M/s. LG Electronics India Pvt. Ltd., Gautam Buidh Nagar V. ACIT, Noida

ITA 953/DEL/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3737 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 02-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 18-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDHARY
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Retrospective amendment; Additional evidence; Tangible material; Bad and doubtful debts; Revenue expenditure; TDS
• Section: 43B; 92B; 92F; 133A; 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , DELHI BENCH I - 2 , NEW DELHI BEFORE S H RI N. K. BILLAIYA , ACCOUNTANT MEMBER , AND MS . SUCHITRA KAMBLE , JUDICIAL MEMBER ITA NO. 953 /DEL/201 4 [ ASSESSMENT YEAR: 20 09 - 10 ] LG L.G ELECTRONICS INDIA PVT. LTD. VS. NO.5 1, UDYOG VIHAR, PLOT SURAJPUR KASNA ROAD GREAT ER NOIDA, GAUTAM BUDH NAGAR, PAN NO. AAACL 1745Q VS. THE A . C . I . T CIRCLE - 3 NOIDA (APPELLANT) (RESPOND ENT) APPELLANT BY SH. AJAY VOHRA, SR. ADVOCATE SH. RAMIT KATIYAL, ADVOCATE SH. NEERAJ JAIN, ADVOCATE RESPONDENT BY SH. H. K. CHAUDHARY, CIT DR DATE OF HEARING : 05 .02.2019 DATE OF PRONOUNCEMENT : 1 5 . 02.2019 ORDER PER N. K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER DATED 06.0 2.201 4 5 FRAMED U/S 144C R.W.S 14 3 (3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] PERTAINING TO A Y 20 09 - 10 . 2 2. GROUND NOS. 1 TO 3 ARE GENERAL IN NATURE AND NEED NO ADJUDICATION. 3. GROUND NO. 4 RELATES TO TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS. 5,37,59,29,670/ - IN RELATION TO ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENSES [AMP] INCURRED BY THE ASSESSEE. 4. BRIEFLY ST ATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE, DURING THE RELEVANT PREVIOUS YEAR , INCURRED FOLLOWING EXPENDITURE ON ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENSES (AMP EXPENSES) AGGREGATING TO RS. 851,84,13,441 / - : S L NO. PARTICULARS AMOUNT ( RS) 1 MULTI PRODUCT ADVERTISEMENT 19,48,82,269 2 PRODUCT ADVERTISEMENT 152,43,41,881 3 SPONSORSHIP 5,49,61,260 4 POINT OF SALES ACTIVITY 139,54,95,848 5 MONTHLY SCHEME 353,11,65,707 6 DISTRIBUTOR DISCOUNT 6,82,78,903 7 DEALER PRO MOTION 21,02,84,392 8 LG SHOPPE MARGIN 1,46,10,627 3 S L NO. PARTICULARS AMOUNT ( RS) 9 0% FINANCE SCHEME 13,61,64,216 10 TIE UPS (QUANTITATIVE TARGETS) 11,02,03,965 11 REIMBURSEMENT OF EXPENSES RECEIVED FROM AE 127,80,24,307 TOTAL 851,84,13,375 5. THE TPO UNDERTOO K BENCHMARKING ANALYSIS OF AMP EXPENSES APPLYING BRIGHT LINE TEST BY COMPARING RATIO OF AMP EXPENSES TO SALE OF THE ASSESSEE WITH THAT OF THE COMPARABLE COMPANIES AND HELD THAT ANY EXPENDITURE IN EXCESS OF THE BRIGHT LINE WAS FOR PROMOTION OF THE BRAND/TRA DE NAME (OWNED BY THE AE) WHICH NEEDED TO BE SUITABLY COMPENSATED BY THE ASSOCIATED ENTERPRISE. THE TPO, ACCORDINGLY , COMPARED THE AMP EXPENDITURE INCURRED BY THE ASSESSEE AS PERCENTAGE OF TURNOVER AT 9.21% WITH AVERAGE AMP EXPENDITURE/SALES RATIO OF 2.98% OF THE FOLLOWING COMPARABLE COMPANIES: NAME OF COMPANY AMP/SALES ALLIED PHOTOGRAPHICS INDIA LTD 0.49% HCL INFO SYSTEMS LTD. 0.48% HOME SOLUTIONS RETAIL (INDIA) LTD 5.30% INFINITY RETAIL LTD 4.71% 4 VIVEK LTD 3.96% ARITHMETIC MEAN 2.98% 6. THE TPO FURTHER CHARGED MARK UP OF 15.46% AND , ACCORDINGLY , MADE ADJUSTMENT OF RS. 5 , 37,59,29,670 / - ON ACCOUNT OF THE ALLEGED BRAND BUILDING ACTIVITY UNDERTAKEN BY THE ASSESSEE FOR THE AE, AS UNDER: COMPUTATION OF TP ADJUSTMENT RS. VALUE OF SALES 9246,37,05,30 3 AMP / SALES OF THE COMPARABLES 2.98% AMOUNT THAT REPRESENTS BRIGHT LINE 275,54,18,418 EXPENDITURE ON AMP BY ASSESSEE 851,84,13,375 EXPENDITURE IN EXCESS OF BRIGHT LINE 576,29,94,957 MARK - UP AT 15.46% 89,09,59,020 REIMBURSEMENT THAT ASSES SEE SHOULD HAVE RECEIVED. 665,39,53,977 REIMBURSEMENT ACTUALLY RECEIVED 127,80,24,307 ADJUSTMENT TO ASSESSEES INCOME 537,59,29,670 5 7 . THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE IS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2008 - 09 IN ITA NO. 6253/DEL/2012 VIDE GROUND NO. 3.3. OF THAT APPEAL. 8 . THE LD. DR STATED THAT THE FACTS UNDER CONSIDERATIO N ARE DIFFERENT AND, THEREFORE, DISTINGUISHABLE FROM THE EARLIER ASSESSMENT YEAR. IT IS THE SAY OF THE LD. DR THAT A SURVEY OPERATION U/S 133A OF THE ACT WAS CONDUCTED ON 24.06.2010 AND DURING THE COURSE OF SURVEY, STATEMENT S OF EXPATRIATE EMPLOYEES SHOW THAT LG KOREA IS EXERCISING CONTROL AND CONSIDERATION OVER LG INDIA. DRAWING SUPPORT FROM THE STATEMENT S, THE LD. D R STRONGLY CONTENDED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INCURRED AMP EXPENSES AND ITS ASSOCIATED ENTERPRISES [AES] SHOULD HAVE REIMBURSED THE SAME AND, THEREFORE, THERE IS NO ERROR OR INFIRMITY IN THE ADJUSTMENT MADE BY THE TPO. 9 . WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR. WE HAVE ALSO GONE THROUGH THE STATEMENT OF EXPATRIATE EMPLOYEES WHICH ARE EXTRACTED AT PAGES 10 AND 11 OF THE ORDER OF THE TPO. A PERUSAL OF THE STATEMENT S SHOW THAT LG KOREA HAS CONTROL OVER THE OPERATIONS O F LG, INDIA. HOWEVER, BECAUSE OF SUCH SERVICES, THE ASSESSEE HAS CHARGED ASIA 6 REGIONAL HEADQUARTER EXPENSES , BUT NOWHERE IT PROVES THAT THE ASSESSEE HAS INCURRED AMP EXPENSES FOR THE BRAND BUILDING OF ITS AE. ON THE OTHER HAND, WE FIND FORCE IN THE CONTE NTION OF THE LD. AR. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6253/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09. THE RELEVANT FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 10. AT THE OUTSET, WE HAV E TO STATE THAT THE HONBLE HIGH COURT OF DELHI IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD VS CIT 374 ITR 118 HAS DISCARDED THE BLT. THE HONBLE HIGH COURT, AT PARA 120 HELD AS UNDER: 120. NOTWITHSTANDING THE ABOVE POSITION, THE AR GUMENT OF THE REVENUE GOES BEYOND ADEQUATE AND FAIR COMPENSATION AND THE RATIO OF THE MAJORITY DECISION MANDATES THAT IN EACH CASE WHERE AN INDIAN SUBSIDIARY OF A FOREIGN AE INCURS AMP EXPENDITURE SHOULD BE SUBJECTED TO THE BRIGHT LINE TEST ON THE BASIS OF COMPARABLES MENTIONED IN PARAGRAPH 17.4. ANY EXCESS EXPENDITURE BEYOND THE BRIGHT LINE SHOULD BE REGARDED AS A SEPARATE INTERNATIONAL TRANSACTION OF BRAND BUILDING. SUCH A BROAD - BRUSH UNIVERSAL APPROACH IS UNWARRANTED AND WOULD AMOUNT TO JUDICIAL LEGISLAT ION. DURING THE COURSE OF ARGUMENTS, IT WAS ACCEPTED BY THE REVENUE THAT THE TPOS/ASSESSING OFFICERS HAVE UNIVERSALLY APPLIED 7 BRIGHT LINE TEST TO DECIPHER AND COMPUTE VALUE OF INTERNATIONAL TRANSACTION AND THEREAFTER APPLIED COST PLUS METHOD OR COST METHOD TO COMPUTE THE ARMS LENGTH PRICE. THE SAID APPROACH IS NOT MANDATED AND STIPULATED IN THE ACT OR THE RULES. THE LIST OF PARAMETERS FOR ASCERTAINING THE COMPARABLES FOR APPLYING BRIGHT LINE TEST IN PARAGRAPH 17.4 AND, THEREAFTER, THE ASSERTION IN PARAGRAP H 17.6 THAT COMPARISON CAN BE ONLY MADE BY CHOOSING COMPARABLE OF DOMESTIC CASES NOT USING ANY FOREIGN BRAND, IS CONTRARY TO THE RULES. IT AMOUNTS TO WRITING AND PRESCRIBING A MANDATORY PROCEDURE OR TEST WHICH IS NOT STIPULATED IN THE ACT OR THE RULES. THI S IS BEYOND WHAT THE STATUTE IN CHAPTER X POSTULATES. RULES ALSO DO NOT SO STIPULATE. 11. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE HIGH COURT OF DELHI [SUPRA], WE HOLD THAT BLT HAS NO MANDATE UNDER THE ACT AND ACCORDINGLY, THE SAME CANNOT BE RE SORTED TO FOR THE PURPOSE OF ASCERTAINING IF THERE EXISTS AN INTERNATIONAL TRANSACTION OF BRAND PROMOTION SERVICES BETWEEN THE ASSESSEE AND THE AE. 12. IN OUR CONSIDERED OPINION, WHILE DEALING WITH THE ISSUE OF BENCH MARKING OF AMP EXPENSES, THE REVENUE N EEDS TO ESTABLISH THE EXISTENCE OF INTERNATIONAL TRANSACTION BEFORE UNDERTAKING BENCH MARKING OF AMP EXPENSES AND SUCH TRANSACTION CANNOT BE INFERRED MERELY ON THE BASIS OF BLT. FOR THIS PROPOSITION, WE DRAW SUPPORT 8 FROM THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD 381 ITR 117. 13. IN THIS CASE, THE HON'BLE HIGH COURT HELD THAT EXISTENCE OF AN INTERNATIONAL TRANSACTION NEEDS TO BE ESTABLISHED DE HORS THE BRIGHT LINE TEST. THE RELEVANT FINDING OF THE HONBLE HIGH COUR T READS AS UNDER: 43. SECONDLY, THE CASES WHICH WERE DISPOSED OF BY THE JUDGMENT, I.E. OF THE THREE ASSESSEES CANON, REEBOK AND SONY ERICSSON WERE ALL OF DISTRIBUTORS OF PRODUCTS MANUFACTURED BY FOREIGN AES. THE SAID ASSESSEES WERE THEMSELVES NOT MANUFAC TURERS. IN ANY EVENT, NONE OF THEM APPEARED TO HAVE QUESTIONED THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE CONCERNED FOREIGN AE. IT WAS ALSO NOT DISPUTED THAT THE SAID INTERNATIONAL TRANSACTION OF INCURRING OF AMP EXPENSES COULD BE MADE SUB JECT MATTER OF TRANSFER PRICING ADJUSTMENT IN TERMS OF SECTION 92 OF THE ACT. 44. HOWEVER, IN THE PRESENT APPEALS, THE VERY EXISTENCE OF AN INTERNATIONAL TRANSACTION IS IN ISSUE. THE SPECIFIC CASE OF MSIL IS THAT THE REVENUE HAS FAILED TO SHOW THE EXISTE NCE OF ANY AGREEMENT, UNDERSTANDING OR ARRANGEMENT BETWEEN MSIL AND SMC REGARDING THE AMP SPEND OF MSIL. IT IS POINTED OUT THAT THE BLT HAS BEEN APPLIED TO THE AMP SPEND BY MSIL TO (A) DEDUCE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING SMC AND (B) TO MAKE A QUANTITATIVE 9 'ADJUSTMENT' TO THE ALP TO THE EXTENT THAT THE EXPENDITURE EXCEEDS THE EXPENDITURE BY COMPARABLE ENTITIES. IT IS SUBMITTED THAT WITH THE DECISION IN SONY ERICSSON HAVING DISAPPROVED OF BLT AS A LEGITIMATE MEANS OF DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES, THE VERY BASIS OF THE REVENUE'S CASE IS NEGATED. XXX 51. THE RESULT OF THE ABOVE DISCUSSION IS THAT IN THE CONSIDERED VIEW OF THE COURT THE REVENUE HAS FAILED TO DEMONSTRATE THE EXISTENCE OF AN I NTERNATIONAL TRANSACTION ONLY ON ACCOUNT OF THE QUANTUM OF AMP EXPENDITURE BY MSIL. SECONDLY, THE COURT IS OF THE VIEW THAT THE DECISION IN SONY ERICSSON HOLDING THAT THERE IS AN INTERNATIONAL TRANSACTION AS A RESULT OF THE AMP EXPENSES CANNOT BE HELD TO H AVE ANSWERED THE ISSUE AS FAR AS THE PRESENT ASSESSEE MSIL IS CONCERNED SINCE FINDING IN SONY ERICSSON TO THE ABOVE EFFECT IS IN THE CONTEXT OF THOSE ASSESSEES WHOSE CASES HAVE BEEN DISPOSED OF BY THAT JUDGMENT AND WHO DID NOT DISPUTE THE EXISTENCE OF AN I NTERNATIONAL TRANSACTION REGARDING AMP EXPENSES. XXX 60. AS FAR AS CLAUSE (A) IS CONCERNED, SMC IS A NON - RESIDENT. IT HAS, SINCE 2002, A SUBSTANTIAL SHARE HOLDING IN MSIL AND CAN, THEREFORE, BE CONSTRUED TO BE A NON - RESIDENT AE OF MSIL. WHILE IT DOES HAVE A NUMBER OF 'TRANSACTIONS' WITH MSIL ON THE ISSUE OF LICENSING OF IPRS, SUPPLY OF RAW MATERIALS, ETC. THE QUESTION REMAINS WHETHER IT HAS ANY 'TRANSACTION' CONCERNING THE AMP EXPENDITURE. THAT BRINGS 10 US TO CLAUSES (B) AND (C). THEY CANNOT BE READ DISJUNCTI VELY. EVEN IF RESORT IS HAD TO THE RESIDUARY PART OF CLAUSE (B) TO CONTEND THAT THE AMP SPEND OF MSIL IS 'ANY OTHER TRANSACTION HAVING A BEARING' ON ITS 'PROFITS, INCOMES OR LOSSES', FOR A 'TRANSACTION' THERE HAS TO BE TWO PARTIES. THEREFORE FOR THE PURPOS ES OF THE MEANS PART OF CLAUSE (B) AND THE 'INCLUDES PART OF CLAUSE (C), THE REVENUE HAS TO SHOW THAT THERE EXISTS AN 'AGREEMENT' OR 'ARRANGEMENT' OR 'UNDERSTANDING' BETWEEN MSIL AND SMC WHEREBY MSIL IS OBLIGED TO SPEND EXCESSIVELY ON AMP IN ORDER TO PR OMOTE THE BRAND OF SMC. AS FAR AS THE LEGISLATIVE INTENT IS CONCERNED, IT IS SEEN THAT CERTAIN TRANSACTIONS LISTED IN THE EXPLANATION UNDER CLAUSES (I) (A) TO (E) TO SECTION 92B ARE DESCRIBED AS 'INTERNATIONAL TRANSACTION'. THIS MIGHT BE ONLY AN ILLUSTRATI VE LIST, BUT SIGNIFICANTLY IT DOES NOT LIST AMP SPENDING AS ONE SUCH TRANSACTION. 