ACIT, NEW DELHI vs. MRS. SEEMA BANSAL, NEW DELHI

PER S.V. MEHROTRA, A.M : This appeal is filed by the assessee against the order of Deputy Commissioner of Income Tax, Circle 3(1), New Delhi, dated 29th June, 2010 passed under Section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2006-07.

3. The assessee preferred an appeal before ld. CIT(A) against the aforementioned addition and the Tribunal vide its order dated 18th March, 2011 in restored the matter to the file of the AO/DRP on issues of Arm’s Length Price, disallowance under Section 36(1)(ii) and severance cost. Accordingly, learned DRP vide its order dated 4th March, 2013 decided the matter. After considering the directions of learned DRP, the TPO vide his order dated 8th February, 2013 recalculated the income of assessee to be enhanced by Rs. 4,17,67,171/-. As regards the other two issues of addition of Rs. 35,10,000/- on account of severance cost and disallowance under Section 36(1)(ii) amounting to Rs. 2,95,93,000/-, learned DRP upheld the addition made by AO. Accordingly, Assessing Officer determined the revised income of Rs. 12,77,03,384/- as under:-

i) Income assessed u/s 143(3) r.w.s. 144C vide order dt. 29.06.2010 Rs. 172756150/- Less: addition on account of ALP u/s 92CA(3) Rs. 86819937 Rs. 85936213 As computed vide order dt. 29.06.2010 Rs. 41767171

Add. ALP as per TPO’s order dt. Rs. 127703384 Revised Income Rounded Off Rs. 127703380/-

“1. The order passed by the Learned Assessing Officer (hereinafter referred as 'Ld. AO') under section 254 / 143(3) read with section 144C of the Income Tax Act 1961 (hereinafter referred as 'the Act') is bad in law and on the facts and circumstances of the case.

2. The Ld. AO as well as the Learned Transfer Pricing Officer ('TPO') and the Hon'ble Dispute Resolution Panel ('DRP') have erred in law as well as facts of the case in not accepting the Arm's Length Price ('ALP') determined by the appellant.

4. The Ld. AO / TPO / DRP have erred in determining the ALP on the basis of data for financial year 2005-06 only and ignoring the data for two prior financial years i.e. FY 2003-04 and FY 2004-05. 5. The Ld. AO / TPO / DRP have erred in introducing Brescon Corporate Advisors Limited and ICDS Securities Limited as comparables for determining ALP in the case of the appellant. 6. The Ld. AO / TPO / DRP have erred in accepting companies with exceptionally high margins as comparables. 7. The Ld. AO / TPO have erred in including income of non-operating nature (like interest income, dividend income, income from sale of shares, income from capital market operations, profit on sale of investments etc.) while computing the operating income for the purpose of determining the operating margin of KJMC Global (Market) India Ltd., Khandwala Securities Ltd and Sumedha Fiscal Service Ltd, at the time of making the working capital adjustments (pursuant to the order of the Hon'ble DRP). 8. The Ld. AO / TPO / DRP have erred in considering the amounts reimbursed by its associated enterprises (payments made by the appellant on behalf of its associated enterprises which were subsequently reimbursed by the associated enterprises) as part of operating expenses and the corresponding reimbursement as part of operating revenue of the appellant while determining ALP. 9. The Ld. AO / TPO / DRP have erred in not allowing the benefit of + 5% as provided by proviso to section 92C(2) of the Act. 10. The Ld. AO / DRP have erred in disallowing the bonus amounting to Rs. 29,593,000 paid by the appellant to its employees (who are also shareholders of the appellant) u/s 36(l)(ii) of the Act by holding that the same would have been payable by way of dividend. The Ld. AO has ignored the fact that the ratio of bonus paid by the appellant is different from the ratio of the shareholding of the shareholders employee and thus, bonus paid cannot be disallowed u/s 36(l)(ii) of the Act. 11. The Ld. AO / DRP have erred in disallowing the severance cost amounting to Rs. 3,510,000 paid by the appellant to an employee at the time of severance. The Ld. AO erred in holding that there is no justification of paying such amount as severance ignoring the fact that the amount was paid to an employee (having no beneficial interest in the business of the appellant) based on business exigencies keeping in mind the best practice followed in the industry. 12. The Ld. AO has erred in not deleting the additions ignoring the relief provided by the Hon'ble Income Tax Appellate Tribunal in its order dated March 18, 2011 on the following grounds:- • Disallowance u/s 40(a)(ia) for payment to Hunt Executive • Disallowance u/s 40(a)(ia) for payment to auditors • Disallowance of staff welfare expenses incurred by the appellant • Disallowance of depreciation on computer accessories • Disallowance u/s 40(a)(ia) for payments to Bansal Printing Press as out of the total payments of Rs. 222,748, the appellant did not claimed Rs. 155,379 as expenses in its P&L account.

13. The Ld. AO has erred in not reducing the operating costs incurred by the appellant by the amount of disallowances (bonus, severance costs etc.) made by him while computing the arm's length price for the international transaction.

14. The above grounds of appeal

s are independent and without prejudice to one another.

15. The appellant craves leave to add / withdraw or amend any ground of appeal at the time of hearing.”

5. The Department filed a cross objection on 19.11.2015. As per the defect notice issued by the Registry, the same was belated by 879 days. The department has filed a condonation petition dated 27th April, 2016, which is reproduced hereinbelow: To , / The Asstt. Registrar, Income Tax Appellate Tribunal 6th Floor, Lok Nayak Bhawan, Khan Market, New Delhi. Sir, Sub: Hearing in the case of M/s Chryscapital India Ltd., 13 for AY 2006-07 - Regarding- Kindly refer to the appeal filed by the assessee i.e. M/s Chris Capital India Pvt. Ltd. before the ITAT for AY 2006-07 ITA No.3288/Del-13 on the subject cited above. In this connection, it is submitted that the department had filed Cross Objections in this case on 19.11.2015 belatedly, the delay in filing the gross objection was on account of the following reason:- "That in some of the cases argued by department before Hon'ble Tribunal on the issue of comparables, the assessee had challenged the comparables included by the TPO before the Hon'ble Tribunal. The comparables with high margins have invariably been assailed by the assessees on the ground of functional dis-similarity, etc. However, it is also seen that the comparables (included by assessee) having low margins also suffer from functional dis-similairty or other characteristics as found in comparables with high margin. In the past in other cases (e.g. M/s Avenue Asia Ltd. Hon'ble Tribunal, during the course of hearing stated that Department cannot challenge the comparables accepted by the TPO when the Revenue is not in appeal. The judgement in this case was passed in January, 2016. Therefore, it was realized that Revenue would have to file a cross objection to seek justice. In view of this, it was decided that on such issues department needs to file objection. In view of this appeal has been filed late. In view of the above facts and circumstances it is, therefore, humbly requested to your honour kindly condone the delay in filing the appeal late. Kindly acknowledge receipt, Yours faithfully, Sd/- Dy. Commissioner of Income Tax Circle-6(l), New Delhi”

6. At the outset, learned counsel submitted that the cross objection filed by the department is not maintainable. He referred to page 16 of the paper book wherein the DRP’s direction dated 04.03.2013 is contained to point out that both round of proceedings were for the period prior to July, 2012 when department had no right to file appeal/cross objection against DRP’s direction. Learned counsel referred to Section 253(2A) inserted by the Finance Act, 2012 w.e.f. 1.7.2012 and later on amended by the Finance (No.2) Act, 2014, w.r.e.f. 1.6.2013 which reads as under :-

“S.253.(1) ……… 2) ……… (2A) The Principal Commissioner or Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C in respect of any objection filed on or after the 1st day of July, 2012, by the assessee under sub-section (2) of section 144C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against the order.”

“Having dealt with the comparability of the above referred three companies, we consider it significant to deal with a contention raised on behalf of the Revenue with great vehemence. In all, total nine companies were taken by the TPO as comparable. Initially, the assessee objected to the inclusion of five companies out of such nine, but later on, such claim was restricted to three companies, which we have discussed hereinbefore. The ld. DR contended that if the five/three companies challenged by the assessee having higher profit rate are to be excluded for any reason, then the remaining four companies having low profit rate should also be eliminated due to their functional dissimilarities. He tried to accentuate on the functional dissimilarities of the remaining four companies. 16 11. In this regard, the primary question which falls for our consideration is: `Can the DR argue for the exclusion of some companies, which were treated by the AO/TPO as comparable’? In our considered opinion, the answer to this question can be given in negative alone. It is understandable that when CIT(A) has decided some point in favour of the assessee and against the Revenue, the AO is fully empowered to assail the correctness of such a decision in an appeal before the tribunal. Similarly, when an assessment order is passed u/s 143(3) read with section 144C of the Act, the AO can be aggrieved against the direction given by the DRP. In such cases of grudge, the AO can approach the tribunal for an appropriate relief, wherever and to the extent the law permits. The underlying idea behind these situations is that the AO is dissatisfied with reversal of his view either by the CIT(A) or the DRP, as the case may be, which he wants to be restored. But, the AO in our considered opinion, can under no circumstance be aggrieved with his own view taken in the assessment order independent of any external influence of the DRP etc. It goes without saying that in all the appeals filed by the assessee against the final order passed by the AO u/s 17 143(3) read with section 144C of the Act, the respondent is always the AO. In other words, the DR represents the AO in an appeal before the tribunal. Taking up an issue for argument by the DR before the tribunal means taking up the issue by the AO through the DR. If we allow the DR to argue that the decision taken by the AO/TPO was wrong and certain companies included by the TPO himself should be deleted, it would mean that the AO is challenging the correctness of his own decision through the DR before the tribunal, which is illogical.

12. The above situation needs to be seen in contradistinction to a situation in which an appeal has been filed by the assessee and he contends that some company was wrongly included by it in the list of comparables, whose comparability should be examined by the tribunal. In such a situation, the tribunal can direct the AO/TPO to examine the correctness of the assessee’s claim. The Special Bench of the Tribunal in DCIT vs. Quark Systems Pvt. Ltd. (2010) 132 TTJ (Chd) (SB) 1 has held that a company which was included by the assessee and also by the TPO in the list of comparables at the time of computing ALP, can be taken up ITA No.1585/Del/2015 18 for consideration by the Tribunal, if the assessee proves that the same was wrongly included. The decision of the Special bench of the tribunal is in the background of the facts as per which the appeal was filed by the assessee and during the hearing of such an appeal, an argument was taken by the assessee about the inadvertent inclusion of a company as comparable. On the other hand, we are confronted with a situation in which the Department, without having any right to file an appeal (as would be seen infra) against the intentional action of the AO/TPO in considering some companies as comparable, is contesting such inclusion and asking for their exclusion to the prejudice of the assessee.

16. The ld. DR then argued that there can be no estoppel against the Act and hence no shadow can be cast on his right to argue against the inclusion of four companies which are not comparable. We appreciate the concern of the ld. DR and find force in his contention that there can be no estoppel against the statute. But, the point is that if the statute does not permit the raising of such a contention before the tribunal either through appeal or cross objection, then how prohibiting the ld. DR to argue such a matter, can be considered as an estoppel against the Act. 23 17. At this juncture, it is imperative to highlight the difference between the right of the DR to argue against the assessment order on the inclusion of incomparable companies with lower profit rates by the AO himself and the power of the tribunal to suo motu examine the correctness of such an action of the AO, while hearing an appeal filed by the assessee. As against our decision about the DR having no right to argue against the order of the AO/TPO in including such companies in the list of comparables, the tribunal has unbridled power to vet the correctness of such an action of the AO/TPO at its own by virtue of the language of section 254(1), which provides that :` The appellate tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such order thereon as its thinks fit.’ The use of expression `pass such order thereon as its thinks fit’ gives widest powers to the tribunal to deal with the issue before it. We are equally conscious of the limitation on the power of the tribunal u/s 254(1) in not directing enhancement of income. At the same time, the tribunal has a power to remand a matter to the lower authorities and there is no bar if the consequential order passed by the lower authority on remand leads to ITA No.1585/Del/2015 24 enhancement. This position has been laid down by the Hon’ble Supreme Court in CIT VS. Assam Travels Shipping Service (1993) 199 ITR 1 (SC). Resultantly, we have no hesitation in holding that albeit the tribunal has the power to voluntarily direct the AO/TPO to reconsider the correctness of the companies included by him in the list of comparables, but in no case, can the DR argue, as a matter of right, against such inclusion. 18.”

Learned counsel further relied on the decision in the case of J.C. 8.

Bamford Investments Rocester vs. Deputy Director of Income Tax, Circle-3(1), International Taxation, New Delhi, wherein in paragraph nos.

10 and 11, the Tribunal has, inter alia, observed as under: . “10. The first reason is that the CO of the Revenue is not maintainable as per law. Section 253(1) of the Act deals with the filing of appeals by the assessee before the Tribunal against the orders specified therein. Sub-section (2) of section 253 empowers the Revenue to file appeal before the Tribunal. This section provides that the C1T may, if he objects to any order passed by the CIT(A) u/s 154 or 250, direct the Assessing Officer to appeal to the Appellate Tribunal against the order. This section does not embrace cases where the first appeal lies to the Tribunal against the order passed by the Assessing Officer u/s I44C( 13) pursuant to the direction given by the Dispute Resolution Pane! (DRP) u/s 144C(5) of the Act. This is in a sharp contrast to the specific entitlement of the assessee under clause (d) of section 253(1) to appeal against the order passed by the Assessing Officer in pursuance of the directions of the DRP. The reason appears to be that \\hen the DRP has scrutinized the draft order of the Assessing Officer and given the appropriate direction to modify it. if necessary, then there is no logic in empowering the C1T to rescrutinize such order of the Assessing Officer and have any grievance against the same. It is more so because the order of the AO has already been checked by a group of three CITs constituting the DRP. I however later it was realized that the interest of the Revenue was suffering because of certain directions given by the DRP prejudicial to the interest of the Revenue, which the Assessing Officer cannot tinker with and become binding on him. With a view to empower the CIT to challenge such adverse directions given by the DRP pursuant to which the Assessing Officer has passed order u/s 144C, the legislature stepped in by introducing sub-section (2A) to section 253 w.e.f 1.7.2012. which provides that the : The Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C in respect of any objection filed on or after the 1st day of July. 2012. by the assessee under sub-section (2) of section I44C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against the order.' Sub-section (4) of section 253 empowering the assessee or the Assessing Officer to file cross- objection was also suitably amended by the Finance Act. 2012 to. inter-alia. provide that the Assessing Officer may, on receipt of notice that an appeal against the order of the Assessing Officer in pursuance of the directions of the Dispute Resolution Panel has been preferred by the assessee under subsection (1). file a cross-objections against any part of the order of the Assessing Officer (in pursuance of the directions of the Dispute Resolution Panel). When we read sub-section (1) of section 253 in juxtaposition to sub-section (2A) of section 253, the position which emerges is that whereas the assessee was earlier also entitled to file appeal against the order passed by the AO pursuant to the Direction of the DRP, the Revenue has been clothed with such power by the Finance Act. 2012. provided the objection was filed by the assessee before the DRP on or after 01.07.12. Thus, it becomes palpable that the Department has no power to file appeal or object to the any direction issued by the DRP in pursuance of which the Assessing Officer passed order u/s 144C, if the assessee filed objection before the DRP before this cut-off date of 1.7.2012. Adverting to the facts of the instant case, we find that the assessee filed objection against the draft assessment order before the DRP on 30.01.2012. Since the objection in this case was filed by the assessee before the DRP prior to 01.07.12. the Revenue could have neither filed appeal nor cross-objection against the order of the Assessing Officer. We. therefore, hold that the cross-objection filed by the Revenue is not maintainable as per law.

11. The second reason for which the CO of the Revenue deserves the fate of dismissal is the language of section 253 of the Act which permits the CIT to authorize the Assessing Officer to file appeal u/s sub-section (2A) 'if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C. In the like manner, cross-objection can be filed under sub-section (4) of section 253 of the Act which provides that: 'the Assessing Officer .... on receipt of notice that an appeal against the order of... the Assessing Officer in pursuance of the directions of the Dispute Resolution Panel has been preferred under sub-section (1) .... he may ... file a memorandum of cross-objections... against any part of the order of the Assessing Officer (in pursuance of the directions of the Dispute Resolution Panel) ...'. The crux of the matter is that the appeal or the cross-objection can be filed by the Revenue only if the CIT objects to any 'direction issued by the DRP ' or 'against any part of the order of the Assessing Officer (in pursuance of the directions of the DRP)1. Thus

it is manifest that the appeal can be filed only against direction issued by the DRP and the CO can be filed against any part of the order of the Assessing Officer passed in pursuance to the direction of the DRP. The nitty-gritty of the matter is that Revenue should have objection either against the Direction of the DRP or against the order passed by the Assessing Officer. In other words, the scope of the appeal or cross-objection by the Revenue is confined to the some adverse finding rendered by either of the authorities, as the case may be.

Commissioner of Income Tax vide wherein, the Tribunal has in para 12 has observed as under:

“In the case in hand, the objections were filed on 23.12.2010, therefore, the directions passed by the DRP on the objections filed by the assessee are binding on the Assessing Officer. The order of this Tribunal resorting the assessee on merits would not change the factum of filing the objections by the assessee on 23.12.2010 and therefore the direction of the DRP dated 11.03.2014 are in respect of the objections dated 23.12.2010 can’t be challenged by the Assessing Officer.”

11. Per contra, ld. CIT (DR) submitted that appellate court has power to entertain new grounds. In this regard, he relied on following decisions :-

(a) Ashok Vardhan Birla vs. CIT (1994) 208 ITR 958 (Bombay) (b) CIT vs. George William, Assam 091 Taxmann 293 (Gauhati) (c) CIT vs. Indian Express (Madurai) (P) Ltd. (1983) 13 Taxmann 441

(d) NTPC vs. CIT 229 ITR 383 (e) Jute Corporation of India 88 CTR 66

He further submitted that additional ground can be raised at appellate 12. stage relying on the decision in the case of Amines Plasticizers Ltd. vs. CIT 223 ITR 173.

13. Learned CIT(DR) further submitted that appellate authority is required to set right the wrongful actions of lower authorities. In this regard, he relied on the decision in Kapoor Chand Shrimal 131 ITR 451 and also on the decision of Hon’ble High Court of Delhi in the case of The Commissioner of Income Tax vs. M/s Jansampark Advertising and Marketing (P) Ltd. in ITA No. 525/2014.

14. Learned CIT(DR) referred to page 66 to 68 wherein the TPO’s order is contained and referred to page 73 of the paper book to point out that learned TPO accepted certain comparables though they were functionally not comparable. He submitted that same principle is to be applied for all comparables whether earning high profit or low profit. Learned counsel in the rejoinder relied on the decision of Hon’ble Supreme Court in the case of MCorp Global (P.) Ltd. vs. Commissioner of Income Tax, Ghaziabad, [2009] 178 Taxman 347 (SC)/[2009] 309 ITR 434 (SC)/[2009] 222 CTR 110 wherein, it has been held that benefit once granted to Assessee cannot be taken back. Learned DR referred to the decision in the case of Trend Micro India Pvt. Ltd vs. DCIT, Circle-25(2), New Delhi, and pointed out that the Tribunal, after discussion, had set aside the matter to learned TPO and, therefore, the same principle should be applied here also.

Ld. DR further relied on para 11 of the decision in the case of M/s B J 15.

Services Company Middle East Ltd vs. Assistant Commissioner of Income Tax, which reads as under :-

(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved, (2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question, (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit (6) The High Court may determine any issue which- (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1). (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section."

13. On a conspectus of these provisions, the legal effect of the Section would appear to be that the appeal is normally to be heard on the substantial questions of law formulated and the appellant can be allowed to argue only in regard to the same. It is also open to the respondent to point out that though a substantial question of law has been formulated but in fact and in law, the said question of law is really not a substantial question of law. The High Court is to deliver judgment on the basis of the: decision on the question of law framed and it also provides that the High Court may also decide the appeal on any other substantial question of law which may not have been formulated. The only condition is that it should be satisfied that the case involved such a question. Even if the Appellate Tribunal has not decided an issue or an issue has been wrongly decided, it is open to the High Court in a proceeding under Section 260A of the Act to either decide the question which has not been decided or to decide the question which is wrongly decided subject to the only limitation that this is occasioned by the decision which it renders on the substantial question of law. Therefore, in the ultimate analysis, the High Court's interference with the impugned decision must be premised on the existence of the substantial question of law and a decision on the same. If there is a substantial question of law made out; it provides power to interfere with the Appellate Tribunal's order; be it on an issue which has. been decided by it-erroneously or on an issue not decided by it. In this case, it may be true that the appellant has not raised this question before the Appellate Authority and also before the Appellate Tribunal. The appellant has not produced the memorandum of the appeal before the Tribunal and the order of the Appellate

Tribunal also does: not bear it out that the appellant has raised this question, but we would think that the question which is raised essentially, appears to be a pure question of law and it is substantial in the sense that it has got a direct and substantial impact on the destiny of the appellant's case and we hence proceed to formulate the following substantial question of law:- Whether in the circumstances of the case, the Appellate Authority and the Tribunal should have found that the amount of interest received on the refund by the Income Tax Department should be included in the amount on which the appellant was taxed under Section 44BB of the Act?” Whether in the circumstances of the case, the Appellate Authority and the Tribunal should have found that the amount of interest received on the refund by the Income Tax Department should be included in the amount on which the appellant was taxed under Section 44BB of the Act? .”

Relying on this decision, ld. CIT(DR) submitted that correct income is to be computed.

There is no gain-saying that right to appeal is always given by statute and unless specific provision of appeal is there, there cannot be any right to appeal. The appeal and cross objection are at par as far as their admissibility is concerned.

If, the assessment order is erroneous as well as prejudicial to the interests of the Revenue then the remedy lies in the passing of the revisional order by learned CIT under Section 263. Learned CIT(A) has coterminous power with Assessing Officer and, therefore, he is entitled to enhance the assessment. But this power is to be exercised only with reference to the issues considered by the Assessing Officer. Learned CIT(A) is not entitled to make enhancement by resorting to or considering new sources of income.

Learned CIT (DR) in course of his submissions also submitted that since in Transfer Pricing proceedings, tribunal is the first Appellate Authority, therefore, it has coterminous powers with Assessing Officer and, therefore, the tribunal should entertain the objections raised by the department by way of cross objection. This plea of ld. CIT(DR) is devoid of any merit because this plea overlooks the forum of DRP which primarily has coterminous powers with TPO and Assessing Officer is obliged to give effect to ld. DRP’s directions. In our opinion, the answer to learned CIT DR’s submissions lies in the decision of Hon’ble Supreme Court in the case of MCorp Global (P.) Ltd. vs. Commissioner of Income Tax, Ghaziabad,(Supra), in which para 6 is reproduced hereinbelow:

“6. In the case of Hukumchand Mills Ltd. v. CIT[1967] 63 ITR 232 this Court has held that under section 33(4) of the Income-tax Act, 1922 [equivalent to section 254(1) of the 1961 Act], the Tribunal was not authorized to take back the benefit granted to the assessee by the Assessing Officer. The Tribunal has no power to enhance the assessment. Applying the ratio of the said judgment to the present case, we are of the view that, in this case, the Assessing Officer had granted depreciation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the infirmity in the impugned judgment of the High Court and the Tribunal.”

As in the case of NTPC (Supra) here also the issue was regarding power of the tribunal in dealing with appeals and it was, inter alia, held that the power of the tribunal in dealing with appeals is expressed in the widest possible terms. It was held that the purpose of the assessment proceedings before the Taxing Authorities is to assess correctly tax liability of an assessee in accordance with law and if as a result a judicial decision given, while the appeal is pending before the Tribunal, it is found that a non- taxable item is taxed or a permissible deduction is denied then there is no reason why the assessee should be restrained from raising that question before the tribunal for the first time. However, these observations were with a rider that relevant facts are on record in respect of the item. This decision also was rendered in an appeal which was pending before the Tribunal. This decision is also of no assistance to the department because, in the present case, the department wants the Tribunal to revoke the findings of learned TPO though it has no right of appeal. Learned CIT (DR) also referred to the decision of Hon’ble Supreme Court in Kapoor Chand Shrimal (Supra). In this case also Hon’ble Supreme Court observed that it is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under an appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred and dispose of whole or any part of the matter, unless forbidden from doing so. Here also there was no dispute regarding maintainability of appeal and the observations were made only in regard to the pending appeal.

Hon’ble Supreme Court reminded the appellate authority to correct all errors in proceedings under appeal but did not empower the appellate authority to withdraw the benefits granted by assessing authority.

“38. The provision of appeal, before the CIT (Appeals) and then before the ITAT, is made more as a check on the abuse of power and authority by the AO. Whilst it is true that it is the obligation of the AO to conduct proper scrutiny of the material, given the fact that the two appellate authorities above are also forums for fact-finding, in the event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on Page 21 of 24 facts would naturally shift to the door of the said appellate authority. For such purposes, we only need to point out one step in the procedure in appeal as prescribed in Section 250 of the Income Tax Act wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the AO, the first appellate authority is given the liberty to make, or cause to be made, “further inquiry”, in terms of sub-section (4) which reads as under:- ―The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals).ǁ 39. The further inquiry envisaged under Section 250(4) quoted above is generally by calling what is known as “remand report”. The purpose of this enabling clause is essentially to ensure that the matter of assessment reaches finality with all the requisite facts found. The assessment proceedings reopened on the basis of preliminary satisfaction that some part of the income has escaped assessment, particularly when some unexplained credit entries have come to the notice (as in Section 68), cannot conclude, save and except by reaching satisfaction on the touchstone of the three tests mentioned earlier; viz. the identity of the third party making the payment, its creditworthiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since Section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in ITA No.525/2014 Page 22 of 24 the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third party.”

However, there is no corresponding provision qua Tribunal’s power and Tribunal can pass order on the subject matter of appeal as it deems fit but in that process it cannot correct the errors of judgment of AO unless appeal is pending before it impugning such findings. Therefore, Tribunal cannot enter into the realm of findings of DRP with which assessee is not aggrieved unless Department has right to appeal against such findings. This decision also is of no assistance to the department because in the present case, the learned TPO has also arrived at certain comparables after duly examining the facts. These comparables, impugned by learned CIT(DR), are not the subject matter of appeal before the Tribunal. The submission of learned CIT(DR) relying on B.J. Services Company (supra) that the appellate authority should set right all the actions of lower authorities are acceptable to the extent of the subject matter of appeal. Though, the submission of learned CIT (DR) that the subject matter appeal is determination of arm’s length price, no doubt is convincing, but at the same it has to be kept in mind that determination of Arm’s Length Price of international transactions involves several steps and, on those steps, which are not disputed by the assessee, the department cannot be heard unless specific provision is there for entering into that realm. We are of the considered opinion that the issue is squarely covered by the decisions of various Coordinate Benches noted earlier.

“1. The Ld. TPO has erred while making working capital adjustments pursuant to the directions of the Hon’ble Dispute Resolution Panel.”

Accordingly, under the Indian Transfer Pricing Legislation, assessee is an associated enterprise of the aforementioned management companies. In the relevant assessment year, the assessee was engaged in the business of providing advisory services to its associated enterprises noted above to assist them in providing services to the Investment funds. CCIAPL primarily carries out research and scouting activities for ChrysCapital Management Companies to identify entrepreneurs and portfolio companies requiring assistance in the form of capital infusion, strategic direction and financial advice. ChrysCapital Management Companies are asset management companies for investment funds (Private Equity Funds) who generally focus on investment in incubation ventures. These investment funds concentrate on providing funds to entrepreneurs engaged in the business of providing software services, outsourcing services and technology out of India.

S. No Description Amount (Rs.) 1. Advisory Services 25,20,11,250 2. Reimbursement of expenses incurred on behalf 5,39,53,094 of AE’s 3. Receipt of advance for services to be rendered in 3,33,41,250 future

S. No. Company Name 2004 2005 2006 Wt. Avg. 1. Khandwala Securities -43.03 27.31 43.35 8.92 2. Keynote Corporate Services Ltd -6.87 13.33 94.06 33.51 3. Sumedha Fiscal Services Ltd -31.08 -6.88 -16.71 -18.23 4. SREI Capital Markets Ltd 5.32 19.78 6.92 10.67 5. Integrated Enterprises (India) Ltd - 3.96 -9.61 -2.83 6. KJMC 2.02 6.60 -10.42 3.98 Arithmetic Mean 6.00

Accordingly the comparables chosen in the earlier years should also be analyzed for comparability. Following table shows the comparables used by the assessee in the earlier year, accepted or rejected by the learned TPO and the Comparables used in this year :-

S. Name of the comparable A.Y. 2005-06 Used A.Y. 2005-06 A.Y. 2006-07 Used No. by Assessee Accepted/Rejected by Assessee by TPO

S. No Company name 2006 1. Khandwala Securities Ltd Current Year 43.35 2. Keynote Corporate Services Ltd Current Year 94.06 3. Sumedha Fiscal Services Ltd Current Year -16.71 4. KJMC Global Market (India) Ltd Current Year -10.42 5. Brescon Corporate Advisors Ltd Preceding Year 87.89 6. ICDS Preceding Year 119.00 Arithmetic Mean 52.86

Total Cost of provision of Services by the assessee (As Rs. 257,003,802 calculated in para 17 above) Margin (OP/OC) @ 52.86% of the above Rs. 135,852,209 Operating Margin calculated by assessee Rs. 49,032,272 Difference Rs. 86,819,937

Ltd vs. Assistant Commissioner of Income Tax, Circle-18(1), New Delhi.

Learned counsel pointed out that in both these decisions this company had been considered and it was held that this was a merchant banking company with its main source of income from recapitalization advisory and debt syndications and, thus, it was not a simple investment advisory services as the assessee is. Learned CIT (DR) submitted that the decision in the case of Xander Advisors India (P.) Ltd vs. Assistant Commissioner of Income Tax, Circle-18(1), New Delhi pertains to assessment year 2008-09 and not to assessment year 2006-07 which is before us. In this regard, he relied on Rule on 10B(4), wherein, it has been mandated that the data to be used in analyzing the comparability with an international transaction shall be the data of the financial year in which the international transaction has been entered into. As regards, the Temasek Holdings Advisors India (P.) Ltd., also learned CIT(DR) pointed out that the same dealt with assessment year 2005-06 and not for assessment year 2006-07. He, therefore, submitted that both these case relied by learned counsel are not relevant and since in earlier year this comparable was used for determining arms price length price of international transaction therefore it was rightly included by learned TPO.

“We have perused the Annual accounts of this company, a copy of which has been placed on /record. This company is engaged in carrying on merchant banking and investment activities along with providing project advisory services. A look at the Annual accounts of Brescon Corporate Advisors Ltd. indicates that it has two streams of income, namely, Tee based financial services' and 'Other income1. Details of the revenue under 'Fee based financial services' is given at page 324 of the paper book, which is as under: — Financial Restructuring & Recapitalisation Rs. 10,00 crore Syndication of Debt Rs. 2.18 crore Equity Related Advisory/M&A Advisory Rs. 2.03 crore Due diligence advisory to Arcil Nil Total Rs. 14.23 crore

The second stream of its income totaling Rs.6.04 crore includes Dividend, Interest received, Profit/loss on sale of investments and Profit/loss arising out of dealing in shares and securities. A close look at the composition of the gross revenue from Tee based financial services' transpires that some component of 'Equity related advisory/M&A advisory' prima facie partly resembles with the services rendered by the assessee. The Id. DR himself candidly accepted, and rightly so, that the other components of this stream of the revenue are of no match with that of the assessee. Now, the question arises as to whether Brescon Corporate Advisors Ltd., under these circumstances can be considered as comparable? At this stage, it is pertinent to mention that the gross revenue of this company amounts to Rs.20.27 crore and there is no segmental data available either in respect of net profit from 'Fee based financial services' or 'Other income'. As 'Other income' also includes income from Investment activity, being profit/loss on sale of investment and dealing in shares and securities, the impact of such profit/loss on the overall net profit of the company on entity level, cannot be determined. Even though some component of 'Equity related advisory/M&A Advisory', with the gross revenue of Rs.2.03 crore, partly resembles with the assessee, still in the absence of any segmental data of such composition, there can be no valid comparison. Revenue from this component accounts for around 10% of the total gross revenue of this company and if we further examine this 10% component in itself, it turns out that the same also includes M&A advisory, which is obviously not akin to the services rendered by the assessee. The assessee's activity, in a nutshell, is to tender advice to the Manager about the avenues for making investment in real estate, and, if the Manger agrees to go ahead with such investment opportunity, then, to get involved in the process of finalization of the deal and then provide support services, including maintenance of books of account etc., on the clicking of the deal. Taking a holistic view of the factual matrix, we do not find any rationality in including this company in the list of comparables since no segmental data of the advisory services by this company is available, which component is very small vis- a-vis the entity level operations. Availability of separate data of this segment could have possibly made it comparable with the assessee. This company is, therefore, directed to be excluded from the list of comparables.

“Schedule-9 “FEE BASED FINANCIAL SERVICES” Financial Restructuring & Recapitalisation 68,049,356 72,067,663 Syndication of Debt 29,881,668 10,356,217 Equity Related Advisory 25,253,608 23,180,884 Due diligence advisory to advisory to Arcil/ M&A Advisory 16,378,720 139,563,352 105,604,764”

i.) KGMC Global Market (India) Ltd (profit or sale of share to be excluded). ii.) Khandwala Securities Ltd (Capital Market operations profit and sale long term investment (excluded). iii) Sumedha Fiscal Services Ltd (Dividend and interest to be excluded).

“The final question that arises for this Courts determination in the present appeal is the assessee’s claim for deduction under Section 36(1)(ii) of the Act in respect of the bonus paid by it to its two shareholders - Ashish Dhawan and Kunal Shroff. The lower authorities denied such claim, holding that the bonus was paid to the shareholders in lieu of dividend with the objective of avoiding tax. Such inference was drawn from two facts: a) the bonus paid was in proportion of their shareholding in the assessee company, i.e. 2:1; and b) no dividend had been declared by the assessee. However, a perusal of an excerpt from the DRP‟s order dated 21.09.2012 quoted by the AO in his order dated 19.10.2012 contradicts both these facts: a) bonus was not paid in the ratio of 2:1 and b) the assessee had declared interim dividend ITA 417/2014 Page 52 of ` 5,47,47,000/-. Further, the bonuses paid to the two shareholder-directors in the preceding two financial years were in the ratio of 60-65%:40-35%, even though their shareholding was 1:1. The balance sheet of the assessee placed on record also indicates that the two shareholders also hold directorial positions in the assessee. Therefore, the assessee’s contention that the bonus was paid to the shareholders in their managerial capacity, like in the case of other managers, cannot be questioned merely on the basis of a speculation by the revenue that such payment was to avoid tax. In such circumstances, the deduction under Section 36(1)(ii) in respect of payment of bonus to the two shareholder-directors is allowed. The assessee has relied upon a number of judicial pronouncements to support its contention. However, we do not consider it necessary to discuss those decisions for ruling in its favour. Therefore, this question is answered in favour of the assessee.”

“During the relevant year, the assessee paid a severance cost of Rs. 3510000/- to Mr. Girish Baliga at the time of his leaving the job in November, 2005. Mr. Girish Baliga is a qualified Chartered Accountant and holds a Bachelor of Art from Bombay University. Mr. Girish Baliga has the experience of working with JP Morgan and Whitefield Capital Investment Advisors prior to working the assessee. It will be appreciated that Mr. Baliga was neither a shareholder nor a director of the assessee and did not have any other beneficial interest in the assessee. Thus, the payment made by the assessee to Mr. Baliga was exclusively on account of the services rendered by him to the co. was based on business exigencies keeping in mind the best practices being followed in the industry. It is evident from the above facts that the above regular expenditure is incurred by the assessee for the purpose of carrying out its business.”

Commercial expediency is a matter entirely left to the judgment of the assessee. The Assessing Officer, being not satisfied with the assessee’s reply, made an addition of Rs. 35,10,000/-, inter alia, observing that assessee failed to justify the payment to Mr. Baliga with reference to services rendered by him.

Admittedly, Sri. Girish Baliga was neither a shareholder nor a director of the assessee company and did not have any other beneficial interest in the assessee. He was a qualified CA and a very experienced person. Therefore, there could not be any other consideration for severance cost of Rs.35,10,000/- paid to him except the services rendered by him to assessee company. The assessee in its submissions has, inter-alia, pointed out that this payment was based on business exigency keeping in mind the best practices being followed in the industry. Therefore, the payment made to Sri. Girish Baliga by the assessee company as going concern was in line with the practice prevalent in the industry. In order to maintain good reputation as regards employment of Human Resources, it had to meet the common commercial practices. The payment had not been made in contemplation of closing down of unit but in regular course of carrying on assessee’s business. Under such circumstances, this payment cannot be held to be in capital field and was an allowable expenditure in the hands of the assessee company. In the result, the appeal of the assessee is partly allowed.