DCIT, CHENNAI V. Volex Interconnect India Private Limited, CHENNAI

ITA 952/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8707 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 09-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 27-04-2015
• Court: TRIBUNAL
• Department Lawyers: R MOHAN
• Keywords: Transfer pricing; Business expenditure; International transaction; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.952/MDS./2015 & 740/MDS./2016 / ASSESSMENT YEARS : 2010-11 & 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-3(2), CHENNAI 600 034. VS. M/S.V OLEX INTERCONNECT INDIA PRIVATE LTD., 22/1-A,FIRST STREET, KAZURA GARDENS, NEELANKARAI, CHENNAI 600 041. [PAN AACCS 5913 P ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.R.MOHAN, CIT DR /RESPONDENT BY : MR.S.P.CHIDAMBARAM, ADVOCATE / DATE OF HEARING : 09 - 08 - 201 6 / DATE OF PRONOUNCEMENT : 24 - 08 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS OF THE REVENUE ARE DIRECTED AGAINS T THE DIFFERENT ORDERS OF THE DRP FOR THE ABOVE ASSESS MENT YEARS. 2. REVENUES APPEAL IN ITA NO.740/MDS./2016 FOR AS SESSMENT YEAR 2011-12 HAS BEEN FILED LATE BY 13 DAYS. CONDONATI ON PETITION HAS ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 2 -: BEEN FILED BY REVENUE. REASONS SHOWN ARE JUSTIFIED AND HENCE, DELAY IS CONDONED AND APPEAL ADMITTED. 3. THE ISSUES INVOLVED IN BOTH THE REVENUES APPEA LS ARE COMMON, WE CONSIDER THE FACTS NARRATED IN ASSESSMENT YEAR 2 010-11. 4. THE FACTS OF THE ISSUE ARE THAT IN THE TPOS ORDER THAT MOST OF THE E-MAIL CORRESPONDENCES ARE IN THE NATURE OF DOUBTS RAISED, GUIDANCE SEEKED, REVIEWS UPDATING THE SALES, ENQUIRY ABOUT G ENERAL FUNCTIONS OF THE COMPANY. THE TPO HAS ALSO OBSERVED ON PAGE 4 OF THE ORDER THAT THESE ARE SHARE HOLDERS SERVICES CATEGORISED AS STEWARDSHIP SERVICES DO NOT REQUIRE SEPARATE PAYMENT AS PER THE OECD GUIDELINES. THE TP O HAS ALSO MENTIONED ON PAGE 5 THAT SUBSTANTIAL MANAGEMENT ACTIVITIES WE RE PERFORMED BY THE ASSESSEE ITSELF. IN LATER PART IN THE ASSESSMENT OR DER THE TPO HAS DISCUSSED THE RELEVANT SUBMISSIONS OF THE ASSESSEE FORMING PA RT OF REPLIES DATED 07- 01-2014 AND 13-01-2014 AND ALSO HAS MADE CERTAIN OB SERVATIONS ON THESE SUBMISSIONS. THE ASSESSEE HAS SUBMITTED THAT TNMM I S THE MOST APPROPRIATE METHOD TO BENCH MARK THE MANAGEMENT FEE TRANSACTION . THE ASSESSEE HAS SUBMITTED N THIS REGARD THAT WHERE COMPARABLE DATA OF SIMILAR TRANSACTION CARRIED ON WITH INDEPENDENT PARTIES IS NOT AVAILABL E AND INTERNAL OR EXTERNAL CUP CANNOT BE APPLIED, IT IS WITH TNMM THAT IS CONS IDERED TO BE THE MOST APPROPRIATE METHOD. THE ASSESSEE ALSO CHALLENGED IN THE REPLIES THE APPLICATION OF CUP BY THE TPO. THE TPO HAS OBSERVED AT PAGE 6 OF THE TP ORDER IN THIS REGARD THAT IN MANY JUDICIAL DECISION S IT WAS HELD THAT THE TPO ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 3 -: CAN VERIFY WHETHER ACTUAL SERVICE ARE RECEIVED FROM THE AES. THE TPO HAS CONSIDERED IT A PRELIMINARY STEP WHEREIN IT IS ESSE NTIAL TO VERIFY AS TO WHETHER LIST OF DOCUMENTS SUBMITED BY THE ASSESSEE TANTAMOU NT TO SERVICE IN COMMON PARLANCE. THE TPO HAS ALSO OBSERVED THAT IT IS IMPORTANT TO VERIFY WHETHER INDEPENDENT PARTY WOULD BE WILLING .TO PAY FOR SUCH SERVICES. THE TPO HAS ALSO MENTIONED ON PAGE 7 OF THE ORDER THAT CUP IS MOST APPROPRITE METHOD IN THIS CASE. BY ANALYSING THE LIST OF DOCUM ENTS FILED BY THE ASSESSEE AND THE COST INCURRED BY THE AE IT CAN BE KNOWN WHE THER SUCH SERVICES HAVE A VALUE FIXED TO IT WHICH IS NOTHING BUT THE CUP DA TA. IT IS ALSO RELEVANT TO POINT OUT THAT IN PARA 9.2.2 ON PAGE 7 THE TPO HAS REPRODUCED WHAT THE AUTHORISED REPRESENTATIVE HAS SUBMITTED IN WRITING. THIS PANEL FINDS THAT THE AR HAD EMPHASIZED UPON ECONOMICAL AND COMMERCIAL VA LUEC ON ACCOUNT OF THE SERVICES RENDERED BY THE AE IN THE FINANCIAL YE AR 2009- 10 WHICH IS NOT ROUTINE IN NATURE. 4.1 THE DRP OBSERVED THAT THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE BEFORE THE TPO IS ONLY ON A SAMPLE BASIS. THE STATEMENT OF THE TPO ON PAGE 9 THAT AR HAS NOT SATISFACTORILY EXPLAI NED ABOUT THE ACTUAL SERVICES RECEIVED FROM THE AE IN MOST OF THE CIRCUM STANCES IS ALSO RELEVANT IN THIS CASE. IN PARA 9.2.5.2 OF THE ORDER THE TPO HAS OBSERVED THAT THE VOLUME AND QUALITY OF SERVICES RECEIVED BY THE ASSESSEE CO MPANY IS NOT COMMENSURATE WITH THE HUGE SUMS PAID BY THE ASSESSE E COMPANY. ON PAGE 10 IN PARA 9.2.5.6 THE TPO HAS OBSERVED THAT THE AS SESSEE COMPANY HAS AGGREGATED ALL THE AE TRANSACTIONS AND DETERMINED T HE ALP UNDER TNMM. THIS VIEW IS NOT CORRECT BECAUSE WHEREVER POSSIBLE THE TRANSACTION TO ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 4 -: TRANSACTION COMPARISON HAS TO BE MADE FOR THE ALP D ETERMINATION. THE TPO FURTHER OBSERVES THAT EACH TRANSACTION HAS TO BE IN DIVIDUALLY ANALYSED AND AN APPROPRIATE METHOD ADOPTED FOR THE PURPOSE OF ARRIV ING AT THE ALP. THEREAFTER THE TFO PROCEEDED TO DETERMINE ALP OF SE RVICES RECEIVED IN EACH HEAD OF SERVICE. FOR INSTANCE IN RESPECT TO SERVICE RECEIVED FROM VOLEX GROUP PLC TOWARDS FINANCE SUPPORT THE TPO HAS ANALYZED TH E CONTENTS OF FOUR MAILS RELATED TO IT. THE TPO WRITES IN RESPECT TO 3 MAILS THAT NO SERVICE HAS BEEN RECEIVED. ONLY IN RESPECT TO 4TH MAIL THE TPO HAS S UBMITTED THAT PROVIDING TRAINING TO AN EMPLOYEE BY THE AE IS A SERVICE AND THEREFORE 50% OF FEES APPORTIONED UNDER THE FINANCE SUPPORT IS FOUND TO B E ALLOWABLE. IN VIEW THIS TPO HAS DETERMINED THE ALP OF FINANCE SUPPORT SERVI CE AT RS 38,11,146. LIKEWISE THE TPO HAS DONE ANALYSIS IN RESPECT TO AL L KIND OF SERVICES GIVEN BY THE AES. 4.2 ACCORDING TO DRP CHENNAI, THE APPLICATION OF CUP IS NOT A PROPER METHOD IN THIS CASE. COMPARISON IN CUP INVOLVES AVA ILABILITY OF PRICE WHICH INDEPENDENT PARTIES CHARGE IN A THIRD PARTY SCENARI O IN AN OPEN MARKET. IF SUCH PRICE IS AVAILABLE THEN IT IS CONSIDERED AS AN ARMS LENGTH PRICE AND A COMPARISON IS MADE WITH THE PRICE THE TESTED PARTY HAS PAID TO ITS AE TO SEE AS TO WHETHER PRICE IS COMPARABLE TO THE PRICE CHAR GEABLE BY INDEPENDENT PARTIES? THEREFORE, ARMS LENGTH PRICE CANNOT BE TH E PRICE THAT APPEARS IN THE IN THE AGREEMENT ENTERED INTO BY ELATED PARTIES FOR VARIOUS SERVICES. THIS PRICE, IT IS PRESUMED, IS INFLUENCED BY RELATIONSHI P EXISTING BETWEEN THE PARTIES WHO ENTER INTO SUCH TRANSACTIONS. OBIVIOUS OF THIS FACT, THE TO HAS CONSIDERED THE PRICE OF SERVICES APPEARING IN THE I NTRA-GROUP SERVICE ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 5 -: AGREEMENT AS CLJP. THE TPO HAS ALSO MENTIONED ON PA GE 7OF THE ORDER THAT CUP IS MOST APPROPRIATE METHOC1 IN THIS CASE. BY AN ALYSING THE LIST OF DOCUMENTS FILED BY THE ASSESSEE AND THE COST INCURR ED BY THE AE IT CAN BE KNON WHETHER SUCH SERVICES HAVE A VALUE FIXED TO IT WHICH IS NOTHING BUT THE CUP DATA. THEREFORE, THIS PANEL FINDS THAT THE TPO HAS NOT DETERMINED THE PRICE OF SERVICES ON THE BASIS OF COMPARABLE UNCONT ROLLED PRICE. THEREFORE, THE STUDY OF THE TPO IS DEFECTIVE ABINITLO. 4.3 FURTHER THE DRP OBSERVED THAT THE ASSESSEE HAD GIVEN THE EVIDENCE ON SAMPLE BASIS. IT WAS NOT DULL EVIDENCE. THE TPO HAS DECIDED THE PRICE OF VARIOUS SERVICES ON THE BASIS OF LIMITED EVIDENCE P RODUCED BY THE ASSESSEE. THE TPO CALLED EACH MAIL A TRANSACTION ARID HELD TH AT HE IS DETERMINING THE PRICE OF EACH TRANSACTION. THIS PANEL CANNOT APPROA CH OF THE TPO. IN OUR VIEW MANAGEMENT FEES PAID TO VOLEX ASIA PTE LTD., S INGAPORE AND MANAGEMENT FEES PAID TO VOLEX GROUP PLC, UK ARE TWO INTERNATIONAL TRANSACTIONS. EVEN IN THE INTERNATIONAL TRANSACTION DETAILS APPEARING ON PAGE 2 OF THE TP ORDER CATEGORY WISE MANAGEMENT SERVICES IS APPEARING AT SI. NO. 5 IN THE TABLE IN PARA 4. THUS MANAGEMENT SERVICES FEES PAID TO THESE TWO AES ARE TWO INTERNATIONAL TRANSACTIONS. VARIOUS SUP PORT SERVICES RENDERED BY THESE TWO AES ARE ALSO TRANSACTIONS BUT FOR EACH AE THESE TRANSACTIONS IN RESPECT TO VARIOUS SUPPORT SERVICES ARE SO INTRICAT ELY INTERCONNECTED THAT IT WILL NOT BE POSSIBLE TO DISAGGREGATE VARIOUS SUPPOR T SERVICES RENDERED BY EACH AE INTO INDEPENDENT TRANSACTIONS AND DETERMINE THE ALP TRANSACTION UNDER CUP SEPARATELY. THIS IS WHAT THE TPO HAS TRIE D TO DO. AS FOR EACH AE UNDER EACH SUPPORT SERVICE HE HAS ANALYSED EACH TRA NSACTION CONSIDERING ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 6 -: EACH E-MAIL AN INDEPENDENT TRANSACTION AND DECIDED THE ALP OF THESE MICRO TRANSACTIONS. WHILE DOING SO EVIDENCE SUBMITTED BY THE ASSESSEE WHICH WAS ON A SAMPLE BASIS WAS CONSIDERED AS ENTIRE EVIDENCE AND ALP HAS BEEN DECIDED OF EACH SUPPORT SERVICE ON THE LIMITED EVID ENCE PRODUCED BEFORE THE TPO. EVEN THE ALP HAS BEEN DECIDED TREATING THE PRI CE FIXED AS ER THE AGREEMENT AS CUP. THIS IS IMPROPER AND CANNOT BE UP HELD. FURTHER IN TRANSFER PRICING THE METHOD PRESCRIBED IN THE ACT A RE BASED ON COMPARISON WITH THIRD PARTY TRANSACTIONS IN AN OPEN MARKET. NO METHOD PRESCRIBED IN THE ACT IS BASED ON THE COST OF THE TRANSACTION. THEREF ORE COST CAN BE ONE OF THE INDICATORS WHILE DETERMINING THE ALP OF THE SERVICE S BUT I CANNOT BE THE BASIS FOR DETERMINATION OF ALP. ALP ULTIMATELY MUST BE DE TERMINED ON THE BASIS OF THIRD PARTY SITUATION IN AN OPEN MARKET. THE TPO HA S NOT DONE THE SAME. IT IS ALSO NOT EVIDENT FROM RECORD AS TO HOW THE COST OF THE SERVICES HAS BEEN DECIDED BY THE TPO. IT APPEARS THAT THE TPO HAS DEC IDED THE COST OF THE SERVICES RENDERED ON AN ESTIMATED LASIS, WHICH SEEM S ARBITRARY TO THE PANEL. IN THE THIRD PARTY SCENARIO THE INDEPENDENT PARTIES DETERMINE THE COST OF THE SERVICES KEEPING IN VIEW THE BENEFITS ACCRUING TO T HEM. BUT THE TPO HAS NOT MADE ANY STUDY OF THE BENEFITS ACCRUING TO THE ASSE SSEE IN TERMS OF SALES GOIRG UP, EXPENDITURE COMING DOWN, MARKET IS EXPAND ED FOR THE GOODS OF THE ASSESSEE, ETC. WHILE DETERMINING THE PRICE OF THE S ERVICES THE THIRD PARTIES DECIDE THE PRICE OF THE SERVICES ON THE BASIS OF MA CRO LEVEL BENEFITS THAT MAY ACCRUE TO THEM. THEREFORE, IT WILL BE VERY NARROW A PPROACH TO DECIDE THE PRICE OF SERVICES FOR EACH MICRO SERVICE EVIDENT ON PERUSAL OF THE MAIL. ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 7 -: 4.4 HENCE, THE DRP OBSERVED THAT THE USE OF CUP C ANNOT BE UPHELD DUE TO NUMBER OF FLAWS MENTIONED ABOVE. IN OUR VIEW THE CUP IS NOT THE MOST APPROPRIATE METHOD IN THIS CASE AS RELIABLE AND COR RECT DATA REQUIRED TO APPLY CUP IS NOT AVAILABLE IN THIS CASE. THE USE OF CUP BY THE TPO IN THIS CASE IS THEREFORE REJECTED. THE TPO IS DIRECTED TO CONSIDER TNMM AS THE RIGHT METHOD FOR DETERMINATION OF ALP OF THE INTERNATIONA L TRANSACTION PERTAINING TO MANAGEMENT SERVICES. AGAINST THIS THE REVENUE I S IN APPEAL BEFORE US. 5. LD.D.R SUBMITTED THAT CUP METHOD IS THE MOST AP PROPRIATE METHOD IN THIS CASE AND TNMM IS NOT APPROPRIATE. SINCE EACH A ND EVERY TRANSACTION COULD BE POSSIBLE TO BENCH MARK SEPARATELY, THE ASS ESSEE FAILED TO COMPUTE THE NET MARGIN REALIZED FROM EACH STAGE TRANSACTION AND NOT LAID ANY MATERIAL ON RECORD TO SHOW THAT AVAILABLE DATA OF C OMPARABLE TRANSACTIONS, IF ANY, IS UNRELIABLE OR INADEQUATE OR UNREASONABLE. T HE TRANSACTIONS RELIED BY THE ASSESSEE ARE NOT SHOWN TO BE CLOSELY LINKED WIT H EACH OTHER. THE ASSESSEE ALSO DID NOT DEMONSTRATE AS TO HOW THE TRA NSACTION BY TRANSACTION APPROACH IN ITS CASE IS NOT POSSIBLE. IT HAS ALSO N OT BEEN SHOWN AS WHETHER THERE HAS BEEN ANY REAL OR TANGIBLE BENEFIT BY CARR YING SUCH INTERNATIONAL TRANSACTIONS WITH THE AES. THE COMPARABLE UNCONTRO LLED PRICE METHOD CUP FOR THE SUBJECT TRANSACTIONS BEING MOST DIRECT METH OD FOR DETERMINING ALP ND CHOSEN AS MOST APPROPRIATE METHOD IN THIS CASE B Y TPO, THEREFORE, CANNOT BE FAULTED WITH. LD.D.R PRAYED TO REJECT THE TNMM FOR BENCHMARKING INTERNATIONAL TRANSACTIONS IN A CASE LIKE THIS. FUR THER LD.D.R SUBMITTED THAT THE DRP ALSO CANNOT BE SAID TO HAVE ERRED IN APPROV ING THE CUP METHOD ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 8 -: ADOPTED BY THE TPO FOR BENCHMARKING INTERNATIONAL T RANSACTION WITH THE AE. HENCE, THE REVENUES GROUND ON THIS COUNT HAVING ME RIT STANDS ALLOWED. 6. ON THE OTHER HAND, LD.A.R SUBMITTED THAT THE TP O HAS NOT COMPARED THE ASSESSEES TRANSACTIONS WITH UN-COMPARABLES. H E WAS OF THE OPINION THAT THE DRP HAS GIVEN THE CORRECT VIEW ON THE REASON TH AT THE COMPARABLE IS NOT CONSIDERED. HENCE, IT IS TO BE HELD THAT THE EVIDE NCE PRODUCED BY THE ASSESSEE IS ENOUGH AS THERE IS A RECEIPT OF SERVICE S ALSO AND TNMM IS APPROPRIATE WHEN THE EXPENSES INCURRED CANNOT BE SE GREGATED, OR INDIVIDUALLY NOT CAPABLE OF ANALYZING. FURTHER, HE SUBMITTED THAT JUDGMENT RELIED BY THE DEPARTMENT IN THE CASE OF KNORR BREMS C INDIA PVT LTD. VS. ACIT IN ITA NO.5097/DEL/2011 IS NO MORE GOOD LAW AS IT WAS REVERSED BY THE HIGH COURT OF DELHI. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN ISUSE FOR CONSIDERATION IS WHETHER THE CUP METHOD TO BE FOLLOWED OR TNMM TO BE FOLLOWED TO DETERMINE THE ALP OF ASSE SSEES CASE. THIS WAS CONSIDERED BY THE TRIBUNAL IN THE CASE OF M/S.KNOR R BREMSC INDIA PVT LTD. VS. ACIT VIDE ORDER DATED 31.10.2012 WHEREIN HELD THAT:- 9. THE APPELLANT HAS ALSO ASSAILED THE ADDITION M ADE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS (RS.1,52,07,2 06/- TOWARDS PROFESSIONAL CONSULTANCY AND RS.1,40,56,800/- TOWAR DS MANAGEMENT FEE FOR SUPPORT SERVICES), BY DETERMININ G NIL VALUE AS THE ALP. THE TPO FOUND THAT THESE SERVICES PROVIDED BY THE AE ARE VERY GENERAL IN NATURE AND SUCH A SUPPORT IS E XPECTED FROM AU EVEN WITHOUT PAYMENT OF ANY SUCH CHARGE. THE ASS ESSEE ARGUED THAT THE AUTHORITIES BELOW ARE STATED TO HAV E ACTED BEYOND THEIR JURISDICTION IN TOUCHING UPON THE COMMERCIAL EXPEDIENCY OF ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 9 -: THE TRANSACTIONS. THE DRP, HOWEVER, HAS FOUND THAT EMAILS BROUGHT ON RECORD MERELY JUSTIFY PRESENCE OF MS. RI TA RICKEN AS TEAM LEADER OF SALES LOGISTICS, WHICH IS ONLY AN EF FORT TO JUSTIFY HER PRESENCE. SHE IN FACT IS SAFEGUARDING GROUP INTERES TL SHAREHOLDER INTEREST. THE TPO HAS ANALYSED EACH SERVICE AND BEN EFIT RECEIVED BY ASSESSEE IN DETAIL. NO COST ALLOCATION KEY HAS B EEN FURNISHED TO THE DRP EITHER WHICH CONFIRMED THE ADDITION MADE FO R BOTH SUCH SERVICES CLAIMED BY THE ASSESSEE. 9.1. THE APPELLANTS CONTENTION THAT TPO IS NO AUTH ORITY TO JUDGE THE ALLOWABILITY O THE BUSINESS EXPENDITURE IS A CO RRECT PROPOSITION OF LAW IN VIEW OF THE DECISION RENDERED BY THE HON BLE DELHI HIGH COURT IN ITS ORDER DATED 29TH MARCH 2012 IN THE CAS E OF EKL APPLIANCES LTD. (ITA NOS. 1068/2011 & 1070/2011). T HE HONBLE HIGH COURT IN PARA JUDGMENT HAS RULED AS UNDER:- WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FO R THE ASSESSEE TO DECIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALL OW THE ENTIRE EXPENDITURE OR A PART THEREOF ON THE GROUND THAT TH E ASSESSEE AHS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EX PENSE; THERE IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TPO HA DO NE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/ BRAND FE E, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT AHS BEEN DEMONSTRATED TO HAVE BEEN INCUR RED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS P ROVIDED IN THE OECD UIDELINES, HE IS EXPECTED TO EXAMINE THE INTER NATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKES SUITABLE ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 10 - : ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPE NDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN B Y THE TPO IS NOT CONTEMPLATED OR AUTHORIZED. 9.2. AFTER HEARING THE PARTIES WITH REFERENCE TO MA TERIAL ON RECORD, WE FIND THAT THE AUTHORITIES BELOW HAVE NOT CONCLUS IVELY HELD THAT THE ASSESSEE COULD NOT ENTER INTO SUCH A TRANSACTIO N NOR HAD THEY DISALLOWED THE SAME BY HOLDING THAT SUCH AN EXPENDI TURE IS NOT ASSESSEES BUSINESS EXPENDITURE. THE DRP AS WELL AS THE AUTHORITIES BELOW HAVE MERELY ELUCIDATED THAT THE P AYMENTS ARE REIMBURSEMENT JN RESPECT OF MS. RITA RICKEN AND OTH ER PERSONNELS CASE TO SERVE THE INTEREST OF SHARE HOLDERS. BY SAY ING SO THEY HAVE ONLY DESCRIBED THE CIRCUMSTANCE UNDER WHICH THE INT ERNATIONAL TRANSACTION HAS BEEN ENTERED BY THE APPELLANT, SO A S TO TEST THE BENEFIT THAT CAN BE SAID TO HAVE REACHED THE ASSESS EE. IT, THEREFORE, CANNOT BE SAID TO HAVE QUESTIONED THE CO MMERCIAL EXPEDIENCY OF SUCH TRANSACTIONS ENTERED BY THE APPE LLANT. THE I.T. RULES CONTAIN EXHAUSTIVE DETAIL REGARDING NATURE OF INFORMATION AND DOCUMENTS WHICH ARE REQUIRED TO BE MAINTAINED BY TH E ASSESSEE. RULE 10D(1) OF THE I.T. RULES, 1962 ALSO MANDATES T HE MAINTAINABILITY OF RECORD OF UNCONTROLLED TRANSACTI ONS TO BE TAKEN INTO ACCOUNT IN ANALYSING THE COMPARABILITY OF THE INTERNATIONAL FUNCTIONS ENTERED INTO BY THE ASSESSEE. IT, THEREFO RE, IS OBLIGATORY ON PART OF THE APPELLANT TO MAINTAIN SUCH RECORD AN D PRODUCE THE SAME BEFORE THE TPO TO SHOW THAT IT HAS BENCHMARKED THE INTERNATIONAL TRANSACTION AT ALP. THIS OBLIGATION, HOWEVER, HAS NOT BEEN DISCHARGED BY THE ASSESSEE. 9.3. THE APPELLANT IN THE PRESENT CASE IS ALSO NOT SHOWN TO BE WILLING TO PAY ANY AMOUNT FOR SUCH SERVICES, IF IT WERE, SO PROVIDED BY AN INDEPENDENT ENTERPRISE OR IF THE SAME WOULD H AVE BEEN ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 11 - : PERFORMED IN HOUSE. THE DRP IS FOUND TO HAVE CONSID ERED THESE SERVICES AS NON-BENEFICIAL FOR THE RECIPIENT AND DI D NOT TAKE IT AS CHARGEABLE SERVICES. THE PERUSAL OF E-MAILS AND OTH ER CONTEMPORANEOUS RECORD ONLY GOES TO REVEAL THAT INC IDENTAL AND PASSIVE ASSOCIATION BENEFIT HAS BEEN PROVIDED BY TH E ASSOCIATE ENTERPRISE. IN THIS VIEW OF THE MATTER THERE COULD NEITHER BE ANY COST CONTRIBUTION OR COST REIMBURSEMENT NOR PAYMENT FOR SUCH SERVICES TO THE AE. THE TPO, THEREFORE, HAS RIGHTLY ADOPTED NIL VALUE FOR BENCHMARKING THE ARMS LENGTH PRICE IN RE SPECT OF BOTH THESE SERVICES. WE, THEREFORE, DO NOT FIND ANY REAS ON TO INTERFERE WITH THE WELL REASONED CONCLUSION REACHED BY THE AO ON THIS COUNT. THE GROUNDS RAISED IN APPEAL IN THIS RESPECT , THEREFORE, STAND REJECTED. 7.1 HOWEVER, THIS WAS THE SUBJECT MATTER OF LITIGA TION BEFORE THE HONBLE DELHI HIGH COURT WHEREIN HELD THAT:- 54. THIS BRINGS US TO THE APPEAL FILED BY THE REV ENUE-RESPONDENT IN ITA NO. 182 OF 2013. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE TRIBUNAL DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION WITH RESPECT TO THE SAP CONSULTANCY CHARGE S IN THE SUM OF RS. 2,68,93,871 TO THE ASSESSEE'S INCOME. THE TRIBU NAL FOUND THAT THE DISPUTE RESOLUTION PANEL HAD RECORDED A FINDING THAT THE SAP LICENCE AND MS OFFICE HAD BEEN PURCHASED AT A LOWER RATE AND TO THAT EXTENT THE BENEFIT TEST FOR THE RECIPIENT IS C LEAR AND THE ASSESSEE MUST BE GIVEN THE BENEFIT. THE TRIBUNAL FU RTHER NOTED THAT IN THE SAME BREATH THE DISPUTE RESOLUTION PANE L UPHELD THE CONCLUSION OF THE TRANSFER PRICING OFFICER AND DECI DED NOT TO INTERFERE WITH THE ORDER OF THE TRANSFER PRICING OF FICER. THE TRIBUNAL HELD THAT SINCE THE DISPUTE RESOLUTION PAN EL HAD REACHED A FINDING THAT THE SAP LICENCE AND MS OFFICE HAD BE EN PURCHASED AT A LOWER RATE AND HAD BENEFITED THE ASSESSEE, IT WAS NOT PROPER TO UPHOLD THE CONCLUSION OF THE TRANSFER PRICING OF FICER FOR ADDING THE SAID AMOUNT TO THE ASSESSEE'S INCOME. THE TRIBU NAL HELD THAT THE ASSESSEE HAD DISCHARGED THE ONUS THAT THE INTER NATIONAL TRANSACTIONS HAD BEEN BENCHMARKED AT AN ARM'S LENGT H PRICE IN RESPECT OF THE SAP LICENCE AND, ACCORDINGLY, DIRECT ED THE ASSESSING OFFICER TO DELETE THE ADDITION. ITA NO.952/MDS./15 ITA NO.740/MDS./2016 :- 12 - : 55. HAD THE MATTER RESTED ONLY ON THE QUESTION OF A PPRECIATION OF FACTS, WE WOULD NOT HAVE AND INDEED COULD NOT HAVE INTERFERED IN APPEAL. HOWEVER, IN VIEW OF OUR FINDINGS ON THE QUE STIONS OF LAW IN THE ASSESSEE'S APPEAL, IT WOULD BE NECESSARY FOR TH E AUTHORITIES TO CONSIDER THIS MATTER AFRESH IN THE LIGHT OF THOSE O BSERVATIONS AS WELL. IT WOULD BE NECESSARY UPON REMAND FOR THE AUT HORITIES UNDER THE ACT TO CONSIDER WHETHER THE TRANSACTIONS OUGHT TO BE SEPARATELY BENCHMARKED OR WHETHER THE TRANSACTIONAL NET MARGIN METHOD OUGHT TO BE ADOPTED IN RESPECT OF THE SAME A S WELL. IN VIEW OF THE ABOVE FINDINGS OF THE HONBLE DELHI HIGH COURT, WE REMIT THE ISSUE TO THE FILE OF T.P.O FOR HER CONSIDERATION IN THE LIGHT OF ABOVE JUDGMENT. 8. IN THE RESULT, THE APPEALS OF THE REVENUE ARE A LLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED ON 24 TH AUGUST, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 24 TH AUGUST, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF