NORTH DELHI METRO MALL PRIVATE LIMITED,DELHI V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 16(1), C.R. BUILDING, DELHI, CR BUILDING

ITA 5192/DEL/2024

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The case revolves around a transfer pricing adjustment made by the Deputy Commissioner of Income Tax (DCIT), which questioned the arm's length nature of the supervision services provided by Virtuous Retail South Asia Pte Ltd. (VRSA) to North Delhi Metro Mall Private Limited (NDMM). The services, amounting to INR 9,83,37,432, were part of a Development Management Agreement (DMA) aimed at overseeing the construction of a mall. The Tribunal examined the nature of the services, the necessity of engaging an associated enterprise for such high-stakes construction project, and the substantial documentary evidence provided by NDMM, including emails, meeting minutes, and project reports, which demonstrated the active involvement and strategic inputs of VRSA in the project.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361225 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2021-2022
• Other Referred Cases: TNS India Private Limited Vs. ACIT, SKF Technologies (India) Pvt. Ltd CTS-135- ITAT-2016 (Bang)-TP, Knorr Bremse India Private Limited, Sabic Innovative Plastics India Pvt Ltd Vs ACIT, CIT v. Cushman and Wakefield (India) Pvt. Ltd., Dresser Rand India Pvt. Ltd. v. ACIT, Walter Tools India (P.) Ltd., AT&T Global Network Services (India) Private Limited, McCann Erickson India P. Ltd. Vs. Addl. CIT, AWB India Pvt. Ltd. Vs. DCIT, TNS India Pvt. Ltd. Vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JITENDER CHAND
• Assessee Lawyers: K.M. GUPTA
• Keywords: Transfer pricing; International transaction; Business expenditure; Commercial expediency
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: H : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.5192/Del/2024 Assessment Year: 2021-22 North Delhi Metro Mall Private Limited, The Mall Road, Khyber Pass Civil Lines, Delhi – 110 054, PAN: AADCM7638N Vs DCIT, Circle-16(1), Delhi. (Appellant) (Respondent) Assessee by : Shri K.M. Gupta, Advocate Revenue by : Shri Jitender Chand, Sr. DR Date of Hearing : 09.04.2025 Date of Pronouncement : 21.05.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Assessee against the final assessment order dated 13.09.2024 passed by the DCIT, Circle-16(1), Delhi (hereinafter referred to as the Ld. AO) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the AY 2021-22. ITA No.5192/Del/2024 2 2. Heard and perused the records. The brief background of the case as culled out form matter on record and submission made are that the North Delhi Metro Mall Private Limited (hereinafter referred to as NDMM or ‘the Appellant’) The Appellant was incorporated on December 09, 2003. The company is engaged in carrying on the business of commercial development, construction, leasing and related services and Virtuous Retail South Asia Pte Ltd. (‘VRSA’ or ‘Associated Enterprise’ or ‘AE’) assists NDMM in the overall supervision and co-ordination, in respect of development of such projects. During the year under consideration, NDMM had entered into the following international transaction with its AE which has suffered a TP adjustment. Nature of transaction Amount in INR Outcome of TP Order Receipt of Supervision services 9,83,37,432 TP Adjustment amounting to INR 9,83,37,432 2.1 The case of assessee was referred to TPO and the order under Section 92CA(3) of the Act dated October 30, 2023 was passed proposing an adjustment of INR 9,83,37,432 to the arm’s length price of the international transactions undertaken by the Appellant with its AE. The Ld. AO passed the draft assessment order under Section 144C(1) of the Act (‘Draft Order’) dated 30 November 2023 proposing following adjustment by questioning the benefit derived from the service: ITA No.5192/Del/2024 3 Nature of proposed adjustments Amount in INR Receipt of Supervision Services 9,83,37,432 TOTAL 9,83,37,432 3. The Appellant being aggrieved from the aforementioned draft assessment order, filed an objection against the same before the Dispute Resolution Panel (DRP). The case of assessee is that as far as the Receipt of supervision services from AE is concerned the construction of a mall is a multifaceted endeavor that requires meticulous planning, seamless execution, and strategic oversight to ensure success. Thus from the initial design phase to the final marketing push, a mall project involves numerous stakeholders, intricate technical requirements, and significant financial investment. Engaging a development manager, a professional equipped to oversee design preparation, construction planning, strategy development, supervision, coordination, and marketing assistance etc. is not just beneficial but essential to delivering a successful project. In order to successfully develop a complex retail project, there is a need to combine a series of tasks that involve multidisciplinary skills throughout the pre-development and development/ construction phase, up to the project completion phase. Accordingly the Appellant wished to obtain the benefit of the supervisory expertise, experience and management capabilities of a development manager. Thus, for carrying on the business of commercial development, construction, leasing and related services, the Appellant entered into a ‘Development ITA No.5192/Del/2024 4 Management Agreement’ (DMA) with AE as Development Manager on 03 September 2021, effective from 01 April 2020 in order to assist the Appellant in the overall supervision and co-ordination for construction of the Mall. AS per the assessee VRSA, established in 2007, based in Singapore and supported by The Xander Group, is a prominent institutionally