It is clear that the assessee-company admits that -(i) marketing services provided by the Deloitte to the assessee-company is a separate class of international transactions between the assessee and Deloitte; (ii) It is also clear that the assessee companys entire revenue are only from Deloitte and that too for job work. It is not a case where the contracts from clients are passed on to the assessee on a back-to-back basis. Only a portion of the work obtained by Deloitte from the client, where the assessee has the required skill and capabilities, i.e., that certain job work is given by Deloitte to the assessee; (iii) billing is done on an hourly basis; (iv) there is no work or job that the assessee company has obtained from any third party for all these assessment years directly or indirectly, i.e., the assessee does not render any software services to any third party either in India or outside India.

The first proposition is that, the assessee has a legal obligation to make the payment and that legal obligation arises from the joint venture agreements, which is a pre-incorporation agreement which is binding. This argument is to be rejected as "ALP" has to be determined irrespective of any contractual obligation undertaken by the parties. If it is held that the TP provisions do not apply whenever there is a legal obligation to pay, then the entire objective of the provisions will be defeated. The issue which the TPO requires to adjudicate is not whether the assessee has a legal obligation to pay and whether the payment made is for the purpose of business, etc., but only to determine the ALP of the transaction, i.e., to examine as to whether the transactions are at arms length. If the transactions are, in the opinion of the TPO, not at arms length, the required adjustment has to be made, as provided in the Act, irrespective of the fact that the expenditure is allowable under other provisions of the Act.

The second argument of the Counsel that the TPO is not empowered to disallow the expenditure and that the very reference to the TPO by the AO presumes that the amount in question is allowable under section 37 and certain case laws were relied upon for this proposition.

Tribunal is unable to persuade itself to agree to this proposition for the reasons that the CBDT, by way of a circular, has directed the AO to refer to all transactions beyond a specified limit, to the TPO for determining ALP. When the AO has no discretion in the matter, in view of the binding nature of CBDT Instructions dated 20-5-2003, directing all the officers of the Department to refer the matters to the TPO for determination of ALP where the aggregate value of international transactions exceeds Rs. 5,00,00,000, the AO has a very limited role. He has to mechanically follow these instructions. There is no application of mind. There is no formation of any opinion at the stage of reference. Thus, to presume that he has allowed a particular expenditure under section 37, does not seem to be the right view of the matter. In any event, this is not a case where the TPO or the AO made a disallowance under section 37. It is a case where an adjustment has been made under section 92C(4), after the TPO determined the ALP at nil under section 92CA(3). Hence this argument is devoid of merit.

The assessee, while filing its revised return of income, for assessment years 2004-05 and 2005-06 and original return of income for assessment year 2006-07, has suo-motu made a disallowance under section 37. It was not a case of adjustment made under section 92C(4). The TP reports were not revised.

On the issue as to whether the TPO is empowered to determine the ALP at "nil", the Bangalore Bench of the Tribunal in Gemplus India (P.) Ltd. (supra), held that the assessee has to establish before the TPO that the payments made were commensurate to the volume and quality service and that such costs are comparable. When commensurate benefit against the payment of services is not derived, then the TPO is justified in making an adjustment under ALP.

In the case on hand, the TPO has determined the ALP at "NIL" keeping in view the factual position as to whether in a comparable case, similar payments would have been made or not in terms of the agreements. This is a case where the assessee has not determined the ALP. The burden is initially on the assessee to determine the ALP. Thus, the argument of the assessee that the TPO has exceeded his jurisdiction by disallowing certain expenditure, is against the facts. The TPO has not disallowed any expenditure. Only the ALP was determined. It was the AO who computed the income by adopting the ALP decided by the TPO at "nil".

On the argument that reimbursement of expenses need not be referred to the TPO, for determination of ALP, the Special Bench of the Tribunal in Aztec Software & Technology Services Ltd., considered the issue and decided the same against the assessee.

In Tribunals view, the case law applies on all fours to the facts of this case. It is very imperative on the part of the assessee, to establish before the TPO, that the payments made were commensurate to the volume and quality of services and such costs are comparable. No such efforts was made. No ALP was computed by the assessee.

As held by the AO as well as the CIT(A), the assessee has not furnished evidence to prove that these three personnel have rendered marketing services to the assessee company. In fact, the assessee company has no revenue which has been derived as a result of these marketing expenses. At the cost of repetition, in the TP report, the companys submission is recorded at page-30, and it states that the software services obtained by the Deloitte from the third party, are not similar to the services obtained by the Deloitte from the assessee company on account of requirements of different skill, experience, knowledge level, complexity of software projects handled, risk bearing capacity, etc. The entire revenue of the assessee are from the Deloitte. The evidence filed in support of the fact that services are rendered in the form of e-mails show that they are not e-mails relating to marketing, but that they relate only to billing. As rightly pointed out by the Departmental Representative, the assessee has no role in interacting with the client to modify, cancel, renew or extend the contract. The assessee cannot, even after expiry of the agreement between the Deloitte and its client, supply services without written consent of Deloitte. Deloitte has to pay the assessee irrespective of it getting payment or not within sixty days of raising invoices. Deloitte is responsible for generation of sales management, delivery of projects, maintaining customer relationship and billing and collection. The assessee has no market risk. The argument of the Counsel for the assessee that these three marketing personnel project the capabilities of the assessee company so that Deloitte gets work, is not supported by any evidence and, hence, without basis. In Tribunals view, under similar circumstances a uncontrolled comparable company would not incur such expenditure. Hence, the ALP is rightly determined at "nil". As no expenditure would have been incurred, there is no necessity to apply a particular method to arrive at such conclusion. In fact, by all the five methods or any one of them, when applied to the fact that there is no necessity of payment, the result of "nil" ALP will come.

Income Tax Act, 1961, Section 92C

ORDER

J. Sudhakar Reddy (Accountant Member)

1. These appeals preferred by the assessee, are directed against the impugned separate orders passed by the Commissioner (Appeals) for the assessment years 2002-03 to 2006-07 respectively. As the issues arising in all these appeals are common, for the sake of convenience, they are heard together and are being disposed of by way of this consolidated order.

Facts in brief:

The facts of the instant appeals, as far as merits of the transfer pricing adjustment is concerned, have been brought out by the Transfer Pricing Officer (for short "TPO") in his order February 10, 2005, passed under section 92CA(3) of the Income-tax Act, 1961 (for short "the Act") for the assessment year 2002-03 and the same is extracted below for ready reference :

3. Business of the assessee

3.1 The assessee is a joint venture company between Mastek Ltd and Deloitte Consulting with Mastek and its affiliates holding 50.1 per cent. of the share capital and the balance 49.9 per cent. being held by Deloitte and its affiliates. Deloitte Consulting is a limited partnership registered in New York. It is one of the world leading management consulting firms. Mastek, the other shareholder, is a publicly held in Indian information technology application outsourcing company.

3.2 The assessee was incorporated as a private limited company on July 30, 2001. The joint venture was formed for the establishment and operation of an offshore development centre for the provision of both offshore and on-site information technology and other related services.

3.3 The assessee has entered into a software development service agreement with Deloitte to provide the software related services to Deloitte. Deloitte enters into consulting assignments with its US clients. For such assignments, the areas pertaining to software development and, information technology services are provided by the assessee in terms of the contract between the assessee and Deloitte only when the assessee possesses the requisite resources to provide such services. The assessee provides both offshore and on-site service under the contract with Deloitte. The offshore services are provided through Mastek and on-site services would be provided through Majesco, a US based company and a subsidiary of Mastek.

3.4 The role played by the two joint-venture partners in the company is as follows :

(a) Deloitte plays the lead role in the generation of sales, in the management and delivery of projects and managing and maintaining the companys customer relationships.

(b) Mastek provides and manage the companys infrastructural facilities, the operations including recruitment, training, administration and support as a part of its current and future facilities as well as delivery capability and project quality.

The entire turnover of the assessee represents earnings received from Deloitte for providing software development and information technology services.

4. International transactions :

The various international transactions entered into by the assessee during the previous year are as follows :

(a) The assessee has rendered software development and information technology services to Deloitte, amounting to Rs. 9.15 crores. In respect of the services the assessee is liable to receive the payment in 60 days time. The assessee bears all the risks relating to performance, market and foreign exchange. The services are priced mostly on time and material basis.

(b) The second international transactions refers to the value of on-site charges paid by the assessee to Majesco, i.e., the US based subsidiary of Mastek amounting to Rs. 4.27 crores. The on-site services rendered by Majesco amounted to 47 per cent. of the total operating revenue of the assessee during the previous year.

(c) The third international transactions refers to reimbursement made to Deloitte, on account of marketing services rendered by them amounting to Rs. 1.6 crores. These costs represent 18.33 per cent. of the total operating revenue of the assessee.

5. The assessee has adopted the transaction net margin method to benchmark international transactions. For this purpose, it has filed a study report in the course of the transfer pricing proceedings, which explains how the arms length Price has been determined in respect of each of the international transactions. In this connection, the assessee has undertaken an analysis of the functions performed, assets employed and the risks assumed by it and its associated enterprise in respect of each of the international transactions. The object of undertaking such an analysis is to characterise the assessee as well as the associate entity, so that comparable transactions can be identified based on the character of the assessee. The procedure followed is described as under :

2. We extract the facts, as brought out by the Transfer Pricing Officer, relating to the third international transaction, as there is no dispute in the first and the second international transactions before the Tribunal.

5.3 Functions performed in respect of the third transaction.-- Deloitte has deployed three senior managers to undertake full-time marketing for the assessee. Deloitte identifies client opportunities and the new or existing opportunities that can be undertaken by using offshore model. In this connection, the partners and senior managers of Deloitte, reach out to the assigned senior managers and involving them in the sale process. The senior managers add content to the proposal and validate it for correctness using the offshore model. These managers also attend the oral presentation and demonstrate the offshore delivery model and capabilities. The assigned managers identify the appropriate on-site/offshore team and monitor the status and quality of engagement. The assigned managers would also check on to the accounting and the invoicing process. In this connection, it is stated that Deloitte charges without any markup, the salary costs including other benefits as well as out-of pocket expenses in respect of the senior managers to the assessee. The assessee claims the said expenses as marketing expenses on its books.

6.2 In respect of the third transaction, the assessee has explained that Deloitte assists the assessee in generation of sales, management and delivery of projects, and in managing and maintaining customer relationships. For this purpose, it is explained that three senior managers have been assigned by Deloitte to undertake full-time marketing only for the assessee. It is explained that, the cost incurred on the assignment of the three senior managers consisting of their salary and related expenditure, is charged by Deloitte on actual basis. It is further stated that if the assessee had appointed marketing personnel to carry out its own marketing activities, it would have had to pay for the same. Further, it is stated that as Deloitte has not charged markup for services, the said amount fulfils the requirements of arms length.

8. The third transaction relating to cost allocation was also examined and in this connection letters dated September 15, 2004, September 30, 2004 and January 11, 2005 were issued to the assessee to explain why the allocation is proper and establish the various benefits derived by the assessee on account of which the costs are being allocated to it. In this connection, the assessee has made its detailed submissions in the letters dated October 8, 2004, October 1, 2004, November 16, 2004, November 30, 2004, December 15, 2004, January 6, 2005, January 17, 2005, January 25, 2005, January 28, 2005 and January 31, 2005.

3. Thereafter, the Transfer Pricing Officer observed as follows :

9. From the above submissions of the assessee, the main contentions that have been made by it are as follows :

1. The first contention of the assessee is that the allocation consists of only costs and there is no mark-up embedded in the same. Citing this reason the assessee contends that the cost represents the arms length price for the charge on account of marketing expenses made to the assessee.

2. The assessee contends that it has derived valuable benefit on account of these costs and hence their allocation to it is proper. In this regard the assessee explains that its business has significantly increased on account of the efforts of the three senior managers whose costs have been allocated. It is also explained that if the assessee were to undertake the marketing function on its own it would have had to incur significant expenses.

3. The assessee relies upon the confirmation dated January 3, 2005 and contends that the cost allocation is in accordance with the joint venture agreement and is hence duly authorised by all the concerned parties.

4. The assessee explains that though 17 persons were engaged in the business of marketing the offshore capabilities by Deloitte, only the cost relating to three persons have been charged to the assessee. It is also explained that these three persons were wholly engaged in marketing the offshore capabilities of Deloitte.

10. The various submissions made by the assessee, the relevant issues in this regard are examined as follows :

(a) The role of the respective parties relating to the software development activity carried on by the assessee has been discussed in details at paragraph 5.1 at the earlier pages. From a perusal of the same it is evident that the role of Deloitte is to market and generate sales and manage the delivery of projects and customer relationships. The role of the assessee is to actually execute the project and deliver the output to the associate entity. As already explained, Deloitte is getting remunerated for the marketing function performed by it. This is evident from the fact that the Deloitte enters into the contract with the end customers. Though the assessee has been unable to provide the details of the price charged by Deloitte on the end customers for the services rendered by it, it is fair to presume that Deloitte charges a suitable markup as considered proper by it on the amount billed by the assessee while billing the end clients. Considering the fact that Deloitte is separately being compensated for the marketing function performed by it, the logical consequence is that all costs for the purpose of marketing are to be borne by it only. Hence, there is no basis or justification for allocating any part of those costs to the assessee.

(b) The assessees role under its contract with Deloitte has also been explained in paragraph 5.1. From the same it is clear that the assessees role is to undertake the execution of the project and render the software development services. The assessee has already explained that it has not entered into any third party transactions during the previous year nor has it explored the possibility at any time. When the assessee is not required to undertake the marketing function in terms of the master services agreement, there is no reason for any allocation of the marketing costs to the assessee. It is clear that both parties have clearly demarcated roles to play under the software services agreement and both are compensated for the same accordingly. Just as the assessee is not allocating any part of its costs for software development to Deloitte, similarly there is no reason for Deloitte to allocate any part of the costs incurred by it in order to perform the role agreed by it under the software agreement.

(c) One of the main consideration in the case of intra-group services is to show that some valuable service has in fact been received by one of the parties. In this case accordingly the assessee had been requested to produce evidence to show that valuable services were received by it against the cost allocation. In this connection the only evidence produced by the assessee consists of various e-mails exchanged between the various employees of the assessee-company and the three senior managers of Deloitte whose costs have been allocated. On an examination of these e-mails it is found that they predominantly deal with issues relating to billing and invoicing. In most of the e-mails furnished the senior managers are advising the assessee regarding the manner of billing. A number of e-mails also relate to follow up with the clients in connection with pending bills. In this connection the assessees letter dated November 30, 2004 clearly mentions that the three persons were actively involved in accounting and invoicing besides making presentation and marketing the joint ventures offshore capabilities. However as already explained at paragraph 5.1 the risk on account of accounts receivable lies on Deloitte and not the assessee. It is the responsibility of Deloitte to collect the revenue from its customers and as far as the assessee is concerned it is to receive all payments from Deloitte within 60 days of invoicing. In such a situation there seems to be no reason why the costs relating to persons who are co-ordinating for the purpose of prompt collection of bills from the customers should be allocated to the assessee.

