VIJAY PAL RAO, JUDICIAL MEMBER 
AND RAJENDRA, ACCOUNTANT MEMBER

ORDER

Vijay Pal Rao, Judicial Member - This appeal by the assessee is directed against the order dated 26-03-2014 of ld. CIT(A)- 15, Mumbai for A.Y. 2008-09.
2. The assessee has raised the following grounds of appeal:—

"1.	Under the facts and circumstances of Appellant's case and in law, the learned Commissioner of Income-Tax (Appeal)-15 ['CIT(A)'] grossly erred in upholding addition of Rs.1, 13,21,9021- made by the Ld. Assessing Officer (AO') u/s 92 of Income-Tax Act, 1961 (Act') when the appellant does not fall within the ambit of said section 92 of the Act.
2.	Under the facts and circumstances of Appellant's case and in law, the Ld. CIT(A) grossly erred in holding that the order of Ld. AO u/s 143(3) is legal and valid even though Ld. AO did not issue the mandatory written show cause notice as per 2nd proviso to section 92C(3) of the Act.
	2.1 The Ld. CIT(A) grossly erred in holding that Ld. AO has complied with the provision of 2nd proviso to section 92C(3) in the impugned assessment proceeding in the appellant's case.
	2.2 The Ld. CIT(A) grossly erred in holding that 2nd proviso to section 92C(3) does not mandate service of specific written show cause notice to assessee.
	2.3 The Ld. CIT(A) grossly erred in holding that 2nd proviso to section 92C(3) merely requires an "opportunity of being heard" to be given to assessee and nothing beyond that.
	2.4 The Ld. CIT(A) grossly erred in holding in para 4.6(iv) of his appellate order that the legal infirmity committed by Ld. AO on account of failure of the Ld. AO to afford the appellant the opportunity, which is mandatory in terms of section 92C(3) of the Act, can be cured by the CIT(A) by admitting the additional evidences and thereby this would not violate and make the assessment proceedings invalid.
	2.5 The Ld. CIT(A) grossly erred in applying the provisions of section 292BB of the Act to the facts of the present case of the appellant when the appellant had no opportunity and occasion to raise the subject objection in the course of assessment proceeding because the cause of action has itself arisen upon the completion of assessment on passing of impugned order under section 143(3).
3.	Under the facts and circumstances of Appellant's case and in law, the Ld. CIT(A) grossly erred in holding the Appellant (namely, Kaybee Private Limited) and Kaybee Exim Pte Limited Singapore as associated enterprises (AEs) in terms of section 92A(1) as well as in terms of section 92A(2)(i) of the Act.
	3.1 Contrary to the facts on record, the Ld. CIT (A) grossly erred in holding that Mr. Vikram Chand indirectly holds more than 26% shareholding in Appellant through Mr. Govind Karunakaran.
	3.2 The Ld. CIT(A) grossly erred in holding that just because there is one common director inKaybee Private Limited and Kaybee Exim Pte Limited Singapore during the relevant year, these two are AEs within the meaning of that term in section 92A( 1) of the Act.
	3.3 Contrary to the facts on record, the Ld. CIT(A) grossly erred in holding that the management and control of the Appellant as well as of Kaybee Exim Pte Limited Singapore is common such that they are AEs within the meaning of section 92A(1) of the Act.
	3.4 Contrary to the facts on record, the Ld. CIT(A) grossly erred in holding that the Appellant has not denied that Mr. Deepak Gurnani was not a common director of Appellant and KaybeeExim Pte Limited Singapore.
	3.5 The Ld. CIT(A) grossly erred in not appraising and appreciating the legal position emerging from the Appellants' authenticated and relevant documentary evidences filed before him for the relevant period in the course of appellate proceedings regarding the shareholding and directorship of the Appellant.
	4. Under the facts and circumstances of Appellant's case and in law, the Ld. CIT(A) grossly erred in upholding the arm's length brokerage rate for yarn product at 2% as determined by Ld. AO as against 0.75% actually received by the appellant.
	4.1 The Ld. CIT(A) grossly erred in not appreciating that the comparable instance of 2% brokerage rate adopted by Ld. AO cannot be taken as a comparable instance because its appellant's own alleged international transaction with its alleged AE and hence it does not represent an arm's length price as defined u/s 92F(ii) of the Act.
	4.2 The Ld. CIT(A) grossly erred in rejecting the market driven uncontrolled comparable instances of yarn brokerage rates ranging from 0.5% to 0.75% of shipment value furnished by the Appellant.
	4.3 The Ld. CIT (A) grossly erred in holding that Ld. AO can determine arm's length price based on estimation and best judgment without appreciating that the provisions of section 92C also applies for computation of arm's length price by Ld. AO in terms of section 92C(3) of the Act and that the Ld. AO in the present case of Appellant completely ignored these provisions while determining ALP of yard brokerage rate at 2%.
5.	Under the facts and circumstances of Appellant's case and in law, the Ld. CIT (A) grossly erred in upholding the disallowance of Rs.1, 70,012/- made by Ld. AO in respect of society charges and property tax paid by the Appellant for the premises from where it conducts its business."

3. Ground No. 1 to 3 are regarding the question whether the asessee and Kaybee Exim Pte Limited Singapore are Associated Enterprise (AEs) in terms of section 92A(1)/92A(2)(i) of the Income Tax Act, 1961.

4. The assessee is engaged in the business of running business centre by providing amenities. The assessee has also received service charges/commission charges for making purchase of textiles, yarns etc. on behalf of Kaybee Exim Pte Limited, Singapore. During the course of assessment proceedings, the A.O. noted from the financial statement that the assessee has received a sum of Rs. 77,95,693/- as service charges. The assessee stated that this sum has been received from Kaybee Exim Pte Limited, Singapore for making purchase/procurement of textile and yarn. The A.O. vide notice dated 3-12-2010 u/s 142(1) of the Act asked the assessee to furnish certain details and as to why the assessee and Kaybee Exim Pte Limited, Singapore are not AEs within the meaning of section 92A of the Act. The A.O. found that as per the Website of Kaybee group, M/s Kaybee Exim Pte Limited, Singapore is based in Singapore and as per their various locations, one of the locations is shown in India and the assessee is a representative company ofKaybee group. It was further found that Mr. Kumar Chand is the Chairman, Mr. Vikram Chand, Managing Director, Mr. Suresh Melwani, Vice Chairman, Mr. Deepak Gurnani, Director, Mr. Govind Karunakaran, Chief Operating Office and Mr. Nagendra, Finance Director of Kaybee Exim Pte Limited, Singapore. At the same time, Mr. Govind Karunakaran is one of the Directors of the assessee company and also holding 99.9% of the share holding of the assessee company. The A.O. also examined the record filed before the R.O.C., Mumbai and noted that apart from Mr. Govind Karunakaran, Mr. Deepak Gurnani and Mr. Rajesh Pillai are also Directors of the assessee company. The assessee replied to the notice vide its letter dated 14-12-2010 and submitted that the assessee and Kaybee Exim Pte Limited, Singapore do not fall within the ambit of section 92A of the Act. After considering the list of Directors since its inception, the A.O. held that the assessee and Kaybee Exim Pte Limited, Singapore are AEs in terms of section 92A of the Act. To arrive at the conclusion that the assessee and Kaybee Exim Pte Limited, Singapore are AEs, the A.O. has referred various information obtained from the Website of the Kaybee Group as well as the fact that Mr. Vikram Kumar Chand the promoter of the assessee company transferred his share holding in favour Mr. Govind Karunakaran in the year 2006. Mr. Vikram Kumar Chand is also Managing Director ofKaybee Exim Pte Limited, Singapore. Apart from this, Mr. Govind Karunakaran is Director in both the companies, therefore, the A.O. held that these two companies are AEs in terms of section 92A(1) as well as section 92A(2) of the Act. The assessee challenged the action of the A.O. before the ld. CIT(A) and contended that the assessee and Kaybee Exim Pte Limited, Singapore are not AEs in terms of section 92A of the Act. It was contended before the ld. CIT(A) that Kaybee Exim Pte Limited, Singapore does not hold any direct or indirect share holding in assessee company and neither the assessee holding any share inKaybee Exim Pte Limited, Singapore. Mr. Govind Karunakaran got 99.9% share in the assessee company and one share is held by Mr. Deepak Gurnani but Mr. Govind Karunakaran does not hold any shareholding in Kaybee Exim Pte Limited, Singapore, therefore, there is no direct or indirect shareholding by the assessee company and Kaybee Exim Pte Limited, Singapore in each other carrying 26% voting power. In fact, the assessee has advanced the argument before the ld. CIT(A) that none of the conditions prescribed under clauses (a) to (m) of sub section (2) of section 92A are satisfied, therefore, the assessee and KaybeeExim Pte Limited, Singapore does not fall under the ambit of AEs as per section 92A of the Act. The ld. CIT(A) did not agree with the contention of the assessee and confirmed with the view of the A.O. by holding that the assessee and Kaybee Exim Pte Limited, Singapore are AEs as per provisions of section 92A of the Act.

5. Before us, Shri P. Pardiwala, the ld. Sr. counsel for the assessee has submitted that the conditions as prescribed under s.s. (2) of section 92A are not satisfied, therefore, the assessee and Kaybee Exim Pte Limited, Singapore do not fall under the ambit of AEs as per the provisions of section 92A of the Act. The main emphasis of the argument of the ld. Sr. counsel is that in order to hold the two enterprises as AEs, the condition prescribed under s.s (2) of section 92A are to be satisfied. Thus an enterprise can be an AE of the other as per the terms of section 92A(1) only when any of the conditions prescribed under clause (a) to (m) of s.s. (2) of section 92A are satisfied. He has referred Memorandum of explanation of Finance Bill 2002 reported in 254/190 and submitted that it has been clarified in the Memorandum that the mere fact of participation by one enterprise in the management or control or capital of other enterprise or the participation of one or more person in the management or control or capital of both enterprises shall not make them AEs, unless the criteria specified in s.s. (2) are fulfilled. Thus, the ld. Sr. counsel has contended that the condition stipulated under clause (a) & (b) of s.s. (1) of section 92A have to be read in conjecture with the criteria prescribed in clause (a) to (m), s.s. (2) of section 92A. The ld. Sr. counsel has asserted that post amendment of section 92A vide Finance Act, 2002, the meaning of AE as per s.s. (1) of section 92A is subject to the fulfilment of the criteria specified in s.s. (2) of section 92A. The ld. Sr. counsel has referred to the shareholding of the assessee as well as Kaybee Exim Pte Limited, Singapore and submitted that there is no common shareholding of these two companies, therefore, none of the criteria provided under s.s. (2) of section 92A are fulfilled. The ld. Sr. counsel has referred to various clauses of s.s. (2) of section 92A and submitted that the requirement of two enterprises deem to be AEs has been specified in these clauses and, therefore, these specific criteria are required to be fulfilled. In the case of the assessee, none of the enterprises hold direct or indirect share carrying not less than 26% of voting power in the other enterprise. Similarly, there is no loan, advance or any guarantee furnished by either of the enterprises to the other enterprise. Except one Director, who is in both the companies, the requirement of more than half of the Board of Directors or member of the governing board or one more Executive Director or Executive Member of the governing board of one enterprise has been appointed by the other enterprises are not fulfilled. The ld. Sr. counsel has submitted that the authorities below had applied clause (j) of s.s. (2) of section 92A to treat the assessee and Kaybee Exim Pte Limited, Singapore to be AEs. However, the control of these companies is not in the hands of one individual or his relative or jointly by such individual and relative. Therefore, the assessee and Kaybee Exim Pte Limited, Singapore do not fall within the purview of the expression "AE" as per section 92A of the Act. The conditions stipulated under s.s. (2) of section 92A are to be fulfilled mandatorily to bring the two enterprises under the meaning of "AE". The ld. Sr. counsel has contended that if the provisions of s.s. (1) and s.s. (2) of section 92A are regarded as independent provisions, then it would lead to drastic consequences when the conditions/criteria prescribed under s.s. (2) are not satisfied and still the two enterprises are treated as AEs as per the condition stipulated under s.s. (1) of section 92A. There is no criteria prescribed in sub-section (1) as to how one enterprise would be treated as participating directly or indirectly or through one or more intermediary in the management or control or capital of the other enterprise. Therefore, in order to understand the correct meaning of the term "participation" directly or indirectly in the management or control or capital of the enterprise, the criteria prescribed in s.s. (2) of section 92A have to be taken into consideration.

6. On the other hand, the ld. D.R. has submitted that s.s. (2) of section 92A does not restrict the scope of s.s. (1) of section 92A but it expends the scope of meaning of AEs and, therefore, if the criteria as prescribed under s.s. (2) are satisfied then, the two enterprises which may not be the AEs as per the provisions of s.s. (1) shall be deemed to be AE. In support of his contention, he has relied upon the decision of Mumbai Bench of this Tribunal in the case of Diageo India (P.) Ltd. v. Dy. CIT [2011] 47 SOT 252/13 taxmann.com 62 as well as in the case of Sanchez Capital Services (P.) Ltd. v. ITO [2012] 53 SOT 241 (URO)/26 taxmann.com 61 (Mum). The ld. D.R. also relied upon the orders of authorities below.

7. We have considered the rival submissions as well as relevant material placed on record. The language of section 92A(1) is unambiguous and does not leave any scope of importing any meaning of expression "AE". The question raised before us is whether the meaning of expression "AE" as per s.s. (1) of section 92A is subjected to s.s. (2) of section 92A. The ld. Sr. counsel for the assessee has asserted that the criteria prescribed under s.s. (2) are necessarily be fulfilled for two enterprises to be treated as AEs. For ready reference, we quote section 92A under:—

"92A. Meaning of associated enterprise.— (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise—

(a)	which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or
(b)	in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

(2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,—

(a)	one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or
(b)	any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or
(c)	a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or
(d)	one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or
(e)	more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or
(f)	more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or
(g)	the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or
(h)	ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or
(i)	the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or
(j)	where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or
(k)	where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or
(l)	where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or
(m)	there exists between the two enterprises, any relationship of mutual interest, as may be prescribed."

8. The meaning of AEs as provided under s.s. (1) of section 92A and if the condition provided in clause (a) & (b) of s.s. (1) are independently satisfied then the two enterprises for the purpose of sections 92B to 92E of the Act will be treated as AEs. Sub Sec. (2) of section 92A is a deeming fiction and therefore, it expends/enlarges the scope and meaning of expression "AE" provided under s.s. (1) of section 92A. Since s.s. (2) is a deeming fiction, therefore, it can be applied only in the specific facts of the case where any of the conditions stipulated in the clauses of this sub section are fulfilled. It has no general application in respect of the meaning "AE". Even otherwise, s.s. (1) of section 92A does not begun with the subjective clause "subject to s.s. (2)". The ld. Sr. counsel for the assessee has referred and placed reliance on the Memorandum explaining the provisions of the Finance Bill, 2002 whereby s.s (2) of section 92A has been amended and the clarification is provided as under:—

"The existing provisions contained in section 92A of the Income-tax Act to provide as to when two enterprises shall be deemed to be associated enterprises.

It is proposed to amend sub-section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled."

We have already discussed that s.s. (2) is a deeming fiction and, therefore, the condition/criteria specified therein are required to be fulfilled. As it is clear from the criteria enumerated in clause (a) to (m) of s.s. (2) of section 92A that none of the clauses prescribed any criteria in respect of one enterprise participate directly or indirectly or through one or more intermediaries in the management which is one of the conditions prescribed under clauses (a) & (b) of s.s. (1) of section 92A of the Act. Therefore, even if, for the sake of argument it is presumed that the meaning of AE in terms of s.s. (1) of section 92A has to be understood as per the criteria provided in clause (a) to (m) of s s. (2), the condition of participating in the management directly or indirectly or one or more intermediaries as per clause (a) of s.s. (1) does not get effected by the criteria prescribed under s.s. (2). The Co-ordinate Bench of this Tribunal in the case of Diageo India (P.) Ltd. (supra) had the occasion to consider the meaning of "AE" as per section 92A (1) & (2) in para 10 & 11 as under:—

"10. We find that, in terms of the provisions of section 92A(1)(a), the expression 'associated enterprises' refers to an enterprises "which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise". The scope of 'associated enterprises' is expanded further by section 92A(I)(b), taking into account group concerns, and it is provided that 'associated enterprises' covers an enterprise "in respect of which one or more persons who participate, directly or indirectly or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise." In effect, thus, when same persons participate, directly or indirectly or through an intermediary, in the management or control or capital of two or more enterprises, such enterprises are required to be treated as 'associated enterprise'. Interestingly even as definition of 'associated enterprises' has crucial references to 'participation in management or control or capital' at some places, the precise scope of this expression has not been defined under the provisions of the Income-tax Act, and it has not come up for judicial adjudication either. This expression has been used in Article 9(1) of OECD and UN model conventions, but we find no assistance from the OECD and UN commentaries either. All that the OECD commentary says on the scope of this expression is that it refers to "parent and subsidiary companies and companies under common control". The true test of associated enterprise thus is control by one enterprise over the other, or control of two or more associated enterprises by a common interests, and such a control is essentially an effective control in decision making process.

11. In our considered view, therefore, the definition of associated enterprises in section 92A(1)(a) and (b) is, what can be termed as, basic rule. In plain terms, the basic rule is that when one enterprise participates in the control or management or capital of the other enterprise (directly or indirectly or through one or more intermediaries) or when persons participating (directly or indirectly or through one or more intermediaries) in control or management or capital of two or more enterprises are the same, the enterprises are said to be associated enterprise. The expression used in the statute is 'participation in control or management or capital', but essentially all these three ingredients refer to de facto control on decision making. In terms of the basic rule thus, whether one enterprise controls the decision making of the other or whether decisions making of two or more enterprise are controlled by same interests, these enterprises are required to be treated as 'associated enterprise'. Section 92A(2) gives practical illustrations of this kind of a control. All these illustrations deal with simple situations of dealing with two enterprise, as envisaged in section 92A(1)(a), but these are equally good for application in situations involving more than two enterprise, as envisaged in section 92A(1)(b). Section 92A(2)(e), for example, refers to a situation in which "more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons" but this deeming fiction is equally applicable when the same person appoints, say, more than half of the directors of the governing board for three or more enterprises. A literal interpretation to this clause will mean that if this relationship is between two enterprises, these two enterprises are required to be treated as 'associated enterprises' but when the same basis extends to more than two enterprises, these enterprises will not be associated enterprises. That is clearly an incongruous result. In our considered view, as all clauses of deeming fictions set out in section 92(2) are only illustration of the manner in which this de facto control on decision making exists. It is necessary that, while interpreting these deeming fictions, we interpret the same in such a manner as to make them workable rather than redundant (ut res magis valeat quam pereat), and that the same test of effective control on decision making as are implicit. In deeming fiction under section 92(A)(2) we also apply to the situations of more than two associated enterprises envisaged in section 92A(1)(b). In this light, let us analyse the situation before us. The manufacture of goods is carried out by the CBU Konkan Agro, which is controlled by the assessee inasmuch as the CBU is wholly dependent on the use of trademarks in respect of which the assessee has exclusive rights. This relationship meets the test of de facto control on decision making as set out in section 92A(2)(g). The assessee in turn, as evident from information in Form 3CEB, is controlled, by way of equity participation, by Diageo PLC which also similarly controls other entities in the Diageo group, including the entities from which CBU has imported the raw materials. Diageo PLC thus, through the assessee as an intermediary, controls the CBU as also the Diageo group entities from which the CBU has imported raw materials. Clearly, therefore, the assessee, as also the CBU and its Diageo group supplier of raw materials are associated enterprises, and de facto all these enterprises are controlled, directly or indirectly or through intermediaries, by the same person i.e. Diageo PLC. In this view of the matter, as also bearing in mind entirety of the case, the relationship of AEs exist between the assessee, the CBU and Diego group entities from which raw materials were purchased by the CBU. In any case, since the costs of all the raw materials is picked up by the assessee for all effective purposes. The transaction is actually between the assessee and the Diageo group concerns supplying the raw material to the CBU, and since the assessee as also these vendors are admittedly under the control of Diageo PLC, the transactions are clearly between the associated enterprises. The objection raised by the assessee to the effect that the transactions of imports of raw material by the CBU, i. e. Konkan Agro, from Diageo group entities cannot be treated as international transactions between the associated enterprises, therefore, is rejected.'

The Tribunal was of the view that all the clauses of deeming fictions set out in section 92A(2) are only illustration of the manner in which this de facto control on decision making exists. We will now examine the facts of the case in hand in the context of the requirement of one enterprise participate directly or indirectly or through one or more intermediaries inter alia in the management of the other enterprise as per clause (a) & (b) of s.s. (1) of section 92A. The assessee has given the position of the Directors and shareholders of the assessee and Kaybee Exim Pte Limited, Singapore during the financial year 2007-08 relevant to the assessment year under consideration at page 97 of the paper book as under:—

Directors	Kaybee India Pvt. Ltd.[Yes/No]	Kaybee Exim Pte Ltd. [Yes/No]
1. Mr. Deepak Gurnami	Yes - Director	No
2. Mr. Govind Karunakaran	Yes - Director	Yes - Director
3. Mr. Suresh Chand Gupta	Yes - Director	No
4. Mr. Vikram Chand	No	Yes – Director
5. Mr. Kumar Kishinchand Gajwani	No	Yes - Director

Shareholders	Kaybee India Pvt. Ltd.	Kaybee Exim Pte Ltd. [% of holding
	No. of :  % of Shares :  holding
1. Mr. Govind Karunakaran	999 shares: 99.9%	0%
2. Mr. Deepak Gurnami	1 share : 0.1%	0%

From the above details, it is seen that Mr. Govind Karunakaran is a Director in the assessee company and also a Director in Kaybee Exim Pte Limited, Singapore. He is also holding 99.9% of shareholding in the assessee company. The A.O. has recorded the facts regarding the position of the Management/Director in the Kaybee Exim Pte Limited, Singapore as under:-

Sr No.	Name (as per ROC filing)	Date of appointment (as per filing)	Designation in Kaybee Pvt. Ltd (as per ROC filing)	Designation in Grupokaybee as www.kaybeegroup
1	Shri Vikram Kumar Chand	07.05.1993	Chairman cum Managing Director	Managing Director
2	Shri Deepak Atmaram Gurnami	07.05.1993	Director	Director
3	Shri Govind Karunakaran	19.02.1996	Director	Chief Operating Officer
4	Shri Nagendra Kumar Rallaoalli	19.02.1996	Director	Finance Director
5	Shri Suresh Chand Gupa	18.08.1997	Director	--

There is no denial of the fact that Mr. Govind Karunakaran is Director and 99.9% shareholder of the assessee company and also is a Director and Chief Operating Officer of Kaybee Exim Pte Limited, Singapore. Therefore, Mr. Govind Karunakaran is not only participates in management of both the companies by he is holding the key position in the management of Kaybee Exim Pte Limited, Singapore and is part of decision making process of the said company since 1996. Shri Govind Karunakaran is a common director in both the company and participating in the management of both the companies not for the name sake but he is holding the key position in taking decision being a Chief Operating Officer of Kaybee Exim Pte Limited, Singapore and almost the entire shareholding of the assessee company, therefore, the condition of one enterprise participates directly or indirectly or through one or more intermediaries in its management or control or capital as prescribed under clause (a) & (b) of s.s. (1) of section 92A is satisfied. Hence, the assessee and Kaybee Exim Pte Limited, Singapore falls under the meaning of AEs as per the provisions of section 92A.

9. Ground No. 4 is regarding TP adjustment on account of service charges/commission received by the assessee in respect of procurement of yarn on behalf of Kaybee Exim Pte Limited, Singapore (AE).

10. During the year under consideration, the assessee has received service charges/commission fromKaybee Exim Pte Limited, Singapore (AE) qua purchase of fabrics and yarn on behalf of AE. The assessee received 2% commission towards purchase of fabric/textile and .75% towards purchase of yarn. The A.O. has accepted the commission @ 2% received by the assessee towards purchase of textile/fabric, however, the commission received by the assessee in respect of procurement of yarn on behalf of AE was determined by the A.O. at 2% as arm's length price. The A.O. has adopted the commission of 2% received by the assessee on purchase of textile as arm's length price of the commission received by the assessee on purchase of yarn. The assessee has objected the action of the A.O. and contended before the ld. CIT(A) that the prevailing market rate of the commission for procurement of yarn is ranging from 0.5% to 0.75%. In support of the claim, the assessee has submitted a certificate/letter issued by the Shree Solapur Yarn Merchant Association. Since this letter was produced for the first time before the ld. CIT(A), therefore, the ld. CIT(A) issued a remand order and asked the A.O. to submit the remand report. The A.O. objected for the admission of the additional evidence. The ld. CIT(A), though, admitted the additional evidence, however, did not accept the rate provided in the said letter on the ground that the letter was issued by the Shree Solapur Yarn Merchant Association on 21-11-2011 and, therefore, it does not pertain for the assessment year under consideration. The ld. CIT(A) accordingly confirmed the arm's length price adopted by the A.O. and the consequent adjustment.

11. Before us, the ld. Sr. counsel for the assessee submitted that though the said letter was issued by Shree Solapur Yarn Merchant Association on 21-11-2011 but the rates confirmed in the said letter were prevailing in the assessment year under consideration. He has further submitted that to clarify this, the assessee has now submitted a fresh letter issued by Shree Solapur Yarn Merchant Association on 8.1.2015 wherein it has been confirmed that the rate of brokerage was prevalent during the F.Y. 2007-08. Thus, the ld. Sr. counsel for the assessee has pleaded that this letter can be admitted as additional evidence in support of the claim of the assessee. He has further contended that the A.O. has adopted the arm's length price without conducting any exercise as per the provisions of Chapter of the Act. Even otherwise the rate of commission for procurement of textile cannot be compared with the rate of commission for procurement of yarn. Thus the ld. Sr. counsel has submitted that the arm's length price adopted by the A.O. cannot be considered as an uncontrolled comparable price.

12. On the other hand, the ld. D.R. has submitted that the assessee has not furnished the relevant record and TP study analysis, therefore, the A.O. had no option but to estimate the arm's length price. He has relied upon the orders of authorities below.

13. We have considered the rival submissions as well as the material placed on record. The arm's length price in relation to an international transaction shall be determined by any of the method prescribed u/s 92C of the Act, therefore, in order to determine the arm's length price, the comparable uncontrolled price has to be considered as per the appropriate method applied in a particular case. In the case in hand, the A.O. has not determined the arm's length price by taking into consideration an uncontrolled price or uncontrolled transaction. The A.O. has adopted the price being the commission received by the assessee in respect of textile procurement from its AE for the purpose of arm's length commission for procurement of yarn, therefore, the price/transaction adopted by the A.O. is not an independent or uncontrolled price or transaction but it was a controlled transaction between related parties. Hence, the arm's length price adopted by the A.O. is not sustainable as per the provisions of the Act. Accordingly, we set aside the orders of the authorities below in respect of adopting the arm's length commission towards procurement of yarn and remit the issue to the record of the A.O. for determination of the same afresh as per law after considering the additional evidence filed by the assessee. Needless to say the assessee may be given appropriate opportunity of being heard before deciding the issue.

14. Ground No. 5 is regarding disallowance of society charges and property tax paid by the assessee.

15. The assesse has taken on rent the premises at Madhava Building and used the same for its business purpose. The assessee paid Rs. 1,70,012/- as property tax and society charges for the said premises. The A.O. disallowed the property tax and society charges on the ground that it is not the liability of the assessee as per the agreement between the owner and the assessee. The A.O. has also relied upon the order of the CIT(A) for A.Y. 2004-05 wherein a similar disallowance was made. The assessee though challenged the action of the A.O. before the ld. CIT(A) but could not succeed.

16. Before us, the ld. Sr. counsel for the assessee has submitted that the amount of property tax and society charges is an allowable deduction u/s 37(1) of the Act because the same are paid by the assessee in respect of the premises used for the business of the assessee. There is no dispute that the assessee has paid these charges as per the understanding with the owner of the property and, therefore, it is the liability of the assessee. The ld. Sr. counsel further contended that for A.Y. 2004-05, the assessee did not challenge the order of the CIT(A) for the reason that the amount involved in the said year was very small and it was only disallowance in the said year, therefore, by considering the fact that the expenditure for filing the appeal before the Tribunal would have been much more than the tax liability on the said amount of disallowance on account of property tax and society charges. He has further contended that when the assessee has disputed the disallowance even for the A.Y. 2004-05 but the same was confirmed by the ld. CIT(A) would not operate as res judicata for the year under consideration. He has relied upon the decision of the Hon'ble Supreme Court in the case of Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/1 Taxman 485 and submitted that for allowing deduction u/s 371(1), it is not the condition that the expenditure must be necessary for the assessee. Once the assessee has incurred the expenditure wholly and exclusively for the purpose of business, it is entitled for deduction.

17. On the other hand, the ld. D.R. has submitted that the assessee has failed to prove that the assessee was under obligation to incur the said expenditure. If the assessee is making the payment on behalf of the owner, it cannot be allowed as business expenditure. The ld. D.R. has further submitted that when the facts and circumstances of the case for the year under consideration are identical to that of A.Y. 2004-05, then, as per Rule of Consistency, the assessee cannot challenge the disallowance made on this account.

18. We have considered the rival submissions as well as the relevant material placed on record. The A.O. has disallowed the claim of property tax and society charges on the ground that the lease agreement is silent on this ground. When the assessee has made the payment of property tax and society charges for the premises used for the business of the assessee, then, in the absence of any facts or material brought by the A.O. on record that the said payment was made by the assessee contrary to the terms and conditions of the agreement or on behalf of the owner of the property, then, the A.O. has proceeded only on the assumption and not on any tangible material or fact. Though the issue was decided by the Commissioner for the A.Y. 2004-05, however, the said order was not challenged before the Tribunal. We find that neither the A.O. has conducted the enquiry nor the assessee has produced any evidence in support of the claim that this payment was made by the assessee as per the mutual understanding. This issue required proper examination and verification. Accordingly, we set aside this issue to the record of the A.O. to decide the same afresh de horse the order for the A.Y. 2004-05. The assessee is directed to produce the relevant record and evidence in support of the claim that the payment of property tax and society charges were made under the mutual understanding with the owner of the property.

19. In the result, appeal filed by the assessee is partly allowed.