Corning SAS- India Branch Office, Gurugram V. DDIT (International Taxation), Gurgaon

ITA 816/DEL/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2917 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 28-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 13-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR; NEERAJ KUMAR SENIOR
• Keywords: Business income; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Additional evidence
• Section: 37(1); 37; 144; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.548/DEL./2015 (ASSESSMENT YEAR : 2010-11) ITA NO.816/DEL./2017 (ASSESSMENT YEAR : 2012-13) ITA NO.817/DEL./2016 (ASSESSMENT YEAR : 2011-12) CORNING SAS-INDIA BRANCH OFFICE, VS. DDIT, 2 ND FLOOR, DLF BUILDING 9B, CIRCLE 3 (2), DLF CYBER CITY, PHASE III, INTERNATIONAL TAXATIO N, GURGAON 122 002. NEW DELHI. (PAN : AAACC3889Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SENIOR ADVOCATE, SHRI NEERAJ JAIN, ADVOCATE & MS. DEEPIKA AGARWAL, CA REVENUE BY : SHRI AMRENDRA KUMAR, CIT DR & SHRI NEERAJ KUMAR, SENIOR DR DATE OF HEARING : 28.03.2017 DATE OF ORDER : 29.05.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN THE AFORESAID APPEALS, THE SAME ARE BEING DISPOS ED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSIO N. THE APPELLANT, CORNING SAS-INDIA BRANCH OFFICE (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 29.12.2014, ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 2 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN COMPLETING THE ASSESSMENT UNDER SECTION 144C READ W ITH SECTION143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT ') AT AN INCOME OF RS.6,11,08,644 AS AGAINST THE INCOME OF RS.3,77,44,037 RETURNED BY THE APPELLANT. 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS. 2,33,64,607 ALLEGEDLY O N ACCOUNT OF THE DIFFERENCE IN THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELL ANT ON THE BASIS OF THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT BY THE TPO. 3. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS.39,89,080 TO THE ARM'S L ENGTH PRICE OF THE 'INTERNATIONAL TRANSACTION' OF RECEIPT OF ADMINISTRATION AND SUPPORT SERVICES ON THE BASIS OF THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT BY THE TPO. 3.1 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF THE TRANSACTI ON OF PAYMENT OF ADMINISTRATION AND SUPPORT SERVICES FEE TO THE ASSOCIATED ENTERPRISE WITHOUT PROVIDING ANY COGENT REASONS AND BASIS. 3.2 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT ARM'S LENGTH PRICE OF THE 'INTERNATION AL TRANSACTION' REGARDING PAYMENT OF ADMINISTRATION AN D SUPPORT SERVICES FEES AT NIL ALLEGEDLY CONCLUDING T HAT NO SUCH SERVICE/ BENEFIT HAS BEEN RECEIVED BY THE APPELLANT AND THEREFORE THERE IS NO RATIONALE FOR PAYMENT OF SUPP ORT SERVICES FEES TO THE ASSOCIATED ENTERPRISE. 3.3 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF ADMINISTRATION AND SUPPORT SERVICES FEES WAS VALIDLY BENCH MARKED APPLYING TNM M AS MOST APPROPRIATE METHOD AND THAT NO ADVERSE INFEREN CE COULD BE DRAWN ON THIS ACCOUNT. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 3 3.4 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN COMPUTING ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF PAYMENT OF ADMINISTRATION AND SUPPOR T SERVICES FEE WITHOUT REASONABLY APPLYING ANY PRESCR IBED METHODS, THEREBY, VIOLATING THE BASIC PRINCIPLES OF TP REGULATIONS. 3.5 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ENTIRE ARRANGEMENT OF THE PAYMENT OF SUPPORT SERVICES FEES IS DESIGNED TO SHIFT PROFITS OUTSIDE INDIA. 3.6 WITHOUT PREJUDICE TO THE MERITS OF THE GROUND, THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATI NG THE FACT THAT THE ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION CANNOT EXCEED THE MAR KUP OF 5% CHARGED BY THE ASSOCIATED ENTERPRISE. 4. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN MAKING ADJUSTMENT OF RS.1,64,90,548 TO THE INCOME O F THE APPELLANT ON ACCOUNT OF THE DIFFERENCE IN THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF RECEIPT O F COMMISSION INCOME UNDERTAKEN DURING THE PREVIOUS YE AR. 4.1 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN INAPPROPRIATELY AGGREGATING THE INTERNATIONAL TRANS ACTION OF PROVISION OF AGENCY SERVICES WITH MARKET SUPPORT SE RVICES, WITHOUT APPRECIATING THAT SUCH SERVICES OUGHT TO HA VE BEEN AGGREGATED WITH THE DISTRIBUTION SEGMENT, BEING CLO SELY LINKED WITH SUCH SEGMENT. 4.2 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE DISTRIBUTION AND AGENCY SEGME NT RELATES TO THE SAME PRODUCTS, VIZ., OPHTHALMIC GLASS PRODUC TS AND LIFE SCIENCES PRODUCTS AND INVOLVES PERFORMING SOME OF T HE COMMON FUNCTIONS BY THE SAME EMPLOYEES AND IT IS NO T FEASIBLE TO SEGREGATE THE COST RELATING TO THE SAME . 4.3 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT DOES NOT EMPLOY ANY SEPARATE/SPECIFIC PERSONNEL/ASSET FOR PROVISION OF AGENCY SERVICES AND SAME EMPLOYEES ENGAGED IN THE DISTRIBU TION SEGMENT PERFORM THE NECESSARY FUNCTIONS FOR PROVISI ON OF AGENCY SERVICES. 4.4 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN ALLOCATING COMMON EXPENSES TO THE AGENCY SEGMENT IN THE RATIO OF SALES, RESULTING IN DISPROPORTIONATE ALLOC ATION OF EXPENSES NOT APPRECIATING THAT SUCH EXPENSES OUGHT TO HAVE BEEN ALLOCATED IN THE GROSS PROFIT RATIO. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 4 4.5 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN USING INAPPROPRIATE QUANTITATIVE FILTERS WHICH ARE NOT BA SED ON ANY RATIONAL OR REASONABLE BASIS. 4.6 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN SELECTING THE FOLLOWING COMPANIES WHICH ARE FUNCTIO NALLY DISSIMILAR TO THE APPELLANT AS COMPARABLE COMPANIES FOR THE PURPOSE OF BENCHMARKING ANALYSIS: A) CYBERMEDIA ONLINE LTD. B) GLOBAL PROCUREMENT CONSULTANT LIMITED C) HCCA BUSINESS SERVICES PVT. LTD. D) TSR DARSHAW LTD. 4.7 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING THE FOLLOWING COMPARABLE COMPANIES IDENTI FIED BY THE APPELLANT FOR THE PURPOSE OF BENCHMARKING ANALY SIS: S. NO. NAME OF THE COMPANY REASONS FOR REJECTION 1. EDUCATIONAL CONSULTANTS INDIA LTD. - FUNCTIONALLY DIFFERENT 2. INDIAN TOURISM DEVELOPMENT CORPORATION LTD. - FUNCTIONALLY DIFFERENT - SERVICE INCOME LESS THAN 75% OF TOTAL SALES - UNAVAILABILITY OF SEGMENTAL DATA 3. IN HOUSE PRODUCTIONS LTD - FUNCTIONALLY DIFFERENT 4. OVERSEAS MANPOWER CORPORATION LTD. - FUNCTIONALLY DIFFERENT - TURNOVER LESS THAN RS 5 CRORE 4.8 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AFORESAID COMPANIES ARE FUNCT IONALLY COMPARABLE TO THE APPELLANT. 4.9 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN ADOPTING INAPPROPRIATE FILTER FOR SELECTING COMPANI ES HAVING SALES MORE THAN FIVE CRORE WITHOUT OBJECTIVELY APPL YING THIS FILTER FOR ELIMINATING BOTH LOW AND HIGH TURNOVER C OMPANIES. 4.10 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT THE SALES FILTER OF RS. 1 CRORE WAS ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 5 APPLIED AND ACCEPTED BY THE DEPARTMENT IN THE EARLI ER ASSESSMENT YEARS. 4.11 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN SELECTING FOLLOWING SUPER NORMAL PROFIT COMPANIES A S COMPARABLE TO THE APPELLANT: S.NO. NAME OF THE COMPANY OP / OC (%) 1. CYBERMEDIA ONLINE LTD. 35.14% 2. GLOBAL PROCUREMENT AND CONSULTANTS LTD. 37.19% 3. TSR DARASHAW LTD. 41.15% 4.12 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT ALLOWING APPROPRIATE RISK ADJUSTMENT TO ESTABLISH COMPARABILITY ON ACCOUNT OF THE APPELLANT BEING A L OW-RISK- BEARING CAPTIVE SERVICE PROVIDER AS OPPOSED TO THE COMPARABLE COMPANIES WHO WERE INDEPENDENT ENTREPRENEURS. 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS. 28,84,979 TO THE ARM'S LENGTH PRICE OF THE ALLEGED 'INTERNATIONAL TRANSACTIONS' O F ACCOUNTS RECEIVABLE UNDERTAKEN WITH THE ASSOCIATED ENTERPRIS E, ON THE BASIS OF THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT BY THE TPO. 5.1 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT DELAY IN RECEIPT OF RECEIVABLE IS NOT AN INTERNATIONAL TRANSACTION, PER SE, UNDER SECTION 92 B OF THE ACT BUT IS A CONSEQUENCE OF AN INTERNATIONAL TRANSACTIO N UNDERTAKEN IN THE FORM OF SERVICES RENDERED TO THE ASSOCIATED ENTERPRISES. 5.2 THAT THE DRPITPO ERRED ON FACTS AND IN LAW IN RE- CHARACTERIZING THE ALLEGED TRANSACTION OF RECEIPTS OF RECEIVABLES AS UNSECURED LOANS ADVANCED TO THE ASSO CIATED ENTERPRISES. 5.3 WITHOUT PREJUDICE, THE DRP/TPO ERRED ON FACTS AND IN LAW IN CONSIDERING THE ANNUAL AVERAGE YIELD OF CORP ORATE BONDS PREVAILING DURING THE FINANCIAL YEAR 2009-10 AS THE ARMS LENGTH RATE OF INTEREST TO BE CHARGED ON DELAY IN RECEIPT OF RECEIVABLES WITHOUT APPRECIATING THAT SUCH RATE IS APPLICABLE ON LOANS AVAILED IN INDIA IN DOMESTIC CU RRENCY. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 6 5.4 WITHOUT PREJUDICE, THE DRP/TPO ERRED ON FACTS AND IN LAW IN FURTHER ADDING A MARKUP OF 300 BPS TO THE PL R OF SBI, ON ACCOUNT OF ADJUSTMENT FOR SECURITY AND TRANSACTI ON COST, WITHOUT PROVIDING COGENT REASONS AND ON THE BASIS O F HIS SURMISES AND CONJECTURE. 5.5 WITHOUT PREJUDICE, THE DRP/TPO ERRED ON FACTS AND IN LAW IN DISREGARDING THE FACT THAT SINCE THE RECEIVA BLES OUTSTANDING FROM THE ASSOCIATED ENTERPRISES WERE DENOMINATED IN FOREIGN CURRENCY, INTEREST RATE COMP UTED ON THE BASIS OF UBOR RATES SHALL BE APPLIED BEING APPL ICABLE ON LOAN AVAILABLE IN THE INTERNATIONAL MARKET. 5.6 WITHOUT PREJUDICE, THE DRPITPO ERRED ON FACTS AND IN LAW IN INCORRECTLY IMPUTING THE INTEREST ON RECE IVABLES FOR A PERIOD BEGINNING FROM THE DATE OF INVOICE TILL THE REALIZATION DATE, WITHOUT APPRECIATING THE FACT THAT INTEREST I S TO BE COMPUTED UPTO 31.03.2010. 5.7 WITHOUT PREJUDICE, THE DRPITPO ERRED ON FACTS AND IN LAW IN NOT SETTING OFF THE AMOUNT OF PAYABLES OU TSTANDING FROM THE RECEIVABLES. 5.8 WITHOUT PREJUDICE, THE DRPITPO ERRED ON FACTS AND IN LAW IN DISREGARDING THE FACT THAT THE INTEREST I S REQUIRED TO BE COMPUTED AT THE RATE OF 9%, BEING SBI BASE RATE AT 7.5% PLUS 150 BPS, INSTEAD OF 14.88%. FOR THE SAKE OF BREVITY, FACTS PERTAINING TO ITA NO.548/DEL./2015 FOR AY 2010-11 ARE TAKEN AND DISCU SSED TO DECIDE THE IDENTICAL ISSUES INVOLVED IN ALL THE APP EALS BEARING ITA NO.548/DEL./2015 FOR AY 2010-11, ITA NO.816/DEL ./2017 FOR AY 2012-13 AND ITA NO.817/DEL./2017 FOR AY 201 1-12. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : DURING THE YEAR UNDER ASS ESSMENT, NOTICING INTERNATIONAL TRANSACTIONS UNDERTAKEN BY T HE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES (AES), A REFERENCE WAS M ADE TO THE ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 7 TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA ( 3) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). THE AS SESSEE IS A BRANCH OFFICE OF THE FRENCH COMPANY, NAMELY, CORNIN G S.A., A LEADING MANUFACTURER OF HIGH GRADE OPHTHALMIC AND N ON- OPHTHALMIC GLASS PRODUCTS IN THE WORLD E.G. OPHTHAL MIC BLANKS FOR EYE GLASSES AND OPTICAL FIBER ETC. ASSESSEE ENTERE D INTO INTERNATIONAL TRANSACTIONS AS UNDER :- SR.NO. NATURE OF TRANSACTIONS ARMS LENGTH PRICES AS PER TAXPAYER (I) IMPORT OF ROUGH OPHTHALMIC BLANKS RS.204,179,38 9 (II) IMPORT OF LIFE SCIENCE PRODUCTS RS.63,888,486 (III) COMMISSION INCOME RECEIVED RS.9,277,050 (IV) RECEIPT OF ADMIN AND SUPPORT SERVICE RS.3,989,079 (V) INCOME FROM MARKETING SUPPORT SERVICES RS.101,489,370 (VI) REIMBURSEMENT OF EXPENSES TO AES RS.7,780,043 3. TPO DISPUTED INTERNATIONAL TRANSACTION QUA RECEI PT OF ADMINISTRATIVE AND SUPPORT SERVICES TO THE TUNE OF RS.39,89,079/-. ASSESSEE PAID ADMINISTRATIVE AND SUPPORT SERVICES F EE AMOUNTING TO RS.39,89,079/- TO ITS AES. ASSESSEE IN ORDER TO BE NCHMARK INTERNATIONAL TRANSACTIONS APPLIED TNMM AS THE MOST APPROPRIATE METHOD TREATING ITSELF TO BE THE TESTED PARTY AND O PERATING PROFIT TO OPERATING COST (OP/OC) AS THE PROFIT LEVEL INDICATO R (PLI) BY AGGREGATING RECEIPT OF ADMINISTRATIVE AND SUPPORT S ERVICES AND ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 8 COMMISSION INCOME RECEIVED BEING CLOSELY LINKED. A SSESSEE BY SELECTING 7 COMPARABLE COMPANIES IN ITS TRANSFER PR ICING STUDY COMPUTED THEIR WEIGHTED AVERAGE OPERATING PROFIT MA RGIN OF 5.63%. HOWEVER, TPO REJECTED THE COMBINED TRANSACTION APPR OACH ADOPTED BY THE ASSESSEE AND TREATED THE ADMINISTRAT IVE AND SUPPORT SERVICES AS A SEPARATE CLASS OF TRANSACTION TO BENC HMARK THE INTERNATIONAL TRANSACTION AND APPLIED THE PRINCIPL E OF BENEFIT TEST AND PROCEEDED TO APPLY CUP AS THE MOST APPROPRIATE METHOD AND THEREBY BENCHMARKED THE INTERNATIONAL TRANSACTION O F INTRA GROUP SERVICES AT NIL AND PROPOSED THE ADDITION OF RS.39, 89,079/-. 4. TPO NOTICED WITH REGARD TO COMMISSION INCOME THA T THE ASSESSEE HAS AGGREGATED THE SAME WITH IMPORT OF PRO DUCT AND TREATED IT AS CLOSELY LINKED TRANSACTION AND BENCHM ARKED THE SAME BY USING TNMM. AGAIN, TPO REJECTED THE COMBINED TR ANSACTION APPROACH AND TREATED IT AS A SEPARATE INTERNATIONAL TRANSACTION AND BY TREATING THE FUNCTIONAL SIMILARITY WITH COMMISSI ON INCOME WITH MARKET SERVICE COMMISSION, HE BENCHMARKED THE SAME BY SELECTING COMPARABLES IN THE MARKET SUPPORT SERVICE SEGMENT A ND THEREBY PROPOSED AN ADJUSTMENT OF RS.1,64,90,548/-. 5. TPO ALSO NOTICED THAT THE PAYMENT RECEIVED BY TH E ASSESSEE FROM AE WAS NOT AS PER THE TERMS OF THE SERVICE AGR EEMENT AND ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 9 CONSEQUENTLY HELD THAT THE TAXPAYER HAD PROVIDED BE NEFITS TO ITS AES BY ADVANCING INTEREST FREE LOAN UNDER THE GARB OF DELAY OF RECEIPT OF RECEIVABLE WHICH IS AN INTERNATIONAL TRA NSACTION U/S 92B(1) READ WITH EXPLANATION (I)(C). SO, TPO AFTER USING CUP METHOD AND BY TAKING CREDIT PERIOD OF 30 DAYS AND B Y APPLYING LENDING RATE OF SBI PLUS 300 BASIS POINT DETERMINED THE INTEREST RATE OF 14.88% TO BE THE ARMS LENGTH LEVEL OF INTEREST N EED TO BE CHARGED FOR THE DEEMED LOAN ADVANCED AND THEREBY PROPOSED A N ADJUSTMENT OF RS.28,84,979/- AND ACCORDINGLY, DIRECTED THE AO TO ENHANCE THE INCOME OF THE ASSESSEE BY RS.2,66,90,895/- WHICH WA S RESTRICTED TO RS.2,33,64,607/- VIDE ORDER DATED 29.12.2004 PURSUA NT TO THE DIRECTIONS ISSUED BY THE DRP. 6. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. D RP BY RAISING OBJECTIONS. LD. DRP UPHELD THE ORDER OF THE AO THA T THE ASSESSEE WITH REGARD TO BENEFITS DERIVED ARE TOO GENERIC IN NATURE AND NO DETAILS HAVE BEEN PROVIDE IN RESPECT OF ALLOCATION KEYS APPLIED BY THE AES FOR THE PURPOSE OF ALLOCATING EXPENSES TO T HE ASSESSEE. 7. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFO RE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 10 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 & 2 IN ITA NO.548/DEL/2015, 816/DEL/2017 & 817/DEL/2017 9. GROUNDS NO.1 & 2 IN ALL THE AFORESAID THREE APPE ALS ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATI ON. GROUNDS NO.3 TO 3.6 IN ITA NO.548/DEL/2015 GROUNDS NO.4 TO 4.3 IN ITA NO.816/DEL/2017 GROUNDS NO.4 TO 4.4 IN ITA NO.817/DEL/2017 10. DRP / TPO MADE AN ADJUSTMENT OF RS.39,89,080/- TO THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIO N QUA RECEIPT OF ADMINISTRATIVE AND SUPPORT SERVICES WHICH IS CHA LLENGED BY THE ASSESSEE ON THE GROUND THAT THE SAME IS NOT SUSTAIN ABLE. TPO MADE THE ADJUSTMENT ON THE GROUNDS INTER ALIA THAT NO SE RVICES HAVE BEEN RECEIVED BY THE ASSESSEE; THAT NO BENEFIT WAS DERIV ED BY THE ASSESSEE BY MAKING PAYMENT OF ADMINISTRATIVE AND SU PPORT SERVICES; AND THAT NO SUCH SERVICES WERE ACTUALLY N EEDED BY THE ASSESSEE. 11. TPO, BY RELYING UPON THE PRINCIPLE OF BENEFIT TEST, USED CUP AS MOST APPROPRIATE METHOD AND DETERMINED THE A LP OF THE TRANSACTIONS OF INTRA GROUP SERVICES AT NIL AND THE REBY PROPOSED AN ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 11 ADJUSTMENT OF RS.39,89,079/-. HOWEVER, THE LD. AR FOR THE ASSESSEE BY RELYING UPON THE DECISION OF DELHI BENCH OF THE ITAT IN THE CASE OF GE MONEY FINANCIAL SERVICES PVT. LTD . VS. ACIT (ITA NO.5882/DEL/2010) CONTENDED THAT THE PRINCIPLE OF BENEFIT TEST APPLIED BY THE LD. TPO IS TO BE SEEN FROM THE STANDPOINT OF ASSESSEE AND BUSINESSMAN AND NOT FROM THE VIEW POIN T OF THE REVENUE. 12. HOWEVER, LD. DR FOR THE REVENUE IN SUPPORT OF ORDER PASSED BY TPO / DRP CONTENDED THAT IN THE EARLIER YEARS, N O SUCH PAYMENT WAS MADE BY THE ASSESSEE AS IS EVIDENT FORM AGREEME NT OPERATIVE W.E.F. 01.01.2010 WITH ONLY 2 AES WHEREAS THE PAYME NT DURING THE YEAR UNDER ASSESSMENT HAS BEEN MADE TO 4 AES AND FU RTHER CONTENDED THAT PRIOR TO 01.01.2010, THE ASSESSEE WA S NOT AVAILING THESE SERVICES FORM 4 AES AND WAS IN A POSITION TO PERFORM THESE SERVICES ITSELF NOR THE ASSESSEE HAS FURNISHED ANY DETAILS REGARDING CORRESPONDING REDUCTION OF ITS EXPENSES W.E.F. 01.0 1.2010 AND AS SUCH, THE TPO HAS CORRECTLY SEGREGATED THE AFORESAI D TRANSACTIONS FOR THE PURPOSE OF BENCHMARKING TRANSACTIONS AND RE LIED UPON KNORR-BREMSE INDIA (P.)LTD. VS. ACIT, CIRCLE I, FAR IDABAD (2015) 63 TAXMANN.COM 186 (P&H) . ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 12 13. HOWEVER, TPO AT PAGE 125 OF THE ORDER OBSERVED THAT THE ASSESSEE HAS NOT RECEIVED ANY SERVICES OF SOME VALU E THAT CALL FOR COST ALLOCATION BY MAKING FOLLOWING OBSERVATIONS :- 5.6 ON THE BASIS OF ABOVE, IT CAN BE SEEN THAT IN ORDER TO EXAMINE THE ARM'S LENGTH PRICE OF INTRA GROUP SERVI CES RECEIVED BY ONE OF THE ASSOCIATED ENTERPRISES FOLLO WING ESSENTIAL INFORMATION SHOULD BE AVAILABLE : 1. WHETHER THE AE HAS RECEIVED INTRA GROUP SERVICE S? 2. WHAT ARE THE ECONOMIC AND COMMERCIAL BENEFITS DERIVED BY THE RECIPIENT OF INTRA GROUP SERVICES? 3. IN ORDER TO IDENTIFY THE CHARGES RELATING TO SER VICES, THERE SHOULD BE A MECHANISM IN PLACE WHICH CAN IDENTIFY (I) THE COST INCURRED BY THE AE IN PROVIDI NG THE INTRA GROUP SERVICES AND (II) THE BASIS OF ALLO CATION OF COST TO VARIOUS AES. 4. WHETHER A COMPARABLE INDEPENDENT ENTERPRISE WOUL D HAVE PAID FOR THE SERVICES IN COMPARABLE CIRCUMSTANCES? FROM THE DETAILS AVAILABLE IT IS CLEAR THAT THE TAX PAYER HAS NOT BEEN ABLE TO PROVE THAT HE HAS ACTUALLY RECEIVED SE RVICES OF SOME VALUE THAT CALL FOR COST ALLOCATION. 14. TPO ALSO REJECTED THE CONTENTIONS RAISED BY THE ASSESSEE THAT THE PAYMENT OF INTRA GROUP SERVICES IS A BUSINESS D ECISION WHICH CANNOT BE QUESTIONED IS BASED ON WRONG APPRECIATION OF TRANSFER PRICING LEGISLATION AND RELIED UPON THE DECISION OF LG ELECTRONICS INDIA PVT. LTD. (ITA NO.5140/DEL/2011) . 15. LD. DRP WHILE AGREEING WITH THE TPO THAT THE PA YMENT FOR INTRA GROUP SERVICES TO AES IS SEPARATE INTERNATION AL TRANSACTIONS INDEPENDENT OF FINANCIAL RESULTS AND CAPABLE OF VER IFIABLE SEPARATELY ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 13 AND IN AN UNCONTROLLED ENVIRONMENT, ANY TAXPAYER FO R AVAILING THE SERVICES WOULD PRODUCE THE DOCUMENTARY EVIDENCES TO SUBSTANTIATE ON THE FOLLOWING ISSUES :- IN AN UNCONTROLLED ENVIRONMENT ANY TAXPAYER FOR AV AILING THE SERVICES WOULD PRODUCE THE DOCUMENTARY EVIDENCE S TO SUBSTANTIATE ON THE FOLLOWING ISSUES: (I) CONTEMPORANEOUS DOCUMENTARY EVIDENCE TO SHOW THAT THESE SERVICES HAVE ACTUALLY BEEN RECEIVED. (II) NEED FOR THE RECEIPT OF SUCH SERVICES FOR WHICH PAYMENT HAS BEEN MADE. (III) DOCUMENTARY EVIDENCES AS TO WHEN AND HOW THESE SERVICES WERE REQUISITIONED FROM THE AES. (IV) BASIS OF DETERMINATION OF RATE OR PAYMENT FOR INTRA - GROUP SERVICES AT THE TIME OF ENTERING INTO THE AGREEMENT. (V) DETAILS OF COST BENEFITS ANALYSIS VIS-A-VIS TH E EXPECTED BENEFIT FROM THE INTRA-GROUP SERVICES AND THE PAYME NT MADE FOR THE SAME. (VI) DETAILS OF BENCHMARKING ANALYSIS DONE AT THE TIME OF ENTERING INTO THE AGREEMENT SO AS TO COMPARE THE PAYMENT OF INTRA-GROUP SERVICES TO THE AE VIS-A-VIS AN INDEPENDENT PARTY UNDER SIMILAR CIRCUMSTANCES. (VII) TANGIBLE AND DIRECT BENEFITS DERIVED. BY THE TAXPAYER COMPANY FROM THE USE OF SUCH INTRA-GROUP SERVICES. (VIII) DETAILS AND DOCUMENTARY EVIDENCE OF COST INC URRED BY THE AE FOR RENDERING EACH TYPE OF SERVICES PURPORTE DLY RECEIVED BY THE TAXPAYER COMPANY. 16. LD. DRP AGREEING WITH THE TPO HELD THAT SINCE T HE TAXPAYER HAS JUST EXPLAINED IN GENERIC NATURE ABOUT THE BENE FITS VIS--VIS THE INTRA GROUP SERVICES PAYMENT, THE TPO WAS RIGHT IN HOLDING THE VALUE OF SERVICES TO BE AS NIL AND THUS PROPOSING THE ADJUSTMENT. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 14 17. HOWEVER, ASSESSEE USED TNMM AS THE MOST APPROPR IATE METHOD AND BROUGHT ON RECORD EVIDENCE OF RECEIPT OF SERVICES IN THE SHAPE OF AGREEMENT, AVAILABLE AT PAGES 261 TO 265 O F THE PAPER BOOK, ANNEXURE 1 AVAILABLE AT PAGE 264 OF THE PAPER BOOK, SERVICE CHARGE SUMMARY AVAILABLE AT PAGE 265, SECOND AGREEM ENT AVAILABLE AT PAGE 266, INVOICE RAISED BY THE AE AVAILABLE AT PAGE 271 ONWARDS, THE COMPLETE DETAIL IS GIVEN IN THE TABLE REPRODUCED IN THE SUCCEEDING PARA NO.31 OF THIS ORDER. 18. THE COORDINATE BENCH IN GE MONEY FINANCIAL SERVICES PVT. LTD. (SUPRA) DETERMINED THE IDENTICAL ISSUE AS TO WHETHE R ADMINISTRATIVE SUPPORT SERVICES FEE IS LIABLE TO BE DETERMINED AT NIL FOR BENCHMARKING THE INTERNATIONAL TRANSACTION ON T HE GROUND THAT NO SERVICES WERE ACTUALLY RECEIVED BY ASSESSEE; NO BENEFIT WAS DERIVED BY THE ASSESSEE BY MAKING PAYMENT FOR ADMIN ISTRATIVE SUPPORT SERVICES; AND THAT SERVICES WERE NOT ACTUAL LY NEEDED BY THE ASSESSEE, AS HELD BY THE TPO / DRP. 19. BY RELYING UPON ANOTHER DECISION RENDERED BY HY DERABAD TRIBUNAL IN CASE CITED AS TNS INDIA PRIVATE LIMITED - 2014-TII- 24-ITAT-HYD-TP, WHEREIN THE COORDINATE BENCH HAS DEALT WITH THE RENDITION TEST OF INTRA GROUP SERVICES FOR AYS 2003-04 TO 2005- 06 AND HELD AS UNDER :- ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 15 16. WE HAVE CONSIDERED THE ISSUE. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSING OFFICER/TPO WITH RE FERENCE TO THE SERVICES PROVIDED BY AES. ASSESSEE HAS PROVIDED THE AGREEMENTS WHICH WERE ENTERED NOT DURING THE YEAR B UT IN EARLIER YEAR AND HAS BEEN PAYING THE SERVICE FEE TE RMED AS MANAGEMENT FEE ACCORDINGLY. THIS CLAIM IS NOT ARISI NG FOR THE FIRST TIME IN THIS YEAR BUT, IS ALSO THERE IN EARLI ER YEARS AND LATER YEARS. ASSESSEE IS PART OF A WORLDWIDE GROUP AND THEY HAVE PLACED SOME CORPORATE CENTERS FOR GUIDANCE OF VARIOUS UNITS RUN BY THEM ACROSS THE GLOBE. IT WAS SUBMITTE D THAT THE COSTS BEING INCURRED BY THE CENTERS ARE BEING SHARE D BY VARIOUS UNITS AND ASSESSEE'S SHARE IN THIS YEAR HAS COME TO 5% OF THE RECEIPTS PAYABLE TO NFO WORLDWIDE INC USA AND AT 4% TO NFO ASIA PACIFIC LTD. HONGKONG ON THE NET REVENUES. THESE AMOUNTS ARE WITHIN THE NORMS PRESCRIBED FOR PAYMENT OF FEES TO VARIOUS GROUP COMPANIES OF SIMILAR NATURE. THERE IS NO DISPUTE WITH REFERENCE TO SERVICES BEING PROVIDED BY THE GR OUP COMPANIES TO ASSESSEE AND ASSESSEE ALSO PAID VARIOU S OTHER AMOUNTS INCLUDING ROYALTY. AS SUBMITTED BY ASSESSEE , EVEN THOUGH SOME CORRESPONDENCE WAS PLACED ON RECORD WIT H REFERENCE TO THE ADVISE GIVEN TO ASSESSEE, PROVIDIN G A CONCRETE EVIDENCE WITH REFERENCE TO THE SERVICES IN THE NATU RE OF SPECIFIC ACTIVITIES IS DIFFICULT, LIKE PROVING THE ROLE OF A N ANESTHESIAN IN AN OPERATION CONDUCTED BY A SURGEON. THERE MAY BE A N EVIDENCE OF OPERATION BEING PERFORMED BY THE DOCTOR IN THE FORM OF SUTURES OR SCARS ETC, WHICH CAN BE PROVED L ATER BUT THE ROLE OF AN ANESTHESIAN BEFORE OPERATION AND AFTER G AINING CONSCIOUSNESS IS DIFFICULT TO PROVE AS THAT IS NOT TANGIBLE IN NATURE. LIKEWISE, FOR THE ADVISE GIVEN BY VARIOUS G ROUP CENTERS TO THE GROUP COMPANIES IN DAY-TO-DAY MANNER IS DIFF ICULT TO PLACE ON RECORD BY WAY OF CONCRETE EVIDENCE BUT THE WAY BUSINESS IS CONDUCTED, ONE CAN PERCEIVE THE SAME. ASSESSEE HAS GIVEN A DETAILED WRITE-UP AS WELL AS THE SERVICES P ROVIDED AND BENEFIT OBTAINED WHICH WERE NOT CONTRADICTED. THE A SSESSING OFFICER DID NOT BELIEVE THE SAME IN THE ABSENCE OF CONCRETE EVIDENCE. UNLESS THE ASSESSING OFFICER STEPS INTO A SSESSEE'S BUSINESS PREMISES AND OBSERVES THE ROLE OF THESE COMPANIES/ASSESSEE'S BUSINESS TRANSACTIONS, IT WILL BE DIFFICULT TO PLACE ON RECORD THE SORT OF ADVICE GIVEN IN DAY- TO-DAY OPERATIONS. WHAT SORT OF EVIDENCE SATISFIES THE AO IS ALSO NOT SPECIFIED. ASSESSEE HAS ALREADY PLACED LOT OF EVIDE NCE IN SUPPORT OF CLAIMS. THEREFORE, ON THAT COUNT, WE ARE NOT IN AGREEMENT WITH THE ASSESSING OFFICER AND TPO THAT S ERVICES WERE NOT RENDERED BY THE GROUP COMPANIES TO ASSESSE E. HENCE IN VIEW OF THE OVERWHELMING EVIDENCE PLACED B Y THE ASSESSEE FOR RECEIPT OF SERVICES AND FOLLOWING THE DECISION OF COORDINATE BENCH RESPECTFULLY, WE ARE OF THE VIE W THAT RENDERING OF SERVICES MUST BE SEEN FROM THE VIEW PO INT OF THE ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 16 ASSESSEE AND FURTHER ASSESSEE CANNOT BE ASKED TO KE EP AND MAINTAIN EVIDENCES OF SERVICES RENDERED BY AE HIGHE R THAN WHICH IS EXPECTED FROM A BUSINESSMAN RECEIVING SERV ICES FROM AN UNRELATED PROVIDER. THEREFORE, WE REJECT THE VI EW POINT OF LD. TPO AND LD. DRP THAT ASSESSEE HAS NOT SHOWN THE RECEIPT OF THE SERVICES. IN VIEW OF ABOVE WE ARE OF THE VIE W THAT ASSESSEE HAS JUSTIFIED THE RECEIPT OF SERVICES AND SATISFIED THE RENDITION TEST. 20. TPO / DRP, WITHOUT BENCHMARKING THE TRANSACTION OF PAYMENT OF ADMINISTRATIVE SUPPORT SERVICES FEE BY A PPLYING THE METHOD AVAILABLE UNDER THE ACT, PROCEEDED TO DETERM INE THE VALUE OF SUCH EXPENDITURE AS NIL ON THE GROUNDS INTER ALI A THAT NO SERVICES WERE ACTUALLY RECEIVED BY THE ASSESSEE; THAT NO BEN EFIT WAS DERIVED BY THE ASSESSEE BY MAKING PAYMENT FOR ADMINISTRATIV E SUPPORT SERVICES; THAT THE SERVICES WERE ACTUALLY NOT NEEDE D BY THE ASSESSEE; AND THAT THE EXPLANATION GIVEN BY THE ASSESSEE WITH REGARD TO THE BENEFIT DERIVED ARE TOO GENERIC IN NATURE AND NO DE TAIL HAS BEEN PROVIDED IN RESPECT OF ALLOCATION KEYS APPLIED BY T HE AE FOR THE PURPOSE OF ALLOCATING EXPENSES TO THE ASSESSEE. 21. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNE D ORDER DETERMINING THE VALUE OF ADMINISTRATIVE SUPPORT SER VICES FEE AS NIL FILED WRITTEN SYNOPSIS AS UNDER :- IT IS RESPECTFULLY SUBMITTED THAT THE ADJUSTMENT M ADE BY THE TPO ON THE AFORESAID GROUNDS IS NOT SUSTAINABLE FOR THE REASONS SUBMITTED HEREUNDER :- THE BREAKUP OF ADMINISTRATIVE SUPPORT SERVICES AVAI LED BY THE APPELLANT DURING THE YEAR ALONG WITH THE AMOUNT INC URRED FOR EACH TYPE OF SERVICES IS SUBMITTED AS UNDER :- ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 17 NAME OF THE AES NATURE OF SERVICE AMOUNT ALLOCATION KEYS REFERENCE TO PB (DOCUMENTARY EVIDENCES) CORNING INC., UNITED STATES IT SUPPORT 1,725,976 EXPENSES ARE ALLOCATED ON THE BASIS OF THE ACTUAL HOURS SPENT BY THE ASSOCIATED ENTERPRISE FOR PROVIDING SERVICES TO THE APPELLANT. DETAILS PLACED ON RECORD BY WAY OF ADDITIONAL EVIDENCE BEFORE THE HON'BLE DRP INVOICE PAGE 274 295 DETAILS OF HOURS SPENT BY AE PAGE 402-403B CORNING CHINA (SHANGHAI) REGIONAL HEADQUARTER ACCOUNTING SERVICES INCLUDING PROCESSING OF ACCOUNTS 553,140 THE BASIS OF ALLOCATION FOR THESE ADMINISTRATIVE SUPPORT SERVICES IS VOLUME OF ACTIVITY/ TRANSACTIONS OR FULL TIME EQUIVALENT (FTE') DEDICATED TO SERVICE THE PARTICULAR SERVICE AVAILING ENTITY. THE PAYMENT TERMS AS AGREED BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISES IS PROVIDED IN CLAUSE 4, 'ANNUAL SERVICE COSTS' AND EXHIBIT A TO ANNEXURE 1 OF THE SHARED SERVICE AGREEMENT. INVOICE PAGE 271 273 SHARED SERVICE AGREEMENT PAGE 261 265 MAILS PAGE 385 388 MAIL PAGE 394 395 (ALLOCATION) CORNING DEVELOPMENT INC. SINGAPORE HUMAN RESOURCE SUPPORT SERVICES AND TRAINING SERVICES 1,160,239 ASSOCIATED ENTERPRISE ALLOCATES ONLY 35% OF THE ACTUAL MONTHLY COST INCURRED ON AN ESTIMATED BASIS. CORNING, SINGAPORE DOES NOT ALLOCATE 100% OF THE COST INCURRED FOR PROVIDING SERVICES TO THE APPELLANT. THEREAFTER, 5% MARK-UP IS ADDED TO THE COST IN TERMS OF THE SHARED SERVICE AGREEMENT ENTERED WITH CORNING, SINGAPORE. INVOICE PAGE 296 297 AGREEMENT PAGE 266 270 MAILS PAGE 389 393 CORNING DISPLAY TECHNOLOGY, TAIWAN IT SUPPORT SERVICES INCLUDING SETTING UP OF SYSTEMS TECHNICAL ASSISTANCE ETC. 549,725 CORNING, TAIWAN IS REMUNERATED ON A COST PLUS 5 PERCENT MARKUP WHEREIN COST INCLUDES ALL DIRECT AND INDIRECT COST INCURRED IN PROVISION OF THE SERVICES INVOICES PAGE 300 - 301 1. THE TPO, IN THE IMPUGNED ORDER, DETERMINED THE V ALUE OF INTERNATIONAL TRANSACTION OF PAYMENT OF ADMINIST RATIVE AND ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 18 SUPPORT FEES AT 'NIL' ALLEGEDLY HOLDING THAT NO SER VICES WERE ACTUALLY RECEIVED BY THE ASSESSEE. IT WOULD BE APPRECIATED THAT THE APPELLANT VIDE SUB MISSIONS DATED 10.12.2013 AND 07.11.2014 SUBMITTED SAMPLE CO PY OF CORRESPONDENCES (MAILS), AGREEMENT ENTERED BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISES, COPY OF I NVOICES RAISED BY THE ASSOCIATED ENTERPRISES ON THE APPELLA NT AND DETAILS OF ALLOCATION KEYS APPLIED BY THE ASSOCIATE D ENTERPRISES FOR THE PURPOSE OF ALLOCATING EXPENSES TO THE APPEL LANT BEFORE THE LOWER AUTHORITIES, SUBSTANTIATING THE FACT THAT THE SERVICES HAVE BEEN ACTUALLY RECEIVED BY THE APPELLANT. RELIANCE, IN THIS REGARD IS PLACED ON THE RECENT DE CISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GE MONEY FINANCIAL SERVICES PVT. LTD. VS. ACIT (ITA NO.5882/DE1/2010), WHEREIN, THE HON'BLE TRIBUNAL HELD THAT THE ASSESSEE IS REQU IRED TO MAINTAIN AND PRODUCE THE EVIDENCE OF RECEIPT OF SER VICES, WHICH A BUSINESSMAN KEEPS AND MAINTAINS REGARDING SERVICE S RECEIVED FROM THE THIRD PARTY. THE ASSESSEE CANNOT BE EXPECTED TO MAINTAIN DETAILED DOCUMENTATION EVIDENCING THE R ECEIPT OF SERVICES MERELY BECAUSE THE SERVICES HAVE BEEN REND ERED BY ITS ASSOCIATED ENTERPRISE. 2. THE TPO, FURTHER HELD THAT NO BENEFIT WAS DERIVE D BY THE ASSESSEE BY MAKING PAYMENT FOR ADMINISTRATIVE S UPPORT SERVICES. IT IS REITERATED THAT IN TERMS OF THE GROUP POLICY, ALL CORNING GROUP ENTITIES HAVE A MANDATE TO AVAIL SUPPORT FUNC TION SERVICES FROM THE RESPECTIVE SHARED SERVICE CENTERS TO AVAIL THE BENEFIT OF LOW COST, SPECIALIZATION AND CONFIDENTIA LITY. THE SHARED SERVICE CENTERS OFFER THE ADVANTAGE OF E CONOMICAL, SPECIALIZED SERVICES, EXPERTISE IN TERMS OF KNOWLED GE OF CORNING PRODUCTS, ADHERENCE TO CORNING CULTURE, COR NING RULES AND PROCEDURES AND MOST IMPORTANTLY CONFIDENT IALITY. IT WOULD BE APPRECIATED THAT THE SHARED SERVICE CENTER S CATER TO ALL CORNING ENTITIES BASED OUT OF ASIA AND THE VOLU MES OF TRANSACTIONS OF THE ASSESSEE ARE VERY LESS COMPARED TO THE VOLUME OF OTHER CORNING ASIAN ENTITIES. OUTSOURCING THE SAME WORK TO THIRD PARTY VENDORS WOULD NOT ONLY INVOLVE TRAINING THEM IN CORNING GROUP'S PROCEDURES AND INFRASTRUCTU RE BUT ALSO COMPROMISE ON DATA CONFIDENTIALITY AS WELL AS ON THE STABILITY OF THE SERVICES. FURTHER, IF EACH GROUP E NTITY IS EXPECTED TO CONTRACT WITH LOCAL VENDORS THEMSELVES, THE GROUP'S OPERATIONS AS A WHOLE WILL NOT ONLY BECOME FAR MORE EXPENSIVE BUT ALSO INEFFICIENT SINCE EACH GROUP ENTITY WOULD BE ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 19 REPLICATING THE SAME WORK AND MULTIPLE THIRD PARTY VENDORS SHALL BE INVOLVED IN PROCESSING THE SAME TRANSACTIO NS. RECENTLY, DELHI BENCH OF THE TRIBUNAL IN THE CASE O F GE MONEY FINANCIAL SERVICE PVT. LTD. VS. ACIT (SUPRA), HELD THAT BENEFIT TEST FOR DETERMINATION OF ALP IS TO BE SEEN FROM TH E PERSPECTIVE OF THE ASSESSEE AND BUSINESSMAN AND NOT FROM THE PE RSPECTIVE OF REVENUE. 3. THE TPO, IN THE IMPUGNED ORDER, ALLEGEDLY HELD T HAT THE SERVICES WERE NOT ACTUALLY NEEDED BY THE ASSESSEE. AS PER THE GROUP POLICY, ALL CORNING GROUP ENTITIES HAVE A MANDATE TO AVAIL SUPPORT FUNCTION SERVICES FROM THE RESPECTIVE SHARED SERVICE CENTERS TO AVAIL THE BENEFIT OF LOW COST, SPECIALIZATION AND CONFIDENTIALITY. DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GE MONEY FINANCIAL SERVICES PVT. LTD. VS. ACIT (SUPRA), HELD THAT THE ASSESSEE PAYS FOR THE SERVICES ONLY IF IT RECEIVES BENEFIT FROM T HE SERVICES. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS: I. M/S. CONTROL TECHNIQUES INDIA PVT LTD. VS. JCIT (ITA NO. 2575/MDS/2016) II. CIT VS. MAX INDIA LTD. (ITA NO. 186/2013) (P&H HC) III. CIT VS. EKL APPLIANCES LTD. 345 ITR 241 IV. ERICSSON INDIA PVT. LTD. VS. DCIT (ITA NO. 5141/DE1L2011) V. DRESSER RAND INDIA PVT. LTD. VS. ADDL. CIT (ITA NO 8753/MUM/2010) VI. LG POLYMERS INDIA PVT. LTD VS ADD!. CIT (ITA N O 524NIZAG/2010) VII. SC ENVIRO AGRO INDIA LTD VS DCIT (ITA NO 2057 & 2058/MUM/2009) VIII. AWB INDIA PVT LTD VS ADD!. CIT (ITA NO 4454/DE1L2011) IX. PERI INDIA PVT. LTD. VS. DCIT (ITA NO. 7265/MUM/2012) X. DCIT VS. MIS DANISCO INDIA PVT LTD(ITA 24441 DE LL 2012) XI. TNS INDIA PVT. LTD. (ITA NO. 944/HYD/2007) XII. GILLETTE INDIA LIMITED VS. ACIT (ITA 10871 JP I 2011) XIII. DCIT VS DANISCO (INDIA) PVT LTD (ITA 24441 D E1/2012) XIV. INDIGENE PHARMACEUTICALS VS. ACIT (ITA NO.1541HYD/2011 & 1874/HYD/2012) XV. KIRBY BUILDING SYSTEMS INDIA LTD VS. ADDL CIT (ITA 19751 HYDI 2010) ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 20 XVI. FESTO CONTROLS PVT. LTD. VS DCIT (ITA NO. 969/BANG/2011) XVII. HONDA SIEL POWER PRODUCTS LTD. VS. DCIT (ITA 57131 DELL 2011) XVIII. QUINTILES RESEARCH (INDIA) PRIVATE LTD. VS DCIT (ITA 1605/BANG/2012) XIX. ROCKWELL AUTOMATION INDIA PVT LTD VS DCIT (IT A 5671 DELL 2015) 22. ON THE OTHER HAND, LD. DR FOR THE REVENUE ALSO MADE A WRITTEN SUBMISSION TO REPEL THE CONTENTIONS RAISED BY THE LD. AR FOR THE ASSESSEE AS UNDER :- IN THE TP STUDY REPORT THE ASSESSEE HAS CLUBBED T HE ABOVE INTERNATIONAL TRANSACTION (RECEIPT OF IT SUPP ORT SERVICES, ACCOUNTING SERVICES, HUMAN RESOURCE SERVI CES ETC. FROM FOUR AES AT MARKUP OF COST PLUS 5%) WITH OTHER INTERNATIONAL TRANSACTIONS - IMPORT OF ROBS & LIFE SCIENCE PRODUCTS AND COMMISSION INCOME FOR THE PURPOSE OF BENCHMARKING. IT IS PERTINENT TO MENTION THAT NO SU CH PAYMENTS WERE MADE IN THE EARLIER YEARS BY THE ASSE SSEE. IN THE PB THE ASSESSEE HAS SUBMITTED ONLY AGREEMENTS ( W.E.F. 1ST JANUARY, 2010) WITH ONLY 2 AES WHEREAS PAYMENTS HAV E BEEN MADE TO 4 AES. IT IS EVIDENT THAT PRIOR TO 01.01.20 10 THE ASSESSEE WAS NOT AVAILING THESE SERVICES FROM THE 4 AES AND THUS IT WAS CAPABLE IN ITSELF FOR THESE SERVICES. T HE ASSESSEE HAS FAILED TO FURNISH ANY JUSTIFICATION FOR AVAILIN G OF THESE SERVICES FROM AES W.E.F. 01.01.2010. THE ASSESSEE H AS ALSO FAILED TO FURNISH ANY DETAILS REGARDING CORRESPONDI NG REDUCTION OF ITS EXPENSES W.E.F. 01.01.2010. THE TPO CORRECTLY SEGREGATED THE ABOVE TRANSACTION FOR THE PURPOSE OF BENCHMARKING IN VIEW OF THE FACT THA T RECEIPT OF ADMINISTRATIVE SUPPORT SERVICES ARE NOT INEXTRIC ABLY LINKED WITH THE OTHER INTERNATIONAL TRANSACTI.ONS. RELIANC E IS PLACED ON THE JUDGEMENT OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF KNORR-BREMSE INDIA(P .) LTD. V. AS SISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-I, FARIDABAD (2 015) 63 TAXMANN.COM 186 (PUNJAB & HARYANA) WHEREIN THE HON 'BLE HIGH COURT HAS HELD THAT THE CLOSELY LINKED TRANSAC TIONS CAN, IN A GIVEN SITUATION, BE COMPONENTS OF A SINGLE COM POSITE TRANSACTION BUT THE ASSESSEE WOULD, HOWEVER, HAVE T O PROVE THAT ALTHOUGH EACH SALE AND EACH PROVISION OF SERVI CE IS PRICED SEPARATELY, THEY WERE ALL PROVIDED UNDER ONE COMPOSITE AGREEMENT WHICH CONSTITUTES AN INTERNATIONAL TRANSA CTION. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 21 THE HON'BLE ITAT DELHI HAS FOLLOWED THE ABOVE JUDGM ENT IN CASE OF GRUNER INDIA (P.) LTD. [2016] 70 TAXMANN.CO M 240 (DELHI - TRIB.). EVEN IN CASE OF ASSESSEE ITSELF IT HAS BEEN HELD BY THE HON'BLE ITAT IN THE EARLIER ASSESSMENT YEARS THAT DISTRIBUT ION BUSINESS CANNOT BE AGGREGATED WITH THE COMMISSION B USINESS. TPO HAS ADOPTED CUP FOR BENCHMARKING WHICH IS ALSO THE MOST APPROPRIATE METHOD UNDER THE CIRCUMSTANCES. TPO HAS DISCUSSED IN DETAIL THAT ASSESSEE WAS NOT A BLE TO SUBSTANTIATE RECEIPT OF ANY SERVICES FROM THE AE. T HE ASSESSEE ALSO FAILED TO ESTABLISH THE NEED FOR SUCH SERVICES . THE TPO FURTHER HELD THAT THE SERVICES PROVIDED WERE DUPLIC ATE IN NATURE AND IN THE NATURE OF SHAREHOLDER SERVICES (R EFER PG NO. 19-20 OF THE TPO'S ORDER). THUS, THE ALP OF IGS WAS CORRECTLY TAKEN AT NIL AFT ER CONDUCTING NEED TEST, RENDITION TEST AND BENEFIT TE ST. THE HON'BLE DELHI HIGH COURT HAS HELD IN CASE OF COMMISSIONER OF INCOME-TAX-I V. CUSHMAN AND WAKEFIE LD (INDIA) (P.) LTD. [2014] 46 TAXMANN.COM 317 (DELHI) THAT ALP CAN BE COMPUTED AT NIL BY THE TPO IF AN INDEPEN DENT ENTITY WOULD NOT PAY ANY AMOUNT. THE RELEVANT EXTRA CT OF THE ABOVE JUDGMENT IS REPRODUCED BELOW:- 35. THE TPO'S REPORT IS, SUBSEQUENT TO THE FINANCE ACT, 2007, BINDING ON THE AO. THUS, IT BECOMES ALL THE M ORE IMPORTANT TO CLARIFY THE EXTENT OF THE TPO'S AUTHOR ITY IN THIS CASE, WHICH IS TO DETERMINING THE ALP FOR INTERNATI ONAL TRANSACTIONS REFERRED TO HIM OR HER BY THE AO, RATH ER THAN DETERMINING WHETHER SUCH SERVICES EXIST OR BENEFITS HAVE ACCRUED. THAT EXERCISE OF FACTUAL VERIFICATION 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 - STATE THAT THE ALP IS 'NIL' GIVEN THAT AN INDEPENDENT ENT ITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HO WEVER, THIS IS DIFFERENT FROM THE TPO STATING THAT THE ASS ESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISAL LOWING EXPENDITURE. THAT DECISION IS OUTSIDE THE AUTHORITY OF THE TPO. THIS ASPECT WAS MADE CLEAR BY THE ITAT IN DELL OITE CONSULTING INDIA (P) LTD. V. DY. CIT/ITO [2012] 137 ITD 21/22 TAXMANN.COM 107 (MUM): '37. ON THE ISSUE AS TO WHETHER THE TRANSFER PRICING OFFICER IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE AT 'NIL ', WE FIND THAT THE BANGALORE ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 22 BENCH OF THE TRIBUNAL IN GEMPLUS INDIA (P.) LTD. V. ASSTT. CIT [IT APPEAL NO. 352 (BANG.) OF2009, DATED 20-10-2010] HELD THAT THE ASSESSEE HAS TO ESTABLISH BEFORE THE TRANSFER PRICING OFFICER THAT THE PAYMEN TS MADE WERE COMMENSURATE TO THE VOLUME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARABLE. WHEN COMMENSURATE BENEFIT AGAINST THE PAYMENT OF SERVICE S IS NOT DERIVED, THEN THE TRANSFER PRICING OFFICER I S JUSTIFIED IN MAKING AN ADJUSTMENT UNDER THE ARM'S LENGTH PRICE. 38. IN THE CASE ON HAND, THE TRANSFER PRICING OFFICER HAS DETERMINED THE ARM'S LENGTH PRICE AT 'N IL' KEEPING IN VIEW THE FACTUAL POSITION AS TO WHETHER IN A COMPARABLE CASE, SIMILAR PAYMENTS WOULD HAVE BEEN MADE OR NOT IN TERMS OF THE AGREEMENTS. THIS IS A C ASE WHERE THE ASSESSEE HAS NOT DETERMINED THE ARM'S LENGTH PRICE. THE BURDEN IS INITIALLY ON THE ASSESS EE TO DETERMINE THE ARM'S LENGTH PRICE. THUS, THE ARGUMEN T OF THE ASSESSEE THAT THE TRANSFER PRICING OFFICER H AS EXCEEDED HIS JURISDICTION BY DISALLOWING CERTAIN EXPENDITURE, IS AGAINST THE FACTS. THE TRANSFER PRI CING OFFICER HAS NOT DISALLOWED ANY EXPENDITURE. ONLY TH E ARM'S LENGTH PRICE WAS DETERMINED. IT WAS THE ASSESSING OFFICER WHO COMPUTED THE INCOME BY ADOPTING THE ARM'S LENGTH PRICE DECIDED BY THE TRANSFER PRICING OFFICER AT 'NIL'. ' THE HON'BLE ITAT DELHI HAS HELD IN CASE OF GE MONEY FINANCIAL SERVICES (P.) LTD. [2016] 69 TAXMANN.COM 420 (DELHI - TRIB.) AFTER CONSIDERING THE JUDGMENT OF H ON'BLE DELHI HIGH COURT IN CASE OF CUSHMAN AND WAKEFIELD [ 2014 ] 46 TAXRNANN.COM 317 (DELHI) THAT- 'THE TPO CAN COMPUTE NIL ALP AFTER CONDUCTING BENEF IT TEST, NEED TEST AND RENDITION LEST. THE BENEFIT TES T IS NECESSARY PART OF DETERMINING ARM'S LENGTH PRICE OF ANY INTER NATIONAL TRANSACTION. THIS IS SO BECAUSE IF THERE IS NO NEED OF ANY SERVICES (I.E. NEED TEST), IT WOULD NOT BE PAID BY THE INDEPENDENT PARTIES. SIMILARLY IF THE SERVICES ARE NOT RENDERED (RENDITION TEST), INDEPENDENT PARTIES WILL DEFINITE LY NOT PAY FOR IT, AND THIRDLY IF THE SERVICES THOUGH REQUIRED AND ARE RENDERED BUT ARE NOT BENEFICIAL TO THE RECEIVER (BE NEFIT TEST) THEN NATURALLY THE INDEPENDENT PARTIES WILL NOT PAY FOR SUCH SERVICES. SIMILARLY, THE SERVICES, WHICH ONE ALREAD Y IS AVAILING, INDEPENDENT PARTIES MAY NOT PAY FOR IT AS IT AMOUNTS TO REDUNDANCY. THEREFORE AS THE TPO IS ONLY EMPOWER ED TO DETERMINE ARMS LENGTH PRICE OF INTERNATIONAL TRANS ACTION, AS PER PROVISION OF SECTION 92(2) HE IS REQUIRED TO CO NSIDER ALL ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 23 THE ABOVE ASPECTS OF THE SERVICES FOR WHICH AE IS REMUNERATED. IN ABSENCE OF ALL THESE CRITERIA SATISFIED CUMULATI VELY FOR SERVICES, IT IS INCOMPREHENSIBLE THAT ANY INDEPENDE NT PARTY WOULD PAY FOR THE SERVICES I.E. I. IF SERVICES ARE NOT REQUIRED, II. IF THEY ARE NOT RENDERED, III. IF THEY ARE NOT BENEFITTING THE RECIPIENT IV. IF THEY ARE DUPLICATIVE IN NATURE V. IF THEY ARE FOR THE SAFEGUARDING INTEREST OF OW NER I. E. SHAREHOLDER ACTIVITY VI. AND IF IT WERE SO, THERE WOULD NOT BE ANY COMP ARABLE INSTANCES FOR SIMILAR KIND OF SERVICES AND THE PURP OSE OF DETERMINING ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WILL MOST PROBABLY FAIL. IN A RECENT JUDGEMENT THE COORDINATE BENCH OF HON'B LE ITAT BANGALORE HAS HELD IN CASE OF VOLVO INDIA PVT. LTD. V. CIT (IT(TP)A NO. 384/BANG/2013, DATED 16.12.2016) THAT THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE SERVICE S ARE ACTUALLY RENDERED BY THE ASSESSEE AND IF THE ASSESS EE FAILS TO DISCHARGE THE ABOVE ONUS THEN THE TPO IS JUSTIFIED IN ADOPTING ALP AT NIL. IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS NO T PROPERLY BENCHMARKED THE ABOVE TRANSACTION AS IT HAS AGGREGA TED THIS TRANSACTION WITH THE OTHER TRANSACTIONS WHICH ARE N OT CLOSELY LINKED AT ALL HENCE EVEN IF THE BENCHMARKING OF THE TPO IS NOT ACCEPTED AS IN CONFORMITY WITH THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN CUSHMAN AND WAKEFIELD THEN THE ABOVE ISSUE IS REQUIRED TO BE REMANDED BACK TO THE FILE O F THE CONCERNED AO, FOR AN ALP ASSESSMENT BY THE TPO, FOL LOWED BY THE AO'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW (REFER PARA 45 AND 46 OF THE ABOVE ORDER OF THE JURISDICTI ONAL HIGH COURT). 23. NO DOUBT, UNDER SECTION 92 (2) OF THE ACT, TRAN SFER PRICE OF COST OR EXPENSES ALLOCATED OR APPORTIONED TO SUCH E NTERPRISE OR CONTRIBUTED BY SUCH ENTERPRISE SHALL BE DETERMINED HAVING REGARD TO ARMS LENGTH PRICE OF SUCH BENEFIT, SERVICE OR FACIL ITY RECEIVED BY THE ENTERPRISE AND AS SUCH, THE BENEFIT TEST IS NECES SARY FOR ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 24 DETERMINATION OF ARMS LENGTH PRICE OF ANY INTERNATI ONAL TRANSACTION. IN OTHER WORDS, SERVICES ARE NEED BASED AND NO FEE SHALL BE PAID IF SERVICES WERE NOT RENDERED. FURTHERMORE, IF THE SE RVICES THOUGH REQUIRED AND ARE RENDERED BUT ARE NOT NEEDED / BENE FICIAL TO THE RECEIVER THEN INDEPENDENT PARTIES NEED NOT TO PAY F OR SUCH SERVICES. 