2019 (1) TMI 1951 - AT - Income Tax

Tribunal directs Transfer Pricing Officer to apply consistent margins for US and non-US transactions

Textron India Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Circle 12 (4)

Textron India Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Circle 12 (4) - TMI Issues Involved:1. Applicability of Mutual Agreement Procedure (MAP) proceedings to non-US transactions.2. Treatment of lease expenses as capital or revenue in nature.3. Disallowance of reimbursement of salary expenses.4. Treatment of SAP implementation charges as capital or revenue expenditure.5. Computation of deduction under Section 10A.6. Non-deduction of TDS under Section 194J for bandwidth charges.7. Exclusion of telecommunication, insurance, and foreign traveling expenses from export turnover.8. Exclusion of comparable companies based on size and turnover for transfer pricing.Detailed Analysis:1. Applicability of MAP Proceedings to Non-US Transactions:The assessee accepted the MAP resolution for US transactions and proposed applying the same margin to non-US transactions. The Tribunal referenced the decision in J.P. Morgan Services P. Ltd. and CGI Information System & Management Consultants Pvt. Ltd., concluding that the same margin should be applied to non-US transactions. The ground was allowed for statistical purposes, directing the TPO to apply the same margin.2. Treatment of Lease Expenses:The assessee claimed lease expenses as revenue expenditure, but the AO treated them as capital in nature. The Tribunal noted the lack of evidence to substantiate the claim that the lease was non-financial. The issue was remitted to the AO for verification of the financial lease agreement and tripartite agreement.3. Disallowance of Reimbursement of Salary Expenses:The assessee claimed reimbursement of salary expenses for its managing director, which was disallowed by the AO. The Tribunal noted that the CIT(A) had not verified the appointment of the managing director with evidence. The issue was remitted to the AO for verification and examination, considering the Special Bench's decision.4. Treatment of SAP Implementation Charges:The assessee claimed SAP implementation charges as revenue expenditure, arguing that the project was not implemented. The Tribunal held that since the project was not implemented, the expenses could not be considered revenue expenditure. The alternative ground for allowing depreciation was also dismissed, confirming the CIT(A)'s action.5. Computation of Deduction under Section 10A:The revenue challenged the exclusion of telecommunication, insurance, and foreign traveling expenses from both export and total turnover. The Tribunal upheld the CIT(A)'s decision, following the jurisdictional High Court's precedent in Tata Elxsi Ltd., dismissing the revenue's ground.6. Non-Deduction of TDS under Section 194J:The AO disallowed expenses for non-deduction of TDS on bandwidth charges, treating them as technical services. The CIT(A) ruled in favor of the assessee, stating that the services did not involve human interface and were not specific contractual services. The Tribunal affirmed the CIT(A)'s decision, dismissing the revenue's ground.7. Exclusion of Telecommunication, Insurance, and Foreign Traveling Expenses:The Tribunal agreed with the CIT(A) that these expenses should be excluded from both export and total turnover for computing deduction under Section 10A, following the High Court's decision in Tata Elxsi Ltd.8. Exclusion of Comparable Companies Based on Size and Turnover:The revenue's appeal on excluding comparable companies based on size and turnover for transfer pricing was deemed irrelevant due to the assessee's adoption of MAP. The Tribunal dismissed this ground.Conclusion:The assessee's appeal was partly allowed for statistical purposes, while the revenue's appeal was dismissed. The cross-objection filed by the assessee was also dismissed as infructuous. The Tribunal's order emphasized the need for verification and adherence to judicial precedents in addressing the issues raised.