEE AS NOT ONLY IT IS USEFUL BUT IT IS INEVITABLE FOR CERTAIN ACTIVITIES TO HAVE THE ACCESS TO THE DRAWING S PROVIDED BY THE CLIENTS WHICH IS USED AS SOURCE INFORMATION BY THE A SSESSEE TO START WITH THE PROJECT. IT IS PERTINENT TO NOTE THAT WITHOUT K NOWING THE DETAILS OF THE PROJECT, THE ASSESSEE COULD NOT EVEN PARTICIPATE IN THE TENDER. THEREFORE, THE SOFTWARE WHICH ENABLES THE ASSESSEE TO OPEN THE GRAPHICS/DESIGN AND DRAWINGS OF THE PROJECTS IS VERY MUCH ESSENTIAL FOR DAY TO DAY BUSINESS ACTIVITY OF THE ASSESSEE. THUS, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF DEPRECIATION BY THE DRP IS ONLY ON THE BASIS OF ASSU MPTIONS BY DISREGARDING THE RELEVANT FACTS AS WELL AS THE EVIDEN CE BROUGHT ON RECORD BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER S OF AUTHORITIES BELOW ON THIS ISSUE AND ALLOW THE CLAIM OF DEPRECIATION. 17. GROUND NO. 4 IS REGARDING TP ADJUSTMENT ON ACCOUN T OF TRAVEL EXPENSES OF RS. 6,30,175 OUT OF WHICH AN AMOUNT OF RS. 5,50,441/- FOR THE TRAVEL OF PERI GMBH STAFF IN INDIA AND REMAINING RS . 79,734/- IS FOR TRAVEL OF ASSESSEES STAFF. 18. THE T.P.O ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE TRAVEL COST OF STAFF OF AE OF THE ASSESSEE SHOULD NOT BE DI SALLOWED AND THE ALP PERI INDIA PVT. LTD. 20 | P A G E BE TAKEN AS NIL ON THE REASON THAT NO EVIDENCE OF SE RVICE REQUIRED BY THE ASSESSEE WAS PRODUCED. THE TPO MENTIONED THAT NO REPL Y HAS BEEN FURNISHED TILL 20.10.2011. ACCORDINGLY, THE TPO DETE RMINED THE ALP OF RS. 5,50,441/- TOWARDS THE TRAVEL EXPENSES OF THE AE S STAFF AS NIL AND PROPOSED ADJUSTMENT OF THE SAID AMOUNT. 19. BEFORE DRP THE ASSESSEE SUBMITTED THAT MR. STAN WOJICIERCZK, SUPPORT MANAGER, VISITED INDIA TO SUPPORT THE ASSESS EE IN ITS INITIAL STAGE OF OPERATION FOR PROVIDING SUPPORT IN SETTING UP BUS INESS ACTIVITY, MARKET SURVEY ETC. MR. STAN WOJICIERCZK PROVIDED SUPPORT IN SETTING UP OF BUSINESS ACTIVITY, MARKET SURVEY, STRATEGY DISCUSSIO N ETC. THEREFORE, THE EXPENSES WERE INCURRED TOWARDS TRAVELLING AND HOTEL S TAY OF MR. STAN WOJICIERCZK. THE ASSESSEE ALSO SUBMITTED INVOICES O F THE HOTELS AND TRAVELLING BILLS AND CLAIMED THAT THE COST WAS INCUR RED BY MR. STAN WOJICIERCZK WHICH WAS REIMBURSED TO HIM. THE DRP DI D NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND CONFIRMED THE PROPOSE D ADJUSTMENT MADE BY THE ASSESSING OFFICER/TPO ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY AND BUS INESS CONNECTION OF THE SERVICES AVAILED. 20. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS FURNISHED AL THE RELE VANT RECORD BEFORE THE TPO. HE HAS REFERRED THE DETAILS OF EXPENSES AT PAGE 174 OF THE PAPER BOOK AND SUBMITTED THAT THE DETAILS OF TRAVELLING EX PENSES CLEARLY SHOW THAT THE PAYMENT WAS MADE BY MR. STAN WOJICIERCZK TH ROUGH HIS CREDIT CARD. EVEN THE EXPENSES OF THE ASSESSEES MANAGING D IRECTOR MR. RAJ LAKHANI WAS PAID BY MR. STAN WOJICIERCZK, WHO WAS TR AVELLING ALONG WITH PERI INDIA PVT. LTD. 21 | P A G E MR. RAJ LAKHANI. THE COST WAS INCURRED BY MR. STAN WOJICIERCZK AND THE SAME WAS REIMBURSED TO HIM AS IT WAS RELATED TO THE B USINESS OPERATIONS OF THE ASSESSEE. THE LD. AUTHORIZED REPRESENTATIVE H AS THEN REFERRED PAGE 177 OF THE PAPER BOOK AND SUBMITTED THAT ONLY 50 % OF THE EXPENSES WERE REIMBURSED WHICH MEANS ONLY THE EXPENSES TOWAR DS THE STAY AND VISIT OF ASSESSEES OWN MANAGING DIRECTOR WHICH WAS INCURRED BY MR. STAN WOJICIERCZK, WERE REIMBURSED. HE HAS REFERRED TH E INVOICES OF THE HOTEL AS WELL AS PAYMENT DETAILS THROUGH CREDIT CARD I N SUPPORT OF HIS CONTENTION. 21. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT NO EXPLANATION WAS FURNISHED BY THE ASSESSEE BEFORE THE TPO, THERE FORE, IN THE ABSENCE OF ANY EVIDENCE IT WAS CONFIRMED BY D.R.P. HE HAS RE LIED UPON THE ORDERS OF AUTHORITIES BELOW. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELE VANT MATERIAL ON RECORD. WE FIND THAT THE DETAILS OF THE EXPENDITURE ARE PROVIDED AT PAGE 177 OF THE PAPER BOOK. THE INVOICE OF THE EXPENDITU RE ARE PLACED AT PAGE NO. 175 TO 203 OF THE PAPER BOOK WHICH ALSO INCLUDE THE PAYMENT DETAILS THROUGH CREDIT CARD. WE FIND THAT MOST OF THE PAYMEN TS WERE MADE BY MR. STAN WOJICIERCZK, THROUGH HIS CREDIT CARD AND TH IS PAYMENT WAS IN RESPECT OF THE TRAVEL AND STAY IN HOTELS ALONG WITH THE ASSESSEES MANAGING DIRECTOR MR. RAJ LAKHANI. THUS IT IS CLEAR THAT THE VISIT AND STAY OF MR. STAN WOJICIERCZK, IN INDIA WAS ALONG WITH MA NAGING DIRECTOR OF THE ASSESSEE MR. RAJ LAKHANI. THE ASSESSEE FURNISHED THE COMPLETE DETAILS AND VOUCHERS IN RESPECT OF THE EXPENDITURE. FURTHER T HE PAYMENT DETAILS PERI INDIA PVT. LTD. 22 | P A G E WERE ALSO FURNISHED WHICH SHOW THAT THE EXPENSES WE RE INITIALLY INCURRED BY MR. STAN WOJICIERCZK. THEREFORE, WHEN T HE ENTIRE EXPENDITURE WAS INCURRED FOR HOTEL STAY AND TRAVEL OF BOTH MR. STAN WOJICIERCZK AND MR. RAJ LAKHANI THEN REIMBURSEMENT OF 50% OF THE EXPENSES DOES NOT INVOLVE ANY PAYMENT TO THE AE BUT IT WAS REIMBURSEMENT OF EXPENSES. SINCE THE ASSESSING OFFI CER/TPO HAS DISALLOWED THE CLAIM AND TREATED THE ALP AT NIL FOR WA NT OF DETAILS AND EVIDENCE, THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE, WE SET ASIDE THIS ISSUE TO THE RECORD OF ASSESSING OFFICER/TPO TO CONSIDER THE EVIDENCE FURNISHED BY THE ASSESSEE AND THEN DECIDE THE SAME AFTER GIVING AN OPPORTUNITY OF HEARIN G TO THE ASSESSEE. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUCNED IN THE OPEN COURT ON THIS 14 TH DAY OF JANUARY 2015 SD/- SD/- (N.K. BILLAIYA) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 14.01.2015 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI