ChrysCapital Investment Advisors India Pvt. Ltd., New Delhi v. DCIT, New Delhi

ITA 3717/DEL/2010 | 2006-2007
Pronouncement Date: 18-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 371720114 RSA 2010
Assessee PAN AABCC4609H
Bench Delhi
Appeal Number ITA 3717/DEL/2010
Duration Of Justice 7 month(s) 13 day(s)
Appellant ChrysCapital Investment Advisors India Pvt. Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 18-03-2011
Date Of Final Hearing 11-11-2010
Next Hearing Date 11-11-2010
Assessment Year 2006-2007
Appeal Filed On 04-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH B BB B : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI C.L.SETHI JM AND SHRI BEFORE SHRI C.L.SETHI JM AND SHRI BEFORE SHRI C.L.SETHI JM AND SHRI BEFORE SHRI C.L.SETHI JM AND SHRI K.G.BANSAL K.G.BANSAL K.G.BANSAL K.G.BANSAL AM AM AM AM ITA NO. ITA NO. ITA NO. ITA NO.3717/DEL/2010 3717/DEL/2010 3717/DEL/2010 3717/DEL/2010 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2006 2006 2006 2006- -- -07 0707 07 M/S CHRYSCAPITAL INVESTMENT M/S CHRYSCAPITAL INVESTMENT M/S CHRYSCAPITAL INVESTMENT M/S CHRYSCAPITAL INVESTMENT ADVISORS INDIA PVT.LTD. ADVISORS INDIA PVT.LTD. ADVISORS INDIA PVT.LTD. ADVISORS INDIA PVT.LTD. SUITE 101 THE OBEROI SUITE 101 THE OBEROI SUITE 101 THE OBEROI SUITE 101 THE OBEROI DR.ZAKIR HUS DR.ZAKIR HUS DR.ZAKIR HUS DR.ZAKIR HUSSAIN MARG SAIN MARG SAIN MARG SAIN MARG NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 003. 110 003. 110 003. 110 003. PAN NO. PAN NO. PAN NO. PAN NO.AABCC4609H. AABCC4609H. AABCC4609H. AABCC4609H. VS. VS. VS. VS. DY.COMMISSIONER OF INCOME TAX DY.COMMISSIONER OF INCOME TAX DY.COMMISSIONER OF INCOME TAX DY.COMMISSIONER OF INCOME TAX CIRCLE CIRCLE CIRCLE CIRCLE- -- -3(1) 3(1) 3(1) 3(1) NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKAS SRIVASTAVA ADVOCATE SHRI ATUL NINAWAT AND SHRI MAYANK AGGARWAL CAS. RESPONDENT BY : SHRI STEPHEN GEORGE CIT-DR. ORDER ORDER ORDER ORDER PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI J J J JM : M : M : M : THIS IS A DIRECT APPEAL FILED BY THE ASSESSEE AG AINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/ S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT 1961 (THE ACT) FOR THE AY 2006-07. 2. THE FIRST ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO AO/TPOS ORDER MAKING AN ADJUSTMENT OF `8 68 19 937/- TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE TRANSFER PRICING REGULATIONS CONTAINED IN THE ACT. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE AUTHORITIES BELOW I.E. AOS ORDER TPOS ORDER AND ORDER PASSED U/S 144C BY THE LEARNED DISPUTE RESOLUTION PANEL. THE PROFILE OF THE ASSESSEE AND ITS GROUP AS BORNE OUT OF THE ORDERS O F THE AUTHORITIES BELOW AND THE ARGUMENTS OF THE ASSESSEE MAY BE IN BRIEF STATED AS UNDER. ITA-3717/DEL/2010 2 4. AS PER THE TRANSFER PRICING REPORT SUBMITTED BY THE ASSESSEE CHRYSALIS MANAGEMENT COMPANIES ARE ASSET MANAGEMENT COMPANIES FOR INVESTMENT FUNDS (VENTURE CAPITAL FUNDS) WHO G ENERALLY FOCUS ON INVESTMENTS IN INCUBATION VENTURES. THE INVESTMENT FUNDS MANAGED BY THE CHRYSALIS MANAGEMENT COMPANIES CONCENTRATE O N PROVIDING FUNDS TO ENTREPRENEURS ENGAGED IN THE BUSINESS OF P ROVIDING SOFTWARE SERVICES OUTSOURCING SERVICES AND TECHNOLOGY OUT O F INDIA. THE ASSESSEE COMPANY NAMELY CHRYSCAPITAL INVESTMENT A DVISORS (INDIA) PVT.LTD. IS ENGAGED IN PROVIDING INVESTMENT ADVISOR Y SERVICES TO THE CHRYSALIS MANAGEMENT COMPANIES TO ASSIST THEM IN TH EIR INVESTMENT DECISIONS. IT IS REPORTED THAT THE ASSESSEE COMPAN Y CARRIES OUT RESEARCH AND SCOUTING ACTIVITIES FOR CHRYSALIS MANA GEMENT COMPANIES TO IDENTIFY ENTREPRENEURS AND PORTFOLIO COMPANIES R EQUIRING ASSISTANCE IN TERMS OF CAPITAL INFUSION STRATEGIC DIRECTION A ND FINANCIAL ADVICE. 5. THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY T HE ASSESSEE COMPANY WITH ITS ASSOCIATED ENTERPRISES DURING THE YEAR UNDER CONSIDERATION ARE AS UNDER:- S.NO. DESCRIPTION AMOUNT (RS.) 1. ADVISORY SERVICES 25 20 11 250 2. REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF AE'S 5 39 53 094 3. RECEIPT OF ADVANCE FOR SERVICES TO BE RENDERED IN FUTURE 3 33 41 250 6. IN ORDER TO ESTABLISH THAT THE TRANSACTIONS BETW EEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES AS DETAILED ABOVE AR E AT ARMS LENGTH PRICE AN ARMS LENGTH ANALYSIS WAS PERFORMED BY TH E ASSESSEE COMPANY AND SUBMITTED TO THE TPO. ON THE BASIS OF DETAILED ANALYSIS CONDUCTED BY THE ASSESSEE COMPANY THE ASSESSEE COM PANY IDENTIFIED ITA-3717/DEL/2010 3 SIX ENTITIES AS COMPARABLES WHICH WERE STATED TO B E ENGAGED BROADLY IN THE SAME ECONOMIC ACTIVITIES AS THE ASSESSEE COM PANY. THE RESULT OF ARMS LENGTH ANALYSIS SUBMITTED BY THE ASSESSEE IS AS UNDER:- OPERATING MARGINS S.NO. COMPARABLE ENTITY 2004 2005 2006 WEIGHTED AVERAGE 1. KHANDWALA SECURITIES LIMITED -43.90% 27.31% 43.35% 8.92% 2. KEYNOTE CORPORATE SERVICES LIMITED -6.87% 13.33% -- 3.23% 3. SUMEDHA FISCAL SERVICES LIMITED -31.08% -6.88% -- -18.98% 4. SREI CAPITAL MARKETS LIMITED 5.32% 19.78% -- 12.55% 5. INTEGRATED ENTERPRISES (INDIA) LIMITED -- 3.96% -- 3.96% 6. KJMC GLOBAL MARKET (INDIA) LIMITED 2.02% 6.60% -- 4.31% ARITHMETIC MEAN 2.33% 7. AS AVERAGE MARGIN OF 2.33% EARNED BY THE COMPARA BLE ENTITIES WAS BELOW THE OPERATING MARGIN OF 24.15% EARNED BY THE ASSESSEE COMPANY THE ASSESSEE DID NOT MADE ANY ADJUSTMENT T O THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT WITH ITS ASSOCIATED ENTERPRISES. THE ASSESSEE HAS WORKED OUT THE OPERA TING MARGIN OF 24.15% EARNED BY IT IN THE FOLLOWING MANNER:- PARTICULARS AMOUNT (RS.) INCOME FEES 252 011 250 OTHER INCOME 71 730 TOTAL INCOME 252 082 980 ITA-3717/DEL/2010 4 EXPENDITURE EMPLOYEE COSTS 145 286 110 ADMINISTRATIVE AND GENERAL EXPENSES 55 816 287 DEPRECIATION 1 948 311 TOTAL OPERATING EXPENDITURE 203 050 708 OPERATING PROFIT 49 032 272 OPERATING MARGIN (OPERATING PROFIT/ OPERATING EXPENSES) 24.15% 8. THE AFORESAID ANALYSIS MADE BY THE ASSESSEE WAS CONSIDERED BY THE TPO. AFTER CONSIDERING THE ASSESSEES SUBMISSI ONS AND DETAILED ANALYSIS MADE BY THE TPO THE TPO PASSED THE ORDER DATED 28.5.2009 U/S 92CA(3) OF THE ACT RECOMMENDING AN ADJUSTMENT O F `8 68 19 937/- TO THE TOTAL INCOME OF THE ASSESSEE. IN DETERMININ G THE ARMS LENGTH PRICE THE TPO HAS REJECTED THE FOLLOWING TWO ENTIT IES THAT WERE SELECTED COMPARABLES BY THE ASSESSEE COMPANY:- I. SREI CAPITAL MARKETS LIMITED AND II. INTEGRATED ENTERPRISES (INDIA) LIMITED. 9. ON THE OTHER HAND THE TPO INTRODUCED FOLLOWING TWO FRESH COMPARABLES TO DETERMINE ARMS LENGTH PRICE:- I. BRESCON CORPORATE ADVISORS LIMITED AND II. ICDS SECURITIES LIMITED. 10. AFTER EXCLUDING THE TWO COMPARABLES THAT WERE S ELECTED BY THE ASSESSEE AND INCLUDING TWO FRESH COMPARABLES THE T PO DETERMINED THE AVERAGE MARGIN OF 52.86% AS UNDER:- ITA-3717/DEL/2010 5 S.NO. COMPANY NAME OPERATING MARGIN 1 KHANDWALA SECURITIES LIMITED 43.35% 2 KEYNOTE CORPORATE SERVICES LIMITED 94.06% 3 SUMEDHA FISCAL SERVICES LIMITED -16.71% 4 KJMC GLOBAL MARKET (INDIA) LIMITED -10.42% 5 BRESCON CORPORATE ADVISORS LIMITED 87.89% 6 ICDS SECURITIES LIMITED 119.00% ARITHMETIC MEAN 52.86% 11. IN THE LIGHT OF THE TPOS ORDER THE AO MADE A DRAFT ASSESSMENT ORDER AND SENT THE SAME TO THE DISPUTE RESOLUTION P ANEL FOR THEIR APPROVAL. 12. THE ASSESSEE RAISED OBJECTION AGAINST ARMS LEN GTH PRICE ARRIVED AT BY THE TPO BEFORE THE LEARNED DRP. THE LEARNED DRP UPHELD THE TPOS ACTION BY A SHORT ORDER WHICH RUNS AS UNDER: - 2. ARMS LENGTH PRICE (ALP) U/S 92CA(3) THE OBJECTION RAISED BY THE ASSESSEE WITH REGARD TO ALP ARRIVED AT BY THE TPO RELATES MAINLY TO THE USE OF COMPARABLES EITHER BY SELECTING SOME FRESH COMPARAB LES OR BY REJECTING SOME OF THE ASSESSEES OWN COMPARAB LES. THE TPO HAS GIVEN SUFFICIENT REASONS IN THE TPO ORD ER IN PARA NO.10.4 10.5 AND 10.6. THE ASSESSEE WAS GIVE N SUFFICIENT OPPORTUNITY DURING TP PROCEEDINGS. AS P OINTED OUT BY THE TPO THE ASSESSEE CONTINUES TO ENGAGE IN THE SAME BUSINESS AS IN THE EARLIER YEARS. HENCE TPO WAS NOT WRONG IN CHOOSING SOME COMPARABLES WHICH WERE USED AS COMPARABLES BY THE ASSESSEE ITSELF IN EARLIER YEAR. WITH REGARD TO THE BENCH MARKING OF REIMBURSEMENT OF EXPENSES BY CONSIDERING THEM AS PART OF THE OPERATI NG COST TPO HAS SOUND REASONING ELUCIDATED IN THE ORD ER. THE REIMBURSEMENTS OF THE EXPENSES ARE CORRECTLY CLUBBE D IN THE OPERATING COST OF THE ASSESSEE. THEREFORE WE DONT WANT TO INTERFERE IN THE FINDINGS OF THE TP ORDERS. ITA-3717/DEL/2010 6 13. THE AO THEN PASSED THE FINAL ORDER MAKING TOTAL ADDITION OF `8 68 19 937/- TO THE TOTAL INCOME OF THE ASSESSEE BY WAY OF TRANSFER PRICING ADJUSTMENT. 14. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL BEFO RE US. 15. THE ASSESSEE HAS RAISED SEVERAL POINTS AGAINST THE TRANSFER PRICING ANALYSIS OR AGAINST DETERMINATION OF OPERAT ING MARGIN OF COMPARABLES MADE BY THE TPO. THESE ARE AS UNDER:- (I) THE TPO HAS ERRED IN LAW AS WELL AS IN FACTS IN NOT ACCEPTING THE ARMS LENGTH PRICE DETERMINED BY THE ASSESSEE. (II) THE TPO HAS ERRED IN MAKING CHANGES IN THE COMPARABLES SELECTED BY THE ASSESSEE FOR DETERMINING ALP. (III) THE TPO HAS ERRED IN INCLUDING FRESH COMPARABLES FO R DETERMINING ALP. (IV) THE TPO HAS ERRED IN DETERMINING THE ALP ON THE BASIS OF DATA FOR CURRENT FINANCIAL YEAR 2005-06 ON LY AND IGNORING THE DATA FOR TWO FINANCIAL YEARS I.E. 2003-04 & 2004-05. (V) THE TPO HAS ERRED IN NOT MAKING ANY ADJUSTMENT TO THE ARMS LENGTH PRICE ON ACCOUNT OF DIFFERENCE IN WORKING CAPITAL REQUIREMENT OF THE ASSESSEE AND THE COMPARABLES. (VI) THE TPO HAS ERRED IN ACCEPTING COMPANIES OR ENTITIE S WITH EXCEPTIONAL HIGH MARGINS AS COMPARABLES. (VII) THE TPO HAS ERRED IN COMPUTING THE OPERATING MARGIN OF ONE OF THE COMPARABLES I.E. KJMC GLOBAL MARKET (INDIA) LIMITED FOR THE FY 2005-06. ITA-3717/DEL/2010 7 (VIII) THE TPO HAS ERRED IN CONSIDERING THE AMOUNTS REIMBURSED BY ASSESSEES ASSOCIATE ENTERPRISES AS PART OF OPERATING EXPENSES AND THE CORRESPONDINGLY REIMBURSEMENT AS PART OF OPERATING REVENUE OF THE ASSESSEE WHILE DETERMINING ALP. (IX) THE TPO HAS ERRED IN NOT ALLOWING THE BENEFIT OF + 5%. 16. WITHOUT GOING TO THE MERIT REGARDING THE DETERM INATION OF ARMS LENGTH PRICE WE SHALL FIRST DECIDE AS TO WHETHER L EARNED DRP WAS JUSTIFIED IN REJECTING THE ASSESSEES OBJECTIONS AN D ACCEPTING THE TPOS ORDER IN THE MANNER AS DONE BY THEM. 17. IN THIS CASE AFTER RECEIVING THE DRAFT ORDER F ROM THE AO WHERE AN ADJUSTMENT OF `8 68 19 937/- WAS MADE ON THE BASIS OF TPOS ORDER THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP U/S 14 4C OF THE ACT AGAINST THE TPOS ORDER. THE OBJECTIONS TO THE DRA FT ORDER WERE FILED IN FORM NO.35A ALONGWITH GROUNDS OF OBJECTION FACTS O F THE CASE AS SUBMITTED BY THE ASSESSEE TO THE AO FACTS OF THE C ASE AS MODIFIED BY THE AO AND DETAILED REASONS IN SUPPORT OF THE VARIO US OBJECTIONS RAISED BY THE ASSESSEE. THE ASSESSEE HAS ALSO RELIED UPON VARIOUS DECISIONS. FORM NO.35A ALONGWITH ANNEXURES FILED BY THE ASSESS EE IS CONSISTING OF 75 PAGES. IN THESE OBJECTIONS THE ASSESSEE HAS NA RRATED ALL THE FACTS AND LEGAL POSITION UNDER THE FOLLOWING HEADS:- (I) GROUNDS OF OBJECTION ANNEXURE 1. (II) FACTS AS SUBMITTED TO THE AO ANNEXURE 2. (III) FACTS MODIFIED BY THE AO ANNEXURE 3. (IV) REASON FOR NOT AGREEING WITH THE MODIFICATION OF FA CTS BY THE AO ALONGWITH DOCUMENTARY EVIDENCE ANNEXURE 4. (V) LEGAL ARGUMENTS SUBMITTED TO THE AO ANNEXURE 5. ITA-3717/DEL/2010 8 (VI) CASE LAWS RELIED UPON BY THE ASSESSEE ANNEXURE 6. (VII) LEGAL ARGUMENTS RELIED UPON BY THE AO ANNEXURE 7. (VIII) CASE LAWS RELIED UPON BY THE AO ANNEXURE 8. (IX) ADDITIONAL NEW CASE LAWS RELIED UPON BY THE ASSESSE E ANNEXURE 9. (X) FACTUAL AND LEGAL ARGUMENTS AGAINST THE ADDITION PR OPOSED BY THE AO ANNEXURE 10. (XI) APPENDIX 1 ABOUT FINANCE PROFIT & LOSS OF KJMC GLOBAL MARKET (INDIA) LIMITED. 18. FROM THESE DETAILED OBJECTIONS COMPRISING OF 75 PAGES FILED BY THE ASSESSEE IT IS CLEAR THAT THE ASSESSEE RAISED SEVERAL POINTS AND CONTENTIONS BEFORE THE LEARNED DRP AGAINST THE PROP OSED ADJUSTMENT TO THE AMOUNT OF TRANSACTIONS ENTERED INTO BY THE A SSESSEE WITH ITS ASSOCIATE ENTERPRISES. HOWEVER THE LEARNED DRP IN A VERY SHORT AND SUMMARY ORDER HAS UPHELD THE TPOS ACTION WITHOUT G IVING THE REASONS AS TO WHY THE TPO WAS JUSTIFIED IN SUGGESTING THE A DJUSTMENT TO THE TRANSFER PRICING TRANSACTIONS AFTER SELECTING VARIO US COMPARABLES. THE LEARNED DRP HAS NOT COMMENTED UPON THE FINANCIAL AN ALYSIS AND OTHER ASPECTS OF THE COMPARABLES BEFORE SAYING THAT TPO W AS NOT WRONG IN CHOOSING SOME COMPARABLES WHICH WERE USED AS COMPAR ABLES BY THE ASSESSEE ITSELF IN EARLIER YEAR. THE ASSESSEE RAIS ED CONTENTION ABOUT EXCLUSION OF SUPER PROFIT COMPANIES FROM THE COMPAR ABLES WHICH HAS NOT BEEN COMMENTED UPON BY THE DRP. HAVING REGARD TO THE PROVISIONS CONTAINED IN SECTION 144C OF THE ACT WE ARE OF THE CONSIDERED VIEW THAT LEARNED DRP SHOULD HAVE PASSED A SPEAKING AND REASONED ORDER ON EACH AND EVERY POINT OF OBJECTION S RAISED BY THE ASSESSEE AND SUPPORT ITS CONCLUSION WITH THE REASON S. SECTION 144C HAS GIVEN WIDE POWERS TO DRP AS WOULD BE CLEAR FROM SUB-SECTIONS 6 TO 11 OF SECTION 144C WHICH ARE AS UNDER:- ITA-3717/DEL/2010 9 (6) THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DIRECTIONS REFERRED TO IN SUB-SECTION (5) AFTER CO NSIDERING THE FOLLOWING NAMELY:- (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT IF ANY OF THE ASSESSING OFFICER VALUA TION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AU THORITY; (E) RECORDS RELATING TO THE DRAFT ORDER; (F) EVIDENCE COLLECTED BY OR CAUSED TO BE COLLECTE D BY IT; AND (G) RESULT OF ANY ENQUIRY MADE BY OR CAUSED TO BE MADE BY IT. (7) THE DISPUTE RESOLUTION PANEL MAY BEFORE ISSUIN G ANY DIRECTIONS REFERRED TO IN SUB-SECTION (5) - (A) MAKE SUCH FURTHER ENQUIRY AS IT THINKS FIT; OR (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY INCOME-TAX AUTHORITY AND REPORT THE RESULT OF THE S AME TO IT. (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM REDUC E OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO HOWEVER THAT IT SHALL NOT SET ASIDE ANY PROPOSED V ARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FOR FU RTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. (9) IF THE MEMBERS OF THE DISPUTE RESOLUTION PANEL DIFFER IN OPINION ON ANY POINT THE POINTS SHALL BE DECIDE D ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEM BERS. (10) EVERY DIRECTION ISSUED BY THE DISPUTE RESOLUTI ON PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. (11) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED UNLESS AN OPPORTUNITY OF BEING HEARD IS GIVEN TO TH E ASSESSEE AND THE ASSESSING OFFICER ON SUCH DIRECTIO NS WHICH ARE PREJUDICIAL TO THE INTEREST OF THE ASSESS EE OR THE INTEREST OF THE REVENUE RESPECTIVELY. 19. RECENTLY THE JURISDICTIONAL HIGH COURT OF DELH I IN THE CASE OF VODAFONE ESSAR LTD. VS. DISPUTE RESOLUTION PANEL-II & ORS. IN WPO(C) 7028/2010 VIDE THEIR LORDSHIPS ORDER DATED 2.12.201 0 HAS OBSERVED ITA-3717/DEL/2010 10 THAT WHEN A QUASI-JUDICIAL AUTHORITY DEALS WITH A L IS IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL OF THE MATTER AND FURTHER THE SAME A LSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION B EFORE THE SUPERIOR FORUM. WITH THESE OBSERVATION THE HONBLE HIGH CO URT SET ASIDE THE ORDER DATED 30.9.2010 PASSED BY THE DRP AND THE MAT TER WAS REMANDED TO THE LEARNED DRP TO ADJUDICATE AFRESH. 20. SINCE IN THE PRESENT CASE THE LEARNED DRP HAS FAILED TO ASCRIBE COGENT AND GERMANE REASONS FOR REJECTING THE ASSESS EES SEVERAL OBJECTIONS ACCEPTING THE TPOS ORDER IN SUMMARY MA NNER AND HAS FAILED TO CONSIDER VARIOUS POINTS RAISED BY THE ASS ESSEE WE ARE INCLINED TO HOLD THAT THE MATTER SHOULD GO BACK TO THE AO FOR PASSING A FINAL ORDER AFTER THE OBJECTIONS OF THE ASSESSEE FI LED BEFORE THE LEARNED DRP ARE FRESHLY DECIDED BY LEARNED DRP BY PASSING A SPEAKING AND REASONED ORDER ON ALL OBJECTIONS AND POINTS RAISED BY THE ASSESSEE. WE THEREFORE SET ASIDE THE AOS FINAL ORDER AS WE LL AS DRPS ORDER ON THE TRANSFER PRICING ISSUE AND REMIT THE MATTER BAC K TO THE AO AND DRP FOR FRESH DISPOSAL AFTER PROVIDING REASONABLE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE AS PER LAW. WE ORDER ACCORDINGLY. 21. SINCE THE MATTER IS RESTORED TO THE FILE OF THE AO/DRP FOR FRESH ADJUDICATION WE NEED NOT GO INTO THE MERITS OF THE ISSUE ABOUT DETERMINATION OF ALP AFTER SELECTING COMPARABLES W HICH SHALL BE CONSIDERED AND DECIDED BY LEARNED DRP AFTER CONSIDE RING ALL OBJECTIONS OF THE ASSESSEE BY PASSING A SPEAKING AND REASONABL E ORDER. 22. THE NEXT ISSUE RAISED BY THE ASSESSEE IS DIRECT ED AGAINST THE AOS ORDER IN DISALLOWING THE BONUS AMOUNTING TO `2 95 93 000/- PAID BY THE ASSESSEE TO ITS EMPLOYEES (WHO ARE ALSO SHAR EHOLDERS OF THE ITA-3717/DEL/2010 11 ASSESSEE COMPANY) U/S 36(1)(II) OF THE ACT BY HOLDI NG THAT THE SAME WOULD HAVE BEEN PAYABLE BY WAY OF DIVIDEND. 23. IN THE DRAFT ASSESSMENT ORDER THE AO DISALLOWE D THE AFORESAID PAYMENT OF `2 95 93 000/- ON ACCOUNT OF PAYMENT OF BONUS. THE MATTER WAS REFERRED TO THE LEARNED DRP AND OBJECTIO N WAS RAISED BY THE ASSESSEE AGAINST THE AOS ACTION. THE LEARNED DRP HAS DECIDED THIS ISSUE BY DIRECTING THE AO TO VERIFY RECORDS OF THE EARLIER YEAR AND IF IT IS ALLOWED IN THE EARLIER YEARS THE SAME SHOULD BE ALLOWED IN THIS ASSESSMENT YEAR ALSO. THE AO THEN COMPLETED THE FI NAL ASSESSMENT ORDER U/S 143(3) READ WITH SECTION 144C OF THE ACT. IN THE FINAL ORDER THE AO NOTED THAT ASSESSEE COMPANY HAD PAID SALARY AND OTHER ALLOWANCES INCLUDING BONUS TO ITS DIRECTORS. SHRI ASHISH DHAWAN WAS MANAGING DIRECTOR AND SHRI KUNAL SHROFF WAS A DIREC TOR. THE BONUS OF `1 89 75 000/- AND `1 06 18 000/- WAS PAID TO THESE DIRECTORS RESPECTIVELY. THESE TWO DIRECTORS ARE MAJOR SHAREH OLDERS OF THE COMPANY WITH 50% EACH. THE AO THEN REFERRED TO THE PROVISION OF SECTION 36(1)(II) WHERE IT HAS BEEN PROVIDED THAT I N COMPUTING THE BUSINESS INCOME REFERRED TO IN SECTION 28 A DEDUCT ION ON ACCOUNT OF ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED WHERE SUCH SUM WOULD NOT HAVE BEEN PAYABL E TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONU S OR COMMISSION SHALL BE ALLOWED. AO NOTED THAT ASSESSEE COMPANY HAD DEC LARED THE PROFIT OF `5 06 14 970/- BUT NO DIVIDEND WAS PROPOSED OR D ISTRIBUTED AMONG THE SHAREHOLDERS. THE ASSESSEE GAVE REPLY TO THE A O VIDE LETTER DATED 23.11.2009 WHICH HAS BEEN REPRODUCED BY THE AO IN T HE ASSESSMENT ORDER. AS PER THE DIRECTION OF THE LEARNED DRP A VERIFICATION OF RECORDS OF EARLIER YEAR WAS MADE BY AO. THE AO OBSERVED TH AT NO SUCH CLAIM OF BONUS TO DIRECTORS WAS ALLOWED IN THE EARLIER YE ARS AND IT WAS FOUND THAT IN AY 2003-04 & 2005-06 ASSESSEE DID NOT MAKE ANY CLAIM OF SUCH BONUS PAID TO DIRECTORS. AO FURTHER STATED TH AT EVERY YEAR IS AN ITA-3717/DEL/2010 12 INDEPENDENT YEAR IN INCOME TAX PROCEEDINGS AND FIND INGS OF THE EARLIER YEARS ARE NOT BINDING ON HIM. HE FURTHER STATED TH AT NO QUERY ON THIS LINE WAS MADE IN EARLIER ASSESSMENT YEAR. THE AO THEREFORE DISALLOWED THE SUM OF `2 95 93 000/- ON ACCOUNT OF BONUS PAID TO DIRECTOR EMPLOYEES. 24. IN THE COURSE OF HEARING OF THIS APPEAL THE LE ARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE PAID B ONUS TO ALL ITS EMPLOYEES DURING THE RELEVANT FINANCIAL YEAR INCLUD ING TWO SHAREHOLDERS WHO WERE FULL TIME EMPLOYEES OF THE AS SESSEE COMPANY AND AT THE SAME TIME WERE HOLDING THE ENTIRE SHARE CAPITAL OF THE ASSESSEE COMPANY IN THE RATIO OF 1 : 1. HE FURTHER POINTED OUT THAT BOTH THE INDIVIDUALS HAVE REQUISITE QUALIFICATIONS EXPERIENCE AND EXPERTISE IN THE FIELD OF INVESTMENT ADVISORY SERVI CES AND KEEPING IN VIEW THEIR EXPERIENCE EXPERTISE AND SERVICES RENDE RED THE ASSESSEE HAD COMPENSATED THEM. HE FURTHER CONTENDED THAT ON E OF THE SHAREHOLDERS WAS PAID MUCH HIGHER SUM ON ACCOUNT OF BONUS THOUGH BOTH HELD EQUAL SHARE IN THE COMPANY AND THEREFORE IT CANNOT BE SAID THAT THE SAID SUM WOULD HAVE BEEN PAYABLE TO THEM A S DIVIDEND. IN THIS CONNECTION RELIANCE WAS PLACED ON THE DECISIO N OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF LOYAL MOTOR SERVICE COMPA NY LIMITED VS. CIT 14 ITR 647. HE ALSO RELIED UPON THE RECENT CASE OF DCIT VS. CHEVIOT INTERNATIONAL LIMITED MANU/ID/0310/2010 TDEL A COP Y OF WHICH IS PLACED AT PAGE 579 OF THE PAPER BOOK OF JUDICIAL PR ECEDENTS. 25. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT IN A HYPOTHETICAL SCENARIO IN WHICH BONUS IS ALLOWED AS A RESULT OF THEIR SHAREHOLDING THERE WOULD BE HUGE DIFFERENCE BETWEE N THE ACTUAL BONUS PAID AND THE BONUS OUGHT TO BE PAID AS SHOWN BELOW:- ITA-3717/DEL/2010 13 S.NO. NAME OF THE EMPLOYEE BONUS AMOUNT (ACTUAL) (IN RS.) BONUS AMOUNT (IN RATIO OF 1:1) (IN RS.) DIFFERENCE (IN RS.) 1. MR.ASHISH DHAWAN 1 89 75 000 1 47 96 500 (41 78 500) 2. MR.KUNAL SHROFF 1 06 18 000 1 47 96 500 41 78 50 0 TOTAL 2 95 93 000 2 95 93 000 26. WITHOUT PREJUDICE TO THE AFORESAID SUBMISSIONS THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT TOT AL TAX PAID BY THE ASSESSEE AND THE CONCERNED EMPLOYEE ON THE AMOUNT O F BONUS WERE HIGHER THAN THE TAXES THAT WOULD HAVE BEEN PAID IN CASE THE AMOUNT WAS DECLARED AS DIVIDEND. IN THIS CONNECTION A CO MPARATIVE ANALYSIS OF THE TAXES PAYABLE UNDER BOTH THE SITUATIONS WAS FILED :- PARTICULARS BONUS ANNOUNCED BONUS NOT ANNOUNCED OTHER COSTS 100 100 BONUS 50 -- TOTAL COSTS 150 100 PROFIT MARGIN OF THE APPELLANT 24.15% 24.15% TAXABLE PROFITS 36.23 24.15 TAX RATE 33.66% 33.66% TAX PAID BY THE APPELLANT (A) 12.20 8.13 DIVIDEND (ASSUMING SAME AS BONUS) -- 50 DDT RATE -- 14.025% DDT PAYABLE (B) -- 6.15 TAXABLE INCOME IN THE HANDS OF EMPLOYEE 50 -- TAX PAID BY EMPLOYEE @ 33.66% 16.83 -- ITA-3717/DEL/2010 14 (C) TOTAL TAX PAID (A) + (B) + (C) 29.03 14.28 27. LEARNED DR ON THE OTHER HAND SUPPORTED THE AO S ORDER. 28. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE THERE WAS A S PECIFIC DIRECTION BY THE LEARNED DRP TO ALLOW THE ASSESSEES CLAIM IF TH E SAME WAS ALLOWED IN THE EARLIER YEAR. THE AO WAS BOUND TO ABIDE BY THE DIRECTIONS GIVEN BY THE DRP. THEREFORE AO WAS NOT JUSTIFIED IN OBS ERVING THAT MERELY BECAUSE THE CLAIM OF THE ASSESSEE WAS ALLOWED IN TH E EARLIER YEAR IT SHOULD BE ALLOWED IN THE PRESENT YEAR ALSO. THE AO SHOULD HAVE FOLLOWED THE DIRECTION OF THE LEARNED DRP UNLESS TH E SAME IS MODIFIED OR AMENDED BY THE DRP ITSELF. IN THE COURSE OF HEA RING OF THIS APPEAL LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE CLAIM OF BONUS PAID TO DIRECTORS WAS NEVER DISALLOWED IN THE EARLI ER YEARS. IF IT WAS THE CASE OF THE AO THAT NO SUCH CLAIM WAS MADE BY THE A SSESSEE IN THE EARLIER YEARS THE QUESTION OF DECIDING THIS ISSUE ON THE BASIS OF EARLIER YEARS DOES NOT ARISE. THIS POSITION IS NOT CLEAR A S TO WHETHER THE IDENTICAL CLAIM WAS MADE BY THE ASSESSEE IN THE EAR LIER YEARS AND WAS ALLOWED BY THE AO. THE VARIOUS CONTENTIONS RAISED ON MERITS HAVE NOT BEEN DEALT WITH EITHER BY THE LEARNED DRP OR BY THE AO. WE THEREFORE RESTORE THIS MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER VERIFYING AS TO WHETHER IDENTICAL CLAIM WAS ALLOWED IN EARLIER YEARS AND IF IT IS FOUND THAT THE SAME IS ALLOWED IN THE EARL IER YEAR THE AO SHALL ALLOW THE ASSESSEES CLAIM AS SO DIRECTED BY THE LE ARNED DRP. IF NO SUCH CLAIM WAS MADE IN THE EARLIER YEAR AND IT IS F OR THE FIRST TIME THE CLAIM HAS BEEN MADE THE DRP SHALL DECIDE THE MATTE R ON MERITS HAVING REGARD TO THE PROVISIONS CONTAINED IN SECTIO N 36(1)(II) IN THE LIGHT OF FACTS OF THE PRESENT CASE AND THE CONTENTI ONS/SUBMISSIONS OF THE ASSESSEE AS WELL AS THE DECISIONS CITED BY THE LEARNED COUNSEL FOR ITA-3717/DEL/2010 15 THE ASSESSEE. THE AO/DRP SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 29. NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF S EVERANCE COST OF `35 10 000/- PAID BY THE ASSESSEE COMPANY TO ONE OF ITS EMPLOYEES. 30. DURING THE RELEVANT YEAR THE ASSESSEE COMPANY PAID A SEVERANCE COST OF `35 10 000/- TO ONE OF ITS EMPLOY EES NAMELY SHRI GIRISH BALIGA AT THE TIME OF HIS LEAVING THE JOB I N NOVEMBER 2005. THE AO DISALLOWED THE ASSESSEES CLAIM AND THE MATT ER WAS REFERRED TO THE DRP FOR FINAL DIRECTIONS. THE LEARNED DRP HAS DECIDED THIS ISSUE BY OBSERVING THAT IN THE EARLIER YEAR ALSO SIMILAR DI SALLOWANCE WAS MADE AND THE APPEAL WAS PENDING BEFORE APPELLATE AUTHORI TIES. LEARNED DRP THEREFORE WAS NOT INCLINED TO INTERFERE IN TH IS MATTER. IN THE FINAL ASSESSMENT THE AO DISALLOWED THE AFORESAID COST OF `35 10 000/- BY OBSERVING THAT NO SUCH AMOUNT WAS PAID TO OTHER EMP LOYEES LEAVING SERVICE EITHER IN THE CURRENT YEAR OR IN THE PAST. 31. IN THE COURSE OF HEARING OF THIS APPEAL THE LE ARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT SHRI GIRISH BALIGA WA S A QUALIFIED CHARTERED ACCOUNTANT AND HAD THE EXPERIENCE OF WORK ING WITH JP MORGAN AND WHITEFIELD CAPITAL INVESTMENT ADVISORS P RIOR TO WORKING WITH THE ASSESSEE. HE FURTHER POINTED OUT THAT THE ASSESSEE USED TO PAY BONUSES TO ITS EMPLOYEES IN DECEMBER EVERY YEAR . AS SHRI GIRISH BALIGA QUIT THE ASSESSEE COMPANY AFTER WORKING FOR APPROXIMATELY EIGHT MONTHS IN THE CURRENT YEAR THE ASSESSEE DECI DED TO COMPENSATE HIM TAKING INTO CONSIDERATION THE SERVICES RENDERED BY HIM TILL HIS SEPARATION IN THE MONTH OF NOVEMBER 2005. HE FURT HER SUBMITTED THAT PAYMENT WAS MADE TO SHRI BALIGA ON ACCOUNT OF SERVI CES RENDERED BY HIM AND WAS BASED ON BUSINESS EXIGENCIES KEEPING IN MIND THE BEST ITA-3717/DEL/2010 16 PRACTICE BEING FOLLOWED IN THE INDUSTRY. IN THIS C ONNECTION RELIANCE HAS BEEN PLACED UPON THE FOLLOWING DECISIONS:- (I) SANJEEVI AND CO. VS. CIT 62 ITR 156 (MADRAS). (II) CIT VS. GOBALD MOTOR SERVICE P.LTD. 100 ITR 240 ( MADRAS). 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE LEARNED DRP HAS NOT INTERFE RED IN THE MATTER BECAUSE THE ISSUE WAS PENDING IN APPELLATE PROCEEDI NGS IN THE EARLIER YEARS. THE OUTCOME OF THE EARLIER APPELLATE PROCEE DINGS HAS NOT BEEN BROUGHT ON RECORD EITHER BY THE AO OR BY THE LEARNE D DRP. WE THEREFORE RESTORE THIS MATTER TO THE FILE OF THE A O/DRP FOR FRESH ADJUDICATION AFTER ASCERTAINING AS TO WHETHER IDENT ICAL ISSUE BASED ON SAME SET OF FACTS HAS BEEN DECIDED BY ANY APPELLATE AUTHORITY IN EARLIER YEARS AND IF IT IS NOT SO THEN LEARNED DRP IS DIRECTED TO DECIDE THE ISSUE ON MERITS HAVING REGARD TO THE PROVISIONS PROVIDED U/S 37(1) OF THE ACT IN THE LIGHT OF THE FACTS OF THE PRESENT CASE. THE AO/DRP SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. 33. NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF `1 30 000/- OUT OF STAFF WELFARE EXPENSES. 34. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT ASSESSEE COMPANY PAID AN AMOUNT OF `1 30 00 0/- TO M/S NEEMRANA HOTELS PVT.LTD. ON 17.11.2005 BY DEBITING STAFF WELFARE EXPENSES TO PROFIT & LOSS ACCOUNT. THE ASSESSEE EX PLAINED BEFORE THE AO THAT THE ASSESSEE HAS HELD OFFICIAL GET TOGETHER AT THE PATAUDI PALACE FOR ITS EMPLOYEES AND THE AMOUNT INCURRED WA S BOOKED AS STAFF WELFARE EXPENSES IN THE BOOKS OF ACCOUNT. THE COPY OF BILL IN RELATION TO THE ABOVE MENTIONED EXPENDITURE WAS FURNISHED. THE AO DISALLOWED ITA-3717/DEL/2010 17 THE SAME IN THE DRAFT ASSESSMENT ORDER AND THE MATT ER WAS THEN REFERRED TO DRP. DRP HAS DIRECTED THE AO TO DISALL OW THE SAME FOR THE REASON THAT THE ASSESSEE HAS FAILED TO ESTABLISH TH AT THESE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS. 35. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISP UTE THAT THE AMOUNT OF `1 30 000/- HAS BEEN PAID FOR ARRANGING GET TOGETHE R AT THE PATAUDI PALACE HARYANA. THE CLAIM OF THE ASSESSEE WAS THA T THE GET TOGETHER WAS HELD FOR THE BENEFIT OF THE EMPLOYEES. SINCE T HE EXPENDITURE WAS INCURRED FOR THE BENEFIT OF THE EMPLOYEES IN THE CO URSE OF CARRYING ON BUSINESS BY THE ASSESSEE IT CANNOT BE SAID THAT TH E AMOUNT HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE ASS ESSEE IS IN THE BUSINESS OF INVESTMENT ADVISORY SERVICES AND ITS BU SINESS IS SOLELY DEPENDENT ON THE SKILLS AND EXPERTISE OF ITS EMPLOY EES. NOWADAYS IT IS A COMMON PRACTICE IN THE INDUSTRY TO CONDUCT TRAINI NG SESSIONS FOR ITS EMPLOYEES AND GET TOGETHER. WE THEREFORE HOLD TH AT THE DISALLOWANCE OF `1 30 000/- MADE BY THE AO WAS UNJUSTIFIED. WE THEREFORE DELETE THE SAME. 36. NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF T HE PAYMENT OF `1 04 690/- MADE BY THE ASSESSEE TO HUNT EXECUTIVE RESEARCH LIMITED U/S 40(A)(IA) OF THE ACT. 37. THE ASSESSEE PAID A FEES OF `13 08 625/- TO HUN T EXECUTIVE RESEARCH LIMITED AS PROFESSIONAL FEES. THE ASSESSE E ALSO PAID A SUM OF `1 04 690/- TO HUNT EXECUTIVE RESEARCH LIMITED F OR REIMBURSEMENT OF OUT OF POCKET EXPENSES. BOTH THE INVOICES WERE RAISED SEPARATELY. ON THE PAYMENT OF `13 08 625/- ON ACCOUNT OF PROFES SIONAL FEES TAX WAS DULY DEDUCTED AT SOURCE U/S 194J AND THUS NO D ISALLOWANCE HAS BEEN MADE BY THE AO. THE ASSESSEE DID NOT DEDUCT A NY TAX ON THE ITA-3717/DEL/2010 18 PAYMENT OF `1 04 690/- INASMUCH AS IT WAS NOT PAID ON ACCOUNT OF PROFESSIONAL FEES BUT WAS PAID AS REIMBURSEMENT AS OUT OF POCKET EXPENSES EXECUTED BY HUNT EXECUTIVE RESEARCH LIMITE D FOR AND ON BEHALF OF THE ASSESSEE. IT IS BY NOW WELL-SETTLED THAT REIMBURSEMENT OF EXPENSES WOULD NOT COME UNDER THE AMBIT OF PAYMENT OF PROFESSIONAL FEES WITHIN THE MEANING OF SECTION 194J OF THE ACT. WE THEREFORE DELETE THE DISALLOWANCE AND DIRECT THE AO TO MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 38. NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF `2 22 748/- BEING A PAYMENT MADE TO BANSAL PRINTING PRESS WITHOUT DEDUC TING TAX AT SOURCE. 39. THE SAID DISALLOWANCE HAS BEEN MADE BY THE AO B Y INVOKING PROVISIONS OF SECTION 40(A)(IA). THE ASSESSEE HAS EXPLAINED BEFORE US THAT OUT OF `2 22 748/- PAID TO BANSAL PRINTING PRE SS IT HAS CLAIMED ONLY `42 100/- AS PRINTING AND STATIONERY AND `25 269/- AS COURIER CHARGES AND THE REST OF THE AMOUNT PAID TO BANSAL PRINTING PRESS WAS NOT CLAIMED IN THE PROFIT & LOSS ACCOUNT BUT THE SAME W AS DEBITED TO ITS ASSOCIATED ENTERPRISES AND CLAIMED AS A REIMBURSEME NT. THE ASSESSEE THEREFORE SUBMITTED THAT DISALLOWANCE CA N ONLY BE MADE ONLY TO THE EXTENT OF EXPENSES CLAIMED AS DEDUCTION . THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE SUBMITTED THAT THE AO HAS ERRED IN DISALLOWING THE EXPENSES TO THE EXTENT OF `1 55 379 /- WHICH HAS NOT BEEN CLAIMED BY THE ASSESSEE AS EXPENSES IN ITS PRO FIT & LOSS ACCOUNT. 40. AFTER HEARING BOTH THE PARTIES WE ARE IN AGREE MENT WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IF EXPENSES HAVE NOT BEEN CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT THE QUESTION OF DISALLOWANCE THEREOF WOULD NOT ARISE. INSOFAR AS THE PAYMENT OF `42 100/- AND `25 269/- AS PRINTING AND STATIONERY AND ITA-3717/DEL/2010 19 COURIER CHARGES ARE CONCERNED THE AO WAS JUSTIFIED IN DISALLOWING THE SAME AS NO TAX WAS DEDUCTED AT SOURCE. HOWEVER WI TH REGARD TO REST AMOUNT OF `1 55 379/- WE RESTORE THE MATTER BACK T O THE AO TO VERIFY WHETHER THIS AFORESAID SUM OF `1 55 379/- HAS BEEN CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT AND IF IT IS NOT SO CLAIMED AS DEDUCTION THE AO SHALL DELETE THE DISALLOWANCE. W E ORDER ACCORDINGLY. 41. THE ASSESSEE HAS ALSO RAISED A GROUND AGAINST D ISALLOWANCE OF PAYMENT MADE TO AUDITOR ON ACCOUNT OF LATE DEPOSIT OF TDS. 42. THE AO HAS DISALLOWED THE PAYMENT TO AUDITOR ON THE GROUND THAT THE TAX DEDUCTED AT SOURCE AMOUNTING TO `12 34 2/- IN RESPECT OF AUDIT FEES AMOUNTING TO `2 20 000/- HAS NOT BEEN DE POSITED WITHIN THE DUE DATE. 43. IN THIS RESPECT THE ASSESSEE HAS SUBMITTED THA T THE TAX DEDUCTED AT SOURCE WAS DEPOSITED IN THE GOVERNMENT TREASURY ON 18.8.2006 ALONGWITH INTEREST OF `620/-. A CHALLAN OF `12 962 /- DATED 18.8.2006 IS PLACED AT PAGE 193 OF THE PAPER BOOK DATED 29.10.20 10. THE ASSESSEE ALSO SUBMITTED THE COPY OF TDS CERTIFICATE BEFORE T HE DRP AS ADDITIONAL EVIDENCE. THE ASSESSEE HAS ALSO ISSUED TDS CERTIFI CATE TO THE AUDITOR. SINCE THE AMOUNT HAS BEEN DEPOSITED BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME THE PAYMENT OF AUDIT FEE TO THE AUDITOR IS TO BE ALLOWED. WE THEREFORE DIRECT TH E AO TO ALLOW THE DEDUCTION AND DELETE THE DISALLOWANCE. 44. THE NEXT GROUND IS WITH REGARD TO QUESTION AS T O WHETHER ASSESSEE IS ENTITLED TO DEPRECIATION ON COMPUTER PE RIPHERALS AT 60% OR 15%. ITA-3717/DEL/2010 20 45. THE ASSESSEE HAS CLAIMED DEPRECIATION ON COMPUT ER PERIPHERALS AT 60%. THE AO HAS ALLOWED DEPRECIATION ONLY AT NO RMAL RATE OF 15%. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS COMPUTER S AND UPS BATTERIES AND ASSESSEE PURCHASED COMPUTERS AMOUNTING TO `5 98 759/- AND PRINTER AMOUNTING TO `22 360 DURING THE YEAR UNDER CONSIDERATION. IT HAS BEEN HELD BY THE HON'BLE DELHI HIGH COURT IN TH E CASE OF BSES RAJDHANI POWERS LIMITED IN ITA NO.1266/2010 DATED 3 1.8.2010 THAT DEPRECIATION ON COMPUTER PERIPHERALS AT 60% IS ALLO WABLE. WE THEREFORE DECIDE THIS ISSUE IN FAVOUR OF THE ASSES SEE DIRECTING THE AO TO ALLOW DEPRECIATION ON COMPUTER PERIPHERALS AT 60 %. 46. THE ASSESSEE HAS ALSO TAKEN A POINT THAT THE EX PENSES WHICH HAVE BEEN DISALLOWED IN THE ASSESSMENT SHOULD BE RE DUCED FROM OPERATING COST WHILE COMPUTING THE ALP OF INTERNATI ONAL TRANSACTION. 47. SINCE THE ISSUE ABOUT DETERMINATION OF ALP OF T HE INTERNATIONAL TRANSACTION HAS BEEN RESTORED BACK TO THE FILE OF T HE AO THIS ISSUE SHALL ALSO BE LOOKED INTO AND CONSIDERED BY THE AO WHILE MAKING THE FRESH ASSESSMENT. WE ORDER ACCORDINGLY. 48. IN THE RESULT THE APPEAL IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH 2011. SD/- SD/- (K.G.BANSAL (K.G.BANSAL (K.G.BANSAL (K.G.BANSAL) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI) )) ) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMB JUDICIAL MEMB JUDICIAL MEMB JUDICIAL MEMBER ER ER ER DATED : 18.03.2011. VK. ITA-3717/DEL/2010 21 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT ASSISTANT REGISTRAR