Reimbursement of Cost of Expenses for AE is not Business receipt. However even a free service maybe an Transaction International requiring benchmarking [Sec 92C of ITA'61 - Sec 165 of ITA'25]

Many a times Associates send employees to their group companies and recover the cost of travel, salary costs and other actual costs from the AEs. This is also routed through an 'advance ledger' or similar other ledger and is not at all considered as a P/L Item. The question is that whether the mere fact that this transaction is with a AE would bring into question the aspect of Fair valuation or would this pass though receipt be considered as an item which is mere reimbursements and hence not a business receipt itself. The ITAT Hyderabad in the case of M/s. Ocimum Bio Solutions (I) Hyderabad Versus Asst. Commissioner of Income Tax, Circle 16 (2), Hyderabad - 2023 (5) TMI 64 - ITAT HYDERABAD, did agree with the assesse that a TP adjustment cannot be made where mere reimbursement of the expenditure is received from an AE. However, this could be possibly contested in future by The CBDT in as much as the very fact that no income is generated from a business transaction would make it clear that it was not at Arm's length price. Businesses thus should keep some margin herein which would be an acceptable as per market standard. Such margin in the form of fees may thereafter be offered for tax. Similarly in the case of Corporate guarantee, while Assessees can argue that transaction relating to issue of corporate guarantee does not involve any costs to assessee and does not fall within scope of term 'international transaction', yet Courts have ruled that Corporate guarantee is an international transaction requiring benchmarking and In Glenmark Pharmaceuticals Ltd., Bombay High Court considered issue in a wider canvass.