DELOITTE CONSULTING INDIA P.LTD, MUMBAI V. ASST CIT CIR 2(2), MUMBAI

ITA 7651/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78862 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 30-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wrong claim; Retraction; Revised return
• Section: 92C; 92E; 10AA; 139(5); 10B

Judgement Text

ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , . . . . , , BEFORE SHRI SANJAY ARORA, AM AND DR. S. T. M. PAVA LAN, JM ./I.T.A. NOS. 7650& 7651/MUM/2013 ( / ASSESSMENT YEARS: 2004-05& 2005-06) DELOITTE CONSULTING INDIA PVT. LTD. (FORMERLY KNOWN AS MASTEK DC OFFSHORE DEVELOPMENT COMPANY PVT. LTD.), FAIRMOUNT LEVEL II, HIRANANDANI BUSINESS PARK, POWAI, MUMBAI-400 076 / VS. ASST. CIT, CIRCLE 2(2), AAYAKARBHAVAN, MAHARSHIKARVEMARG, MUMBAI-400 020 ./ ! ./PAN/GIR NO. AABCD 0476 H ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) '%& / APPELLANT BY : SHRI P. J. PARDIWALA, SHRI MADHUR AGARWAL& SHRI K. K. VED #$ '%& / RESPONDENT BY : SHRI SANJEEV JAIN ' (%) / DATE OF HEARING : 13.02.2014 *+, %) / DATE OF PRONOUNCEMENT : 13.05.2014 - / O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF TWO APPEALS BY THE ASSESSEE, I.E., FOR TWO CONSECUTIVE YEARS, BEING ASSESSMENT YEARS 2004-05 & 2005-06, ARISING OUT OF THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS)-5, MUMBAI (CIT (A) FOR SHORT) OF EVEN DATE, I.E., 29.11.2013, CONFIRMING THE LEVY OF PENALTY U/S. 271 (1) (C) OF THE INCOME TAX ACT (THE ACT HEREIN AFTER) FOR THE RELEVANT YEARS. THE ISSU ES ARISING IN BOTH THE APPEALS BEING THE ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 2 SAME, THE APPEALS WERE HEARD TOGETHER, AND ARE BEIN G DISPOSED OF VIDE A COMMON, CONSOLIDATED ORDER. 2. AT THE VERY OUTSET IT WAS BROUGHT TO OUR NOTICE BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THAT T HE HONBLE JURISDICTIONAL HIGH COURT HAS SINCE MODIFIED THE STAY ORDER AS PASSED BY THE TRIBUNAL, AND WHICH WOULD THUS OBTAIN, EVEN AS THE CERTIFIED COPY OF ITS ORDER IS AS YET N EITHER AVAILABLE FROM THE REGISTRY NOR AVAILABLE ON LINE. THE HEARING IN THE CASE WAS ACCO RDINGLY PROCEEDED WITH ON THAT BASIS. THE ORDER BY THE HONBLE COURT STOOD SUBSEQUENTLY, I.E., VIDE ITS LETTER DATED 18/2/2014, BROUGHT ON RECORD BY THE ASSESSEE. 3. THE SOLE ISSUE ARISING IN THE INSTANT APPEALS, A GITATED PER FIVE GROUNDS, IDENTICAL FOR BOTH THE YEARS, IS THE MAINTAINABILITY IN LAW OF TH E LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT FOR THE RELEVANT YEARS IN FACTS AND CIRCUMSTANC ES OF THE CASE, WHICH AGAIN BEAR STRIKING SIMILARITY. 4. WE SHALL BEGIN BY RECOUNTING THE BACK-GROUND FAC TS OF THE CASE. THE ASSESSEE, INCORPORATED AS A PRIVATE LIMITED COMPANY ON 30/7/2 001, IS A JOINT VENTURE COMPANY OF MASTEK LIMITED AND DELOITTE CONSULTING. WHILE MASTE K, WHICH ALONG WITH ITS AFFILIATES HOLDS 50.1 PERCENT OF SHARES, IS A PUBLICALLY HELD INDIAN INFORMATION TECHNOLOGY APPLICATION OUTSOURCING COMPANY, DELOITTE CONSULTIN G (DC), REGISTERED AS A LIMITED PARTNERSHIP IN NEW YORK, USA, HOLDING AS A GROUP TH E BALANCE 49.9 PERCENT SHAREHOLDING, IS A ONE OF THE WORLDS LEADING MANAG EMENT CONSULTING FIRMS. 4.1 THE ASSESSEE ENTERED INTO A SOFTWARE DEVELOPMEN T SERVICE AGREEMENT WITH DELOITTE TO PROVIDE SOFTWARE RELATED SERVICES TO DELOITTE. D ELOITTE ENTERS INTO CONSULTING ASSIGNMENTS WITH ITS US CLIENTS. FOR SUCH ASSIGNMENTS, THE AREAS PERTAI NING TO SOFTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY SERVICES ARE PROVIDED BY THE ASSESSEE IN TERMS OF THE CONTRACT BETWEEN THE ASSESSEE AND DELOITTE O NLY WHEN THE ASSESSEE POSSESSES THE REQUISITE RESOURCES TO PROVIDE SUCH SERVICES. THE A SSESSEE PROVIDES BOTH OFFSHORE AND ONSHORE SITE SERVICES UNDER THE CONTRACT WITH DELOI TTE. THE OFFSHORE SERVICES ARE PROVIDED ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 3 THROUGH MASTEK AND THE ON-SITE SERVICES WOULD BE PR OVIDED THROUGH MAJESCO, A US BASED COMPANY AND A SUBSIDIARY OF MASTEK. ACCORDINGLY, WH ILE DC PLAYS A LEAD ROLE IN THE GENERATION OF SALES, IN THE MANAGEMENT AND THE DELI VERY OF PROJECTS AND MANAGING AND MAINTAINING THE COMPANYS CUSTOMER RELATIONSHIP, MA STEK PROVIDES AND MANAGES THE COMPANYS INFRASTRUCTURAL FACILITIES, THE OPERATION S, INCLUDING RECRUITMENT, TRAINING, ADMINISTRATION AND SUPPORT AS A PART OF ITS CURRENT AND FUTURE FACILITIES AS WELL AS DELIVERY CAPABILITY AND PROJECT QUALITY. THE ENTIRE TURNOVER OF THE ASSESSEE REPRESENTS EARNINGS PROVIDED FROM DELOITTE FOR PROVIDING SOFTWARE DEVEL OPMENT AND INFORMATION TECHNOLOGY SERVICES. THE RISKS ASSUMED BY THE RESPECTIVE PARTI ES ARE IN CONSONANCE WITH THEIR RESPECTIVE FUNCTIONS AND RESPONSIBILITIES, AND TOWA RD WHICH REFERENCE IS MADE TO PARA 5.1 OF THE TPOS ORDER U/S. 92CA(3) FOR AY 2004-05 (PB PGS. 30-31). 