24. IN OTHER WORDS, AN INDEPENDENT PARTY WOULD NOT REQUIRE TO PAY SERVICES IN CASE SERVICES ARE NOT REQUIRED; IF THEY ARE NOT RENDERED IF THEY DO NOT PASS THE BENEFIT TEST OR IF THE SERVICES ARE NOT NEEDED BY THE ASSESSEE. 25. WE HAVE CONSIDERED THE CONTENTIONS RAISED BY TH E LD. REPRESENTATIVES OF THE PARTIES TO THE APPEAL, CASE LAWS RELIED UPON AND PROVISIONS CONTAINED UNDER THE ACT AND CAME TO THE CONCLUSION INTER ALIA :- (I) THAT SO FAR AS QUESTION OF RECEIPT OF SERVICES BY THE ASSESSEE FROM ITS AE IS CONCERNED, LD. DRP IN PARA 11.3 OF ITS ORDER ADMITTED THAT THE ASSESSEE HAS RECEIVED SERVICES BUT THE EXPLANATION GIVEN ABOUT THE BENEFIT DERIVED BY THE TAXPAYER ARE TOO GENERIC IN NATURE IN RESPECT OF ALL THE SERVICES AVAILED BY THEM. FOR FACILITY OF REFERENCE, PARA 11.3 OF THE DRP IS REPRODUCED AS UNDER :- ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 25 11.3 FROM THE TAXPAYER'S SUBMISSION, IT IS SEEN THAT THOUGH THE TAXPAYER HAS SUBMITTED DOCUMENTS TO THE TPO AND BEFORE THE PANEL TO SUBSTANTIATE THAT THEY HAVE RECEIVED THE SERVICES BUT THE EXPLANATION GIVEN ABOUT THE BENEFITS DERIVED BY THE TAXPAYER ARE TOO GENERIC IN NATURE IN' RESPECT OF ALL THE SERVICES AVAILED BY THEM. INSPITE OF THE OPPORTUNITY GIVEN BY THIS PANEL NO DETAILS ABOUT THE TOTAL EXPENSES INCURRED BY THE AE AND ITS PARTICIPATING COUNTRIES WERE PROVIDED NO BASIS FOR THE ALLOCATION KEY FOR THOSE EXPENSES HAVE BEEN PROVIDED. IN AN UNCONTROLLED ENVIRONMENT ANY TAXPAYER FOR AVAILING THE SERVICES WOULD PRODUCE THE DOCUMENTARY EVIDENCES TO SUBSTANTIATE ON THE FOLLOWING ISSUES: (I) CONTEMPORANEOUS DOCUMENTARY EVIDENCE TO SHOW THAT THESE SERVICES HAVE ACTUALLY BEEN RECEIVED. (II) NEED FOR THE RECEIPT OF SUCH SERVICES FOR WHICH PAYMENT HAS BEEN MADE. (III) DOCUMENTARY EVIDENCES AS TO WHEN AND HOW THESE SERVICES WERE REQUISITIONED FROM THE AES. (IV) BASIS OF DETERMINATION OF RATE OR PAYMENT FOR INTRA-GROUP SERVICES AT THE TIME OF ENTERING INTO THE AGREEMENT. (V) DETAILS OF COST BENEFITS ANALYSIS VIS-A-VIS THE EXPECTED BENEFIT FROM THE INTRA-GROUP SERVICES AND THE PAYMENT MADE FOR THE SAME. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 26 (VI) DETAILS OF BENCHMARKING ANALYSIS DONE AT THE TIME OF ENTERING INTO THE AGREEMENT SO AS TO COMPARE THE PAYMENT OF INTRA-GROUP SERVICES TO THE AE VIS-A-VIS AN INDEPENDENT PARTY UNDER SIMILAR CIRCUMSTANCES. (VII) TANGIBLE AND DIRECT BENEFITS DERIVED. BY THE TAXPAYER COMPANY FROM THE USE OF SUCH INTRA-GROUP SERVICES. (VIII) DETAILS AND DOCUMENTARY EVIDENCE OF COST INCURRED BY THE AE FOR RENDERING EACH TYPE OF SERVICES PURPORTEDLY RECEIVED BY THE TAXPAYER COMPANY. THE TAXPAYER HAS NOT BEEN ABLE TO SHOW THAT THE ABOVE MENTIONED CRITERIA WERE DULY BEING FULFILLED. FURTHER, WHEN INDEPENDENT ENTERPRISES TRANSACT WITH OTHER INDEPENDENT ENTITY; THE PRICE OF GOODS TRANSFERRED OR SERVICES PROVIDED AND CONDITIONS OF THE TRANSFER OR PROVISIONS ORDINARILY ARE DETERMINED BY MARKET FORCES. THEREFORE, WHEN AES TRANSACT WITH EACH OTHER, FOR THE PURPOSE OF TRANSFER PRICING THEY MUST REPLICATE THE DYNAMICS OF MARKET FORCES, AS THERE IS NO CONCEPT OF FREE LUNCH IN BUSINESS DEALINGS. THE BENEFIT TEST WHICH IS WELL RECOGNIZED BY OECO AND OTHER DEVELOPED COUNTRIES TAX REGIME HAVE TO BE SEEN FOR ALLOWING THE PAYMENT IN CASE OF INTRA-GROUP SERVICES. THE EXPECTED BENEFIT MUST BE SUFFICIENTLY DIRECT AND SUBSTANTIAL SO THAT AN INDEPENDENT ENTITY IN SIMILAR CIRCUMSTANCES, WOULD BE ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 27 PREPARED TO PAY FOR IT. IF NO BENEFITS HAVE BEEN PROVIDED (OR WAS EXPECTED TO BE PROVIDED), THEN THE SERVICES CANNOT BE CHARGED FOR. IN VIEW OF THE ABOVE, SINCE THE TAXPAYER HAS JUST EXPLAIN IN GENERIC NATURE ABOUT THE BENEFITS VIS-A-VIS THE INTRA-GROUP' SERVICES' PAYMENT, HENCE THIS DRP HOLDS THAT TPO IS RIGHT IN HOLDING THE VALUE OF SERVICES TO BE AS NIL AND THUS PROPOSING THE ADJUSTMENT. (II) THAT FURTHERMORE, THE ASSESSEE HAS BROUGHT ON RECORD THE EVIDENCES AS TO THE RECEIPTS OF THE SERVICES IN THE FORMS OF AGREEMENTS AVAILABLE AT PAGES 261 TO 265 A ND 266, ANNEXURE 1 AVAILABLE AT PAVE 264 AND INVOICES RAISED AVAILABLE AT PAGE 271 ONWARDS. 26. WHEN IT IS NOT IN DISPUTE THAT THE SERVICES WER E ACTUALLY RECEIVED BY THE ASSESSEE, THE SECOND QUESTION ARISE S FOR DETERMINATION IS :- AS TO WHETHER ASSESSEE HAS FAILED TO PROVIDE RATIONALE OR NEED FOR RECEIPT OF SUCH SERVICES AS H ELD BY LD. DRP? 27. THE LD. AR RELIED UPON DECISIONS RENDERED BY HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD. ITA NOS.1068/2011 & 1070/2011 DATED 29.03.20 12 WHEREIN IDENTICAL ISSUES WERE RAISED BY THE REVENUE THAT TH E ASSESSEE HAS ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 28 FAILED TO DEMONSTRATE THE ACTUAL BENEFIT DERIVED BY IT BY USING THE SERVICES RENDERED TO IT BY THE AE AND IN THESE CIRC UMSTANCES, PAYMENT OF ADMINISTRATIVE SERVICES FEE WAS UNJUSTIF IED AND ALP OF THE TRANSACTIONS SHOULD BE TAKEN AS NIL. HOWEVER, HONBLE JURISDICTIONAL HIGH COURT IN THE JUDGMENT IN EKL APPLIANCES LTD. (SUPRA) RETURNED THE FINDING IN FAVOUR OF THE ASSES SEE BY REJECTING THE CONTENTIONS RAISED BY THE REVENUE. THE OPERAT IVE PART OF THE JUDGMENT IN EKL APPLIANCES LTD. (SUPRA) IS REPRODUCED AS UNDER FOR READY PERUSAL :- 20. IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD . V. CIT, (1979) 118 ITR 261 (SC), THE SUPREME COURT REFERRED TO THE LEGISLATIVE HISTORY AND NOTED THAT WHEN THE INCOME TAX BILL OF 1961 WAS INTRODUCED, SECTION 37(1) REQUIRED THAT T HE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY, NECE SSARILY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS IN OR DER TO MERIT DEDUCTION. PURSUANT TO PUBLIC PROTEST, THE WO RD NECESSARILY WAS OMITTED FROM THE SECTION. 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW T HAT ANY LEGITIMATE EXPENDITURE INCURRED BY HIM WAS ALSO INC URRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSE SSEE TO SHOW THAT ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOS E OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUB SEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THA T INTER ALIA FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PAR AGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NE CESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUN ERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTE R HAD HE ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 29 NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESSEE T O DECIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THER EOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALL OW THE ENTIRE EXPENDITURE OR A PART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANC IAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOW ABILITY OF AN EXPENSE; THERE IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT TH E ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/ BRAND FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CON TINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO T O DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED I N THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE INTE RNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR AUTHORISED. 28. FURTHERMORE, HONBLE HIGH COURT OF PUNJAB & HAR YANA IN THE JUDGMENT IN M/S. KNORR-BREMSE INDIA PVT. LTD. VS. ACIT (ITA NO.182 OF 2013 (O&M) DATED 06.11.2015) RELIED UPON BY BOTH THE LD. AR FOR THE ASSESSEE AS WELL AS LD. DR FOR THE R EVENUE HAS ALSO DEALT WITH THE IDENTICAL ISSUE OF BENEFIT TEST. OP ERATIVE PART OF THE JUDGMENT IN M/S. KNORR-BREMSE INDIA PVT. LTD. (SUPRA) IS AS UNDER:- 20. A READING OF THE ORDERS OF THE TPO, THE DRP AND OF THE TRIBUNAL MAKES IT CLEAR THAT ONE OF THE MAIN RE ASONS FOR NOT ACCEPTING THE ASSESSEES CASE WAS THAT THE ASSE SSEE HAD NOT BEEN ABLE TO SUBSTANTIATE THAT THE PAYMENT FOR THE SERVICES HAD ACTUALLY INCREASED ITS PROFITS. AS WE NOTED EA RLIER, THE TPO, IN FACT, FURTHER HELD THAT THE ASSESSEE SHOULD HAVE BEEN ABLE TO SHOW THE LEVEL OF INCREASE IN PROFIT POST T HE SAID TRANSACTIONS. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 30 21. WE ARE UNABLE TO AGREE WITH THIS FINDING. THE ANSWER TO THE ISSUE WHETHER A TRANSACTION IS AT AN ARMS L ENGTH PRICE OR NOT IS NOT DEPENDENT ON WHETHER THE TRANSACTION RESULTS IN AN INCREASE IN THE ASSESSEES PROFIT. THIS WOULD BE CONTRARY TO THE ESTABLISHED MANNER IN WHICH BUSINESS IS CONDUCT ED BY PEOPLE AND BY ENTERPRISES. BUSINESS DECISIONS ARE A T TIMES GOOD AND PROFITABLE AND AT TIMES BAD AND UNPROFITAB LE. BUSINESS DECISIONS MAY AND, IN FACT, OFTEN DO RESUL T IN A LOSS. THE QUESTION WHETHER THE DECISION WAS COMMERCIALLY SOUND OR NOT IS NOT RELEVANT. THE ONLY QUESTION IS WHETHE R THE TRANSACTION WAS ENTERED INTO BONA FIDE OR NOT OR WH ETHER IT WAS SHAM AND ONLY FOR THE PURPOSE OF DIVERTING THE PROFITS. .. 29. WE HASTEN TO ADD THAT IN THE CASE BEFORE US TH E ASSESSEE HAS, IN FACT, CONTENDED THAT IT HAS BENEFITED FROM THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT WITH ITS AES. HOWEVER, EVEN ASSUMING THAT THIS HAS NOT BEEN ESTAB LISHED, IT WOULD MAKE NO DIFFERENCE. 29. LD. DR FOR THE REVENUE CHALLENGING THE RECEIPT OF SERVICES BY THE ASSESSEE FROM ITS AE CONTENDED THAT FROM THE SHARED SERVICES AGREEMENT DATED 01.01.2010 AVAILABLE AT P AGES 261 TO 265 OF THE PB AND ANOTHER AGREEMENT DATED 01.01.201 0 AVAILABLE AT PAGES 266 TO 269 OF THE PB, IT IS PROVED ON RECORD INTER ALIA THAT PRIOR TO 01.01.2010, THE ASSESSEE COMPANY WAS EITHE R NOT AVAILING ANY SUCH SERVICES OR IT WAS AVAILING SUCH SERVICES FROM OTHER SOURCES, DETAILS OF WHICH ARE NOT ON THE FILE, THAT THE ASSESSEE WAS AVAILING SERVICES FROM 4 AES AND IN THESE CIRCUMSTA NCES, BENEFIT TEST IS REQUIRED TO BE APPLIED. 30. HOWEVER, AS DISCUSSED IN THE PRECEDING PARAS, H ONBLE DELHI HIGH COURT IN JUDGMENT CITED AS EKL APPLIANCES LTD. (SUPRA) HELD ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 31 THAT THE ASSESSEE WAS NOT REQUIRED TO SHOW THAT ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN THE SUBSEQUENT YEAR. SIMILARLY, HONBLE PUNJAB & H ARYANA HIGH COURT IN THE JUDGMENT IN M/S. KNORR-BREMSE INDIA PVT. LTD. (SUPRA) ALSO HELD THAT THE ASSESSEE IS NOT REQUIRED TO ESTABLISH THAT IT HAS BENEFITED FROM THE INTERNATIONAL TRANSACTIONS B Y TAKING SERVICES FROM ITS AE. SO, IN THESE CIRCUMSTANCES, CONTENTIO NS RAISED BY LD. DR ARE NOT SUSTAINABLE. 