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TMI Blog2020 (5) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... Dispute Resolution Panel by observing as follows: 10. The learned Counsel for the assessee contended through ground no.1 that the DRP did not give reasonable opportunity of being heard to the assessee. Here it is relevant to note that the show cause notice dated 27th July, 2011 was issued by the DRP for enhancement of income fixing the date of hearing as 8th August, 2011. The said notice as received by the assessee on 1st August, 2011. The assessee appeared before the DRP on the scheduled date requesting for further time to compile the relevant details which were quite voluminous. Only one weekRss time was given. On 16th August, 2011 the assessee furnished some details and sought further time of 10 days for furnishing complete details. However, the DRP passed order on 18th August, 2011 itself directing the AO to make adjustment of Rs. 1.17 crore instead of Rs. 63.69 lakh as originally made in the draft order. The learned AR submitted that it was very difficult to compile the documents required by the DRP in such a short span of time. It was prayed that one more opportunity be granted to the assessee since the process of collection of all the necessary documents stood completed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 5) Without prejudice to the above, the learned AO erred in disallowing the entire amount of Rs. 47,72,982/- without appreciating the hon'ble DRP had directed him to verify the disallowance on account of Research & Development expenses made by the appellant and disallow only the balance. 6) If your honours are not inclined to delete the entire disallowance on account of Research & Development expenses, your honours may direct the AO to reduce the disallowance to the extent of Rs. 18,74,000/- already disallowed by the appellant in the computation of income. C) Disallowance of management fees - Rs. 22,52,219/- 7) The learned AO erred on facts and in law in disallowing a sum of Rs. 22,52,219/- out of Management Fees (wrongly stated by the AO as Reimbursement of Tender Costs) as per the directions of the learned DRP. 8) The appellant prays that the disallowance as made by the AO of Management Fees of Rs. 22,52,219/- as per the directions of the learned DRP may be deleted. D) Disallowance of Tender cost - Rs. 28,61,598/- 9) The learned AO erred on facts and in law in disallowing the entire tender cost (wrongly mentioned by AO as Research & Development Expenses) of Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005. An adjustment of Rs. 18.74 lakh was recommended in respect of the amount of provision. That is how a total adjustment of Rs. 63,69,689 was proposed in respect of the above referred three items. There is no controversy in respect of the remaining international transactions. The amount as proposed by the TPO was added by the A.O. in the draft order passed u/s 143(3) read with section 144C(1) on 15.11.2010. The assessee agitated the TP adjustments made through the draft order before the Dispute Resolution Panel (DRP). The DRP noticed that the payments by the assessee to its parent AE in respect of Management fees, Tender cost reimbursed and R&D expenses were in the nature of intra group transactions. It was opined that no payment in respect of intra group services could be justified unless it was shown that some tangible and direct benefit was derived as a result of such payment or that the payment made was commensurate with the benefit derived or expected to be derived. As such a letter dated 27.07.2011 was sent by the DRP to the assessee seeking written explanation, documentation and evidence as to whether any specified services were rendered; and if rendered, whether two i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses pertained to the previous years and that these expenses cannot be disallowed in the present year. The entire payment was thus directed to be disallowed. The AO has accordingly given effect to these directions. The assessee is aggrieved and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. The adjustment proposed by the TPO has been on anything but the arm's length price consideration. As a matter of fact he has not even disputed the arm's length price for the management services but has suggested the ALP adjustment on the ground that a part of the payment is pertaining to provision for another year The DRP has confirmed the ALP adjustment by observing that 'receipt of benefit in lieu of payment of service charges is sine qua non to allow the deduction for such payment to compute the income'. It is also noted that "we also hold that the assessee has failed to explain and justify the allowability of R&D charges of prior years on merits and has also failed to show that it has benefit for such charges in the earlier years though the provision has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Rules. The determination of the ALP by the respondent assessee ......... has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged by the TPO. Therefore, the ad-hoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained............... 8. On a similar note, Hon'ble Delhi High Court, in the case of CIT Vs Cushman and Wakefield (India) Pvt Ltd [(2014) 367 ITR 730 (Del)], and approving the path followed by a decision of Mumbai bench of the Tribunal in the case of Dresser Rand India Pvt Ltd Vs Additional CIT [(2012) 13 ITR (Trib) 422 (Mum)], had observed : 33. The TPO, in this case, noted that the services of the Client Solutions Group did not create any specific benefit for the assessee, but rather, that the relationship between Cushman & Wakefield, United States and IBM predated the assessee's involvement. The assessee thus received only an incidental benefit from that relationship. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an Assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an Assessee and what is not. An Assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question Assessee's wisdom in doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of Assessee's decision to take benefit of expertise of Dresser Rand US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance [Emphasis, by underlining, supplied by us now] of ........... is justified". That, however, is factually incorrect and legally unsustainable in law. Neither the ALP adjustments can be equated with disallowances of expenses, even though effect may be same, nor the TPO has the authority to disallow the expenses. Clearly, the impugned ALP adjustments are vitiated in law for this short reason alone. In any case, the observations with respect to the lack of evidence in support of the benefits is based on sweeping generalizations and is incapable of sustaining legal scrutiny. 10. In the light of the above discussions, as also bearing in mind entirety of the case, all the three ALP adjustments - namely (a) Research & Development expenses - Rs. 47,72,982/-; (b) Management fees - Rs. 22,52,219/; and (c) Tender cost - Rs. 28,61,598 stand deleted. The assessee gets the relief accordingly. 11. In the result, the appeal is allowed in the terms indicated above. 12. We will now take up ITA No. 4771/Mum/2016 i.e. appeal of the assessee against the order dated 28th March 2016, passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, in this appeal, are as follows: A) Disallowance of Research & Development Expenses - Rs. 1,08,88,295/- 1) The learned Commissioner of Income-tax (Appeals) - 56, Mumbai [CIT(A)] erred on facts and in law in confirming the order passed by the Deputy Commissioner of Income Tax- 10 (1)(1), Mumbai (AO) disallowing the appellant's claim of Research & Development Expenses of Rs. 1,08,88,295/- as per order u/s. 92CA(3) of the Income-tax Act. 2) The appellant prays that the disallowance of Rs. 1,08,88,295/- on account of Research & Development Expenses, as made by the AO and as confirmed by the CIT(A), may be deleted. B) Disallowance of Management Fees - Rs. 1,06,42,258/- 3) The learned CIT(A) erred on facts and in law in confirming the order of the AO disallowing the appellant's claim of Management Fees of Rs. 1,06,42,258/- as per the order u/s. 92CA(3) of the Income-tax Act. 4) The appellant prays that the disallowance of Management Fees of Rs. 1,06,42,258/- as made by the AO and as confirmed by the CIT(A) may be deleted. 18. Learned representatives fairly agree that whatever we decide for the assessment year 2007-08 will be equally applicable in this assessment year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression "ordinarily" has been used in the said rule itself. This rule was inserted as a result of directions of Hon'ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that "We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment". In the ruled so fram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rld. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus "should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure...". The term 'force majeure' has been defined in Black's Law Dictionary, as 'an event or effect that can be neither anticipated nor controlled' When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an "ordinary" period. 24. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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