NORTH DELHI METRO MALL PRIVATE LIMITED,DELHI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 16(1), C.R. BUILDING, DELHI, CR BUILDING
Income Tax Appellate Tribunal, DELHI BENCHES: H : NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWALAssessment Year: 2021-22
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the Assessee against the final assessment order dated 13.09.2024 passed by the DCIT, Circle-16(1), Delhi (hereinafter referred to as the Ld. AO) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income
Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the AY 2021-22. 2
Heard and perused the records. The brief background of the case as culled out form matter on record and submission made are that the North Delhi Metro Mall Private Limited (hereinafter referred to as NDMM or ‘the Appellant’) The Appellant was incorporated on December 09, 2003. The company is engaged in carrying on the business of commercial development, construction, leasing and related services and Virtuous Retail South Asia Pte Ltd. (‘VRSA’ or ‘Associated Enterprise’ or ‘AE’) assists NDMM in the overall supervision and co-ordination, in respect of development of such projects. During the year under consideration, NDMM had entered into the following international transaction with its AE which has suffered a TP adjustment.
Nature of transaction
Amount in INR
Outcome of TP Order
Receipt of Supervision services
9,83,37,432
TP Adjustment amounting to INR
9,83,37,432
1 The case of assessee was referred to TPO and the order under Section 92CA(3) of the Act dated October 30, 2023 was passed proposing an adjustment of INR 9,83,37,432 to the arm’s length price of the international transactions undertaken by the Appellant with its AE. The Ld. AO passed the draft assessment order under Section 144C(1) of the Act (‘Draft Order’) dated 30 November 2023 proposing following adjustment by questioning the benefit derived from the service: 3
Nature of proposed adjustments
Amount in INR
Receipt of Supervision Services
9,83,37,432
TOTAL
9,83,37,432
The Appellant being aggrieved from the aforementioned draft assessment order, filed an objection against the same before the Dispute Resolution Panel (DRP). The case of assessee is that as far as the Receipt of supervision services from AE is concerned the construction of a mall is a multifaceted endeavor that requires meticulous planning, seamless execution, and strategic oversight to ensure success. Thus from the initial design phase to the final marketing push, a mall project involves numerous stakeholders, intricate technical requirements, and significant financial investment. Engaging a development manager, a professional equipped to oversee design preparation, construction planning, strategy development, supervision, coordination, and marketing assistance etc. is not just beneficial but essential to delivering a successful project. In order to successfully develop a complex retail project, there is a need to combine a series of tasks that involve multidisciplinary skills throughout the pre-development and development/ construction phase, up to the project completion phase. Accordingly the Appellant wished to obtain the benefit of the supervisory expertise, experience and management capabilities of a development manager. Thus, for carrying on the business of commercial development, construction, leasing and related services, the Appellant entered into a ‘Development 4
Management Agreement’ (DMA) with AE as Development Manager on 03
September 2021, effective from 01 April 2020 in order to assist the Appellant in the overall supervision and co-ordination for construction of the Mall. AS per the assessee VRSA, established in 2007, based in Singapore and supported by The Xander Group, is a prominent institutionally owned platform in India.
VRSA oversees and develops city centers across the country, with a portfolio spanning approximately 13 million square feet in 9 major cities, including key projects in Mumbai, Delhi, and Bengaluru. This extensive background in urban development and management highlights their capability to effectively support supervision services. The services performed by VRSA (as specified in Schedule I of the DMA and TP study report of the Appellant ( as available at Page no 156 -158 of the Paper Book) includes the following:
10.1 Construction plan
VRSA reviews and provides feedback on the Construction plan for the project based on the business plan provided by Appellant and the confirmation of the preliminary development budget;
It ensures updates in respect of the Construction plan together with the inputs from the company based on the progress of the project and on the parameters affecting it; and Identification and monitoring of key parameters that measure the performance of the project (such as rent-roll, development budget, operations budget).
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2 Studies Identifying and ensuring that all project information/studies/analyses etc. are undertaken by the relevant consultant/in-house resources and circulated to the parties involved to be incorporated in different work streams. 10.3 Architects and project design Reviewing and summarizing the status of the concept and the third- party service providers for the project, based on the offers obtained and provide recommendations as to appointments; and Instructing the relevant third-party service providers to draw-up all the designs for the project, in accordance with the project technical specifications and quality standards and with building, retail commerce, environmental, zoning and other regulations which may apply to the project and review such designs on a regular basis to ensure they meet market requirements and changing market landscapes, and to enable future proofing of the project. 10.4 Permitting strategy Review together with the Appellant and the project team the permitting status and plan mobilization accordingly; and Together with Appellant design strategy for permitting (for example how to maximise revenue generating areas under given development rules, or how to maximise retail usage by using unusual expectations 6
in development rules). VRS Asia’s responsibility will be to devise strategy based on understanding of the rules presented by the Appellant’s legal and other advisors.
10.5 Contractors
Working with the Appellant to appoint a project manager or to identify and create a project management teams from within the internal resources/personnel of the Appellant.
Coordinate with the project management team, the tendering, selection and appointment of the contractors for the project, by the Appellant and advise on any other contractors needed for additional works or works not included in the scope of the contractor;
Coordinate with the project management team for the preparation and signing of additional contracts, if and when needed and With the support/recommendations of the project management team, instruct the appointed third-party service providers to carry out their tasks in the project, in accordance with the project’s technical specifications and quality standards and under the terms and conditions required for the project.
10.6 Technical management
Ensuring through the designs teams and the project management teams and the Appellant, that any requirement input from the leasing and operational teams/consultants is applied during construction; and 7
Instructing the appointed project management team/company to manage and supervise the construction of the project in accordance with the required projects design and associated documentation for the project and the building permit and the technical specifications and quality standards.
10.7 Supervision and co-ordination
Regularly meet with the representatives of the third party service providers and the Appellant in order to supervise and co-ordinates the execution of the project works and keep the Appellant informed of the evolution of the construction of the project and of any relevant incidents; and Review all the mock ups, advise on changes if needed and identify any deviations from the agreed plan.
10.8 Suppliers
Selecting suppliers, based on the technical specifications and quality standards of the project, proposed suppliers of the most relevant construction materials and installations required for the completion of the project. All suppliers will be identified by the company’s internal team based on specifications and quality standards that the VRS Asia may establish. All suppliers approved by the Appellant will need to be appointed directly by Appellant.
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9 Marketing of the project Recommend a suitable marketing agency and together with the company’s project management team decide on further progress of the project’s marketing; Managing and coordinating the work of leasing agents or NDMM’s in-house team and supervise the leasing and marketing strategy of the project carried out by them; and With the marketing consultants and the internal marketing team, develop the opening campaign and ensure that the project is launched effectively. 10.10 Legal assistance Liaise with the company’s lawyers as needed. It will be the lawyer’s/attorney’s task and the in-house legal department of the Asssessee to assist VRS Asia in any and all legal incidents related to the development and completion of the project and to supervise any document or deed which must be executed by the company. 10.11 Reporting Developing appropriate project reporting templates for weekly and monthly reporting for the internal project management team. Review monthly updates and reports from the project manager/project management team. 9
Review quarterly development reporting being produced by the project management team before being submitted to the board of directors of the company. This report will include information on the performance of the project on all aspects including economic, budget, commercial and planning/programme aspects.
10.12 Other services
Recommending and assisting the Appellant in hiring of members of the project management team who are suitably qualified with the relevant expertise to discharge any services required in respect of the project.
1 These services are crucial for ensuring project success in India, as local teams may not always have the complete range of knowledge, technical expertise, or resources required to commission all projects. The objective is to harness VRSA's strengths, given their specialization in developing city centers throughout the country. With experience dating back to 2007, VRSA is a reliable partner in this field. Knowledge sharing is integral to the Group's culture, enabling them to effectively tackle new and emerging challenges.
The Ld. AR for Appellant also submitted a brief snapshot of the expenses debited in the profit and loss account for the preceding years and which are reproduced below for ease of reference – 10
S.No Head of expense
Sub- head
AY
2017-18
AY
2018-19
AY
2019-20
AY
2020-21
AY
2021-22
1
Employee
Benefit
Expenses
Salaries, wages and Bonus
-
-
2,04,418
15,77,554
24,50,000
Total
-
-
2,04,418
15,77,554
24,50,000
2
Other
Expenses
ROC Fees-
Increase of Share Capital
31,50,000
-
-
-
-
Rates and Taxes
38,950
5,00,000
-
-
-
Marketing
Expenses
-
-
62,500
2,79,934
5,68,006
Housekeeping and Security service
-
-
7,43,694
10,57,232
8,76,964
Loss on sale of Property, plant and equipment
-
-
1,31,657
-
-
Legal and Professional fee
-
-
12,00,000
15,06,401
1,05,49,402
Miscellaneous expenses
-
-
50,17,624
9,57,786
25,327
Total
31,88,950
5,00,000
71,55,475
38,01,353
1,20,19,699
Thus ld. AR has contended that from the above it is apparent that the major expense incurred by the Appellant pertains to legal and professional services rendered by 3rd parties and the employee benefit expense does not form a significant portion of the total expense incurred by the Appellant. The 11
Appellant has limited employee base and has therefore engaged a third-party contractor for undertaking the construction work. It was submitted that the construction project undertaken by the Appellant is of global standards which requires high end technical expertise in order to ensure that end result is of high quality. Thus, on a standalone basis, the Appellant does not have the necessary expertise for the supervision and development of the mall being constructed and accordingly, the Appellant had appointed VRSA for overall supervision and co- ordination for construction of the Mall. The aforesaid services could have been availed by the Appellant from a 3rd party where VRSA may not have been appointed. However, the Appellant chose to appoint a related party as these services involve exchange of confidential information and thus involving a third-party vendor would pose unwarranted legal and competitive risk. Thus, for the aforementioned services rendered by the AE, the Development Fees payable by the Appellant is calculated as per the mechanism specified in Schedule II of the Agreement i.e., five percent of Total estimated construction cost of INR
539,89,17,829 (“TCC”) of the project minus the notional sum of Rs.
1021,93,801 already accounted for. Further, such fees shall be payable as per the following mechanism-
INR 4,62,76,438 in 18 equal monthly installments of INR 2,570,913 from April 2020 to September 2021; and Additional Monthly retainer fees, in case there is an increase in the TCC
= 40% * 5% * increase in TCC
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Further, there will be Milestone based payments as follows-
Milestone 1 - in an event where there is an increase in the TCC = 15% *
5% * increase in TCC
Milestone 2 - on commencement of construction project = 25% * 5% *
TCC (or any increase thereof)
Milestone 3 - on completion of top out of civil structure = 10% * 5% *
TCC (or any increase thereof)
Milestone 4 – Hand over to Pre-ops team = 10% * 5% * TCC (or any increase thereof)
6. Ld. AR has pointed out that for corroborating the receipt of such supervisory services, necessary documentary evidence including mails and minutes of the meetings has been furnished before the Ld. AO / Ld. TPO and reference was made to Pg. 77-80of the Paper Book for benchmarking analysis in the TP study to demonstrate that the services have actually been rendered by the associated enterprise towards construction of the mall against which the supervision fees has been paid. He drew instance from the minutes of the project review meetings held on January 30, 2021, and February 26, 2021, to provide insights into the active participation of VRSA in the project. As per ld.
AR, these minutes detail discussions on project timelines, budget updates, contractor recommendations, and design alterations, all of which were areas under VRSA's purview. The presence of VRSA representatives in these meetings and their contributions to the discussions indicate their active role in 13
the project and reference was made to Page no 230-239 of the Paper Book.
Furthermore, ld. AR has emphasized that the documents include specific instances where VRSA provided strategic inputs, such as the recommendation to onboard Leighton for civil works and the coordination of the tendering process for the metro deck development. Another piece of evidence referred was the regular reporting and coordination activities documented in the project updates and action points. Ld. AR has submitted that VRSA was responsible for developing project reporting templates, reviewing monthly updates from the project management team, and ensuring that the project was on track. The documents show that VRSA regularly met with third-party service providers and NDMM representatives to supervise and coordinate the execution of project works. Citing example, he submitted that the project review meeting minutes highlight VRSA's role in addressing critical issues such as soil nailing works, excavation progress, and the appointment of civil contractors and reference was made to Page no 240-540 of the Paper Book). Accordingly ld. AR submitted that these activities demonstrate that VRSA was not only providing high-level strategic oversight but was also deeply involved in the day-to-day management and coordination of the project, thereby evidencing the actual rendering of services.
Ld. AR has alleged that despite the detailed submissions and the documentary evidences submitted before the Ld. TPO, the Ld. TPO proceeded 14
for making a TP adjustment by stating that no supervision services have actually been received/rendered and the element of benefit flowing to the Appellant cannot be ascertained.
Ld. DR has though defended the orders of ld. Tax authorities below, however we find that appellant has established sufficient legitimate business reason for supervision services. The financials of the appellant establish that there were no substantial employees costs and overheads to manage the project of such magnitude. Thus the engagement of a development manager was crucial for the successful execution of construction project. Ld. AR has established by filing computation of total supervision fee paid during the year on the basis of same being in terms of the agreement where it was agreed that what shall be retainer fee component and milestone based fee. The multi-faceted role of AE in providing varied services is substantial corroborated by material on record in the form of communications and reports. The services rendered by the AE cannot be alleged to be non-essential for ensuring that the project is completed on time, within budget, and to the required quality standards. Therefore, questioning the payments made for these services as non genuine business expenses is not justified. In case like this the business model of the assessee needed to be appreciated by the TPO and then submissions examined to see how assessee would have incurred costs in alternative to complete the project. Where, adequate explanation/information is provided with regard to evidence of receipt 15
of service and the Ld. TPO has to take the same into consideration while evaluating receipt of services. Reliance can be placed for this proposition on following decisions, as relied by ld. AR;
TNS India Private Limited Vs. ACIT [ITA NO. 944/ Hyd/ 2007]
SKF Technologies (India) Pvt. Ltd CTS-135- ITAT-2016 (Bang)-TP]
Knorr Bremse India Private Limited [ITA No. 172 of 2013]
Sabic Innovative Plastics India Pvt Ltd Vs ACIT [ITA No. 1125/Ahd/
2014 and IT(TP) No. 427/Ahd/161]
The TPO’s juri iction doesn’t extend to over write the business prudence of assessee without there being substantive evidence of assessee not drawing any benefit and except by establishing possibility of alternative costs to be lesser. Hon’ble Delhi High Court in CIT v. Cushman and Wakefield (India) Pvt. Ltd.[2015] 60 taxmann.com 168 (Delhi) has held that payments made for intra-group services should be considered legitimate business expenses if they are incurred for the benefit of the business and are not excessive or unreasonable. The court emphasized that the TPO should not question the commercial expediency of the expenses incurred by the taxpayer
Similarly in Dresser Rand India Pvt. Ltd. v. ACIT ([2011] 13 taxmann.com 82 (Mumbai)), the Mumbai bench of this tribunal has laid that payments made for management services, including supervision and coordination, provided by a foreign AE are allowable as business expenses if they are incurred for legitimate business purposes. The bench there noted that 16
the TPO should not substitute its judgment for that of the taxpayer regarding the necessity of the services. Thus we are of considered view that as per Section 92CA of the Act, the juri iction of Ld. TPO is to determine the ALP of the international transaction however, in present case, the TPO has gone beyond the juri iction and questioned the benefit derived from the service on mere prudent men’s approach and not on the basis of any substantive evidence to rebut the claim and evidences of assessee. In this regard, the ld. AR has also placed reliance on the following case laws wherein it was held that the juri iction of the Ld. TPO is to determine ALP and benefit test is irrelevant:
Walter Tools India (P.) Ltd. [2020] 116 taxmann.com 992 (Pune-
Trib.);
AT&T Global Network Services (India) Private Limited (ITA 7001
/Del/ 2018);
McCann Erickson India P. Ltd. Vs. Addl. CIT [ITA No.
5871/Del/2011 (Del.)];
AWB India Pvt. Ltd. Vs. DCIT [ITA No. 6480/Del/2012 (Del.)];and
Dated: 21st May, 2025. 17
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