(d) The next important issue to consider is whether the associated enterprise has derived any benefit out of these costs. The assessee however is silent on the benefits derived by the associate entity by the undertaking of marketing functions even though it was specifically requested to provide its submissions in this regard. Even though the assessee may be silent in this regard, it is quite obvious that the associated enterprise has benefited from the joint-venture association with the assessee. Just as the assessee is able to get the clients located in the US, the associate entity is also able to leverage on its ability to provide software services at lower costs due to off-shoring and hence in a position to get more consultancy assignments in this manner. Hence besides the fact that the associated enterprise was anyway responsible to perform the marketing function under the software services agreement, it is also evident that it also benefited by offering the offshore model to its clients.

(e) The next important issue to consider is the documentation maintained by the assessee on the basis of which the cost allocation has been made. In this connection the assessee could not produce any separate agreement entered into which defines the scope of the marketing cost sharing arrangement. The assessee primarily relies on clause (9) of the joint-venture agreement. Joint venture agreement clearly provides that both parties can second their employees to the assessee-company with the approval of at least one director of each of A group and B group of the board of the assessee-company. In the event of such secondment the agreement permits the reimbursement of salary costs. However in the given case the assessee has admitted that there was no formal secondment of the employees. Hence, the cost allocation is not strictly in accordance with the terms of the joint venture agreement. The confirmation dated January 3, 2005, obtained in the course of the transfer pricing proceedings after the issue regarding the agreement was raised, cannot constitute a contemporaneous evidence, in support of the transaction. The approval of the board of the assessee-company for the payment cannot act as a substitute for a formal arrangement specifying the services that would be rendered and the costs that would be reimbursed, such agreement being entered into before the transaction. In related party situations, the fact that the transaction is duly authorised by the Board of the assessee-company or the overseas entity in itself does not establish that the transaction is at arms length. In a third party situation, no entity will accept the burden of the costs incurred by the other party unless a specific agreement is reached before the costs are incurred and the agreement specifies the nature and purpose of the costs and the respective share of each party in it.

(f) From all these submissions of the assessee it is seen that although the charge is stated as a pure cost allocation, from the asses-sees perspective the same is in fact a charge on the assessee for marketing services. It is only the quantum of the charge which is linked with the costs incurred in the hands of the overseas entity.

11. In view of the above facts, it is held that the marketing costs incurred and allocated by Deloitte to the assessee does not result in rendering of any service to the assessee. The entire costs of all the 17 marketing personnel of Deloitte is on account of the functions to be performed by Deloitte under the software services agreement. Deloitte is being compensated adequately for these functions. In an arms length situation, a software services provider who renders services to only one client and who is not even exploring the possibility of providing services to any other third party is not likely to undertake any significant marketing whether on its own or through any other third party. Further, the assessee cannot obtain any sale unless Deloitte outsources the same to the assessee. Hence, any increase in the assessees sales is because it is able to provide good services at lower costs and Deloitte finds it profitable to procure the same from the assessee.

12. Hence, it is held that no service is rendered in respect of the amount paid on account of cost allocation by the assessee. The arms length price for the same is hence determined at nil. The total income of the assessee hence increases by Rs. 1,66,06,651.

13. It is hereby clarified that the findings and discussions made in this order are applicable only in respect of reference received for the assessment year 2002-03 and not for subsequent assessment years.

4. The Assessing Officer passed his order dated February 28, 2005 under section 143(3), and made an adjustment in consonance of the order dated February 10, 2005, passed by the Transfer Pricing Officer under section 92CA(3) of the Act.

5. Aggrieved, the assessee carried the matter in appeal, wherein before the Commissioner (Appeals), the assessee submitted that specialisation in software development services was in specific areas and that the growth is dependent on the ability of the marketing personnel of Deloitte to identify and sell the product that could be executed by the assessee and that Deloitte, as earmarked, some of its personnel whose role was to market the off shore model of their joint venture. It was claimed that these earmarked personnel had exclusively performed the activity of marketing the off-shore model of the appellant. It justified this arrangement and argued that only salary and other travel-related costs of three persons were reimbursed. It was claimed that the costs allocation was in accordance with the joint venture agreement.

6. The Commissioner (Appeals) rejected the contentions of the assessee on various grounds. He held that--

(i) the role of Deloitte has to market and generate sales as well as to manage customer relations and ensure delivery as well as billing and that this was already defined as per the agreement between Deloitte and the assessee;

(ii) it is clear that the marketing function has been allocated to Deloitte and the role of the assessee is only to execute the project on behalf of the Deloitte, as per agreement, and deliver the output to them. The cost of marketing incurred by the Deloitte is recovered from the end customers by way of price charged to them;

(iii) the assessee refused to file details of marked-up earned by Deloitte on sales made to end customers and, hence, the Transfer Pricing Officer has rightly assumed that Deloitte had suitably, marked-up the price charged to the end customers, so as to recover marketing cost;

(iv) procedure described in clause (9) of the agreement for secondment of employees was not followed and, hence, there is no secondment;

(v) that the role of the assessee, in its agreement with Deloitte, is limited to provide software and the information technology services in respect of the project assigned to it by Deloitte and to deliver the said output to Deloitte which, in turn, was responsible for delivery of the same to the end customer and that it is the Deloitte which is responsible for generation of sales and maintenance of customer relationship and under those circumstances, there is no logic for reimbursement of marketing cost by the assessee to Deloitte. There is no stipulation in the existing agreement towards sharing of marketing cost.

7. The Commissioner (Appeals), vide paragraph 11 of his order, held as follows :

11. To sum-up in brief, the de facto function of the appellant is only to provide software and information technology services to none other than Deloitte and only to Deloitte. Hence, the appellant cannot have any function to perform in the field of marketing because its whole and sole market is its associate enterprise, namely, Deloitte. In other words, the appellants sole market area is restricted to Deloitte. Therefore, there is no justification for any allocation by the appellant, of the marketing costs to itself in respect of any such costs incurred by Deloitte.

8. The Commissioner (Appeals) held that the arms length price (for short "ALP") of the said international transaction between the assessee and Deloitte, was properly determined by the Transfer Pricing Officer at "nil". Aggrieved, the assessee is in appeal before the Tribunal.

9. The ground of appeal raised by the assessee for the assessment year 2002-03, are extracted below :

Ground 1 : Erroneous upward adjustment of Rs. 1,66,06,651 to the arms length price determined by the appellant is bad in law.

1.1 The order passed by the Deputy Commissioner of Income-tax-2(2), Mumbai ("AO") under section 143(3) of the Income-tax Act, 1961 ("the Act") and the Commissioner of Income-tax (Appeals)-XXXII, Mumbai ("the CIT(A)"), under section 250 of the Act, are bad in law and on facts.

1.2 The learned Commissioner of Income-tax (Appeals) erred in upholding the order of the Assessing Officer making an addition of Rs. 1,66,06,651 to the total income of the appellant in respect of the reimbursements made by the appellant to its associated enterprise-- Deloitte Consulting LP, USA (Deloitte).

1.3 The learned Commissioner of Income-tax (Appeals) erred in facts in confirming that no services were rendered to the appellant by the seconded personnel of Deloitte during the said assessment year.

1.4 Based on facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in law in not demonstrating the motive of the appellant to shift profits outside India by manipulating the prices charged in its international transactions.

1.5 The Commissioner of Income-tax (Appeals) erred in law and facts in disregarding the decision of the honble Supreme Court in the case of Shahzada Nand and Sons v. CIT [1977] : 108 ITR 358 (SC). Ground 2 : Reference to the Transfer Pricing Officer is bad in law.

2.1 The learned Commissioner of Income-tax (Appeals) erred in law in not considering the fact that the Assessing Officer did not record any reasons to show the conditions mentioned in clauses (a) to (d) of section 92C of the Act were satisfied, before making a reference of the appellants case to the Transfer Pricing Officer under section 92CA(1) of the Act and therefore the appellant prays that the reference made by the Assessing Officer to the Transfer Pricing Officer was not in accordance with the law.

Ground 3 : Other grounds

3.1 The learned Commissioner of Income-tax (Appeals) erred in confirming levy of interest under section 234B of the Act.

3.2 The learned Commissioner of Income-tax (Appeals) erred in confirming the initiation of penalty proceedings under section 271(1)(c) of the Act.

10. Before us, learned counsel, Mr, Arvind Sonde, submitted that he is not advancing any arguments on grounds Nos. 1.4, 1.5 and 2. Thus, these grounds are dismissed as "not pressed".

11. Ground No. 3, is on the levy of interest under section 234B of the Act. This is dismissed as levy of interest is mandatory and consequential. Ground No. 3.2, is on the issue of initiation of penalty under section 271(1)(c). This is dismissed as not maintainable.

12. This leaves us with grounds Nos. 1.1, 1.2 and 1.3. Ground No. 1.1, is general in nature. We now consider grounds Nos. 1.2 and 1.3.

13. Learned counsel for the assessee explained the facts of the case at length. He pointed out that the joint venture agreement dated July 18, 2001, was the pre-incorporation agreement and it was for fulfilling the conditions stipulated in the joint venture agreement that the assessee-company was incorporated on July 30, 2001, as a private limited company. He drew the attention of the Bench that the joint venture agreement which is at page 104 of the assessees paper book between "Deloitte Consulting L.I.", and "Masket Ltd." dated July 18, 2001. He also referred to the master service agreement between Deloitte and the assessee-company, as well as the service agreement between the assessee-company and Masket Ltd. He submitted that the newly incorporated company was required to ratify the joint venture agreement. He explained that the Deloitte was conducting the front office operations and Masket Ltd. was to perform the back office operation, to put it in common parlance. He referred to various responsibilities and obligation of the parties as per agreement. He drew specific attention to clauses 9.1.1. to 9.1.4 of the joint venture agreement which deals with "personnel". He emphasised that the agreement does not provide for any mark-up and it is a case of cost reimbursement He pointed out that out of 17 personnel in the marketing field, the cost of only three persons was sought to be collected as reimbursement from the assessee. He referred to the order dated March 24, 2004, passed under section 201(1), 201(1A) of the Act, by the Joint Director of Income-tax, Range-3, which is placed at page 185 of the assessees paper book and submitted that the fact that this is a reimbursement, was accepted by the Revenue. He argued that it is a case of pure reimbursement of actual expenditure and, hence, the question of determining the arms length price does not arise.

14. He further submitted that--

(i) the scope of Transfer Pricing Officer is to compute the arms length price and it is a domain of the Assessing Officer to determine as to whether a particular expenditure is allowable or not. He argued that the Transfer Pricing Officer is not empowered to disallow the expenditure and under section 92CA(1) read with section 92F(ii) of the Act; the only power given to the Transfer Pricing Officer is to determine the arms length price. He referred to the plain language in the Act and the Central Board of Direct Taxes instructions dated May 20, 2003, and argued that the determination of assessable income has not been outsourced to the Transfer Pricing Officer and that this remains the domain of the Assessing Officer. He relied on the following case law :

(i) Honda Siel Cars India Ltd. v. Asst. CIT [2010] 1 ITR (Trib) 497 (Delhi); and

(ii) Sony India P. Ltd. v. Central Board of Direct Taxes : [2007] 288 ITR 52 (Delhi) .

(ii) the second proposition argued is that, the joint venture agreement was prior to the incorporation of the assessee-company and that this joint venture puts an obligation on the assessee post incorporation to reimburse the marketing costs and, hence, the payment is justified. He relied on the following case law :

Philip John Plasket Thomas v. CIT [1963] 49 ITR (SC) 97.

(iii) that this is a case of reimbursement of expenses and, hence, no reference can be made to the Transfer Pricing Officer. He relied on the following case law for various propositions which we would be dealing in due course. The following case laws have been relied upon by learned counsel:

(i) Cushman and Wakefield India P. Ltd. v. Asst. CIT [2012] 17 ITR (Trib) 48 (Delhi) ;

(ii) Aricent Technologies (Holding) Ltd. v. Deputy CIT [2011] 9 Taxman.com 287 (Delhi);

(iii) Dresser-Rand India P. Ltd. v. Addl. CIT [2012] 13 ITR (Trib) 422 (Mumbai) ; and

(iv) Aztec Software and Technology Services Ltd. v. Asst. CIT [2007] 294 ITR (AT) 32 (Bang) [SB].

(iv) that if it is a case of Revenue that it is only a job-work done for Deloitte, then the reimbursement should not be taken as a separate international transaction and margin should be accordingly computed, by aggregating these transactions with the other transactions.

He submitted figures and calculations to demonstrate that in such a case, operating margin would be more than the arms length price accepted by the Transfer Pricing Officer. He tried to demonstrate that both entities have transacted at arms length price. On a query from the Bench, learned counsel fairly conceded that these arguments were not advanced either before the Transfer Pricing Officer or the Assessing Officer or the first appellate authority and that such a claim was not made in the transfer pricing study.

(v) The last proposition was that the Transfer Pricing Officer has neither adopted any method to determine the arms length price as expenditure incurred nor has she taken any comparable. Thus, he submitted that the order passed by the Transfer Pricing Officer is bad-in-law.

15. For the assessment year 2003-04, learned counsel submitted that the arguments for the assessment year 2002-03, are adopted for this year.

16. For assessment years 2004-05, 2005-06 and 2006-07, learned counsel submitted that the situation is different as the decision of the Bangalore Bench of the Tribunal in I Gate Global Solutions Ltd. v. Asst. CIT : [2007] 112 TTJ (Bang) 1002, was available and, hence, the assessee chose to file revised return of income for the assessment years 2004-05 and 2005-06 offering the transfer pricing adjustment as income and claimed exemption under section 10A. The adjustments made by the Transfer Pricing Officer, is not in dispute in these years. For the assessment year 2006-07, he submitted that in the original return of income itself, the assessee has suo motu made the adjustment of the arms length price increased its income and filed its return of income and claimed exemption under section 10A He relied on the decision of the Bangalore co-ordinate Bench of the Tribunal in I-Gate Global Solutions Ltd. and argued that the issue is covered and the assessee should be granted exemption under section 10A, for the assessment years 2004-05, 2005-06 and 2006-07. On a query from the Bench, he admitted that no fresh Form 3CEB, had been filed. He submitted that the Assessing Officer has wrongly ignored the revised return of income filed by the assessee for the assessment years 2004-05 and 2005-06.

17. The learned Departmental representatives, Mrs. Malathi Sridharan, along with Mr. Jitendra Yadav, representing the Revenue, opposed the contentions of learned counsel for the assessee and pointed out that learned counsel has raised a number of new issues which were never argued either before the Transfer Pricing Officer or before the Assessing Officer or before the Commissioner of Income-tax (Appeals). They pointed out that the assessee has not raised these issues in the grounds of appeal. She submitted that, in fact, no arguments were advanced on grounds Nos. 1.4, 1.5, 2 and 3. Mr. Jitendra Yadav, submitted that on factual issue as to whether any services were rendered, learned counsel has not led any contemporaneous evidence, as pointed out by the Commissioner (Appeals) in his order and that the assessee has not raised any ground of appeal on this issue. He once again drew the attention of the Bench to various clauses in the joint venture agreement, which is placed at the assessees paper book page 104, master service agreement between Deloitte and the asses-see-company, service agreement between the assessee-company and Mastek Ltd. He submitted that for arriving at the arms length price, it is necessary for the Transfer Pricing Officer to examine these agreements and submitted that the Transfer Pricing Officer has rightly relied on these agreements to determine the arms length price at "nil".

18. The learned Departmental representative filed a paper book running into 45 pages and submitted that--

(i) the joint venture agreement is only an in-principle commitment of the joint venture partners to commit various resources to the assessee;

(ii) Mastek Ltd. agrees to play a lead role in accordance with the terms of service agreement and Deloitte agrees that it will play a lead role in terms of master service agreement. That the joint venture agreement is only an in-principle agreement, whereas functions were to be performed strictly in terms of service agreement and master service agreement and, hence, the argument that the assessee has an obligation to reimburse certain expenditure as per the joint venture agreement which is a pre-incorporation agreement is factually incorrect. He referred to paragraph 2 of master service agreement which is placed at the paper book page 8 filed by the Revenue and pointed out the service that are to be provided to Deloitte by the assessee and to paragraph 3 at page 9, listing out the functions to be preformed by Deloitte. He contended that as per paragraph 3(b), which is at Revenues paper book page 10, the assessee is not to impede or interfere with a contractual relationship between the client and Deloitte. The assessee has no role of interacting to modify, cancel, renew or extend the contract even after expiry of agreement unless Deloitte expressly permits them in writing. Thus, it was submitted that it was an effective separation between the assessee and the client as regards marketing and sales function and that the entire market risk is to be borne by the Deloitte only;

(iii) the assessee has to bill Deloitte on an hourly basis and the Deloitte is supposed to pay within sixty days of the invoice date irrespective of whether the Deloitte has received the payments from the clients, unless there are issues relating to quality. Hence, billing risk is exclusive with Deloitte;

(iv) entire sales of the assessee is only to Deloitte and, hence, it has no marketing and sales functions to be preformed;

(v) billing was purely on hourly basis by the assessee to Deloitte and Deloitte enjoyed the mark-up in its billing to clients. The mark-up was not disclosed and it should be presumed that mark-up was also for performing marketing and sales function.

(vi) on the basis of joint venture agreement and master service agreement and the recitals therein, there is no mandate whatsoever on the assessee to bear market risk as well as the billing risk. That the sales function, the market function and the billing function are exclusive domain of Deloitte and there is absolutely no role for the assessee as per the mandate of this agreement. Hence, no expenditure was required to be incurred on marketing and, hence, the arms length price is "nil".

19. Without prejudice to the above submissions, it was argued that even if there is a mandate as per the agreements, the procedures described for secondment of employees was not followed and this proves that there is no secondment at all. The confirmation at the assessees paper book at pages 123 to 125, was, according to the learned Departmental representative, not contemporaneous evidence, as it was executed at a later date that too at three different places.

20. Attention of the Bench was drawn to the e-mails placed at pages 138 to 182 of the assessees paper book and it was submitted that all those e-mails, which the assessee sought to file as contemporaneous evidence to prove rendering of services by three employees of Deloitte to the assessee-company, are rightly rejected as evidence, as the e-mails disclose that these three persons were dealing only with billing related activities and nothing else. The e-mails, according to the learned Departmental representative, reflect the billing process, checking and granting of approval of these bills and the follow up of bills from the client. Thus, he submitted that there is no sales and marketing services rendered by these three persons of Deloitte to the assessee-company as claimed.

21. On the legal issue, the learned Departmental representative submitted that--(i) the assessee, in the transfer pricing review, stated that there are three distinct classes of international transactions. Two of these classes of international transactions have been separately benchmarked by the assessee except the third class of international transaction; (ii) that the provisions of section 92(2) and section 92F, mandate that cost allocation has to be at arms length price and benchmarking of the cost of services has to be made at rates available to the assessee in the market; (iii) that the assessee has failed to apply any method to determine the arms length price in the case of the third class of international transactions in dispute and, hence, failed to discharge the onus that lay on it. Reliance was placed on the decision of Aztec Software and Technology Services Ltd. [2007] 294 ITR (AT) 32 (Bang); (iv) when the assessee failed to discharge its onus, then the Assessing Officer is empowered under section 92C(3) to proceed with determination of the arms length price; (v) when, admittedly, there are three sets of international transactions, they cannot be clubbed as it was tantamount to following entity level approach which is not permitted; (vi) that the arms length price can be determined at "nil", when no services are rendered, reliance was placed on the decision of a Bangalore co-ordinate Bench in I. T. A. No. 352/Bang./2009, M/s. Gemplus India P. Ltd. v. Asst. CIT order dated October 21, 2010, 2010-TII-55-ITAT-BANG-TP; (vii) that the contention of the assessee that its claim of reimbursement was accepted in proceedings under section 201 of the Act, it is argued that this does not act as a bar on investigation by the Transfer Pricing Officer and his arriving at the arms length price. Reliance was placed on the judgment of the honble jurisdictional High Court in Aditya Birla Nuvo Ltd. v. Deputy Director of Income-tax (International Taxation) [2012] 342 ITR 308 (Bom) and submitted that these sections operate in different fields.

22. On the argument that the disallowance of expenditure is the domain of the Assessing Officer, the learned Departmental representative submitted that the Transfer Pricing Officer determined the arms length price at "nil" and that he had neither made any disallowance nor had he stepped into the shoes of the Assessing Officer. He disputed the argument that once the Assessing Officer refers a transaction to the Transfer Pricing Officer for determining arms length price, allowability of expenditure under section 37 of the Act, is a forgone conclusion, by submitting that as per the instruction of the Central Board of Direct Taxes, the moment the international transactions crosses a particular threshold, the Assessing Officer is bound to make a reference to the Transfer Pricing Officer automatically and, hence, it cannot be a case of application of mind. Reliance was placed on OECD guidelines and it was submitted that the transfer pricing adjustments would not effect underlining contractual obligation, even when there is no intent to maximise or avoid tax. She distinguished the case laws relied upon by learned counsel for the assessee and submitted that the decision of the Tribunal in Dresser-Rand India P. Ltd. [2012] 13 ITR (Trib) 422 (Mumbai) is on cost contribution and in the case of Cushman and Wakefield India P. Ltd. [2012] 17 ITR (Trib) 48 (Delhi) , there was no dispute as to whether services were available.

23. The learned Departmental representative, Mrs. Malathi Sridharan, arguing on the revised return of income submitted that the assessee, in its transfer pricing study, has not amended the arms length price and that the arms length price computed by the Transfer Pricing Officer stands. In the revised return of income, she pointed out that only marketing expenses were disallowed and added to income and no specific transfer pricing adjustment was done. She drew the attention of the Bench at paper book pages 56 to 90 for the assessment year 2005-06, and paper book pages 17 to 54, for the assessment year 2006-07 and submitted that the assessee merely made an enhanced claim under section 10A, by adding back its claim of expenditure. She pointed out that for the three assessment years i.e., 2004-05, 2005-06 and 2006-07, the assessee has not challenged the upward adjustment made by the Transfer Pricing Officer. She distinguished the Bangalore Bench decision of the Tribunal in I Gate Global Solutions Ltd. : [2007] 112 TTJ (Bang) 1002 by submitting that the assessee determined the arms length price and made an upward revision in its return of income and whereas in the case of hand, arms length price was not revised. She referred to various sections of the Act, and the objects sought to be achieved by the Legislature while introducing the transfer pricing provisions and pointed out that the entire object is to prevent shifting of profits and argued that this object would not be achieved if claim under section 10A is granted. She pointed out that in Aztec Software and Technology Services Ltd. [2007] 294 ITR (AT) 32 (Bang), the Tribunal referred to further consequences then mere shifting of profits. She pointed out that the return of income for the assessment year 2004-05 Was filed beyond one year and that for both assessment years 2004-05 and 2005-06, the revised returns of income cannot be admitted as there is no omission or a wrong statement in the original return of income. He relied on a number of case law in support of her contentions. She further submitted that the findings of the Commissioner (Appeals) at page 6, paragraph 3.3.4, on the allowability for deduction under section 10A, have not been disputed by learned counsel for the assessee. She pointed out that the conditions stipulated under section 10A, have not been fulfilled.

24. Learned counsel for the assessee, in reply, submitted that there are no fresh grounds of appeal raised and that the ground raised is broad enough to cover fresh arguments raised before the Tribunal. He submitted that both payments and receipts by Deloitte to the assessee-company have to be considered as a whole and when properly analysed, it should be taken as a single set of transactions. He countered various arguments of the learned Departmental representative by submitted that--(i) interface with client is allowed to the assessee only after an agreement is entered into between the client and Deloitte and (ii) that the role of three persons is to explain the capacities of the assessee to clients and get business through Deloitte; (iii) there is no written agreement or legal requirement prescribed for secondment of employees and confirmation is good evidence; (iv) that what is paid by the assessee to Deloitte is at best a discount given by the assessee to Deloitte from the bills raised by it. He distinguished the decisions relied on by the learned Departmental representative.

25. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, as well as the case law cited before us, we hold as follows :

26. In the transfer pricing study, for the assessment year 2002-03, the assessee has described the operations as follows :

Application development and implementation

Application management

Offshore development outsourcing

Conversion and migration

Entire turnover of MDOCDC represents earnings from Deloitte for providing software development and information technology services.

27. At page 16 of the transfer pricing report, it is stated as follows :

3.3 International transactions of Masket Deloitte Offshore Development Company Ltd.

The following international transactions undertaken during the financial year ended March 31, 2002, have been reviewed in this report.,

(1) Software development and information technology services provided by MDCODC to Deloitte;

(2) Software development and information technology services provided by Majesco to MDCODC; and

(3) Marketing services provided by Deloitte to MDCODC.

28. At page 28 of the transfer pricing report, the transactions in question, i.e., No. 3, is described as follows :

Transaction 3; Marketing services rendered by Deloitte to MDCODC Deloitte has deployed its three senior managers to undertake full time marketing for MDCODC Deloitte identifies client opportunities, either new opportunities or existing opportunities, to be delivered using the offshore model. In this connection, partners/senior managers of Deloitte reach out to the assigned senior managers and involve them in the sales process.

The assigned senior managers add content to the proposal and validate it for correctness using the offshore model. The assigned managers would also attend the oral presentation and propose and/or demonstrate the offshore delivery model and capabilities. Once the engagement execution is underway the assigned managers would identify the appropriate onsite/offshore team mix as proposed in the proposal, and monitor the status and quality of the engagement. The assigned managers would also check on the accounting and the invoicing processes.

In connection with the assignment of the senior managers, Deloitte would cross-charge (without any mark-up) the salary cost (including other benefits as well as their out of pocket expenses) of the said senior managers to MDCODC. MDCODC claims the said expenses as marketing expenses in its books.

Thereafter, at page 20 of the transfer pricing report, it is stated as follows :

Search for internal comparables

Internal transactions occur when either (Majesco/Deloitte) or MDCODC engages in similar transactions with unrelated entities.

Internal comparables relevant to the transaction between MDCODC and (Majesco/Deloitte) would include the following :

MDCODC providing contract software services to unrelated parties.

Deloitte contracting software services to unrelated parties.

Majesco providing contract software services to unrelated parties.

Based on our discussions with the management of MDCODC, we have been informed that MDCODC does not render any software services to third parties (either in India or outside India). The management further informed that the software services rendered by Majesco to MDCODC are not similar to the services provided by Majesco to third parties. Also, the management has informed us that the software services obtained by Deloitte from third parties are not similar to the services obtained by Deloitte from MDCODC. This is primarily on account of requirements of different skill-sets, experience, knowledge levels, complexity of the software projects handled, risk bearing capabilities, etc. The management also informed that MDCODC was the sole entity in India providing offshore software services to Deloitte. In absence of internal comparables a search was carried out for external comparables.

(emphasis Here printed in italics supplied)

29. At page 39 of the transfer pricing report, it is concluded as follows :

Transaction 3--Marketing services rendered by Deloitte to MDCODC

As mentioned in the functional analysis, as per terms of the software services and information technology service agreement/ Deloitte will assist in generation of sales, in the management and delivery of projects and in managing and maintaining the customer relationships. In this regard, Deloitte has assigned its three senior managers to undertake full time marketing only for MDCODC.

Deloitte identifies client opportunities, either new opportunities or existing opportunities, to be delivered using the offshore model. In this connection, partners/senior managers of Deloitte reach out to the assigned senior managers and involve them in the sales process. The assigned senior managers add content to the proposal and validate it for correctness using the offshore model. The assigned managers would also attend the oral presentation and propose and/or demonstrate the offshore delivery model and capabilities. Once the engagement execution is underway the assigned managers would identify the appropriate onsite/offshore team mix as proposed in the proposal, and monitor the status and quality of the engagement. The assigned managers would also check on the accounting and the invoicing processes.

The cost incurred on the assignment of senior managers, which includes salary costs and other related expenditure are cross-charged to MDCODC by Deloitte at actual cost.

The Indian transfer pricing legislation has not commented on the manner for determining an arms length price in respect of transactions involving reimbursement, however a gainful reference can be drawn from the OECD Guidelines in this regard which state that :

In this respect we may state that the OECD guidelines provide that

7.36 : When an associated enterprise is acting only as an agent or intermediary in the provision of services, it is important in applying the cost plus method that the return or mark-up is appropriate for the performance of an agency function rather than for the performance of the service themselves. In such a case, it may not be appropriate to determine the arms length pricing as a mark-up on the cost of the services but rather on the costs of the agency function itself or alternatively, depending on the type of comparable data being used the mark-up on the cost of services should be lower than would be appropriate for the performance of the services themselves. For example, an associated enterprise may incur the costs of renting advertising space on behalf of group members, costs that the group members would have incurred directly had they been independent in such a case, it may well be appropriate to pass on these costs on the group recipients without a mark-up and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function.

In the present transaction, MDCODC would have had to appoint marketing personnel to carry out its marketing activities had Deloitte not provided its personnel for the same. So it can be said that the cost incurred on these personnel would have been incurred by MDCODC even if the personnel were appointed independently and since Deloitte does not charge any mark-up for these services so the amount that has been claimed as expense in India would have been the same even if independent personnel were to be appointed.

So it can be said that cost reimbursement by MDCODC to Deloitte is at arms length.

30. Thereafter, at page 41, it is stated as follows :

Transfer 3--Marketing services rendered by Deloitte to MDCODC

Given the key attribute of inter-company services, in our view the above transaction does not amount to rendering of intra-group services but merely that of direct recharge of cost without any element of mark-up.

31. From the above, it is clear that the assessee-company admits that--(i) marketing services provided by Deloitte to the assessee-company is a separate class of international transactions between the assessee and Deloitte; (ii) it is also clear that the assessee-companys entire revenue are only from Deloitte and that too for job work. It is not a case where the contracts from clients are passed on to the assessee on a back-to-back basis. Only a portion of the work obtained by Deloitte from the client, where the assessee has the required skill and capabilities, i.e., that certain job work is given by Deloitte to the assessee; (iv) billing is done on an hourly basis; (vi) there is no work or job that the assessee-company has obtained from any third party for all these assessment years directly or indirectly, i.e., the assessee does not render any software services to any third party either in India or outside India.

32. On these facts, we now consider the arguments of learned counsel for the assessee.

33. The first proposition is that, the assessee has a legal obligation to make the payment and that legal obligation arises from the joint venture agreements, which is a pre-incorporation agreement which is binding. This argument is to be rejected as "arms length price" has to be determined irrespective of any contractual obligation undertaken by the parties. If it is held that the transfer pricing provisions do not apply whenever there is a legal obligation to pay, then the entire objective of the provisions will be defeated. The issue which the Transfer Pricing Officer requires to adjudicate is not whether the assessee has a legal obligation to pay and whether the payment made is for the purpose of business, etc., but only to determine the arms length price of the transaction, i.e., to examine as to whether the transactions are at arms length. If the transactions are, in the opinion of the Transfer Pricing Officer, not at arms length, the required adjustment has to be made, as provided in the Act, irrespective of the fact that the expenditure is allowable under other provisions of the Act.

34. The second argument of learned counsel that the Transfer Pricing Officer is not empowered to disallow the expenditure and that the very reference to the Transfer Pricing Officer by the Assessing Officer presumes that the amount in question is allowable under section 37 of the Act and certain case laws were relied upon for this proposition.

35. We are unable to persuade ourselves to agree to this proposition for the reasons that the Central Board of Direct Taxes, by way of a circular, has directed the Assessing Officer to refer to all transactions beyond a specified limit, to the Transfer Pricing Officer for determining the arms length price. When the Assessing Officer has no discretion in the matter, in view of the binding nature of the Central Board of Direct Taxes instructions dated 20th May 2003, directing all the officers of the Department to refer the matters to the Transfer Pricing Officer for determination of the arms length price where the aggregate value of international transactions exceeds Rs. 5,00,00,000, the Assessing Officer has a very limited role. He has to mechanically follow these instructions. There is no application of mind. There is no formation of any opinion at the stage of reference. Thus, to presume that he has allowed a particular expenditure under section 37, does not seem to be the right view of the matter. In any event, this is not a case where the Transfer Pricing Officer or the Assessing Officer made a disallowance under section 37 of the Act. It is a case where an adjustment has been made under section 92C(4) of the Act, after the Transfer Pricing Officer determined the arms length price at nil under section 92CA(3). Hence this argument is devoid of merit.

36. The assessee, while filing its revised return of income, for the assessment years 2004-05 and 2005-06 and original return of income for the assessment year 2006-07, has suo motu made a disallowance under section 37. It was not a case of adjustment made under section 92C(4). The transfer pricing reports were not revised.

37. On the issue as to whether the Transfer Pricing Officer is empowered to determine the arms length price at "nil", we find that the Bangalore Bench of the Tribunal in Gemplus India P. Ltd. 2010-TII-55-ITAT-BANG-TP, held that the assessee has to establish before the Transfer Pricing Officer that the payments made were commensurate to the volume and quality service and that such costs are comparable. When commensurate benefit against the payment of services is not derived, then the Transfer Pricing Officer is justified in making an adjustment under the arms length price.

38. In the case on hand, the Transfer Pricing Officer has determined the arms length price at "nil" keeping in view the factual position as to whether in a comparable case, similar payments would have been made or not in terms of the agreements. This is a case where the assessee has not determined the arms length price. The burden is initially on the assessee to determine the arms length price. Thus, the argument of the assessee that the Transfer Pricing Officer has exceeded his jurisdiction by disallowing certain expenditure, is against the facts. The Transfer Pricing Officer has not disallowed any expenditure. Only the arms length price was determined. It was the Assessing Officer who computed the income by adopting the arms length price decided by the Transfer Pricing Officer at "nil".

39. On the argument that the assessee was not having an associate enterprise as on the date of obligation entered into by way of joint venture agreements and reliance placed on the judgment of the honble Supreme Court in Philip John Plasket Thomas [1963] 49 ITR (SC) 97, are of the opinion that this is of no relevance. On the issue of the order under section 201(1), he held that it is of no relevance as these sections operate in different fields.

40. On the argument that reimbursement of expenses need not be referred to the Transfer Pricing Officer, for determination of the arms length price, we find that the Special Bench of the Tribunal in Aztec Software and Technology Services Ltd. [2007] 294 ITR (AT) 32 (Bang), considered the issue and decided the same against the assessee. The Tribunal observed as follows (pages 139 and 140) :

It was not the case of reimbursement of expenditure incurred by an agent for its principal. There is a force in the argument of the Revenue that if the Commissioner of Income-tax (Appeals) had considered it to be the case of reimbursement, then he should have asked the assessee to furnish the arms length price of reimbursement transaction.

41. We also find that the Bangalore Bench of the Tribunal in Gemplus India P. Ltd. v. Asst. CIT 2010-TII-55-ITAT-BANG-TP, held as follows :

that :

&Bull; the function of the Transfer Pricing Officer is to compare the payments made by the assessee-company for services received if any and to see whether those payments are comparable. In a given scenario, the Transfer Pricing Officer has to examine whether the payments were the arms length price conducive. Therefore it is very imperative on the part of the assessee to establish before the Transfer Pricing Officer that the payments were made commensurate to the volume and quality of services on such costs are comparable. In the present case, the payment terms, as pointed out by the Transfer Pricing Officer, are independent of the nature or volume of services;

&Bull; the Transfer Pricing Officer is also justified in making a pertinent observation that the expenses are apportioned by Singapore affiliate among different country centres on the basis of their own agreements and not on the basis of the actual services rendered to the individual units;

&Bull; the Transfer Pricing Officer has made a clear finding that there are no details available on record in respect of the nature of services rendered by Singapore affiliate to the assessee-company. Therefore, the Transfer Pricing Officer is justified in holding that the assessee has not proved any commensurate benefits against the payments of service charges to the Singapore affiliate. The Transfer Pricing Officer is justified in making the adjustment of arms length price under section 92CA of the Act.

(emphasis Here printed in italics own)

42. In our view, the case law applies on all fours to the facts of this case. It is very imperative on the part of the assessee, to establish before the Transfer Pricing Officer that the payments made were commensurate to the volume and quality of services and such costs are comparable. No such efforts was made. No arms length price was computed by the assessee.

43. As held by the Assessing Officer, as well as the Commissioner (Appeals), the assessee has not furnished evidence to prove that these three personnel have rendered marketing services to the assessee-company. In fact, the assessee-company has no revenue which has been derived as a result of these marketing expenses. At the cost of repetition, we state that in the transfer pricing report, the companys submission is recorded at page 30, and it states that the software services obtained by the Deloitte from the third party, are not similar to the services obtained by the Deloitte from the assessee-company on account of requirements of different skill, experience, knowledge level, complexity of software projects handled, risk bearing capacity, etc. The entire revenue of the assessee are from the Deloitte. The evidence filed in support of the fact that services are rendered in the form of e-mails show that they are not e-mails relating to marketing, but that they relate only to billing. As rightly pointed out by the learned Departmental representative, the assessee has no role in interacting with the client to modify, cancel, renew or extend the contract. The assessee cannot, even after expiry of the agreement between the Deloitte and its client, supply services without written consent of Deloitte. Deloitte has to pay the assessee irrespective of it getting payment or not within sixty days of raising invoices. Deloitte is responsible for generation of sales management, delivery of projects, maintaining customer relationship and billing and collection. The assessee has no market risk. The argument of learned counsel for the assessee that these three marketing personnel project the capabilities of the assessee-company so that Deloitte gets work, is not supported by any evidence and, hence, without basis. In our view, under similar circumstances an uncontrolled comparable company would not incur, such expenditure. Hence, the arms length price is rightly determined at "nil,". As no expenditure would have been incurred, there is no necessity to apply a particular method to arrive at such conclusion. In fact, by all the five methods or any one of them, when applied to the fact that there is no necessity of payment, the result of "nil" arms length price will come.

44. We respectfully following the view of the Special Bench of the Tribunal on the issue a well as the findings of the co-ordinate Bench in the matter cited supra and dismiss these arguments of learned counsel for the assessee, that in case of reimbursement, no arms length price should be determined and no reference is to be made to the Transfer Pricing Officer. No such exception is given in the Act.

45. Coming to the case law relied on by learned counsel in Cushman and Wakefield India P. Ltd. [2012] 17 ITR (Trib) 48 (Delhi) , we find that the facts are different. The assessee, in that case, had six types of international transactions and it has adopted "comparable uncontrolled price" method in its transfer pricing study. The question before the Tribunal was whether the Assessing Officer was right in holding that the services availed of by the assessee are not intra-group services and, hence, no remuneration should have been paid by the assessee to its associated enterprises. On facts, the Tribunal held that it cannot be said that there is complete absence of evidence and that the assessee has submitted evidence in respect of services obtained by it from Mr. Rayden Vraganza, in respect of revenue earned by the assessee. They came to a conclusion that what cost has been incurred by the assessee, is only a reimbursement. These are factual matters and have no bearing on the facts of our case. In the case on hand, the finding of fact is that no evidence has been filed in support of rendering of marketing of services by three personnel of Deloitte to the assessee.

46. In Aricent Technologies (Holding) Ltd. [2011] 9 Taxmann.com 287 (Delhi), the facts are different and it deals with amount paid as incentive to the employees of the assessee-company by the parent company. This case law has no relevance to the issue.

47. Coming to the decision of the Tribunal in Dresser-Rand India P. Ltd. [2012] 13 ITR (Trib) 422 (Mumbai) , the Tribunal was dealing with an issue of cost contribution. The allegation was that the allocation of expenditure was excessive. The Tribunal, on facts, came to a conclusion that the assessee has indeed received the services from the associated enterprise we find that it held that even the cost contribution arrangement should be consistent with the arms length principle. This finding supports the case of the Revenue. It held that the assessees share of overall contribution to the cost is required to be consistent with the benefit expected to be received as an independent enterprise which would assign to the contribution in hypothetically similar situation. In our opinion, this case law does not help the case of the assessee. On the contrary, it fortifies the argument of the Revenue that even in the case of reimbursement, the arms length price has to be decided.

48. Coming to the Bangalore Bench of the Tribunal in I Gate Global Solutions Ltd. : [2007] 112 TTJ (Bang) 1002, the Tribunal held that if the assessee itself discloses income at arms length price, which is more than the price shown in the book, it is not a case of enhancement within the meaning of the proviso to section 92C(4). Due to determination of the arms length price by the assessee at a higher figure, and the assessee will be entitled to exemption under section 10A, on such declared income. The Tribunal was not concerned with the issue as to whether the conditions specified under section 10A, were fulfilled by the assessee or not. In the case on hand, the assessee has not complied with the provisions of section 10A, to the tune of income by way of adjustment of the arms length price. In fact, the assessee enhanced its income, not by making adjustment of arms length price, by filing a revised transfer pricing report, but only by suo-motu disallowing certain expenditure under section 37. Section 10A(1) reads as follows :

10A. Special provision in respect of newly established undertakings in free-trade zone, etc.--(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :

Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years :

Provided further that where an undertaking initially located in any free-trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free-trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the undertaking began to manufacture or produce such articles or things or computer software in such free-trade zone or export processing zone :

Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent. of the profits and gains derived by an undertaking from the export of such articles or things or computer software;

Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years.

49. The Commissioner of Income-tax (Appeals) at page 6 paragraphs 3, 3.4 of his order for the assessment year 2006-07, held that the income arising out of the adjustment is not derived by the undertaking from export. This finding that requirement of section 10A, have not been complied with by the assessee, is not being factually controverted by learned counsel. Thus, this finding has to be upheld for all the assessment years. The other requirements of section 10A are also not complied with, which on these adjustments. Hence the assessee is not entitled to deductions under section 10A.

50. Coming to the argument that all the three types of international transactions have to be aggregated and the arms length price determined, we find that the assessee is raising this issue for the first time before the Tribunal. In the transfer pricing report, distinction was made and it is admitted by the assessee that each type of transaction is different. Only because certain advantage would occur by clubbing transactions, fresh and innovative arguments are being raised to justify the claim of the assessee. This cannot be admitted as it is against the facts stated by the assessee before the authorities below. In fact, in the transfer pricing report, the nature of each class of transaction was discussed and differences brought out.

51. On filing of the revised return of income, we agree with the contention of the learned Departmental representative that the Assessing Officer was right in not taking cognizance of the same for the reason that the assessee has not pointed out that the revised return of income were filed for the reason that there was an omission or a wrong statement. Reliance was rightly placed by the learned Departmental representative on the following case law :

(i) Shahibag Entrepreneurs P. Ltd. v. CIT [1994] : 210 ITR 998 (Guj);

(ii) S. S. Naganand v. Joint CIT [2004] 88 ITD 607 (Bang).

52. For all these reasons, we uphold the order of the Commissioner (Appeals) and dismiss the appeal on the grounds raised by the assessee for all the years under appeal.

53. In the result, the assessees appeals for all the years under appeal are dismissed. The order pronounced in the open court on March 30, 2012.