IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH.PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A .No.-979/Del/2015 (ASSESSMENT YEAR-2010-11) Control Risks India Pvt.Ltd., Vs DCIT, 604, Copia Corporate Suites, Circle-6(2), Jasola Complex, New Delhi New Delhi-110025. PAN-AADCC3008J (APPELLANT) (RESPONDENT) Assessee by Sh.Ajay Vohra, Sr.Adv., Sh. Neeraj Jain, Adv. & Ms. Deepika Agarwal, CA Revenue by Sh.Kaushalendra Tiwari, Sr.DR Date of Hearing 30.06.2016 Date of Pronouncement 27.09.2016 ORDER PER DIVA SINGH, JM present appeal has been filed by assessee assailing correctness of order dated 31/12/2014 of Assessing Officer under section 143(3) r.w.s 144C of Income Tax Act, 1961 pursuant to directions given by Dispute Resolution Panel (hereinafter referred to as DRP ) dated 17.09.2014. following grounds have been raised in present appeal:- 1. That assessing officer erred on facts and in law in completing assessment under section 144C read with section 143(3) of Income- tax Act, 1961 ( Act ) at income of Rs. 1,83,22,823 as against income of Rs. 1,51,35,030 returned by appellant. 2. That assessing officer/TPO erred on facts and in law in making I.T.A .No.-979/Del/2015 addition of Rs. 30,43,842 allegedly on account of difference in arm s length price of international transaction of provision of risk consultancy services on basis of order passed under section 92CA(3) of Act by TPO. 2.1 That DRP/TPO erred on facts and in law in rejecting Transfer Pricing Documentation alleging that appellant has not provided complete information/documents for purpose of determination of arm s length price of international transactions. 2.2 That DRP/TPO erred on facts and in law in inadvertently characterizing business of appellant, as provider of financial advisory services and also erred in comparing appellant with companies engaged in business of stock broking and trading of shares. 2.3 DRP/TPO erred on facts and in law in rejected internal TNMM applied by appellant in Transfer Pricing Documentation allegedly holding that: (i) segmental accounts are not available in annual report. (ii) internal TNMM, applied by appellant, is ort of CUP and accordingly, strictly comparability is required for applying CUP can be applied (iii) services provided to associated enterprises and nonassociated enterprises are not identical. (iv) details of services and billing structure of associated enterprises and non-associated enterprises is not provided by appellant 2.4 That TPO erred on facts and in law in rejecting following comparable companies allegedly holding them to be functionally not comparable to appellant: 2.5 That TPO erred on facts and in law in rejecting Knight Watch Security Ltd. allegedly holding that annual report of company is not available in public domain. 2.6 That DRP erred on facts and circumstances of case in not adjudicating objection of appellant with regard to selection of comparable companies, namely, Tops Security Ltd. and Knight Watch Security Ltd. 2.7 That DRP/TPO erred on facts and in law in including following companies in set of comparable companies for purpose of benchmarking analysis not appreciating fact that they are functionally not comparable to appellant: a) Pushpak Financial Services Ltd. b) Apitco Ltd. c) HCCA Business Services Ltd. d) TSR Darashaw Ltd. 2.8 That DRP/TPO erred on facts and in law in considering Pushpak Financial Services Ltd. as comparable not appreciating fact that company is not satisfying filter of employee cost applied by TPO himself. 2.9 That DRP/TPO erred on facts and in law in considering Apitco Ltd. and Global Procurement Consultants Ltd. as comparable companies not appreciating fact that information in respect of related party transactions is not available in annual report of companies and Page 2 of 21 I.T.A .No.-979/Del/2015 accordingly, not satisfying filter of related party transactions applied by TPO himself 2.10 That DRP/TPO erred on facts and in law in not excluding Apitco Ltd. and Global Procurement Consultants Ltd. from final set of comparable companies, not appreciating fact that Central Investigation & Security Services Ltd. has been excluded by TPO himself on similar basis. 2.11 That DRP/TPO erred on facts and in law in considering HCCA Business Services Ltd. as comparable not appreciating fact that TPO himself rejected ISSSDB Security Services Ltd. which is engaged in providing similar services. 2.12 That DRP/TPO erred on facts and in law in not allowing appropriate risk adjustment to establish comparability on account of appellant being low-risk-bearing captive service provider as opposed to comparable companies who were independent service providers. 3. That DRP/AO erred on facts and in law in disallowing amount of Rs.1,43,951 on account of interest on late deposit of TDS allegedly holding same to be of penal nature. 4. That Assessing Officer erred on facts and in law in levying interest u/s 234A, 234B and Section 234D of Act. appellant craves leave to add, amend, alter or vary, any of aforesaid grounds of appeal before or at time of hearing of appeal. 2. Addressing grounds raised, it was submitted by Ld.AR that considering peculiar facts and circumstances of case although assessee is confident that it would succeed in its prayer for seeking inclusion of comparables which have not been included and also seeking exclusion of comparables which have been wrongly included and thus as far as addition sustained by way of making adjustment is concerned judicial precedent is predominantly in its favour. However, it was his submission that it would be appropriate to seek to first press for adjudication on issues addressed by Ground No. 1 and 2.2 and if it is considered issue would need to be restored back to file of TPO. 3. said request made right at outset was objected to by Ld. Sr.DR who submitted that said issue has been agitated by assessee even before DRP and Page 3 of 21 I.T.A .No.-979/Del/2015 it has not been decided in assessee s favour. Accordingly it was his stand that issue need not be restored and assessee be directed to argue all its grounds. 4. Responding to said objection Ld. Sr. Advocate relying upon Chart of Issues filed, stated that in peculiar facts and circumstances of case, he would have no objection to address comparables which are sought to be included by TPO and comparables exclusion of which has been sought by assessee. However, in order to be fair to Revenue as well as tax payer it was highlighted that wrong characterisation of taxpayer would impact subsequent years also and since this would be continuing issue in subsequent years also position on facts should be addressed in initial years itself. Thus in circumstances it was clarified that first his endeavour would be on basis of material on record to show that there is flaw in characterization of assessee as result of this entire exercise of selection of comparables has become skewed. In eventuality issue is considered to be not allowable, it was stated that he is ready to address comparables and is confident that he would be able to demonstrate that comparables retained by tax authorities and excluded by them on facts and law is contrary to accept judicial precedents. Thus, it was his submission that argument that entire exercise of selection of comparables would stand demolished. 5. Considering submissions made by Ld.AR, Ld. Sr.DR submitted that he would have no objection to prayer for remand subject to assessee demonstrating how characterisation of taxpayer has wrongly been done. Page 4 of 21 I.T.A .No.-979/Del/2015 6. In said background Ld. AR invited attention to TPO s order dated 27.01.2014 placed at pages 55 to 146 of appeal set filed. Attention was invited to specific page 66 so as to highlight that TPO has considered that taxpayer was engaged in providing Investment and other financial advisory . Referring to said page and discussion which carries on to page 67 it was his submission that as result of non-appreciation of assessee s activity comparable selection process of TPO is full of flaws. As illustration, attention was invited to appeal set page 126 internal page 73 of TPO s order wherein following comparable companies have been selected by TPO:- Sl No. Name of Company OP/OC 1 ICRA Management Consulting Services Ltd. 1.94 2 Ajcon Global Services Ltd. 32.88 3 Future Cap. Inv. 17.61 4 Ladderup Corporate Advisory Pvt. Ltd. 15.07 5 Pushpak Financial Services Ltd. 76.72 6 Apitco Ltd. 40.09 7 Cyber Media research Ltd. 14.85 8 Global Procurement 37.19 9 HCCA Business Services Pvt. 20.05 10 TSR Darashaw Ltd. 41.15 29.75 6.1. Referring to companies mentioned at serial No. 3 and 5, it was submitted that their very names namely Future Investment and Pushp Financial Services suggests that they were dealing in stocks and shares. Similarly company mentioned at Sl.No. 10 TSR Darashaw limited is again dealing in stocks and shares. Their selection when considered with profile of assessee it was submitted is incorrect. remaining companies which have been wrongly included namely Aptico Ltd. and HCCA Business Services Pvt. At Sl.No.6 and 9 addressed vide Ground No.2.7, it was submitted can also relying upon Page 5 of 21 I.T.A .No.-979/Del/2015 judicial precedent be excluded. However this stop gap prayer in long run would neither be in interests of assessee nor tax authorities as nature of assessee s business needs to be appreciated. Addressing nature of assessee s activity, it was submitted that assessee is not in pure financial services as it provides wide range of consultancy services, forensic, crisis and security related services etc. Thus since characterization itself is incorrect in circumstances assessee is confident that in fact each of comparable selected, it can be successfully demonstrated as having been wrongly selected. Thus prayer for restoring issue back for proper appreciation has been made. 6.2. issue of wrong characterisation of taxpayer by TPO, it was submitted was agitated before DRP. following specific ground of objections were raised in (iv) and (v):- (iv) That Assessing Officer /TPO erred on facts and in law in inadvertently characterizing business of assessee, as provider of financial advisory services and also erred in comparing assessee with companies engaged in business of stock broking and trading of shares. (v). That Assessing Officer /TPO erred on facts and in law in not appreciating fact that assessee was engaged in providing crisis and security consultancy as is evident from articles of association of assessee. 6.3. Attention was invited to Annexure to copy of reply dated 16/01/2014 before TPO which included Copy of Distributors & Sales Agreement dated 06.01.2010 entered into between subsidiaries of Control Risks Group Holding Ltd. (Group Companies). Specific page 233 to 249 was referred to and specific emphasis was laid on para B of same in order to emphasize nature of activity. Page 6 of 21 I.T.A .No.-979/Del/2015 6.4. For ready- reference, relevant extract from said page is reproduced hereunder:- DISTRIBUTION AND SALES AGREEMENT This Agreement is made on 6th January 2010. Between:- 1. companies listed in Schedule 1 to this Agreement ( Seller ); and 2. companies listed in Schedule 2 to this Agreement ( Service Provider ) Background A. Sellers and Service Providers listed in Schedules 1 and 2 are all direct and indirect subsidiaries of Control Risks Group Holdings Limited ( CRGHL ). B. Service Providers are engaged in provision of crisis and security consultancy, outsourced security management, crisis response, investigative services, forensics and other risk management consultancy services ( Consultancy Services ) in territory in which they operate ( Territory ). (emphasis provided) 6.5. Attention was also invited to pages 32 to 84 of paper book which is transfer pricing documentation. Specific attention was invited to page 38 and 39 of same so as to highlight Objective and Company Overview which would throw light on activities of tax payer. relevant extracts of same are reproduced hereunder from said pages in paper book:- II. Overview of Group Objective documentation requirements of Income tax Rules ( Rules ) obliges assessee to, inter alia, provide description of its ownership structure, profile of multinational group of which assessee enterprises is part, description of business of assessee and that of associated enterprises with whom assessee has done international transaction. Board description of international transactions entered into with associated enterprises, etc. This part of study provides overview of CRIPL and group of which it is part. Group Overview Control Risks Group Holdings Limited (CRGHL) (formed in 1975) CRGHL is independent, specialist risk consultancy with 34 offices on five continents. group provides advice and services that enable companies, governments and international organizations to accelerate Page 7 of 21 I.T.A .No.-979/Del/2015 opportunities through expansion abroad, and mange strategic and operational risks. CRGHL has good reputation in industry for offering comprehensive range of consulting services that assist clients including: Assisting clients in evaluating expansion of their operations into particular developing country; Providing advice on security of their assets and employees; Protecting physical assets and employees of company operating in difficult environments; Responding to particular incidents such as hostage situation, kidnapping etc. CRGHL has client base that includes investment banks, large multinationals, governments, non-governmental organizations and insurance underwriters. CRGHL has resources in each of countries in which it operates, however, in areas where Control Risks Group does not have dedicated offices they will gain information through use of sub-contractors. CRGHL tracks number of different sectors and therefore its unique business has no significant competitor with equivalent breadth of services or geographic footprint. However, its closest competitors are Kroll (part of March and McLennan Group), Risk Advisory Group, Live Group and, in Asia Pacific-Hill & Associates. CRIPL was incorporated in August, 2007 for offering comprehensive range of consultancy services that assist clients to manage political, security, operational and integrity risks at every stage of investment. 6.6. It was his submission that no doubt socio- political environment of country would impact financials however taxpayer is not dealing or trading in shares as considered by TPO. As result of this incorrect factual appreciation, it was submitted TPO has drawn wrong conclusion and has proceeded to select comparable. On account of this mistake which has occurred it was submitted remand was requested for. In order to facilitate correct appreciation of facts, it was his submission that assessee has filed petition under Rule 29 seeking permission to place additional evidence on record. 6.7. Reading from said petition, it was his submission that TPO has inadvertently considered business of assessee as provider of financial advisory services and has Page 8 of 21 I.T.A .No.-979/Del/2015 erred consequently in comparing assessee with companies engaged in business of stock-broking and companies having different revenue streams such as revenue from sale of shares and brokerages whereas assessee on other hand is company which provides crisis and security consultancy, outsourced security management, crisis response, investigator services, forensics and other risk management consultancy services and this fact is evidence from distribution and Sale Agreement dated 06/01/2010 entered into by assessee with its Associated Enterprises. Copy of re-dacted Agreement with client was attached as additional evidence. Addressing evidence relied upon, it was his submission that assessee is filing redacted copies of certain agreements as illustration to bring out intensive search for relevant information. Addressing peculiar requirements of its clients undertaken as illustration. It was submitted that perusal of same would show that Investigation about correctness of allegations by whistle blower was to be undertaken and was to be carried out on basis of discreet enquiries with sources in industry; on basis of ground interviews into background of company where investment was contemplated by foreign client into background of company with whom interactions were contemplated to ensure that there are no undisclosed commercial, legal, ethical or regulatory issues from international regulatory and compliance perspective including UK Bribery Act and US FCPA etc. additional evidence sought to be placed on record it was submitted would enable tax authorities to appreciate correct facts. For said purpose following documents were sought to be further placed on record over and above copy of Distribution and Sales Agreement already on record:- Page 9 of 21 I.T.A .No.-979/Del/2015 1. Engagement letters along with scope of services provided by applicant to third parties are enclosed as Annexure 1. 2. Invoices raised by applicant on associated enterprise and unrelated third parties are enclosed as Annexure 2. 6.8. Referring to these documents and prayer made on facts, it was submitted that these may be admitted as these are crucial and relevant for determining issue before tax authorities. Reliance was placed upon decision of Jurisdictional Delhi High Court in case of CIT versus Text Hundred India Private Limited 239 CTR 263 (Delhi) pleading that procedures relating to filing of additional evidence is handmaid of Justice and Justice should not be allowed to be choked only because of some inadvertent error or oral omission on part of parties and evidence may be taken into consideration. Reliance is also placed on CIT Vs. Hewlett Packard India: 314 ITR 55 (Del HC); CIT Vs. Chandra Kant Sahu Bhai: 202 Taxman 262 (Del HC); CIT Vs. Betterways Finance: ITA 995 of 2009 (Del HC); Jatia Investment Co V. CIT: 206 ITR 718 (Cal Hon'ble HC); Electra (Jaipur) Ltd. Vs. IAC: 26 ITD 236 (Del ITAT); and Y.W.C. of India Vs. IAC: 29 ITD 620 (Del ITAT). 6.9. Accordingly, it was his submission that by allowing prayer of assessee, issue may be remanded. 7. Considering peculiar facts and circumstances of case Ld. Sr. DR who initially had submitted that fresh evidence may not be taken into consideration. However, considering fact that evidence on record would assist Revenue in correctly characterising taxpayer and issue is not to be decided at this stage and has to go back, it was his submission that he would have no objection if it is admitted and restored to TPO. Page 10 of 21 I.T.A .No.-979/Del/2015 8. We have heard rival submissions and perused material available on record. We find on considering comparables selected and on considering discussion carried out by TPO in his order that conclusions drawn qua characterization need to be re-addressed. We find from discussion carried out in internal page 12 para 5.4 of TPO that general discussion of employee profile for providing business services like accounting, reporting, market support etc. has been undertaken and in para 5.5 TPO has proceeded to consider that service is Financial Advisory Services and not routine service but high end service. We find that instead of specifically addressing employee profile of tax payer TPO has proceeded on general discussion so as to justify conclusion drawn right at outset in para 5.1 that taxpayer is engaged in providing investment and other financial advisory to its AE. said conclusion, it is found is oblivious to profile addressed in para 1 by TPO himself. same is reproduced hereunder for ready-reference:- 1. Taxpayer s profile Control Risk India Pvt. Ltd. company is 100% subsidiary of control risks group holding Ltd., London. During financial year 2009-10, Control Risk India Private Limited for purpose of business of consulting business intelligence services, fraud investigation, etc. entered into cross border transaction with its offshore affiliates. (emphasis provided) 8.1. When above factual narration is considered in light of conclusion drawn and Objections posed before DRP when read alongwith copy of Distributors & Sales Agreement dated 06.01.2010 specific para B of same which has been extracted in earlier part of this order it would show that assessee is engaged in provision of crisis and security consultancy, outsourced security management, crisis response, investigative services, forensics and other risk management consultancy services ( Page 11 of 21 I.T.A .No.-979/Del/2015 Consultancy Services ) in territory in which they operate ( Territory ). When all this is considered in context of Copy of Agreement filed u/Rule 29 of ITAT Rules there appears to be no doubt whatsoever that tax authorities have not correctly appreciated activity of tax payer as result thereof characterization i.e FAR analysis itself is flawed. For ready-reference, we extract Annexure I u/Rule 29 for ready- reference:- We understand that in acquired business of and of brand. At time, was one of leading Indian manufacturers of equipment. As part of acquisition two promoters of company ( ) and ( ) also joined newly formed company and residual business of erstwhile was spun off as .Control Risks was informed that during acquisition promoters signed non-compete agreement with stating that would not enter business for three year period following acquisition and two promoters for five years. In whistle blower made allegations that ( ) supplier to and company reportedly owned by member of family, was manufacturing equipment. whistle blower, in speaking of other suppliers understood that had been placing orders for sub-assemblies used in manufacturing of from other suppliers. Initial research on Ministry of Corporate Affairs ( MCA ) did not reveal listing for this company; however we note that sole proprietorship and partnership firms are not required to register with MCA. Commissioned Control Risks to undertake research into and to establish any initial evidence relating to this matter. Research indicated and is manufacturing and perhaps exporting equipment, while MCA records revealed and both and hold Director positions in at least some of group of companies. As result both parties may be in breach of non-compete agreement signed with. Subsequently would now like to acquire further evidence linking to following summarizes Control Risks proposed approach ( Services ). To accept this approach and instruct Control Risks to proceed with this assignment, please sign and return copy of client acceptance from attached at end of this document. All of Control Risks research is conducted in strict confidence so as not to jeopardizes Client, subject of our research, or any other party. Control Risks agrees to maintain confidentially of all confidential or proprietary information received from Client. Page 12 of 21 I.T.A .No.-979/Del/2015 Scope Control Risks proposes phased approach to this Investigation, as detailed below. Discreet enquiries Control Risks will perform discreet source enquires to provide greater context to information uncovered in first phases; to fill in gaps in pubic record; and to establish any links between and We would conduct discreet enquiries with source within he industry and business community to obtain information relating to and their family members and their business practices. Further, we understand that may not have manufacturing capabilities and that it may be sourcing equipment from. We shall attempt to corroborate this. On the-ground interviews Control Risks will deploy consultants at to interview employees and suppliers to develop greater context around allegations and findings to date. Control Risks understands sensitivities around Investigation and is happy to work with client to develop relevant and appropriate reason for these enquiries. (emphasis provided) 8.2. assessee has also placed following document in support of its (Non- financial) Pre-Investment background due diligence redacted document with client:- Introduction and background This proposal follows emails between. Group Development Manager and Control Risks. Control Risks understands Client is considering investment into in India is founded and managed by and . As such, Client would like Control Risks to undertake in-depth research into background of company and its key principals to ensure there are no undisclosed commercial, legal, ethical or regulatory issues in relation to their backgrounds. Control Risks research would also focus on any issues of concern from international regulatory and compliance perspective, including recently passed UK Bribery Act. Client has indicated that which are not required to register with India's companies house, Ministry of Corporate Affairs. As such, corporate filings including incorporation details and financial information are not available in public domain. However, Control Risks understands that Client has initiated financial due diligence process and may have additional background information. following summarises Control Risks' proposed approach ('the Services'). To accept this approach and instruct Control Risks to proceed with this assignment, Page 13 of 21 I.T.A .No.-979/Del/2015 please sign and return copy of client acceptance form attached at end of this document. All of Control Risks' research is conducted in strict confidence so as not to jeopardise Client, subjects of our research, or any other party. Control Risks agrees to maintain confidentiality of all confidential or proprietary information received from Client. Scope For this assignment, Control Risks proposes multi-phased approach. first phase will involve comprehensive public record research to identify profile of subjects and establish existence of any immediate red flags. In second phase Control Risks will undertake discreet source enquiries to build on and develop information obtained during first phase and focus on reputation and business practices of principals. Phase one: Public record research exact content of our final report will depend in part on issues identified in course of our research, but we would expect to cover following areas: Obtain any available corporate filings, noting that as proprietorship or partnership firm there may not be any publicly-available documents. Identify relevant civil litigation, bankruptcies or judgments involving company or key principals. In addition Control Risks would seek to ascertain whether they have been involved in criminal or regulatory Investigations. Control Risks notes that availability of such information In public record in India varies and is not comprehensive. Please note that in India, it Is not possible to search by individual's name for directorships or shareholdings; however Control Risks will seek to establish other corporate interests for principal through media research in conjunction with corporate-records for any pre-established corporate entities. Undertake thorough searches of English and local language media archives and specialist corporate databases in order to establish public profile of principals and existence of any negative allegations. Identification of any issues of reputational or regulatory concern for Client presented by principal's (rack record, activities and reputation, including; Allegations of illegal or unethical business activities such as involvement In corruption, fraud or abuse of position; Evidence of improper relationships with government officials or individuals of influence; Designation on financial 'blacklists' maintained by domestic or international agencies; Phase two: Discreet source enquiries Control Risks will perform discreet source enquiries to provide greater context to information uncovered in Phase 1; to fill in gaps in (he public record; and to establish reputation and trustworthiness of principals. Page 14 of 21 I.T.A .No.-979/Del/2015 Although scope of our enquiries would depend in part on any issues identified in Phase I, we would expect to cover following key areas in Phase II: Identify and assess impact of any allegations of unethical or illegal business practices, major business disputes, or controversies surrounding principals, which are no? part of public record. Assess professional reputation and perceived integrity of principals, including their track record with other partners, associates and suppliers. Have they been involved in any disputes / litigation? if so, what was their approach and what was outcome? Have there been any allegations or instances of bribe solicitation or payment? If so, what was nature of any such allegations or instances? This is particularly important in context of extra-territorial legislation, including UK Bribery Act and US FCPA. Conduct discreet enquiries with regulatory agencies and government authorities in India to establish whether subjects have come under investigation, including for financial irregularities, where possible. In addition Control Risks will seek to: Confirm or refute any allegations identified in Phase I. Identify any significant commercial, political or family connections maintained by principals and (heir importance to UBM. Other lines of enquiry may emerge during course of our investigation, and would be discussed with (he Client as required. Methodology Public records Public records include press articles, corporate filings, court records, records of central and local government departments and statutory bodies. (emphasis provided) 8.3. Accordingly, considering ratio of decision of Jurisdictional High Court in Text Hundred India Private Limited (cited supra), we find that assessee has successfully demonstrated that since very nature of assessee s business activity has not been correctly understood conclusion drawn for characterisation of assessee suffer from fundamental error wherein TPO has understood assessee on considering TP report filed as being engaged in providing investment and other financial advisory services to its AE. Whereas peculiar facts of case as evident from evidence placed before TPO and tax authorities read along with fresh evidence sought to be placed in proceedings before us whose filing has not been objected to by Page 15 of 21 I.T.A .No.-979/Del/2015 Revenue demonstrates to contrary. We find that taxpayer no doubt undertakes financial services but these are not activities engaged in stock broking; trading; depositaries etc. these are in context of forensic, investigative, risk assessments etc. requiring appreciation of socio-political and geopolitical studies which necessarily impact financials and may be incorporated in financial comparative information provided by various other taxpayers however when coupled with forensic services which taxpayer definitely renders which is evident from extract of redacted agreements entered into by assessee company with its customers nature of activity impacting its FAR needs to be addressed. It is seen that even if nature of activities impact ultimate decision-making qua financial information provided however, by no stretch of imagination assessee can be compared with companies who are trading in shares and investments. Accordingly holding fresh evidences as relevant and crucial to determine issues, fresh evidence is admitted. Support is drawn from decision of Jurisdictional High Court in case of CIT vs Text Hundred India Pvt. Ltd. (cited supra). following extract of said decision is reproduced hereunder:- 13. aforesaid case law clearly lays down neat principle of law that discretion lies with Tribunal to admit additional evidence in interest of justice once Tribunal affirms opinion that doing so would be necessary for proper adjudication of matter. This can be done even when application is filed by one of parties to appeal and it need not to be suo motto of Tribunal. aforesaid rule is made enabling Tribunal to admit additional evidence in its discretion if Tribunal holds view that such additional evidence would be necessary to do substantial justice in matter. It is well settled that procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on part of one of parties to lead evidence at appropriate stage. Once it is found that party intending to lead evidence bfore Tribunal for first time was prevented by sufficient cause to lead such evidence and that this evidence would have material bearing on issue which Page 16 of 21 I.T.A .No.-979/Del/2015 needs to be decided by Tribunal and ends of justice demand admission of such evidence, Tribunal can pass order to that effect. (emphasis provided) 8.4. We further find our conclusion supported by decision of Co-ordinate Bench in case of UCB India Pvt. Ltd Vs. ACIT, Circle 7(3), Mumbai, 121 ITD 131, wherein it is held as under: In all fairness, assessee should not be pinned down to his submissions in first round of Transfer Pricing proceedings. It should be appreciated that Transfer Pricing regulations are relatively new provisions and case does require special consideration. assessee is free to support his case in any manner it deems fit by filing any additional evidence or document before A.O. Further information may be gathered from parent company, if possible. Fresh methods may be adopted to prove ALP. Our intention is that, assessee should not be shut out in second round of proceedings, on ground that, certain documents were not filed in first round or certain method was not adopted originally. (emphasis provided) 9. Accordingly in view of above detailed reasoning on facts and law, issue is restored to file of TPO to carry out FAR analysis of assessee after characterizing its activity on basis of evidence on record and then proceed to selecting comparables as per Rules and in accordance with law. Needless to say that assessee shall be afforded reasonable opportunity of being heard. 10. Addressing Ground No. 3, Ld. AR submitted that issue has been considered by Assessing officer at internal page 3 marked as page 10 and 11 of appeal set:- During year under consideration assessee company claimed interest expenses amounting to Rs. 10,17,083/- on account late deposit of Service tax and TDS vide this office letter dated 18/2/2014 assessee company was requested to provide details of Service tax TDS and also show cause as to why these expenses should not be disallowed being penal in nature. In response assessee company vide letter dated 26/2/2014 submitted as under:- assessee company has paid interest of Rs.10,17,083/- on account of late deposit of Service Tax accounting to Rs.73,132/- and late deposit of TDS Page 17 of 21 I.T.A .No.-979/Del/2015 amounting to Rs.1,43,951/-. It should not be added to income because it is not penal in nature interest was paid suo mouo. Assessee has made late payment of service tax and accordingly it has pay interest u/s 75 of Finance Act 1994 under service tax provisions. ;amount of interest paid for delayed payment of service tax is compensatory in nature and has same character at service tax and it is not in nature of any penalty or fine allowable as expenses u/s 37 of Income Tax Act 1961. submission of assessee has been considered by not acceptable fully. interest paid on late deposit of service tax is accepted and allowed. However, interest paid on late deposit of TDS amounting to Rs.1,43,951/- not allowable. Hence, added to income. In this case draft of proposed order of assessment was passed and sent to assessee. assessee filed objections before Dispute Resolution panel (DRP) against variation proposed to be made in draft order. Dispute Resolution panel has in para 114 of its order dated 14/11/2014 while holding that claim of interest u/s 201(1A) is not allowable deduction has held following:- interest u/s 201(A) has been levied holding taxpayer to be in default and therefore it cannot be said that it was merely compensatory in nature. explanation below section 37(1) was introduced retrospectively to clarify position where otherwise disallowable expenditure were claimed as deduction u/s 37(1) and not to allow claims in situation before panel. When tax itself is otherwise not allowable either u/s 37(1) or u/s 40(a)(ii), interest there upon cannot be allowed. In any case, TDS is made on account of rate or tax levied on profits or gains of any business or profession on transaction covered therein and therefore on this account also interest u/s 201(A) of Act is not allowable in deduction. Under these facts, Panel holds that said claim of interest u/s 201(A) is not allowable deduction. In view of above, disallowance of Rs.1,43,951/- proposed in draft order is being made in final assessment order. -Addition Rs.1,43,951/- 11. Addressing facts it was his submission that these are payments to vendors and section 40(a)(i) does not apply. payment of interest it was submitted is compensatory in nature and not in nature of penalty and since it has been incurred wholly and exclusively for business of assessee, same may be allowed. 12. Ld.Sr.DR relied upon order and said that speaking order has been passed by DRP. Page 18 of 21 I.T.A .No.-979/Del/2015 13. We have heard rival submissions and perused material available on record. We find on considering submissions of parties that in facts as brought on record, no variation in order is called for. Agreeing with following conclusion on facts and law as considered by DRP which has been followed by AO, we reject ground of assessee. relevant extract of DRP s order is reproduced hereunder for ready-reference:- 11.2. perusal of draft assessment shows that during year under consideration taxpayer claimed interest expenses amounting to Rs.10,17,083/- on account late deposit of Service Tax and TDS. AO accepted argument of taxpayer that interest under section 75 of Finance Act 1994 for late payment of service tax is compensatory in nature, has same character as service tax and it is not in nature of any penalty or fine allowable under section 37 of income tax Act 1961. Accordingly, he allowed said interest paid on late deposit of service tax. However, interest paid on late deposit of TDS amounting to Rs.1,43,951/- not allowed and proposed to be added to income. 11.3. Ld. AR of taxpayer submitted that according to provisions of section 37(1) of Act, any expenditure incurred wholly and exclusively for purposes of business is allowable as deduction, provided same was not incurred for purpose of any offence or which is prohibited by law. payment made by taxpayer on account of interest on late deposit of TDS was compensatory in nature. same was not in nature of. penalty for said default. Reliance in this regard is placed on decision of Karnataka High Court in case of CIT v Oriental Insurance Co. Ltd: 315 ITR 102, wherein, it has been held that interest paid under section 201(1A) of Act for late deposit of TDS is compensatory to government treasury and not penal in nature. It is further submitted that interest partakes character of principal in respect of which same is paid. amount of TDS, being part of particular payment is allowable as deduction in return of income as expenses incurred for purposes of business. Therefore, amount of interest paid in respect of late deposit of. TDS also partakes character of expense, which is allowable as expenditure under section 37(1) of Act. 11.4. Panel has examined matter. Hon'ble Supreme Court in case of Bharat Commerce & Industries Ltd. V. CIT [1998] 230 ITR 733/98 Taxman 151 (SC) has held that Interest paid under section 215 for failure to pay advance tax up to statutory percentage would not be allowable as business expenditure u/s 37(1) of Act. Moreover, where taxpayer declared income under Voluntary Disclosure Scheme and tax was paid in installments with interest, interest paid was held not deductible as business expenditure or as interest on borrowed Page 19 of 21 I.T.A .No.-979/Del/2015 capital. In cases of CIT v. Ashoka Mills Ltd. [1996] 88 Taxman 187 / 218 ITR 526 (Guj.) and CIT v. Raipur Manufacturing Co. Ltd [1996] 135 CTR (Guj.) 248, it has been held that interest paid under section 220(2) for late payment of income tax is not deductible as revenue expenditure. In case of Orient General Industries Ltd. V. CIT [1994] 209 ITR 490 (Cal.), Hon'ble Court held that interest for delayed filling of return in not deductible u/s 37(1). court held that it cannot be said that interest paid for delay in filing return has any connection with business of taxpayer. If income taxes is not permissible deduction under section 37, any interest payable for default committed by taxpayer, in discharging its statutory obligation under Income tax Act which is calculated with reference to tax or income, cannot be allowed as deduction. In certain cases, taxpayer had taken loan/ borrowals for payment of taxes and issue before courts was whether interest paid on such loans is allowable deduction or not. In case of East India Pharmaceutical Works Ltd. V. CIT [1997] 91 Taxman 185 / 224 ITR 627 (SC), it was held by Hon'ble Supreme Court that interest that is paid by taxpayer on any sum borrowed by him for payment of income -tax is not deductible from his net income. In case of Aruna Mills Limited vs. CIT [1957] 31 ITR 153 (Bom), Bombay High Court observed that it was difficult to understand how, when business man commits default in discharging his statutory obligation, consequences of that could constitute expenditure exclusively incurred for purposes of his business. interest u/s 201(1A) has been levied holding taxpayer to be in default and therefore, it cannot be said that it was merely compensatory in nature. explanation below section 37(1) was introduced retrospectively to clarify position where otherwise disallowable expenditure were claimed as deduction u/s 37(1) and not to allow claims in situation before Panel. When tax itself is otherwise not allowable either u/s 37(1) or u/s 40(a)(ii), interest there upon cannot be allowed. In any case, TDS is made on account of "rate or tax levied on profits or gains of any business and profession" on transaction covered therein and therefore, on this account also interest u/s 201 (1A) of Act is not allowable in deduction. Under these facts, Panel holds that said claim of interest u/s 201(1A) is not allowable deduction. 11.5. This ground of objection is disposed off accordingly. 12. taxpayer has cited in its submission various judicial pronouncements which have been considered by this panel and are distinguishable from factual matrix in case of taxpayer. Accordingly, detailed description of such analysis is not being reproduced in this order. Page 20 of 21 I.T.A .No.-979/Del/2015 14. In result, appeal of assessee is partly allowed for statistical purposes. order is pronounced in open court on 27th September 2016. Sd/- Sd/- (PRASHANT MAHARISHI) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER *Amit Kumar/Reshma* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR, ITAT NEW DELHI Page 21 of 21 Control Risks India Pvt.Ltd. v. DCIT, Circle-6(2), New Delhi