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TMI Blog2014 (10) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding that the amount represented the Appellant's 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 AO has erred in law and on fact in holding that unrealized service tax has to be disallowed as per provision of section 43B of the Act; 4. That the learned AO has erred, in law, and on facts in initiating penalty proceedings under section 271(1)(c) of the Act against the Appellant." 2. Right at the outset it was the stand of the Ld. AR on behalf of the assesse that the points at issue are fully covered in favour of the assessee by virtue of the order of the Co-ordinate Bench of the Tribunal in assessee's own case. Attention was invited to the copy of the said order placed in the appeal set at pages 80-114 pertaining to the immediately preceding assessment year wherein the Co-ordinate Bench is stated to have considered identical issue at length in the order dated 18.11.2011 in ITA No-3933/Del/2010. In support of the said contention, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Ground No-3 raised by the assessee it was her submission that this issue has also been a subject matter for consideration by the Tribunal and the Tribunal has been pleased to restore the issue in the immediately preceding assessment year to examine the claim of the assessee. It was her submission that facts and submissions remained identical and the only difference is the amounts in the different years. It was her submission that in the present appeal the assessee would be arguing that instead of restoring the issue back it may be decided at this forum since now the benefit of the order of the Chennai Bench of the Tribunal in the case of Asstt. CIT v. Real Image Media Technologies (P.) Ltd. [2008] 114 ITD 573 is available which fully supports the case. It was her submission that this point at issue is also fully covered in assessee's favour by the judgement of the Jurisdictional High Court in the case of CIT v. Noble & Hewitt (I) (P.) Ltd. [2008] 305 ITR 324/116 Taxman 48 (Delhi), wherein their Lordships have held in the facts of that case that where the assessee did not debit the amount to the Profit &Loss Account as an expenditure and nor has the assessee claimed any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly qua Ground No-2 also there it was her stand that there is no change in the facts and circumstances. Qua the Ground No-3 it was her stand that there is no mis-match. It was clarified by her that before the DRP the assessee had put an alternate plea that in case complete relief is not granted than disallowance at best could be restricted to Rs. 1,02,63,978/-however it was her stand that before the Tribunal the assessee would rely only upon its main argument. 4. Before addressing the issues, it is first considered appropriate to set out the relevant facts. The relevant facts of the case are that the assessee company Cushman & Wakefield India Pvt. Ltd. (hereinafter called as "CWI") is a 99.99% subsidiary of Cushman & Wakefiled Mauritius Holding Inc and is engaged in providing a variety of real estate related consulting services to its clients in India and overseas. Return declaring an income of Rs. 22,96,42,322/- was filed on 31.10.2007 which has been assessed at an income of Rs. 31,11,92,110/- wherein after considering the objection to the draft assessment order by Draft Resolution Panel (hereinafter called as the "DRP") the final order u/s 143(2) r.w.s 144C of the Act was pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AEs - 2,50,66.790" 4.2 The Transfer Pricing Officer (hereinafter called as the "TPO") considering the Transfer Pricing Approach of the assessee observed that the assessee has applied Transactional Net Margin method for benchmarking the transactions relating to payment of referral fee, receipt of referral fee and provision of portfolio administration services and segmental reporting was available in the audited financials for all the three segments viz. Transaction Services, Consultancy Services and Asset Services. He also observed that for benchmarking the international transactions relating to lease renewal services, location services and valuation services, the assessee had applied CUP method for bench-marking international transaction. He also observed that in the year under consideration the assessee has rendered lease renewal services to unrelated entities in India and has charged service fee equivalent to rent to be paid for 15 days under lease contract agreement. As against this, CWI has charged a fee of USD 1500 per lease for services rendered to its AE. The assessee has contended that if service fee equivalent to rent for 15 days under the lease contract from its AE wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain the need and nature of services received from these AEs. The reply of the assessee is extracted from the TPO's order (pages 67-127) (internal page 5 of the order) of the paper book hereunder for ready-reference:- "(1) Services received from CW HK:- ♦ Need for availing services CW HK is the coordinating entity for Cushman & Wakefield group entities present in Asian region and is responsible for coordinating the activities of 'client solution group' undertaken for this region. In relation to services availed from CW HK, the assessee would like to highlight that given the size of the real estate market in the United States of America (US) and potential to generate business for Cushman Asian entities, there arose a commercial need to appoint an appropriate and dedicated person in the US, who could generate business for Cushman Asian entities. However, maintaining a separate office for each Cushman entity in the Asian region would have meant significant overhead costs i.e. costs for maintaining a separate office, separate infrastructure etc. Given the commercial need and the need to optimize the associated costs, Cushman Asian entities jointly requested CW US to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee does not have any marketing team either located in the US or undertaking marketing activities in the US from anywhere else. Further, since the assessee was targeting the customer base in the US, the marketing activities were required to be carried out in the US. Client solution group was dedicated team responsible for identifying clients for Cushman group entities located in the Asian region. Hence, the group has not rendered services to any third party. (2) Service availed from CWS:- ♦ Need for availing services One of the key clients for the Cushman & Wakefield group is IBM, especially in the Asian region. With a view to sustain the relationship with the client, CWS presented a proposal to IBM aimed at providing a team, from Cushman& Wakefield, comprising of cross-functional skills sets to maximize IBM's benefits, portfolio level thinking and better client understanding, led by a single point of contact ( the account director) across Asia pacific. Subsequently, an agreement was signed between the aforementioned parties, to establish a basis for a multinational procurement relationship whereby CWS would provide IBM with requisite services as and when required. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g association. ♦ The assessee has also made a claim that payments of Rs. 1,60,50,640 was made to CW US through CW HK 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. Lt 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 CW US or CWHK had any infrastructure to provide market support services to the assessee in India and that these AEs had actually rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,42,650 and Rs. 1,60,50,640 (totaling to Rs. 2,10,93,290/ -) to CWS and CWHK respectively for incidental benefit and not for intra group services. Since intra-group services are not found to exist in this case the arrangement is not subject to arm's length pricing and the arm's length price of these alleged services is held to be nil on application of CUP method as no uncontrolled enterprise would have paid any amount for services which do not tantamount to intra group services with demonstrable benefits. The assessing officer shall consequently increase the taxable income of the assessee by an amount of Rs. 2,10,93,290/-." 5. Against the draft assessment order based on the TPO's order the assessee filed objections before the DRP who upheld the draft order. Pursuant to this the impugned order has been passed. It may be relevant to extract from the impugned order the extract of the DRP's order on which heavy reliance is placed upon by the Revenue:- 'There is no description of service to be rendered or the need for the services and cost allocation by C&W Singapore is to be "on a reasonable basis taking into account the activities actually performed by C&W Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration the team of Ashpreet Chaudhary includes 2 new employees i.e. Michael Lam and Priyanjan Kumar, however it was clarified that no separate payments have been made by CW-1 to those new employees. It was clarified that the stand taken by the DRP on which reliance is placed by the Revenue refers to no new fact. Addressing the need for services it was clarified the same stands already considered in the immediately preceding assessment year wherein the order of the Tribunal is available on record. The benefits to the assessee addressed in summary of the cost allocation between the assessee and CW-HK it was submitted is demonstrated from the fact that the business secured was revenue of INR 93,615,108 as opposed to INR 30,37,398 in the immediately preceding assessment year. In referral fees the savings it was submitted were INR 19,015,733 and costs incurred was INR 16,050,640 as compared to costs incurred in the immediately preceding assessment year amounting to INR 92,25,838. The basis for cost allocation, it was submitted is the same as last year, Referring to the Annexure I which provided a birds eye view to the nature of documentation on record it was submitted that basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hifting of profits as the services to be performed are not described. All these similar arguments it was submitted stand considered by the Tribunal on same facts and the fact that the Agreements under consideration were the same has not been disputed by the Ld. CIT DR. 6. We have heard the rival submissions and perused the material available on record on a consideration of the same we find that the issue has been considered by the Co-ordinate Bench in a speaking order considering the very same Agreements and identical activities and nature of evidences relied and it is not the case of the Revenue that there is any material change in any fact circumstance as undisputedly the agreements remain the same. In the afore-mentioned peculiar facts and circumstances we find no good reason to come to a contrary finding. It is seen that the Co-ordinate Bench in the immediately preceding assessment year has come to the following conclusion:- '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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Royden's 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 therefro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arm's 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.' 7. In reference to Ground No-2 it is seen that whereas the contention of the assessee has been that no such addition was made by the TPO and the AO has instead made the addition and even otherwise this issue too has been a subject matter of consideration by the Co-ordinate Bench the facts, arguments and justification for the same remain the same on either side which has also al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a high rate nor the business purpose of the same." 7.2 Considering the order of the Co-ordinate Bench in assessee's own case it is seen that the very same issue came up for consideration before the Co-ordinate Bench in the immediately preceding assessment year. A perusal of the same shows that identical clause (3) in Referral Agreements has been extracted by the Co-ordinate Bench in para 27 of their order and para 28 addresses the fact that exact percentage to be received was not found mentioned. The arguments of the Revenue that it was 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 deduction of tax is found advanced in the immediately preceding assessment year also before the Co-ordinate Bench. The arguments for justification of the referral fee on behalf of the assessee are found discussed in para 29 to 31 and the contention of the Revenue that the assessee was required to match each transaction to the list of work done advanced before us alongwith the list of work done alongwith identical reasons are also found advanced before the Co-ordinate Bench and is found discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order are reproduced hereunder for ready-reference:- 'DISALLOWANCE U/S 43B (Unpaid Service Tax):- During the course of asstt. proceedings, on perusal of Clause 21 (1) of TAR it was noticed that service tax of Rs. 2,63,60,439/- had not been paid by the assessee before furnishing the return of income and same had not been passed through P/L Account. Therefore, vide note sheet entry dated 29.11.2010 the assessee was show caused as to why outstanding service tax be not disallowed u/s 43B of the I.T. Act, 1961. The assessee vide its submission dated I5.12.2010 had produced as under.- "Entries pertaining to service tax are not routed through the PIL Account of the assessee, the assessee merely collects the service tax and pays 10 the Govt. The service lax was not collected and hence remained outstanding. However, under service lax, the lax is to be deposited on the value of amount realized only. The tax auditor vide clause J 3 sub- clause (a) stales that: 'service tax collected from customers has not bee credited 10 PIL Account as the accounting for service tax is routed through liability account. However, the same does not have any impact on the net profit of the co. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that though assertion to this effect is made in the assessment order, however, the assessee needs to demonstrate this fact before the AO and mere assertions should not be accepted without verification. Elaborating further it was contended the AO necessarily must have picked up the exact calculation from the P&L A/c shown under some other head and it could not have been picked up otherwise. The disallowance it was pointed out is not in round figures as such the assertion that it is not routed through the P&L A/c needs to be verified as such it was his submission that legally the assessee may have a point but the facts need to be verified as such following the precedent the issue be restored to the AO. 9. We have heard the rival submissions and perused the material available on record. On consideration of the same we are of the view that no doubt legally the issue is in assessee's favour however facts need verification. The arguments advanced by the Ld. CIT DR cannot be out rightly brushed aside and considering the prayer made in the peculiar facts and circumstances has to be accepted as this aspect has never been verified as findings arrived at have been necessarily confin ..... 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