4.2 THE ASSESSEE WAS FOUND TO HAVE DURING THE RELEV ANT YEARS, AS INDEED IN THE PAST, ENTERED INTO FOUR CATEGORIES OF INTERNATIONAL TRANS ACTIONS WITH DC - FROM WHOM ITS ENTIRE REVENUE CAME TO BE REALIZED, AS UNDER: (A) SOFTWARE AND IT SERVICES PROVIDED TO AES; (B) SOFTWARE AND IT SERVICES AVAILED FROM AES; (C) REIMBURSEMENT OF MARKET SERVICES AVAILED; AND (D) REIMBURSEMENT OF SUPPORT SERVICES AVAILED REFERENCE WAS MADE FOR BOTH THE YEARS, AS FOR THE I MMEDIATELY PRECEDING YEARS, I.E., AY 2002 -03 AND AY 2003 -04, BY THE ASSESSING OFFICER (AO) TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE SAID TRANSACTIONS, WHO ACCEPTED THE VALUATION AS BOOKED FOR ALL SAVE ONE, I.E., THE THIRD CATEGORY OF THE TRANSACTIONS, AS FOR THE SAID TWO PRECEDING YEARS, DETERMINING THE ARMS LENGTH PRICE THEREOF AT NIL. THE ASSESSEE HAD VALUED THE SAME AT THE AMOUNT/S AS BOOKED AND CLAIMED, I.E., ON ACTUALS, AT RS. 5.86 CRORES AND RS. 6.61 C RORES FOR THE TWO CONSECUTIVE YEARS UNDER REFERENCE RESPECTIVELY. THE ASSESSEE, APART FROM IT S REPLY ON MERITS, HAD ALSO INFORMED THE TPO THAT IT HAD REVISED ITS RETURNS FOR THE RELEV ANT YEARS, I.E., ON 29/3/2006 AND ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 4 14/12/2007 RESPECTIVELY, DISALLOWING THE ENTIRE MARKETING EXP ENSE AS CLAIMED, AND THAT THEREFORE NO TRANSFER PRICING ADJUSTMENT U/S. 92CA ON ACCOUNT OF THIS INTERNATIONAL TRANSACTION/S WOULD ARISE. THE TPO OBSERVED THAT NO REVISED AUDIT REPORT PER THE REQUISITE FORM (# 3CEB) HAD BEEN FURNISHED FOR THE SAID TRANS ACTION/S, BOOKED AS REIMBURSEMENT OF ACTUAL EXPENSES, ALONG WITH THE REVISED RETURN/S . ACCORDINGLY, REJECTING THE DECLARED VALUE OF THE SAID TRANSACTIONS, HE ASSESSED THE TR ANSFER PRICE THEREOF AT NIL, STATING HIS REASONS FOR THE SAME. AS REGARDS THE ISSUE OF DEDUC TION OF U/S. 10A, CLAIM UNDER WHICH HAD BEEN CORRESPONDINGLY ENHANCED BY THE ASSESSEE C ONSEQUENT TO THE INCREASE IN THE RETURNED INCOME ON ACCOUNT OF DISALLOWANCE OF THE M ARKETING EXPENSE PER THE REVISED RETURN/S, THE SAME WOULD BE CONSIDERED BY THE AO I N THE ASSESSMENT PROCEEDINGS. IN THE VIEW OF THE A.O., THE SAME COULD NOT BE ALLOWED IN VIEW OF THE SPECIFIC PROVISION OF SECTION 92CA(4). THE REVISION WAS NOT VALID IN-AS-M UCH AS REFERENCE HAD ALREADY BEEN MADE TO THE TPO; THE ASSESSEES CLAIM FOR THE SAID EXPENDITURE HAVING BEEN ALREADY SUBJECT TO EXAMINATION BY THE TPO FOR THE EARLIER Y EARS (AYS 2002-03& 2003-04), DETERMINING THE ALP AT, AGAIN, NIL, FOR WHICH AN AD JUSTMENT HAD BEEN ADVISED BY HIM TO THE AO, SO THAT THE ENTIRE AMOUNT CAME TO BE ADDED BACK IN ASSESSMENT. SECTION 92CA(4) WOULD THUS HOLD, PROSCRIBING DEDUCTION U/S. 10A. TH E SAME FOUND CONFIRMATION IN APPEAL FOR ESSENTIALLY THE SAME REASONS AND, FURTHER, BY T HE TRIBUNAL VIDE ITS CONSOLIDATED ORDER FOR FIVE (5) CONSECUTIVE YEARS, BEING AYS 2002-03 T O 2006-07 (IN ITA NOS. 3910- 11/2009; 579,1272-73/2011, MUMBAI L BENCH, DATED 30/3/2012), EVEN AS THE ASSESSEE HAD NOT CLAIMED THE SAID EXPENSE FOR THE LATEST YEA R (AY 2006-07) PER THE ORIGINAL RETURN ITSELF. THE ASSESSEES SUO MOTU DISALLOWANCE WAS INCONSISTENT WITH ITS BOOKS OF A CCOUNT, REFLECTING THE SAID EXPENDITURE ON ACTUALS AND, RES ULTANTLY, NOT ACCOMPANIED BY AN AUDITORS REPORT U/S. 92E. AN ADJUSTMENT ON THAT AC COUNT, ADVISED BY THE TPO BY, AGAIN, VALUING THE ALP OF THE RELEVANT TRANSACTION AT NIL, WOULD FOLLOW. NO COGNIZANCE TO THE REVISED RETURN/S OR THE SUO MOTU DISALLOWANCE OF THE IMPUGNED EXPENDITURE COULD THEREFORE BE GIVEN, NECESSITATING AN ADJUSTMENT ON THAT ACCOUNT. DENIAL OF DEDUCTION U/S.10A FOLLOWS IN CONSEQUENCE, CONDITION FOR GRANT S OF WHICH ARE ALSO NOT COMPLIED WITH. THE FINDINGS BY THE TRIBUNAL ARE AT PARAS 33 TO 53 OF ITS ORDER, WHEREBY IT ENDORSES ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 5 THE FINDING BY THE REVENUE FOR THE RELEVANT YEARS, WHICH IT FOUND THE ASSESSEE AS FAILING TO CONTROVERT. 4.3 PENALTY PROCEEDINGS FOR FURNISHING INACCURATE P ARTICULARS OF INCOME, SATISFACTION FOR WHICH STOOD RECORDED AT THE TIME OF FRAMING THE ASSESSMENT, WERE INITIATED, AS IT APPEARS, SUBSEQUENT TO THE CONFIRMATION IN QUANTUM PROCEEDINGS AT THE FIRST APPELLATE STAGE. THE ASSESSEE EXPLAINED THAT IT HAD CONSIDERE D PRUDENT TO, FROM A COMMERCIAL PERSPECTIVE, INCUR THE COST OF MARKETING PERSONNEL (5) OF DC WHO WERE SPECIFICALLY ENGAGED IN MARKETING THE ASSESSEES OFFSHORE CAPABI LITIES. FURTHER, NO ADJUSTMENT U/S.92C(4) SHALL ARISE IN VIEW OF THE SUO MOTU REVISION OF ITS RETURNS DISALLOWING THE RELEVANT EXPENDITURE, LEADING THOUGH TO NO ENHANCEM ENT IN INCOME DUE TO A CORRESPONDING INCREASE IN THE DEDUCTION U/S.10A. HO WEVER, NO MATERIAL TO SUPPORT ITS CASE ON FACTS, WHICH STOOD CONSIDERED BY THE TRANSFER PR ICING OFFICER (TPO) IN FRAMING HIS ORDER U/S.92CA(3), BEING ADDUCED, THE ASSESSEES CO NTENTION DID NOT PASS MUSTER. EVEN THE REVISION WAS CONSIDERED AS NOT VOLUNTARY IN-AS- MUCH AS REFERENCE TO THE TPO HAD ALREADY BEEN MADE, AND WHO HAD ALREADY ANSWERED THE REFERENCE THERETO U/S. 92CA FOR THE EARLIER YEARS, VALUING THE SAID TRANSACTION AT NIL. ACCORDINGLY, THE REVISION WAS ONLY A DELIBERATE ATTEMPT TO AVOID THE APPLICABILITY AND R IGOR OF SECTION 92C(4), PRECLUDING THE DEDUCTION INTER ALIA U/S.10A FOR ANY ENHANCEMENT IN INCOME UPON ADOPTION OF THE ALP AS DETERMINED. PENALTY U/S. 271(1)(C) WAS ACCORDINGLY LEVIED AT 100% OF THE TAX ON THE AMOUNT INITIALLY CLAIMED AS MARKETING EXPENSE. THE SAME FOUND CONFIRMATION IN APPEAL; THE LD. CIT(A) AFTER AN EXTENSIVE REVIEW OF THE CAS E LAW HOLDING AS UNDER FOR BOTH THE YEARS, WHICH SUMS UP THE REVENUES CASE: 4.2.6 THUS FROM THE CAREFUL READING OF THE PROVISI ONS OF SECTION 271(1)(C) TOGETHER WITH THE EXPLANATION-1 THERE UNDER AND THE VARIOUS AVAIL ABLE JUDICIAL PRONOUNCEMENTS, AS DISCUSSED IN THE ABOVE PARAS, NO PROOF OF MENSREA I S REQUIRED FOR LEVY OF SUCH CIVIL PENALTY. BUT THE IMPOSITION OF PENALTY WOULD NOT BE JUSTIFIED IF THE EXPLANATION GIVEN IS FOUND BONAFIDE AND ALL THE FACTS RELATING TO THE SA ME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. THE DI SCLOSURE SHOULD BE FULL SO THAT THE NATURE OF CLAIM (EXPENSE OR RECEIPTS) COULD BE INFE RRED FROM THE FINANCIAL STATEMENTS (AND /OR THE NOTES ON ACCOUNTS, AUDIT ENCLOSED WITH THE RETURN) ITSELF. THERE SHOULD BE A BONAFIDE GROUND FOR THE CLAIM, BE AS DEBATABLE ISSU E OR EVEN WHERE TWO VIEWS WERE ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 6 PLAUSIBLE. MERELY BECAUSE SOME ADDITION HAS BEEN MA DE AND SUCH ADDITION HAS BECOME FINAL, IT DOES NOT NECESSARILY FOLLOW THAT PENALTY IS LEVIABLE. THUS WHERE INADMISSIBLE CLAIMS WERE MADE DUE TO INADVERTENT AND BONAFIDE MI STAKES, PENALTY IS HELD TO BE NOT WARRANTED. THE AOS ARE EXPECTED TO EXERCISE THEIR D ISCRETION BASED ON THE FACTS OF THE CASE. MERE CLAIM OF THE ASSESSEE THAT THE ISSUE WAS DEBATABLE AND OR TWO VIEWS WERE POSSIBLE IN LAW AND FACTS IS ALSO NOT ENOUGH. THE B URDEN TO SUBSTANTIATE SUCH CLAIM IS UPON THE ASSESSEE. IF THE EXPLANATION GIVEN IS FOUN D NOT TO BE BONA FIDE THEN LEVY OF PENALTY WOULD BE JUSTIFIED. 4.3 IN THE PRESENT CASE, THE ASSESSEE HAD MADE A CL AIM OF THE EXPENSE WHICH WAS ALLOCATED TO IT BY ITS ASSOCIATE ENTERPRISE DELOITT E USA OUT OF THEIR MARKETING EXPENSES. THE DETERMINATION OF ARMS LENGTH PRICE IN THE CONT EXT OF THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES ASSUMES IMPORTANCE AND P LAYS ITS ROLE TO ENSURE THAT PROFITS ARE NOT DIVERTED TO THOSE ASSOCIATE ENTERPRISES BY PAYI NG THEM MORE THAN WHAT WOULD NORMALLY BE DONE TO ANY THIRD PARTY. ON REFERENCE T O THE TPO INDEED FOUND THAT THE ASSESSEE WAS NOT REQUIRED TO TAKE ANY MARKETING FUN CTION IN TERMS OF THE MASTER SERVICE AGREEMENT WITH ITS ASSOCIATE ENTERPRISE DELOITTE US A; THAT BOTH THE PARTIES HAD CLEARLY DEMARCATED ROLE TO PLAY FOR WHICH THEY WERE COMPENS ATED; AND THERE WAS NO VALID REASON FOR DELOITTE USA TO ALLOCATE ANY PART OF THE COST I NCURRED BY IT TO PERFORM THE ROLE AGREED BY IT. ACCORDINGLY THE TPO DETERMINED THE ARMS LEN GTH PRICE OF MARKETING EXPENSES SO CLAIMED BY THE ASSESSEE AS NIL. THE ASSESSEE IN FAC T, HAD SIMPLY ACCEPTED SUCH FINDINGS OF THE TPO BY FILING ITS REVISED RETURN BEFORE THE ORDER WAS PASSED BY THE TPO. IT IS NOTED THAT REFERENCE WAS ALREADY MADE TO THE TPO AND THE PROCEEDINGS WERE IN PROGRESS WHEN THE ASSESSEE FILED HIS REVISED RETURN. SO ADMISSION /DISCLOSURE OF ADDITIONAL INCOME WAS NOT VOLUNTARY, MORE SO WHEN SIMILAR VIEW WAS ALREAD Y TAKEN IN ITS EARLIER YEARS (AY 2002 -03 & 2003-04). THE DEDUCTION THEREON WAS NOT ADMIS SIBLE U/S. 10A BY THE VIRTUE OF THE PROVISO TO S. 92C (4). THIS IS NOT A CASE WHERE ISS UE COULD BE TERMED AS DEBATABLE OR EVEN TWO VIEWS WERE POSSIBLE; AND AS SUCH IN THE FACTS O F THE CASE IT HAS TO BE HELD THAT ASSESSEE HAD INDEED FURNISHED INACCURATE PARTICULA RS OF ITS INCOME AND AO HAS RIGHTLY IMPOSED PENALTY U/S. 271(1)(C) FOR THAT DEFAULT. AC CORDINGLY LEVY OF PENALTY OF RS. 2,05, 26,780/- (*) U/S. 271 (1) (C) IN THE YEAR UNDER CON SIDERATION FOR THE SAID DEFAULT IS CONFIRMED.[(*) RS. 2,31,18,488/- FOR AY 2005-06] AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 THE RESPECTIVE CASES OF THE PARTIES INFORM THE FOREGOING NARRATIVE OF THE EVENTS LEADING TO THE APPEALS TO THE TRIBUNAL, THE SECOND APPELLATE AUTHORITY UNDER THE ACT. BEFORE US, THE ASSESSEE DID NOT DISPUTE THE FACTUAL FINDIN GS BY THE TPO, EVEN AS REFERENCE WAS MADE TO HIS ORDER U/S.92CA(3) FOR A.Y. 2004-05 (PB PGS.29-37) DURING THE COURSE OF HEARING. WE DO NOT FIND ANY REFERENCE THERETO EVEN IN THE ASSESSEES WRITTEN SUBMISSIONS ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 7 DATED 12.09.2013 TO THE LD. CIT(A) (COPY ON RECORD) , NON-CONSIDERATION OF WHICH HAS BEEN ALLEGED PER GROUND NO. 1:4 OF THE APPEALS FOR BOTH THE YEARS. THE SAME, IN FACT, COULD NOT BE IN THE ABSENCE OF, AS AFORE-NOTED, ANY MATER IAL BEING ADDUCED IN THE PENALTY PROCEEDINGS, OR EVEN AT THE APPELLATE STAGE, REBUTT ING THE CLEAR AND DEFINITE FINDINGS OF FACT BY THE TPO, WHICH GOT SUBSEQUENTLY CRYSTALLIZE D, AND ONLY UPON AFFORDING OPPORTUNITY TO THE ASSESSEE TO REBUT THE SAME, IN T HE ORDERS OF THE AUTHORITIES BELOW IN THE QUANTUM PROCEEDINGS, CULMINATING IN THAT BY THE TRI BUNAL, THE FINAL FACT FINDING AUTHORITY. NO IMPROVEMENT IN ITS CASE, I.E., ON FACTS, HAVING BEEN MADE IN THE PENALTY PROCEEDINGS, THE SAME STOOD DISCOUNTENANCED BY THE REVENUE, AS A PPARENT FROM THE RELEVANT ORDERS. THE ASSESSEE, HOWSOEVER FEEBLY, STATING OF THE COST S AS HAVING BEEN INCURRED FROM A COMMERCIAL PERSPECTIVE, WE CONSIDER IT INCUMBENT TO STATE EXPLICITLY THE DEFINITE FINDINGS OF FACT, AS DETERMINED, IN THIS REGARD: (REFER TPO S ORDERS FOR THE RELEVANT YEARS) A) THE ASSESSEE FAILED TO FURNISH THE DETAILS IN SU PPORT OF ITS CONTENTIONS AS MADE BEFORE THE TPO ON BEING SPECIFICALLY CALLED UP ON TO DO SO BY HIM; B) THE ASSESSEES ROLE AS PER THE AGREEMENT WAS TO EXECUTE THE PROJECTS AND RENDER SOFTWARE DEVELOPMENT SERVICES. IT WAS, ACCOR DINGLY, NOT ASSIGNED ANY MARKETING FUNCTION PER THE MASTER SERVICE AGREE MENT (MSA). THE QUESTION OF IT BEING ALLOCATED MARKETING COST, OR A PART THEREOF, THEREFORE, DOES NOT ARISE. IN FACT, NEITHER HAS THE ASSESSEE S IMILARLY ALLOCATED ANY DEVELOPMENT COST TO DELOITTE, NOR PARTOOK ANY PROFI T IN RESPECT OF THE MARKETING SERVICES BEING CARRIED ON BY DC, I.E., ON ACCOUNT OF COST ALLOCATION; C) THE RENDERING OF ANY SERVICES OR ITS BENEFITS TO THE ASSESSEE COULD ALSO NOT BE EXHIBITED BY IT; D) THERE WAS NO SEPARATE DOCUMENTATION QUA THE COST ALLOCATION AS MADE ON AND INCURRED BY THE ASSESSEE; AND E) THOUGH STATED IN TERMS OF COSTS ALLOCATION, THE SAME IS ONLY A MANNER OF INCURRING THE COST FOR MARKETING SERVICES STATED TO BE AVAILED BY THE ASSESSEE. THE ONLY EVIDENCE ADDUCED WAS QUA ACCOUNTS RECEIVABLE, RISK AND RESPONSIBILITY QUA WHICH STANDS SPECIFICALLY ASSIGNED UNDER THE AGREEMENT TO DC. THERE HAS BEEN NO RENDERING OF ANY MARKETING SERVICES TO THE ASSESSEE, WHILE THE DC STANDS ADEQU ATELY COMPENSATED FOR UNDERTAKING THE MARKETING FUNCTION. ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 8 THE COST OF THE SAID SERVICES STOOD, ACCORDINGLY, D ETERMINED BY HIM AT NIL; THERE BEING IN FACT NO REVISION BY THE ASSESSEE OF THE AUDITORS R EPORT/S U/S.92E (COPY ON RECORD) SUPPORTING ITS REVISED CLAIM/S. FURTHER, FOR A.Y. 2005-06, THE ASSESSEE RATHER SOUGHT TO JUSTIFY THE OPERATING MARGIN, BEING, AT 17.68% , LOWER THAN THE COMPARABLE MEAN OF 27.31% , ON THE BASIS OF DISALLOWANCE OF ITS CLAIM FOR M ARKETING SERVICES AVAILED, WHICH WOULD OPERATE TO INCREASE ITS OPERATING MARGIN TO 2 7.56% , I.E., MORE THAN THE BENCH MARK. REFERENCE IN THIS REGARD MAY ALSO BE MADE TO PARA 3 3 OF THE TRIBUNALS ORDER DATED 30.03.2012 (SUPRA) BY WAY OF ABUNDANTLY CLARIFYING FACTS: 33. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE COMPANY ADMITS THAT (I) MARKETING SERVICES PROVIDED BY DELOITTE TO THE ASSESSEE COMPA NY IS A SEPARATE CLASS OF INTERNATIONAL TRANSACTIONS BETWEEN THE ASSESSEE AND DELOITTE; (II I) IT IS ALSO CLEAR THAT THE ASSESSEE COMPANYS ENTIRE REVENUE ARE ONLY FROM DELOITTE AND THAT TOO FROM JOB WORK. IT IS NOT A CASE WHERE THE CONTRACTS FROM CLIENTS ARE PASSED ON TO THE ASSESSEE ON A BACK-TO-BACK BASIS. ONLY A PORTION OF THE WORK OBTAINED BY DELOI TTE FROM THE CLIENT, WHERE THE ASSESSEE HAS THE REQUIRED SKILL AND CAPABILITIES I.E., THAT CERTAIN JOB WORK IS GIVEN BY DELOITTE TO THE ASSESSEE; (IV) BILLING IS DONE ON AN HOURLY BASIS; (VI) THERE IS NO WORK OR JOB THAT THE ASSESSEE COMPANY HAS OBTAINED FROM ANY THIRD PARTY FOR ALL THESE ASSESSMENT YEARS DIRECTLY OR INDIRECTLY I.E., THE ASSESSEE DOES NOT RENDER ANY SOFTWARE SERVICES TO ANY THIRD PARTY EITHER IN INDIA OR OUTSIDE INDIA. NO DOUBT, THEREFORE, THE DC IS MARKETING THE ASSESS EES CAPABILITIES, BUT THEN THAT IS PRECISELY WHAT IT IS REQUIRED TO DO UNDER ITS ARRAN GEMENT WITH THE ASSESSEE. THE SAME CONSTITUTES ITS BUSINESS, AND NOT THAT OF THE ASSE SSEE, WHICH IS ONLY PROVIDING JOB WORK (CONSULTANCY) SERVICES TO IT THROUGH ITS OFF-SHORE AND ON-SHORE FACILITIES. THERE IS, THUS, NO QUESTION OF ANY REIMBURSEMENT THEREFOR BY THE AS SESSEE TO DC. HOW, THEN, ONE MAY ASK, DOES IT LIE IN THE ASSESSEES MOUTH TO CONTEND THAT THE EXPENSES OF FIVE SENIOR MANAGER LEVEL PERSONNEL OF DC WAS BORNE FROM A COMM ERCIAL PERSPECTIVE OR AS A PRUDENT BUSINESSMAN ? THEN, AGAIN, HOW CAN THE ASSESSEE, IN VIEW THEREO F, SEEK TO JUSTIFY ITS CLAIM OF HAVING REVISED ITS RETURNS FOR THE RELEVANT YEAR S WITH THE VIEW TO AVOID LITIGATION IN RELATION TO THE ADMISSIBILITY OF ITS CLAIM. IN FACT , LEST ONE MAY BE PERSUADED TO CONSIDER IT IN LIGHT OF THE ARGUMENT THAT THE ADJUSTMENT IS OF NO CONSEQUENCE, RESULT AS IT DOES IN LIKE INCREASE IN THE DEDUCTION U/S.10A, IT MAY BE CLARIF IED, AS BY THE LD. DEPARTMENTAL REPRESENTATIVE (DR) DURING HEARING, THAT FOR BOTH T HE PRECEDING YEARS OF ITS EXISTENCE, ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 9 I.E., THE PREVIOUS YEARS RELEVANT TO A.YS 2002-03 A ND 2003-04, THERE WAS NO CLAIM FOR DEDUCTION U/S.10A, SO THAT THE ADJUSTMENT HAD NO TA X IMPACT, EXCLUDING PENALTY. 