LM Wind Power Blades (India) Pvt. Ltd.,, Bangalore v. DCIT, Bangalore

ITA 1681/BANG/2012 | 2008-2009
Pronouncement Date: 25-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 168121114 RSA 2012
Assessee PAN AAACL3093R
Bench Bangalore
Appeal Number ITA 1681/BANG/2012
Duration Of Justice 9 month(s) 27 day(s)
Appellant LM Wind Power Blades (India) Pvt. Ltd.,, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 25-10-2013
Date Of Final Hearing 21-10-2013
Next Hearing Date 21-10-2013
Assessment Year 2008-2009
Appeal Filed On 28-12-2012
Judgment Text
ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BBENCH BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI JASON P. BOAZ ACCOUNTANT MEMBER IT(TP)A NOS.1165/BANG/2010 & 1681/BANG/2012 (ASSESSMENT YEARS: 2006-07 & 2008-09) M/S LM WINDPOWER (INDIA) PRIVATE LIMITED(EARLIER KNOWN AS LM GLASFIBER (INDIA) PVT LTD PLOT NO.61 & 62 KASABA INDUSTRIAL AREA KIADB HOSKOTE BANGALORE-562114 PAN: AAACL 3093 R VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 11(5) BANGALORE (APPELLANT) (RESPONDENT) S.P. NO 155/BANG/2013 (ARISING OUT OF IT(TP)A NOS.1681/BANG/2012 (ASSESSMENT YEAR: 2008-09) ASSESSEE BY: SHRI AMIT SINGHANIA AND SHRI ANKUR GOEL CAS DEPARTMENT BY: SHRI FARAHAT HUSSAIN QURESHI DR DATE OF HEARING: 21/10/2013 DATE OF PRONOUNCEMENT: 25/10/2013 O R D E R PER GEORGE GEORGE K. J.M. THESE APPEALS AND STAY PETITION AT THE INSTANCE OF THE ASSESSEE COMPANY ARISE OUT OF THE DIRECTIONS OF DI SPUTE RESOLUTION PANEL (DRP) DATED 27.09.2010 AND 17.08.2 012 FOR ASSESSMENT YEAR 2006-07 AND 2008-09 RESPECTIVELY. T HE STAY PETITION IS FILED SEEKING STAY AGAINST THE RECOVERY OF OUTSTANDING TAX ARREARS FOR ASSESSMENT YEAR 2008-09. ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 2 OF 16 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEAL S AND IT PERTAINS TO THE SAME ASSESSEE THEY WERE HEARD TOGE THER AND DISPOSED OFF BY THIS CONSOLIDATEED ORDER. WE SHALL FIRST TAKE UP ITA NO.1165/BANG/2010. ITA NO.1165/BANG/2010 (ASSESSMENT YEAR 2006-07) : 3. IN THE MEMORANDUM OF APPEAL THE ASSESSEE HAS RAI SED SIX GROUNDS. THE FIRST GROUND RELATES TO THE DISALLOWAN CE OF ENTRANCE FEE OF RS.3 10 995 PAID TO THE BANGALORE CLUB ON TH E GROUND THAT THE SAID EXPENDITURE IS A PERSONAL EXPENDITURE. GRO UND NO.2 RELATE TO THE ISSUE OF DISALLOWANCE OF RS.29 89 812 BEING TECHNICAL ASSISTANCE AND TRAINING FEES FOR THE REAS ON THAT THE SAME IS CAPITAL EXPENDITURE. GROUND NO.3 TO 3.4 REL ATE TO THE TRANSFER PRICING ADJUSTMENTS MADE U/S 92CA OF THE A CT. GROUND NO.4 TO 6 CHALLENGES THE MANNER IN WHICH THE ORDERS HAVE BEEN PASSED BY THE ASSESSING OFFICER/TPO. 3.1 BRIEF FACTS IN RELATION TO THE CASE ARE AS FOLL OWS: THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE SALE AND SERVICING OF FIBRE GLASS REIN FORCED PLASTIC ROTOR BLADES FOR WINDMILL TURBINE GENERATOR. FOR TH E CONCERNED ASSESSMENT YEAR RETURN OF INCOME WAS FILED ON 29.1 1.2006 DECLARING INCOME OF RS.44 84 34 040. THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY AND IN THE COURSE OF THE ASSESSMENT PROCEEDINGS REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA(1) OF THE I.T ACT TO DETERMINE THE ARMS LENGT H PRICE (ALP) OF THE INTERNATIONAL TRANSACTION WHICH THE ASSESSEE HAD WITH ITS ASSOCIATE ENTERPRISE (AE). AN ORDER U/S 92CA WAS PA SSED BY THE TPO ON 30.10.2009 DETERMINING THE ALP PRICE OF THE ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 3 OF 16 INTERNATIONAL TRANSACTION BY WAY OF MANAGEMENT FEES AT NIL AS WELL AS PAYMENT OF SELLING COMMISSION AT NIL AND TH E TOTAL ADJUSTMENT MADE U/S 92CA WAS RS.18 47 87 529 (DISAL LOWANCE ON ACCOUNT OF MANAGEMENT FEES RS.4 42 52 376 AND SA LES COMMISSION OF RS.14 04 55 153). THE ASSESSING OFFIC ER PASSED THE DRAFT ASSESSMENT ORDER ON 7.12.2009 DETERMINING THE ASSESSEES TOTAL INCOME AT RS.63 64 42 336. THE ASS ESSING OFFICER APART FROM THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO U/S 92CA HAD DISALLOWED ENTRANCE FEES PAYMENT O F RS.3 10 995 PAID TO THE BANGALORE CLUB ON ACCOUNT T HAT IT IS A PERSONAL EXPENDITURE. FURTHER A SUM OF RS.29 89 812 PAID AS TECHNICAL ASSISTANCE AND TRAINING FEES WAS DISALLOW ED STATING THAT THE SAME ARE CAPITAL EXPENDITURE. THE ASSESSEE RAIS ED OBJECTIONS AGAINST THE DRAFT ASSESSMENT ORDER BEFORE THE DRP O N 18.01.2012. THE DISPUTE RESOLUTION PANEL PASSED ITS DIRECTIONS BY ITS ORDER DATED 27.09.2010 WHEREIN THE OBJECTION S OF THE ASSESSEE COMPANY WERE REJECTED AND THE DRAFT ASSESS MENT ORDER WAS CONFIRMED EXCEPT FOR MINOR VARIATIONS. THE DIRE CTIONS OF THE DRP ARE AS FOLLOWS: I) THE DISALLOWING OF ENTRANCE FEES PAYMENT TO THE BANGALORE CLUB OF RS.3 10 995 AS PERSONAL EXPENDITU RE U/S 37(1) OF THE ACT. (AT PAGE 2 OF THE DRPS ORDER) THE ASSESSEE COMPANY HAS MAINLY RELIED ON A NUMBER OF JUDICIAL DECISIONS AND HAS FAILED TO FURN ISH THE RELEVANT DETAILS IN RESPECT OF THE ENTRY FEES A ND SUBSCRIPTION PAID TO BANGALORE CLUB BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE PANEL. THE ASSESSEE HAS MAINLY STATED THAT THE ENTRANCE FEES A ND SUBSCRIPTION FEES WAS PAID BY THE ASSESSEE COMPANY DIRECTLY TO THE CLUB WITHOUT MENTIONING THE NAMES O F THE PERSONS/PERSONS WHO WERE USING THE FACILITIES O F ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 4 OF 16 THE CLUB AND HOW THE EXPENSES WERE INCURRED FOR THE PROMOTION OF THE COMPANYS BUSINESS. THE PANEL THEREFORE HOLDS IN THE ABSENCE OF ALL RELEVANT DET AILS THAT THE EXPENSES CLAIMED IS NOT AN ALLOWABLE DEDUCTION U/S 37 OF THE I.T. ACT 1961. II) DISALLOWING EXPENDITURE ON TECHNICAL ASSISTANCE AND TRAINING FEES OF RS.29 89 812 AS CAPITAL EXPENDITUR E U/S 37(1) OF THE ACT. (AT PAGE 3 OF THE DRP ORDER) THE AO HAS DISCUSSED THE ISSUE IN DETAIL ON PAGES 3 AND 4 OF THE DRAFT ORDER OF ASSESSMENT AND HAS HELD THE EXPENSES TO BE AN INSEPARABLE PART OF THE KNOWHOW TRANSFER AS PER THE AGREEMENT BETWEEN LM GLASS FIBRE A/S (LM) DENMARK AND THE ASSESSEE COMPANY. THE AO HAS THEREFORE HELD THE EXPENDITURE TO BE A CAPITAL EXPENDITURE. HAVING REGARD TO THE FACTS OF THE CASE AND THE RELEVANT AGREEMENT BETWEEN THE ASSESSEE AND LM GLASS FIBRE A/S (LM) DENMARK THE PANEL IS OF THE VIEW THAT THE AO WAS JUSTIFIED IN HOLDING THE EXPENDITURE TO BE A CAPITAL EXPENDITURE. HOWEVER THE AO IS DIRECTED TO ALLOW DEPRECIATION U/S 32 OF THE IT ACT 1961 ON THE SAME AT THE PRESCRIBED RATE. III) TRANSFER PRICING ADJUSTMENT: (AT PAGE 7 OF DRPS ORDER) THE PANEL IS ALSO IN AGREEMENT WITH THE FINDINGS O F THE TPO IN DETERMINING THE ALPS OF THE INTERNATIONA L TRANSACTIONS RELATING TO PAYMENT OF MANAGEMENT FEES AND SELLING COMMISSION AT NIL FOR THE DETAILED REAS ONS RECORDED IN THE TPOS ORDER. WITH REFERENCE TO THE ASSESSEES CONTENTION THAT THE TPO HAS NOT FURNISHE D THE NAMES OF THE TANGIBLE COMPARABLES ADOPTED FOR APPLICATION OF THE CUP METHOD IT IS NECESSARY TO MENTION THAT THE WHEN THE TPO HAS CLEARLY HELD THAT ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 5 OF 16 NO SERVICES WERE ACTUALLY RENDERED BY THE ASSESSEE WHICH JUSTIFIED THE PAYMENT OF MANAGEMENT FEES AND SELLING COMMISSION THE QUESTION OF FURNISHING THE NAMES OF OTHER COMPANIES DOES NOT ARISE. THE PANEL IS ALSO OF THE VIEW THAT THE ADDITIONAL EVIDENCE FILED BEFORE THE PANEL WHICH WERE NOT FILE D EARLIER BEFORE THE TPO INSPITE OF SUFFICIENT OPPORT UNITY ALLOWED DOES NOT CONCLUSIVELY ESTABLISH THAT THE ASSESSEES AE RENDERED THE SERVICES FOR WHICH MANAGEMENT FEES HAS BEEN PAID AND DOES NOT SHOW THAT THERE WAS ANY CORRELATION BETWEEN THE SERVICES AND THE PAYMENTS MADE. AS PER CLAUSE 7 OF THE AGREEMENT ENTERED ON 1.1.2002 BETWEEN THE ASSESSEE AND ITS AE IN DENMARK THE AE WAS REQUIRED TO MAINTAIN THE RECORD OF EXPENSES INCURRE D IN CONNECTION WITH THE PROVISION OF MANAGEMENT SERVICES TO THE ASSESSEE BUT NO SUCH EVIDENCE COUL D BE PRODUCED BY THE ASSESSEE BEFORE THE TPO OR BEFORE THE PANEL. THE EVIDENCE PRODUCED BY THE BEFORE THE PANEL IS MAINLY IN THE FORM OF E-MAILS RELATING MOSTLY TO THE BLADE MANUFACTURING PROCESS COVERED BY THE TECHNICAL KNOWHOW AGREEMENT FOR WHICH THE ASSESSEE HAS PAID ROYALTY SEPARATELY WHICH HAS BEEN HELD TO BE AT ARMS LENGTH BY THE TPO. THE DOCUMENTS FILED ALSO DO NOT ESTABLISH THAT THE PAYMENTS MADE BY THE ASSESSEE FOR THE INTRA GROUP SERVICES ARE THE CHARGES THAT COULD REASONABL Y BE EXPECTED TO BE PAID BY THE ASSESSEE TO ANY INDEPENDENT PARTY FOR SIMILAR SERVICES UNDER SIMILA R CIRCUMSTANCES. IN SO FAR AS THE SELLING COMMISSION IS CONCERNED T HE TPO HAS MENTIONED IN HIS ORDER THE WIND POWER INDUSTRY HAS A BRIGHT FUTURE IN INDIA AND THE ACTUA L GENERATION OF WIND POWER IN 2005 WAS FAR BELOW THE ESTIMATED DEMAND. THE GOVT. OF INDIA ALSO GIVES A L OT OF INCENTIVES TO THE COMPANIES ENGAGED IN GENERATIO N OF ALTERNATE AND NON CONVENTIONAL SOURCES OF ENERGY . NO NEW EVIDENCE HAS BEEN FILED BEFORE THE PANEL BY THE ASSESSEE TO PROVE WHY THE ASSESSEE SUDDENLY REQUIRED THE MARKETING SERVICES OF THE AE FOR THE ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 6 OF 16 FINANCIAL YEAR 2005-06 PARTICULARLY WHEN NO SUCH COMMISSION WAS PAID IN THE EARLIER YEARS THOUGH THE ASSESSEE COMPANY WAS IN BUSINESS IN INDIA SINCE 1993 AND HAD LONG STANDING CUSTOMERS. THE PANEL IS THEREFORE OF THE VIEW THAT NO SUCH PAYMENT OF COMMISSION WOULD HAVE BEEN MADE TO AN INDEPENDENT PARTY UNDER SIMILAR CIRCUMSTANCES AND THE TPO WAS JUSTIFIED IN TAKING THE ALP OF THE SELL ING COMMISSION PAID AT NIL . 3.2 THE ASSESSEE BEING AGGRIEVED BY THE DIRECTIONS OF THE DRP IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THE ISSUES OF TRANSF ER PRICING ADJUSTMENTS U/S 92CA OF THE ACT AND DISALLOWANCE OF EXPENDITURE OF TECHNICAL ASSISTANCE AND TRAINING FE ES AS CAPITAL EXPENDITURE WAS DULY CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 AND THE TR IBUNAL VIDE ITS ORDER DATED 20.07.2012 IN ITA NO.1091/BANG/2011 AND ORDER DATED 17.05.2013 IN M.P. NO.50/BANG/2013 IN ITA NO. 1091/ BANG/2011 HAD RESTORED THESE TWO ISSUES TO THE ASSE SSING OFFICER/TPO FOR DE NOVA CONSIDERATION. HENCE IT WAS PRAYED THAT THESE TWO ISSUES NAMELY TRANSFER PRICING ADJUSTMENT U/S 92CA AND THE DISALLOWANCE OF TECHNICAL ASSISTANCE AND TR AINING FEE AS CAPITAL EXPENDITURE MAY BE RESTORED TO THE ASSESSIN G OFFICER FOR FRESH CONSIDERATION AS IT WAS DONE BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08. 3.3. THE LEARNED DR STRONGLY OBJECTED TO THE REMAND OF THE MATTER TO THE ASSESSING OFFICER/TPO. THE LEARNED DR HAD FILED WRITTEN SUBMISSION WHICH IS REPRODUCED BELOW: ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 7 OF 16 (A). AMONGST OTHER ISSUES THE MAIN ISSUE PERTAIN S TO THE T.P. ADJUSTMENT OF RS.18 47 07 529 (DISALLOWANC E ON ACCOUNT OF MANAGEMENT FEE OF RS.4 42 52 376 AND SALES COMMISSION OF RS.14 04 55 153) BEING DIFFERENCE IN ARM LENGTH PRICE WORKED OUT BY THE T.P.O AND UPHELD BY DRP. THE DEPARTMENT HAS FILED DETAILED SUBMISSION ON ALL THE ISSUES UNDER REFERENCE BEFORE THE HON'BLE ITAT ON 08.12.2011 . RELIANCE IS PLACED ON THE ORDER OF THE TPO/LD.DRP AND THE WRITTEN SUBMISSION DATED 08.12.2013 WHICH MAY KINDLY BE PERUSED AND CONSIDERED WHILE ADJUDICATING ON THE ISSUES UNDER REFERENCE ALONG WITH THE ORAL ARGUMENTS ON THE SAM E DURING THE COURSE OF PRESENT HEARINGS. (B) CASES RELIED UPON IT IS RELEVANT TO PLACE ON RECORDS THAT THE JUDICIA L PRONOUNCEMENT OF THE COORDINATE BENCH OF THE HON'BL E ITAT BANGALORE IN THE CASE OF M/S. GEMPLUS INDIA PVT LTD. VS. ACIT IN ITA NO.352/B/2009 COVERS THE ISSUE IN FAVOUR OF THE REVENUE IN RESPECT OF THE PO INTS ON WHICH T.P ADJUSTMENT HAS BEEN MADE IN THE PRESENT CASE. FURTHER RELIANCE IS PLACED ON THE ORDERS OF ITAT DE LHI I BENCH DECISION IN THE CASE OF KNOR BREMSE INDIA PVT LTD IN ITA NO.5097/DEL/2011 WHERE SIMILAR ISSUES HAVE BEEN CONSIDERED/ADJUDICATED AGAINST THE ASSESSEE. (C) ADDITIONAL EVIDENCE ARGUMENT : THE ASSESSEE HAS REFERRED TO THE SIMILAR ISSUES ARI SING IN ASSESSMENT YEAR 2007-08 WHICH IT PLEADS WAS RESTORED TO THE FILE OF THE T.P.O FOR FRESH EXAMINA TION IN LIGHT OF CERTAIN FRESH EVIDENCES FILED DURING THOS E PROCEEDINGS. (CASE DECIDED INSPITE OF PENDENCY OF ASSESSMENT YEAR 2006-07 ON SIMILAR ISSUES). IN THIS REGARD IT IS TO SUBMIT THAT CERTAIN FRESH EVIDENCES WERE SUBMITTED BEFORE THE DRP (IN THE CURRENT ASSESSMENT YEAR 2006-07) ON WHICH CLEAR FINDINGS HAVE BEEN GIVEN BY THE DRP AS ALREADY ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 8 OF 16 EXPLAINED IN OUR WRITTEN SUBMISSION DATED 08.12.201 1 AND IN THE THIRD PARA (PAGE-7) OF DRPS ORDER U/S 144C RELEVANT PORTION OF WHICH IS REPRODUCED AS UNDER: THE PANEL IS ALSO OF THE VIEW THAT THE ADDITIONAL EVIDENCE FILED BEFORE THE PANEL WHICH WERE NOT FILED EARLIER BEFORE THE TPO INSPITE OF SUFFICIENT OPPORTUNITY ALLOWED DOES NOT CONCLUSIVELY ESTABLISH THAT THE ASSESSEES AE RENDERED THE SERVICES FOR WHICH MANAGEMENT FEES HAS BEEN PAID AND DOES NOT SHOW THAT THERE WAS ANY CORRELATION BETWEEN THE SERVICES AND THE PAYMENTS MADE. AS PER CLAUSE 7 OF THE AGREEMENT ENTERED ON 1.1.2002 BETWEEN THE ASSESSEE AND ITS AE IN DENMARK THE AE WAS REQUIRED TO MAINTAIN THE RECORD OF EXPENSES INCURRED IN CONNECTION WITH THE PROVISION OF MANAGEMENT OF SERVICES TO THE ASSESSEE BUT NO SUCH EVIDENCE COULD BE PRODUCED BY THE ASSESSEE BEFORE THE TPO OR BEFORE THE PANEL. THE EVIDENCE PRODUCED BY THE BEFORE THE PANEL IS MAINLY IN THE FORM OF E-MAILS RELATING MOSTLY TO THE BLADE MANUFACTURING PROCESS COVERED BY THE TECHNICAL KNOWHOW AGREEMENT FOR WHICH THE ASSESSEE HAS PAID ROYALTY SEPARATELY WHICH HAS BEEN HELD TO BE AT ARMS LENGTH BY THE TPO. THE DOCUMENT FILED ALSO DO NOT ESTABLISH THAT THE PAYMENTS MADE BY THE ASSESSEE FOR THE INTRA GROUP SERVICES ARE THE CHARGES THAT COULD REASONABLY BE EXPECTED TO BE PAID BY THE ASSESSEE TO ANY INDEPENDENT PARTY FOR SIMILAR SERVICES UNDER SIMILAR CIRCUMSTANCES . 3.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE TRIBUNAL IN ASSESS EES OWN CASE FOR AY 2007-08 (SUPRA) HAVE CONSIDERED IDENTICAL IS SUES AND ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 9 OF 16 HAVE RESTORED THE SAME TO AO/TPO FOR DE NOVA CONSID ERATION. SINCE ISSUES ARE ALREADY PENDING CONSIDERATION BEFO RE THE ASSESSING OFFICER/TPO FOR THE EARLIER AY TO TAKE A UNIFORM STAND IN THE MATTER THE T.P. ADJUSTMENT MADE U/S 92CA AN D THE DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF TECHNICAL ASSISTANCE AND TRAINING FEES FOR THE CURRENT AY ARE ALSO RESTO RED TO THE ASSESSING OFFICER/TPO FOR FRESH CONSIDERATION. IT I S ORDERED ACCORDINGLY. IN THE RESULT GROUND NO.2 3 TO 3.4 AR E ALLOWED FOR STATISTICAL PURPOSES. 4. WITH REFERENCE TO GROUND NO.1 NAMELY DISALLOWANC E OF ENTRANCE FEES OF RS.3 10 995 PAID TO THE BANGALORE CLUB THE BRIEF FACTS ARE AS FOLLOWS. 4.1 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICER THAT A SUM OF RS.8 10 995 WAS CLAIMED BY THE ASSESSEE AS ENTRANCE FEE AND SUBSCRI PTION FEES PAID TO THE BANGALORE CLUB. IT WAS SUBMITTED BY THE ASSESSEE COMPANY THAT IT HAD INCURRED THE SAID EXPENSES FOR PROMOTING THE ASSESSEES BUSINESS AND THE SAME IS TO BE ALLOW ED AS REVENUE EXPENDITURE. ACCORDING TO THE ASSESSING OFF ICER AND THE DRP SINCE THE ASSESSEE COULD NOT PROVE THE NATURE OF PAYMENT WITH DOCUMENTARY EVIDENCE THE ENTRANCE FEES PAID T O BANGALORE CLUB AMOUNTING TO RS.3 10 995 WAS DISALLOWED AS A C APITAL EXPENDITURE. 4.2 AGGRIEVED THE ASSESSEE COMPANY IS IN APPEAL BE FORE US. THE SUBMISSION MADE IS REPRODUCED BELOW: ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 10 OF 16 THE APPELLANT HAS TAKEN A CORPORATE MEMBERSHIP WITH BANGALORE CLUB. THE SAID MEMBERSHIP HAS BEEN TAKEN IN THE NAME OF THE APPELLANT FOR THE SOLE PURPOSE OF PROMOTING ITS BUSINESS. THE SAID CORPORATE MEMBERSHIP ALLOWS THE EXECUTIVES OF THE APPELLANT TO HAVE A NICHE PLATFORM THROUGH WHICH THEY CAN CONTACT AND COME IN ASSOCIATION WITH VARIOUS PEOPLE PLACED AT GOODS POSITIONS. ASSOCIATI ON WITH SUCH PEOPLE ALLOW THE APPELLANT TO EASILY ARRANGE FOR BUSINESS DEVELOPMENT MEETINGS. THE APPELLANT HAS ALREADY SUBMITTED DOCUMENTARY EVIDENCE WITH RESPECT TO PAYMENT OF ENTRANCE FEE TO BANGALORE CLUB. THE BREAKUP OF EXPENSES HAS ALREADY BEEN SUBMITTED BEFORE THE DISPUTE RESOLUTION PANEL. FURTHER THE PAYMENT RECEIPT HAS ALSO BEEN FILED BEFORE THE DISPUTE RESOLUTION PANEL. IN NUMEROUS JUDGMENTS ENTRANCE FEES PAID FOR CORPORATE MEMBERSHIP OF CLUBS HAS BEEN ALLOWED AS AN ADMISSIBLE BUSINESS EXPENDITURE. RELIANCE ION THIS REGARD IS PLACED ON THE FOLLOWING CASES: DCIT VS. GENERAL MILLS INDIA PVT LTD (ITA NO.6324/MUM/2008 DECIDED ON DECEMBER 20 2010). CITIFINANCIAL CONSUMER FINANCE INDIA LTD V. ACIT 33 SOT 414 (ITAT DELHI). 4.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS A CASE OF THE AS SESSEE THAT NECESSARY MATERIALS HAVE BEEN PRODUCED BEFORE THE A SSESSING OFFICER AS WELL AS BEFORE THE DRP WITH REGARD TO NA TURE OF PAYMENT. HOWEVER THE ASSESSING OFFICER AND THE DRP HAVE STATED THAT NO DOCUMENTARY EVIDENCES WERE PRODUCED BEFORE THEM TO TAKE A POSITIVE VIEW IN FAVOUR OF THE ASSES SEE HENCE THE ISSUE WAS DECIDED AGAINST THE ASSESSEE COMPANY. WE NOTICE THAT THERE IS NUMBER OF JUDGMENTS OF VARIOUS HIGH COURT S IN FAVOUR ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 11 OF 16 OF THE ASSESSEE. HOWEVER SINCE NO DETAILS ARE PLAC ED BEFORE US WITH REGARD TO THE NATURE OF THE PAYMENT WE ARE UN ABLE TO DECIDE ISSUES ON MERITS. IN THE INTEREST OF JUSTICE AND EQUITY WE ARE OF THE VIEW THAT ONE MORE OPPORTUNITY NEED TO B E GIVEN TO THE ASSESSEE TO PROVE ITS CASE. THE ASSESSEE IS DIRECTE D TO PRODUCE DOCUMENTARY EVIDENCE WITH RESPECT TO PAYMENT OF ENT RANCE FEE TO BANGALORE CLUB AND NATURE AND BREAK UP THE EXPENSES . ACCORDINGLY THIS ISSUE IS ALSO RESTORED TO THE ASSE SSING OFFICER FOR DE NOVA CONSIDERATION. 4.4 IN THE RESULT GROUND NO.1 IS ALLOWED FOR STATIS TICAL PURPOSES. 5. ITA NO.1681/BANG/2012 (AY 2008-09). FOR THE ASSESSMENT YEAR 2008-09 THE ASSESSEE COMP ANY FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING AN INCOME OF RS.52 87 38 813. THE ASSESSMENT WAS TAKEN UP FOR SC RUTINY BY ISSUANCE OF NOTICE U/S 143(2) OF THE ACT. IN THE CO URSE OF THE SCRUTINY ASSESSMENT THE ASSESSING OFFICER REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER U/S 92CA OF THE ACT TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANS ACTIONS ENTERED BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRI SE (AE). THE TPO PASSED ORDER DATED 28 TH OCTOBER 2011. PURSUANT TO THE TPOS ORDER ASSESSING OFFICER PASSED THE DRAFT ASS ESSMENT ORDER U/S 143(3) OF THE ACT ON 22.11.2012 DETERMINING THE INCOME OF THE ASSESSEE AT RS.80 75 64 191. AGGRIEVED BY THE D RAFT ASSESSMENT ORDER THE ASSESSEE COMPANY FILED OBJECT IONS BEFORE THE DRP. THE DRP ISSUED DIRECTIONS ON 17.08.2012 WH ICH ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 12 OF 16 PREDOMINANTLY UPHELD THE ORDER OF THE ASSESSING OFF ICER/TPO. THE FINAL ASSESSMENT ORDER U/S 143(3) R.W.S. 144C W AS PASSED ON 25.10.2012. 5.1. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFO RE US RAISING THE FOLLOWING GROUNDS: 1. THAT THE ORDER OF THE LEARNED DY. COMMISSIONER OF INCOME TAX CIRCLE 11(5) BANGALORE (ASSESSING OFFI CER OR AO) TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. THAT THE LEARNED ASSESSING OFFICER AND THE LEARN ED DISPUTE RESOLUTION PANEL (PANEL) ERRED IN UPHOLDIN G THE APPROACH OF THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX (TRANSFER PRICING-I) BANGALORE (TPO) OF REJECTING THE ECONOMIC ANALYSIS OF THE APPELLANT IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF PAYMEN T OF MANAGEMENT FEES SALES COMMISSION AND INFORMATION TECHNOLOGY FEES IN THE TRANSFER PRICING (TP) DOCUMENTATION PREPARED BONAFIDE IN COMPLIANCE WITH THE PROVISIONS OF SECTION 92D OF THE INCOME TAX ACT (THE ACT) READ WITH RULE 10D OF THE INCOME TAX RU LES 1962 (THE RULES). 3. THAT THE LEARNED ASSESSING OFFICER AND THE LEARN ED PANEL ERRED IN UPHOLDING THE APPROACH OF THE TPO OF QUESTIONING THE COMMERCIAL RATIONALE BEHIND THE TRANSACTIONS OF PAYMENT FOR MANAGEMENT FEES SALES COMMISSION AND INFORMATION TECHNOLOGY FEES AND HAS THEREBY EXCEEDED THE JURISDICTION BESTOWED UPON THE TPO UNDER THE ACT WHICH IS RESTRICTED TO DETERMININ G THE ARMS LENGTH PRICE OF THE TRANSACTIONS. 4. THAT THE LEARNED ASSESSING OFFICER AND THE LEARN ED PANEL ERRED IN DISREGARDING THE CONDITIONS PRESCRIB ED UNDER SECTION 92C(3) OF THE ACT FOR DETERMINING TH E ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF MANAGEMENT FEES SALES COMMISSION AND INFORMATION TECHNOLOGY FEES. 5. THAT THE LEARNED ASSESSING OFFICER AND THE LEARN ED PANEL ERRED BOTH IN FACTS AND LAW IN CONFIRMING THE ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 13 OF 16 ACTION OF THE LEARNED TPO OF MAKING AN ADJUSTMENT T O THE TRANSFER PRICE OF THE APPELLANT IN RESPECT OF T HE PAYMENT OF MANAGEMENT FEES BY RS.78 801 771 PAYMENT OF SALES COMMISSION BY RS.16 48 79 270 AND PAYMENT OF INFORMATION TECHNOLOGY FEES BY RS.1 71 77 994 HOLDING THAT THESE INTERNATIONAL TRANSACTIONS DO NOT SATISFY THE ARMS LENGTH PRINCI PLE ENVISAGED UNDER THE ACT AND IN DOING SO GROSSLY ERR ED IN: 5.1 UPHOLDING THE APPROACH FOLLOWED BY THE LEARNED TPO OF NOT APPRECIATING THAT ON ACCOUNT OF USING TRANSACTIONAL NET MARGIN METHOD (TNNM) AS THE MOS T APPROPRIATE METHOD AND AGGREGATING CLOSELY LINKED TRANSACTIONS EACH OF THE TRANSACTIONS OF PAYMENT FOR MANAGEMENT FEES SALES COMMISSION AND INFORMATION TECHNOLOGY FEES WERE DETERMINED TO BE AT ARMS LENG TH. 5.2 UPHOLDING THE APPLICATION OF COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPRIATE METHOD AND REJECTING EH APPLICATION OF TNMM FOR DETERMINATION OF ARMS LENGTH PRICE IN CAS E OF PAYMENT OF MANAGEMENT FEES SALES COMMISSION AND INFORMATION TECHNOLOGY FEES. 5.3 UPHOLDING THE APPROACH OF THE LEARNED TPO ON NON-APPLICATION OF THE CUP METHOD AS ENVISAGED IN RULE 10B OF THE RULES SINCE THE LEARNED TPO FAILED TO PROVIDE ANY INFORMATION ON THE COMPARABLE UNCONTROLLED TRANSACTIONS WHICH THE LEARNED TPO HAD RELIED ON FOR APPLICATION OF THE CUP METHOD. 5.4 DISREGARDING THE COLLECTIVE EVIDENCES PROVIDED BY THE APPELLANT TO SUPPORT THE ARMS LENGTH NATURE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO PAYMEN T OF MANAGEMENT FEES SALES COMMISSION AND INFORMATION TECHNOLOGY FEES. 5.5 UPHOLDING THE CONCLUSION OF THE LEARNED TPO THA T NO COMMERCIAL OR ECONOMIC BENEFITS HAVE BEEN RECEIVED BY THE APPELLANT ON PAYMENT OF MANAGEMENT FEES SALES COMMISSION AND INFORMATION TECHNOLOGY FEES TO THE ASSOCIATED ENTERPRISE. OTHER ISSUES: 6. THE LEARNED ASSESSING OFFICER AND THE LEARNED PANEL ERRED IN DISALLOWING EXPENDITURE INCURRED BY ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 14 OF 16 THE COMPANY ON TECHNICAL ASSISTANCE AND TRAINING FEES AMOUNTING TO RS.42 46 654 BY TREATING THE SAME AS CAPITAL EXPENDITURE. 7. (A) THAT THE LEARNED ASSESSING OFFICER AND THE LEARNED PANEL ERRED IN DISALLOWING EXPENDITURE INCURRED BY THE COMPANY TOWARDS INFORMATION TECHNOLOGY FEES AMOUNTING TO RS.1 71 77 094. (B) THAT THE LEARNED ASSESSING OFFICER AND THE LEARNED PANEL ERRED IN DISALLOWING INFORMATION TECHNOLOGY FEES AMOUNTING TO RS.1 71 77 094 AS UNREASONABLE PAYMENT TO RELATED PARTY U/S 40A(2) OF THE ACT. 8. CONSEQUENTLY THE LEARNED ASSESSING OFFICER ERRED IN CHARGING INTEREST U/S 234B OF THE ACT. 9. CONSEQUENTLY THE LEARNED ASSESSING OFFICER ERRED IN CHARGING INTEREST U/S 234D OF THE ACT. 5.2 GROUND NO.1 TO 5.5 RELATES TO THE TRANSFER PRIC ING ISSUE. WITH REFERENCE TO GROUND NO.7 MENTIONED ABOVE NO A RGUMENT WAS RAISED BY THE ASSESSEE IN THE COURSE OF HEARING HENCE GROUND NO.7 IS DISMISSED. GROUND NOS. 8 & 9 RELATES TO THE LEVY OF INTEREST U/S 234B AND 234D OF THE ACT. LEVY OF I NTEREST U/S 234B AND 234D ARE MANDATORY AND CONSEQUENTIAL HENC E GROUND NOS. 8 AND 9 ARE DISMISSED. 5.3 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRANSFER PRICING ISSUES RAISED IN GROUND NO. 1 TO 5 .5 AND THE ISSUES RAISED IN GROUND NO.6 REGARDING THE DISALLOW ANCE OF EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON TEC HNICAL ASSISTANCE AND TRAINING FEES OF RS.42 46 654 BY TRE ATING THE SAME AS CAPITAL EXPENDITURE ARE IDENTICAL TO THE IS SUES CONSIDERED BY THE TRIBUNAL FOR ASSESSMENT YEAR 2006 -07 AND THEREFORE IT WAS PRAYED THAT THESE TWO ISSUES MAY BE RESTORED ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 15 OF 16 TO THE ASSESSING OFFICER/TPO AS IT WAS DONE IN EAR LIER ASSESSMENT YEAR NAMELY 2006-07. THE ASSESSEE HAS AL SO FILED ADDITIONAL EVIDENCE IN SUPPORT OF THE CLAIM OF DEDU CTION ON PAYMENT MADE TO ITS AE FOR MANAGEMENT FEES AND SALE S COMMISSION. 5.4. THE LEARNED DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE DRP. 5.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FACTS CO NSIDERED BY US FOR ASSESSMENT YEAR 2006-07 WITH REGARD TO THE TRAN SFER PRICE ADJUSTMENTS U/S 92CA AND THE DISALLOWANCE OF EXPEND ITURE INCURRED BY THE ASSESSEE COMPANY ON TECHNICAL ASSIS TANCE AND TRAINING FEES ARE IDENTICAL TO THE FACTS FOR THIS ASSESSMENT YEAR ALSO. THEREFORE FOR THE REASONS STATED IN THIS ORD ER VIDE PARAGRAPH 3.4 (SUPRA) WE RESTORE THE ISSUE OF TRAN SFER PRICING ADJUSTMENT U/S 92CA AND DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON TECHNICAL ASSISTANCE AND TRAINING FEE TO THE ASSESSING OFFICER/TPO FOR DE NOVA CONSID ERATION. 5.6. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWED PARTLY AS INDICATED ABOVE. 6 . SP. NO.155/BANG/2013: THIS STAY PETITION FILED FOR THE ASSESSMENT YEAR 2 008-09 IS SEEKING TO STAY THE RECOVERY OF OUTSTANDING TAX ARR EARS AMOUNTING TO RS.6 78 01 100. SINCE WE HAVE ALREADY DISPOSED ITA NOS.1165 OF 2010 1681 OF 12 AND SP 155 OF 2013 LM WINDPOWER BLADES INDIA PVT LTD BANGALORE. PAGE 16 OF 16 OFF THE APPEAL PERTAINING TO THE ASSESSMENT YEAR 20 08-09 (ITA NO.1681/BANG/ 2010) THE STAY PETITION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS. HENCE THE STAY PETITION IS DISMISSED AS INFRUCTUOUS. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT: I) ITA NO.1165/BANG/2010 (AY 2006-07) IS ALLOWED FO R STATISTICAL PURPOSES II) ITA NO.1681/BANG/2012 (AY 2008-09) IS PARTLY AL LOWED FOR STATISTICAL PURPOSES III) S.P NO.155/BANG/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER 2013. SD/- SD/- (JASON P. BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 25 TH OCTOBER 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR ITAT BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES BANGALORE