M/S. PRICEWATERHOUSECOOPERS PRIVATE LIMITED,KOLKATA vs. ACIT, CIR-2(2), KOLKATA, KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “C” KOLKATA Before Shri S.S.Godara, Judicial Member and Shri, M. Balaganesh, Accountant Member ITA No.483/Kol/2017 Assessment Year :2012-13 M/s PricewaterhouseCoopers V/s. ACIT, Circle-2(2), Pvt.Ltd., Block-EP, Plot-Y-14, Aayakar Bhavan, P-7, Salt Lake City, Sector-V, Chowringhee Square, Kokata-91 Kokata-69 [PAN No.AABCP 9181 H] .. अपीलाथ� /Appellant ��यथ�/Respondent Shri Kanchan Kaushal, AR अपीलाथ� क� ओर से/By Appellant Shri P.K. Srihari, CIT-DR ��यथ� क� ओर से/By Respondent 14-06-2018 सुनवाई क� तार�ख/Date of Hearing 12-09-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2012-13 arises against the Asstt. Commissioner of Income Tax, Circle-2(2), Kolkata’s assessment order dated 30.01.2017, involving proceedings section 144C r.w. 143(3) of the Income Tax Act, 1961; in short ‘the Act’. 2. The assessee appellant’s first substantive ground raised in the instant appeal challenge correctness of transfer price adjustment amounting to ₹345,51,562/- in course of assessment as pertaining to its international transactions with its overseas associate enterprise (AE). This assessee is a company providing consultancy including tax and regulatory services. It filed its return on 30.11.2012 stating total income of ₹51,62,16,310/-. This followed its revised return dated 31.03.2014 reducing its taxable income to ₹49,87,12,700/-. The Assessing Officer took up scrutiny. He came across

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 2 assessee’s Form 3CEB and transfer prise which study report (TPSR) revealing international transactions in the nature of management services provided to its UK based associated enterprise M/s Price Waterhouse Coopers Development Associate Ltd. (‘PwCDA’ hereafter) in lieu of having received corresponding management consultancy fee of ₹18,48,88,843/- in the relevant previous year. The taxpayer had employed Resale Price method “RPM” in its TPSR report. The assessing authority made section 92CA(1) reference for ascertaining Arm’s Length Price “ALP” of the above international transactions. 3. The transfer prising officer “TPO” took up consequential proceedings. He treated the assessee as an information technology services provider first of all by taking into account relevant comparables mainly functioning isinformation technology field or IT based services. This followed his show- cause notice dated 11.01.2016. This show-cause notice first of all brought into light the assessee’s AE’s functions comprising inter alia identification of potential clients, project undertaken involving multi functional services rendered, assessee’s engagement therein for implementation, customised modification etc. of the projects; respectively. The above show-cause notice then analysed assessee’s reciprocal functions performed to its AEs including internal surveillance data as well as this assessment for PWC clients, employment of technical personnel for rendering corresponding services including manpower allocation to carry out various assignments as well as providing training to work force. 4. The assessee had applied Resale price method “RPM” as the most appropriate method “MAM” for declaring its gross profit by sales @ 9.87% as against that @ 18.64% in its comparables on average basis. The TPO took note of that assessee having selected “PWECDA” as tested party. He was of the view that the assessee’s said detailed profile of including services having performed was nowhere available nor was there any material suggesting the same to be a least complex entity. He therefore rejected PWCDA as a tested party. The TPO thereafter observed that gross profit computation differed from

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 3 one tax jurisdiction to another be very subjective phenomenona. He therefore proposed to apply the Transactional Net Margin Method “TNMM” qua assessee’s international transactions in question. 5. The TPO’s show-cause notice hereinabove then zeroed on to relevant segment to be that of software and IT services. Next came choice of the relevant filters i.e. availability of data for financial year 2011-12, companies having income from software services less than 75% of their total revenues, those with more than 25% related party transactions, persistent loss making entities, those with different financial years ending than that on 31.03.2012, functional different and turnover not between 5 to 500 crores; respectively were ordered to be excluded. 6. The assessee had chosen operating profits / over total cost as its profit level indicator “PLI”. The TPO proposed overall revenue in cost @ 1.5% in his show-cause notice. Next came his 11 comparable entities namely Acropetal Technologies Ltd. (segmented), CTIL Ltd.,, Datamatics Global Solutions Ltd., RS Software Ltd., ASM Technologies Ltd., e-Infochips Ltd., Onward Technologies Ltd., Thirdware Solutions (P) Ltd., Sasken Communications Technologies Ltd.,, e-Zest Solutions Pvt. Ltd., qua Goldstone Technologies Ltd., having operating profits over total cost of 20.67%, 11.47%, 14.09%, 15.28%, 16.41%, 74.97%, 13.61%, 25.24% 12.13%, 16.06%, 10.86%; respectively averaging 20.98%. It was this average PLI what was finalized sought to be applied in the TPO’s above stated show-cause notice. 7. The assessee’s reply came to be submitted on 22.01.2016. It first of all sought to highlight the fact that its selection as a tested party instead of PwCDA (supra) required the relevant comparability adjustment as it was engaged in service of client in the nature of both entrepreneurial functions as well as assumption of related services risks whereas the latter carried out distribution activity only. The assessee then contested TPO’s show-cause proposing rejection of its Resale price method. It pleaded that its “AE” M/s PwCDA distributed routine services procured without owning any none-routine assets. Its impugned distribution margin was therefore stated to be very well

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 4 proportionate to its function. It alleged that its Resale price method had not been rejected by way of speaking reasons as well. Its case was that its AE’s margin could be easily segregated without any adjustment in computation. 8. The assessee’s reply then disputed its characterization as software and IT services provider. It pin-pointed the fact that its international transactions with PwCDA were in the nature of management consultancy since involving project management consultancy, administrative support, services, tax advisory services etc. It reiterated its functions assets and risk (FAR) profile to be of a complex entity having both complex functional and risk profile primarily engaged in marketing and administrative activities, it AE “PwCDA” to be operating under gross margin of around 7.5% for recouping the marketing and administrative expenses and the said margin to be easily identifiable and computable satisfying all cardinal principles of a tasted party. The assessee claimed that its AEs of margin was very much at par with those engaged in distribution or trading activities. 9. We now advert to TPO’s finding in his order dated 29.01.2016. He attributed assessee’s failure in specifying the relevant services rendered so as to dispute the earlier show-cause notice. We notice that TPO’s order para 5.2.2 contains the following findings regarding the exact nature of services to be self-contradictory as follows:- “5.2 TPO’s comment: 5.2.1. The submission of the assessee in it’s entirety has been perused. The assessee stated certain details o functions of the PwCPL, which was already mentioned in the TPSR. However the assessee choose to avoid mentioning the details of services rendered as per it’s submission dated 04/09/2015, which the undersigned has mentioned in the SCN, which clearly indicated that the primary nature of the services rendered to the AE was in nature of IT services. Thus there was no fault regarding functional profile as arrived at by the undersigned. 5.2.2 The assessee had reiterated selection of PwCDA as the tested and conducting benchmarking analysis using foreign comparables. The services provided by the assessee to its AE are basically in the nature of Infrastructure management, Software development and IT consultancy services. The assessee is performing functions for its AE which a complex entry would require from the vendor to perform. Such type of work is also not needed by a company which has distribution functions. The Transfer Pricing report about the functions performed by the AE cannot be relied upon. Moreover, the

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 5 supplementary submission of the assessee providing a brief insight about the services rendered to the AE, and the 3CD report reveals more function about the assessee than the transfer pricing report as consulting service including tax and regulatory services, software development (including resale of software) and related technical service. In view of the above analysis and discussion it is sufficient to reject the transfer pricing report of the assessee.” 10. The TPO thereafter observed that the assessee’s AE taken as a tested party on its behalf was not liable to be accepted since the relevant data, accuracy of its selection procedural and functional aspects had to be declined for lack of verification of the relevant FAR analysis. He was of the view that the relevant ALP had to be determined as per assessee’s and not its overseas AE’s profitability. He adopted the very rejecting for assessee’s transfer pricing report. 11. The TPO thererafter proceeded to benchmark assessee’s international transactions in tune with the relevant most appropriate method. He considered both section 92C as well as the inter-play between the Comparable Uncontrolled Price method ‘CUP’ claimed in first, Resale Price Method (RPM), Cost Plus Method (CPM) and Profits Split Method (PSM) in second and Transactional Net Margin (TNM) in third category; to be inter alia applicable in cases of both financial year and products similarity, operating and gross profit margin level requiring finance and products similarity and operating profit margin level; respectively. He relied on the above distinction to apply TNMM as the most appropriate method in facts of the instant case. 12. Case file suggests that the assessee’s challenge to correctness of above stated comparables (supra) in ITES segment stood rejected in transfer pricing proceedings. The TPO added two more comparables M/s Mindtree Technologies (IT Service Segment) and Tata Elxsi Ltd. having PLIs of 20.02 and 7.03; respectively for reducing the earlier proposed PLI @ 20.98% to 18.71%. All this culminated in the impugned ALP adjustment of ₹345,51,562/- as per TPO’s order dated 29.01.2016. 13. The Assessing Officer framed his draft assessment on 31.03.2016 on the same lines.

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 6 14. The assessee preferred its objections before the Dispute Resolution Panel “ DRP” thereafter to the Learned panel decline assessee’s all pleas as follows:- “2. That on the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have erred in selecting the Assessee as a tested party and not its AE (PwC DA). DRP Directions: Tested party has been defined in the OECD guidelines as the entity on which transfer pricing method can be applied in a reliable manner and good and reliable comparables can be found. It can be the entity with less complex functional profile so as to enable less complex analysis. The tested party may have (a) reliable and accurate data, (b) least complex data and (c) the data is usable without much adjustments, The Ld AR stated that the AE was selected as the tested party as it was performing simpler function in the set interaction. The fact remains that the AE is a much more complex entity than the assessee as it is the creator of the assessee, performs all functions on the value chain of deliverables for the clients across its global sweep. Whereas the assessee is not operating on such broad canvass nor is the assessee holding the controlling stakes and comprehensive authority over its swathe of the AEs. Just because the AE, for record, performs a simpler function in this transaction with the assessee would not render it simpler entity. The AE retains with itself the major functional responsibility in terms of laying out the work distribution function- the AE decides whether the external consultants will be engaged for executing the work or the execution will be done internally. The AE is also interacting with the end user- the client and delivers the services to it, besides being legally obliged for execution of the projects. The invoicing is done by the AE. Clients are solicited and business obtained by the AE. Even if the AE retains a fixed percentage of the invoiced amount before remitting to the assessee, the primary nature of its ownership of the assignment remains. The AE is in the forefront while the assessee is merely executing the job assigned. This fact is applicable for both the projects executed separately with the UK based AE as also the Lankan AE. The AE (PwC UK) has much complex profile and also holds responsibility for the deliverables to the client and is ultimate owner of the group. The valid analysis can hence not be done by retaining it as the tested party. Besides, ITA T Mumbai has also held in case of Aurionpro Solution Limited ( ITA No 7872 of 2011 that for the purpose of determining the ALP, tested party is always to be the assessee and not the AB. The Indian TP regulation per chapter X of the Income Tax Act 1961 is an anti-evasion tool to prevent adverse profit shifts. The materiality of examination of the International Transactions has to be in this light. Therefore, the testing has to be done in order to examine if the Indian entity is offering its profits to lawful taxation in India. In order to determine the correct profits by ascertaining correct ALP- the transactions have to be examined by keeping the Indian entity in primary focus. Keeping the AB as a tested party would fundamentally defeat the basic purpose of the TP regulations. The contention of the assessee IS hence dismissed as untenable. 3. That on the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have erred in rejecting Resale Price Method ("RPM") selected by the Assessee. DRP Directions: Resale price method is applied when the product is delivered/ resold without any value addition in the deliverable. The TPO has altered the tested party selection by the assessee and in view of the functional profile basis the material on record. Resale Price Method is to be applied when the reseller buys and sells the product as

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 7 it is without adding any value to the product. In this case, the assessee, through the AE, is delivering services upon qualitative addition or adding value to the same. The deliverables are processed and the handed to the end user. If the assessee is not doing any such value addition, the whole purpose of such contract/assignment is defeated. Such a scenario is a commercial impossibility. A perusal of the functions performed by the assessee for the UK based AE indicate a clear value addition to the services. Besides, it is incomprehensible as to how services denuded of value addition can be delivered. The details of services rendered and some invoices have been furnished before the panel to consider the primary nature of such services. The nature of services rendered are listed hereunder to support the above conclusion: I. The services involving PwC DA UK are SAP Advisory, staffware workflow, IT Application support, ER &P Productisation, IT Spreadsheet services and so forth- to name a few. II The services involving PwC Lanka are Surveillance, Samurdhi Programme and project management- to name a few. The assessee claims to be in business of rendering management consultancy services. The examination of the TP study does not bring out the functions performed by the assessee very clearly. The assignments are listed in ambiguous terms. The panel called for and examined specific assignment details. The chart produced in this regard clearly indicates the nature of services rendered to be of IT and ITES type of services. The TPO has also categorized the International Transactions accordingly. The choice of comparables by the assessee in the TP study shows that the profile of such entities to be of IT and ITES type. Further, the choice of parameters in the database whereby the criteria of search are laid down also indicates similar. The NACE codes [NACE (Nomenclature of Economic Activities) is the European statistical classification of economic activities. NACE groups organizations according to their business activities. Statistics produced on the basis of NACE are comparable at European level and, in general, at world level in line with the United Nations' International Standard Industrial Classification (ISIC). The change in the identification and grouping of similar economic activities associated with the move to the new NACE implies a statistical break in the time series. - Note: NACE (Nomenclature of Economic Activities) is the European statistical classification of economic activities. NACE group organizations according to their business activities. Statistics produced on the basis of NACE are comparable at European level and, in general, at world level in line with the United Nations’ International Standard Industrial Class (ISIC). The change in the identification and grouping of similar economic activities associated with the move to the new NACE implies a statistical break in the time series –Note: NACE (Nomenclarture des Activities Economiques dans la Communaute Europenne)] selcged by the assessee allk ertain to the IT and ITES services. In view of the foregoing, the AO has, therefore, rightly rejected RPM in this case, apart from rightly taking the assessee as tested party. 4. That on the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have erred in application of entity level Transactional Net Margin Method ("TNMM") considering the Assessee as the tested party (the Assessee having a turnover of 1,166.84 Crs. vis-a-vis 18.49 Crs. of related party sales transaction being tested). DRP Directions: The TPO has examined the factual position of the International Transaction involving both the AEs. The functionality in both the sets of transactions is similar. The profile has also been discussed in the para in objection no 4. The panel does not find any infirmity in applying TNMM. The application at entity level is also understandable in view of the nature of transactions vis a vis same tested party with same set of comparables. The panel has requested the assesse to furnish computations basis

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 8 segregated data. The assessee has not furnished its set of alternate comparables. Accordingly, the panel is inclined to uphold the action of the TPO. The objection is hence dismissed. 5. Without prejudice, that on the facts and in the circumstances of the case, the Ld. TPO and Ld. AO have erred in not .restricting the adjustment to the maximum of gross margin (i.e. 7.5% of the billing to end customer) earned by PwC DA. DRP Directions: The Indian TP regulation per chapter X of the Income Tax Act 1961 is an anti- evasion tool to prevent adverse profit shifts. The materiality of examination of the International Transactions has to be in this light. Therefore, the testing has to be done in order to examine if the Indian entity is offering its profits to lawful taxation in India. In order to determine the correct profits by ascertaining correct ALP- the transactions have to be examined. The TPO is required to determine the ALP of a transaction. The restrictive cap sought to be imposed by the assessee on reported GP of the billed amount would vitiate the very basic tenets of determination of ALP. The assessee has to demonstrate that the ALP determination was spurious on the facts/merits. The adjustment could not have been restricted to the gross margin of the billing to the end customer as there could be instances of multiple transactions and various set offs between the AE and the end users. The end user interacts with the AE and AE only is legally liable for deliverables and to ensure end to end services as and if required so. The objection is dismissed as untenable and contrary to the intent and purpose of chapter X of the Income Tax Act 1961. 6. Without prejudice, while selecting the Assessee as a tested party, the Ld. TPO and Ld. AO have erred in characterizing the Assessee at entity level as Software and IT service provider. DRP Directions: The assessee has performed the functions the reference to the TP study indicates that the assessee itself has processed its TP Study on the lines of a software and IT Services provider. Section G of the study on search criteria is to be seen. The asses se chooses NACE Codes (NACE (Nomenclature of Economic Activities) is the European statistical classification of economic activities. NACE groups organizations according to their business activities. Statistics produced on the basis of NACE are comparable at European level and, in general, at world level in line with the United Nations' International Standard Industrial Classification (iS10). The change in the identification and grouping of similar economic activities associated with the move to the new NACE implies a statistical break in the time series.) it is seen from the page 41 of the TP study that the following NACE codes have been selected_ 4651,5829,6201,6311,9511,6209-it is seen that all these codes relate to the IT and computer software sectors. The assessee has also not stated in very clear terms on the nature and scope of the so called consultancy services received/ rendered. The set of comparables per the TP study at page 43 is also functionally akin to the IT and software services renderer. The functional profile of such comparables is at page 48 to 50 of the TP study. The assessee claims to be in business of rendering management consultancy services. The examination of the TP study does not bring out the functions performed by the assessee very clearly. The assignments are listed in ambiguous terms. The panel called for and examined specific assignment details. The chart produced in this regard clearly indicates the nature of services rendered to be of IT and ITES type of services. The TPO has also categorized the International Transactions accordingly. The choice of comparables by the assessee in the TP study shows that the profile of

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 9 such entities to be of IT and ITES type. Further, the choice of parameters in the database whereby the criteria of search are laid down also indicates similar. The NACE codes [NACE (Nomenclature of Economic Activities) is the European statistical classification of economic activities. NACE groups organizations according to their business activities. Statistics produced on the basis of NACE are comparable at European level and, in general, at world level in line with the United Nations' International Standard Industrial Classification (ISIC). The change in the identification and grouping of similar economic activities associated with the move to the new NACE implies a statistical break in the time series. - Note: NACE (Nomenclature des Activites Economiques dans la Comrnunaute Europeennej] selected by the assesse all pertain to the IT and ITES services. The details of services rendered and some invoices have been furnished before the panel to consider the primary nature of such services. The nature of services rendered are listed hereunder to support the above conclusion: I. The services involving PwC DA UK are SAP Advisory, staffware workflow, IT Application support, ER &P Productisation, IT Spreadsheet services and so forth- to name a few. II The services involving PwC Lanka are Surveillance, Samurdhi Programme and project management- to name a few. The panel thus does not see any infirmity in the categorization done by the TPO more so in the absence of clear depiction of functions performed per the stated international transactions anywhere in the TP study or elsewhere to support_ the contention that the management consultancy services were rendered! received and what was the type of such services. Action of TPO is upheld. The objection is disposed of as above. 7. Without prejudice, that on the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have erred in computing the related party transaction filter and selecting comparable companies which are functionally incomparable. DRP Directions: It has been stated on behalf of the assessee that- "The assessee, in relation to transaction with PwC DA, is primarily engaged in rendering management consultancy services in the nature of Project management consultancy, Insolvency administration support services, tax advisory services and a very insignificant quantum of excel spreadsheet services.” The details of such services do not demonstrate the contention of the assessee. Besides, it has also to be seen whether the assessee is rendering a template or providing customized solutions to the end users. The discussions in respect of functionality and selection of parameters per NACE in the preceding objections clearly shows that the asses se has itself profiled the assignment to be of the IT and IT enabled services type. The objection is therefore, dismissed as it is devoid of any factual basis.”

The Assessing Officer has accordingly framed his final assessment making the impugned transfer pricing adjustment of ₹345,51,562/-.

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 10 have taken into consideration its segmental profit only than entity based results. It invites our attention towards the impugned transfer pricing adjustment computation enterprise qua the entire operating expenses of ₹109,22,00,000/- as against the relevant value of international transactions of ₹1848,88,843/-- (supra) only as per various judicial precedents CIT vs. Ratilal Bechlal & Sons (2016) 65 taxman.com 155 (Bom), CIT vs. Fire Stone International Pvt. Ltd. (2015) 60 taxman.com 235 (Bom), CIT vs. Thysen Group Industries (I) P. Ltd. (2016) 70 taxman.com 329 as well as CIT vs. M/s Tara Jewel Export Pvt. Ltd., ITA 1814/2013 decided on 05.10.2015 hon'ble Bombay high court. Its case accordingly is that lower authorities right from the TPO upto Assessing Officer as well as DRP have erred in law as well as on facts in taking entity level margin than those pertaining to its international transactions only. 16. We afforded sufficient opportunities to the Revenue to rebut the above legal principle emanating from various judicial precedents that only international transactions with AE are to be considered in TPO’s proceedings and not the entire corresponding figures at entity level. We are informed that hon'ble apex court has admitted Revenue’s Special Leave Petition (SLP) arising from hon'ble Bombay high court’s decision(s) quoted in preceding paragraph. It vehemently contends that the relevant method adopted i.e TNMM is an indirect method based on profit margin of an entity in enterity which has to be thereafter apportioned to its international transactions. We find no merit in Revenue’s above arguments. It emerges that hon'ble Bombay high court’s last judgment in M/s Tara Jewels Export Pvt. Ltd. case involved the very substantial question of law raised at the Revenue’s behest which has been decided in taxpayer’s favour. It further transpire that hon'ble Delhi high Court in CIT vs. Kaihin Peanalfa ITA 11/2015 decided on 09.09.2015 as well as hon'ble Bombay high court’s yet another judgment in CIT vs. Alstom Projects (I) Ltd. ITA 362/2014 decided on 14.09.2016 reiterate the same very legal proposition. We therefore are of the view that mere admission of Revenue’s Special Leave Petition does not alter the above legal position as of

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 11 now. We therefore restore the instant issue back to TPO for afresh adjudication as per law. The assessee’s additional evidence application (supra) filed under Rule 29 of ITAT Rules is admitted since the Revenue has failed to express any doubt on relevance of corresponding documents filed thereof as well as the fact that same are very much required for proper adjudication of the issue of ALP determination raised before us. We thus admit assessee’s additional evidence and leave it open for the TPO to carry out necessary factual verification. 17. Learned Authoritative Representative’s next submits that lower authorities have also erred in law as well as on facts in treating the assessee to be providing information technology enabled services whereas the TPO’s observations hold it to be an entity having provided consultancy including tax regulatory services and software (including resale) as well as related technical services. He refers to a detailed chart of all the relevant heads in both tax regulatory advisory and consultancy services on record. All this assessee’s assertions appear to be prima facie correct. The fact however remains that we have already restored the entire issue of correctness of transfer pricing adjustment back to the TPO for afresh adjudication. We therefore leave it open for him to adjudicate all factual as well as legal issues; as the case may be in consequential proceedings. The assessee’s former five substantive grounds to this effect are accepted for statistical purposes. 18. The assessee’s next substantive ground pleads that all the lower authorities have erred in law as well as on facts in making ad hoc disallowance of ₹10,51,88,324/-@ 40% of the total expenditure claimed amounting to ₹26,29,70,810/-. There is dispute about the impugned expenditure to be pertaining to various goods and other works purchases to employee’s reimbursement, guest house expenditure, project expenses, food and laundry charges. The Assessing Officer disallowed the same on estimation basis @ 40% alleging assessee’s failure in providing all the relevant particulars of its payees as well as indicating the relevant nexus

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 12 between its repair and maintenance vis-à-vis the corresponding assets. The DRP has upheld the same in its directions. 19. Learned Authorized Representative vehemently submits that all those details totaling to 142 pages as well as relevant information on record in pages 86 to 89 as well as the corresponding supporting documents of around 500 pages in paper book dated 03.03.2016 and also pages 92 to 94 in Volume-I and pages 298 to 1434 all parameters of the impugned claim. Mr. Kaushal pleads therefore that all the expenses in question have been incurred wholly and exclusively for the purpose of the business. The Revenue stand on the other hand is that lower authorities have rightly disallowed the impugned expenses at an estimated rate of 40% than 100%. We have given our thoughtful consideration to rival submissions. There is hardly any dispute that lower authorities have already accepted 60% of assessee’s expense to be correct as wholly and exclusively incurred for the purpose of the business. The question that arise for our apt adjudication is only qua remaining 40%. Learned Authorized Representative’s case is that there should not be any disallowance at all as he had filed all the detailed and voluminous in support. Our attention is also invited to tribunal’s co-ordinate bench’s order deleting estimated disallowance even @ 5%. The fact however remains that all this does not form sufficient material to prove that each and every head / item of expenditure to be wholly and exclusively incurred for the purpose of the assessee’ business. We thus conclude that the impugned disallowance @ 40% is very much on higher side not liable to be sustained. We accordingly conclude that an estimated disallowance of 2% only instead of 40% would meet the ends of justice. We order accordingly. The assessee gets part relief in its instant grievance. 20. Next comes assessee’s third substantive ground challenging the lower authorities action making ad hoc disallowance of ₹913,48,803/- @ 25% of the gross amount of ₹36,53,95,215/- incurred on account of travelling and conveyance charges. The assessee’s case is that it has employed around 4,000 number of persons approximately at 17 office location in the country for

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 13 rendering various services to its clients (both domestic and foreign). It is stated that the impugned travelling and conveyance charges have been incurred for visiting working places, government departments, project sites, meetings, seminars business development initiatives, recruiting derive and business events etc., Mr. Kaushal pleads that assessee’s details totaling to 1919 pages as well as supporting documents comprising 2500 pages form part of records have gone unrebutted. He thereafter clarifies that assessee has already deducted TDS on payments of ₹14,65,80,718/-. An amount of ₹8,60,919/- is stated to have not attracted the said TDS deduction. He is fair enough in informing us that assessee has itself disallowed an amount of ₹475,48,648/- in tax computation valued by credit entries / reversal of ₹297,53,220/- corresponding reimbursement to employees’ are stated to be involving an amount of ₹344,060,684/-. Next comes an amount of ₹311,510,067/- comprising air fare, train, and conveyance charges only leaving behind miscellaneous amount of ₹36,53,95,215/- in dispute. The assessee’s case accordingly is that the lower authorities ought not to have estimated the impugned disallowance @ 25% without pin-pointing any irregularity in the relevant books of account. This tribunal’s order (supra) has gone quoted in support. Learned Departmental Representative strongly supporta the impugned disallowance mainly on the ground that assessee has failed to prove the same by tendering a cogent explanation in support. We find considerable force in assessee’s arguments in principle. We reiterate that all the above quoted details have gone unrebutted from the Revenue’s side. The fact however remains that as well as in the preceding substantive ground that Assessing Officer has not carried out one-to-one or even sample verification of the impugned expenditure before invoking the estimated disallowance @ 25%. We therefore accept the assessee’s pleadings in principle to restrict the impugned disallowance from 25% to 2% only in order to make both ends meet for the reason that taxpayer has also not been proved all of its expenditure to have been incurred wholly and exclusively for its business activity. The impugned disallowance to be therefore restricted to 2% only. We make it clear

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 14 that none of such estimation would be as a precedent against assessee in any earlier or succeeding assessment year. 21. The assessee’s fourth substantive ground challenges the Assessing Officer’s action disallowing its claim of ₹10,35,400/- incurred on account of payment made towards subscription to US India Business Counsel ”UBIC” n the nature of annual membership fees. The Assessing Officer has disallowed the same for the reason that this payment does not have any link with assessee’s business. The assessee’s case before us is that it has already filed name, address, date, amount invoice No. and date of invoice details before the lower authorities to prove the actual payment. It pleads during the course of hearing that the payee herein is a renowned non profit orginzation promoting bilateral trade environment between the two countries. The same is projected as wider platform created for successfully contributing its efforts to global economy. Learned counsel terms assessee’s annual member-ship payment to be involving commercial consideration for obtaining commercial advantage liability to be treated as revenue expenditure. Case law CIT vs. Chemicals & Plastics India Ltd. 292 ITR 155 (Mad), CIT vs. Co-operative Sugars Ltd. 304 ITR 259 (Ker) and ACIT vs. Rajasthan Spg. & Wvg. Mills Ltd. 274 ITR 465 (Raj) is quoted in support. We find no merit in assessee’s above submissions. We make it clear that although it has placed on record its only membership detailed followed by actual payment. it is very much imperative to prove the scheme of above counal or its bye-laws vis-à-vis the assessee’s relevant business activity. We are of the opinion that mere payment of an amount does not prove the same to be having direct link with business activities. The relevant case law hereinabove (supra) involves instances of contribution paid for construction of chamber and commerce building, contribution towards canal construction irrigating sugarcane fields and participation expenditure in a trade, association or fund set up for advancement of business; respectively. No such facts emerge from assessee’s impugned claim. We thus decline the same on this count alone

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 15 after appreciation of the entire facts relevant to the issue. The assessee fails in its eighth substantive ground.

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 16 have heard rival contentions reiterating both parties respective facts. There is no dispute in principle about the assessee’s firm service agreement with the payee M/s PWCD’s services as well as its role played as providing central services to the entire “PWC” group based on cost allocation method keeping in mind the nature of services rendered benefits derived as per pages 117 to 261 of the paper book. The assessee has also prepared a list of services availed via the payee concerned in respect of all member firms of the group involving sample cases of e-learning and education, mandatory foundation programmes, training programmes alloys specific / technical programmes etc. All this has gone unrebutted from the Revenue side whose case is that there is no business link forthcoming from the impugned expenditure. We find no substance in Revenue’s instant stand. We make it clear that the assessee- company is engaged in multi functional consultancy services as a group entity of PWCDA organization based in Netherlands. Learned counsel has also filed before us relevant assessment records with regard to the payee entity pertaining to the impugned assessment year itself accepting the returned income without making any addition. Necessary reference regarding Firm Services Agreement is also made to paper book pages 6304 and 6305. It emerges that this Tribunal’s decision in DCIT vs. Ernst & Young (P) Ltd. 49 taxman.com 386 (Kol) also holds that no TDS is deductible in case of such firm services agreement payments not including any income component but only reimbursement of expense on cost allocation formula. We take into account all these facts as well as judicial precedents to delete impugned disallowance of Firm Services expenditure payment amounting to ₹150,046,130/-.

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 17 grievance in assessment year 2008-09. We thus dismiss the instant substantive ground as not pressed. 25. The assessee’s thirteen substantive ground challenges correctness of lower authorities’ action disallowing its payment of software charges amounting to ₹2,07,900/- u/s. 40(a)(ia) of the Act on account of non deduction of TDS thereupon. After arguing very seriously for the sometime, learned counsel submits that the assessee no more wishes to press for instant substantive ground keeping in mind smallness of amount involved. We therefore affirm the impugned disallowance with a rider that same shall not be treated as a precedent in any preceding or succeeding assessment year. 26. The assessee’s next substantive ground challenges correctness of the lower authorities’ action disallowing its professional fee of Rs. 2,50,00,840/- on account of non-deduction of TDS thereupon by invoking Section 40a(ia) of the Act. It emerges at the outset that the Assessing Officer had initially computed the impugned disallowance of Rs. 1,28,70,0840/- out of which the tax payer suo-moto added a sum of Rs. 1,03,70,00,000/-. This is what has given raise to the disallowance of Rs. 2,50,00,840/-. The Learned Counsel submits that the assessee’s main grievance is not pressed to the extent of Rs. 22,01,972/- as follows:

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 18

We therefore affirm the Assessing Officer’s action invoking the impugned disallowance to the extent of Rs. 22,01,972/-.

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 19 profession carried on by Bangladesh based payees in the said country only. There is no dispute on this clinching facts as highlighted during the course of hearing at the Revenue’s behest. We thus quote hon’ble Delhi high court’s decision in DIT vs. Lufthansa Cargo Limited [375 ITR 85 (Del)] to delete the impugned disallowance.

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 20

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 21 Learned counsel’s case in view of above chart is that Section 90(2) makes it clear that it is very much open for an assessee to opt for more beneficial provision either in under domestic law or as per the relevant Double Taxation Avoidance Agreement; as the case may be. He thereafter refers to various Double Taxation Avoidance Agreements pertaining to all these countries namely Australia, Egypt, France, Indonesia, Mauritius, Netherlands, Singapore, Sri Lanka, Thailand and UAE that Double Taxation Avoidance Agreements pertaining to 2nd, 4th, 5th, 6th, 7th, 8th, 9th & 10th countries herein do not contain taxation of fee for technical services clause requiring TDS deduction. Remaining 1st, 3rd, 6th and 7th instances are those nations whose Double Taxation Avoidance Agreements contain ‘make available clause’ i.e. the payees concerned should have made available the relevant technical knowhow enabling the payee to independently use the same. A co-ordinate bench’s decision in EIH Ltd. vs. DCIT I.T.A. No. 117/Kol/2017 decided on 16.05.2018 also holds Double Taxation Avoidance Agreement with Australia, Singapore, France’s DTAA to be not involving any FTS clause or the same to be taxable only if ‘make available condition is satisfied.. All these submissions have gone unrebutted from the Revenue’s side. We still feel it appropriate that in case the Assessing Officer heeds to conduct a detailed exercise payee-wise vis-à-vis the relevant conditions incorporated in the corresponding DTAAs and take fresh a fresh callas per the necessary Articles therein regarding taxation of fee for technical services payments. We thus accept assessee’s contention in principle and leave it open for the Assessing Officer to conduct necessary factual verification more particularly in view of the fact that we have already restored the main issue (supra) back to the Assessing Officer for afresh proceedings in preceding paragraphs. 30. The assessee’s next substantive ground challenges lower authorities’ action disallowing rent claim of ₹7,13,000/- pertaining to provision made amounting to ₹2,73,000/- and guest house rent of ₹440,000/- paid without deducting TDS. It emerges at the outset from page 44 that the above payee has already obtained nil withholding tax certificate dated 21.02.2011 of the Act. It is also stated to be exempt u/s. 10(26) of the Act. We therefore delete the impugned disallowance to the extent of ₹44,000/-. Coming to the balance provision amount for rent of ₹2,73,000/- learned counsel fails to offer any explanation regarding the basis thereof as per the case records. We

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 22 accordingly affirm the impugned provision disallowance in these peculiar facts and circumstances. 31. The assessee’s next substantive ground seeks to claim tax credit relief u/s. 90 of the Act qua various sums withheld foreign tax jurisdiction to ₹204,49,803/- pages 286 to 290 contain a list of all such countries. Learned counsel representing assessee quotes sec. 90 and 91 of the Act. His only plea before us that all the relevant details for raising the impugned claim of foreign tax credits are very much available vis-à-vis the list of such nations. The Revenue on the other hand submits that those detailed exercises of factual verification regarding India’s Double Taxation Avoidance Agreement with the assessee’s list of countries needs to be undertaken in elaborate manner. We therefore restore the instant issue back to the Assessing Officer for above necessary verification about India’s Double Taxation Avoidance Agreement with assessee’s list of foreign tax jurisdiction in consequential proceedings as per law. Needless to say, the assessee’s claim would stand accept in those countries with which no such agreement exists in twin conclusion sec. 91. T his substantive ground is treated as accepted for statistical purposes. 32. The assessee’s last substantive ground pleads that Assessing Officer has erred in law as well as on facts in making addition of ₹13,96,258/- thereby granting TDS credit of ₹640,242,931/- only in respect of ₹654,103,189/- as claimed in the return of income and in view of its Form 26AS. Both parties are ad idem during the course of hearing that instant issue also requires a detailed factual verification. We thus restore assessee’s grievance back to the Assessing Officer for necessary factual verification as per law.

ITA No.483/Kol/2017 A.Y. 2012-13 M/s Pricewaterhouse coopers (P) Ltd. Vs. ACIT, Cir-2(2), Kol. Page 23 (दनांकः- 12/09/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-M/s Pricewaterhouse Coopers Pvt. Ltd. Block-EP, Plot –Y-14 Salt Lake City, Sector-V, Kolkata-91 2. ��यथ�/Respondent-ACIT, Circle-2(2), Aayakar Bhavan, P-7, Chowringhee Sq. Kol-69 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �'त'न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।