5.2 THE FOREGOING DISCUSSION AND EMPHASIS ON THE FA CTUAL ASPECTS OF THE CASE, EVEN AS THE ASSESSEE DOES NOT PURSUE ITS CASE, IN VIEW OF, AND ONLY UNDERSTANDABLY, THE ADMISSION OF A MISTAKE OF A WRONG CLAIM QUA THE MARKETING EXPENSE, WITH ANY FORCE, IS MADE FOR ONE MORE REASON. THAT IS, WHETHER, THE REVISION BY THE ASSESSEE OF ITS RETURN/S IS VALID. WE DO NOT CONSIDER IT AS SO. TRUE, A WRONG STATEMENT COUL D BE DISCOVERED BY AN ASSESSEE AT ANY TIME, AND THE TPOS REPORT FOR THE PRECEDING YEARS ARE INDEPENDENT OF THAT MAY FOLLOW FOR THE CURRENT YEAR/S, SO THAT NOTHING TURNS ON THE TP OS REPORTS FOR THOSE YEARS. HOWEVER, REFERENCE TO THE TPO FOR THE CURRENT YEAR/S, WHICH FOR BOTH THE YEARS, BEING ON 01.09.2005 AND 23.01.2006 FOR THE TWO YEARS RESPECTIVELY, IS MUCH PRIOR TO T HE DATE OF REVISION, IS WITHOUT DOUBT RELEVANT IN-AS-MUCH AS AN ENQUIRY WIT H REGARD TO THE ALP OF THE INTERNATIONAL TRANSACTIONS, INCLUDING FOR MARKETING SERVICES, WOULD FOLLOW. RATHER, FOR ALL WE KNOW, EVEN THE NOTICES TO THE ASSESSEE BY THE TP O WOULD HAVE BEEN ISSUED PRIOR TO THE REVISION; THE LD. CIT(A) IN FACT STATING OF THE PRO CEEDINGS BEFORE THE TPO BEING IN PROGRESS AT THE RELEVANT TIME. THE REVISION MADE IN ANTICIPATION OF THE PROPOSED ADJUSTMENT IS THUS NOT VOLUNTARY BUT GUIDED BY THE MOTIVE TO ESCHEW AN ADJUSTMENT AND, RESULTANTLY, THE DEBILITATING IMPACT OF SECTION 92C (4). VOLUNTARINESS, AND BONA FIDES , IT IS TRITE LAW, ARE ESSENTIAL INGREDIENTS OF A VALID REV ISION U/S.139(5), WHILE IN THE PRESENT CASE THE ASSESSEE IS WELL AWARE OF HAVING MADE A CLAIM P ER ITS RETURN, BEING IN FACT MADE YEAR AFTER YEAR, FOR WHICH IT IS UNABLE TO STATE, MUCH L ESS ESTABLISH, ANY BASIS. IN ANY CASE OF THE MATTER, THE REVISION IS OUTSIDE THE PURVIEW OF SECT ION 139(5) FOR A.Y. 2005-06 IN-AS-MUCH AS THE RETURN IS FILED OUTSIDE THE TIME LIMIT PRESC RIBED THERE FOR UNDER LAW, WHICH EXPIRES ON 31.03.2007 , WHILE THE SECOND RETURN WAS FILED ON 14.12.2007. 5.3 WE, NEXT, CONSIDER THE ASSESSEES CONTENTION TH AT IT HAVING ADMITTED TO A WRONG CLAIM, INCREASING ITS INCOME TO THAT EXTENT, DEDUCT ION U/S.10A COULD NOT BE VALIDLY DENIED, IN WHICH CASE NO PENAL CONSEQUENCE WOULD FOLLOW AS THE RETURNED AND ASSESSED INCOME ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 10 WOULD BE THE SAME. TOWARD THIS, IT CLAIMS THE TRIBU NALS ORDER IN QUANTUM PROCEEDINGS, REJECTING THE SAID CLAIM (I.E., U/S.10A) AS NOT COR RECT IN-AS-MUCH AS IT STATES THAT THE CONDITION/S OF SECTION 10A IS NOT COMPLIED WITH. TH E TRIBUNAL, IT IS STATED, HAS FAILED TO APPRECIATE THAT THE DISALLOWANCE WAS WITH REFERENCE TO AN ITEM OF EXPENDITURE CLAIMED IN THE COMPUTATION OF ITS INCOME OF THE ELIGIBLE BUSIN ESS, AND NOT WITH REFERENCE TO AN ITEM OF INCOME PER SE. INCOME WOULD STAND ENHANCED AS A DIRECT CONSEQUENC E OF DISALLOWANCE, SO THAT WHERE OTHERWISE ELIGIBLE, DEDUCTION U/S.10A WOULD FOLLOW DIRECTLY, AS EXPLAINED BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. GEMS JEWELLERY INDIA LTD . [2010] 330 ITR 175 (BOM). THE ARGUMENT IS FLAWED FOR MORE THAN ONE REASON, NOTWITHSTANDING THAT THE CITED DECISION, EVEN OTHERWISE BINDING ON US, L AYS DOWN THE CORRECT PROPOSITION OF LAW THAT THE DISALLOWANCE OF AN EXPENSE CLAIMED IN THE COMPUTATION OF INCOME HAS NO BEARING ON THE QUALITY OR THE CHARACTER OF THE SAID INCOME BUT ONLY ON ITS QUANTUM, SO THAT WHERE ENTITLED TO DEDUCTION, WOULD CONTINUE TO BE SO QUA THE INCREASED INCOME IN CONSEQUENCE OF THE DISALLOWANCE. THE SAME, RATHER, CAN BE SAID TO BE A PURE MATTER OF FACT RATHER THAN OF A LAW, I.E., UNLESS OF COURSE THERE IS A BAR OR ANY OTHER STATUTORY IMPEDIMENT, AS INDEED ATTENDS THE INSTANT CASE PER SECTION 92C(4), WHICH READS AS UNDER: COMPUTATION OF ARMS LENGTH PRINCE. 92C. (1) THE ARMS LENGTH PRINCE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED (2) . (3) . (4) WHERE AN ARMS LENGTH PRICE IS DETERMINED BY TH E ASSESSING OFFICER UNDER SUB-SECTION (3), THE ASSESSING OFFICER MAY COMPUTE THE TOTAL INCOME OF THE ASSESSEE HAVING REGARD TO THE ARMS LENGTH PRICE SO DETERMINED: PROVIDED THAT NO DEDUCTION UNDER SECTION 10A OR SECTION 10AA OR SECTION 10B OR UNDER CHAPTER VI-A SHALL BE ALLOWED IN RESPE CT OF THE AMOUNT OF INCOME BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER THIS SUB-SECTION. WE HAVE ALREADY OPINED AS TO WHY THE REVISION BY TH E ASSESSEE IN THE INSTANT CASE CANNOT BE CONSIDERED AS A VALID REVISION UNDER LAW. THAT BEING THE CASE, THE REVISED RETURN IS NON-EST IN LAW AND THE ONLY VALID RETURN BY THE ASSESSEE IS ITS ORIGINAL RETURN/S, ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 11 WHEREBY CLAIM FOR MARKETING EXPENSES HAS BEEN MADE. ACCORDINGLY, NOTWITHSTANDING A CLAIM TO REVISION, WHICH IS THUS NOT VALID IN LAW, THE ENHANCEMENT OF ITS INCOME IS ONLY IN CONSEQUENCE OF ITS ADJUSTMENT TO THE RETURNED INCOM E U/S.92C(4) R/W.S. 92CA(4). THE RIGOR OF SECTION 92C(4) IS THUS ATTRACTED, AND DESP ITE THE ASSESSEES INCOME BEARING THE SAME QUALITY OR CHARACTER, WOULD STAND DISQUALIFIED TO THAT EXTENT FOR BEING ALLOWED DEDUCTION U/S.10A IN ITS RESPECT. IN OTHER WORDS, T HE ASSESSEES ARGUMENT, VALID IN PRINCIPLE, FAILS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SPECIFIC PROVISION OF LAW GOVERNING THE SAME. FURTHER, WE OBSERVE THAT THE AS SESSEE IS SELECTIVELY READING PARA 51 OF THE TRIBUNALS ORDER DATED 30.03.2012 (SUPRA), O VERLOOKING ITS FINDING PER PARA 53 THEREOF (ALSO REFER PAR 4.2 OF THIS ORDER). EVEN SO , WE ARE MINDFUL OF THE FACT THAT WE ARE IN PENALTY PROCEEDINGS, SO THAT A DISCLOSURE, EVEN IF BARRED BY LIMITATION AS TO TIME, MAY YET BE VALID FROM THE STAND POINT OF THE LEVY OF PENALT Y IF OTHERWISE MADE BONA FIDE . WE HAVE HOWEVER FOUND THE DISCLOSURE FOR BOTH THE YEARS AS NOT VOLUNTARY. THE ASSESSEE HAS IN FACT BEEN CLAIMING THE SAID EXPENDITURE, STATED TO BE BY WAY OF REIMBURSEMENT TO ITS ASSOCIATE ENTERPRISE (AE), YEAR AFTER YEAR SINCE IN CEPTION, FAILING TO EXHIBIT OR SUBSTANTIATE ITS CASE FOR ANY OF THE YEARS. IT IS T HIS THAT LED THE REVENUE TO CLAIM THE DISCLOSURE (DISALLOWANCE) AS HAVING BEEN MADE ON BE ING CORNERED, WITH THE VIEW TO PREEMPT AN ADJUSTMENT AND, FURTHER, AVOID THE RIGOR OF SECTION 92C(4), I.E., VIDE FIRST PROVISO THERETO. THE FINDING BEING ONE OF FACT, HAS ATTAIN ED FINALITY WITH THE TRIBUNALS ORDER IN THE QUANTUM PROCEEDINGS, EVEN AS OUR EXAMI NATION; THE ASSESSEE CLAIMING TO HAVE MADE THE PAYMENT FROM A COMMERCIAL PERSPECTIVE, FIN DS OUR INDEPENDENT ENDORSEMENT. FAR FROM IT, WE HAVE FOUND THE ASSESSEES CLAIM TO BE BALD AND DE HORS THE FACTS BORNE OUT BY THE MATERIAL ON RECORD. CONTINUING FURTHER, THOUGH THE LANGUAGE OF SECTION 92C(4) IS CLEAR AND UNAMBIGUOUS, IT MAY BE RELEVANT TO DISCUSS THE RATI ONALE OF THE FIRST PROVISO THEREOF. IT NEEDS TO BE APPRECIATED THAT THE TRANSFER PRICING ( TP) ADJUSTMENT NOTWITHSTANDING, THE AMOUNT REPRESENTED THEREBY HAS NOT BEEN ACTUALLY RE CEIVED IN INDIA OR, AS THE CASE MAY BE, HAS ACTUALLY GONE OUT OF THE COUNTRY. THIS ASPE CT STANDS EXPLAINED BY CBDT VIDE ITS CIRCULAR NO. 14, REFERENCE, QUOTING A PART THEREOF (POINT 55.12) - TO THE SAME EFFECT AS ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 12 STANDS EMPHASIZED BY US, HAS BEEN REFERRED TO AND H IGHLIGHTED IN THE ASSESSMENT ORDER FOR A.Y. 2005-06. IN THE FACTS OF THE CASE, THE PAYMENT TO THE EXTENT OF THE EXPENDITURE CLAIMED HAS ALREADY BEEN PAID (OSTENSIBLY BY WAY OF REIMBURSEMENT), WHILE NO SERVICES HAVE BEEN FOUND AS A FACT TO HAVE BEEN RENDERED OR AVAILED (RESULTING IN THEIR BEING VALUED AT NIL). IN OTHER WORDS, THE FOREIGN EXCHANGE TO TH AT EXTENT STANDS LOST TO THE COUNTRY, WARRANTING A DENIAL OF DEDUCTION TO WHICH THE AMOUN T MAY OTHERWISE BE ELIGIBLE. THE ASSESSEE, IN FACT, PLEADS OF THE SAME AS BEING CONS TRUED AS DISCOUNT TO DC, THE AE UNDER REFERENCE, FROM WHOM ITS INCOME ARISES (REFER PARA 25 OF THE TRIBUNALS ORDER (SUPRA)). REFERENCE IN THIS REGARD MAY ALSO BE MADE TO SECTIO N 92(2) OF THE ACT. SURELY, THE DISALLOWANCE OR, MORE PRECISELY, THE TP ADJUSTMENT OF THE MARKETING EXPENSES WOULD NOT HAVE RESULTED BUT FOR THE REFERENCE BEING MADE TO T HE TPO TO DETERMINE THE ALP OF THE RELEVANT INTERNATIONAL TRANSACTION. IT IS IN THIS VIEW OF THE MATTER, AND THE INCIDENT LEGAL FRAMEWORK, THAT THE TRIBUNAL STATES OF THE INCOME A RISING OUT OF ADJUSTMENT AS BEING NOT DERIVED FROM EXPORT . IN FACT, WE DO NOT THINK THAT WE NEED TO, IN VIEW OF THE EXPRESS PROVISION OF SECTION 92C(4), TRAVEL THUS FAR, AND T HE VERY FACT THAT THE TP ADJUSTMENT STANDS MADE AND UPHELD, WOULD BE SUFFICIENT TO DENY A CLAIM FOR DEDUCTION U/S.10A. 5.4 COULD IT THEN BE SAID WITH ANY MEASURE OF CREDITAB ILITY THAT A DEDUCTION U/S.10A WOULD YET ENSUE, OR THAT THE ASSESSEES CLAIM IS LE GAL, SO THAT NO PENALTY COULD ARISE ? THE ARGUMENT, EVEN OTHERWISE, HAS A DEEP FAULT LINE. AN Y ADJUSTMENT IN ASSESSMENT IS ONLY WITH REFERENCE TO SOME PROVISION OF LAW, SO THAT TH E ISSUE BY THAT SCORE BECOMES LEGAL, EXCLUDING PENALTY! THE ONLY AND THE TRUE IMPORT OF THE ARGUMENT IS THAT WHERE THE ISSUE IS DEBATABLE, AMENABLE TO MORE THAN ONE VIEW, PENALTY (FOR CONCEALMENT OR FURNISHING INACCURATE PARTICULARS OF INCOME) COULD NOT BE LEVI ED, EVEN AS STATED BY THE LD.CIT(A). THIS IS FOR THE SIMPLE REASON THAT THE VIEW BEING P URSUED BY THE ASSESSEE BECOMES ITS EXPLANATION, PRECLUDING INVOCATION OF EITHER CLAUSE (A) OR (B) OF EXPLANATION 1 TO SECTION 271(1)(C). NOTHING MORE AND NOTHING LESS. WHICH PROVISION OF LAW, AND WHAT INTERPRETATION THEREOF, WHICH WOULD THEN HAVE TO BE CONSIDERED ON THE TOUCHSTONE OF REASONABLENESS, IS, ON THE OTHER HAND, BEING PRESSE D BY THE ASSESSEE IN THE INSTANT CASE ? ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 13 WE ARE AT LOSS TO FATHOM; BEING CONSPICUOUS BY ITS ABSENCE. THE ARGUMENT IS WITHOUT ANY SUBSTANCE OR BASIS IN FACTS. THE ASSESSEES ENTIRE CASE IS DE HORS ANY EXPLANATION, I.E., TOWARD ITS CLAIM, EITHER FOR THE EXPENDITURE OR FOR DEDUCTION U/S.10A IN THE INSTANT CASE, ONLY ON THE BASIS OF WHICH THE APPLICATION OR OTHER WISE OF EXPLANATION 1 IS TO BE ADJUDGED. THIS IS AS IN ITS ABSENCE, OR ON BEING NO T SUBSTANTIATED OR NOT PROVEN AS BONA FIDE , EXPLANATION 1 WOULD STAND INVOKED, ATTRACTING PENALTY U/S.271(1)( C). IN FACT, A TP ADJUSTMENT ATTRACTS EXPLANATION 7 TO THE PROVISION, SO THAT ALL THAT THE ASSESSEE IS REQUIRED TO DO IN SUCH A CASE, TO SAVE THE LEVY OF PENALTY U /S.271(1)(C), IS TO PROVE THAT THE PRICE PAID FOR THE INTERNATIONAL TRANSACTION BY WAY OF MA RKETING SERVICES AVAILED WAS COMPUTED ON ARMS LENGTH PRINCIPLE, FOLLOWING THE MANNER PRE SCRIBED, IN GOOD FAITH AND DUE DILIGENCE. IT IS CLEAR THAT ALL THAT THE LAW THEREBY REQUIRES FOR THE ASSESSEE IS TO ESTABLISH HIS BONA FIDES, FOUND SERIOUSLY WANTED BY THE REVEN UE . CONTRAST AND JUXTAPOSE THIS WITH THE FACT THAT IT HAS BEEN FOUND THAT NO SERVICES HA VE IN FACT BEEN RENDERED OR AVAILED OF IN THE INSTANT CASE, WITH THE ASSESSEE BEING UNABLE TO PROVE THE TRUTH OF THE TRANSACTION, STATING IT TO BE CONSIDERED AS A DISCOUNT TO ITS PR INCIPAL BUYER, AN AE. THIS FACT, WHICH IS IN CONTRADICTION TO ITS OWN TP REPORT U/S.92E (PER FORM 3CEB), STANDS ADMITTED BY THE ASSESSEE, CLAIMING, BY ITS SUO MOTU DISALLOWANCE, TO HAVE BEEN WRONGLY CLAIMED. HOW, IT DOES NOT EXPLAIN? THAT IS, THE VERY SAME REPORT THAT THE ASSESSEE IS UNDER LAW OBLIGED TO DEFEND AND PROVE AS REPRESENTING A TRUE AND FAIR AC COUNT OF ITS INTERNATIONAL TRANSACTION/S, I.E., AS BEING UNDERTAKEN FOLLOWING THE ARMS LENGTH PRINCIPLE, STANDS DISOWNED BY IT . IT IS NOT SURPRISING, THEREFORE, THAT NO REVISED RE PORT U/S.92E ACCOMPANIES THE REVISED RETURNS. THOUGH THE ASSESSEE SEEKS TO JUS TIFY THE SAME ON THE BASIS THAT THERE IS NO PROVISION FOR REVISION OF THE SAID REPORT, WE FIND THE SAME SPECIOUS AND PER SE UNACCEPTABLE. ANYTHING WHICH IS WRONG, OR DISCOVERE D AS SO, IS NOT VALID. THE SAME THEREFORE HAS TO BE NECESSARILY WITHDRAWN, ADMITTIN G THE SAME AS NOT CORRECT AND, FURTHER, FURNISHING IN ITS STEAD, WHAT IT DEEMS AS THE CORRE CT VERSION. THE SAME WOULD ONLY BRING FORTH AND INFORM THE REASON AS TO WHAT INFIRMITY AT TENDED THE SAME AS WELL EXHIBIT THE VALIDITY OF THE SUBSTITUTED, CORRECT REPORT. THE TP REPORT, IT NEEDS TO BE APPRECIATED, IS ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 14 THE ASSESSEES JUSTIFICATION FOR HAVING INCURRED TH E EXPENDITURE ON AN ARMS LENGTH BASIS, I.E., CONSTITUTES ITS EXPLANATION, SO THAT NOTWITHS TANDING A DISAGREEMENT OR DIFFERENCE WITH THE REVENUE WITH REGARD TO ITS QUANTUM, THE ASSESSE E CAN, IN VIEW OF ITS EXPLANATION, DULY SUBSTANTIATED IN-AS-MUCH AS THE SAID REPORT IS ONLY BASED ON THE ASSESSEES BOOKS OF ACCOUNT, UNDERLYING CONTRACTS, DOCUMENTS (WHICH THE LAW OBLIGES IT TO MAINTAIN AND FURNISH ON BEING CALLED UPON TO S.92D), COMPARABL E CASES, ETC., WHETHER CONSTRUED WITH REFERENCE TO EXPLANATION 1 OR EXPLANATION 7 THEREOF, WOULD SAVE PENALTY U/S.271(1)(C) FOR CONCEALMENT OF, OR FURNISHING INACCURATE, PARTI CULARS OF INCOME. WHILE, WHAT THE ASSESSEE DOES IN THE PRESENT CASE IS TO DISCLAIM TH E EXPENDITURE OR WITHDRAW THE CLAIM IN ITS RESPECT. IN SUPPORT OF WHICH TRANSACTION THEN, ONE MAY ASK, COULD IT SUBMIT THE REVISED REPORT ? THE PLEA IS FALSE. THIS IS PRECISELY WHY WE CALLE D ITS ARGUMENT OR EXPLANATION FOR NOT FURNISHING A REVISED REPORT/S AS SPECIOUS. NO W ONDER, NO REPORT ACCOMPANIES THE NON- CLAIM OF THE SAID EXPENSE, AS ALSO AFORE-NOTED, FOR A.Y. 2006-07. THE TRANSACTION OR THE EXPENDITURE IN ITS RESPECT, STANDS ALREADY UNDERTAK EN OR, AS THE CASE MAY, INCURRED. THE SAME CANNOT THEREFORE BE DENIED AND NOTHING MUCH TU RNS IN LAW ON THE ASSESSEE NOT CLAIMING THE SAID EXPENSES. REFERENCE IN THIS CONTE XT MAY BE MADE TO SECTION 92CA(2B), INSERTED ON THE STATUTE W.R.E.F. 01.06.2002. IT IS NOT THE ASSESSEES CASE THAT THE RELEVANT CONTRACT STANDS RESCINDED, AND THAT THEREFORE THE A MOUNT BECOMES RECOVERABLE TO THE ASSESSEE. THE SAME, AS OBSERVED EARLIER, STANDS IN FACT PAID YEAR AFTER YEAR. IN SUM, RATHER THAN SUPPORTING ITS CLAIM FOR EXPENDITURE AS INCURR ED AND CLAIMED, WHICH, WHERE SO DONE VALIDLY, WOULD ESCHEW OR SAVE PENALTY, WHETHER CONS IDERED FROM THE STANDPOINT OF EXPLANATION 1 OR EXPLANATION 7 TO SECTION 271(1)(C), BEING THE ASSESSEES EXPLANA TION TOWARD ITS CLAIM OF HAVING INCURRED A BUSINESS EXPE NDITURE ON COMMERCIAL PRINCIPLES, THE ASSESSEE DISOWNS THE SAME, ADMITTING IT TO HAVE NOT BEEN VALIDLY MADE. ONLY VOLUNTARINESS OF THE WITHDRAWAL OF THE EXPENDITURE COULD UNDER THE CIRCUMSTANCES EXCLUDE PENALTY, WHILE WE HAVE ALREADY OBSERVED THE SAID WI THDRAWAL TO BE NOT SO, BUT GUIDED THE BY CONSIDERATION OF BEING UNABLE TO PROVE ITS CLAIM , AS INDEED BY ALL CONCERNED IN BOTH IN THE QUANTUM AND THE PENAL PROCEEDINGS . EXPLANATION 1 TO SECTION 271(1)(C), THUS, GETS ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 15 ATTRACTED IN FULL RIGOR; THE ASSESSEES CASE BEING, AS AFORE-STATED, SANS ANY EXPLANATION, MUCH LESS SUPPORTED AND BONA FIDE . THE ASSESSEE IN FACT CAN BE SAID TO HAVE UNDER THE CIRCUMSTANCES MADE A BOGUS CLAIM PER ITS ORIGINAL R ETURN / S . FURTHER, THE ADJUSTMENT TO INCOME IN ASSESSMENT ARISING ON ACCOUNT OF A TP ADJ USTMENT, SO THAT MONEY TO THAT EXTENT HAS ALREADY EITHER NOT BEEN RECEIVED IN OR, AS THE CASE MAY BE, GONE OUT OF THE COUNTRY, CORRESPONDING DEDUCTION U/S.10A, TO WHICH IT MAY OT HERWISE BE ENTITLED TO IN LAW, SHALL PER FORCE LAW BE NOT AVAILABLE TO IT. THIS IS PRECISELY WHY THE LAW, PER EXPLANATION 7 TO SECTION 271(1)(C) REQUIRES THE ASSESSEE TO JUSTIFY ITS INTERNATIONAL TRANSACTION ON THE BASIS OF BONA FIDES AN ESSENTIAL ATTRIBUTE SAVING PENALTY, SO THAT N O PENALTY, DESPITE ENHANCEMENT IN INCOME DUE TO DENIAL OF DEDUCTION U/ S.10A ON THE AMOUNT OF ADJUSTMENT, SHALL FOLLOW. THE ASSESSEE, THUS, HAS NO CASE AT TH E THRESHOLD, WHICH GETS ABORTED BY IT DISCLAIMING ITS TRANSACTION. THE QUESTION OF PROVIN G ITS INTERNATIONAL TRANSACTIONS, WHICH WOULD BE ITS EXPLANATION, THUS JUST DOES NOT ARISE. 5.5 THE ASSESSEES NEXT PLEA IS OF A COMPLETE DISCL OSURE OF MATERIAL FACTS, MADE, ADVERTING TO THE AUDIT REPORT U/S.92E. WE ARE AT LO SS TO, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, FATHOM EVEN THE IMPORT O F THE ARGUMENT. IT IS ONLY ON FAILING, AND ABYSMALLY AT THAT, TO DEMONSTRATE ANY BUSINESS PURPOSE OF ITS RELEVANT INTERNATIONAL TRANSACTION THAT A TP ADJUSTMENT, VALUING THE SAME AT NIL, WAS ADVISED BY THE TPO AND CAME TO BE MADE. DOES THE ASSESSEES RETURN OR THE TP REPORT OR ITS BOOKS OF ACCOUNT, ETC. ON WHICH THE RETURN IS BASED, STATE SO OR LIKEWISE, I.E., THAT NO SERVICES STOOD RENDERED OR AVAILED OF BY THE ASSESSEE IN RESPECT OF THE MARKET ING SERVICES. IMPLICIT IN THE CLAIM OF REIMBURSEMENT OF EXPENDITURE IS THE CLAIM OF SERVIC ES HAVING BEEN RENDERED AND AVAILED OF, WHILE THE ASSESSEE COULD NOT SUPPORT THE SAID C LAIM WITH ANY MATERIAL OR DOCUMENTATION AT ANY STAGE NOR DEMONSTRATE ANY BENE FIT HAVING BEEN RECEIVED ON ACCOUNT OF PAYMENT (REFER PARA 4.1 OF THIS ORDER). IT IS ON LY THE VERIFICATION PROCEDURE UNDER THE ACT (BY WAY OF REFERENCE TO AND INQUIRY BY THE TPO) WHICH BRINGS FORTH THE COMPLETE ABSENCE OF BUSINESS PURPOSE, LEADING TO ITS VALUATI ON AT NIL AND, RESULTANTLY, A RETRACTION BY THE ASSESSEE. THE DISCLOSURE PER THE AUDIT REPORT U /S. 92E FORMING PART OF ITS RETURN/S IS ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 16 THUS BOTH FALSE AND MISLEADING. HOW, WE WONDER, COULD IT THEN UNDER THE CIRCUMSTANC ES SEEK REFUGE UNDER THE SAID PLEA, WHICH IS THUS NOT ONLY NOT VALID BUT ALSO CONTRARY TO THE FACTS OF THE CASE . THE ARGUMENT OF COMPLETE DISCLOSURE, UNLESS THE S AME IS TRUE, IS OF LITTLE CONSEQUENCE IN LAW AND, IN FACT, ITSELF FALSE. FURT HER, EVEN AS A LEGAL PLEA, THE SAME HAS SEVERE LIMITATIONS TO IT, FOR ONE COULD CLAIM ANY E XPENDITURE, STATING THAT NO PENALTY COULD FOR THAT REASON ARISE, EVEN AS THE LAW, PER EXPLANATION 7 , OR EXPLANATION 1 FOR THAT MATTER, TO SECTION 271(1)(C) IS ABUNDANTLY CLEAR, SO THAT T HE SAID REQUIREMENT HAS TO BE COUPLED WITH SUBSTANTIATION OF THE EXPLANATION, WHICH IN TH E PRESENT CASE IS THE ASSESSEES AUDIT REPORT FURNISHED U/S. 92E, TOGETHER WITH THE DOCUME NTS MAINTAINED IN ITS RESPECT, MADE BONA FIDE . THE SAID ARGUMENT IN FACT ASSUMES VALIDITY IN CIR CUMSTANCES SUCH AS OF DEBATABLE LEGAL ISSUES WHERE THE GIVEN FACTS, TRULY DISCLOSED, COULD YET LEAD TO THE VIEW BEING ADOPTED OR CANVASSED BY THE ASSESSEE. THE ARG UMENT, THUS, IS INVALID AND OF NO MOMENT. 5.6 THE PLEA OF REVISION AS BEING MOTIVATED BY THE CONSIDERATION TO AVOID LITIGATION QUA THE ADMISSIBILITY OF ITS CLAIM IS EQUALLY WITHOUT BASIS IN FACTS AND, IN THE CLEAR AND PROVEN FACTS OF THE CASE, ONLY NEEDS TO BE STATED T O BE REJECTED, BEING FALSE (ALSO REFER PARA 5.1 OF THIS ORDER). REFERENCE IN THIS CONTEXT MAY A LSO BE MADE TO THE DECISION IN THE CASE OF CIT V. MAK DATA LTD . [2013] 352 ITR 1 (DEL), REFERRED TO BY THE LD. DR , WHICH STANDS SINCE UPHELD BY THE APEX COURT . AS SUCH, LOOKED AT FROM ANY ANGLE THERE HAS BEEN BOTH CONCEALMENT AS WELL AS FURNISHING INACCURATE PARTIC ULARS OF INCOME IN THE PRESENT CASE, EVEN AS THERE MAY BE AREAS OF OVERLAP AND, FURTHER, THE REVENUE HAS CLEARLY MADE OUT A CASE FOR THE LATTER. THAT A PLAUSIBLE EXPLANATION, THE ONUS TO SUBSTANTIATE WHICH IS ON THE ASSESSEE, SAVES PENALTY, REPRESENTS TRITE LAW, EXPO UNDED BY THE APEX COURT OVER DECADES (REFER: CIT V. ATUL MOHAN BINDAL [2009] 317 ITR 1 (SC); UOI V. DHARMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277 (SC); K.P. MADHUSUDHANAN VS. CIT [2001] 251 ITR 99 (SC); B.A. BALASUBRAMANIAM AND BROS. V. CIT (1999) 236 ITR 977 (SC); ADDL. CIT VS. JEEVAN LAL SHAH [1994] 205 ITR 244 (SC), TO CITE SOME, AND WHICH I S COMPLETELY ABSENT IN THE INSTANT CASE. THE LD. CIT(A), WHOSE FINDINGS ARE COMPREHENSIVE, HAS CORRECTLY ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 17 APPRECIATED BOTH, THE FACTS AS WELL AS THE LAW IN T HE MATTER, SO THAT THERE HAS BEEN NO OMISSION ON HIS PART TO CONSIDER ANY ASPECT OF THE MATTER, EVEN AS THE ASSESSEE DID NOT PRESS ITS GD. # 1:4, ALLEGING SO, BEFORE US. WE, ON OUR PART, HAVE FOCUSED ON FACTS INASMUCH AS AN EXPLANATION IN MOST CASES, AS INDEED IN THE PRESENT CASE, IS AN ISSUE OF FACT, TO FIND THE ASSESSEES CASE TO BE SANS ANY EXPLANATION AND NOT MAINTAINABLE EX FACIE . THE ASSESSEES CASE THEREFORE FAILS WHETHER THE ENH ANCEMENT IN ITS INCOME IS CONSIDERED AS ON ACCOUNT OF A TP ADJUSTMENT OR FOR DENIAL OF D EDUCTION U/S. 10A, I.E., FROM THE STAND- POINT OF BOTH EXPLANATION 1 OR 7 TO S. 271(1)(C). THIS ALSO EXPLAINS OUR NON -REFERENCE TO THE CASE LAW ADVANCED BY BOTH THE SIDES; OUR DECISI ON REPRESENTING ONLY THE APPLICATION OF THE SETTLED LAW TO THE FACTS OF THE CASE AS DETERMI NED. WE, THEREFORE, HAVE NO HESITATION IN UPHOLDING THE LEVY OF PENALTY. WE DECIDE ACCORDINGL Y. RESULT 6. IN THE RESULT, THE ASSESSEES APPEALS ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 13, 2014 SD/- S D/- (DR. S. T. M. PAVALAN) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' .( MUMBAI; / DATED : 13.05.2014 . . ./ROSHANI , SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' 0) ( ) / THE CIT(A) 4. ' 0) / CIT CONCERNED 5. 12 3#)45 , 45, , ' .( / DR, ITAT, MUMBAI 6. 3 67 ( / GUARD FILE ITA NOS. 7650 & 7651/MUM/2013 (A.YS.2004-05 & 2005- 06) DELOITTE CONSULTING INDIA PVT. LTD. VS. ASST. CIT 18 ( / BY ORDER, ) / (*+ (DY./ASSTT.REGISTRAR) , ' .( / ITAT, MUMBAI