The provisions of transfer pricing are applicable as well to expenses and outgoing in an international transaction. The impugned amount represents the outgo of the assessee or the expense of the assessee for earning income with reference to the real property transactions in the shape of lease, etc. It cannot be disputed by the revenue that the impugned transaction is international transaction falling within the scope of TP Regulations as the AO himself has referred this transaction to the TPO on the ground that it is an international transaction entered into by the assessee with its AEs, the ALP of which was to be determined by the TPO. If it was so, then, the post-amended provisions of section 92CA(4) will be applicable and ALP determined by the TPO is binding upon the AO. It has already been mentioned that all the six transactions entered into by the assessee are referred in the TPOs order and the impugned transaction has been mentioned at serial No. 1 and it had been recorded by the TPO in its order that "regarding transactions 1-4 above no adverse inference is drawn". Therefore, TPO has accepted the impugned transaction of the assessee at arms length. According to the provisions of section 92CA(4), as applicable to the present case, the ALP determined by the TPO is binding on AO. Once the ALP was determined by TPO, the AO cannot have the jurisdiction to redetermine the profit or loss arising out of that transaction under the normal provisions of the Act. By bringing this transaction again under the normal provisions of the Act, the AO has sought to do an act indirectly which he cannot do directly. Such action of the AO was against the well-settled proposition of law according to which what cannot be done " per directum " is not permissible to be done " per obliquum " meaning thereby whatever is prohibited by law to be done, cannot legally be effected by an indirect or circuitous contrivance on the principle of " quando aliquid prohibetur, prohibetur at omne per quod devenitur ad Mud ". Applying the above principle, it was held that after determination of ALP by the TPO, AO did not have jurisdiction to reexamine the said transaction and by re-examination of the transaction the AO has sought to do an act indirectly, which he cannot do directly. Right from the beginning it had been the case of the assessee that the AO did not had jurisdiction to re-examine the allowability of referral fee as TPO has already held that this being international transaction of the assessee was at arms length. In view of aforementioned discussion, it was found that such contention of the assessee has a force and it was to be held that once an international transaction has been made subject of determination of ALP by the TPO and TPO found that transaction at arms length then it will not be permissible for the AO to re-examine that transaction and make disallowance of the same under normal provisions of the Act. Even on merits, the disallowance of referral fee was made only on the ground that the assessee was not required to incur it and there was no evidence placed on record to prove the same. The assessee had submitted ample evidence to support the expenditure and it was shown that such expenditure was incurred with respect to revenue earned by the assessee on property transactions referred to the assessee by its AEs. It was submitted that the expenditure incurred by the assessee in respect of transactions referred by AEs was much less than the similar expenditure incurred vis--vis the independent parties. Such contention was also placed before TPO. No adverse material, whatsoever, had been brought on record to show that either the evidence submitted by the assessee in this respect was incorrect or the contention of the assessee that expenditure relating to transaction entered into with AEs was less costly was incorrect. Therefore, even on merits there is no justification in upholding the disallowance. Looking from any angle, the sustenance of addition of Rs. 1,73,52,922 was not justified and the same is deleted.

Income Tax Act, 1961 Section 92C

--Transfer pricing - Computation of ALP Reimbursement of cost for infra group services--The assessee was engaged in the business of rendering services in connection with acquisition, sales and lease of real estate property and other services such as advisory and research, facilities management, project management, etc., in the real estate sector. It filed its return of income at Rs. 20,46,62,822 on 27-11-2006 which has been assessed by the aforementioned order at an income of Rs. 23,63,43,039 by making the certain additions. So far as it relates to the addition made on account of ALP under section 92CA(3), the assessee entered into the certain international transactions with its AE. The assessee submitted TP study, to support the transactions entered into by it with its AEs. Not satisfied with the aforementioned findings in aforementioned TP study, the AO referred the issue to the Transfer Pricing Officer (TPO) who has submitted his order. After listing out the aforementioned six international transactions of the assessee with its AEs, the TPO has observed that regarding transactions at serial Nos. 1 to 4, namely, the transactions of Rs. 1,73.26.631, Rs. 63,38,339, Rs. 21,68,790 and Rs. 6,45,662, "no adverse inference is drawn", meaning thereby TPO has accepted that the aforementioned four transactions are at arms length. So far as it relates to the transactions mentioned at serial No. 5, he noted that this contains two amounts of reimbursements which have been described as follows in the order : "(a) Reimbursement of companys share of salary for common manpower resource, per cost-sharing arrangement of Rs. 92,25,838 paid to CHK. (b) Reimbursement of companys share of salary for common manpower resource, per cost-sharing arrangement of Rs. 13,77,092 paid to C Singapore." The TPO required the assessee to submit the nature of services received by it from its AEs with regard to which such reimbursement had been made. The reply of the assessee has been summarized by the TPO with regard to both of the above-mentioned transactions. TPO again asked the assessee whether the services for which the cost has been paid would constitute to be intra-group services as per the OECD Guidelines. According to TPO, the expenses incurred with respect to intragroup services can be allowed only in the circumstances in a case where the activity provides a respective group member with the economic or commercial value to enhance its commercial position and such fact can be determined by considering whether independent enterprise in comparable circumstances would have been willing to pay for the activity fee performed for it by an independent enterprise or would have performed the activity in-house for itself. He observed that if the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the ALP. The assessee was required to mention that what was the role and scope of the agreement entered into by the assessee with C& WH and Singapore and what activities are performed and should be routinely performed by the assessee itself. He observed that agreement entered by the assessee with these two AEs does not reveal that these AEs are specifically named service centers for the assessee. The scope of the agreement does not prohibit them from rendering services to third parties as well. In such circumstances, TPO recorded a finding that the scope of services for which many agreements are entered into are incidental and ancillary services which, in any way, are performed by the assessee itself. Therefore, no independent enterprise would be willing to pay for the services which are a part of its routine business performed by it and would not engage such agency to receive such incidental services for a payment even at cost. It was further submitted by the assessee that these AEs are not dedicated service centres for the assessee. It was pointed out that the question of these AEs rendering such services to third parties does not arise. TPO did not find any force in such submission and has observed that it is not disputed that activities for which the payment is made by the assessee are not performed by the assessee itself. Then, TPO referred to the OECD Guidelines and has referred to paras 7.4, 7.5 and 7.6 and referring to these paras he observed the key measures in identifying intra-group services. It was in this manner, TPO had worked out the adjustment of Rs. 1,06,02,930 which had been added to the income of the assessee. The AO in the approved order had made the addition against which the assessee had filed objections to the DRP. DRP had observed that the ground was heard at length, the paper book filed by the assessee was perused. No further documentary evidence was furnished by the assessee in respect of cost allocations. The reliance by the assessee to various case laws was misplaced. The observation of the TPO that the services availed by the assessee are not intra-group services and, hence, no remuneration should have been paid by the assessee to its AEs was correct and, therefore, no directions were being issued. Held: The claim of the assessee regarding the payment made to CWS. The said payment was claimed by the assessee on the ground that CWS had used one of its employees to render liaison services to IBM on behalf of the assessee. It was the case of the TPO that the assessee did not submit documentary evidence in support of the claim. TPO also referred to the news report dt. 8-12-1993 as appeared in "Real Estate Weekly" that business relationship between Cushman & Wakefield USA (CWUS) and IBM were very old and parent company has been looking after as the real estate work of IBM since early 1990. Therefore, TPO has observed that looking into this fact, the assessee who has started the business in India may have received incidental benefit from such old business relationship between the holding company of the assessee and IBM. Another reason for rejection of the claim of the assessee by the TPO is para 7.13 of OECD Commentary according to which the incidental benefits are not intra-company services and, thus, he had held that liaison services were not intra-group services. The assessee had been shown to have earned substantial revenues from IBM and that could not be the result of only incidental benefit received by the assessee from old business relationship between the holding company of the assessee and IBM.

The assessee was engaged in the business of rendering services in connection with the acquisition, sales and lease of real estate property and other services such as advisory and research, facility management, project management, etc., in the real estate sector. According to the recital clause, CWS, at the cost of assessee, had agreed to undertake liaisoning and support activities in relation to one of the assessees clients, viz., IBM Regional Headquarters. CWS shall assist the assessee in maintaining relationship with IBM Regional Headquarters located at Singapore whereby the CWS would liaise with; IBM Regional Headquarters on routine basis. The agreement had to commence on 1-1-2006 and consideration has been provided in clause 2.1. In pursuance of agreement, vide tax invoice CWS has raised an amount of 74,330 Singapore dollars being reimbursement of 75 per cent of Mr. Rs cost incurred from January to June, 2006 in Singapore office. The aforesaid amount has been calculated in a separate sheet. A detailed cost has been worked out at 99,107 Singapore dollars, 75 per cent thereof comes to 74,330 Singapore dollars. To support that Mr. R had actually rendered the services, the assessee has also enclosed copies of e-mails sent by Mr. R relating to the period under consideration. The copies of several e-mails are placed at p. 318 onwards in which reference has been made to the services obtained by IBM. Therefore, it cannot be said that there is complete absence of evidence submitted by the assessee in respect of services obtained by it from the said Mr. R in respect of the revenue earned by the assessee. Therefore, the observation of the TPO that there is no documentary evidence furnished by the assessee is contrary to record. TPO has mainly denied the benefit to the assessee on the ground that there was no need by the assessee to make such payment as the assessee when started its business in India may have received incidental benefit from old business relationship between the holding company of the assessee and IBM. Such observations of TPO are not correct. The assessee had been shown to have earned substantial revenues from IBM and that cannot be the result of only incidental benefit received by the assessee from old business relationship between the holding company of the assessee and IBM. If one wants to obtain revenue upon dealing in real estate, certain work has to be done. All the primary facts were submitted to the AO as well as the TPO. The names of the parties were mentioned. Without examining any of such details, it cannot be said that the revenue earned by the assessee was only on account of incidental benefit. There was a force in the claim of the assessee that to enable it to earn the revenue from IBM, it was necessary to provide the services to IBM outside India. If such services are provided by the employees of the assessee company, then, it has to incur the cost of its employee who has to travel to the destination and that would result in extra expenditure. Similarly, if those services are outsourced to the independent party, then also there would be some element of profit to be charged by the said independent party. As against both these situations, what cost has been incurred by the assessee is only reimbursement of the expenses of an employee who is sitting in Singapore which is cost effective. Now, considering the payment made by the assessee for the similar services obtained by it from CWHK the business of the assessee has been stated to be similar as mentioned in the agreement of the assessee with CWS. CWHK is stated to be co-ordinating entity for CW entities in Asia region and is stated to be responsible for co-ordinating the activities of client solution group of C & W, Inc. (CWS located in the US for Asian region). The role of "client solution group in the agreement" has been described as under : "The group will be responsible for undertaking following activities on behalf of C&W India : (a) to liaise and co-ordinate with offices of clients of C&W India; (b) to develop from time to time a marketing plan in respect of potential clients, with likely revenue potential for C&W India; (c) to identify potential opportunities to provide additional services to existing clients and obtain instructions thereof; and (d) to assist C&W India in setting out business brochures, financial planning and strategy in respect of corporate services generally for the Indian region." It can be seen from the chart that the main revenue earned is by the assessee only which is 82.44 per cent of the total revenue and reimbursement of cost is only to the extent of $ 281,265 out of which cost allocated to the assessee is $ 203,931. The revenue relatable to such cost allocation is $ 3,037,398. Evidence in the shape of various e-mails sent by Mr. A to the assessee company with regard to various clients from whom the assessee has earned income are placed at p. 193 onwards. These e-mails were produced by the assessee before the AO, TPO and DRP. Thus, it cannot be said that there is absence of evidence submitted by the assessee and it will be incorrect to say that the assessee did not furnish evidence to support its contention that it has reimbursed the cost in respect of revenues earned by it on account of services rendered by CWHK. All the details have been furnished on record. The reasons given for upholding the adjustment to ALP are same as have been given in respect of CWS. Those reasons are already discussed for the adjudication of reimbursement to CWS and adopting same criteria, there is no justification in the adjustment of Rs. 92,25,838 to the TP adjustment in respect of payments made by the assessee to CWHK. In view of the above discussion, the TP adjustment of Rs. 1,06,39,865 is deleted.

Income Tax Act, 1961 Section 92C

ORDER

I.P. Bansal, Judicial Member

1. This is an appeal filed by the assessee. It is directed against the order passed by the Assessing Officer dated 6th July, 2010 u/s 143 (3) read with Section 144C of the IT Act, 1961. The grounds of appeal read as under:

The following grounds of appeal are mutually exclusive of and without prejudice to each another.

1. That the learned A.O. has erred on facts and in law in recomputing the arms length price of transactions and in holding that the services availed by the assessee are not intra-group services and hence no remuneration should have been made by the Appellant to its Associated Enterprises. The addition of Rs.10,602,930/- made to the income of the Appellant is illegal, erroneous and contrary to law and facts.

2. That the learned A.O. has erred in law and on fact in disallowing the referral fee paid to associates amounting to Rs.1,73,52,922/- and in concluding that the amount represented the Appellants income diverted to the group concerns. He erred in alleging that no benefit has been derived by the Appellant from referral fees paid to group companies and that accordingly, the amount is not a deductible expenditure while computing the income tax payable by the Appellant.

3. That the learned A.O. has erred in law and on fact in holding that unrealized service tax has to be disallowed as per provisions of section 43B of the Act.

4. That the learned A.O. has erred in law and on fact in treating computer peripherals and accessories as normal plant and machinery and allowing depreciation at 15% rather than depreciation rate of 60% applicable to computer and computer software.

5. That the learned A.O. has erred, in law, and on facts in initiating penalty proceedings under section 271(1)(c) of the Act against the Appellant.

2. The assessee is engaged in the business of rendering services in connection with acquisition, sales and lease of real estate property and other services such as advisory and research, facilities management, project management, etc. in the real estate sector. It filed its return of income at ` 20,46,62,822/- on 27th November, 2006 which has been assessed by the aforementioned order at an income of ` 23,63,43,039/- by making the following additions:

i)

Arms length price u/section 92CA (3)

1,06,02,930/-

ii)

Referral fee paid to group entities

1,73,52,922/-

iii)

Disallowance u/section 43B- unpaid service tax

31,81,878/-

iv)

Depreciation on computer peripherals

5,42,487/-

3. So as it relates to the addition made on account of arms length price u/s 92CA(3), the assessee entered into the following international transactions with its AE:



Type of transaction

Value (in

Rs.)

Value (in Rs.)

Method Used

1.

Payment of referral fees



1,73,26,631

CUP*

2.

Provision of database services lease abstraction services



63,38,339

CUP*

3.

Consultancy Services



21,68,790





A. Professional services research study



1,344,060



CUP*



B. Professional services valuation of industrial property



521,488



CUP*



C. Professional services desktop valuation services

303,241



CUP*

4.

Brokerage services



6,45,662

CUP*

5.

Reimbursement of expenses to AEs



1,06,39,865

No benchmarking required

6.

Reimbursement of expenses by

AEs



3,96,424

No benchmarking required

4. The assessee submitted TP study, the copy of which is filed at pages 59-129 of the paper book to support the transactions entered into by it with its associate enterprises. Not satisfied with the aforementioned findings in aforementioned TP study, the Assessing Officer referred the issue to the Transfer Pricing Officer (TPO) who has submitted his order copy of which is placed at page 130-135 of the paper book. After listing out the aforementioned six international transactions of the assessee with its associate enterprises, the TPO has observed that regarding transactions at serial Nos. 1 to 4, namely; the transactions of ` 1,73,26,631/-; ` 63,38,339/-; 21,68,790/- and ` 6,45,662/-, "no adverse inference is drawn", meaning thereby ld. TPO has accepted that the aforementioned four transactions are at arms length. So as it relates to the transactions mentioned at Sl.No.5, he noted that this contains two amounts of reimbursements which have been described as follows in the order:

(a) Reimbursement of company share of salary for Common Manpower Resource, per cost sharing arrangement of Rs.92,25,838/- paid to Cushman- Hongkong.

(b) Reimbursement of company share of salary for Common Manpower Resource, per cost sharing arrangement of Rs.13,77,092 paid to Cushman Singapore.

5. The TPO required the assessee to submit the nature of services received by it from its associate enterprises with regard to which such reimbursement has been made. The reply of the assessee has been summarized by the ld. TPO with regard to both of the above mentioned transactions as under:

Service received from Cushman Singapore:

CWS provides support services to the assessee whereby it acts as a liaison between the assessee and its client, regional headquarters of IBM.

Since CWS would liaise with IBM on a regular basis, it assists the assessee in maintaining and improving its relationship with IBM.

CWS undertakes such coordination activity with IBM on behalf of Cushman group entities with Asian Region.

Services received from Cushman Hongkong:

Within the Cushman Wakefield group, the role of Cushman Hongkong entails coordinating the activities of the various Cushman & Wakefield companies in the Asian Region.

In line with the above, Cushman Hongkong acts as the link between Cushman & Wakefield In., USA and the assessee and other Cushman group entities within Asian Region. The role of Cushman Hongkong under the current transaction is to allocate the costs incurred by Cushman US while providing marketing support services, to Cushman group entities in Asian Region on a reasonable basis.

CWS undertakes such coordination activity with IBM on behalf of Cushman group entities within Asian Region.

6. Ld. TPO again asked the assessee whether the services for which the cost has been paid would constitute to be intra group servies as per the OECD guidelines. In response thereto, the assessees reply was as under:

(a) In the case of Cushman Singapore, it receives coordination and liaison services in respect of their client IBM which results in good client relations and continuous revenue generation from IBM. Given the benefit derived from such activities of CWS, it would have been willing to pay any independent enterprise in case independent service provider located in Singapore would have been hired. Accordingly, this would qualify to be an intra group service.

(b) In case of Cushman Hongkong, the assessee has stated that it merely acts as a collecting agency on behalf of Cushman US which provides marketing related services for Cushman Group within the Asian Region. In this case the service relates to marketing activities carried by Cushman US and corresponding revenue generated through such marketing efforts. As such these activities have been concluded to be intra group services.

7. According to ld. TPO, the expenses incurred with respect to intra group services can be allowed only in the circumstances in a case where the activity provides a respective group member with the economic or commercial value to enhance its commercial position and such fact can be determined by considering whether independent enterprise in comparable circumstances would have been willing to pay for the activity fee performed for it by an independent enterprises or would have performed the activity in house for itself. He observed that if the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra group service under the arms length price. The assessee was required to mention that what was the role and scope of the agreement entered into by the assessee with Cushman & Wakefield, Hongkong and Singapore and what activities are performed and should be routinely performed by the assessee itself. He observed that agreement entered by the assessee with these two associate enterprises does not reveal that these associate enterprises are specifically named service centers for the assessee. The scope of the agreement does not prohibit them for rendering services to third parties as well. In such circumstances, ld. TPO recorded a finding that the scope of services for which many agreements are entered into are incidental and ancillary services which in any way are performed by the assessee itself. Therefore, no independent enterprise would be willing to pay for the services which are a part of its routine business performed by it and would not engage such agency to receive such incidental services for a payment even at cost. It was further submitted by the assessee that these associate enterprises are not dedicate service centers for the assessee.

8. It was pointed out that the question of these AEs rendering such services to third parties does not arise. Ld. TPO did not find any force in such submission and has observed that it is not disputed that activities for which the payment is made by the assessee are not performed by the assessee itself. Then, ld. TPO referred to the OECD guidelines and has referred to paras 7.4, 7.5 and 7.6 and referring to these paras he observed that the key measures in identifying intra group services and in applying arms length test are whether :

(a) the service have been provided in order to meet specific need of the recipient;

(b) any benefit has accrued to the recipient;

(c) independent enterprise would have under taken the relevant activity internally i.e., in-house;

(d) in comparable circumstances any independent enterprise would have been willing to pay an independent third party to do so.

8.1 After referring to this he has arrived at the following conclusions:

(a) The AR for the assessee has filed copies of agreements between the assessee and CWS and between assessee and CWHK in support of the claim that CWS and WHK had rendered intra group services which required remuneration at arms length price.

(b) In this case, the AR for the assessee has made a general statement in its replies dated 10.08.2009 and 24.09.2009 that CWS had used one of its employee to render liaison service to IBM on behalf of the assessee. Accordingly, CWS had charged services fee of Rs.13,77,092 in the year under consideration. However, no documentary evidence in support of the claim was filed. It is evident from a news report dated 08.12.1993 as appeared in Real estate Weekly that business relationship between Cushman & Wakefield USA (in short CWU) and IBM was very old and the parent company has been looking after all the real estate work of IBM since early nineties. The assessee who has started its business in India much later may have received incidental benefit from this old business relationship between holding company of the assessee and IBM. However, it is evident from OECD TP guidelines in paragraph 7.13 that incidental benefits are not intra company services. In these circumstances liaison services are not held intra group services.

(c) In the above referred to replies the AR for the assessee has also made a claim that payments of Rs.92,25,838 was made to CWU through CWHK for intra group services of market support. However, except for making this general statement no other evidence was filed which may establish that market support services were actually performed either by CWU or by CWHK for the benefit of the assessee. It is pertinent to mention here that assessee has started its business operation in India in the year 1997 and now is largest privately held real estate service firm in India. It has offices in New Delhi, Mumbai, Chennai, Pune, Hyderabad and Kolkata and has employed more than 700 technically skilled people in India. I have further noted that assessee is conducting market research on its own with regard to real estates business in various cities and these market reports are published in each quarter of the year. It is proved from these facts that the assessee is carrying out its own market research specific to India whereas the AR for assessee did not furnish any evidence that CWU or WHK had any infrastructure to provide market support services to the assessee in India and that these AEs had actually rendered market support services to the assessee. In these circumstances, I am not inclined to agree with unsubstantiated claim of the assessee that its parent AE in USA has conducted marketing support services in India.

(d) It is evident from facts recorded in above paragraph (b) and (c) that the AR for the assessee did not file any evidence to support a claim that these services were actually provided to the assessee at its request to meet the specific need of the assessee and that benefit had actually accrued to the assessee.

(e) It is matter of record that the assessee has both infrastructure and a team of skilled manpower of 700 employees in India for market support, research and liaison services, whereas, the assessee did not furnish any evidence that CWS and CWHK had infrastructure and had actually rendered these alleged services to the assessee in the comparable circumstances, in my view an independent enterprise would not have either undertaken these activities internally or would not have been willing to pay an independent third party to do so, sine neither of these alternatives holds true, the OED guidelines as mentioned above, take the view that the activity should not be regarded as an intra-group service.

(f) I agree with a view that it is not impossible however, for a group member to benefit incidentally form services being provided to one or more fellow affiliates. For example in this case, the assessee might be benefited from services rendered by CWU and CWS to IBM. However, such incidental benefits are not regarded as giving rise to arrangement subject to arms length pricing as stipulated in OECD TP guidelines paragraph 7.13 under chapter VII. These findings lead to an irresistible conclusion that payments for liaison services and management support services allegedly provided by the AEs are not at arms length price.

(g) I have noted from details contained in the transfer pricing report of the assessee submitted under Rule 10D that the assessee had not conducted FAR analysis in regards to these alleged services and had failed to justify the functions performed by the AE for these payment. This is probably a reason that the receipt of alleged services have not been benchmarked under any of the five method prescribed under the Act in the Transfer Pricing report.

9. It is in this manner, ld. TPO has worked out the adjustment of ` 1,06,02,930/- which has been added to the income of the assessee. The Assessing Officer in the approved order has made the aforementioned addition against which the assessee had filed objections to the DRP.

10. The assessee has filed detailed submissions before the DRP and copy of these submissions have been filed along with the appeal at pages 20-69 in the shape of Annexure II. This issue has been discussed at pages 20-43 of the said submission. In sum and substance for describing the need of cost allocation between the assessee and its associate enterprises of Hong Kong and Singapore, it was submitted that according to the commercial needs to appoint a proper and dedicated person in the US to generate business for Cushman entities the services were availed from Hong Kong associate enterprises. Maintaining separate office for each of Cushman entities in Asian region would have meant significant overhead cost which inter alia include maintaining a separate office, separate infrastructure, etc., therefore, Cushman Asian entities jointly requested CWUS to hire a dedicated resource and provide necessary resources to identify person who will be able to generate business for Cushman entities in the Asian region and as the person should have experience of working in Asian Market. Therefore, these entities jointly appointed a person who was hired by CWUS for rendering the services.

11. For availing the services from its Singapore associate enterprises (CWS), it was described that IBM is the major client for Cushman group worldwide and especially for entities working in Asian region. Due to lack of regional headquarters, IBM in Singapore and the persons of Cushman in Singapore is liaisoning between the two will prove more efficient as opposed to the assessee carrying out from India and, thus, it was a very cost effective arrangement to improve client relationship and which is visible from the revenue generated on this account. Describing the scope of services under agreement with Hong Kong entity, reference was made to the agreement according to which Hong Kong entity was to coordinate the activities of various associate enterprises in the Asian Region and it also worked as a link between CWUS and the assessee and other associate enterprises in the Asian region and this is only bearing the cost incurred by CWS while providing marketing support services to Cushman entities. Reference was made to agreement entered into by the assessee with those two parties and describing the basis of cost allocation, it was submitted that CWHK out of total cost incurred for client solution group, has allocated 75% of the cost to Asian entities on the basis of revenue generated by the concerned employees for the respective entities in Asia and remaining 25% cost was allocated on the basis of net revenue for each of Cushman entity and reference was made to the details filed for this purpose. For the services availed from Singapore entity (CWS), it was submitted that cost is shared between the assessee and its group companies on the basis of time spent by employees by undertaking liaisoning and coordinating activities in relation to IBM account. Since the revenue of the assessee from IBM was approximately 83% of the total revenue generated from Asian region, 75% of the total cost was allocated to the assessee. Relating the services rendered to the revenue earned, it was submitted that with the help of CWHK the assessee is able to generate business worth $ 30,37,398/- as against cost of $ 2,03,932/-. Similarly, from the services rendered by Singapore enterprises the assessee has earned revenue of ` 47,69,488/- against payment made of ` 13,77,092/-. Meeting the objections raised by the TPO, it was submitted that according to OECD guidelines a service rendered by a member of a group company to a fellow member constitute an intra group service if provided meaning or exemption, value and the recipient of the services will pay for such services, if performed by independent enterprises and in the light of that principle if the transactions of the assessee with CWHK and CWS are examined, the cost incurred by the assessee will be allowable. It was also submitted that the TPO while computing the arms length price has not properly appreciated the various submissions made before him. It was also submitted that the TPO has wrongly highlighted the lack of documentary evidence furnished by the assessee in relation to cost allocated. It was submitted that according to the business needs of the assessee, these services were required to be obtained. The assessee has derived benefit out of those services. If the similar services were not availed from the associate enterprises, the services from independent enterprises would have been undertaken. In comparable circumstances any independent enterprises would have been willing to pay to an independent third party to do so. Thus, it was submitted that the adjustment has wrongly been made by the TPO which should be deleted.

12. Ld. DRP has observed that the ground was heard at length, the paper book filed by the assessee was perused. No further documentary evidence was furnished by the assessee in respect of cost allocations. The reliance by the assessee to various case laws is misplaced. The observations of the TPO that the services availed by the assessee are not intra group services and, hence, no remuneration should have been paid by the assessee to its AEs is correct and, therefore, no directions are being issued. Against such observations of Ld. DRP, the assessee is aggrieved, hence, has filed ground No.1.

13. After narrating the facts, it was submitted by the learned AR that the observations of TPO is wrong in observing that the services rendered by its associate enterprises were being performed in-house. He submitted that outsourced marketing services is quite common and even if the assessee has deployed its employees to do the work done by its associate enterprises then the said exercise would have resulted in similar cost with tax out flow in foreign jurisdiction. There is no duplicate activities as contended by the TPO. He submitted that intra group services as per OECD para 7.13 are defined as that it was received on specific request of the assessee, approved by the top management whose remuneration is linked to the net profitability of the company and para 7.13 states that active association should be distinct with passive association.

14. Reference was made to the decision of ITAT, Mumbai in the case of Dresser-Rand India (P) Ltd. vs. Addl. CIT 47 SOT 423 (Mum) to contend that how an assessee conduct its business is undoubtedly is the prerogative of the businessmen and it is not for the revenue authority to decide that what is necessary for an assessee and what is not. An assessee may have number of qualified accountants and management experts on its rolls and yet he may decide to engage services of outside experts for auditing and management consultancy and it will not be within the domain of the revenue to question the assessees wisdom in doing so. Therefore, it was held that TPO was not only going much beyond his powers in questioning commercial wisdom of the assessees decision to take benefit of expertise of Dresser Rand, US but also travel beyond the powers of the Assessing Officer and such approach of the revenue authorities cannot be approved. While evaluating the arms length price of the services, it is wholly irrelevant as to whether the assessee benefits from it or not and the real question which is to be determined is whether the price of the service is what an independent enterprises would have paid for the same.

15. He submitted that to support the services rendered, the assessee has filed ample evidence and basis of allocation of cost, etc., which has been ignored. He submitted that if the similar services have been obtained by the assessee from outside parties, the same would have been costed more to the assessee. In the similar manner, if the services are availed by the assessee from its own employees, then also it would have been costlier than the cost reimbursed by the assessee to these associate enterprises. The learned AR also referred to the evidence which has been discussed in detail in the aforementioned part of this order and contended that the payments made by the assessee are only reimbursement of cost incurred by those associate enterprises in relation to the revenue generated by the assessee and there being no element of profit in the said cost, the same is eligible for deduction as expenditure incurred by the assessee wholly and exclusively earned for business. Therefore, he pleaded that the disallowance has wrongly been sustained by ld. DRP.

16. On the other hand, it was submitted by the learned DR that there are two issues in the analysis of the transfer pricing of intra group services. One issue is whether intra group services have in fact been provided. The other issue is what is charged by the intra group for such services for tax purposes should be in accordance with the arms length price. Relying upon the order of TPO, it was submitted by the learned DR that the payment made by the assessee to Mr. Royden and Mr. Arshpreet Choudhary is not justified as they were working for the group companies and were neither employed by the assessee company nor they worked for it. He submitted that there is no evidence of intra group services for these persons and in the absence of any such evidence, even at the stage of the Tribunal, the claim of the assessee cannot be accepted. For this purpose, he has relied upon the findings recorded by the TPO as well as the DRP.

17. We have carefully considered the rival submissions in the light of the material placed before us. First we take up the claim of the assessee regarding the payment made to CWS. The said payment is claimed by the assessee on the ground that CWS had used one of its employees to render liaison services to IBM on behalf of the assessee. It is the case of the TPO that the assessee did not submit documentary evidence in support of the claim. Ld. TPO also referred to the news report dated 8th December, 1993 as appeared in "Real Estate Weekly" that business relationship between Cushman & Wakefield USA (CWUS) and IBM are very old and parent company has been looking after as the real estate work of IBM since early 1990s. Therefore, ld. TPO has observed that looking into this fact, the assessee who has started the business in India had later may have received incidental benefit from such old business relationship between the holding company of the assessee and IBM. Another reason for rejection of the claim of the assessee by the TPO is para 7.13 of OECD commentary according to which the incidental benefits are not intra company services and, thus, he has held that liaison services are not intra group services. Copy of agreement between the assessee and CWS has been filed at pages 185-186 of the paper book. According to the agreement, the assessee is engaged in the business of rendering services in connection with the acquisition, sales and lease of real estate property and other services such as advisory and research, facility management, project management, etc. in the real estate sector. According to the recital clause, CWS, at the cost of assessee, had agreed to undertake liaisoning and support activities in relation to one of the assessees clients, viz., IBM regional headquarters. CWS shall assist the assessee in maintaining relationship with IBM Regional Headquarters located at Singapore whereby the CWS would liaise with IBM Regional Headquarters on routine basis. The agreement had to commence on 1st January, 2006 and consideration has been provided in clause 2.1 which describe as under:

2.1 In consideration of services provided or to be provided by C&W Singapore to C&W India hereunder, C&W India shall pay to C&W Singapore such costs (including salary and other attributable costs for concerned employees) as may be allocated by C&W Singapore to C&W India on a reasonable basis taking into account the activities actually performed by C&W Singapore and the benefits derived by C&W India therefrom.

Any fee from time to time agreed to be paid pursuant to this paragraph shall be paid by C&W India in such installments and at such time or times as the parties may agree.

18. In pursuance of aforementioned agreement, vide tax invoice (copy of which is placed at page 191 of the paper book), CWS has raised an amount of 74,330 Singapore Dollars being "reimbursement of 75% of Mr. Roydens cost incurred from January to June, 2006 in Singapore office. The aforesaid amount has been calculated in a separate sheet, the copy of which is filed at page 192 of the paper book. A detailed cost has been worked out at 99,107 Singapore Dollars, 75% thereof come to 74,330 Singapore Dollars. To support that Mr. Royden Braganza has actually rendered the services, the assessee has also enclosed copies of e-mails sent by Mr. Royden Braganza relating to the period under consideration. The copies of several e-mails are placed at pages 318 onwards in which reference has been made to the services obtained by IBM. Therefore, it cannot be said that there is complete absence of evidence submitted by the assessee in respect of services obtained by it from the said Mr. Royden Braganza in respect of the revenue earned by the assessee. Therefore, the observations of the TPO that there is no documentary evidence furnished by the assessee is contrary to record. Ld. TPO has mainly denied the benefit to the assessee on the ground that there was no need by the assessee to make such payment as the assessee when started its business in India may have received incidental benefit from old business relationship between the holding company of the assessee and IBM. In our opinion, such observations of ld. TPO are not correct. The assessee has been shown to have earned substantial revenues from IBM and that cannot be the result of only incidental benefit received by the assessee from old business relationship between the holding company of the assessee and IBM. If one wants to obtain revenue upon dealing in real estate, certain work has to be done. All the primary facts were submitted to the Assessing Officer as well as the TPO. The names of the parties were mentioned. Without examining any of such details, it cannot be said that the revenue earned by the assessee was only on account of incidental benefit. There is a force in the claim of the assessee that to enable it to earn the revenue from IBM, it was necessary to provide the services to IBM outside India. If such services are provided by the employees of the assessee company, then, it has to incur the cost of its employee who has to travel to the destination and that would result in extra expenditure. Similarly, if those services are outsourced to the independent party, then also there would be some element of profit to be charged by the said independent party. As against both these situations, what cost has been incurred by the assessee is only reimbursement of the expenses of an employee who is sitting in Singapore which is cost effective.

19. Now, considering the payment made by the assessee for the similar services obtained by it from Cushman Hong Kong (CWHK), copy of agreement has been filed at pages 182-184 of the paper book. The business of the assessee has been stated to be similar as mentioned in the agreement of the assessee with CWS. CWHK is stated to be coordinating entity for CW entities in Asia region and is stated to be responsible for coordinating the activities of client solution group of Cushman & Wakefield Inc. (CWS located in the US for Asian region). The role of "client solution group in the agreement" has been described as sunder:

The group will be responsible for undertaking following activities on behalf of C&W India:

(a) to liaise and coordinate with offices of clients of C&W India:

(b) to develop from time to time a marketing plan in respect of potential clients, with likely revenue potential for C&W India

(c) to identify potential opportunities to provide additional services to existing clients and obtain instructions thereof; and

(d) to assist C&W India in setting out business brochures, financial planning and strategy in respect of Corporate Services generally for the India region.

20. According to Clause (2), the agreement was to commence on 1st January, 2005 until terminated by not less than six months prior written notice by either party.

20.1 The payment is described in Clause (3) which state as under:

3. Payment

3.1 In consideration of activities of Client Solutions Group, C&W would recharge the actual costs to C&W HK (including salary and other attributable costs for concerned employees). As part of its share of total costs, C&W India shall pay to C&W HK such costs as may be allocated by C&W HK to C&W India on a reasonable basis taking into account the services actually performed by Client Solution group and the benefits derived by C&W India therefrom.

Any fee from time to time agreed to be paid pursuant to this paragraph shall be paid by C&W India in such installments and at such time or times as the parties may agree. Further, for the above purpose, &W HK shall at only as an intermediate agent and shall not be allowed any profit/mark up over the costs charged by C&W US.

21. Based on the aforementioned agreement CWHK has raised an invoice of $ 2,03,931 copy of which is placed at page 187 of the paper book. The details as per which the aforementioned amount is charged is found at pages 189-190 of the paper book. The chart which is reproduced at page 189 is the basis of allocation of the cost to various entities and it will be relevant to reproduce the same.

NY Revenue Estimate

C&W A sia Revenue Estimate

Allocation

C ountry

Net fee to local Office (US $)

% Allocation

Asia Revenue US $

% Allocation

75% NY Revenue Allocation

25% Gross Revenue Allocation

25% Gross Revenue Allocation

BP % Allocation

BP Total Allocation US $

India

3,037,398

82.44%

11,220,932

42.7%

173,900

30,031

203,931

72.5%

150,360

China

369,000

10.01%

5,859,619

22.3%

21,126

15,682

36,809

13.1%

146,243

Hong Kong

120,065

3.26%

4,292,851

16.3%

6,874

11,489

18,363

6.5%

124,770

Korea

24,252

0.66%

3,244,992

12.4%

1,389

8,685

10,073

3.6%

47,784

Singapore

133,782

3,63%

1,655,239

6.3%

7,659

4,430

12,089

4.3%

47,926

C& W Asia

3,684,497

100.0%

26,273,633

100.0%

210,949

70,316

281,265

100.0%

517,083

Net Cost of NY CS Group 281,265

22. Month-wise allocation of cost is also detailed in the chart placed at page 190 of the paper book according to which the total cost allocated to the Asian entities is at $ 2,81,265.

23. It can be seen from the above chart that the main revenue earned is by the assessee only which is 82.44% of the total revenue and re-imbursement of cost is only to the extent of $ 2,81,265/- out of which cost allocated to the assessee is $ 2,03,931. The revenue relatable to such cost allocation is $ 3,037,398. Evidence in the shape of various e-mails sent by Mr. Arshpreet Choudhary to the assessee company with regard to various clients from whom the assessee has earned income are placed at pages 193 onwards. These e-mails were produced by the assessee before the Assessing Officer, TPO and DRP. Thus, it cannot be said that there is absence of evidence submitted by the assessee and it will be incorrect to say that the assessee did not furnish evidence to support its contention that it has reimbursed the cost in respect of revenues earned by it on account of services rendered by CWHK. All the details have been furnished on record. The reasons given for upholding the adjustment to arms length price are same as have been given in respect of CWS. Those reasons are already discussed for the adjudication of reimbursement to CWS and adopting same criteria, we find no justification in the adjustment of ` 92,25,838/- to the TP adjustment in respect of payments made by the assessee to CWHK.

24. In view of the above discussion, we delete the TP adjustment of ` 1,06,39,865/- and ground No.1 of the assessee is allowed.

25. Coming to ground No.2, this issue has been discussed by the Assessing Officer in para 4 of the assessment order. It will be pertinent to mention here that the referral fee of ` 1,73,52,922/- was also subject matter of reference made by the Assessing Officer to TPO as it was the transaction of the assessee with its associate enterprises, the arms length price of which was required to be determined by the Assessing Officer from TPO. The TPO in its order has also mentioned this transaction at Sl.No.1 at page 1 of his order. Overall six transactions of the assessee with its associate enterprises were international transactions the details of which has already been given in para 3 of this order. It has been clearly written by the TPO while analyzing the transfer pricing approach of the assessee that with regard to transaction No.1-4 no adverse inference is drawn. Therefore, the TPO has considered this transaction of the assessee with its associate enterprise at arms length and he has suggested no addition whatsoever with regard to the impugned transaction. However, the Assessing Officer has made this transaction subject matter of discussion in the assessment order. The Assessing Officer found that the assessee has debited a consolidated sum of ` 3,14,22,375/- in its profit & loss account which is claimed as "referral fee." The assessee was required to submit the details thereof. The detail of Rs.3,14,22,375/- is as under:

S. No.

Particulars

Related revenues generated

Referral fee paid

1.

Foreign associated enterprises (AEs)

6,27,45,515

1,73,52,922

2.

Foreign independent entities

4,68,98,175

1,45,27,408

3.

Domestic independent entities

23,55,263

4,57,955



TOTAL

11,19,98,953

3,18,80,330

26. The Assessing Officer did not make any addition with regard to foreign independent entities and domestic independent entities. He required the assessee to explain the payment of ` 1,73,52,922/-. The submission of the assessee was that the said amount represent the payment made by it to CW group entities in the shape of referral fee with respect to the business generated by the assessee through those CW group entities. It was submitted that the referral fee paid by the assessee to its entities was averaged at 19% of the revenue generated from such customers. It was submitted that it is a common practice to pay referral fee to the persons referring the business.

27. Reference was also made to the various referral agreements entered into by the assessee with its associate entities and it was found by the Assessing Officer that as per Article 3 of the said agreement the assessee did not specify the percentage of referral fee. Clause (3) of the agreement is reproduced below for the sake of convenience:

CWI will be liable to pay to C&W Shanghai a % of the invoice raised referred to CWI on the Referred Customers (hereinafter called Referral Commission) in accordance with the standard referral fees schedule as appended to this agreement. CWI will inform C&W Shanghai, of all invoices raised upon Referred Customers.

28. Finding that exact percentage of referral fee to be received by CWS was not described in the agreement, the Assessing Officer observed that such claim of the assessee is a device to give the colour to the transaction, so that the same may not be treated as royalty or fee for professional or technical services, to avoid the deduction of tax. The evidence filed in the shape of e-mails, etc. was rejected on the ground that they are cryptic mails in which either the name of the client has not been mentioned or the requirements of the clients are not mentioned. The Assessing Officer also observed that there is no evidence regarding the services provided by the group entities. The Assessing Officer also referred to the observations of the DRP according to which the assessee was unable to demonstrate the genuineness of the transaction, the services rendered by the group entities to make the referral fee at a higher rate and the business purposes were not substantiated and, in this manner, the Assessing Officer has disallowed the referral fee of ` 1,73,52,922/-.

29. After narrating the facts, it was submitted by the learned AR that the AEs to whom the referral fee has been paid are primarily responsible for investigating and facilitating the development of business opportunities for the assessee company in the real estate sector in India. They identified new business opportunity for the assessee and referred clients to the assessee. The clients referred might be an exclusive client i.e., the client could have come exclusively to the assessee based on referral provided by the associate enterprises or the client could also just be referred in which case the ultimate responsibility to pay and get the client liaise with the assessee. He submitted that associate enterprises are only responsible for identifying new business opportunities and they are not authorized to encash orders on behalf of the assessee or enter into any contractual agreement on behalf of the assessee. The contractual agreements are directly entered into by the assessee. He submitted that copy of referral fee agreements are placed at pages 356 to 375 of the paper book. He submitted that the payment of fee is according to the standard referral fee schedule the copy of which is placed at pages 703 to 705 of the paper book. These are the international fee sharing rules and referral fee on the Tenants Representation Transactions w.e.f. 1st February, 2003 is to be paid as follows:

Tenant Representation Transactions

The referring party will receive the following percentage of the net commission paid to the executing party.

For business referred with competition:

For the portion between $ 0 - $ 20,000

0%

For the portion between $ 20,001 - $150,000

20%

For the portion between $ 150,001 - $500,000

30%

For the portion above $ 500,001

40%

For business referred without competition:

For the portion between $0 - $20,000

0%

For the portion between $20,001 - $150,00

30%

For the portion between $150,000-$500,000

40%

For the portion above $500,001

50%

The protection period for the above-referred client will be two years for all transactions and assignments.

30. He submitted that complete details were filed before the Assessing Officer as well as before the TPO and DRP. The name of the property and the name of the associate enterprises was also given. The evidence relevant to payment of such referral fee was also filed. He submitted that this kind of payments of referral fee is common practice in the real estate business. He submitted that the Assessing Officer has accepted similar referral fee paid by the assessee to independent parties for generation of outside India revenue which is paid to the extent of ` 1.45 crore against the revenue of 4.68 crores which is 31% of the revenue generated and 45% of the total referral fee. He submitted that even if the transaction of the assessee with its associate enterprise is seen in the light of the transaction compared with the independent parties, the payments made by the assessee company to its AEs are as much less as 19% and for this reason only TPO has observed that this transaction of the assessee is at arms length. He submitted that once the transaction has been held by TPO at arms length, then the Assessing Officer does not have any jurisdiction to revisit that transaction again under the normal provisions of the Act as the same will tantamount to do an act indirectly which cannot be done directly. He in this regard referred to the provisions regulating international transactions, according to which order of TPO is binding on Assessing Officer.

31. He submitted that the payment of referral fee is a commercial decision, the expediency of which cannot be challenged by the revenue. He submitted that sample mail evidence were produced before the Assessing Officer. Those associate enterprises had coordinated between the client and the assessee and reference in this regard can be made to the evidences placed at pages 419 to 424 and 510 to 523. Therefore, it was pleaded by the learned AR that the disallowance has wrongly been made by the Assessing Officer and it should be deleted.

32. On the other hand, it was submitted by the learned DR that during the course of hearing the assessee was asked to match each transaction in the list for work done for the group entities specifically in relation to the property transaction done, but, the same was not provided by the assessee. The assessee also could not produce any evidence to demonstrate the genuineness of the transaction, the services rendered by the group entities and the assessee having failed to do so, is not entitled to get this claim. He submitted that by making payment to its associate enterprises the assessee is claiming deduction of expenses in the Profit & Loss Account to the extent of 30% of the gross fee. The correspondence by e-mail submitted by the assessee will show that a particular transaction takes many months to complete and earn fee. The assessee was also required to devote considerable resources for the same. If the amounts paid as fee was to be paid as dividend, then, the assessee would be required to pay dividend distribution tax as per provisions of Section 115-O. In the agreement the assessee did not specify the exact percentage of fee and no prudent business person will leave the issue of payment of fee open and, therefore, the transaction is prima facie for avoidance of income-tax. It was submitted by the learned DR that the assessee is relying upon cryptic e-mails between Mr. Royden and Ashpreet Choudhary with the employees of the assessee company. He submitted that without prejudice to his submissions on ground No.1, the assessee is also paying 75% of the total salary and traveling expenses for Mr. Royden and Ashpreet Choudhary for the services rendered by them, therefore, the payment of referral fee again would amount to double deduction of the same. The assessee company is having its own website at which all the information is available to the prospective customer. Any customer can go to the website of the assessee company and know about the available properties. There was no need for the customer sitting in USA to go to Singapore and Hong Kong to buy property in India when all the information was available on the website of the assessee. The acceptance of transaction by the TPO being at arms length will not help the assessee as the Assessing Officer and DRP has held that referral services were not received by the assessee from its associate enterprises and the assessee has failed to produce any documentary evidence. He invited our attention to page 3270 of Sampath Iyengars Law of Income-tax 10th Edition Volume II in which it has been mentioned that in order to be admissible as deduction, the expenses should be incurred wholly and exclusively for the purpose of business. It is mentioned that second adverb exclusively has reference to the motive and object behind the expenditure. If the same is not exclusive or sole for promotion of business the expenditure, then, it will not qualify for deduction. Mere existence of agreement does not establish the existence of commercial expediency and the learned DR has referred to the following decisions:

i) Ocean City Trading (India) Pvt. Ltd. vs. CIT (2010) 328 ITR 0290 (Bom) wherein the training expenses of the employees abroad were considered to be not incurred wholly and exclusively for the purpose of business.

ii) Siddho Mal and Sons vs. ITO : (1980) 122 ITR 839 (Del) wherein explaining the meaning of the word wholly it was held that an expenditure is to be allowed if it satisfy the test of commercial expediency which has to be judged from the point of view of assessee who knows best how his business has to be run, but such a point of view has to be prudent and reasonable point of view which is free from an apparent taint of excessiveness, collusiveness and colourable discretion. If the motive behind the expenditure is to unduly benefit some one, the Assessing Officer will be within his right to come to a finding that the expenditure is not exclusively for the purpose of business. The courts and authorities are not to wear blinkers to overlook or condone the passing off of the public revenue of ones own kith and kin by subterfuge or clandestine or clever devices clothed in legalistic jargon.

iii) Yum! Restaurants (India) P. Ltd. vs. CIT : (2010) 327 ITR 150 (Del) wherein the disallowance of ` 2,76,882/- on account of accrued marketing expenditure to the franchisees of the assessee was not held justified.

Ld. DR distinguished the case law relied upon by the learned AR and, in this manner, it was submitted by the learned DR that the assessee having not produced any documentary evidence regarding rendering of service by its associate enterprises is not entitled for claim of referral fees. The payment was made to evade payment of taxes. The transaction is sham and was arranged for diversion of income to associate enterprises for avoidance of payment of tax. Thus, he pleaded that the disallowance made by the Assessing Officer should be sustained.

33. We have carefully considered the rival submissions in the light of the material placed before us. The impugned transaction is one of the international transactions entered into by the assessee with its associate enterprises. This transaction was referred by the Assessing Officer to the TPO under the provisions of Section 92CA. Section 92CA is brought on to the statute by the Finance Act, 2002. The scope of this Section has been explained by the CBDT in Explanatory Notes in Circular No. 8 of 2002 in para 50.6 which read as under:

50.6 A new section 92CA has been introduced by the Finance Act, 2002. It provides that where an assessee has entered into an international transaction in any previous year, the Assessing Officer may, with the previous approval of the Commissioner, refer the computation of the arms length price in relation to the said international transaction to a Transfer Pricing Officer. The Transfer Pricing Officer, after giving the assessee an opportunity of being heard and after making enquiries, shall determine the arms length price in relation to the international transaction in accordance with sub-section (3) of Section 92C. The Assessing Officer shall compute the total income of the assessee under sub-section (4) of section 92C having regard to the arms length price determined by the Transfer Pricing Officer.

34. Later on by the Finance Act, 2007 sub-section (4) of Section 92CA was amended. It will be appropriate to reproduce the preamended and post amended provisions:

Pre-amended Provision

(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arms length price determined under sub-section (3) by the Transfer Pricing Officer.

Post amended provision

(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arms length price as so determined by the Transfer Pricing Officer.

35. The position as explained by CBDT for pre-amended sub-section (4) of 92CA has already been reproduced and the post-amended situation has been explained in Circular No. 3/2008 dated 12th March, 2008 in para 43.4 and its applicability has been discussed in para 43.5. The same is reproduced below:

43.4 Sub-section (4) of section 92CA has been amended so as to provide that, on receipt of the order under sub-section (3) of Section 92CA, the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arms length price determined under sub-section (3) of section 92CA by the Transfer Pricing Officer. Thus, with the amendment in the provisions, the arms length price determined by the Transfer Pricing Officer (TPO) would be binding on the Assessing Officer.

43.5 Applicability - These amendments shall apply in cases where reference to Transfer Pricing Officer was made on or after June 1, 2007 and shall also be applicable in cases where a reference to the Transfer Pricing Officer was made prior to 1.6.2007 but the Transfer Pricing Officer did not pass order under sub-section (3) of section 92CA before the said date.

36. In view of the above explanation rendered by CBDT, the amended provisions of Section 92A(4) will be applicable. The date of reference to TPO in the present case is 10th September, 2008 and the order of TPO is dated 29th October, 2009.

37. Transfer pricing provisions in its new form were first introduced in the Income-tax Act by the Finance Act, 2001. Earlier to that Section 92 was regulating the cross border transactions. Explaining the scope of newly substituted section 92 brought on the statute by the Finance At, 2001, CBDT in its Circular No. 14/2001 in para 55.4 to 55.5 has described the scope of newly substituted Section 92 as under:

55.4 The newly substituted section 92 provides that income arising from an international transaction between associated enterprises shall be computed having regard to the arms length price. Any expense or outgoing in an international transaction is also to be computed having regard to the arms length price. Thus in the case of a manufacturer, for example, the provisions will apply to exports made to the associated enterprise as also to imports from the same or any other associated enterprise. The provision is also applicable in a case where the international transaction comprises only an outgoing from the Indian assessee.

55.5 The new section further provides that the cost or expense allocated or apportioned between two or more associated enterprises under a mutual agreement or arrangement shall be at arms length price. Examples of such transactions could be where one associated enterprise carries out centralized functions which also benefit one or more other associated enterprises, or two or more associated enterprises agree to carry out a joint activity, such as research and development, for their mutual benefit.

55.5A The new provision is intended to ensure that profits taxable in India are not understated (or losses are not overstated) by declaring lower receipts or higher outgoings than those which would have been declared by persons entering into similar transactions with unrelated parties in the same or similar circumstances. The basic intention underlying the new transfer pricing regulations is to prevent shifting out of profits by manipulating prices charged or paid in international transactions, thereby eroding the countrys tax base. The new section 92 is, therefore, not intended to be applied in cases where the adoption of the arms length price determined under the regulations would result in a decrease in the overall tax incidence in India in respect of the parties involved in the international transaction.

38. It is clear from the above explanation that the provisions of transfer pricing are applicable as well to expenses and outgoing in an international transaction. The impugned amount represent the outgo of the assessee or the expense of the assessee for earning income with reference to the real property transactions in the shape of lease, etc. It cannot be disputed by the revenue that the impugned transaction is international transaction falling within the scope of transfer pricing regulations as the Assessing Officer himself has referred this transaction to the TPO on the ground that it is an international transaction entered into by the assessee with its associate enterprises, the arms length price of which was to be determined by the TPO. If it is so, then, the post amended provisions of Section 92CA(4) will be applicable and arms length price determined by the TPO is binding upon the Assessing Officer. It has already been mentioned that all the six transactions entered into by the assessee are referred in the TPOs order and the impugned transaction has been mentioned at Sl.No.1 and it has been recorded by the TPO in its order that "regarding transactions 1-4 above no adverse inference is drawn." Therefore, Ld. TPO has accepted the impugned transaction of the assessee at arms length. According to the provisions of Section 92CA(4), as applicable to the present case, the arms length price determined by the TPO is binding on Assessing Officer. Once the arms length price is determined by TPO, the Assessing Officer cannot have the jurisdiction to re-determine the profit or loss arising out of that transaction under the normal provisions of the Act. By bringing this transaction again under the normal provisions of the Act, the Assessing Officer has sought to do an act indirectly which he cannot do directly. Such action of the Assessing Officer is against the well settled proposition of law according to which what cannot be done "per directum" is not permissible to be done "per obliquum" meaning thereby whatever is prohibited by law to be done, cannot legally be effected by an indirect or circuitous contrivance on the principle of "quando aliquid prohibetur, prohibetur at omne per quod devenitur ad illud". Applying the above principle, we hold that after determination of arms length price by the TPO, Assessing Officer did not have jurisdiction to reexamine the said transaction and by re-examination of the transaction the Assessing Officer has sought to do an act indirectly, which he cannot do directly. Such proposition of law is supported by following judicial pronouncement:

In Jagir Singh v. Ranbir Singh : AIR 1979 SC 381 , the Apex Court has observed that an authority cannot be permitted to evade a law by "shift or contrivance". While deciding the said case, the Supreme Court placed reliance on the judgment in Fox v. Bishop of Chester [1824] 2 B & C 635, wherein it has been observed as under (page 384):

To carry out effectually the object of a statute, it must be construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited or enjoined.

Law prohibits to do something indirectly which is prohibited to be done directly. Similar view has been reiterated by the Apex Court in M.C. Mehta v. Kamal Nath AIR 2000 SC 1997 , wherein it has been held that even the Supreme Court cannot achieve something indirectly which cannot be achieved directly by resorting to the provisions of article 142 of the Constitution, which empowers the court to pass any order in a case in order to do complete justice." (pp. 477 and 478 of the report)

39. Right from the beginning it has been the case of the assessee that the Assessing Officer did not have jurisdiction to re-examine the allowability of referral fee as Ld. TPO has already held that this being international transaction of the assessee is at arms length. In view of aforementioned discussion, we found that such contention of the assessee has a force and it is to be held that once an international transaction has been made subject of determination of arms length price by the TPO & TPO found that transaction at arms length then it will not be permissible for the Assessing Officer to re-examine that transaction and make disallowance of the same under normal provisions of the Act.

40. Even on merits, the disallowance of referral fee is made only on the ground that the assessee was not required to incur it and there was no evidence placed on record to prove the same. The assessee had submitted ample evidence to support the expenditure and it was shown that such expenditure is incurred with respect to revenue earned by the assessee on property transaction referred to the assessee by its associate enterprises. It was submitted that the expenditure incurred by the assessee in respect of transaction referred by AEs was much less than the similar expenditure incurred vis-a-vis the independent parties. Such contention was also placed before TPO. No adverse material whatsoever has been brought on record to show that either the evidence submitted by the assessee in this respect was incorrect or the contention of the assessee that expenditure relating to transaction entered into with AEs were less costly was incorrect. Therefore, even on merits there is no justification in upholding the disallowance. Looking from any angle, the sustenance of addition of ` 1,73,52,922/- is not justified and the same is deleted. This ground of the assessee is allowed.

41. Apropos ground No.3, the Assessing Officer noticed that in the audit report filed along with the return, it was pointed out that service tax of ` 31,81,878/- was not paid before the due date of furnishing the income-tax return and the same has also not been passed through Profit & Loss Account. The assessee was required to explain as to why the said amount should not be disallowed. It was submitted that assessee merely collected the service tax from its clients and deposited the same as and when it received from the customers. As the said amount was not collected, the same remained outstanding. It was submitted that service tax is deposited on the value of amount realized only. Therefore, no disallowance is called for u/s 43B. However, ld. Assessing Officer has disallowed the amount after rejecting the submissions of the assessee.

42. After narrating the facts, it was submitted by the learned AR that liability to pay service tax does not arise till the service tax is collected. He referred to Rule 6 of Service Tax Rules and also the decision of Chennai ITAT in the case of ACIT vs. Real Image Media Technology Ltd. He submitted that objections in detail were filed before DRP in which all these contentions were raised. A specific reference was made to the decision of Chennai ITAT in which similar proposition has been laid down and it has been held that as the service tax was not payable by the assessee, the rigors of Section 43 B could not be applied to the case of the assessee. He in this regard referred to the submissions made before DRP which are placed as Annexure-4 at pages 56-60 of the appeal documents. He, therefore, submitted that the claim of the assessee should be accepted.

43. On the other hand, relying upon the order passed by the Assessing Officer, it was submitted by the learned DR that this claim of the assessee has rightly been rejected by the DRP and the order of the Assessing Officer in this regard should be upheld.

44. We have carefully considered the rival submissions in the light of the material placed before us. It is the case of the assessee that service tax did not become payable and it was not routed through profit & loss account. According to the relevant provisions of Service Tax Act, the assessee was liable to pay the service tax only from the quarter in which the payments are received. It is the case of the assessee that serviced tax has not become due during the year under consideration as the relevant payments were not received by the assessee during the year under consideration. According to the regulations of Service Tax Act, the service tax will become due by 5th of month immediately following the quarter in which the payments are received and, therefore, the rigors of provisions of Section 43B are not applicable to service tax. In such support the assessee has relied upon the aforementioned decision of Chennai ITAT in the case of ACIT vs. Real Image Media Technology Ltd. (supra) The detailed objections were raised before the DRP in which all these facts have been stated as well as the reference is also made to the decision of Chennai ITAT in the case of ACIT vs. Real Image Media Technology Ltd. The facts in that case and the present case appears to be similar. However, the learned DRP has disposed of this objection of the assessee in the following manner:

The third ground of objection is based on the facts and circumstances of the case, the learned A.O. has erred in law and on facts in contending that unrealized service tax has to be disallowed as per provisions of section 43B of the Act Regarding this ground of objection the assessee has asked Rs.31,81,878/- to be allowed as he has not collected this service tax. Section 43B is clear on this disallowance. No directions are being issued.

45. It may be seen from the above observations of the DRP that no reasons have been assigned for not admitting the claim of the assessee and no reference has been made to the decision of Chennai ITAT and it has not been stated that why the said decision is not applicable to the facts of the assessees case. Therefore, we consider it just and proper to restore this issue to the file of DRP with a direction to re-consider this issue after giving the assessee a reasonable opportunity of hearing and thereafter re-adjudicating this issue by way of a reasoned and speaking order. We direct accordingly.

46. For statistical purposes this ground is treated to be allowed.

47. Apropos ground No.4, during the year under consideration the assessee had made addition to the computer and computer software of ` 70,68,641/-. The details were filed and from perusal of the details, it was observed by the Assessing Officer that the assessee had claimed 60% depreciation on the computer accessories and peripherals like CD writer, scanners, modems, servers, etc. According to the Assessing Officer, depreciation of 60% is applicable only on computers and computer software and the same cannot be extended to computer accessories and peripherals. He, therefore, restricted the depreciation to 15% and has made the disallowance of ` 5,42,487/-.

48. The learned AR of the assessee mainly relied upon the decision of ITAT in the case of ACIT vs. M/s Container Corporation of India Ltd., 30 SOT 284 in which ITAT had observed as under:

The accessories and peripherals of computer provide input processing, storage and various output devices. The output devices such as printer, scanner, etc. are computer peripherals and form essential parts of PC. These output devices cannot work in isolation and also working on computer system without an output device such as printer would be futile. In view of the above, the claim of depreciation at 60% on printer, scanner and other computer peripherals is completely justified. The claim of depreciation of 60% further gets justified in view of the fact that even computer software which is installed on computer system supports the computer hardware and is eligible for depreciation at 60%.

We accordingly uphold the order of the CIT (A) in allowing depreciation @ 60% on computer peripherals and accessories by treating them as computers.

49. The learned DR, on the other hand, relied upon the Assessing Officers order.

50. We have carefully considered the rival submissions in the light of the material placed before us. It has been held by Honble Delhi High Court in the case of CIT vs. BSES Yamuna Power Ltd., 2010 TIOL 636 H.C DEL IT vide decision dated 31st August, 2010 that computer peripherals are eligible for depreciation @ 60%. The relevant observations are reproduced below:

4. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server, etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%.

51. Therefore, the Assessing Officer is directed to allow depreciation to the assessee on computer peripherals @ 60%. This ground of the assessee is allowed.

52. Apropos ground No.5, the same is raised against initiation of penalty proceedings. The said ground is premature and is not required to be adjudicated upon at this stage, therefore, dismissed.

53. In the result, the appeal is partly allowed in the manner aforesaid.

54. The order pronounced in the open court on 18.11.2011.