DELOITE CONSULTING INDIA P. LTD ( FORMERLY KNOWAN AS MASTEK DC OFFSHORE DEVELOPMENT CO. P. LTD), MUMBAI v. ITO CIR 2(2)(4), MUMBAI

ITA 1272/MUM/2011 | 2004-2005
Pronouncement Date: 30-03-2012 | Result: Dismissed

Appeal Details

RSA Number 127219914 RSA 2011
Assessee PAN AACCM6469N
Bench Mumbai
Appeal Number ITA 1272/MUM/2011
Duration Of Justice 1 year(s) 1 month(s) 19 day(s)
Appellant DELOITE CONSULTING INDIA P. LTD ( FORMERLY KNOWAN AS MASTEK DC OFFSHORE DEVELOPMENT CO. P. LTD), MUMBAI
Respondent ITO CIR 2(2)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 30-03-2012
Date Of Final Hearing 01-11-2011
Next Hearing Date 01-11-2011
Assessment Year 2004-2005
Appeal Filed On 10-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 579 1272 1273/MUM./2011 (ASSESSMENT YEAR : 2006-07 2004-05 2005-06 ) ITA NO. 3910 3911/MUM./2009 (ASSESSMENT YEAR : 2002-03 2003-04 ) DELOITTE CONSULTING INDIA PVT. LTD. FAIRMONT LEVEL-2 HIRANANDANI BUSINESS PARK POWAI MUMBAI 400 076 PAN AACCM6469N .. APPELLANT V/S DCIT / INCOME TAX OFFICER CIRCLE / WARD2(2)(3) AAYAKAR BHAVAN 101 MAHARSHI KARVE MARG MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : MR. ARVIND SONDE REVENUE BY : MR. JITENDRA YADAV A/W MRS. MALATHI SRIDHARAN DATE OF HEARING 25.01.2012 DATE OF ORDER 30.03.2012 O R D E R PER J. SUDHAKAR REDDY A.M. THESE APPEALS PREFERRED BY THE ASSESSEE ARE DIRECT ED AGAINST THE IMPUGNED SEPARATE ORDERS PASSED BY THE COMMISSIONER (APPEALS) FOR ASSESSMENT YEARS 2002-03 TO 2006-07 RESPECTIVELY. A S THE ISSUES ARISING IN ALL THESE APPEALS ARE COMMON FOR THE SAKE OF CONVE NIENCE THEY ARE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. DELOITTE CONSULTING INDIA PVT. LTD. 2 FACTS IN BRIEF :- 2. THE FACTS OF THE INSTANT APPEALS AS FAR AS MERITS OF THE TRANSFER PRICING ADJUSTMENT IS CONCERNED HAVE BEEN BROUGHT OUT BY T HE TRANSFER PRICING OFFICER (FOR SHORT TPO ) IN HIS ORDER 10 TH FEBRUARY 2005 PASSED UNDER SECTION 92CA(3) OF THE INCOME TAX ACT 1961 (FOR SH ORT 'THE ACT' ) FOR ASSESSMENT YEAR 2002-03 AND THE SAME IS EXTRACTED B ELOW FOR READY REFERENCE:- 3. BUSINESS OF THE ASSESSEE 3.1 THE ASSESSEE IS A JOINT-VENTURE COMPANY BETWEEN MASTEK LTD AND DELOITTE CONSULTING WITH MASTEK AND ITS AFFILIA TES HOLDING 50.1% OF THE SHARE CAPITAL AND THE BALANCE 49.9% BEING HELD BY DELOITTE AND ITS AFFILIATES. DELOITTE CONSULTING IS A LIMITED PARTNE RSHIP REGISTERED IN NEW YORK. IT IS ONE OF THE WORLDS LEADING MANAGEMENT CO NSULTING FIRMS. MASTEK THE OTHER SHAREHOLDER IS A PUBLICLY HELD I N INDIAN INFORMATION TECHNOLOGY APPLICATION OUTSOURCING COMPANY. 3.2 THE ASSESSEE WAS INCORPORATED AS A PRIVATE LIMI TED COMPANY ON 30TH JULY 2001. THE JOINT-VENTURE WAS FORMED FOR TH E ESTABLISHMENT AND OPERATION OF AN OFFSHORE DEVELOPMENT CENTRE FOR THE PROVISION OF BOTH OFFSHORE AND ON-SITE INFORMATION TECHNOLOGY AN D OTHER RELATED SERVICES. 3.3 THE ASSESSEE HAS ENTERED INTO A SOFTWARE DEVELO PMENT SERVICE AGREEMENT WITH DELOITTE TO PROVIDE THE SOFTWARE REL ATED SERVICES TO DELOITTE. DELOITTE ENTERS INTO CONSULTING ASSIGNMEN TS WITH ITS US CLIENTS. FOR SUCH ASSIGNMENTS THE AREAS PERTAINING TO SOFTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY SERVICES ARE PROVIDED BY THE ASSESSEE IN TERMS OF THE CONTRACT BETWEEN THE ASSES SEE AND DELOITTE ONLY WHEN THE ASSESSEE POSSESSES THE REQUISITE RESO URCES TO PROVIDE SUCH SERVICES. THE ASSESSEE PROVIDES BOTH OFFSHORE AND ON-SITE SERVICE UNDER THE CONTRACT WITH DELOITTE. THE OFFSHORE SERV ICES ARE PROVIDED THROUGH MASTEK AND ON-SITE SERVICES WOULD BE PROVID ED THROUGH MAJESCO A US BASED COMPANY AND A SUBSIDIARY OF MAS TEK. 3.4 THE ROLE PLAYED BY THE TWO JOINT-VENTURE PARTNE RS IN THE COMPANY IS AS FOLLOWS: (A) DELOITTE PLAYS THE LEAD ROLE IN THE GENERATION OF SALES IN THE MANAGEMENT AND DELIVERY OF PROJECTS AND MANAGING AN D MAINTAINING THE COMPANYS CUSTOMER RELATIONSHIPS. (B) MASTEK PROVIDES AND MANAGE THE COMPANYS INFRAS TRUCTURAL FACILITIES THE OPERATIONS INCLUDING RECRUITMENT T RAINING ADMINISTRATION AND SUPPORT AS A PART OF ITS CURRENT AND FUTURE FAC ILITIES AS WELL AS DELIVERY CAPABILITY AND PROJECT QUALITY. DELOITTE CONSULTING INDIA PVT. LTD. 3 THE ENTIRE TURNOVER OF THE ASSESSEE REPRESENTS EARN INGS RECEIVED FROM DELOITTE FOR PROVIDING SOFTWARE DEVELOPMENT AND INF ORMATION TECHNOLOGY SERVICES. 4. INTERNATIONAL TRANSACTIONS: THE VARIOUS INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE DURING THE PREVIOUS YEAR ARE AS FOLLOWS:- (A) THE ASSESSEE HAS RENDERED SOFTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY SERVICES TO DELOITTE AMOUNT ING TO RS 9.15 CRORES. IN RESPECT OF THE SERVICES THE ASSESSEE IS LIABLE TO RECEIVE THE PAYMENT IN 60 DAYS TIME. THE ASSESSEE BEARS ALL THE RISKS RELATING TO PERFORMANCE MARKET AND FOREIGN EXCHANGE. THE SERVI CES ARE PRICED MOSTLY ON TIME AND MATERIAL BASIS. (B) THE SECOND INTERNATIONAL TRANSACTIONS REFERS TO THE VALUE OF ON- SITE CHARGES PAID BY THE ASSESSEE TO MAJESCO I.E. THE US BASED SUBSIDIARY OF MASTEK AMOUNTING TO RS 4.27 CRORES. T HE ON-SITE SERVICES RENDERED MAJESCO AMOUNTED TO 47% OF THE TOTAL OPERA TING REVENUE OF THE ASSESSEE DURING THE PREVIOUS YEAR. (C) THE THIRD INTERNATIONAL TRANSACTIONS REFERS TO REIMBURSEMENT MADE TO DELOITTE ON ACCOUNT OF MARKETING SERVICES RENDE RED BY THEM AMOUNTING TO RS 1.6 CRORES. THESE COSTS REPRESENT 1 8.33% OF THE TOTAL OPERATING REVENUE OF THE ASSESSEE. 5. THE ASSESSEE HAS ADOPTED THE TRANSACTION NET MAR GIN METHOD TO BENCHMARK INTERNATIONAL TRANSACTIONS. FOR THIS PURP OSE IT HAS FILED A STUDY REPORT IN THE COURSE OF THE TRANSFER PRICING PROCEEDINGS WHICH EXPLAINS HOW THE ARMS LENGTH PRICE HAS BEEN DETERMI NED IN RESPECT OF EACH OF THE INTERNATIONAL TRANSACTIONS. IN THIS CON NECTION THE ASSESSEE HAS UNDERTAKEN AN ANALYSIS OF THE FUNCTIONS PERFORM ED ASSETS EMPLOYED AND THE RISKS ASSUMED BY IT AND ITS ASSOCI ATED ENTERPRISE IN RESPECT OF EACH OF THE INTERNATIONAL TRANSACTIONS T HE OBJECT OF UNDERTAKING SUCH AN OF THE ANALYSIS IS TO CHARACTER ISE THE ASSESSEE AS WELL AS THE ASSOCIATE ENTITY SO THAT COMPARABLE TR ANSACTIONS CAN BE IDENTIFIED BASED ON THE CHARACTER OF THE ASSESSEE. THE PROCEDURE FOLLOWED IS DESCRIBED AS UNDER:- 3. WE EXTRACT THE FACTS AS BROUGHT OUT BY THE TPO RE LATING TO THE THIRD INTERNATIONAL TRANSACTION AS THERE IS NO DISPUTE I N THE FIRST AND THE SECOND INTERNATIONAL TRANSACTIONS BEFORE THE TRIBUNAL. 5.3 FUNCTIONS PERFORMED IN RESPECT OF THE THIRD T RANSACTION - DELOITTE HAS DEPLOYED THREE SENIOR MANAGERS TO UNDE RTAKE FULL-TIME MARKETING FOR THE ASSESSEE. DELOITTE IDENTIFIES CLI ENT OPPORTUNITIES AND THE NEW OR EXISTING OPPORTUNITIES THAT CAN BE UNDER TAKEN BY USING OFFSHORE MODEL. IN THIS CONNECTION THE PARTNERS AN D SENIOR MANAGERS OF DELOITTE REACH OUT TO THE ASSIGNED SENIOR MANAG ERS AND INVOLVING DELOITTE CONSULTING INDIA PVT. LTD. 4 THEM IN THE SALE PROCESS. THE SENIOR MANAGERS ADD C ONTENT TO THE PROPOSAL AND VALIDATE IT FOR CORRECTNESS USING THE OFFSHORE MODEL. THESE MANAGERS ALSO ATTEND THE ORAL PRESENTATION AN D DEMONSTRATE THE OFFSHORE DELIVERY MODEL AND CAPABILITIES. THE A SSIGNED MANAGERS IDENTIFY THE APPROPRIATE ON-SITE/OFFSHORE TEAM AND MONITOR THE STATUS AND QUALITY OF ENGAGEMENT. THE ASSIGNED MANAGERS WO ULD ALSO CHECK ONTO THE ACCOUNTING AND THE INVOICING PROCESS. IN T HIS CONNECTION IT IS STATED THAT DELOITTE CHARGES WITHOUT ANY MARKUP TH E SALARY COSTS INCLUDING OTHER BENEFITS AS WELL AS OUT-OF POCKET E XPENSES IN RESPECT OF THE SENIOR MANAGERS TO THE ASSESSEE. THE ASSESSEE C LAIMS THE SAID EXPENSES AS MARKETING EXPENSES ON ITS BOOKS. 6.2 IN RESPECT OF THE THIRD TRANSACTION THE ASSES SEE HAS EXPLAINED THAT DELOITTE ASSISTS THE ASSESSEE IN GENERATION OF SALES MANAGEMENT AND DELIVERY OF PROJECTS AND IN MANAGING AND MAINT AINING CUSTOMER RELATIONSHIPS. FOR THIS PURPOSE IT IS EXPLAINED TH AT THREE SENIOR MANAGERS HAVE BEEN ASSIGNED BY DELOITTE TO UNDERTAK E FULL-TIME MARKETING ONLY FOR THE ASSESSEE. IT IS EXPLAINED TH AT THE COST INCURRED ON THE ASSIGNMENT OF THE THREE SENIOR MANAGERS CONS ISTING OF THEIR SALARY AND RELATED EXPENDITURE IS CHARGED BY DELOI TTE ON ACTUAL BASIS. IT IS FURTHER STATED THAT IF THE ASSESSEE HAD APPOI NTED MARKETING PERSONNEL TO CARRY OUT ITS OWN MARKETING ACTIVITIES IT WOULD HAVE HAD TO PAY FOR THE SAME. FURTHER IT IS STATED THAT AS DELOITTE HAS NOT CHARGED MARKUP FOR THE SERVICES THE SAID AMOUNT FU LFILLS THE REQUIREMENTS OF ARMS LENGTH. 8. THE THIRD TRANSACTION RELATING TO COST ALLOCATIO N WAS ALSO EXAMINED AND IN THIS CONNECTION LETTERS DATED SEPTE MBER 15 2004 SEPTEMBER 30 2004 AND 11 JAN 2005 WERE ISSUED TO T HE ASSESSEE TO EXPLAIN WHY THE ALLOCATION IS PROPER AND ESTABLISH THE VARIOUS BENEFITS DERIVED BY THE ASSESSEE ON ACCOUNT OF WHICH THE COS TS ARE BEING ALLOCATED TO IT. IN THIS CONNECTION THE ASSESSEE H AS MADE ITS DETAILED SUBMISSIONS IN THE LETTERS DATED OCTOBER 8 2004 O CTOBER 1. 2004 NOVEMBER 16 2004 NOVEMBER 30 2004 DECEMBER 15 2004 JANUARY 6 2005 JANUARY 17 2005 JANUARY 25 2005 JANUARY 28 2005 AND JANUARY 31 2005. 4. THEREAFTER THE TPO OBSERVED AS FOLLOWS:- 9. FROM THE ABOVE SUBMISSIONS OF THE ASSESSEE THE MAIN CONTENTIONS THAT HAVE BEEN MADE BY IT ARE AS FOLLOWS. 1. THE FIRST OF CONTENTION OF THE ASSESSEE IS THAT THE ALLOCATION CONSISTS OF ONLY COSTS AND THERE IS NO MARK UP EMBEDDED IN T HE SAME. CITING THIS REASON THE ASSESSEE CONTENDS THAT THE COST REP RESENTS THE ARMS LENGTH PRICE FOR THE CHARGE ON ACCOUNT OF MARKETING EXPENSES MADE TO THE ASSESSEE. 2. THE ASSESSEE CONTENDS THAT IT HAS DERIVED VALUAB LE BENEFIT ON ACCOUNT OF THESE COSTS AND HENCE THEIR ALLOCATION T O IT IS PROPER. IN THIS REGARD THE ASSESSEE EXPLAINS THAT ITS BUSINESS HAS SIGNIFICANTLY INCREASED ON ACCOUNT OF THE EFFORTS OF THE THREE SE NIOR MANAGERS DELOITTE CONSULTING INDIA PVT. LTD. 5 WHOSE COSTS HAVE BEEN ALLOCATED. IT IS ALSO EXPLAIN ED THAT IF THE ASSESSEE WERE TO UNDERTAKE THE MARKETING FUNCTION O N ITS OWN IT WOULD HAVE HAD TO INCUR SIGNIFICANT EXPENSES. 3. THE ASSESSEE RELIES UPON THE CONFIRMATION DATED THE 3 JAN 2005 AND CONTENDS THAT THE COST ALLOCATION IS IN ACCORDANCE WITH THE JOINT- VENTURE AGREEMENT AND IS HENCE DULY AUTHORISED BY ALL THE CONCERNED PARTIES. 4. THE ASSESSEE EXPLAINS THAT THOUGH 17 PERSONS WER E ENGAGED IN THE BUSINESS OF MARKETING THE OFFSHORE CAPABILITIES BY DELOITTE ONLY THE COST RELATING TO THREE PERSONS HAVE BEEN CHARGED TO THE ASSESSEE. IT IS ALSO EXPLAINED THAT THESE THREE PERSONS WERE WHOLLY ENGAGED IN MARKETING THE OFFSHORE CAPABILITIES OF DELOITTE. 10. THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE T HE RELEVANT ISSUES IN THIS REGARD ARE EXAMINED AS FOLLOWS: (A) THE ROLE OF THE RESPECTIVE PARTIES RELATING TO THE SOFTWARE DEVELOPMENT ACTIVITY CARRIED ON BY THE ASSESSEE HAS BEEN DISCUSSED IN DETAILS AT PARA-5.1 AT THE EARLIER PAGES. FROM PERU SAL OF THE SAME IT IS EVIDENT THAT THE ROLE OF DELOITTE IS TO MARKET AND GENERATE SALES AND MANAGE THE DELIVERY OF PROJECTS AND CUSTOMER RELATI ONSHIPS. THE ROLE OF THE ASSESSEE IS TO ACTUALLY EXECUTE THE PROJECT AND DELIVER THE OUTPUT TO THE ASSOCIATE ENTITY. AS ALREADY EXPLAINE D DELOITTE IS GETTING REMUNERATED FOR THE MARKETING FUNCTION PERFORMED BY IT. THIS IS EVIDENT FROM THE FACT THAT THE DELOITTE ENTERS INTO THE CONTRACT WITH THE END CUSTOMERS. THOUGH THE ASSESSEE HAS BEEN UNABLE TO PROVIDE THE DETAILS OF THE PRICE CHARGED BY DELOITTE ON THE END CUSTOMERS FOR THE SERVICES RENDERED BY IT IT IS FAIR TO PRESUME THAT DELOITTE CHARGES A SUITABLE MARKUP AS CONSIDERED PROPER BY IT ON THE A MOUNT BILLED BY THE ASSESSEE WHILE BILLING THE END CLIENTS. CONSIDERING THE FACT THAT DELOITTE IS SEPARATELY BEING COMPENSATED FOR THE MARKETING F UNCTION PERFORMED BY IT THE LOGICAL CONSEQUENCE IS THAT ALL COSTS FO R THE PURPOSE OF MARKETING ARE TO BE BORNE BY IT ONLY. HENCE THERE IS NO BASIS OR JUSTIFICATION FOR ALLOCATING ANY PART OF THOSE COST S TO THE ASSESSEE. (B) THE ASSESSEES ROLE UNDER ITS CONTRACT WITH DEL OITTE HAS ALSO BEEN EXPLAINED IN PARA 5.1. FROM THE SAME IT IS CLEAR TH AT THE ASSESSEES ROLE IS TO UNDERTAKE THE EXECUTION OF THE PROJECT A ND RENDER THE SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE HAS ALR EADY EXPLAINED THAT IT HAS NOT ENTERED INTO ANY THIRD PARTY TRANSA CTIONS DURING THE PREVIOUS YEAR NOR HAS IT EXPLORED THE POSSIBILITY A T ANY TIME. WHEN THE ASSESSEE IS NOT REQUIRED TO UNDERTAKE THE MARKETING FUNCTION IN TERMS OF THE MASTER SERVICES AGREEMENT THERE IS NO REASO N FOR ANY ALLOCATION OF THE MARKETING COSTS TO THE ASSESSEE. IT IS CLEAR THAT BOTH THE PARTIES HAVE CLEARLY DEMARCATED ROLES TO PLAY UNDER THE SOF TWARE SERVICES AGREEMENT AND BOTH ARE COMPENSATED FOR THE SAME ACC ORDINGLY. JUST AS THE ASSESSEE IS NOT ALLOCATING ANY PART OF ITS C OSTS FOR SOFTWARE DEVELOPMENT TO DELOITTE SIMILARLY THERE IS NO REAS ON FOR DELOITTE TO ALLOCATE ANY PART OF THE COSTS INCURRED BY IT IN OR DER TO PERFORM THE ROLE AGREED BY IT UNDER THE SOFTWARE AGREEMENT. DELOITTE CONSULTING INDIA PVT. LTD. 6 (C) ONE OF THE MAIN CONSIDERATION IN THE CASE OF IN TRA-GROUP SERVICES IS TO SHOW THAT SOME VALUABLE SERVICE HAS IN FACT BEEN RECEIVED BY ONE OF THE PARTIES. IN THIS CASE ACCORDINGLY THE ASSESSEE HAD BEEN REQUESTED TO PRODUCE EVIDENCE TO SHOW THAT VALUABLE SERVICES WERE RECEIVED BY IT AGAINST THE COST ALLOCATION. IN THIS CONNECTION THE ONLY EVIDENCE PRODUCED BY THE ASSESSEE CONSISTS OF VARIOUS E-MAIL S EXCHANGED BETWEEN THE VARIOUS EMPLOYEES OF THE ASSESSEE COMPA NY AND THE THREE SENIOR MANAGERS OF DELOITTE WHOSE COSTS HAVE BEEN ALLOCATED. ON AN EXAMINATION OF THESE E-MAILS IT IS FOUND THAT TH EY PREDOMINANTLY DEAL WITH ISSUES RELATING TO BILLING AND INVOICING. IN MOST OF THE E-MAILS FURNISHED THE SENIOR MANAGERS ARE ADVISING THE ASSE SSEE REGARDING THE MANNER OF BILLING. A NUMBER OF E-MAILS ALSO RELATE TO FOLLOW UP WITH THE CLIENTS IN CONNECTION WITH PENDING BILLS. IN THIS C ONNECTION ASSESSEES LETTER DATED NOVEMBER 30 2004 CLEARLY MENTIONS THA T THE THREE PERSONS WERE ACTIVELY INVOLVED IN ACCOUNTING AND IN VOICING BESIDES MAKING PRESENTATION AND MARKETING THE JVS OFFSHORE CAPABILITIES. HOWEVER AS ALREADY EXPLAINED AT PARA 5.1 THE RISK O N ACCOUNT OF ACCOUNTS RECEIVABLE LIES ON DELOITTE AND NOT THE AS SESSEE. IT IS THE RESPONSIBILITY OF DELOITTE TO COLLECT THE REVENUE F ROM ITS CUSTOMERS AND AS FAR AS THE ASSESSEE IS CONCERNED IT IS TO RECEIV E ALL PAYMENTS FROM DELOITTE WITHIN 60 DAYS OF INVOICING. IN SUCH A SIT UATION THERE SEEMS TO BE NO REASON WHY THE COSTS RELATING TO PERSONS WHO ARE COORDINATING FOR THE PURPOSE OF PROMPT COLLECTION OF BILLS FROM THE CUSTOMERS SHOULD BE ALLOCATED TO THE ASSESSEE. (D) THE NEXT IMPORTANT ISSUE TO CONSIDER IS WHETHER THE AE HAS DERIVED ANY BENEFIT OUT OF THESE COSTS. THE ASSESSEE HOWEVE R IS SILENT ON THE BENEFITS DERIVED BY THE ASSOCIATE ENTITY BY THE UND ERTAKING OF MARKETING FUNCTIONS EVEN THOUGH IT WAS SPECIFICALLY REQUESTED TO PROVIDE ITS SUBMISSIONS IN THIS REGARD. EVEN THOUGH THE ASSESSEE MAY BE SILENT IN THIS REGARD IT IS QUITE OBVIOUS THAT THE AE HAS BENEFITED FROM THE JOINT-VENTURE ASSOCIATION WITH THE ASSESSE E. JUST AS THE ASSESSEE IS ABLE TO GET THE CLIENTS LOCATED IN US THE ASSOCIATE ENTITY IS ALSO ABLE TO LEVERAGE ON ITS ABILITY TO PROVIDE SOF TWARE SERVICES AT LOWER COSTS DUE TO OFF-SHORING AND HENCE IN A POSITION TO GET MORE CONSULTANCY ASSIGNMENTS IN THIS MANNER. HENCE BESID ES THE FACT THAT THE AE. WAS ANYWAY RESPONSIBLE TO PERFORM THE MARKE TING FUNCTION UNDER THE SOFTWARE SERVICES AGREEMENT IT IS ALSO E VIDENT THAT IT ALSO BENEFITED BY OFFERING THE OFFSHORE MODEL TO ITS CLI ENTS:- (E) THE NEXT IMPORTANT ISSUE TO CONSIDER IS THE DOC UMENTATION MAINTAINED BY THE ASSESSEE ON THE BASIS OF WHICH TH E COST ALLOCATION HAS BEEN MADE. IN THIS CONNECTION THE ASSESSEE COUL D NOT PRODUCE ANY SEPARATE AGREEMENT ENTERED INTO WHICH DEFINES THE S COPE OF THE MARKETING COST SHARING ARRANGEMENT. THE ASSESSEE PR IMARILY RELIES ON CLAUSE 9 OF THE JOINT-VENTURE AGREEMENT. JOINT-VENT URE AGREEMENT CLEARLY PROVIDES THAT BOTH THE PARTIES CAN SECOND T HEIR EMPLOYEES TO THE ASSESSEE COMPANY WITH THE APPROVAL OF AT LEAST ONE DIRECTOR OF EACH OF A GROUP AND B GROUP OF THE BOARD OF THE ASSESSEE COMPANY. IN THE EVENT OF SUCH SECONDMENT THE AGREEM ENT PERMITS THE REIMBURSEMENT OF SALARY COSTS. HOWEVER IN THE GIVEN CASE THE ASSESSEE HAS ADMITTED THAT THERE WAS NO FORMAL SECO NDMENT OF THE EMPLOYEES. HENCE THE COST ALLOCATION IS NOT STRICT LY IS NOT STRICTLY IN DELOITTE CONSULTING INDIA PVT. LTD. 7 ACCORDANCE WITH THE TERMS OF THE JOINT VENTURE AGRE EMENT. THE CONFIRMATION DATED 3 RD JANUARY 2005 OBTAINED IN THE COURSE OF THE TRANSFER PRICING PROCEEDINGS AFTER THE ISSUE REGARD ING THE AGREEMENT WAS RAISED CANNOT CONSTITUTE A CONTEMPORANEOUS EVI DENCE IN SUPPORT OF THE TRANSACTION. THE APPROVAL OF THE BOARD OF TH E ASSESSEE COMPANY FOR THE PAYMENT CANNOT ACT AS - A SUBSTITUTE FOR A FORMAL ARRANGEMENT SPECIFYING THE SERVICES THAT WOULD BE RENDERED AND THE COSTS THAT WOULD BE REIMBURSED SUCH AGREEMENT BEING ENTERED I NTO BEFORE THE TRANSACTION. IN RELATED PARTY SITUATIONS THE FACT THAT THE TRANSACTION IS DULY AUTHORIZED BY THE BOARD OF HE ASSESSEE COMPANY OR THE OVERSEAS ENTITY IN ITSELF DOES NOT ESTABLISH THAT THE TRANSA CTION IS AT ARMS LENGTH. IN A THIRD PARTY SITUATION NO ENTITY WILL ACCEPT THE BURDEN OF THE COSTS INCURRED BY THE OTHER PARTY UNLESS A SPEC IFIC AGREEMENT IS REACHED BEFORE THE COSTS ARE INCURRED AND THE AGREE MENT SPECIFIES THE NATURE AND PURPOSE OF THE COSTS AND THE RESPECTIVE SHARE OF EACH PARTY IN IT. (F) FROM ALL THESE SUBMISSIONS OF THE ASSESSEE IT I S SEEN THAT ALTHOUGH THE CHARGE IS STATED AS A PURE COST ALLOCATION FRO M THE ASSESSEES PERSPECTIVE THE SAME IS IN FACT A CHARGE ON THE ASS ESSEE FOR MARKETING SERVICES. IT IS ONLY THE QUANTUM OF THE CHARGE WHIC H IS LINKED WITH THE COSTS INCURRED IN THE HANDS OF THE OVERSEAS ENTITY. 11. IN VIEW OF THE ABOVE FACTS IT IS HELD THAT THE MARKETING COSTS INCURRED AND ALLOCATED BY DELOITTE TO THE ASSESSEE DOES NOT RESULT IN RENDERING OF ANY SERVICE TO THE ASSESSEE. THE ENTIR E COSTS OF ALL THE 17 MARKETING PERSONNEL OF DELOITTE IS ON ACCOUNT OF TH E FUNCTIONS TO BE PERFORMED BY DELOITTE UNDER THE SOFTWARE SERVICES A GREEMENT. DELOITTE IS BEING COMPENSATED ADEQUATELY FOR THESE FUNCTIONS. IN AN ARMS LENGTH SITUATION A SOFTWARE SERVICES PROVIDE R WHO RENDERS SERVICES TO ONLY ONE CLIENT AND WHO IS NOT EVEN EXP LORING THE POSSIBILITY OF PROVIDING SERVICES TO ANY OTHER THIRD PARTY IS N OT LIKELY TO UNDERTAKE ANY SIGNIFICANT MARKETING WHETHER ON ITS OWN OR THR OUGH ANY OTHER THIRD PARTY. FURTHER THE ASSESSEE CANNOT OBTAIN AN Y SALE UNLESS DELOITTE OUTSOURCES THE SAME TO THE ASSESSEE. HENCE ANY INCREASE IN ASSESSEES SALES IS BECAUSE IT IS ABLE TO PROVIDE G OOD SERVICES AT LOWER COSTS AND DELOITTE FINDS IF PROFITABLE TO PROCURE T HE SAME FROM THE ASSESSEE. 12. HENCE IT IS HELD THAT NO SERVICE IS RENDERED I N RESPECT OF THE AMOUNT PAID ON ACCOUNT OF COST ALLOCATION BY THE AS SESSEE. THE ARMS LENGTH PRICE FOR THE SAME IS HENCE DETERMINED AT NI L. THE TOTAL INCOME OF THE ASSESSEE HENCE INCREASES BY RS. 1 66 06 651/ -. 13. IT IS HEREBY CLARIFIED THAT THE FINDINGS AND DI SCUSSIONS MADE IN THIS ORDER ARE APPLICABLE ONLY IN RESPECT OF REFERENCE R ECEIVED FOR A.Y. 2002-03 AND NOT FOR SUBSEQUENT ASSESSMENT YEARS. 5. THE ASSESSING OFFICER PASSED HIS ORDER DATED 28 TH FEBRUARY 2005 UNDER SECTION 143(3) AND MADE AN ADJUSTMENT IN CONSONANC E OF THE ORDER DATED 10 TH FEBRUARY 2005 PASSED BY THE TPO UNDER SECTION 92C A(3) OF THE ACT. DELOITTE CONSULTING INDIA PVT. LTD. 8 6. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEA L WHEREIN BEFORE THE COMMISSIONER (APPEALS) THE ASSESSEE SUBMITTED THAT SPECIALIZATION IN SOFTWARE DEVELOPMENT SERVICES WAS IN SPECIFIC AREAS AND THAT THE GROWTH IS DEPENDENT ON THE ABILITY OF THE MARKETING PERSONNEL OF DELOITTE TO IDENTIFY AND SELL THE PRODUCT THAT COULD BE EXECUTED BY THE ASSESSEE AND THAT DELOITTE AS EARMARKED SOME OF ITS PERSONNEL WHOSE ROLE WAS TO MARKET THE OFF-SHORE MODEL OF THEIR JOINT VENTURE. IT WAS CLAI MED THAT THESE EARMARKED PERSONNEL HAD EXCLUSIVELY PERFORMED THE ACTIVITY OF MARKETING THE OFF-SHORE MODEL OF THE APPELLANT. IT JUSTIFIED THIS ARRANGEME NT AND ARGUED THAT ONLY SALARY AND OTHER TRAVEL RELATED COSTS OF THREE PERS ONS WERE REIMBURSED. IT WAS CLAIMED THAT THE COSTS ALLOCATION WAS IN ACCORD ANCE WITH THE JOINT VENTURE AGREEMENT. 7. THE COMMISSIONER (APPEALS) REJECTED THE CONTENTIONS OF THE ASSESSEE ON VARIOUS GROUNDS. HE HELD THAT (I) THE ROLE OF DELOITTE HAS TO MARKET AND GENERATE SALES AS WELL AS TO MANAGE CUSTOMER RELATIONS AND ENSURE DEL IVERY AS WELL AS BILLING AND THAT THIS WAS ALREADY DEFINED AS PER THE AGREEMENT BETWEEN DELOITTE AND ASSESSEE; (II) IT IS CLEAR THAT THE MARKETING FUNCTION HAS BE EN ALLOCATED TO DELOITTE AND THE ROLE OF THE ASSESSEE IS ONLY TO EX ECUTE THE PROJECT ON BEHALF OF THE DELOITTE AS PER AGREEMENT AND DELIVER THE OUT PUT TO THEM. THE COST OF MARKETING INCURRED BY THE DELOITTE IS RECOVERED FROM END CUSTOMERS BY WAY OF PRICE CHARGED TO THEM; (III) THE ASSESSEE REFUSED TO FILE DETAILS OF MARKE D-UP EARNED BY DELOITTE ON SALES MADE TO END CUSTOMERS AND HENCE THE TPO HAS RIGHTLY ASSUMED THAT DELOITTE HAD SUITABLY MAR KED-UP THE PRICE CHARGED TO THE END CUSTOMERS SO AS TO RECOVE R MARKETING COST; DELOITTE CONSULTING INDIA PVT. LTD. 9 (IV) PROCEDURE DESCRIBED IN CLAUSE (9) OF THE AGREE MENT FOR SECONDMENT OF EMPLOYEES WAS NOT FOLLOWED AND HENCE THERE IS NO SECONDMENT; (V) THAT THE ROLE OF THE ASSESSEE IN ITS AGREEMENT WITH DELOITTE IS LIMITED TO PROVIDE SOFTWARE AND THE IN FORMATION TECHNOLOGY SERVICES IN RESPECT OF THE PROJECT ASSIG NED TO IT BY DELOITTE AND TO DELIVER THE SAID OUTPUT TO DELOITTE WHICH IN TURN WAS RESPONSIBLE FOR DELIVERY OF THE SAME TO THE END CUSTOMER AND THAT IT IS THE DELOITTE WHICH IS RESPONSIBLE FO R GENERATION OF SALES AND MAINTENANCE OF CUSTOMER RELATIONSHIP AND UNDER THOSE CIRCUMSTANCES THERE IS NO LOGIC FOR REIMBURSEMENT OF MARKETING COST BY THE ASSESSEE TO DELOITTE. THERE IS NO STIPU LATION IN THE EXISTING AGREEMENT TOWARDS SHARING OF MARKETING COS T; 8. THE COMMISSIONER (APPEALS) VIDE PARA-11 OF HIS ORD ER HELD AS FOLLOWS:- 11. TO SUM-UP IN BRIEF THE DEFACTO FUNCTION OF TH E APPELLANT IS ONLY TO PROVIDE SOFTWARE AND I.T. SERVICES TO NONE OTHER THAN DELOITTE AND ONLY TO DELOITTE. HENCE THE APPELLANT CANNOT HAVE ANY FUNCTION TO PERFORM IN THE FIELD OF MARKETING BECAUSE ITS WHOLE AND SOLE MARKET IS ITS ASSOCIATE ENTERPRISE NAMELY DELOITTE. IN OTHER WORDS THE APPELLANTS SOLE MARKET AREA IS RESTRICTED TO DELOI TTE. THEREFORE THERE IS NO JUSTIFICATION FOR ANY ALLOCATION BY THE APPEL LANT OF THE MARKETING COSTS TO ITSELF IN RESPECT OF ANY SUCH COSTS INCURR ED BY DELOITTE. 9. THE COMMISSIONER (APPEALS) HELD THAT THE ARMS LENG TH PRICE (FOR SHORT ALP ) OF THE SAID INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND DELOITTE WAS PROPERLY DETERMINED BY THE TPO AT NIL . AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. THE GROUND OF APPEAL RAISED BY THE ASSESSEE FOR ASS ESSMENT YEAR 2002-03 ARE EXTRACTED BELOW:- GROUND 1: ERRONEOUS UPWARD ADJUSTMENT OF RS. 1 66 06 651 TO THE ARMS LENGTH PRICE DETERMINED BY THE APPELLANT IS B AD IN LAW DELOITTE CONSULTING INDIA PVT. LTD. 10 1.1 THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX- 2(2) MUMBAI (AO) UNDER SECTION 143(3) OF THE INC OME-TAX ACT 1961 (THE ACT) AND THE COMMISSIONER OF INCOME-TAX (APPEALS) XXXII MUMBAI [THE CIT(A)] UNDER SECTION 250 OF TH E ACT ARE BAD IN LAW AND ON FACTS. 1.2 THE LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF THE AO MAKING AN ADDITION OF RS.1 66 06 651/- TO THE TOTAL INCOME OF THE APPELLANT IN RESPECT OF THE REIMBURSEMENTS MADE BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE - DELOITTE CONSULTING LP USA (DELOITTE) . 1.3 THE LEARNED CIT(A) ERRED IN FACTS IN CONFIRMING THAT NO SERVICES WERE RENDERED TO THE APPELLANT BY THE SECONDED PERS ONNEL OF DELOITTE DURING THE SAID ASSESSMENT YEAR. 1.4 BASED ON FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN LAW IN NOT DEMONSTRATING THE MOTIVE OF THE APPELLANT TO SHIFT PROFITS OUTSIDE INDIA BY MANIPULATING THE PRICES CH ARGED IN ITS INTERNATIONAL TRANSACTIONS. 1.5 THE CIT(A) ERRED IN LAW AND FACTS IN DISREGARDI NG THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SHAHZADA NAND & SONS 108 ITR 358. GROUND 2: REFERENCE TO THE TRANSFER PRICING OFFICER IS BAD IN LAW 2.1 THE LEARNED CIT(A) ERRED IN LAW IN NOT CONSIDER ING THE FACT THAT THE AO DID NOT RECORD ANY REASONS TO SHOW THE CONDITION S MENTIONED IN CLAUSE (A) TO (D) OF SECTION 92C(3) OF THE ACT WERE SATISFIED BEFORE MAKING A REFERENCE OF THE APPELLANTS CASE TO THE T PO UNDER SECTION 92CA(L) OF THE ACT AND THEREFORE THE APPELLANT PRAY S THAT THE REFERENCE MADE BY THE AO TO THE TPO WAS NOT IN ACCORDANCE WIT H THE LAW. GROUND 3: OTHER GROUNDS 3.1 THE LEARNED CIT(A) ERRED IN CONFIRMING LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. 3.2 THE LEARNED CIT(A) ERRED IN CONFIRMING THE INIT IATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 11. BEFORE US THE LEARNED COUNSEL MR. ARVIND SONDE S UBMITTED THAT HE IS NOT ADVANCING ANY ARGUMENTS ON GROUNDS NO.1.4 1.5 AND 2. THUS THESE GROUNDS ARE DISMISSED AS NOT PRESSED . 12. GROUND NO.3 IS ON THE LEVY OF INTEREST UNDER SECTI ON 234B OF THE ACT. THIS IS DISMISSED AS LEVY OF INTEREST IS MANDATORY AND CONSEQUENTIAL. GROUND DELOITTE CONSULTING INDIA PVT. LTD. 11 NO.3.2 IS ON THE ISSUE OF INITIATION OF PENALTY UN DER SECTION 271(1)(C). THIS IS DISMISSED AS NOT MAINTAINABLE. 13. THIS LEAVES US WITH GROUNDS NO.1.1 1.2 AND 1.3. GR OUND NO.1.1 IS GENERAL IN NATURE. WE NOW CONSIDER GROUNDS NO.1.2 A ND 1.3. 14. THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED THE FACTS OF THE CASE AT LENGTH. HE POINTED OUT THAT THE JOINT VENTURE AGREE MENT DATED 18 TH JULY 2001 WAS THE PRE-INCORPORATION AGREEMENT AND IT WA S FOR FULFILLING THE CONDITIONS STIPULATED IN THE JOINT VENTURE AGREEMEN T THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 30 TH JULY 2001 AS A PRIVATE LIMITED COMPANY. HE DREW THE ATTENTION OF THE BENCH THAT THE JOINT V ENTURE AGREEMENT WHICH IS AT PAGE-104 OF ASSESSEES PAPER BOOK BETWEEN DELOITTE CONSULTING L.I AND MASKET LIMITED DATED 18 TH JULY 2001. HE ALSO REFERRED TO THE MASTER SERVICE AGREEMENT BETWEEN DELOITTE AND THE ASSESSEE COMPANY AS WELL AS THE SERVICE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND MASKET LTD. HE SUBMITTED THAT THE NEWLY INCORPORATED COMPANY WAS R EQUIRED TO RATIFY THE JOINT VENTURE AGREEMENT. HE EXPLAINED THAT THE DELO ITTE WAS CONDUCTING THE FRONT OFFICE OPERATIONS AND MASKET LTD. WAS TO PERF ORM THE BACK OFFICE OPERATION TO PUT IT IN COMMON PARLANCE. HE REFERRE D TO VARIOUS RESPONSIBILITIES AND OBLIGATION OF THE PARTIES AS P ER AGREEMENT. HE DREW SPECIFIC ATTENTION TO CLAUSES 9.1.1. TO 9.1.4 OF TH E JOINT VENTURE AGREEMENT WHICH DEALS WITH PERSONNEL . HE EMPHASIZED THAT THE AGREEMENT DOES NOT PROVIDE FOR ANY MARK-UP AND IT IS A CASE OF COST RE IMBURSEMENT. HE POINTED OUT THAT OUT OF 17 PERSONNEL IN THE MARKETING FIELD THE COST OF ONLY THREE PERSONS WAS SOUGHT TO BE COLLECTED AS REIMBURSEMENT FROM THE ASSESSEE. HE REFERRED TO THE ORDER DATED 24 TH MARCH 2004 PASSED UNDER SECTION 201(1) 201(A) OF THE ACT BY THE JT. DIRECTOR OF INCOME TA X RANGE-3 WHICH IS PLACED AT PAGE-185 OF THE ASSESSEES PAPER BOOK AND SUBMITTED THAT THE FACT THAT THIS IS A REIMBURSEMENT WAS ACCEPTED BY THE R EVENUE. HE ARGUED THAT IT IS A CASE OF PURE REIMBURSEMENT OF ACTUAL EXPEND ITURE AND HENCE THE QUESTION OF DETERMINING ALP DOES NOT ARISE. 15. HE FURTHER SUBMITTED THAT DELOITTE CONSULTING INDIA PVT. LTD. 12 (I) THE SCOPE OF TPO IS TO COMPUTE THE ALP AND IT I S A DOMAIN OF THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER A PARTICULAR EXPENDITURE IS ALLOWABLE OR NOT. HE ARGUED THAT THE TPO IS NOT EMPOWERED TO DISALLOW THE EXPENDITURE AND UNDER SEC TION 92CA(1) R/W SECTION 92F(II) OF THE ACT; THE ONLY PO WER GIVEN TO THE TPO IS TO DETERMINE ALP. HE REFERRED TO THE PLA IN LANGUAGE IN THE ACT AND THE CBDT INSTRUCTIONS DATED 20 TH MAY 2003 AND ARGUED THAT THE DETERMINATION OF ASSESSABLE INCOME HAS NOT BEEN OUTSOURCED TO THE TPO AND THAT THIS REMAINS TH E DOMAIN OF THE ASSESSING OFFICER. HE RELIED ON THE FOLLOWING C ASE LAWS:- HONDA SIEL CARS INDIA LTD. VS. ACIT (2010) 001 IT R (TRIB.) 497 (DEL.); AND SONY INDIA P. LTD. VS CENTRAL BOARD OF DIRECT TAXES [2007] 288 ITR 052 (DEL.). (II) THE SECOND PROPOSITION ARGUED IS THAT THE JOINT VE NTURE AGREEMENT WAS PRIOR TO THE INCORPORATION OF THE ASS ESSEE COMPANY AND THAT THIS JOINT VENTURE PUTS AN OBLIGAT ION ON THE ASSESSEE POST INCORPORATION TO REIMBURSE THE MARKETING COSTS AND HENCE THE PAYMENT IS JUSTIFIE D. HE RELIED ON THE FOLLOWING CASE LAWS:- PHILIP JOHN PLASKET THOMAS V/S CIT [1963] XLIX ITR (SC) 97. (III) THAT THIS IS A CASE OF REIMBURSEMENT OF EXPENSES AN D HENCE NO REFERENCE CAN BE MADE TO THE TPO. HE RELI ED ON THE FOLLOWING CASE LAWS FOR VARIOUS PROPOSITIONS WH ICH WE WOULD BE DEALING IN DUE COURSE. FOLLOWING CASE LAWS HAVE BEEN RELIED UPON BY THE LEARNED COUNSEL:- CUSHMAN & WAKEFIELD INDIA PVT. LTD. V/S ACIT 2011-TII- 121-ITAT-DEL-TP; ARICENT TECHNOLOGIES (HOLDING) LTD. V/S DCIT [2011 ] 9 TAXMAN.COM 287 (DEL.); DELOITTE CONSULTING INDIA PVT. LTD. 13 DRESSER-RAND INDIA P. LTD. V/S ACIT [2011] 13 TAXMAN.COM (TRIB.) 82 (MUM.); AND AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. V/S ACIT [2007] 107 ITD (BANGLORE) 141 (SB). (IV) THAT IF IT IS A CASE OF REVENUE THAT IT IS ONLY A J OB WORK DONE FOR DELOITTE THEN THE REIMBURSEMENT SHOULD NO T BE TAKEN AS A SEPARATE INTERNATIONAL TRANSACTION AND M ARGIN SHOULD BE ACCORDINGLY COMPUTED BY AGGREGATING THES E TRANSACTIONS WITH THE OTHER TRANSACTIONS. HE SUBMITTED FIGURES AND CALCULATIONS TO DEMONSTRAT E THAT IN SUCH A CASE OPERATING MARGIN WOULD BE MORE THAN THE ALP ACCEPTED BY THE TPO. HE TRIED TO DEMONSTRATE TH AT BOTH THE ENTITIES HAVE TRANSACTED AT ALP. ON A QUER Y FROM THE BENCH THE LEARNED COUNSEL FAIRLY CONCEDED THAT THESE ARGUMENTS WERE NOT ADVANCED EITHER BEFORE THE TPO O R THE ASSESSING OFFICER OR THE FIRST APPELLATE AUTHORITY AND THAT SUCH A CLAIM WAS NOT MADE IN THE TP STUDY. (V) THE LAST PROPOSITION WAS THAT THE TPO HAS NEITH ER ADOPTED ANY METHOD TO DETERMINE THE ALP AS EXPENDITURE IN CURRED NOR HAS SHE TAKEN ANY COMPARABLE. THUS HE SUBMITTE D THAT THE ORDER PASSED BY THE TPO IS BAD-IN-LAW. 16. FOR ASSESSMENT YEAR 2003-04 THE LEARNED COUNSEL SU BMITTED THAT THE ARGUMENTS FOR THE ASSESSMENT YEAR 2002-03 ARE ADOP TED FOR THIS YEAR. 17. FOR ASSESSMENT YEARS 2004-05 2005-06 AND 2006-07 THE LEARNED COUNSEL SUBMITTED THAT THE SITUATION IS DIFFERENT A S THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN I-GATE GLOBAL SOLUTIONS LT D. V/S ACIT [2007] 112 TTJ (BANG.) 1002 WAS AVAILABLE AND HENCE THE ASS ESSEE CHOSE TO FILE REVISED RETURN OF INCOME FOR ASSESSMENT YEARS 2004- 05 AND 2005-06 OFFERING THE TP ADJUSTMENT AS INCOME AND CLAIMED EXEMPTION U NDER SECTION 10A. THE ADJUSTMENTS MADE BY THE TPO IS NOT IN DISPUTE IN T HESE YEARS. FOR THE DELOITTE CONSULTING INDIA PVT. LTD. 14 ASSESSMENT YEAR 2006-07 HE SUBMITTED THAT IN THE O RIGINAL RETURN OF INCOME ITSELF THE ASSESSEE HAS SUO-MOTU MADE THE ADJUSTME NT OF ALP INCREASED ITS INCOME AND FILED ITS RETURN OF INCOME AND CLAIMED E XEMPTION UNDER SECTION 10A. HE RELIED ON THE DECISION OF BANGALORE CO-ORDI NATE BENCH OF THE TRIBUNAL IN I-GATE GLOBAL SOLUTIONS LTD. (SUPRA) AND ARGUED THAT THE ISSUE IS COVERED AND THE ASSESSEE SHOULD BE GRANTED EXEMPTION UNDER SECTION 10A FOR THE ASSESSMENT YEARS 2004-05 2005-06 AND 2006-07. ON A QUERY FROM THE BENCH HE ADMITTED THAT NO FRESH FORM NO.3CEB HAD BEEN FILED. HE SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY IG NORED THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE FOR ASSESSMENT YEAR S 2004-05 AND 2005-06. 18. LEARNED DEPARTMENTAL REPRESENTATIVES MRS. MALATHI SRIDHARAN ALONG WITH MR. JITENDRA YADAV REPRESENTING THE REVENUE OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE AND POINTED OUT THAT THE LEARNED COUNSEL HAS RAISED A NUMBER OF NEW ISSUES WHICH WER E NEVER ARGUED EITHER BEFORE THE TPO OR BEFORE THE ASSESSING OFFICER OR B EFORE THE CIT(A). THEY POINTED OUT THAT THE ASSESSEE HAS NOT RAISED THESE ISSUES IN THE GROUNDS OF APPEAL. SHE SUBMITTED THAT IN FACT NO ARGUMENTS W ERE ADVANCED ON GROUNDS NO.1.4 1.5 2 AND 3. MR. JITENDRA YADAV S UBMITTED THAT ON FACTUAL ISSUE AS TO WHETHER ANY SERVICES WERE RENDERED THE LEARNED COUNSEL HAS NOT LED ANY CONTEMPORANEOUS EVIDENCE AS POINTED OUT BY THE COMMISSIONER (APPEALS) IN HIS ORDER AND THAT THE ASSESSEE HAS NO T RAISED ANY GROUND OF APPEAL ON THIS ISSUE. HE ONCE AGAIN DREW THE ATTENT ION OF THE BENCH TO VARIOUS CLAUSES IN THE JOINT VENTURE AGREEMENT WHI CH IS PLACED AT ASSESSEES PAPER BOOK PAGE-104 MASTER SERVICE AGREEMENT BETWE EN DELOITTE AND THE ASSESSEE COMPANY SERVICE AGREEMENT BETWEEN THE ASS ESSEE COMPANY AND MASTEK LTD. HE SUBMITTED THAT FOR ARRIVING AT ALP IT IS NECESSARY FOR THE TPO TO EXAMINE THESE AGREEMENTS AND SUBMITTED THAT THE TPO HAS RIGHTLY RELIED ON THESE AGREEMENTS TO DETERMINE THE ALP AT NIL . 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE FILED A PAP ER BOOK RUNNING INTO 45 PAGES AND SUBMITTED THAT DELOITTE CONSULTING INDIA PVT. LTD. 15 (I) THE JOINT VENTURE AGREEMENT IS ONLY AN IN-PRINCIPLE COMMITMENT OF THE JOINT VENTURE PARTNERS TO COMMIT VARIOUS RESOURCES TO THE ASSESSEE; (II) MASTEK LTD. AGREES TO PLAY A LEAD ROLE IN ACCORDANC E WITH THE TERMS OF SERVICE AGREEMENT AND DELOITTE AGREES THAT IT WILL PLAY A LEAD ROLE IN TERMS OF MASTER SERVICE AG REEMENT. THAT THE JOINT VENTURE AGREEMENT IS ONLY AN IN-PRIN CIPLE AGREEMENT WHEREAS FUNCTIONS WERE TO BE PERFORMED STRICTLY IN TERMS OF SERVICE AGREEMENT AND MASTER S ERVICE AGREEMENT AND HENCE THE ARGUMENT THAT THE ASSESSE E HAS AN OBLIGATION TO REIMBURSE CERTAIN EXPENDITURE AS PER THE JOINT VENTURE AGREEMENT WHICH IS A PRE-INCORPOR ATION AGREEMENT IS FACTUALLY INCORRECT. HE REFERRED TO PA RA-2 OF MASTER SERVICE AGREEMENT WHICH IS PLACED AT THE PAP ER BOOK PAGE-(8) FILED BY THE REVENUE AND POINTED OUT THE SERVICE THAT ARE TO BE PROVIDED TO DELOITTE BY THE ASSESSEE AND TO PARA-3 AT PAGE-9 LISTING OUT THE FUNCTIONS TO BE PREFORMED BY THE DELOITTE. HE CONTENDED THAT AS PER PARA- 3(B) WHICH IS AT REVENUES PAPER BOOK PAGE-10 THE ASSESSEE IS NOT TO IMPEDE OR INTERFERE WITH A CONTR ACTUAL RELATIONSHIP BETWEEN THE CLIENT AND DELOITTE. THE A SSESSEE HAS NO ROLE OF INTERACTING TO MODIFY CANCEL RENEW OR EXTEND THE CONTRACT EVEN AFTER EXPIRY OF AGREEMENT UNLESS DELOITTE EXPRESSLY PERMIT THEM IN WRITING. THUS IT WAS SUBMITTED THAT IT WAS AN EFFECTIVE SEPARATION BETWE EN THE ASSESSEE AND THE CLIENT AS REGARDS MARKETING AND SA LES FUNCTION AND THAT THE ENTIRE MARKET RISK IS TO BE B ORNE BY THE DELOITTE ONLY; (III) THE ASSESSEE HAS TO BILL DELOITTE ON AN HOURLY BASI S AND THE DELOITTE IS SUPPOSED TO PAY WITHIN SIXTY DAYS OF IN VOICE DATE IRRESPECTIVE OF WHETHER THE DELOITTE HAS RECEI VED THE DELOITTE CONSULTING INDIA PVT. LTD. 16 PAYMENTS FROM THE CLIENTS UNLESS THERE ARE ISSUES RELATING TO QUALITY. HENCE BILLING RISK IS EXCLUSIVE WITH D ELOITTE; (IV) ENTIRE SALES OF THE ASSESSEE IS ONLY TO DELOITTE AN D HENCE IT HAS NO MARKETING AND SALES FUNCTIONS TO BE PREFO RMED; (V) BILLING WAS PURELY ON HOURLY BASIS BY THE ASSESSEE TO DELOITTE AND DELOITTE ENJOYED THE MARK-UP IN ITS BI LLING TO CLIENTS. THE MARK-UP WAS NOT DISCLOSED AND IT SHOUL D BE PRESUMED THAT MARK-UP WAS ALSO FOR PERFORMING MARKE TING AND SALES FUNCTION. (VI) ON THE BASIS OF JOINT VENTURE AGREEMENT AND MASTER SERVICE AGREEMENT AND THE RECITALS THEREIN THERE I S NO MANDATE WHATSOEVER ON THE ASSESSEE TO BEAR MARKET R ISK AS WELL BILLING RISK. THAT THE SALES FUNCTION THE MARKET FUNCTION AND THE BILLING FUNCTION ARE EXCLUSIVE DOM AIN OF DELOITTE AND THERE IS ABSOLUTELY NO ROLE FOR THE AS SESSEE AS PER THE MANDATE OF THIS AGREEMENT. HENCE NO EXPEND ITURE WAS REQUIRED TO BE INCURRED ON MARKETING AND HENCE THE ALP IS NIL . 20. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS IT WAS ARGUED THAT EVEN IF THERE IS A MANDATE AS PER THE AGREEMENTS THE PROCE DURES DESCRIBED FOR SECONDMENT OF EMPLOYEES WAS NOT FOLLOWED AND THIS P ROVES THAT THERE IS NO SECONDMENT AT ALL. THE CONFIRMATION AT ASSESSEES P APER BOOK AT PAGES-123 TO 125 WAS ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE NOT CONTEMPORANEOUS EVIDENCE AS IT WAS EXECUTED AT A L ATER DATE THAT TOO AT THREE DIFFERENT PLACES. 21. ATTENTION OF THE BENCH WAS DRAWN TO THE E-MAILS PLA CED AT PAGES-138 TO 182 OF THE ASSESSEES PAPER BOOK AND IT WAS SUBM ITTED THAT ALL THOSE E- MAILS WHICH THE ASSESSEE SOUGHT TO FILE AS CONTEMP ORANEOUS EVIDENCE TO PROVE RENDERING OF SERVICES BY THREE EMPLOYEES OF D ELOITTE TO THE ASSESSEE DELOITTE CONSULTING INDIA PVT. LTD. 17 COMPANY ARE RIGHTLY REJECTED AS EVIDENCE AS THE E -MAILS DISCLOSE THAT THESE THREE PERSONS WERE DEALING ONLY WITH BILLING RELATE D ACTIVITIES AND NOTHING ELSE. THE E-MAILS ACCORDING TO THE LEARNED DEPARTM ENTAL REPRESENTATIVE REFLECT THE BILLING PROCESS CHECKING AND GRANTING OF APPROVAL OF THESE BILLS AND THE FOLLOW UP OF BILLS FROM THE CLIENT. THUS H E SUBMITTED THAT THERE IS NO SALES AND MARKETING SERVICES RENDERED BY THESE THRE E PERSONS OF DELOITTE TO THE ASSESSEE COMPANY AS CLAIMED. 22. ON LEGAL ISSUE THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT (I) THE ASSESSEE IN THE TRANSFER PRICING RE VIEW STATED THAT THERE ARE THREE DISTINCT CLASSES OF INTERNATIONAL TRANSACTION S. TWO OF THESE CLASS OF INTERNATIONAL TRANSACTIONS HAVE BEEN SEPARATELY BEN CH MARKED BY THE ASSESSEE EXCEPT THE THIRD CLASS OF INTERNATIONAL TR ANSACTION; (II) THAT PROVISIONS OF SECTIONS 92(2) AND SECTION 92F MANDA TE THAT COST ALLOCATION HAS TO BE AT ALP AND BENCH MARKING OF THE COST OF S ERVICES HAS TO BE MADE AT RATES AVAILABLE TO THE ASSESSEE IN THE MARKET; ( III) THAT THE ASSESSEE HAS FAILED TO APPLY ANY METHOD TO DETERMINE ALP IN THE CASE OF THE THIRD CLASS OF INTERNATIONAL TRANSACTIONS IN DISPUTE AND HENCE F AILED TO DISCHARGE THE ONUS THAT LAY ON IT. RELIANCE WAS PLACED ON THE DECISION OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. (SUPRA); (IV) WHEN THE ASS ESSEE FAILED TO DISCHARGE ITS ONUS THEN THE ASSESSING OFFICER IS EMPOWERED U NDER SECTION 92C(3) TO PROCEED WITH DETERMINATION OF ALP; (V) WHEN ADMITT EDLY THERE ARE THREE SETS OF INTERNATIONAL TRANSACTIONS THEY CANNOT BE CLUBBED AS IT WOULD TANTAMOUNT TO FOLLOWING ENTITY LEVEL APPROACH WHICH IS NOT PERMITTED; (VI) THAT THE ALP CAN BE DETERMINED AT NIL WHEN NO SERVICES ARE RENDERED RELIANCE WAS PLACED ON THE DECISION OF A BANGALORE CO-ORDINATE BENCH IN ITA NO.352/BANG./2009 M/S. GEMPLUS INDIA PVT. LTD. V/S ACIT ORDER DATED 21 ST OCTOBER 2010 2010-TII-55-ITAT-BANG-TP; (VII) THAT THE CONTENTION OF THE ASSESSEE THAT ITS CLAIM OF REIMBURSEMENT WAS ACCEPT ED IN PROCEEDINGS UNDER SECTION 201 OF THE ACT IT IS ARGUED THAT THIS DOES NOT ACT AS A BAR ON INVESTIGATION BY THE TPO AND HIS ARRIVING AT THE AL P. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT I N ADITYA BIRLA NUVO LTD. DELOITTE CONSULTING INDIA PVT. LTD. 18 V/S DCIT [2011] 12 TAXMAN.COM 141 (BOM.) AND SUBMI TTED THAT THESE SECTIONS OPERATE IN DIFFERENT FIELDS. 23. ON THE ARGUMENT THAT THE DISALLOWANCE OF EXPENDITUR E IS THE DOMAIN OF THE ASSESSING OFFICER LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE TPO DETERMINED THE ALP AT NIL AND THAT HE HAD NEITHER MADE ANY DISALLOWANCE NOR HAD HE STEPPED INTO THE SHOES OF T HE ASSESSING OFFICER. HE DISPUTED THE ARGUMENT THAT ONCE THE ASSESSING OFFIC ER REFERS A TRANSACTION TO THE TPO FOR DETERMINING ALP ALLOWABILITY OF EXPEND ITURE UNDER SECTION 37 OF THE ACT IS A FORGONE CONCLUSION BY SUBMITTING THA T AS PER THE INSTRUCTION OF CBDT THE MOMENT THE INTERNATIONAL TRANSACTIONS CRO SSES A PARTICULAR THRESH HOLD THE ASSESSING OFFICER IS BOUND TO MAKE A REFE RENCE TO THE TPO AUTOMATICALLY AND HENCE IT CANNOT BE A CASE OF AP PLICATION OF MIND. RELIANCE WAS PLACED ON OECD GUIDELINES AND IT WAS SUBMITTED THAT THE TP ADJUSTMENTS WOULD NOT EFFECT UNDERLINING CONTRACTUA L OBLIGATION EVEN WHEN THERE IS NO INTENT TO MAXIMIZE OR AVOID TAX. SHE DI STINGUISHED THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE AND SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN DRESSER-RAND INDIA P. L TD. (SUPRA) IS ON COST CONTRIBUTION AND THE CASE OF CUSHMAN & WAKEFIELD IN DIA PVT. LTD. (SUPRA) THERE WAS NO DISPUTE AS TO WHETHER SERVICES WERE AV AILABLE. 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE MRS. MALAT HI SRIDHARAN ARGUING ON THE REVISED RETURN OF INCOME SUBMITTED T HAT THE ASSESSEE IN ITS TP STUDY HAS NOT AMENDED THE ALP AND THAT THE ALP COMPUTED BY THE TPO STANDS. IN THE REVISED RETURN OF INCOME SHE POINTE D OUT THAT ONLY MARKETING EXPENSES WERE DISALLOWED AND ADDED TO INCOME AND NO SPECIFIC TP ADJUSTMENT WAS DONE. SHE DREW THE ATTENTION OF THE BENCH AT PAPER BOOK PAGES-56 TO 90 FOR ASSESSMENT YEAR 2005-06 AND PAP ER BOOK PAGES-17 TO 54 FOR ASSESSMENT YEAR 2006-07 AND SUBMITTED THAT THE ASSESSEE MERELY MADE AN ENHANCED CLAIM UNDER SECTION 10A BY ADDING BACK ITS CLAIM OF EXPENDITURE. SHE POINTED OUT THAT FOR THE THREE ASS ESSMENT YEARS I.E. 2004- 05 2005-06 AND 2006-07 THE ASSESSEE HAS NOT CHALL ENGED THE UPWARD ADJUSTMENT MADE BY THE TPO. SHE DISTINGUISHED THE B ANGALORE BENCH DELOITTE CONSULTING INDIA PVT. LTD. 19 DECISION OF THE TRIBUNAL IN I-GATE GLOBAL SOLUTIONS LTD. (SUPRA) BY SUBMITTING THAT THERE THE ASSESSEE DETERMINED THE ALP AND MADE AN UPWARD REVISION IN ITS RETURN OF INCOME AND WHEREAS IN THE CASE OF HAN D ALP WAS NOT REVISED. SHE REFERRED TO VARIOUS SECTIONS OF THE ACT AND TH E OBJECTS SOUGHT TO BE ACHIEVED BY THE LEGISLATURE WHILE INTRODUCING THE T P PROVISIONS AND POINTED OUT THAT THE ENTIRE OBJECT IS TO PREVENT SHIFTING O F PROFITS AND ARGUED THAT THIS OBJECT WOULD NOT BE ACHIEVED IF CLAIM UNDER SE CTION 10A IS GRANTED. SHE POINTED OUT THAT IN AZTEC SOFTWARE & TECHNOLOGY SER VICES LTD. (SUPRA) THE TRIBUNAL REFERRED TO FURTHER CONSEQUENCES THEN MERE SHIFTING OF PROFITS. SHE POINTED OUT THAT THE RETURN OF INCOME FOR ASSESSMEN T YEAR 2004-05 WAS FILED BEYOND ONE YEAR AND THAT FOR BOTH THE ASSESSMENT YE ARS 2004-05 AND 2005- 06 THE REVISED RETURNS OF INCOME CANNOT BE ADMITTE D AS THERE IS NO OMISSION OR A WRONG STATEMENT IN THE ORIGINAL RETURN OF INCO ME. HE RELIED ON A NUMBER OF CASE LAWS IN SUPPORT OF HER CONTENTIONS. SHE FUR THER SUBMITTED THAT THE FINDINGS OF THE COMMISSIONER (APPEALS) AT PAGE-6 P ARA-3.3.4 ON THE ALLOWABILITY FOR DEDUCTION UNDER SECTION 10A HAVE NOT BEEN DISPUTED BY THE LEARNED COUNSEL FOR THE ASSESSEE. SHE POINTED OUT T HAT THE CONDITIONS STIPULATED UNDER SECTION 10A HAVE NOT BEEN FULFILL ED. 25. LEARNED COUNSEL FOR THE ASSESSEE IN REPLY SUBMITT ED THAT THERE ARE NO FRESH GROUNDS OF APPEAL RAISED AND THAT THE GROUND RAISED IS BROAD ENOUGH TO COVER FRESH ARGUMENTS RAISED BEFORE THE TRIBUNAL. H E SUBMITTED THAT BOTH THE PAYMENTS AND RECEIPTS BY DELOITTE TO THE ASSESS EE COMPANY HAVE TO BE CONSIDERED AS A WHOLE AND WHEN PROPERLY ANALYSED I T SHOULD BE TAKEN AS A SINGLE SET-OF TRANSACTIONS. HE COUNTERED VARIOUS AR GUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE BY SUBMITTED THAT (I) INTERFACE WITH CLIENT IS ALLOWED TO THE ASSESSEE ONLY AFTER AN AGREEMENT IS ENTERED BETWEEN THE CLIENT AND DELOITTE AND (II) THAT THE ROLE OF THREE PERSONS IS TO EXPLAIN THE CAPACITIES OF THE ASSESSEE TO CLIENTS AND GET BUSIN ESS THROUGH DELOITTE; (II) THERE IS NO WRITTEN AGREEMENT OR LEGAL REQUIREMENT PRESCRIBED FOR SECONDMENT OF EMPLOYEES AND CONFIRMATION IS GOOD EV IDENCE; (III) THAT WHAT IS PAID BY THE ASSESSEE TO DELOITTE IS AT BEST A DI SCOUNT GIVEN BY ASSESSEE TO DELOITTE CONSULTING INDIA PVT. LTD. 20 DELOITTE FROM THE BILLS RAISED BY IT. HE DISTINGUIS HED THE DECISIONS RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. 26. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD AS WELL AS THE CASE LAWS CITED BEFORE US WE HOLD AS FOLLOW S:- 27. IN THE TP STUDY FOR ASSESSMENT YEAR 2002-03 THE A SSESSEE HAS DESCRIBED THE OPERATIONS AS FOLLOWS:- APPLICATION DEVELOPMENT AND IMPLEMENTATION APPLICATION MANAGEMENT OFFSHORE DEVELOPMENT OUTSOURCING CONVERSION AND MIGRATION ENTIRE TURNOVER OF MDOCDC REPRESENTS EARNINGS FROM DELOITTE FOR PROVIDING SOFTWARE DEVELOPMENT AND I.T. SERVICES. 28. AT PAGE-16 OF THE TP REPORT IT IS STATED AS FOLLOW S:- 3.3 INTERNATIONAL TRANSACTIONS OF MASKET DELOITTE OFFSH ORE DEVELOPMENT COMPANY LTD. THE FOLLOWING INTERNATIONAL TRANSACTIONS UNDERTAKEN DURING THE FINANCIAL YEAR ENDED MARCH 31 2002 HAVE BEEN REVIEWED IN TH IS REPORT. 1) SOFTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY SER VICES PROVIDED BY MDCODC TO DELOITTE; 2) SOFTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY SER VICES PROVIDED BY MAJESCO TO MDCODC AND 3) MARKETING SERVICES PROVIDED BY DELOITTE TO MDCODC. 29. AT PAGE-28 OF THE TP REPORT THE TRANSACTIONS IN QU ESTION I.E. NO.3 IS DESCRIBED AS FOLLOWS:- TRANSACTION 3: MARKETING SERVICES RENDERED BY DELOI TTE TO MDCODC DELOITTE HAS DEPLOYED ITS THREE SENIOR MANAGERS TO UNDERTAKE FULL TIME MARKETING FOR MDCODC DELOITTE IDENTIFIES CLIENT OPP ORTUNITIES EITHER NEW OPPORTUNITIES OR EXISTING OPPORTUNITIES TO BE DELIVERED USING THE OFFSHORE MODEL. IN THIS CONNECTION PARTNERS/SENIOR MANAGERS OF DELOITTE CONSULTING INDIA PVT. LTD. 21 DELOITTE REACH OUT TO THE ASSIGNED SENIOR MANAGERS AND INVOLVE THEM IN THE SALES PROCESS. THE ASSIGNED SENIOR MANAGERS ADD CONTENT TO THE PR OPOSAL AND VALIDATE IT FOR CORRECTNESS USING THE OFFSHORE MODE L. THE ASSIGNED MANAGERS WOULD ALSO ATTEND THE ORAL PRESENTATION AR ID PROPOSE AND/OR DEMONSTRATE THE OFFSHORE DELIVERY MODEL AND CAPABIL ITIES. ONCE THE ENGAGEMENT EXECUTION IS UNDERWAY THE ASSIGNED MANAG ERS WOULD IDENTIFY THE APPROPRIATE ONSITE/OFFSHORE TEAM MIX A S PROPOSED IN THE PROPOSAL AND MONITOR THE STATUS AND QUALITY OF THE ENGAGEMENT. THE ASSIGNED MANAGERS WOULD ALSO CHECK ON THE ACCOUNTIN G AND THE INVOICING PROCESSES. IN CONNECTION WITH THE ASSIGNMENT OF THE SENIOR MAN AGERS DELOITTE WOULD CROSS-CHARGE (WITHOUT ANY MARK UP) THE SALARY COST (INCLUDING OTHER BENEFITS AS WELL AS THEIR OUT OF POCKET EXPEN SES) OF THE SAID SENIOR MANAGERS TO MDCODC. MDCODC CLAIMS THE SAID E XPENSES AS MARKETING EXPENSES IN ITS BOOKS. 30. THEREAFTER AT PAGE-20 OF THE TP REPORT IT IS STAT ED AS FOLLOWS:- SEARCH FOR INTERNAL COMPARABLES INTERNAL TRANSACTIONS OCCUR WHEN EITHER (MAJESCO/DE LOITTE) OR MDCODC ENGAGES IN SIMILAR TRANSACTIONS WITH UNRELATED ENTI TIES. INTERNAL CORNPARABLES RELEVANT TO THE TRANSACTION B ETWEEN MDCODC. AND (MAISCC/DELOIE) WOULD INCLUDE THE FOLLOWING: MDCODC PROVIDING CONTRACT SOFTWARE SERVICES TO UN RELATED PARTIES. DELOITTE CONTRACTING SOFTWARE SERVICES TO UNRELAT ED PARTIES. MAJESCO PROVIDING CONTRACT SOFTWARE SERVICES TO U NRELATED PARTIES BASED ON OUR DISCUSSIONS WITH THE MANAGEMENT OF MDC ODC WE HAVE BEEN INFORMED THAT MDCODC DOES NOT RENDER ANY SOFTW ARE SERVICES TO THIRD PARTIES (EITHER IN INDIA OR OUTSIDE INDIA). THE MANAGEMENT FURTHER INFORMED THAT THE SOFTWARE SERVICES RENDERE D BY MAJESCO TO MDCODC ARE NOT SIMILAR TO THE SERVICES PROVIDED BY MAJESCO TO THIRD PARTIES. ALSO THE MANAGEMENT HAS INFORMED US THAT THE SOFTWARE SERVICES OBTAINED BY DELOITTE FROM THIRD PARTIES AR E NOT SIMILAR TO THE SERVICES OBTAINED BY DELOITTE FROM MDCODC. THIS IS PRIMARILY ON ACCOUNT OF REQUIREMENTS OF DIFFERENT SKILL-SETS EX PERIENCE KNOWLEDGE LEVELS COMPLEXITY OF THE SOFTWARE PROJECTS HANDLED RISK BEARING CAPABILITIES ETC. THE MANAGEMENT ALSO INFORMED THAT MDCODC WAS THE SOLE ENTITY IN INDIA PROVIDING OFFSHORE SOFTWARE SE RVICES TO DELOITTE. IN ABSENCE OF INTERNAL COMPARABLES A SEARCH WAS CARRIE D OUT FOR EXTERNAL COMPARABLES. (EMPHASIS OWN) 31. AT PAGE-39 OF THE TP REPORT IT IS CONCLUDED AS FOL LOWS:- TRANSACTION 3 - MARKETING SERVICES RENDERED BY DEL OITTE TO MDCODC DELOITTE CONSULTING INDIA PVT. LTD. 22 AS MENTIONED IN THE FUNCTIONAL ANALYSIS AS PER TER MS OF THE SOFTWARE SERVICES AND L.T SERVICE AGREEMENT DELOITTE WIFL A SSIST IN GENERATION OF SALES IN THE MANAGEMENT AND DELIVERY OF PROJECTS A ND IN MANAGING AND MAINTAINING THE CUSTOMER RELATIONSHIPS. IN THIS REGARD DELOITTE HAS ASSIGNED ITS THREE SENIOR MANAGERS TO UNDERTAKE FULL TIME MARKETING ONLY FOR MDCODC. DELOITTE IDENTIFIES CLIENT OPPORTUNITIES EITHER NE W OPPORTUNITIES OR EXISTING OPPORTUNITIES TO BE DELIVERED USING THE O FFSHORE MODEL. IN THIS CONNECTION PARTNERS/SENIOR MANAGERS OF DELOITTE RE ACH OUT TO THE ASSIGNED SENIOR MANAGERS AND INVOLVE THEM IN THE SA LES PROCESS. THE ASSIGNED SENIOR MANAGERS ADD CONTENT TO THE PROPOSA L AND VALIDATE IT FOR CORRECTNESS USING THE OFFSHORE MODEL. THE ASSIG NED MANAGERS WOULD ALSO ATTEND THE ORAL PRESENTATION AND PROPOSE AND/OR DEMONSTRATE THE OFFSHORE DELIVERY MODEL AND CAPABIL ITIES. ONCE THE ENGAGEMENT EXECUTION IS UNDERWAY THE ASSIGNED MANAG ERS WOULD IDENTIFY THE APPROPRIATE ONSITE/OFFSHORE TEAM MIX A S PROPOSED IN THE PROPOSAL AND MONITOR THE STATUS AND QUALITY OF THE ENGAGEMENT. THE ASSIGNED MANAGERS WOULD ALSO CHECK ON THE ACCOUNTIN G AND THE INVOICING PROCESSES. THE COST INCURRED ON THE ASSIGNMENT OF SENIOR MANAG ERS WHICH INCLUDES SALARY COSTS AND OTHER RELATED EXPENDITURE ARE CROSS-CHARGED TO MDCODC BY DELOITTE AT ACTUAL COST. THE INDIAN TRANSFER PRICING LEGISLATION HAS NOT COM MENTED ON THE MANNER FOR DETERMINING AN AIMS LENGTH PRICE IN RES PECT OF TRANSACTIONS INVOLVING REIMBURSEMENT HOWEVER A GAINFUL REFERENC E CAN BE DRAWN FROM THE OECD GUIDELINES IN THIS REGARD WHICH STATE THAT: IN THIS RESPECT WE MAY STATE THAT THE OED GUIDELINE S PROVIDE THAT 7.36: WHEN AN ASSOCIATED ENTERPRISE IS ACTING ONLY AS AN AGENT OR INTERMEDIARY IN THE PROVISION OF SERVICES IT IS IM PORTANT IN APPLYING THE COST PLUS METHOD THAT THE RETURN OR MARK-UP IS APPR OPRIATE FOR THE PERFORMANCE OF AN AGENCY FUNCTION RATHER THAN FOR T HE PERFORMANCE OF THE SERVICE THEMSELVES. IN SUCH A CASE IT MAY NOT BE APPROPRIATE TO DETERMINE ARMS LENGTH PRICING AS A MARK-UP ON THE COST OF THE SERVICES BUT RATHER ON THE COSTS OF THE AGENCY FUNC TION ITSELF OR ALTERNATIVELY DEPENDING ON THE TYPE OF COMPARABLE DATA BEING USED THE MARK-UP ON THE COST OF SERVICES SHOULD BE LOWE R THAN WOULD BE APPROPRIATE FOR THE PERFORMANCE OF THE SERVICES THE MSELVES. FOR EXAMPLE AN ASSOCIATED ENTERPRISE MAY INCUR THE COS TS OF RENTING ADVERTISING SPACE ON BEHALF OF GROUP MEMBERS COSTS THAT THE GROUP MEMBERS WOULD HAVE INCURRED DIRECTLY HAD THEY BEEN INDEPENDENT IN SUCH A CASE IT MAY WELL BE APPROPRIATE TO PASS ON THESE COSTS ON THE GROUP RECIPIENTS WITHOUT A MARK-UP AND TO APPLY A M ARK-UP ONLY TO THE COSTS INCURRED BY THE INTERMEDIARY IN PERFORMING IT S AGENCY FUNCTION. IN THE PRESENT TRANSACTION MDCODC WOULD HAVE HAD T O APPOINT MARKETING PERSONNEL TO CARRY OUT ITS MARKETING ACTI VITIES HAD DELLOITE NOT PROVIDED ITS PERSONNEL FOR THE SAME. SO IT CAN BE SAID THAT THE COST INCURRED ON THESE PERSONNEL WOULD HAVE BEEN INCURRE D BY MDCODC DELOITTE CONSULTING INDIA PVT. LTD. 23 EVEN IF THE PERSONNEL WERE APPOINTED INDEPENDENTLY AND SINCE DELLOITE DOES NOT CHARGE ANY MARK UP FOR THESE SERV ICES SO THE AMOUNT THAT HAS BEEN CLAIMED AS EXPENSE IN INDIA WO ULD HAVE BEEN THE SAME EVEN IF INDEPENDENT PERSONNEL WERE TO BE A PPOINTED. SO IT CAN BE SAID THAT COST REIMBURSEMENT BY MDCODC TO DELLOIT IS AT ARMS LENGTH. 32. THEREAFTER AT PAGE-41 IT IS STATED AS FOLLOWS:- TRANSFER 3 MARKETING SERVICES RENDERED BY DELOIT TE TO MDCODC GIVEN THE KEY ATTRIBUTE OF INTER-COMPANY SERVICES IN OUR VIEW THE ABOVE TRANSACTION DOES NOT AMOUNT TO RENDERING OF I NTRA-GROUP SERVICES BUT MERELY THAT OF DIRECT RECHARGE OF COST WITHOUT ANY ELEMENT OF MARK-UP. 33. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE COMPA NY ADMITS THAT (I) MARKETING SERVICES PROVIDED BY THE DELOITTE TO THE ASSESSEE COMPANY IS A SEPARATE CLASS OF INTERNATIONAL TRANSACTIONS BETWEE N THE ASSESSEE AND DELOITTE; (III) IT IS ALSO CLEAR THAT THE ASSESSEE COMPANYS ENTIRE REVENUE ARE ONLY FROM DELOITTE AND THAT TOO FOR JOB WORK. IT IS NOT A CASE WHERE THE CONTRACTS FROM CLIENTS ARE PASSED ON TO THE ASSESSE E ON A BACK-TO-BACK BASIS. ONLY A PORTION OF THE WORK OBTAINED BY DELOI TTE FROM THE CLIENT WHERE THE ASSESSEE HAS THE REQUIRED SKILL AND CAPABILITIE S I.E. THAT CERTAIN JOB WORK IS GIVEN BY DELOITTE TO THE ASSESSEE; (IV) BILLING IS DONE ON AN HOURLY BASIS; (VI) THERE IS NO WORK OR JOB THAT THE ASSESSEE COMP ANY HAS OBTAINED FROM ANY THIRD PARTY FOR ALL THESE ASSESSMENT YEARS DIRE CTLY OR INDIRECTLY I.E. THE ASSESSEE DOES NOT RENDER ANY SOFTWARE SERVICES TO A NY THIRD PARTY EITHER IN INDIA OR OUTSIDE INDIA. 34. ON THESE FACTS WE NOW CONSIDER THE ARGUMENTS OF TH E LEARNED COUNSEL FOR THE ASSESSEE. 35. THE FIRST PROPOSITION IS THAT THE ASSESSEE HAS A L EGAL OBLIGATION TO MAKE THE PAYMENT AND THAT LEGAL OBLIGATION ARISES F ROM THE JOINT VENTURE AGREEMENTS WHICH IS A PRE-INCORPORATION AGREEMENT WHICH IS BINDING. THIS ARGUMENT IS TO BE REJECTED AS ALP HAS TO BE DETER MINED IRRESPECTIVE OF ANY CONTRACTUAL OBLIGATION UNDERTAKEN BY THE PARTIES. I F IT IS HELD THAT THE TP DELOITTE CONSULTING INDIA PVT. LTD. 24 PROVISIONS DO NOT APPLY WHENEVER THERE IS A LEGAL O BLIGATION TO PAY THEN THE ENTIRE OBJECTIVE OF THE PROVISIONS WILL BE DEFEATED . THE ISSUE WHICH THE TPO REQUIRES TO ADJUDICATE IS NOT WHETHER THE ASSESSEE HAS A LEGAL OBLIGATION TO PAY AND WHETHER THE PAYMENT MADE IS FOR THE PURPOSE OF BUSINESS ETC BUT ONLY TO DETERMINE THE ALP OF THE TRANSACTION I.E. TO EXAMINE AS TO WHETHER THE TRANSACTIONS ARE AT ARMS LENGTH. IF THE TRANSA CTIONS ARE IN THE OPINION OF THE TPO NOT AT ARMS LENGTH THE REQUIRED ADJUSTME NT HAS TO BE MADE AS PROVIDED IN THE ACT IRRESPECTIVE OF THE FACT THAT THE EXPENDITURE IS ALLOWABLE UNDER OTHER PROVISIONS OF THE ACT. 36. THE SECOND ARGUMENT OF THE LEARNED COUNSEL THAT THE TPO IS NOT EMPOWERED TO DISALLOW THE EXPENDITURE AND THAT THE VERY REFERENCE TO THE TPO BY THE ASSESSING OFFICER PRESUMES THAT THE AMOU NT IN QUESTION IS ALLOWABLE UNDER SECTION 37 OF THE ACT AND CERTAIN C ASE LAWS WERE RELIED UPON FOR THIS PROPOSITION. 37. WE ARE UNABLE TO PERSUADE OURSELVES TO AGREE TO THI S PROPOSITION FOR THE REASONS THAT THE CBDT BY WAY OF A CIRCULAR HA S DIRECTED THE ASSESSING OFFICER TO REFER TO ALL TRANSACTIONS BEYOND A SPECI FIED LIMIT TO THE TPO FOR DETERMINING ALP. WHEN THE ASSESSING OFFICER HAS NO DISCRETION IN THE MATTER IN VIEW OF THE BINDING NATURE OF CBDT INSTRUCTIONS DATED 20 TH MAY 2003 DIRECTING ALL THE OFFICERS OF THE DEPARTMENT TO REF ER THE MATTERS TO THE TPO FOR DETERMINATION OF ALP WHERE THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTIONS EXCEEDS ` 5 00 00 000 THE ASSESSING OFFICER HAS A VERY LIMI TED ROLE. HE HAS TO MECHANICALLY FOLLOW THESE INSTRUCTI ONS. THERE IS NO APPLICATION OF MIND. THERE IS NO FORMATION OF ANY OPOINION AT T HE STAGE OF REFERENCE. THUS TO PRESUME THAT HE HAS ALLOWED A PARTICULAR E XPENDITURE UNDER SECTION 37 DOES NOT SEEM TO BE THE RIGHT VIEW OF THE MATTE R. IN ANY EVENT THIS IS NOT A CASE WHERE THE TPO OR THE ASSESSING OFFICER M ADE A DISALLOWANCE UNDER SECTION 37 OF THE ACT. IT IS A CASE WHERE AN ADJUSTMENT HAS BEEN MADE UNDER SECTION 92C(4) OF THE ACT AFTER THE TPO DETE RMINED THE ALP AT NIL UNDER SECTION 92CA(3). HENCE THIS ARGUMENT IS DEVO ID OF MERIT. DELOITTE CONSULTING INDIA PVT. LTD. 25 38. THE ASSESSEE WHILE FILING ITS REVISED RETURN OF IN COME FOR ASSESSMENT YEARS 2004-05 AND 2005-06 AND ORIGINAL RETURN OF IN COME FOR ASSESSMENT YEAR 2006-07 HAS SUO-MOTU MADE A DISALLOWANCE UNDE R SECTION 37. IT WAS NOT A CASE OF ADJUSTMENT MADE UNDER SECTION 92C(4). THE TP REPORTS WERE NOT REVISED. 39. ON THE ISSUE AS TO WHETHER THE TPO IS EMPOWERED TO DETERMINE THE ALP AT NIL WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN GEMPLUS INDIA PVT. LTD. (SUPRA) HELD THAT THE ASSESSEE HAS TO ESTABLISH BEFORE THE TPO THAT THE PAYMENTS MADE WERE COMMENSURATE TO THE VOLUME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARABLE. WHEN CO MMENSURATE BENEFIT AGAINST THE PAYMENT OF SERVICES IS NOT DERIVED THE N THE TPO IS JUSTIFIED IN MAKING AN ADJUSTMENT UNDER ALP. 40. IN THE CASE ON HAND THE TPO HAS DETERMINED THE ALP AT NIL KEEPING IN VIEW THE FACTUAL POSITION AS TO WHETHER IN A COM PARABLE CASE SIMILAR PAYMENTS WOULD HAVE BEEN MADE OR NOT IN TERMS OF TH E AGREEMENTS. THIS IS A CASE WHERE THE ASSESSEE HAS NOT DETERMINED THE AL P. THE BURDEN IS INITIALLY ON THE ASSESSEE TO DETERMINE THE ALP. THU S THE ARGUMENT OF THE ASSESSEE THAT THE TPO HAS EXCEEDED HIS JURISDICTION BY DISALLOWING CERTAIN EXPENDITURE IS AGAINST THE FACTS. THE TPO HAS NOT DISALLOWED ANY EXPENDITURE. ONLY THE ALP WAS DETERMINED. IT WAS TH E ASSESSING OFFICER WHO COMPUTED THE INCOME BY ADOPTING THE ALP DECIDED BY THE TPO AT NIL . 41. ON THE ARGUMENT THAT THE ASSESSEE WAS NOT HAVING AN ASSOCIATE ENTERPRISE AS ON THE DATE OF OBLIGATION ENTERED INT O BY WAY OF JOINT VENTURE AGREEMENTS AND RELIANCE PLACED ON THE JUDGMENT OF H ON'BLE SUPREME COURT IN PHILIP JOHN PLASKET THOMAS (SUPRA) ARE OF THE O PINION THAT THIS IS OF NO RELEVANCE. ON THE ISSUE OF ORDER U/S 201(1) HE HOL D THAT IT IS OF NO RELEVANCE AS THESE SECTIONS OPERATE IN DIFFERENT FIELDS. 42. ON THE ARGUMENT THAT REIMBURSEMENT OF EXPENSES NEED NOT BE REFERRED TO THE TPO FOR DETERMINATION OF ALP WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN AZTEC SOFTWARE & TECHNOLOGY SERVICES LT D. (SUPRA) CONSIDERED DELOITTE CONSULTING INDIA PVT. LTD. 26 THE ISSUE AND DECIDED THE SAME AGAINST THE ASSESSEE . THE TRIBUNAL OBSERVED AS FOLLOWS:- IT IS A CASE OF REIMBURSEMENT OF EXPENDITURE INCURR ED BY AN AGENT FOR ITS PRINCIPAL. THERE IS A FORCE IN THE ARGUMENT OF THE REVENUE THAT IF THE CIT(A) HAD CONSIDERED IT TO BE THE CASE OF REIM BURSEMENT THEN HE SHOULD HAVE ASKED THE ASSESSEE TO FURNISH THE ALP O F REIMBURSEMENT TRANSACTION. 43. WE ALSO FIND THAT THE BANGALORE BENCH OF THE TRIBUN AL IN M/S. GEMPLUS INDIA PVT. LTD. (SUPRA) HELD AS FOLLOWS:- THAT: + THE FUNCTION OF THE TPQ IS TO COMPARE THE PAYMENT S MADE BY THE ASSESSEE COMPANY FOR SERVICES RECEIVED IF ANY AND T O SEE WHETHER THOSE PAYMENTS ARE COMPARABLE. IN A GIVEN SCENARIO THE TPO HAS TO EXAMINE WHETHER THE PAYMENTS WERE ALP CONDUCIVE. TH EREFORE IT IS VERY IMPERATIVE ON THE PART OF THE ASSESSEE TO ESTA BLISH BEFORE THE TPO THAT THE PAYMENTS WERE MADE COMMENSURATE TO THE VOL UME AND QUALITY OF SERVICES AN SUCH COSTS ARE COMPARABLE . IN THE PRESENT CASE THE PAYMENT TERMS AS POINTED OUT BY THE TPO ARE I NDEPENDENT OF THE NATURE OR VOLUME OF SERVICES; + THE TPO IS ALSO JUSTIFIED IN MAKING A PERTINENT O BSERVATION THAT THE EXPENSES ARE APPORTIONED BY SINGAPORE AFFILIATE AMO NG DIFFERENT COUNTRY CENTERS ON THE BASIS OF THEIR OWN AGREEMENT S AND NOT ON THE BASIS OF THE ACTUAL SERVICES RENDERED TO THE INDIVI DUAL UNITS; + THE TPO HAS MADE A CLEAR FINDING THAT THERE ARE N O DETAILS AVAILABLE ON RECORD IN RESPECT OF THE NATURE OF SERVICES REND ERED BY SINGAPORE AFFILIATE TO THE ASSESSEE COMPANY. THEREFORE THE T PO IS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS NOT PROVED ANY COMMEN SURATE BENEFITS AGAINST THE PAYMENTS OF SERVICE CHARGES TO THE SING APORE AFFILIATE. THE TPO IS JUSTIFIED IN MAKING THE ADJUSTMENT OF ALP UN DER SE. 92CA OF THE ACT . [EMPHASIS OWN] 44. IN OUR VIEW THE CASE LAW APPLIES ON ALL FOURS TO T HE FACTS OF THIS CASE. IT IS VERY IMPERATIVE ON THE PART OF THE ASSESSEE TO ESTABLISH BEFORE THE TPO THAT THE PAYMENTS MADE WERE COMMENSURATE TO THE VOL UME AND QUALITY OF SERVICES AND SUCH COSTS ARE COMPARABLE. NO SUCH EFF ORTS WAS MADE. NO ALP WAS COMPUTED BY THE ASSESSEE. 45. AS HELD BY THE ASSESSING OFFICER AS WELL AS THE CO MMISSIONER (APPEALS) THE ASSESSEE HAS NOT FURNISHED EVIDENCE TO PROVE THAT THESE THREE DELOITTE CONSULTING INDIA PVT. LTD. 27 PERSONNEL HAVE RENDERED MARKETING SERVICES TO THE A SSESSEE COMPANY. IN FACT THE ASSESSEE COMPANY HAS NO REVENUE WHICH HAS BEEN DERIVED AS A RESULT OF THESE MARKETING EXPENSES. AT THE COST OF REPETITION WE STATE THAT IN THE TP REPORT THE COMPANYS SUBMISSION IS RECORDED AT PAGE-30 AND IT STATES THAT THE SOFTWARE SERVICES OBTAINED BY THE D ELOITTE FROM THE THIRD PARTY ARE NOT SIMILAR TO THE SERVICES OBTAINED BY THE DELOITTE FROM THE ASSESSEE COMPANY ON ACCOUNT OF REQUIREMENTS OF DIFF ERENT SKILL EXPERIENCE KNOWLEDGE LEVEL COMPLEXITY OF SOFTWARE PROJECTS HA NDLED RISK BEARING CAPACITY ETC. THE ENTIRE REVENUE OF THE ASSESSEE A RE FROM THE DELOITTE. THE EVIDENCE FILED IN SUPPORT OF THE FACT THAT SERVICES ARE RENDERED IN THE FORM OF E-MAILS SHOW THAT THEY ARE NOT E-MAILS RELATING TO MARKETING BUT THAT THEY RELATE ONLY TO BILLING. AS RIGHTLY POINTED OUT BY T HE LEARNED DEPARTMENTAL REPRESENTATIVE THE ASSESSEE HAS NO ROLE IN INTERAC TING WITH THE CLIENT TO MODIFY CANCEL RENEW OR EXTEND THE CONTRACT. THE A SSESSEE CANNOT EVEN AFTER EXPIRY OF THE AGREEMENT BETWEEN THE DELOITTE AND ITS CLIENT SUPPLY SERVICES WITHOUT WRITTEN CONSENT OF DELOITTE. DELOI TTE HAS TO PAY THE ASSESSEE IRRESPECTIVE OF IT GETTING PAYMENT OR NOT WITHIN SI XTY DAYS OF RAISING INVOICES. DELOITTE IS RESPONSIBLE FOR GENERATION OF SALES MAN AGEMENT DELIVERY OF PROJECTS MAINTAINING CUSTOMER RELATIONSHIP AND BIL LING AND COLLECTION. THE ASSESSEE HAS NO MARKET RISK. THE ARGUMENT OF THE LE ARNED COUNSEL FOR THE ASSESSEE THAT THESE THREE MARKETING PERSONNEL PROJE CT THE CAPABILITIES OF THE ASSESSEE COMPANY SO THAT DELOITTE GETS WORK IS NOT SUPPORTED BY ANY EVIDENCE AND HENCE WITHOUT BASIS. IN OUR VIEW UN DER SIMILAR CIRCUMSTANCES A UNCONTROLLED COMPARABLE COMPANY WOULD NOT INCUR S UCH EXPENDITURE. HENCE THE ALP IS RIGHTLY DETERMINED AT NIL . AS NO EXPENDITURE WOULD HAVE BEEN INCURRED THERE IS NO NECESSITY TO APPLY A PAR TICULAR METHOD TO ARRIVE AT SUCH CONCLUSION. IN FACT BY ALL THE FIVE METHODS O R ANY ONE OF THEM WHEN APPLIED TO THE FACT THAT THERE IS NO NECESSITY OF P AYMENT THE RESULT OF NIL ALP WILL COME. 46. WE RESPECTFULLY FOLLOWING THE VIEW OF THE SPECIAL B ENCH OF THE TRIBUNAL ON THE ISSUE A WELL AS THE FINDINGS OF THE CO-ORDIN ATE BENCH IN THE MATTER CITED SUPRA AND DISMISS THESE ARGUMENTS OF THE LEAR NED COUNSEL FOR THE DELOITTE CONSULTING INDIA PVT. LTD. 28 ASSESSEE THAT IN CASE OF REIMBURSEMENT NO ALP SHO ULD BE DETERMINED AND NO REFERENCE IS TO BE MADE TO TPO. NO SUCH EXCEPTIO N IS GIVEN IN THE ACT. 47. COMING TO THE CASE LAWS RELIED ON BY THE LEARNED CO UNSEL IN CUSHMAN & WAKEFIELD INDIA PVT. LTD. (SUPRA) WE FIND THAT T HE FACTS ARE DIFFERENT. THE ASSESSEE IN THAT CASE HAD SIX TYPES OF INTERNATIO NAL TRANSACTIONS AND IT HAS ADOPTED CUP METHOD IN ITS TP STUDY. THE QUESTION BEFORE THE TRI BUNAL WAS WHETHER THE ASSESSING OFFICER WAS RIGHT IN HOLDING THAT THE SERVICES AVAILED BY THE ASSESSEE ARE NOT INTRA-GROUP SERVICES AND H ENCE NO REMUNERATION SHOULD HAVE BEEN PAID BY THE ASSESSEE TO ITS ASSOCI ATED ENTERPRISES. ON FACTS THE TRIBUNAL HELD THAT IT CANNOT BE SAID THA T THERE IS COMPLETE ABSENCE OF EVIDENCE AND THAT THE ASSESSEE HAS SUBMITTED EVI DENCE IN RESPECT OF SERVICES OBTAINED BY IT FROM MR. RAYDEN VRAGANZA I N RESPECT OF REVENUE EARNED BY THE ASSESSEE. THEY CAME TO A CONCLUSION T HAT WHAT COST HAS BEEN INCURRED BY THE ASSESSEE IS ONLY A REIMBURSEMENT. THESE ARE FACTUAL MATTERS AND HAVE NO BEARING ON THE FACTS OF OUR CASE. IN TH E CASE ON HAND THE FINDING OF FACT IS THAT NO EVIDENCE HAS BEEN FILED IN SUPPORT OF RENDERING OF MARKETING OF SERVICES BY THREE PERSONNEL OF DELOITT E TO THE ASSESSEE. 48. IN ARICENT TECHNOLOGIES (HOLDING) LTD. (SUPRA) THE FACTS ARE DIFFERENT AND IT DEALS WITH AMOUNT PAID AS INCENTIVE TO THE E MPLOYEES OF THE ASSESSEE COMPANY BY PARENT COMPANY. THIS CASE LAW HAS NO REL EVANCE TO THE ISSUE. 49. COMING TO THE DECISION OF THE TRIBUNAL IN DRESSER-R AND INDIA P. LTD. (SUPRA) THE TRIBUNAL WAS DEALING WITH AN ISSUE OF COST CONTRIBUTION. THE ALLEGATION WAS THAT THE ALLOCATION OF EXPENDITURE W AS EXCESSIVE. THE TRIBUNAL ON FACTS CAME TO A CONCLUSION THAT THE ASSESSEE HA S INDEED RECEIVED THE SERVICES FROM A.E. WE FIND THAT IT HELD THAT EVEN T HE COST CONTRIBUTION ARRANGEMENT SHOULD BE CONSISTENT WITH ARMS LENGTH PRINCIPLE. THIS FINDING SUPPORTS THE CASE OF THE REVENUE. IT HELD THAT THE ASSESSEES SHARE OF OVERALL CONTRIBUTION TO THE COST IS REQUIRED TO BE CONSISTE NT WITH THE BENEFIT EXPECTED TO BE RECEIVED AS AN INDEPENDENT ENTERPRISE WHICH W OULD ASSIGN TO THE CONTRIBUTION IN HYPOTHETICALLY SIMILAR SITUATION. I N OUR OPINION THIS CASE LAW DOES NOT HELP THE CASE OF THE ASSESSEE. ON THE CONT RARY IT FORTIFIES THE DELOITTE CONSULTING INDIA PVT. LTD. 29 ARGUMENT OF THE REVENUE THAT EVEN IN THE CASE OF RE IMBURSEMENT ALP HAS TO BE DECIDED. 50. COMING TO THE BANGALORE BENCH OF THE TRIBUNAL IN I- GATE GLOBAL SOLUTIONS LTD. (SUPRA) THE TRIBUNAL HELD THAT IF T HE ASSESSEE ITSELF DISCLOSES INCOME AT ALP WHICH IS MORE THAN THE PRICE SHOWN I N THE BOOK IT IS NOT A CASE OF ENHANCEMENT WITHIN THE MEANING OF PROVISO T O SECTION 92C(4). DUE TO DETERMINATION OF ALP BY THE ASSESSEE AT A HIGHER FIGURE AND THE ASSESSEE WILL BE ENTITLED TO EXEMPTION UNDER SECTION 10A ON SUCH DECLARED INCOME. THE TRIBUNAL WAS NOT CONCERNED WITH THE ISSUE AS TO WHETHER THE CONDITIONS SPECIFIED UNDER SECTION 10A WERE FULFILLED BY THE ASSESSEE OR NOT. IN THE CASE ON HAND THE ASSESSEE HAS NOT COMPLIED WITH THE PRO VISIONS OF SECTION 10A TO THE TUNE OF INCOME BY WAY OF ADJUSTMENT OF ALP. IN FACT THE ASSESSEE ENHANCED ITS INCOME NOT BY MAKING ADJUSTMENT OF AL P BY FILING A REVISED TP REPORT BUT ONLY BY SUO-MOTU DISALLOWING CERTAIN EX PENDITURE U/S 37. SECTION 10A(I) READS AS FOLLOWS:- SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED U NDERTAKINGS IN FREE TRADE ZONE ETC. 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWAR E AS THE CASE MAY BE SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE A SSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT 2000 T HE UNDERTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SE CTION ONLY FOR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE A SSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTL Y LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SU CH FREE TRADE ZONE OR EXPORT PROCESSING ZONE INTO A SPECIAL ECONOMIC Z ONE THE PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THI S SUB-SECTION SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO TH E PREVIOUS YEAR IN WHICH THE [UNDERTAKING BEGAN TO MANUFACTURE OR PROD UCE SUCH ARTICLES DELOITTE CONSULTING INDIA PVT. LTD. 30 OR THINGS OR COMPUTER SOFTWARE] IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE : [PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINN ING ON THE 1ST DAY OF APRIL 2003 THE DEDUCTION UNDER THIS SUB-SECTIO N SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTA KING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTW ARE : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING O N THE 1ST DAY OF APRIL 2012 AND SUBSEQUENT YEARS . 51. THE C.I.T (A) AT PAGE 6 PARA 3. 3.4 OF HIS ORDER FO R ASSESSMENT YEAR 2006-07 HELD THAT THE INCOME ARISING OUT OF THE AD JUSTMENT IS NOT DERIVED BY THE UNDERTAKING FROM EXPERT. THIS FINDING THAT REQUIREMENT OF SECTION 10A HAVE NOT BEEN COMPILED WITH BY THE ASSESSEE I S NOT NOT BEING FACTUALLY CONTROVERTED BY THE LEARNED COUNSEL. THUS THIS FIN DING HAS TO BE UPHELD FOR ALL THE ASSESSMENT YEARS. THE OTHER REQUIREMENTS OF SECTION 10`A ARE ALSO NOT COMPLIED WITH WHICH ON THESE ADJUSTMENTS. HEN CE THE ASSESSEE IS NOT ENTITLED TO DEDUCTIONS UNDER SECTION 10 A. 52. COMING TO THE ARGUMENT THAT ALL THE THREE TYPES OF INTERNATIONAL TRANSACTIONS HAVE TO BE AGGREGATED AND ALP DETERMIN ED WE FIND THAT THE ASSESSEE IS RAISING THIS ISSUE FOR THE FIRST TIME B EFORE THE TRIBUNAL. IN THE TP REPORT DISTINCTION WAS MADE AND IT IS ADMITTED BY THE ASSESSEE THAT EACH TYPE OF TRANSACTION IS DIFFERENT. ONLY BECAUSE CERT AIN ADVANTAGE WOULD OCCUR BY CLUBBING TRANSACTIONS FRESH AND INNOVATIVE ARGU MENTS ARE BEING RAISED TO JUSTIFY THE CLAIM OF THE ASSESSEE. THIS CANNOT BE A DMITTED AS IT IS AGAINST THE FACTS STATED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. IN FACT IN THE TP REPORT THE NATURE OF EACH CLASS OF TRANSACTION WAS DISCUSSED AND DIFFERENCES BROUGHT OUT. 53. ON FILING OF THE REVISED RETURN OF INCOME WE AGREE WITH THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSING OFFICER WAS RIGHT IN NOT TAKING COGNIZANCE OF THE SAME FOR THE REASON THAT THE ASSESSEE HAS NOT POINTED OUT THAT THE REVISED RETURN OF INCO ME WERE FILED FOR THE REASON THAT THERE WAS AN OMISSION OR A WRONG STATEM ENT. RELIANCE WAS DELOITTE CONSULTING INDIA PVT. LTD. 31 RIGHTLY PLACED BY THE LEARNED DEPARTMENTAL REPRESEN TATIVE ON THE FOLLOWING CASE LAWS:- SHAHIBAG ENTREPRENEURS PVT. LTD. VS CIT [1994] 210 ITR 998 (GUJ.); S.S. NAGANAND V/S JCIT [2004] 088 ITD 607 (BANG.). 54. FOR ALL THESE REASONS WE UPHOLD THE ORDER OF THE C OMMISSIONER (APPEALS) AND DISMISS THE APPEAL THE GROUNDS RAISED BY THE ASSESSEE FOR ALL THE YEARS UNDER APPEAL. 55. IN THE RESULT ASSESSEES APPEALS FOR ALL THE YEARS UNDER APPEAL ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH 2012. /- SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- /- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI DATED: 3 30 TH MARCH 2012. COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A) MUMBAI CONCERNED; (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR L BENCH ITAT MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT MUMBAI BENCHES MUMBAI