31. SO FAR AS QUESTION OF ABSENCE OF AGREEMENT PRIO R TO 01.01.2010 AS RAISED BY LD. DR IS CONCERNED, THE SE RVICES CAN BE TAKEN BY THE ASSESSEE FROM ITS AE EVEN WITHOUT AGRE EMENT AND EVEN OTHERWISE THE FACTUM OF RECEIPT OF SERVICES IS NOT DISPUTED BY THE DRP AS DISCUSSED IN THE PRECEDING PARAS. SO FA R AS QUESTION OF REQUIREMENT OF SUCH SERVICES AS CONTENDED BY THE LD . DR IS CONCERNED, AGAIN WE ARE OF THE CONSIDERED VIEW THAT THE REQUIREMENT HAS TO BE SEEN WITH THE STANDPOINT OF B USINESSMAN AND NOT THE TPO/AO. ASSESSEE HAS OTHERWISE DEMONSTRATE D DETAILS OF HOURS SPENT BY AE IN PROVIDING IT SUPPORT SERVICES. INVOICE IS AVAILABLE AT PAGES 274 TO 295 AND DETAILS OF HOURS SPENT BY AE ARE AVAILABLE AT PAGES 402 TO 403B. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 32 32. ASSESSEE BROUGHT ON RECORD THE DETAIL OF ADMINI STRATIVE SUPPORT SERVICES AVAILED BY THE ASSESSEE COMPANY WH ICH IS TABULATED AT PAGE 2 OF SYNOPSIS, REPRODUCED AS UNDE R, FOR READY PERUSAL :- NAME OF THE AES NATURE OF SERVICE AMOUNT ALLOCATION KEYS REFERENCE TO PB (DOCUMENTARY EVIDENCES) CORNING INC., UNITED STATES IT SUPPORT 1,725,976 EXPENSES ARE ALLOCATED ON THE BASIS OF THE ACTUAL HOURS SPENT BY THE ASSOCIATED ENTERPRISE FOR PROVIDING SERVICES TO THE APPELLANT. DETAILS PLACED ON RECORD BY WAY OF ADDITIONAL EVIDENCE BEFORE THE HON'BLE DRP INVOICE PAGE 274 295 DETAILS OF HOURS SPENT BY AE PAGE 402-403B CORNING CHINA (SHANGHAI) REGIONAL HEADQUARTER ACCOUNTING SERVICES INCLUDING PROCESSING OF ACCOUNTS 553,140 THE BASIS OF ALLOCATION FOR THESE ADMINISTRATIVE SUPPORT SERVICES IS VOLUME OF ACTIVITY/ TRANSACTIONS OR FULL TIME EQUIVALENT (FTE') DEDICATED TO SERVICE THE PARTICULAR SERVICE AVAILING ENTITY. THE PAYMENT TERMS AS AGREED BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISES IS PROVIDED IN CLAUSE 4, 'ANNUAL SERVICE COSTS' AND EXHIBIT A TO ANNEXURE 1 OF THE SHARED SERVICE AGREEMENT. INVOICE PAGE 271 273 SHARED SERVICE AGREEMENT PAGE 261 265 MAILS PAGE 385 388 MAIL PAGE 394 395 (ALLOCATION) CORNING DEVELOPMENT INC. SINGAPORE HUMAN RESOURCE SUPPORT SERVICES AND TRAINING SERVICES 1,160,239 ASSOCIATED ENTERPRISE ALLOCATES ONLY 35% OF THE ACTUAL MONTHLY COST INCURRED ON AN ESTIMATED BASIS. CORNING, SINGAPORE DOES NOT ALLOCATE 100% OF THE COST INCURRED FOR PROVIDING SERVICES TO THE APPELLANT. THEREAFTER, 5% MARK-UP IS ADDED TO THE COST IN TERMS OF THE SHARED SERVICE AGREEMENT ENTERED WITH CORNING, SINGAPORE. INVOICE PAGE 296 297 AGREEMENT PAGE 266 270 MAILS PAGE 389 393 CORNING DISPLAY TECHNOLOGY, IT SUPPORT SERVICES INCLUDING 549,725 CORNING, TAIWAN IS REMUNERATED ON A COST PLUS 5 PERCENT MARKUP INVOICES PAGE 300 - 301 ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 33 TAIWAN SETTING UP OF SYSTEMS TECHNICAL ASSISTANCE ETC. WHEREIN COST INCLUDES ALL DIRECT AND INDIRECT COST INCURRED IN PROVISION OF THE SERVICES 33. THE CONTENTION RAISED BY THE LD. AR FOR THE ASS ESSEE THAT THE NEED FOR ENTERING INTO AN AGREEMENT DATED 01.01.201 0 WITH ITS AE ARISES ONLY WHEN THE ASSESSEE MOVED TO PEOPLES SO FTWARE IS SUSTAINABLE BECAUSE IT IS BROUGHT ON RECORD BY THE ASSESSEE THAT THE SERVICES AVAILED WERE NEED BASED. EVEN OTHERWISE, IT WAS BEYOND THE PURVIEW OF TPO TO EXAMINE THE NEED FOR SUCH SER VICES AND TO APPLY THE BENEFIT TEST. MOREOVER, WHEN SERVICES AV AILED OF BY THE ASSESSEE ARE NEED BASED THE SAME MAY BE AVAILED OF EVEN WITHOUT HAVING ANY AGREEMENT. 34. LD. AR CONTENDED THAT AS A GROUP POLICY CORNING GROUP ENTITIES ARE MANDATED TO AVAIL SUPPORT SERVICES FRO M RESPECTIVE SHARE SERVICE CENTERS TO AVAIL THE LOW COST, SPECIA LIZATION AND CONFIDENTIALITY AND AS SUCH ADMINISTRATIVE SUPPORT SERVICES WERE TAKEN FROM THE AES. THIS CONTENTION RAISED BY LD. AR IS SUSTAINABLE AS THE DECISION TO RUN THE BUSINESS IN A PARTICULAR MANNER IS TO BE TAKEN BY THE BUSINESSMAN AND NOT TH E REVENUE. SO, THE BENEFIT TEST FOR DETERMINATION OF ALP IS TO BE SEEN FROM THE STANDPOINT OF ASSESSEE AND BUSINESSMAN AND NOT FROM THE STANDPOINT OF REVENUE. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 34 35. SO FAR AS THE QUESTION THAT THE ASSESSEE HAS NO T ACTUALLY NEEDED THE SERVICES AS RAISED BY LD. DR IS CONCERNE D WHEN THE SERVICES ARE BEING TAKEN AS PER POLICY OF THE GROUP COMPANY TO AVAIL THE BENEFIT OF LOW COST, SPECIALIZATION AND C ONFIDENTIALITY AND RENDERING AND NEED OF THE SERVICES IS PROVED FROM T HE DETAIL BROUGHT ON RECORD BY THE ASSESSEE IN PARA NO.31, TH E TPO CANNOT DECIDE IF SERVICES ARE NEEDED BY THE ASSESSEE OR NO T. 36. HONBLE HIGH COURT IN JUDGMENT CITED AS EKL APPLIANCES LTD. (SUPRA) HELD THAT IT IS NOT NECESSARY FOR THE ASSES SEE TO SHOW THAT ANY LEGITIMATE EXPENDITURE INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY AND THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS AND NOTHING MORE. THE TPO/DRP WAS REQU IRED TO EXAMINE WHETHER THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS AE FOR SUCH SERVICES WERE BONAFIDE OR IT WAS SH AM TRANSACTION FOR THE PURPOSE OF DIVERTING THE PROFITS. SINCE NO SUCH FINDINGS HAVE BEEN RETURNED BY THE TPO/DRP, WE ARE OF THE CO NSIDERED VIEW THAT THE SERVICES WERE NEEDED BY THE ASSESSEE AND HAVE BEEN AVAILED OF ACCORDINGLY. 37. HONBLE JURISDICTIONAL HIGH COURT IN JUDGMENT C ITED AS CIT- I VS. M/S. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. (ITA ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 35 475/212 DATED 23.05.2014) HELD THAT THE AUTHORITY OF THE TPO IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE TH E ALP AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FROM WH ICH THE ASSESSEE BENEFITS. THAT ASPECT OF THE EXERCISE IS LEFT TO T HE AO. HONBLE JURISDICTIONAL HIGH COURT AFTER HOLDING THAT TPO CA NNOT AFTER CONSIDERATION OF FACTS STATE THAT THE ALP IS NIL GI VEN THAT AN INDEPENDENT ENTITY IN A COMPARABLE TRANSACTION WOUL D NOT PAY ANY AMOUNT. FOR FACILITY OF REFERENCE, OPERATIVE PART OF THE JUDGMENT IN CASE OF CIT-I VS. M/S. CUSHMAN AND WAKEFIELD (INDIA) PVT. L TD. (SUPRA) IS REPRODUCED AS UNDER :- 34. THE COURT FIRST NOTES THAT THE AUTHORITY OF T HE TPO IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE THE ALP AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FROM WHICH THE ASSESSEE BENEFITS. THAT ASPECT OF THE EXE RCISE IS LEFT TO THE AO. THIS DISTINCTION WAS MADE CLEAR BY THE I TAT IN DRESSER-RAND INDIA PVT. LTD. V. ADDITIONAL COMMISSI ONER OF INCOME TAX, 2012 (13) ITR (TRIB) 422: 8. WE FIND THAT THE BASIC REASON OF THE TRANSFER PRICING OFFICER'S DETERMINATION OF ALP OF THE SERVI CES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NIL' IS HIS PERCEPTION THAT THE ASSESSEE DID NOT N EED THESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIE NT EXPERTS OF HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICE R HAD POINTED OUT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAFF WHICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FE ES TO EXTERNAL FIRM. SIMILARLY, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD MANAGEMENT EXPERTS ON ITS ROLLS, AND, THEREFORE, GLOBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, THIS LINE OF REASONING. IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHORITI ES TO ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 36 DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT I S NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUNTANTS AND MANAGEMENT EXPERTS ON HIS ROLLS, AND YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSE E'S WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WA S NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERCIAL WISDOM OF ASSESSEE'S DECISIO N TO TAKE BENEFIT OF EXPERTISE OF DRESSER RAND US, BU T ALSO BEYOND THE POWERS OF THE ASSESSING OFFICER. WE DO NOT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. WE HAVE FURTHER NOTICED THAT THE TRANS FER PRICING OFFICER HAS MADE SEVERAL OBSERVATIONS TO TH E EFFECT THAT, AS EVIDENT FROM THE ANALYSIS OF FINANC IAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALYS IS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN DETERMINING ARM'S LENGTH PRICE OF THAT SERVICE. WHEN EVALUATING THE ARM'S LENGTH PRIC E OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERP RISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER TH E AE GAVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT. THE AE MAY HAVE GIVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMINING THE ARM'S LENGTH PRICE OF THE COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED THAT THE STAND OF THE REVENUE AUTHORITIES IN THIS C ASE IS THAT NO SERVICES WERE RENDERED BY THE AE AT ALL, AN D THAT SINCE THERE IS NO. EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL, THE ARM'S LENGTH PRICE OF THE SE SERVICES IS 'NIL'. 35. THE TPOS REPORT IS, SUBSEQUENT TO THE FINANCE ACT, 2007, BINDING ON THE AO. THUS, IT BECOMES ALL THE M ORE IMPORTANT TO CLARIFY THE EXTENT OF THE TPOS AUTHOR ITY IN THIS CASE, WHICH IS TO DETERMINING THE ALP FOR INTERNATI ONAL ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 37 TRANSACTIONS REFERRED TO HIM OR HER BY THE AO, RATH ER THAN DETERMINING WHETHER SUCH SERVICES EXIST OR BENEFITS HAVE ACCRUED. THAT EXERCISE OF FACTUAL VERIFICATION 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 STATE THAT THE ALP IS NIL GIVEN THAT AN INDEPENDE NT ENTITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HOWEVER, THIS IS DIFFERENT FROM THE TPO STATING THA T THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPENDITURE. THAT DECISION IS OUTSIDE T HE AUTHORITY OF THE TPO. THIS ASPECT WAS MADE CLEAR BY THE ITAT IN DELLOITE CONSULTING INDIA PVT. LTD.V. DEPUT Y COMMISSIONER OF INCOME TAX, [2012] 137 ITD 21 (MUM) : 37. ON THE ISSUE AS TO WHETHER THE TRANSFER PRICING OFFICER IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE AT NIL, WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN GEMPLUS INDIA P. LTD. 2010 - TII-55-ITAT-BANG-TP, HELD THAT THE ASSESSEE HAS TO ESTABLISH BEFORE THE TRANSFER PRICING OFFICER THAT THE PAYMENTS MADE WERE COMMENSURATE TO THE VOLUME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARABLE. WHEN COMMENSURATE BENEFIT AGAINST THE PAYMENT OF SERVICES IS NOT DERIVED, THEN THE TRANSFER PRICING OFFICER IS JUSTIFIED IN MAKING AN ADJUSTMENT UNDER THE ARM'S LENGTH PRICE. 38. IN THE CASE ON HAND, THE TRANSFER PRICING OFFICER HAS DETERMINED THE ARM'S LENGTH PRICE AT N IL KEEPING IN VIEW THE FACTUAL POSITION AS TO WHETHER IN A COMPARABLE CASE, SIMILAR PAYMENTS WOULD HAVE BEEN MADE OR NOT IN TERMS OF THE AGREEMENTS. THIS IS A C ASE WHERE THE ASSESSEE HAS NOT DETERMINED THE ARM'S LENGTH PRICE. THE BURDEN IS INITIALLY ON THE ASSESS EE TO DETERMINE THE ARM'S LENGTH PRICE. THUS, THE ARGUMEN T OF THE ASSESSEE THAT THE TRANSFER PRICING OFFICER H AS EXCEEDED HIS JURISDICTION BY DISALLOWING CERTAIN EXPENDITURE, IS AGAINST THE FACTS. THE TRANSFER PRI CING OFFICER HAS NOT DISALLOWED ANY EXPENDITURE. ONLY TH E ARM'S LENGTH PRICE WAS DETERMINED. IT WAS THE ASSESSING OFFICER WHO COMPUTED THE INCOME BY ADOPTING THE ARM'S LENGTH PRICE DECIDED BY 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 WOULD PAY NIL AMOUNT FOR THESE SERVICES, THIS COURT NOTED THAT REMARKS CONCERNING, AND THE F INAL ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 38 DECISION RELATING TO, BENEFIT ARISING FROM THESE SE RVICES ARE PROPERLY RESERVED FOR THE AO. 38. SO, FOLLOWING THE DECISION RENDERED BY HONBLE JURISDICTIONAL HIGH COURT, WE ARE OF THE CONSIDERED VIEW THAT THE LD. TPO HAS ERRED IN HOLDING THE ALP NIL BY APPLYING BE NEFIT TEST. 39. THE OPINION RENDERED BY HONBLE DELHI HIGH COUR T IN CASE OF CIT VS. EKL APPLIANCES LTD. (SUPRA) THAT TPO CANNOT DETERMINE THE ALP AT NIL BY HOLDING THAT THERE IS N O NEED TO INCUR ANY EXPENDITURE AND THIS VIEW HAS BEEN FOLLOWED BY THE DIFFERENT COORDINATE BENCHES OF THE TRIBUNAL AND ONE SUCH CAS E IS M/S. VOLVO INDIA PRIVATE LIMITED VS. CIT (IT (TP) A.NO. 384/BANG/2013 DATED 16.12.2016) DECIDED BY ITAT, A BENCH, BANGALORE WHEREIN THE COORDINATE BENCH ALSO HELD TH AT ALP OF THE SERVICES OF AE CANNOT BE DETERMINED AT NIL BY QUEST IONING THE BENEFITS OF THE EXPENDITURE INCURRED BUT SUBJECT TO PROVING THE FACT BY THE ASSESSEE THAT THE SERVICES ARE ACTUALLY REND ERED BY THE AE. 37A. AS DISCUSSED IN THE PRECEDING PARAS, THIS ISSU E HAS ALSO BEEN DISCUSSED AT LENGTH AND PARA 12 OF THE JUDGMENT CIT ED AS M/S. VOLVO INDIA PRIVATE LIMITED (SUPRA) RELIED UPON BY LD. DR IS DISTINGUISHABLE FROM THE FACTS AND CIRCUMSTANCES OF THE CASE BECAUSE, IN THE INSTANT CASE, ISSUE AS TO RENDERING THE SERVICES HAS ALREADY BEEN ADMITTED BY THE DRP. SO, THE TPO HAS ERRED IN ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 39 DETERMINING THE ALP AT NIL BY HOLDING THAT THE SERV ICES WERE ACTUALLY NOT RENDERED NOR SUCH SERVICES WERE NEEDED BY THE ASSESSEE COMPANY NOR ANY BENEFIT HAS BEEN ACCRUED T O THE ASSESSEE COMPANY BY AVAILING SUCH SERVICES FROM ITS AE. 40. NOW, THE NEXT QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER INTRA GROUP SERVICES (IT SUPPORT SERVICES, ACCOUNTING SERVICES, HUMAN RESOURCES SERVICES, ETC.) FROM AES AT MARK-UP OF COST PLUS 5% ARE TO BE CLUBBED TOGETHER WITH OTHER INTERNATIONAL TRANSACTIONS I.E. IMPORT OF ROBS AND LIFE SCIENCE PRODUCTS AND COMMISSION INCOME FOR THE PURPOSE OF BENCHMARKING OR THE ADMINISTRATIVE OR THE ADMINISTRATIVE SUPPORT SERVICES ARE TO BE SEGREGATE D FOR THE PURPOSE OF BENCHMARKING AS HAS BEEN DONE BY THE TPO? 41. THE LD. AR FOR THE ASSESSEE BY RELYING UPON THE DECISION RENDERED BY HONBLE JURISDICTIONAL HIGH COURT IN CA SE OF MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. VS. DCIT (ITA 35 0/2014 DATED 25.10.2016) CONTENDED THAT WHEN THE TPO HAS ACCEPTED TNMM APPLIED BY THE ASSESSEE AS MOST APPROPRIATE METHOD IN RESPECT OF OTHER INTERNATIONAL TRANSACTION THE AGGREGATION OF OTHER INTERNATIONAL TRANSACTION LIKE FEE FOR INTRA GROUP SERVICES IS PERMISSIBLE. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 40 42. HONBLE JURISDICTIONAL HIGH COURT DECIDED THE I SSUE IN MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. (SUPRA) IN FAVOUR OF THE ASSESSEE BY DETERMINING THE FOLLOWING FINDINGS :- 17. AS FAR AS THE SECOND QUESTION IS CONCERNED, TH E TPO ACCEPTED TNMM APPLIED BY THE ASSESSEE, AS THE MOST APPROPRIATE METHOD IN RESPECT OF ALL THE INTERNATIO NAL TRANSACTIONS INCLUDING PAYMENT OF ROYALTY. THE TPO, HOWEVER, DISPUTED APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD FOR THE PAYMENT OF TECHNICAL ASS ISTANCE FEE OF RS.38,58,80,000 ONLY FOR WHICH COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WAS SOUGHT TO BE APPLIED. HERE, THIS COURT CONCURS WITH THE ASSESSE E THAT HAVING ACCEPTED THE TNMM AS THE MOST APPROPRIATE, I T WAS NOT OPEN TO THE TPO TO SUBJECT ONLY ONE ELEMENT, I. E PAYMENT OF TECHNICAL ASSISTANCE FEE, TO AN ENTIRELY DIFFERE NT (CUP) METHOD. THE ADOPTION OF A METHOD AS THE MOST APPROP RIATE ONE ASSURES THE APPLICABILITY OF ONE STANDARD OR CR ITERIA TO JUDGE AN INTERNATIONAL TRANSACTION BY. EACH METHOD IS A PACKAGE IN ITSELF, AS IT WERE, CONTAINING THE NECES SARY ELEMENTS THAT ARE TO BE USED AS FILTERS TO JUDGE TH E SOUNDNESS OF THE INTERNATIONAL TRANSACTION IN AN ALP FIXING E XERCISE. IF THIS WERE TO BE DISTURBED, THE END RESULT WOULD BE DISTORTED AND WITHIN ONE ALP DETERMINATION FOR A YEAR, TWO OR EVEN FIVE METHODS CAN BE ADOPTED. THIS WOULD SPELL CHAOS AND BE DETRIMENTAL TO THE INTERESTS OF BOTH THE ASSESSEE A ND THE REVENUE. THE SECOND QUESTION IS, THEREFORE, ANSWERE D IN FAVOUR OF THE ASSESSEE; THE TNMM HAD TO BE APPLIED BY THE TPO/AO IN RESPECT OF THE TECHNICAL FEE PAYMENT TOO. 43. SO, IN VIEW OF THE DECISION RENDERED BY HONBLE JURISDICTIONAL HIGH COURT IN CASE OF MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT WHEN TPO HAS ACCEPTED TNMM APPLIED BY THE ASSESSEE AS MO ST APPROPRIATE METHOD IN RESPECT OF OTHER INTERNATIONA L TRANSACTIONS, ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 41 THE TPO CANNOT APPLY DIFFERENT STANDARD OR CRITERIA TO JUDGE AN INTERNATIONAL TRANSACTION WHICH WOULD DISTURB THE E ND RESULT IN DETERMINING THE ALP. SO, ASSESSEE HAS RIGHTLY CLUB BED INTRA GROUP SERVICES TRANSACTIONS WITH OTHER INTERNATIONAL TRAN SACTIONS FOR THE PURPOSE OF DETERMINATION OF ALP. SO, THE QUESTION FRAMED IN PRECEDING PARA 37 IS REPLIED IN FAVOUR OF THE ASSES SEE. 44. LD. DR CONTENDED THAT THE COMMISSION SERVICES F EE CANNOT BE AGGREGATED WITH IMPORT OF ROB. HOWEVER, IN VIEW OF THE DECISION RENDERED BY HONBLE HIGH COURT IN CASE OF MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. (SUPRA), AGGREGATION OF PRINCIPAL OF SERVICES HAS BEEN APPROVED AND IS DULY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 45. TPO WHILE DETERMINING THE ALP OF INTRA GROUP SE RVICES AT NIL BY USING CUP METHOD HAS NOT BROUGHT ON RECORD A NY COMPARABLE. MOREOVER THE TRANSACTIONS ARE INTERLIN KED AND THE TPO HIMSELF AGGREGATED THE AGENCY SERVICES AND MARK ETING SUPPORT SERVICES AND BENCHMARKED THE OPERATING RESULT OF SU CH COMBINED ACTIVITY, THEREFORE, IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE TNMM MAY BE USED FOR DETERMINING THE ALP OF INTRA GROUP SERVICES. ACCORDINGLY, THIS ISSUE IS RESTORE D TO THE TPO TO DECIDE AFRESH IN THE LIGHT OF THE FINDINGS RECORDED HEREIN ABOVE. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 42 GROUNDS NO.3 TO 3.6 IN ITA NO.548/DEL/2015, GROUNDS NO.4 TO 4.3 IN ITA NO.816/DEL/2017 AND GROUNDS NO.4 TO 4 .4 IN ITA NO.817/DEL/2017 ARE DETERMINED IN FAVOUR OF THE ASSESSEE. GROUNDS NO.4 TO 4.12 IN ITA NO.548/DEL/2015 GROUNDS NO.3 TO 3.9 IN ITA NO.816/DEL/2017 GROUNDS NO. 3 TO 3.8 IN ITA NO.817/DEL/2017 46. DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE ENTERED INTO 5 INTERNATIONAL TRANSACTIONS WITH ITS AE AND THE AL P OF WHICH IS DETERMINED BY APPLYING TNMM TREATING ITSELF TO BE A TESTED PARTY AND BY TAKING OP/OC AS PLI AS UNDER :- S.NO. INTERNATIONAL TRANSACTION AMOUNT (IN RS.) METHOD APPLIED 1. IMPORT OF RO UGH OPTHALMIC BLANKS 204,179,389 TNMM 2. IMPORT OF LIFE SCIENCES PRODUCTS 63,888,486 3. COMMISSION INCOME 9,277,050 4. RECEIPT OF ADMIN AND SUPPORT SERVICES 3,989,079 5. INCOME FROM MARKETING SUPPORT SERVICES 101,489,370 TNMM 47. ASSESSEE IN ITS TP STUDY DETERMINED THE ALP OF AFORESAID TRANSACTIONS BY APPLYING THE TNMM CONSIDERING ITSEL F TO BE A TESTED PARTY AND TAKING OPERATING PROFIT OPERATING COST (OP/OC) AS PROFIT LEVEL INDICATOR (PLI). ASSESSEE AGGREGAT ED INTERNATIONAL TRANSACTIONS RELATING TO IMPORT OF OPTHALMIC GLASS PRODUCTS & LIFE SCIENCES PRODUCTS, PROVISION OF LIMITED AGENCY SERV ICES AND RECEIPT OF ADMINISTRATIVE AND SUPPORT SERVICES AND HIS OPIN ION WAS ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 43 AFFIRMED BY LD. DRP AFTER REJECTING THE OBJECTIONS RAISED BY THE ASSESSEE, WHICH ARE NOW UNDER CHALLENGED BEFORE THE TRIBUNAL BY WAY OF PRESENT APPEAL. 48. IDENTICAL ISSUE HAS CAME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE QUA AY 2008-09 IN ITA NO.5713/DEL/2012 DAT ED 23.11.2016 WHICH WAS EARLIER DETERMINED IN AY 2003- 04 IN FAVOUR OF THE ASSESSEE. FOR FACILITY OF REFERENCE, FINDIN GS RETURNED BY COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09 ARE REPRODUCED FOR READY PERUSAL AS UNDER : - 14. NOW, THE ASSESSEE COMPANY CHALLENGED THE SEGRE GATION OF ITS AGENCY ACTIVITIES FORM DISTRIBUTION AND CLUBBIN G THE SAME WITH MARKETING ACTIVITIES FOR THE PURPOSE OF DETERMINING ALP. FROM THE GROUNDS OF APPEAL AND ARGUMENTS ADDRESSED BY TH E PARTIES TO THE APPEAL, THE QUESTION ARISES FOR DETERMINATION I N THIS CASE IS :- AS TO WHETHER TPO HAS ERRED IN ALLOCATING EXPENSES TO THE AGENCY SEGMENT IN THE RATIO OF SALES BY IGNORIN G THE FACT THAT SUCH ALLOCATION IS TO BE MADE ON THE BASI S OF FUNCTION PERFORMED, ASSETS EMPLOYED AND RISK ASSUME D BY THE ASSESSEE IN AGENCY SEGMENT? 15. THE ISSUE IN CONTROVERSY WAS FIRST TIME AGITATE D BEFORE ITAT IN ASSESSEES OWN CASE QUA ASSESSMENT YEAR 200 3-04 AND HAS BEEN ANSWERED IN FAVOUR OF THE ASSESSEE COMPANY . THE OPERATIVE PART OF THE ORDER DATED 28.08.2015 (SUPRA ) CONTAINED IN PARA 26, 27, 28 & 29 IS REPRODUCED FOR READY PERUSA L AS UNDER :- 26. SO FAR AS THE ALLOCATION OF EXPENSES IS CONCER NED IT IS NOTED THAT TPO HAD IDENTIFIED INDIRECT EXPENSES COM MON TO BOTH THE FUNCTIONS AT RS. 1,93,29,321/- DETAILS OF WHICH ARE AS UNDER: PARTICULARS AMOUNT (IN RS.) SALARIES 42,72,231/- ADVERTISEMENT 30,78,570/- INSURANCE 3,77,758/- REPAIRS AND MAINTENANCE 8,24,105/- PROFESSIONAL FEE 28,31,227/- ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 44 RENT 12,57,636/- COMMUNICATION 5,93,240/- TRAVELLING & CONVEYANCE 33,79,299/- MISC. 12,32,610/- DEPRECIATION 14,82,645/- TOTAL (A) 1,93,29,321/- 27. THE CIT(A) HAS HELD THAT OUT OF THE AFORESAID S UM OF RS. 30,78,570/- AND RS. 3,77,758/- PERTAINING TO ADVE RTISEMENT AND INSURANCE HAVE NO NEXUS WITH THE AGENCY FUNCTION. 28. WE FIND MERIT IN THE SAID CONCLUSION AS NO MATE RIAL HAS BEEN LEAD TO DISCREDIT THE ABOVE CONCLUSION. THUS WE HOLD THAT AGGREGATE INDIRECT EXPENSES COMMON TO BOTH THE FUNC TIONS ARE OF RS. 1,58,72,993/- (RS. 1,93,29,321/- - RS. 30,78,5 70/- - RS. 3,77,758/-). THE CIT(A) FURTHER MORE HELD THAT ALLOCATION OF SUCH EXPENSES SHOULD BE DONE ON THE BASIS OF GROSS MARGIN OF DISTRIBUTION FUNCTION AND COMMISSION INCOME RECEIPT S AND NOT ON THE BASIS OF SALES, AS ADOPTED BY THE TPO. HERE TO O, WE DO NOT FIND ANY INFIRMITY IN THE APPROACH ADOPTED BY THE C IT(A). THE CIT(A) HAS CORRECTLY HELD THAT ALLOCATION OF EXPENS ES IN PROPORTION TO SALES WOULD AMOUNT TO GIVE EQUAL WEIG HTAGE IN TERMS OF FUNCTIONS PERFORMED, ASSETS UTILIZED AND R ISKS ASSUMED TO BOTH DISTRIBUTION FUNCTION AS WELL AS AGENCY SER VICE ACTIVITY, WHICH OTHERWISE INVOLVES MUCH LESSER FUNCTIONS AND UTILIZATION OF ASSETS AND RISK. THE CIT(A) HAS HELD AS UNDER: IT WOULD NOT BE CORRECT TO ALLOCATE EXPENSES ATTRI BUTED TO PURCHASE/SALE OF FINISHED GOODS, WAREHOUSING AND HA NDLING OF INVENTORY ETC., TO THE AGENCY SERVICE ACTIVITY, WHE REIN SUCH ACTIVITIES ARE NOT INVOLVED. ALLOCATION OF COMMON EXPENSES IN PROPORTION TO GROSS MARGIN/INCOME FROM DISTRIBUTION FUNCTION AND THE COMMISSION INCOME, IRONS OUT OR ELIMINATE T HE IMPACT OF PURCHASE OF FINISHED GOODS, HANDLING OF INVENTORY A ND UNDERTAKING DISTRIBUTION FUNCTION, ETC. ALLOCATION OF COMMON EXPENSES IN PROPORTION TO GROSS MARGIN FROM DISTRIB UTION FUNCTION AND COMMISSION INCOME IS A REASONABLE AND RATIONALE BASIS OF ALLOCATING OF SUCH COMMON EXPENSES BETWEEN THE TWO ACTIVITIES. I ACCORDINGLY UPHOLD ALLOCATION OF COM MON COST BY THE ASSESSEE AND ACCORDINGLY COMPUTED THE ADJUSTMENT AF TER COMBINING THE AGENCY SERVICE ACTIVITY WITH MARKETIN G SERVICE FUNCTION, AS FOLLOWS: PARTICULARS RUPEES INCOME FROM MARKET SUPPORT SERVICES 3,41,76,307 ADD: COMMISSION INCOME 55,94,311 TOTAL INCOME FROM MARKET 3,97,70,618 ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 45 SUPPORT AND AGENCY SERVICE ACTIVITY COST FOR MARKET SUPPORT (FROM LETTER DATED 16.11.200) 3,21,05,659 COST FOR COMMISSION INCOME (AS DETERMINED IN PARA 21.3 ABOVE) 27,55,968 TOTAL AGGREGATED COST 3,48,61,627 ARMS LENGTH MARKETING SUPPORT SERVICE AND AGENCY SERVICE INCOME (A) 3,75,38,999 MARKETING SUPPORT AND AGENCY SERVICE INCOME EARNED BY THE APPELLANT (B) 3,97,70,618 DIFFERENCE (A-B) (-) 22,31,619 20 SINCE TOTAL INCOME FROM MARKET SUPPORT AND AGENC Y SERVICE ACTIVITIES AT RS. 3,97,70,618/- IS HIGHER T HAN THE ARMS LENGTH PRICE OF SUCH SERVICES, COMPUTED AS PER BASI S ADOPTED BY THE TPO AT RS. 3,75,38,999/-, NO ADJUSTMENT ON THIS ACCOUNT IS WARRANTED. ACCORDINGLY, ADJUSTMENT OF RS. 20,87,79 5/- IN RESPECT OF INTERNATIONAL TRANSACTIONS OF AGENCY SERVICE ACT IVITY IS, THEREFORE NOT SUSTAINABLE AND IS DIRECTED TO BE DEL ETED. 29. HAVING REGARD TO THE ABOVE FACTUAL CONCLUSION W E UPHOLD THE ACTION AND REJECT THE GROUNDS RAISED BY THE REV ENUE. GROUND 1 THUS STANDS DISMISSED. 16. SO, THERE BEING NO DISPUTE THAT THE ISSUE IN CO NTROVERSY HAS BEEN SQUARELY COVERED IN ASSESSEES OWN CASE VI DE ORDER DATED 28.08.2015 (SUPRA) QUA AY 2003-04 WHICH HAS B EEN FURTHER VALIDATED UP TO AY 2006-07, BY FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH, WE DIRECT THE TPO TO ALLOCATE THE EXPENSES ON THE BASIS OF GROSS MARGIN IN THE AGENCY SEGMENT AND NOT IN THE RATIO OF SALES FOR THE PURPOSE OF COMPUTING THE ALP OF THE INTERNATIONAL TRANSACTIONS AS THE TPO/DRP/AO HAVE E RRED IN MAKING ADJUSTMENT BY CLUBBING COMMISSION INCOME WIT H MARKET SUPPORT SERVICES IN ALLOCATING EXPENSES TO THE AGEN CY SEGMENT IN THE RATIO OF SALES. SO, GROUND NO.2.2 IS DETERMINE D IN FAVOUR OF THE ASSESSEE. GROUNDS NO.2.3, 2.4, 2.5, 2.6 & 2.7 17. TPO, AFTER CLUBBING MARKETING SUPPORT SEGMENT A ND AGENCY SERVICES ACTIVITIES, SELECTED 10 COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS HAVING AVERAGE OP/OC AT 22.12%. HOWEVER, DRP EXCLUDED 2 COMPARABL ES, NAMELY, RITES LIMITED AND VAPI WASTE AND EFFLUENT MANAGEMENT CO. LTD. AND ENHANCED THE AVERAGE MARGIN OF 23.21% AND MADE ALP ADJUSTMENT AT RS.1,40,30,553/-. ASSESSEE ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 46 COMPANY, BY RELYING UPON THE ORDER PASSED BY THE TR IBUNAL IN ASSESSEES OWN CASE OF AY 2002-03 THAT ALLOCATION O F EXPENSES TO THE AGENCY SEGMENT IN THE RATIO OF SALES CANNOT BE MADE, AS HAS BEEN HELD BY THE BENCH IN THE PRECEDING PARAS, SOUG HT TO EXCLUDE THREE COMPARABLES, NAMELY, APTICO LTD., CHOKSI LABO RATORIES LTD. AND WAPCOS LTD. AND ALSO SOUGHT TO INCLUDE THREE CO MPARABLES, NAMELY, EDUCATIONAL CONSULTANTS INDIA LIMITED, INDI A TOURISM DEVELOPMENT CORPORATION LIMITED AND IN HOUSE PRODUC TIONS LIMITED FOR BENCHMARKING THE INTERNATIONAL TRANSACT ION AND CONSIDERED ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. 18. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT SIN CE IN VIEW OF THE FINDINGS RETURNED BY THE TRIBUNAL ON GROUND NO.2.2 THE BASIS FOR ALLOCATING THE EXPENSES TO THE AGENCY SEG MENT IS ORDERED TO BE CHANGED, IT WOULD BE FUTILE TO GO INTO THE VA LIDITY OF THE COMPARABLES CONSIDERED BY THE TPO FOR BENCHMARKING INTERNATIONAL TRANSACTIONS AS IT WOULD CHANGE THE E NTIRE SCENARIO AND FRESH TP STUDY ANALYSIS IS REQUIRED TO BE DONE BY THE TPO. SO, WE HEREBY DIRECT THE TPO TO MAKE FRESH TP STUDY ANALYSIS AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE COMPANY TO BENCHMARK THE INTERNATIONAL TRA NSACTIONS UNDERTAKEN BY THE ASSESSEE COMPANY. SO, WE DECIDE GROUNDS NO.2.2 TO 2.7 ACCORDINGLY. 49. IN THE GIVEN FACTS AND CIRCUMSTANCES, TPO/DRP/A O HAVE ERRED IN MAKING ADJUSTMENT BY CLUBBING COMMISSION I NCOME WITH MARKET SUPPORT SERVICES IN ALLOCATING THE EXPENSES TO THE AGENCY SERVICES IN THE RATIO OF SALES. SO, FOLLOWING THE DECISION RENDERED BY COORDINATE BENCH OF THE TRIBUNAL, THE LD. TPO IS DIRECTED TO ALLOCATE EXPENSES ON THE BASIS OF GROSS MARGIN IN T HE AGENCY SEGMENT AND NOT IN THE RATIO OF SALES FOR THE PURPO SE OF COMPUTING THE ALP TRANSACTION. 50. NO DOUBT, ASSESSEE BY MAKING BENCHMARKING ANALY SIS OF MARKING SUPPORT SERVICES IN THE TP STUDY CONSIDERED 11 COMPARABLES WITH WEIGHTED AVERAGE OPERATING PROFIT MARGIN OF ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 47 7.32% AS AGAINST ASSESSEES MARGIN OF 5.00% BUT THE SAID TRANSFER STUDY HAS BEEN REJECTED BY THE TPO WHO HAS REJECTED 9 COMPARABLES OUT OF 11 COMPARABLES CHOSEN BY THE ASS ESSEE AND AFTER INTRODUCING 6 NEW COMPARABLE COMPANIES COMPUT ED THE AVERAGE OP/OC AT 21.8% AND COMPUTED THE TP ADJUSTME NT ON ACCOUNT OF DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF AGENCY COMMISSION AND MARKETING SUP PORT SERVICES FEE AT RS.1,98,16,836/-, WHICH HAS BEEN RESTRICTED TO RS.1,64,90,548/- BY THE LD. DRP BY ALLOWING THE WOR KING CAPITAL ADJUSTMENT TO THE ASSESSEE. 51. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT SI NCE THE BASIS FOR ALLOCATING THE EXPENSES TO THE AGENCY SEGMENT I S ORDERED TO BE CHANGED, IT WOULD BE FUTILE TO EXAMINE THE SUITABIL ITY OF THE COMPARABLES CONSIDERED BY THE TPO FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS AS IT WOULD CHANGE THE E NTIRE SCENARIO AND FOR THAT PURPOSE, FRESH TP STUDY ANALYSIS IS REQUIR ED TO BE DONE BY THE TPO. CONSEQUENTLY, WE DIRECT THE TPO TO MAKE F RESH TP STUDY ANALYSIS AFTER PROVIDING AN OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE COMPANY TO BENCHMARK THE INTERNATIONAL TRA NSACTION UNDERTAKEN BY THE ASSESSEE. GROUNDS NO.4 TO 4.12 I N ITA NO.548/DEL/2015, GROUNDS NO.3 TO 3.9 IN ITA ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 48 NO.816/DEL/2017 AND GROUNDS NO.3 TO 3.8 IN ITA NO.817/DEL/2017 ARE DETERMINED IN FAVOUR OF THE ASS ESSEE. GROUNDS NO.5 TO 5.8 IN ITA NO.548/DEL/2015 GROUNDS NO. 5 TO 5.3 IN ITA NO.817/DEL/2017 52. THE ASSESSEE CHALLENGED THE ADJUSTMENT OF RS.4, 42,792/- (REDUCED FROM RS.28,84,979/- VIDE RECTIFICATION ORD ER DATED 20.02.2005 PASSED BY THE TPO) MADE BY THE TPO ON AC COUNT OF DELAY IN PROCEED OF RECEIPTS OF AES BEYOND 30 DAYS BY TREATING THE SAME TO BE UNSECURED LOANS BEING NOT SUSTAINABLE ON THE GROUNDS INTER ALIA THAT INTEREST ON RECEIVABLES ON THE AMOU NT OUTSTANDING WITH AE IS NOT AN INTERNATIONAL TRANSACTION; THAT T HEY ARE NOT CHARGING INTEREST ON OVERDUE BALANCES WHICH IS OUTS TANDING TO NON- AES; THAT REJECTION OF LABOR FOR COMPUTATION AND TH AT THE INTEREST SHOULD BE CALCULATED FROM THE DATE OF ISSUE OF INVO ICE TILL TO THE END AND NOT TILL THE DATE OF REALIZATION BEYOND 31.03.2 010. 53. THE COORDINATE BENCH IN CASE CITED AS NIMBUS COMMUNICATIONS LTD. VS. ACIT (2012) 16 ITR (TRIB) 4 77 (MUMBAI) OBSERVED THAT CONTINUING DEBIT BALANCE PER SE / IN TEREST ON RECEIVABLES ON THE AMOUNT OUTSTANDING WITH AE IS NOT AN INTERNATIONAL TRANSACTION OF WHICH ALP ADJUSTMENT C AN BE MADE. ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 49 EVEN OTHERWISE, THE ASSESSEE BENCHMARKED ITS OPERAT ING PROFIT MARGIN EARNED FROM INTERNATIONAL TRANSACTION WITH A ES AT 6.82% WITH THE WEIGHTED AVERAGE PROFIT MARGIN (OP/OC) OF THE COMPARABLES COMPANIES AS COMPARED TO THE COMPARABLE COMPANIES AT 5.63%, WHICH IS HIGHER THAN WEIGHTED AVERAGE OPE RATING PROFIT MARGIN OF THE COMPARABLES AND AS SUCH, THE INTERNAT IONAL TRANSACTION WAS TREATED AS ARMS LENGTH PRICE. 54. HOWEVER, FROM THE FINDINGS RETURNED BY LD. DRP AND ASSESSMENT ORDER PASSED IN THIS CASE, IT HAS BECOME APPARENTLY CLEAR THAT LD. DRP HAS GIVEN SPECIFIC DIRECTIONS TO THE A O TO VERIFY THE AMOUNT OF RECEIVABLES AS WELL AS ON THE PAYABLES DU E TO / FROM AE, OUTSTANDING BEYOND THE PERIOD OF 30 DAYS ONLY AND C ALCULATE THE INTEREST OF NET BALANCE OF THE SAME. AO WITHOUT VE RIFYING THE FACTUAL POSITION PROCEEDED TO MAKE AN ADDITION. SO , IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT A O IS TO RECOMPUTE THE AMOUNT AFTER VERIFYING ANY OF RECEIVA BLES IN VIEW OF THE FINDINGS RETURNED HEREIN ABOVE AND AFTER VERIFY ING THE AMOUNT OF RECEIVABLES AS WELL AS PAYABLE DUE TO / FROM THE AE OUTSTANDING BEYOND A PERIOD OF 30 DAYS ONLY FOR THE PURPOSE OF CALCULATING THE INTEREST. SO, GROUNDS NO.5 TO 5.8 IN ITA NO.548/DE L/2015 AND ITA NO.548/DEL/2015 ITA NO.816/DEL/2017 ITA NO.817/DEL/2016 50 GROUNDS NO.5 TO 5.3 IN ITA NO.817/DEL/2017 ARE DET ERMINED IN FAVOUR OF THE ASSESSEE. GROUNDS NO.5 IN ITA NO.816/DEL/2017 GROUNDS NO.6 IN ITA NO.817/DEL/2017 55. GROUND NO.5 IN ITA NO.816/DEL/2017 AND GROUND N O.6 IN ITA NO.817/DEL/2017 NEED NO ADJUDICATION AS THE SAM E ARE CONSEQUENTIAL IN NATURE. 56. RESULTANTLY, ALL THE APPEALS FILED BY THE ASSES SEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF MAY, 2017. SD/- SD/- (N.K. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 29 TH DAY OF MAY, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.