TMI Blog2020 (5) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... er cost stand deleted. Pronouncement of orders within 90 days - Covid-19 epidemic - Worldwide lockdown - HELD THAT:- The extraordinary steps taken suo motu by Hon ble jurisdictional High Court and Hon ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words ordinarily , in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, we are of the considered opinion that it would be in the fitness of things if the impugned order is set aside and the matter is restored to the DRP for giving an effective opportunity to the assessee to present its case. We order accordingly and direct the DRP to issue directions u/s 144C(5) afresh as per law after allowing a reasonable opportunity of being heard to the assessee. Needless to say the assessee will be at liberty to file any fresh evidence / documents in support of its case before the DRP in such de novo proceedings. 3. As a result of these directions of the Tribunal, the matter was heard again by the Dispute Resolution Panel and the directions have been given, as a result of this fresh hearing, on 24th March 2015. The Assessing Officer has given effect to these directions vide his order dated 28th April 2015, aggrieved by which the assessee is once again in appeal before us. Grievances raised by the assessee, in this appeal, are as follows: A) Enhancement of adjustment/disallowance without show cause notice - Principles of natural justice violated 1) The learned Dispute Resolution Panel (DRP) erred on facts and in law in enhancing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DRP. 10) The appellant prays that the disallowance as made by the AO of tender cost of ₹ 28,61,598/- as the directions of the learned DRP may be deleted. 4. The factual backdrop of the case has been very well summed up in the first round of proceedings as follows: 2. Briefly stated the facts of the case are that the assessee is a part of Hamon Group, which is headquartered in Belgium with its original and core business of design, manufacture, supply, erection and servicing of Cooling Systems, Heat Exchangers and Air Pollution Control systems. The assessee-company is engaged in the business of manufacturing, designing, engineering and supply of cooling towers, spares and providing engineering services. The assessee filed its return declaring total income of ₹ 11,42,254. The assessee entered into six types of international transactions with its Associated Enterprises (AEs). Because of such international transactions, the Assessing Officer made reference u/s 92CA(1) to the Transfer Pricing Officer (TPO) for determination of Arms Length Price (ALP). First transaction which is disputed in the present appeal is the payment of Management Fees amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed; and if rendered, whether two independent parties would be willing to pay for such services; and if two independent parties would be willing to pay, what would be the basis and amount of such payment. The assessee was further directed to furnish details in respect of Management fees which the TPO had considered at 1.5% of the turnover as at the ALP. Since the TPO, in the opinion of the DRP, did not examine as to whether any R D services were rendered by the foreign AE for which a sum of ₹ 28.98 lakh was allowed, the DRP requested the assessee to furnish necessary details in this regard also. Similar direction was given qua the Tender cost . The assessee filed a reply on 16.08.2011 which the DRP considered to be a simple reiteration of what was submitted before the TPO. In the absence of any additional information given by the assessee justifying these payments, the DRP held that no tangible and direct benefit was derived by such payment made by the assessee to its AE. As such, the DRP proposed an adjustment of ₹ 1,17,00,313 to the total income as against lower amount proposed by the TPO. The A.O. vide the impugned order passed u/ss 143(3) read with 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit for such charges in the earlier years though the provision has been made in this year, and also failed to explain why the provision for the same was not made in the respective earlier years . On tender fees, the ALP is not disputed and yet ALP adjustment is confirmed on the ground that the evidences furnished by the assessee are not sufficient to establish that any services were actually rendered and that the assessee has indeed benefited from these services, and that the expenses pertained to the previous years and that these expenses cannot be disallowed in the present year. What is, however, completely lost sight of is what was before the DRP was an ALP adjustment and that they have, even going by their own words, enhanced the ALP adjustments determined by the TPO, on the grounds which are wholly irrelevant for determination of the ALP by the TPO. It is not the case that the DRP has cancelled the ALP adjustments and taken up the matter, on altogether different ground, afresh. They have only approved the action of the TPO and enhanced the quantum of disallowance. While on this subject, it is useful to bear in mind the observations made by Hon ble jurisdictional High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal benefit from that relationship. The TPO further noted that no independent enterprise would be willing to engage a third party for such a transaction, and in any case, the AE's means to conduct market research vis- -vis the Indian market was questionable in the absence of any evidence to the contrary. Moreover, the TPO noted that the assessee itself had many offices in India which conducted market research, and in that sense, this was merely a duplication of services. The ITAT reversed this finding: The assessee has been shown to have earned substantial revenues from IBM and that cannot be the result of only incidental benefit received by the assessee and IBM. If one wants to obtain revenue upon dealing in real estate, certain work has to be done. All the primary facts were submitted to the Assessing Officer as well as the TPO. The names of the parties were mentioned. Without examining any such details, it cannot be said that the revenue earned by the assessee was only on account of incidental benefit. There is a force in the claim of the assessee that to enable it to earn revenue from IBM, it was necessary to provide services to IBM outside India. If such services are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is also completely irrelevant, because whether a particular expense on services received actually benefits an Assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. When evaluating the arm's length price 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. Similarly, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(3) of the Income Tax Act, 1961, for the assessment yearn 2010-11. 13. Grievances raised by the assessee, in this appeal, are as follows: A) Disallowance of Research Development Expenses ₹ 67,40,868/- 1) The learned Commissioner of Income-Tax (Appeals) 56 Mumbai [CIT (A)] erred on facts and in law in confirming the order of the Deputy Commissioner of Income-Tax 9(2), Mumbai (AO) disallowing a sum of ₹ 67,40,868/- on account of Research Development Expenses by holding that the appellant failed to justify whether any benefits have been derived by the appellant by incurring the said expenses. 2) The appellant prays that the disallowance of ₹ 67,40,868/- on account of Research Development Expenses, as made by the AO and as confirmed by the CIT(A) may be deleted. B) Disallowance of Management Fees ₹ 72,35,588/- 3) The learned CIT(A) erred on facts and in law in confirming the order of the AO disallowing a sum of ₹ 72,35,488/- on account of Management Fees by holding that the appellant failed to justify the benefits accrued to them due to such management expenses. 4) The appellant prays tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by the CIT(A) may be deleted. 18. Learned representatives fairly agree that whatever we decide for the assessment year 2007-08 will be equally applicable in this assessment year as well, inasmuch as in this case the ALP adjustments are quantified by the TPO though on the grounds of non rendition of services rather than the arm s length price of the services, adopted by the Assessing Officer in entirety without any further addition or contribution by him, and confirmed by the CIT(A). In view of this factual position, and in the light of the observations made in paragraphs 7, 8 and 9 above, we uphold the plea of the assessee and direct the Assessing Officer to delete the ALP adjustments of ₹ 1,08,99,295 on account of R D expenses and of ₹ 1,06,42,258 on account of management fees. The assessee gets the relief accordingly. 19. In the result, the appeal for the assessment year 2010-11 is also allowed in the terms indicated above. 20. As we have decided the above appeals on the short point regarding the powers of TPO, and in respect of considerations for which the ALP adjustments can be made, we did not see the need of dealing with all other issues raised in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment . In the ruled so framed, as a result of these directions, the expression ordinarily has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any extraordinary circumstances. 23. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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