61. THE SUBMISSION OF THE REVENUE IN THIS REGARD IS: 'THE MERE FACT THAT THE SERVICE OR BENEFIT HAS BEEN PROVIDED BY ONE PARTY TO THE OTHER WOULD BY ITSELF CONSTITUTE A TRA NSACTION IRRESPECTIVE OF WHETHER THE CONSIDERATION FOR THE SAME HAS BEEN PAID OR REMAINS PAYABLE OR THERE IS A MUTUAL AGREEMENT TO NOT CHARGE ANY COMPENSATION FOR THE SERVICE OR BENEFIT.' EVEN IF THE WORD 'TRANSACTION' IS GIVEN ITS WIDEST CONNOTATION, AND NEED NOT INVOLVE ANY TRANSFER OF MONEY OR A WRITTEN AGREEMENT AS SUGGESTED BY THE REVENUE, AND EVEN IF RESORT IS HAD TO SECTION 92F (V) WHICH DEFINES 'TRANSACTION' TO INCLUDE 'ARRANGEMENT', 'UNDERSTANDING' OR 11 'ACTION IN CONCERT', 'WHETHER FORMAL OR IN WRIT ING', IT IS STILL INCUMBENT ON THE REVENUE TO SHOW THE EXISTENCE OF AN 'UNDERSTANDING' OR AN 'ARRANGEMENT' OR 'ACTION IN CONCERT' BETWEEN MSIL AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. IN OTHER WORDS, FOR BOTH THE MEANS PART AND THE INCLUDES PA RT OF SECTION 92B (1) WHAT HAS TO BE DEFINITELY SHOWN IS THE EXISTENCE OF TRANSACTION WHEREBY MSIL HAS BEEN OBLIGED TO INCUR AMP OF A CERTAIN LEVEL FOR SMC FOR THE PURPOSES OF PROMOTING THE BRAND OF SMC. XXX 68..IN OTHER WORDS, IT EMPHASISES THAT WHE RE THE PRICE IS SOMETHING OTHER THAN WHAT WOULD BE PAID OR CHARGED BY ONE ENTITY FROM ANOTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DOES NOT SEE THIS AS A MACHINERY PROVISION PARTICULARLY IN LIGHT OF THE FACT THAT THE BLT HAS BEE N EXPRESSLY NEGATIVED BY THE COURT IN SONY ERICSSON. THEREFORE, THE EXISTENCE OF AN INTERNATIONAL TRANSACTION WILL HAVE TO BE ESTABLISHED DE HORS THE BLT. 14. IN THE LIGHT OF THE AFORESAID FINDING OF THE HON'BLE HIGH COURT, BEFORE EMBARKING UPON A BENCHM ARKING ANALYSIS, THE REVENUE NEEDS TO DEMONSTRATE ON THE BASIS OF TANGIBLE MATERIAL OR EVIDENCE THAT THERE EXISTS AN INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND THE AE. NEEDLESS TO MENTION, THAT THE EXISTENCE OF SUCH A TRANSACTION CANNOT BE A MATTER OF INFERENCE. 12 15. THE HON'BLE DELHI HIGH COURT IN CASE OF WHIRLPOOL OF INDIA LTD VS DCIT 381 ITR 154 HAS HELD THAT THERE SHOULD BE SOME TANGIBLE EVIDENCE ON RECORD TO DEMONSTRATE THAT THERE EXISTS AN INTERNATIONAL TRANSACTION IN RELATION WITH INCURRING O F AMP EXPENSES FOR DEVELOPMENT OF BRAND OWNED BY THE AE. IN OUR CONSIDERED OPINION, IN THE ABSENCE OF SUCH DEMONSTRATION, THERE IS NO QUESTION OF UNDERTAKING ANY BENCHMARKING OF AMP EXPENSES. THE RELEVANT FINDINGS OF THE HONBLE HIGH COURT IN THE CASE OF WHIRLPOOL OF INDIA LTD [SUPRA] READ AS UNDER: 32. UNDER SECTIONS 92B TO 92F, THE PRE - REQUISITE FOR COMMENCING THE TP EXERCISE IS TO SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION. THE NEXT STEP IS TO DETERMINE THE PRICE OF SUCH TRANSACTION. THE THIRD STEP WOULD BE TO DETERMINE THE ALP BY APPLYING ONE OF THE FIVE PRICE DISCOVERY METHODS SPECIFIED IN SECTION 92C. THE FOURTH STEP WOULD BE TO COMPARE THE PRICE OF THE TRANSACTION THAT IS SHOWN TO EXIST WITH THAT OF THE ALP AND MAKE THE TP ADJUSTMENT BY SUB STITUTING THE ALP FOR THE CONTRACT PRICE. XXX 34. THE TP ADJUSTMENT IS NOT EXPECTED TO BE MADE BY DEDUCING FROM THE DIFFERENCE BETWEEN THE 'EXCESSIVE' AMP EXPENDITURE INCURRED BY THE ASSESSEE AND THE AMP EXPENDITURE OF A COMPARABLE ENTITY THAT AN INTERNAT IONAL TRANSACTION EXISTS AND THEN PROCEED TO MAKE THE ADJUSTMENT 13 OF THE DIFFERENCE IN ORDER TO DETERMINE THE VALUE OF SUCH AMP EXPENDITURE INCURRED FOR THE AE. 35. IT IS FOR THE ABOVE REASON THAT THE BLT HAS BEEN REJECTED AS A VALID METHOD FOR EITHER DETE RMINING THE EXISTENCE OF INTERNATIONAL TRANSACTION OR FOR THE DETERMINATION OF ALP OF SUCH TRANSACTION. ALTHOUGH, UNDER SECTION 92B READ WITH SECTION 92F (V), AN INTERNATIONAL TRANSACTION COULD INCLUDE AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT, TH IS CANNOT BE A MATTER OF INFERENCE. THERE HAS TO BE SOME TANGIBLE EVIDENCE ON RECORD TO SHOW THAT TWO PARTIES HAVE ACTED IN CONCERT. XXX 37. THE PROVISIONS UNDER CHAPTER X DO ENVISAGE A SEPARATE ENTITY CONCEPT. IN OTHER WORDS, THERE CANNOT BE A PRESUM PTION THAT IN THE PRESENT CASE SINCE WOIL IS A SUBSIDIARY OF WHIRLPOOL USA, ALL THE ACTIVITIES OF WOIL ARE IN FACT DICTATED BY WHIRLPOOL USA. MERELY BECAUSE WHIRLPOOL USA HAS A FINANCIAL INTEREST, IT CANNOT BE PRESUMED THAT AMP EXPENSE INCURRED BY THE WOIL ARE AT THE INSTANCE OR ON BEHALF OF WHIRLPOOL USA. THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE INITIAL ONUS IS ON THE REVENUE TO DEMONSTRATE THROUGH SOME TANGIBLE MATERIAL THAT THE TWO PARTIES ACTED IN CONCERT AND FURTHER THAT THERE WAS AN A GREEMENT TO ENTER INTO AN INTERNATIONAL TRANSACTION CONCERNING AMP EXPENSES. XXX 14 39. IT IS IN THIS CONTEXT THAT IT IS SUBMITTED, AND RIGHTLY, BY THE ASSESSEE THAT THERE MUST BE A MACHINERY PROVISION IN THE ACT TO BRING AN INTERNATIONAL TRANSACTION INVOLVI NG AMP EXPENSE UNDER THE TAX RADAR. IN THE ABSENCE OF ANY CLEAR STATUTORY PROVISION GIVING GUIDANCE AS TO HOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSE, IN THE ABSENCE OF AN EXPRESS AGREEMENT IN THAT BEHALF, SHOULD BE ASCERTAINED AND FURTHER HOW THE ALP OF SUCH A TRANSACTION SHOULD BE ASCERTAINED, IT CANNOT BE LEFT ENTIRELY TO SURMISES AND CONJECTURES OF THE TPO. XXX 47. FOR THE AFOREMENTIONED REASONS, THE COURT IS OF THE VIEW THAT AS FAR AS THE PRESENT APPEALS ARE CONCERNED, THE R EVENUE HAS BEEN UNABLE TO DEMONSTRATE BY SOME TANGIBLE MATERIAL THAT THERE IS AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES BETWEEN WOIL AND WHIRLPOOL USA. IN THE ABSENCE OF THAT FIRST STEP, THE QUESTION OF DETERMINING THE ALP OF SUCH A TRANSACTION D OES NOT ARISE. IN ANY EVENT, IN THE ABSENCE OF A MACHINERY PROVISION IT WOULD BE HAZARDOUS FOR ANY TPO TO PROCEED TO DETERMINE THE ALP OF SUCH A TRANSACTION SINCE BLT HAS BEEN NEGATIVED BY THIS COURT AS A VALID METHOD OF DETERMINING THE EXISTENCE OF AN INT ERNATIONAL TRANSACTION AND THEREAFTER ITS ALP. 16. THE CASE OF THE REVENUE IS THAT INDIAN SUBSIDIARY INCURRED CERTAIN EXPENSES FOR THE PROMOTION OF BRANDS IN INDIA AND FOR DEVELOPMENT OF THE INDIAN MARKET AND THE 15 CREATION OF MARKETING INTANGIBLES IN INDI A WHICH REMAIN THE FUNCTIONS OF THE PARENT COMPANY WHICH IS THE ENTREPRENEUR. THE BRANDS ARE OWNED BY THE PARENT COMPANY. THE INDIAN SUBSIDIARY ONLY ACTS ON BEHALF OF THE PARENT COMPANY. THE REVENUE ALLEGES THAT EVENTUAL BENEFICIARY OF THE ACTS OF THE IND IAN SUBSIDIARY IS THE PARENT COMPANY. ANY BENEFIT THAT MAY ACCRUE TO THE INDIAN SUBSIDIARY IS AT BEST INCIDENTAL TO THE ENTIRE EXERCISE. THIS ACTION OF THE INDIAN SUBSIDIARY AMOUNTS TO RENDERING OF A SERVICE TO ITS FOREIGN AE FOR WHICH ARMS LENGTH COMPENS ATION WAS PAYABLE BY FOREIGN AE TO ITS INDIAN SUBSIDIARY. 17. IT IS THE SAY OF THE LD. DR THAT THE FUNCTIONS CARRIED OUT BY THE ASSESSEE ARE IN THE NATURE OF DEVELOPMENT, ENHANCEMENT, MAINTENANCE, PROTECTION AND EXPLOITATION OF THE RELEVANT INTANGIBLES AN D THUS, THE ASSESSEE DESERVES COMPENSATION. 18. THE CASE OF THE LD. DR IS THAT THE ACT OF INCURRING OF AMP EXPENSES BY THE ASSESSEE IS NOT A UNILATERAL ACT AND IS AN INTERNATIONAL TRANSACTION FOR FOLLOWING REASONS: - I ) THOUGH, THE AMP EXPENDITURE MAY BE FO R THE PURPOSE OF BUSINESS OF THE ASSESSEE BUT IT IS IN PERFORMANCE OF FUNCTION OF MARKET DEVELOPMENT FOR THE BRANDS AND PRODUCTS OF THE AE THAT ENHANCES THE VALUE OF THE MARKETING INTANGIBLES OWNED BY THE 16 FOREIGN AE, AND HENCE THERE IS A TRANSACTION OF REN DERING OF SERVICE OF MARKET DEVELOPMENT TO THE AE. II ) THE SHORT TERM BENEFIT OF THE TRANSACTION ACCRUES BOTH TO ASSESSEE AND AE IN TERMS OF HIGHER SALES BUT LONG TERM BENEFIT ACCRUES ONLY TO THE AE. III ) THE BENEFIT TO THE AE IS NOT INCIDENTAL BUT SIGNIFICANT. ONCE, IT IS ESTABLISHED THAT THE ACT OF INCURRING OF AMP EXPENDITURE IS NOT A UNILATERAL ACT OF THE ASSESSEE; THE AE NEEDS TO COMPENSATE THE ASSESSEE FOR AMP EXPENSES. IV ) IT IS A FACT THAT BRANDS ARE VALUABLE AND EVEN LOSS MAKING ENTERPRISES HAVING NO REAL ASSETS ARE PURCHASED FOR SUBSTANTIAL VALUE FOR THEIR BRAND AND MARKETING INTANGIBLES. V ) THE ISSUE IS NOT THAT OF TRANSFER OF MARKETING INTANGIBLES TO AE AS THE BRANDS AND MARKETING INTANGIBLES ARE ALREADY OWNED BY THE AE. THE ISSUE IS THAT OF ADDITION IN TH E VALUE OF MARKETING INTANGIBLES OWNED BY THE AE OWING TO THE SERVICES OF DEVELOPMENT OF BRAND AND MARKETS BY THE ASSESSEE FOR THE AE AND THAT OF COMPENSATION FOR RENDERING THESE SERVICES NOT PROVIDED UNILATERALLY BY THE ASSESSEE. 17 19. WE DO NOT FIND ANY F ORCE IN THE AFORESAID CONTENTIONS OF THE LD. DR. AS MENTIONED ELSEWHERE, THE REVENUE NEEDS TO ESTABLISH ON THE BASIS OF SOME TANGIBLE MATERIAL OR EVIDENCE THAT THERE EXISTS AN INTERNATIONAL TRANSACTION OF PROVISIONS OF BRAND BUILDING SERVICE BETWEEN THE A SSESSEE AND THE AE. WE FIND SUPPORT FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF HONDA SEIL POWER PRODUCTS LTD VS DCIT ITA NO 346/2015. 20. THE HONBLE DELHI COURT IN ITS RECENT DECISION IN THE CASE OF CIT VS MARY KAY COSMETIC PVT LTD (ITA NO.1010/2018), TOO, DISMISSED THE REVENUES APPEAL, FOLLOWING THE LAW LAID DOWN IN ITS EARLIER DECISION (SUPRA) AND HELD AS UNDER: WE HAVE EXAMINED THE ASSESSMENT ORDER AND DO NOT FIND ANY GOOD GROUND AND REASON GIVEN THEREIN TO TREAT ADVERTISEMENT AND SALES PROMOTION EXPENSES AS A SEPARATE AND INDEPENDENT INTERNATIONAL TRANSACTION AND NOT TO REGARD AND TREAT THE SAID ACTIVITY AS A FUNCTION PERFORMED BY THE RESPONDENT - ASSESSEE, WHO WAS ENGAGED IN MARKETING AND DISTRIBUTION. FURTHER, WHILE SEGREGATING / DEBUNDLING AND TREATING ADVERTISEMENT AND SALES PROMOTION AS AN INDEPENDENT AND SEPARATE INTERNATIONAL TRANSACTION, THE ASSESSING OFFICER DID NOT APPORTION THE OPERATING PROFIT/ INCOME AS DECLARED AND ACCEPTED IN RESPECT OF THE INTERNATIONAL TRANSACTION S. 18 21. IN OUR UNDERSTANDING OF THE FACTS AND LAW, MERE AGREEMENT OR ARRANGEMENT FOR ALLOWING USE OF THEIR BRAND NAME BY THE AE ON PRODUCTS DOES NOT LEAD TO AN INFERENCE THAT THERE IS AN ACTION IN CONCERT OR THE PARTIES WERE ACTING TOGETHER TO INCUR HIG HER EXPENDITURE ON AMP IN ORDER TO RENDER A SERVICE OF BRAND BUILDING. SUCH INFERENCE WOULD BE IN THE REALM OF ASSUMPTION/SURMISE. IN OUR CONSIDERED OPINION, FOR ASSUMPTION OF JURISDICTION U/S 92 OF THE ACT, THE CONDITION PRECEDENT IS AN INTERNATIONAL TR ANSACTION HAS TO EXIST IN THE FIRST PLACE. THE TPO IS NOT PERMITTED TO EMBARK UPON THE BENCH MARKING ANALYSIS OF ALLOCATING AMP EXPENSES AS ATTRIBUTED TO THE AE WITHOUT THERE BEING AN AGREEMENT OR ARRANGEMENT FOR INCURRING SUCH AMP EXPENSES. 22. THE AFORESAID VIEW THAT EXISTENCE OF AN INTERNATIONAL TRANSACTION IS A SINE QUA NON FOR INVOKING THE TRANSFER PRICING PROVISIONS CONTAINED IN CHAPTER X OF THE ACT, CAN BE FURTHER SUPPORTED BY ANALYSIS OF SECTION 92(1) OF THE ACT, WHICH SEEKS TO BENCHMARK I NCOME / EXPENDITURE ARISING FROM AN INTERNATIONAL TRANSACTION, HAVING REGARD TO THE ARMS LENGTH PRICE. THE INCOME / EXPENDITURE MUST ARISE QUA AN INTERNATIONAL TRANSACTION, MEANING THEREBY THAT THE (I) INCOME HAS ACCRUED TO THE INDIAN TAX PAYER UNDER AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE; OR (II) EXPENDITURE PAYABLE BY THE INDIAN ENTERPRISE HAS ACCRUED / ARISEN UNDER AN INTERNATIONAL TRANSACTION WITH THE FOREIGN AE. THE SCHEME 19 OF CHAPTER X OF THE ACT IS NOT TO BENCHMARK TRANSACTIONS BETWEEN THE INDIAN ENTERPRISE AND UNRELATED THIRD PARTIES IN INDIA, WHERE THERE IS NO INCOME ARISING TO THE INDIAN ENTERPRISE FROM THE FOREIGN PAYEE OR THERE IS NO PAYMENT OF EXPENSE BY THE INDIAN ENTERPRISE TO THE ASSOCIATED ENTERPRISE. CONVE RSELY, TRANSFER PRICING PROVISIONS ENSHRINED IN CHAPTER X OF THE ACT DO NOT SEEK TO BENCHMARK TRANSACTIONS BETWEEN TWO INDIAN ENTERPRISES. 23. THE REVENUE FURTHER CONTENDS THAT THE ASSESSEE IS NOT AN INDEPENDENT MANUFACTURER BUT IS MANUFACTURING FOR THE B ENEFIT OF THE GROUP ENTITIES AND HIS STATUS IS AKIN TO THAT OF A CONTRACT MANUFACTURER. HENCE AMP ACTIVITY IS NOT FOR THE SOLE BENEFIT OF THE ASSESSEE BUT FOR THE GROUP AS A WHOLE. 24. IT IS THE SAY OF THE LD. DR THAT PRICING REGULATIONS ARE TO APPLIED K EEPING IN MIND THE OVERALL SCHEME OF THE TAX PAYERS BUSINESS ARRANGEMENT. THE CONTENTION OF THE LD. DR CAN BE SUMMARIZED AS UNDER: A) THE ASSESSEE BEING PART OF A GROUP IS NOT COMPLETELY INDEPENDENT IN ITS PRICING POLICIES INCLUDING PRICE OF RAW MATERIA L PURCHASED FROM AE, PAYMENTS IN RESPECT OF COPYRIGHTS AND PATENTS PAYABLE TO THE AE. EVEN THEIR PRODUCT PRICING IS NOT COMPLETELY INDEPENDENT. LINDER SUCH CIRCUMSTANCES, THE BENEFITS EMANATING FROM THE AMP FUNCTION 20 CANNOT BE ENJOYED BY THE ASSESSEE ALONE. THE ASSESSEE IS NOT AN INDEPENDENT MANUFACTURER WHO TAKES ALL THE RISKS AND ENJOYS ALL THE BENEFITS OF THE FUNCTIONS PERFORMED BY THEM. B) THE ASSESSEE IS NOT ENGAGED ONLY IN MANUFACTURE. IT IS ALSO ENGAGED IN DISTRIBUTION OF GOODS BY ITS OWN ADMISSION. IN FACT, THE ASSESSEE HAS A DUAL FUNCTION OF MANUFACTURER AND DISTRIBUTOR. IN ANY CASE, GIVEN ITS DISTRIBUTION FUNCTION, THE ASSESSEE IS COVERED BY THE JUDGEMENT OF HONBLE DELHI HIGH COURT IN M/S SONY ERICSSON. C) THE BENEFITS TO THE AE FROM AMP FUNCTION CONTINUE TO BE THE SAME AS IN THE CASE OF DISTRIBUTOR LIKE INCREASE IN SALE OF RAW MATERIAL, COMPONENTS AND SPARE PARTS, INCREASE IN DIVIDEND, AND INCREASE IN COPYRIGHT AND PATENT PAYMENTS APART FROM CREATION/ENHANCEMENT OF BRAND VALUE. THEREFORE, THE ARGUMENT ADVANCED BY THE ASSESSEE WOULD NOT HAVE ANY BEARING ON THE EXISTENCE OF INTERNATIONAL TRANSACTION JUST BECAUSE IT IS ENGAGED IN MANUFACTURE HAS NOT MERIT. 25. CONSIDERING THE AFORESAID CONTENTION OF THE REVENUE, WE ARE OF THE CONSIDERED VIEW THAT THE HON'BLE HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD [SUPRA] HELD THAT THE FINDINGS OF THE HON'BLE HIGH COURT WITH REGARD TO EXISTENCE OF INTERNATIONAL TRANSACTION WAS ONLY WITH RESPECT TO THE 21 CASE OF THREE LIMITED RISK D ISTRIBUTORS NAMELY, SONY ERICSSON, CANON AND REEBOK ETC., WHEREIN THE EXISTENCE OF INTERNATIONAL TRANSACTION WAS ADMITTED AND NOT IN DISPUTE. THE COURT ACCORDINGLY HELD THAT SUCH FINDINGS IN THE CASE OF SONY ERICSSON CANNOT BE APPLIED TO THE CASE OF THE M ANUFACTURERS. 26. THE HON'BLE HIGH COURT HELD AS UNDER: 43. SECONDLY, THE CASES WHICH WERE DISPOSED OF BY THE SONY ERICSSON JUDGMENT, I.E. OF THE THREE ASSESSEES CANON, REEBOK AND SONY ERICSSON WERE ALL OF DISTRIBUTORS OF PRODUCTS MANUFACTURED BY FORE IGN AES. THE SAID ASSESSEES WERE THEMSELVES NOT MANUFACTURERS. IN ANY EVENT, NONE OF THEM APPEARED TO HAVE QUESTIONED THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE CONCERNED FOREIGN AE. IT WAS ALSO NOT DISPUTED THAT THE SAID INTERNATIONAL TRA NSACTION OF INCURRING OF AMP EXPENSES COULD BE MADE SUBJECT MATTER OF TRANSFER PRICING ADJUSTMENT IN TERMS OF SECTION 92 OF THE ACT. XXX 45. SINCE NONE OF THE ABOVE ISSUES THAT ARISE IN THE PRESENT APPEALS WERE CONTESTED BY THE ASSESSEES WHO APPEALS WERE D ECIDED IN THE SONY ERICSSON CASE, IT CANNOT BE SAID THAT THE DECISION IN SONY ERICSSON, TO THE EXTENT IT AFFIRMS THE EXISTENCE OF AN INTERNATIONAL TRANSACTION ON ACCOUNT OF THE INCURRING OF THE AMP EXPENSES, DECIDED THAT ISSUE IN THE APPEALS OF MSIL AS WEL L. 22 27. AT THIS STAGE, IT WOULD NOT BE OUT OF PLACE TO REFER TO PARA 6.38 OF THE OECD TRANSFER PRICING GUIDELINES WHICH APPLY ONLY TO LIMITED RISK DISTRIBUTORS AND NOT TO FULL RISK MANUFACTURERS LIKE THE ASSESSEE. THE SAID PARA FROM OECD TP GUIDELINES READ AS UNDER: 6.38 WHERE THE DISTRIBUTOR ACTUALLY BEARS THE COST OF ITS MARKETING ACTIVITIES (I.E. THERE IS NO ARRANGEMENT FOR THE OWNER TO REIMBURSE THE EXPENDITURES), THE ISSUE IS THE EXTENT TO WHICH THE DISTRIBUTOR IS ABLE TO SHARE IN THE POTENTIAL BENEF ITS FROM THOSE ACTIVITIES. IN GENERAL, IN ARMS LENGTH TRANSACTIONS THE ABILITY OF A PARTY THAT IS NOT THE LEGAL OWNER OF A MARKETING INTANGIBLE TO OBTAIN THE FUTURE BENEFITS OF MARKETING ACTIVITIES THAT INCREASE THE VALUE OF THAT INTANGIBLE WILL DEPEND PR INCIPALLY ON THE SUBSTANCE OF THE RIGHTS OF THAT PARTY. FOR EXAMPLE, A DISTRIBUTOR MAY HAVE THE ABILITY TO OBTAIN BENEFITS FROM ITS INVESTMENTS IN DEVELOPING THE VALUE OF A TRADEMARK FROM ITS TURNOVER AND MARKET SHARE WHERE IT HAS A LONG - TERM CONTRACT OF S OLE DISTRIBUTION RIGHTS FOR THE TRADEMARKED PRODUCT. IN SUCH CASES, THE DISTRIBUTORS SHARE OF BENEFITS SHOULD BE DETERMINED BASED ON WHAT AN INDEPENDENT DISTRIBUTOR WOULD OBTAIN IN COMPARABLE CIRCUMSTANCES. IN SOME CASES, A DISTRIBUTOR MAY BEAR EXTRAORDIN ARY MARKETING EXPENDITURES BEYOND WHAT AN INDEPENDENT DISTRIBUTOR WITH SIMILAR RIGHTS MIGHT INCUR FOR THE BENEFIT OF ITS 23 OWN DISTRIBUTION ACTIVITIES. AN INDEPENDENT DISTRIBUTOR IN SUCH A CASE MIGHT OBTAIN AN ADDITIONAL RETURN FROM THE OWNER OF THE TRADEMAR K, PERHAPS THROUGH A DECREASE IN THE PURCHASE PRICE OF THE PRODUCT OR A REDUCTION IN ROYALTY RATE. 28. THE HONBLE HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD (SUPRA) HAS FURTHER HELD THAT NO TRANSFER PRICING ADJUSTMENT I N RESPECT OF AMP EXPENSES CAN BE MADE WHERE THE ASSESSEE (INDIAN ENTITY) HAS ECONOMIC OWNERSHIP OF THE BRAND/LOGO/TRADEMARK IN QUESTION, IN THE CASE OF LONG TERM RIGHT OF USE OF THE SAME. THIS PRINCIPLE ALSO SQUARELY COVERS THE PRESENT CASE. THE ASSESSEE H AS A LONG TERM AGREEMENT FOR THE USE OF THE TRADEMARK LG IN INDIA. THIS CLEARLY EVIDENCES THE FACT THAT THE ECONOMIC BENEFIT ARISING OUT OF THE ALLEGED PROMOTION OF THE AES LOGO IS BEING ENJOYED BY THE ASSESSEE. THERE IS A CLEAR OPPORTUNITY AND REASON ABLE ANTICIPATION FOR THE ASSESSEE TO BENEFIT FROM THE MARKETING ACTIVITIES UNDERTAKEN BY IT. THIS IS CLEARLY EVIDENCED BY THE SIGNIFICANTLY HIGHER PROFITS MADE BY ASSESSEE COMPARED TO ITS INDUSTRY PEERS AND ALSO THE VERY SIZEABLE YEAR ON YEAR INCREASE IN ITS TURNOVER. IN VIEW OF THE AFORESAID, IT IS RESPECTFULLY SUBMITTED THAT THE ECONOMIC OWNERSHIP OF THE TRADEMARK LG RESTS WITH THE ASSESSEE. THE HONBLE HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD (SUPRA) DISAGREED WITH THE FINDING OF THE 24 SPECIAL BENCH THAT THE CONCEPT OF ECONOMIC OWNERSHIP IS NOT RECOGNIZED UNDER THE ACT. THE RELEVANT OBSERVATIONS IN PARAS 151 TO 154 OF THE JUDGEMENT ARE REPRODUCED HEREUNDER: 151. ECONOMIC OWNERSHIP OF A TRADE NAME OR TRADE MARK IS ACC EPTED IN INTERNATIONAL TAXATION AS ONE OF THE COMPONENTS OR ASPECTS FOR DETERMINING TRANSFER PRICING. ECONOMIC OWNERSHIP WOULD ONLY ARISE IN CASES OF LONG - TERM CONTRACTS AND WHERE THERE IS NO NEGATIVE STIPULATION DENYING ECONOMIC OWNERSHIP. ECONOMIC OWNERS HIP WHEN PLEADED CAN BE ACCEPTED IF IT IS PROVED BY THE ASSESSED. THE BURDEN IS ON THE ASSESSED. IT CANNOT BE ASSUMED. IT WOULD AFFECT AND HAVE CONSEQUENCES, WHEN THERE IS TRANSFER OR TERMINATION OF ECONOMIC OWNERSHIP OF THE BRAND OR TRADEMARK. 152. DETER MINATION WHETHER THE ARRANGEMENT IS LONG - TERM WITH ECONOMIC OWNERSHIP OR SHORT - TERM SHOULD BE ORDINARILY BASED UPON THE CONDITIONS EXISTING AT THE START OF THE ARRANGEMENT AND NOT WHETHER THE CONTRACT IS SUBSEQUENTLY RENEWED. HOWEVER, IT IS OPEN TO THE PAR TY, I.E. THE ASSESSED, TO PLACE EVIDENCE INCLUDING AFFIRMATION FROM THE BRAND OWNER AE THAT AT THE START OF THE ARRANGEMENT IT WAS ACCEPTED AND AGREED THAT THE CONTRACT WOULD BE RENEWED. 153. ECONOMIC OWNERSHIP OF A BRAND IS AN INTANGIBLE ASSET, JUST AS LE GAL OWNERSHIP. UNDIFFERENTIATED, ECONOMIC OWNERSHIP BRAND VALUATION IS NOT DONE FROM MOMENT TO 25 MOMENT BUT WOULD BE MANDATED AND REQUIRED IF THE ASSESSED IS DEPRIVED, DENIED OR TRANSFERS ECONOMIC OWNERSHIP. THIS CAN HAPPEN UPON TERMINATION OF THE DISTRIBUTI ON - CUM - MARKETING AGREEMENT OR WHEN ECONOMIC OWNERSHIP GETS TRANSFERRED TO A THIRD PARTY. TRANSFER PRICING VALUATION, THEREFORE, WOULD BE MANDATED AT THAT TIME. THE INTERNATIONAL TRANSACTION COULD THEN BE MADE A SUBJECT MATTER OF TRANSFER PRICING AND SUBJEC TED TO TAX. 154. BRAND OR TRADEMARK VALUE IS PAID FOR, IN CASE OF SALE OF THE BRAND OR OTHERWISE BY WAY OF MERGER OR ACQUISITION WITH THIRD PARTIES. . .. .. RE - ORGANISATION, SALE AND TRANSFER OF A BRAND AS A RESULT OF MERGER AND ACQUISITION OR SA LE IS NOT DIRECTLY A SUBJECT MATTER OF THESE APPEALS. AS NOTED ABOVE, IN A GIVEN CASE WHERE THE INDIAN AE CLAIMS ECONOMIC OWNERSHIP OF THE BRAND AND IS DEPRIVED OR TRANSFERS THE SAID ECONOMIC OWNERSHIP, CONSEQUENCES WOULD FLOW AND IT MAY REQUIRE TRANSFER P RICING ASSESSMENT. (EMPHASIS SUPPLIED) 29. AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS (SUPRA), IF THE INDIAN ENTITY IS THE ECONOMIC OWNER OF THE BRAND AND IS INCURRING AMP EXPENSES FOR THE PURPOSE OF PROM OTION OF SUCH BRAND, BENEFIT IS ONLY RECEIVED BY THE INDIAN ENTITY. IT WA SUBMITTED THAT THE ECONOMIC OWNERSHIP OF THE BRAND RESTS WITH THE ASSESSEE AND ACCORDINGLY, THE ASSESSEE CANNOT BE EXPECTED TO SEEK COMPENSATION FOR THE EXPENDITURE 26 INCURRED ON THE A SSET ECONOMICALLY OWNED BY IT. NO TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES WOULD BE WARRANTED. THE AFORESAID TEST IS FULLY SATISFIED IN THE CASE OF THE ASSESSEE AND THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES MADE BY THE TPO IS LIABLE TO BE DELETED. 30. THE ASSESSEE BEING A FULL - FLEDGED MANUFACTURER, ENTIRE AMP EXPENDITURE IS INCURRED AT ITS OWN DISCRETION AND FOR ITS OWN BENEFIT FOR SALE OF LG PRODUCTS IN INDIA. IN THE CASE OF THE APPELLANT, THE ADVERTISEMENTS ARE AIMED AT PRO MOTING THE SALES OF THE PRODUCT SOLD UNDER TRADEMARK LG MANUFACTURED BY THE ASSESSEE AND NOT TOWARDS PROMOTING THE BRAND NAME OF THE AE. IN SUCH CIRCUMSTANCES, THE ALLEGED EXCESS AMP EXPENDITURE DOES NOT RESULT IN AN INTERNATIONAL TRANSACTION AND THE ASS ESSEE CANNOT BE EXPECTED TO SEEK COMPENSATION FOR SUCH EXPENSES UNILATERALLY INCURRED BY IT FROM THE AE. 31. THE REVENUE HAS STRONGLY OBJECTED FOR THE AGGREGATED BENCH MARKING ANALYSIS FOR THE AMP. ACCORDING TO THE REVENUE, THE ASSESSEE COMPANY HAS NOT B EEN ABLE TO DEMONSTRATE THAT THERE IS ANY LOGIC OR RATIONALE FOR AGGREGATION OR THAT THE TRANSACTIONS OF ADVERTISEMENT EXPENDITURE AND THE OTHER TRANSACTIONS IN THE DISTRIBUTION ACTIVITY ARE INTER - DEPENDENT, THE CLUBBING OF TRANSACTIONS CANNOT BE ALLOWED. ACCORDING TO THE REVENUE, BENCH MARKING OF AMP TRANSACTION IS TO BE CARRIED OUT USING 27 SEGREGATED APPROACH AND FOR DETERMINATION OF ALP OF SUCH TRANSACTIONS, BRIGHT LINE IS USED AS THE TOOL. 32. THIS CONTENTION OF THE REVENUE IS NO MORE GOOD AS BLT HAS BEEN DISCARDED BY THE HON'BLE HIGH COURT OF DELHI AS MENTIONED ELSEWHERE. THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD IN TAX APPEAL NO. 16 OF 2014 HAS HELD THAT IF THE INDIAN ENTITY HAS SATISFIED TRANS ACTIONAL NET MARGIN METHOD (TNMM), I.E., AS LONG AS THE OPERATING MARGINS OF THE INDIAN ENTERPRISE ARE HIGHER THAN THE OPERATING MARGINS OF COMPARABLE COMPANIES, NO FURTHER SEPARATE COMPENSATION FOR AMP EXPENSES IS WARRANTED. THE HONBLE COURT HELD AS UNDE R: 101. HOWEVER, ONCE THE ASSESSING OFFICER/TPO ACCEPTS AND ADOPTS TNM METHOD, BUT THEN CHOOSES TO TREAT A PARTICULAR EXPENDITURE LIKE AMP AS A SEPARATE INTERNATIONAL TRANSACTION WITHOUT BIFURCATION/SEGREGATION, IT WOULD AS NOTICED ABOVE, LEAD TO UNUSUAL AND INCONGRUOUS RESULTS AS AMP EXPENSES IS THE COST OR EXPENSE AND IS NOT DIVERSE. IT IS FACTORED IN THE NET PROFIT OF THE INTER - LINKED TRANSACTION. THIS WOULD BE ALSO IN CONSONANCE WITH RULE 10B(1)(E), WHICH MANDATES ONLY ARRIVING AT THE NET PROFIT MARGI N BY COMPARING THE PROFITS AND LOSS ACCOUNT OF THE TESTED PARTY WITH THE COMPARABLE. THE TNM METHOD PROCEEDS ON THE ASSUMPTION THAT FUNCTIONS, ASSETS AND RISK BEING BROADLY SIMILAR AND ONCE SUITABLE ADJUSTMENTS HAVE BEEN MADE, ALL THINGS GET TAKEN 28 INTO ACC OUNT AND STAND RECONCILED WHEN COMPUTING THE NET PROFIT MARGIN. ONCE THE COMPARABLES PASS THE FUNCTIONAL ANALYSIS TEST AND ADJUSTMENTS HAVE BEEN MADE, THEN THE PROFIT MARGIN AS DECLARED WHEN MATCHES WITH THE COMPARABLES WOULD RESULT IN AFFIRMATION OF THE T RANSFER PRICE AS THE ARMS LENGTH PRICE. THEN TO MAKE A COMPARISON OF A HORIZONTAL ITEM WITHOUT SEGREGATION WOULD BE IMPERMISSIBLE. 33. CONSIDERING THE AFOREMENTIONED FINDINGS OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE IN HAND, THE OPE RATING PROFIT MARGIN OF THE ASSESSEE IS AT 5.01% IN THE MANUFACTURING SEGMENT AND 4.52% IN THE DISTRIBUTION SEGMENT AND THE SAME IS HIGHER THAN THAT OF THE COMPARABLE COMPANIES AT 4.04% IN THE MANUFACTURING SEGMENT AND 4.46% IN THE DISTRIBUTION SEGMENT. T NMM HAS UNDISPUTEDLY BEEN SATISFIED. SINCE THE OPERATING MARGINS OF THE ASSESSEE ARE IN EXCESS OF THE SELECTED COMPARABLE COMPANIES, NO ADJUSTMENT ON ACCOUNT OF AMP EXPENSES IS WARRANTED. 34. CONSIDERING THE FACTS OF THE CASE IN HAND IN TOTALITY, WE ARE OF THE VIEW THAT THE REVENUE HAS FAILED TO DEMONSTRATE BY BRINGING TANGIBLE MATERIAL EVIDENCE ON RECORD TO SHOW THAT AN INTERNATIONAL TRANSACTION DOES EXIST SO FAR AS AMP EXPENDITURE IS CONCERNED. THEREFORE, WE HOLD THAT THE INCURRING OF EXPENDITURE IN Q UESTION DOES NOT GIVE RISE TO ANY INTERNATIONAL TRANSACTION AS PER JUDICIAL 29 DISCUSSION HEREINABOVE AND WITHOUT PREJUDICE TO THESE FINDINGS, SINCE THE OPERATING MARGINS OF THE ASSESSEE ARE IN EXCESS OF THE SELECTED COMPARABLE COMPANIES, NO ADJUSTMENT IS WAR RANTED. GROUND NOS. 3 TO 3.34 OF THE ASSESSEE ARE ALLOWED. 10. RESPECTFULLY FOLLOWING THE AFOREMENTIONED FINDINGS OF THE CO - ORDINATE BENCH, GROUND NO. 4 IS ALLOWED. 11 . GROUND NO. 5 RELATES TO TP ADJUSTMENT OF RS. 41,87,87,946/ - BY HOLDING THAT ARMS L ENGTH RATE FOR INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY AT 3.5% AS AGAINST ROYALTY PAID @ 5% BY THE ASSESSEE. 1 2 . AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6253/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09 VIDE GROUND NOS. 4 TO 4.4 OF THAT APPEAL. THE RELEVANT FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 39. WE HAVE CAREFULLY CONSIDERED THE UNDERLYING FACTS IN ISSUE. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE COORDINATE BENCH IN ASSESS EES OWN CASE IN A.Y 2007 - 08 IN ITA NO. 5140/DEL/2011. THE RELEVANT FINDINGS OF THE TRIBUNAL READ AS UNDER: 30 10.7 THE NEXT QUESTION IS ABOUT THE DETERMINATION OF SUCH REDUCTION IN THE RATE OF ROYALTY. BOTH THE SIDES FAIRLY AGREED THAT THE ISSUE OF QUANTIFI CATION OF ADJUSTMENT TO BE ALLOWED ON ACCOUNT OF FIXED TERM AND PERPETUAL LICENSE IS A VIRGIN ISSUE INASMUCH AS THERE IS NO PRECEDENT AVAILABLE ON THIS POINT. WE FIND THAT THE TPO DETERMINED COMPARABLE AVERAGE RATE OF 3.5% OF THE COMPANIES HAVING FIXED TER M AGREEMENTS. CONSIDERING THE FACT THAT THE ASSESSEE HAD A PERPETUAL LICENSE, HE DISCOUNTED THE UNCONTROLLED ROYALTY RATE BY 2%, THEREBY CALCULATING THE ARM'S LENGTH ROYALTY RATE AT 1.5%. THE DRP COMPUTED AVERAGE RATE OF ROYALTY OF THREE COMPARABLE COMPANI ES AT 4.5% AND, THEREAFTER, REDUCED 1% ON ACCOUNT OF LIMITED PERIOD OF LICENSE USED BY THE COMPARABLES VIS - A - VIS THE ASSESSEE USING THE PERPETUAL LICENSE. 10.8. THERE CAN BE NO QUARREL ON THE FACT THAT, OTHER THINGS BEING EQUAL, A LANDLORD INTENDING TO HAV E A TENANT FOR A LONG - TERM MAY COMPROMISE SOME AMOUNT OF RENT, IN COMPARISON WITH A LANDLORD FINDING A TENANT REQUIRING THE PREMISES FOR A SHORT - TERM. THE RATE OF RENT IN A FORMER CASE WILL BE LOWER FOR A VARIETY OF REASONS, SUCH AS, NOT UNDERGOING THE PRO CESS OF FINDING A TENANT EVERY NOW AND THEN, FEAR OF THE PROPERTY REMAINING VACANT FOR SOME TIME AFTER THE EXIT OF THE FIRST TENANT AND INCURRING COSTS AT THE TIME OF EACH LET OUT. DIFFERENCE BETWEEN THE RENT CHARGED BY THE LANDLORD OR PAID BY THE TENANTS IN THE AFORE DISCUSSED TWO SITUATIONS IS NOTHING BUT A DISCOUNT ALLOWED TO A TENANT OF LONG - TERM ON THE AVAILABLE 31 MARKET RATE OF RENT. THIS ANALOGY CAN BE APPLIED TO THE PRESENT FACTS BY CONSIDERING THE DISCOUNT WHICH A LICENSOR WITH A PERPETUAL LICENSE M AY ALLOW OR THE PREMIUM WHICH A LICENSOR WITH A FIXED TERM LICENSE MAY CHARGE. IT CAN BE SEEN THAT THE TPO DOWNGRADED 2% ON THIS SCORE AND REDUCED THE UNADJUSTED COMPARABLE RATE OF 3.5% TO THE ADJUSTED 1.5%. TO PUT IT DIFFERENTLY, THE TPO TREATED THE PREMI UM CHARGED BY THE COMPARABLE LICENSORS ON ACCOUNT OF FIXED TERM LICENSES AT 57% (2/ 3.5*100), OR IN OTHER WORDS, THE DISCOUNT AT SUCH RATE TO THE PREVALENT MARKET RATE ON ACCOUNT OF PERPETUAL LICENSE. HOWEVER, THE DRP TREATED SUCH DISCOUNT FOR PERPETUAL LI CENSE AT 22% (1/4.5*100). CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WE FIND THAT THE RATE OF PREMIUM ON THE LICENSE WITH FIXED TERM AT 22% IS ON A HIGHER SIDE. IN OUR CONSIDERED OPINION, THE RATE OF SUCH PREMIUM SHOULD B E RESTRICTED TO 10% OF THE AVERAGE RATE OF ROYALTY OF THE COMPARABLE CASES. 10.9. IT HAS BEEN HELD ABOVE THAT THE DRP RIGHTLY CONSIDERED THREE COMPANIES AS COMPARABLE, WHOSE AVERAGE RATE OF UNADJUSTED ROYALTY COMES AT 4.5% WITHIN THE MEANING OF SUB - CLAUSE (I) OF RULE 10B(1)(A). WHEN RATE IS DISCOUNTED WITH 10% UNDER SUB - CLAUSE (II), RESULTING INTO A DEDUCTION OF 0.45% (10% OF 4.5), THE ARM'S LENGTH RATE OF ROYALTY AS PER SUB - CLAUSE (III) OF RULE 10B(1)(A) COMES TO 4.05% (4.5 - 0.45). IT IS THIS RATE, WHICH I S DIRECTED TO BE APPLIED AS ARM'S LENGTH RATE OF ROYALTY PAYMENT. V. RULE OF CONSISTENCY. 32 40. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO - ORDINATE BENCH, WE DIRECT THE TPO TO DETERMINE THE ARMS LENGTH ROYALTY @ 4.05%. GROUND NOS. 4 TO 4.4 ARE PARTLY ALLOWED . 1 3 . SINCE THE UNDERLYING FACTS OF THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS OF ASSESSMENT YEAR 2008 - 09, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO - ORDINATE BENCH, WE DIRECT THE TPO TO DETERMINE THE ARMS LENGTH ROYALTY @ 4.05%. G ROUND NO. 5 IS PARTLY ALLOWED. 1 4 . GROUND NO. 6 RELATES TO TP ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTION OF ALLOCATION OF ASIA REGIONAL HEAD QUARTERS EXPENSES OF RS. 23,14,22,194/ - ALLEGEDLY HOLDING THAT NO SPECIFIC SERVICES WERE RECEIVED BY THE ASSESSEE IN CONSIDERATION FOR SUCH PAYMENTS. 1 5 . AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6253/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09 VIDE GROUND NOS. 5 TO 5.5 OF THAT APPEAL. THE RELEVANT FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 33 47. IN OUR CONSIDERED OPINION, FOR THE PURPOSE OF DETERMINATION OF ALP OF INTRA GROUP SERVICES, THE FOLLOWING ISSUES HAVE TO BE TAKEN INTO CONSIDERATION: I) WHETHER THE SERVICES WERE REQUIRED? II) WHETHER THE SER VICES WERE RENDERED? III) WHETHER THE SERVICES BENEFITTED THE ASSESSEE? IV) WHETHER THE PRICE PAID FOR SUCH SERVICES IS AT ARMS LENGTH? 48. WE FIND THAT THE LOWER AUTHORITIES HAVE NOT DISPUTED THE FACTUM OF RENDERING OF SERVICES BUT HAVE HELD THAT THE SE RVICES RENDERED BY RHQ ARE DUPLICATIVE AND HENCE WERE NOT REQUIRED BY THE ASSESSEE. FURTHER, THE REVENUE HAS ALSO ALLEGED THAT THESE WERE SHARE HOLDER SERVICES. 49. IN OUR HUMBLE OPINION, IT IS THE PREROGATIVE OF THE ASSESSEE TO DECIDE AS TO WHETHER OR NOT THE SERVICES ARE REQUIRED. DOCUMENTARY EVIDENCES BROUGHT ON RECORD SHOW THAT SIGNIFICANT SERVICES WERE RENDERED BY RHQ BENEFITTING THE ASSESSEE TO NAME A FEW SUCH SERVICES, BRAND ANALYSIS, PRODUCT ANALYSIS, MARKET ANALYSIS, ETC. FURTHER, WE FIND THAT TH E RHQ ENGAGES THIRD PARTY RENOWNED CONSULTANTS, SUCH AS, MCKINSEY & CO TO CONDUCT MARKET RESEARCH AND PREPARE REPORTS. RHQ ALSO CONDUCTS VARIOUS TRAINING COURSES FROM TIME TO TIME WHICH ARE CONDUCTED WITH A VIEW OF IMPARTING SOFT SKILLS TO THE EMPLOYEES OF THE ASSESSEE COMPANY AND FOR THIS PURPOSE, EXECUTIVES FROM THE RHQ VISIT THE ASSESSEE COMPANY. 34 50. IN SO FAR AS THE ALLEGATION THAT THESE ARE SHARE HOLDER SERVICES, WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE REVENUE. SERVICES ARE PROVIDED BY LG EL ECTRONICS SINGAPORE PTE LTD, WHICH IS NOT A SHAREHOLDER OF THE ASSESSEE COMPANY AND WAS CREATED TO PROVIDE MANAGERIAL SUPPORT SERVICES TO VARIOUS ENTITIES IN THE REGION, IN THE FORM OF UNDERTAKING MARKET RESEARCH, MARKET PERFORMANCE ANALYSIS, CONDUCTING CO NSUMER INTERVIEWS ENGAGING THE SERVICES OF THIRD PARTY CONSULTANTS FOR UNDERTAKING MARKET/INDUSTRY ANALYSIS, PROVISION OF SUPPLY CHAIN MANAGEMENT SERVICES, PROVISION OF AFTER SALE SERVICES ETC. AND SUCH ACTIVITIES CANNOT BE TERMED AS SHARE HOLDER ACTIVITY . 51. WE FIND THAT THE ASSESSEE ENGAGED A THIRD PARTY CONSULTANT TO DETERMINE THE ARMS LENGTH PRICE OF THE SERVICES PROVIDED BY THE RHQ. THE CONSULTANT DETERMINED ALP AT RS. 6,521/ - PER HOUR AS AGAINST THE COMPARABLE UNCONTROLLED PRICE OF RS. 11,670/ - P ER HOUR. SINCE THE HOURLY RATE CHARGED BY RHQ IS LOWER THAN COMPARABLE HOURLY RATE OF THIRD PARTIES TRANSACTION OF REGIONAL HEAD QUARTER CHARGES MEETS THE ARMS LENGTH TEST. 52. THE REVENUE HAS MADE THE ADJUSTMENT HOLDING THAT THE ASSESSEE WAS NOT REQUIR ED TO INCUR SUCH EXPENDITURE WHICH ARE DUPLICATIVE IN NATURE. IN OUR CONSIDERED VIEW, THE ASSESSEE IS FREE TO CONDUCT BUSINESS IN THE MANNER THAT ASSESSEE DEEMS FIT AND THE COMMERCIAL OR BUSINESS EXPEDIENCY 35 OF INCURRING ANY EXPENDITURE HAS TO BE SEEN FROM THE ASSESSEES POINT OF VIEW. 53. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS REEBOK INDIA CO LTD ITA NO 213/2014, WHILE DELETING TRANSFER PRICING ADJUSTMENT MADE BY THE TPO ON THE BASIS OF SIMILAR REASONING HELD AS UNDER: 183. ON THE QUESTION WHETHER THE ROYALTY SHOULD HAVE BEEN PAID OR NOT, WE ARE IN AGREEMENT WITH THE FINDING OF THE TRIBUNAL THAT QUESTION OF PAYMENT OF ROYALTY CANNOT BE DETERMINED ON THE BASIS OF PROFITABILITY OR EARNINGS OF THE ASSESSED, ONCE IT IS ACCEPTED THAT KNOW - HOW AND TECHNICAL INFORMATION WAS PROVIDED. IT IS NOT ALLEGED OR THE CASE OF THE REVENUE THAT THE TECHNOLOGY OR KNOW - HOW WAS HOPELESS AND USELESS. THE FINDING OF THE ASSESSING OFFICER/TPO, THAT THE ASSESSEE HAD NOT DERIVED ANY COMMERCIAL BENEFIT AS TECHNOLOGY AND KNOW - HOW HAD NOT RESULTED IN ANY SUBSTANTIAL PROFIT INCREASE, HAS BEEN RIGHTLY REJECTED AS TOTALLY UNSUSTAINABLE. PROFITABILITY OF THE ASSESSED COULD HAVE BEEN LOWER OR VARIED DUE TO VARIOUS REASONS AND LOWER PROFITABILITY IN ONE OR MORE YEARS CANNOT LEAD TO THE CONCLUSION THAT NO BENEFITS WERE DERIVED OR TECHNOLOGY WAS UNPRODUCTIVE. THE JUSTIFICATION GIVEN BY THE ASSESSEE FOR LOWER PROFITS ON ACCOUNT OF BAD DEBTS, HIGH RENT, INCREASE IN LEGAL COST STAND HIGHLIGHTED AND ACCEPTED BY THE TRIBUNAL. 184. TRANS FER PRICING PROVISIONS, AS NOTED ABOVE, RECOGNISE SEPARATE ENTITY PRINCIPLE. THEREFORE, AS A SEQUITUR, IT FOLLOWS THAT THE AE IS A SEPARATE ENTITY AND WHEN IT AVAILS AND SECURES ADVANTAGE OF TECHNICAL 36 KNOW - HOW, IT SHOULD PAY ARMS LENGTH PRICE FOR THE RIGH T TO USE. THE ARMS LENGTH PRICE WOULD BE THE FAIR MARKET PRICE OF THE TECHNICAL KNOW - HOW, WHICH IS LICENSED. ****** ****** ****** 185. ROYALTY PAYABLE FOR AVAILING THE RIGHT TO USE WOULD DEPEND UPON CORRESPONDI NG PRICE, WHICH WOULD HAVE BEEN PAID BY AN INDEPENDENT OR UNRELATED ENTERPRISE. THIS IS JUDGED BY APPLYING COMPARABLES. TPO HAS NOT REJECTED THE QUANTUM OF ROYALTY ON THE SAID PRINCIPLE. THE REASONING GIVEN BY THE TPO IS NOT ONLY ERRONEOUS FOR THE REASONS STATED ABOVE, BUT IS ALSO CONTRARY TO THE RULES. DEPENDING UPON THE METHOD SELECTED, NET PROFIT OR GROSS PROFIT OF THE ASSESSED HAS TO BE COMPARED WITH PROFIT MARGINS OF RELATED ENTERPRISE. THE FORMULA PRESCRIBED UNDER THE RULES DOES NOT ACCEPT THE RATIOCI NATION ADOPTED AND APPLIED BY THE TPO. 54. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS LUMAX INDUSTRIES LIMITED ITA NO 102/2014 HELD THAT THE TRANSFER PRICING PROVISIONS DO NOT AUTHORIZE DISALLOWANCE OF ANY EXPENDITURE ON THE BASIS THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO INCUR THE EXPENDITURE. THE HONBLE COURT HELD AS UNDER: 16. ON THE QUESTION OF ADDITION MADE BY THE AO ON ACCOUNT OF ALP FOR THE PAYMENT OF ROYALTY, LEARNED COUNSEL FOR THE ASSESSEE HAS RIGHTLY REFERRED TO THE DECISION IN CO MMISSIONER OF INCOME TAX V. SONY ERICSSON MOBILE COMMUNICATION (2015) 374 ITR 118 WHERE THE DETERMINATION OF THE ALP OF THE ROYALTY 37 PAID AS NIL WAS NOT APPROVED. THE COURT'S ATTENTION HAS ALSO BEEN DRAWN TO THE DECISION IN COMMISSIONER OF INCOME TAX V. EKL APPLIANCES LIMITED (2012) 345 ITR 241 WHEREIN IT WAS HELD THAT RULE 10B (1) (A) DID NOT AUTHORIZE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO HAVE INCURRED SUCH EXPENSE. IT WAS OBSERVED THAT THOUGH THE QUANT UM OF EXPENDITURE COULD BE EXAMINED, THE ENTIRE EXPENDITURE COULD NOT BE DISALLOWED ON THE GROUND THAT IT WAS NOT NECESSARY. 55. FURTHER, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS CUSHMAN AND WAKEFIELD (INDIA) PVT LTD. ITA 475 OF 2012 HAS HELD T HAT THE AUTHORITY OF THE TPO IS TO CONDUCT A TP ANALYSIS TO DETERMINE THE ALP AND NOT TO DETERMINE WHETHER THE TAX PAYER DERIVES A BENEFIT FROM THE SERVICE. THE HONBLE DELHI HIGH COURT HAS OPINED THAT THE DETERMINATION OF BENEFIT TO THE TAX PAYER IS IN TH E DOMAIN OF THE AO. THE HONBLE HIGH COURT HELD AS FOLLOWS : 34. THE COURT FIRST NOTES THAT THE AUTHORITY OF THE 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 ASSE SSEE BENEFITS. THAT ASPECT OF THE EXERCISE IS LEFT TO THE AO. THIS DISTINCTION WAS MADE CLEAR BY THE ITAT IN DRESSER - RAND INDIA PVT. LTD. V. ADDITIONAL COMMISSIONER OF INCOME TAX, 2012 (13) ITR (TRIB) 422. 38 35. THE TPOS REPORT IS, SUBSEQUENT TO THE FINANC E ACT, 2007, BINDING ON THE AO. THUS, IT BECOMES ALL THE MORE IMPORTANT TO CLARIFY THE EXTENT OF THE TPOS AUTHORITY IN THIS CASE, WHICH IS TO DETERMINING THE ALP FOR INTERNATIONAL TRANSACTIONS REFERRED TO HIM OR HER BY THE AO, RATHER THAN DETERMINING WHET HER 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 ENTITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. HOWEVER, THIS IS DIFFERENT FROM THE TPO STATING THAT THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPENDITURE. THAT DECISION IS OUTSID E THE AUTHORITY OF THE TPO. 56. CONSIDERING THIS ISSUE FROM ANOTHER ANGLE IN THE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS LUMAX INDUSTRIES LIMITED ITA NO 102/2014 WE ARE OF THE OPINION THAT ONCE THE ASSESSEE HAS SATISF IED THE TNMM METHOD I.E. THE OPERATING MARGINS OF THE ASSESSEE ARE HIGHER THAN THOSE OF THE COMPARABLE COMPANIES [AS MENTIONED ELSEWHERE], NO SEPARATE ADJUSTMENT IS WARRANTED. 57. SAME VIEW WAS TAKEN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. ITA NO 350/2014 WHEREIN THE HONBLE HIGH COURT HELD AS UNDER: 39 17. AS FAR AS THE SECOND QUESTION IS CONCERNED, THE TPO ACCEPTED TNMM APPLIED BY THE ASSESSEE, AS THE MOST APPROPRIATE METHOD IN RESPECT OF ALL THE INTERNAT IONAL TRANSACTIONS INCLUDING PAYMENT OF ROYALTY. THE TPO, HOWEVER, DISPUTED APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD FOR THE PAYMENT OF TECHNICAL ASSISTANCE FEE OF 38,58,80,000 ONLY FOR WHICH COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WAS SOUGH T TO BE APPLIED. HERE, THIS COURT CONCURS WITH THE ASSESSEE THAT HAVING ACCEPTED THE TNMM AS THE MOST APPROPRIATE, IT WAS NOT OPEN TO THE TPO TO SUBJECT ONLY ONE ELEMENT, I.E PAYMENT OF TECHNICAL ASSISTANCE FEE, TO AN ENTIRELY DIFFERENT (CUP) METHOD. THE A DOPTION OF A METHOD AS THE MOST APPROPRIATE ONE ASSURES THE APPLICABILITY OF ONE STANDARD OR CRITERIA TO JUDGE AN INTERNATIONAL TRANSACTION BY. EACH METHOD IS A PACKAGE IN ITSELF, AS IT WERE, CONTAINING THE NECESSARY ELEMENTS THAT ARE TO BE USED AS FILTERS TO JUDGE THE SOUNDNESS OF THE INTERNATIONAL TRANSACTION IN AN ALP FIXING EXERCISE. 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 AND THE REVENUE. THE SECOND QUESTION IS, THEREFORE, ANSWERED IN FAVOUR OF THE ASSESSEE; THE TNMM HAD TO BE APPLIED BY THE TPO/AO IN RESPECT OF THE TECHNICAL FEE PAYMENT TOO. 58. CONSIDERING THE FA CTS IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HEREINABOVE, THE ADJUSTMENT COMPUTED BY THE TPO/DRP ON ACCOUNT OF ALLOCATION OF RHQ 40 EXPENSES IS UNCALLED FOR AND DESERVES TO BE DELETED. GROUND NOS. 5 TO 5.5 ARE ALLOWED. 1 6 . RESPECTFULLY F OLLOWING THE FINDINGS OF THE CO - ORDINATE BENCH, GROUND NO. 6 IS ALLOWED. 1 7 . GROUND NO. 7 RELATES TO TP ADJUSTMENT OF RS. 3,52,34,484/ - IN RESPECT OF INTERNATIONAL TRANSACTION OF PAYMENT OF EXPORT COMMISSION. 18. IN ADDITION TO THIS, IN GROUND NO. 11, TH E ASSESSEE HAS OBJECTED TO THE DISALLOWANCE OF EXPORT COMMISSION OF RS. 10,43,12,616/ - WHICH INCLUDES TP ADJUSTMENT OF RS. 3,52,34,484/ - . 19. THE ASSESSEE HAS FILED AN APPLICATION U/R 29 OF THE ITAT RULES FOR ADMISSION OF ADDITIONAL EVIDENCE IN SUPPORT OF PAYMENT OF EXPORT COMMISSION TO AES. SIMILAR APPLICATION WAS FILED IN ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL, AFTER CONSIDERING THE SAME, HAS REMANDED THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFTER CONSIDERING THE ADDITIONAL EVIDENCE PLACED ON RECORD BY THE ASSESSEE. RELEVANT FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 41 91. IT IS NOT IN DISPUTE THAT IN A.Y 2007 - 08 THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL. THE ASSESSEE HAS FILED APPLICATION U/R 29 OF THE ITAT RULES FOR ADMISSION OF ADDITIONAL EVIDENCE IN SUPPORT OF PAYMENT OF EXPORT COMMISSION TO ITS AE. IN OUR CONSIDERED OPINION, SUCH ADDITIONAL EVIDENCES NEED TO BE VERIFIED BEFORE DECIDING THIS ISSUE. WE, ACCORDINGLY, RESTORE THIS MATTER TO THE FI LE OF THE ASSESSING OFFICER. THE ASSESSEE IS DIRECTED TO FURNISH RELEVANT DOCUMENTARY EVIDENCES AND THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE SAME AND DECIDE THE SAME AFRESH AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROU ND NO. 11 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 20. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO - ORDINATE BENCH, WE RESTORE THIS MATTER TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE ADDITIONAL EVIDEN CES AND DECIDE THE SAME AFRESH AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NOS. 7 AND 11 ARE ALLOWED FOR STATISTICAL PURPOSES. 21. GROUND NO. 8 RELATES TO TP ADJUSTMENT OF RS. 20,01,35,879/ - IN RESPECT OF SERVICE WARRANTEE CHARGES RECEIVED BY THE ASSESSEE BY APPLYING MARGIN OF 26% ON SUCH REIMBURSEMENT. 42 22. W ARRANTY SERVICE CHARGES RECEIVED FROM AE, COMPRIS E OF THE FOLLOWING: - PROVISION OF WARRANTY SERVICES RS. 6,07,16,151 - REIMBURSEMENT OF IN - WARRANTY EXPENSES RS.43.54.24 .268 - SERVICE WARRANTY CHARGES RS.27,36,12,964 TOTAL RS.76,97,53,383 23. THE NATURE OF THESE EXPENSES ARE EXPLAINED AS FOLLOWS: (I) PROVISION OF WARRANTY SERVICES: 24. WITH RESPECT TO THE MOBILE PHONES SUPPLIED BY LGEK IN INDIA, INDEPENDENT AUTHOR IZED SERVICE CENTERS IN INDIA PROVIDE WARRANTY AND REPAIR SERVICES. THE ASSESSEE BEING IN INDI INCUR RED CERTAIN EXPENDITURE TOWARDS EMPLOYEE AND OTHER ADMINISTRATIVE COSTS WHILE RENDERING AFTER SALES SERVICE DURING IN - WARRANTY PERIOD BECAUSE THE MOBILE [HN ES ARE SUPPLIED BY LGEK AND HENCE IN WARRANTEE PERIOD SERVICES CANNOT BE PROVIDED FROM KOREA. FOR SUCH SERVICES, LGEK COMPENSATE S THE ASSESSEE FOR PROVISION OF SUCH SERVICES. (II) REIMBURSEMENT OF IN - WARRANTY (SPARE PARTS) EXPENSES: 25. AS MENTIONED ABO VE, THE PRODUCTS ARE SUPPLIE D FROM LG KOREA AND THE ASSESSEE BEING IN INDIA, PROVIDES IN - WARRANTY PERIOD. SUCH 43 SERVICE SPARES ARE IMPORTED BY THE APPELLANT, AND IT MERELY FACILITATE SUPPLY OF SERVICE SPARES ON BEHALF OF LGEK AND LG NORTEL AND DOES NOT PE RFORM ANY SIGNIFICANT FUNCTION. FOR SUCH SERVICES , THE ASSESSEE GETS REIMBURSED FROM ITS AES FOR THE COST OF SERVICE SPARES SUPPLIED DURING IN - WARRANTY PERIOD ON A COST TO COST BASIS. ( III) SERVICE WARRANTY CHARGES 26. THE ASSESSEE IMPORTS COMPLETELY BUILT UNITS (CBUS) FROM THE ASSOCIATED ENTERPRISES WHICH ARE SOLD TO CUSTOMERS IN INDIA FOR WHICH THE ASSESSEE PROVIDES WARRANTEE TO END CUSTOMERS . SINCE THE CBU ARE IMPORTED FROM ITS AES, THERE IS A 12 MONTHS BACK TO BACK WARRANTY. THE WARRANTY CLAIM/S ERVICES ARE PERFORMED BY THIRD PARTY /INDEPENDENT SERVICE PROVIDERS IN INDIA. SUCH SERVICE PROVIDERS CHARGE THE ASSESSEE FOR SERVICING THE WARRANTY CLAIMS AND THE APPELLANT IN TERMS OF THE ARRANGEMENT THEREAFTER CHARGES ITS ASSOCIATED ENTERPRISES AND GETS REIMBURSEMENT OF THE SAME IN RESPECT OF SUCH WARRANTEE COST/EXPENSES PAID TO PAID TO THIRD PARTY SERVICE PROVIDERS. W ITH RESPECT TO CERTAIN SERVICE SPARES, THE SAME ARE IMPORT ED FROM ITS ASSOCIATED ENTERPRISES WHICH ARE SUPPLIE D TO AUTHORIZED SERVICE PROV IDERS. IN RESPECT OF SUCH IMPORTS, THE ASSOCIATED ENTERPRISES REIMBURSES THE ASSESSEE ON ACTUAL COST BASIS. 44 27. THE TPO, HOWEVER, HELD THAT THE ASSESSEE IS PROVIDING A SERVICE TO THE ASSOCIATED ENTERPRISES BY SERVICING THE WARRANTY CLAIMS AND OUGHT TO HAV E EARNED A MARK UP ON COST INCURRED FOR PROVISION OF SUCH SERVICES. THE TPO, ACCORDINGLY , SELECTED THE FOLLOWING COMPANIES ENGAGED IN PROVISION OF BUSINESS SUPPORT SERVICES FOR CALCULATING THE MARK UP: S NO. NAME OF THE COMPANY OP/TC 1. IDC INDIA LIMITED 14.95% 2. PRIYA INTERNET (SEG) 20.17% 3. APITCO 37.70% 4. TSR DARASHAW 26.98% 5. GLOBAL PROCUREMENT CONSULTANTS 35.89% 6. WAPCO 25.57% AVERAGE 26% 28. THE TPO , ACCORDINGLY , DETERMINED AN ADJUSTMENT OF RS 20,01,35,879 / - BY APPLYING THE MARK UP O F 26%. 29. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE ACTS AS A PRINCIPAL FOR SALE OF PRODUCTS TO CUSTOMERS AND NOT A SERVICE PROVIDER TO ASSOCIATED ENTERPRISE SO AS TO WARRANT A MARK UP . IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT COST TO COST REIMBURSEMENT RECEIVED BY THE ASSESSEE IS AT ARMS LENGTH ON THE BASIS 45 OF RECIPROCITY AND MUTUAL BENEFIT. THE LD. COUNSEL FOR THE ASSESSEE PRAYED FOR DELETION OF MARK UP. 30. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE T PO/ASSESSING OFFICER. 31. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW QUA THE ISSUE. IN OUR CONSIDERED OPINION, THE TPO HAS MISCONSTRUED THE ENTIRE TRANSACTION WHEREIN THE ASSESSEE S EL LS THE PRODUCT IMPORTED FROM THE ASSOCIATED ENTERPRISE, TO THE CUSTOMER IN INDIA ON A PRINCIPAL TO PRINCIPAL BASIS. SUCH SALE OF PRODUCT TO CUSTOMER ENTAILS AN OBLIGATION ON THE ASSESSEE TO PROVIDE SERVICE WARRANTY FOR ON E YEAR OF THE SALE. SUCH WARRANTY IS OUT - SOURCED TO THIRD PARTY SERVICE PROVIDER IN INDIA WHOSE CHARGES ARE INCURRED BY THE ASSESSEE AS AND WHEN SUCH CLAIMS ARE RECEIVED FROM THE CUSTOMERS. IN TERMS OF THE ARRANGEMENT WITH THE ASSOCIATED ENTERPRISE, THE ASSESSEE RECOVERS THE ENTIRE ACTUAL COST OF PROVIDING SERVICE WARRANTY TO THE CUSTOMER . IN OUR CONSIDERED OPINION, THE ASSESSEE IS NOT ACTING AS AN AGENT OR A SERVICE PROVIDER FOR THE ASSOCIATED ENTERPRISE BUT IS SEEKING REIMBURSEMENT OF THE ACTUAL COST INCURRED BY IT. 46 32. WHILE MAKING PAY MENT FOR THIRD - PARTY COSTS FOR SERVICES RENDERED BY INDEPENDENT SERVICE PROVIDERS, THE ASSESSEE DOES NOT PERFORM ANY SERVICE, DISCHARGE ANY FUNCTION, OR UNDERTAKE ANY RISK WHATSOEVER AND SUCH PAYMENTS ARE FOR THE SERVICES RENDERED BY INDEPENDENT SERVICE PR OVIDERS. THIS IS CLEARLY MENTIONED IN THE TP DOCUMENTATION ALSO. IN OUR VIEW, SUCH EXTERNAL COST S BEING IN THE NATURE OF PASS - THROUGH COSTS, ARE NOT TO BE RECOVERED ALONG WITH A MARK - UP AND A COST TO COST REIMBURSEMENT SATISFIES THE ARMS LENGTH PRINCI PLE. 33. THE HONBLE DELHI HIGH COURT IN CASE OF JOHNSON MATTHEY INDIA PRIVATE LIMITED VS. DCIT 380 ITR 43 HAS DIRECTED TO EXCLUDE THE PASS THROUGH COST WHILE COMPUTING THE OPERATING MARGIN. THE HONBLE DELHI HIGH COURT HELD AS FOLLOWS: 37. THE EXCLUSI ON OF PASS THROUGH COSTS FROM THE DENOMINATOR OF TOTAL COSTS WHERE THE FINANCIAL RATIO OF OP TO TC IS USED IS ACKNOWLEDGED IN PARA 2.93 AND 2.94 OF THE OECD GUIDELINES. PARA 2.93 STATES THAT THE EXTENT TO WHICH IT WOULD BE ACCEPTABLE 'AT ARM'S LENGTH TO TR EAT A SIGNIFICANT PORTION OF THE TAX PAYER'S COSTS AS PASS - THROUGH COSTS TO WHICH NO PROFIT ELEMENT IS ATTRIBUTED (I.E. COSTS WHICH ARE POTENTIALLY EXCLUDABLE FROM THE DENOMINATOR OF THE NET PROFIT INDICATOR)' WOULD DEPEND ON THE EXTENT TO WHICH 'AN INDEPE NDENT PARTY IN COMPARABLE CIRCUMSTANCES WOULD AGREE NOT TO EARN A MARK - UP ON PART OF THE COSTS IT INCURS.' PARA 2.94 OF THE OECD GUIDELINES FURTHER ACKNOWLEDGES THAT 47 'COMPARABILITY ISSUES MAY ARISE IN PRACTICE WHERE LIMITED INFORMATION IS AVAILABLE ON THE BREAKDOWN OF THE COSTS OF THE COMPARABLES.' THIS COURT HAS IN CIT V. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DEL) HAS NOTED THAT THE OECD GUIDELINES HAVE BEEN RECOGNIZED IN OUR TAX JURISPRUDENCE. WHAT IS HOWEVER, IS SIGNIFICANT IS THAT IN THE ABSENCE OF AN Y RELIABLE COMPARABLE DATA, AND IN THE ABSENCE OF PROPER REASONS, IT WOULD NOT BE JUSTIFIED FOR THE REVENUE TO SIMPLY REJECT A FINANCIAL RATIO ADOPTED BY THE ASSESSEE FOR COMPUTING THE NET PROFIT MARGIN BY EXCLUDING A PASS THOUGH COST FROM THE TC IN THE DE NOMINATOR. THE EXPRESSION 'ANY OTHER RELEVANT BASE' OCCURRING IN RULE 10 (1) (E) (I) OF THE RULES IS WIDE ENOUGH TO ENCOMPASS A DENOMINATOR THAT EXCLUDES PASS THROUGH COSTS AS LONG IT IS DEMONSTRATED TO BE AT ARM'S LENGTH. 34. THE HONBLE DELHI HIGH COU RT IN THE CASE OF LI & FUNG INDIA PVT. LTD. VS. CIT 361 ITR 85, HELD THAT FOR UNDERTAKING BENCHMARKING ANALYSIS , IT WOULD NOT BE APPROPRIATE TO CONSIDER COSTS INCURRED BY THIRD PARTY OR UNRELATED ENTERPRISE TO COMPUTE ASSESSEES NET PROFIT MARGIN. THE REL EVANT FINDINGS OF THE HIGH COURT READ AS UNDER: 39. THE TPO'S DETERMINATION ENHANCED LFIL'S COST BASE FOR APPLYING THE OPERATING PROFIT OVER TOTAL COST MARGIN. LFIL'S COMPENSATION MODEL IS BASED ON FUNCTIONS PERFORMED BY IT AND THE OPERATING COSTS INCURR ED BY IT AND NOT ON THE COST OF GOODS SOURCED FROM THIRD PARTY VENDORS IN INDIA. ALLOTTING A MARGIN OF THE VALUE OF GOODS SOURCED BY THIRD PARTY CUSTOMERS FROM INDIAN EXPORTERS/VENDORS TO COMPUTE THE APPELLANT'S PROFIT IS UNJUSTIFIED. THIS COURT IS OF OPIN ION THAT TO APPLY 48 THE TNMM, THE ASSESSEE'S NET PROFIT MARGIN REALIZED FROM INTERNATIONAL TRANSACTIONS HAD TO BE CALCULATED ONLY WITH REFERENCE TO COST INCURRED BY IT, AND NOT BY ANY OTHER ENTITY, EITHER THIRD PARTY VENDORS OR THE AE. TEXTUALLY, AND WITHIN THE BOUNDS OF THE TEXT MUST THE AO/TPO OPERATE, RULE 10B(1)(E) DOES NOT ENABLE CONSIDERATION OR IMPUTATION OF COST INCURRED BY THIRD PARTIES OR UNRELATED ENTERPRISES TO COMPUTE THE ASSESSEE'S NET PROFIT MARGIN FOR APPLICATION OF THE TNMM. RULE 10B(1)(E) RE COGNIZES THAT 'THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE ...' IT THUS CONTEMPLATES A DETERMINATION OF ALP WITH REFERENCE TO THE RELEVANT FACTORS (COST, ASSETS, SALES ETC.) OF THE ENTERPRISE IN QUESTION, I.E. THE ASSESSEE, AS OPPOSED TO THE AE OR ANY THIRD PARTY. THE TEXTUAL MANDATE, THUS, IS UNAMBIGUOUSLY CLEA R. 35. MOREOVER, THE OPERATING MARGIN OF THE ASSESSEE IN THE DISTRIBUTION SEGMENT AT 4.52% IS HIGHER THAN THAT OF THE COMPARABLE COMPANIES AT 3.93% AND THE AFTER SALE WARRANTEE IS CLOSELY LINKED WITH DISTRIBUTION FUNCTION OF THE ASSESSEE. THEREFORE , NO ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF REIMBURSEMENT OF WARRANTY CLAIMS IS WARRANTED ON THE FACTS OF THE CASE . OUR VIEW IS FORTIFIED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SONY 49 ERICSSON MOBILE COMMUNICATIONS (SUPRA) WHEREIN THE HONBLE COURT HELD THAT CLUBBING OF CLOSELY LINKED TRANSACTIONS IS PERMISSIBLE IN APPROPRIATE CASES. THE HONBLE HIGH COURT FURTHER HELD THAT ONCE THE REVENUE ACCEPTS THE TNMM AS THE MOST APPROPRIATE METHOD, THEN IT WOULD BE INAPPROPRIATE FOR T HE REVENUE TO TREAT A PARTICULAR EXPENDITURE AS A SEPARATE INTERNATIONAL TRANSACTION. 36. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. ITA NO 350/2014 HELD AS UNDER: 17. AS FAR AS THE SECOND QUESTION IS CONCERN ED, THE TPO ACCEPTED TNMM APPLIED BY THE ASSESSEE, AS THE MOST APPROPRIATE METHOD IN RESPECT OF ALL THE INTERNATIONAL TRANSACTIONS INCLUDING PAYMENT OF ROYALTY. THE TPO, HOWEVER, DISPUTED APPLICATION OF TNMM AS THE MOST APPROPRIATE METHOD FOR THE PAYMENT O F TECHNICAL ASSISTANCE FEE OF 38,58,80,000 ONLY FOR WHICH COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WAS SOUGHT TO BE APPLIED. HERE, THIS COURT CONCURS WITH THE ASSESSEE THAT HAVING ACCEPTED THE TNMM AS THE MOST APPROPRIATE, IT WAS NOT OPEN TO THE TPO TO SUBJECT ONLY ONE ELEMENT, I.E PAYMENT OF TECHNICAL ASSISTANCE FEE, TO AN ENTIRELY DIFFERENT (CUP) METHOD. THE ADOPTION OF A METHOD AS THE MOST APPROPRIATE ONE ASSURES THE APPLICABILITY OF ONE STANDARD OR CRITERIA TO JUDGE AN INTERNATIONAL TRANSACTION BY. 50 EACH METHOD IS A PACKAGE IN ITSELF, AS IT WERE, CONTAINING THE NECESSARY ELEMENTS THAT ARE TO BE USED AS FILTERS TO JUDGE THE SOUNDNESS OF THE INTERNATIONAL TRANSACTION IN AN ALP FIXING EXERCISE. IF THIS WERE TO BE DISTURBED, THE END RESULT WOULD BE DISTOR TED 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 AND THE REVENUE. THE SECOND QUESTION IS, THEREFORE, ANSWERED IN FAVOUR OF THE ASSESSEE ; THE TNMM HAD TO BE APPLIED BY THE TPO/AO IN RESPECT OF THE TECHNICAL FEE PAYMENT TOO. 37. THE SLP FILED BY THE REVENUE AGAINST THE AFORESAID DECISION OF THE HONBLE HIGH COURT WAS DISMISSED BY THE HONBLE SUPREME COURT IN SLP (CIVIL) NO 15244/2017. 38. FURTHER, WE FIND THAT THE AFORESAID ARRANGEMENT OF RECEIVING REIMBURSEMENT FOR WARRANTY TRANSACTION ON ACTUAL COST BASIS WAS ACCEPTED TO BE AT ARMS LENGTH BY THE DRP IN ASSESSMENT YEAR 2007 - 08 AND BY THE TPO IN ASSESSMENT YEAR 2008 - 09. 39. CONSIDE RING THE FACTS OF THE CASE IN TOTALITY IN THE LIGHT OF JUDICIAL DECISIONS DISCUSSED HEREINABOVE, WE DO NOT FIND ANY MERIT IN THE 51 IMPUGNED TP ADJUSTMENT. WE DIRECT THE ASSESSING OFFICER/TPO TO DELETE THE SAME. GROUND NO. 8 IS ALLOWED. 40. GROUND NO. 9 RELATES TO ADDITION OF RS. 48,52,89,709/ - BY TREATING SALES TAX SUBSIDY AS TAXABLE REVENUE RECEIPT. 41 . AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6253/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09 VIDE GROUND N O. 8 OF THAT APPEAL. THE RELEVANT FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 78. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE ORDERS OF THE COORDINATE BENCH IN ASSESSEES OWN CASE AND THE VARIOUS JUDICIAL DECISIONS RELIED UPON BY THE LD. AR. IN A.Y 2002 - 03, THE COORDINATE BENCH IN ITA NO. 1404/DEL/2007 HAS HELD AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE ASSESSEE HAD COLLECTED SALES TAX AS A PART OF DEALERS' PRICE. AT THE YEAR END THE SALES TAX PORTION, WHICH FORMED THE PART OF DEALERS' PRICE HAD BEEN BIFURCATED AND HAS BEEN CLAIMED AS CAPITAL SUBSIDY. WE HAVE ALSO GONE THROUGH THE NOTIFICATION NO. 1179 DATED 52 31.03.19 95 ISSUED BY THE STATE GOVERNMENT OF UTTAR PRADESH. THE STATE GOVT. HAS PROVIDED SALES TAX EXEMPTION WITH AN OBJECTIVE TO PROMOTE THE DEVELOPMENT OF CERTAIN INDUSTRIES WHICH HAVE BEEN SET UP OR UNDERTAKEN MODERNISATION, DIVERSIFICATION, BACKWARD INTEGRATIO N BY WAY OF FIXED CAPITAL INVESTMENT OF RS.50 CRORES OR MORE. THE EXEMPTION OF FROM SALES TAX OR BENEFIT OF REDUCED RATE OF TAX IS AVAILABLE TO THOSE UNITS WHICH HAVE STARTED PRODUCTION OR HAVE CARRIED OUT EXPANSION OR MODERNISATION OR BACKWARD INTEGRATION ETC. BETWEEN 1.12.1994 AND 31.03.2000. PARA 2 OF THE NOTIFICATION SPECIFIES THAT THE EXEMPTION OR REDUCTION IN THE RATE OF SALES TAX INCLUDING THE ADDITIONAL TAX WOULD NOT BE MORE THAN 5 PER CENT OF SALE OF GOODS. IN CASE WHERE TAX RATE WAS MORE THAN 5 PE R CENT INCLUDING ADDITIONAL TAX, THE BALANCE WAS TO BE PAID BY THE UNIT. PARA7 (2) OF THE NOTIFICATION PROVIDES FOR THE EXEMPTION OF SALES TAX TO THE EXTENT OF EXEMPTION OR REDUCTION IN TAX. ITEM (2) OF THE SCHEDULE INCLUDES GREATER NOIDA INDUSTRIAL DEVELO PMENT AREA WHEREIN EXEMPTION FROM SALES TAX TO THE EXTENT OF 200 PER CENT OF CAPITAL INVESTMENT HAS BEEN PROVIDED. NONE OF THE CLAUSES OF THE NOTIFICATION AUTHORISES THE ASSESSEE TO COLLECT THE SALES TAX AND RETAIN THE SAME WITH IT. THE EXEMPTION OF SALES TAX WAS AVAILABLE FROM THE DATE OF FIRST SALE OR THE DATE WITHIN THE PERIOD OF SIX MONTHS FROM THE DATE OF PRODUCTION, WHICHEVER IS EARLIER. 53 THE SAID NOTIFICATION ALSO PROVIDED THAT THE ELIGIBILITY CERTIFICATE TO THE ASSESSEE WILL BE ISSUED BY THE JOINT/A DDITIONAL DIRECTOR OF CONCERNED DEVELOPMENT AUTHORITY AND THE SAME WILL BE PRODUCED BEFORE THE CONCERNED ASSESSING OFFICER. THE ADDL. DIRECTOR INDUSTRIES, GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY, VIDE LETTER NO. 1344 DATED 23/06/1999 ISSUED ELIGIBIL ITY CERTIFICATE TO THE ASSESSEE. AS PER THIS CERTIFICATE FIXED CAPITAL INVESTMENT IS OF RS.51,57,95,446/ - . THE DATE OF COMMENCEMENT OF PRODUCTION IS 9/03/1998 AND THE FIRST SALE WAS AFFECTED ON 27TH MARCH, 1998. THE ASSESSEE APPLIED FOR EXEMPTION FROM TRAD E TAX [SALES TAX] VIDE APPLICATION DATED 10/09/1998. THE EXEMPTION FROM TRADE TAX [SALES TAX] WAS PROVIDED FROM 27TH MARCH, 1998 TO 26 TH MARCH, 2013 FOR A PERIOD OF 15 YEARS OR TILL THE TIME THE EXEMPTION OF SALES TAX WAS AVAILED OF TO THE EXTENT OF 200 PE R CENT OF FIXED CAPITAL INVESTMENT I.E. RS.1,02,75,90,892/ - WHICHEVER WAS EARLIER. THIS CERTIFICATE ALSO PROVIDED THE ITEMS I.E. COLOUR TV, WASHING MACHINE AND AIR - CONDITIONERS ON WHICH EXEMPTION FROM SALES TAX WAS PROVIDED. ANOTHER CERTIFICATE WAS ISSUED ON 27TH SEPTEMBER, 2000 VIDE LETTER NO. 1519 IN RESPECT OF PRINTED CIRCUIT VOICE FOR CTV NUMBER 8,12,000 AND MICRO - WAVE OVEN 1,00,000. IN THIS CERTIFICATE, THE SALES TAX EXEMPTION IN FIRST THREE YEARS HAS BEEN PROVIDED TO THE EXTENT OF 100 PER CENT, NEXT T HREE YEARS 75 PER CENT, NEXT TWO 54 YEARS 50 PER CENT AND NEXT TWO YEARS 25 PER CENT. IN ALL EXEMPTION FROM SALES TAX WAS PROVIDED FOR 10 YEARS. 10. NEITHER THE CERTIFICATES ISSUED BY GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY NOR THE NOTIFICATION ISSUED BY THE STATE GOVT. AUTHORISES THE ASSESSEE TO COLLECT SALES TAX FROM ITS CUSTOMERS. THE ASSESSEE HAS BEEN EXEMPTED FROM COLLECTING THE SALES TAX FROM CUSTOMERS ON THE SALES MADE WITH EFFECT FROM 27TH MARCH, 1998. IN FACT, THE LD. COUNSEL FOR THE ASSESSEE MADE A STATEMENT AT THE BAR, DURING THE COURSE OF HEARING, THAT NEITHER THE NOTIFICATION HAS AUTHORIZED THE ASSESSEE TO COLLECT SALES TAX NOR THE ASSESSEE HAD COLLECTED THE SALES TAX AS SUCH. THE ASSESSEE HAD INCLUDED THE ELEMENT OF SALES TAX IN THE DEALER S' PRICE AS A SALE PRICE OF THE PRODUCT. IN THE STATES OTHER THAN UTTAR PRADESH, THE SALES TAX SO COLLECTED AS A PART OF DEALERS' PRICE HAS BEEN PAID TO RESPECTIVE STATE GOVERNMENTS, WHEREAS IN THE CASE OF THE ASSESSEE, SINCE THE ASSESSEE WAS NOT LIABLE TO PAY SALES TAX, AS EXEMPTION HAS BEEN PROVIDED TO THE EXTENT OF 200 PER CENT OF FIXED CAPITAL INVESTMENT, THE SALES TAX ELEMENT WHICH IS EMBEDDED IN THE SALE PRICE HAVE BEEN RETAINED BY THE ASSESSEE AS EXCESS SALES CONSIDERATION. AT THE YEAR - END THE ASSESS EE HAS ALLOCATED THE SALES TAX ELEMENT FROM DEALERS PRICE AND HAS CLAIMED THE SAME AS CAPITAL SUBSIDY. 55 THEREFORE, THE COLLECTION OF DEALERS' PRICE HAS BEEN MADE IN THE ORDINARY COURSE OF TRADING ACTIVITIES. WHEN THE ASSESSEE IS NOT PERMITTED TO COLLECT TH E SALES TAX UNDER THE NOTIFICATION ISSUED BY THE STATE GOVT. THE COLLECTION OF SALES TAX AS A PART OF DEALERS' PRICE IS NOTHING BUT CONSTITUTES A TRADING RECEIPT.. 79. IN A.Y 2003 - 04, THE COORDINATE BENCH IN ITA NO. 3729/DEL/2009 HAS HELD AS UNDER: IN VIEW OF THE ABOVE, LD. DEPARTMENTAL REPRESENTATIVE CLAIMED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE. HOWEVER, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE TRIBUNAL HAS NOT CONSIDERED THE MATTER PROPERLY. HE SUBMITTED THAT THE APPEAL AGAINST THE TRIBUNAL ORDER IS PENDING IN THE HONBLE HIGH COURT OF ALL. HOWEVER, UPON CAREFUL CONSIDERATION, WE FIND THAT THERE IS NO PROPER JUSTIFICATION TO DEVIATE FROM THE DECISION OF THE ITAT IN ASSESSEES OWN CASE. THE APPEAL AGAINST THE TRIBUNAL ORD ER IS STILL PENDING IN HONBLE HIGH COURT. UNDER THE CIRCUMSTANCES, THE JUDICIAL PROPRIETY MANDATES THAT WE ADHERE TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE UPHOLD THE ORDER OF TH E LD. COMMISSIONER OF INCOME TAX(A). 