owned platform in India. VRSA oversees and develops city centers across the country, with a portfolio spanning approximately 13 million square feet in 9 major cities, including key projects in Mumbai, Delhi, and Bengaluru. This extensive background in urban development and management highlights their capability to effectively support supervision services. The services performed by VRSA (as specified in Schedule I of the DMA and TP study report of the Appellant ( as available at Page no 156 -158 of the Paper Book) includes the following: 10.1 Construction plan  VRSA reviews and provides feedback on the Construction plan for the project based on the business plan provided by Appellant and the confirmation of the preliminary development budget;  It ensures updates in respect of the Construction plan together with the inputs from the company based on the progress of the project and on the parameters affecting it; and  Identification and monitoring of key parameters that measure the performance of the project (such as rent-roll, development budget, operations budget). ITA No.5192/Del/2024 5 10.2 Studies  Identifying and ensuring that all project information/studies/analyses etc. are undertaken by the relevant consultant/in-house resources and circulated to the parties involved to be incorporated in different work streams. 10.3 Architects and project design  Reviewing and summarizing the status of the concept and the third- party service providers for the project, based on the offers obtained and provide recommendations as to appointments; and  Instructing the relevant third-party service providers to draw-up all the designs for the project, in accordance with the project technical specifications and quality standards and with building, retail commerce, environmental, zoning and other regulations which may apply to the project and review such designs on a regular basis to ensure they meet market requirements and changing market landscapes, and to enable future proofing of the project. 10.4 Permitting strategy  Review together with the Appellant and the project team the permitting status and plan mobilization accordingly; and  Together with Appellant design strategy for permitting (for example how to maximise revenue generating areas under given development rules, or how to maximise retail usage by using unusual expectations ITA No.5192/Del/2024 6 in development rules). VRS Asia’s responsibility will be to devise strategy based on understanding of the rules presented by the Appellant’s legal and other advisors. 10.5 Contractors  Working with the Appellant to appoint a project manager or to identify and create a project management teams from within the internal resources/personnel of the Appellant.  Coordinate with the project management team, the tendering, selection and appointment of the contractors for the project, by the Appellant and advise on any other contractors needed for additional works or works not included in the scope of the contractor;  Coordinate with the project management team for the preparation and signing of additional contracts, if and when needed and  With the support/recommendations of the project management team, instruct the appointed third-party service providers to carry out their tasks in the project, in accordance with the project’s technical specifications and quality standards and under the terms and conditions required for the project. 10.6 Technical management  Ensuring through the designs teams and the project management teams and the Appellant, that any requirement input from the leasing and operational teams/consultants is applied during construction; and ITA No.5192/Del/2024 7  Instructing the appointed project management team/company to manage and supervise the construction of the project in accordance with the required projects design and associated documentation for the project and the building permit and the technical specifications and quality standards. 10.7 Supervision and co-ordination  Regularly meet with the representatives of the third party service providers and the Appellant in order to supervise and co-ordinates the execution of the project works and keep the Appellant informed of the evolution of the construction of the project and of any relevant incidents; and  Review all the mock ups, advise on changes if needed and identify any deviations from the agreed plan. 10.8 Suppliers  Selecting suppliers, based on the technical specifications and quality standards of the project, proposed suppliers of the most relevant construction materials and installations required for the completion of the project. All suppliers will be identified by the company’s internal team based on specifications and quality standards that the VRS Asia may establish. All suppliers approved by the Appellant will need to be appointed directly by Appellant. ITA No.5192/Del/2024 8 10.9 Marketing of the project  Recommend a suitable marketing agency and together with the company’s project management team decide on further progress of the project’s marketing;  Managing and coordinating the work of leasing agents or NDMM’s in-house team and supervise the leasing and marketing strategy of the project carried out by them; and  With the marketing consultants and the internal marketing team, develop the opening campaign and ensure that the project is launched effectively. 10.10 Legal assistance  Liaise with the company’s lawyers as needed. It will be the lawyer’s/attorney’s task and the in-house legal department of the Asssessee to assist VRS Asia in any and all legal incidents related to the development and completion of the project and to supervise any document or deed which must be executed by the company. 10.11 Reporting  Developing appropriate project reporting templates for weekly and monthly reporting for the internal project management team. Review monthly updates and reports from the project manager/project management team. ITA No.5192/Del/2024 9  Review quarterly development reporting being produced by the project management team before being submitted to the board of directors of the company. This report will include information on the performance of the project on all aspects including economic, budget, commercial and planning/programme aspects. 10.12 Other services  Recommending and assisting the Appellant in hiring of members of the project management team who are suitably qualified with the relevant expertise to discharge any services required in respect of the project. 3.1 These services are crucial for ensuring project success in India, as local teams may not always have the complete range of knowledge, technical expertise, or resources required to commission all projects. The objective is to harness VRSA's strengths, given their specialization in developing city centers throughout the country. With experience dating back to 2007, VRSA is a reliable partner in this field. Knowledge sharing is integral to the Group's culture, enabling them to effectively tackle new and emerging challenges. 4. The Ld. AR for Appellant also submitted a brief snapshot of the expenses debited in the profit and loss account for the preceding years and which are reproduced below for ease of reference – ITA No.5192/Del/2024 10 S.No Head of expense Sub- head AY 2017-18 AY 2018-19 AY 2019-20 AY 2020-21 AY 2021-22 1 Employee Benefit Expenses Salaries, wages and Bonus - - 2,04,418 15,77,554 24,50,000 Total - - 2,04,418 15,77,554 24,50,000 2 Other Expenses ROC Fees- Increase of Share Capital 31,50,000 - - - - Rates and Taxes 38,950 5,00,000 - - - Marketing Expenses - - 62,500 2,79,934 5,68,006 Housekeeping and Security service - - 7,43,694 10,57,232 8,76,964 Loss on sale of Property, plant and equipment - - 1,31,657 - - Legal and Professional fee - - 12,00,000 15,06,401 1,05,49,402 Miscellaneous expenses - - 50,17,624 9,57,786 25,327 Total 31,88,950 5,00,000 71,55,475 38,01,353 1,20,19,699 5. Thus ld. AR has contended that from the above it is apparent that the major expense incurred by the Appellant pertains to legal and professional services rendered by 3rd parties and the employee benefit expense does not form a significant portion of the total expense incurred by the Appellant. The ITA No.5192/Del/2024 11 Appellant has limited employee base and has therefore engaged a third-party contractor for undertaking the construction work. It was submitted that the construction project undertaken by the Appellant is of global standards which requires high end technical expertise in order to ensure that end result is of high quality. Thus, on a standalone basis, the Appellant does not have the necessary expertise for the supervision and development of the mall being constructed and accordingly, the Appellant had appointed VRSA for overall supervision and co- ordination for construction of the Mall. The aforesaid services could have been availed by the Appellant from a 3rd party where VRSA may not have been appointed. However, the Appellant chose to appoint a related party as these services involve exchange of confidential information and thus involving a third-party vendor would pose unwarranted legal and competitive risk. Thus, for the aforementioned services rendered by the AE, the Development Fees payable by the Appellant is calculated as per the mechanism specified in Schedule II of the Agreement i.e., five percent of Total estimated construction cost of INR 539,89,17,829 (“TCC”) of the project minus the notional sum of Rs. 1021,93,801 already accounted for. Further, such fees shall be payable as per the following mechanism-  INR 4,62,76,438 in 18 equal monthly installments of INR 2,570,913 from April 2020 to September 2021; and  Additional Monthly retainer fees, in case there is an increase in the TCC = 40% * 5% * increase in TCC ITA No.5192/Del/2024 12  Further, there will be Milestone based payments as follows- Milestone 1 - in an event where there is an increase in the TCC = 15% * 5% * increase in TCC Milestone 2 - on commencement of construction project = 25% * 5% * TCC (or any increase thereof) Milestone 3 - on completion of top out of civil structure = 10% * 5% * TCC (or any increase thereof) Milestone 4 – Hand over to Pre-ops team = 10% * 5% * TCC (or any increase thereof) 6. Ld. AR has pointed out that for corroborating the receipt of such supervisory services, necessary documentary evidence including mails and minutes of the meetings has been furnished before the Ld. AO / Ld. TPO and reference was made to Pg. 77-80of the Paper Book for benchmarking analysis in the TP study to demonstrate that the services have actually been rendered by the associated enterprise towards construction of the mall against which the supervision fees has been paid. He drew instance from the minutes of the project review meetings held on January 30, 2021, and February 26, 2021, to provide insights into the active participation of VRSA in the project. As per ld. AR, these minutes detail discussions on project timelines, budget updates, contractor recommendations, and design alterations, all of which were areas under VRSA's purview. The presence of VRSA representatives in these meetings and their contributions to the discussions indicate their active role in ITA No.5192/Del/2024 13 the project and reference was made to Page no 230-239 of the Paper Book. Furthermore, ld. AR has emphasized that the documents include specific instances where VRSA provided strategic inputs, such as the recommendation to onboard Leighton for civil works and the coordination of the tendering process for the metro deck development. Another piece of evidence referred was the regular reporting and coordination activities documented in the project updates and action points. Ld. AR has submitted that VRSA was responsible for developing project reporting templates, reviewing monthly updates from the project management team, and ensuring that the project was on track. The documents show that VRSA regularly met with third-party service providers and NDMM representatives to supervise and coordinate the execution of project works. Citing example, he submitted that the project review meeting minutes highlight VRSA's role in addressing critical issues such as soil nailing works, excavation progress, and the appointment of civil contractors and reference was made to Page no 240-540 of the Paper Book). Accordingly ld. AR submitted that these activities demonstrate that VRSA was not only providing high-level strategic oversight but was also deeply involved in the day-to-day management and coordination of the project, thereby evidencing the actual rendering of services. 7. Ld. AR has alleged that despite the detailed submissions and the documentary evidences submitted before the Ld. TPO, the Ld. TPO proceeded ITA No.5192/Del/2024 14 for making a TP adjustment by stating that no supervision services have actually been received/rendered and the element of benefit flowing to the Appellant cannot be ascertained. 8. Ld. DR has though defended the orders of ld. Tax authorities below, however we find that appellant has established sufficient legitimate business reason for supervision services. The financials of the appellant establish that there were no substantial employees costs and overheads to manage the project of such magnitude. Thus the engagement of a development manager was crucial for the successful execution of construction project. Ld. AR has established by filing computation of total supervision fee paid during the year on the basis of same being in terms of the agreement where it was agreed that what shall be retainer fee component and milestone based fee. The multi-faceted role of AE in providing varied services is substantial corroborated by material on record in the form of communications and reports. The services rendered by the AE cannot be alleged to be non-essential for ensuring that the project is completed on time, within budget, and to the required quality standards. Therefore, questioning the payments made for these services as non genuine business expenses is not justified. In case like this the business model of the assessee needed to be appreciated by the TPO and then submissions examined to see how assessee would have incurred costs in alternative to complete the project. Where, adequate explanation/information is provided with regard to evidence of receipt ITA No.5192/Del/2024 15 of service and the Ld. TPO has to take the same into consideration while evaluating receipt of services. Reliance can be placed for this proposition on following decisions, as relied by ld. AR;  TNS India Private Limited Vs. ACIT [ITA NO. 944/ Hyd/ 2007]  SKF Technologies (India) Pvt. Ltd CTS-135- ITAT-2016 (Bang)-TP]  Knorr Bremse India Private Limited [ITA No. 172 of 2013]  Sabic Innovative Plastics India Pvt Ltd Vs ACIT [ITA No. 1125/Ahd/ 2014 and IT(TP) No. 427/Ahd/161] 9. The TPO’s jurisdiction doesn’t extend to over write the business prudence of assessee without there being substantive evidence of assessee not drawing any benefit and except by establishing possibility of alternative costs to be lesser. Hon’ble Delhi High Court in CIT v. Cushman and Wakefield (India) Pvt. Ltd.[2015] 60 taxmann.com 168 (Delhi) has held that payments made for intra-group services should be considered legitimate business expenses if they are incurred for the benefit of the business and are not excessive or unreasonable. The court emphasized that the TPO should not question the commercial expediency of the expenses incurred by the taxpayer 10. Similarly in Dresser Rand India Pvt. Ltd. v. ACIT ([2011] 13 taxmann.com 82 (Mumbai)), the Mumbai bench of this tribunal has laid that payments made for management services, including supervision and coordination, provided by a foreign AE are allowable as business expenses if they are incurred for legitimate business purposes. The bench there noted that ITA No.5192/Del/2024 16 the TPO should not substitute its judgment for that of the taxpayer regarding the necessity of the services. Thus we are of considered view that as per Section 92CA of the Act, the jurisdiction of Ld. TPO is to determine the ALP of the international transaction however, in present case, the TPO has gone beyond the jurisdiction and questioned the benefit derived from the service on mere prudent men’s approach and not on the basis of any substantive evidence to rebut the claim and evidences of assessee. In this regard, the ld. AR has also placed reliance on the following case laws wherein it was held that the jurisdiction of the Ld. TPO is to determine ALP and benefit test is irrelevant:  Walter Tools India (P.) Ltd. [2020] 116 taxmann.com 992 (Pune- Trib.);  AT&T Global Network Services (India) Private Limited (ITA 7001 /Del/ 2018);  McCann Erickson India P. Ltd. Vs. Addl. CIT [ITA No. 5871/Del/2011 (Del.)];  AWB India Pvt. Ltd. Vs. DCIT [ITA No. 6480/Del/2012 (Del.)];and  TNS India Pvt. Ltd. Vs. ACIT 39 CCH 32 (Hyd. Trib.). 11. Thus we are inclined to sustain the grounds as raised and allow the appeal. The impugned TP adjustment is directed to be deleted. Order pronounced in the open court on 21.05.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 21st May, 2025. ITA No.5192/Del/2024 17 dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "