IMC Global Technology Services Pvt. Ltd., Pune V. Income-tax Officer,

ITA 976/PUN/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0953 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-07-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT HALDAR
• Assessee Lawyers: P D KUDWA
• Keywords: Transfer pricing; International transaction; Bonafide belief; Additional evidence
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 976 /P U N/201 5 / ASSESSMENT YEAR : 20 1 0 - 1 1 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD., KAPIL COMPLEX, BANER MAHALINGE ROAD, BANER, PUNE 411045 . / APPELLANT PAN: A A BCI3557L VS. THE INCOME TAX OFFICER , WAR D 1( 4 ), PUNE . / RESPONDENT / APPELLANT BY : S /S HRI NIKHIL PATHAK AND P.D. KUDWA / RESPONDENT BY : S HRI ABHIJIT HALDAR / DATE OF HEARING : 0 6 . 0 2 .201 9 / DATE OF PRONOUNCEMENT: 25 . 0 3 .201 9 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF CIT (A) - 1 , PUNE, DATED 27 . 0 2 .201 5 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1 . THE HON. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF MANAGEMENT FEES OF RS.262,24,684/ - PAID BY T HE ASSESSEE TO ITS HOLDING COMPANY IMC INC USA, ON GROUNDS THAT THE APPELLANT HAD NOT PROVED THAT ANY BENEFIT HAD ACCRUED FROM THE EXPENSES. 2 . THE HON. CIT(A) FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES REASONABLY AND ERRED IN DRAWING AN ADVERSE CONCLU SION BASED ON SURMISES AND CONJECTURE. 3 . THE APPELLANT PLEADS THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSES OF BUSINESS AND ARE ALLOWABLE. THE APPELLANT PLEADS THAT THE AO'S ACTION IS NOT JUSTIFIED. 3. THE ISSUE RAISED IN THE PRESEN T APPEAL IS AGAINST DISALLOWANCE OF MANAGEMENT FEES OF 2 , 62,24,684/ - PAID BY ASSESSEE TO ITS HOLDING COMPANY IMC INC, USA ON THE GROUND THAT THE ASSESSEE HAD FAILED TO PROVE THAT ANY BENEFIT HAD ACCRUED FROM THE EXPENSES. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HA D FILED RETURN OF INCOME DECLARING TOTAL LOSS OF 1.66 CRORES AND BOOK LOSS OF 2.20 CRORES. THE ASSESSEE COMPANY WAS INCORPORATED ON 27.04.2005 AND WAS ENGAGED IN THE BUSINESS OF IT ENABLED SERVICES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ASKED AS TO WHY MANAGEMENT FEES PAID OF 3.23 CRORES SHOULD NOT BE DISALLOWED. IN RESPECT OF MANAGEMENT FEES OF 3.23 CRORES, THE ASSESSEE POINTED OUT THAT IT HAD REIMBURSED VARIOUS COSTS INCURRED BY ASSOCIATED ENTERPRISES WHICH WERE DIRECTLY RELATED TO ITS BUSINESS AND THERE WAS NO PROFIT MARGIN MARKUP IN RESPECT OF SAID EXPENSES. REFERENCE WAS MADE TO ANNEXURE E TO TRANSFER PRICING DOCUMENTATION, WHEREIN THE DETAILS OF PROJECT BASED SERVICES RENDERED BY ASSOCIATED ENTERPRISES WERE FURNISH ED. THE ASSESSEE ALSO REFERRED TO THE DETAILS FURNISHED OF MAN HOURS SPENT BY ASSOCIATED ENTERPRISES PERSONNEL ON THE ACTIVITIES OF ASSESSEE . IN PART II OF APPENDIX, THE ASSESSEE CLAIMS TO HAVE ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 3 FILED FUNCTIONAL ACTIVITIES PERFORMED BY ASSOCIATED ENTERPRI SES AND PERCENTAGE TIME SPENT FOR EACH OF THE ACTIVITIES BY THE ASSOCIATED ENTERPRISES TOWARDS BUSINESS GOALS OF ASSESSEE COMPANY. FURTHER, THE ASSESSEE FURNISHED COPY OF AGREEMENT, SAMPLE INVOICES AND BASIS FOR CHARGES WITH RESPECT TO THE AFORESAID FEES. IT WAS STRESSED THAT THIS FEES WAS REIMBURSED AT ACTUAL AND DO NOT INVOLVE ANY PROFIT MARGIN MARKUP. IT WAS FURTHER EXPLAINED THAT THE YEAR UNDER CONSIDERATION WAS THE FIFTH YEAR OF OPERATIONS. THE ACTIVITIES AND STAFF IN INDIA WERE SUPERVISED BY A RES IDENT DIRECTOR, WHO WAS RESPONSIBLE FOR INDIA OPERATIONS. THE ASSESSEES REVENUE S W ERE EARNED FROM SOFTWARE SALES TO CUSTOMERS LOCATED MAINLY IN USA. FURTHER, IT WAS POINTED OUT THAT IN THE INITIAL YEARS, WITH A VIEW TO SUPPORT THE STARTUP EXPENSES INCUR RED BY THE PROMOTERS / ASSOCIATED ENTERPRISES ON ACTIVITIES RELATING TO THE BUSINESS WERE NOT ALLOCATED OR RECOVERED FROM THE ASSESSEE COMPANY. HOWEVER, W.E.F. 01.04.2009, ACCOUNTS OF GROUP WERE REFLECTED ON ARM'S LENGTH BASIS AND ACCORDINGLY, EXPENSES RE LATING TO THE ACTIVITIES WERE REFLECTED IN THE ACCOUNTS AND HENCE, MANAGEMENT FEES OF 3.23 CRORES WAS IN ACCOUNTS AS REIMBURSEMENT TO ASSOCIATED ENTERPRISES. THE ASSESSING OFFICER VIDE PARA 4.4 AT PAGE 6 OF THE ASSESSMENT ORDER OBSERVED THAT MANAGEMENT FEES OF 3.23 CRORES HAD NOT CONCLUSIVELY PROVE N BY THE ASSESSEE TO ACCRUE ANY BENEFIT TO THE ASSESSEE COMPANY. THE ASSESSING OFFICER NOTES THAT TILL THE LAST YEAR, THE ASSESSEE HAD SURVIVED WITHOUT PAYING ANY MANAGEMENT FEES AND SHOWN MARGINS OF AROUND 37%. IN REBUTTAL, THE ASSESSEE POINTED OUT THAT MANAGEMENT FEES INCLUDED SALARY OF 61,32,462/ - PAID TO SHRI RAHUL CHIKTO , WHO WAS ESSENTIAL FOR THE OPERATIONS OF ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT EVEN IF THE SAID AMOUNT IS CONSIDERED TO BE BENEFICIAL TO THE ASSESSEE, BALANCE AMOUNT OF 2.62 CRORES WAS HUGE AND THE SAME WAS PAID TO PARENT COMPANY, WHICH ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 4 RESULTED IN LOSS FOR THE ASSESSEE COMPANY DURING THE YEAR. HENCE, SAID SUM OF 2.62 CRORES WAS ADDED TO THE TOTAL INCOME OF ASSESSE E. 5. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. THE CIT(A) DID NOT ACCEPT THE PLEA OF ASSESSEE AS IN THE INITIAL YEARS, NO SUCH MANAGEMENT FEES WAS REIMBURSED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE CLAIMED THAT IN THE INITIA L YEAR S , NO SUCH PAYMENT WAS BEING MADE AS THE PARENT COMPANY WAS SUPPORTING THE OPERATIONS OF ASSESSEE. HOWEVER, WHERE NO EXPENDITURE WAS CLAIMED IN THE PRECEDING YEARS, DESPITE SHOWING PROFITS OF AROUND 37%, THEN THE CIT(A) OBSERVED THAT THE CLAIM MADE FOR THE FIRST TIME IN THE YEAR , WHERE THE COMPANY REPORTED LOSSES INSTEAD OF PROFITS WAS NOT ACCEPTABLE. IF THE INTENTION OF PARENT COMPANY WAS TO SUPPORT THE STARTUP, THEN NO SUCH CLAIM SHOULD BE MADE IN THE YEAR OF LOSS. FURTHER, THE CIT(A) NOTED THAT SUM OF 2.6 2 CRORES WAS SHOWN AS OUTSTANDING AS ON 31.03.2010 UNDER THE HEAD SUNDRY CREDITORS IN THE BALANCE SHEET. THE CIT(A) WAS OF THE VIEW THAT IN CASE IT WAS GENUINE PAYMENT, THEN THE PERIODICAL PAYMENTS OR ADJUSTMENTS AGAINST RECEIVABLES FOR THE SERVICE S SHOULD HAVE BEEN MADE BY THE ASSESSEE. FURTHER, INVOICE NUMBERS WERE CONTINUOUS SERIES FROM GS - 001 TO GS - 0011 COMMENCING FROM APRIL, 2009 TO MARCH, 2010. THE CIT(A) WAS OF THE VIEW THAT THIS CLEARLY SHOWED THE INTENTION TO BOOK EXPENDITURE BY WAY OF MA NAGEMENT FEES AT THE END OF THE YEAR, BY JOURNAL ENTRIES AND CLAIM LOSS UNDER THE HEAD INCOME FROM BUSINESS. THE CIT(A) FURTHER OBSERVED THAT EVEN OTHERWISE, THE APPELLANT HAS NOT DEMONSTRATED WITH CREDIBLE EVIDENCES THAT THE EXPENDITURE IN QUESTION WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF APPELLANT OR FOR THE PROJECT S OF APPELLANT EXCEPT FURNISHING COPIES OF THE ABOVE SAID INVOICES RAISED BY IMC INC. THE CIT(A) THUS, UPHELD THE ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 5 DISALLOWANCE OF MANAGEMENT FEES TO THE EXTENT OF 2.62 CRORES, CLAIMED TO HAVE BEEN REIMBURSED TO THE HOLDING COMPANY IMC INC, USA. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT MANAGEMENT FEES OF 2.6 2 CRORES PAID BY ASSESSEE TO ITS HOLDING COMPANY WAS DISALLOWED BY THE ASSESSING OFFICER UNDER SECTION 37(1) OF THE ACT , ON THE GROUND THAT NO BENEFIT AROSE TO THE COMPANY ON PAYMENT OF SUCH MANAGEMENT FEES. IT WAS POINTED OUT THAT THE ASSESSING OFFICER HAD ALLOWED SA LARY PAID TO SHRI RAHUL CHI KTO BUT HAD DISALLOWED THE MANAGEMENT FEES PAID TO ASSOCIATED ENTERPRISES. REFERRING TO THE ORDER OF CIT(A), THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE BASIS FOR DISALLOWANCE WAS THAT NO SUCH EXP ENDITURE WAS INCURRED IN EARLIER YEAR S AND EXPENSES WERE BOOKED THROUGH JOURNAL ENTRIES AND FURTHER, NO CREDIBLE EVIDENCE OF SERVICES RENDERED WAS PROVIDED BY ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HERE STRESSED THAT ASSOCIATED E NTERPRISE WAS RENDERING SERVICES TO ASSESSEE RIGHT FROM INITIAL YEARS, BUT AS SUPPORT SYSTEM, NO CHARGES WERE RAISED IN INITIAL YEARS. AN AGREEMENT WA S WITH EFFECT FROM MAY, 2009 FOR CHARGING MANAGEMENT FEES TO THE ASSESSEE FROM 01. 0 4 . 2009. OUR ATTENTION WAS DRAWN TO COPY OF AGREEMENT PLACED AT PAGE 46 OF PAPER BOOK AND IT WAS POINTED OUT THAT THE SAID AGREEMENT WAS SIGNED ON 12.05.2009 BUT THE START DATE OF AGREEMENT WAS 01.0 4 .2009 UPTO 31.12.2009. THEREAFTER, THE SAID AGREEMENT WAS RENEWED FROM 01.01.2 010 TO 31.12.2010. OUR ATTENTION WAS DRAWN TO ADDITIONAL EVIDENCE FILED BEFORE THE CIT (A) I.E. DOCUMENT IN SUPPORT OF RENDERING OF SERVICES BY STAFF OF IMC INC, USA , PLACED AT P AGES 79 TO 173 OF PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE THEN, ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 6 PLACED RELIANCE ON THE RATIO LAID DOWN BY THE TRIBUNAL IN EATON FLUID POWER LTD. VS. ACIT (2018) 92 TAXMANN.COM 158 (PUNE TRIB.) FOR THE PROPOSITION THAT THE ASSESSING OFFICER CANNOT SIT IN THE JUDGMENT OF BUSINESS MODULE OF ASSESSEE AND IT S INTENTION TO AVAIL OR NOT TO AVAIL ANY SERVICES FROM ITS ASSOCIATED ENTERPRISES. FURTHER, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN EMERSON CLIMATE TECHNOLOGIES (INDIA) LTD. VS. DCIT (2018) 90 TAXMANN.COM 125 (PUNE TRIB.) 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACING RELIANCE ON THE ORDER OF CIT(A) POINTED OUT THAT NO EVIDENCE OF RENDERING SERVICES BY THE ASSOCIATED ENTERPRISES TO THE ASSESSEE WERE FILED AND HENCE, THE DISALLOWANCE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST CLAIM OF DEDUCTION OF MANAGEMENT FEES PAID BY THE ASSESSEE TO ITS HOLDING COMPANY IMC INC, USA. THE ASSESSEE THOUGH, WAS ESTABLISHED IN 2005 - 06 BUT NO M ANAGEMENT FEES WERE BEING PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE TILL LAST YEAR. IT WAS ONLY DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD BOOKED MANAGEMENT FEES EXPENSES OF 3.32 CRORES. THE SAID EXPENDITURE INCLUDED SALARY PAID TO O NE SHRI RAHUL CHIKTO , WHO WAS HELPING IN THE OPERATIONS OF ASSESSEE COMPANY AND THE ASSESSING OFFICER ALLOWED THE CLAIM TO THE EXTENT OF 61,32,462/ - . THE BALANCE AMOUNT OF 2.62 CRORES WAS PAID TO PARENT COMPANY. BUT THE ASSESSING OFFICER WAS OF THE V IEW THAT THE AMOUNT PAID WAS HUGE ESPECIALLY WHEN THE BUSINESS OF ASSESSEE RESULTED IN LOSSES DURING THE YEAR UNDER CONSIDERATION. HENCE, HE DISALLOWED SAID SUM OF 2.62 CRORES. ANOTHER POINT WHICH WAS RAISED BY THE AUTHORITIES BELOW WAS THE BENEFIT TES T THAT THE SAID ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 7 PAYMENT MADE BY THE ASSESSEE DID NOT RESULT IN ANY ACCRUAL OF ANY BENEFIT TO THE ASSESSEE COMPANY. FIRST OF ALL, WE SHALL ADDRESS THE ISSUE OF BENEFIT TEST. THE TRIBUNAL IN VARIOUS CASES HAS ALREADY ADDRESSED THE ISSUE AND HAS POINTED OUT THAT ASSESSING AUTHORITIES COULD NOT SIT IN THE JUDGMENT OF BUSINESS MODULE OF ASSESSEE AND ITS INTENTION TO AVAIL OR NOT TO AVAIL ANY SERVICES FROM ITS ASSOCIATED ENTERPRISES. THE ASSESSEE IS BEST PERSON TO DECIDE WHETHER IT WANTS TO AVAIL SUCH SERVICES AND IN SUCH CIRCUMSTANCES, THE REIMBURSEMENT PAID BY THE ASSESSEE FOR AVAILING SERVICES CANNOT BE DISALLOWED ON THE SURMISE THAT NO BENEFITS WERE DERIVED FROM SUCH SERVICES. IN OTHER WORDS, FULFILLMENT OF BENEFIT TEST CANNOT BE QUESTIONED. 10. IN THIS R EGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN HIVE COMMUNICATION PVT. LTD. IN INCOME TAX APPEAL NO.306/2011, WHEREIN IT HAS BEEN HELD THAT THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY MUST BE JUDGED FROM THE VIEW POI NT OF THE COMPANY ITSELF AND MUST BE VIEWED FROM THE POINT OF VIEW OF A PRUDENT BUSINESSMAN. IT WAS FURTHER HELD BY THE HONBLE HIGH COURT THAT IT WAS NOT FOR THE ASSESSING OFFICER TO DICTATE WHAT THE BUSINESS NEEDS OF THE COMPANY SHOULD BE; IT IS BUSINES SMAN WHO CAN ONLY JUDGE THE LEGITIMACY OF THE BUSINESS NEEDS OF THE COMPANY FROM THE POINT OF VIEW OF PRUDENT BUSINESSMAN. HENCE, THE BENEFIT DERIVED AND ACCRUING TO THE COMPANY MUST ALSO BE CONSIDERED FROM THE ANGLE OF PRUDENT BUSINESSMAN. THE HONBLE H IGH COURT CLEARLY HELD THAT THE TERM BENEFIT TO A COMPANY IN RELATION TO ITS BUSINESS HAS A VERY WIDE CONNOTATION AND IT WAS DIFFICULT TO ACCURATELY MEASURE THESE BENEFITS IN TERMS OF MONEY SEPARATELY. THE SAID PRINCIPLE LAID DOWN BY THE HONBLE HIGH CO URT HAS BEEN APPLIED BY THE DELHI BENCH OF TRIBUNAL IN MCCANN ERICKSON INDIA P. LTD. VS. ADDL.CIT (SUPRA) TO HOLD WHETHER THE BENEFITS DERIVED BY THE ASSESSEE, IN VIEW OF THE EVIDENCES ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 8 IN RESPECT OF MANAGEMENT SERVICE CHARGES AND CLIENT COORDINATION FEES, CANNOT BE FOUND FAULT WITH. 11. THE PUNE BENCH OF TRIBUNAL IN EMERSON CLIMATE TECHNOLOGIES (INDIA) LIMITED VS. DCIT (SUPRA) APPLYING THE SAID RATIO HAD DECIDED THE ISSUE OF ALLOWABILITY OF SUPPORT SERVICE CHARGES PAID TO ASSOCIATED ENTERPRISES AND HAD HEL D AS UNDER: - 23. THE NEXT STAND OF THE TPO IS TWO - FOLD; AS TO WHAT BENEFITS HAVE BEEN RECEIVED BY THE ASSESSEE AGAINST THE SAID SUPPORT SERVICES AND INTRICACY VALUE OF SERVICES GIVEN BY THE ASSOCIATED ENTERPRISES. THE SAID ASPECT IS LINKED TO THE ISSUE O F WHETHER THERE IS ANY NEED FOR SERVICES AND IN THE ABSENCE OF ITS ESTABLISHING THE SAME, WHETHER THE TPO / ASSESSING OFFICER IS CORRECT IN DETERMINING THE ARM'S LENGTH PRICE OF TRANSACTIONS AT NIL. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ITS ASSO CIATED ENTERPRISES FOR AVAILING THE SERVICES BECAUSE OF BUSINESS BENEFITS ARISING FROM SUCH AN UNDERSTANDING. LAW DOES NOT REQUIRE THE ASSESSEE TO DEMONSTRATE THE NEED FOR AVAILING THE SERVICES. THE ASSESSEE IS BEST PERSON TO ARRANGE ITS AFFAIRS TO CONDU CT THE BUSINESS IN THE MANNER IT WANTS AND REVENUE CANNOT STEP INTO THE SHOES OF BUSINESSMAN TO DECIDE WHAT IS NECESSARY FOR THE BUSINESSMAN AND WHAT IS NOT. THE TPO IS NOT EMPOWERED TO QUESTION THE DECISION OF ASSESSEE TO AVAIL SUPPORT SERVICES FROM THE ASSOCIATED ENTERPRISES. THE DECISION TAKEN BY THE ASSESSEE IN THE COURSE OF CARRYING ON ITS BUSINESS IS COMMERCIAL DECISION AND THE TPO CANNOT QUESTION SUCH COMMERCIAL WISDOM OF ASSESSEES DECISION. THE SECOND LINKED ISSUE WHICH HAS BEEN RAISED IS THAT T HE ASSESSEE DID NOT BENEFIT FROM SUCH SUPPORT SERVICES WHERE THE ASSESSEE HAS SHOWN LOSSES DURING THE YEAR. 24. THE MUMBAI BENCH OF TRIBUNAL IN DRESSER - RAND INDIA (P) LTD. VS. ADDL.CIT (SUPRA) HAD HELD THAT WE HAVE FURTHER NOTICED THAT THE TPO HAS MADE SE VERAL OBSERVATIONS TO THE EFFECT THAT, AS EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALYSIS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPEN SE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY SO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN DETERMINING ALP OF THAT SERVICE. WHEN E VALUATING THE ALP OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. 12. THE PUNE BENCH OF TRIBUNAL IN EMERSON CLIMATE TECHNOLOGIES (INDIA) LTD. VS. DCIT (SUPRA) HAD ALSO HELD AS UNDER: - 19. THE ASSESSEE THUS, FILED DOCUMENTARY EVIDENCE TO DEMONSTRATE THAT IT HAD AVAILED SERVICES IN THE FIELD OF HUMAN RESOURCE S, MARKING AND PRODUCT, FINANCE, BUSINESS DEVELOPMENT AND MANAGEMENT AND OTHER SERVICES I.E. SUPPORT FOR NEW PRODUCT, MARKETING MATERIAL, TRAINING MATERIAL AND TECHNICAL ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 9 SUPPORT. THE ASSESSEE HAS ALSO EXPLAINED THE NEED FOR SERVICES BEING IN FIELD OF OPER ATIONAL, STRATEGIC AND ADVISORY SUPPORT SERVICES. THE FIRST ASPECT WHICH ARISES IN THE PRESENT APPEAL IS WHETHER THE TPO WHILE ASCERTAINING WHETHER PRICE PAID FOR THE SERVICES IS AT ARM'S LENGTH PRICE OR NOT, CAN ENTER THE FIELD OF BUSINESSMAN, WHO IS THE BEST JUDGE AS TO WHETHER IT NEEDS TO AVAIL THE SAID SERVICES. THE ANSWER TO THE SAME IS NO. EACH BUSINESSMAN IS THE BEST JUDGE TO COME TO DECISION AS TO WHETHER IT NEEDS THE SAID SUPPORT SERVICES OR NOT. SECONDLY, ONCE SUCH A DECISION HAS BEEN TAKEN BY THE BUSINESSMAN AND IT PROVIDES THE EVIDENCE OF SERVICES RECEIVED BY IT FROM ITS ASSOCIATED ENTERPRISES, THEN THE TPO CANNOT QUESTION THE SAME BY COMMENTING UPON THE NATURE OF SERVICES PROVIDED, WHERE IN ANY CASE, INFORMATION IS HYPER TECHNICAL. FIRST OF ALL, WHERE THE TPO HAS REFERRED TO THE SERVICES PROVIDED AND POINTED OUT DEFECTS IN THE SERVICES PROVIDED, THE FIRST STEP THAT SERVICES HAVE BEEN PROVIDED STANDS ESTABLISHED. ONCE THE SAME IS ESTABLISHED BY WAY OF ASSESSEE PRODUCING SEVERAL EVIDENCES B EFORE THE TPO, WHICH WERE IN THE FORM OF CONTEMPORANEOUS DATA, THEN THE TPO IS PRECLUDED FROM COMMENTING UPON THE SAME AND HOLDING THAT THE ASSESSEE HAD NOT RECEIVED ANY SERVICES AND ALSO THERE WAS NO NEED FOR MAKING ANY PAYMENTS FOR SUCH SERVICES, AS THE SERVICES PROVIDED WERE NOT UPTO THE MARK. IN ANY CASE, THE PERUSAL OF VARIOUS EVIDENCES FILED BY THE ASSESSEE I.E. CONTEMPORANEOUS DATA AVAILABLE ON RECORD SHOWS THAT IT IS HIGHLY TECHNICAL AND THE SAME HAS BEEN USED BY THE ASSESSEE FOR CARRYING ON ITS BU SINESS ACTIVITIES, SUCH EVIDENCE CANNOT BE BRUSHED ASIDE BEING NOT UPTO THE MARK. THE TPO HAD REFERRED TO PART OF THE DATA AND DREW CONCLUSION, WHICH IS NOT WARRANTED IN ANY CASE. 13. APPLYING THE SAID RATIO TO THE FACTS OF THE PRESENT CASE, WE FIRST HO LD THAT THE ASSESSEE AS PART OF ITS AGREEMENT WITH ITS HOLDING COMPANY, AGREED TO PAY MANAGEMENT FEES AND SUCH PAYMENT OF MANAGEMENT FEES CANNOT BE BRUSHED ASIDE ON THE GROUND THAT NO BENEFIT HAS ARISEN TO THE ASSESSEE COMPANY FOR REACHING SUCH CONCLUSION. THE ASSESSING OFFICER HAD RAISED TWO FOLD OBJECTIONS THAT NO SUCH PAYMENT WAS MADE IN EARLIER YEARS AND PAYMENT DURING THE YEAR HAS RESULTED IN LOSSES. THE REASON FOR NON - PAYMENT IN EARLIER YEARS WAS THAT THE HOLDING COMPANY WAS SUPPORTING OPERATIONS OF THE ASSESSEE, IN ORDER TO ALLOW THE ASSESSEE TO ESTABLISH ITS BUSINESS MODULES BUT ON A LATER DATE, THE PARTIES AGREED TO REIMBURSEMENT OF SERVICES PROVIDED BY ASSOCIATED ENTERPRISES BY WAY OF MANAGEMENT FEES. THE BASIS FOR RAISING INVOICES BY THE HOLDIN G COMPANY WAS THE POSTING OF LABOUR TIME SHEETS FOR THE MONTH. IT IS VERY CLEARLY MENTIONED IN THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES WHICH IS AVAILABLE ON PAPER BOOK, WHEREIN IT IS PROVIDED THAT HOLDING COMPANY IMC INC, USA WOULD PROVIDE MANAGEME NT SERVICES TO THE ASSESSEE ON THREE ACCOUNTS; ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 10 (A) SERVICES OF MR. RAHUL CHITKO AS EXECUTIVE DIRECTOR FOR ASSESSEE COMPANY, (B) EXPENSES OF MR. RAHUL CHITKO TO INCLUDE LABOUR PAYROLL, OTHER COSTS SUCH AS TRAVEL, TELEPHONE, SUPPLIES, ETC., AND ATLEAST TWO R OUND TRIPS IN 2009 TO PUNE, INDIA AND BURDENS APPLIED IN ACCORDANCE WITH DISCLOSURES TO THE US GOVERNMENTS DEFENSE CONTRACT AUDIT AGENCY AND (C) EXPENSES (PAYROLL AND OTHER COSTS) OF OTHER IMC PERSONNEL UTILIZED IN SUPPORT OF MR. CHITKO, PLUS APPLICABLE B URDENS AS DEFINED IN (1)(B). THE LIABILITY OF ASSESSEE WAS TO MAKE PAYMENTS TO ITS HOLDING COMPANY ON THE BASIS OF INVOICES RAISED BY HOLDING COMPANY ON MONTHLY BASIS ; COPY OF INVOICES ARE ALSO PLACED IN THE PAPER BOOK STARTING FROM PAGE 51 TO 73. THE PE RUSAL OF SAID INVOICES WOULD REFLECT THE BREAKUP UNDER THE HEAD SERVICES AND LABOUR, UNDER WHICH NAMES OF PERSONNEL PROVIDING THE SERVICES ARE WRITTEN AND DIFFERENT AMOUNTS PAYABLE TO EACH OF THEM ARE MENTIONED. FURTHER DETAILS ARE GIVEN IN RESPECT OF T RAVEL OF THE PERSONS, IF ANY TELECOMMUNICATION OF COMPUTER CHARGES AND DELIVERY EXPENSES UNDER THE HEAD TRAVEL / OTHER EXPENSES. SUCH ARE THE DETAILS WHICH WE RE AVAILABLE FROM MONTH TO MONTH AND THE AMOUNTS IN EACH MONTH VARY. THE OBJECTION OF AUTHORIT IES BELOW IN THIS REGARD WA S THAT THOUGH INVOICES HAVE BEEN RAISED BUT THE SAME WE RE SERIALLY NUMBERED AND ALSO THAT THE AMOUNTS WE RE DUE TO BE PAID AT THE CLOSE OF THE YEAR. WE FIND NO MERIT IN THE STAND OF AUTHORITIES BELOW. IT IS AN UNDERSTANDING BETW EEN THE PARTIES, WHICH HAS TO BE LOOKED INTO AND THE EXPENSES HAVE TO BE ALLOWED ON ACCRUAL BASIS SPECIALLY WHERE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. MERELY BECAUSE THE AMOUNTS WERE DUE AT THE CLOSE OF THE YEAR , WOULD NOT DISENTITLE THE ASSESSEE FROM CLAIMING THE SAID EXPENDITURE. 1 4 . NOW, COMING TO THE NEXT ASPECT OF THE DISALLOWANCE OF ASSESSEE ON THE GROUND WHETHER ANY SERVICES WERE AVAILED OR NOT. THE ASSESSEE IN THIS REGARD ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 11 HAS FURNISHED ADDITIONAL EVIDENCE BEFORE THE CIT(A), COP IES OF WHICH ARE PLACED AT PAGES 79 TO 173 OF PAPER BOOK. THE SAID EVIDENCE IS IN THE FORM OF VARIOUS EMAILS EXCHANGED BETWEEN EMPLOYEES OF THE ASSESSEE AND PERSONNEL OF HOLDING COMPANY. WE HAVE GONE THROUGH THE SAID EVIDENCE AND WE ARE OF THE VIEW TH AT THE ASSESSEE HA D ESTABLISHED ITS CASE OF AVAILMENT OF SAID SERVICES. THE ASSESSEE HA D FURTHER FILED ACCOUNT EXTRACT OF THE HOLDING COMPANY IMC INC, USA, ( NOW M/S. ALYX INC USA), PLACED AT PAGES 174 TO 176 OF PAPER BOOK, TO POINT OUT THAT THE AMOUNT DUE HAS BEEN PAID ON 12.04.2010. ANOTHER EVIDENCE WHICH HAS BEEN RELIED UPON BY THE ASSESSEE IS THE COPY OF INCURRED COST SUBMISSION OF IMC INC USA FURNISHED TO US AUTHORITIES ALONG WITH CERTIFICATE OF FINAL INDIRECT COSTS, CALCULATION OF O/H RATE AND SUPPOR T ING SCHEDULES FOR 2009 AND 2010, WHICH IS PLACED AT PAGES 1 TO 19 OF PAPER BOOK - 3. IN SUPPORT THE ASSESSEE HA D PLACED ON RECORD THE INVOICES FOR MANAGEMENT FEES RAISED BY IMC INC USA FOR DECEMBER 2009 AT PAGES 20 AND 21 OF PAPER BOOK - 3. 1 5 . THE PUNE B ENCH OF TRIBUNAL IN THE CASE OF EMERSON CLIMATE TECHNOLOGIES (INDIA) LTD. VS. DCIT (SUPRA) WHILE DECIDING THE ISSUE OF ALLOWABILITY OF ADVISORY SUPPORT SERVICES HAD HELD AS UNDER: - 30. THE NEXT ISSUE ON WHICH THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSA CTIONS WAS ADOPTED AT NIL WAS THE OBSERVATIONS OF ASSESSING OFFICER THAT NO PAYMENT FOR INITIAL YEAR WAS SHOWN AS PART OF INTERNATIONAL TRANSACTIONS DECLARED BY THE ASSESSEE, IN THE SAID YEAR. THE ASSESSEE EXPLAINED THAT IT HAD RECEIVED INVOICES AFTER CLO SE OF THE YEAR IN SEPTEMBER, 2008 WHICH WAS FOR EARLIER YEAR AND ALSO FOR THE YEAR UNDER CONSIDERATION. SINCE THE INVOICE WAS RECEIVED IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD BOOK ED THE EXPENDITURE DURING THE YEAR. IN VIEW THEREOF, WHERE THE IN VOICES FOR SERVICES CHARGED WERE RAISED BY THE ASSOCIATED ENTERPRISES IN THE MONTH OF SEPTEMBER, 2008 AND WHERE THE BOOKS OF ACCOUNT OF ASSESSEE FOR THE FINANCIAL YEAR 2007 - 08 HAD ALREADY BEEN CLOSED, THEN THE TRANSACTION FOR EARLIER YEAR COULD NOT BE ACCO UNTED FOR OR BE REPORTED DURING THE EARLIER YEAR. ACCORDINGLY, THERE IS NO MERIT IN THE CONTENTION OF AO/TPO IN THIS REGARD. THUS, THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS ALLOWED. ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 12 1 6 . SIMILAR ISSUE ALSO AROSE BEFORE PUNE BENCH OF TRIBUNAL I N EATON FLUID POWER LTD. VS. ACIT (SUPRA) , WHEREIN ALSO SIMILAR DOCUMENT OF EVIDENCING THE AVAILMENT OF SERVICES AND ALSO THE BASIS OF COST FOR SUB SERVICES WAS FILED AND THE TRIBUNAL HELD THAT WHERE THE ASSESSEE HAD DEMONSTRATED THAT IT HAD AVAILED SERVIC ES BY WAY OF VARIOUS EVIDENCES, THEN THE SAID EXPENDITURE IS TO BE ALLOWED IN THE HANDS OF ASSESSEE. THE TRIBUNAL ALSO DECIDED LINKED ISSUE OF WH ETHER ANY BENEFITS HAD BEEN RECEIVED BY THE ASSESSEE AGAINST THE SAID SUPPORT SERVICES AND WHETHER THERE WAS ANY NEED FOR SERVICES AND HELD AS UNDER: - 29. NOW, COMING TO THE ISSUE OF TRANSFER PRICING ADJUSTMENT MADE BY TPO ON ACCOUNT OF SERVICES AVAILED B Y THE ASSESSEE FROM ITS ASSOCIATED ENTERPRISES AND TAKING THE VALUE OF SAID INTERNATIONAL TRANSACTIONS AT NIL. IN THE FIRST INSTANCE, WE HOLD THAT TPO CANNOT SIT IN THE JUDGMENT OF BUSINESS MODULE OF ASSESSEE AND ITS INTENTION TO AVAIL OR NOT TO AVAIL ANY SERVICES FROM ITS ASSOCIATED ENTERPRISES. THE ROLE OF TPO IS TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AND WHETHER THE SAME IS AT ARM'S LENGTH PRICE WHEN COMPARED WITH SIMILAR TRANSACTIONS UNDERTAKEN BY EXTERNAL ENTITIES OR INTERNAL COMPARABLES 30. THE SECOND ASPECT WHICH NEEDS TO BE CONSIDERED IN THE PRESENT CASE IS THE SERVICES AVAILED BY ASSESSEE FROM ITS ASSOCIATED ENTERPRISES. THE ASSESSEE IS A GROUP CONCERN OF WORLDWIDE EATON GROUP OF COMPANIES AND THE INTENTION TO AVAIL THE SAID SERVICES IS TO CARRY OUT HIS BUSINESS ON WORLDWIDE PLATFORM. THE TOTAL TURNOVER OF ASSESSEE FOR THE YEAR WAS 173 CRORES AND THE SERVICES AVAILED FROM ASSOCIATED ENTERPRISES WERE INTERMINGLED TO THE EXTENT THAT THE TRI BUNAL IN EARLIER YEARS HAS DIRECTED THAT FOR BENCHMARKING INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE, IMPORT OF RAW MATERIALS FOR MANUFACTURING PURPOSE AND EXPORT OF FINISHED GOODS SHOULD BE AGGREGATED. THE INFORMATION TECHNOLOGY SERVICES AVAIL ED BY THE ASSESSEE ALSO RELATE TO AFORESAID BUSINESS CARRIED ON BY THE ASSESSEE AND HENCE, WE FIND MERIT IN THE PLEA OF ASSESSEE IN AGGREGATING THE SAME WITH OTHER INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. ACCO RDINGLY, WE HOLD SO. IN ANY CASE, THE ASSESSEE IN THE REASONS FOR FILING ADDITIONAL EVIDENCE HAS POINTED OUT THAT INFORMATION WAS FILED BEFORE THE TPO ALONG WITH AGREEMENT AND CERTIFICATE OF EATON CHINA, BUT THEREAFTER, NO OTHER QUERY WAS RAISED BY TPO OR ANY CLARIFICATION WAS SOUGHT IN RESPECT OF INFORMATION TECHNOLOGY SERVICES AVAILED. THE ASSESSEE THUS, WAS UNDER THE BONAFIDE BELIEF THAT THE DOCUMENTS AND EXPLANATION FURNISHED BY IT HAS BEEN ACCEPTED. FURTHER, THE ASSESSEE BEFORE US HAS POINTED OUT TH AT THOUGH IT IS FILING ADDITIONAL EVIDENCE BUT BECAUSE OF CONFIDENTIALITY CLAUSE, SUCH INFORMATION CANNOT BE SHARED AS IT WOULD AFFECT THE BUSINESS TRANSACTIONS OF ASSESSEE. WE HAVE GONE THROUGH THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AND WE ARE OF THE VIEW THAT THE ASSESSEE HAS ESTABLISHED ITS CASE OF AVAILMENT OF SAID SERVICES IN THE FIELD OF INFORMATION TECHNOLOGY. IN ADDITION, THE ASSESSEE HAS ALSO FILED CERTIFICATE FROM ITS ASSOCIATED ENTERPRISE DATED 22.04.2011 I.E. DURING THE COURSE OF TP PRO CEEDINGS, UNDER WHICH THERE IS CERTIFICATION OF FACTUM OF PROVISION OF SERVICES BY EATON CHINA TO THE ASSESSEE AND ALSO BASIS FOR CHARGING OF SUCH CHARGE I.E. ITA NO. 976 /P U N/20 1 5 IMC GLOBAL TECHNOLOGY SERVICES PVT. LTD. 13 COST PLUS 5% MARKUP. IT WAS ALSO CONFIRMED BY EATON CHINA THAT SIMILAR SERVICES WERE AVAILED BY OTHER EATON GROUP COMPANIES AND THEY WERE CHARGED ON THE SAME BASIS AS IN THE CASE OF ASSESSEE. THE ASSESSEE HAD ALSO FILED ON RECORD COPIES OF DEBIT NOTES AND OTHER JV VOUCHERS RAISED DURING THE YEAR UNDER CONSIDERATION JUSTIFYING ITS CASE OF AVAILING TH E SAID SERVICES AND PAYMENT IN LIEU THEREOF. 31. IN THE ABOVE SAID FACTS AND CIRCUMSTANCES IN THE ISSUE INVOLVED, WE HOLD THAT THERE IS NO MERIT IN OBSERVATIONS OF TPO IN HOLDING THAT THE ASSESSEE HAD NOT AVAILED ANY SERVICES, HENCE THE ARM'S LENGTH PRI CE OF INTERNATIONAL TRANSACTIONS IS TO BE ADOPTED AT NIL. 1 7 . FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT ENTIRE EXPENDITURE BOOKED UNDER THE MANAGEMENT FEES IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. THE GROUNDS OF APPEAL RAISED B Y ASSESSEE ARE THUS, ALLOWED. 1 8 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF MARCH , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 25 TH MARCH , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / T HE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 1, PUNE ; 4. THE PR. CIT - 1 , PUNE ; 5. 6. , , / DR B , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE