TMI Blog2021 (9) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... his company is functionally similar or dissimilar to that of the assessee company and decide the issue as per fact and law. - ITA. Nos. 7887 And 7888/Del./2017 - - - Dated:- 14-9-2021 - Shri R.K. Panda, Accountant Member And Shri Kul Bharat, Judicial Member For the Revenue : Shri Vijay Choudhary, Sr. DR For the Assessee : Shri Ved Jain, Sr. Advocate And Shri Ashish Goel, C.A. ORDER PER R.K. PANDA, A.M. The above two appeals filed by the Revenue are directed against the separate Orders Dated 22.09.2017 of the Ld. CIT(A)-38, New Delhi, relating to the A.Ys. 2009- 2010 and 2010-2011 respectively. For the sake of convenience, these appeals were heard together and are being disposed of by this common order. ITA.No.7887/Del./2017 A.Y. 2009-2010 [Revenue] 2. Grounds raised by the Revenue are as under : 1. Whether on the facts and circumstances of the case, Ld. CIT(A) was justified in law to delete the additions made by the TPO and hold that the payment made for intra group services was for commercial expediency? 2. Whether on the facts and circumstances of the case, Ld. CIT(A) was justified in law in holding that the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Cushman and Wakefield India Pvt. Ltd. (ITA No. 475/2012), it has been clearly established that it is beyond the powers of the Transfer Pricing Officer to question the commercial wisdom of the Assessee. The TPO's authority is restricted to determining the ALP for international transactions referred to him by the AO. The TPO, after a consideration of the facts, can state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. Further, the Delhi High Court in case of Bausch and Lomb Eye care Private Limited has held that re-characterization of transaction and questioning commercial expediency is not permissible on the basis of the judgment in EKL Appliances. In this case, the issue raised by the Learned TPO/AO is whether an independent entity would have paid for such services. Relying on the decision of Hon ble Delhi High Court in multiple cases such as EKL Appliances and Bausch and Lomb Eye care India Private Limited and the submissions of appellant, I am of the opinion that there is enough material on record to conclude that some services were availed by the company. However, it is not possible lo quantify the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue had come up before the Tribunal in assessee s own case vide ITA No.6249/ Del/2012 for A.Y. 2008-09. The Tribunal, vide order dated 21st May, 2018 at para 16 to 18 of the order has observed as under:- 11. After considering the written submissions of the ld. DR and the orders of the authorities below, in our considered opinion, in order to examine the ALP of intra group services received by one of the associated enterprises, following essential information should be available: 1. Whether the AE has received intra group services? 2. What are the economic and commercial benefits derived by the recipient of intra group services. 3. In order to indentify the charges relating to services, there should be a mechanism in place which can identity (i) the cost incurred by the AE in providing the intra group services and (ii) the basis of allocation of cost to various AEs. 4. Whether a comparable independent enterprise would have paid for the services in comparable circumstances? 12. Examination of controlled transaction ordinarily should be based on the transaction actually undertaken by the AE as it has been structured by them using the metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en entered. It is for the assessee to take commercial decisions and decide how to conduct and carry on its business. 16. It is incorrect to say that the assessee has not provided appropriate/logical allocation of cost to ATK affiliates for management support and cost allocated to ATK India. Following chart summarizes the total group costs: 17. Break up of cost under each head is exhibited separately in the paper book. Each cost is supported by evidences which are placed at pages 701 to 1421 of the paper book. 18. In so far as the allegation relating to the payment for duplicate services is concerned, it appears that lower authorities have confused ATKBO with another group entity ATK India Pvt. Ltd which is a separate entity whose financial/TP study are placed on our record for the year under consideration. Detailed cost allocation sheets showing different personnel involved for each service has been placed on record separately. We find that the revenue authorities have simply rubbished the email evidences brought on record without examining and pointing out defects in the evidences. It is not proper for the lower authorities to disregard such direct evidences. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r data used in the TP documentation in relation to comparable companies and was of the view that the financial information of comparable companies pertaining to FY 2008-09 should only be used. b) He applied certain filters (in addition to those applied in the TP documentation) to reject/accept certain comparables which are as under:- - Rejected companies whose sales is less than ₹ 5 crores; - Rejected companies having diminishing revenues for the last three years upto and including F.Y. 2008- 09; - Rejected companies having different accounting year other than April to March; and - Rejected companies that are functionally different from the assessee. c) The above approach of the TPO resulted in exclusion of five out of seven companies selected as comparable by the assessee. d) Thereafter, the TPO selected five additional companies being comparable to the assessee based on the Accept/Reject Matrix. e) The TPO accordingly determined the ALP of the comparable companies at 24.05% on operating cost and proposed an upward adjustment of ₹ 61,08,740/-. 9.3. The TPO by relying on various decisions held that reimbursement of payment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... snapshot of the NCP margin working has been provided below for your ready reference : Particulars NCP margin (as per Appellant) NCP margin (as computed by the Ld. TPO in the TP Order) Income from services 36,422,880 36,422,880 Add: Recoveries - 7,890,448 Operating Income (A) 36,422,880 44,313,328 Total Expenditure 32,756,120 32,756,120 Add: Recoveries -- 7,890,448 Operating expenses (B) 32,756,120 40,646,568 Operating Profit [(C) = (A) (B)] 3,666,760 3,666,760 OP/TC [(D) = (C)/(B)] 11.19% 9.02% 1.4. The Appellant submits that these costs were on account of certain out-of-pocket expenses which were incurred by the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to ensure that the arm s length profit mark up is charged on the value adding costs incurred by the sendee provider in rendering the sendees and not on the out of pocket / pass through costs that by themselves do not add any value and do not contain any element of provision of a service but are merely incurred by the service provider for administrative expediency and convenience. 10.1. He submitted that the stand of the assessee is also supported by the decision of Coordinate Bench of the Tribunal in the case of DCIT vs., Cheil Communications India Pvt. Ltd., ITA.No.712/Del./2010 and various other decisions as mentioned in the paper book. He submitted that the Ld. CIT(A) has given well reasoned finding in his Order to address this issue. Therefore, the same being in consonance with Law, should be upheld and the ground raised by the Revenue should be dismissed. 11. We have considered the rival arguments made by both the sides, perused the Order of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the A.O./TPO in the instant case made adjustment of ₹ 61,08,740/- o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India Undertakings, we hold that these two companies cannot be held as comparable with the assessee company and are to be rejected. So far as Edserv Softsystems Ltd. is concerned, it is the submission of the ld. Counsel for the assessee that the TPO, in the succeeding years has not considered this company as a functionally comparable company and has agreed with the assessee in considering the company as a functionally non-comparable. We, therefore, deem it proper to restore this issue to the file of the AO/TPO with a direction to verify the analysis done by them in subsequent years and find out as to whether this company is functionally similar or dissimilar to that of the assessee company and decide the issue as per fact and law. The ground of appeal No.4 raised by the assessee is accordingly allowed for statistical purposes. 11.1. Since the appeal filed by the assessee on this issue is restored to the file of A.O./TPO, therefore, in all fairness, this issue also should go back to the file of A.O./TPO for fresh adjudication in accordance with fact and Law and after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Ground No.4 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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