56 80. WE FIND THAT THE ASSESSEES APPEAL AGAINST THE ORDER OF THE TRIBUNAL FOR A.Y 2002 - 03 IS PENDING BEFORE THE HON'BLE HIGH COURT. JUDICIAL PROPRIETY MANDATES THAT WE ADHERE TO THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE. RESPECTFULLY FOLLOWING THE PRECEDENTS [SUPRA] WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 8 IS ACCORDINGLY DISMISSED . 42. RESPECTFULLY FOLLOWING THE PRECEDENT, WE DECLINE TO INTERFERE WITH THE FINDINGS OF TH E DRP. GROUND NO. 9 IS ACCORDINGLY DISMISSED. 43. GROUND NO. 10 RELATES TO DISALLOWANCE OF RS. 97,71,71,875/ - OUT OF AGGREGATE ROYALTY AMOUNTING TO RS. 1,39,59,59,821/ - PAID TO LG ELECTRONICS, KOREA HOLDING THE SAME TO BE IN THE NATURE OF CAPITAL EXPENDI TURE. 44. A SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6253/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09 VIDE GROUND NO. 10 OF THAT APPEAL. THE RELEVANT FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 88. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007 - 08 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE FINDINGS OF THE COORDINATE BENCH, WE DIRECT THE ASSESSING OFFICER TO TREAT ROYALTY 57 PAYMENT OF RS. 85.75 CRORES AS REVENUE EXPENDITURE. GROUND NO. 10 IS ALLOWED. 45. RESPECTFULLY FOLLOWING THE PRECEDENT, WE DIRECT THE ASSESSING OFFICER/TPO TO DELETE THE IMPUGNED DISALLOWANCE. GROUND NO. 10 IS ALLOWED. 46. GROUND NO. 12 RELATES TO RES TRICTING THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80JJAA OF THE ACT. 47. AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6253/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09 VIDE GROUND NO. 12 OF THAT APPEAL. THE REL EVANT FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 96. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW QUA THE ISSUE. THERE IS NO DISPUTE THAT HE ASSESSEE SATISFIES ALL THE CONDITIONS FOR CLAIMING DEDUCTION U/S 80JJAA OF THE ACT. F OR OUR CONVENIENCE, SECTION 80JJAA READS AS UNDER: 80JJAA. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE, BEING AN INDIAN COMPANY, INCLUDES ANY PROFITS AND GAINS DERIVED F ROM ANY INDUSTRIAL UNDERTAKING ENGAGED IN THE 58 MANUFACTURE OR PRODUCTION OF ARTICL E OR THING, THERE SHALL, SUBJECT TO THE CONDITIONS SPECIFIED IN SUB - SECTION (2), BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO THIRTY PER CENT OF ADDITIONAL WAGES PAID TO THE NEW REGULAR WORKMEN EMPLOYED BY THE ASSESSEE IN THE PREVIOUS YEAR FOR THREE ASSESS MENT YEARS INCLUDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH EMPLOYMENT IS PROVIDED. (2) NO DEDUCTION UNDER SUB - SECTION (1) SHALL BE ALLOWED (A) IF THE BUSINESS IS FORMED BY SPLITTING UP OR THE RECONSTRUCTION OF AN EXISTING BUSIN ESS. ' PROVIDED FURTHER THAT WHERE AN EMPLOYEE IS EMPLOYED DURING THE PREVIOUS YEAR FOR A PERIOD OF LESS THAN TWO HUNDRED AND FORTY DAYS OR ONE HUNDRED AND FIFTY DAYS, AS THE CASE MAY BE, BUT IS EMPLOYED FOR A PERIOD OF TWO HUNDRED AND FORTY DAYS OR ONE HU NDRED AND FIFTY DAYS, AS THE CASE MAY BE, IN THE IMMEDIATELY SUCCEEDING YEAR, HE SHALL BE DEEMED TO HAVE BEEN EMPLOYED IN THE SUCCEEDING YEAR AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY;'. 97. THE CLAIM OF THE ASSESSEE IS THAT THE WORKMEN W HO JOINED IN THE PRECEDING YEAR IN WHICH SUCH WORKMEN WORKED FOR LESS THAN 300 DAYS SHOULD BE CONSIDERED PROVIDED THAT THE PERIOD OF EMPLOYMENT OF SUCH WORKMEN IS EQUAL TO OR MORE THAN 300 DAYS IN THE RELEVANT PREVIOUS YEAR. WHAT THE ASSESSEE CONTENDS IS T HAT NEW WORKMEN, WHO DID NOT FALL IN THE CATEGORY OF REGULAR WORKMEN, ON ACCOUNT OF 59 EMPLOYMENT BEING FOR LESS THAN 300 DAYS IN THE YEAR OF APPOINTMENT, SHOULD BE CONSIDERED AS REGULAR WORKMEN IN THE SUBSEQUENT YEAR, PROVIDED SUCH WORKMEN CONTINUE TO BE EMPLOYED WITH THE COMPANY AND THE TOTAL PERIOD OF THEIR EMPLOYMENT IS EQUAL TO OR MORE THAN 300 DAYS IN THE SUBSEQUENT YEAR. THOUGHT THIS CONTENTION OF THE ASSESSEE HAS BEEN TAKE CARE OF BY THE SECOND PROVISO, BUT THE SAME HAS BEEN GIVEN EFFECT FROM 1.4. 2019. 98. IF THE EFFECT OF THE SECOND PROVISO IS GIVEN RETROSPECTIVELY, THEN THE ASSESSEES CLAIM OF DEDUCTION IS ALLOWABLE. MEMORANDUM EXPLAINING PROVISIONS OF FINANCE BILL 2018 STATES THAT THE AMENDMENT IS INTENDED TO RATIONALIZE THE DEDUCTION OF 30% O F ADDITIONAL WAGES BY ALLOWING THE BENEFIT FOR A NEW EMPLOYEE WHO IS EMPLOYED FOR LESS THAN THE MINIMUM PERIOD DURING THE FIRST YEAR BUT CONTINUES TO REMAIN EMPLOYED FOR THE MINIMUM PERIOD IN SUBSEQUENT YEAR. 99. IN OUR CONSIDERED OPINION, THIS AMENDMENT I.E. SECOND PROVISO IS CLARIFACTORY IN NATURE AND IS INTENDED TO REMOVE THE ANOMALY SO AS TO ADVANCE LEGISLATIVE INTENTION OF PROVIDING INCENTIVE TO NEW WORKER FOR MORE THAN 300 DAYS AND MUST BE GIVEN RETROSPECTIVE EFFECT. FOR THIS PROPOSITION, WE DRAW S UPPORT FROM THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF ALLIED MOTORS PVT. LTD VS. CIT 224 ITR 677 [SC]. THE RELEVANT FINDING OF THE HON'BLE SUPREME COURT READS AS UNDER: 60 IN THE CASE OF GOODY EAR INDIA LTD. V. STATE OF HARYANA AND ANR . (188 ITR 402) THIS COURT SAID THAT HE RULE OF REASONABLE CONSTRUCTION MUST BE APPLIED WHILE CONSTRUING A STATUTE. LITERAL CONSTRUCTION SHOULD BE AVOIDED IF IT DEFEATS THE MANIFEST OBJECT AND PURPOSE OF THE ACT. THEREFORE, IN THE WELL KNOWN WORDS OF JUDGE LEARNED HAND, ONE CANNOT MAKE A FORTRESS OUT OF THE DICTIONARY; AND SHOULD REMEMBER THAT STATUTES HAVE SOME PURPOSE AND OBJECT TO ACCOMPLISH WHOSE SYMPATHETIC AND IMAGINATIVE DISCOVERY IS THE SUREST GUIDE TO THEI R MEANING. IN THE CASE OF R.B. JODHA MAL KUTHIALA V. COMMISSIONER OF INCOME - TAX, PUNJAB , JAMMU & KASHMIR AND HIMACHAL PRADESH (82 ITR 570), THIS COURT SAID THAT ONE SHOULD APPLY THE RULE OF REASONABLE I NTERPRETATION. A PROVISO WHICH IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MADE THE PROVISION WORKABLE, A PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN THE SECTION AND IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERP RETATION, REQUIRES TO BE TREATED AS RETROSPECTIVE IN OPERATION SO THAT A REASONABLE INTERPRETATION CAN BE GIVEN TO THE SECTION AS A WHOLE. THIS VIEW HAS BEEN ACCEPTED BY A NUMBER OF HIGH COURT. IN THE CASE OF COMMISSIONER OF INCOME - TAX V. CHANDULAL VENICHAND ([1994] 209 ITR 7), THE GUJARAT HIGH COURT HAS HELD THAT HE FIRST PROVISO TO SECTION 43B IS RETROSPECTIVE AND SALES - TAX FOR THE LAST QUARTER PAID BEFOR E THE FILING OF THE RETURN FOR THE ASSESSMENT YEAR IS DEDUCTABLE. THIS DECISION DEALS WITH ASSESSMENT YEAR 1984 - 85. THE CALCUTTA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX V. SRI JAGANNATH STEEL CORPORATION ([1991] 191 ITR 676), HAS TAKEN A SIMILAR VIEW HOLDING THAT THE STATUTORY LIABILITY FOR SALES - TAX ACTUALLY DISCHARGE AFTER THE EXPIRY OF ACCOUNTING YEAR IN COMPLIANCE WITH THE 61 RELEVANT STATURE IS ENTITLED TO DEDUCTION UNDER SECTION 43B . THE HIGH COURT HAS HELD THE AMENDMENT TO BE CLARIFICATORY AND, THEREFORE, RETROSPECTIVE. THE GUJARAT HIGH COURT IN THE ABOVE CASE HELD THE AMENDMENT TO BE CURATIVE AND EXPLANATORY AND HENCE RETROSPECTIVE. THE PA TNA HIGH COURT HAS ALSO HELD THE AMENDMENT INSERTING THE FIRST PROVISO TO BE EXPLANATORY IN THE CASE OF JAMSHEDPUR MOTOR ACCESSORIES STORES V. UNION OF INDIA AND ORS. ([1991] 189 ITR 70.), IT WAS HELD THAT AMENDMENT INSERTING FIRST PROVISO TO BE RETROSPECT IVE. THE SPECIAL LEAVE PETITION FROM THIS DECISION OF THE PATNA HIGH COURT WAS DISMISSED. THE VIEW OF THE DELHI HIGH COURT, THEREFORE, THAT THE FIRST PROVISO TO SECTION 43B WILL BE AVAILABLE ONLY PROSPECTI VELY DOES NOT APPEAR TO BE CORRECT. AS OBSERVED BY G.P. SINGH IN HIS PRINCIPLES OF STATUTORY INTERPRETATION, 4TH EDN. PAGE 291, 'IT IS WELL SETTLED THAT IF A STATUTE CURATIVE OR MERELY DECLARATORY OF THE PREVIOUS LAW RETROSPECTIVE OPERATION IS GENERALLY IN TENDED.' IN FACT THE AMENDMENT WOULD NOT SERVE ITS OBJECT IN SUCH A SITUATION UNLESS IT IS CONSTRUED AS RETROSPECTIVE. THE VIEW, THEREFORE, TAKEN BY THE DELHI HIGH COURT CANNOT BE SUSTAINED. 100. SIMILAR VIEW WAS TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD 319 ITR 306 WHEREIN THE HON'BLE SUPREME COURT HELD THAT WHERE A PROVISO IN SECTION IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES TO MAKE SECTION WORKABLE THE PROVISO WHICH SUPPLIES OBVIOUS OMISSION THEREIN IN REQUIRED T O BE READ RETROSPECTIVELY IN OPERATION PARTICULARLY TO GIVE EFFECT TO SECTION AS A WHOLE. 62 101. SAME VIEW WAS FOLLOWED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KOLKATA EXPORT COMPANY 404 ITR 654. 102. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT [SUPRA] WE DIRECT THE ASSESSING OFFICER TO ALLOW CLAIM OF DEDUCTION U/S 80JJAA OF THE ACT AS CLAIMED BY THE ASSESSEE. 48. GROUND NOS. 13 AND 14 RELATE TO CHARGING OF INTEREST U/S 234B, 234C AND 234D OF THE ACT. 49. LEVY O F INTEREST IS MANDATORY, THOUGH CONSEQUENTIAL TO OUR DECISION. THE ASSESSING OFFICER IS DIRECTED TO LEVY INTEREST AS PER THE PROVISIONS OF THE LAW. INTEREST U/S 234C TO BE CHARGED ON THE RETURNED INCOME. 50. GROUND NOS. 15 AND 16 RELATE TO ERROR IN GRAN TING BENEFIT OF ADVANCE TAX / SELF ASSESSMENT TAX/TDS CREDITED. 51. WE FIND THAT THERE IS SOME ERROR IN GRANTING TAX CREDIT TO THE ASSESSEE IN RESPECT OF ADVANCE TAX, SELF ASSESSMENT TAX AND TDS. WE DIRECT THE ASSESSING OFFICER TO GIVE CREDIT TO THE ASSE SSEE AFTER 63 VERIFYING THE TAX CHALLAN /TDS CERTIFICATES. GROUND NOS. 15 AND 16 ARE ALLOWED FOR STATISTICAL PURPOSES. 52. GROUND NO. 17 IS PREMATURE AND DISMISSED AS SUCH. 53. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 953 /DEL/201 4 IS PARTLY AL LOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 . 0 2 .201 9 . SD/ - SD/ - [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15 TH FEBRUARY , 201 9 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 64 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEF ORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORD ER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER