Nymphea Developers Pvt Ltd, New Delhi V. ACIT Circle-19(1), New Delhi

ITA 7555/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7155 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Assessment Year: 2014-2015
• Appeal Filed On: 13-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Application of stay; Question of law
• Section: 92C; 133(6); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2, NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.7555/DEL/2019 ASSESSMENT YEAR: 2014-15 M/S. NYMPHEA DEVELOPERS PVT. LTD., C-3/260, JANAKPURI, NEW DELHI VS. ACIT, CIRCLE-19(1), NEW DELHI PAN :AABCO5609H (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL WAS FIXED FOR HEARING ON THE DIRECTION OF THE HONBLE DELHI HIGH COURT, DATED 24/12/2019. IN THE PRESENT APPEAL OF THE ASSESSEE, THE APPLICATION (SA NO. 982 /DEL/2019) FOR STAY OF RECOVERY OF DEMAND FILED BY THE ASSESSEE WA S REJECTED BY THE TRIBUNAL VIDE ORDER DATED 8/11/2019. THE REQUES T FOR EARLY HEARING OF THE APPEAL WAS ALSO TURNED DOWN BY THE T RIBUNAL. ON FURTHER APPEAL BY THE ASSESSEE, HONBLE DELHI HIGH COURT IN ORDER DATED 24/12/2019 PASSED IN ITA 1017/2019 DIRECTED T HE APPELLANT BY MS. RASHMI CHOPRA, ADV. SHRI RUCHESH SINHA, ADV. RESPONDENT BY SHRI SUKESH KUMAR JAIN, CIT(DR) DATE OF HEARING 28.01.2020 DATE OF PRONOUNCEMENT 03.02.2020 2 ITA NO. 7555/DEL/2019 TRIBUNAL TO HEAR THE APPEAL ON 28/01/2020 WITH FOLL OWING OBSERVATIONS: 7. HAVING HEARD THE LEARNED COUNSELS, THE FOLLOWIN G QUESTION OF LAW ARE FRAMED:- A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND UNDER LAW, THE INCOME TAX APPELLATE TRIBUNAL (ITAT) HAS ERRED IN LAW IS REJECTING THE APPLICATION FOR THE STAY OF DEMAND AS WELL AS THE REQUEST FOR EARLY HEARING OF THE CASE M ADE BY THE APPELLANT? B. WHETHER THE INCOME TAX APPELLATE TRIBUNAL (ITAT) ERRED IN HOLDING THAT THE APPELLANT COULD NOT PROVE HER C ASE FOR GRANT OF EARLY HEARING? 8. IN THE LIGHT OF THE AFORESAID SUBMISSIONS, THE Q UESTION OF LAW FRAMED ABOVE ARE ANSWERED IN FAVOUR OF THE APPELLAN T. WE, THEREFORE, DISPOSE OF THIS APPEAL BY DIRECTING THE TRIBUNAL TO HEAR THE APPEAL OF THE APPELLANT, PENDING BEFORE IT . 2. THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST ORDER DATED 30/08/2019 PASSED BY THE CIT(APPEALS)-44, NEW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2014-15 RAISING FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A)-44, DELHI IS ASSAILED OF BEING A PERVERSE ORDER, AS THE SAME PASSED WITHOUT CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE, WITHOUT TAKING A HOLISTIC VIEW OF THE CASE, WITHOUT GIVING ANY JUSTI FIABLE REASON FOR CONFIRMING THE ORDER OF THE AO/TPO AND IS SUB SILENTIO ORDER PASSED IN ANY ARBITRARY MANNER. 2. THE CIT(A)-44, DELHI HAS ERRED IN LAW IN FACTS I N CONFIRMING THE ORDER OF THE AO/TPO WHEREIN THE AO/TPO HAS MADE AN ADDITION OF RS.68,80,48,216/- IN THE CAS E OF THE ASSESSEE. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY WAS ENGAGED IN BUSINESS OF REAL ESTATE ACTI VITIES IN DEVELOPMENT OF PROJECT UNDER COLLABORATION. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME ON 06/02/2015 3 ITA NO. 7555/DEL/2019 DECLARING TOTAL INCOME OF RS.1,19,64,540/-. THE CAS E WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 14 3(2) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WAS ISSUE D AND COMPLIED WITH. DURING THE SCRUTINY PROCEEDINGS, THE ASSESSIN G OFFICER NOTED SPECIFIED DOMESTIC TRANSACTION AND, THEREFORE , HE REFERRED THE BENCHMARKING OF THE TRANSACTION TO THE LEARNED TPO. THE FACTS IN RESPECT OF THE SPECIFIED DOMESTIC TRANSACT ION REPRODUCED BY THE LD. CIT(A) IN THE IMPUGNED ORDER IS EXTRACTE D AS UNDER : 6.1 THE SALIENT FACTS OF THE CASE ARE AS FOLLOWS. THE APPELLANT IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE, IT IS A CONSORTIUM OF THREE DIFFERENT COMPANY OF THE ORRI S GROUP INCLUDING ORRIS INFRASTRUCTURE PRIVATE LIMITED (OIPL). DURING THE YEAR UNDER REFERENCE, THE APPELLANT HAD MADE A SPECIFIED DOMES TIC TRANSACTION WITH ITS ASSOCIATED ENTERPRISE NAMELY OIPL. THE APP ELLANT APPLIED TO YAMUNA EXPRESSWAY INDUSTRIAL DEVELOPMENT AUTHORITY FOR ALLOTMENT OF LAND FOR DEVELOPMENT AND WAS GRANTED A PLOT BEAR ING NUMBER TS- 02, SECTOR 22D YAMUNA EXPRESSWAY. DISTRICT GAUTAM B UDDHA NAGAR, UP OF ABOUT 200 ACRES FOR THE PURPOSE OF MAK ING AN INTEGRATED TOWNSHIP. DIFFERENT AREAS IN THE SAID PL OT WAS MARKED TOR RESIDENTIAL, COMMERCIAL, INSTITUTIONAL AND FOR ROAD - PARKING. 6.2 THE AE (OIPL) WAS ALSO ENGAGED IN REAL ESTATE B USINESS OF DEVELOPING AND SELLING OF RESIDENTIAL, COMMERCIAL U NITS SECTOR. THE APPELLANT AND OIPL ENTERED INTO A COLLABORATION AGR EEMENT DATED 01/03/2012 UNDER WHICH THE APPELLANT GAVE UP ITS RI GHTS TO OIPL TO DEVELOP THE REAL ESTATE PROJECT AT ITS OWN COST IN CONSIDERATION OF AGREED SHARE IN THE BUILT-UP AREA OF THE PROJECT LA ND AS DEFINED IN DETAIL IN THE SAID AGREEMENT. HENCE, THE RIGHTS AND INTEREST OF THE PROJECT LAND WERE TRANSFERRED FROM THE APPELLANT TO OIPL. 6.3 ATS REALTY PRIVATE LIMITED WAS A PRIVATE LIMITE D COMPANY WITH ITS REGISTERED OFFICE AT NEHRU PLACE, NEW DELHI WHI CH WAS ALSO ENGAGED IN THE REAL ESTATE OPERATIONS. ATS IS AN UN RELATED PARTY. SUBSEQUENTLY A DEED OF LEASE WAS EXECUTED BETWEEN Y AMUNA EXPRESSWAY DEVELOPMENT AUTHORITY, ATS AND THE APPEL LANT. IN LIEU OF THE DEVELOPMENT RIGHTS OF THE 100 ACRES OF PROJE CT LAND TRANSFERRED TO OIPL, A SUM OF RS. 68,80,48.216 WAS PAID TO OIPL DIRECTLY BY ATS ON BEHALF OF THE APPELLANT FOR RELINQUISHING ITS RI GHTS OVER HUNDRED ACRES OF LAND WHICH WAS THEN SOLD BY THE APPELLANT TO OIPL. THE TRANSACTION BETWEEN THE APPELLANT OIPL AND ATS WAS RECORDED IN WRITING IN A MEMORANDUM OF UNDERSTANDING (MOU) DATE D 13/05/2012 AND A SUB LEASE DEED BETWEEN ATS. YAMUNA 4 ITA NO. 7555/DEL/2019 EXPRESSWAY DEVELOPMENT AUTHORITY AND APPELLANT WAS ALSO REGISTERED AND 100 ACRES OF LAND WAS SOLD TO ATS. 3.1 THE ASSESSEE SUBMITTED A TRANSFER PRICING REPORT P REPARED BY THE CHARTERED ACCOUNTANT, WHEREIN COMPUTATIONS R ELATING TO THE PROFITABILITY OF THE ASSESSEE, NPV CALCULATIONS ARE PROVIDED. THE ASSESSEE CLAIMED THAT IN VIEW OF THE OTHER MET HOD AS MOST APPROPRIATE METHOD, THE PAYMENT MADE BY THE ASSESSE E TO ITS ASSOCIATED ENTERPRISE (AES) WAS NOT EXCESSIVE. THE LEARNED TPO AFTER ANALYSING THE AGREEMENT AND OTHER INFORMATION FOUND THAT THE VALUE OF THE TRANSACTION WAS RECORDED AT DIFFER ENT VALUES AT A DIFFERENT PLACES. THE VALUES OBSERVED BY THE LEARNE D TPO IS REPRODUCED AS UNDER: S. NO. NATURE OF TRANSACTION AMOUNT AS PER FROM 3CEB AMOUNTING AS PER FINANCIAL WITH ASSOCIATES AMOUNT AS PER FINANCIAL 1. COLLABORATION EXPENSES 688,048,216 897,554,825 3 5,569,403 3.2 THE TPO REJECTED THE BENCHMARKING MADE BY THE ASSE SSEE TO BE COLOURABLE DEVICE. THE LEARNED TPO, IN VIEW OF A BSENCE OF RELIABLE DATA VALUED THE SPECIFIED DOMESTIC TRANSAC TION OF COLLABORATION EXPENSES AT NIL. THE RELEVANT FINDING OF THE LEARNED TPO IS REPRODUCED AS UNDER: 7.3 IN VIEW OF THE DISCUSSIONS AT PARAS 6 AND 7.2 ABOVE, IT IS CONCLUDED THAT THE ECONOMIC SUBSTANCE OF THE TRANSA CTION DIFFERS FROM ITS FORM AND THE TRANSACTION IS SO ARR ANGED THAT WHEN VIEWED IN TOTALITY, IT DIFFERS FROM THOSE WHIC H WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVI NG IN A COMMERCIALLY RATIONAL MANNER. THIS PRINCIPLE IS LAI D DOWN IN THE OECD GUIDELINES IN PARAGRAPHS 1.36 TO 1.41. 7.4 ASSESSEE ALSO RAISED THE CONTENTION THAT THERE WAS NO LOSS TO THE REVENUE BY UNDERTAKING THIS TRANSACTION. HERE I T NEEDS TO BE EMPHASIZED THAT THE MAIN FOCUS OF THIS TRANSFER PRICING AUDIT IS CORRECT COMPUTATION OF ALP OF SPECIFIED DO MESTIC 5 ITA NO. 7555/DEL/2019 TRANSACTION. WHILE COMPUTING ALP, IT IS NOT NECESSA RY TO FIND WHETHER THERE WAS ANY MOTIVE TO SHIFT EXPENSES OR I NCOME TO THE RELATED PARTY. IT HAS BEEN HELD IN COCA COLA PV T. LTD. 309 1TR 194 (P&H) THAT THERE IS NO NEED TO SHOW MOTIVE OF SHIFTING OF PROFIT TO INVOKE TRANSFER PRICING PROVISIONS. 7.5 FOR BENCHMARKING THE ABOVE STATED TRANSACTION, THE OTHER METHOD APPLIED BY THE ASSESSEE AS MAM WAS EXAMINED AND FOUND THAT THE REPORT OF THE CHARTERED ACCOUNTANT S UBMITTED TO JUSTIFY THE PAYMENT BASED ON NPV CALCULATIONS WAS B ASED ON PREMISE AND NOT VERIFIABLE DATA. THE CHARTERED ACCO UNTANT HAS ALSO GIVEN A DISCLAIMER IN THIS REGARD BECAUSE THE OPINION WAS BASED ON UNVERIFIABLE DATA. THEREFORE, THE BENC HMARKING ADOPTED BY THE ASSESSEE IS REJECTED. 7.6 CONSIDERING THE FACT THAT THE ECONOMIC SUBSTANC E OF THE STATED SPECIFIED DOMESTIC TRANSACTION DIFFERS FROM ITS FORM AND NO INDEPENDENT THIRD PARTY WOULD HAVE ADOPTED SUCH AN ARRANGEMENT, IT SEEMS THAT THE ASSESSEE HAS USED A COLOURABLE DEVICE' TO AVOID TAXES RATHER THAN TAX PLANNING. IN THE ABSENCE OF RELIABLE DATA THE ARMS LENGTH PRICE OF THIS SPECIFIED DOMESTIC TRANSACTION IS TAKEN AS NIL. 8. ACCORDINGLY, THE TOTAL ADJUSTMENT OF 1NR 608,048 ,216 IS REQUIRED TO THE MADE TO THE INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER. THE ASSESSEE WAS AFFORDED REASON ABLE OPPORTUNITY OF BEING HEARD. 3.3 THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 30/12/2017 MADE ADDITION FOR THE TRANSFER PRICING A DJUSTMENT PROPOSED BY THE LEARNED TPO. AGGRIEVED, THE ASSESSE E FILED APPEAL BEFORE THE LD. CIT(A) AND FILED DETAILED SUBMISSION S. THE OBJECTION OF THE ASSESSEE IN RESPECT OF THE COLOURABLE DEVICE HAVE BEEN REJECTED BY THE LD. CIT(A) OBSERVING AS UNDER: 6.8 GROUND NO. 2 PERTAINS TO THE CONTENTION OF THE APPELLANT THAT THE AO HAD ERRED IN CONFIRMING THE ORDER OF THE TPO WHO HAD MADE AN ADDITION OF RS.68,80,48,216 ON ACCOUNT OT PAYMENT M ADE BY THE APPELLANT TO ITS ASSOCIATE ENTERPRISE. THE TPO HAS DISALLOWED THE PAYMENT OF RS.68,80,48,216 AS IN A TRANSACTION BETW EEN TWO UNRELATED PARTIES, THE APPELLANT WOULD NOT HAVE MAD E PAYMENT OIPL FOR SALE OF LAND TO ATS. HENCE, THE AO/TPO HAS CORR ECTLY HELD TO BE A COLOURABLE DEVICE. 6 ITA NO. 7555/DEL/2019 6.9 THE CONTENTION OF THE APPELLANT IS NOT ACCEPTED AS THE ISSUE RELATES TO TRANSACTION BETWEEN RELATED PARTIES WHIC H IS A SPECIFIED DOMESTIC TRANSACTION. THE .ACT GIVES THE POWER TO T HE 4 PG TO EXAMINE THE ARMS-LENGTH PRICE OF SUCH TRANSACTIONS . THE CONTENTION OF THE APPELLANT IS NOT ACCEPTED AS TWO INDEPENDENT PARTIES IN AN UNCONTROLLED SITUATION WOULD NOT HAVE ENTERED INTO SUCH AN AGREEMENT. THE CONCERNED OF THE GOVERNMENT BEHIND I NTRODUCING TRANSFER PRICING REGULATION TO SPECIFIED DOMESTIC T RANSACTIONS IS TO ENSURE THAT TRANSACTIONS BETWEEN RELATED PARTIES FO LLOW THE MARKET PRINCIPLE SO THAT THE INCOME AND PROFIT OF AN ENTIT Y IS CALCULATED CORRECTLY. 3.4 THE OBJECTION OF THE ASSESSEE THAT THE LEARNED TPO HAS NOT FOUND ANY FLAW IN THE WORKING OF THE ASSESSEE REPOR TED IN TRANSFER PRICING REPORT , WERE ALSO DISMISSED BY THE LD. CIT (A) OBSERVING AS UNDER: 6.11 GROUND NO. 3 PERTAINS TO THE CONTENTION OF TH E APPELLANT THAT THE AO HAD ERRED IN NOT CONSIDERING THAT THE TPO HA D NOT FOUND ANY FLAW IN THE WORKING REFLECTED IN THE TRANSFER PRICI NG REPORT WHICH WAS PREPARED BY A CHARTERED ACCOUNTANT. THE AO HAS CONS IDERED THE DIFFERENT AGREEMENTS AND THE CONTENTIONS OF THE APP ELLANT WHICH HAVE BEEN DISCUSSED AND COMMENTED UPON IN THE BODY OF THE ORDER ITSELF. THE MAIN ISSUE POINTED OUT BY THE AO/TPO IS THAT IN AN UNRELATED PARTY SCENARIO WHERE MARKET CONDITIONS PR EVAIL, THE APPELLANT WOULD NOT HAVE MADE A PAYMENT OF RS.68,80 ,48,216 TO OIPL. THE CONTENTION OF THE APPELLANT IS NOT ACCEPT ED AS THE ISSUE RELATES TO TRANSACTION BETWEEN RELATED PARTIES AND THE TPO HAS THE JURISDICTION, AS PER LAW, TO DETERMINE THE VALUE OF THE TRANSACTION OR THE INCOME / PROFIT DERIVED FROM THE SAME AT MARKET VALUE. 3.5 AGGRIEVED WITH THE FINDING OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS A S REPRODUCED ABOVE. 4. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUB MITTED THAT THE LEARNED TPO HIMSELF AS NOTED THAT HE DID N OT DISPUTE WHETHER THE TRANSACTION TOOK PLACE NOT, BUT ACCORDI NG TO HIM THE QUESTION WAS WHETHER SUCH TRANSACTIONS SHOULD HAVE TAKEN PLACE OR NOT. IN VIEW OF THE LEARNED COUNSEL OF THE ASSES SEE THE LEARNED TPO/AO SHOULD NOT SIT IN THE ARMCHAIR OF THE BUSINE SSMEN AND 7 ITA NO. 7555/DEL/2019 DECIDE WHETHER SUCH TRANSACTIONS SHOULD HAVE TAKEN PLACE OR NOT. ACCORDING TO HIM, THE LEARNED TPO WAS REQUIRED TO B ENCHMARK THE SPECIFIED DOMESTIC TRANSACTION AND IF HE WAS NO T SATISFIED WITH THE WORKING OF THE ASSESSEE, HE SHOULD HAVE MADE HI S VALUATION OF THE TRANSACTION IN ACCORDANCE WITH VARIOUS METHODS PROVIDED UNDER LAW. THE LD. COUNSEL RELIED ON THE DECISION O F THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S CUSHMAN AND WAK EFIELD (INDIA) P LTD IN ITA 475/2012 TO SUPPORT THE CONTEN TION THAT MATTER IS REFERRED TO THE LEARNED TPO ONLY FOR THE LIMITED PURPOSE OF DETERMINING THE ALP AND HE DID NOT HAVE AUTHORIT Y TO DECIDE WHETHER THE TRANSACTION SHOULD HAPPEN OR NOT. ACCOR DINGLY, REQUESTED THAT MATTER MAYBE RESTORED BACK TO LD. AO /TPO FOR DECIDING THE ARMS-LENGTH PRICE OF THE SPECIFIED DO MESTIC TRANSACTION IN ACCORDANCE WITH LAW. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTH ER HAND RELIED ON THE ORDER OF THE LD. AO/TPO AND SUBMITTED THAT ENTIRE TRANSACTION WAS ONLY COLOURABLE DEVICE AND THEREFOR E LEARNED TPO IS JUSTIFIED IN BENCHMARKING AT NIL. 6. WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT METAL ON RECORD. WE FIND THAT THE SPECIFIED DOMESTIC TRANSACTION OF COLLABORATION EXPENSES HAS BEEN BENCHMARKED BY THE ASSESSEE FOLLOWING THE OTHER MET HOD AS MOST APPROPRIATE METHOD. THE ASSESSEE HAS VALUED THE TRA NSACTION AT WHICH THE THIRD-PARTY HAS MADE PAYMENT FOR THE TRAN SACTION. WE FIND THAT THE LEARNED TPO INSTEAD OF BENCHMARKING T HE TRANSACTION IN ACCORDANCE WITH THE LAW, HE SIMPLY T AKEN THE VALUE OF THE SPECIFIED TRANSACTION AT NIL OBSERVING THAT RELIABLE DATA WAS NOT AVAILABLE. IN OUR OPINION, THE LEARNED TPO IS N OT JUSTIFIED IN 8 ITA NO. 7555/DEL/2019 REJECTING THE BENCHMARKING OF THE ASSESSEE IN THIS MANNER. IF DATA IS NOT AVAILABLE THEN THERE ARE TWO OPTIONS BE FORE HIM. FIRST OPTION IS TO GATHER THE DATA AVAILABLE IN PUBLIC DO MAIN. IF DATA IS NOT AVAILABLE IN PUBLIC DOMAIN, HE SHOULD COLLECT F ROM PRIVATE DOMAIN BY WAY OF ISSUE NOTICE UNDER SECTION 133(6) OF THE ACT AND CONFRONT THE SAME TO THE ASSESSEE AND THEN DECIDE T HE ARMS- LENGTH PRICE OF THE SPECIFIED DOMESTIC TRANSACTION. THE SECOND OPTION IS THAT IF NO DATA IS AVAILABLE, THEN ACCEPT THE BENCHMARKING CARRIED OUT BY THE ASSESSEE. THE TPO H AS NO AUTHORITY TO HOLD THAT THIS TRANSACTION SHOULD NOT HAVE TAKEN PLACE. THE HONBLE DELHI HIGH COURT IN THE CASE OF CUSHMAN AND WAKEFIELD (INDIA) P. LTD. (SUPRA) HAS OBSERVED ON T HE ISSUE OF AUTHORITY OF THE TPO WHILE BENCHMARKING INTERNATION AL TRANSACTION AS UNDER: 35. THE TPO'S REPORT IS, SUBSEQUENT TO THE FINANCE ACT , 2007, BINDING ON THE AO. THUS, IT BECOMES ALL THE MORE IM PORTANT TO CLARIFY THE EXTENT OF THE TPO'S AUTHORITY IN THIS CASE, WHI CH IS TO DETERMINING THE ALP FOR INTERNATIONAL TRANSACTIONS REFERRED TO HIM OR HER BY THE AO, RATHER THAN DETERMINING WHETHER SUCH SERVICES E XIST OR BENEFITS HAVE ACCRUED. THAT EXERCISE - OF FACTUAL VERIFICATI ON IS RETAINED BY THE AO UNDER SECTION 37 IN THIS CASE. INDEED, THIS IS NOT TO SAY THAT THE TPO CANNOT - AFTER A CONSIDERATION OF THE FACTS - S TATE THAT THE ALP IS ITA 475/2012 PAGE 27 'NIL' GIVEN THAT AN INDEPENDEN T ENTITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HO WEVER, THIS IS DIFFERENT FROM THE TPO STATING THAT THE ASSESSEE DI D NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPEND ITURE. THAT DECISION IS OUTSIDE THE AUTHORITY OF THE TPO. THIS ASPECT WAS MADE CLEAR BY THE ITAT IN DELLOITE CONSULTING INDIA PVT. LTD. V. DEPUTY COMMISSIONER OF INCOME TAX , [2012] 137 ITD 21 (MUM): '37. ON THE ISSUE AS TO WHETHER THE TRANSFER PRICIN G OFFICER IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE AT 'N IL', WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN GE MPLUS INDIA P. LTD. 2010-TII-55-ITAT-BANG-TP, HELD THAT T HE ASSESSEE HAS TO ESTABLISH BEFORE THE TRANSFER PRICI NG OFFICER THAT THE PAYMENTS MADE WERE COMMENSURATE TO THE VOL UME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARA BLE. WHEN 9 ITA NO. 7555/DEL/2019 COMMENSURATE BENEFIT AGAINST THE PAYMENT OF SERVICE S IS NOT DERIVED, THEN THE TRANSFER PRICING OFFICER IS JUSTI FIED IN MAKING AN ADJUSTMENT UNDER THE ARM'S LENGTH PRICE. 38. IN THE CASE ON HAND, THE TRANSFER PRICING OFFIC ER HAS DETERMINED THE ARM'S LENGTH PRICE AT 'NIL' KEEPING IN VIEW THE FACTUAL POSITION AS TO WHETHER IN A COMPARABLE CASE , SIMILAR PAYMENTS WOULD HAVE BEEN MADE OR NOT IN TERMS OF TH E AGREEMENTS. THIS IS A CASE WHERE THE ASSESSEE HAS N OT DETERMINED THE ARM'S LENGTH PRICE. THE BURDEN IS IN ITIALLY ON THE ASSESSEE TO DETERMINE THE ARM'S LENGTH PRICE. T HUS, THE ARGUMENT OF THE ASSESSEE THAT THE TRANSFER PRICING OFFICER HAS EXCEEDED HIS JURISDICTION BY DISALLOWING CERTAIN EX PENDITURE, IS AGAINST THE FACTS. THE TRANSFER PRICING OFFICER HAS NOT DISALLOWED ANY EXPENDITURE. ONLY THE ARM'S LENGTH P RICE WAS DETERMINED. IT WAS THE ASSESSING OFFICER WHO COMPUT ED THE INCOME BY ADOPTING THE ARM'S LENGTH PRICE DECIDED B Y THE TRANSFER PRICING OFFICER AT 'NIL'.' THIS IS A SLENDER YET CRUCIAL DISTINCTION THAT REST RICTS THE AUTHORITY OF THE TPO. WHILST THE REPORT OF THE TPO IN THIS CASE ULTIMATELY NOTED THAT THE ALP WAS 'NIL', SINCE A COMPARABLE ENTITY W OULD PAY 'NIL' AMOUNT FOR THESE SERVICES, THIS COURT NOTED THAT RE MARKS CONCERNING, AND THE FINAL DECISION RELATING TO, BENEFIT ARISING FROM THESE SERVICES ARE PROPERLY RESERVED FOR THE AO. 6.1 IN PARA OF THE 40 OF THE JUDGMENT, THE HONBLE HIG H COURT HAS HIGHLIGHTED THE AUTHORITY OF THE ASSESSING OFFI CER UNDER SECTION 37 OF THE ACT AND AUTHORITY OF THE LEARNED TPO UNDER CHAPTER X OF THE ACT. THE RELEVANT PARA IS EXTRACTE D AS UNDER: 40. ON THE FIRST GROUND, THIS COURT NOTES THAT THE JURISDICTION OF THE AO, UNDER SECTION 37 , AND THE TPO, UNDER SECTION 92CA , ARE DISTINCT. A REFERRAL BY THE AO TO THE TPO IS ONLY F OR THE LIMITED PURPOSE OF DETERMINING THE ALP, BASED ON A PRIMA FA CIE VIEW THAT SUCH A REFERRAL IS NECESSARY. IT DOES NOT IMPLY A C ONCRETE VIEW AS TO THE EXISTENCE OF SERVICES, OR THE ACCRUAL OF BENEFI T (SUCH THAT ALLOWANCE UNDER SECTION 37 MUST BE PERMITTED). THIS VERY ARGUMENT WAS CONSIDERED AND REJECTED BY THE ITAT IN DELLOITE (SUPRA): '34. THE SECOND ARGUMENT OF LEARNED COUNSEL THAT TH E TRANSFER PRICING OFFICER IS NOT EMPOWERED TO DISALLOW THE EX PENDITURE AND THAT THE VERY REFERENCE TO THE TRANSFER PRICING OFFICER BY THE ASSESSING OFFICER PRESUMES THAT THE AMOUNT IN Q UESTION IS 10 ITA NO. 7555/DEL/2019 ALLOWABLE UNDER SECTION 37 OF THE ACT ITA 475/2012 PAGE 32 AND CERTAIN CASE LAWS WERE RELIED UPON FOR THIS PRO POSITION. 35. WE ARE UNABLE TO PERSUADE OURSELVES TO AGREE TO THIS PROPOSITION FOR THE REASONS THAT THE CENTRAL BOARD OF DIRECT TAXES, BY WAY OF A CIRCULAR, HAS DIRECTED THE ASSES SING OFFICER TO REFER TO ALL TRANSACTIONS BEYOND A SPECIFIED LIM IT, TO THE TRANSFER PRICING OFFICER FOR DETERMINING THE ARM'S LENGTH PRICE. WHEN THE ASSESSING OFFICER HAS NO DISCRETION IN THE MATTER, IN VIEW OF THE BINDING NATURE OF THE CENTRAL BOARD OF DIRECT TAXES INSTRUCTIONS DATED 20TH MAY 2003, DIRECTING ALL THE OFFICERS OF THE DEPARTMENT TO REFER THE MATTERS TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF THE ARM'S LENGTH PRICE WHERE THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTIONS EXCEE DS RS. 5,00,00,000, THE ASSESSING OFFICER HAS A VERY LIMIT ED ROLE. HE HAS TO MECHANICALLY FOLLOW THESE INSTRUCTIONS. THER E IS NO APPLICATION OF MIND. THERE IS NO FORMATION OF ANY O PINION AT THE STAGE OF REFERENCE. THUS, TO PRESUME THAT HE HA S ALLOWED A PARTICULAR EXPENDITURE UNDER SECTION 37 , DOES NOT SEEM TO BE THE RIGHT VIEW OF THE MATTER. IN ANY EVENT, THIS IS NOT A CASE WHERE THE TRANSFER PRICING OFFICER OR THE ASSESSING OFFICER MADE A DISALLOWANCE UNDER SECTION 37 OF THE ACT. IT IS A CASE WHERE AN ADJUSTMENT HAS BEEN MADE UNDER SECTION 92C (4) OF THE ACT, AFTER THE TRANSFER PRICING OFFICER DETERMI NED THE ARM'S LENGTH PRICE AT NIL UNDER SECTION 92CA(3) . HENCE THIS ARGUMENT IS DEVOID OF MERIT.' INDEED, A DIVISION BENCH OF THIS COURT, IN SONY IND IA PVT. LTD. V. CENTRAL BOARD OF DIRECT TAXES AND ANR ., [2007] 288 ITR 52 (DELHI) (ALBEIT CONSIDERING THE LAW PRIOR TO THE 2007 AMEND MENT TO THE ACT), CONCURRED WITH THIS VIEW: '18 ... A READING OF SECTION 92C AND 92CA DOES NOT INDICATE THAT THE AO IS REQUIRED TO FORM A PRIOR CONSIDERED OPINION AFTER CONSIDERING ALL THE AVAILABLE MATERIALS EVEN ITA 47 5/2012 PAGE 33 BEFORE MAKING A REFERENCE TO THE TPO. A PRI MA FACIE OPINION WOULD SUFFICE AT THE STAGE OF MAKING THE RE FERENCE. 35 ... IT CORRECTLY INTERPRETS THE LAW AS REQUIRING ONLY A FORMATION OF A PRIMA FACIE OPINION BY THE AO AT THE STAGE OF THE REFERENCE. THEREFORE, THE QUESTION OF THE CBDT SUPPLANTING THE JUDICIAL DISCRETION OF THE AO DOES NOT ARISE. I T IS PERFECTLY POSSIBLE THAT, INDEPENDENT OF THE CIRCULAR, THE AO MIGHT STILL 'CONSIDER IT NECESSARY OR EXPEDIENT' TO REFER AN IN TERNATIONAL TRANSACTION OF SUCH VALUE TO THE TPO FOR DETERMINAT ION OF THE ALP. AT THE SAME TIME IT IS NOT AS IF THE TRANSACTI ONS OF THE VALUE OF LESS THAN RS. 5 CRORES CANNOT BE REFERRED TO THE TPO BY THE AO. ULTIMATELY, ANY EXERCISE OF DISCRETION B Y THE AO IS BOUND TO BE JUDICIALLY REVIEWED BY THE STATUTORY AP PELLATE 11 ITA NO. 7555/DEL/2019 AUTHORITIES AS WELL AS BY COURTS. THEREFORE, IT IS NOT AS IF THERE IS NO CHECK ON THE EXERCISE OF DISCRETION BY THE AO .' THE AO CAN, THEREFORE, DETERMINE UNDER SECTION 37 THAT THE EXPENDITURE CLAIMED (IN THIS CASE, THE REFERRAL FEE S) WAS NOT FOR THE BENEFIT OF THE BUSINESS, AND THUS, DISALLOW THAT AM OUNT. THIS DOES NOT RESTRICT OR IN ANY WAY BYPASS THE FUNCTIONS OF THE TPO. QUITE TO THE CONTRARY, IT REPRESENTS THE CORRECT DIVISION OF JURISDICTION BETWEEN THE TWO ENTITIES. 6.3 AS THE TPO HAS NOT CARRIED OUT EXERCISE OF DETERM INING THE ARMS-LENGTH PRICE OF THE SPECIFIED DOMESTIC TRANSA CTION IN ACCORDANCE WITH LAW, IN THE INTEREST OF JUSTICE, WE FEEL IT APPROPRIATE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE LD. AO/TPO FOR DECIDING AFRESH IS DIRECTED ABOVE. IT IS NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE AFFORDED ADEQUAT E OPPORTUNITY OF BEING HEARD. THE GROUNDS OF THE APPEAL OF THE AS SESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2020. SD/- SD/- ( SUDHANSHU SRIVASTAVA ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 RD FEBRUARY, 2020. RK/-(D.T.D.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI