PLATINUM GUILD INDIA P.LTD, MUMBAI V. DCIT RG 10(1), MUMBAI

ITA 7720/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5649 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , . ! , '# ' $ BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 PLATINUM GUILD INDIA PRIVATE LIMITED, NOTAN CLASSIC, 3 RD FLOOR, 114, TURNER ROAD, BANDRA (WEST), MUMBAI 400 050 % % % % / VS. THE DY. COMMISSIONER OF INCOME TAX, RANGE 10(1), ROOM NO.461, 4 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400020. ' '# ./ ( ./ PAN/GIR NO. : AACCP 1672Q ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ') , '/ APPELLANT BY SHRI M.P.LOHIA *+') 7 , ' /RESPONDENT BY SHRI MAURYA PRATAP % 7 8# / DATE OF HEARING : 23/01/2014 9 & 7 8# / DATE OF PRONOUNCEMENT : 23/01/2014 ': / O R D E R PER I.P.BANSAL,J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST ASSESSMENT ORDER DATED 10/10/2012 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. IN GROUND NO.1 TO 16 THE ASSESSEE IS CHALLENGING TRANSFER PRICING ADJUSTMENT OF RS.18,39,718/-. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY LD. AR THAT THE EFFECTIVE GROUNDS ARE GROUND NO.1 1,12 & 16. IT WAS ALSO SUBMITTED THAT IF GROUND NO.11 & 12 ARE ACCEPTED TH EN ASSESSEES MARGIN WILL BE WITHIN THE SAFE HARBOUR AND NO ADJUSTMENT WILL BE R EQUIRED TO BE MADE WITH ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 2 REGARD TO ONE COMPONENT OF TP ADJUSTMENT WHICH IS A SUM OF RS.13,16,756/-. THE OTHER COMPONENT OF TP ADJUSTMENT IS A SUM OF RS .5,22,962/- WHICH RELATES TO ARMS LENGTH PRICE (ALP) OF PROFESSIONAL FEES PA ID TOWARDS AVAILING MANAGERIAL SERVICES AND SUCH GRIEVANCE OF THE ASSESSEE IS SEPA RATELY RAISED IN GROUND NO.16. GROUND NO.11,12 & 16 READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO BASED ON THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER (LEARNED TPO) AND THE DIRECTIONS OF THE HONBLE DRP HAS ERRED IN LAW AND ON FACTS IN: 11. CONSIDERING COMPANIES WHICH ARE FUNCTIONALLY D IFFERENT, AS COMPARABLES TO THE APPELLANT. 12. CONSIDERING INCORRECT OPERATING MARGINS FOR TW O ADDITIONAL COMPARABLE COMPANIES RELIED UPON BY THE LEARNED AO/TPO NAMELY INDUS TECHNICAL & FINANCIAL CONSULTANTS LIMITED AND WAPCOS LTD., 16. TREATING THE ARMS LENGTH PRICE OF THE PROFESSI ONAL FEES PAID TOWARDS AVAILING OF MANAGERIAL SERVICES AS NIL. 3. THE ASSESSEE COMPANY IS AN INDIAN COMPANY AND IS A SUBSIDIARY OF PLATINUM GUILD SA, SWITZERLAND AND THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROMOTION AND MARKETING OF PLATINUM JEWELLERY IN IN DIA. IT HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH TWO OF IT S AES: S.NO. NATURE OF SERVICE F.Y.2007-08 METHOD ADOPTED BY ASSESSEE 1. PROVISION OF PROMOTION AND MARKETING SERVICES 2,59,67,732 2. PROFESSIONAL FEES PAID 5,22,962 TRANSACTIONAL NET MARGIN METHOD 3. REIMBURSEMENT OF EXPENSES FROM PJDA 12,62,00,747 4. REIMBURSEMENT OF EXPENSES FROM PJ UK 21,592 AT COST. TOTAL 15,27,13,033 FOR EVALUATING ARMS LENGTH OF THE TRANSACTION RELAT ING TO PROVISION OF PROMOTION AND MARKETING SERVICES WHICH IS A TOTAL SUM OF RS.2 ,59,67,732/- THE ASSESSEE COMPUTED ITS MARGIN AT 14.25% AGAINST THE MEAN MARG IN OF EIGHT COMPARABLES WHICH FOR FINANCIAL YEAR 2007-08 WAS COMPUTED AT 6.65 AND 3.12 FOR AVERAGE OF THREE YEARS. IN FOLLOWING TWO TABLES THE POSITION IS DESCRIBED BY TPO AS UNDER: ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 3 S.NO. NATURE OF TRANSACTION PLI NO. OF COMPARABLES AS PER TP REPORT (%) UPDATED PLI FOR FY 2007- 08 PLI OF THE ASSESSEE (%) 1. PROVISION OF PROMOTION & MARKETING SERVICES OP/OC 8 3.12 6.65 14.25 PLI IS COMPUTED BASED ON 5 COMPARABLE COMPANIES. S.NO. NAME OF THE COMPARABLE COMPANY PLI AS PER TP REPORT (%) UPDATED PLI FOR FY 2007-08(5) 1. BESANT RAJ INTERNATIONAL LIMITED -13.16 NOT COMPARABLE 2. CAPITAL TRUST LIMITED (SEGMENTAL) - 7.92 NOT COMPARABLE 3. CYBER MEDIA EVENTS LIMITED 8.43 NOT COMPAR ABLE 4. EDUCATIONAL CONSULTANTS (INDIA) LIMITED (SEGMENTAL) 11.6 5.20 5. ICRA MANAGEMENT CONSULTING SERVICES LTD. 10.20 3.22 6. IDC INDIA LIMITED 14.72 14.87 7. INDIA TOURISM DEVELOPMENT CORPORATION LIMITED (SEGMENTAL) 3.38 9.4 8. IN HOUSE PRODUCTION LTD. (SEGMENTAL) -2.26 0.56 ARITHMETIC MEAN 3.12 6.65 ASSESSEE 14.25 HOWEVER, TPO REJECTED THREE COMPARABLES OUT OF EI GHT COMPARABLES AND INCLUDED 11 COMPARABLES AND MEAN MARGIN ADOPTED BY TPO IS SHOWN IN THE FOLLOWING TABLE. SL. NO. NAME DATABASE TOTAL INCOME (RS.CR) SERVICE INCOME(%) RPT(%) PBIT/COST (%) 1. APITCO LTD. PROWESS 10.67 98.5 0 49.35 2. BEST MULYANKAYAN CONSULTANTS LTD. PROWESS 1.11 92.79 11 12.85 3. CHOKSI LABORATORIES LTD. CAPITALINE 9.45 98.7 0 29.2 4. GENINS INDIA T P A LTD. PROWESS 5.34 96.69 0 9.2 2 5. ICRA MANAGEMENT CONSULTING SERVICES LTD. PROWESS 18.39 96.16 13.41 4.18 6. I D C (INDIA) PROWESS 15.77 99.43 0.95 15.43 7. INDIA CEMENTS CAPITAL LTD. PROWESS 7.95 97.48 0. 72 30.91 8. INDUS TECHNICAL & FINANCIAL CONSULTANTS LTD. PROWESS 1.15 98.26 0 14.56 9. ORG INFORMATICS LTD. (SEG) PROWESS 13.61 77.02 1 2.78 10. RITES LTD. (SEG) PROWESS 353.13 84.43 3.49 25. 77 ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 4 11. TECHNICOM CHEMIE (INDIA) LTD. PROWESS 1.97 94.42 0 7.32 12. VAPI WASTE & EFFLUENT MGMT. CO. LTD. PROWESS 19.9 79.85 0 18.53 13. WAPCOS LTD. CAPITALINE 81.97 97.55 0 40.37 AVERAGE 20.04 THE TPO ADOPTED 20.04% MEAN MARGIN OF THE AFOREMENT IONED 13 COMPARABLES AS AGAINST 14.25% SHOWN BY THE ASSESSEE AND AN ADDITIO N OF RS.13,16,756/- WAS WORKED OUT ON ACCOUNT OF INTERNATIONAL TRANSACTION RELATING TO PROVISION OF PROMOTION AND MARKETING SERVICES. 4. IT IS THE CASE OF LD. AR THAT IN SUBSEQUENT YEAR LD. TPO HIMSELF HAS ACCEPTED THE SUBMISSION OF THE ASSESSEE REGARDING E XCLUSION OF CHOKSI LABORATORY LTD., GENINS INDIA, ICRA MANAGEMENT, ID C INDIA, INDIA CEMENTS, INDUS TECHNICAL, ORG INFORMATICS, RITES LTD. (SEG), TECHNICOM, VAPI WASTE & EFFLUENT MANAGEMENT CO. LTD. AND WAPCOS LTD. AND CALCULATED THE MEAN MARGIN OF COMPARABLES ON THE BASIS OF APITCO LTD. C O AND BEST MULYANKAYAN. TO SUPPORT SUCH CONTENTION LD. AR HAS SUBMITTED BEF ORE US A LETTER DATED 18/9/2012 WRITTEN TO TPO IN THE COURSE OF PROCEEDIN GS BEING HIM FOR A.Y 2009- 10, WHEREIN IT WAS PLEADED THAT THE COMPARABLES AD OPTED FOR A.Y 2008-09 SHOULD NOT BE TAKEN INTO CONSIDERATION FOR THE REAS ONS GIVEN IN THE ANNEXURE -2. COPY OF THIS CORRESPONDENCE WAS FILED BEFORE US AN D ALSO GIVEN TO LD. DR. LD. TPO HAS ACCEPTED SUCH SUBMISSION OF THE ASSESSEE AN D REFERENCE CAN BE MADE TO THE FOLLOWING PART OF THE TPOS ORDER FOR ASSESSME NT YEAR 2009-10. 2. NOTICE U/S. 92CA(2) OF THE ACT WAS ISSUED TO TH E ASSESSEE VIDE LETTER DATED 8/08/2011. THE ASSESSEE WAS REQUESTED TO MAKE ITS SUBMISSIONS TO SUPPORT THE ARMS LENGTH PRICE COMPUTED BY IT AND THE CASE WAS FIXED FROM TIME TO TIME. SHRI SANJAY KAPADIA, MS. APARNA KHATRI & MS SACHI SEKSAR IA FROM S.R. BATLIBOI & ASSOCIATES, ATTENDED THE HEARINGS ON BEHALF OF THE ASSESSEE AND FILED DETAILS AND EXPLAINED THE CASE. 3. THE ASSESSEE, AN INDIAN COMPANY, IS A SUBSIDIAR Y OF PLATINUM GUILD SA, SWITZERLAND. THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF PROMOTION AND MARKETING OF PLATINUM JEWELLERY IN INDIA. DURING THE YEAR UN DER CONSIDERATION, THE INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESSEE WITH ITS AES ARE AS UNDER: ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 5 (AMOUNT IN RS .) SR. NO. NATURE OF SERVICE F.Y. 2008-09 METHOD ADOPTED BY ASSESSEE F.Y. 2007-08. 1. PROVISION OF PROMOTION & MARKETING SUPPORT SERVICES 29,227,890 25,967,732 2. AVAILING OF MANAGERIAL SERVICES 631,186 TRANSACTION NET MARGIN METHOD TNMM 522,962 3. RECOVERY OF EXPENSES 145,957,063 COST REIMBURSEMENT 126,222,339 TOTAL 175,816,136 152,713,033 4. DETERMINATION OF ALP: (S.NO.2) AVAILING OF MANAGERIAL SERVICES : RS.0.06 CRORE PGI INDIA HAS RECEIVED MANAGERIAL SERVICES FROM PG I UK IN THE COURSE OF RUNNING BUSINESS OF PROVIDING PROMOTION AND MARKETI NG SERVICES. AS A CONSIDERATION, PGI INDIA HAS PAID CONSIDERATION TO PGI UK AMOUNTING OF RS. 631,186/-. THE SAID FEES IS RECOVERED BY PGI INDIA WITH A MARKUP OF 14.5%. THE ASSESSEE HAS ADOPTED THE FOLLOWING METHODOLOGY FOR DETERMINING THE ALP OF THIS TRANSACTION. THE ASSESSEE HAD ADOPTED OVERALL TNMM. PLI IS THE OPERATING PROFIT/OPERATING COST (OP/OC) THE ASSESSEE IS THE TESTED PARTY 17 COMPANIES WERE ADOPTED AS COMPARABLES. THE ASSESSEE HAS EARNED A PLI OF 14.74%, AS AGAINST THE ARITHMETIC MEAN PLI OF THE 17 COMPARABLES OF 14.82% REPORTED IN THE TP REPORT. A SHOW CASE WAS ISSUED TO THE ASSESSEE ON 22 ND OCTOBER 2012, WHEREIN THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE ALP OF THE SE PROFESSIONAL SERVICES SHOULD NOT BE TREATED AS NIL AS THE ASSESSEE HAS FA ILED TO FURNISH EVIDENCE TO PROVE THAT THE SERVICES WERE REQUESTED BY THE ASSESSEE, T HAT SERVICES WERE ACTUALLY RENDERED AND THE PAYMENT WAS AT MARKET RATE. IN R ESPONSE TO THE SAME, THE ASSESSEE FILED A SUBMISSION ON 29 TH OCTOBER, 2012. AMONGST OTHER ARGUMENTS, THE MAJOR ARGUMENT TAKEN BY THE ASSESSEE WAS THAT THESE EXPENSES FORM PART OF COST BASE ON WHICH IT EARNS A MARKUP OF 14.5%. I HAVE CAREFULLY PERUSED THE CONTENTIONS OF THE AS SESSEE AND HAVE FOUND THAT SAME DOES NOT HOLD GOOD IN THE ASSESSEES CASE. FU RTHER, THE ASSESSEE HAS NOT PROVIDED ANY EVIDENCE TO PROVE THAT SERVICES WERE A CTUALLY REQUESTED AND THAT THE SERVICES WERE ACTUALLY RENDERED. NO INDEPENDENT PA RTY WOULD PAY FOR SERVICES WHICH WERE NEITHER REQUESTED BY IT NOR WERE THEY AC TUALLY RENDERED. HENCE, THE PRICE OF THE TRANSACTION OF AVAILING OF MANAGERIAL SERVICES IS DETERMINED NOT TO BE AT ARMS LENGTH AND ACCORDINGLY AN ADJUSTMENT OF RS. 6 ,31,186/- IS MADE. CONCLUSION IN VIEW OF THE ABOVE, AN ADJUSTMENT IS TO BE MADE IN RESPECT OF INTERNATIONAL TRANSACTION MENTIONED AT SR. NO. 2 BEING AVAILING O F MANAGERIAL SERVICES OF RS. 6,31,186/-. THE VALUE OF OTHER INTERNATIONAL TRANS ACTIONS WITH AE ARE CONSIDERED AT ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 6 ALP. THE AO IS REQUIRED TO INITIATE PENALTY PROCEE DING AS PER INCOME TAX PROVISIONS IN RESPECT OF THE ABOVE PROPOSED ADDITION. 5. IT IS HEREBY CLARIFIED THAT THIS ORDER IS ONLY F OR THIS A.Y. 2009-10 AND NOT FOR ANY SUBSEQUENT ASSESSMENT YEAR(S). IT WAS FURTHER PLEADED THAT EVEN IF THREE OUT OF TOTAL 13 COMPARABLES ADOPTED BY TPO, NAMELY WAPCO, RITES AND VAPI WASTE AND EFFLUE NT ARE EXCLUDED THEN ALSO THE MARGIN OF THE ASSESSEE WILL BE WITHIN SAFE HARB OUR AND NO ADDITION IS CALLED FOR. A CHART WAS SUBMITTED TO SHOW THE CALCULATION : SR. NO. NAME PLI AS PER TP ORDER WAPCOS REJECTED RITES REJECTED(TURNOVER 325 CR) RITES, VAPI AND WAPCOS REJECTED 1. APITCO LTD. 49.35 49.35 49.35 49.35 2. BEST MULYANKAYAN 12.85 12.85 12.85 12.85 3. CHOKSI LABORATORIES 29.20 29.20 29.20 29.20 4. GENINS INDIA 9.22 9.22 9.22 9.22 5. ICRA MANAGEMENT 4.18 4.18 4.18 4.18 6. IDC INDIA 15.48 15.48 15.48 15.48 7. INDIA CEMENTS 30.91 30.91 30.91 30.91 8. INDUS TECHNICAL 14.56 14.56 14.56 14.56 9. ORG INFORMATICS 2.78 2.78 2.78 2.78 10. RITES LTD. (SEG) 25.77 25.77 ENGINEERING SERVICES AND TURNOVER OF 325 CRORES ENGINEERING SERVICES AND TURNOVER OF 325 CRORES 11. TECHNICOM 7.32 7.32 7.32 7.32 12. VAPI WASTE & EFFLUENT 18.53 18.53 18.53 ENGINEERING SERVICES 13. WAPCOS LTD 40.37 ENGINEERING SERVICES 40.37 COMPLEX ENGINEERING SERVICES ARITHMETIC MEAN 20.04 18.35 19.56 17.59 ASSESSEE 14.25 14.25 14.25 14.25 5% RANGE 19.96 19.96 19.96 19.96 THUS IT WAS PLEADED BY LD. AR THAT APPROPRIATE RE LIEF SHOULD BE GRANTED TO THE ASSESSEE IN RESPECT OF GROUND NO.11 & 12. 5. HOWEVER, LD. DR RELIED UPON THE ORDER PASSED BY TPO AND DRP. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. A QUERY WAS RAISED BY TPO IN THE PROCE EDING FOR A.Y 2009-10 THAT ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 7 WHY THE COMPARABLES TAKEN IN RESPECT OF A.Y 2008-09 SHOULD NOT BE ADOPTED FOR THIS YEAR AS WELL. IN REPLY THE ASSESSEE SUBMITTED A LETTER DATED 18/9/2012 AND IT WAS PLEADED THAT NONE OF THE COMPARABLES ADOPTED FOR A.Y 2008-09 COULD BE ADOPTED FOR THE REASONS GIVEN IN THE CHART AND SUCH SUBMISSIONS OF THE ASSESSEE HAS BEEN ACCEPTED BY TPO IN ASSESSMENT YEAR 2009-10 . IN THE PRESENT PROCEEDINGS IT IS THE CASE OF LD. AR THAT EVEN IF O NE OUT OF THREE COMPARABLES NAMELY RITES LTD, VAPI WASTE & EFFLUENT MANAGEMENT COMPANY LTD. AND WAPCOS LTD. ARE EXCLUDED THEN THE ASSESSEES CASE WILL BE WITHIN SAFE HARBOUR. IT WAS ALSO THE REQUEST OF THE LD. AR THAT THE ISSU E RAISED BY THE ASSESSEE MAY BE DECIDED ON THAT BASIS ONLY. KEEPING IN VIEW SUCH R EQUEST OF LD. AR, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FIL E OF LD. TPO TO VERIFY SUCH CONTENTION OF THE ASSESSEE. IF THE AFOREMENTIONED COMPARABLES NAMELY RITES LTD, VAPI WASTE & EFFLUENT MANAGEMENT COMPANY LTD. AND W APCOS LTD. ARE EXCLUDED FROM THE PROCEEDINGS FOR A.Y 2009-10 THEN THE SAME ALSO SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION AND AFTER THAT IF ASSESSEES MARGIN FALL WITHIN THE RANGE OF SAFE HARBOUR THEN NO ADDITION ON ACCOUNT OF THIS INTERNATIONAL TRANSACTION SHOULD BE MADE. WE DIRECT ACCORDINGLY. GROUND NO.11 AND 12 ARE CONSIDERED TO BE ALLOWED FO R STATISTICAL PURPOSES IN THE MANNER AFORESAID AND OTHER GROUNDS TAKEN IN THIS RE GARD ARE NOT ADJUDICATED AT THE REQUEST OF LD. AR FOR THE REASON THAT THEY WILL BE RENDERED ACADEMIC IN VIEW OF THE RELIEF GIVEN TO THE ASSESSEE IN RESPECT OF G ROUND NO.11 & 12. 7. COMING TO GROUND NO.16, THIS GROUND RELATES TO I NTERNATIONAL TRANSACTION PERTAINING TO PROFESSIONAL FEES WHICH IS A SUM OF RS.5,22,962/-. THE ENTIRE SUM OF RS.5,22,962/- IS ADDED BY TPO ON THE GROUND THAT FOR CLAIMING SUCH PAYMENT THE ASSESSEE HAS TO PROVE THAT IT HAD REQUESTED FOR SERVICES TO AE AND THE SERVICES WERE ACTUALLY RENDERED AND THE PAYMENT FOR THE SERVICES WAS AT MARKET RATE. THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS T O WHY ALP OF THESE TRANSACTIONS SHOULD NOT BE TAKEN AT NIL AS ASSESSE E HAS FAILED TO FURNISH THE EVIDENCES TO PROVE THAT THE SERVICES WERE REQUESTED BY THE ASSESSEE AND SERVICES WERE ACTUALLY RENDERED. IN REPLY THE ASSESSEE SUBM ITTED A LETTER DATED 22/12/2011 AND RELIED UPON TP STUDY REPORT. IT WAS NOTED BY LD. TPO THAT ASSESSEE DID NO FURNISH EVIDENCE OF SERVICES REQUES TED TO AE AND EVIDENCE WITH ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 8 REGARD TO THAT SERVICES WERE ACTUALLY RENDERED. IT IS IN THIS MANNER LD. TPO TOOK THE ALP OF THIS AMOUNT AT NIL AND ADDED A SUM OF R S.5,22,962/-. 8. IT WAS SUBMITTED BY LD. AR THAT SUBMISSIONS WER E MADE BEFORE LD. TPO VIDE LETTER DATE 16/9/20111. COPY OF THIS LETTER W AS PLACED BEFORE US, IN WHICH IT WAS SUBMITTED THAT IT WAS ALREADY POINTED OUT THAT THE ASSESSEE HAS BEEN COMPENSATED WITH BETTER MARK UP AS COMPARED TO THAT EARNED BY ITS OTHER GROUP COMPANIES LOCATED OUTSIDE INDIA. IT WAS PLEADED TH AT THE ASSESSEE COMPANY HAS CHARGED MARK UP OF 14.5% ON OPERATING COST OF PLATI NUM JEWELLERY DEVELOPMENT ASSOCIATION (PJDA). THE PJDA FOR PROVISION OF PRO MOTION AND MARKETING SERVICES DURING THE FINANCIAL YEAR ENDING 31/3/2008 AND THE MARK UP RANGE CHARGED BY OTHER GROUP COMPANIES THE PJDA FOR PROVISION OF SI MILAR SERVICES FALL BETWEEN RANGE OF 2 TO 10% FOR THE SIMILAR PERIOD. THUS IT WAS CLAIMED THAT ASSESSEES MARK UP PERCENTAGE IS HIGHER THAN THAT EARNED BY IT S GROUP COMPANIES. IT WAS SUBMITTED THAT THE SAID MARK UP WAS IN ACCORDANCE W ITH THE AGREEMENT OF THE ASSESSEE WITH ITS AE. COPY OF AGREEMENT WAS ALSO F ILED. IT WAS SUBMITTED THAT IT IS MERELY A REIMBURSEMENT WITH A MARK UP OF 14.5% AND THE REVENUE IN THIS REGARD HAS BEEN CREDITED TO THE P&L ACCOUNT. THUS IT WAS SUBMITTED THAT LD. TPO WAS WRONG IN DETERMINING THE ALP OF THIS TRANSA CTION AT NIL. LD. AR IN THIS REGARD ALSO REFERRED TO FINANCIALS WHERE APPROPRIAT E ENTRIES WERE MADE AND DEPICTED. COPY OF THESE DOCUMENTS WERE ALSO GIVEN TO LD. DR. REFERENCE WAS ALSO MADE TO COPY OF INVOICES WHICH HAS BEEN FIELD AT PAGE 509 OF THE PAPER BOOK, VIDE WHICH THE BILL HAS BEEN RAISED AGAINST THE ASSESSEE BY PLATINUM GUILD INTERNATIONAL AND THE CHARGES PERTAINS TO CONSULTAN CY SERVICES PROVIDED BY MR. JAMES COURAGE TO PGI INDIA DURING JULY TO DEC EMBER 2007 AND TOTAL WAS STATED AT 5638.98 UK POUNDS WHICH INCLUDE A MARK U P OF 6.5%. REFERENCE WAS ALSO MADE TO THE LETTER DATED 22/10/2011 WRITTEN BY THE ASSESSEE TO TPO GIVING THE DETAILS AND RELEVANT PORTION READS AS UNDER: IN ORDER TO DEVELOP A MARKETING STRATEGY IN SYNC W ITH THAT OF THE GROUP, DURING F.Y 2007-08, PGI INDIA HAS AVAILED CONSULTANCY/MANAGERI AL SERVICES FROM PGI UK. THESE SERVICES ARE PROVIDED BY THE CEO OF PGI UK, M R. JAMES COURAGE WHO IS ALSO DIRECTOR ON THE BOARD OF PGI INDIA. THESE SERVICES CONSIST OF REVIEW AND SUPERVISION OF THE PROMOTIONAL PROGRAMS CONDUCTED BY PGI INDIA AND PROVISION OF OVERALL GUIDANCE AND STRATEGIC ADVISORY. DURING THE SAID Y EAR, MR. JAMES COURAGE ALSO ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 9 VISITED INDIA FOR THE OVERALL SUPERVISION OF THE IN DIA INTERNATIONAL JEWELLERY SHOW, INDIA SUMMER PLANNING MEETING AND VARIOUS SPONSORS VISIT TO INDIA. THE SERVICE FEE PAYABLE TO PGI UK IS DETERMINED ON THE BASIS OF THE COST OF THE ACTUAL TIME SPENT BY MR. JAMES COURAGE ON THE INDIA RELATED WORK AND AN ARMS LENGTH MARK UP THEREON. FURTHER, THIS CHARGE IS GROSSED UP FOR INDIAN TAXES . ACCORDINGLY, PGI INDIA HAS INCURRED A SUM OF RS. 522,962 WHICH COMPRISED OF (1 ) THE INVOICE RAISED BY PGI UK FOR THE SAID FEES RS. 434,084 (ENCLOSED AS ANNEXUR E 2) AND (2) INCOME TAX THEREON RS.88878. THUS IT WAS SUBMITTED BY LD. AR THAT AS THE ASSESSE E HAD ADOPTED 14.5% MARK UP TO THE COST, THE SAME SHOULD BE CONSIDERED AT A RMS LENGTH AND NO ADJUSTMENT IS REQUIRED. 9. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE ASS ESSEE HAD FAILED TO PROVE THE REQUIRED SERVICES AND ACTUALLY PROVIDING OF THE SERVICES AND , THEREFORE, LD. TPO WAS RIGHT IN MAKING ADJUSTMENT WHICH HAS RIGHTL Y BEEN UPHELD BY LD. DRP ALSO. 10. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. IN VIEW OF THE EVIDENCE SUBMITTED BY T HE ASSESSEE IN THE SHAPE OF LETTERS, INVOICES AND SUBMISSIONS, WE ARE OF THE OP INION THAT TPO WAS WRONG IN TAKING THE ALP OF THIS TRANSACTION AT NIL. THE ASS ESSEE HAD ADDED APPROPRIATE MARK UP OF 14.5% WHICH IS IN LINE WITH THE OVER AL L MARGIN OF THE ASSESSEE. PROPER REPLIES WERE GIVEN TO LD. TPO, WHICH HAVE NO T BEEN PROPERLY APPRECIATED BY THE TPO. THEREFORE, WE SEE NO JUSTIFICATION IN THE TP ADJUSTMENT OF RS.5,22,962/-. THE SAME IS DELETED AND GROUND NO.1 6 IS ALLOWED. 11. THE OTHER GROUND WHICH WAS AGITATED BY LD. AR W AS GROUND NO.17, WHICH READS AS UNDER: GROUND NO. 17 : MAKING AN ADDITION OF RS.33,319 BEING THE AMOUNT OF TAX DEDUCTED AT SOURCE ON PAYMENT OF PROFESSIONAL FEES OF RS.196,050 TO A NON RESIDENT WITHOUT APPRECIATING THE FACT THAT THE PROFESSIONAL FEES OF RS.196,050 H AS BEEN SUO-MOTO DISALLOWED BY THE APPELLANT UNDER SECTION 40(A)(IA) OF THE ACT. 12. THIS ISSUE IS DISCUSSED BY LD.TPO IN PARA 4 OF HIS ORDER. FROM THE AUDIT REPORT IT WAS NOTICED THAT ASSESSEE DID NOT DEDUCT A SUM OF RS.33,319/- ON NON- ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 10 RESIDENT PROFESSIONAL FEES. THEREFORE, THE SAID AM OUNT WAS ADDED TO THE INCOME OF THE ASSESSEE. AGAINST THIS IT IS THE CASE OF TH E ASSESSEE THAT AFOREMENTIONED TDS AMOUNT RELATES TO PROFESSIONAL FEES OF RS.1,96, 050/- AND REFERENCE IN THIS REGARD WAS MADE TO ANNEXURE-6 ADDED TO THE FINANCIA LS. THIS AMOUNT IS PROFESSIONAL FEES PAID TO A NON RESIDENT. THE ASSE SSEE DID NOT DEDUCT TAX, THEREFORE, ASSESSEE ON ITS OWN DISALLOWED ENTIRE SU M OF RS.1,96,050/- IN THE COMPUTATION OF INCOME, COPY OF WHICH IS FILED AT P AGE 511 OF THE PAPER BOOK. IT WAS ALSO SEEN THAT IN THE ASSESSMENT ORDER THE AO HAS ADOPTED COMPUTATION OF INCOME SHOWN IN THE RETURN FILED BY THE ASSESSE E WHICH IS A SUM OF RS.1,19,45,940/-. IT WAS FURTHER POINTED OUT THAT AT PAGE 39 OF THE PAPER BOOK A SUM OF RS.33,319/- WAS STATED IN ANNEXURE-11 AS TDS ON THE PROFESSIONAL FEES PAYABLE TO NON-RESIDENT AND THIS AMOUNT IS A TDS WH ICH WAS REQUIRED TO BE DEDUCTED IN RESPECT OF A SUM OF RS.1,96,050/-. IT WAS THE SUBMISSION OF LD. AR THAT WHEN ENTIRE SUM HAS BEEN ADDED TO THE INCOME IN THE COMPUTATION OF INCOME FILED BY THE ASSESSEE THEN FURTHER ADDITION OF RS.33,319/- WILL BE DOUBLE ADDITION. 13. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AN D WE ARE SATISFIED WITH THE CONTENTION OF LD. AR. IN VIEW OF ADDITION OF RS.1, 96,050/- TO THE INCOME OF THE ASSESSEE THE SEPARATE ADDITION MADE BY AO OF A SUM OF RS.33,319/- IS REQUIRED TO BE DELETED. THEREFORE, WE DELETE THIS ADDITION AND THIS GROUND OF THE ASSESSEE IS ALLOWED. 14. THE NEXT GROUND ARGUED BY LD. AR WAS GROUND N O.18, WHICH READS AS UNDER: GROUND NO.18: NOT GRANTING CREDIT OF MINIMUM ALTERN ATE TAX OF RS.2,12,141/- PAID BY THE APPELLANT IN A.Y 2007-08. 15. IT IS THE SUBMISSION OF LD. AR THAT TILL THE F INAL ORDER HAS PASSED BY THE AO THE ASSESSEE CANNOT COME TO KNOW THAT WHETHER OR N OT THE RELIEF HAS BEEN GRANTED TO THE ASSESSEE IN RESPECT OF MINIMUM ALTE RNATE TAX WHICH WAS CHARGED IN RESPECT OF ASSESSMENT YEAR 2007-08. A SUM OF RS.2,28,410/- WAS STATED TO BE CHARGED IN THE ASSESSMENT PROCEEDING FOR A.Y 200 7-08 ON ACCOUNT OF ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 11 MINIMUM ALTERNATE TAX AS COMPUTATION THAT YEAR WAS DONE UNDER MAT. LD. AR HAS TAKEN US THROUGH THE RELEVANT DOCUMENTS SHOWING THE CHARGES OF MAT OF RS.2,28,410/- IN RESPECT OF A.Y 2007-08, COPY OF THE CALCULATION OF TAX IN RESPECT OF ASSESSMENT YEAR 2007-08 IS PLACED AT PAG ES 520 OF THE PAPER BOOK, WHERE THE INCOME HAS BEEN DETERMINED UNDER SECTION 115JB AT RS.20,35,742/- ON WHICH TAX IS CHARGED AT RS.2,03,574/- AND ADDING SURCHARGE THEREOF OF RS.20,357 AND RS.4479/- THE TOTAL TAX CHARGEABLE F ROM ASSESSEE WAS COMPUTED AT RS.2,28,410/- AS ASSESSEE HAD PAID LARGE SUM OF AMOUNT AS ADVANCE TAX THE BALANCE REFUND WAS GRANTED TO THE ASSESSEE. IT IS THE CASE OF THE ASSESSEE THAT OUT OF DEMAND OF CURRENT YEAR CREDIT OF RS.2,28,410 /- SHOULD BE GRANTED. 16. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY THE AO. 17. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. THERE IS NO DISCUSSION IN THE ASSESSME NT ORDER REGARDING THIS ADJUSTMENT. HOWEVER, THE CONTENTION OF THE LD. AR HAS FORCE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AFTER GIVING TH E ASSESSEE A REASONABLE OPPORTUNITY OF HEARING, THE APPROPRIATE RELIEF S HOULD BE GRANTED TO THE ASSESSEE AS PER PROVISIONS OF LAW. WE DIRECT ACCORDINGLY. THIS GROUND IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFOR ESAID. 18. NO OTHER GROUND WAS ARGUED BY LD. AR. HENCE, W E RESTRICT OUR ADJUDICATION TO THE MATTERS ARGUED BEFORE US WHIC H ARE DISCUSSED IN DETAILS IN THE ABOVE PART OF THIS ORDER. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 23/01 /2014 . ': 7 & #' ; <%= 23/01/2014 7 > SD/- SD/- ( SANJAY ARORA) (I.P.BANSAL) /ACCOUNTANT MEMBER '# /JUDICIAL MEMBER MUMBAI; <% DATED 23/01/2014 ./ I.T.A. NO. 7720/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 12 ': ': ': ': 7 77 7 *8?@ *8?@ *8?@ *8?@ A'@&8 A'@&8 A'@&8 A'@&8 / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. B ( ) / THE CIT(A)- 4. B / CIT 5. @C> *8% , , / DR, ITAT, MUMBAI 6. >D E / GUARD FILE. ':% ':% ':% ':% / BY ORDER, +@8 *8 //TRUE COPY// F FF F / G G G G (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . % . SR. PS-VM